Felix Salmon

Brad DeLong has found a 1995 article by Niall Ferguson which pretty much puts the lie to Ferguson’s claim about his take on John Maynard Keynes. Here’s what Ferguson now says:

My disagreements with Keynes’s economic philosophy have never had anything to do with his sexual orientation. It is simply false to suggest, as I did, that his approach to economic policy was inspired by any aspect of his personal life.

And here’s what he wrote in 1995:

Research in German archives shows that Keynes’s critique of the Versailles Treaty was based on anything but dispassionate economic analysis. Few, if any, of its readers can have appreciated how far the ideas contained in The Economic Consequences of the Peace — the book which made him a celebrity — were actually inspired by members of the German peace delegation at the Versailles conference. Still fewer knew that their appeal to him owed as much to his homosexuality as to his Germanophilia.

Ferguson writes that “the attraction Keynes felt” for the German representative Carl Melchior “strongly influenced his judgment”, and adds for good measure that “those familiar with Bloomsbury will appreciate why Keynes fell so hard for the representative of an enemy power”. Here’s the whole thing:

This is a slightly different argument, of course, to the idiotic remarks Ferguson made at a conference in California last week, where he said that Keynes didn’t care about future generations because he was gay and didn’t have children. If those remarks were, in Ferguson’s own words, “doubly stupid”, then maybe his Spectator article is maybe only singly stupid. Except it was carefully written, edited, and committed to print: Ferguson can’t claim that his article was merely a regrettable “off-the-cuff” error.

At first blush, Ferguson’s apology is full and unqualified. But in light of this and other information, it seems that Ferguson has rather more to apologize for than a single verbal response to a question from Paul McCulley. Either Ferguson still believes today what he wrote in 1995, or else he has changed his mind and now believes that what he wrote back then is “simply false”. It’s about time he clears this up.

Update: It seems we can’t take Ferguson’s apology at face value after all. In an ill-tempered letter written to the Harvard Crimson, Ferguson says that he can’t be prejudiced because he has a Somalian wife and a gay friend; says that “the strong attraction Keynes felt for the German banker Carl Melchior undoubtedly played a part in shaping Keynes’ views on the Treaty of Versailles and its aftermath”; and adds that Keynes and the other members of the Bloomsbury Group “had no doubt at all that sexual orientation had a significance beyond the narrow confines of the bedroom, and that intellectual life and emotional life were intertwined”. I guess it’s not “simply false” after all to suggest that Keynes’s approach to economic policy was inspired by any aspect of his personal life.

Scott Thurm and Serena Ng have an odd piece in today’s WSJ, complaining about executive pay being tied to per-share results rather than overall numbers. Their poster child is Safeway CEO Steven Burd, who has overseen a substantial increase in earnings per share even as sales and profits have gone nowhere, by spending $1.2 billion on stock buybacks.

The implication here is that public companies should be concentrating on growth, rather than on more financial metrics like earnings per share or return on equity. And I think that’s exactly wrong. Not all companies should be growing; some of them, in order to maximize their return on capital, should instead be shrinking. The world’s biggest banks are a good example: most of them are trying to shrink, because doing so will make them leaner, more efficient, and ultimately more valuable.

Stock buybacks aren’t always a good idea: companies do have a tendency to spend far too much money on them at exactly the wrong time, when the share price is high. (There are many examples, but one of the most tragic is probably the New York Times Company, which today is in desperate need of the $2.7 billion it spent on stock buybacks between 1998 and 2004, when the stock was much more expensive than it is now.)

On the other hand, stock buybacks are a very efficient way of returning money to shareholders: they’re basically a pick-your-own-dividend scheme. Many shareholders, especially individual shareholders in high tax brackets, dislike dividends, because they’re taxable income. But if a company takes the money it would otherwise spend on dividends, and spends it instead on buybacks, then shareholders have a choice: they can sell any proportion of their shares back to the company, in line with their liquidity needs, and if they sell nothing then the value of their shares goes up just because the total number of shares is going down. On top of that, companies don’t feel the same need to maintain a steady level of buybacks, in the way that they do feel the need to maintain a steady level of dividends.

If more public companies concentrated on earnings per share rather than overall earnings growth, that would probably be a good thing. Right now, it’s almost impossible to be a successful CEO of a public company whose industry or company is in long-term secular decline. And private-equity companies are well aware of that fact: they love to buy up such firms and extract vast amounts of money from them before they die. Rather than see the spoils of such tactics accrue mainly to the Mitt Romneys of this world, it would be great if the broad shareholding public could also participate in the efficient rotation of capital out of declining industries and into growing ones.

That’s the way the stock market is meant to work, after all: you invest in companies while they are growing, in the hope and expectation that you will be able to make money from their high future cashflows once they reach maturity. But in practice the stock market has great difficulty valuing companies which make large but falling profits, with the result that most of those profits ultimately end up going to private-equity types once the companies are acquired in a leveraged buy-out.

Safeway is faced with a choice right now: it can burn billions of dollars in what would probably be a fruitless attempt to compete with Walmart, or it can return those billions to shareholders, to be reinvested in more promising areas. Safeway’s CEO should choose between those options dispassionately, rather than simply assuming that more investment is always better — and his board should compensate him in such a way that he’s incentivized to make the best decision, rather than always going for growth.

Stock buybacks are an efficient way of returning money to shareholders of a shrinking company, and as such they’re an important part of the public-company CEO toolbox. I’m sure they can be abused at times to manipulate quarterly earnings. But they can also be a pretty efficient way of doing what the stock market is meant to do best: distributing capital to where it can be most effectively deployed. If Safeway has more capital than it can efficiently use, then it should return that capital to the market, where it can be recycled into more promising investments. And in principle it’s entirely reasonable to reward the CEO for doing just that.

I’m not sure why it took me until yesterday to find Paul Krugman’s post from April 16 about population density, where he found a very odd fact buried in a new Census report. We know that the population of the US is rising, and we know that the population of the US is also becoming increasingly urban. As a result, urban density — the number of people per square mile — has to be going up.

And yet, if you calculate density the right way, weighting by population rather than by land area, you find something very odd: density is actually going down.

In the US as a whole, population-weighted population density fell by 16 people per square mile between 2000 and 2010, while in metropolitan areas it fell by an enormous 405 people per square mile. What could be going on? The best answer, I think, comes from David Schleicher, a George Mason professor who’s an expert on the political economy of urban areas.

If you look at property and land prices in America’s cities, they rose impressively between 2000 and 2010, the property bubble and crash nothwithstanding. Cities are increasingly attractive and expensive places to live; that’s a trend which isn’t going away any time soon. And historically, when urban property values rise, it doesn’t take long for property developers to pounce on the trend. New buildings rise; whole neighborhoods get rezoned. With billions of dollars at stake, politically-connected developers normally find a way to get what they want somehow.

That’s exactly what has happened in, say, Miami, where shiny new condos rise in lockstep with property values. But note something important about Miami: those condos are being bought largely by foreigners, who have little if any political clout in the city. In most US cities, by contrast, rising property values in recent years have meant something different: a rise in the number of politically-powerful groups and individuals moving back into the city from the suburbs.

These rich and powerful have two important effects on urban density. Firstly, they decrease density just by moving to the city: they do that by dint of the fact that they live in larger homes with smaller families. My apartment in New York’s East Village, for instance, is in a 1920s tenement building, which was converted into condos in 1984. During the condo conversion, the old layout, of four apartments per floor, was scrapped in favor of a new layout with only two apartments per floor. But the number of people per apartment didn’t go up. And if the conversion were to take place today, the building would almost certainly be converted into “full-floor luxury residences”, with a keyed elevator opening directly into monster spaces. Again, without any discernible increase in the number of people per apartment.

Rich people like to maximize the amount of space they live in, whether they’re buying suburban McMansions or downtown lofts. As a result, higher property prices in dense urban areas are prone to making those areas less dense — at least until the developers come along.

