"The market and the internet don't care if you make money."

Via Andrew Sullivan I came across this really angry comment about the future of book publishing. In it, Seth Godin (Tribes) argues that the book industry needs to adapt - quickly - from being a bunch of people who print and sell books to a group of "marketers and agents and managers and developers of content". Sounds like a cinch. I wonder why newspapers haven't thought of that.

Godin continues that maybe publishers should consider selling books for a dollar, because the audience will purchase them at that price, and let authors make money from "bespoke work and appearances and interactions". (That means, I think, personalized books written on demand for particular groups. I imagine Godin has read The Diamond Age more the once. If you haven't, you should, even though it retails at $10.20 new.)

I don't know enough about the economics of the book industry, and I'm trying to learn more. But I wanted to focus for a moment on Godin's argument (noted in the title to this post) that content providers shouldn't feel entitled to monetizing their talent, simply because they are creating a product that people want. Very true. That said, it is also worth pointing out that entrepreneurs probably won't create until they see a path to making a living from their work. The Grateful Dead model - appearances & interactions - appears to me to be an audacious hope, not a business model. Or to put it another way, if I were a budding author reading Godin's interview, I would put down my pen and go to law school. At least we've got a Guild to protect us from the forces of modernization.

(Image Source: Ezra Cornell's Book, Wikicommons)

Posted by Dave Hoffman at 08:00 PM | Comments (9) | TrackBack

Quick Links on the Google Book Search Deal

Having suggested some conditions for the coming digital library of Alexandria, I should have commented on this Google deal earlier. But I've been way too busy to read the details in the proposed settlement. No one can doubt its importance--as Mike Madison has said, we may be "seeing the early stages of the beginning of the end of copyright law as we know it." Google's side of the story can be found here, and I look forward to reading their and the Authors' Guild account of it. For now, I'm worried by Harvard's decision to criticize the deal and back out of Book Search:

“As we understand it, the settlement contains too many potential limitations on access to and use of the books by members of the higher-education community and by patrons of public libraries,” Harvard’s university-library director, Robert C. Darnton, wrote in a letter to the library staff. He noted that “the settlement provides no assurance that the prices charged for access will be reasonable, especially since the subscription services will have no real competitors [and] the scope of access to the digitized books is in various ways both limited and uncertain.” . . . . “For now,” the statement concluded, “the Harvard University Library will continue to explore other ways to open up its collections more broadly for the common good.”

I had thought that legislation would be an ideal way to assure that Google's aspirations here best served the public interest--and that there would be a long time to think about how to do that well (for example, the Copyright Act of 1976 evolved over at least 16 years). But it now appears that this settlement may govern the dominant means of digital access to and distribution of books for a very long time--and that those who care about these issues will have to organize quickly if they want any input.

Posted by Frank Pasquale at 11:00 AM | Comments (2) | TrackBack

Payday Lenders' Creative Electoral Tactics

Who'd guess that my worries about the political power of the financial sector and Jaya's concerns about misleading ballot initiative wording would converge? Easha Anard reports on the trend:

Payday lenders are spending millions of dollars to back ballot initiatives that challenge state restrictions on their cash-advance practices. . . . [In Arizona], Yes on 200 is financed by the local affiliate of the Community Financial Services Association, a national payday-lending group. . . . . [T]he wording of the ballot initiative suggests it would impose further regulation on payday lenders; in fact, it would roll back much tougher rules. Yes on 200 is promoting the initiative with a counterintuitive strategy: spending money on ads that depict payday lenders as unscrupulous. One ad says, "Arizonans agree: Payday lenders who rip off hard-working Americans need to be stopped," and asks voters to support the ballot initiative.

Now those are people you can trust! No regulation needed for them.

I wonder if Bryan Caplan would consider those who want to regulate payday lending financial illiterates--and approve this "noble lie" as a way of promoting better policy?

Posted by Frank Pasquale at 11:35 PM | Comments (3) | TrackBack

Parasitism, Inc.: A Deficient Markets Hypothesis

Accoring to an article by Jonathan Ford of Prospect, the finance sector gobbled up nearly 35% of total corporate profits in the US and Britain in 2005. As financier-turned-academic Paul Woolley observes in the piece, "There is no economic merit in a sector that makes exceptional profits and devours capital and labour, and then justifies it on the grounds that you can get some 'cash back.'"

Woolley's analysis animates the article and should wake up anyone still complacent about the validity of the "efficient markets hypothesis." Ford points out a cozy revolving door relationship between academics, regulators, and tycoons in high finance. All were complicit in a parasitic reallocation of money from the real economy to speculative games designed to enhance cream-skimming at the top:

While the efficient market idea held sway, academics viewed the expansion of finance with equanimity. . . . Financial instruments always existed for a purpose—such as to pass on risk cheaply and efficiently to the investor best placed or most willing to bear it. If that were not the case these products simply would not exist. More trading was beneficial because it enhanced liquidity, and liquidity lowers costs and promotes efficient pricing.

But, according to Woolley, the scale of derivatives trading should be seen as symptomatic of distorted markets. . . . [M]omentum causes mispricing which in turn creates an insatiable demand for active management. This then spills into the derivatives markets in various ways. For instance, the investor responds to the volatility of the equity market by hedging his risk and buying a put option (giving the right to sell shares at a pre-determined price). The seller of the put protects his own exposure by selling equities. The investor has thus brought about, at a cost, the very event he was seeking to insure against.

Both Ford and Woolley still endorse "market solutions" to the crisis, such as "lengthening the period over which performance is assessed," so that bonuses depend less on quarterly and annual results. Dilip Abreu has proposed similar realignment of incentives for ratings agencies. But I'd like to see more public involvement in investment decisions generally--a move featured in the stimulus plan Timothy Canova has suggested.

I have one quibble with what is an otherwise excellent article. Ford tries to draw a distinction between the productive and the nonproductive economy with an unfortunate example:

Whereas companies such as Microsoft and Google have risen by devising products that have added to the productive capacity of the economy, finance provides no such final good or product. It is a utilitarian mechanism for bringing together savers and borrowers, and this has not changed markedly since the 1960s. . . .

