Felix Salmon

New York taxis are a textbook example of gains going to capital rather than to labor. They’re generally owned by one person — the person with the capital — and driven by another — the person with the labor. And the person with the capital has made out very well of late. When the stock market peaked in October 2007, medallions were trading at $425,000 apiece. (All data from this page.) By the time the market had plunged by more than half in February 2009, medallions had risen in value to $552,000. And they’ve only gone up in value since: in December 2010, the average medallion changed hands for $624,000; last Wednesday, a new all-time record was set for a corporate medallion which sold for $880,000.

Meanwhile, drivers earn nothing like that kind of money. Getting reliable statistics for taxi-driver income is not easy, but it seems to average out somewhere around $130 per shift — which is actually less than the the amount the drivers pay to lease the taxi. And remember that the owner leases out the car for two shifts per day, while the driver can only work one shift.

It’s pretty clear to me what’s happening here. The medallion owners hold the power, and will charge whatever they can to drivers. If anything happens (a fare hike, say) which improves drivers’ income, then the rents just get jacked up: there’s a lot of demand for taxi-driving jobs, and so essentially the owners just rent out their taxis to the drivers willing to pay the highest shift fee and therefore take home the lowest income.

When someone like Melissa Plaut, then, starts complaining about a proposed rule change on the grounds that it will reduce drivers’ income, I think that she’s missing the bigger picture. It’s the owners who reduce drivers’ income, by charging them as much money for the privilege of driving a cab as they can possibly get away with.

Meanwhile, it’s the mayor’s job to try to create a system where yellow cabs and livery cabs coexist to maximize the welfare of New Yorkers — the general population first, and the drivers second. The medallion owners come a distant third.

Somehow, annoyingly, the medallion owners always end up the winners here, and that doesn’t seem fair to me. None of them were hurting when medallions were fluctuating in value between $200,000 and $250,000 in the years from 1998 through 2003. And for the past eight years or so they’ve been laughing all the way to the bank.

If drivers have an issue with their income, then, they should take up their beef with the medallion owners. But instead, every time that the city proposes something to improve the taxi system more generally — like issuing more medallions, or putting credit-card readers in cabs, or putting meters in livery cars — the drivers reflexively side with the owners. Anything which might hurt medallion owners, they assume, will automatically hurt drivers as well.

Which I’d agree with, if it weren’t for the fact that drivers have signally failed to participate in the good fortune of the owners over the past decade. It’s time I think for the mayor to start putting in protections for cab drivers, which might get an important constituency on his side when it comes to making these kind of changes. Even if doing so annoys a handful of politically-powerful medallion owners.

Update: Plaut responds in the comments.

Four years ago, I started pushing back against the idea that whenever the government fails to make good on some obligation or other, that’s exactly the same thing as a bond default. Of course it isn’t: bond payments are a very special form of government obligation, involving specific sums of money to be paid in a specific manner on specific days. If you fail to make such payments, you’re in default. If a government takes money from, say, the military-salaries pot and uses it to make its bond payments, then that’s a drastic way of avoiding default. It’s a broken promise, to the servicemembers in question. But it’s not a default.

No one understands this better than Treasury. Just ask Tim Geithner himself, who was undersecretary for international affairs from 1998 to 2001, during the Asia and Russia crises. When he was dealing with sovereign defaults, there was a clear understanding that what mattered for such purposes was whether or not countries made their principal and coupon payments in full and on time. Domestic obligations, while important, were a separate issue — and in many cases the international community, led by Treasury and the IMF, would encourage countries to radically overhaul those obligations. No one at Treasury back then made the argument that such overhaul might itself be tantamount to default.

How things have changed now that the problem is domestic, rather than foreign. Neal Wolin has penned an astonishing blog entry at Treasury.gov:

Adopting a policy that payments to investors should take precedence over other U.S. legal obligations would merely be default by another name, since the world would recognize it as a failure by the U.S. to stand behind its commitments. It would therefore bring about the same catastrophic economic consequences Secretary Geithner has warned against.

Wolin really seems to be saying here that Illinois has already defaulted, since it’s late on many payments it’s legally obliged to make. And that a late Social Security check is just as bad in terms of America’s creditworthiness as a missed bond payment — even if Treasury is making all of its payments to the Social Security trust fund in a timely manner.

This is a dangerous and ill-advised rhetorical tack to take. For one thing, it’s false: the transfers made from a government to its citizens are qualitatively different from its bond payments to creditors, and if they’re missed the consequences are not nearly as catastrophic. On top of that, Wolin seems to be saying that Treasury has no particular desire to differentiate its bond obligations from any other obligations. Which, at the margin, increases the likelihood of a bond default. If bonds aren’t special — if they’re just one of many US government commitments — then bondholders should rightly worry that spending cuts might hurt them, too.

