August 2011

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[Update: I am relieved to note that the Google+ page referenced below below does not actually belong to Paul Krugman. It is a fake. The author offers an explanation, “hope it will enlighten many…” blah, blah, blah, but it was kind of an annoying stunt. It’s true that Krugman has said similar things in the past, but that’s all the more reason not to make stuff up.]

I first got interested in economics when I read a magazine article about Paul Krugman and decided to check out a few of his books. I read Peddling Prosperity and Pop Internationalism back-to-back, and I still use the phrase Accidental Theorist to refer to people who claim to disdain fancy theories and rely on common sense. Even though I disagree strongly with some his politics, I always assumed it was safe to respect him as an economist. Especially after that Nobel prize, right?

Which is why it pains me to see him say this on his Google+ page:

People on twitter might be joking, but in all seriousness, we would see a bigger boost in spending and hence economic growth if the earthquake had done more damage.

There are a number of ways to explain why this is an economically silly thing to say. Perhaps the simplest is to ask, “Why do we need an earthquake?” If the earthquake didn’t do enough damage, why not just send in the Army Corp of Engineers to dynamite a few buildings? Or just ask dissatisfied Americans to riot in our business districts for a few weeks. Maybe tell the fire departments of our major cities not to put out fires so quickly.

Rebulding after a disaster doesn’t turn the disaster into a net economic gain because all the productive output goes into replacing wealth that was destroyed in the disaster. If this sort of thing worked, unemployed people could solve all their problems by waking up every morning and hammering holes in the walls of their home and then paying themselves to spend the rest of the day patching the holes.

, and it’s a really, really well-known error in economic thinking. It grates when I hear pundits and politicians say this sort of thing. But when a trained economist says it, that’s just painful. Seriously, Paul, are you reading what you’re writing?broken windows fallacyThis is known as the

So, I got to meet these guys:

Matt Welch and Nick Gillespie
Larger ImageMatt Welch and Nick Gillespie

That’s Matt Welch and Nick Gillespie from Reason magazine, and on Tuesday night they were at a book signing event sponsored by the Heartland Institute at Jaks Tap in Chicago to promote their new book The Declaration of Independents: How Libertarian Politics Can Fix What’s Wrong with America. (I reviewed part of the book here).

Matt Welch and Nick Gillespie
Larger ImageMatt Welch and Nick Gillespie

I must admit, it was a bit of a fanboy moment. I’ve been reading and admiring Reason magazine for years, and these guys are the current editors-in-chief. Actually, according to the masthead, Matt Welch is the real editor-in-chief of the magazine, and Nick Gillespie is the editor-in-chief of the website version of the magazine and of reason.tv which is the video production arm of Reason. Really, though, Nick is kind of a libertarian-at-large who manages to appear on an amazing number of talk shows.

When I first started reading Reason, Virginia Postrel was editor-in-chief, but when she moved on to other things, Nick Gillespie took over. Most of us readers didn’t know much about him, and it soon became a running joke that everything the magazine did was “better when Virginia Postrel was in charge.” The truth is, though, that Reason is still a great magazine, and Nick Gillespie did a lot to make sure that not just a handful of libertarians knew it.

Matt Welch and Nick Gillespie
Larger ImageMatt Welch and Nick Gillespie

One of Nick’s announced goals was to pay more attention to cultural issues. I was skeptical when I first heard about that, because I was reading Reason for the way it addressed policy issues from a libertarian point of view. What the heck did culture have to do with that?

I think I’m beginning to understand what he was getting at: The best parts of our culture are often the result of individuals doing thing their own way. It’s not that very best books or music are highly individualistic. Rather, with so many people writing their own books and music, we each have a better chance of finding something that appeals to us, and we each have a better chance of writing something that appeals to others. In an age where following the smallest authors and bands is as easy as following the giant superstars, our culture has become customized. The libertarian impulse to do things our own way is thriving.

I’m less sure of Matt Welch, because his job isn’t really all that visible from outside, but Reason is as good as ever, so he must be doing something right.

When I met Matt and Nick, I snarked at them a bit about their performance at Reason–they had pretty much seeded the room with snark during their presentation, so it was hard to resist–and while I’m 99% sure they recognized the snark for what it is, I feel I really should say that Reason is the best magazine I’ve ever read, and they’ve done a spectacular job with it. It remains the only paper magazine I still subscribe to.

Matt Welch and Nick Gillespie
Larger ImageMatt Welch and Nick Gillespie

Update: Matt and Nick at Jaks photo dump.