Let's look at Google's profit machine a little more closely. Aren't they, like the finance companies, a middleman? As the Google/Yahoo antitrust hearings suggested, we have little sense of how much of Google's pricing power for text ads in search is driven by innovation, and how much by the brute fact of its control over so much of the relevant audience. (It will have about 90% of the search advertising market in the US if the "joint venture" with Yahoo goes through.) Similarly, Microsoft's fortune was largely built on positive legal decisions regarding the copyrightability of its code (and noncopyrightability of Apple's graphical user interface, which many claim MS copied). It's hard to clearly distinguish between profits driven by sheer innovation and those due to fortuitous network effects or clever lobbying and legal ploys.

This misconception drives Nicholas Thompson's otherwise excellent essay on presidential tech policy as well. Thompson writes:

John McCain is an AT&T guy; Barack Obama is a Google guy. And that’s one of the most important policy differences between the two.

Think of the Internet as working at different layers. There are all the pipes that go into your home, and then there’s all the stuff on your screen—from e-mail to eMule. The telecom companies like AT&T control the pipes; the software companies, like Google, create the stuff. In an ideal world, both these layers would be sites of great innovation and creativity. But in the United States, that isn’t so. The software industry may seem like a team of Gandalfs, constantly producing magic. But the average telecom company resembles Jabba the Hut: it moves slowly and slobbers a lot.

I have no great sympathy for the telecoms. But anyone who cares deeply about net neutrality has to think about dominant carriers and search engines together, as I try to do in this article.

I concede that companies in the finance and internet intermediary sectors have done some great things. But I fear that we have little grasp of exactly what the value of their services is--as opposed to the power they've accumulated via favorable regulation and manipulation of the markets they manage. Even worse, trade secrecy in both sectors may keep us from ever truly getting at the answers to these questions.

Art Credit: El Greco, Christ Driving the Money Changers from the Temple.

Posted by Frank Pasquale at 10:39 PM | Comments (0) | TrackBack

Let the Punishment Fit the Harm

As a recent BBC documentary has suggested, the banking crisis involved incompetence, fraud, or some toxic mix of both. The criminal law is often concerned with the distinction between evil, mental illness, and stupidity, and perhaps those mens rea issues should inform investigations into entities like ratings agencies or investment banks. Yet given the degeneration of corporate ethics, scrutiny of these managers' states of mind might prove as fruitless as it would be endless. The main threat these people now pose is their ongoing undue influence on our political system--for their nonstop cultivation of Congress and the White House has turned out to be the wisest investment they ever made. And the lobbying continues, as intensively as ever.

Nobelist Joseph Stiglitz recognizes the extraordinary injustice of recent events:

Too many bankers and other lenders have been focused on trying to beat the system by getting around accounting and banking regulations (through what is called accounting and regulatory arbitrage). Indeed, with bonuses based on short-term profits, they had every incentive to gamble and connive. And now that there’s a bust, no one is being asked to pay back the hefty bonuses earned during the boom.* On the contrary, even as they are dismissed, those who helped send their firms and the American economy into a tailspin are rewarded with generous severance packages. They are enriched regardless of what happens to investors, homeowners, and others who lost so much. Unless we reform incentives, the financial sector will only try to circumvent whatever new regulations are put in place.

Having made so many others financially insecure, those who grabbed while the getting was good are relatively even better positioned to fund campaigns and the 527s now scurrying to stop a Democratic supermajority. One wonders, for instance, why the British plan to prop up their banking sector demanded a 12% rate of return for taxpayers and influence over the use of funds while the US plan only generally demands 5% and offers government little more than moral suasion over how the funds are allocated.

(And that moral suasion isn't working too well--Morgan Stanley appears to be set to give out even more bonuses, and it's by no means clear that a big proportion of the US bailout won't be squandered on massive executive compensation, dividends, and mergers.)

One hope here is that as fraud cases accumulate, some sort of settlement will be reached to help stop the pattern of socialized risk and privatized gain. Just as Fannie and Freddie were forbidden to lobby, Wall Streeters' ongoing efforts to skew the bailout in their favor should lead to scrutiny of their political spending. Given the crisis, outright bans on their political spending might be considered, First Amendment considerations notwithstanding--as Judge Posner never fails to remind us, the constitution is not a suicide pact. Corrective justice also suggests we spend less time waving the threat of prison at those investigated, and more on crafting settlements that recover for the public purse some portion of the billions of dollars of bonuses this fraudulent paper generated. If we fail to do that, Madeleine Bunting's indictment of the system will only ring more true:

Those who will pay the heaviest price for the foolhardiness of deregulated financial capitalism are among those who are least responsible, as Brazil's President Lula angrily pointed out last week. The shockwaves of the west's banking crisis will shipwreck more vulnerable countries. In developing countries, people don't have the resources - welfare provision, savings, insurance - to tide them over a crisis. Instead, they go hungry, homeless - and they die.

Those who made fortunes creating this mess deserve to pay for cleaning it up. And before such an idea is dismissed as hopelessly complex to implement, perhaps we should consider re-assigning the IRS agents now charged with scrutinizing, Inspector Javert style, some EITC recipients' hundreds of dollars of fraud, to the investigation of the real basis of Wall Street's hundreds of millions of dollars of wealth.

*After Stiglitz's piece went to press, NYAG Andrew Cuomo started investigating AIG, in an action that could be a model here.

Posted by Frank Pasquale at 09:58 PM | Comments (8) | TrackBack

The Manicures Don't Matter; the Campaign Contributions Do

There are going to be more shocking revelations of Wall Street decadence in coming weeks; AIG's managers' manicures are just the beginning. While not yet demagogic, this focus obscures the real story of our ongoing economic collapse: the self-reinforcing cycle of money and favors that led to disastrous policy choices not to regulate the finance industry more. Ellen Miller of the Sunlight Foundation has summarized the process: "the finance, insurance and real estate (FIRE) industries that collectively are at the center of the current crisis are the single largest sector–by far–of all the major economic and interest groupings that give campaign contributions to federal politicians." Here is Larry Makinson's visualization (if you like Edward Tufte, you'll love this):

In media prone to parrot compartmentalized "experts," these relationships between economics and politics are rarely in the foreground. It was refreshing to hear Danny Schechter make the connection on the Tom Ashbrook show when an apologist for laissez-faire started talking about how important a government policy of increasing homeownership was to the current crisis. Schechter simply asked: who lobbied for that policy? or for no regulation of derivatives? or for the SEC's oxymoronic "self-regulation?"

