Felix Salmon


Felix Salmon
Feb 23, 2011 17:21 UTC

As Dominique Strauss-Kahn continues his campaign-in-all-but-name for the French presidency, another Gallic technocrat, Pedro Pablo Kuczynski, is running for president of Peru. They have much more in common than the fact that they’re both commonly referred to by their initials — they both represent the old guard, the well-schooled elite, the ancien regime in a world where such regimes are crumbling by the hour.

PPK, whose full name is Pedro Pablo Kuczynski Godard, is the first cousin of Jean-Luc Godard and speaks French as well as, say, John Kerry. He’s a true global cosmopolitan, having spent much of his life globe-trotting on behalf of various Wall Street investment banks, including a decade as chairman of First Boston. He studied at Oxford with John Williamson, the inventor of the Washington Consensus, and they remain close; they co-edited a book in 2003. And, of course, he’s the father of Alex Kuczynski, she of the plastic-surgery book and hedge-fund manager husband and privileged articles which push the boundaries of what is socially acceptable even in New York, let alone Lima. He’s never been elected to anything, but noblesse oblige and all that.

The weird thing is that Peru doesn’t need PPK at all. Under leftist Alan García, Peru has performed stunningly well through the global financial crisis, growing at 8% in 2006, 9% in 2007, 10% in 2008, and then bouncing back to 9% growth in 2010 after modest-but-still-positive growth of 1% in the worst crisis year of 2009. Peru doesn’t need el gringo to provide what Eric Schmidt might call “day-to-day adult supervision”; in fact, it doesn’t need a 72-year-old president of any description when the median age is just 26.

PPK is a man of the past, a policy wonk who’s more interested in implementing policies than providing real leadership. DSK is not much different: both of them are former economy ministers who are naturally at home in Washington’s most rarefied circles and who can talk for hours about global macroeconomic imbalances or coordinated responses to systemically-important risk factors. Both of them, too, contributed more to the problem when it came to the financial crisis than they did to the solution.

It’s time to move on from these wise old men. France and Peru deserve presidents who will lead — someone much less lugubrious, much more vivacious, a creator of the 21st Century rather than a throwback to the 20th. The generation of DSK and PPK had its chance, and did what it could. It’s time for them to move aside and see what the generation of Obama and Cameron can do next.


I’m french and I lived in Peru in the late 90′s
It was Fujimori and Montesinos’ period and people in that country weren’t very happy (sorry for my language).
Just a thing about DSK : may be you can’t consider it, but France, as many european countries, is experiencing now the capitalism failure and its consecuencies : there is no place for an FMI CEO in the people’s hope !

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Austerity’s inauspicious historical precedents

Felix Salmon
Feb 23, 2011 14:48 UTC

One of the best aspects of being a journalist is that you get to talk at length to the most knowledgeable and interesting experts on just about any subject you can think of. For me, yesterday was a prime case in point: a long and fascinating lunch with James Macdonald, the author of my favorite book on the history of sovereign debt. Turns out he also has a microscopic vineyard in Tuscany, so the conversation ebbed wonderfully from economics to wine and back.

Macdonald has an economic historian’s view of the current austerity debate, and he was very clear: if you look at the history of countries trying to cut and deflate their way to prosperity while keeping their currencies pegged, it’s pretty grim — all the way back to Napoleonic times. Sometimes, the peg is gold. For a good example of the destructive abilities of that particular peg, look at the UK in the 1920s, which Macdonald says was arguably worse than the US in the 1930s: shallower, to be sure, but substantially longer. The devaluation of the pound, when it finally came, was very long overdue.

At other times, the peg is simply political: Macdonald gives the example of southern Italy being locked into what was essentially the Piedmontese monetary system at the time of the Risorgimento. That might have been well over a century ago, but there’s a case to be made that it has hobbled just about everywhere south of Rome to this day — and that’s in a country with about as much internal labor mobility as between EU countries.