There may be some political or tactical reasons why it makes sense for Treasury to talk like this. But strategically, I fear, it could turn out to be very a big mistake indeed.

My fabulous editor, Jim Ledbetter, had a party a couple of days ago for his new book about Dwight Eisenhower. He asked for the most famous passage from Eisenhower’s 1953 “Chance for Peace” speech to be turned into updated charts, so here you go:

Sources: The price of a bomber, according to the Air Force, is $1.2 billion in 1998 dollars, which works out to about $1.6 billion today. It costs $18.5 million to build a school. For the power plant, I’m assuming energy usage of 11.4 kW per person (obviously this is up sharply from 1953) and a cost for building a power plant of $1,050 per kW, which works out at about $700 million. Hospitals are coming in at about $260 million apiece. Highway costs are about $10 million per mile.

A fighter costs $150 million; a bushel of wheat is $8. Destroyers run about $1.75 billion apiece; and construction costs on a new single-family home are $222,511.

And here’s the passage in question, which still carries enormous force:

Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed.

This world in arms in not spending money alone.

It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children.

The cost of one modern heavy bomber is this: a modern brick school in more than 30 cities.

It is two electric power plants, each serving a town of 60,000 population.

It is two fine, fully equipped hospitals.

It is some 50 miles of concrete highway.

We pay for a single fighter with a half million bushels of wheat.

We pay for a single destroyer with new homes that could have housed more than 8,000 people.

This, I repeat, is the best way of life to be found on the road the world has been taking.

This is not a way of life at all, in any true sense. Under the cloud of threatening war, it is humanity hanging from a cross of iron.

Jennifer Saba makes an important point about milquetoast tech analysts today: faced with huge news about shake-ups in the CEO position at both Apple and Google, precisely zero analysts asked any questions on that subject during the companies’ earnings calls.

In the case of Google, the company went out of its way to open itself up to such questions: it started its call with comments from Page, Schmidt, and Brin, all of whom talked explicitly about the changes, and then invited questions for them specifically before returning to old-fashioned earnings-call questions. The transcript, when you read it, is almost hilarious:

>>Patrick Pichette

Jay, if you don’t mind, what we will do is we will set up two sets of questions for this afternoon. We will just take a few questions now because we have Larry, Sergey and Eric, and so we will take a few questions. And then after that, we will close that section of the call, let them run back — go back to work, guys — and then we will take the regular call as we usually proceed. So, Jay, if I can ask you to give us the instructions to take a couple of questions for Eric, Larry and Sergey.

Operator

(Operator Instructions). James Mitchell, Goldman Sachs.

>>James Mitchell

Congratulations on the movements, and congratulations on the results. I guess one question I had just stemming from the results rather than from the movements perhaps is when I look at the investments in 111 8th Avenue in New York City, do you feel that Google is now at a point where in order to continue facilitating the growth of the Internet that there will be a land grab for desirable physical locations?

It’s sad but true: faced with an open invitation to ask Google’s troika anything he wanted about the leadership of the company, Goldman’s star tech analyst instead simply said “congratulations on the movements,” and moved swiftly on to a question about Google’s decision to buy rather than rent its New York office.

There’s no good reason for this kind of behavior. Analysts are happy asking tough questions on calls and in their reports: it’s not like they are or should be scared of annoying senior management. What’s more, Google clearly wanted and expected questions about the C-suite changes.

But Wall Street analysts are much happier with spreadsheets than they are with anything human, and faced with the opportunity to ask flesh-and-blood questions, they get squeamish and retreat to their quanty ivory towers.

Which is one more reason, if reason be needed, to treat everything coming out of Wall Street’s research shops as fundamentally incomplete.

Ken Auletta, who literally wrote the book when it comes to Google, has a must-read take on what exactly is going on with Eric Schmidt, and goes out on a limb by saying that his tenure in the weird job of non-CEO executive chairman will last just one year before Schmidt leaves to “do something else.” (This fits with reports that Schmidt is planning to sell a chunk of Google stock.)

The era of Larry Page, CEO, is about to begin: it’s clearly what Page wants, but it’s also something that he’s temperamentally ill-suited to:

Larry Page, who read books on business as a young man, who at age twelve read a biography of Nikola Tesla and took away the lesson that it was not enough to be a brilliant scientist if you were not also a good businessman who controlled your inventions, had more aptitude for management than Sergey Brin. It was always assumed that one day Page would be C.E.O. Now that he is about to be, he will have to change. He is a very private man, who often in meetings looks down at his hand-held Android device, who is not a comfortable public speaker, who hates to have a regimented schedule, who thinks it is an inefficient use of his time to invest too much of it in meetings with journalists or analysts or governments. As C.E.O., the private man will have to become more public.

