Carrier Subsidies Are Loans, and You Should Welcome Their Death
A very confused TechCrunch piece by John Biggs bemoans the possible future end of carrier subsidies in the American mobile phone market. The right way to think about this is that the "subsidies" aren't subsidies at all, they're loans. If you compare what AT&T or Verizon charge as a monthly rate with what a service like Ting or the new no-contract T-Mobile plans cost, you'll see that the big boys are charging a massive premium. That premium, paid over the life of a two-year contract, is the interest you are paying on your loan.
The carriers are exploiting our shortsightedness (and the fact that banks don't offer a mobile phone loan product) to get us to pay much more for "phone plus service" than we would otherwise pay.
Where Biggs is right is that a move to a nonsubsidized model would be bad for the phone-makers, since the way the carriers run this bait-and-switch requires them to throw some extra scratch in the direction of Apple, Samsung, Motorola, or whomever. But consumers would be better off. There's a reason we don't buy cars that are tied to a particular oil company and feature a two-year contract to exlusively fuel your vehicle with overpriced gasoline from one particular vendor. The only reason the subsidy model has lasted as long as it has is that spectrum scarcity makes the market for network access rather uncompetitive, and lets exploitative business models live fairly long lives. But it's not a totally uncompetive market, and the walls will and should come down.
Deindustrialization and Inequality
Paul Krugman writes that "today’s service economy is in many ways like the Edwardian-era economy in which a small number of wealthy people employed a large number of servants — except that we tend to outsource the service, relying on restaurants and cleaning services instead of cooks and maids."
It's interesting to note in this regard that domestic income inequality is shrinking in China as industrialization continues. There's an old hypothesis in economic history called the "Kuznets Curve" which postulated that agrarian economies started out very poor but not-so-unequal. Then as they started industrializing, inequality would explode. Because rural productivity is extremely low, early industrialists can earn enormous profits paying highly productive factory workers wages that are only barely above the subsistence-level earnings of the farmers. But the very profitability of this sweatshop industrialism ensures that people will build more and more factories. That creates excess demand for industrial labor, and you get to the part of the curve where China is today—rising wages and falling inequality.
One way of thinking about the contemporary United States is that Kuznets was wrong to think of this as an inverted-U with a single peak. Instead it's a wave, where inequality rises again once the share of the population working in factories falls.
But of course this isn't something that just happened. A lot of research has come out in recent years indicating that contrary to the blithe assurances of economists expanded trade with China has in fact reduced the earnings of American workers substantially. At the same time, these developments have made America richer overall. Which is to say that the resources exist, in principle, to make investments in Social Security, education, universal health care, wage subsidies, etc. that leave everyone better off. We just haven't actually done those things. And that, at the end of the day, is my bottom line. The broad shape of the economy is always shifting. What matters for big distributional outcomes isn't really those shifts, it's what the political process does with them. Our process has done a little of what we should be doing (Obamacare, for example) but also a fair amount of the reverse—as seen in the relentless drive for Social Security cuts.
Stanley Fischer Likely to Be Tapped as Fed Vice Chair
According to John Hilsenrath, "according to a person familiar with the matter," Barack Obama is poised to nominate Stanley Fischer to be vice chairman of the Federal Reserve.
This is a bit of a surprising development if only because Fischer didn't seem to be seriously considered as a contender for the top Fed job. I figured that was either because Fischer wasn't interested in a government job or because the White House deemed him insufficiently American. If either of those were the case, it would seem to disqualify him for the vice chairmanship too. But he's extraordinarily well-qualified, a distinguished academic economist (Ben Bernanke's mentor) who also served as chief economist at the IMF and as president of the Bank of Israel. As Janet Yellen is already poised to be the best-qualified Fed chair in history, the duo would represent a significant upping of the ante in terms of the idea that the institution should be stewarded by real central banking professionals.
