As both of my regular readers (Hi Mom!) might have noticed , I tend to come down on a particular side of most policy debates. In part, that has to do with the way I see the world-- I'm instinctively skeptical of government intervention in the economy, but I'm not viscerally opposed to it, and I tend to think that selective, smart government intervention can play a role in improving social outcomes. But I like to think that I'm pretty open-minded: I like to read things from people who I'm likely to disagree with, just so that I can feel like I have a good sense of what the debate is, and can justify why I come down on a particular side. A lot of times, those bloggers make interesting, innovative arguments, and I learn from them (Bentley's Scott Sumner and George Mason's Tyler Cowen are two of my favorites in that category). Other times, the blogs, despite the author's academic credentials, are either thin on substance (Harvard's Greg Mankiw is the primary example; he mostly posts links, and when he does make arguments, they're... curious and frequently at odds with his academic research) or spend their time playing politics (Stanford's John Taylor is guilty of this one more than anyone else; he makes claims that are directly at odds with his own statements from a few years back, for what seems to be no better reason than that his political party has shifted to the right and his research bolsters Democratic positions).
But the most curious case is the University of Chicago's John Cochrane. Cochrane spends so much time twisting himself in circles to get to particular outcomes that he ends up making arguments that are either blatant contradictions or have logical implications that are entirely absurd. Which leads to bizarre posts like this one. The best thing you can say for Cochrane is that he doesn't close his eyes, plug his ears, and yell that up is down-- the austerity experiment in Greece is a proven failure, as austerity (predictably) reduces output, which depresses tax receipts, which means that hiking taxes and cutting spending isn't just bad for growth-- it's also bad for the budget. Cochrane acknowledges all this. But then he dismisses the notion, advanced in Brad DeLong and Larry Summers's recent paper, that, when the economy is in a liquidity trap (as the US presently is), expansionary fiscal policy can actually pay for itself (by stimulating growth enough to actually improve the fiscal situation. He then goes on to talk about structural reform, but that's neither here nor there.
What Cochrane's position implies is that, while we know austerity doesn't help the budget problems in Europe, it seems he thinks stimulus doesn't either. But we know that changes in fiscal policy have to have some effect on the budget picture; the deficit isn't going to stay at a constant level regardless of what changes government makes to taxes or spending (that's a pretty self-evident argument). The implication, then, is that, in purely budgetary terms, government spending, both in Greece and everywhere else in the world, is OPTIMAL. In other words, he's either making the patently absurd claim that it doesn't matter what kinds of taxing and spending decisions government makes, or the even more patently absurd claim that every government in the world has gotten its taxing and spending decision exactly right, and no changes can be made to improve that outcome.
And it's posts like these that convince me that I have the opinions I do for a reason...
Sunday, March 25, 2012
Wednesday, March 21, 2012
Robert Samuelson is a terrible journalist
Robert Samuelson of the Washington Post is my least favorite kind of pundit. Ideological hacks come in a number of different flavors. Some, like George Will and Charles Krauthammer, are unabashedly ideological-- they play for Team Republican and they know it. Others, like Rush Limbaugh and Glenn Beck, are rodeo clowns-- they say things to get a rise out of people, and their fans claim that whatever racist, sexist, or otherwise insulting trope they're trotting out is what everyone is thinking, and the brave Limbaugh is the only one saying it.
But Robert Samuelson is a different breed-- he's the "reasonable" ideologue. He likes to talk about being committed to "fair", and "unbiased" reporting, and faults others for "twisting" the rhetoric or facts to match their political preferences. He accuses the "liberal" mainstream media of doing it most, this time in a column about Medicare reform. Here's the crux of his claim (not in order, but it gets at the key arguments:
But many Democrats despise vouchers, which (they say) would “privatize Medicare” and “end Medicare.” The language is self-serving demagoguery intended to terrify seniors. Unfortunately, some in the media sometimes sloppily adopt these attack phrases as acceptable descriptions.
...
These descriptions aren’t acceptable, because they don’t reflect reality. The fact that some voucher advocates also use “privatize” doesn’t change matters. Consider.
Vouchers would not “end Medicare.” Fundamentally, Medicare promises health-care coverage to most Americans 65 and over. We call this an “entitlement.” The entitlement wouldn’t end. The federal government would still pay for coverage. In this basic sense, Medicare vouchers don’t threaten the program.
...
But similar changes can occur — and already have — under the present system. If the government cuts reimbursement rates for some services, those services may become less available. In 1997, that’s precisely what happened with home health care services. The American Medical Association has repeatedly warned that if Medicare reimbursement rates are held down, fewer doctors will see Medicare patients. Similarly, premiums for wealthier recipients have already been raised for doctors’ services and drug coverage.
Vouchers wouldn’t “privatize Medicare.”The reason is simple: Medicare has always been “privatized.” Most doctors who receive Medicare reimbursement aren’t government doctors. Similarly, most hospitals are private, whether for-profit or not-for-profit. Drug and medical-device companies are private. Under the Medicare Advantage program, insurance companies already offer competing plans for about 25 percent of recipients. They offer “Medigap” insurance (plans that cover what Medicare doesn’t) to another 18 percent of recipients.
Samuelson's claim is that, because a voucher program would involve some government support to help seniors buy health insurance, that doing so wouldn't "end" Medicare. He suggests that talking about "privatizing" Medicare is misleading because Medicare is already privatized, in the sense that Medicare doesn't employ medical practitioners. His first claim is enormously disingenuous. His second is either patently dishonest, or reflects deep stupidity.
To begin with, it helps to understand what Medicare is. Simply put, it's a government-run health insurance provider for senior citizens. That means that, once you're eligible, government provides you with health insurance that allows you to have your treatment paid for by Medicare. One simple way to think about it is that's Blue Cross/Blue Shield for the elderly. Now, it doesn't have to cover everything-- you can decide that Medicare should cover only certain procedures, or should have a certain deductible, or something along those lines. In practice, those kinds of changes happen all the time (and Samuelson describes them, dishonestly, as similar to a voucher scheme). Those kinds of changes, if draconian enough, could be fairly said to gut Medicare. But so long as a government-run insurance plan remained in place, it would still be Medicare.