Looked at in this light, Schmidt’s year as executive chairman is essentially a way of softening the blow of being CEO: Schmidt will take on a lot of the responsibilities which Page is ill-suited to, at least for a while, giving Page some time to get his management ducks in a row before facing a lot of public music.

Meanwhile, YouGov BrandIndex sends over this chart, showing that the perceptions gap between Facebook and Google has never been narrower:

My suspicion is that it’s Sergei, rather than Larry, who’s going to be mostly responsible for keeping Google’s score as high as possible here, and tending the don’t-be-evil flame. He’s also going to be in charge of various undisclosed moves out of Google’s core advertising business, while Larry tries to bring more focus and drive to what has become a very large bureaucracy.

As for Eric, as Auletta says, he’s “fifty-five, a billionaire, a man comfortable in his own skin.” The option space available to him is enormous. But after spending his entire professional life working for other people, I suspect he’ll want to be the owner or founder of whatever he does next.

Talk of introducing legislation allowing states to declare bankruptcy began in earnest in November. A speech by Newt Gingrich was followed up by a big Weekly Standard piece on the subject by David Skeel, and soon the meme filtered into the blogosphere. Unlike most political chatter, this kind of talk isn’t cheap at all: it’s very expensive. As the subject has refused to go away—which means, as House Republicans have continued to work on drafting some kind of bill—the municipal debt market has plunged.

Now, with a massive front-page story in the NYT, the stakes have got even higher. Mary Williams Walsh is well aware of what she’s doing: she talks explicitly about “the fear of destabilizing the municipal bond market with the words ‘state bankruptcy’”; while at the same time splashing those very words across the most influential public real estate in the world. She frets that the mere introduction of a state bankruptcy bill could lead to some kind of market penalty, even if it never passed—but the fact is that her own article, in and of itself, is almost certain to drive up borrowing costs and uncertainty.

Walsh’s piece comes on the heels of an important report from the Center on Budget and Policy Priorities, which makes a compelling case that state bankruptcy is neither necessary nor desirable:

It would be unwise to encourage states to abrogate their responsibilities by enacting a bankruptcy statute. States have adequate tools and means to meet their obligations. The potential for bankruptcy would just increase the political difficulty of using these other tools to balance their budgets, delaying the enactment of appropriate solutions. In addition, it could push up the cost of borrowing for all states, undermining efforts to invest in infrastructure.

But the message isn’t sinking in. James Pethokoukis is a reliable guide to what the GOP is thinking:

The NYT article raises the specter that states would be shut out of credit markets if allowed to declare bankruptcy, or if one should actually take that step if federal law is changed. That seems unlikely, although some may have to pay higher interest rates. Municipalities and even countries repudiate debt and yet continue to borrow. And even investor apprehension would be balanced by states getting their finances in order, which should appeal to potential lenders.

This is completely bonkers. If states are allowed to file for bankruptcy, then Illinois, for one, would be shut out of credit markets. And if Illinois or any other state were to actually go ahead and file, then many other states, including New York, would be shut out of credit markets. That’s not “unlikely,” it’s certain.

As for Jim’s idea that “municipalities and even countries repudiate debt and yet continue to borrow,” he’s just plain wrong about that. A country which repudiates debt has no access to private credit markets: the only borrowing ever available to such a state is from official-sector institutions. I defy Jim to name a single municipality or country which has repudiated its debt and yet continued to borrow money in the private markets.

That said, it’s pretty unthinkable, even if a state were to declare bankruptcy, that it would go so far as to repudiate its debts. Indeed, bankruptcy is a formal recognition that a borrower is sinking under the weight of far too many legitimate debts; it seeks to restructure some of those debts to make them manageable, rather than repudiating them outright.

On the other hand, Jim’s utterly wrong that somehow bankruptcy is costless to the states, and that the downside of forcing a haircut on lenders would be fully counteracted by the upside of putting the states on a solid fiscal footing. Lenders really don’t much care about fiscal sustainability: all they care about is that they get their money back, as contracted, in full and on time.

It’s worth remembering here that most municipal bondholders are individuals, rather than sophisticated institutional investors. If your aunt Sally put her savings into state bonds, she is not going to be happy if she can’t get her money back, and she is certainly not going to be mollified by talk of lower deficits in future. The deficits are what allowed her to buy the bonds in the first place; she doesn’t particularly want them to go away. But there’s no way she’ll stand for a haircut. And, of course, she votes.

The fact is that states are not going to declare bankruptcy, and they’re not even going to be allowed to declare bankruptcy. So the worst thing that can happen, for the municipal bond market, is that people continue to talk about municipal bankruptcy for the next couple of years. Let’s take the option off the table, once and for all, rather than taking it seriously and thereby only making it harder for states to borrow the money they need.