Fischer himself is an interesting guy (read Dylan Matthews' profile from February), born in a town in what was Northern Rhodesia at the time but is now known as Zambia. When he was 13, his family moved to Southern Rhodesia, which at the time was run as a kind of apartheid rogue state. Then he went to the London School of Economics, then MIT for graduate school. He stayed in American academia throughout the 1970s and 1980s, then worked at the World Bank and the IMF through most of the 1990s. He's essentially a native of countries that don't exist anymore, and as he's Jewish he obtained insta-citizenship in Israel when in 2005 he was asked to run its central bank. But he's also an American citizen. As Bank of IsraelpPresident, he helped Israel weather the recession through massive currency inflation. Fischer says he was running an inflation-targeting central bank and denies that any kind of NGDP targeting was happening, but the fact of the matter is that Israel's NGDP was more stable than its inflation rate during his tenure. He's also against forward guidance, which may be awkward as vice chair since forward guidance has become key to the Fed's thinking.
How to Balance the Budget While Slashing Taxes
I have a column about the absurdity of Paul Ryan agreeing to raise "fees" but not "taxes," but let's say for the sake of argument that I'm wrong. Taxes and fees are totally different, and it makes total sense to think fees are OK but taxes are evil.
Well we could solve an awful lot of problems that way. For example, I'd love to see us impose a greenhouse gas emissions fee to internalize the social cost of carbon dioxide. On top of that, I think a small additional fee on the use of gasoline would be justified. And of course road congestion fees on crowded highways. I used to think we should raise the alcoholic beverages tax, but now I think we should eliminate it entirely. Instead, let's put an "alcohol fee" in place that just happens to be higher than the current tax. Do the same for cigarettes. Legalize marijuana, but subject its sale to a rather hefty fee. It actually turns out that we could replace most taxes on labor and capital with a land occupancy fee, especially if we call it a "land occupancy fee" rather than a "land value tax."
With all these new fees in place, in other words, we'd have ample revenue to solve our fiscal problems and slash taxes at the same time. What's not to like?
Restrictive Zoning Promotes Racial Segregation
Zoning codes that prohibit high-density real estate development are key to understanding the affordable rental housing crisis in America, but it turns out that they're also crucial to understanding the deep patterns of racial segregation that characterize American life.
Jonathan Rothwell and Douglas S. Massey did a good paper on this in 2009 that used regression analysis across a large national sample of jurisdictions (PDF) to conclude that there is "a strong and significant cross-sectional relationship between low-density zoning and racial segregation, even after controlling for other zoning policies and a variety of metropolitan characteristics." More recently, Matthew Resseger took a more detailed look specifically at the Greater Boston Area (PDF) and shows that "over half the difference between levels of segregation in the stringently zoned Boston and lightly zoned Houston metro areas can be explained by zoning regulation alone."
Now to be clear, it's not as if there is no residential segregation in Houston. So even though zoning accounts for the majority of the Boston-Houston gap, it doesn't account for a majority of all the segregation. But that's still a really large impact. And this is not really a case of unintended consequences. Zoning codes were designed to serve as de facto segregation measures (PDF), and they more or less work.
The Long-Term Unemployed Are Doomed
There had been a fair amount of buzz around the idea that the budget mini-deal being hashed out between Paul Ryan and Patty Murray might include some extra money to extend unemployment insurance benefits for the long-term unemployed. But Republicans didn't like the idea, and Democrats didn't want to bust up the deal over it, so now folks who've been jobless for an extended period of time are going to lose their benefits at the end of the year.
One consequence of this is that the unemployment rate will almost certainly go down, since some fairly substantial fraction of the long-term unemployed will just stop looking for a job and drop out of the labor force. If you're long-term unemployed, then almost by definition looking for work has not been very successful at getting you work. What it has gotten you is a UI check. Take away the check, there's no point in bothering, and so the denominator in the unemployment rate falls and thus the unemployment rate falls.
The bad news is that the long-term unemployed are screwed.
In effect, when companies are looking to hire people, they scan through the résumés they get in the mail and their first step is to throw out all the résumés of people who've been unemployed for a long time. This is research based on pretty well-designed experiments that control for other variables beyond long-term unemployment. You should feel free to see that as a vile form of discrimination, or as a sensible business heuristic according to your temperament. The point is that the people who are about to lose UI benefits are not going to be able to find jobs. Not today, not after they lose benefits. In fact, they probably won't be able to find jobs ever.
