Felix Salmon

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The US government is giving a whole new meaning to the term “price discovery”. Today, the federal Centers for Medicaid and Medicaid Services released a trove of seemingly basic data to the public for the first time: the prices American hospitals charge Medicare for the 100 most common inpatient procedures.

The data, released early by the Obama administration to the NYT, Washington Post and the Huffington Post, have long been guarded by hospitals, who have treated the prices they charge as something like a trade secret. The release was spurred on, in part, by Steve Brill’s massive March Time cover story on how high hospital prices hit Americans. An uninsured patient might pay $199.50 for a blood test for which Medicare would pay $13.90, for example. Chris Kirkham and Jeffrey Young have the clearest take on the new data, and how widely these prices diverge:

Within the nation’s largest metropolitan area, the New York City area, a joint replacement runs anywhere between $15,000 and $155,000. At two hospitals in the Los Angeles area, the cost of the same treatment for pneumonia varies by $100,000, according to the database.

Even though insured Americans pay only a portion of these full charges, these numbers aren’t theoretical. Americans without insurance are often forced to pay the full bill. Brill, in a post today, suggest that situation is even worse than that: inflated hospital “chargemaster” prices can work as a kind of baseline for patient costs.

Los Angeles, Wonkblog notes, tends to have the biggest disparity in prices, but geography has little do with what hospitals charge. What does seem to affect hospital pricing is the type of hospital: for-profit hospitals, for instance, bill Medicare 29% more than government-operated facilities. (Hospitals, however, are reimbursed by Medicare at roughly the same amount, regardless of type or how much they bill the government). To Kevin Drum, the lesson from this is clear: the private sector isn’t acting more efficiently in delivering hospital care. It’s just charging more.

This data might make the American healthcare market a bit more transparent, but it’s still far from rational. In March, Ezra Klein noted that there’s no semblance of coherence among the prices insurers themselves pay for common procedures, devices and pills; each insurer negotiates their own pricing deals for these things with healthcare providers. Sadly, the only constant is that Americans pay far more than other countries for the same basic, relatively routine medical care — with worse outcomes. — Ryan McCarthy

On to today’s links:

New Normal
Higher homeownership rates linked to higher unemployment rates – WSJ

Alpha
Meet your new shadow banking system, increasingly run by hedge funds – Bloomberg
Notes from the 2013 Ira Sohn Conference – Josh Brown

Big Government
The US government employs more low-wage workers than Walmart and McDonald’s combined – WaPo

Pivots
Kleiner Perkins is slowly getting used to this whole humility thing – DealBook

New Normal
America’s colleges are doing a terrible job recruiting low-income students – New America Foundation
America’s education system is leaving no rich child behind – WaPo
US companies’ record overseas earnings are up 70% in 5 years – Reuters

Takedowns
“Niall Ferguson has always been this crass and crassly inaccurate” – Nick Cohen

Alpha
The classic “I heard this at a conference” investment strategy didn’t work out so well this year – FT Alphaville

Wonks
If you get a PhD, get an economics PhD – Noah Smith

Perks
Klout inequality is the new income inequality – Klout

Charts
AOL vs. Netflix: the broadband era summed up – Dan Frommer

And, of course, there are many more links at Counterparties.

There’s a lot of money and power at the nexus of banking and policymaking, home of the infamous revolving door and the natural habitat of people like Mike Froman, America’s new trade representative, who has shuttled back and forth between government and Citigroup and who, behind the scenes, helped pick all of Barack Obama’s initial economic team. And wherever there’s money and power, you’re sure to find turmoil. If Promontory is the big winner these days, there’s also bound to be a big loser. Let me introduce you to the IIF.

The Institute for International Finance describes itself as being “the most influential global association of financial institutions” — where by “influential” it means that it aspires to have the ability to persuade policymakers what to do. For most of its existence it was run by Charles Dallara, a former Treasury official who spent two years at JP Morgan before becoming head of the IIF in 1993. He stayed in that job for 20 years; in 2011, the last year we have numbers for, he was paid $3,955,381 for his efforts. That’s 20% of the IIF’s total payroll; the other 104 employees, between them, took home a slightly more modest, but still impressive, average of $153,870 each.