In my email this morning, I got this notice about a proposed class action settlement with Verizon Wireless due to some alleged misdeads in the way they handled roaming charges. The beginning part sets the scene, but note the bits I’ve highlighted:

A proposed settlement has been reached with Verizon Wireless (“Verizon Wireless”) in a class action, Cowit, et al., v. Cellco Partnership d/b/a Verizon Wireless, No. A0505869 (Ct. of Common Pleas,Hamilton County, Ohio), related to a lawsuit about whether Verizon Wireless failed to provide roaming service without any roaming charges under the America’s Choice II Calling Plan. Verizon Wirelessdenies all of the claims.

WHO IS INCLUDED? The Settlement Class includes all current and former customers of Verizon Wireless who, since February 21, 2005, subscribed to its America’s Choice II Calling Plan. If you are a member of the Settlement Class, you have certain rights and options, such as submitting a claim for benefits, requesting exclusion from the settlement, or objecting to the settlement.

SETTLEMENT BENEFITS. In summary, current Verizon Wireless customers whose calling plan provides for a specific allowance of minutes as part of their monthly access fee automatically will receive 25 additional wireless calling minutes, which they can use for a period of one year, or, in the alternative, if these class members submit a Claim Form they can receive a transferable PIN for 40 calling units, which will be valid for 24 months, that can be used to make domestic or international long distance calls. Current Verizon Wireless customers whose calling plan provides for an unlimited number of minutes as part of the monthly access fee will automatically, without filing a Claim Form, receive a transferable PIN for 40 calling units, which will be valid for 24 months, that can be used to make domestic or international calls. Former Verizon Wireless customers must submit a Claim Form to receive a transferable PIN for 40 calling units, which will be valid for 24 months, that can be used to make domestic or international calls. You can submit your claim online at www.cowitsettlement.com or by mail. The claim deadline is November 8, 2011.

This is called a coupon settlement, and it’s a total ripoff. The class members — who are supposedly the victims of Verizon’s perfidy and the clients of the lawyers who negotiated this deal — get at most 40 minutes of long distance calling. How much is that worth?

Looking at prepaid plans in my area, I see one for 450 minutes for $44.99 which is about 10 cents a minute, so the settlement here is worth $4.

But that’s not the only way to compute the value of 40 minutes of long-distance talk time. If you go over your pre-paid minutes, Verizon charges between 25 and 45 cents per minute, which works out to a value as high as $10 to $18 per settlement.

On the other hand, Verizon’s costs are essentially fixed — they already own or lease all the towers, computers, and trunk lines they need to provide service. A few extra users spending class-action minutes wouldn’t increase their costs, so the cost to Verizon of giving out minutes on their own network is essentially zero.

Then again, the settlement includes international calling, which may involve real costs to buy time on international trunk lines. The per-minute rates for these calls run as high as $2.99, which makes the settlement worth a whopping $119.60. Of course, that’s only for people who don’t have a calling plan. And only if they need to call Afghanistan.

So what’s the right value? Well, I think I have a good argument that if you use the only proper method of calculating the value of this settlement, it’s a big fat zero.

Here’s why: I cancelled my Verison Wireless account when I got my iPhone (Verizon iPhone hadn’t come out yet) so all I get out of this is a PIN number good for 40 minutes of free long distance. However, I have unlimited free long distance on my home phone. My mobile phone has limited minutes, but I never come close to using them all, so I have thousands of unused rollover minutes and hundreds of them age out every month. Finally, I don’t ever have to make international calls.

My guess is that I’m pretty typical, in that most mobile phone users already have calling plans that provide all the minutes they could ever use. They will never have a need for the 40 extra minutes this settlement provides. Therefore, the value of this settlement to most people is zero.

You could argue that the settlement still hurts Verizon and teaches them a lesson, which is one of the justifications for class action suites, but that’s a matter of policy. It’s not what counts here. The lawyers who are supposed to represent me in this deal are supposed to look out for my best interests, so only my interests matter. And since this is worth nothing to me, it means my lawyers have failed me.

Speaking of my lawyers (Richard S. Wayne of Strauss & Troy and Jeffrey P. Harris of Statman, Harris & Eyrich), how much will they get? That’s not in the email they sent me, but you can find a hint in the FAQ on the settlement website:

How much will the attorneys be paid and who will pay it?

The attorneys for the plaintiffs and the class have worked on this case for more than 5½ years including appeals to the Supreme Court of Ohio. They will submit a request for attorneys’ fees, expenses, and incentive awards for the Class Representatives in an amount not to exceed $6 million. The Court will determine the amount of any attorneys’ fees and expenses awarded to class counsel, which will be paid by Verizon Wireless and will not affect the benefits to the class under the Settlement.