Mailing unemployment insurance checks to people who aren't so much unemployed as unemployable is obviously not an ideal public policy. But simply doing nothing for them is cruel and insane. The time-tested way of re-employing a large mass of long-term unemployed is to fight a major world war with Germany and Japan. The circumstances of mobilizing for major armed conflict in 1940–42 proved that when you really want to put people to work, it can be done. So it's always possible that the Senkaku Islands will come to the rescue. But large-scale armed conflict has a lot of offsetting negative consequences. What we need are targeted "mobilization" programs that don't rely on the outbreak of an enormous war. That would take, I think, two major forms.
One is direct government hiring of the long-term unemployed to do some kind of public service work. Making this happen would require you to go outside the standard civil service and federal contracting frameworks, which obviously neither civil servants nor federal contractors are going to like. But it has the job-creating punch of a major war without all the death and destruction. The other is relocation assistance. The metropolitan areas of Bismarck, Fargo, Grand Forks, Sioux Falls, Ames, Iowa City, Lincoln (Neb.), Midland, Burlington, Mankato (Minn.), Logan, Rochester (Minn.), Billings, Dubuque, Morgantown, Odessa, Rapid City, Omaha, Waterloo (Iowa), Columbia (Mo.), and St. Cloud all have unemployment rates below 4 percent. Those are the kind of places where the labor market is tight enough that discrimination against the long-term unemployed shouldn't be a major factor. There's work to be done in these towns, and evidently most people are reluctant to move to small isolated cities in extremely cold locations (also Midland, which isn't cold). Grant programs to connect the long-term unemployed with job opportunities on the Plains and offer financial assistance for relocation could do a lot of good.
Alternatively, we could keep paying UI checks.
But we're not going to do that. And we're not going to do relocation assistance. And we're not going to do direct hiring and public works. We're going to do nothing. We're going to tell people to go out and look for work, even though employers looking to hire can still afford to be very choosy and generally refuse to even consider the long-term unemployed as job applicants. The country failed these people first by letting the labor market stay so slack for so long that they became unhirable, and now we're going to fail them again.
How General Motors Bucked the Patriarchy
The appointment of Mary Barra to serve as CEO of General Motors is being hailed as a milestone for women in business. Female CEOs of big companies are still very rare, no woman has led a major auto firm in any country, and car firms like General Motors sort of punch above their weight in terms of public awareness since their branding is everywhere. And it's worth saying that this isn't just a one-off at GM. Behind Barra is a Board of Directors that's "only" 71 percent male, and will be merely 66 percent male when Barra takes her predecessor's board seat.*
This is in a world, mind you, where 83.4 percent of Fortune 500 board seats are held by men and it's virtually unheard-of to have a majority-female board. And GM is doing the right thing, businesswise. Firms with gender-diverse boards perform better, according to a range of studies.
And it's good to drill down into who these women on the GM board are and see what lessons can be learned. We've got:
- Kathryn Marinello, CEO of Stream Global Services.
- Patricia Russo, former CEO of Alcatel-Lucent.
- Carol Stephenson, dean of the business school at the University of Western Ontario.
- Cynthia Telles, director of the UCLA Neuropsychiatric Institute Spanish-Speaking Psychosocial Clinic and a former member of the Los Angeles Board of Airport Commissioners.
Which is to say that they're like any group of corporate board members. A semi-random agglomeration of noteworthy and accomplished people, who neither individually nor collectively fit any particularly clear concept of who is qualified to be on the board of an automobile company. That's what makes firms' failure to find women to serve on boards so egregious. It's an aspect of corporate life in which you have extremely broad discretion to pluck anyone you like and add them to the team. So if you care—even a little bit—about the idea of diversity at high levels of the company, you'll make sure to build diversity into the board. And yet a huge number of firms don't, because they don't care.
*Correction, Dec. 11, 2013: This post originally stated that GM's Board of Directors is 64 percent male, and will be 55 percent male when Mary Barra joins it. This post also misstated that Kathryn Marinello is the former CEO of Stream Global Services. In addition, this post misspelled Carol Stephenson's last name. Also, this post misstated that Cynthia Telles is a former member of the Los Angeles County Board of Supervisors.
