From the Middle Out

Alan KruegerEverybody’s been writing about Alan Krueger‘s talk at the Rock and Roll Hall of Fame. Who is Krueger? The original drummer of the Jimi Hendrix Experience? The guy who wrote “Wild Thing”? A rock historian? No, no, and no. He is the chairman of the White House Council of Economic Advisers—the kind of person who often gives talks at the Rock and Roll Hall of Fame.

The talk was titled “The Land of Hope and Dreams: Rock and Roll, Economics, and Rebuilding the Middle Class.” Neil Irwin was the first person I saw report on this and he focused on the most shocking bits of data about income inequality in the music industry. In 1982, the top 1% of musicians earned 26% of all concert revenue. In 2003, it had increased to 56%—more than double! So as bad as our economic inequality is generally, it is even worse in the music business. That probably doesn’t come as a big surprise, but why it is so is hardly obvious.

Based upon work by a couple of sociologists, it turns out that our tribal instincts make music much more of a winner-take-all market than would be indicated by artists’ actual appeal. Put bluntly: people are much more interested in music that they know is popular. I know this from my own experiences. Whenever I spend time with people who listen to what is more or less “Top 40” radio, I am struck by how generic and uninteresting the music is. It seems that it is popular because it is popular. I don’t say this as a snob. There is plenty of music I don’t personally enjoy that I still think is great. I think I am in a position to distinguish between music I don’t like and music that has all the creativity of a GM assembly line.

Dean Baker added to this discussion by noting how the ever increasing copyright length adds to inequality. Marketing new artists is an expensive endeavor. It is much cheaper to just re-release yet another version of an old band. As a result, the money just keeps flowing to Paul McCartney and Peter Frampton—both of whom are already wealthy. Baker also noted the extra profits that certain artists made as people switched from vinyl to CDs to MP3s and then, of course, back to vinyl. No one need buy “The Man from San Sebastian” more than once.

E.J. Dionne focused his attention on Krueger’s point about the luck that is involved in being successful in the music business. And of course, it is as about as true of the economy generally. Dionne wrote:

I confess: I love any economist willing to say straight out that luck plays a large part in how well we do. The prosperous are especially disinclined to acknowledge that however hard they worked or ingenious they were, they were also lucky. The role of good fortune in determining success provides a powerful moral underpinning for more egalitarian policies.

And that gets to Krueger’s main point that we need to grow the economy from the middle out. We’ve spent the last 35 years growing the economy from the top down. Unfortunately, what has happened is that the economy has grown and those at the top are the only ones who have benefited. The real problem is that the rich can take care of themselves. Even if the government enacts laws designed to take money away from the rich, they have the ability to protect themselves. But when the government enacts laws designed to give money to the rich, there is no counter balance. The middle class are in no position to protect themselves. And that leaves us where we are today.

It is good to know that Obama has people like Alan Krueger around him. I still don’t expect much. Recent history indicates that under Republican administrations, income inequality gets much worse. Then, under Democrats, it gets slightly better or at least only marginally worse. Countering the last 35 years of dysfunction is going to take a lot more than incremental improvements. I suspect Krueger knows that. But whether he has the strength of conviction is hard to say. Regardless, I know that Obama doesn’t.

Birth of a Chocolate Chip

Ruth Graves WakefieldOn this day in 1691, the Italian painter Giovanni Paolo Panini was born. He is known for his view painting: very large scale painting of cities. In his case, it was Rome. It’s interesting stuff, but I would prefer more people. He clearly had a gift for historical or mythical material, but he did very little of it.

Igor Stravinsky was born on this day in 1882. He is arguably the most important composer of the 20th century. Most of the last century was a muddle with the majority of the best composers really coming from the 19th century. But Stravinsky seemed to understand the opportunities that the liberalizing environment provided in the context of where music was going. It is hard to listen to his music without thinking that in a strange way it was defining the course of music. As interesting and important as Arnold Schoenberg was, almost no one writes like him anymore and few want to hear his work. He was probably as brilliant as Stravinsky but he used his gifts in a far less edifying way. And I say that as a fan of Schoenberg. It is just that Stravinsky was the 20th century.

Here is Stravinsky at age 82 conducting the New Philharmonia Orchestra in the “Lullaby and Final Hymm” from The Firebird:

GravitationOn this day in 1898, M. C. Escher was born. Everyone knows Escher and his prints of impossible reality. He worked mostly with lithographs and woodcuts, which alone makes him pretty interesting. But it is his ideas that made him world famous. I think it is a mistake to think of him in that way, however. He was much more. For example, Gravitation on the right has all of those elements but is also extremely compelling with the turtles using the polyhedron as a shared cell. If Escher hadn’t been so against politics, I would claim it was a socialist statement.

