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Media Infiltrations: Obama's Social Security Fine Print  The Wall Street Journal June 25, 2008 Commodity-Prices Scapegoats The Wall Street Journal June 3, 2008
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 7:00 pm EDTTuesday, July 1 |
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Chronicle of the Conspiracy
Join us as we discover, document, expose and challenge the bad people, the bad institutions and the bad ideas that stand in the way of wealth creation -- and show you how to fight back!
Friday, January 17, 2003
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The whistle-blower is Columbia professor Glenn Hubbard, on leave to serve as White House economic advisor. Hubbard blew the whistle by daring to say in public that the Bush tax-cuts won't necessarily cause long term interest rates to rise. It doesn't take a genius to see that Hubbard is right -- as federal deficits have risen over the last three years, interest rates have fallen to once-in-a-generation lows. But speaking that truth makes him an economics heretic. Last week I reported that another economics professor, UC Berkeley's Brad DeLong, had found a textbook written by Hubbard that taught the standard "tax-cuts cause deficits that cause interest rates to rise" catechism -- and that's supposed to be some big "gotcha" that makes Hubbard out to be a hypocrite. In reality, Hubbard is just blowing the whistle on academic economics -- indeed, he's stating what should be obvious (to anyone but an academic economist): that the simplistic little formulas in the textbooks may have didactic value as first-order approximations, but they are nearly useless in a real world that is dominated by higher-order effects.
Now in Krugman's column today he's citing DeLong's gotcha. It's just the kind of nasty little spitball Krugman loves to pitch against the Bush team (and it discharges Krugman's logrolling obligations to DeLong, who cites Krugman to the point of plagiarism). But what's the point, really -- that Hubbard is a hypocrite, or that he's wrong? Krugman says, "There are exceptions to economic rules, but someone who suddenly discovers such an exception at the precise moment his political masters need a cover story isn't credible." It's the classic defense attorney trick that's always used to discredit whistle-blowing witnesses so the jury won't even consider the truth of what they're saying -- anyone who'd change sides can't be trusted. No doubt there will be plenty of highly publicized trials in the coming years in which Enron and Worldcom executives will use this very trick against whistle-blowers, and Krugman will damn them for it.
Posted by Donald L. Luskin at 12:46 PM | link
Thursday, January 16, 2003
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The New York Times runs a story this morning on Instapundit, the popular weblog of Glenn Reynolds (a tip of the hat to Glenn, by the way, for running an excellent blog and linking to us frequently). Now Glenn is, shall we say, a good deal more conservative than the New York Times. And he's done his part, along with other blogsters (including me), to make the Times' liberally-biased life as painful as possible. So while the story was in development over the last few weeks, with Times reporters talking to blogsters far and wide to get quotes about Glenn, there had been some anticipation that the story might be a hatchet-job. Well, it's out now -- and even Glenn has to admit that "It's pretty good."
"Pretty good" doesn't capture it. It's "too good" -- the story reads like lifestyle puff, a portrait of Glenn's frenetic day as he multi-tasks through life, squeezing out stolen minutes for his blog. Reading it made me think of the opening credits of the old Mary Tyler Moore Show. Imagine a series of quick-cuts as Glenn dashes home from the University of Tennessee, cooks dinner for his family while tapping out a blog on his laptop, and then throws his hat way up in the air.
The story treats Glenn's blog, basically, as nothing more than a hobby, a pet, a toy. The quaint folly of an eccentric. It's probably the way that internal memos at IBM in the 1970s talked about personal computers. That's the kind of example Clayton Christensen gives in The Innovator's Dilemma, describing the mistakes that fat-and-happy incumbents always seem to make when there's a fundamental new technology that doesn't fit into the way they currently serve their customers.
The Times serves it customers with a high-overhead installed base of reporters, editors, fact checkers, copy-editors, editorial boards -- people and more layers of people, packed in to the gunwales hugging their copies of the Times' 52-page ethics manual, designed to assure that every word published in the New York Times has been filtered through a process that assures that it is "fit to print."
Blogs, on the other hand, are generally produced by individuals with low or no overhead. As just as it is with Glenn, the blog is generally not their day job. The Times thinks that without a process, blogs are inferior brand-X merchandise. In fact the only real criticism offered in the story is precisely along these lines:
"Some bloggers believe that Mr. Reynolds's frenetic pace occasionally causes him to bungle facts or to misrepresent the arguments of the people to whom he is linking.