Six million dollars? Holy crap!

So the lawyers want to get paid millions of dollars because they put in over five years of work on this thing, even though the value to their supposed clients is nearly zilch. What is it that Mark Bennett always says? “Gunfighters don’t charge by the bullet.”

If they think long-distance minutes are such a great idea, why don’t they accept them in payment for their services instead of asking for cash? I’m tempted to suggest that the class action statutes should be amended to require lawyers to accept the same kind of payment that they get for their clients. (I was vaguely under the impression that the Class Action Fairness Act of 2005 already did something like that, but I’m obviously mistaken.) Or else their payment should be based on the actual value of these payments that are redeemed by the clients. I’ll bet it’s less than 10% for something like this.

I think probably the best solution would be to require that all class action settlements must be in cash and cash only, but I’d sure like to hear from someone who’s given this a little more thought.

I few weeks ago when I was driving to the Jersey shore it only seemed appropriate to dig out the old Springsteen albums. I had ripped his Live/1975-85 3-disc set to my iPod — if you’re at all a fan of his, it’s a terrific collection — and I enjoyed cruising through the mountains and blasting the Boss on the speakers.

One of the songs that stuck in my mind was “Candy’s Room”. Maggie McNeill had mentioned it in a post regarding songs about prostitutes. It’s one of those songs that I like because of the sound and shape of it, without necessarily listening to the words, so I hadn’t remembered that Candy was a prostitute, but it certainly makes sense from the lyrics:

In Candy’s room there are pictures of her heroes on the wall
but to get to Candy’s room you gotta walk the darkness of Candy’s hall
Strangers from the city call my baby’s number and they bring her toys
When I come knocking she smiles pretty she knows I wanna be Candy’s boy
There’s a sadness hidden in that pretty face
A sadness all her own from which no man can keep Candy safe

We kiss, my heart’s rushes to my brain
The blood rushes in my veins fire rushes towards the sky
We go driving driving deep into the night
I go driving deep into the light in Candy’s eyes

She says baby if you wanna be wild
you got a lot to learn, close your eyes
Let them melt, let them fire, let them burn
Cause in the darkness there’ll be hidden worlds that shine
When I hold Candy close she makes these hidden worlds mine

She has fancy clothes and diamond rings
She has men who give her anything she wants but they don’t see
That what she wants is me,
oh and I want her so
I’ll never let her go, no no no
She knows that I’d give
all that I got to give
All that I want all that I live
to make Candy mine
Tonight

Maggie contrasts “Candy’s Room” with John Entwhistle’s “Trick of the Light”:

Entwhistle has captured here one of the most common of client fantasies, that he is such a wonderful lover that he can impress a professional and thereby evoke emotions in her that will induce her to give herself only to him.  But while Entwhistle’s narrator seems to begin to glimpse the truth in the end (as evidenced by his plaintive “was I all right?” as she shows him the door), Springsteen’s narrator is completely lost in his fantasy that his inamorata will give up her money and freedom for him; he imagines he sees sadness in her face and that she values his poor clumsy affection over that of “men who give her anything she wants”.

With all due respect to Maggie, I think she has this one a bit wrong. The reference to “strangers from the city” suggests that the narrator is not one of them. I get the impression that he is someone who knew Candy from before she was a working girl, and that there is genuine affection between them. After all, he’s clearly not one of the men who gives her “anything she wants,” and yet she sees him anyway.

I’m not saying there’s going to be a happily-ever-after. The characters that fill Springsteen’s songs are people who lose at life, criminals and failures. But in order to fail, in order to lose, they first have to want to win, they have to have desire. And in order for it to be a tragedy, that desire has to be their downfall. And so the narrator of “Candy’s Room” desires Candy, he wants her all to himself, and that desire is the source of his torment.

So let me see if I get this right. If I understand the new budget deal correctly, the Republicans got the spending cuts they wanted without any tax increases, and all Obama got was an increase in the debt limit large enough that it won’t need to be raised again until 2013. (I’m ignoring the 12-member “super-congress” that will make future proposals for balancing the budget because who knows what they’ll do, if anything.)

The key here is that the next debt-ceiling crisis will come after the next election. In other words, Obama gave lip service to wanting new revenue for the good of the country, but when it came down to the wire, he gave it all up in return for a chance at avoiding a big fight while he was running for re-election. He sold out everybody else in return for personal gain.