Actor Ralph Bellamy was born in 1904. And two-time World Chess Champion Tigran Petrosian was born in 1929. He was known for his amazing defensive play. He was kind of the yin to Bobby Fischer’s hyper-aggressive offensive yang.

Japan’s “eternal virgin” Setsuko Hara is 92 today. Social realist director Ken Loach is 77. Newt Gingrich and Barry Manilow are both 70 today. Jello Biafra is 55. Here he is with Dead Kennedys doing one of my favorite songs, “California Uber Alles.” You’ve got to love a guy who (rightly) thinks that Jerry Brown is too conservative. Calling him a fascist is a bit hyperbolic, but that’s why it’s so fun:

The younger Farrelly Brother, Bobby is 55. And Greg Kinnear is 50.

The day, however, belongs to Ruth Graves Wakefield who was born on this day in 1905. Who could beat out Stravinsky and Escher and Biafra? Who is more important than all of these remarkable men? Why, only the inventor of the chocolate chip cookie! Wakefield worked as a dietitian and a food lecturer when she was young before starting a tourist lodge, Toll House Inn. She invented the cookies when she used chunks from a semi-sweet chocolate bar for her chocolate cookies, because she was out of baker’s chocolate. She sold the recipe to Nestle’s in exchange for a lifetime’s supply of chocolate.

Happy birthday Ruth Graves Wakefield!

Good News on Filibuster Reform?

Greg SargentGreg Sargent wrote an article this afternoon that really has me scratching my head, Do Senate Dems Have the Votes for the ‘Nuclear Option’? The word on Capital Hill is that the Democrats may not have enough votes to enact the “nuclear option”—the move to abolish the filibuster on judicial nominations. Apparently, there are four Senators who are not keen on this filibuster reform: Carl Levin (MI), Patrick Leahy (VT), Jack Reed (RI), and Mark Pryor (AR). As a result of Frank Lautenberg’s death, this puts the number of Democratic votes for the “nuclear option” down to just 50—not enough to pass.

These four Senators are an odd collection. The first three are somewhat liberal from liberal states. I can understand someone being very much in favor of minority rights and really wanting to keep the filibuster. But when the Republicans last controlled the White House and the Senate, they effectively eliminated the filibuster. This was at a time when the Democrats were using the filibuster half as much as the Republicans are now. Plus, the rate was decreasing. Can these guys really think that they are preserving the filibuster and not just, you know, preserving the filibuster for as long as it advantages the Republicans? Really: I don’t get it.

The fourth Senator, Mark Pryor leans somewhat conservative, and given that he’s from Arkansas, I can hardly blame him. But even he’s an odd one to be against this. During the Bush years, he was part of the Gang of 14, who effectively ended the Democrats’ ability to filibuster. I know, I know: the Gang of 14 compromise was supposedly a way to maintain the filibuster. But in practice it just meant that the filibuster remained as long as the minority didn’t use it. And when the Republicans were once again in the minority—Quelle surprise!—the Gang of 14 broke up. So it would seem that Pryor is very concerned about protecting the minority, but only when his own party is in the majority. Of course, Pryor is known to be kind of an idiot:

What I find perplexing in Sargent’s article is his concern that the Democrats don’t have the votes for the “nuclear option.” First, it is not at all clear that none of these four will vote for it. He wrote that Leahy and Pryor are “question marks” and Reed is “a Maybe.” (I’m not sure why he capitalized it.) And then there is the Joe Biden factor. Sargent showed that Biden is virtually guaranteed to be on board, so there are the 51 votes that the Senate needs.

I would add one more thing: the Democrats could wait until October when Cory Booker (or regardless, some Democrat) wins the special election and puts a Democrat back in the Lautenberg seat. So I think that Sargent is just being overly gloomy. I usually share that gloom, but it looks pretty sunny this time. And I’m especially happy that my two Senators Boxer and Feinstein are on board. Let’s reform that filibuster!

Global Warming and Budget Analogy

Paul KrugmanIn his column today, Paul Krugman argues that we need to stop worrying about the long term budget. Basically, he thinks the opportunity costs are too high. We are in no position to judge what policy ought to be 20 or 30 years from now. What’s more, legislators today can’t constrain what legislators in the future will do. But by focusing on the basically mythical “long term” we are wasting the opportunity to do something about the current jobs crisis. I am, of course, completely in agreement with him. However, he counters an analogy between the long term budget and global warming in a way that is incorrect.

Conservatives are keen to point out the supposed hypocrisy of caring about the uncertain long term effects of global warming but not caring about the uncertain long term effects of budget deficits. Krugman counters the charge of hypocrisy by noting that if we are right, global warming will be a catastrophe. That’s not really true. For one thing, the deficit scolds claim that if we don’t balance the budget right away it will be a catastrophe. The government will collapse in debt and old people will live and then quickly die on the streets. It will be Mad Max in our own lifetimes.