"'He presents opinions of people who agree with him as facts and distorts the positions of people who disagree with him,' said Martin Wisse, who runs the Progressive Gold blog. 'In short, he poses as an objective journalist when he's not.'"
Let's set aside the irony here. Whether the Times is really objective or not isn't the point. The point is that the Times uses its leadership incumbency to create the brand image that it is objective, or more accurately, authoritative. This whole story is about the Times telling its readers -- and more important, itself -- that whatever these blogs are, they sure ain't authoritative.
No threat. So let's be generous. Let's even mention Andrew Sullivan by name without some epithet like "gay arch-conservative."
But the threat is beginning to add up. No blog individually -- even a highly trafficked one like Glenn's -- can compete with the Times for daily circulation. But if you added up the circulation of all the blogs produced by the same number of people who produce the New York Times, I'll bet it would be a pretty impressive number. As with the PC, it will take years for the new low-end technology to make a difference. But it will. And when it does, that's when the hatchets will come out at the New York Times.
Posted by Donald L. Luskin at 10:31 AM | link
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Yesterday's editorial pages of the Wall Street Journal featured two (count 'em, two) commentaries on the departure of Steve Case as chairman of AOL Time Warner. A colleague pointed out to me that each took a different view of what went wrong, and each made up its own version of history to support its conclusions.
In "Case Closed," John Ellis sees Case's failure as stemming from putting the wrong people in charge.
"Shortly after AOL's acquisition of Time Warner [emphasis added] was announced in January 2000, Time Warner CEO Gerald Levin explained that he had decided to sell because he couldn't figure out how to harness the power of the Internet. He reasoned that by harnessing Time Warner to AOL , a new/old media juggernaut would be born. Shortly after that, Mr. Levin was named chief executive officer of AOL Time Warner. The inherent contradiction of having someone flummoxed by the Internet run a supposedly Internet-driven enterprise struck many observers as emblematic of what ensued."
In "The Music Stops, Again," Holman Jenkins, Jr., wants to make a different point -- that Case was ousted because he made too much money for AOL in the combination with Time Warner.
"Executives get bounced all the time for leading their companies and shareholders into disastrous deals. Mr. Case is getting bounced for cutting too good a deal for shareholders of the former AOL . His Time Warner colleagues can't forgive themselves for buying at the top of the Internet bubble [emphasis added], a regret for which there is no cure."
Who bought whom? Ellis thinks AOL bought Time Warner. Jenkins thinks Time Warner bought AOL.
AOL Time Warner thinks it was a merger. According to their January 11, 2001 press release,
"As a result of the merger, Time Warner and America Online stock will be converted to AOL Time Warner stock [emphasis added] at fixed exchange ratios. The Time Warner shareholders will receive 1.5 shares of AOL Time Warner for each share of Time Warner stock they own. America Online shareholders will receive one share of AOL Time Warner stock for each share of America Online stock they own."
Posted by Donald L. Luskin at 1:40 AM | link
Wednesday, January 15, 2003
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One column talks about the short half-life of grandiose strategic analyses that pretend to offer timeless paradigms in economics and markets. Case in point: the short-lived mania in 2000 and 2001 that government debt was rapidly becoming a thing of the past:
"'By our calculations, the new budget estimates imply the potential elimination of marketable Treasury debt supply outside of central banks by sometime in fiscal 2007,' Goldman economists wrote in 2000, in response to an Office of Management and Budget projection of a cumulative $4.2 trillion surplus for the years 2001-2010.
"So menacing was the idea of the end of the Treasury market as we know it that Federal Reserve Chairman Alan Greenspan turned in his deficit reduction stripes to carry the tax-cut banner for the newly installed Bush administration in January 2001.
"'The time has come, in my judgment, to consider a budgetary strategy that is consistent with a preemptive smoothing of the glide path to zero federal debt or, more realistically, to the level of federal debt that is an effective irreducible minimum,' Greenspan said in testimony to the Senate Budget Committee on Jan. 25, 2001."
Let's just file those under "Y" for "Yeah, right..."
Another Baum column blasts the media or endlessly explaining depressed corporate spending as being caused by the prospect of war with Iraq.
"Most news stories on the outlook for business spending in 2003 come complete with the caveat that investment is being held back because of 'uncertainty surrounding a possible war with Iraq.'