Dallara was replaced by Tim Adams, another former Treasury official — but “replaced” is not really the right word. The IIF was Dallara, and without him, it seems, the IIF is nothing. For all that it has 105 employees and prides itself on having a truly global membership, Dallara turned the IIF into what Adams calls, in a Powerpoint presentation circulated to the entire staff, a “founder-led, personality-driven” enterprise. (The presentation, entitled “An Era of Rapid Change, Repositioning and Renewal”, is essentially Adams’s buzzword-laden manifesto for keeping the IIF relevant.) Dallara was a notoriously tyrannical micro-manager; the not-so-secret of career success at the IIF was always to do everything and anything Dallara wanted, and nothing else. When Dallara left, his yes-men — and the IIF’s top execs are overwhelmingly men — had no idea how to react, and the Institute inevitably collapsed into a viper-pit of political infighting.

Already, there have been two high-profile casualties: the IIF’s long-standing chief economist, Phil Suttle, has been fired, as has its PR chief, Gary Mead. (Unsurprisingly, the IIF didn’t manage to respond to my requests for comment.) More worryingly, Bank of America has resigned its membership, and there seem to be questions over whether other big US banks might follow suit, with at least one of them allegedly hundreds of thousands of dollars behind on its membership fees. That’s very bad news for the IIF, which is nothing if it’s not a shop where the world’s most important policymakers can rub shoulders with senior executives of the world’s biggest banks. The IIF’s membership changes over time, but at its core is always the select global group of systemically-important financial institutions. If it’s losing the likes of BofA, it’s losing its raison d’être.

In recent years, the IIF has also become something of a ham-handed lobbying shop, to the point at which a capital-markets-friendly outlet like Euromoney will happily and openly dismiss its claims as so much self-interested claptrap. The change dates back to the global financial crisis, which caused a massive rise in demands for global financial institutions to be regulated much more assiduously. The institutions fought back, through the IIF, with 161-page report detailing the gruesome economic consequences of doing so. A taster, to take you back to the summer of 2010:

IIF Deputy Managing Director and Chief Economist Philip Suttle, who is the lead author of the new report, said the impact is not the same in each part of the world, given differences in each banking system and in the roles banks play in the broader economy. The analysis suggests that for the Euro Area a weaker recovery with real GDP some 4.3% less than otherwise might be the case and with new job creation, therefore, being potentially some 4.6 million lower over the 2011-2015 period than otherwise might be the case. The respective projections for GDP and for employment on this basis for the United States would respectively be 2.6% and 4.6 million. For Japan the projected numbers on this same scenario would be 1.9% and around 0.5 million jobs to 2015.

Suttle, here, was essentially saying that if the Basel Committee and others actually did their jobs and regulated the banks to the point at which they were significantly less likely to blow up the global economy, then the cost of doing so would be trillions of dollars and millions of jobs. The banks don’t like to be reminded of this report, partly because it was based on ludicrous assumptions, and partly because the reforms ended up happening anyway, and as a result the banks now need to claim, at least in public, that they’re fully supportive of their wise regulators.

As a result, Suttle got thrown under the bus — although the report came from the institution as a whole, and had the sign-off of a very high-powered board, including Dallara. The problem is that the IIF is still trying to have it both ways. Even as it tries to butter up policymakers, especially in central banks, it continues to talk about the enormous cost of proposed policies. And if the press doesn’t take its pronouncements seriously, policymakers are even less impressed: within serious institutions like the New York Fed, for instance, the IIF has become little more than a punchline to an unfunny joke.

