Felix Salmon

Chart of the day: America’s small tax revenues

Felix Salmon
Jul 31, 2011 19:31 UTC


This chart comes from Barrie McKenna’s great article on US tax rates, and pretty much speaks for itself. While the rest of the developed world has seen its tax rate rise as it got richer, the US stands out as the one country where tax rates have been going down. In the OECD, only Chile and Mexico have lower tax burdens, and neither of them have been decreasing: both have relied very much on state-owned commodity wealth to stand in for tax revenue.

As McKenna reports,

The total tax burden on Americans, as a percentage of gross domestic product, stood at 24 per cent in 2009 – lower than it was in 1965 and still falling. That compares to 31.1 per cent in Canada, 34.3 per cent in Britain, 42 per cent in France, 37 per cent in Germany and 43.5 per cent in Italy. The Japanese, Australians and South Koreans all pay significantly more.

The United States is the only major country without a national value-added tax and its sales taxes are lowest in the OECD. Likewise, U.S. fuel and sin taxes are at the bottom among rich countries. And generous tax breaks mean many businesses and individuals pay few taxes, placing a heavy burden on a relatively narrow tax base…

Bill Frenzel, a former Republican congressman and now a scholar at the Brookings Institution in Washington, agrees no budget fix is possible without tax hikes…

Americans, he said, will never accept the kind of tax levels that exist in most other countries.

“The U.S. has always been a low-tax country,” he explained. “And we like it that way.”

This raises two questions. The first is why America’s taxes are so much lower than anybody else’s. Its system of government, after all, is a pretty standard democracy, so it’s not exactly baked in to the Constitution. The second question is why Americans don’t actually appreciate how low taxes are here. It’s a standard talking point in US politics that taxes are too high, and must be lowered; Republicans are adamant that even modest tax hikes, to levels still well below the rest of the developed world, would be economically devastating.

Right now a deal seems to be getting done in Washington which reduces the deficit by means solely of spending cuts, with no tax hikes at all. That makes no sense: just as it’s right that people should pay a higher tax rate as they get richer, the same is true of countries as well. Instead, the US seems to think that it can work as an advanced democracy while maintaining a tax rate more commonly associated with tinpot basketcases. Up until now, it’s managed to do that by borrowing the difference. But if it wants to try to cut spending to a level commensurate with its tiny tax base, it’ll soon learn how economically disastrous that can be.

(Via Kedrosky)


In Singapore corporate taxes are 13% +-… in California between Fed and state a poor small business will pay ~ 43% above $100K…so we have compare with them if we want to create jobs and compete. Who cares if in Italy or Japan they pay more taxes… their economy is not growing.

We need growth strategies, no subsidies or QEs.

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Felix TV: Do you want real food or clean food?

Felix Salmon
Jul 30, 2011 11:14 UTC

After I wrote my post about restaurant grades on Thursday, my fabulous video producer, Ayana Morali, discovered that the Ritz-Carlton on Central Park South — one of the grandest hotels in New York — received a whopping 77 violation points in its latest inspection. So naturally we went up there to check it out, and got surrounded by hotel security guards who weren’t happy with us filming there.

At one point — you don’t see this in the video — the manager came out and told us we weren’t allowed to film outside the hotel. But when I started asking him about those violation points, he scuttled back into the hotel through a side door, mumbling something about not knowing what I was talking about.

It turns out that the Ritz-Carlton kitchen is operated by one of those celebrity-chef franchises, in this case BLT Market. Laurent Tourondel does seem to be making a habit of racking up enormous numbers of violation points: BLT Steak, on 57th Street, received a mind-boggling 91 violation points back in October, before getting its act together and bringing that score down to 2 in November.

When restaurants start getting scores in the upper reaches of the C ranking, it’s definitely worth getting worried. Here’s the chart, again, to remind you how restaurants with 77 or 91 points rank relative to their peers:


I’d definitely think twice before eating at a restaurant with 77 violation points. But my question in the video is a serious one: even knowing about the 77 points, would I really rather eat at a McDonald’s with no violation points at all? Ultimately, I’d still plump for BLT Market, I think. If I can eat street food in Quito, I should be able to cope with the Ritz-Carlton on Central Park South. Even though it’s living proof that there’s no correlation at all between price and cleanliness.


You eat out too much if you think real food is served at restaurants. There are some (few) that shop daily, provide from ‘live’ real food (which is the only real food) and do not provide you with twice your daily caloric limit in an appetizer that has been frozen prior.