"...A potential war with Iraq may deter building infrastructure in the Middle East. It shouldn't have anything to do with a U.S. company's decision to upgrade its information technology systems, improve the efficiency of manufacturing plants or develop new products.
"If a war in the Middle East leads to a nuclear dark winter, presumably no one will care one whit when a company reports a big quarterly loss, so maybe the possible repercussions from a war aren't the best basis for investment decisions.
"If I had to guess, I'd say some reporter asked a chief financial officer about capital spending plans, the CFO needed an excuse ('improving the bottom line' is suspicious in this post- Enron environment), and it became gospel."
Keep up the good work, Caroline!
Posted by Donald L. Luskin at 1:59 AM | link
Tuesday, January 14, 2003
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The only interesting point Krugman makes this morning is the very last sentence of the column:
"Is this just another clever step on the way to a system in which only the little people pay taxes?"
Anyone who saw Krugman's inaugural appearance on the weekend talks two weeks
ago -- debating Newt Gingrich on ABC's "This Week" with George
Stephanopolos -- must have a pretty good idea who one of those "little
people" might be, and why Krugman is worried that "little people" will be the
ones to be taxed.
I don't want to be nasty about this, so let me just
quote Krugman
himself:
"...perhaps I am just not imposing enough in person to be inspiring (if I were only a few inches taller ...)."
Posted by Donald L. Luskin at 9:25 AM | link
Monday, January 13, 2003
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I can hardly improve on Mickey Kaus' excellent commentary on it today -- it's all just a charade so long as the Times persists in disguising its true identity as "A Crusading Liberal Newspaper" under the rubric "All The News That's Fit To Print." So I'll just comment on the parts of it that pertain to business and economics coverage.
Rule 112 introduces the section on investments and financial ties. "Every member of the Times staff must be constantly vigilant against any appearance that he or she is abusing nonpublic information for financial gain." The actual prohibitions of such abuse come later -- appearances come first (Kaus is right).
Rule 114 says that "No staff member may own stock or have any other financial interest in a company, enterprise or industry the coverage of which he or she regularly provides, edits, packages or supervises..." And Rules 125, 126 and 127 expand this to prohibit staff in key business reporting and commentary positions -- and most senior editors -- from owning any stocks at all other than the New York Times Company.
Of course this is the classic problem of financial conflicts in them media. It's easy enough to prohibit away the conflicts, but in doing so a newspaper filters out most of its capacity to provide analytical excellence. In many cases the best reporters will quit their news jobs and become professional investors -- it's the only way to earn the highest rents on their skills when they are prohibited from investing and reporting at the same time.
The consequence is that the less-than-best reporters are left to cover business news. So you get brainless investment ideas like columnist Gretchen Morgenson recommending the stock of AT&T in a 1999 column as appropriate "for widows and orphans," at a price even higher than when Jack Grubman published his controversial buy rating (and then trying to cover it up in a column last year).
Thank goodness, then, that Rule 41 states that "Staff members may not engage in financial counseling (except in the articles they write)." Actually the Enforcement Division of the Securities and Exchange Commission and state securities regulators ought to take note that the Times is explicitly holding itself out here as offering financial counseling "in the articles." Without such holding out, the Times would enjoy the "publishers' exemption" from advisor registration, as a periodical of general circulation. But, ipso facto, holding one's self out as offering investment advice makes one subject to the advisor registration requirements. Failure to register as an adviser is the violation of law that Tokyo Joe got nailed for. But something tells me that Eliot Spitzer will look the other way in this case -- he always takes care of his friends.
Rule 44 seems to have been written especially for Morgenson. "Staff members may not accept invitations to speak before a single company (for example, the Citicorp executive retreat)." Perfect! Could they have chosen a single corporation less likely to invite a Times reporter? In Morgenson's case, after her ceaseless strident trashing of Citigroup and its CEO Sandy Weill, the only thing that company is likely to invite her to is a gangland-style execution.
Posted by Donald L. Luskin at 11:22 PM | link
PERETZ'S SHARES In my crusade for better financial journalism, my policy is to scrupulously make publish corrections when I have made even a trivial factual error -- and to distribute the correction with the same visibility as the story that contained the original error, and log it in the Corrections section of our Subject Index. Accordingly, I report now that an alert reader noted an error in "TheStreet.com -- Another Suspicious Connection" [1/11/2003].