Center on Budget and Policy Priorities on the muni crisis — CBPP

AOL is a scam, selling internet access to elderly people who already have internet access — TBI

Goldman made its enormous stock and options award the day after announcing a huge loss — CNBC

Citigroup Defective-Loan Rate Improves to F+ — Bloomberg

“Words like shallow, facile, glib and slick are not insults to a journalist” — Guardian

Ten years is a long time to be one of the most visible CEOs in the world, especially when the buck doesn’t really stop with you but rather with a triumvirate where you’re clearly the third wheel. So the news that Eric Schmidt is handing over the top job at Google to Larry Page makes a certain amount of sense. As he said on Twitter, Page has a decade’s experience as a senior executive of Google, and day-to-day adult supervision is no longer needed. Google’s venture-capital backers had every reason to want Page and Brin to bring in an experienced outside CEO in 2001. Today, most of those reasons no longer apply, and Google can be run by one of its two founders, in a world where founders, in general, beat out managers.

Schmidt is also keeping for himself the outside-facing parts of CEO-dom which Silicon Vally nerds by their nature are pretty bad at. He has a clumsy way of putting it, but when he talks about “the deals, partnerships, customers and broader business relationships, government outreach and technology thought leadership that are increasingly important given Google’s global reach,” he basically means the large part of the CEO job which involves schmoozing various people in Google’s interest.

This is an interesting role, in terms of US corporate governance. Non-executive chairmen are common, but executive chairmen are nearly always the CEO as well. There’s a good reason for that: all executives ultimately report to the CEO, while the CEO reports to the board and its chairman. An executive chairman who’s not the CEO will be both an executive, reporting to the CEO, as well as being the CEO’s boss. That could conceivably get awkward — but Google is a special case. For one thing, the CEO isn’t going to be asking for a massive pay package, so tension surrounding compensation goes out the window. On top of that, the idea of Google being run by a triumvirate was already awkward, and this new setup isn’t any more awkward than that.

When I was pondering the idea that Facebook could remain a privately-traded company in perpetuity, it seemed to me that one of the main reasons for it to do so was that Mark Zuckerberg has neither the inclination nor the desire to do the kind of outward-facing schmoozing that Schmidt is taking as his job. But Zuckerberg can’t follow Google’s lead and hire an executive chairman while remaining CEO. He wants full control—which means being both chairman and CEO, reporting to no one but a hand-picked board.

So while the job of non-CEO executive chairman is a fascinating one, don’t expect to see it replicated much if at all. It works for Google; it probably doesn’t work elsewhere.

David Kesmodel reports that US consumers finally seem to be waking up to the fact that there’s no correlation between price and quality when it comes to wine:

The economic downturn was toughest for the U.S. wineries that sell wines for $20 a bottle and up. After switching to less-expensive wines in the downturn, many consumers are staying at those lower prices because they liked what they found, industry executives and analysts say.

Actually, there are two parallel things going on here. The first is that wine in the $9 to $12 range tastes just as good as wine in the $20 to $30 range. The second is that US wine over $20 is massively overpriced.

Kesmodel’s article quotes three individual winemakers. Two are in Napa; the first sells wine at $100 a bottle, while the second sells wine between $28 and $55. The third is in Washington, and sells wine at about $50 a pop.

At these levels, wine is not an everyday pleasure — not unless you’re solidly in the ranks of the rich. Instead it’s a tool for snobbery and one-upmanship, and a way of selling wine to people who choose wine based on exactly two numbers: its rating out of 100, and its price in dollars. In both cases, it is understood, higher means better.

It’s not hard to shatter these illusions, though. Once people move from $50 US wines to $11 French wines and actually prefer the latter to the former, then it’s all over for the Americans.

Much of the California wine business is based on the idea that California wines compete only with each other; in the upside-down world of Veblen goods, they often compete on price not by being cheaper than their competitors but rather by being more expensive.

It’s also true, however, that people who downgrade from luxury goods to better-but-cheaper mass-market alternatives very rarely trade back up again. Once you trade in your Vertu for an iPhone, you’re unlikely switch back.

And that seems to be what has happened in the wine world. If American wine drinkers are losing their snobbery, that’s great news for anybody who wants to see a vibrant culture of wine drinking in the US. But it’s very bad news for high-end wineries selling their juice at upwards of $50 a bottle.

When the big financial-overhaul bill was working its way through Congress, Treasury persuaded legislators to avoid passing rules on bank capital or liquidity. Leave all that to Basel, they said, so that there could be a global, unified system. And that’s what happened. But if two huge new systems are passed by two highly complex bureaucracies, there are bound to be conflicts. And Melvyn Westlake has a great story in Global Risk Regulator on one of those conflicts: the role of the ratings agencies.

