chumpchangerblog

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A pure creature of venture capital

My editor’s letter from the print edition issue of The Week. It’s been a long time since I’ve reported on Silicon Valley, but I was happy for the chance to go back to that’s  well of knowledge (thanks, Sam Bankman-Fried!)

The story that the Silicon Valley investors who call themselves “venture capitalists” like to tell about themselves is that for decades they’ve been the engine of America’s economic vitality. Blessed, they say, are the financiers, for without their investments in Apple way back there would be no iPhone. Entrepreneurs who arrive in Silicon Valley are warned early on that while these investors are mouthing platitudes about innovation, they will also be rifling through your pockets. Most entrepreneurs try to keep them at arm’s length, valuing their money more than their advice.

Silicon Valley’s investors usually have impressive technical degrees, but their stock-in-trade is ultimately not technological innovation but financial engineering. This is why Silicon Valley loves “crypto,” or digital currencies, so much. All the innovation was done for free; the only work left was taking in the profits. Those, of course, should come in what the crypto world liked to dismiss as “fiat” currency, also known as dollars.

That crypto edifice has started collapsing with the bankruptcy of FTX and the humiliation of its wunderkind chieftain, Sam Bankman-Fried. Last week, it so happens, Theranos founder Elizabeth Holmes was sentenced to 11 years in prison; that too was a black mark for Silicon Valley, but at least many of the highest-profile venture investors had quietly steered clear of the blood-testing company. Not so with Bankman-Fried. He and his posse might have lived in a group house in the Bahamas, but he was a pure creature of Sand Hill Road, venture capital’s epicenter.

The investors saw a man after their own hearts, and jumped into what now looks like just about every other Ponzi scheme (Bankman-Fried even promised depositors 12 percent returns, same as Bernie Madoff). As with just about every high-class con, Sam Bankman-Fried’s key selling point was “He’s so smart. He doesn’t need to rip anyone off.” Not coincidentally, that’s what Silicon Valley’s financial engineers would have you believe about them, too.

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No Thank You, I Don't Want to Meet Your Social-Media Self

My editor's letter from the print edition of The Week. This one is from early October—I'm afraid I'm getting this up online late, as usual.

For many years now, work has taken up a greater and greater part of Americans’ mental space. First there was the era of corporate retreats and endless evangelizing about turning your corporate team into an entrepreneurial powerhouse. Then there was “hustle culture,” the idea that having just one job couldn’t possibly be enough. And now, there is the latest wrinkle, the “bring your whole self to work” movement, which The New York Times’ Pamela Paul wonderfully skewered.

It’s the natural evolution of the idea that life should be centered on the workplace. With fewer outlets for face-to-face self-expression—also known as “social life”—it was probably inevitable that the next step in the transformation of work was moving life wholesale to the office. Let the office make room, the thinking goes, for all the psychic yearnings, the political discussions, the oversharing, the angst, and the aspiration that we no longer have space for in our personal life.

But what is the “whole self” that we are supposed to bring to the office? I’ll venture a guess, and it’s not exactly the private self that we used to value. It’s the online self, the Twitter self, the Facebook self: the brash and too-loud self that we have learned to construct in 280-character posts and glossy Instagram images. That self is increasingly both puffed-up and diminished. Puffed-up in obvious ways, diminished because it is stripped of nuance, empathy, doubt, and restraint.

“Bring your whole self to work,” like so many slogans of corporate life, ends up meaning practically the opposite of what it says. The personal relationships we build at work can be among the most important relationships of our lives. But like other relationships, they develop in their own way and at their own pace. Under pressure to reveal ourselves immediately and relentlessly, the natural human impulse will always be to fake it, and cut off exactly those connections that make up a full life.

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Who really supports free thought?

This originally appeared as an editor’s letter in the print edition of The Week. On teachers and the culture wars.

Help wanted: Front-line soldier in the culture wars. Willing to take flak from all directions. Responsible for keeping 30 young people safe. Expect battles with bureaucracy, active shooter drills, deteriorating physical plants, and low professional respect. Summers and most holidays off, except for the paperwork.

Not rushing to apply? You’re not alone. As we head into the school year, districts in the U.S. are contending with a grave shortage of teachers Teachers are quitting, and the ones who are staying are unhappy; 90 percent say they are suffering from burnout. There’s no puzzle about why. In red states, teachers are threatened with criminal sanctions for saying the wrong thing, and the very notion of education as anything more than training for efficient workers is treated with contempt. In blue states, meanwhile, schools are seen first and foremost as engines of equality, where conformity is prized, disagreement is discouraged, and striving for excellence is viewed with suspicion.

In principle, everyone who talks about schools claims to be in favor of teaching “critical thinking.” Mostly, they are not, and there is the crux of the problem. The reality is that teachers face constant demands to convey the perspective of local school boards, bureaucrats, and politicians. And students are expected to more or less uncritically receive it. As anyone who has ever had genuinely inspiring classes in high school or even middle school knows, that is a miserable model of education.

