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September 29, 2006

The Lex Gabinia

Can we avoid making the same mistakes, or is it too late already?:

Pirates of the Mediterranean, by Robert Harris, Commentary, NY Times: In the autumn of 68 B.C. the world’s only military superpower was dealt a profound psychological blow by a daring terrorist attack on its very heart. Rome’s port at Ostia was set on fire, the consular war fleet destroyed, and two prominent senators, together with their bodyguards and staff, kidnapped. ... [I]n the panicky aftermath of the attack, the Roman people made decisions that set them on the path to the destruction of their Constitution, their democracy and their liberty. One cannot help wondering if history is repeating itself.

Consider the parallels. The perpetrators of this spectacular assault were not in the pay of any foreign power: no nation would have dared to attack Rome so provocatively. They were, rather, the disaffected of the earth: “The ruined men of all nations,” in the words of the great 19th-century German historian Theodor Mommsen, “a piratical state with a peculiar esprit de corps.”

Like Al Qaeda, these pirates were loosely organized, but able to spread a disproportionate amount of fear among citizens who had believed themselves immune from attack. To quote Mommsen again: “The Latin husbandman, the traveler on the Appian highway, the genteel bathing visitor at the terrestrial paradise of Baiae were no longer secure of their property or their life for a single moment.”

What was to be done? Over the preceding centuries, the Constitution of ancient Rome had developed an intricate series of checks and balances intended to prevent the concentration of power in the hands of a single individual. The consulship, elected annually, was jointly held by two men. Military commands were of limited duration and subject to regular renewal. Ordinary citizens were accustomed to a remarkable degree of liberty: the cry of “Civis Romanus sum” — “I am a Roman citizen” — was a guarantee of safety throughout the world.

But such was the panic that ensued after Ostia that the people were willing to compromise these rights. The greatest soldier in Rome, the 38-year-old Gnaeus Pompeius Magnus (better known to posterity as Pompey the Great) arranged for a lieutenant of his, the tribune Aulus Gabinius, to rise in the Roman Forum and propose an astonishing new law.

“Pompey was to be given not only the supreme naval command but what amounted in fact to an absolute authority and uncontrolled power over everyone,” the Greek historian Plutarch wrote. “There were not many places in the Roman world that were not included within these limits.”

Pompey eventually received almost the entire contents of the Roman Treasury — 144 million sesterces — to pay for his “war on terror,” which included building a fleet of 500 ships and raising an army of 120,000 infantry and 5,000 cavalry. Such an accumulation of power was unprecedented, and there was literally a riot in the Senate when the bill was debated.

Nevertheless, at a tumultuous mass meeting in the center of Rome, Pompey’s opponents were cowed into submission, the Lex Gabinia passed (illegally), and he was given his power. In the end, once he put to sea, it took less than three months to sweep the pirates from the entire Mediterranean. Even allowing for Pompey’s genius as a military strategist, the suspicion arises that if the pirates could be defeated so swiftly, they could hardly have been such a grievous threat in the first place.

But it was too late to raise such questions. By the oldest trick in the political book — the whipping up of a panic, in which any dissenting voice could be dismissed as “soft” or even “traitorous” — powers had been ceded by the people that would never be returned. Pompey stayed in the Middle East for six years, establishing puppet regimes throughout the region, and turning himself into the richest man in the empire.

Those of us who are not Americans can only look on in wonder at the similar ease with which the ancient rights and liberties of the individual are being surrendered in the United States in the wake of 9/11. The vote by the Senate on Thursday to suspend the right of habeas corpus for terrorism detainees, denying them their right to challenge their detention in court; the careful wording about torture...; the admissibility of evidence obtained in the United States without a search warrant; the licensing of the president to declare a legal resident of the United States an enemy combatant — all this represents an historic shift in the balance of power between the citizen and the executive.

An intelligent, skeptical American would no doubt scoff at the thought that what has happened since 9/11 could presage the destruction of a centuries-old constitution; but then, I suppose, an intelligent, skeptical Roman in 68 B.C. might well have done the same.

In truth, however, the Lex Gabinia was the beginning of the end of the Roman republic. It set a precedent. Less than a decade later, Julius Caesar — the only man, according to Plutarch, who spoke out in favor of Pompey’s special command during the Senate debate — was awarded similar, extended military sovereignty in Gaul. Previously, the state, through the Senate, largely had direction of its armed forces; now the armed forces began to assume direction of the state.

It also brought a flood of money into an electoral system that had been designed for a simpler, non-imperial era. Caesar, like Pompey, with all the resources of Gaul at his disposal, became immensely wealthy, and used his treasure to fund his own political faction. Henceforth, the result of elections was determined largely by which candidate had the most money to bribe the electorate. In 49 B.C., the system collapsed completely, Caesar crossed the Rubicon — and the rest, as they say, is ancient history.

It may be that the Roman republic was doomed in any case. But the disproportionate reaction to the raid on Ostia unquestionably hastened the process, weakening the restraints on military adventurism and corrupting the political process. It was to be more than 1,800 years before anything remotely comparable to Rome’s democracy — imperfect though it was — rose again.

The Lex Gabinia was a classic illustration of the law of unintended consequences: it fatally subverted the institution it was supposed to protect. Let us hope that vote in the United States Senate does not have the same result.

Friday Cats Control Your Mind Blogging

I'll admit I haven't quite figured out what 'Friday cat blogging' is all about, but I'll try to play anyway. Via a link in the Flash section of the Discover Magazine web site, are cats contributing to mass personality changes?:

A University of California at Santa Barbara study finds countries with high rates of Toxoplasmosis are more neurotic and suggest the cat-borne parasite could be causing mass personality changes.

Here's the article from the Mind and Brain section of Seed Magazine:

The Culture-Shaping Parasite, by Maggie Wittlin, Seed Magazine: You are not the only one controlling your mind. Approximately one-quarter of Americans host a parasite that has been shown to affect personality in both rodents and humans. According to a recent study, this single-celled organism may be able to shape entire cultures.

In a paper published in the online edition of Proceedings of the Royal Society, United States Geological Survey researcher Kevin Lafferty argues that a significant factor in why some countries exhibit higher levels of neuroticism than others may be the prevalence of the parasite Toxoplasma gondii. The study also indicates that it may influence a society's preference for strict laws, an expression of uncertainty avoidance, and its valuation of 'masculine' priorities such as competitiveness and financial success over 'feminine' values like relationship-building.

"Toxoplasma appears to explain 30% of the variation in neuroticism among countries, 15% of the uncertainty avoidance among Western nations and 30% of the sex role differences among Western nations," Lafferty said via e-mail.

Lafferty analyzed preexisting data on Toxoplasma prevalence and mean trait levels in 39 countries. He found a significant linear correlation between latent Toxoplasma prevalence and neuroticism with a few outliers, including the unusually neurotic nations of Hungary and China and the notably easygoing Turkey.

Links between Toxoplasma, uncertainty avoidance and concerns about masculinity initially appeared to be insignificant but later emerged when Lafferty focused on Western nations.

Lafferty based his analysis on earlier research by Jaroslav Flegr, a parasitologist at Prague's Charles University, which showed that in humans, Toxoplasma infection correlates highly with certain personality traits: Infected men tended to have lower levels of intelligence, superego strength and novelty-seeking, while infected women exhibited higher levels of intelligence, superego strength and warmth. Infected people of both sexes tend to be susceptible to feelings of guilt. ...

In 2000, Webster reported that rats infected with Toxoplasma are less fearful of and, in some cases, can even be attracted to their feline predators. She surmised that the parasite subtly manipulates a rat's behavior to increase the rodent's chances of being eaten by a cat—the only animal in which it can reproduce—thereby upping the odds of the parasite reproducing.

Lafferty acknowledges that his data set alone does not necessarily imply that latent Toxoplasmosis creates cultural neuroticism.

"For any correlation, it is possible that you have cause and effect mixed up," he said. "However, for this study, I can only think of a logical mechanism for the possibility that Toxoplasma affects culture—not the reverse."

Flegr, who advised Lafferty on his analysis, said in an e-mail that the new study jives with some of his own lab's unpublished results, especially with respect to masculinity. ...

I'm pretty skeptical of the sweeping claims, but I suppose if cat ownership has risen substantially, it would answer a lot of questions.

The Myth of the Coming Labor Shortage

Richard Freeman says not to expect the future labor shortages that many are forecasting:

Is A Great Labor Shortage Coming? Replacement Demand in the Global Economy, by Richard B. Freeman, NBER WP 12541, Sept 2006:

The sky is falling down, the sky is falling down ...
I must go and tell the king ...
A great labor shortage is coming.

In the early 2000s, the business press and media began reporting that the US labor market was on the verge of a major transformation. The retirement of baby boomers and slow projected growth of the labor force were going to create a great labor shortage. Policy-makers should forget about the sluggish real wage growth of the past three decades, the deterioration in pensions and employer provided health care, the “jobless” recovery from the 2001 recession, and fears of job loss from off shoring or low wage imports and focus on helping business find workers in the coming shortage. ...

In this paper, I assess the shortage claims and the labor supply and demand projections on which they are based. I conclude that there is no more reason to believe that the US faces a great future labor shortage than that Chicken Little got it right about the sky falling down. The retirement of baby boomers and slow growth of the US work force, on which the shortage claims are based, will most likely have modest and hard to detect impacts on the job market. I argue that increased supplies of skilled labor in low wage countries will impact US workers more than slower increases in domestic labor supply.