A voucher scheme, as contemplated by the right, gets rid of that health insurance program. Instead, it provides seniors with a block of money to go out into the private insurance market and buy insurance. Samuelson and other hacks on the right call that "Medicare". But it's Medicare in the same way that the government dissolving the US Army and instead paying private contractors to wage war on its behalf wouldn't "destroy" the US Army. Sure, there would still be an institution providing defense services, but that doesn't mean that it would be the US Army. Plain and simple, saying that vouchers destroy Medicare is nothing more than calling a spade a spade. Now, you can argue that a voucher program would do a better job of delivering health care to seniors, or that it would save money (the second claim is perhaps, in a vague sense, true; if you cut services enough, you could cut costs. Literally all of the evidence refutes the first claim). But that doesn't mean that a voucher program is the same thing as Medicare; it's a scheme to destroy Medicare and replace it with a voucher system.
The second claim Samuelson makes is, if it's possible, even worse than the first. Samuelson says that a voucher scheme wouldn't "privatize" Medicare because... Medicare is already private. Now, if Samuelson is serious about that claim, he's stupid. I think, more likely, he thinks his readers are stupid. Medicare is NOT privatized because Medicare isn't a hospital or a drug provider or any other provider of medical services. Medicare is an insurer-- it's the entity that pays for medical treatment, not the one that provides it. Imagine for a moment that the government gave you an option to buy homeowners insurance (call it GovInsCo). It would pay all of the costs of repairing your home if it was destroyed in a natural disaster. In essence, you'd submit your receipts for home repair to GovInsCo, and it would cover up to a certain amount in repairs. Would you call that a "private" program just because the repair company you hired to fix your house would be privately owned? I doubt even Samuelson would be audacious enough to make that claim, but he persists with making the claim about medicine.
What Samuelson does, in short, is get worked up over those who point out that a voucher scheme replacing Medicare would, in fact, "end" Medicare, since no government-run insurance plan for the elderly would exist. And handing seniors money to buy private insurance in its place would, in fact, be a "privatization" of Medicare, as it would take seniors out of a government-administered health insurance program and instead hand them vouchers to buy private insurance. In short, just because Samuelson recognizes that people overwhelmingly like Medicare, and don't like the idea of privatizing it, he insists that a plan to do just that is... something else.
It's an approach that is, at its root, profoundly dishonest.
But Robert Samuelson is a different breed-- he's the "reasonable" ideologue. He likes to talk about being committed to "fair", and "unbiased" reporting, and faults others for "twisting" the rhetoric or facts to match their political preferences. He accuses the "liberal" mainstream media of doing it most, this time in a column about Medicare reform. Here's the crux of his claim (not in order, but it gets at the key arguments:
But many Democrats despise vouchers, which (they say) would “privatize Medicare” and “end Medicare.” The language is self-serving demagoguery intended to terrify seniors. Unfortunately, some in the media sometimes sloppily adopt these attack phrases as acceptable descriptions.
...
These descriptions aren’t acceptable, because they don’t reflect reality. The fact that some voucher advocates also use “privatize” doesn’t change matters. Consider.
Vouchers would not “end Medicare.” Fundamentally, Medicare promises health-care coverage to most Americans 65 and over. We call this an “entitlement.” The entitlement wouldn’t end. The federal government would still pay for coverage. In this basic sense, Medicare vouchers don’t threaten the program.
...
But similar changes can occur — and already have — under the present system. If the government cuts reimbursement rates for some services, those services may become less available. In 1997, that’s precisely what happened with home health care services. The American Medical Association has repeatedly warned that if Medicare reimbursement rates are held down, fewer doctors will see Medicare patients. Similarly, premiums for wealthier recipients have already been raised for doctors’ services and drug coverage.
Vouchers wouldn’t “privatize Medicare.”The reason is simple: Medicare has always been “privatized.” Most doctors who receive Medicare reimbursement aren’t government doctors. Similarly, most hospitals are private, whether for-profit or not-for-profit. Drug and medical-device companies are private. Under the Medicare Advantage program, insurance companies already offer competing plans for about 25 percent of recipients. They offer “Medigap” insurance (plans that cover what Medicare doesn’t) to another 18 percent of recipients.
Samuelson's claim is that, because a voucher program would involve some government support to help seniors buy health insurance, that doing so wouldn't "end" Medicare. He suggests that talking about "privatizing" Medicare is misleading because Medicare is already privatized, in the sense that Medicare doesn't employ medical practitioners. His first claim is enormously disingenuous. His second is either patently dishonest, or reflects deep stupidity.
To begin with, it helps to understand what Medicare is. Simply put, it's a government-run health insurance provider for senior citizens. That means that, once you're eligible, government provides you with health insurance that allows you to have your treatment paid for by Medicare. One simple way to think about it is that's Blue Cross/Blue Shield for the elderly. Now, it doesn't have to cover everything-- you can decide that Medicare should cover only certain procedures, or should have a certain deductible, or something along those lines. In practice, those kinds of changes happen all the time (and Samuelson describes them, dishonestly, as similar to a voucher scheme). Those kinds of changes, if draconian enough, could be fairly said to gut Medicare. But so long as a government-run insurance plan remained in place, it would still be Medicare.
A voucher scheme, as contemplated by the right, gets rid of that health insurance program. Instead, it provides seniors with a block of money to go out into the private insurance market and buy insurance. Samuelson and other hacks on the right call that "Medicare". But it's Medicare in the same way that the government dissolving the US Army and instead paying private contractors to wage war on its behalf wouldn't "destroy" the US Army. Sure, there would still be an institution providing defense services, but that doesn't mean that it would be the US Army. Plain and simple, saying that vouchers destroy Medicare is nothing more than calling a spade a spade. Now, you can argue that a voucher program would do a better job of delivering health care to seniors, or that it would save money (the second claim is perhaps, in a vague sense, true; if you cut services enough, you could cut costs. Literally all of the evidence refutes the first claim). But that doesn't mean that a voucher program is the same thing as Medicare; it's a scheme to destroy Medicare and replace it with a voucher system.
The second claim Samuelson makes is, if it's possible, even worse than the first. Samuelson says that a voucher scheme wouldn't "privatize" Medicare because... Medicare is already private. Now, if Samuelson is serious about that claim, he's stupid. I think, more likely, he thinks his readers are stupid. Medicare is NOT privatized because Medicare isn't a hospital or a drug provider or any other provider of medical services. Medicare is an insurer-- it's the entity that pays for medical treatment, not the one that provides it. Imagine for a moment that the government gave you an option to buy homeowners insurance (call it GovInsCo). It would pay all of the costs of repairing your home if it was destroyed in a natural disaster. In essence, you'd submit your receipts for home repair to GovInsCo, and it would cover up to a certain amount in repairs. Would you call that a "private" program just because the repair company you hired to fix your house would be privately owned? I doubt even Samuelson would be audacious enough to make that claim, but he persists with making the claim about medicine.
