Matthew Yglesias's Blog, page 2457

Endgame

A lifetime's earnings:

— Finance is earning money by doin' work.

— No it's not.

— I probably shouldn't have posted my pure ripoff hypothesis post during Christmas break.

— Former Australian PM says higher education is an "excuse" used by young women to evade their obligation to procreate.

— Bank of America has been "aggressively registering domain names including its board of Directors' and senior executives' names followed by 'sucks' and 'blows.'"

PJ Harvey, "Written On the Forehead".

Drug Legalization and the Labor Market

Via Ta-Nehisi Coates, John McWhorter is very enthusiastic about the ability of drug legalization to improve the state of black America. I think there's a lot to be said for laxer drug laws, but this strikes me as too optimistic:

If there were no way to sell drugs on the street at a markup, then young black men who drift into this route would instead have to get legal work. They would. Those insisting that they would not have about as much faith in human persistence and ingenuity as those who thought women past their five-year welfare cap would wind up freezing on sidewalk grates.

There would be a new black community in which all able-bodied men had legal work even in less well-off communities–i.e. what even poor black America was like before the '70s; this is no fantasy. Those who say that this could only happen with low-skill factory jobs available a bus ride away from all black neighborhoods would be, again, wrong. That explanation for black poverty is full of holes. Too many people of all colors of modest education manage to get by without taking a time machine to the 1940s, and after the War on Drugs black men would be no exception.

I think the analogy to "welfare reform" is apt. Welfare reform seemed to be working great in the 1997-2000 period. Then it seemed to be working not as well in the 2001-2007 period. Then in the 2008-2010 period it seems to be working terribly. That's because labor market conditions shifted. If black men currently earning black market drug incomes lost that opportunity, it's true that some of them would find jobs in the legitimate workforce. But unemployment would still be really high, working class unemployment would still be really high, African-American unemployment would still be really high, and working class African-American unemployment would still be really really high. It's just not within people's power to conjure up intense demand for labor from low-skill individuals with spotty history's in the legitimate workforce. If a guy walks through your door and says "I'm 25, I didn't finish high school, and I've never held a legitimate job" you'd have to be a bit nuts to offer him a minimum wage job when there are so many other jobless people out there you could try to hire.

Very few of the years between 1980 and 2010 have featured "full employment" macroeconomic conditions. If you look at any particular set of people facing a bad labor market situation, there are going to be some good reasons why those people rather than some other people are the ones getting the short end of the stick. But it's dangerous to take your eyes off big picture conditions.

New Year's Weight Loss Advice

It's come to my attention that many people make New Year's resolutions to lose weight. I didn't do that in 2010, but I did weigh almost 250 pounds on March 1, 2010 and this morning I weighed 180 pounds which goes to show that it's possible to lose weight. So I thought this might be an opportune day to share some advice.

For me the saga began, appropriately enough, with the decision to pay for a few sessions with a personal trainer since I felt I wasn't really getting much value out of my workouts. The trainer made a very persuasive admission against interest that if I was interested in losing weight I wasn't going to achieve a huge amount working with him. Serious athletes obviously burn a ton of calories, and even modest amounts of regular exercise are good for you, but it's just extremely difficult to burn a large number of calories in a short period of time. What's more, people who burn more calories normally get hungrier. You need to reshape your whole relationship to food.

For me that meant first and foremost getting really serious about counting calories. You need to look up how many calories you likely burn in a day. And how many calories you would burn if you were at your goal weight. And you need to work out a planned pace of weight loss and figure out how many calories that leaves you to work with. On top of that you have to realize that you're going to be eating calories you can't count a certain amount of the time (over at a friend's house for dinner, say) and it'd be smart to assume that you'll overshoot on those occasions. Consequently, your target needs to be pretty aggressive, especially at first. Then you've got to start looking up how many calories are in things. Since you presumably don't want to be agonizingly hungry all the time, you should start by really rigorously reducing your liquid calories. Black coffee, water, and Diet Coke are your friend. In terms of booze, try to go for straight liquor rather than beer and if you must drink beer drink Miller Lite, which has the highest alcohol/calorie ratio (another way of saying it's basically water).

You need to start seeing which eateries in your area publish nutritional information and start studying this stuff. That's for two reasons—one is that you need to know. The other is that based on what you observe you can make inferences about the calorie count of food at other places. I found a lot of this stuff to be really unintuitive or at least non-obvious.