If the analysis of this paper is correct and the economic sky will not fall down in the face of a slower growth in the US work force, why have so many persons concerned with the well being of the US economy warning about the great coming labor shortage?

I suspect that ... fears of a coming shortage fit with the concerns of various groups. Future shortage or not, business will benefit from policies that increase labor supply to drive down labor costs. Advocates of education and training see the shortage analysis as a way to gain national support for increased spending on training that will benefit workers. Politicians can use the shortage analysis to avoid dealing with policies like minimum wages, mandated health care spending, labor law reform, or enforcement of labor laws, and the like, by endorsing “win-win” education and training policies while sidestepping the fact that someone must pay for these investments. ...

I [also] believe the [reason] shortage analysis appeals to some is that it offers a more optimistic framework for analyzing the economic future than the view that the biggest problem facing US workers is competition from low wage labor overseas is. If the doubling of the global work force has weakened the position of workers in the US, the country has to deal with issues regarding the rules of the global economy, ways to increase savings and the supply of capital, ways to retain good jobs and sectors and to distribute the gains from globalization to labor as well as capital while deterring protectionism.

That the coming labor shortage is more myth than reality does not invalidate some of the policies that shortage analysts endorse to help the economy progress. More and better schooling and job training and greater provision of occupational information may be critical to the nation’s preserving comparative advantage in high tech sectors under the global competition vision of the future. There is arguably greater need for those policies if global competition places downward pressure on US workers than if a domestic labor shortage puts them in the catbird seat in the economy and places business under pressure to recruit more workers.

Finally, if my analysis is wrong and the US develops a great labor shortage in the future, I do not see how the country can go wrong allowing market forces to raise the price of labor. There is nothing in economics that predicts “slower growth in the standard of living, change in the balance of payments, inequality, persistent structural unemployment,” or any other economic disasters from the normal functioning of competitive markets in the face of a shift in the supply-demand balance. If there is going to be a great labor shortage that raises wages and benefits for American workers, maybe we ought to cheer the workings of the Invisible Hand rather than seeing this as a disaster that policy should seek to avoid.

The last paragraph is worth emphasizing. David Wessel of the WSJ and Andrew Samwick have a previous discussion of these results.

Health Care Costs and Health Care Coverage

This Economic Letter from the San Francisco Fed looks at how health care cost increases affect health care coverage. The main result is that the share of of firms offering coverage has remained relatively constant but the plans offered have become more expensive and have tighter eligibility requirements. Thus, most of the decline in employee sponsored coverage is due to workers voluntarily opting out, presumably due to rising costs, and to tightened eligibility requirements:

Health Insurance Costs and Declining Coverage by Tom Buchmueller and Rob Valletta, Economic Letter, FRBSF: As discussed in a recent FRBSF Economic Letter (Jones 2005), the share of health-care spending in GDP has been rising rapidly in the United States and other advanced industrial countries since at least 1960. For example, data from the U.S. Centers for Medicare and Medicaid Services (CMS) indicate double-digit annual increases in premiums for private health plans during the years 2001-2003, which significantly increased the overall share of business and household expenditures devoted to medical services. As Jones (2005) and others have argued, the rapid increase in the price of medical care likely is demand-driven to a large degree, reflecting the high value that consumers in wealthy countries assign to medical technologies that improve the quality of life and extend its duration.

A potential flipside to rising health-care costs, however, is declining health-care coverage. As documented in a recent report from the U.S. Census Bureau (DeNavas-Walt et al. 2006), the percentage of uninsured Americans rose in 2005, continuing a trend that started around 2000. The recent decline in overall coverage reflects a longer-term trend towards reduced coverage through employer-sponsored insurance (ESI) plans. This dual pattern of rising prices and declining coverage suggests that some households are opting out of health coverage as its relative price rises. In this Economic Letter, we investigate the trend towards declining insurance coverage, focusing on the recent trends in ESI coverage and costs and underlying changes in employee participation rates. In the conclusion, we use available research results to project long-term coverage declines in response to further cost increases.

ESI coverage, offers, and "take-up"

Each year, the U.S. Census Bureau publishes estimates of health insurance coverage in the prior year. The estimates are based on tabulations from a large, nationally representative sample of households, the Annual Social and Economic Supplement to the monthly Current Population Survey (CPS), conducted each March. Figure 1 displays the estimates of health insurance coverage rates for all individuals from this source for the period 1996-2005. To enhance comparability over time, we applied an adjustment to the data that accounts for a change in survey methodology in 1999 (see DeNavas-Walt et al. 2006, Table C-1).

As noted in the Census report and corresponding press coverage, the share of individuals lacking health insurance coverage from any source rose slightly (0.3 percentage points) between 2004 and 2005. Figure 1, which displays the rate of health coverage for the U.S. population decomposed into ESI and other sources (i.e., direct private purchases and government programs), shows that this most recent coverage decline reflects the continuation of a pattern that emerged after the year 2000. Since that year, the percentage of uninsured individuals has risen by 1.7 percentage points on net, representing a reduction in the number of insured individuals of about 5 million. Figure 1 also shows that the net decline in health coverage over this period reflects a pronounced decline in ESI coverage that was not fully offset by increased coverage through other sources (such as public programs). In particular, over the period displayed, ESI coverage fell from 63.6% in 2000 down to 59.5% in 2005; the drop in ESI coverage was evident for all age groups except individuals aged 55 and over. Coverage through direct private purchases also fell slightly over this period, reinforcing the decline in ESI. Coverage through government programs rose about 2½ percentage points over the same period, not enough to offset the decline in ESI and other private sources of coverage.

The data displayed in Figure 1 suggest that ESI coverage declines have been the driving force for overall coverage trends in recent years. The Census data used in Figure 1 provide information on ESI coverage rates but do not indicate the extent to which the changes have been due to reduced availability of insurance plans from employers (ESI "offers"), tighter eligibility requirements for individual employees, or reduced employee participation in available plans (the latter two factors determine employee "take-up" of offered plans). Identifying these underlying sources of declining coverage is important for understanding the economic reasons for the trend. Information on offers, eligibility, and participation is available from an alternative, employer-based survey conducted by the U.S. Agency for Healthcare Research and Quality, the Insurance Component of the Medical Expenditure Panel Survey (MEPS-IC; Since 1996, this survey has been administered yearly to a nationally representative sample of about 40,000 private business establishments, plus 2,500-3,000 state and local government units; data currently are available through 2004. Due to limited availability of key series for the government sample, our MEPS tabulations are based on the sample of private sector establishments.

Figure 2 displays the percentage of workers employed by firms that offer ESI for the years 1996-2004, decomposed into the percentage of workers who are ineligible for or decline offered coverage and those who accept ("covered"). The overall coverage rates vary from a high of 60.1% in 1996 down to 54.3% in 2004. (Note that these figures are not directly comparable to the ESI coverage rates from Figure 1, due to differences in the base sample and the inclusion of coverage through the ESI plan of a family member in Figure 1.) The figure shows that the tendency for employers to offer health insurance has been relatively constant, varying within a narrow band of about 87%-89%. By contrast, the share of workers who are ineligible for coverage or decline coverage that is offered to them rose from 26.4% in 1996 to 33.6% in 2001 and then stayed near that elevated level in subsequent years, ending at 32.4% in 2004. Although Figure 2 does not distinguish between employees who are ineligible for coverage offered by their employers and those who decline offered coverage, about one-third of the decline in take-up is due to declining eligibility and about two-thirds is due to declining participation. This suggests that most of the decline in take-up has been due to employee decisions, although some has been due to the imposition of tighter eligibility requirements by employers (longer waiting periods, more extensive health screening prior to receiving coverage, etc.).

Rising employee costs

Declining employee participation in ESI programs may relate to rising costs. Figure 3 displays the trend in the costs of ESI coverage (average premiums per enrolled employee, excluding family plans), tabulated from the MEPS-IC sample of private establishments for the period 1996-2004. The figure decomposes the total costs into the typical portion paid by employers and that paid by employees. Employers bear most of the direct cost burden of ESI coverage, and the share paid by employees has been relatively constant at about 17% over this period.

At the same time, total premium costs have increased substantially, approximately doubling the direct premium contributions of firms and their workers between 1996 and 2004. Additional tabulations (not shown) reveal that the share paid by employees is higher at firms that employ relatively more low-wage workers (about 21% for low-wage firms, about 16% for high-wage firms); this increases the burden of rising costs for workers whose ability to pay is already constrained. Although we do not display ESI cost figures for family coverage plans, the patterns are similar to those for single coverage, with a higher but relatively constant share paid by employees (about 25%) and an approximate doubling in total premium costs between 1996 and 2004. These figures on ESI premiums may understate the full extent of increases in medical care costs for participating employees. In particular, for many ESI plans, deductibles and copayment amounts have increased along with premiums, further increasing out-of-pocket costs to plan participants (Gabel et al. 2002); however, in recent years these cost increases probably have been offset somewhat by the tax advantages conferred through medical savings accounts.

As noted above (Figure 2), most of the drop in coverage has occurred because employees are increasingly declining coverage that is offered to them, suggesting that cost increases are directly affecting employees' participation decisions. This view is supported by recent research findings that use formal statistical analysis to investigate the link between rising costs and declining coverage. For example, Kronick and Gilmer (2005) found that most of the decline in ESI coverage between 1987 and 2002 is attributable to declining affordability (i.e., more rapid growth in premiums than in personal income); Chernew et al. (2005) also found that rising health insurance costs are the dominant explanation for falling coverage over time.