What Samuelson does, in short, is get worked up over those who point out that a voucher scheme replacing Medicare would, in fact, "end" Medicare, since no government-run insurance plan for the elderly would exist. And handing seniors money to buy private insurance in its place would, in fact, be a "privatization" of Medicare, as it would take seniors out of a government-administered health insurance program and instead hand them vouchers to buy private insurance. In short, just because Samuelson recognizes that people overwhelmingly like Medicare, and don't like the idea of privatizing it, he insists that a plan to do just that is... something else.
It's an approach that is, at its root, profoundly dishonest.
Sunday, February 26, 2012
Breaking down Lin's first test
On Thursday night, Jeremy Lin faced his first real test as an NBA phenom. Against the defending Eastern Conference champion Heat, it's fair to say it didn't go so well. Lin shot 1 of 11, scored 8 points, dished out just 3 assists, and turned the ball over 8 times. I tuned in for this one closely, figuring the Heat wouldn't be surprised by Lin. Not unexpectedly, Miami threw a game plan at Lin, and he struggled. I figured Miami might try sticking Dwyane Wade on Lin to throw him off his rhythm. Wade is an athletic freak, and one of the league's best man defenders, so him struggling in that case would have been far from unexpected. But the Heat didn't do that.
Instead, Miami kept Mario Chalmers on Lin when he was in the game. Now, Chalmers isn't a bad defender, but he's no DWade. But the key to what the Heat did was to have Chalmers pressure Lin out to a few feet beyond the perimeter. Instead of letting Lin get his head up and initiate the offense (which is one of his big strengths), the Heat put pressure on him high, which clearly unsettled him. The result was 8 turnovers and an easy win for Miami. Of course, it wasn't all the Heat's D-- Lin couldn't get a roll when he got to the hoop, and he was far from the only Knick who struggled from the floor- Amar'e Stoudemire was invisible and Carmelo Anthony barely made a third of his shots. But the Knicks' success lately has revolved around Lin, and his struggles were, I think it's fair to say, a major reason this game was effectively over after 3 quarters.
Pressuring point guards high is, of course, far from a failproof strategy. Try it with Chris Paul, and he'll beat his defender, get into the paint, and, more likely than not, either hit a floater or dish it off to a shooter or a big for an open look. Try it with Steve Nash, and he'll shake the defender and shoot a quick pull-up three, which is a shot he'll hit at a pretty high clip. There are a few reasons it worked so well for the Heat against Lin-- Lin is a good shooter, but he doesn't have Nash's ability to quickly pull up and hit a three off the dribble. He's also not strong enough to drive and dish among the trees the way Chris Paul can. He's more of a pick-and-roll guy who can finish outside the lane and hit the open guy as he comes off a ball screen.
The question, then, is what the Heat's success defending Lin means. Is Linsanity over? Is he going back to the D-League? Of course not. The NBA, like any pro sport, is about adjustments. Lin's got somewhat higher hurdles to face than most. Unlike your typical NBA standout, Lin isn't a physical specimen. He's not strong. He's not very athletic. And he's not explosive. He can't hold a candle to guys like Derrick Rose, Chris Paul and John Wall when it comes to athletic ability. That makes his adjustment harder-- he needs to stand out in other ways. But athleticism is far from an end-all, be-all. Steve Nash became one of the best point guards ever, even though he's an average athlete at best and looks like the pool boy. And Nash is probably the player whose game most resembles Lin's. I think there are two adjustments that can be made to counter aggressive perimeter D like the Heat's. The first is for the Knicks to initiate the pick and roll higher than they have been. Instead of setting the initial screen at the top of the key, they could try initiating the offense at around 28 feet against aggressive defenses. If they can get Melo on board with being the screener, even better. For all the hate that's been thrown his way, Melo can hit an open 23 footer, and he's too strong for just about any 3 not named LeBron to deal with rolling to the hoop. Playing a Lin and Melo two-man game puts pressure on defenses and alleviates pressure on Lin, as he gets the benefit of a screener to clear space and allow him to get his head up.
The other adjustment Lin needs to make is to develop a Nash-type pull up three-point shot. Lin is a good shooter, but he's more of a pick-and-pop guy than an off-the-dribble shooter. If he could develop the ability to hit that three-point pull up, defenses would have to think twice about pressuring him high, as help defenders would have to step out if he beat the high defender off the dribble, which in turn would open up passing lanes for the Knicks' other players. While that's a longer-term project for Lin, I thnk it'd be a huge step in his development.
Instead, Miami kept Mario Chalmers on Lin when he was in the game. Now, Chalmers isn't a bad defender, but he's no DWade. But the key to what the Heat did was to have Chalmers pressure Lin out to a few feet beyond the perimeter. Instead of letting Lin get his head up and initiate the offense (which is one of his big strengths), the Heat put pressure on him high, which clearly unsettled him. The result was 8 turnovers and an easy win for Miami. Of course, it wasn't all the Heat's D-- Lin couldn't get a roll when he got to the hoop, and he was far from the only Knick who struggled from the floor- Amar'e Stoudemire was invisible and Carmelo Anthony barely made a third of his shots. But the Knicks' success lately has revolved around Lin, and his struggles were, I think it's fair to say, a major reason this game was effectively over after 3 quarters.
Pressuring point guards high is, of course, far from a failproof strategy. Try it with Chris Paul, and he'll beat his defender, get into the paint, and, more likely than not, either hit a floater or dish it off to a shooter or a big for an open look. Try it with Steve Nash, and he'll shake the defender and shoot a quick pull-up three, which is a shot he'll hit at a pretty high clip. There are a few reasons it worked so well for the Heat against Lin-- Lin is a good shooter, but he doesn't have Nash's ability to quickly pull up and hit a three off the dribble. He's also not strong enough to drive and dish among the trees the way Chris Paul can. He's more of a pick-and-roll guy who can finish outside the lane and hit the open guy as he comes off a ball screen.