This is where the second important effect of the rich-and-powerful comes into play. These people tend to fall on the spectrum somewhere between NIMBY (Not In My Back Yard) and BANANA (Build Absolutely Nothing Anywhere Near Anything). Just look at the vitriol hurled by carless Soho residents, for instance, at New York’s new bike-sharing stations. As urban areas become increasingly affluent, filled with wealthy politicians and their wealthier donors, it becomes harder and harder for developers to procure the zoning changes and construction permits they need in order to keep on producing new residential inventory.

The result is that the normal state of affairs — where powerful individuals get trumped by even more powerful construction-industry inevitabilities — is turned on its head, to the point at which new construction can no longer keep up with the de-densification endemic to gentrification. Bloggers may rail against this state of affairs — both Ryan Avent and Matt Yglesias have written at great length about how important it is to allow new buildings to rise within urban areas — but ultimately the natural conservatism of the rich is winning out, across the nation. If you want to move to a city where density is going up rather than down, you might just have to move to Miami. Or China.

Today’s jobs report was a solid one, and shows that the recovery, while not exactly strong, is at least not slowing down: Neil Irwin calls it “amazingly consistent”. Whether you look at the past 1 month, 12 months, 24 months, or 36 months, you’ll see the same thing: average payrolls growth of roughly 170,000 jobs per month. That’s not enough to bring unemployment down very quickly, given the natural growth in the workforce. But unemployment is coming down slowly. And at the rate we’re going, at some point in the second half of 2014 we should see total payrolls reach their pre-crisis levels, and the headline unemployment rate hit the key 6.5% level.

There’s a real human cost to the fact that unemployment is coming down so slowly, but there are lots of reasons why it’s very hard to bring it down more quickly. First and foremost, of course, is the fact that US GDP growth is mediocre, coming in at less than 2% per year over the past few years. That’s not the kind of V-shaped recovery which creates jobs. Calculated Risk’s justly-famous jobs chart shows just how bad the recession was for employment, and just how painfully slowly we’re scratching our way back: we’re more than five years into this jobs recession, and we’re still at the worst levels seen in the wake of the dot-com bust.

One of the reasons is the undisputed conclusion of Reinhart and Rogoff: that recoveries from financial crises are much slower than recoveries from other crises. But there’s something bigger going on, too, which Joe Stiglitz writes about today in a very wonky blog post for the IMF.

This is more than just a balance sheet crisis. There is a deeper cause: The United States and Europe are going through a structural transformation. There is a structural transformation associated with the move from manufacturing to a service sector economy. Additionally, changing comparative advantages requires massive adjustments in the structure of the North Atlantic countries.

To put it another way: what looks like a broad economic recovery is actually a combination of many trends, including the end of what turned out to be a very short and weak recovery in manufacturing employment. Here’s Irwin:

The fact that the overall job growth numbers have been extraordinarily stable does not mean there isn’t some real churn going on in the U.S. workforce. In the earliest phase of the recovery, manufacturing jobs was a major driver of job creation, but that turned out to be not a longer-term trend but a partial reversal of the steep declines of the recession. Now, job creation is entirely confined to the services sector: Manufacturing had no net change in employment, construction lost 6,000 jobs, and even mining and logging was a net negative.

Government employment, meanwhile, continued its long swoon… That leaves one sector to drive the train of job creation: private sector services. This particular month, there were strong gains in leisure and hospitality, retail jobs, and professional and business services, and health care has been a mainstay of the expansion.

Stiglitz makes the case that in a recovery with so many moving parts, the single blunt instrument of setting short-term interest rates at the Fed will never be enough, and that “there needs to be close coordination between monetary and fiscal policy.”

What’s more, as Mohamed El-Erian says, policymakers should ideally be able to use job growth not just as a goal, but also as a tool for achieving other ends.

Robust employment growth would – and, let us hope, will – play a critical role in helping the US pivot to a better place… It would do this by maintaining consumption and allowing for a more sustainable savings rate; by countering an excessive upfront fall in public spending that increases the risk of a recession; by enabling the Fed to slowly and gradually normalise monetary policy before it breaks too many things; and by reducing the risk of financial bubbles.

The US economy is a highly complex machine, with many moving parts which ought to be working with each other rather than against each other. Stiglitz makes a strong case that the financial sector broadly is right now part of the problem rather than part of the solution: it’s not directing funding to help the economy grow and create jobs, even as it continues to represent a serious systemic risk. It should go without saying at this point that fiscal policy broadly is part of the problem as well: you don’t create jobs by firing people, and the government should be borrowing if and when the private sector won’t. And as for monetary policy — well, it’s probably too early to tell. It’s done a great job of making people with money richer, but it has had a much less obvious effect on creating jobs for those who want them and don’t have them.

And yet there’s real room for optimism in today’s jobs report. Look at the revised numbers for February: an incredibly heartening 332,000 jobs created, in one short month. Look at the number of people unemployed for 27 weeks or more: that unhappy cohort shrank by 5.6% in April alone, to 4.3 million people. It’s still far too high, but this time last year it was over 5 million, so we’re making a significant dent in what has been the toughest nut to crack.

We can — and should, and could, and must — do better than this. But doing so will require a thaw in the Washington gridlock. When Jack Lew became Treasury secretary, it was understood that the most crucial thing he could deliver would be greater cooperation between the White House, Treasury, and Capitol Hill. That hasn’t happened yet. I hope and trust that he’s been working very hard behind the scenes to make it happen — partly because he doesn’t seem to have achieved anything else, but mainly because it’s by far the most important thing that he could be doing right now. Behind the jobs numbers there are some powerful forces driving real recovery in large parts of the US economy. It’s Lew’s job to work with Congress to identify those forces, and to give them all the support the government can muster.

San Pellegrino has released its annual list of the 50 best restaurants in the world, and of course Quartz is on it. “Ultimately,” writes Adam Pasick, “the world’s best restaurants cater to a global elite who can afford to spend thousands of dollars for a meal”. It turn, that means Quartz, a publication devoted (in both senses of the word) to the global elite, needs to be all over it, with an analysis of how fast-growing countries are over-represented among the restaurants “making big leaps up the rankings”.

But Pasick well knows — because he commissioned this article from me when he was at NYMag — that the elite level of gastro-porn restaurants are not actually targeted at the kind of tourists “that can take a Gulfstream to dinner,” as he puts it. Yes, the San Pellegrino restaurants are expensive. But they’re not international plutocrat, private-jet expensive; anybody in the “mass affluent” can afford to go to any of them, as a special occasion. And indeed unless you happen to live in the same city as one of these restaurants, it’s going to cost you more to get there than it is to eat there.

The chart above, diligently put together by Ben Walsh, shows the top 50 restaurants, in order, with the prices on their websites. (The short green stubs are the restaurants who either don’t put their prices on their website, or who make them so ridiculously hard to find that we ultimately just gave up.) These restaurants like to deal in prix-fixe set menus, which is convenient: the menu prices range from 1800 Thai baht, or $61, at Nahm, to £195, or $304, at the Fat Duck.

Interestingly, it’s hard to tell whether restaurants in fast-growing emerging countries are generally cheaper or more expensive than the ones in developed nations: all of the restaurants in Brazil, Peru, Mexico, Singapore, and mainland China, for instance, have those green bars and are very opaque on pricing. But what we can tell is that there’s no relationship at all between price and quality.

Here’s the scatter chart: there’s no correlation here, but maybe you can see a bit of a clustering around the $200 level.

And to underline just how random these things are, here’s the same chart only this time using the price rank rather than the absolute price.

What we’re emphatically not seeing here is any kind of massive price spike among the top 0.01% of restaurants, which you might expect if those restaurants were in fact patronized by the richest 0.01% of people. What we are seeing is a group of expensive restaurants, charging expensive-restaurant prices, but whose position on this list is entirely unrelated to the amount that they charge.

I’m sure there are restaurants in the world — including high-end sushi places — which are more expensive than any of the restaurants on this list. More to the point, I’d expect that all the restaurants on this list offer many bottles of wine whose price is many multiples of their most expensive set menu. With wine, the sky’s the limit when it comes to price; with food, there really does seem to be a limit, somewhere around the $300 per person level. That’s not cheap, by any means. But it’s not the kind of price which is only affordable if you have a private jet and live in a $20 million home. The world of restaurants, it turns out, is positively democratic, at least compared to areas like wine or property. Or even, for that matter, high-end handbags.