More expensive doesn’t mean value and the Ritz Carlton food doesn’t mean good food even with an A rating in cleanliness. An elitist “star” chef is more likely to be hated by staff, insist no one but he knows good food, and return it if you send it back.

Having eaten in too many different hotels and restaurants I now can choose only those I trust will give me a better food experience than I can offer myself, and so I choose neither the Ritz nor MacDonald’s and you can’t make me!

I am also betting you spoke to a hotel manager who really didn’t know anything about the restaurant’s rating.

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Adventures with yield curves, debt-ceiling edition

Felix Salmon
Jul 30, 2011 10:03 UTC

Bill Dowd emails to ask about short-term Treasury yields, which finally seem to have noticed the debt ceiling debate in recent days:

When treasury yields are discussed in the media, everyone seems to default to talking about 10-year bonds. The yields on those remain well below 3%, and indeed have fallen a bit today. On the other hand, yields on 1-, 3-, and 6-month bonds have increased considerably today, with the yield on the 1 month bond exceeding 17bp (up nearly 50% today). It seems to me that there’s no concern among investors about America’s long-term debt, just about its ability to get its act together in the short term. Of the three maturities I noted above, 1-month bonds are the highest. It seems as though investors are pricing in the possibility that payments might be delayed.

I put together a little chart from this page, which isn’t a thing of beauty; for one thing, in order to show changes at the short end of the yield curve, I had to switch the y axis to a logarithmic scale.


What you’re seeing here is, indeed, a sharp rise at the very short (1-month) end of the yield curve. And all the way out to one year, yields on Friday are significantly higher than they have been for a long time.

Still, a couple of points are worth making. For one thing, a yield of 0.16% is still minuscule, and doesn’t imply any real credit or payment risk. The fact that the yield curve is now inverted between 1 month and 3 months is interesting, but it’s basically an indication that the markets are now paying attention. The dog has pricked up its ears; it has yet to actually do anything.

Secondly, and this isn’t very obvious on the chart, we’re seeing an even bigger drop in long rates than we are an increase in short rates. The yield on the one-month bill rose 6bp from 0.10% to 0.16% on Friday; the yield on the 10-year bond dropped by 16bp from 2.98% to 2.82%.

And thirdly, the yield curve is only inverted between one and three months. From 3 months on in, its still got a nice upward gradient to it. If there’s worry here at all it’s about possible payments problems over the next month; there’s no indication of concern about a debt downgrade coming in the next six months to a year.

The next big debt maturity comes at the end of August, and it makes sense that if you’re only getting 0.16% yield in any case, you might as well just hold cash instead of very short-dated bills. But even cash has to be on deposit somewhere, and that somewhere is a place with non-zero credit risk. (Unless you’re a bank, in which case you can hold cash on deposit at the Fed.)

I’m getting really rather worried about the debt ceiling. This is now the second consecutive last possible weekend to get something done, and it frankly looks as though the August 2 deadline is all but certain to be missed. Meanwhile, the White House is pouring cold water on the idea that we might get saved by the 14th Amendment.

People like Tom Davis are drawing parallels to the TARP vote, which is understandable, but also dangerous:

“He’s going to have to pass it with Democratic votes. That’s going to be a tough decision, but he doesn’t have any choice at that point, particularly if the markets are reacting,” said Tom Davis, a former House Republican leader from Virginia. “That’s the position they’ve got themselves in.”

But, he added: “The stakes are much higher here. If interest rates start spiking up, it’s going to cost us a lot more than anything you could save. They’re playing brinkmanship with our credit rating. That’s not very smart.”

Mr. Davis recalled his vote in late September 2008 for the $700 billion Troubled Asset Relief Program that President George W. Bush sought to rescue a financial system near collapse. “I hated TARP, but no one had a better alternative,” he said.

But most of his Republican colleagues opposed the rescue measure and helped defeat it, sending the stock markets tumbling even as the vote was taking place. That reaction forced the Republicans to retreat, and days later a bailout bill carried on a second try.

The problem here is that this is much more serious than the TARP vote. With TARP, a no vote sent the stock market down, and then a yes vote largely rectified the damage done. The debt ceiling doesn’t work that way — a failure to get it raised will have enormous long-term consequences, much more serious than a twitch in the stock market, which couldn’t be rectified by a subsequent change of mind by Congress. Even in the worst-case scenario, the debt ceiling is going to get raised somehow, sooner or later.