In terms of cooking for yourself, you also need to count. I find that a pernicious semi-myth has arisen that cooking for yourself at home is healthier than eating out. Obviously, there are things that are true about that. But it's also a bit of a puritan fallacy—losing weight requires some self-sacrifice, and so does eating out less. It turned out when I looked at it that, in practice, I was cooking a lot of awfully high calorie stuff for myself. That's largely because I like the food that I cook for myself, so I was cooking (and eating) a lot of it. It was also in part an aversion to "waste." If you're cooking for one or two people, a lot of the stuff the sell in the supermarket comes in portions that are too big. There are lots of ways around this, including freezing the excess, saving leftovers for the next day, etc. But if you're a person like me who has trouble with food related self-discipline, remember that it's perfectly legal to throw a perfectly good chicken thigh in the trash if the pack of thighs you bought contains more chicken than you want to eat.

Pay attention to your snacking. I was snacking like a madman, it turns out.

In exercise terms, I've found it helpful to try to incorporate more physical activity into my everyday life. I started trying to walk faster when I go places. I work on the 10th floor, but I use the restroom on 11. I walk up the stairs in the morning to my office, and I usually walk up the stairs (3rd floor) to my apartment.

Weigh yourself once a day, at the same time of day, and keep track. Try not to drive yourself crazy by doing it more often than that.

Last: Travel. It's hard to keep this up when you're traveling. Certainly, I could have made faster progress were it not for the trips to China, Israel, Mexico, Germany, Vegas, Maine, California (twice), New York City (twice), and New Haven during the relevant period. That said, I traveled a lot and got the job done. So it's possible. If you need to throw your regimen out the window for a week or a weekend, then so be it, you'll take up where you left off when you get back. But common sense doesn't go out the window. Just because you're in Ramallah doesn't mean you need to munch on crackers while blogging.

So that's my advice to you, and I'd be grateful for advice from those who've achieved significant weight loss in the past about how to shift gracefully into "keep it off" mode.

Pending Commercial Real Estate Doom

There's an organization with a floor in the same building as CAP/AF called the "Institute for International Finance" and I sometimes wonder what it is they do. According to Gillian Tett they release alarming reports about commercial real estate. She starts with the observation that there's been a lot of "extend and pretend" in the CRE world and continues:

[L]ook at some numbers compiled by the Institute of International Finance, the Washington-based banking lobby group. The IIF calculates that in March 2008, there was about $25bn worth of pre-crisis investment grade commercial real estate in distress. By March this year, however, that number had exploded to $375bn (and has probably swelled since).

Thus far, the banks have "dealt with potential delinquency problems in part by extending loans until 2011-13", the IIF notes. Or, in layman's terms, they have swept it under the carpet. But while this avoided defaults, the IIF reckons that about $1,400bn of CRE loans must be refinanced before 2014. Alarmingly, "nearly half of these are at present 'underwater', ie have mortgages in excess of the current value of the property", it adds.

What's more, while homeowners have been subjected to major moral suasion campaigns to get them to avoid strategic defaults, commercial property is owned by rich businessmen who'll be expected to act like rich businessmen and try to maximize profits. The big losers here are likely to be European banks, as well as America's gigantic "small banks" sector. Of course if we get adequate action to try to push growth back up we may be able to mitigate some of this.

Peak Oil

In the requests thread, a number of people wanted me to comment on "peak oil." The main thing I have to say about this is that I don't totally grasp the alleged significance of reaching a global production peak. It seems to me that to generate the conclusion of big time oil price spikes you only need the assumption that oil production will grow at a persistently slower rate than the world economy.

That seems to me to basically describe our current situation. I think there's insufficient attention paid to the possibility that if the US/EU/Japan were to return to anything resembling full employment the response would be a giant oil price spike leading to a new recessionary contraction in highly oil dependent economies (i.e., the USA).

You've always got to distinguish, though, between shorter-term and longer-term impacts. The technology exists right now to build automobiles that are radically more fuel efficient than the average car on the road today in the USA. Oftentimes this technology is known as "buy a lighter vehicle" to say nothing of hybrids, etc. Cars are expensive, so in the short-term a price spike just leads to hardship and recession. But in the medium-term persistent high prices will lead to more efficient vehicles and in the longer-term persistent high prices will lead to even more R&D on electric cars. So in the long-run, you could say I'm an optimist about resource scarcity. What I'm a pessimistic about is air travel, which seems much more doomed than people generally realize.