Anyone with a nodding acquaintance with Charles Lindblom's Politics and Markets (or Owen Fiss's Why the State) understands the problem of circularity--the intimate interconnection of political and economic elites. Real campaign finance reform would help break down those ties. As it stands, Wall Street titans can use the tens of millions of dollars they earned in the "boom" to influence policy during the bust--and can count on the Supreme Court to slap down any "millionaire's amendments" that could retard that process.

As we reap the whirlwind of years of conspicuous consumption and positional competition, we may want to consult the thought of Thorstein Veblen, who never cordoned off economic thought from the types of political and psychological analyses necessary to understand flows of money and power:

[A] prime theme (or principle) of Veblen’s is that of institutional holism, which is advanced in various ways in all his works, but . . . especially in The Theory of the Leisure Class (1899). Central to holism is the need to study the interplay of social, political, and psychological factors in the determination of economic processes. Economics is part of an open system, with determination including values, beliefs, individuals, institutions, social behaviours and human-centred aspects of the provisioning process. Every aspect of economics, in this view, needs to be situated within a broad framework of reference in order to comprehend adequately the nature of the processes in motion and to recognise the element of novelty and creativity that are prime factors in change (along with blind drift).

At least we can now recognize where the "blind drift" of a politics mastered by market forces has led us.

Posted by Frank Pasquale at 06:00 PM | Comments (2) | TrackBack

Deregulatory Fundamentalism at OCC,OTS, and SCOTUS

Jonathan Lipson's superb post on the credit crisis reminded me of my colleague Linda Fisher's work to stop predatory lending in New Jersey. She and allies worked hard to get the state to investigate and end abusive practices. . . only to run into President Bush's Office of the Comptroller of Currency and Office of Thrift Supervision. Both entites feverishly preempted state efforts to stop the worst practices of subprime lenders. The preemption program came to fruition in early 2004. Supreme Court, Inc. then went on to validate more radical deregulatory maneuvers in Watters v. Wachovia. I'm sure Wachovia shareholders are now deeply grateful to the Administration and its friends at SCOTUS for sparing them the burdensome regs that might have prevented Wachovia's near collapse.

Back in mid-2004, the Center for Responsible Lending warned that OCC demonstrated "significant bias in its review of research conducted on the impact of anti-predatory lending laws", "ignor[ing] compelling research in favor of uncritical acceptance of flawed research that supported the OCC’s position." As Martin Eakes testified before Congress,

[T]he OCC’s expansive interpretation of the standard for federal preemption dramatically alter[ed] the . . . partnership between the federal government and the states in promoting a dual-banking system and in protecting the nation’s consumers. Rather than help to support the fight against predatory lending, the OCC has used strong rhetoric, biased research, and contorted legal analysis to undermine effective state efforts to combat predatory lending without cutting off access to credit.

I used to think that deregulatory fundamentalism "merely" undermined the legal profession and its larger purpose of promoting fairness and equity. The subprime meltdown shows that the consequences are even starker--that the fraudsters who've gotten a free pass from regulators for so long have rendered the entire financial system as fragile as the sham deals and entities they promoted.

Posted by Frank Pasquale at 09:13 PM | Comments (2) | TrackBack

Thinking Through a Crisis

I'm trying to think through the larger lessons of the current economic turmoil. Though I can't get to them immediately, these books are on the reading pile:

David A. Moss, When All Else Fails: Government as the Ultimate Risk Manager.
Frank Partnoy, Infectious Greed: How Deceit and Risk Corrupted the Financial Markets.
Robert Brenner, The Boom and the Bubble: The US in the World Economy.
Sheldon Wolin, Democracy Incorporated.

In the meantime, this interview with John Bogle is interesting, as is this with Gretchen Morgenstern.

Any other book/article recommendations from readers?

Posted by Frank Pasquale at 04:27 PM | Comments (7) | TrackBack

I'd Like to Buy the World a Coase

You can find some wonderful things on SSRN. Here's a paper that sounds like a plan for world peace:

I show that in a true Coasean world - a world with no transaction costs - there would be no disagreement on moral questions. . . . There would be no disagreement on the question of capital punishment or abortion.

I'd like to buy the world a Coase, too . . . . or at least improve education. As the world approaches DeLillan surreality, perhaps it's time to send in the clowns.

Posted by Frank Pasquale at 03:50 PM | Comments (6) | TrackBack

On the Simultaneous Necessity and Impossibility of Deeper Analysis of the Speculative Economy

I'll be off the blog the next week or so finishing a book chapter and doing a conference. But I wanted to make one final note on the blitzkrieg bailout bill.

This bailout has people all over the ideological spectrum feeling queasy. Conservative republicans call it socialism; progressives are deeming it crony capitalism at its worst. It may well end up being none of these things, if it is well-administered and we follow something akin to the Swedish model of demanding equity stakes in the bailed out companies (and here's another possible precedent). However, the fire-drill manner in which we're doing this inevitably brings to mind Chris Hoofnagle's dark portrait of deregulationism in The Denialist Deck of Cards--the sinking feeling that power brokers will tell us "there's no need for regulation" when times are good, and "no time to figure out good regulation" when the inevitable emergency materializes.

But even more disheartening to me is the fact that we may be missing an opportunity to fundamentally rethink how we measure the performance of the economy.

Consider this squib from Jeffrey Sachs, calling on the government to "bailout the poor:"

The UN meetings [this week] were abuzz that the US could find $700bn for a bail-out of its corrupt and errant banks but couldn't find a small fraction of that for the world's poor and dying. It didn't make sense to the world community. The puzzlement was all the greater since the very banks being bailed out so generously had awarded themselves more than $30bn in bonuses early this year, roughly the world's entire aid budget for 800m people in sub-Saharan Africa.

And here's a perspective from Joshua Holland:

[T]he powerhouses of the global economy -- the United States, Europe, Japan and the "Asian Tigers" -- have given woefully low priority to economic development in the rest of the world. They've essentially relegated it to NGOs and an underfunded United Nations. . . .That's left much of the rest of the world's population (and this includes people in the wealthiest countries as well as the poorest) with barely enough money to feed their families, much less buy [other goods].

According to the UN, 80 percent of the people on the planet live on $10 dollars a day or less, and they're not going to take many flights on Boeing's shiny new airplane, buy GE's dishwashers or use Nortel's broadband. Over just the past two years, the number of people living on the "edge of emergency" -- in imminent danger of starvation or death from disease epidemics -- has doubled, zooming from 110 million people to 220 million.