And this I think is what we’re really seeing in the yield curve. Never mind twitches at the very short end — look at the speed with which long-term rates are going down. That’s a sign of pessimism about long-term U.S. growth — an indication that Congressional failure to raise the debt ceiling will hobble the economy for the next decade. Thanks, guys.

Update: In the comments, GRRR puts Treasury’s yield information together in another way, by having two different y-axes. I like this:



You need to mention prices and not yields. Someone could reasonably think that going from 0.08% to 0.16% is a doubling of yield! However, the price difference on $1000 nominal 1-month bond from 0.08% to 0.16% is 7 CENTS. Think about if you have $1000 in your pocket, of various denomination bills and coins. Do you notice $0.07 lost? There may be some arbitrage/interest rate hedge trade that could yield some profit using massive leverage, but I dont’ see any practical importance in 1-month yields moving from .08% to .16%.

Posted by winstongator | Report as abusive

Can Treasury prioritize bond payments?

Felix Salmon
Jul 29, 2011 13:42 UTC

One of the more curious pieces of rhetoric in this whole debt-ceiling debate is coming from Treasury, which has a vested interest in making failure to raise the debt ceiling sound as bad as it possibly can. To that end, it’s trying as hard as it can to get people to believe that if the debt ceiling isn’t raised, it’ll end up defaulting on Treasury bonds. Here’s Binyamin Appelbaum:

Officials have said repeatedly that Treasury does not have the legal authority to pay bills based on political, moral or economic considerations. It cannot, for instance, set aside invoices from weapons companies to preserve money for children’s programs.

The implication is that the government will need to pay bills in the order that they come due. President Obama has warned as a result that the government “cannot guarantee” payments of Social Security benefits or other popular programs. Officials also have disputed the assertion of some Republicans that the government could prioritize interest payments.

This is scary — it raises the unthinkable spectre of a payment default on America’s bonded debt. Maybe that’s exactly what Treasury wants: a mini-crash in the bond market could be just the thing to concentrate minds in Congress and impress upon them just how important this issue is. But is it actually true? Does Treasury really have no legal authority to prioritize payments?

Appelbaum pointed me to this report from the Congressional Research Service for some background on the law here. And although it all gets very murky very quickly, that’s largely the fault of Treasury, which seems to be doing its best to muddy the waters:

Treasury officials have maintained that the department lacks formal legal authority to establish priorities to pay obligations, asserting, in effect, that each law obligating funds and authorizing expenditures stands on an equal footing. In other words, Treasury would have to make payments on obligations as they come due…

In contrast to this view, GAO wrote to then-Chairman Bob Packwood of the Senate Finance Committee in 1985 that it was aware of no requirement that Treasury must pay outstanding obligations in the order in which they are received. GAO concluded that “Treasury is free to liquidate obligations in any order it finds will best serve the interests of the United States.”…

While the positions of Treasury and GAO may appear at first glance to differ, closer analysis suggests that they merely offer two different interpretations of Congress’s silence with respect to a prioritization system for paying obligations. On one hand, GAO’s 1985 opinion posits that Congress’s legislative silence simply leaves the determination of payment prioritization to the discretion of the Treasury Department. Conversely, Treasury appears to assert that the lack of specific legislative direction from Congress operates as a legal barrier, effectively preventing it from establishing a prioritization system.

“Appears to assert” is right. A lot of this asserting is taking place on background: Treasury will talk a lot about the legality or otherwise of prioritizing payments if it’s off the record, but try to shine some daylight onto those arguments and they tend to scurry into the shadows. Check out how carefully Tim Geithner chooses his words here:

The idea of “prioritization” has been rejected by every President and Secretary of the Treasury who have considered it. It is unwise, unworkable, unacceptably risky, and unfair to the American people. There is no alternative to enactment of a timely increase in the debt limit.

All of this is absolutely true. But note the word conspicuous by its absence here: “unlawful”. When pressed, Treasury will say that prioritizing debt repayments is unwise — but will stop short of saying that they’re not allowed to do that.

And insofar as Treasury’s legal argument has any basis at all, it seems to be based on the absence of any explicit instructions from Congress with regard to what should be prioritized. Yet Treasury is the agency saying most vocally that it doesn’t want Congress to pass any such law.