I incorrectly stated that Martin Peretz
"owns 14% of its outstanding shares (and an entity identified as Peretz
Partners LLC owns another 10%)" of TheStreet.com Inc. In fact,
according to a footnote to the firm's most recent proxy statement, the Peretz
Partners LLC shares are included within the 14%, and should not be considered as
separate additional shares.
Posted by Donald L. Luskin at 1:49 PM | link
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After a week of relentlessly demagoguing the Bush administrations tax plan as a subsidy to "the rich" -- both in editorials and in what should have been straight news stories -- on Friday it ran an op-ed purportedly defending the plan. And whom do you think the Times chose to write it? Larry Lindsey -- the very guy whom President Bush fired as his chief economic advisor last month precisely because he has shown himself to be incompetent to explain the President's economic policies. Nice choice, Howell.
Lindsey's op-ed dutifully lists all the benefits the Bush administration ascribes to its plan -- but everything's just a little, well... off. He spends half his ink summarizing the views of the plan's opponents, and he spends the other half with second-best arguments. It ends up being a form of damning with faint praise. At least he's managed to stop talking about "putting money in people's pockets" -- his standard all-purpose rationale for any economic policy during his White House years. And to Lindsey's credit, at least he had the grace to write the thing at all. Ex-Treasury secretary Paul O'Neill, who was shit-canned at the same time as Lindsey, is obviously still in a snit about it -- he publicly damned the Bush plan with faint damning yesterday. Clearly this is a man who isn't interested in working in Washington ever again (and who can blame him?).
Yesterday there was another opposition op-ed in the Times. This one lacks ad hominem political intrigue, but conceptually it's far more interesting. Titled "The Triumph of Hope Over Self-Interest," it's a think-piece by David Brooks, a senior editor at the conservative political rag, the Weekly Standard, on why American voters don't consistently elect candidates who will raise taxes on "the rich" and redistribute their money to everyone else. What makes this topic so interesting is that it could be rephrased this way: why won't the public follow the unceasing, haranguing urgings of the New York Times to eat the rich?
It's an outstanding question, and if the New York Times ever dared to turn me loose on their op-ed page I'd give them one hell of an answer. But that's not what they want -- they want brownie points for having let the question be asked, but then they want to make sure that the answer doesn't have any impact. And Brooks' answer sure doesn't.
The title says it all. From the beginning Brooks concedes that eating the rich would be the smart thing to do -- the path of "self-interest." Why don't people do it then? There are lots of reasons, but they all boil down to one form or another of "they just don't feel like it."
For example, according to Brooks, it's because Americans are mired in wannabe fantasies.
"People vote their aspirations... Americans read magazines for people more affluent than they are (W, Cigar Aficionado, The New Yorker, Robb Report, Town and Country) because they think that someday they could be that guy with the tastefully appointed horse farm. Democratic politicians proposing to take from the rich are just bashing the dreams of our imminent selves."
But then Brooks offers another equally psychobabbly explanation -- in which he asserts just the opposite view.
"... if you are a middle-class person in most of America, you are not brought into incessant contact with things you can't afford. There aren't Lexus dealerships on every corner. There are no snooty restaurants with water sommeliers to help you sort though the bottled eau selections. You can afford most of the things at
Wal-Mart orKohl's and the occasional meal at the Macaroni Grill. Moreover, it would be socially unacceptable for you to pull up to church in a Jaguar or to hire a caterer for your dinner party anyway."
If these are the reasons why American voters don't eat the rich, then it's just a matter of time until they finally succumb to the repeated urgings of the Times, and then… bon appetit!
Of course I have no idea if these are the reasons -- and neither does Brooks or anyone else (although pundits frequently assert with utter confidence what lurks in the inner lives of 250 million people they've never met). So I can't say he's wrong. But I can say that the reasons he offers aren't the strongest possible reasons.
The strongest possible reasons begin with refuting the premise that eating the rich is not in the self-interest of the non-rich. For the most part, rich people didn't get rich by stealing -- they got rich by creating. And in the process, the non-rich got to enjoy all the stuff that the rich created -- if they didn't enjoy it, how would the rich have gotten rich by creating it in the first place? So it would not be in the self-interest of the non-rich to reduce the incentives for creation to the point where the creators will create less.
And I think the strongest possible reasons would include an argument about fairness. As long as the rich got rich by legitimate means, it's simply not fair to expropriate and redistribute their riches.