Charles Dallara might have been, as I described him last year, an “amiable buffoon” — but at least he was an amiable buffoon with access. Since his departure to a Swiss private-equity shop, the IIF has not only been leaderless and rudderless; it has also been completely out of the loop on key issues such as the treatment of deposits in Cyprus. In a world where the financial services lobby has never been more sophisticated, the IIF feels like an anachronism, and Adams’s attempts to reinvent it are doomed to fail. If he were starting up a new association that would be hard enough, but given the quantity of entrenched dysfunction at the IIF, turning it around to be, in his words, “faster, shorter, sharper, relevant” is simply not going to happen. Adams may or may not have a clear vision of where he wants to go — his presentation is pretty vague and fluffy — but even if he does know where he’s going, there’s really no way of getting there from here.

The IIF won’t be missed, at least by anybody who isn’t a banker with a fondness for rubber chicken. But its fate should be salutary for any institution with a powerful chief executive. If that chief departs without some very clear succession planning in place, it can be extremely difficult for the institution to survive.

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Immigration reform is one of the rare issues that both sides of the aisle can agree on — it has even united the Chamber of Commerce and the AFL-CIO.

Still, yesterday, the right-leaning Heritage Foundation released a report that estimated the immigration reform bill proposed by the bipartisan Gang of Eight in the Senate will cost the government over $6.3 trillion over the next 50 years — $5.3 trillion more than the $1 trillion cost of doing nothing. Somewhat surprisingly, conservatives were the first to denounce it. Alex Nowrasteh at the Cato Institute wrote a post denouncing the way the paper calculates future costs, using a static scoring method that “assumes the bill will not affect the rest of the economy – which is highly unrealistic”.

Nowrasteh also points out that Edwin Feulner, who recently stepped down as head of the Heritage Foundation, rebuked this way of calculating future costs way back in 2002, on Heritage’s own website, arguing that dynamic scoring, or taking the greater economic effects into account, “surely would get much closer to the true cost than “static scoring” does”. Tim Kane also used Heritage’s own arguments against them, digging up Heritage’s last report on this issue, six years ago. Back then, they successfully helped defeat immigration reform — but by their own numbers, it seems, inaction six years ago ended up costing taxpayers half a trillion dollars.

Conservative Florida senator Marco Rubio, a major supporter of the current bill who is key to getting more Republicans on board, also rejected the Heritage report findings, invoking his family’s own immigration story.

On the other side of the aisle, a separate immigration debate is also brewing. Two weeks ago, the left-leaning Economic Policy Institute released a study concluding that we don’t need more temporary H-1B visas, which are mostly used to bring engineers and scientists to the United States. “Immigration policies that facilitate large flows of guest workers will supply labor at wages that are too low to induce significant increases in supply from the domestic workforce,” the report states. Similarly, Paul Donnelly argues that H-1B visas are actually just a government subsidy, which supplies foreign-born workers to tech companies for lower wages than they would pay American engineers.

This conclusion runs contrary to the narrative put forth by Mark Zuckerberg and other Silicon Valley executives who are campaigning for an expansion to the H-1B visa program. Zuckerberg has launched a new pro-immigration lobbying group, FWD.us, because he says he believes in policies that allow companies to “attract the most talented and hardest-working people, no matter where they were born”.

Each party has shifted its position since immigration reform failed to get through Congress the last time. Conservatives have become much more pro-immigration after the 2012 election, when they had trouble attracting even small minorities of the Hispanic and Asian electorate. “Immigration opponents are effectively trying to restrict the flow of conservatives into this country,” argues David Brooks. Meanwhile, the Obama administration, despite vocal support for the DREAM Act, has drastically increased deportations since coming into office. The LA Times reports there were over 400,000 people deported in 2012, a 40% increase from 2007. – Shane Ferro

On to today’s links:

Popular Myths
“Big data” mostly isn’t — and companies are wasting money on a marketing slogan – Christopher Mims
Actually, “financial repression” is great for owners of capital, reports capital owner  - Marc Chandler

Crisis Retro
“The subprime bond is rising from the ashes. The subprime borrower isn’t” – Carrick Mollenkamp