If push comes to shove and the debt ceiling isn’t raised, then, my base-case scenario is that the government will continue to pay all of its debts. Either the president will invoke the 14th Amendment, or else the Fed will discover some way of extending an overdraft facility to the government in a form which doesn’t constitute outright debt, or else the executive branch will find some other way of ensuring that the government meets all its obligations — not just Treasury bonds, but everything else as well. After all, Treasury has repeatedly said that any kind of failure to pay an obligation constitutes an event of default — it’s not just bond coupons which matter. Here’s Geithner again, in his letter to Jim DeMint:

Your letter is based on an untested and unacceptably risky assumption: that if the United States were to continue to pay interest on its debt — yet failed to pay legally required obligations to its citizens, servicemen and women, and businesses — there would be no adverse market reaction and no damage to the full faith and credit of the United States. Again, this idea is starkly at odds with the judgment of every previous Administration, regardless of party, that has faced debt limit impasses.

A payment default on Treasury bonds would be much worse than a DeMint-style default on non-bonded obligations, but even a DeMint-style default would be extremely bad. And in a sense it doesn’t even matter what the market thinks about the full faith and credit of the United States under that scenario; there would be a huge sell-off just on the grounds that the US was about to enter a brutal recession. Here’s an idea of what would have to get cut, completely: it includes things like military duty active pay, federal salaries, and schools.

How long would the Tea Party types in Congress hold out in the face of soldiers going without pay, not to mention themselves and their staffers? WIth any luck, not too long. But at that point it would be too late: the US would be a laughingstock in the eyes of the world, and it would be incredibly difficult for international investors to take us seriously.

Still, DeMint-style prioritization is Plan B, here. If Treasury does end up cutting spending by 40% or so in order to stay below the debt ceiling, then it would surely prioritize payments, making sure that Congressional salaries were at the very bottom of the list.

As Treasury’s stated idea that it would simply pay bills as they came due, on a pari passu basis, and then stop paying when it ran out of money, it’s simply unthinkable. Treasury bonds and bills will get paid — they have to be. The bond markets know that, which is why they’re still pretty sanguine about this whole debt-ceiling issue.

This is one of those cases where you’re much better off listening to what officials say on the record than you are listening to what they say off the record. Treasury’s off-the-record briefings on the debt-ceiling issue are designed to be as scary as possible. But there’s no way they’ll actually follow through and default on the country’s sovereign debt.


“It’s been at least two decades since both the volume and speed of the computer processing used by Treasury’s FMS exceeded the capability of an equivalent all-human system.”

It is a very weak system if they can’t already differentiate between categories of payments. Would take huge amounts of reprogramming to do anything complicated, but it shouldn’t be impossible to simply halt all Medicare reimbursements, or all contractor payments, or something like that.


Posted by TFF | Report as abusive

How insurance improves living standards

Felix Salmon
Jul 29, 2011 12:23 UTC

It comes as no surprise to find that Alan Greenspan is wrong. But with respect to his latest column, an attempted defense of laissez-faire regulatory policies and lower bank capital standards, it’s worth explaining in a little detail exactly why he’s wrong.

Greenspan’s thesis does have a certain internal logic:

Since the devastating Japanese earthquake and, earlier, the global financial tsunami, governments have been pressed to guarantee their populations against virtually all the risks exposed by those extremely low probability events. But should they? Guarantees require the building up of a buffer of idle resources that are not otherwise engaged in the production of goods and services. They are employed only if, and when, the crisis emerges.

But if you think for a moment about the logical implications of what Greenspan is saying here, they’re truly horrific. Imagine a world where the Japanese government did not insure its population against extremely low probability events like the recent earthquake — this is Greenspan’s example, not mine. The toll of death and suffering in one of the richest countries in the world, which was catastrophically high to begin with, would soar, and the Japanese government, through inaction, would be killing thousands of its own citizens, in a heartless and entirely avoidable decision. Meanwhile, the broader Japanese economy would suffer much more greatly than it already is.

In other words, the Japanese government doesn’t need to be “pressed” to save its citizens’ lives in the event of a disaster; that’s its job.

What’s more, the second part of Greenspan’s thesis is equally incoherent, if not quite as morally monstrous. According to Greenspan, things like “expensive building materials whose earthquake flexibility is needed for only a minute or two every century” are “idle resources” and therefore in economic terms a waste of money. But a significant part of the Japanese economy is comprised of companies and individuals engaged in manufacturing and installing precisely those expensive building materials. It’s hard to see how the production of goods and services means that the economy is not engaged in the production of goods and services.