Looking ahead

Based on CMS projections, Kronick and Gilmer (2005) estimate that health-care costs will outstrip income gains by 2.8 percentage points annually during the years 2002 through 2013. Given the research findings of systematic links between rising costs and declining ESI coverage, it is likely that this will lead to further coverage declines. Kronick and Gilmer predicted that ESI coverage (for nonelderly workers) will decline by four percentage points between 2002 and 2013; the data displayed in Figure 1 suggest that about one-half of this total decline (1.8 percentage points for the total population) had already occurred by 2005. Looking further ahead, Jones (2005) predicted that the share of health-care spending in GDP may rise to 25%-35% by 2050 (from 16.0% in 2004). The midpoint of this estimate (30%) is consistent with growth in the medical spending share of GDP at roughly half the pace assumed by Kronick and Gilmer for the years 2002-2013. However, even with this slower pace of growth in relative health spending, the implied decline in ESI coverage is 7.1 percentage points, reducing the coverage rate from its 2005 level of 59.5% (Figure 1) to 52.4% in 2050. On the current population base of 300 million, this implies about a 21-million person increase in the uninsured population, absent offsets from other sources of insurance.

The determinants of these trends may change over time, limiting the realized decline in ESI coverage. However, our rough calculations provide a sense of the extent of potential coverage declines. The corresponding policy implications are important: declining ESI coverage increases the cost burden on government insurance programs. Thus, while the work of Jones (2005) and others suggests that increased health spending is demand-driven, hence worthwhile in terms of economic efficiency, the potential impact on the extent of coverage may pose difficult choices for households and policymakers going forward.


[URLs accessed September 2006.]

Chernew, Michael, David M. Cutler, and Patricia Seliger Keenan. 2005. "Increasing Health Insurance Costs and the Decline in Insurance Coverage." Health Services Research 40(4), pp. 1021-1039.

DeNavas-Walt, Carmen, Bernadette D. Proctor, and Cheryl Hill Lee. 2006. "Income, Poverty, and Health Insurance Coverage in the United States: 2005." U.S. Census Bureau, Current Population Reports P60-231. Washington, DC: U.S. Government Printing Office.

Gabel, Jon, et al. 2002. "Job-Based Health Benefits in 2002: Some Important Trends." Health Affairs 21(5), pp. 143-151.

Jones, Charles I. 2005. "More Life vs. More Goods: Explaining Rising Health Expenditures." FRBSF Economic Letter 2005-10 (May 27).

Kronick, Richard, and Todd Gilmer. 2005. "It's the Premiums, Stupid: Projections of the Uninsured through 2013." Health Affairs Web Exclusive, April 5.

Bush on Energy Policy

The Wall Street Journal interviews George Bush on energy issues:

Interview With President Bush, Wall Street Journal:

Office of the Press Secretary
(Birmingham, Alabama)

Internal Transcript
September 28, 2006


Q: I think I would like to just start on the topic that you were on just now -- energy. Obviously, it's a huge priority for you and I wonder if you can just talk about where it goes from here.

THE PRESIDENT: I think energy diversification is a priority for the nation. And by energy diversification, I mean that a policy that promotes technological change so that we become less dependent on crude oil from overseas.

The best way to become less dependent on crude oil from overseas is to change the driving habits of the country. My vision is that, ultimately, we'll be using hydrogen-powered automobiles; in the meantime, we'll be diversifying our fuel mix from gasoline to more ethanol. Conservation will be achieved by new technologies, such as batteries that enable a car to go for the first 40 miles on electricity and your car doesn't have to look like a golf cart.

It's interesting, this diversification has required federal involvement -- federal involvement through tax credits for ethanol, as well as research dollars. But those research dollars are being complemented by research dollars in the private sector. And one reason why the research dollars in the private sector are coming is because the price of crude oil, the rise in the price of crude oil has made it clear that there is profitability for private dollars when they invest...

Q: Do you envision more policy down the road?

THE PRESIDENT: I envision more money being spent to accelerate that which is possible. You heard a full discussion today about the possibility of switch grass and two types -- using switch grass as a raw material and two types of manufacturing processes.

The market for ethanol will evolve differently than the market for gasoline, because transportation is part of the bottleneck of finished product, and therefore in order to get ethanol penetration throughout the country, there are going to have to be locally-built plants so as to reduce transportation costs. And, therefore, there's going to be the need for locally-grown raw materials for those plants. And some places just aren't that good for growing corn or sugar, therefore, we're going to have to develop alternatives to be able to use to make ethanol. ...

Q: And do you envision the money being spent in that area, in particular?

THE PRESIDENT: Well, we're spending, since I've been President, about $29 billion on dealing with alternative forms of energy, which it affects the warming issue. In other words, as you diversify away and/or improve the capacity to burn certain fuels, you're developing environmentally friendly technologies.

And so our effort is multifaceted. You know, for example, you heard me mention the need to deal with nuclear waste. And I believe we ought to reprocess, as well as have fast burner reactors that can deal with that fuel, which reduces the amount of waste substantially, which then makes it easier to store, which then makes it easier to convince people that nuclear power is the way to go. Nuclear power is renewable. Nuclear power is going to be necessary for the production of hydrogen, which is the new kind of -- which will be the new source of powering automobiles, plus it's clean. It deals with the warming issue.

Q: So that's another area, is it fair to say, where you envision some new policy?

THE PRESIDENT: Well, we've got the policy, now we want to see these plants built and we want to continue to facilitate the building of plants. But the new policy will come when it comes to the reprocessing and fast burner reactor. We're in the process of combining resources with Japan and Russia, Great Britain -- I don't want to leave anybody out -- France, in order to develop these new technologies. ...

Q: Okay. Could you address, specifically, the bottlenecks that you talked about? ...

THE PRESIDENT: Well, for example, in order to make sure that ethanol becomes more widely used, there has to be -- people will have to be able to buy ethanol in a convenient way. In other words, consumers are used to convenience when it comes to buying gasoline, and if they have to drive 10 miles to find an E85 pump, or one mile, or half-a-mile to fill up with gasoline, they're going to choose the gasoline. And, therefore, one of the real challenges is how do you make sure that retailers ... make it convenient for people to but it. ...

The other bottleneck is that when you're buying ethanol from a plant in Illinois, like these people are, it ultimately could be cost prohibitive. ... Therefore, there has to be manufacturing plants close to markets where people will be using the ethanol.

Now, the good news is, is that the manufacturing plant is relatively inexpensive compared to gasoline refinery, for example. So there are two bottlenecks right there.

Q: But is federal policy going forward? Are you going to try to do more to eliminate those bottlenecks?

THE PRESIDENT: Yes. And the best way to eliminate the bottleneck is to encourage research into alternative feed stocks that make ethanol. For example, ... if you can use switch grass, switch grass can be grown in a lot of places where corn probably can't be grown.

So the more raw material -- and you heard him talk about a plentiful supply of wood products here in Alabama. And, therefore, if they're able to develop a technology that can use woodchips to make ethanol, then you begin to envision more ethanol production facilities using different types of raw material... But it makes it easier, then, to set up a distribution network.

Q: And could you compare energy as a priority to some of the other things you've got coming up in the domestic area?

THE PRESIDENT: Energy is a significant priority. And as a matter of fact, it's one of the top priorities because energy diversification -- in other words, diversifying away from foreign sources of oil not only has got economic implications, it's got national security implications.

It's very important for the President and the administration to think about that which has to happen in order to achieve long-term -- positive long-term consequences for the country. Energy diversification is one. Encouraging conservation of energy, non-renewable energy sources, all goes hand-in-hand with diversification...

Q: What about the cap and trade issues? A lot of states are now, as you well know, adopting a patchwork of regulatory programs. Do you see that as a potential concern or a reason for federal --

THE PRESIDENT: I have said that -- you know, we laid out a program that we believe will reduce greenhouse gases relative to economic growth, and I put some targets out there and we're meeting those targets. But should we not meet the targets, then I said that the country ought to consider a cap and trade. So long as we're meeting the targets, ... then I think that we ought to pursue the current track we're on, which is the use of technologies to make us achieve energy independence, as well as dealing with the warming issue.

Listen, all these issues require intense -- the issue of warming, the environmental issue, requires intense focus and dedication to new technology. New technologies will not only enable us to be good stewards of the environment, but will also achieve another important objective -- it will achieve a national security objective and an economic security objective.

And that's what makes this debate -- other than the politics, there is commonality between people who say, well, I'm worried about national security matters, others who say, I'm worried about global warming, achieve the same objective by the use of technology. And we're spending a lot of money on the issue. And we're taking the lead when it comes to the global warming issue...

Q: Do you -- how soon do you envision people being able to drive along the interstate and get E85 wherever they want or biodiesel?

THE PRESIDENT: I think it's going to take awhile, but market penetration in the Midwest has been pretty significant. Listen, we've gone from -- we're about 5 billion gallons of ethanol now, a year. And that is a substantial increase in a four-year period of time -- a five-year period of time. My only point is, the markets are beginning to -- the market is beginning to shift and beginning to change.

I think you'll see -- I think what you'll see is regional penetration, depending upon where the feed stocks are being grown. And as you see new breakthroughs on cellulosic ethanol production, then you'll see production plants springing up around, where, you know, woodchips become economically feasible. As the guy said, he's thinking about converting a pulp mill into a place to manufacture wood chips.

So I think -- I'm confident you'll see more ethanol use, and you'll see more penetration, a localized penetration -- I guess, regional market penetrations.