As long as we're imagining what 250 million strangers feel, would either of those strongest reasons really be too far a stretch? Not for me. But definitely for the New York Times.
Posted by Donald L. Luskin at 12:16 AM | link
Sunday, January 12, 2003
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Here's how Morgenson brings this new show to the printed page: she just reports the allegations of lawsuits against big US companies as though they were facts. But she goes Judge Judy one better -- instead of just refereeing the plaintiff and the defendant and judging the merits of the case at the end, Morgenson decides in advance that the plaintiff is right and gives him 95% of the airtime. And then to give it the grandiosity necessary for the New York Times, she ties the complaint to the Vast Corporate Conspiracy to screw investors, and blames insufficient regulation for not preventing it.
A month ago Morgenson used this formula to attack Siebel Systems, and she's using it today to attack (once again) Citibank.
It's a great formula. It's guaranteed to generate lots of juicy scandal, because the combatants on both sides will make the strongest possible claims against each other, and say the nastiest possible things. And Morgenson makes it even juicier by giving the plaintiff a megaphone and the defendant a muzzle. And let's not forget that, for Morgenson, this saves all the tedious work of reporting and fact-checking.
Here's how it works in detail
- Start with a sweeping generalization about some way that major US companies always screw investors, and tie it to lax regulation or portray it as a consequence of deregulation..
- Find a lawsuit that has been filed against a major US company that Morgenson doesn't like.
- Recite the plaintiff's charges in detail and uncritically, reminding the reader that these are "according to the lawsuit" every few paragraphs.
- Quote the plaintiff directly and extensively, talking about how he got screwed by the major US company.
- Quote the plaintiff's lawyer directly, talking about how vicious the US company is.
- Don't quote the major US company responding to the charges, just paraphrase him -- briefly and near the bottom of the column -- and make the response sound evasive, technical, or hard-hearted (all three, if possible).
- Follow the defendant's response with a counter-response by the plaintiff, his lawyer, or Morgenson herself picking the defense apart. But don't permit a counter-counter-response from major US company.
- Wrap up, claiming that the foregoing proves the universal truth of the opening generalization about some way that major US companies always screw investors.
In today's episode, the sweeping generalization that starts us off is,
"The laws separating commercial banks from investment firms have only recently been undone, so clients of financial services behemoths are just beginning to see how the inherent conflicts can affect them."
What follows are the details of a lawsuit filed against Citibank by SNS Bank, whom Morgenson identifies as "a midsize commercial bank in the Netherlands." It seems that SNS invested in a fund marketed by Citibank, which suffered big losses in the bear market of recent years. SNS is suing to get its money back.
In Morgenson's version of the suit's allegations, SNS's main complaint is that the was originally managed by an independent advisor, and at some point a new advisor was brought in -- this one a subsidiary of Citibank. Because of the presumed conflict of interest, Morgenson paraphrases, while Citibank fired the independent manager "...for performance reasons, it did not apply the same standard to its own abysmal performance by removing itself."
The conflict of interest allegation is actually the least powerful one mentioned in the column, and one on which the case is unlikely to be decided -- but it gets almost all of Judge Judy's airtime. Far more pivotal are simpler charges -- that Citibank switched managers without giving fund shareholders the opportunity to vote, and that Citibank failed to sell SNS's interest in the fund after it was ordered to do so. But these are objective charges about which facts could be determined -- they don't give the plaintiff as much room for grandstanding, or Morgenson the chance to link the case to grandiose social issues.
Oh -- and reporting on those simpler charges would be more work for Morgenson. She says that Citibank denies that shareholders had the right to vote -- who's right? Morgenson hasn't bothered to find out. How about Citibank's failure to execute the sell order? On that issue Morgenson doesn't even bother to quote Citibank's reaction
Morgenson's already got her Pulitzer. So at this point she doesn't want to do the work required to get at the facts of the case. Now she's going for the Emmy: so she just provides the stage for the nasty claims about subjective matters that don't even constitute a crime, lodged by one bank against another, slanting that stage in favor of the nice little bank against the big mean bank.
And setting herself up as a populist hero, coming to the defense of little investors and midsize commercial banks everywhere. She concludes with what she probably thinks is a real zinger: "Once again: Buyer beware." Reader, too.
The only people who don't have to beware are other journalists. The field for the Pulitzer is wide open.
Posted by Donald L. Luskin at 6:57 PM | link