Alpha
What happens during one second of high-frequency trading? – Barry Ritholtz

Wonks
Soros and Sinn play pen-pals on the German question – Project Syndicate
The lessons from the Reinhart-Rogoff scandal: check each other’s work – Betsey Stevenson and Justin Wolfers
Keynes’s biggest mistake – Bruce Bartlett

EU Mess
Germans are buying up homes that Italians can no longer afford – Bloomberg

New Normal
America’s “idle young” in perspective – Shane Ferro

JP Morgan
Blackrock, Fidelity, and Vanguard are undecided about Jamie Dimon’s dual roles – WSJ

Legalese
Was the BofA, MBIA settlement a true win-win? – Alison Frankel

Fiscally Speaking
The U.S. government just got $20 billion in free money – WSJ

Oxpeckers
Glenn Beck generates $80 million in annual revenue scaring people - Fortune

Good News
America has more breweries now than at any time since the 1880s – Bloomberg

Efficient Markets
Treasuries ETF grows 7,000% overnight – Paul Baiocchi

And, of course, there are many more links at Counterparties.

It’s long — at some 4,500 words — but I can highly recommend the debate between George Soros and Hans-Werner Sinn about what Soros calls The German Question.

The debate is profound, and the two stake out radically different positions, even though they end up at pretty much the same place. Soros says that Germany should make a simple choice: either sign on to Eurobonds, where the euro zone as a whole would issue low-yielding debt to the benefit of all, or else leave the euro zone entirely. Either way, he says, Europe would win — either from reducing the fiscal burden of the various national debts, or else from seeing the euro devalue against the new Deutschmark.

Sinn agrees with Soros that Germany would be making a huge mistake were it to leave the euro zone; he disagrees vehemently, however, on the subject of Eurobonds. But both men are clear that given political realities in Germany, neither of Soros’s two choices is going to happen. Germany is going to stay in the euro zone, and Eurobonds aren’t going to happen.

That, says Soros, is a tragedy:

Europe would be infinitely better off if Germany made a definitive choice between Eurobonds and a eurozone exit, regardless of the outcome; indeed, Germany would be better off as well. The situation is deteriorating, and, in the longer term, it is bound to become unsustainable…

There is no escaping the conclusion that current policies are ill-conceived. They do not even serve Germany’s narrow national self-interest, because the results are politically and humanly intolerable; eventually they will not be tolerated. There is a real danger that the euro will destroy the EU and leave Europe seething with resentments and unsettled claims. The danger may not be imminent, but the later it happens the worse the consequences. That is not in Germany’s interest.

And even though Sinn thinks that Soros is wrong, his prognosis seems just as grim, filled with painful austerity and sovereign default:

The only remaining option, as unpleasant as it may be for some countries, is to tighten budget constraints in the eurozone. After years of easy money, a way back to reality must be found. If a country is bankrupt, it must let its creditors know that it cannot repay its debts.

My sympathies in this debate are with Soros, although Sinn does make a good point about the unintended consequences of Alexander Hamilton mutualizing state debts in 1791. (There really aren’t a lot of precedents for the kind of Eurobonds Soros envisages.) The overarching message from both of them, however, is that, as Soros puts it, “the current state of affairs is intolerable”. The only question is whether there’s a better alternative; Soros says there is, while Sinn says there isn’t.

The conclusion from them both, then, would seem to be that Europe as a whole is doomed to misery for as far as the eye can see, and that things are going to get worse before they get worse. I really hope they’re wrong. But so long as Europe’s future generations remain jobless, it’s hard to see a silver lining to this cloud.

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.

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Institutional Shareholder Services’ message is clear: no one man should have all that power.

More specifically, ISS has declared Jamie Dimon shouldn’t be JP Morgan’s chairman and CEO. The firm, which advises shareholders on corporate voting, is also recommending that its clients not support the reelection of three of the bank’s directors. Each of those directors — David Cote, James Crown and Ellen Futter — sits on the bank’s risk committee. The proposal to split the roles of chairman and CEO is non-binding; the re-election of board members is binding. It’s unclear whether either measure will pass.