Among the best teachers I had were nerds, poets, socialists, and (memorably) a self-avowed right-wing reactionary too. None of them had any interest in hearing students parrot their views, let alone in marking down the work of a student who had a different outlook. What those teachers valued most was independence of thought—and when we take that away from our teachers, we just as surely take it away from our kids.

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The pictures are getting smaller

In an editor’s letter for The Week I wrote about the swiftly-arriving end of the movie theater, and the rapid shift in viewpoint in the progression from the big screen, to the home screen, to (finally, inevitably) the phone screen.

Everybody has a memory of going to the movies—or many of them. For me, it’s my first “grown-up” movie, Buck Rogers; it’s the balcony in my local two-screen house as a teenager; it’s lining up with my parents for the latest pre-scandal Woody Allen release, a New York City ritual; it’s the art house cinema in college.

Movies have been a central communal experience as far back as the 1930s. Television obviously grew to take up much more of our time, but first-run movies were still a night out. Then came the prestige features from Netflix and Amazon, and now, we have the deluge, as Warner Bros. brings its full slate of 2021 movies—Wonder Woman 1984, Dune, The Matrix 5—to HBO Max. There are directors up in arms, and there will be contracts to renegotiate. But to even the most casual movie viewer, this feels like a big breaking point. It’s not the day that the movies died, thank God, but it’s the day that moviegoing died.

Let’s not get too nostalgic about this experience. Hollywood already feasts generously on nostalgia. Just see the names of those Warner movies, or Netflix’s Mank, a black-and-white remembrance of the Orson Welles era. Big-budget movies mine the industry’s past, prestige films eulogize it. They’ve done that since forever, it’s true; Sunset Boulevard’s “It’s the pictures that got small” is one of the most quoted lines in film history. Humans want company, and there will be new rituals to replace going to the movie theater. But there is something about the movies that is hard to replace.

Though there are great films being made today, and undoubtedly far more great television, we have come to take it all for granted. It is all “media,” slipping through our vision in a way that makes it all blend together and leaves the imprints jumbled as we move from the big screen to the television screen to the phone screen—the pictures getting smaller and less memorable with each step.

Originally published in the print edition of The Week.

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A bubble in mendacity

An old adage in finance says that “the marker can stay irrational longer than you can stay solvent.” In my editor’s letter for The Week, I took a cue from the financial markets and wrote about the bubble in destructive demagoguery and conspiracy theories—a bubble that like many others is likely to keep expanding much longer than anyone expects, and will end with a sudden shock.

The presidential election four years ago was a Facebook free-for-all, a veritable festival of manipulation and disinformation with no fact-checking and no guardrails. Not only critics but the social media companies themselves said “Never again.” You can argue about whether this time Facebook and its peers did enough to combat disinformation. But they did do a lot. And yet days after the election, with 64 percent of Republicans still convinced, with no evidence, that the election results can’t be trusted, why don’t things feel any better?

I would posit that’s because social media was never the essence of the problem. Demagogues and conspiracy mongers are always proficient in the cutting-edge media of their time—broadsheets, radio, television, now Facebook. What they do is amplify social breakdown, using any means at hand. People turn to lies when they feel dislocated, isolated, and mistrustful, and those who seek power by corroding faith in institutions play on that, whatever the medium.

What keeps democracy going are the norms created by shared facts. There were people who wished that we could restore these norms by fixing social media. We’ve found that’s not enough. But I remain optimistic. Reporting on business news over the years, I gained some familiarity with the stock market. Markets develop bubbles in which irrational ideas take hold. These can last much longer than you’d expect; as one adage in finance has it, “The market can stay irrational longer than you can stay solvent.” In this election cycle, we’ve seen a bubble in destructive ideas.

Who would have believed that the currency of QAnon would rise as high as it has? Invariably, though, bubbles do burst—often at the point at which things seem to reach a new plateau of insanity. I have a surprising amount of hope that we are at that kind of stage now, with a bubble in demagogy, cynically reproduced, bursting— and that we have stayed solvent enough that we have the social capital to rebuild.

Originally published in the print edition of The Week.

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This is exactly what we left behind

My editor’s letter for the print edition of The Week. To Russian immigrants like me, Alexander Vindman is familiar: In the swamp of Washington, a true believer in the democratic project,. because he understand the alternatives.

Several years after my family immigrated to the U.S., my father got a peculiar letter from a friend in the Soviet Union. The letter—no doubt the friend had been strong-armed or blackmailed into writing it—asked if he might be able to procure a technical manual for a DEC minicomputer banned from export to the Soviet Union. Obviously, that was the end of that relationship. In the story of my family’s immigration, this was a last tawdry reminder of the repressive, manipulative regime we’d left.

Like so many other Soviet Jewish refugees, my family was committed to the United States, fiercely anti-Communist, and hopeful about regime change that would bring democracy to Russia and its captive nations. In all this, my family’s convictions were probably similar to those of another family of Soviet refugees who arrived in the U.S. three years after us: that of Lt. Col. Alexander Vindman, the decorated officer and National Security Council staffer who testified on Capitol Hill this week. As thanks for his testimony, some on the Right have accused Vindman of dual loyalty and even treason.