Josh Barro has a strong column today on the confusion and hypocrisy in Rhode Island; he gets equally strong support for his position from Ted Nesi.

The argument here is pretty simple. The state of Rhode Island has various obligations; among those obligations are pension obligations, general obligation bonds, and moral obligation bonds. The legislature and governor of the state are happy defaulting on their pension obligations, which are contractually obliged to rise in line with the cost of living: by freezing the pensions instead, some retirees will see their incomes slashed by a third.

Yet at the same time Rhode Island is determined to pay out the holders of moral obligation bonds in full.

Rhode Island’s pensioners would seem to be more deserving than the moral obligation bondholders, who sought out those bonds precisely because they carried an excess yield. The market priced in the fact that the bonds were more likely to default than general obligation bonds — and yet, when push came to shove, the state is standing behind those bonds, even as it cuts a billion dollars from promised future pension payments.

I think the argument here is a solid one, but there’s a gentle whiff of the faux-naive about it, as well. So without taking Lincoln Chafee’s side of the argument, let me try to explain what he might say, were he in a position to be honest about things.

The key here is the legislature voters. Why would any state ever issue non-legally-binding moral obligation bonds rather than legally binding general obligation bonds, given that the moral obligation bonds cost more to service? The answer is simple: general obligation bonds can’t be issued without the legislature’s voters’ approval, and getting that approval is a pain. So the executive doesn’t bother, and issues moral obligation bonds instead.

This is the first reason why the governor won’t default on the bonds: they’re obligations of the executive, and governors tend to honor each others’ obligations.

On top of that, when the governor signs into law a pension default which has the strong support of the legislature, that’s the whole government making the decision to cut pensions: it’s not a purely executive action. Blame shared is blame diluted. The governor is also in a weird way hewing to the principle underlying general obligation bonds: once the legislature electorate has managed to agree on something, then at that point it carries especial authority.

There’s also a more important reason why Rhode Island isn’t defaulting on its moral obligation bonds — and that’s the simple fact of what a moral obligation is. It’s true that moral obligations don’t carry the force of law. But they are pretty much equivalent to the US government, for instance, using its “full faith and credit” to backstop Treasury bonds. Governments don’t pay bonds because they’re legally obliged to do so; they pay bonds because they promised to do so. That’s what “credit” means.

Rhode Island’s moral obligation bonds, then, are a bit like the bonds of a sovereign nation: they’re a measure of willingness to pay. And when it comes to public-sector borrowers, willingness to pay is all important. Yes, it would be legally possible for Rhode Island to default on its moral obligation bonds while staying current on its general obligation bonds. That legal possibility is exactly why the moral obligation bonds do trade at a higher yield. But the holders of the general obligation bonds aren’t happy with their lower yield just because they know that in the event of default they can go to court: none of them ever wants to do that. They fully expect Rhode Island to pay its bonded debts in full, just because it promised to do so.

There are implications to this line of reasoning, which Nesi explains quite clearly.

If that’s the case, a moral-obligation bond is effectively a general-obligation bond in all but name, with full repayment by Rhode Island taxpayers promised no matter what. If so, shouldn’t voters have to approve moral-obligation bonds at the ballot box as they already do with general-obligation bonds – and shouldn’t Rhode Island be paying the lower interest rate investors get on a lower-risk general-obligation bond?

The answer is that yes, moral obligation bonds are effectively general obligations bonds in all but name. The state has found a way of issuing bonds without having to get the approval of the legislature electorate, but they’re still obligations of the state, and the state doesn’t distinguish the two types of obligation. And yes, Rhode Island should be paying the lower interest rate rather than the higher interest rate. But that doesn’t mean that voters should have to approve moral obligation bonds: it could equally mean that voters should stop having to approve general obligation bonds.

That is what all governors really want: to have the legislature and voters stop interfering in their borrowing strategy. And that is the real reason why Chafee is staying current on his moral obligation bonds. He wants the world to see voter approval as an anachronism, and in an ideal world he would love it if moral obligation bonds had the same legal backing — and therefore the same lower yield — as general obligation bonds. That way he’d never need to issue a general obligation bond, or get voter approval for such a thing, ever again. It’s a very attractive vision — and it’s not one he’s going to give up just because Rhode Island is suffering a fiscal nightmare these days.

It’s May Day, and Henry Blodget is celebrating — if that’s the right word — with three charts, of which the most germane is the one above. It shows total US wages as a proportion of total US GDP — a number which continues to hit all-time lows. Blodget also puts up the converse chart — corporate profits as a percentage of GDP. That line, you won’t be surprised to hear, is hitting new all-time highs. He’s clear about how destructive these trends are:

Low employee wages are one reason the economy is so weak: Those “wages” are represent spending power for consumers. And consumer spending is “revenue” for other companies. So the short-term corporate profit obsession is actually starving the rest of the economy of revenue growth.

In other words, we’re in a vicious cycle, where low incomes create low demand which in turn means that there’s no appetite to hire workers, who in turn become discouraged and drop out of the labor force. Blodget’s third chart is one we’re all familiar with: the employment-to-population ratio, which fell off a cliff during the Great Recession and which will probably never recover. The current “recovery” is not actually a recovery for the bottom 99%, for real people who need to live on paychecks. And today is exactly the right day to point that out.

Conversely, today is exactly the wrong day to declare that these broad and inexorable trends are not really big top-down trends at all, and in fact merely reflect the inability of individual workers to “access learning, retrain, engage in commerce, seek or advertise a job, invent, invest and crowd source”. And yet that’s Tom Friedman’s column this May Day:

If you are self-motivated, wow, this world is tailored for you. The boundaries are all gone. But if you’re not self-motivated, this world will be a challenge because the walls, ceilings and floors that protected people are also disappearing. That is what I mean when I say “it is a 401(k) world.”

This manages to be both incomprehensible and incredibly offensive at the same time. I have no idea what Friedman thinks he’s talking about when he blathers on about disappearing protective floors; I can only hope that he isn’t making a super-tasteless reference to the recent disaster in Bangladesh. But it’s simply wrong that today’s world is “tailored” for anybody who happens to be “self-motivated”. Both the self and the motivation are components of labor, not capital, and as such they’re on the losing side of the global economy, not the winning side.

Friedman is a billionaire* (by marriage) who — like all billionaires these days — is convinced that he achieved his current prominent position by merit alone, rather than through luck and through the diligent application of cultural and financial capital. His paean to self-motivation recalls nothing so much as Margaret Thatcher’s “there is no such thing as society” quote: “parenting, teaching or leadership that ‘inspires’ individuals to act on their own will be the most valued of all,” he writes, bizarrely choosing to wrap his scare quotes around the word “inspires” rather than around the word “leadership”, where they belong.

True leadership, in a society where the workers are failing to be paid even half the fruits of their labor, would involve attempting to turn the red line in Blodget’s chart around, and to spread the nation’s prosperity among all its citizens. Rather than telling everybody that they’re “on their own” and that if they’re not a success then hey, they’re probably just not “self-motivated” enough.

The ultimate Friedman kick in the balls, however, doesn’t come from his lazily meritocratic priors. Rather, it comes from his overarching metaphor: the idea that if you have a 401(k) plan, then you’re somehow in charge of your own destiny. Friedman might be right that we’re living in a 401(k) world, but if he is then he’s right for the wrong reason. In Friedman’s mind, a 401(k) plan is an icon of self-determination: you get out what you put in. “Your specific contribution,” he writes, italics and all, “will define your specific benefits.”

In reality, however, a 401(k) plan is an icon of futility and the way in which the owners of capital extract rents from the owners of labor. Yves Smith is good on this, as is Matt Yglesias, although the real expert is Helaine Olen: the 401(k) is a way for both your government and your employer to disown you, and to leave your life savings to be raided by the financial-services industry and its plethora of hidden and invidious fees. The well-kept secret about old-fashioned pension funds is that, for the most part, they’re actually very good at generating decent returns for their beneficiaries. They tend to have extremely long time horizons, and are run by professionals who know what they’re doing and who have a fair amount of negotiating leverage when they deal with Wall Street. Savers are always strengthened by being united: disaggregating them and forcing them to take matters into their own hands is tantamount to feeding them directly to the Wall Street sharks.