The question, then, is what the Heat's success defending Lin means. Is Linsanity over? Is he going back to the D-League? Of course not. The NBA, like any pro sport, is about adjustments. Lin's got somewhat higher hurdles to face than most. Unlike your typical NBA standout, Lin isn't a physical specimen. He's not strong. He's not very athletic. And he's not explosive. He can't hold a candle to guys like Derrick Rose, Chris Paul and John Wall when it comes to athletic ability. That makes his adjustment harder-- he needs to stand out in other ways. But athleticism is far from an end-all, be-all. Steve Nash became one of the best point guards ever, even though he's an average athlete at best and looks like the pool boy. And Nash is probably the player whose game most resembles Lin's. I think there are two adjustments that can be made to counter aggressive perimeter D like the Heat's. The first is for the Knicks to initiate the pick and roll higher than they have been. Instead of setting the initial screen at the top of the key, they could try initiating the offense at around 28 feet against aggressive defenses. If they can get Melo on board with being the screener, even better. For all the hate that's been thrown his way, Melo can hit an open 23 footer, and he's too strong for just about any 3 not named LeBron to deal with rolling to the hoop. Playing a Lin and Melo two-man game puts pressure on defenses and alleviates pressure on Lin, as he gets the benefit of a screener to clear space and allow him to get his head up.
The other adjustment Lin needs to make is to develop a Nash-type pull up three-point shot. Lin is a good shooter, but he's more of a pick-and-pop guy than an off-the-dribble shooter. If he could develop the ability to hit that three-point pull up, defenses would have to think twice about pressuring him high, as help defenders would have to step out if he beat the high defender off the dribble, which in turn would open up passing lanes for the Knicks' other players. While that's a longer-term project for Lin, I thnk it'd be a huge step in his development.
Wednesday, February 22, 2012
Weighing in on Jeremy Lin
I'm a little late to the party on the Lin story-- it's been a busy few weeks, but he's definitely the biggest story in sports right now, so I feel like a take is in order. First, here's what Lin isn't: he's not Tim Tebow. People are quick to draw the comparison because both are unique (Tebow for his in-your-face brand of Christianity and Lin for his ethnicity, though Lin is also apparently a rather observant Christian) stories whose bumps in playing time have coincided with turnarounds for their respective teams. But there are big differences both in expectations and in performance: Tebow was a first-round pick who won a Heisman in college: everyone and their mom knew who he was. NFL types certainly suggested that he was picked too high, but he didn't exactly come out of nowhere. Lin, on the other hand, definitely did. Those that follow basketball knew about him over the last few years. He was the best player in the Ivy League last year (averaging something like 16 points and 5 assists a game), and was a minor story in the sports blogs even then because he's Asian. But most of us that knew about him figured he'd go by the wayside: he'd get a look in the D-League, maybe be a decent player there, and probably ship off to Europe after a year or two if he decided to play ball again. And we'd never hear about him again. Frankly, I would have been a little surprised had he been drafted. For a year and a half, that's more or less the path his career took: he bounced between the D-League and the end of the Warriors' bench last year, and came to New York this year, presumably to fill out the roster. Then he got into a game and... the history's still being written there.
The biggest reason Lin isn't Tebow, though, is on the court. Because, while Tebow is a mediocre at best (and even that's generous) quarterback who happened to preside over a winning team, Lin is a good basketball player. He's not a fluke. He won't go back to being a guy who sits at the end of the bench, and he'll possibly be an impact player for a long time.
Now, about a week and a half or so ago, just as Lin had put in his fifth or so straight good game, my friend Steve texted me and asked how many guys I thought had better MVP odds than Lin. Since it was 7:30 in the morning and the text woke me up, I grumpily responde, "half the league, he's only played 5 games; if he keeps it up maybe 5 or 6", rolled over, and went back to sleep. In true Steve fashion, he calculated how many guys were in the league, and posted on hi Facebook that I thought there were 225 guys with better MVP odds than Lin. Thanks, Steve. But then I actually thought about it, and I realized it was a question to really think about.
Now, there's no doubt that Lin has been the pivotal piece in the Knicks' turnaround. He's averaged well over 20 points a night (way more than he averaged 2 years ago in the Ivy League!), gotten the stagnant Knicks moving the ball on offense, and keyed a huge resurgence. They've gone from a losing team to one that looks like it could make the playoffs. Of course, how Lin will coexist with Carmelo Anthony is still an open question. The Knicks' biggest problem pre-Lin was their stagnant offense: they had no facilitator at the point, Melo dominated the ball (and jacked up a ton of shots, and Amar'e Stoudemire looked not only out of sync rhythm-wise, but also like he'd lost some explosiveness. Now, there's not much Lin can do if every time the ball goes in to Melo, it doesn't come out. But if Melo can become a more efficient piece who maximizes what he does with his touches instead of dominating the ball, this could be a legitimate team.
As for Lin himself, well, while I definitely don't think he's a fluke, I doubt we'll see him put up 25 and 10 every night. I think he'll level off into a Mike Conley type of point who can give you 16-18 points and 7 or so assists a night. His second time through, other points will stop treating Jeremy Lin night as a joke and pick up on his tendencies. But that doesn't mean he won't still be a very useful player. I think my biggest gripe about his game is his D. Even with a top-notch rim protector in Tyson Chandler behind him, Lin is a big minus on that end. Lost in the Linsanity is that the guys across from him have been putting up numbers almost as big as his. Last game, Lin had 21 and 9... but Deron Williams went for 38 points and the Knicks lost. Now, Deron Williams is a fantastic point, but that's still not a good performance. Two games before that, against New Orleans, Lin went for 26... but Greivis Vasquez went for 15 and 11 and the Knicks lost. And, as much as I love what Vasquez did for Maryland in college, he's not an NBA starting point, and that's a bad stat line to be giving up to him. Those kinds of lines are ugly... and I don't necessarily see them improving.
Of course, that doesn't mean that Lin isn't very much a plus player-- the closest comparison I see for him in the league is Steve Nash-- they're both adept at running the pick and roll, can put the ball in the hoop, and make guys around them better (though Nash dominates the ball more). And, like Lin, Nash is a major liability on D. That definitely keeps him outside of the elite point guard conversation for me... but it doesn't mean that he's not an unexpectedly valuable piece on what could be a decent team.