I fully expect that this bailout will be funded (at least in part) with more loans from China. How does that money accumulate? When you look underneath the glittering skyscrapers in Hong Kong and Shanghai, the distributive realities are not that pretty:

China’s savings rate is a staggering 50 percent, which is probably unprecedented in any country in peacetime. This doesn’t mean that the average family is saving half of its earnings—though the personal savings rate in China is also very high. . . . China’s government imposes an unbelievably high savings rate on its people. The result, while very complicated, is to keep the buying power earned through China’s exports out of the hands of Chinese consumers as a whole. . . .

[W]hy is China shipping its money to America? An economist would describe the oddity by saying that China has by far the highest national savings in the world. This sounds admirable, but when taken to an extreme—as in China—it indicates an economy out of sync with the rest of the world, and one that is deliberately keeping its own people’s living standards lower than they could be. For comparison, India’s savings rate is about 25 percent, which in effect means that India’s people consume 75 percent of what they collectively produce. . . . Recently, America’s has at times been below zero, which means that it consumes, via imports, more than it makes.

China as a whole is unbelievably short on many of the things that qualify countries as fully developed. Shanghai has about the same climate as Washington, D.C.—and its public schools have no heating. (Go to a classroom when it’s cold, and you’ll see 40 children, all in their winter jackets, their breath forming clouds in the air.) Beijing is more like Boston. On winter nights, thousands of people mass along the curbsides of major thoroughfares, enduring long waits and fighting their way onto hopelessly overcrowded public buses that then spend hours stuck on jammed roads. And these are the showcase cities!

I fear that the more deeply one contemplates these flows of money, the more worried one has to be a) about their long (or even medium-) term stability, b) the fairness of it, and c) the authoritarian foundations (in China) of a go-go, free market economy in the US. Real wages have declined over the past 7 years (even as productivity has gone up), and that gap has largely been "made up for" in borrowing. That borrowing is in turn largely predicated on the forced savings of tens of millions of Chinese.

So in the end, we may pride ourselves on a bailout that keeps credit flowing by propping up a private banking system. But that privatization of our collective priorities (consider how unthinkable a $700 bn health care bailout, or school bailout, or infrastructure bailout would be) is merely a mirage of the Hayekian ideal of bottom-up, atomistic decisionmaking. Yes, individual banks and citizens will get to decide on whether to buy SUV's, rather than having some "authoritarian" intervention to improve public transit. But the credit that makes that possible may well represent a mortgaging of our collective future to some of the most authoritarian regimes on earth.

PS: Yes, the title was inspired by commentary on another great transition in contemporary times; see Jon Elster, "The Necessity and Impossibility of Simultaneous Economic and Political Reform," in Greenberg, ed., Constitutionalism and Democracy.

Hat Tip: Michael Froomkin.

Posted by Frank Pasquale at 10:30 AM | Comments (0) | TrackBack

Naked Shorts on Intrade

Nate Silver has a really interesting post up about the Intrade futures market behavior with respect to the Presidential election. He notices that someone is shorting Obama contracts at regular intervals, and pumping up Hillary Clinton's contract at the same time:

Most likely, this is just some idiot degenerate gambler who is trying to have some fun. Between the Obama and McCain contracts, there appears to be about $400,000 in contracts changing hands every day, which is a lot by Main Street standards, but minuscule by either Vegas or Wall Street Standards ... the trades seem to be occurring at exactly the same times. So someone is betting on some sort of disqualifying event happening to Obama.

If true, the market would be effectively showing the value of naked short selling - uncovering important, value-relevant, information. Of course, as the comment thread (which is amazingly good) has thrashed out, it's more likely the pattern is an artifact of the site's artificially low rate of return on winning bids on the favorite. The post, and the comments, are worth your time.

Posted by Dave Hoffman at 09:08 AM | Comments (1) | TrackBack

Marcy Kaptur Lays Down the Law

This is an outstanding commentary on the bailout:

Are other politicians going to recognize the deeper structural roots of the present problems in financial markets? Simply printing more money is not an option:

The size of the bailout, analysts said, has focused attention on just how much debt the United States can handle without being forced to raise taxes or make sharp cutbacks in government spending. Peter Schiff, [commented on] the fear of inflation provoked by the $700 billion plan . . . . "Where's the tax increase to fund this bailout? Where is the cut in programs? The government's not doing either -- they're just going to print money," he said. "And if you think inflation is the answer, take a trip to Zimbabwe and see how it's working for them."

And yet it looks as if we are about to be stampeded again.

UPDATE: David Bernstein has interesting insights on the homebuilding industry's plea for a bailout--including CEO compensation figures at some leading firms in 2005. Does anyone have leads on estimates of the average level of compensation (for the past three to five years) among the top 100 earners at the large financial institutions about to be bailed out?

Posted by Frank Pasquale at 08:29 PM | Comments (8) | TrackBack

Some Skeptical Questions About the Bailout

A group of my colleagues and I have been discussing the bailout in email. One of them, impeccably centrist, has raised some fundamental objections to the plan that I wanted to share with a wider audience. With his permission, I reprint them below.

1) The Treasury is proposing to buy assets that no one knows how to value. Perhaps it is a deal like Alaska [aka Seward's Folly], where the government can pick up assets at bargain basement prices from distressed sellers. On this theory, the derivatives (and presumably the underlying mortgages and houses) are worth more than the irrationally fearful market realizes.

But why do we have any reason to believe that the market isn't valuing these assets correctly? In fact, given the absence of a market for these assets, isn't their fair market value effectively zero, so that paying anything is overpaying? To my mind, housing is still overpriced, and it sounds to me like the Treasury is planning to pay more for the derivative assets than they are worth.

2) I understand the concern that simply allowing those who hold the derivatives to take their lumps would mean that credit would freeze up (and had frozen up) because of the interlocking credit swaps and other agreements that would trigger the obligation to post additional collateral. But if the problem is credit drying up even for good loans, why wouldn't it make more sense for the government to make those good loans? Surely it would cost less for the government to make good loans (if they are good loans, the government should make money on them) than to buy apparently worthless assets, no? And if the problem is a cascade of margin calls, why not abrogate (or put a moratorium on) the enforcement of those margin calls?