Under Dodd-Frank, the official role of ratings agencies was severely curtailed: regulators are not allowed to use credit ratings when promulgating rules. Under Basel III, however, regulators have to measure the riskiness of bond portfolios somehow, in order to work out how much capital banks should be required to hold against them. Credit ratings are particularly central, under the Basel regime, when it comes to securitizations and measuring both liquidity and counterparty risk.

Squaring this circle, it turns out, is very hard indeed:

“Nobody has put forward any really satisfactory ideas,” admits a Federal Reserve regulator. Already, the absence of a practical alternative to credit ratings has begun to impair new rulemaking in Washington…

The inability to find a solution and the looming deadline is “a source of a great deal of concern,” says Karen Petrou, executive director of Federal Financial Analytics, a Washington consultancy on regulation. “The agencies are informally admitting that they are stumped. But the deadline is only six months away, so something has got to happen. The law is very clear. It says there may be no reference to ratings,” she adds. “We are going to have a hell of a time with the Basel III rules because of the way ratings are still embedded in them,” Petrou reckons…

Finding an alternative to ratings “is not proving an easy task,” confirms Nancy Hunt, associate director for capital markets in the FDIC’s supervision and consumer protection division. “We are looking at several approaches, some more mathematical than others, and trying to backtest them to see if they perform better than rating agencies,” she says. “It’s a very complex and involved process. But we have a law, and we have to figure out how to do this.”

Backtesting is important, of course, but it’s also dangerous: it assumes that the future will be like the past, when the whole point of crises is that they happen when something unprecedented happens. Given the wobbliness of a lot of OECD sovereign debt, for instance, it would surely not be a good idea to put in place a rule which assumes that no OECD debt will ever default or be restructured.

And this, too, is worrisome:

One approach that has been considered by the agencies is using probability of default (PD) and loss given default (LGD) calculations.

I’ve seen that approach before. In fact, I wrote about it at length, in a cover story for Wired entitled “The formula that killed Wall Street.” One would hope that at this point it was discredited.

The alternative, I think, is dumb regulation: just slap conservative risk ratios on pretty much everything, like we did in Basel I, and don’t try to be clever when it comes to measuring risk. That’s just a recipe for regulatory arbitrage. It’s not perfect — dumb regulation never is. But in this case, the perfect is very much the enemy of the good.

Max Chafkin has a fantastic story in Inc magazine about how to structure an economy so as to encourage entrepreneurship, full employment, and general happiness and contentment, all while drastically reducing inequality. It’s easy, in fact: all you need to do is become Norway.

There’s loads of great stuff in this piece, and I’d encourage you to read the whole thing. But a few things stand out.

Chafkin starts with the tale of Wiggo Dalmo, an industrial mechanic with a high-school education who chafed under his bosses, set up his own shop, and is now running a $44 million company with 150 employees. That’s the kind of story which should be common in the US but is in fact rare. But ask yourself: in the US, how much would such a person be paying in taxes? Dalmo paid $102,970 in personal taxes on his income and wealth last year, which is probably lower, not higher, than the CEO of a $44 million company would pay in taxes in the US.

The reason is that there’s much less income inequality in Norway. With a strong social safety net, the downside to starting a company and failing is small. As a result, entrepreneurship isn’t a lottery, so much as a lifestyle choice. If you succeed, you’ll get to run a large and successful corporation. But you probably won’t pay yourself a monster income.

Why not? Well, for one thing, you won’t need to pay yourself a monster income, since things like healthcare and college education — even through grad school, even outside the country — are covered by the state. Another part of the reason is that income, in Norway, is a matter of public record. And then there’s the fact that money which would otherwise be going to the top of the pyramid is instead going to the bottom, where it does much more good:

In a country with low unemployment and generous unemployment benefits, a worker’s threat to quit is more credible than it is in the United States, giving workers more leverage over employers. And though Norway makes it easy to lay off workers in cases of economic hardship, firing an employee for cause typically takes months, and employers generally end up paying at least three months’ severance. “You have to be a much more democratic manager,” says Bjørn Holte, founder and CEO of bMenu, an Oslo-based start-up that makes mobile versions of websites. Holte pays himself $125,000 a year. His lowest-paid employee makes more than $60,000. “You can’t just treat them like machines,” he says. “If you do, they’ll be gone.”

Incentives matter, of course. But not all incentives are purely financial. And there are serious problems with the US system where the incentives seem to be structured so that a large number of people are competing to become one of a very small number of monster success stories — multi-millionaire startup founders, or sports stars, or CEOs. Most of us, it turns out, have problems with the idea of playing that kind of lottery. As Chafkin reports:

I also became convinced of this truth, which I have observed in the smartest American and the smartest Norwegian entrepreneurs: It’s not about the money. Entrepreneurs are not hedge fund managers, and they rarely operate like coldly rational economic entities. This theme runs through books like Bo Burlingham’s Small Giants, about company owners who choose not to maximize profits and instead seek to make their companies great; and it can be found in the countless stories, many of them told in this magazine, of founders who leave money on the table in favor of things they judge to be more important.