The biggest reason Lin isn't Tebow, though, is on the court. Because, while Tebow is a mediocre at best (and even that's generous) quarterback who happened to preside over a winning team, Lin is a good basketball player. He's not a fluke. He won't go back to being a guy who sits at the end of the bench, and he'll possibly be an impact player for a long time.
Now, about a week and a half or so ago, just as Lin had put in his fifth or so straight good game, my friend Steve texted me and asked how many guys I thought had better MVP odds than Lin. Since it was 7:30 in the morning and the text woke me up, I grumpily responde, "half the league, he's only played 5 games; if he keeps it up maybe 5 or 6", rolled over, and went back to sleep. In true Steve fashion, he calculated how many guys were in the league, and posted on hi Facebook that I thought there were 225 guys with better MVP odds than Lin. Thanks, Steve. But then I actually thought about it, and I realized it was a question to really think about.
Now, there's no doubt that Lin has been the pivotal piece in the Knicks' turnaround. He's averaged well over 20 points a night (way more than he averaged 2 years ago in the Ivy League!), gotten the stagnant Knicks moving the ball on offense, and keyed a huge resurgence. They've gone from a losing team to one that looks like it could make the playoffs. Of course, how Lin will coexist with Carmelo Anthony is still an open question. The Knicks' biggest problem pre-Lin was their stagnant offense: they had no facilitator at the point, Melo dominated the ball (and jacked up a ton of shots, and Amar'e Stoudemire looked not only out of sync rhythm-wise, but also like he'd lost some explosiveness. Now, there's not much Lin can do if every time the ball goes in to Melo, it doesn't come out. But if Melo can become a more efficient piece who maximizes what he does with his touches instead of dominating the ball, this could be a legitimate team.
As for Lin himself, well, while I definitely don't think he's a fluke, I doubt we'll see him put up 25 and 10 every night. I think he'll level off into a Mike Conley type of point who can give you 16-18 points and 7 or so assists a night. His second time through, other points will stop treating Jeremy Lin night as a joke and pick up on his tendencies. But that doesn't mean he won't still be a very useful player. I think my biggest gripe about his game is his D. Even with a top-notch rim protector in Tyson Chandler behind him, Lin is a big minus on that end. Lost in the Linsanity is that the guys across from him have been putting up numbers almost as big as his. Last game, Lin had 21 and 9... but Deron Williams went for 38 points and the Knicks lost. Now, Deron Williams is a fantastic point, but that's still not a good performance. Two games before that, against New Orleans, Lin went for 26... but Greivis Vasquez went for 15 and 11 and the Knicks lost. And, as much as I love what Vasquez did for Maryland in college, he's not an NBA starting point, and that's a bad stat line to be giving up to him. Those kinds of lines are ugly... and I don't necessarily see them improving.
Of course, that doesn't mean that Lin isn't very much a plus player-- the closest comparison I see for him in the league is Steve Nash-- they're both adept at running the pick and roll, can put the ball in the hoop, and make guys around them better (though Nash dominates the ball more). And, like Lin, Nash is a major liability on D. That definitely keeps him outside of the elite point guard conversation for me... but it doesn't mean that he's not an unexpectedly valuable piece on what could be a decent team.
Friday, February 3, 2012
Larry Summers Explains Policymaking
Last night I went to see Larry Summers give a talk at the 92nd Street Y. Summers is an incredibly gifted person and economist-- he won a Clark Medal (more prestigious than the Nobel in the profession, I think), served as Chief Economist at the World Bank, Treasury Secretary under Clinton, NEC head under Obama, president of Harvard... the resume goes on, but the point is, the guy's incredibly accomplished.
Most of what he said last night was substantively identical to the things economists of similar stature have said on the major issues. Summers is, on the details, to the right of Paul Krugman, but his interpretation of the issues was more or less the same-- the evidence that we have inadequate demand in the economy is overwhelming, there's no better time to repair infrastructure than when construction unemployment is at 20% and the government borrows at a negative interest rate for 10 years, the idea of expansionary austerity is oxymoronic (and, in Summers's terms, "you can drop the prefix"), the gold standard is the "creationism of economics", etc. None of that is surprising. He also mentioned the famous scene from the Facebook movie where he dismissed the Winklevoss twins, who claimed that Mark Zuckerberg "stole their property" while he was creating Facebook ("None of the lines in that movie were actually said. But if you're asking about the tone, that's exactly what happened."). I would say he stopped short of calling the Winklevoss twins arrogant assholes, but he didn't stop short at all.
But what really struck me was an offhand remark he had about the economic policymaking of the Republican Party. Summers, while he's certainly a Democrat, is far from a leftist, and also far from an ideologue. Among economists, if Paul Krugman is on the center-left (which, in the profession, he is), then Summers is very much in the very middle. People forget that he served in Reagan's Treasury Department when he was a younger (but still already tenured at Harvard) economist. Summers suggested that today's Republican Party has canned solutions that it appropriates to "solve" any problem, and this is something that rings a bell because it's, well, true. He talked specifically about capital gains taxes ("No matter what the problem, their solution is to cut the capital gains rate. If the economy is slow, cut cap gains taxes for demand-side reasons. If the economy is fine, we can improve it even more by cutting cap gains taxes for supply-side reasons."). But I think it's a tic that's present in every aspect of the party's public platform, and extends far beyond economics. If there's a problem in an industry, the solution must be to deregulate it. If something's wrong, government is the problem. If there's a solution, the solution is less government and a tax cut.
It's a tic that allows them to ignore evidence and fit the problem to the solution. That attitude has come starkly into focus in the aftermath of the financial crisis. The crisis was an obvious failure-- it's been almost 3.5 years since Lehman Brothers collapsed, and unemployment is still well over 8%. Those who looked at the data saw that the crisis was a very obvious market failure-- regulations in place were insufficient, and regulators charged with overseeing the markets were asleep at the wheel, or were ideologically opposed to any market regulation (Alan Greenspan being the prime example). Nevertheless, in a case of either mass cognitive dissonance or outright dishonesty, there's been a massive effort to recast the market failure as a result of too much government and too much regulation rather than too little. Fannie and Freddie must have been the problem, they assert, ignoring the fact that mortgages backed by Fannie and Freddie substantially outperformed private label mortgages. Barring that, the Community Reinvestment Act must have been at fault (ignoring the absurdity of blaming a housing bubble that began inflating in the early 2000s on a statute passed a quarter century earlier that didn't cover the vast majority of institutions churning out messy mortgages). Point out those problems, and you'll hear a diatribe about how awful government is. That's not to say that Fannie and Freddie were blameless, upstanding institutions-- their very existence in the form they took was a disaster, and they certainly will need to be re-examined and refocused in a significant way going forward. But there's nothing inconsistent about acknowledging both that Fannie and Freddie were poorly constructed institutions prone to crony politics and poor incentives, and acknowledging the simple truth that their existence was neither necessary nor sufficient for the financial crisis.