3) If the real concern is that we need to reassure foreign lenders so that we can keep borrowing from them, it seems to me that we need to stop such borrowing and stop living beyond our means. The Treasury's plan seems a junkie manuevering for another fix, when what he needs is drug rehab, if not cold turkey. (And what would happen -- really -- if we simply repudiated foreign debt? Isn't that where we are headed in the long run if we continue down our current path?)

4) If the Paulson plan is the best we can do, we can at least attempt to privatize the loss as much as possible by imposing retroactive taxes on those who made money getting us into this mess in the first place. Why shouldn't the money for the bailout come from those who profited from it?

5) Whenever I hear someone talking about the need to restore confidence to the market, I worry that the market needs -- not so much more confidence -- but rather more reality. And I recall that we have a name for people who seek to build confidence where it is unwarranted: con men.

I used to think that people running these institutions knew far more about what they were doing than I did. But I am increasingly thinking that they don't really know what they are doing. . . .

I think these are all fair questions. I'm going to try to discuss more of the distributional implications of the US's 2 billion dollar a day current account deficit in a future post. For now, we need to realize (as a Nobelist reminds us) that an ungodly amount of American "financial innovation" was little more than a Ponzi Scheme:

America's financial system failed in its two crucial responsibilities: managing risk and allocating capital. The industry as a whole has not been doing what it should be doing - for instance creating products that help Americans manage critical risks, such as staying in their homes when interest rates rise or house prices fall - and it must now face change in its regulatory structures. Regrettably, many of the worst elements of the US financial system - toxic mortgages and the practices that led to them - were exported to the rest of the world.

It was all done in the name of innovation, and any regulatory initiative was fought away with claims that it would suppress that innovation. They were innovating, all right, but not in ways that made the economy stronger. Some of America's best and brightest were devoting their talents to getting around standards and regulations designed to ensure the efficiency of the economy and the safety of the banking system. Unfortunately, they were far too successful, and we are all - homeowners, workers, investors, taxpayers - paying the price.

Posted by Frank Pasquale at 10:47 PM | Comments (4) | TrackBack

The Greed Rolls On

One of the sticking points in the uberbailout negotiations is whether there will be "limits on executive compensation at firms taking advantage of" the government's largesse. Treasury Secretary Hank Paulson is apparently battling against such intrusive government intervention. I wonder why? Maybe his personal fortune of $500 million is having some influence. I mean, isn't that the purpose of the financial system: to create centimillionaires?

Some allege that Paulson didn't deign to worry about subprime until his pals started hurting. He's apparently now on the frontlines battling for their right to keep amassing vast fortunes. Luigi Zingales calls out the audacity here:

The Paulson RTC will buy toxic assets at inflated prices, thereby creating a charitable institution that provides welfare to the rich—at the taxpayers’ expense. If this subsidy is large enough, it will succeed in stopping the crisis. But, again, at what price? The answer: Billions of dollars in taxpayer money and, even worse, the violation of the fundamental capitalist principle that she who reaps the gains also bears the losses.

Compare Paulson's overweening solicitude for the fortunes of the wealthiest with this proposal from Chuck Collins of The Nation:

The corporations that rigged the casino economy and the wealthy CEOs and investors that profited at everyone else's expense should bear the recovery costs, not our kids and grandchildren. . . . Lehman CEO Richard Fuld is sitting pretty, with his $354 million compensation from the last five years and a mega-mansion in Greenwich, Connecticut. . . .

When a CEO or employee improperly takes money from a company and is forced to pay it back, it is colorfully referred to as "disgorgement." In 1999, managers of Compaq Computer cooked the books and gorged on bonuses based on misrepresented profits. The government forced them to pay it back.

Collins proposes "six actions that will fairly generate over $400 billion a year to pay for a broad-based economic recovery and reduce the extreme inequalities that fueled speculation at the outset."

Collins links to reports from the Institute for Policy Studies and United for a Fair Economy on ways of raising the revenue necessary for getting us out of the mess we're in now. Eisenhower-style 91% marginal rates are looking mighty appropriate now for all those "financial innovators" who pioneer "investment strategies" (i.e., frauds) too complex for regulators to understand.

UPDATE: Here's Bill Kristol:

[I]s the administration’s proposal the right way to do this? It would enable the Treasury, without Congressionally approved guidelines as to pricing or procedure, to purchase hundreds of billions of dollars of financial assets, and hire private firms to manage and sell them, presumably at their discretion There are no provisions for — or even promises of — disclosure, accountability or transparency. Surely Congress can at least ask some hard questions about such an open-ended commitment.

Only a fantastically bad plan could unite Kristol, Paul, Krugman, and The Nation on a given day.

Posted by Frank Pasquale at 10:02 PM | Comments (0) | TrackBack

Should the Uber-Bailout be Unreviewable?

Both Jack Balkin and Glenn Greenwald point out a disturbing aspect of the draft bailout plan: its provision that "Decisions by the Secretary pursuant to the authority of this Act are . . . committed to agency discretion, and may not be reviewed by any court of law or any administrative agency." Balkin raises many troubling possibilities:

Oversight and regulations of public contracts are designed to prevent malfeasance, corruption, self-dealing and conflicts of interest in the distribution of federal monies. The Administration wishes to dispense with all of these restraints and precautions, just as it sought to run the Iraq war on no-bid contracts. That was bad enough, but here the dangers of bad deals and conflicts of interest are staggering. The Secretary is asking for authority to bail out Wall Street and enter into negotiations with financiers who include important parts of the political and financial base of the Republican Party. . . .

Put differently, the Administration wants the Secretary to take over a sizable chunk of the nation's capital and insurance markets, and run them as a firm. It is a merger of public power and private capital that would have made a 1930s advocate of state corporatism proud. And because the Secretary's power is effectively unreviewable, he can make sweetheart deals with any or all of the firms and financiers that got us into this mess, providing handsome compensation packages to outgoing executives or, in the alternative, bring these failures into the government to run the new grand public/private business enterprise.

Admittedly, financial reporting has encouraged us to see the policy here as essentially being made on the fly by a group of three, including the Federal Reserve Chairman (Ben Bernanke) and the President of the New York Fed. I will leave it to scholars of Roman history to explain how much better a triumvirate functioned than consuls or emperors. . . .