Yglesias says that in a 401(k) world, “you’ve got to save a lot of money for retirement. More than you think.” This is true for five big reasons. Firstly, because wages are shrinking, any given level of savings will constitute a steadily-increasing proportion of any given worker’s GDP-adjusted paycheck. Secondly, because the employment-to-population ratio is shrinking, all workers need to save to support not only themselves in retirement, but also a number of dependents which is also growing over time. Thirdly, because 401(k) plans have lower returns than traditional pension plans, you need to save more in order to make up the difference. Fourthly, life happens: while the money in your 401(k) is nominally there for your retirement, in practice there’s a good chance that you’re going to tap it, at some point, to pay some kind of large and unexpected bill, whether that comes from unemployment or divorce or ill health. And finally, 401(k) plans don’t have the clever cross-subsidy that traditional pension plans have, where people who die early cross-subsidize people who live for a long time. With a pension plan, you get income when you need it — when you’re alive — and you don’t get money when you’re dead, and don’t need it any more. With a 401(k), by contrast, you have to save more than you really need, because there’s always a chance that you’re going to live to 102.

Add them all together, and to a first approximation you arrive at our current world, where pretty much no one relying on their 401(k) is actually saving enough for retirement. If you’re rich today, you’ll probably be fine when you retire. But if you’re someone who (in contrast to Tom Friedman) actually lives on your paycheck, then there’s almost no chance that your retirement savings will be enough, when the time comes. That’s not your fault: the reasons are deeply systemic. And as a result, the solutions cannot possibly be the kind of bottom-up schemes that Friedman is extolling. They have to come from the top: from real leaders, rather than jumped-up “thought leaders“.

*Or was, anyway. Maybe he isn’t any more.

Over the weekend one of my friends took to Facebook to ask a very good question. Her four-year-old daughter was going to run a lemonade stand, and my friend wanted suggestions “to incorporate an element of giving into the project”. Which charity should the daughter start supporting with her lemonade-stand profits? There were some very good answers, but there was also one woman who suggested, of all things, breast cancer research.

The Facebook post appeared at roughly the same time as Peggy Orenstein’s excellent 6,600-word NYT Magazine cover story on the problems with the breast cancer industry. Orenstein concludes:

It has been four decades since the former first lady Betty Ford went public with her breast-cancer diagnosis, shattering the stigma of the disease. It has been three decades since the founding of Komen. Two decades since the introduction of the pink ribbon. Yet all that well-meaning awareness has ultimately made women less conscious of the facts: obscuring the limits of screening, conflating risk with disease, compromising our decisions about health care, celebrating “cancer survivors” who may have never required treating. And ultimately, it has come at the expense of those whose lives are most at risk.

There are broader lessons to be learned from what we’re seeing in the world of breast cancer.

Firstly, Americans are bad at statistics. When it comes to breast cancer, they massively overestimate the probability that early diagnosis and treatment will lead to a cure, while they also massively underestimate the probability that an undetected cancer will turn out to be harmless. They’re bad at pathology: they’re easily convinced that something called ductal carcinoma in situ (DCIS) is a form of cancer, for instance, partly because the cancer industry insists on referring to it as “Stage Zero” cancer. They’re bad at biology: they think that it’s physics, basically, and that cancers are discrete, localized growths which start small and get bigger, and that the earlier you find and treat them, in large part by physically cutting them out of the body, the more likely you are to be cured.

But bigger than all of these is the fact that Americans are loving, compassionate people who really want to think that they can help, or make a difference. So they wear pink t-shirts, and ribbons, and football cleats; they spread the word in the name of “awareness”; they file up in their millions for mammograms and encourage everybody else to do so as well. (“If you haven’t had a mammogram, you need more than your breasts examined.”)

Orenstein does a good job of glossing the unpleasant consequences of such actions. Money which could be put to research into treating metastatic cancer — the kind of cancer which kills you — is instead put overwhelmingly into “awareness” campaigns and mammograms. There’s an epidemic of overtreatment, which carries massive physical, psychological, and economic costs. (And even attempting to measure such costs is considered almost treasonous in the cancer community.) More recently, the pink wave has spread to teenage girls, who are being educated, as Orenstein says, “to be aware of their breasts as precancerous organs”.

When a loved one dies of breast cancer, we all want to feel that there’s something we can do, some way we can help, some possibility that might prevent other people going through the same thing. The urge which causes people to donate to the Red Cross when there’s a big natural disaster? Is very similar to the urge which causes people to donate to the Susan G Komen Foundation when they have a nasty run-in with breast cancer.

But there are much better places to send your money than Komen. In a follow-up blog post, Orenstein points to Breast Cancer Action as one of them. It doesn’t have the feel-good aura that Komen does, and it’s unabashedly political. But it’s passionate, it’s reality-based, it doesn’t hide the people who are dying of breast cancer, and it doesn’t pretend that we have a way of stopping that from happening.

There are lots of reasons why people give to charity, and there are lots of reasons why some charities grow into Komen-sized behemoths while others stay small. But scientists and policymakers shouldn’t give especial weight to big charities just because they’re big, and physicians shouldn’t fall into line behind the cancer industry’s talking points unless those talking points have a solid scientific basis.

More generally, it behooves all of us to be a bit more critical of our intuitions. The Komen Foundation has become a spectacular success by playing to Americans’ fallacious intuitions, rather than trying to gently correct them. That’s depressing. Especially when so many lives are at stake.

This time last year, I wrote about the pressure that public companies face to grow at all costs, and how destructive that pressure can be. Growth is, weirdly, inimical to longevity: if you want something to last for a very, very long time, then what you really want to create is something large — but not huge — and which doesn’t need to grow at all. The world’s oldest companies are nearly all family-owned affairs; they’re big enough to keep those families well-off, and they tend to produce goods or services for which there is a steady demand across the centuries. (Hotels, for instance, or wine.)

Peter Cooper understood this well. A wealthy man, he owned a lot of land in Manhattan — including the land underneath what is now the Chrysler Building — and he knew that land would, literally, produce healthy rents in perpetuity. A philanthropist, Cooper knew exactly what he wanted those rents to be spent on: he created the Cooper Union, a college with the defining characteristic that it would charge its students nothing. It was — and is — a noble cause. And in the early days, its trustees quite literally bought into that cause: they helped out with its endowment, and covered its deficits in years where it lost money.

Cooper understood that free education doesn’t really scale. If you’re charging, then extra students provide extra income which can pay for extra teachers and administrators and buildings. But if you’re giving education away for free, then it’s imperative that you operate strictly within your means. The only way to grow is if you persuade some new generations of wealthy benefactors to contribute their own money or land. But at Cooper Union, that hasn’t happened for many decades.

As a result, Cooper Union has always been an extremely special educational institution, the kind of place where a little went a very long way. The faculty was not well paid; the facilities were bare-bones. But the students were fantastic, because Cooper could pick the very best of the very best. And the college’s overriding social mission engendered a huge amount of loyalty and love for the institution, as well as being reflected deep in its curricula. Here’s Sangamithra Iyer, for instance:

When I graduated from Cooper, in 1999, I received a scholarship for a master’s program in geotechnical engineering at UC Berkeley. That summer, a major earthquake devastated Turkey. The first day of classes, the first thing one professor said was that Turkey smelled “like 40,000 dead people” and that “engineers who know that smell do their work a lot differently than those who don’t.” It was this sense of social responsibility that led me to pursue engineering, but also to leave it from time to time. A Cooper education freed me from debt, and allowed me the freedom to pursue purpose, not profit-driven endeavors. Its Union, for me, not only united the arts and the sciences but also was about making connections between the technical, the political, and the social.