I also believe relatively quickly you're going to see a new battery in your automobile, where you can drive the first -- there's a total of 40 miles, they anticipate, on electricity. Which all of a sudden changes the consumption patterns significantly. You can imagine if the 10 major cities in the United States where people don't drive 40 miles a day were able to power their cars with --

Q: Plug-in.

THE PRESIDENT: New batteries -- yes, plug-in hybrids. It really changed the consumption. And then all of a sudden, meeting the goals of reducing our dependence on foreign oil becomes realistic, more realistic. I guess what I'm telling you, John, is that the strategy is not a single strategy. The strategy is a multiplicity of strategies by developing new technologies that will achieve the objective I've set out. And we're going after it in a very focused, in a very smart way, in my judgment.

I guess part of my frustration is that what we have been doing hasn't quite penetrated into the American psyche. It was, why aren't you diversifying? Why aren't you doing something? But this administration has done more than any administration has done. And I believe that the investments we're making -- the other thing that's important for people to understand is research and development takes time. You know, when you start a research and development project, there's a lot of trial and error and a lot of experimentation and a lot of money is required. And it's hard to predict when you'll see the breakthrough that enables one to achieve the objective.

But the American people have got to know there's a lot of research and development going on. And as I mentioned to you earlier, research monies come not just from the federal government -- we're putting a lot in, but a lot of it's now coming from the private sector, as well. Which is an interesting sign, you know. And it's an encouraging sign.

Anyway, thank you.

Q: Thank you, very much.

THE PRESIDENT: I've thought a lot about the subject.


Source: The White House

Not a very inspiring vision. The full interview also touches briefly upon Social Security reform, immigration, and a few other issues. On Social Security, it simply says he is considering combining the Social Security and Medicare reform efforts, and that he and Secretary Paulson are watching the elections closely and "strategizing."

Competition in Cable Television Markets

Eliminating cable monopolies:

Cable Guys, by James K. Glassman, WSJ [AEI link]: In an era of partisan nastiness and gridlock, the California legislature did something on Aug. 31 that was shockingly harmonious, reasonable and beneficial to consumers. Both parties voted overwhelmingly to allow competition into a sector -- cable television -- where prices have been elevated and service depressed by the most pernicious monopoly in America.

When Gov. Arnold Schwarzenegger signs the bill, as expected, companies that want a statewide video franchise can go straight to the Public Utility Commission and get approval to operate within 44 days. In the past, in California, as in other states, cable companies had to make separate deals with America's 33,760 municipal units -- a process that can take years. The local licensing agencies "would often drag their feet and demand unrelated favors such as building parking lots and planting trees," writes Sonia Arrison of the Pacific Research Institute.

The effect was to create cable monopolies that often infuriated captive customers. According to a 2004 study by the Government Accountability Office, "cable subscribers in about 2% of all markets have the opportunity to choose between two or more wire-based operators." ...

Seven states, comprising about one-third of the U.S. population, have now passed video franchise laws, which will not only lower monthly subscriber costs but also create new technology jobs ... as Verizon and AT&T, along with cable overbuilders like RCN, jump in with both feet. ... Broadband service will improve; state and local governments will still get their franchise fees. All that will end is a monopoly that drives consumers nuts. ...

How much will consumers save? A 2004 study by the GAO looked at six markets with cable competition and found that rates were 15% to 41% below similar markets with no competition. ...

Yes, Americans can choose satellite TV, but, for reasons of convenience and service, many find it an inadequate substitute. There's a reason that cable families far outnumber satellite families. ... But if satellite TV improves and becomes a more attractive alternative, what's wrong with having enhanced cable competition, too? The more the merrier...

Is there a downside to deregulating these markets? One potential downside is the loss of "build-out requirements," the granting of a regulated monopoly in return for servicing segments of the market that might not otherwise receive service. With competition and deregulation, some segments of the market may go unserved raising questions of equity.

I don't know a lot about the regulation and structure of these markets, so this may already be in place, but requiring cable franchise operators to share existing cable lines similar to the co-location requirements for telecommunications carriers (e.g. UNE-P) would be one way to promote competition by easing entry and exit barriers. This would give consumers a choice of cable companies through the existing cable lines rather than relying on intra-modal competitors such as satellite and telecommunications carriers who would need to develop separate and potentially costly data pipelines to bring video services to consumers.

Update: Along the same lines, from June 2005:

Cable Firms Don't Have to Share Networks, Court Rules, by Yuki Noguchi, Washington Post: The Supreme Court upheld cable companies' right to restrict rival Internet service providers from their networks, prompting telephone companies yesterday to argue that they should be relieved of a similar regulatory obligation. Phone companies are required to share their lines with Internet providers, an outgrowth of an era when such rules were deemed necessary to foster competition. But the phone companies argue that the rules put them at a disadvantage compared with the ... cable industry. ...

Free GIF

Someone asked me today why I use the GIF format for the pictures I post rather than the JPG format. I said, "I don't know." That's probably why I noticed this:

GIF is NOW finally free - for real, with a final Unisys joke, by Tony Mobily, Free Software Magazine: I am sure a lot of you remember the great "GIF fiasco": more than a decade ago, Unisys decided to make money out of the most used image file format on the Internet: the GIF format. To be more precise, Unisys announced that they would go after developers of programs able to load and save GIF files...

To make the short story shorter, the PNG file was invented as a reaction to Unisys' move; although it was never wildly successful, PNG did manage to make Unisys's threat very much irrelevant. Unisys took their time, but eventually realised that if they had seriously sued people over the GIF patent, the days of the GIF format would be over.

In the pre-SCO era, people were outraged and wondered if Unisys's CEO had gone insane (to me, he just looked like he had a very, very low IQ and a very big problem managing his company's finance and marketing). In our post-SCO era, we are just glad it didn't sue IBM in the hope that the Goliath company would get annoyed enough to buy out the moody David.

Anyway, things went well: PNG was created, Unisys' share price today looks pitiful (karma, anybody?), and people still happily use GIF files everywhere.

Dr. Jekyll Not many people noticed that in just a few days the GIF format will definitely be free - forever. The GNU web site has a page on the GIF format. At the bottom of the page, you can see:

1. ...The U.S. IBM patent expired 11 August 2006, The Software Freedom Law Center says that after 1 October 2006, there will be no significant patent claims interfering with employment of the GIF format.

The first of October 2006 is just about around the corner. So... well, it looks like the nightmare is definitely, without any doubt, over. I personally don't think that IBM (the holder of the last GIF patent) would ever sue anybody for using GIF, especially after investing several billion dollars on GNU/Linux and showing their declared friendliness towards free software (which would be directly affected by a law suit). But you never know with patents.

Mr. Hyde However, if you really think it's over, and that you will never ever have to worry about GIF ever again... well, let me tell you, you are wrong. The nightmare is far from over. The nightmare is just about to start. I shivered when I saw this page. To me, it was absolutely devastating! It says:

Unisys Corporation holds and has patents pending on a number of improvements on the inventions claimed in the above-expired patents. Information on these improvement patents and terms under which they may be licensed can be obtained by contacting the following: [...]

Oh my... Unisys has been improving the GIF format, without telling anybody what the improvements are! I honestly don't think the world can survive without those improvements. I am pretty sure Cheryl Tartler, the person dealing with sending out those improvements is swamped with requests and cannot send them out fast enough! In fact, I am pretty confident that's all she does all day long: sending Unisys's improvements to people once they've signed an NDA and paid their licensing fees. I am pretty sure this will help be an immense help to the downward trend of Unisys' shares. Millions, billions will come!

Err... OK, just in case somebody at Unisys is listening: "Hello! I am only joking!". It may look obvious, but you never know...

R&D and Economic Growth

How much does R&D contribute to economic growth?:

Economists Put a Number on R&D, by Greg Ip and Mark Whitehouse, WSJ: That research and development makes an important contribution to U.S. economic growth has long been obvious. But in an important advance, the nation's economic scorekeepers declared they can now measure that contribution and found that it is increasing. ...

In the current system of measuring gross domestic product, R&D is treated like a so-called intermediate expense. For example, salaries paid to research scientists are lumped in with wages paid to assembly-line workers. Under the new approach ..., R&D spending is treated like capital investment, such as the cost of a machine tool or an office building. By that measure, R&D would have accounted for nearly 7% of growth from 1995 to 2002, up from a little more than 4% from 1959 to 1994. (The rest comes from an expanding work force, increased capital and other, unexplained factors.) That exceeds by a wide margin the 2% contribution of investment in buildings and factories during the 1959-2002 period.

Treating R&D as an investment would make the economy 3% larger and the national savings rate about two percentage points higher. ...

Since the 1950s, economists have explained economic output as the result of measurable inputs. Any increase in output that can't be explained by capital and labor is called "multifactor productivity" or "the Solow residual," after Robert Solow, the Nobel-prize winning economist considered the father of modern growth theory.

Between 1959 and 2002, this factor accounted for about 20% of U.S. growth. Between 1995 and 2002, when productivity growth accelerated sharply, that grew to about 33%. Accounting for R&D would explain about one fifth, by some measures, of the productivity mystery. It suggests companies have been investing more than the official data had previously shown -- a good omen for future economic growth. "The slump in investment is not as drastic as people thought before they saw these figures," says Dale Jorgenson, professor of economics at Harvard University.

Mr. Jorgenson noted a lot of the multifactor productivity growth remains unexplained. "The great mystery of not eliminated."

Paul Romer, an economics professor at Stanford Business School, said the better the measurements of R&D become, the more economists and policy makers will realize other factors may be more important. "If you look at why we had rapid productivity growth in big-box retailing, there were lots of intangibles and ideas that...don't get recorded as R&D."