Greenwald is shocked, and notes that "all of this was both foreseeable as well as foreseen . . . and it's also happened before, when the Federal Government bailed out the S&L industry that (with John McCain's help [to friends like Charles Keating]) was able to gamble recklessly and then force the country to protect them from their losses." Perhaps we are to believe that the new uber-agency will have on hand a stable of honest brokers and technical economists capable of better handling contingencies they overlooked in the past. However, Nassim Nicholas Taleb raises some doubts by analogizing "experts'" misuse of statistics to a homelier anecdote:

[Example 1:] A Turkey is fed for a 1000 days—every days confirms to its statistical department that the human race cares about its welfare "with increased statistical significance". On the 1001st day, the turkey has a surprise.

[Example 2:] The banking system (betting AGAINST rare events [by observing ever-rising profits at firms that peddled CDO's, derivatives, and other exotic financial instruments]) just lost > 1 Trillion dollars (so far) on a single error, more than was ever earned in the history of banking. Yet bankers kept their previous bonuses and it looks like citizens have to foot the bills. And one Professor Ben Bernanke pronounced right before the blowup that we live in an era of stability and "great moderation" (he is now piloting a plane and we all are passengers on it).

I am not an expert on these markets, and I can't say with any certainty whether this plan will work. However, one thing that is very clear to me is that leading news outlets (asleep at the wheel for so long, and apparently even now likely to hire those bored by the whole affair) need to start focusing on the distributional consequences of whatever bailout occurs. Greenwald's perspective here is invaluable:

The headline in the largest Brazilian newspaper this week was: "Capitalist Socialism??" and articles all week have questioned. . . whether [the US just] . . . ushered in some perverse form of "socialism" where industries are nationalized and massive debt imposed on workers in order to protect the wealthiest. . . .

Can anyone point to any discussion of what the implications are for having the Federal Government seize control of the largest and most powerful insurance company in the country, as well as virtually the entire mortgage industry and other key swaths of financial services? Haven't we heard all these years that national health care was an extremely risky and dangerous undertaking because of what happens when the Federal Government gets too involved in an industry?

Apparently bailouts for well-heeled brokers are quite attractive to this administration. . . .help to kids without health care, not so much. As I noted after the Bear Sterns bailout, the $30 billion spent on that firm alone would have covered 4 million more children with heatlh insurance.

Greenwald asks "How can these bailouts not at least be categorically conditioned on the disgorgement of ill-gotten gains from those who are responsible?" Unfortunately, for the Grover Norquists of the world, the bailouts may actually be functional--they drain billions of dollars out of the treasury that might have once gone to intrusive, socialistic programs like Medicare or SCHIP expansions. . . .or truly dreadful ideas like adequately paying the ever-shrinking number of dentists who take Medicaid.

Given the three trillion dollars dedicated to Iraq, and the new trillion now reserved for this bailout, it appears that executive branch policymakers have moved from a "starve the beast" strategy to an "exhaust the beast" reality. I had once thought that using "beast" as a metaphor for the state was a diabolical rhetorical device for reifying the old bromide "government is not the solution, government is the problem." But the more one considers the distributional consequences of the "predator state's" interventions in the financial markets, the more appropriate that figure of speech may be. In other words, Norquist's characterization of the state as a beast was a self-fulfilling prophecy--fulfilled by his own disciples.

UPDATE: Given the relevance of L. Randall Wray's review of Galbraith's The Predator State (in the Journal of Economic Issues) to the current situation, it makes sense to quote it:

[Galbraith] provides a careful analysis of the frontline battles on many of the most important issues--Social Security, health care, inequality, immigration, security after 9-11, trade and outsourcing, and global warming—showing how “market solutions” are designed to enrich a favored oligarchy through a spoils system administered through the state’s structure. The policy “mistakes” in Iraq or New Orleans or at Bear-Stearns do not result from incompetence—indeed they only appear to be failures because we apply inappropriate measures of success. There is no common good, no public purpose, no shareholder’s interest; we are the prey and governments as well as corporations are run by and for predators. . . .

There is a way out, but it is not easy. Historically, regulation and standards have required acceptance by progressive business—those firms that recognized they would lose in races to the bottom.

Let's hope that some responsible companies in the financial world can play the same advocacy role that Safeway has been playing in health policy. As G. Richard Shell has noted, progressive businesses need to learn to make the rules--or their rivals will.

Posted by Frank Pasquale at 10:59 AM | Comments (3) | TrackBack

A Billion Here, A Billion There. . . .

I appreciate Nate's effort to bring home the enormousness of the numbers now routinely thrown around in discussions of the financial crisis. Serendipitously, I happened upon this language from Phyllis Tickle in her book, Greed:

In 1998 a billion dollars was the total lifetime output of 20,000 American workers; and every billionaire absorbed the entire cradle-to-grave productive life of another 20,000 of his fellow citizens every time he grew his fortune by another billion.

As Brad Delong notes, "Not even the richest of the pre-Civil War southern slaveholders disposed of that much property."

As deregulatory delusions come crashing up against the reality of reckless speculation on Wall Street, we might want to reconsider exactly what our financial system has been designed for. Channeling investment to productive purposes? Stability and transparency? Or providing opportunities for decimillionaires to become centimillionaires and centimillionaires to become billionaires?

The system unfailingly provided ever-expanding bonuses to Wall Street traders during the boom years. I hope that those who blame their "unbridled greed" for the mess propose to tax the wealth it brought in order to help pay for the endless bailouts we apparently are now obliged to finance. But I'm not holding my breath.

Posted by Frank Pasquale at 09:54 PM | Comments (1) | TrackBack

Invasion of the Credit Cards

It is pretty easy to find dire statistics about credit cards in America. Frankly, the financial puritan in me likes it when I see another news story denouncing over-leveraged American consumers and the sad erosion of thrift and delayed gratification. Bring on the jeremiads! On the other hand, I realize that there is an important sense in which these statistics are misleading.

This week in my Article 9 class we went over the rules governing security interests in consumer purchases. The interesting thing about this material is that the standard hypothetical -- I buy a refrigerator on credit from the department store -- is an anachronism. Today, if I am going to finance the purchase of a big-ticket consumer good, I don't get a loan from the J.C.Penny finance department. I charge it. Indeed, even if Target or Home Depot wants to finance my purchase I don't go to the lending office at the back of the store. I get a Target credit card. Of course, some of these charge cards -- I am told -- claim a security interest in the goods purchased with them. On the other hand, I suspect that the Walker-Thomas days of a retailer who repos the cross-collateralized big stereo sets are as obsolete as, well, big stereo sets. In other words, we now have more credit card debt in part because credit cards have replaced virtually all other forms of consumer finance.