While the Cooper Union ethos never left the students or the faculty, however, it did seem to desert a significant chunk of the Board of Trustees and the administration. Starting as long ago as the early 1970s, the board started selling off the land bequeathed by Cooper, not to invest the proceeds in higher-yielding assets, but rather just to cover accumulated deficits. Cooper hated debt and deficits, but that hatred was not shared by later administrators, who would allow debts to accumulate — bad enough — until the only solution was to sell off the college’s patrimony, thereby reducing the resources available for future generations of students. If you visit Astor Place today, the intersection once dominated by the handsome Cooper Union building, the main thing you notice are two gleaming new glass-curtain-walled luxury buildings, one residential and one commercial, both constructed on land bought from Cooper Union.

Then, when you turn the corner and look at what hulks across the street from the main Cooper Union building, you can see where a huge amount of the money went: into a gratuitously glamorous and expensive New Academic Building, built at vast expense, with the aid of a $175 million mortgage which Cooper Union has no ability to repay.

The bland name for the building is a symptom of the fact that Cooper’s capital campaign, designed to raise the money for its construction, was a massive flop: no one gave remotely enough money to justify putting their name on the building. It’s also a symptom of the fact that no one on the board had any appetite for naming it after George Campbell, the main architect of the scheme which involved going massively into debt in order to construct this white elephant.

Campbell, pictured grinning widely in a now-notorious 2009 WSJ article, claimed that Cooper was a financial success story when in fact it was on the verge of collapse. He’s the single biggest individual villain in the Cooper story, and it’s a vicious irony that Cooper’s latest Form 990 shows him being paid $1,307,483 in 2011 — after he left Cooper’s presidency. (Cooper Union explains that the amount represents six years of “deferred compensation/retention payments”, but the timing couldn’t be worse.)

Campbell’s enablers and cheering squad were a small group of trustees, many of them Cooper-trained engineers gone Wall Street, who had so internalized the ethos of the financial world that it never occurred to them that they shouldn’t be constantly trying to get bigger and better and shinier. Campbell was paid $668,473 in his last year at Cooper — he was one of the highest-paid college presidents in the country, despite running a naturally small institution with serious space and money constraints. Board-member financiers enabled his dreams of growth and glory, hoping that some of the glamor from the newly-revitalized institution would reflect back on themselves. Naturally, when the whole project turned out to be a disaster, they scurried ignobly off the board as fast as they could.

The turnover on the board continues: the latest Form 990 alone shows six trustees — Marc Appleton, Robert Aquilina, Judith Rodin, Moshe Safdie, William Sandholm, and Philip Trahanas — resigning their posts over the course of the year. And if you look at the current list of trustees, you’ll see there have been other resignations since then: Douglas Hamilton, Vikas Kapoor, Audrey Flack, Stanley Lapidus, Giorgiana Slade, Cynthia Weiler, and Ronald Weiner. That’s 13 resignations in the course of just over two years; the entire board has only 22 members.

For an institution which was founded to exist in perpetuity, this kind of board turnover is decidedly worrying, especially since it was the board which decided and announced that Cooper Union will start charging tuition. If this board is just passing through, with precious little aggregate tenure or institutional memory, the legitimacy of that decision is surely greatly reduced.

What’s more, a weak board puts extra power in strong presidents — and both the current president, Jamshed Bharucha, and his predecessor, George Campbell, seem to have been able to persuade the board to implement anything they wanted to do. Bharucha is no fan of Campbell, for obvious reasons, but in many ways the two well-paid presidents are quite similar. I recently obtained a highly-unofficial transcript of the September 2012 board meeting*, where Bharucha was far from despondent or apologetic about the fact that Cooper’s board felt as though it was being forced to choose between charging tuition and closing down entirely. “Turning adversity into opportunity is really an opportunity that very few institutions have,” he said, before talking about something called “a vision process”. Later, he comes out with this:

I resonate very much to future-oriented thinking about higher education. I assure you that I will be guiding the institution to embrace these technologies and we’re not going to be trapped in the past. I think if we get over this hump there will be so much opportunity… I think we can lead… We don’t have a global brand. We’ve got to build that global brand.

Similarly, the trustees’ statement includes worrisome language like this:

Maintaining the highest standards of excellence means that we must constantly aim to improve through investment. We must engage in a continuous process of strengthening our academic programs, our faculty, and the clarity of our academic reputation. The institution will invest in our programs and our faculty to ensure that we always are, and are regarded as, equal to the best.

This is emphatically not Peter Cooper’s vision. The United States is full of higher-education institutions trying to carve out “a global brand” for themselves, often through “investment”. They generally have multi-billion-dollar endowments, global name recognition, and undergraduate tuition costs somewhere north of $40,000 a year. You could name a dozen of them off the top of your head, and Cooper Union would never be one of them. On the other hand, what you can’t do is name a dozen — or even two — institutions like Cooper, based on a social mission and free tuition and low-key excellence, where the pedagogy is not reliant on the provision of climbing walls, and where the health of the institution is not reliant on jet-setting deans who address the World Economic Forum on the subject of Global Leadership.

An investment is what you do when you spend money today, with an eye to reaping a profit in the future. Investments, by definition, are associated with future cashflow: if they’re not, then they’re not investments. Once Cooper Union starts “investing” in programs and faculty, it will have to charge for those programs and faculty in order for the investments to bear fruit. All of which is to say that this tuition charge is permanent: once it’s implemented, the chances of it being reversed are de minimis.

Bharucha, like Campbell before him, is intensely focused on improving Cooper Union’s name recognition. Cooper Union has historically not been very well known, even among New Yorkers: they often think it’s some kind of labor union, rather than an undergraduate college. That’s fine: the people who matter — the teenagers applying to the art school, the entire architectural profession — know exactly what Cooper Union is, and what it stands for. Not every non-profit organization needs its own awareness campaign — but of course if Cooper Union now has to start attracting richer kids capable of paying $20,000 a year in tuition, it’s going to have to start marketing itself more aggressively. Again, that’s not something it historically ever wanted or needed to do, and it’s not something Peter Cooper would be remotely happy about. His resources were meant to go towards education, not towards marketing and billing and “development”.

Another thing that Bharucha and Campbell had in common: both entered into talks about essentially selling Cooper Union to a deeper-pocketed institution. Campbell talked to NYU in the mid-2000s; Bharacha talked to Bard more recently. Obviously, none of those talks got very far; the NYU discussions ended when it decided to buy Polytechnic University instead, in 2008. In either case it’s hard to see how Cooper Union’s social mission and commitment to tuition-free education could have been preserved in perpetuity.

But the end result — what we ended up with — is arguably worse. Once you start charging tuition, you can’t go back: you build a huge amount of infrastructure for students who feel entitled to certain amenities, given how much they’re paying. And the college becomes a business with a P&L, having to chase revenues and persuade potential students that it’s a better financial deal than the various alternatives they have.

The result is that Cooper is certain to lose its much-cherished selectivity: according to the transcript, the September board meeting discussed a report from Maguire Associates which concluded, intuitively enough, that there’s simply no way to charge $20,000 a year and still accept less than 8% of applicants. That selectivity helps Cooper Union rank top among “regional colleges” in the influential US News ranking; both the selectivity and the ranking are sure to fall once tuition is introduced. (Cooper Union claims that it will have “need-blind” admissions, and that if you’re eligible for any kind of Pell Grant, you will get a full scholarship. But there’s no getting around the fact that it will need a certain number of paying students in order to make the math add up.)

Bharucha has also managed to ensure the undying opposition of Cooper Union’s most passionate students. Just this weekend, they painted the lobby of the architecture school black in protest, unaware that during the September board meeting, Bharucha complained about their “politics of destruction”. The relationship between Cooper Union’s administrators and its students has never been worse — and that’s not going to make it easy for Cooper to be able to paint itself as a prestigious institution worth paying $20,000 a year to attend.

In September, according to the transcript, Bharucha talked of the “enormous reputational risks” of charging tuition, and the “difficulty recruiting new students”. So it’s not like any of this was unexpected. “If it weren’t for all this noise”, Bharucha said in the meeting, he would be much more confident that charging tuition could work. But with it, he said, “it will be very difficult” to make a success of the new strategy.