So from a historical perspective, the prospects for countries like Portugal, Ireland and Greece are pretty grim. They can cut their budgets drastically and stay pegged to the euro, but most of them would be better off in the position of Iceland, which can and did devalue in a crisis (and allowed its banks to default, too). So far, the Baltic states have stuck to their deflationary guns with the most determination and discipline, but such things work until they don’t: at some point it’s entirely possible that Latvia or Estonia could pull an Argentina and kickstart growth by devaluing.

All of this is relevant for the US states, of course, which are also locked into a currency union and facing very tough fiscal cuts, as Steven Pearlstein says today:

Will the pain come in the form of prolonged high unemployment? Or wage and salary cuts? Or reduction in the value of homes and financial assets? Or loss of ownership of American companies? Or price inflation? Or higher taxes? Or reductions in government services and benefits?

The right answer, of course, is “all of the above.”

Meanwhile, David Leonhardt takes an important look at Germany, which you might think was benefiting, in some kind of zero-sum mathematics, from the pain of the European periphery. It isn’t: German GDP is still significantly lower than it was in the first quarter of 2008, while US GDP is now back above its pre-crisis levels. (Britain is doing significantly worse than either.)

“The historical lesson of postcrisis austerity movements,” writes Leonhardt, “is a rich one,” and also clear: they don’t work, even if they’re “morally satisfying.”

The answer, it seems, would be for crisis-hit countries to do the equivalent of what Macdonald and I did at lunch yesterday. I was coming off a slightly feverish and bed-ridden Monday, but we still went ahead and ordered the macvin, a spectacular fortified late-harvest white (yellow, really) pinot noir from the Jura. It goes very well indeed with mangalitsa ham. And I feel much better today, thanks.


It would be interesting to learn if the fiscal state of the government prior to the crises matters (ours, and those of the several EU economies, were pretty poor to begin with). Is it the initial state that causes post-crisis issues with austerity?

The same might apply to US states. Places like CA, IL, and NY were in pretty bad shape to begin with, and seem to be getting worse. Others, not so bad.

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Felix Salmon
Feb 23, 2011 08:04 UTC

This could be a great wine show — SFMOMA

Waldmann on Yglesias on me on Pfau — Robert’s Stochastic Thoughts; see also the fantastic comment thread on my post.

This thing looks like that thing — National Journal, Reuters

Rumsfeld to Feith: “We also need to solve the Pakistan problem” — Atlantic

Plutocracy now — MoJo


TFF, I posted the story under Ibanez comments. It was the kind of pushback that is too good to miss.

I never said people could not represent themselves. It does take lots of hard work and preparation and a judge that allows you a voice. Being right doesn’t mean a judge will rule in your favour and all that work might be in vain.

As you concede, having a lawyer who knows court procedure is far better when you have something to lose, like your house.

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The Salmon-Cottrell HuffPo bet

Felix Salmon
Feb 23, 2011 05:58 UTC

A couple of weeks ago, Robert Cottrell took issue with my post explaining why the NYT is lagging behind the Huffington Post in terms of reader engagement. Robert is one of the great curators on the internet; he seems to read everything as soon as it comes out. It’s therefore unsurprising that he’s single-minded in how he reads and loathes distractions:

In Felix’s own terms, if you want to do a bit of reading, chances are you’d rather do it in a library than in Times Square. If I have a complaint about the NYT layout, it’s that the page is still too noisy, even now.

I agree that if the purpose of a web page is to facilitate the best possible reading experience with respect to a certain piece of writing, then the NYT is better than HuffPo and there are sites which are even cleaner and better than the NYT. (Robert’s Reader being one of them.) On the other hand, plugins like Readability do a fantastic job of that kind of thing as well. And when you’re designing a sticky, interactive, compelling website, you have to do a lot more than just put up content and hope that people will magically come and read it.

In any case, this disagreement between Robert and me has now been upgraded to a full-scale bet — or rather, two bets. The stakes are, well, steaks: “Loser buys dinner for the winner’s nominated guest. In New York or London, whichever is closer for the buyer. And a decent dinner too. No ducking. No skimping.” And the bets come from this passage from Robert’s post:

Do you seriously think Arianna Huffington will be working diligently at AOL a year from now? Or that the Huffington Post will still be in business, except perhaps as a gibbering wreck, two years from now?