Nobody genuinely believes this. What infuriates his critics is that Vindman, like others in the NSC and State Department, was willing to call out the effort to blackmail Ukraine’s new, reformist government as a policy inimical to American interests and more characteristic of the repressive state Vindman and I left behind. Still more damning is that for Vindman there really is no quid pro quo. He gets nothing out of standing up but the enmity of the president of the United States. For people who think the world operates entirely on the basis of quid pro quo, that makes no sense—just as it makes little sense to support allies like Ukraine, unless maybe they can help out with a little favor. To understand someone like  Vindman, it helps to put yourself in his shoes: a refugee from a failed dictatorship, serving a nation built not on blackmail but on principle.

Originally published in the print edition of The Week.

[chumpchangerblog]

The Sound of One Hand Giving

At NewYorker.com on Friday I wrote about the Trump maternity leave plan. No, it doesn’t work. And, no, if elected Trump will abandon it.

One thing that makes it worth writing about, though, is that it has all the makings of a “GOP alternative.” The message from the Republican traditionalists is that they don’t like mandated maternity leave in any form (never mind that the Family and Medical Leave Act already allows 12 weeks of unpaid leave). But there’s momentum behind maternity leave, and if Hillary Clinton does win the presidency there will be pressure on the Republican leadership to present an alternative. This is it.

The Trump plan is especially valuable as an alternative vision because it engineers a division between aid for the deserving (mothers) and the undeserving (those loafers on unemployment insurance). I don’t discuss this in the NewYorker.com piece, because there’s not really a lot of room to go into a history of the thinking on welfare, Suffice it to say that pitting deserving versus undeserving recipients of aid has been a hallmark of conservative thinking on welfare since at least the New Poor Law of 1834. If anything like the Trump plan is to be enacted, the money given with one hand for maternity leave would have to be taken away from unemployment insurance with the other.

As the piece was going to press, it elicited some discussion with editors about whether Trump supporters really thought the poor or unemployed were lazy, in the old conservative‘s mode. To my mind, the answer is very much yes. This is one of the puzzles of Trumpism. The candidate claims 42 percent of the country is unemployed (a fiction) and that it’s the current administration’s fault. Yet at the same time Trump supporters are ready to dismiss recipients of government aid as ... well, losers. Obviously part of the issue here is that there’s a distinction between aid to black and white citizens.

That’s not all of it, though. Many supporters just don’t see the contradiction between saying that the poor or unemployed are lazy losers, and that the Democrats are responsible for pushing people into that state of dependence. And yes: Plenty of them say that it’s the government’s fault that they themselves have to rely on aid programs. Basically, they are for government programs that help the deserving (people like themselves) and not the undeserving (other aid recipients). I can’t untangle this thinking any further, and won’t even try.

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The Meaning of “Detroit”

In the more polite narrative of the election, candidates go to battleground states to make their presence felt where the voters are. So it is that Donald Trump shows up in Detroit, a Democratic-leaning state that he has repeatedly promised to seize, for his economic address. And surely the onetime center of the U.S. auto industry is a natural place to talk about restoring the greatness of the America First days (a characterization of the 1950s and 1960s that would have floored Dwight Eisenhower, but never mind).

To anyone who bothers to dip into the right fringes of the news media, like Breitbart.com -- now the 30th ranked news site in the U.S. -- the main resonance of “Detroit” has nothing to do with restoring U.S. manufacturing. If you’ve ever had the pleasure of moderating comments on an online news site, you’ll know immediately what I mean. Stories about Detroit get featured on Drudge, passed around on right wing blogs, and almost immediately elicit a flood of explicit, racially charged vitriol.

It’s no accident that at the top of a speech ostensibly devoted to the economy, Trump highlights the “silenced victims” of Detroit’s violent crime. Let’s be clear: to call this “coded” is to give it way too much credit. Crime in Detroit is an obsession on the right fringe. Breitbart.com happily features stories about the Detroit mother who killed two of her children, or (surely this is of national interest?) a fight in a 7th grade classroom. What these stories have in common is only that they are an excuse for the audience to explore the depths of their hatred.

We all know what “silenced victims” means here. These are victims of the “black on black crime” brought up by people who have little interest in crime except to use it as a cudgel against liberal permissiveness. You do not go to Detroit to appeal to Detroit. You go to Detroit to stand amid the devastation and tell your supporters around the country that you are the only one who can keep the rest of the country from turning into this. And if you are steeped in the right sort of media day in and day out, there is really no more need to make any more explicit what this might be.

The Breitbart audience doesn’t want to rebuild Detroit. It wants to empty it, or failing that, to keep it as an object study in the failure of a city populated mainly by black people. Back in 1940, a developer built a wall to separate a stretch of white and black neighborhoods in Detroit. The wall has now been turned, like the Berlin Wall, into a colorful monument. But make no mistake: There are plenty of Trump supporters who would be happy to have it surround the whole city. And make Detroit pay for it, too. (Image: The wall built near 8 Mile Road to separate white and black neighborhoods, by Steve Neavling via Motor City Muckraker.) 