And it’s simply not true that the insurance industry acts as a brake on the economy, an area where otherwise-productive resources go to be wasted and squandered. Indeed, there’s a strong case to be made that when we remit our insurance premiums to someone like Berkshire Hathaway, they’re invested rather better than if they remained sitting in our checking account.

But all of this is just throat-clearing, really: Greenspan’s using his awful Japan metaphor to try to persuade us that banks shouldn’t be regulated, and that their minimum capital levels shouldn’t be raised in the wake of the financial crisis. If only capital levels hadn’t been raised, says Greenspan, then the banks could be lending out that money instead!

Except, there’s no indication whatsoever that banks have any particular appetite to lend out more money in the present economic climate than they’re doing already. And as my commenter dWj says, if banks have more capital, that really doesn’t slow down the economy one iota:

If the Fed prints $5 trillion of new money and puts it in a hole in the ground, it has no impact on the economy (unless it somehow influences expectations). If the Fed doesn’t print $10 billion of new money but someone puts $10 billion in a hole in the ground (or generally takes it out of circulation for many years), that’s contractionary. Extra equity for banks held in the form of dollars — I assume they wouldn’t hold it in piles of factories or mining equipment — doesn’t tie up real resources, and would presumably be counteracted by the Fed in terms of its nominal effects; it would only make a difference if people expected it to actually enter circulation, i.e. if banks were expected to start crashing, i.e. exactly when you want people to expect looser monetary policy.

I support bank capital requirements to stabilize the financial system, but if you want to support them as an automatic monetary stabilizer, that’s okay, too.

To put this another way, the stated aim of high bank capital requirements is that it will help prevent banking collapses. That’s a good idea, even if Greenspan doesn’t seem very impressed. But there’s another way that high bank capital requirements can help the economy. They start being used when the economy is in crisis — which is exactly the point at which you want a bunch more money in the system. It’s like an automated sluice in a reservoir, which rises when the river gets too low.

Meanwhile, so long as bank capital is just sitting in the form of idle money at the Fed, it’s doing no harm to the economy at all, and if the Fed wants more money in the economy, then the Fed can orchestrate precisely that. The Fed’s in charge of monetary policy, after all. As one would expect Alan Greenspan, of all people, to know.

While Greenspan says, then, that we’re suffering from “an excess of buffers at the expense of our standards of living”, he adduces no good reason at all to believe that buffers actually reduce our standard of living in the slightest. In fact, the opposite is true — ask anybody who has experienced both wealth and poverty. When you’re wealthy — when you have a nice capital buffer to absorb mistakes — you don’t worry so much about running risks, and you’re significantly happier than when you’re poor and you have to be much more worried about where your money might end up. Insurance improves living standards, it doesn’t detract from them. Let’s have more of it.


“If only capital levels hadn’t been raised, says Greenspan, then the banks could be lending out that money instead!”
I think both Greenspan and you fall into the Jimmy Stewart school of banking – everything would be OK if only banks lent. Lending only works if you get paid back with interest and some profit.
http://research.stlouisfed.org/fred2/ser ies/MULT

Posted by fresnodan | Report as abusive

Being wrong on Twitter

Felix Salmon
Jul 28, 2011 23:42 UTC

Earlier today, there was a flurry of activity in the media subcircle of Twitter, based on a tweet from a fake Twitter account saying that Piers Morgan had been suspended from his CNN show. It wasn’t true, as CNN rapidly said, and as Morgan himself confirmed. But various important media people, including most prominently Channel 4 News’s Jon Snow, tweeted the “news” and made it go briefly viral.

Here at Reuters, our official news accounts didn’t touch the story. Our social media editor, Antony De Rosa, did, and then put out a long series of tweets — and even a Tumblr entry — saying that he’d acted too hastily and should have said that the news was unverified. As for me, I retweeted Anna Holmes wondering whether the news was real, and then, literally seconds later, retweeted Brian Stelter saying that no, it wasn’t. Very shortly thereafter, I retweeted Reuters’s Jim Impoco, who made the very good point that “The good news is how quickly that faux Morgan tweet got stomped on.” That’s a point which was also made by De Rosa, who noted that “Twitter is faster than anything at knocking down rumors, faster than TV, web, and obviously print”.

The meta-conversation about how Twitter got it wrong soon became much louder than the original conversation was — and there was a strong thread within it of people, De Rosa included, apologizing for getting it wrong and tweeting inaccurate information. In response, I put up a quick Tumblr post. Twitter is more like a newsroom than a newspaper: it’s where you see news take shape. Rumors appear and die; stories come into focus; people talk about what’s true and what’s false.