So here are the official terms of the two bets:

1. On February 9, 2012, will Arianna Huffington be working diligently at AOL? If so, Robert loses, if not, Felix loses.

2. On February 9, 2013, will the Huffington Post still be in business? If so, Robert loses, if not, Felix loses. With the proviso that if HuffPo is in business only as a gibbering wreck, Robert will have won the bet and Felix will have lost.

The winner of both bets will be determined by a third-party referee — in this case, John Gapper of the FT, whose column on the HuffPo sale to AOL is here.

I’m pretty confident that I’m going to win both bets. I can’t imagine that Arianna is going to exit her eponymous publication before the 2012 election campaign is over, especially now that she has more control over it than ever. And with all the resources of AOL at her disposal, HuffPo is surely going to be bigger in 2013 than it is now. Now I just need to start planning my trips to London — it’s been a while since I had a nice dinner at Bibendum.


Surely a lot will have to do with how successfully the format is reproduced/strengthened/broken in the new AOL home or as the marketplace shifts externally due to technology?

There was an interesting discussion on BBC’s Newsnight last night on the future of the printed press v online. The HuffPo wasn’t mentioned once, but one snippet of interest came from the Editor of the Financial Times “the average time a visitor spends on our webpage is 2 to 3 minutes; on our iPad app it’s more like 10 to 15 minutes.”

Where will your bets be if the HuffPo website turns into an iPad app?

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Privatizing Wisconsin

Felix Salmon
Feb 22, 2011 15:29 UTC

Ed at Gin and Tacos picked up on a particularly audacious section of the Wisconsin budget-repair bill yesterday: the governor can sell off any state-owned heating, cooling, and power plants he likes, at any price, to anybody he wants, without any kind of auction or bid-solicitation process, and such a sale would be defined as being in the best interest of the state and to comply with criteria for certifying such a transaction.

Ed calls this “a highlight reel of all of the high-flying slam dunks of neo-Gilded Age corporatism: privatization, no-bid contracts, deregulation, and naked cronyism” — but as Yves Smith notes, the sad fact is that all this language is gratuitous: if you’re a state, there are essentially no legal restrictions on how to privatize state-owned industries and franchises if you’re so inclined.

It probably comes as little surprise to note that the most lucrative privatizations have generally been done by parties of the left: I’m thinking in particular of the UK’s auction of 3G licenses, which netted the Exchequer $35.4 billion at the height of the dot-com bubble.

Right-wing parties, by contrast, are more prone to thinking of privatization as something inherently good, and of monies flowing to the government as a kind of taxation which is inherently bad.

And then of course there’s the other spectrum, from clean to corrupt, which is orthogonal to the left-right spectrum — the more beholden the government is to special interests, the more likely those interests are to wind up with sweetheart deals. Sometimes, the special interests in question are public-sector unions, which find themselves able to negotiate the kind of final-salary defined-benefit pensions which are now threatening state solvency and municipal bond markets around the country. At other times, the special interests are large corporations looking to buy up lucrative monopolies on the cheap. In both cases, elected politicians are not the best people to ensure a good deal; non-partisan career civil servants tend to generate much better results.

The advantage of privatization in cases like the Chicago parking meters is that it removes the utility from political meddling — in that case, from local aldermen who would always agitate for parking rates well below the optimal level. (Relatedly, if you haven’t read it yet, go read Ed Glaeser’s Atlantic essay on the massive economic cost of urban zoning regulations.)

But in the case of Wisconsin-owned energy plants, such considerations don’t come into play. There’s no reason to believe that the private sector will run those plants in a way that is better for the public, and every reason to believe that they will run the plants in a way that is worse (ie, more expensive) for the public. If the state wants to cut such a deal in return for a one-time check, that check had better be enormous. And there’s absolutely no reason to believe that it will be.

(Crossposted at CJR)


If anyone is interested, the Legislative Audit Bureau conducted an audit and found NO deficit. The deficit as “wiscottie” stated was created by Walker in the first 6 weeks of his “reign”…

As a public worker in Wisconsin, we had already agreed to the cuts he proposed and his answer back to us was NO. He would not accept that, it must also be accompanied by our collective bargaining rights.