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Amazon’s $330 Billion Everything Store Problem

Amazon seems to be readying a paid streaming music service -- one that doesn’t suck like the current Amazon Prime music. If you have an Amazon Echo speaker, this may be very exciting to you. If not, you probably put it in the category of “one more Amazon step on the road to world domination.”

Still it’s worth paying attention to this, because actually it’s more like the latest move in Jeff Bezos’s desperate efforts to turn Amazon into a media company. Because twenty years in, the “everything store” isn’t really all that.

Yes, yes, it feels like a churlish time to say so. Jeff Bezos now also owns the Washington Post, which has now been banned from Trump’s rallies (for reporting what Trump says). So he’s been fighting the good fight for press freedom. Meanwhile Trump is reading from the Putin playbook and has promised Bezos a tax audit, and probably the full Mikhail Khodorkovsky treatment if he ever gets into the Oval Office.

So let’s stipulate that Bezos’s Washington Post is on the side of the angels. That doesn’t change the fact that Amazon has earned less in twenty years than Apple takes in every quarter. For two decades investors have basically taken all the scorn that Bezos has thrown their way, under the assumption that he was building something really, really big.

Well, now he’s built it, and mostly of it makes very little money. Last year, Amazon’s retail business eked out a profit, finally, despite losing $5 billion on shipping. Shipping. Somehow at this point now Bezos has to make investors forget that Amazon was ever about selling physical goods.

Ignore the minor stuff about Amazon’s brick and mortar bookstores. What’s really happening is that Amazon is getting recast as a purveyor of digital goods to people and companies. It’s really three companies now: web services (in which it competes with the likes of Microsoft), digital media, and retail. And the third is the least important.

The web services business provided $600 million of Amazon’s $1 billion of earnings last quarter. Last year, Deutsche Bank valued it at $160 billion. That alone makes up half the value of Amazon’s stock. Meanwhile. Amazon Prime, which started basically as a free shipping service, now has 54 million members, of whom 80 percent watch Prime video. That’s almost as many people as Netflix’s 47 million domestic subscribers.

Amazon now lets you get Prime Video without the shipping. At a savings of just two dollars a month, it’s a terrible deal--but the real point isn’t to sell video subscriptions but to tell investors they should think of Prime as like Netflix (worth $40 billion).  Adding streaming music says, “Hey, we’re going to be doing soup to nuts digital media a digital music.” Basically, the more Amazon can be portrayed as some mix of Netflix, HBO, Microsoft (yes, that’s going strong now) and Apple, and the less like an online Wal-Mart, the better.

For a long time Amazon operated on the old rag trade theory of customer acquisition: Sell your suits at a loss, then make it up on volume. It’s been twenty years of cheap suits, and the theory is that somehow Bezos has to justify the his company’s  $330-billion in stock market value in some new way. Like cranking up the volume on everything digital.

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"They Are Fathers, Just Like I Am”

I wrote about the economic desperation of Trump’s supporters in @MONEY last week, and one thing I didn’t talk about was race. I know it’s more than the elephant in the room. There’s definitely a case to be made that it’s pretty much everything. As Trump’s supporters have gotten pushed down the economic totem pole, they’ve lashed out with open bigotry at those they fear are moving up. Slate Jamelle Bouie has covered this brilliantly.

It’s clear that many Trump voters are bigoted, and many are despairing. The question is what came first--and what will remain after the election? In my conversations with ordinary Trump voters, it has clearly felt like it’s the despair that’s the starting point, and the bigotry is justification. Unless you can blame someone, you’re a loser, and we all know what Mr. Trump thinks of those.

There’s a fair amount I didn’t get into the @MONEY story that I’m still trying to process. In particular the view of foreigners I heard is more nuanced than a lot of the coverage shows. One line that sticks with me from Leo Perrero is about the foreign workers hired to replace him at his old job. “They are fathers just like I am,” he told me.

That’s a phrase I’m planning on writing about soon. It feels very double-edged. Clearly there’s empathy in that. But the world Trump draws is one in which there will never be enough for everyone’s children. More on that later. For now, you can go back and read the @MONEY story, or I can just leave you with the bottom line: 

The voters who made Trump happen aren’t, by and large, those who have been chewed up and spit out by the death of factory jobs. They are people who thought they’d met the requirements for success in the contemporary economy, and still find themselves losing ground.

Almost every story about Trump says that his supporters are the desperate working class. Actually, not quite. They’re the desperate upper middle class. That doesn’t really bode well.

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The $15 An Hour Wage Is the Future of Unions

Last week I wrote for for NewYorker.com about the Verizon strike, and the flak from labor advocates understandably started rolling in. Basically, I wrote that whatever the merits of the Verizon workers’ cause, the future of labor wasn’t in unions. That’s the truth, and everybody knows it. Some people read that as an anti-union stance. It’s not. I think--and wrote--that the Verizon workers had legitimate grievances, and I have only high regard for the job the union has done. But the reality is that private sector union membership is in a death spiral. Unfortunately, years of conservative efforts to cripple unions have largely succeeded.