There are flagship Twitter accounts, of course, like @Reuters, which have a lot of equity in being right, and where it’s highly embarrassing to be wrong. But the point about social media is that it’s social — as a general rule, it’s people talking to each other, as opposed to declaiming the Truth in a broadcasty manner. I’m happy to be wrong on my blog — one of my personal slogans is that “if you’re never wrong, you’re never interesting” — but I’m even happier to be wrong on Twitter, which is a forum where things disappear quickly and the stream is infinitely more valuable than any individual tweet. I consider my tweets in general and my retweets in particular to be a contribution to the stream; I’m not placing my personal or institutional reputation behind their accuracy.

A few months ago I had a fascinating conversation with Matt Winkler, the editor in chief of Bloomberg News. He’s not averse to Bloomberg journalists being on Twitter, and some, like Lizzie O’Leary, have fantastic accounts with large followings. In her little Twitter bio, she writes that “RTs are not endorsements, dummy” — but that’s not the way that Winkler sees it: his basic point of view is that before a Bloomberg journalist retweets something, she should basically re-report the the entire story. And in the reaction to my Tumblr entry, non-Bloomberg people like Steven Springer seem to think much the same thing.

I don’t have the time, the ability, or the inclination to re-report everything I retweet — and neither does any other journalist with a decent Twitter following. (What’s more, taking everything at face value would remove all the fun from parlor games like trying to work out who’s doing hate retweets, and when.) I do think that it’s probably not a good idea for people like Jon Snow and Antony De Rosa, who are representatives of news organizations and who have large followings on Twitter, to tweet out news without any indication of where it is coming from. If Snow had simply retweeted the @danwooden tweet, or if De Rosa had simply retweeted Snow, then it would have been clear where the information was coming from. Without the retweet, or any link to follow, it looks as though it’s first-hand reporting — and no journalist ever wants their first-hand reporting to be in error.

The high-church media ethicists, however, are having none of this. Dean Starkman, responding to my metaphor that Twitter is more like a newsroom than a newspaper, says that the size of one’s social graph matters:

Twitter’s not a like newsroom because those have four walls, while Twitter’s amplification power is potentially very large. Your “newsroom” has 25,000, sorry, *30,000*, people in it. It’s a lot closer to publishing than being in a closed news meeting.

And Chris O’Shea goes further still:

While some people who tweeted the rumor – such as Anthony De Rosa – went the right route and simply apologized for the error, Salmon took to his blog and basically said it’s okay for journalists to tweet false information…

People obviously make mistakes, but to tweet something wrong and then say, “Oh, well it’s fine” when people follow you because you’re supposed to be a credible news source, is wrong.

If Salmon doesn’t want that responsibility placed on his account, he should remove “Felix Salmon is the finance blogger at Reuters” from his Twitter bio. Until then people are going to give more weight to what he tweets, whether he likes it or not.

Now there’s very little in the way of clear blue water between De Rosa and myself on this issue. We both believe in transparency, and quickly correcting any mistakes you’ve made as soon as you realize you’ve made them, in a public and traceable manner. If I’d simply reported the Morgan rumor as fact, without any kind of sourcing through a link or a retweet, then I too would have apologized. So it’s weird that O’Shea makes such a big distinction between the two of us.

I certainly don’t think that making a mistake and then correcting it is significantly worse than making a mistake, correcting it, and then apologizing for making the mistake. The last step, the apology, is supererogatory — it has to be, lest it be meaningless.

And more generally, one of the great things about Twitter is its immediacy, the way in which people are talking to each other without carefully thinking first about whether or not everything they’re saying holds up to the standards of some grand and noble news organization. That’s something valuable, and it would be a shame if a small group of self-appointed media-ethics priests tried to crack down on it.

Is my Twitter account really “supposed to be a credible news source”? For that matter, is my blog supposed to be a credible news source? I treat neither of them that way. I rarely break news; I’m much more interested in linking to other people who do that much better than I do. People can give my tweets — and my blog, for that matter — as much or as little weight as they like; I have no control over that.

But for the record, and to state the obvious: my blog and my Twitter account are places where I state my personal opinions. There’s a spectrum here; the blog is probably the least personal, then the Tumblr, then the Twitter, all the way to my Foursquare feed, which is accessible only to genuine personal friends. Social media makes obvious what has always been the case: that journalists are fallible humans with opinions. This should be shocking to no one. And that’s something to celebrate, not something to apologize for.