This, of course, makes economic sense as well. The biggest benefit of secured credit does not come from the reduction of risk. Miller and Modigliani long ago taught us to be skeptical of this story. The unsecured creditors ought adjust their interest rates to accommodate the risk created by secured creditors and the over all effect on the cost of capital will be a wash. Of course, this is far from entirely true -- there are non-adjusting creditors like tort victims and trade creditors. On the other hand, I'm skeptical that secured credit exists mainly as a vehicle for lowering financing costs through increases in risky behavior.

Rather, the story on secured credit is that it reduces monitoring costs by providing a legal technology that reduces the need for creditors to constantly watch their debtors' every move. Credit cards are also based on monitoring technology, but in their case the technology is . . . well . . . technology, in particular, computers, low-cost credit reporting, and the law of large numbers. In other words, the information technology of credit cards is a substitution for the legal technology of secured credit, and on many fronts it seems that legal technology is losing the race. Hence -- at least in part -- the rise in credit card debt.

It would seem, however, that credit cards may be moving in to replace not only the old consumer finance departments, but now ordinary commercial lending as well. According to the NYT:

Just as the slowing economy has made access to cash a higher priority for a lot of small businesses, banks have become more reluctant to extend traditional lines of credit to those businesses, experts say. But banks have been offering “small business” credit cards.

Bank cards and lines of credit both offer money when it is needed, but there is a fundamental difference: lines of credit have low, fixed interest rates or slow-moving, variable ones, while interest rates on credit cards can jump unpredictably.

Hardly an encouraging trend, although I suspect that the unpredictability of credit cards can be overstated. To be sure, if you miss your payments regularlly the combination of changing interest rates, penalty fees, and the like gets very bewildering very fast. On the other hand, if you are a good credit risk that subprime-spooked banks just won't lend to, then credit cards may not be a horrible way of providing short term liquidity. Longer term credit card loans, however, get my inner puritan fired up.

Posted by Nate Oman at 11:08 AM | Comments (0) | TrackBack

Occupational Hazards: Lawyers and Economists

My thanks to Dan Solove for inviting me to be a guest blogger on Concurring Opinions this month, providing an additional outlet for my blogging interests beyond my usual gig on Dorf on Law. As a way of introducing myself, I thought I would answer the question that virtually every law professor has asked me since I migrated from being an economics professor to a law professor: What is different about economists and lawyers?

The question, of course, invites generalities and over-simplifications -- an invitation that I do not decline when asked the question and will certainly not decline here. Admitting that there are a million exceptions to every rule, I do believe that there is one predictable type of error toward which legal training seems to push people, and there is a different error toward which economics training tends to push other people. To put the point slightly differently, lawyers and economists have very different tendencies when approaching a problem or a question. These tendencies, or occupational hazards, can of course be overcome. Still, I have found them to be surprisingly reliable traits of the two professional minds. To put my answer simply: Lawyers look for black-and-white answers, while economists too often forget the limitations of their models.

First, the lawyers. Time and again, I find that lawyers, law professors, and (especially) law students will look at a possible answer to a problem and say: "Well, that won't solve the problem." For example, if I were to suggest that it would be a good idea to decrease class sizes in public schools, my stereotypical lawyer will say: "Well, that won't solve the problem. Even with smaller classes, kids in poor schools will still do worse than kids in rich schools." The lawyer might be right about that, but the economist in me immediately says: "So what? Even if I can't fix the problem entirely, can I make a decent dent in the problem at an acceptable cost?"

Economics trains people to think in terms of marginal impacts, with the default mental exercise (conscious or not) being a multivariate equation with a set of explanatory variables. If one right-hand-side variable changes, what happens to the left-hand-side variable? This habit of mind strongly resists the temptation to expect too much of any particular solution. Legal scholars know this problem as "allowing the perfect to be the enemy of the good," demonstrating that the basic idea does cross disciplinary boundaries. Again, however, we are talking about tendencies here, not absolutes.

A few years ago, in a session at AALS, I offered a variation on this observation about the absolutism of lawyers. Afterward, Professor Tamar Frankel of BU Law School suggested to me that the reason for the legal tilt toward all-or-nothing answers is that the basic concepts in law are guilt or innocence, liability or no liability. Lawyers are trained to argue that their client is right, not partially right. I suspect that Professor Frankel is correct that this explains a great deal of what I've observed over the years. In any case, I would be very interested to know whether or not the experiences of Concurring Opinions readers support my observations about this occupational hazard and, if so, if other explanations come to mind.

Now, the economists. The central tool of economic thinking is the simplified model. Boil the myriad complications of the world down to a limited set of variables that seem to capture the essence of what we want to understand, try to understand how the variables interact, and see if we can make predictions or give reasonable policy advice. The very power of that approach, however, sometimes (often?) leads to the tendency to treat a model as if it is the reality. Two very different examples will, I hope, make clear what I have in mind.

(1) At a tax workshop several years ago, in the context of a discussion of progressivity and regressivity, a participant noted a then-recent news story in which a Nokia executive in Finland had received a speeding ticket that carried a fine of more than $100,000. The amount of the fine, if I recall correctly, was set by law as a percentage of the violator's income rather than a set number of euros. An economist in the room objected that this was an inefficient way to set the fines, because the harm of speeding was not correlated with the driver's income. A law student replied that the harm of speeding might not be the only harm that policymakers cared about. They might put a positive value on the idea that people -- no matter how wealthy -- should not be able to easily buy their way out of socially acceptable behavior. Expanding the social welfare function, in other words, to reflect positive utility arising from greater social equality could support such a penalty regime.

This student's suggestion, of course, is not the end of the story; but it is at least a good way to make the well-understood point that the standard economic approach to efficiency is very adaptable. Even so, the economist in question (who is, by the way, a justifiably well-respected member of the fraternity) simply rejected the suggestion out of hand, saying that social equality was not an appropriate argument in the social welfare function. Apparently, he was so accustomed to thinking about social welfare functions that included only certain familiar variables and excluded others that the very idea of changing the variables (even within the same analytical framework) struck him as illegitimate.