That's not to say that more government is unabashedly good, or that it's the solution to every problem, or even most problems. Rather, government is one of many tools for solving various problems. There are cases where it's useful for government to play a direct role-- in putting together a military, building roads, and providing education and law enforcement. There are cases where government can play a valuable supporting role-- in making markets more efficient by demanding disclosure of financial information for public companies, ensuring transparency in financial markets, and protecting parties from being taken advantage of by those with more information, and pricing externalities such as pollution and gridlock on roads through targeted minor interventions. There are also cases where government has certainly overreached-- deregulating the airlines in the 1970s has contributed to cheaper air travel by a factor of about 3; New Deal financial regulation likely went too far in a number of key areas; and the welfare system had become ineffective and lacked focus by the 1990s.
The point, I think, is that finding solutions requires an honest assessment of problems. That can mean action by government, it can mean government taking a different approach than it had been taking, or it could mean acknowledging that government involvement is counterproductive. For a time, government was likely too involved in the economy and needed to step back. Over the last thirty years, the trend has gone too far the other way-- the knee-jerk reaction is that government must be the problem and less government must be the solution. I think today's problem is the belief, without regard to evidence, that every problem must involve too much government, and every solution must involve deregulation and less government.
Most of what he said last night was substantively identical to the things economists of similar stature have said on the major issues. Summers is, on the details, to the right of Paul Krugman, but his interpretation of the issues was more or less the same-- the evidence that we have inadequate demand in the economy is overwhelming, there's no better time to repair infrastructure than when construction unemployment is at 20% and the government borrows at a negative interest rate for 10 years, the idea of expansionary austerity is oxymoronic (and, in Summers's terms, "you can drop the prefix"), the gold standard is the "creationism of economics", etc. None of that is surprising. He also mentioned the famous scene from the Facebook movie where he dismissed the Winklevoss twins, who claimed that Mark Zuckerberg "stole their property" while he was creating Facebook ("None of the lines in that movie were actually said. But if you're asking about the tone, that's exactly what happened."). I would say he stopped short of calling the Winklevoss twins arrogant assholes, but he didn't stop short at all.
But what really struck me was an offhand remark he had about the economic policymaking of the Republican Party. Summers, while he's certainly a Democrat, is far from a leftist, and also far from an ideologue. Among economists, if Paul Krugman is on the center-left (which, in the profession, he is), then Summers is very much in the very middle. People forget that he served in Reagan's Treasury Department when he was a younger (but still already tenured at Harvard) economist. Summers suggested that today's Republican Party has canned solutions that it appropriates to "solve" any problem, and this is something that rings a bell because it's, well, true. He talked specifically about capital gains taxes ("No matter what the problem, their solution is to cut the capital gains rate. If the economy is slow, cut cap gains taxes for demand-side reasons. If the economy is fine, we can improve it even more by cutting cap gains taxes for supply-side reasons."). But I think it's a tic that's present in every aspect of the party's public platform, and extends far beyond economics. If there's a problem in an industry, the solution must be to deregulate it. If something's wrong, government is the problem. If there's a solution, the solution is less government and a tax cut.
It's a tic that allows them to ignore evidence and fit the problem to the solution. That attitude has come starkly into focus in the aftermath of the financial crisis. The crisis was an obvious failure-- it's been almost 3.5 years since Lehman Brothers collapsed, and unemployment is still well over 8%. Those who looked at the data saw that the crisis was a very obvious market failure-- regulations in place were insufficient, and regulators charged with overseeing the markets were asleep at the wheel, or were ideologically opposed to any market regulation (Alan Greenspan being the prime example). Nevertheless, in a case of either mass cognitive dissonance or outright dishonesty, there's been a massive effort to recast the market failure as a result of too much government and too much regulation rather than too little. Fannie and Freddie must have been the problem, they assert, ignoring the fact that mortgages backed by Fannie and Freddie substantially outperformed private label mortgages. Barring that, the Community Reinvestment Act must have been at fault (ignoring the absurdity of blaming a housing bubble that began inflating in the early 2000s on a statute passed a quarter century earlier that didn't cover the vast majority of institutions churning out messy mortgages). Point out those problems, and you'll hear a diatribe about how awful government is. That's not to say that Fannie and Freddie were blameless, upstanding institutions-- their very existence in the form they took was a disaster, and they certainly will need to be re-examined and refocused in a significant way going forward. But there's nothing inconsistent about acknowledging both that Fannie and Freddie were poorly constructed institutions prone to crony politics and poor incentives, and acknowledging the simple truth that their existence was neither necessary nor sufficient for the financial crisis.
That's not to say that more government is unabashedly good, or that it's the solution to every problem, or even most problems. Rather, government is one of many tools for solving various problems. There are cases where it's useful for government to play a direct role-- in putting together a military, building roads, and providing education and law enforcement. There are cases where government can play a valuable supporting role-- in making markets more efficient by demanding disclosure of financial information for public companies, ensuring transparency in financial markets, and protecting parties from being taken advantage of by those with more information, and pricing externalities such as pollution and gridlock on roads through targeted minor interventions. There are also cases where government has certainly overreached-- deregulating the airlines in the 1970s has contributed to cheaper air travel by a factor of about 3; New Deal financial regulation likely went too far in a number of key areas; and the welfare system had become ineffective and lacked focus by the 1990s.
The point, I think, is that finding solutions requires an honest assessment of problems. That can mean action by government, it can mean government taking a different approach than it had been taking, or it could mean acknowledging that government involvement is counterproductive. For a time, government was likely too involved in the economy and needed to step back. Over the last thirty years, the trend has gone too far the other way-- the knee-jerk reaction is that government must be the problem and less government must be the solution. I think today's problem is the belief, without regard to evidence, that every problem must involve too much government, and every solution must involve deregulation and less government.
That's kinda an off the cuff reaction, but it's what I took from Summers's talk, and I think it's become pretty true.