Only skimmed this post was it supposed to be a long-winded defence of not bothering to fact check. I know getting basic facts right is not that popular these days amongst journalists but you might want to write a post about the correlation between that and the declining readership of “real” newspapers.

The scarey thing is how the nonsense that gets cut and pasted then becomes a “fact”.

Posted by Danny_Black | Report as abusive

Bike slowly

Felix Salmon
Jul 28, 2011 18:57 UTC

One of the things I like about urban biking in the summer is that people go slower: no one wants to arrive at their destination a sweaty and disheveled mess. When bikes go slower, that’s safer for everybody, especially pedestrians. And it’s much more pleasant for the bicyclist, too. If you take your time, and you’re not always in a rush, stopping at red lights is no longer an annoyance: it’s an opportunity to cool down a little look around, learn about your city. I like the fact that my bike is faster than a car for most New York journeys. But that doesn’t mean I’m in a race.

Unsurprisingly, then, I love Celeste LeCompte’s article about the Slow Bike Movement in the SF Chronicle. And she makes an important, oft-overlooked point:

Seeing slow-riding folks like Logan and Stockmann out on the road can be a refreshing encouragement to hop on two wheels for a daily commute or a quick trip to the farmers’ market.

As a general rule, the propensity of non-bicyclists to give biking a try is inversely proportional to the average velocity of the bikers they see on the street. If you live in a city where women in wedge heels are steering their old steel bikes around their daily errand route, there’s really nothing intimidating or scary about the prospect of getting on a bike yourself. If it’s all hipsters on fixies, by contrast, that just makes biking feel all the more alien and stupid.

So, next time you get on a bike, give yourself an extra five or ten minutes, and take your time. You’ll be much happier for doing so. And your happiness is likely to prove contagious.


Here is another bike that goes really fast but should be very careful. Please bike safely using these type of bikes http://www.bikesxpress.com/Prestigio-Fix ie-Bike-by-Micargi-RD-248-_p_87.html

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The long-term implications of a US downgrade

Felix Salmon
Jul 28, 2011 17:01 UTC

David Boucher, of The Economic Word, asks a very good question via email, about the implications of the US losing its triple-A rating:

I was wondering if the state-level impact of a debt downgrade would be different, more severe.

From my understanding, Illinois and California have the two lowest ratings of the US states; if the US were to be downgraded and so would a couple of trouble states, would it have an impact on the ability of the Federal Government to lend a hand to those in trouble? And as a result create a Euro-ish type of debt crisis within the US?

There’s certainly a general understanding, in the markets, that California is too big to fail: if push came to shove, the federal government would bail it out rather than let it default. But David raises a good point: is the moral-hazard trade going to get weakened if the US loses its inviolability?

The way that credit ratings work, any municipalities which currently have triple-A ratings would almost certainly lose those ratings were the US sovereign to be downgraded. As far as I know, there’s no precedent for a sub-sovereign entity to have a higher rating than the sovereign, except in extreme cases where the sovereign is actually in default.

That said, I don’t think there’s much of a trickle-down effect. When you get to states like California or Illinois, which have single-A ratings and are therefore many notches below triple-A already, a downgrade of the sovereign does not mean an automatic downgrade of the state. California and Illinois are being rated on their own merits, or lack thereof — they don’t just have a rating x notches below the sovereign.

So if the sovereign downgrade hurts the likes of California and Illinois, it will be where it hurts, in the markets, rather than immediately in their own credit ratings. There’s some number between 0 and 1 which is the probability of the existence of an implicit federal guarantee on each state’s debt. That number will almost certainly fall when the US gets downgraded. And the lower that number, the more expensive it becomes for either state to borrow money.

When the federal government is strong and can step in to save the day with little harm to itself, it’s wont to do so. But the lesson of countries like Ireland is that you have to be very careful whom you bail out, lest you hurt your own creditworthiness. And the message of the US sovereign downgrade is very much that the government can’t just spend as much money as it likes without worrying about the effect on its own creditworthiness. A bailout of California would be extremely expensive, and would also set a very dangerous precedent for other states which might run into trouble.

The worst effects of a US downgrade, then, might not be felt for years, until the point at which a big state starts running into fiscal difficulties that are so serious that it faces difficulty repaying its bonded debt. At that point, in the olden days, the markets would expect some kind of federal aid; post-downgrade, they might just run chaotically for the exits instead, leaving the state’s citizens holding a bunch of paper worth less than half its face value.