One thing I wish I’d spent more time on was how much credit unions should get for the Fight for $15 campaign. Steven Greenhouse pointed out some of the unions involved, and he’s absolutely right. He also asks, reasonably, how unions will continue to support that without the money from dues. Again, he’s right to bring up the issue. It’s a problem. I’m just not sure there’s a solution (though public sector unions remain powerful.

In writing about this, this push for a $15 an hour minimum wage is one thing I’ve come to view differently. I've been skeptical of both the political and practical feasibility of a $15 an hour national minimum. But the clear fact is that it has gained political traction, and I’ve come to see some of the trade-offs in different light.

There’s no question that some jobs will be lost with a $15 an hour minimum wage. Slate’s Jordan Weissmann has raised important questions about this. However, the fact that some jobs will be lost is not necessarily a deal breaker. Some jobs are lost through any wage increase. One argument against the $15 minimum is that in many places it brings minimum wages almost in line with the average wage. This, however, is not unprecedented. Consider Shenzhen, China, where minimum wages have now risen to 2,030 yuan a month. Just four or five years ago, the average wage in Foxconn’s Shenzhen factories was 1,800 yuan. This is exactly the kind of increase that $15 an hour would mean in some places, and Shenzhen is getting along just fine.

In the longer term, it’s worth thinking about whether some of the response we’ll see in the long-term to higher wages is not fewer jobs but fewer hours worked. To some extent, we’re already seeing that in the service sector. And some ways of cutting hours--maternity leave, anyone?-- are clearly desirable. Ultimately the modern economy demands less labor to keep it running. We can get there by having people compete for jobs by bidding wages down ever lower. Or by raising wages and cutting hours for the average worker. The second sure seems like the more humane alternative.

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Middle Class Jobs, Immigration, and the Florida Primary

For @MONEY yesterday I wrote about H-1B visas, which have (justly!) become a big issue in the presidential race. Some things I learned: The rules are so porous that just about any U.S. tech worker can legally be replaced with a foreign worker on an H-1B visa. And frankly, they were designed that way. Guest worker programs have always been economically and morally problematic. It's just that when they involve middle class jobs that they become politically radioactive.

From the story:

Those rules are very easy to get around. In particular, the rule against using H-1Bs to displace U.S. workers has a Grand Canyon-sized exception: It doesn’t apply to anyone paid $60,000 a year or more. That number was set way back in 1998 and seems to have been adopted under the assumption that subcontractors that might replace U.S. workers en masse didn’t deal with employees senior enough to earn that much. That’s clearly no longer the case. The effects of inflation, rising tech salaries, and the increased sophistication of outsourcers leaves many American technology professionals vulnerable to being replaced by H-1Bs—who, not coincidentally, tend to be paid just over the $60,000 mark.

Supporters of H-1B visas often argue that cutting-edge U.S. tech companies need them to bring in elite talent from around the world. In practice, few of the visas actually go to top American tech companies for this purpose. More than three-quarters of H-1B visas require only a bachelor’s degree. And the Googles and Facebooks of the world—who compete for H-1B visas in a lottery with specialized outsourcing companies that are mainly concerned with cutting costs—often turn to other programs designed to enable top grads stay in the U.S.

Read the full post at Time.com >>

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No Warsaw Pact? No Problem! Russia Builds Its Own Client States

As the ruble slips to a record low, Western policy makers have to be asking themselves just how much economic damage Russia will be willing to take to cease its proxy wars.

Yesterday we got the answer: A lot more. Russian foreign minister Sergei Lavrov said that Russia would recognize the results of elections in Ukraine's Luhansk and Donetsk regions on November 2. In case anybody had any doubts about exactly what that meant, Lavrov specified, according the the BBC, that a vote "will be important to legitimize the authorities there."

Dispense with the idea that Lavrov is using some kind of code to indicate that Russia plans to support what amount to two breakaway Ukrainian mini-states. There's no code needed here; it's close to a direct promise that Russia will support two breakaway states. The only question that's left is whether the Donetsk and Luhansk regions will stay separate from Russia (TMN's bet) or will be annexed outright after a reasonable period to organize another vote to choose union with Russia.

Russia has been building up to this for some time. You can think of the much-smaller states of South Ossetia and Abkhazia as a proof of concept a beta version of the Russian client states we might see. Culturally the Putin regime has also been preparing the way for that. Bloomberg's Stepan Kravchenko, in an extraordinary article reported from the Russia-Ukraine border, interviews one Russian, "Nikolai," who gives a good sense of the hatred that Russia's government has fanned:

Nikolai blames the Ukrainian government for destroying homes, factories and farms in the region -- saying that in some respects they’re even worse than the Germans who passed through in 1941.

“Hitler’s troops spent a night in this village and only one glass was broken,” he said in Surzhyk, the melodious mix of Russian and Ukrainian spoken by many residents of the area. Of the Ukrainian government, he said, “We should hang those fascists by their eggs from a birch tree.”

Five years ago it was close to inconceivable that Russia would launch a stealth invasion of a European country. The consensus was that the global economy had become so interconnected that open conflict was almost impossible.