The risk committee, whose oversight failed spectacularly prior to and during last year’s $6.2 billion trading loss, has no members who have worked at a bank or as financial risk managers. ISS called the committee members’ “lack of robust industry-specific experience” odd, particularly compared to their counterparts at JPM’s competitors.

The WSJ’s Francesco Guerrera wrote last month that the era of the “imperial chief executive” might be winding down on Wall Street. The trend goes beyond finance. Boeing and GE faced (and defeated) proposals to split the roles of chairman and CEO this year. With shareholders demanding more scrutiny of management, the “current Wall Street incumbents are likely to be the last ones to hold a dual role”.

Dimon does have at least one high profile shareholder on his side. Warren Buffett says he is “100% for Jamie… I couldn’t think of a better chairman”, which is no surprise to Jonathan Weil. JP Morgan and Berkshire Hathaway share a director (Stephen Burke), and Buffett is a JP Morgan shareholder. The avuncular investor is also chairman and CEO of his own company, but tellingly, that won’t continue past his lifetime.

Shareholders may be able to take comfort in executives’ discomfort. One study found that “companies that had separated the two roles received a 28-percent higher five-year return”. – Ben Walsh

On to today’s links:

Lawsuits
NY attorney general to sue BofA and Wells Fargo over mortgage practices – Reuters

Remuneration
The top paying-industry for big-name execs? Media – NYT

Subsidies
The average student pays just 55% of the advertised price for college – WSJ

Austerity Bites
The era of austerity is over, according to the French finance minister – Bloomberg
“There probably will not be any major changes in Europe until after Merkel’s reelection” on Sept. 22 – Calculated Risk

Legalese
The Supreme Court under Roberts is the most business-friendly court since WWII – NYT
“How business fares in the Supreme Court” – Minnesota Law Review
MBIA, Bank of America reach legal settlement - Reuters

Deals
BMC Software agrees to $6.9 billion acquisition by private equity group – Reuters
The deal is a win for private equity, and for major shareholder Elliott Management – DealBook

New Normal
The recovery is non-existent if you don’t have a college degree – Josh Brown

Possibly Useless Data
“The data crunchers are invading Hollywood” – NYT

Remuneration
Are stock buybacks in the interest of shareholders or CEO bonuses? Both. Maybe. – WSJ
“Buybacks are an efficient way of returning money to shareholders of a shrinking company” – Felix

Yikes
If you’ve ordered mutton in China recently you may have eaten rat – Reuters

Alpha
Is Soros shorting the Australian dollar? Someone seems to be – Sydney Morning Herald

Startups
The Instagram story: From launch to a $1 billion sale in 18 months – Kara Swisher

And, of course, there are many more links at Counterparties.

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.

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JP Morgan may be going back to banking basics. Instead of losing billions in arcane, illiquid credit instruments, the bank’s latest scandal is a classic: overcharging unwitting customers.

Jessica Silver-Greenberg and Ben Protess report that JP Morgan is in some very hot water with the Federal Energy Regulatory Commission (FERC). According to an agency memo, the bank turned “money-losing power plants into powerful profit centers”.

Under other circumstances, that’d be just another win for JP Morgan’s booming commodities division. The problem is that JP Morgan’s success came through allegedly duping California and Michigan state officials into overpaying for energy by $83 million. These same allegations were included in Joshua Rosner’s comprehensive review of the bank’s regulatory lapses published in March.

When confronted by regulators, Blythe Masters, the bank’s head of commodities, made “false and misleading statements”,  FERC says. The traders working for Masters “planned and executed a systematic cover-up” of the trades,” and an email from Masters instructed an internal document to be rewritten. Importantly, the agency plans to hold both JP Morgan and individuals at the bank liable for any infractions.

Additionally, the WSJ, relying on a separate confidential regulatory document, reports that the usually tame-to-a-fault Office of the Comptroller of the Currency is planning to punish the bank for its consumer debt collection practices.