BEA director Steve Landefeld said for now, GDP will continue to be measured in the typical way, but the agency plans to start including R&D regularly in 2012. ...

Is Productivity Growth Slowing?

Today, second quarter GDP growth was revised downward from 2.9% to 2.6%. Dean Baker explains how this might impact measures of productivity:

Is Productivity Growth Slowing?, by Dean Baker: The news reports on the release of revised data for 2nd quarter GDP missed the fact that output in the nonfarm business sector was revised down by 0.4 percentage points. This means that (ignoring rounding) productivity growth for the quarter should also be lowered by 0.4 pp to a 1.2 percent annual rate. At this point, the consensus estimate for 3rd quarter GDP growth is about 2.5 percent, which translates into a 1.5 percent rate of productivity growth, assuming hours grow at a modest 1 percent annual rate.

Productivity growth has clearly slowed from its extraordinary 3.6 percent annual rate over the years 2002-04. If the third quarter growth comes in at close to 1.5 percent, then the year over year rate (3rd quarter 2005 to 3rd quarter 2006) would be under 2.0 percent. That would be news.

Update: How much does R&D contribute to productivity and economic growth?:

Economists Put a Number on R&D, by Greg Ip and Mark Whitehouse, WSJ: That research and development makes an important contribution to U.S. economic growth has long been obvious. But in an important advance, the nation's economic scorekeepers declared they can now measure that contribution and found that it is increasing. ...

In the current system of measuring gross domestic product, R&D is treated like a so-called intermediate expense. For example, salaries paid to research scientists are lumped in with wages paid to assembly-line workers. Under the new approach ..., R&D spending is treated like capital investment, such as the cost of a machine tool or an office building. By that measure, R&D would have accounted for nearly 7% of growth from 1995 to 2002, up from a little more than 4% from 1959 to 1994. (The rest comes from an expanding work force, increased capital and other, unexplained factors.) That exceeds by a wide margin the 2% contribution of investment in buildings and factories during the 1959-2002 period.

Treating R&D as an investment would make the economy 3% larger and the national savings rate about two percentage points higher. ...

Since the 1950s, economists have explained economic output as the result of measurable inputs. Any increase in output that can't be explained by capital and labor is called "multifactor productivity" or "the Solow residual," after Robert Solow, the Nobel-prize winning economist considered the father of modern growth theory.

Between 1959 and 2002, this factor accounted for about 20% of U.S. growth. Between 1995 and 2002, when productivity growth accelerated sharply, that grew to about 33%. Accounting for R&D would explain about one fifth, by some measures, of the productivity mystery. It suggests companies have been investing more than the official data had previously shown -- a good omen for future economic growth. "The slump in investment is not as drastic as people thought before they saw these figures," says Dale Jorgenson, professor of economics at Harvard University.

Mr. Jorgenson noted a lot of the multifactor productivity growth remains unexplained. "The great mystery of not eliminated."

Paul Romer, an economics professor at Stanford Business School, said the better the measurements of R&D become, the more economists and policy makers will realize other factors may be more important. "If you look at why we had rapid productivity growth in big-box retailing, there were lots of intangibles and ideas that...don't get recorded as R&D."

BEA director Steve Landefeld said for now, GDP will continue to be measured in the typical way, but the agency plans to start including R&D regularly in 2012. ...

"How Scandanavia's Neoliberal Parties Came to Love the Welfare State"

This article from The American Prospect says that recent electoral victories by the center-right in Scandinavia may not indicate the sharp turn to the right and the clear rejection of the welfare state that many have claimed. It is not clear whether "the welfare state swallowed the center-right, or the center-right swallowed the welfare state":

Centered Right How Scandanavia's neoliberal parties came to love the welfare state, by Ulrik Jørstad Gade, American Prospect: Something odd is happening in Scandinavian politics. Or rather, something normal has stopped happening. Everybody knows that for the better part of a century, social democrats have been building ... welfare states in Scandinavia. The news is that economic liberals ("liberals" in the classical, continental sense of the term) have basically ceased to attack them. In fact, Scandinavia’s center-right parties now actively embrace the welfare state. And suddenly -- and not coincidentally -- voters like them.

For generations, political power in Scandinavia has rested overwhelmingly with the labor-oriented social democrats, interrupted only by brief periods of center-right government. But last week, Danish Prime Minister Anders Fogh Rasmussen, who took office in 2001, achieved the status of longest-sitting prime minister ever from Venstre, the traditionally economically liberal party of Denmark. ... And as of yet, according to polls, Rasmussen has nothing to fear from the center-left opposition.

Meanwhile in Sweden, whose political history is even more solidly social democratic than Denmark’s, 41-year-old Fredrik Reinfeldt just led the conservative party Moderaterna to its best election result since 1928, securing a narrow victory for a center-right coalition. Sweden’s economy is doing great after 12 years of social democratic leadership, but there has been growing dissatisfaction with the quality of some welfare services, such as the public health system, senior, and child care. That is, the situation is much like in Denmark in 2001. (One notable exception is that Rasmussen rode a wave of xenophobia and populist nationalism ... Immigration issues have been remarkably absent from Sweden’s national political debate in this race.)

So what is happening? How does the center-right conquer the center? ... [A]n essential part of the answer is that these parties stopped railing against the welfare state. Instead, they befriended the beast, and the electorate that loves it. Parties making up center-right coalitions in Denmark and Sweden now offer to do almost exactly what the social democrats do, only better. They promise better welfare and more individual choice, all at lower costs -- simply by managing the welfare state more efficiently. The result ... has been to crowd out the democratic socialists from the welfare-loving center of middle-class voters.

To achieve this, right-wing liberals have had to work hard to distance themselves from the neoliberal, small-government ideas they used to preach -- ideas that evidently estranged a majority of voters. The transformation has been remarkable. Less than a decade ago, both Rasmussen and Reinfeldt fiercely criticized the welfare state in polemic books. ... But today, both leaders are battling the left over the quality of welfare services for the middle class. ...

An obvious question is how deeply felt this political and philosophical change really is. In a recent interview with Danish newspaper Weekendavisen, Rasmussen said that the welfare model is a necessary condition for the goal of liberalism, defined as a maximization of individual freedom and self-reliance. Obviously, the term “self-reliance” can be found in any old school textbook of economic liberalism, but the introduction of the welfare state into a discourse of individual freedom does stand out as a departure from Rasmussen’s ideological past.

In fact, he appears to embrace a concept of freedom long championed by some on the left ...: one that is as concerned with freedom to as freedom from. From this perspective, government is not a categorical infringement on individual rights; on the contrary, government can and should expand individual freedoms by providing opportunities for citizens. Thus the accessibility of a quality education is a freedom issue, as is the availability of affordable health care, day care, paid maternity and paternity leave, etc. While Rasmussen is probably still to the right of most Danes on several specific welfare issues, he does seem to have revised his basic take-no-hostages, small-government outlook.

But clearly, Venstre’s seeming transformation is also at least partly tactical. ... Taught by bitter experience, Rasmussen’s Venstre has finally abandoned its kamikaze attacks on the welfare state. ...

Thus it’s a bit hard to tell whether the welfare state swallowed the center-right, or the center-right swallowed the welfare state. In the new era, allegiances and appeals have gotten jumbled. In 2000, the year before his first term as prime minister, Rasmussen boasted that analyses showed Venstre to be a greater workers’ party than the Social Democrats, the traditional labor party. And for the recent Swedish elections, one slogan of Reinfeldt’s Moderaterna was that “Sweden needs a new workers’ party.” Perhaps it just got itself one. Or perhaps, with center-right parties slowly reforming it from the inside, the Scandinavian welfare state has a beast in its belly.

September 28, 2006

The Poverty of Anti-Trade Sentiments

"This is a sweatshop?" asks Bloomberg's Andy Mukherjee as he examines how trade affects poverty in developing nations:

Apple IPod Lifts Generation of China's Workers, by Andy Mukherjee, Bloomberg: Is America's gadget fixation lifting Asians out of poverty or pushing them deeper into it? That has been a question ever since press reports suggested that Apple Computer Inc.'s iPod music players are being assembled in sweatshop conditions in China.

Workers were being forced to toil for as little as $50 a month under Dickensian conditions, one commentator said. Poor Asians, mostly women, were caught in this vicious cycle because Americans are addicted to gizmos, another rued.

Amid the hysteria, Apple began its own audit of the factory... The findings, unveiled last month, are interesting. Air-conditioned hostels, Apple's auditors discovered, are available to workers free of charge; the dorms have TV rooms, free laundry, snooker tables and public telephones; the campus comes with soccer fields, a swimming pool, supermarkets, Internet cafes, banks, 13 restaurants and a hospital.

There's no child labor; no one is paid less than the locally mandated minimum wage; male and female employees are housed in separate dormitories; safety isn't a concern. Everyone has medical coverage.

The biggest complaint of workers: a lack of overtime opportunities during non-peak periods. This is a sweatshop? The assembly-line jobs in export industries may seem dreary, exacting and unrewarding to an analyst in Europe or the U.S., but they are far better than what's available in the domestic sectors of a developing Asian economy. ...

The interdependence of the Asian producer and the American consumer is a mutually beneficial one in a world where labor can't move freely to close the wage arbitrage. Making electronic goods for the U.S. ... has proven to be the shortest route to riches in Asia in the past 50 years. ...

None of this is to contend that Hon Hai workers in Shenzhen are living in a capitalist utopia. Work weeks are often longer than the stipulated 60 hours.