We have one of the most solvent, well-managed retirement systems in the country. We share the opinion that we must contribute and share the load. But this is a load of crap…we won’t go down without a fight.

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Felix Salmon
Feb 22, 2011 04:55 UTC

An important paper by David Miles concluding “that the amount of equity capital that is likely to be desirable for banks to hold is very much larger than banks have held in recent years and also higher than targets agreed under the Basel III framework” — Bank of England

Penguin Group will deliver galleys digitally. About time too — NetGalley

Finances Could Sink Seaport Museum. Not surprising when 2009 revenues were $280k on a $5.2m budget — NYT

Mohamed El-Erian on how emerging economies are terrified of the money dropping from Bernanke’s helicopter — FTTilt

NYC’s searchable map of 311 calls — Lo-Down

Do I believe the NAR is overstating home sales? Yes — Inman, Matrix

Dan Chiasson on Keef. This wonderful book has generated an astonishing number of equally brilliant reviews — NYRB

“The problem is that when politicians have absolute power to name things, they name them after other politicians” — TNY

Gina Trapani on Why and How I Switched to a Standing Desk — Smarterware

Ivory Coast Seizes Four International Banks — WSJ

John Paul II did his official miracle after he’d already died. Does that make it a miracle-squared? — Reuters


Okay, I am about ready to eat crow in our argument re house prices. Not so delicious. So far it seems you were right.

BTW, Felix, you come across as neither scholarly nor high-class in your mocking of the late Pope. Postumous miracles go right to the beginning of Christianity. Think about it.

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Moving away from homeownership

Felix Salmon
Feb 22, 2011 04:08 UTC

After I appeared on All Things Considered this weekend, I got an incredibly gratifying email from a listener in McLean, Virginia, who’s moving to Jupiter, Florida:

You were talking about the fact that taking your money out of one house and putting it into another means you’re still stuck in one place – just a different one – and trapped into an economic nightmare in which you work and work just to sustain a lifestyle you’ve faked yourself into because you now own a house. You’re so right, and something else that struck me was that I’ll never have cash to do the kinds of things I enjoy – travel, mostly… I  have always felt stifled by a mortgage, condo fees, taxes, and basically, that “stuck” feeling…

I am going to continue renting my little place by the beach down here for a while, and continue to keep my very nice Mclean condo rented out, so that mortgage is paid, and give a little more thought as to why owning a house is really anything more than a self-imposed prison of bricks and sticks!

It’s easy to glorify the wonders of homeownership because of all the psychological reasons for wanting it — the place to call one’s own, the nesting instinct, the desire for stability, the feeling that it’s silly to put lots of work and love into a place if it ultimately just ends up benefiting the landlord. But at the same time, the downside of homeownership can be truly enormous and devastating, and renting carries with it a very American sense of freedom, I think, and a world of opportunities.

Richard Florida likes to talk about how it will take decades to reshape the American psyche into something where renting an apartment in the city is considered even more desirable than owning a house in the suburbs. I’m hopeful that one consequence of the housing bust will be an increase in the number of nice suburban houses being rented out, like my correspondent’s in McLean. Which means that it might not be necessary to re-architect the national lifestyle to one which is much denser and more urban before we can start seeing renting becoming increasingly prevalent in white, middle-class neighborhoods. After the renters move in to the place in McLean and their neighbors start getting friendly with them, perhaps the stigma associated with renting might start to erode.


The Landlords thank you profusely for this Felix. And so does Mr. Potter.

Elena, you’re in the wrong box for the wrong reason here. If we nationalize housing (along with a few other things too, including Reuters) you don’t have to set such a low bar for yourself and no one else does either.

Where’s the ipecac?

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The steady-savings retirement plan

Felix Salmon
Feb 22, 2011 02:22 UTC

Wade Pfau has a fascinating paper out called “Safe Savings Rates: A New Approach to Retirement Planning over the Lifecycle”. It’s really just the bones of such an approach: the details need to be fleshed out a lot. But I love the idea that we should get away from thinking about “the number” we need to be able to live comfortably in retirement. The effect of the number is to break life into two — pre-retirement and post-retirement: your goal pre-retirement is to reach the number, while your goal post-retirement is to spend it down slowly enough that it doesn’t run out before you die.