The American Banker surveys the damage under the heading “Jamie in the hot seat”. Dimon has continued to revamp his management team — hiring a new new vice chairman yesterday to replace an outgoing ally. With at least eight federal agencies investigating the bank, JP Morgan may soon have additional management slots to fill, possibly including Dimon’s role as chairman. – Ben Walsh

Compelling
How textile kings weave a hold on Bangladesh – Reuters

Tech
Twitter hires Morgan Stanley banker, may or may not be considering an IPO – WSJ

Servicey
REITs with no employees are probably not great at looking out for investors – Bloomberg

EU Mess
European Commission suggests giving countries more time to get their deficits cuts in order – WSJ

Felix
A deeper look at the slow jobs recovery – Felix Salmon
Full text of the April jobs report – BLS

Wonks
Does population growth necessarily lead to higher housing prices? – Paul Krugman

Possibly Useless Data
On a price-per-hour basis, haute cuisine cheaper than a massage – Eatocracy

Good Points
Predicting jobs data is not only hard — it’s also useless – Barry Ritholtz

Ouch
BNP Paribas CEO satisfied with the bank’s 45% profit drop – CNBC

And, of course, there are many more links at Counterparties.

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.

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What’s driving the housing recovery? Earlier this week we got some bullish housing news from Case-Shiller: home prices rose in February at the fastest rate since 2006. Nationally, home prices were 9.3% higher than they were in February 2012, while prices in Atlanta, Detroit, Las Vegas, Phoenix, and San Francisco all rose more than 15%.

Those cities are in the five worst-off states in the nation when it comes to underwater mortgages, according to Fannie Mae: all of them have more than 30% of their mortgages worth more than the house in question. In Nevada, more than 50% of residential properties are underwater. And while serious delinquency rates are declining, they are still more than three times what is considered normal.

So what’s going on? One answer is that investors are snatching up homes. Blackstone is just one of a several Wall Street investors who believe that the recovery is real. Its global head of real estate told the LA Times that the key to recent price increases is that there weren’t enough homes built during the recession. That’s certainly the case in Phoenix, the subject of Susan Burfield’s recent Businessweek cover story. One economist describes the sprawling desert metropolis as “a lab where we’ve gotten to see the effects of a high foreclosure rate and high negative equity.”

A mid-March story in the LA Times described Blackstone’s strategy:

Blackstone and a handful of other firms believe prices fell too far in the hardest-hit markets. So they’re racing to buy up the bargains, rent them for short-term profit and hold them for long-term price appreciation. These firms say they’ve invented a new investment strategy that also serves the public good by fueling the housing recovery and sprucing up homes.

Today, some of the early purveyors of this strategy are already pulling out after realizing that it’s more expensive to be a landlord than they originally thought. Not only are returns on rents lower than expected, according to Reuters’ Matthew Goldstein, but the demand from investors for cheap houses has driven prices too far up for speculators.

But if investors stop buying homes, will real Americans be there to pick up the slack? Homeownership rates are now at the lowest they’ve been since 1995. According to Capital Economics, that statistic suggests that investors are “still the dominant force behind [the] housing rebound”. As a result, says Bill McBride, “This investor buying is making it very difficult for first time buyers to find a home, and this is probably keeping some potential buyers as renters – and maybe pushing up some buyers to higher price points just to buy.” – Shane Ferro

On to today’s links:

Earnings
Five reasons why this is the worst earnings report Facebook has ever issued – Christopher Mims

Offshoring
Latvia probably isn’t the next Cyprus, unless it is – Joseph Cotterill

LIEBOR
Strip clubs and ski weekends may have fueled the Libor scandal – WSJ

EU Mess
ECB cuts interest rates in Europe to 0.5%, a record low – Reuters
Why a rate cut in Europe won’t help - Simone Foxman

New Normal
Tom Friedman “manages to be both incomprehensible and incredibly offensive at the same time”  - Felix
Three charts showing how the workers of the world are screwed – Henry Blodget