Accommodation is of considerably poorer quality for those workers who are forced to live outside the campus. After Apple published its audit report, Hon Hai said it would hire more workers and build more dormitories. Hon Hai and Apple would surely keep their promises. The Taiwanese company has a market value of $31 billion, almost half that of Apple. That's a lot of corporate reputation at stake.

The biggest winners will be the Chinese workers and their families. Millions of Asians have fed the American craving for consumer goods and crawled out of poverty within one generation, as the Hon Hai workers in China surely will.

My Dog's Better Than Your Dog

When, if ever, is enough enough? Robert Frank says our insatiable demand for quality improvement means that we will never have everything we want:

The More We Make, the Better We Want By Robert H. Frank, Economic Scene, New York Times: Productivity growth has raised living standards in the United States more than 40-fold since 1790. In his 1930 essay, “Economic Possibilities for Our Grandchildren,” John Maynard Keynes speculated about how the continuation of such spectacular productivity growth might transform our lives. Like many other distinguished thinkers, both before him and after, he predicted that people would have great difficulty filling their days once it became unnecessary to spend more than a token amount of time working. ...

How could Keynes ... have made such an absurd prediction? It would be one thing if he had merely overlooked the possibility of boundless human desire. Yet he explicitly considered this possibility, only to dismiss it. Thus, he wrote that human needs fall into two classes: basic, or absolute, needs, which are independent of what others have, and relative needs, which we feel “only if their satisfaction lifts us above, makes us feel superior to, our fellows.”

Keynes granted that although needs rooted in a desire for superiority might indeed be insatiable, this was not true of absolute needs. And seeing absolute needs as more important by far, he concluded, “A point may soon be reached, much sooner perhaps than we are all aware of, when these needs are satisfied in the sense that we prefer to devote our further energies to noneconomic purposes.”

Keynes was ... mistaken, however, in seeing this desire [to flaunt one’s superiority] as the only source of insatiable demands. Decisions to spend are also driven by perceptions of quality, the desire for which knows no bounds. But quality is an inherently relative concept. The same car that would have been deemed as having brisk acceleration and sure handling by drivers in Keynes’s day, for example, would be much less charitably evaluated by today’s drivers — even those with no desire to outdo their neighbors. ... In purely mathematical terms, such a model would be essentially identical to one based on a desire not to own quality for its own sake, but rather to outdo others.

Yet the subjective impressions conveyed by these two descriptions could hardly be more different. To demand quality for its own sake is to be a discerning buyer. But to flaunt one’s superiority is to be a boor, a social moron. Such people exist, but that most of us manage to avoid them most of the time suggests that they are rare.

Perceptions of quality influence the demand for virtually every good, including even basic goods like food. When a couple goes out for an anniversary dinner, for example, the thought of feeling superior to others probably never enters their minds. Their goal is just to share a memorable meal. But a memorable meal is a quintessentially relative concept. It is one that stands out from other meals. ...

There are no obvious limits to the escalation of quality standards. ... Until recently, for example, the Porsche 911 Turbo was considered perhaps the best all-around sports car on the market. Priced at over $120,000, it handles impeccably and has blistering acceleration.

But in 2004, Porsche raised the bar by introducing its Carrera GT, which handles slightly better than the Turbo and beats its 0-to-60 time by two-tenths of a second. People who really care about cars find these small improvements genuinely exciting. To get them, however, they must pay almost four times the price of the Turbo.

By placing the desire to outdo others at the heart of his description of insatiable demands, Keynes relegated such demands to the periphery. But the desire for higher quality has no natural limits. Keynes and others were wrong to have imagined that a two-hour work week might someday enable us to buy everything we want. That hasn’t happened and never will.

Worker's Cooperatives

Andrew Leonard at Salon notes the demise of Burley bikes:

Cheap labor vs. a worker's cooperative, by Andrew Leonard: Eleven years ago, ... I bought myself a mountain bike and a Burley Trailer to tow my 1-year-old daughter around Berkeley, Calif. The Burley wasn't cheap, but its striking blue and yellow colors were, and still are, a familiar sight around the Bay Area. And it's held up well -- my ex-wife still uses it to transport groceries and other vital necessities around town.

I did not know until today, however, that for 25 years Burley had been a worker-owned cooperative in Eugene, Ore. I say, "had been," because I also learned today, via a link from Treehugger, that in June, after three years of mounting losses, Burley converted itself to a private corporation. Then, on Sept. 11, a local businessman bought the company. Already, some 40 employees have been laid off and more will probably follow.

It's easy, especially living in Berkeley, where memories of the infighting and squabbling that doomed the legendary Berkeley Co-op 20 years ago still linger, to hear the words "failed worker-owned coop" and start pointing fingers at some inherent flaw in collective management. New owner Michael Coughlin alluded to exactly that, in the most mild of ways, when he told the Eugene Register-Guard that "I think it is a great business. I just think that they really had troubles adapting to competitive issues and keeping their product costs under control. I think managing a business in a very competitive arena is not well suited for a cooperative structure."

What exactly would that competitive arena be?

How about competition from Taiwan and China, pumping out cheapo bike trailers currently on sale at your local Wal-Mart or Target? It's tough out there... But it seems a little unfair to pin the blame for Burley's woes on its co-op structure. As former employee Patricia Marshall writes in a moving requiem, there was much of value to be cherished in 25 years of worker-owned operation. And as plenty of other business owners can attest to, you don't have to be worker-owned to be vulnerable to the challenge of cheap labor and the Wal-Mart effect.

I live in Eugene - it's where hippies come to further their education once they've graduated from the Berkeley scene - and I almost posted the Burley bike requiem a couple of days ago when it first appeared, but thought it might be too provincial. The bikes are pretty much everywhere, the recumbents are popular, and the trailers are the first choice for child transport for the alternative, car-shunning, organic grocery, vegetarian, Birkenstock, tree-hugging, Saturday Market crowd that lives here (please don't get me wrong, they give this place character - no problems here at all). I know two people who worked at Burley and it's an interesting place, they were dedicated employees. But it wasn't for everyone. I also know someone else who needed a job but refused to work there because he didn't think it was fair for him - an accountant - to be paid nearly the same as production workers. Here's the requiem Andrew Leonard references:

Burley's sale doesn't mean co-op failed, by Patricia Marshall, The Register-Guard: Burley was one of many cooperative businesses that sprang up in Eugene in the 1970s: Genesis Juice, Hoedads, Second Growth, Starflower - most of them are gone or have reorganized as more conventional businesses. Burley remained a cooperative for 28 years, one of the longest-running and most successful.

In the mid-1990s, Burley had nearly 100 members, all of whom enjoyed good wages and exceptional benefits, as well as a share in the company's profits. When the dividend checks were issued, a couple of times a year, it seemed that hundreds of thousands of dollars flooded the community, temporarily boosting the profits of restaurants, bars and home improvement stores.

The last few years haven't been as flush. In June, the remaining members voted to dissolve the cooperative and become a traditional corporation, to prepare the company for sale to a private owner. In the aftermath, everyone has an opinion about what went wrong.

It's easy to point the finger at the cooperative structure, to see the dissolution of the cooperative as vindication of the idea that co-ops are an unworkable way to manage a business. But to do that is to ignore the fact that it did work, and the company prospered for more than two decades, supporting local families and turning the wheels of local commerce, all the while adhering to the democratic idea that the member-owners had equal say in the company direction.

And it's easy for ex-members, many of whom may lose a chunk of money that they were counting on, to blame bad management and increased product cost for the decline. The whopping $1.5 million loss in 2005 lends itself to that theory.

But the truth, as with many things, probably lies somewhere in the middle. Burley has never been easily defined, or easily managed. It was a group of people who took a funky little bike trailer and made it world famous, while running a business with integrity and care. Despite the democratic structure, Burley was as effective in the market as any bike business, and more effective than many.

The thing that struck me the most when I came to Burley in 1992 was how dedicated everyone was to the cooperative idea, and how differently that dedication manifested itself from member to member. There was no challenge that members weren't ready to tackle, despite widely diverse opinions. Meetings were the heart and soul of the business, the place where we hashed out the issues of the day. For many, leaving no stone unturned, leaving no one's opinion unexamined, was the only fair way to operate.

The democratic process wasn't always pleasant, but it made us feel connected: It caused the seamsters to sew better, the salespeople to sell harder, the assemblers to take extra care with the trailers and bikes they personally identified with.

We worked hard to pull through tough times, but after the issues were resolved and the work was done, we could enjoy free lunch, or go on a bike ride, or cheer the Insane Unknowns while they played softball on a summer night. Once in a while, the trailer production team deep-fried a turkey and invited the co-op to lunch. We held Burley Cafes to raise funds for charitable causes, adopted families every Christmas, donated trailers to those in need and contributed to local non- profits.

Throughout it all there was a sense of camaraderie, a sense that we were working for something bigger than ourselves, the sense that we could redefine the work world, and come out better for it.

I don't know about the Burley of the past few years. I know there were big changes - changes that curtailed the flow of information and streamlined the process by minimizing democratic decision-making. The cooperative structure always meant that the business would be what the current members made it. At the meeting during which the remaining 33 members voted to sell the business, one director pointed out that they had chosen to stay and fight it out, rather than closing the doors.

I didn't make that decision, but if I had been asked, I probably would have supported it - even though it meant a portion of my retained earnings disappeared - because that decision meant my friends and former business partners would still be employed making products I cared about. Other people might have made other decisions, but it wasn't up to them. The members made the choice.