There’s a lot of talk, in the US, about how small businesses are the engine of employment growth — something we clearly desperately need. And it looks like Norway has cracked this nut: it leads the world in the creation of small businesses, and it has just 3.5% unemployment, not to mention essentially zero poverty.

Raising taxes on small businesses in and of itself won’t help the rate of small-business creation — but it’s actually unlikely to hurt it that much, either. (And interestingly, taxes paid by an employer in New York are actually higher than those paid in Norway.) What would help would be a much stronger social safety net, so that someone who starts a company doesn’t need to fear a life of poverty in the event that she fails. Encouraging small businesses necessarily means encouraging failure — but the cost of failure is very high, in the US. Instead, we spend far too much time worrying about tax rates on the successful.

There is precious little evidence to suggest that our low taxes have done much for entrepreneurs—or even for the economy as a whole. “It’s actually quite hard to say how tax policy affects the economy,” says Joel Slemrod, a University of Michigan professor who served on the Council of Economic Advisers under Ronald Reagan. Slemrod says there is no statistical evidence to prove that low taxes result in economic prosperity. Some of the most prosperous countries—for instance, Denmark, Sweden, Belgium, and, yes, Norway—also have some of the highest taxes. Norway, which in 2009 had the world’s highest per-capita income, avoided the brunt of the financial crisis: From 2006 to 2009, its economy grew nearly 3 percent. The American economy grew less than one-tenth of a percent during the same period. Meanwhile, countries with some of the lowest taxes in Europe, like Ireland, Iceland, and Estonia, have suffered profoundly. The first two nearly went bankrupt; Estonia, the darling of antitax groups like the Cato Institute, currently has an unemployment rate of 16 percent. Its economy shrank 14 percent in 2009.

You can’t blame all of Estonia’s problems on its low taxes, of course — the currency issue (Norway’s kroner is floating, while Estonia just joined the euro) is also huge. And Norway does have all that oil revenue, too. But looking at Estonia’s housing bubble and bust, one sees an economy where people are striving to get rich quick, in contrast to Norway’s culture of simply trying to be as happy and successful as possible. Which turns out to be extremely successful.

Why Obama has to nominate a CFPB director by July — HuffPo

Bus Rapid Transit in NYC: It works! — Gothamist

How have I not seen this amazing Ken Robinson education animation before now? — YouTube

Henry Blodget blind item! Who is the entrepreneur-philanthropist who went to Davos in the 90s but can no longer get in? Kevin Ryan? — TBI

I love myself a brutal takedown, and Jason Linkins’s evisceration of Peter Baker’s big NYT Magazine story on Obama’s economic policy is a classic of the genre. Except, I have to admit to being Team Baker on this one. We’ve all read a lot of stories about the economy, and what bad shape it’s in, and how we got to this sorry place. This one’s different. It’s written by the NYT’s White House correspondent, and it raises an uncomfortable question: what if part of the problem is that Obama’s economic team just wasn’t a good team? What if, in fact, it turns out to have been a very bad team?

Baker points out that most of the original members of Obama’s economic team have left, and that the new guys are generally Clinton-era veterans. And given the reputation of the two presidents, you’d expect the Clinton bunch to be more fractious and chaotic than the No Drama Obama crew. But that turns out not to be the case:

The path from crisis to anemic recovery was marked by turmoil inside the White House. The economic team fractured repeatedly over philosophy (should jobs or deficits take priority?) and personality (who got to attend which meetings?), resulting in feuds that ultimately helped break it apart. The process felt like a treadmill, as one former official put it, with proposals sometimes debated for months before decisions were reached. The word commonly used by those involved is “dysfunctional,” and in recent months, most of the initial team has left or made plans to leave, including Larry Summers, Christina Romer, Peter Orszag, Rahm Emanuel and Paul Volcker.

Most of the blame here can and should be laid at the feet of Larry Summers — and, implictly, on Obama for hiring him in the first place. Summers is no manager, and seems to have been much better at getting into fights with people than at making sure everybody was doing their best to pull in the same direction. Baker rehearses the stories of Summers’s fights with Austan Goolsbee, with Christie Romer, and with Rahm Emanuel:

Summers and Emanuel also clashed over incentives for small business — the chief of staff kept demanding a proposal, but Summers opposed the idea of using TARP money for the initiative, arguing it would not be effective. It took months to develop a policy.