Alpha
SAC Capital changes internal policies to make it more clear it doesn’t condone insider trading – DealBook
Downloadable Steve Cohen-as-Moby Dick desktop wallpaper – Vanity Fair
Activist investor asks UBS to drop its entire investment bank – WSJ

Disasters
Co-op apartment buildings do not legally qualify for FEMA aid - NYT

Day in the life
“Sensitive thugs, y’all need hugs” – Joris Luyendijk

Debates
Larry Summers and Glenn Hubbard do not agree on our economic future – Adam Davidson

Data Points
What’s your CEO-to-average worker pay ratio? – Bloomberg

And, of course, there are many more links at Counterparties.

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.

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One day after a downright cheery report on the housing market, Barack Obama has moved to replace the widely-criticized head of the FHFA. Mel Watt, a Democrat and longtime presence on the House Financial Services Committee, has been nominated to replace Ed DeMarco, who’s been acting head of the agency that regulates Fannie Mae and Freddie Mac since 2009.

This wasn’t entirely unexpected — the trial balloon for Watt’s candidacy has been afloat since March. (It was reportedly down to Watt and economist Mark Zandi.) As head of the agency, DeMarco has been pilloried by critics for opposing principal reductions for struggling homeowners, a method that’s long been championed by housing reformers, the Obama administration and the Federal Reserve.

Just today, the Congressional Budget reported that a even small-scale principal forgiveness program could save the US government billions. As Felix wrote last July, DeMarco has seemed to oppose principal reductions on principle, arguing that slashing homeowners’ mortgage debt would be tantamount to a nation-wide breach of contract. (DeMarco has also suggested all this would end up costing taxpayers.)

Watt has publicly supported principal reductions, but his record isn’t terribly easy to categorize: As Nick Timiraos notes, while he pressed for support for low income borrowers, he also voted against pay cuts for Fannie and Freddie execs. Watt, who represents the Charlotte region, counts financial firms (hello, BofA) as some of his larger donors, but one consumer advocate says Watt has been “He is neither a champion nor a source of frustration”.

Matt Yglesias says everyone can find something to hate in Watt’s nomination. The housing industry, however, was supportive. Which doesn’t mean Watt will be confirmed. Edward Mills of FBR Capital Markets put it this way to Housing Wire:

Senate Republicans (who have the votes to block a nomination) will be extremely reluctant to support a candidate who has publicly backed principal reductions, has supported bankruptcy changes allowing for ‘cram-down’ on residential mortgages, and served on the House Financial Services Committee during the height of power of Fannie and Freddie (having accepted campaign contributions from both).

– Ryan McCarthy

On to today’s links:

Wonks
The studies behind austerity are weak. The study behind “uncertainty” is worse – Ezra Klein

TBTF
The S&P report on the Brown-Vitter bill “shows how backwards things have gotten on Wall Street” – Matt Taibbi
“It probably won’t get passed, but its underlying premise cannot be dislodged from the Washington conversation” – Jesse Eisinger

Alpha
There will be haircuts – Bill Gross
How to read a 10-k – The Financialist

The Fed
The Fed holds course, blames fiscal policy for holding back the economy – FOMC
How the Fed statement has changed – Phil Izzo

Welcome to Adulthood
Explaining the student debt bubble in 17 charts – Matt Phillips

Epistles
Brian Eno wrote a long letter to Nassim Taleb – Artangel

Cephalopods
Goldman’s names a new head to its Special Situations Group – Lauren Tara LaCapra

Startups
Why founders can end up with nothing when their company is sold – Steven Davidoff
This is what it looks like when you lose all of your startup money – Sam Biddle

Laziness Pays
Ordering groceries online is greener than driving to the grocery store – Brad Plumer
Fresh Direct’s grocery trucks are ruining our city streets – Streetsblog

Underground Economies
Inside the secret drug-smuggling tunnels of the Italian mafia – BBC

And, of course, there are many more links at Counterparties.

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.