We had a saying at Burley: Once you work here, you're ruined to work anywhere else. I've discovered, along with a lot of other former co-op members, that it's not true - there are other jobs in Eugene where workers are respected, are paid well, and have some flexibility. There is life after Burley, something too many people will be finding out soon.

But I doubt there's any job out there that will replicate the experience we had at Burley.

How Much Will One More Year Cost Me, Doc?

The quoted price is $5,000 per year. I was going to take ten more for now, with an option on ten more later. But Andrew Leonard from Salon says maybe I should shop around a bit more - I might get a better deal elsewhere:

Hey, long life ain't cheap, by Andrew Leonard: ...David Leonhardt's ongoing series ... takes Tuesday's news that health care costs have spiked upwards another 7.7 percent in 2006 (noted here yesterday) and spins it as a positive, because, hey, modern medicine means we all get to live longer. So quit it with the cheapskate carping, already.

"Would you prefer spending an extra $5,000 on health care every year -- or losing ten years off your lifespan?" he writes.

This is a disingenuously bogus way to phrase the question. Dean Baker, as usual, cuts to the quick:

"As I've noted before, every other wealthy country enjoys longer life expectancies than the United States and they pay on average less than half as much per person."

Felix Salmon at Economononitor chimes in, noting that "Leonhardt is justifying a doubling of healthcare costs since 1999 by looking at an increase of 10 years in the average lifespan since 1950" and wondering "Does Leonhardt stop to wonder why these things are so expensive? Does he puzzle over the fact that Americans pay much more for such things than the citizens of any other country? Does he propose that Medicare be allowed to negotiate drug prices, or -- to take an eminently sensible suggestion from Dean Baker-- that foreign doctors be allowed much more easily into the U.S.?"

To be fair, near the end of his column, Leonhard concedes that "The current situation is indeed unsustainable, a point the conventional wisdom has right. The cost of health insurance can't keep doubling every seven years, and wasteful spending... does need to be reined in."

Exactly. Which is what most everybody else who saw the figures on health care costs yesterday concluded. Shouldn't the point of a contrarian column be to prove the conventional wisdom wrong? Otherwise, what is the point?

Inequality and Success in War

Chris Dillow says he's just the messenger:

Equality and war, by Chris Dillow: Economic inequality in the US is jeopardizing the country's chances of defeating the Iraqi insurgency. That's the claim of this new paper. Authors James Galbraith, Corwin Priest and George Purcell show that economic equality is highly correlated with victory in war:

From 1962 through 1999, the more egalitarian countries prevailed in 31 of 42 pair-wise comparisons. From 1816 to 1962, restricting our attention to bi-national wars, the more egalitarian country prevailed in 64 of 80 cases. From 1715 to 1815, the proportion was 24 of 26. Taking all together, we find the presumptively more egalitarian country prevailed in 119 of 148 cases.

For example, egalitarian Israel has consistently beaten its less equal neighbours, Communist Vietnam beat the US, the egalitarian North beat the Confederacy. They reckon the pattern extends into ancient times:

Like the armies of Alexander, the Golden Horde of Tamurlane, Genghis Khan and Attila owed their vast military success in part to a comparatively flat hierarchy; nomadic tribes everywhere are more broadly egalitarian than the domains they ravage.

They cite three reasons why equality causes military victory:

Egalitarian countries have stronger social solidarity, and therefore better morale. Second, inegalitarian countries often structure their armed forces to handle internal regime security, at the expense of efficiency at meeting external threats. Third, deeply unequal countries face a problem of loyalty in the lower ranks.

This, they say, has implications for the war in Iraq:

The American military is under obvious stress from this fact [of increased inequality], for the simple reason (among others) that as a career it cannot compete for the services of the prosperous...But the Iraqi insurgency of 2006 represents an egalitarian mini-state.

Kick this one around, yourselves - I'm just the messenger.

Adding a fourth reason, inegalitarian countries with concentrated power may also have poorer leadership and little ability to prevent misguided decisions by those in power. This could help to explain lack of success in wars, though I have no data to back this up.

In this recent post, James Galbraith reviews James MacDonald’s new book A Free Nation Deep in Debt which claims that democracies have an advantage in war:

It’s a simple but compelling argument. States exist to make war; those who win survive. Public credit is a powerful weapon; states that can borrow win wars. And so even narrow democracies, rooted in parliaments going back to the Middle Ages, have an evolutionary advantage over absolute monarchies, for the king’s credit is always poor.

So, starting wars with egalitarian democracies is, apparently, a bad idea. Interesting arguments, but I can't say I'm fully convinced.

Update: Felix at economonitor reminds me that James MacDonald’s book, which I describe as new, is nearly four years old (if you haven't been to Felix's "new" blog, it's worth checking out). He goes on to say:

I thought I'd pop up and give it a plug myself. It's ... timeless, and fantastic, and utterly compelling.

September 27, 2006

Are Workers Dissatisfied or Not?

A question being asked recently is why polls report such dissatisfaction with the economy even though the aggregate numbers paint a fairly healthy picture. Or so I thought. Bruce Bartlett says the question being asked recently is why workers aren't more outraged over their poor economic conditions. He concludes it's because there's nothing to be outraged about:

Wages of stagnation?, by Bruce Bartlett, Commentary, Washington Times: Lately, there has been a big debate going on among Democrats about why workers aren't outraged by their economic condition, and therefore more hostile to Republican economic policies and more sympathetic to Democratic policies.

On the surface, it would appear that workers should be in open revolt. According to the Bureau of Labor Statistics, the average worker is no better off today than ... seven years ago in real terms. ... Census Bureau data confirm this trend. ... Looking at the broadest measure of economic well-being, median household income, we also see flatness. ... Median household income peaked in 1999 ... and fell every year thereafter until 2005's small uptick.

There is no simple explanation for worker passivity in the face of income stagnation. One argument is that labor union membership has fallen sharply ... and consequently workers have no organizational mechanism through which to bargain for higher wages or protest wage stagnation politically. ...

Another possibility is that workers have been so beaten down ... in recent years that they are just grateful to have jobs at all, even if their pay stinks. And because of declining health coverage by employers, those lucky enough to have health insurance may feel compelled to hold on to such jobs. ... Indeed, the rising cost of health benefits is a key reason for the flatness of wages. From the point of view of employers, their total labor costs have risen sharply. But all of the increase has gone into benefits, leaving nothing left over to raise wages. Workers may not like this fact, but accept its reality. ...

Still another explanation.... Many baby boomers have just seen the last of their children finish college and leave home. Suddenly, they have had a huge increase in their discretionary income... They may not be any better off in terms of their family income, but they feel a lot better off financially.

Finally, despite wage and income stagnation at the macro level, people continue to move up out of the working class... According to the Census Bureau, the percentage of all households with an income below $25,000 per year (in 2005 dollars) fell to 27.1 percent last year from 27.6 percent in 2004. In 1995, 28.9 percent fell into this income class. In 1985, the percentage was 30.5 percent and in 1975 it was 33.1 percent.

At the same time, the percentage of households that are considered well-to-do -- those with an income above $75,000 (in 2005 dollars) -- rose to 28.3 percent last year from 27.9 percent in 2004. In 1995, only 24.4 percent of households had that much income, up from 20.2 percent in 1985 and 14 percent in 1975.

In short, despite all the talk about the rich getting richer at the expense of the poor, the fact is that the percentage of households with low incomes has fallen and the percentage of those with high incomes has risen. This is perhaps the main reason why Democrats have had trouble getting traction on the income issue -- there are fewer people in the income class to which they historically have directed their message. The more people there are in the $75,000-plus income category, the more people there are who are receptive to the Republican message of low taxes.

Another possibility is that the polls are right, workers are dissatisfied because the gains for the top income groups have been much larger than the gains for those at the bottom. On this point, here's Robert Samuelson:

Trickle-Up Economics, Our Growing Inequality Problems, by Robert J. Samuelson, Commentary, Washington Post: ...Although Americans are not hugely envious of the rich -- especially if their wealth seems honestly earned -- we also think that prosperity should be broad-based. Trickle-up economics, with most gains flowing to the top, seems un-American. But is that what we now have? Good question. ...

Let me try to make sense of it. Superficially, the news was not encouraging. The median household income ..., though up slightly from 2004, was still below its record ... in 1999... The poverty rate was essentially unchanged ...[and] well above its recent low of 11.3 percent in 2000... But the annual numbers are less important in addressing the trickle-up question than long-term trends. Here are three that I think matter.

· Living standards aren't stagnating. Over any realistic period -- say a decade -- they've risen for almost everyone. ...

· The rich are getting an ever-bigger piece of the economic pie...

· The inflow of poor Hispanic immigrants ... has increased poverty. From 1995 to 2005, the rise in the number of Hispanics in poverty ... more than accounted for the entire increase in the U.S. poverty population. Poverty among blacks, though still high, declined. Among non-Hispanic whites, it held roughly steady. ...

The bottom line: Productivity gains (improvements in efficiency) are going disproportionately to those at the top. We do not really understand why. Globalization, weaker unions, increasingly skilled jobs, the frozen minimum wage and the "winner-take-all society" ... have all been cited as reasons. Costly employer-provided health insurance is also squeezing take-home pay in the middle.

My sense is that intensified competition has simply made employers stingier. ...

What might government do? The Bush administration's enthusiasm for tax cuts for the rich could be tempered; to reduce the budget deficit, their taxes could be raised without dulling economic incentives. ... Equally, liberals and others who support lax immigration policies across our southern border should understand that these policies deepen U.S. inequality. ...

[N]o one should be happy with today's growing economic inequality. It threatens America's social compact, which depends on a shared sense of well-being.