Saturday, January 28, 2012
Mitt Romney, Taxes, and Private Equity
Mitt Romney released his tax returns the other day, and the results were unsurprising. Over the last few years, he's paid around 15% of his income in taxes (around what most of the middle class pays, if not less). He likely kept some money on deposit in the Caymans for tax purposes. And, like all good Mormons, he donated a chunk of his money to the Church. None of that is, legally or morally speaking, wrong. Romney paid all the taxes he owed. It does invite scrutiny of the ridiculous 15% tax rate for "carried interest" that private equity execs like Romney pay (even most PE folks privately admit that it's ridiculous that their gains aren't taxed as ordinary income), but that's not the purpose of this post. Rather, Romney's tax returns invite a welcome discussion of the private equity industry, how it works, and what skills its practitioners have.
Romney's been running for President on his business background. And there's no doubt that he's been a successful PE executive. While author and former Lazard and JPMorgan banker William Cohan had an interesting piece a few weeks ago suggesting that the way Romney ran Bain Capital bordered on unethical by Wall Street standards, Bain nevertheless regularly generated outsize returns for its investors and employees. The real question, though, is whether this success is an asset for a President running a country. Now, first and foremost, I'm very skeptical of the idea that running any business somehow qualifies someone to run a country. Paul Krugman had an exceptionally persuasive piece more than 15 years ago arguing as much. The reasons are pretty simple-- whereas businesses focus on maximizing profits and competing with other businesses, economics is by no means a zero-sum game; businesses sell to the broader public, while countries primarily produce for their own citizens, meaning that, where a company can freely lay off workers without impacting its bottom line in a negative way, laying off workers in an economy necessarily diminishes the consumer base. There are also operational reasons countries and companies have next to nothing in common (a CEO has a lot more control over a company's agenda than a President has over a country's policies), but that's also not the purpose of this post.
What I'm focusing on, rather, is the narrow claim of the private equity executive as job creator that Romney is seeking to sell. And that's an image that is patently pretty false. To begin with, one has to understand what precisely PE firms do. PE is a re-branding of the old leveraged buyout (LBO) business that began to boom in the 1980s. The process is rather straightforward-- a fund pools money from investors (pension funds, mutual funds, and rich folks), then looks for companies that it thinks are managed inefficiently. The fund then puts up a small chunk of equity (its own money), then takes out a heavy dose of debt. But the debt, rather than being taken on by the fund, is taken on by the acquired company. In essence, the PE fund takes out a mortgage on a company in the same way you take out a mortgage on a house-- it borrows against the company's value, pledging the company and its assets as collateral for the loan it takes out to buy the company.
It then gets to work "streamlining" the company. This involves a few steps. Workers are fired, divisions are spun off or sold, costs are cut, and, when the process is over, the company is either taken public again, sold to another company or fund, or, more likely, declares bankruptcy. All the while, the PE fund is taking fees. There are fees for completing the purchase transaction, fees for "managing" the portfolio company, dividends declared on the stock owned by the fund, etc. So even if the company declares bankruptcy, the PE fund still comes out ahead in essentially every case. If the company defies the odds and goes public again, the PE fund makes a HUGE bonanza. But even bankrupting a company makes PE funds a hefty chunk of change, so it's essentially a win-win for them. Crucially, stockholders also come out ahead. To do an LBO, stockholders have to sell out, and selling out means the acquiring fund has to pay a pretty heavy premium over the market price of publicly traded stock. Typically, this premium is at least 25%. So shareholders get paid around a $5-8 a share premium on a stock trading at $20 a share and (mostly) go home happy.
So who loses? Well, simply put, the employees. Leveraged buyouts involve "streamlining operations", and "streamlining operations" is a nice euphemism for "firing people." The other losers are creditors. If we had perfect credit markets, no one would lend money to a company that could be a takeover target. But... as we've seen over the last decade or so, lenders do dumb things. So the result is a transfer of money from creditors and workers to private equity execs, their investors, and shareholders.
The final issue is the claim that the PE industry "creates value". That is, amid all this shifting, the fundamental question is whether the economic pie is made bigger by the presence of the buyout funds. If it is, then there's a pretty good case to be made for their existence. If there isn't, there's a case to be made that these people are making hundreds of millions of dollars essentially to move money around. The evidence on this count is disputed, but Andrei Shleifer and Larry Summers had a pretty compelling piece almost 25 years ago arguing that leveraged buyouts amounted to a wealth transfer in which little to no value was created, involving the breaking of covenants between the acquired companies and their creditors and workers.
Even if all of these problems are accurate, there's no easy fix for it, from a regulatory perspective. But at the least it invites scrutiny of Romney's claim that running a buyout fund is some kind of special qualification for an aspiring President.
Romney's been running for President on his business background. And there's no doubt that he's been a successful PE executive. While author and former Lazard and JPMorgan banker William Cohan had an interesting piece a few weeks ago suggesting that the way Romney ran Bain Capital bordered on unethical by Wall Street standards, Bain nevertheless regularly generated outsize returns for its investors and employees. The real question, though, is whether this success is an asset for a President running a country. Now, first and foremost, I'm very skeptical of the idea that running any business somehow qualifies someone to run a country. Paul Krugman had an exceptionally persuasive piece more than 15 years ago arguing as much. The reasons are pretty simple-- whereas businesses focus on maximizing profits and competing with other businesses, economics is by no means a zero-sum game; businesses sell to the broader public, while countries primarily produce for their own citizens, meaning that, where a company can freely lay off workers without impacting its bottom line in a negative way, laying off workers in an economy necessarily diminishes the consumer base. There are also operational reasons countries and companies have next to nothing in common (a CEO has a lot more control over a company's agenda than a President has over a country's policies), but that's also not the purpose of this post.
What I'm focusing on, rather, is the narrow claim of the private equity executive as job creator that Romney is seeking to sell. And that's an image that is patently pretty false. To begin with, one has to understand what precisely PE firms do. PE is a re-branding of the old leveraged buyout (LBO) business that began to boom in the 1980s. The process is rather straightforward-- a fund pools money from investors (pension funds, mutual funds, and rich folks), then looks for companies that it thinks are managed inefficiently. The fund then puts up a small chunk of equity (its own money), then takes out a heavy dose of debt. But the debt, rather than being taken on by the fund, is taken on by the acquired company. In essence, the PE fund takes out a mortgage on a company in the same way you take out a mortgage on a house-- it borrows against the company's value, pledging the company and its assets as collateral for the loan it takes out to buy the company.