The board has gone along with Bharucha’s strategy anyway, in the belief that all the alternatives are worse. In large part they were forced into their decision by the mortgage on the New Academic Building: you can’t shrink your way to sustainability when you owe MetLife $175 million, and you have to come up with the eight-figure debt-service payments somehow. Given that no one was about to write a $100 million check to Cooper Union, the only other place to find the necessary money was by charging. Even if doing so means destroying the very basis upon which Cooper Union was founded.

*A word about this transcript. Cooper Union spokesman Lloyd Kaplan told me that board meetings are not officially recorded or transcribed in any way, which is consistent with what my sources are telling me — which is that the meeting was recorded without the knowledge or consent of the board members.

The transcript is an important document, and I’m sure it will make its way onto the internet sooner or later. I’m not going to be the one to do that, however, because I have no evidence which can vouch for its authenticity, or demonstrate that the people named in the transcript actually said what it says they said. Conversations with two different sources have convinced me that the transcript is accurate; even then, however, I have only directly quoted Jamshed Bharucha, the president, rather than any unpaid board members.

Kaplan has told me that Cooper will have no comment on whether Bharucha actually said the things I’ve quoted him saying: he won’t confirm that he said them, but neither will he deny that he said them. My sources and I are sure that the quotes are accurate, but you should be aware that it’s never going to be possible to be 100% certain on that question.

I feared this would happen. Peter Eavis has a column today about what his headline calls “Down Payment Rules”. Here’s his lede:

It seemed an easy fix to prevent the excesses of the housing market: make home buyers put more money down.

Read on, and you’ll find lots of talk about “down payment requirements”, “restrictions” on lenders, and whether “requiring a down payment” is a good idea or not, given that we want to both encourage homeownership and prevent systemic risk.

But the subject of Eavis’s column — something called the qualified residential mortgage, or QRM — was never designed to be “an easy fix to prevent the excesses of the housing market”. Rather, it was designed as a loophole to allow banks to wriggle out from an entirely sensible skin-in-the-game requirement.

I covered this subject in some depth back in June 2011, so go read that post if you want the details; nothing has really changed. (For even more on the subject, read Kevin Wack’s excellent treatment from a couple of months later.) But the basic story is simple: under Dodd-Frank, banks need to hold on to at least 5% of the loans that they make. The QRM is a loophole in that requirement — loans with high down payments are exempt from the law, and banks can sell the entire thing, rather than just 95%.

If low-down-payment loans are as safe as the critics of high down payments say they are, there shouldn’t be a problem. The bank will make the loan, will hold on to 5%, and will profit twice: first by selling the other 95% for a quick-flip gain, and secondly by getting a non-defaulting income stream from the remaining 5% of the loan.

Somehow, however, the loophole has expanded to encompass pretty much the entire mortgage market, so that high down payments are now considered an outright “requirement” for new loans, rather than just being a way for banks to avoid holding on to a tiny bit of the loan that they themselves are making.

Really, this whole debate is concentrating on entirely the wrong thing. The question about high down payment mortgages is a relatively arcane backwater of financial underwriting, and we can leave it to the statisticians and bond investors to decide just how much, if at all, such down payments reduce defaults. Instead, we should be concentrating on the banks here, the institutions which seem to be entirely unwilling to underwrite any mortgage at all, unless and until they’re allowed to flip the entire thing, 100%, to bond investors, for a quick, risk-free profit.

This violates common sense. If the bank is underwriting the loan, the bank should retain at least a tiny amount of the risk in that loan. Indeed, if I were a bond investor, I would as a matter of course require extra yield on any loans which were sold by a bank without any skin in the game at all. After all, there’s not much point in being assiduous about your underwriting if you’re just going to sell the entire loan anyway.

So instead of debating down payments, let’s hold the banks’ feet to the fire, a little bit, instead. “Banks do not like” rules requiring them to hold on to 5% of a loan, says Eavis. Why not? Until we get a good answer to that question, we shouldn’t even be talking about down payment “requirements” which aren’t really requirements at all.

If you want to really understand the importance of Cooper Union and its century-long tradition of free tuition, I can’t recommend Sangamithra Iyer’s excellent article in n+1 highly enough. And it contrasts greatly, of course, with the official statement from Cooper Union’s Board of Trustees, saying that the college is going to stop being free very soon: beginning, in fact with the students entering in September 2014. The statement is curiously upbeat, for a decision which essentially marks the death of Cooper Union as we know it. And it’s chock-full of the kind of doublespeak which is all too easily deciphered:

After eighteen months of intense analysis and vigorous debate about the future of Cooper Union, the time has come for us to set our institution on a path that will enable it to survive and thrive well into the future…

Under the new policy, The Cooper Union will continue to adhere to the vision of Peter Cooper, who founded the institution specifically to provide a quality education to those who might otherwise not be able to afford it…

Maintaining the highest standards of excellence means that we must constantly aim to improve through investment…

Although we appreciate that these decisions are difficult for everyone to accept, we look forward to working together with all of you to building a future that will ensure the preservation of Cooper Union as a great educational institution that remains true to Peter Cooper’s founding principles.

The fact is, as Iyer clearly lays out, that charging tuition runs in direct violation of Peter Cooper’s vision and his founding principles. Indeed, the original Cooper Union charter held the institution’s trustees personally responsible for any deficit, while ensuring that education was free to all enrolled students.

Over the past 40 years or so, however, Cooper Union has been living beyond its means, financing structural deficits by periodically selling off various bits of land that it owned inside and outside New York City. That’s clearly an unsustainable strategy, and it finally came to an end when Cooper Union sold off the last sellable plot it had — the old engineering building at 51 Astor Place, which is now becoming a big ugly office block. The proceeds from that sale failed to remotely cover the costs of building the fancy New Academic Building at 41 Cooper Square — a building which the NYT’s architecture critic, Nicolai Ourourssoff, declared upon its opening to be an icon of the “self-indulgent” “Age of Excess”.

But here’s the most astonishing thing, at least to me: no one seems to care how this happened, no one has been held responsible, no one has been blamed. The current trustees talk vaguely about how they “share your sense of the loss” of free tuition, but they don’t apologize for their decision, and not one of them, as far as I can tell, has resigned in protest or shame.

Make no mistake: Cooper Union suffered a massive failure of governorship, and its trustees have abandoned the principle which underpinned the entire institution. A trustee is someone who governs for the benefit of others — and Cooper Unions trustees have failed, spectacularly, in their first and highest role, which was to preserve Peter Cooper’s tuition-free institution.

And after failing so miserably at their own jobs, the trustees then had the nerve to announce, right in the middle of dropping their bombshell, that they expected the current students of Cooper Union to give more to the institution! Never mind that Cooper Union will never be the same again, and that the whole reason why it is so beloved has now been jettisoned. Start donating today, and maybe future students might be able to save a few hundred bucks on their future tuition bills. Or maybe the president will just get a raise to $1 million a year. Who knows: the trustees seem to be capable of anything.

There’s a lot of recrimination going around right now, and the entire Cooper Union community is in desperate need of some catharsis; the trustees, collectively, and over time, managed to break the very thing that they were entrusted to preserve. Cooper Union’s students, and alumni, and faculty, and supporters all deserve a full accounting of exactly how that happened, and who was primarily to blame. It’s in the nature of institutions like boards of trustees that they are very good at protecting the guilty, but in this case the trustees have to come clean. No one will ever trust Cooper Union, or its trustees, or its president, unless and until such an accounting is made public. And, justice demands it.

Today’s earnings report marks the point at which Apple is officially no longer a high-growth tech stock, valued on its monster potential. Instead, it has become a cash cow, valued on its ability to pump hundreds of billions of dollars into its shareholders’ pockets.

That’s the main lesson from the big news of the day, which is that Apple is going to return $100 billion to its shareholders by the end of 2015. By comparison, Apple closed Tuesday with a market capitalization of $380 billion. And its $145 billion cash pile isn’t going to get any smaller: the newly-announced program merely brings its dividend and share-repurchase expenditures up to roughly the level of its current free cash flow. Apple will still have more than enough money to invest as much money as it likes in anything it likes, even its new headquarters.