Given the support for liberal immigration rules among many conservatives and the lack of agreement on this issue by Democrats, Samuelson's attempt at "he said-she said" journalism when he says, "Equally, liberals ... who support lax immigration policies ... should understand that these policies deepen U.S. inequality" is forced. I also don't think the evidence supports the assertion that immigration policy is an important  source of changes in inequality.

Update: Robert Reich with anecdotal evidence on these and other issues:

Political Notes from the Heartland, by Robert Reich: I’ve spent much of the past two weeks in the Heartland – Dallas, Houston, and then north into Oklahoma, and Minnesota – giving talks, and talking with lots of people. It was a free-floating focus group whose scientific value is probably questionable – after all, the audiences picked me and I picked the people I wanted to talk with – but I heard several themes over and over again, enough so that they seemed worth noting.

1. First, everything you’ve heard about the deep dissatisfaction with Congress and the Bush administration is true. Iraq and the economy are on everyone’s minds, and just about everyone I met was determined to “throw the rascals out.” I don’t recall this level of hostility since Richard Nixon occupied the White House – and, surprisingly, I heard a lot of it from people who described themselves as Republicans.

2. Not a single Democrat expressed enthusiasm for Hillary Clinton’s presidential candidacy. Most were afraid she’d lose. Many were upset with her drift to the right. Lots said they just “don’t like her.” Almost all wanted Gore to run instead. Among the Democratic left, I also heard a lot of talk about Russ Feingold. John McCain’s name came up over and over, among Democrats and Republicans. Most Democrats admired him, a surprising number said they’d vote for him over Hillary. Most were unaware of how conservative McCain is, and how hawkish.

3. The “culture wars” seem to have died down. Almost everyone said the divisive issues of abortion and gay marriage had become less salient in their states and communities. The religious right is still very much alive and I had a number of conversations with people who described themselves as “right-wing Christians,” but their attention has switched to issues like immigration. Immigration is a big deal in the Heartland, but Republicans are all over the place on it, and so are Democrats.

4. I’ve never heard so much discussion about widening inequality. It’s a theme I’ve been talking about for years now, without much response. But for some reason, now – perhaps we’ve reached a sort of tipping point on the subject, where the public is starting to take notice and become concerned – it’s now a big deal. There’s lots of worry about the nation “coming apart,” about “anyone falling into poverty,” and about “rich people running the country.” Again, I heard this from self-described Republicans as well as Democrats.

5. The other salient issue is health care. Everyone’s upset about it. The middle class is suffering sticker shock, as employers continue to shift health care costs on to employees. No one has heard any politician give a clear and simple account of what’s wrong and what should be done. Almost everyone I talked with predicted this would be the major domestic policy issue in 2008.

More to come.

Science and Religion

To me, this isn't that controversial, but apparently this editorial is generating a large response at Scientific American:

Science and Religion, Editorial, Scientific American, October, 2006: It is practically a rite of passage that scientists who reach a certain level of eminence feel compelled to publicly announce and explain their religious beliefs. The new books by Owen Gingerich and Francis Collins, reviewed this month on page 94, follow in the footsteps of Arthur Eddington and Max Planck. Yes, these authors say, they believe in God, and no, they see no contradiction between their faith and their research— indeed, they see each as confirming the other.

Why this enduring fascination? Doubtless it is partly a reaction to the tensions that always seem to arise between science and religion: the recurring war over the teaching of evolution and creationism, the statements by physicists that they are plumbing the instant of “creation” or searching for a “God particle,” the reassurances of some evangelicals that a Second Coming will make global warming irrelevant. In writing books about their own faith, religious scientists may be hoping to point the way to reconciliations for the rest of society.

Yet the tension may be greatly exaggerated. Americans are famously religious, but according to studies by the National Science Foundation, they say that they hold science in higher regard than do the people of any other industrial country. Surveys indicate that scientists are only half as likely as the general public to describe themselves as religious, but 40 percent still do. As Albert Einstein wrote, it takes fortitude to be a scientist—to persevere despite the frustrations and the long lonely hours—and religious inspiration can sometimes provide that strength.

Unquestionably, the findings of science conflict with certain religious tenets. Cosmology, geology and evolutionary biology flatly contradict the literal truths of creation myths from around the world. Yet the overthrow of religion is not a part of the scientific agenda. Scientific research deals in what is measurable and definable; it cannot begin to study what might lie beyond the physical realm or to offer a comprehensive moral philosophy. Some scientists (and some nonscientists) are led to atheism in part by contemplation of the success of science in accounting for observable phenomena.

Some find support for their spiritual beliefs in the majesty of the reality revealed by science. Others are unmoved from agnosticism. Which philosophy an individual embraces is a personal choice, not a dictate of science. Science is fundamentally agnostic, yet it does not force agnosticism even on its practitioners.

No matter how earnest their testimonies, when researchers write about their faith in God, they are not expressing a strictly scientific perspective. Rather they are struggling, as people always have, to reconcile their knowledge of a dispassionate universe with a heartfelt conviction in a more meaningful design.

As for healing a social rift, most of the debates that are commonly depicted as religion versus science are really not questions of science at all; they are disagreements among various systems of beliefs and morals. The policy fight over embryonic stem cells, for example, centers on when and how one segment of a pluralistic society should curtail the behaviors of those who hold different values. Our attention should focus not on the illusory fault line between science and religion but on a political system that too often fails to engage with the real issues.

September 26, 2006

A Difficult Rebalancing Act

Martin Wolf looks at the possibility of a U.S. led worldwide economic slowdown and what might be done to avoid it:

A slowing US could brake the world, by Martin Wolf, Commentary, Financial Times: The world economy is enjoying a glorious run. In 2003, 2004 and 2005, it had its best years since the early 1970s. Yet that is no encouraging parallel. The torrid expansion of the early 1970s led to a period of inflationary turmoil. We must ask whether the extraordinary growth of recent years also hides dangers – different, perhaps, but still significant. The answer, alas, is yes.

To doubt the resilience of the world economy must now look perverse. Since 2000, it has overcome so many obstacles: post-bubble traumas in Japan; the bursting of a global stock market bubble in 2000; the terrorist attacks of September 11 2001; a US recession; years of stagnation in the eurozone; wars in Afghanistan and Iraq; real oil prices at levels close to those of the late 1970s; and the failure to complete the Doha round of multilateral trade negotiations. Yet, in spite of all this, world economic growth was 4.1 per cent in 2003, 5.3 per cent in 2004 and 4.9 per cent in 2005, measured at purchasing power parity exchange rates. ...

How has it been possible for the world economy to leap over so many hurdles? We can offer three answers: first, the power of the underlying drivers of economic expansion – US productivity growth, globalisation and the rise of Asia; second, the ability of central banks and fiscal authorities to exploit the credibility they won in the 1980s and 1990s in response to the shocks of the 2000s; and, not least, the role of the US as borrower of last resort. ...

At present, perhaps one-seventh of the rest of the world’s gross savings (and a higher proportion of its net savings) are being absorbed by the US current-account deficit. ... The challenge for US policymakers then is to keep domestic demand at the level needed to sustain high levels of domestic economic activity, in spite of huge current account deficits.

Currently, these policymakers must keep demand some 7 per cent above full-employment levels of output. They have only two vehicles: government and private financial deficits (excesses of spending over income). In the past five years, both have contributed. But the dominant element has been the gigantic and unprecedented US household financial deficit (see chart). Meanwhile, foreigners and companies have been providers of funds.

The current housing slowdown may, however, induce households to reduce their spending sharply. ... Consumption will no longer grow faster than incomes, but more slowly instead. ... [T]he economy would slow and unemployment would rise. One response – another big fiscal boost – would seem irresponsible. Persistently high inflation might curtail another possible response – a sharp cut in short-term interest rates ...

Imagine that these events occurred in the run-up to the next presidential election. The calls for a weaker dollar and protection against imports would jump to deafening levels. This pressure would be directed against China...

What we are discussing then is the possibility of a disorderly unwinding of the external deficits, the trigger being a sharp slowdown in US household demand that would stimulate domestic pressure for both a currency realignment and protection. ...

The rest of the world may no longer need further increases in the US external deficit. But it would not want to see it contract too brutally or too quickly either. If US domestic demand weakened, however, a big correction of the external deficit is exactly what most Americans would want, since that would be preferable for them to a domestic recession. They would wish to export their slowdown.

In short, the world economy confronts not just a risk, but a test: that of managing a decline in the huge excess of US household spending over incomes. Will it be able to manage this easily? The answer is: only if others are able and willing to expand demand substantially, in their turn. What are the chances of that? It is hard to feel optimistic.

There are quite a few interrelated imbalances to be concerned about. There is the external imbalance reflected in the current account, and I don't disagree with Martin Wolf's conclusion here. There are also internal imbalances such as the budget deficit and overinvestment in housing fueled by low interest rates.

On housing, will it be an orderly slowdown or an all out bust? That's the question, and Nouriel Roubini certainly has an opinion. I was one of the people who advocated raising interests rates to rebalance the economy and correct resource misallocations -- let the air (i.e. resources) out of the housing "balloon" slowly so that it can reinflate other sectors of the economy that are flat and in need of pumping up. But there is a limited absorption rate in these other sectors and if the air escapes too fast or if the balloon pops, it will be lost rather than reabsorbed.

So far, although a lot of people have their ears covered there's been no loud pop. However, the hissing sound is certainly getting louder making it hard to feel optimistic that displaced resources from the housing sector will be easily reabsorbed.