Pfau’s insight is that thanks to mean reversion, the number you need at the end of a bear market is actually lower than the number you need at the end of a bull market — if the market’s about to head up, your retirement savings can grow even post-retirement, while if the market is about to fall, you’re liable to lose much more than just your annual expenditures. Instead, says Pfau, stop thinking about stock, and just think about flows. Save a set percentage of your salary every year, stick to it, and, it turns out, you’ll be fine:

Starting to save early and consistently for retirement at a reasonable savings rate will provide the best chance to meet retirement expenditure goals. You don’t have to worry so much about actual wealth accumulation and actual withdrawal rates, as they vary so much over time anyway. But the savings plan should be adhered to regardless of whether it seems one is accumulating either more or less wealth than is needed based on traditional criteria.

What’s the percentage? That’s the crucial question. Pfau makes a very basic calculation that for someone on a constant real wage, saving for 30 years and then living for another 30 years on 50% of their final salary, saving about 16% of your salary each year into a portfolio of 60% stocks and 40% bonds will put you into safe territory.

Of course, real wages aren’t constant over time, and all the other figures are highly variable too. But the bigger message certainly resonates with me: spend less effort on trying to boost your annual returns, when you have very little reason to believe in your alpha-generation abilities, and spend more effort on maximizing your savings every year.

Investing can be exciting, especially when it’s done wrong. You follow the markets rising and falling, you obsess about your retirement-fund balance, you rotate out of this and into that, you read books and magazines and blogs to try to learn more about what to do. You might even, in a moment of weakness, find yourself watching CNBC. Budgeting, by contrast, is like going on a diet: it’s a drag, and it’s hard to get any pleasure or excitement out of it. But the latter is much more likely to get you well-set in retirement than the former.

Update: Matt Yglesias has a this-thing-looks-like-that-thing moment.



There is a subtle difference, though it has a big implication. The difference is that you don’t independently choose a withdrawal rate and a wealth accumulation goal, but just directly save enough to finance your desired retirement expenses. It leads to the differences between the black curve and the blue curve in Figure 5.

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The dynamic economics of LCD Soundsystem tickets

Felix Salmon
Feb 19, 2011 21:27 UTC

A clear narrative emerged pretty quickly in the wake of last week’s LCD Soundsystem ticket fiasco. Annie Lowrey tried and failed to get tickets when they went on sale at 11am on Friday, but was foiled:

Had something gone awry? I quickly checked Twitter. Nobody—really nobody, it seemed—had gotten through. Perhaps there was a problem with the site?

No. As it turned out, the show had sold out within seconds. It is just that professional ticket resellers, otherwise known as scalpers, had scooped up the bulk of the seats. Within minutes, hundreds of them were available on StubHub and other secondary markets where sellers can charge whatever they want. Tickets with a face value of $49.50 were going for 12 times that—with some coveted spots in the general-admission dance area going for thousands of dollars.
How did they do it? With bots. Computer systems—not particularly sophisticated ones, either—submit tens of thousands of requests for tickets the very instant they go on sale, crowding regular folks out.

This story seemed to be confirmed by LCD Soundsystem itself, with a profanity-laden posting blaming scalpers for the problem and presenting new shows at Terminal 5 as the solution. As Lowrey puts it, frontman James Murphy “realized he had an ace up his sleeve. He flooded the market, adding shows, upping ticket supply, and hopefully pushing prices down.”

For anybody who loves both music and teachable moments in microeconomics, the subject was irresistible. Lowrey’s post was followed up by Matt Yglesias, who drily declaimed that “optimal allocation of LCD Soundsystem tickets requires demand-responsive ticket pricing” if scalpers aren’t going to end up collecting rents. And Rob Cox, after looking into the matter, concluded similarly that what we’re seeing here “offers a strange insight into the laws of supply and demand”.