The issue (which I’m sure Krugman knows) is response timing. If it had to, the federal government could balance its budget this year. It could even buy back all of its bonds so it didn’t even have any debt. All of these things would be terrible, but the fact remains: we can fix any budget problem at any time. That is not true of global warming. The lifetime of a molecule of carbon-dioxide is very roughly 75 years. That means if we stopped removing the gas from the ground and putting it in the air, we would still have elevated concentrations for hundreds of years in the future. Unlike with the budget, we cannot “stop on a dime.”

Krugman brings up what I call the Social Security Paradox: in order to stop future benefit cuts, we must cut benefits now. That is the heart of why global warming is not like the federal budget. Doing something now about Social Security doesn’t do much for us in the future given that it is not at all clear there will be a future problem. (Also: if a real problem shows up, maybe we could address it with more tools than the usual conservative obsession of cutting benefits.) Doing something now about global warming will help us in 75 years. Once we release carbon-dioxide into the atmosphere, it is extremely difficult to remove it quickly.

The budget deficit is more like local air pollution. Once cars were prevented from releasing large amounts of carbon-monoxide into the atmosphere, carbon-monoxide pollution ended almost immediately. It helps that CO only lives in the atmosphere for half a year, but the bigger point is that the effect of the gas is local and they quickly move out of urban areas. For the purpose of the greenhouse gases, there is nowhere for them to go other than to be taken up into the soil or oceans. And that’s why global warming is so frightening: once it is clear there is a problem, mitigation is really hard. That isn’t the case with the federal budget.

Afterword

For more on this, see a short article I wrote last year, A Really Big Problem.

Beyond Patent Protection

PillsOne of the big arguments against libertarianism is the threat of monopolies. If there is no government, what will stop all markets from becoming noncompetitive? What stops a big company from using its resources to sell below cost for long enough to drive the competition out of business? The answer to these questions is hardcore. If one company gains a monopoly and doesn’t keep prices down, another company will see an opportunity and enter the market. This is a perfect libertarian answer because it is (1) perfect in theory and (2) hopeless in practice.

The way this situation would work in the real world is that most businesses would not enter the market because they would know that the current monopoly would simply force them out of the market by selling below cost. The only business that would enter the market would be another behemoth that was only entering the market to destroy the current monopoly and take over the place themselves. Doing anything else would have too high an opportunity cost.

One particularly interesting aspect of this situation is that it would cause prices to be highly variable. Today, the price of sugar might be 50 cents per pound but next week it might be $5.00 per pound. Libertarians are generally very concerned about price stability. As you can see here, government bonds are not the only thing that affects price stability. What’s more, libertarians are fond of pointing out that inflation is a kind of tax. And that’s true—a tax with many advantages. But monopolies are their own kind of a tax—but a tax that does no good.

I bring this up, because the Supreme Court just found in favor of free markets in FTC v. Actavis. In a 5-3 decision, the Court found that the FTC could sue drug companies for paying other companies to not produce generics. This brings up our entire broken patent system, but this particular case has to do with the time after the patent is over. Suppose Company A just lost its patent on a drug. Company B is going to start producing the drug at a much cheaper price. So Company A pays Company B to not produce it. According to libertarian thinking, there is nothing wrong with that. And three justices agreed: John Roberts, Clarence Thomas, and Antonin Scalia. Samuel Alito recused himself, but he certainly would have voted with them.

This is all funny when you look at it the right way. The libertarian argument here is that two companies ought to be able to enter into their own contracts and it has nothing to do with the rest of us. In fact, there are other companies that could start to make the drug, right? As I’ve indicated, this is nonsense. But what’s funny is that the very same libertarians who would argue that the government shouldn’t get involved in the market in this way think that the government should get into the market in a very big way by allowing patent monopolies.[1]

The idea for allowing patent monopolies was always to encourage innovation. But at least when it comes to new drugs, the government spends as much as the drug companies do on research. What the drug companies spend a lot of money on is advertising. They spend almost 20 times as much on marketing as they do on research. Clearly, we would be doing better if we got rid of patent protection and provided more public funding of research. It would also have the advantage of providing better drugs and not just the newest boner pill that’s only advantage is that it is still covered by a patent.

The problem with libertarians or communists or anyone who is dedicated to an ideology is that they limit their options in solving real world problems. To libertarians, patents aren’t about creating a dynamic marketplace; they are about some theoretical notion of freedom. But the truth is that freedom is not an absolute concept. There is the freedom of companies to subvert market forces so they can keep drug price margins high; and there is the freedom of individuals to buy drugs at a free market price. The fact that we have patents at all indicates that we understand this freedom trade off. But libertarians and like minded conservatives seem to think that the only freedom that is in need of expansion is the freedom for businesses to increase their profits. Thankfully, in this case, five members of the Court came down on the side of individual freedom—the kind that is increasingly fragile in this country.


[1] There are some libertarians who don’t believe in patents. They are rare, however.