Baker even comes close to saying that Peter Orszag’s decision to take Citigroup’s millions was in part a function of his inability to get Summers to care about the budget — or, conversely, of Summers’s inability to credibly pretend to Orszag that he was being listened to:

One reason Orszag left, eventually winding up at Citigroup, was the sense that the administration was trapped in a dynamic that would make it hard to reduce the deficit adequately.

All this talk about being trapped in a dysfunctional team, of “picking through the wreckage of a messy divorce”, makes some sense, given the utter inability of Obama or anybody else to articulate a coherent vision of what the Obama administration’s economic policy actually is. Obama, writes Baker,

couldn’t seem to decide whether he was going to take Wall Street to task for its irresponsible behavior or cajole it into freeing up money to get the economy moving. One day he derided “fat-cat bankers” who caused the recession; another day, he soothed them by saying that he and the American people “don’t begrudge” multimillion-dollar bonuses.

Which is weird, given the clarity with which Obama was speaking before his economic team had the opportunity to fall apart.

Summers, of course, is being as slippery as ever:

As we talked for three hours that night, he struck me as thoughtful and analytical about what went right and what didn’t. He didn’t want to be quoted from that conversation, though, preferring to polish his thoughts with academic precision and e-mail them to me later. “We always believed that the greatest risk was doing too little, not to do too much,” he wrote. “We fought for the largest fiscal program we could get.”

Except, of course, that simply isn’t true:

Obama’s instinct was to take on everything at once. “I want to pull the band-aid off quickly, not delay the pain,” a senior Obama official remembers him saying. “He didn’t want to muddle through it, Japan-style,” recalled Larry Summers, tapped to be director of Obama’s National Economic Council. Romer calculated how much government spending would be needed to fill the gaping hole of consumer demand and came up with $1.2 trillion, the highest of three options. Summers told her to leave that number out of the memorandum to Obama.

At this point, the risk is that it’s too late to fix things. Obama no longer controls the House; neither can he count on 60 votes in the Senate for anything. And on top of that, he’s already two years into his administration. For Ken Rogoff, the course is set:

After two years, he said, the president has essentially done everything he can and must wait to see if it works. “What’s going to happen with unemployment and the economy is largely set at this point,” he said. “He’s taken his decisions, and now it will unfold and things will begin to improve.”

The problem is that the improvement will come fast for capital, and very slowly for labor; it’s unthinkable that Obama will run for re-election with a lower unemployment rate than when he ran for president.

The NYT is pairing Baker’s story with a group of photographs by Alec Soth entitled “Portraits From a Job-Starved City”. Linkins is right that these people don’t much care about technocratic squabbles inside the Beltway. But they elected a pro-labor, pro-union president — and got from him an economic policy which recapitalized banks and did wonders for the stock market, but which has massively underperformed on the job and foreclosure fronts. The buck stops with the president: he’s already taken his electoral lumps, and will face tough questions in 2012. But Baker makes an important case that a lot of the blame should be shouldered by Larry Summers, who should have cared much more about unemployment than he did, and who was in large part responsible for the incoherence of the most important arm of the Obama administration.

Just as the most interesting sessions at Davos are the ones you know the least about beforehand, the most interesting people tend to turn out to be the ones you’ve never heard of. If you do happen to find yourself talking to Bill Clinton or Bono or Dmitry Medvedev, you’ll probably be part of a large crowd of people and the conversation is likely to be superficial at best. On the other hand, if you just sit down on a random couch in the Congress Center, there’s a really good chance that sitting next to you will be a fascinating and very useful person to know.

And of all the attendees at Davos, the very best to get to know are often the spouses. There’s a smattering of Davos Deville types, of course, swanning down the Promenade in their fur coats, but many of the spouses are very smart, very engaged, very interesting in their own right — and tend to feel a bit left out, given the rigid Davos class system. Log in to the exclusive in-house social network, for instance, and they don’t even turn up.

Many Davos spouses have been going for years, and know the ways of the town and the conference very well. They also tend to be able to keep things in perspective, and realize when it makes sense to blow off a session on the state of global manufacturing to enjoy the blessedly empty slopes.

So here are some top tips from a couple of Davos spouses who know what they’re talking about. Both are women, as you might expect, so their advice is particularly useful for female attendees. But, especially if you’ve never been to Davos before, they’re likely to come in very handy for everyone.