But in fact the story of these shows is much murkier than all this pop-economics punditry would have you think. Bob Lefsetz, who has real-world experience of how tickets are sold in practice, says that far from selling out 13,000 tickets at the public on-sale date, LCD Soundsystem in fact only sold 1,000. He notes:

James Murphy could publish exactly how many tickets go on sale to the general public, but he doesn’t want to. No act wants to, they’re afraid of the public outcry. This information is available to acts, but they don’t want to disseminate it.

After publishing his analysis, Lefsetz then mailed out a letter he received which lays out an intriguing counternarrative. What if the MSG show has not, in reality, sold out at all? The conspiracy theory goes like this: LCD Soundsystem’s promoter, Bowery Presents, owns Terminal 5. By holding back most of the MSG tickets, secondary-market prices would be sure to skyrocket. The way that MSG is structured, the coveted general-admission area in front of the stage is actually pretty small, which means that it’s quite easy to generate a handful of headline-grabbing offers of tickets for sale at $10,000 apiece or more. If they wanted, LCD’s promoters could even put those offers up themselves, and then encourage the band to complain in public about the exorbitant prices.

After getting everybody’s attention by artificially clamping down on the supply of MSG tickets, LCD’s promoters can then easily sell out four or more shows at their own venue, Terminal 5, which by coincidence just happened to be unbooked in the run-up to the MSG gig. Given all the buzz that this activity creates, the unsold MSG tickets can then be quietly disposed of on StubHub and other secondary-market sites.

I suspect that there’s more than a little truth in the conspiracy theory. For one thing, the number of tickets available on StubHub did not actually increase appreciably after 13,000 tickets were purportedly sold out in seconds. On top of that, we’re in mid-February already; it’s definitely weird that Terminal 5 was set to be completely dark from March 20 through March 31, with the exception of a single show on March 25. And it’s even weirder that no one — no one at all — got public tickets for the MSG show when they supposedly went on sale en masse: the only people who have gotten tickets in the primary market did so on the pre-sale dates or through tickets allocated to American Express.

The fact is that concert promoters, like art dealers, are fiercely protective of the asymmetric information advantage they have over the general public. Bowery Presents, the promoter of these shows, knows full well how many tickets were sold to the MSG show, and when. But they’re not releasing that information, because it’s very much in their interest for everybody to believe that 13,000 tickets sold out in a matter of seconds.

I don’t think that’s possible. Bots are sophisticated, to be sure, and anybody familiar with high-frequency trading on stock exchanges knows how quickly financial transactions can take place electronically. But Ticketmaster is not set up as a high-frequency exchange, and indeed puts up obstacles designed to make it harder for bots to buy lots of tickets quickly.

On top of that, bot-wielding scalpers had no particular reason to believe that LCD tickets would become hugely valuable on the secondary market, given that the band had never played a show of remotely MSG’s size in the past. I can see them buying a few hundred tickets over the course of 15 minutes or so; I simply don’t believe that they bought more than 10,000 tickets in the space of less than 15 seconds. I don’t believe they wanted to, and I don’t believe they’re capable of doing that even if they did want to.

People sympathetic to the band, like Rob Cox, claim that LCD Soundsystem and its promoters didn’t understand the economics of scarcity when they put the MSG tickets on sale. I, by contrast, think they understood the economics of scarcity all too well — and successfully used it to generate buzz and publicity. What really happened here, I think, is akin to the IPO of theglobe.com back in 1998, where the supply of new shares was so tiny that the price soared from $9 to $97 on the first day of trading. In turn, that generated lots of headlines, and ensured that the number of people who had heard of the website increased by orders of magnitude.

Supply and demand for concert tickets aren’t static numbers which then get reflected in prices. There are complex feedback loops here too: scarcity and price mechanisms can feed back into increased demand for tickets. Certainly this story has meant a large increase in the number of people who know that LCD Soundsystem is playing its last-ever gig at MSG in April. It’s surely naive to think that all the second-order effects here were completely unintended.


wow. tons and tons of conjecture, in the article and comments alike. basically all hot air here. why, people, why?

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