This has turned out to be untrue. Trade has not bound Russia to the West in a meaningful way. Rather than a web of intricate links, trade with Russia has meant largely sending energy products -- 68 percent of Russian exports -- westward to enrich the Russian elite. As with other petro-states, trade with Russia has not meant cultural rapprochement.

"Interconnectedness" was supposed to be the key to ending international conflict. Now it's often a euphemism for "Europe needs Russia more than Russia needs Europe." Which is why one of the people who likes to talk most about it is none other than Validimir Putin:

"I think in the modern world, when everything is so interconnected and everyone depends on everyone else in one way or another, it's of course possible to do some damage to one another, but it will be mutual damage."

At the moment, interconnectedness seems to work in one direction: Russia is not economically connected enough to Europe to stop its shadow war. But Europe is reliant enough on Russia to be very wary of ratcheting up its response. Ironically, some states that stepped of out of Russia's shadow -- Hungary, Slovakia -- have been the most resistant to strengthening sanctions over Ukraine.

In this way, slowly, Russia may be reconstructing the old European status quo: a ring of new client states like the Luhansk and Donetsk republics, and a buffer zone of non-aligned countries who don't want to do anything to annoy the Russian bear.

This post originally appeared on the Market Now blog at Bloomberg.com.

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My Son's French Hospital Bill: Emergency Room + Doctor = $95

On vacation in France last month my 1-year-old son hurt his arm and, worried that he might have dislocated his shoulder, my wife and I took him to a doctor. Since it was a Sunday and none of the local doctors were in the office we saw no option but going to the hospital emergency room.

A few days ago we got the bill: 72.38 euros, or about $95. We saw a doctor after waiting for about an hour (we spent most of that in the playground across the street). No "facilities charge," or other special emergency fee. The doctor spent about 15 minutes with our son, determined that everything looked okay, and that our son should be fine within a day, as he was.

This is so unfamiliar to Americans that it's worthwhile to include an image of the bill below. It is unlikely that any American hospital emergency room has sent out a bill like this in many years. Yes, it is possible to get inexpensive medical care in the U.S. at urgent care centers, as one reader aptly pointed out when I posted this tidbit on Twitter. Some do charge less than a hundred dollars for a visit, or about the same as our bill from France.

In the U.S. with my current very good insurance I would pay a $100 copayment for an emergency visit; there might also be a separate copayment for a doctor. That's if the hospital is in-network (all the major hospitals in New York are). Otherwise the bill would be much, much bigger. If I lived in France and was covered by their national insurance program, I wouldn't even be getting a 72 euro bill. I would pay nothing.

Would I have thought of finding one of those less-expensive urgent care centers as a tourist in the U.S., with a child I was afraid was injured? I don't know. I'm glad that with my inadequate French I did not have to confront an American-style health care menu of "Well, if you go here it will cost $100, but there it will be $2,000." In the U.S. I have excellent insurance. I'm not sure if it would cover the bill from France. I think it would fall into my out-of-network deductible. And frankly, I will probably just pay it rather than trying to navigate through my U.S. insurance rules.

The only issue here: It doesn't seem like the French hospital takes credit cards, and it's a little unwieldy for them to cash a U.S. check. So I'm not sure how to most efficiently pay the hospital its money. That's one thing that U.S. hospitals make easy.

[chumpchangerblog]

No Place to Work, No Money to Move

It’s well known that the longer you have been without work, the harder it is to find it. But just how many separate factors conspire to create the cycle of unemployment is still under-appreciated. A lot of attention has been paid recently to how employers don’t want to take a chance on the jobless. On top of that you can add that folks without a job are more likely to live in places where the economy is weak, and have less money to look for work, or to move to where there is work.

Bloomberg’s Steve Matthews and Victoria Stilwell wrote about how America’s young adults, already hit with weak job prospects, are staying home to save money. You can see a similar disheartening pattern at work when you start tracking the regions American leave.

The chart below illustrates unemployment and mobility in the United States, using data from the Census Bureau’s American Community Survey. The left axis is the unemployment rate for each state; the bottom axis is the percentage of residents who moved out of state last year. I’ve left off Washington, DC and Alaska because the very high rates of migration out there would leave the rest of the states clustered at the left of the chart.

You might expect that folks would be more likely to leave states with high unemployment. In fact, the opposite is the case. California, with an unemployment rate of 8.1 percent, has one of the lowest rates of outward mobility (1.5 percent); the same goes for Michigan, with an unemployment rate of 7.5 percent. In general, as the trend line shows, people are less likely to to move as the unemployment rate rises. If you want to see the precise data for each state in this Google Docs spreadsheet.

Numbers for large states like California probably skew downwards because folks are more likely to move within the state. But basically what seems to be happening is that people are staying put in places where there are few jobs because they don’t have the resources to move. Research from the St. Louis Fed had also found that those who lose their jobs become far less likely to relocate.

The real-world mobility-killing effects of unemployment are probably stronger than you would guess from this chart alone. States with a better employment picture have higher rates of mobility both in and out; overall there’s a slight gain in population for those states. The likelihood is that many of the people who do make the jump have better prospects to start -- people with jobs moving to better ones. Unfortunately, there's no obvious solution to this kind of vicious cycle. If the unemployed can't move to where the jobs are, you need to bring the jobs to them. But so far, despite a whole lot of effort, no one has figured out how to make Michigan, Mississippi or Connecticut as attractive as Silicon Valley.