It then gets to work "streamlining" the company. This involves a few steps. Workers are fired, divisions are spun off or sold, costs are cut, and, when the process is over, the company is either taken public again, sold to another company or fund, or, more likely, declares bankruptcy. All the while, the PE fund is taking fees. There are fees for completing the purchase transaction, fees for "managing" the portfolio company, dividends declared on the stock owned by the fund, etc. So even if the company declares bankruptcy, the PE fund still comes out ahead in essentially every case. If the company defies the odds and goes public again, the PE fund makes a HUGE bonanza. But even bankrupting a company makes PE funds a hefty chunk of change, so it's essentially a win-win for them. Crucially, stockholders also come out ahead. To do an LBO, stockholders have to sell out, and selling out means the acquiring fund has to pay a pretty heavy premium over the market price of publicly traded stock. Typically, this premium is at least 25%. So shareholders get paid around a $5-8 a share premium on a stock trading at $20 a share and (mostly) go home happy.
So who loses? Well, simply put, the employees. Leveraged buyouts involve "streamlining operations", and "streamlining operations" is a nice euphemism for "firing people." The other losers are creditors. If we had perfect credit markets, no one would lend money to a company that could be a takeover target. But... as we've seen over the last decade or so, lenders do dumb things. So the result is a transfer of money from creditors and workers to private equity execs, their investors, and shareholders.
The final issue is the claim that the PE industry "creates value". That is, amid all this shifting, the fundamental question is whether the economic pie is made bigger by the presence of the buyout funds. If it is, then there's a pretty good case to be made for their existence. If there isn't, there's a case to be made that these people are making hundreds of millions of dollars essentially to move money around. The evidence on this count is disputed, but Andrei Shleifer and Larry Summers had a pretty compelling piece almost 25 years ago arguing that leveraged buyouts amounted to a wealth transfer in which little to no value was created, involving the breaking of covenants between the acquired companies and their creditors and workers.
Even if all of these problems are accurate, there's no easy fix for it, from a regulatory perspective. But at the least it invites scrutiny of Romney's claim that running a buyout fund is some kind of special qualification for an aspiring President.
Saturday, January 21, 2012
Chelsea and the problem with relying on African players
This morning I watched Chelsea put together another frustrating 0-0 outing against a middling team (to a team that's allowed more goals than anyone outside the bottom 5). It highlighted what's become a semi-annual theme for this team: the January lull. And the reason for that, I think, is the way Chelsea's teams have been constructed. More than any other big side in Europe, Chelsea relies on African players as core pieces. Now, when most soccer fans think of Chelsea's success in the Abramovich era, they think of John Terry and Frank Lampard. And those two have certainly played a valuable part. But I'd argue that the most indispensable pieces haven't been Terry and Lamps, but rather Didier Drogba and Michael Essien. The case for Drogba is pretty straightforward-- he's an absolute beast. On his day, he was (and still is, really) unplayable. Drogba is big, he's great in the air, he moves exceptionally well for a guy his size, he has one of the best shots in Europe, and he can create opportunities out of thin air. Essien's case is a bit harder to make now, since he seems to spend 2/3 of every season injured. But, 3-4 years ago, you could make a pretty good case that he belonged in the top 10 players in the world. Essien was fantastic-- he covered a ridiculous amount of ground, was a very good tackler, got forward well, scored goals, and could play any position, from attacking center mid, to right back, to center back. Most guys who can play that many positions are at best decent at all of them-- Essien was passable as a center-back, good as a right-back, and easily one of the 5 best central midfielders in the world. He was a special player.
So why is relying on these two guys such a huge problem? The answer is, simply, the Africa Nations Cup. The ANC is the worst tournament in global soccer. Where most international tournaments occur every 4 years (World Cup, Euro) or, at worst, semi-irregularly (Copa America), the ANC happens every other year. And, where rational tournaments play during the summer, the ANC is in January. In other words, smack in the middle of the season for all of Europe's biggest leagues. Meaning that, every other year, top teams ship all their African players (because just about every African player good enough to play for an elite European club is also playing for his national team) away for the month of January. For most clubs, that meant, at worst, 1 central player, and maybe a peripheral player or two (Barca in its day would lose Samuel Eto'o and, for a brief minute, Yaya Toure and/or Seydou Keita; Arsenal would lose some combination of Emmanuel Adebayor, Alex Song and Kolo Toure, who were never all key players at the same time; etc.), Chelsea would lose 2 of its most important players, plus a few guys who were in and out of the first XI (John Obi Mikel, Salomon Kalou).
This post isn't really as responsive to today's match as it is to the last few years (Essien didn't go to Africa this year, as he's retired from the international game, and just came back from a knee injury anyway), but the idea hit me over the head again today, as I watched Chelsea struggle to unlock a pretty weak defense and wondered what might have been different if Drogba, instead of the struggling Fernando Torres had been leading the line.
So why is relying on these two guys such a huge problem? The answer is, simply, the Africa Nations Cup. The ANC is the worst tournament in global soccer. Where most international tournaments occur every 4 years (World Cup, Euro) or, at worst, semi-irregularly (Copa America), the ANC happens every other year. And, where rational tournaments play during the summer, the ANC is in January. In other words, smack in the middle of the season for all of Europe's biggest leagues. Meaning that, every other year, top teams ship all their African players (because just about every African player good enough to play for an elite European club is also playing for his national team) away for the month of January. For most clubs, that meant, at worst, 1 central player, and maybe a peripheral player or two (Barca in its day would lose Samuel Eto'o and, for a brief minute, Yaya Toure and/or Seydou Keita; Arsenal would lose some combination of Emmanuel Adebayor, Alex Song and Kolo Toure, who were never all key players at the same time; etc.), Chelsea would lose 2 of its most important players, plus a few guys who were in and out of the first XI (John Obi Mikel, Salomon Kalou).
This post isn't really as responsive to today's match as it is to the last few years (Essien didn't go to Africa this year, as he's retired from the international game, and just came back from a knee injury anyway), but the idea hit me over the head again today, as I watched Chelsea struggle to unlock a pretty weak defense and wondered what might have been different if Drogba, instead of the struggling Fernando Torres had been leading the line.
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