First, clothes:

• Wear snow boots that come on and off easily or that are cute and comfy enough that you’ll be okay wearing them to events.
• Carry a waterproof bag for (a) your other shoes if you want to change into them, plus (b) whatever other schwag you collect during your day (you can check this bag at the Congress Center and at most of the hotels where the events take place).
• Bring your warmest coat. (It gets really, really cold at night).
• Layer your outfits: you will freeze outside and then boil indoors.
• Wear gear that can be easily removed: you will go through airport security checkpoints at most events, meaning that you will unload all your coats, gloves, hats, bags, etc. into the x-ray machines at least 5 times per day, generally more often.
• Cute tops are more important than cute trousers or shoes. There’s no shoe snobbery in Davos, except for maybe reverse snobbery. You don’t want to end up like Henrique Meirelles, breaking your ankle in three places when you slip on the ice.
• Plan outfits that will work with a large plastic card hanging right at boob height.
• Choose your picture on the card with care, because it will flash up each time you have to scan the card, which is a lot.

Second, activities:

• Be prepared to eat lots of fondant, zweigelt, veal, sausage and spaetzle. Expect to see no vegetables whatsoever.
• Order the strudel.
• Make sure to go to the Kirchner Museum.
• Go ice driving if you can.
• Take a sleigh ride to fondue at the Alte Post hotel in the mountains.
• Get a coffee at the Kaffeeklatsch.
• Book yourself in to a couple of the WEF’s afternoon tea sessions, which are often really lovely discussions.
• People-watch in the Congress Center, where you can also load up on coffee, soda, water, and snacks. Strike up conversations while you’re at it.
• Sign up early for any events you really want to go to.
• Smile at the Swiss military who will be EVERYWHERE. Smiling at them makes them nervous, and that’s kind of funny.
• Be prepared for people to look right through you as though you are invisible.
• Eat out of town, if you can, at the Landhaus down the valley or at the gasthof at Frauenkirch.
• If you’re staying at a reasonably upmarket hotel, the concierge is your friend.
• Pace yourself on the drinking: the days are long long long.

Finally, inevitably, there’s live karaoke with Barry the piano man at the Piano Bar in the Tonic Hotel on the Promenade. At that point, the badges have disappeared, and everybody’s too drunk to care about status.

Dealbook and Footnoted — the very epitome of professional financial blogs — have collaborated in a big investigation of Goldman Sachs’s regulatory filings and partnership documents. The investigation seems to have turned up some pretty juicy stuff, but I’m not a fan of how the results were presented.

For one thing, the big NYT report coming out of the investigation contains zero substantive links to any of the documents they used. There are no links to SEC filings, no embeds of partnership documents, nothing. The post does say that the NYT and Footnoted “examined nearly 5,000 pages of regulatory filings,” but gives no help at all for anybody who would like a pointer to which filings exactly are the ones they’re writing about.

As a result, some great information gets missed, and is that much harder for the rest of us to find. For instance, the main news in the story is this:

Nearly 36 million stock options were granted to employees in December 2008 — 10 times the amount issued the previous year — when the stock was trading at $78.78. Since those uncertain days, Goldman’s business has roared back and its share price has more than doubled, closing on Tuesday at nearly $175.

The story goes on to detail the dates at which the options can be exercised. But there’s much more to be said on this matter. For one thing, the monster option grant took place during Goldman’s notorious orphan month, meaning that it would never appear in an annual report. And for another thing, it was very expensive even at the time.

The place to look, if you want a link to an SEC filing, is here, where Goldman discusses its Employee Incentive Plans.

The first thing you see is that between November 2008 and December 2008, Goldman granted 20,664,896 restricted stock units. And according to a footnote, the fair value of RSUs granted in the month of December 2008 was $67.60 apiece. Which means that in December 2008, Goldman gave out $1.4 billion in RSUs.

Then you get to the options. Goldman granted 35,988,192 options at a strike price of $78.78 between November and December 2008; the filing goes on to say (look at the top of page 200) that the fair value of those options was $14.08 apiece. Which means that on top of the RSUs, Goldman also gave out $500 million in options during its orphan month.

Those options are worth much more today, of course. I don’t have an option calculator handy, but they have to be worth at least $100 apiece, given that Goldman is trading $100 above the strike price. That means the the value today of the December 2008 options grant is somewhere over $3.6 billion.

And the RSUs have gone up in value too: 20.7 million RSUs all appreciating by $100 apiece means a gain of $2.1 billion.

Add it all up, and the various stock-related grants given in one month of 2008 (we’re not including annual bonuses here) were worth $1.9 billion at the time, and are worth somewhere in the neighborhood of $7.6 billion now.

Remember that December 2008, when Goldman made these grants, was the worst month in the company’s history: it lost $1.3 billion, and was mired in the depths of the financial crisis. Yet many partners will have received stock and options awards that month which are worth hefty eight-figure sums today. Not bad for a month’s work.

There’s much more in the Dealbook/Footnoted story, including the intriguing fact that 61% of Goldman partners are US citizens, excluding the ones with dual citizenship. I’d love to see where that information came from. Maybe at some point in the future, these two blogs will see fit to actually publish the information that they spent so much effort finding.