Apple says that its new capital-return scheme “translates to an average rate of $30 billion per year from the time of the first dividend payment in August 2012 through December 2015″; it’s pretty hard to imagine that number falling thereafter. If you assume fungibility of dividends and share repurchases, then you can express that number as an effective dividend yield: a $30 billion dividend, divided by a $400 billion market cap, works out to a yield of a whopping 7.5%. No wonder the stock market is welcoming the news.

In order to be able to continue to return $30 billion per year to shareholders in perpetuity, Apple is going to have to become a more conservative and predictable organization than it has been until now. Which brings me to the chart that Jay Yarow published yesterday:

As Yarow says, this chart shows the effects of Apple’s stated intention to be more realistic about its earnings guidance. And today’s earnings continued the pattern: EPS beat guidance by 7%, while revenues beat by 4%. Those numbers are decidedly modest compared to the kind of beats we saw in 2010-11.

But at the same time, we’re also seeing the law of large numbers in this data. Let me present Yarow’s revenue data in a slightly different way, adding in today’s latest datapoint:

It’s pretty clear that the massive beats, here, took place at times of massive growth: all corporate numbers are hard to predict, even internally, when they’re growing at 73% a year, like Apple’s revenues did in 2011. This quarter’s revenues are still substantially higher than the same quarter’s last year: they’re up 11%. But earnings per share are actually down by 18% from the same quarter last year, and when you’re a manufacturer making $10 billion a quarter on revenues of more than $40 billion, and when you’re as ruthlessly efficient as Apple is, you’re not likely to have a lot of big surprises any more.

Apple is trading at an astonishingly low valuation, with a p/e ratio in single digits, because it has now become that animal investors like least: a slow-growing tech stock. Either one is fine on its own, and both slow-growing stocks and fast-growing tech stocks can support much higher multiples than Apple is seeing right now. But conservative investors, who like slow-growing stocks with high dividends, are constitutionally uncomfortable with the volatility inherent in the tech world. And technology investors, who are happy taking that kind of risk, want to see substantial growth. Apple, notwithstanding the fact that it’s one of the most valuable companies in the world, is falling through the capital-markets cracks.

All of which perhaps explains the other part of today’s announcement: that Apple is going to start leveraging itself, and taking on debt. Apple’s debt will provide a safe low-yielding investment for conservative investors; and while it will increase the earnings volatility seen by shareholders, the fact is that Apple clearly hasn’t seen any valuation benefit from seeing its earnings volatility come down, so it might as well artificially bring it back up again. If its current capital structure is attractive to no one, maybe its new capital structure will have something for everyone.

Paul Krugman and Megan McArdle both point to this chart today:

What you’re looking at here is the plight of the long term unemployed in the wake of the Great Recession. If you look at the economy before the recession (the blue line), it works pretty much as you think it would: as the number of job openings goes up, the long term unemployment rate goes down. But then the crisis happened, and now we’re in a Bizarro world where the long term unemployment rate goes up even as the number of job openings increases.

It’s worth looking at this chart in the context of one which might be more familiar:

What you’re looking at here is initial claims for unemployment (the blue line) and the unemployment rate (the red line); both are rebased to 100 at the end of 2007. You can see that initial claims have historically been a very good leading indicator when it comes to the unemployment rate. And that’s perfectly intuitive: if the number of people newly claiming unemployment each week is going down, you’d expect the overall unemployment rate to follow.

But there’s something worrying about this chart: although the unemployment rate is indeed coming down, it’s not coming down as fast as you’d expect it to, given the sharp drop in initial unemployment claims. In other words, people aren’t becoming newly unemployed, but the unemployment rate is still staying stubbornly high. Which is another way of saying that this time around, the long-term unemployed are finding it particularly difficult to get back to work.

I decided to put together the exact same chart, only instead of using the overall unemployment rate, I’d look at just the long-term unemployment rate — the proportion of people who have been unemployed for more than 27 weeks. This is what I found:

The blue line, in this chart, is exactly the same as the blue line in the chart above it. But the red line is long term unemployment — which is at massively unprecedented levels.

This chart tells me two things. Firstly, it is indeed the long-term unemployed who are the reason why the unemployment rate overall isn’t coming down as fast as it should be. And more importantly, there’s a quiet humanitarian disaster happening right under our noses. Here’s McArdle:

Short of death or a debilitating terminal disease, long-term unemployment is about the worst thing that can happen to you in the modern world.  It’s economically awful, socially terrible, and a horrifying blow to your self-esteem and happiness.  It cuts you off from the mass of your peers and puts stress on your family, making it likely that further awful things, like divorce or suicide, will be in your near future.

McArdle and Krugman differ on the policies that should be enacted to address this emergency — but they agree that policies should be enacted to address this emergency, with urgency. That’s where they both part ways with Congress, which is much more interested in deficit reduction than it is in trying to make a dent in the long term unemployment rate.

The lesson of the past few years is that this is not a normal recovery: corporate profits are doing great, while total employment remains anemic. We can’t trust the invisible hand to generate the millions of jobs that are needed, especially with regards to the long-term unemployed. With gridlock in Washington, the result is a huge amount of unnecessary human misery.

One of the funnier subplots in the media universe these days is the one about Aereo. Aereo is the kind of company which sounds like a thought experiment, but it’s very real: it takes free broadcast signals, uploads them to the cloud, and rents them out — at a fee — to people who want to watch broadcast TV on their computers. It’s a way of showing the broadcast networks how silly it is that they don’t put their programming online, and it’s also an argument for why cable companies shouldn’t have to pay through the nose for the right to retransmit content which has always been free-to-air.

Real-world companies are largely immune to thought experiments, however, and so it was only when Aereo started operating in the real world that the court cases and ultimatums started being thrown around. If Aereo isn’t shut down, say the broadcasters, they might have no choice but to take their networks off the air entirely. This of course would effectively kill Aereo, whose CEO is rather desperately drawing an analogy between the right to receive broadcast TV and the right to vote.

“The real question is a consumer question: Can you rightfully disenfranchise 50 million consumers?” he asked. “Is that what the preferred policy is?”

In the event that the networks did go through with it, he speculated that other programmers would be quick to replace them in the role of public broadcasters. “That spectrum is incredibly valuable. Somebody’s going to take advantage of that,” he said.

The 50 million number, by the way, should not be considered particularly reliable: it’s Aereo’s guess as to the number of people who ever watch free-to-air TV, even if they mainly watch cable or satellite. (Maybe they have a hut somewhere with an old rabbit-ear TV in it.)

But Aereo is absolutely right that America’s broadcast spectrum is incredibly valuable. The problem is that it’s much more valuable to cellphone companies than it is to broadcasters. The government has a plan to start a series of cleverly-designed auctions, whereby broadcast spectrum would end up being bought from broadcasters and consolidated in the hands of wireless-data companies who value it more highly. That plan can’t be put in place too quickly: the fact is that we’re living in a world where TV broadcasts create much less value than wireless companies could realize with a fraction of the bandwidth.

At the same time, broadcasters are realizing that their retransmission revenues are significantly more valuable than the marginal advertising revenues they get from households which are still reliant on rabbit ears. That trend is only going to strengthen going forwards, especially given that most new TV sets can’t even receive broadcast signals in the first place. What’s more, broadcasters can give themselves a little extra leverage if they shut down their free-to-air service (and Aereo). Once that happens, then if they refuse to provide retransmission rights during negotiations over retransmission rights, the cable companies’ customers will be cut off from their content entirely.

None of this is going to happen quickly, or cleanly. But broadcast TV is rapidly becoming an obsolete technology, and the distinction between cable channels and broadcast channels is a distinction which has outlived its usefulness. Aereo’s very existence is testimony to the silliness of the status quo, and the logical end point is for all the current broadcast spectrum to end up in the hands of institutions which can use it much more effectively as digital bandwidth.