This post originally appeared on the Market Now blog at Bloomberg.com.

[chumpchangerblog]

The Kremlin Doesn’t Believe in Friends

The U.S. and European Union expanded the list of Russian officials and companies targeted by sanctions, topped by OAO Rosneft chief Igor Sechin. Henry Meyer and Irina Reznik's profile of Sechin makes for fascinating reading. They report:

Sechin, 53, was Putin’s colleague at the St. Petersburg mayor’s office before rising to become the head of state-run OAO Rosneft, which over the past decade he built into the world’s largest publicly traded oil company by output and reserves. Along the way, it absorbed rivals including Mikhail Khodorkovsky’s Yukos Oil Co. and BP Plc’s Russian joint venture. As Russia’s energy czar, he bagged Exxon Mobil Corp. and BP as partners in Putin’s vision of a state-led crude industry.

“Sechin is easily the most influential person in the country after Putin,” says Sergei Markov, a political analyst who advises the Kremlin and vice rector of the Plekhanov Russian University of Economics in Moscow. “Putin trusts him more than anyone else.”

Being Putin's most trusted confidant sounds like a potentially impermanent honor that no one with an instinct for self-preservation should aspire to. In any case, the list of people whom U.S. and European policymakers deem close to the Kremlin is getting quite long. Each of their stories make for great reading. Last week, for instance, Bloomberg's Irina Reznik and Evgenia Pismennaya charted the story of how OAO Bank Rossiya went from a tiny office close to St. Petersburg's City Hall to $12.6 billion in largely by acting as the house bank for energy companies favored by the Kremlin.

People like Sechin and Yury Kovalchuk, the former physicist who is the biggest shareholder in Bank Rossiya, owe a lot to their patron. The more relevant question when it comes to sanctions, though, is what Putin owes them.

Among the commentariat there is plenty of talk of  stricter sanctions that would isolate Russia. Bloomberg's Kasia Klimasinska described some of the options:

“The biggest weapon in terms of sanctions would be similar sanctions to what we did in Iran and basically try to exclude Russia from international financial markets,” said William Pomeranz, deputy director of the Kennan Institute for Advanced Russian Studies of the Woodrow Wilson Center in Washington. “The Russians fear that, and that is what the Russians want to avoid.”

The reality of sanctions to date falls far short of this  (if you haven't reached sanctions overload, you can check out the financial world reactions in this story). Iranian sanctions have had a distinct goal: to persuade Iran to abandon its nuclear program. At the moment, there is no similar goal that is achievable in Ukraine. It's not really clear that even the Ukrainian government is seriously pursuing the return of Crimea. Without a definite goal that could be achieved, broad sanctions that would isolate Russia from the world financial community are a non-starter.

The West seems to be settling for more limited ones that are supposed to influence Putin by hurting his friend's pocketbooks. President Barack Obama has said that sanctions are not intended to "go after Putin, personally." Even if that's nominally true, they do seem directed personally at Putin's close, long-time associates. It's a campaign to pressure Putin by pressuring his friends.

How well will that work? The best line in Reznik and Pismennaya's story last week belongs, believe it or not, to Putin's spokesman, Dmitry Peskov. "Being a friend of Putin," Peskov said, "is a rather abstract notion." Amid all the rhetoric that emanates from the Kremlin, that line offers a useful insight. Vladimir Vladimirovich Putin has already done enough for his friends that they can be counted on to advance his interests. It's less likely he feels the need to reciprocate by watching out for theirs.

This post originally appeared on the Market Now blog at Bloomberg.com.

[chumpchangerblog]

Where, Oh Where Are the Plutocrats of Yesteryear?

Just how fast do fortunes grow? Andrew Carnegie started from essentially nothing to become the second-richest man in the United States by the time he’d reached the modern retirement age of 65. John Pierpont Morgan got to the top spot even faster, though he had the advantage of being born into wealth. In our own century, Bill Gates beat them both, becoming the richest man in the world before the age of 40.

If the descendants of Carnegie and Morgan and Gates (who has promised to give most of his wealth away) and Carlos Slim bank their fortunes and let it accumulate over the generations, just how much of the world will they own?

The question comes up now because of one book that has seized the attention of the world of economists and those who interpret them: Thomas Piketty’s "Capital in the 21st Century." The grand summation of the worldwide problem of inequality has gotten a reception that the New York Times’s Jennifer Schuessler describes as “rapturous.”

Together with his frequent collaborator Emmanuel Saez, Piketty has probably done as much as anyone to map wealth and income in the world today. So the encomia are understandable, but as Bloomberg View’s Clive Crook argues, many folks have seem to overlook the leaps from Piketty’s careful scholarship to his big claims. Some of those claims, like Piketty’s accounting of how fast capital expands, seem downright strange.