What I'm also a pessimist about is climate change. The "easiest"/laziest policy response to persistently high oil prices is to freeze in place all our current policies that explicitly or implicitly subsidize sprawl, car ownership, and car use and then slather a bunch of subsidies for electrification of the vehicle fleet on top of that, with the electricity provided by dirty coal-fired plants. Note that if your electrification subsidies spur sufficient increases in the demand for electricity, it'll be possible to pair generous subsidies for renewable electricity with increased demand for coal, thus "solving" the political economy problem without really solving anything.

As you know, my preferred approach would be to instead attack this problem at the root—land use regulations that lead everything to be inefficiently far apart and that prevent the built environment to adapting to changes in objective economic conditions.

Peak Driving

Via Tyler Cowen, it seems that "Most of the eight countries in the study have experienced declines in miles traveled by car per capita in recent years. The U.S. appears to have peaked at an annual 8,100 miles by car per capita, and Japan is holding steady at 2,500 miles."

This is at least a little suggestive to me of the growing problems with the general failure of the world to use congestion pricing on its roads.

Parking As Externality

(cc photo by markjms)

Kevin Drum stands up for minimum parking regulations:

Requirements in cities and suburbs vary, but here in the burbs the general idea behind parking regulations is to make businesses pay for their own externalities instead of fobbing them off on other people. If I provide parking for my customers, and someone opens up next door and decides not to bother, then his customers will take up all my spots. If neither one of us provides enough parking because there's a neighborhood nearby, then our customers will take up street parking that owners of existing houses have paid for and are accustomed to using. In both cases, there are people who would like to regulate parking in order to make life more convenient and prevent free riding.

I don't genuinely care if suburbs want to have mandated minimum parking since I don't think it's a big deal in that case, but I think this is an abuse of the concept of an "externality."

Suppose Kevin buys some land. Then he decides to allocate some of the land to his store, and some of the land to a large parking lot next to his store. Now Kevin owns two things of value, he owns a store and he owns a large parking lot. Then suppose I buy the land next to Kevin's lot and I choose to allocate the vast majority of the land to my own store, and only provide a tiny amount of parking. Now like Kevin, I also own two things of value—I own a store and I own a small parking lot. Now further suppose that my store is incredibly popular, and so many people want to park there that tons of my customers want to park in Kevin's lot. Is this really a "negative externality" that I've imposed on him? It doesn't seem that way to me. I've increased demand for space in Kevin's parking lot and Kevin, as the owner of the parking lot, is well-positioned to capture 100 percent of the value of that increased demand for space. More generally, if you imagine whole towns or counties without parking mandates what you would expect is that many entrepreneurs would operate parking lots and parking garages for profit taking advantage of the demand for parking being created by other people's business activities.

What regulations are achieving isn't really to "internalize" an "externality" it's to make parking free. But in places where land is expensive (not just cities, but also many suburbs and small town downtowns), regulations that mandate free parking are mandating a very economically and ecologically inefficient use of precious space.

How Rich Is Mark Zuckerberg?

The answer keeps shifting:

Facebook, the popular social networking site, has raised $500 million from Goldman Sachs and a Russian investor in a deal that values the company at $50 billion, according to people involved in the transaction. [...] In a rare move, Goldman is planning to create a "special purpose vehicle" to allow its high-net-worth clients to invest in Facebook, these people said. While the S.E.C. requires companies with more than 499 investors to disclose their financial results to the public, Goldman's proposed special purpose vehicle may be able get around such a rule because it would be managed by Goldman and considered just one investor, even though it could conceivably be pooling investments from thousands of clients.

Once again we're watching regulatory arbitrage in action as Facebook seeks loopholes around the rule that prevents it from having more than 499 investors without opening its books. But this is also, I think, a reason to believe it would be better to levy a consumption tax with a highly progressive rate structure instead of our current income tax with a modestly progressive rate structure. One can count how much money Mark Zuckerberg is spending in any given year and more or less what he's spending it on. The ups-and-downs of his notional fortune, by contrast, are pretty unstable and depend in part on things like whether or not Goldman Sachs wants to buy Facebook shares at an inflated value in order to capture a potentially valuable middleman role for itself. This means it would be technically and economically feasible to levy very very high marginal rates on extremely extravagant consumption in a way that's just unworkable with investment income.