The losers in this process will be Aereo, of course, and also the households which still rely on broadcast TV — somewhere between 10% and 15% of the total. I suspect, however, that those households are precisely the ones with the least amount of political clout. Which means that sooner or later, they’re going to lose their access to free-to-air broadcast TV. They won’t like it, but there’s pretty much nothing they can do to prevent it.

*Update: I’m informed that it’s actually illegal to sell a TV which can’t receive over-the-air broadcast signals. That said, it’s legal to sell a “monitor” which only has HDMI inputs, and which is designed to be used mainly as a TV.

The Boston bombing and subsequent manhunt was in many ways the first big interactive news story. It wasn’t the first big event to be covered obsessively on social media, but it was the first big event where millions of people became part of the story themselves. Some did so through choice, combing through photographs on Reddit or 4chan; others simply happened to be in Boston and saw their public lives, as broadcast to the world on social media, become part of the story just by dint of where they were.

The result was a veritable deluge of streams, in a world where the news has become a hard-to-navigate rapids at the best of times. For anybody who wanted to stay on top of what was happening without drowning in noise, experience and level-headedness were invaluable, and were displayed most prominently by Pete Williams of NBC.

But while Williams was the most visible of the people who got it right, there were many others, mostly unsung, working at places like the NYT. The paper’s public editor, Margaret Sullivan, rightly praises its editors for “staying away from unconfirmed reports” and treating with suspicion anything coming from “unnamed law enforcement sources”.

In the tradition of journalistic oxpeckers everywhere, Sullivan concludes that the NYT’s “reporting from Boston all week was fast, deep and accurate”. Which is the truth, but it’s not the whole truth: I’m quite sure that a very large part of the credit should go to the editors in New York, rather than the reporters in Boston. In a story this sprawling, no one reporter, and no one law-enforcement source, can possibly see anything approaching the big picture; it falls to the editors to take the various streams of information coming into the newsroom, many of which outright contradicted each other, and to weave them into a coherent and accurate whole.

Anybody who was on Twitter over the past week knows how hard that job was. It’s an exercise in massively multivariate real-time Bayesian analysis: as the news streams in from multiple sources over the course of the day and night, every new piece of information has to be analyzed in light of everything else that’s already known, or thought to be known. A clear on-the-record statement from the governor can be assumed to be perfectly reliable, but just about nothing else can be — not even the reporting of your own employees, who can easily make good-faith errors during such an extended and chaotic story. Sleep deprivation alone can account for that.

An experienced editor will use her hard-earned judgment to weigh the relative reliability of all the different sources of information. Some people added enormous value on Twitter — Seth Mnookin, for instance, had fewer than 7,000 followers on Sunday, and more than 40,000 by the end of the week, for good reason. Others, like Williams, proved their reliability on television, even as their rivals at other channels were reporting things which turned out to be false.

There’s an art to working out where to find fast and reliable information, and to judging new information in light of old information, and to judging old information in light of new information. And there’s an art to synthesizing everything you know, from hundreds of different sources, into a single coherent narrative. It’s not easy, it’s not a skill that most people have, and it’s precisely where news organizations add value.

But in this particular case, as Noah Brier points out in a post headlined “Being Part of the Story”, it’s something that millions of people ended up attempting to do, on the fly, anyway:

Everyone wanted to be involved in “the hunt,” whether it was on Twitter and Google for information about the suspected bomber, on the TV where reporters were literally chasing these guys around, or the police who were battling these two young men on a suburban street. Watching the new tweets pop up I got a sense that the content didn’t matter as much as the feeling of being involved, the thrill of the hunt if you will. As Wasik notes, we’ve entered an age where how things spread through culture is more interesting than the content itself.

The crowdsourced hunt was, in the end, unambiguously counterproductive: it hurt much more than it helped. But it wasn’t just Redditors and hive minds which got caught up in this particular mindset. If you look at the missteps of outlets like the New York Post and CNN, it’s easy to see them in this light — breathlessly passing on every new tidbit of information, rather than taking their function as editors and filters as seriously as they should have done.

Which brings me to an important and quite wrong essay from Ben Smith, the editor of BuzzFeed, and his colleague John Herrman.

Under the old rules, a responsible citizen passed any potential bit of news he could find on to the professionals. The professionals collected tips, corroborated them, published the ones that panned out. Reporters could protect their readers from bad information — indeed, for reporters, the story was defined largely by what was kept from the public…

Now we should assume our readers and viewers see virtually everything that we see. We can no longer decide which rumors and scraps of information should be dignified with publication — a sufficiently compelling scrap of information, be it a picture of a man with a black backpack or an anonymous, single-sentence Reddit post from the scene of the crime, will become news on that merit alone…

The media’s new and unfamiliar job is to provide a framework for understanding the wild, unvetted, and incredibly intoxicating information that its audience will inevitably see — not to ignore it. A Reddit post seen by millions without context is worse for the story, and the public, and to the mission of reporting than the same post in a helpful and informed context seen by many more. Reporting is no longer a question of whether or not to dignify new and questionable information with attention — it’s about predicting which of it will influence the story, and explaining, debunking, or contextualizing it the best we can. That is, incidentally, what our readers want.

It’s possible that Smith and Herrman are right that their readers are clamoring for BuzzFeed to explain, debunk, and contextualize the constant stream of noise and misinformation coming from Reddit and Twitter. But I suspect that if there is such a clamor, it’s coming from a vocal minority. For one thing, only a minority of BuzzFeed’s visitors come for hard news at all. And of those who do, only a minority of them care very much what BuzzFeed’s interpretation is of the material they’re reading on Reddit and Twitter. Finally, by their nature, Reddit and Twitter are going to be presenting a different narrative to each of their millions of users: what BuzzFeed’s editors are seeing on those platforms is not going to be the same thing that BuzzFeed’s readers are seeing.

It’s undoubtedly true that in the age of social media, it’s become very easy for anybody to peer behind the news curtain and see the chaotic raw material from which it is produced. But that in no way weakens the onus on responsible and experienced news editors to filter that material and form it into a fast, deep and accurate report. Indeed, the value added by those editors has never been more obvious than it is in situations like this one.

Smith and Herrman are absolutely wrong that a compelling yet false factoid, being shared willy-nilly across various social-media platforms, “will become news on that merit alone”. News is something true and important and relevant; it is not, and should never be, misinformation. Neither is it “whatever our readers happen to be finding on the internet”. Smith and Herrman are essentially taking a hugely important story, here, and reducing it to the status of covering a viral meme: the Gangnamization of terror. I have no problem with news stories covering viral sensations, but they’re what you do after you cover the important stuff. They’re not the important stuff themselves.

Which is not to say that BuzzFeed did a bad job last week. Debunking corrosive memes is a genuine public service, and it’s great that outlets like BuzzFeed and Gawker are doing it. Where I part with Smith and Herrman, however, is in their implication that everybody else — the NYT, the WSJ, the Boston Globe, Reuters, Bloomberg, CNN — should be doing it as well. That’s silly, and I can’t believe that many people would want to live in a world where a relatively small number of Redditors could effectively set the news agenda for the entire country.

On Monday, I received an email from someone calling herself Sarah Hanson, in which she claimed that she had successfully auctioned off 10% of her post-tax future income for the next ten years, raising $125,000 in the process. I wasn’t the only journalist to hear from Hanson: she had already, at that point, managed to score an interview with VentureBeat, which in turn begat lots of other coverage around the internet. But various aspects of the story didn’t smell right, to me, so I sent an email to VentureBeat, asking if they were sure this girl was for real. It turns out that she almost certainly isn’t. I was perfectly happy for VentureBeat to write the debunking; in fact, that was the perfect place for it to happen: there was very little point in me writing a story saying “some person you probably haven’t heard of is very unlikely to actually exist”.

Given the amount of information pouring onto the internet every minute, it’s statistically inevitable that a substantial amount of that information is going to be erroneous — especially when the source is something as unedited as Reddit or Twitter. No mainstream journalism outlet should allow its coverage of a major story to be hijacked by backchannel noise — especially when a large part of the value such outlets provide is that they filter out the noise and transmit only a reliable signal. Just because your readers can peer behind the curtain, doesn’t mean you have any responsibility to yank it open yourself.