The bottom line is that a US-double-A is a more brittle and fragile place than a US-triple-A: if and when things go wrong, they will go wrong more dramatically and drastically than if the undisputed global hegemon was always understood to have the ability and inclination to smooth things over and sort things out. If bond yields don’t rise much in the wake of a downgrade, don’t for a minute think that means the rating doesn’t matter. It just means that the rating doesn’t matter yet. In extremis, the markets really do care about this kind of thing. And remember too that the first downgrade is always the hardest. Once the ratings agencies have stripped the US of its triple-A rating, they’re going to find it much easier to make subsequent downgrades. There’s a lot of danger associated with a downgrade, even if there doesn’t turn out to be a big and immediate market sell-off.


Let us start thinking positively,guys.The world is large enough to create business opportunities if one side sinks, the oppposite would happen on the other which will lift it.Any downturn would create upturn ib the economic cycle.It is elasticity of the economy that keeps on going

Posted by RAMMO | Report as abusive

The microeconomics of restaurant letter grades

Felix Salmon
Jul 28, 2011 14:27 UTC


Many congratulations to the WSJ for putting this chart together; it says much more than the thousand-word accompanying article does. New York City restaurants are periodically graded by inspectors, and then given a grade based on how many violation points they have. And the chart demonstrates, more than any set of anecdotes ever could, that inspectors are trying very hard to give the restaurants the highest letter grade they can.

Now that’s not what the restaurants think, of course. And indeed the fiscal incentives run the other way: restaurants which get B or C grades get fined, and “the amount collected in fines has skyrocketed,” the WSJ reports, “to $42.4 million in the fiscal year that ended last month, from $32.7 million in the previous fiscal year.” (Does a 30% increase really count as “skyrocketed”? I’m not sure about that.)

One theory in the story doesn’t ring true to me at all: Columbia University statistician Roger Vaughan speculates “that restaurant owners learn, after the inspection, about the criteria they are graded on and what the thresholds of the grading system are, and do enough improvements so that at the next inspection they are able to move their scores below 14 violation points or below 28.” But restaurant inspections are much less predictable than that — it’s simply not possible to fine-tune the cleanliness of your kitchen to within a point or two.

Another Vaughan theory doesn’t compel me much either — that restaurant inspectors just don’t want the extra work involved in re-grading restaurants, something which happens to everybody getting a B or a C. The inspectors are salaried, and inspect a fixed number of restaurants: the grades they give out don’t affect that.

Which leaves the hypothesis that “pressure from restaurant groups” is driving the inspectors to give higher grades where it matters. That wouldn’t be the first time, of course, that a regulator was captured by the industry it was meant to be regulating. But of course neither restaurants nor inspectors would ever admit to such a thing, so it’s hard to nail down — until you generate a chart like the one above.

My feeling is that there could be a couple of other factors in play. Firstly, NYC restaurant inspections are harsh, and the inspectors know it. And I remember from my schooldays that the toughest and strictest teachers — the ones we were all most afraid of — were often the ones who ended up giving out the highest grades at the end of the year; something similar might be going on here.

And on top of that is the fact that a simple add-up-the-points heuristic is not always going to be the best way of judging the final grade a restaurant should get. The chart says to me that a restaurant inspection is a somewhat iterative process: you add up the points, you see where the letter grade is, you then compare that letter grade to the letter grade you feel that the restaurant as a whole deserves, and if there’s a difference, you shave off some points here or there. And the inspectors nearly always err on the side of generosity: they’ll shave off points to get you an A or a B, but they won’t be extra-tough to get you a B or a C.

This is no great scandal. Restaurants lose business if they don’t have an A rating, and getting a B or a C costs real money in fines, as well. Given what the public will think when they see a B or a C rating, it’s good that the restaurant inspector takes a minute to ask if that rating is really deserved.

Bad ratings are serious punishment, which shouldn’t just be handed out by an unfeeling computer. Judging, perforce, involves the exercise of judgment. What this chart really shows is that restaurant inspectors are human. Which is something I’m frankly quite grateful for.


If you want to see inspection results on your iPhone/iPad/iTouch, check out Grade Pending in the App Store. Free, and works even when you don’t have Internet access (in the subway, for example). http://tinyurl.com/gpend

Posted by DanCostin | Report as abusive