What's Our $1 Trillion Infrastructure Stimulus Going to Be Spent on?
In the course of a somewhat puzzling QE-bashing article, conservative economist Martin Feldstein called for $1 trillion in public infrastructure spending as fiscal stimulus.
Since we've got conservatives calling for big government spending programs, let me play the role of conservative here and suggest that before you talk about $1 trillion infrastructure bill you should say something about what the money's going to be spent on. That kind of spending could be macroeconomically useful even if it's entirely wasted, but you could also just cut everyone a check for $3,000 per head and things would be much simpler. Does America really need $1 trillion of extra highway expansion projects? I'm skeptical. Meanwhile, a lot of progressive cities have hopped aboard a bizarre fad for building mixed-traffic streetcars that actually run slower than buses, since buses can at least switch lanes to avoid obstacles.
Now there are plenty of real infrastructure needs in this country, and it's absurd not to be doing stepped-up maintenance during a severe recession. But it's really irresponsible to just start flinging gigantic sums of money around without any kind of talk about what you want to spend the money on.
REVEALED: The Person of the Year Is Edward Snowden
As you know, ever since 1927 Slate's Moneybox column has annually designated a "Man of The Year," with the title changed in 1999 to "Person" of the year but in practice it's almost always a man because patriarchy. It's an honor bestowed not necessarily on the best person of the year, but on the most influential figure. The one who's touched the largest number of people in the most profound way.
At times that goes to a person of mixed reputation like 1931 winner Wallis Simpson, who upended the British monarchy. At times we've even been accused of "trolling" or "Slatepitches," as when we picked Adolf Hitler in 1938 and Ayatollah Khomeini in 1979.
So when I tell you that Edward Snowden is 2013's Person of the Year, don't necessarily take that as an endorsement of all his views and everything he's done. But there's no doubt that his actions have had broad significance, upending German politics and technology companies' business strategies. Snowden's revelations and his controversial flight to Russia bring together the defining trends of our era—social media and the continued legacy of the Sept. 11 terrorist attacks.
Our committee did seriously consider other contenders, including the new Pope. But since Catholics everywhere have decided to act pissy about non-Catholics who are excited about the new Pope, insisting that all Popes have always said this stuff and it's all just a huge misunderstanding to think there's anything novel about him, we decided to snub the guy. The snub will probably provoke whining of its own, but that's what you get. Also, homilies are nice, but Snowden has impacted the course of history in concrete, tangible ways. If someone from inside the Church wants to leak the real dirt on the Vatican Bank next year, we'll consider giving that guy the prize.
For Slate's complete Snowden coverage, use Google like a sensible person.
Update: No! Wait! We have have a really good search function now!
When Your Traffic Comes From Facebook, It's Facebook's Traffic
A number of good pieces have been written now about the phenomenon of "viral" Web traffic hits where a handful of outlets (Upworthy, Viralnova) have gotten really good at identifying and marketing pieces that explode. Gawker's Neetzan Zimmerman specializes in viral hits and dominates the Gawker media leaderboards. And, of course, there's BuzzFeed.
We are touched by the same viral virus here at Slate where Katy Waldman's writeup of the Goldieblox ad scored incredible numbers.
From a business viewpoint, I think an important point to make about this is that "viral" basically just means "is popular on Facebook" since Facebook is really the only host for viral content that matters. And that in turn means that all the viral traffic a website gets is really Facebook's traffic. It's been clear for a long time now—like going back to well before there was an Internet—that journalism just isn't that popular. Most households in the New York City metro area never subscribed to the New York Times, for example. Facebook, by contrast, is something that people really like. So since Facebook is so much more popular than journalism, it turns out that the most popular kind of journalism is Facebook content.
But this is still really Facebook's traffic. Not just in the sense that Facebook can always tweak the algorithms that determine what plays well on Facebook, but in the sense that whatever economic value is created by "viral" content will ultimately be captured by Facebook. If you want to advertise to an audience of people eager to consume Facebook-friendly content, after all, the logical place to do that is on Facebook.