In bonus rich people news, apparently upper class have less empathy than normal people.

Inclusionary Zoning

On the requests thread, Erik M wrote:

I'd like to see you grapple with the idea of mixed-income housing (achieved by regulating a minimum number of affordable housing units in new developments, or otherwise). It seems to me like different parts of your philosophy should make you favor and oppose this at the same time, but so far I've mostly seen you opposing it, and too briefly.

I'd like to say this as clearly and unequivocally as possible: I strongly support the idea of mixed-income neighborhoods. I live in a mixed-income neighborhood now, I lived in a mixed-income neighborhood before I moved to this one, and I lived in another mixed-income neighborhood before I moved to that one. The right way to think about my advocacy for allowing higher density construction is that this will promote more mixed income neighborhoods. Eliminating mandatory minimum parking requirements will promote more mixed income neighborhoods. Expediting the approval process for launching new retail businesses will also promote more mixed income neighborhoods. Increasing the quantity of urban housing stock and tolerating diminution of the quality of the urban housing stock (i.e., more units with no access to parking, or more units in locations that are "noisy") is the lodestar of my thinking about urban development policy. If you're not for more housing units, some of which will have fewer amenities than existing housing units, then you're not for making housing more affordable and you're not for mixed-income neighborhoods.

Now I take it that the spirit of the question wasn't about this and was instead about "inclusionary zoning" laws. I think these rules are difficult to assess in general, because it depends what the baseline is. Oftentimes you see a law that says "if you want to build multi-unit developments in such-and-such an area you need to provide blah blah percentage of the units at an 'affordable' rate defined as meaning blah blah percentage of area median income." Is that a good idea? Well it's a terrible idea if the actual impact is simply to make it unprofitable for developers to build multi-unit structures so we get non-affordable low-density single-family units instead. But it is a good idea if the realistic alternative to the law is to simply do what the majority of American jurisdictions do with the majority of their land and simply ban multi-family dwellings.

Depending on context, inclusionary zoning rules can be a step forward or a step backwards relative to what existed previously or might conceivably exist in the future. But the bottom line is that you make housing more affordable by reducing the market price of rent. That means some mix of liberalizing the rules about what market forces are allowed to make, and directly subsidizing the construction of new housing with taxpayer funds.

Duncan Eyes K-12 Education Reauthorization

You can expect to see plenty of gridlock from the 112th Congress but traditionally it hasn't been the case that divided government gets nothing done (see Mayhew, Divided We Govern: Party Control, Lawmaking, and Investigations, 1946-2002, Second Edition and Fiorina, Divided Government) though It hink the jury's still out on whether that result holds up in a more polarized age. If it does hold up, my guess is that the prospects for action are best on two fronts—the long-stalled reauthorization of the main federal transportation finance law (SAFETEA-LU) and the long-stalled reauthorization of the main federal K-12 education law (ESEA/NCLB).

Today in the Washington Post, education secretary Arne Duncan pitches his ideas for tweaking the Elementary and Secondary Education Act:

That is why many people across the political spectrum support the work of 44 states to replace multiple choice "bubble" tests with a new test that helps inform and improve instruction by accurately measuring what children know across the full range of college and career-ready standards, and measures other skills, such as critical-thinking abilities.

NCLB's accountability provisions also prompted many states to lower standards, but governors and legislators from both parties in all but a handful of states have rectified the problem by voluntarily adopting higher college and career-ready standards set by state education officials.

Finally, almost no one believes the teacher quality provisions of NCLB are helping elevate the teaching profession, or ensuring that the most challenged students get their fair share of the best teachers. More and more, teachers, parents, and union and business leaders want a real definition of teacher effectiveness based on multiple measures, including student growth, principal observation and peer review.

Insofar as we're thinking about the federal level, to me it seems like the most important thing is developing better tests. Almost any approach to assessing the performance of a school or a school system is going to be on some level based on test scores, so there's always a risk of a "garbage in, garbage out" phenomenon where bad tests lead to bad decisionmaking. And since you'd like to see results comparable across states this is something where the federal role is crucial.