Which brings us back to that question about how fast fortunes grow. The central claim of Piketty’s book is that the period of diminishing inequality that we saw in the 20th century is a historical aberration, and we are entering a period in which capitalism returns to its natural state of affairs: an increasing concentration of wealth in fewer and fewer hands. That contention is based on a formula that’s fast becoming famous: When the rate of return on capital is greater than the overall growth of the economy -- when r>g, in Piketty’s formula -- wealth becomes progressively more concentrated.

Piketty believes this was the the case through most of history. To illustrate this, he starts off the book with a long, erudite, and charming discussion of Honoré de Balzac and Jane Austen, demonstrating how for many years it was an accepted rule of thumb that owners of land or bonds would see their capital appreciate at a rate of about 5 percent a year.

For Piketty, that 5 percent rate of growth routinely cited by Balzac and Austen is quite close to the mark; his own calculations yield a number somewhere in the 4 or 5 percent range for the period in which they worked. And that, unfortunately, is a lot faster than most economies grow. Some of that capital, of course, gets spent to maintain the lifestyles of the rentiers. But the rest gets reinvested. If the holders of capital manage to reinvest, say, three-fifths of their money (a number that Piketty takes as reasonable assumption), they will see their fortunes grow 3 percent a year. That's much faster than economies expanded through most of history. Actually, it's faster than just about any economy expands except during short and anomalous bursts (like China today or Europe in the period 1950-1980) -- and faster than U.S. and European economies are likely to expand in the next century.

The 5 percent returns on capital that Piketty sees as the historic norm have to come from somewhere. And if the income of the 1% (or really 0.1%) is not coming from economic growth, it has to be coming out of squeezing the share of the 99%. That’s a neat and powerful argument you don’t need to be a professional economist to understand. It hinges, though, on that rate of return on capital, a number that frankly seems hard to support.

On Balzac, let’s defer to Thomas Piketty. But it’s not totally clear that on this subject French novels are more authoritative than Russian plays, in which the position of the rentier is more precarious. Not every landowner could sit back and collect a 5 percent risk-free return on the value of an estate; if that was the case, Anton Chekhov’s Anya and Varya would still be sitting pretty in their cherry orchard.

In addition to the 19th century literary canon, some actual bond returns are relevant. Great Britain forms a very good example here. In the 18th century the British government began issuing bonds that paid interest in perpetuity at the rate of 3.5 percent of face value (Barry Ritholtz has a useful discussion of that). Britain issued more of those “consols” through the 19th century, mostly paying interest of 3 percent and eventually 2.5 percent.

That’s already lower than Piketty’s assumed return, but still very nice for what were perceived as pretty much risk-free bonds (the U.S. Treasuries of their time). The caveat is that after 1913 the return on those bonds would have been seriously clobbered by World War I-era inflation. So if you’d bought the bonds in the mid-1800s you would get a good half century of 3 percent returns, but then see your principle clobbered by inflation.

There were many bonds that offered higher returns than the British consols, but they came with correspondingly higher risk. Coupons on U.S. railroad bonds in the late 18th century hovered around 5 percent (earlier in the century they were somewhat higher). This, though, is by no means a risk-free return. Most of those railroads went bust and eventually defaulted. In the 1870s, railroad bond default rates averaged 6 percent a year -- see this paper -- which would essentially have wiped out any gains for railroad bond holders.

To some folks that must sound like nit-picking. "Capital in the 21st Century" is a heavyweight, so it’s tempting to say, “Hey, look at the big picture here and don’t dawdle over decimal points.”

Maybe it is nit-picking; TMN has been going through Piketty's book more ploddingly than some other journalists. A lot, however, hinges on these percentages. If you think that the historical rate of return on capital was as high as Piketty estimates, then you’re likely to accept Piketty’s r>g formula and see the concentration of wealth as essentially inevitable. In that case, if like Piketty you see that as a problem (as most folks probably do, but certainly not all) then you’re going to focus solutions on redistributing money at the back end, with taxes on wealth, inheritance and capital distributions or other ways of transferring money to those who weren’t born into the rentier class.

If, on the other hand, the long-term risk-free return on capital is lower than Piketty says, then the dynastic accumulation of wealth becomes less of an issue. That’s especially the case if you’re inclined to think that the second- and third-generation wealth tends to develop a propensity for spending (“rags to riches to rags...”) that does much to dissipate those returns on capital.

Without doubt Piketty’s work on measuring income is important. Everybody who thinks about income and inequality seriously -- whether or not they think inequality is a problem -- has to credit Piketty and Emmanuel Saez with describing the facts on the ground. That makes the omission of actual historical data on investment returns in Piketty’s book especially strange.

On the face of it, Piketty’s account of wealth accumulation seems to make assumptions that, from the capitalist's viewpoint, are awfully optimistic. Without more good historical information it’s impossible to be sure of how fast capital is built up. I'm skeptical that it is quite as easy to get the risk-free returns on capital that Piketty imagines. There are plenty of heirs who believe, as Piketty does, that they can comfortably live forever from the interest on their fortunes. A fair number of them wind up broke.

This post originally appeared on the Market Now blog at Bloomberg.com.