(2) I've recently written a series of posts on Dorf on Law (the most recent being here) about the housing crisis. As part of my analysis, I've been talking about the surprising fact that home ownership is generally not the wise financial move that we often believe it to be. As I described the factors that one takes into account in determining the wisdom or foolishness of buying versus renting, I focused on the standard financial variables that one typically takes into account in analyzing financial decisions: interest rates, expected time in the residence, etc.

On the comment board, Michael Dorf of Cornell Law pointed out that one reason people buy rather than rent is the relative paucity of pet-friendly rentals, which drives pet-owning potential renters into purchases that might end up being relatively very costly. As I read his comment, I realized that I had not merely ignored a fairly important non-financial matter that might be at play in the minds of many potential home owners. I had, in fact, ignored the most important reason that I have owned homes for most of my adult life. Each time I moved between 1993 and 2005, I bought a house -- even when I knew that I was likely to stay in the house for only a short time -- because I had multiple dogs and cats. Even so, when thinking in the abstract about home ownership, I ignored this experience and simply focused on "the standard model."

The point of these two examples is obviously not that every economist makes this kind of mistake all the time but to demonstrate the kind of error to which economists are generally prone. Lawyers say, in essence, "My client is innocent," while economists say, "My model is right." Luckily, there are plenty of good lawyers and good economists who regularly avoid these professional pitfalls. Still, the pitfalls are there.

In any event, you now know my answer when people ask me the difference between economists and lawyers. But I could be wrong, at least marginally, if my model is incorrectly specified . . .

Posted by Neil H. Buchanan at 09:00 AM | Comments (6) | TrackBack

The New Gilded Age

Larry Bartels's new book Unequal Democracy: The Political Economy of the New Gilded Age helps explode some persistent myths about income inequality. We are frequently told that inequality--even the extreme growth in inequality witnessed over the past 30 years--is an inevitable concomitant of globalization, or is necessary for economic growth, or can't be remedied by politics. Bartels's work complements the growing consensus--led by people like David Cay Johnston, Jacob Hacker, Stephen Gosselin, Barbara Ehrenreich, and Robert Frank, among many others--that all these complacent contentions are not merely unsupported, but actually reverse the true causes and effects at work. Political change has accelerated US inequality--and only political change can address it.

This quote doesn't do Bartels's book justice, but it discloses one foundation of his argument:

[T]he real incomes of middle-class families have grown twice as fast under Democrats as they have under Republicans, while the real incomes of working poor families have grown six times as fast under Democrats as they have under Republicans. These substantial partisan differences persist even after allowing for differences in economic circumstances and historical trends beyond the control of individual presidents. . . .

[E]scalating in equality is not simply an inevitable economic trend—. . .a great deal of economic in equality in the contemporary United States is specifically attributable to the policies and priorities of Republican presidents. . . . .Voters’ seemingly straightforward tendency to reward or punish the incumbent government at the polls for good or bad economic performance turns out to be warped in ways that are both fascinating and politically crucial.

Insights like this should not be news--one need only to look at how lopsidedly the tax cuts of 2001 and 2003 helped the very wealthy in order to see real partisan differences in attitudes about inequality. But it turns out that the same political ignorance that libertarians like Ilya Somin and Bryan Caplan have been complaining about turns out to be quite helpful to their fiscal strategy:

[P]ublic opinion regarding the Bush tax cuts was remarkably shallow and confused, considering the multitrillion- dollar stakes. More than three years after the 2001 tax cut took effect, 40% of the public said they had not thought about whether they favored or opposed it, and those who did take a position did so largely on the basis of how they felt about their own tax burden. Views about the tax burden of the rich had no apparent impact on public opinion, despite the fact that most of the benefits went to the top 5% of taxpayers; egalitarian values reduced support for the tax cut, but only among strong egalitarians who were also politically well informed.

A well-fed (and math-phobic) media elite doesn't like elevating the raw numbers here into salience--as Bartels notes,

[A] social gulf has been exacerbated by the economic trends of the New Gilded Age. . . [It] constitutes a significant obstacle to political progress in responding to those trends. One can only wonder how many affluent readers [and owners of an ever-more concentrated media] will get around to pondering “The Inequality Conundrum” as soon as they return from the Cayman Islands.

There are also some choice refutations of bien-pensant complacency about inequality throughout Bartels's first chapter:

Many ordinary Americans believe that “large differences in income are necessary for America’s prosperity,” as one standard survey question puts it. However, economists who have studied the relationship between in equality and economic growth have found little evidence that large disparities in income and wealth promote growth. There is not even much hard evidence in support of the commonsense notion that progressive tax rates retard growth by discouraging economic effort. Indeed, one liberal economist, Robert Frank, has written that “the lessons of experience are downright brutal” to the notion that higher taxes would stifle economic growth by causing wealthy people to work less or take fewer risks.

Much of the economic argument for in equality hinges on the assumption that large fortunes will be invested in productive economic activities. In fact, however, there is some reason to worry that the new hyper-rich are less likely to invest their wealth than to fritter it away on jewelry, yachts, and caviar. According to one press report, the after-tax savings rate of house holds in the top 5% of the income distribution fell by more than half from 1990 through 2006 (from 13.6% to 6.2%), while real sales growth in the luxury retail industry averaged more than 10% per year.

Well, the huge appetite of ultra-wealthy investors for subprime paper in the early 2000s did some good, right? Expanding opportunities for homeownership via option ARMs, "pick-a-pay," and NINJA loans? Oh, wait. . . .

There's only so much words can say. Bartels's charts really paint the picture of inequality starkly. Here are trends in family incomes overall:

And here are how things look among that top 1% that was doing so well in the graph above:

In other words, we live in a world of fractal inequality, where chasms of income open up even within already elite circles. Bartels shows the mutually reinforcing relationship between a winner-take-all economy and a polity where "elected officials are utterly unresponsive to the policy preferences of millions of low-income citizens, leaving their political interests to be served or ignored as the ideological whims of incumbent elites may dictate." His perceptive scholarship is a reality check for a media entranced by the petty personality disputes of the long campaign.

Posted by Frank Pasquale at 10:59 AM | Comments (3) | TrackBack

The Cultural Contradictions of Jenny Craig

I was astonished to learn that the number of TV shows about weight loss has ballooned to seven this season. Alessandra Stanley's superb report on them catalogs the cultural contradictions they're a part of:

Americans are goaded into ever more drastic and extreme expectations of physical perfection on prime time, while their path is mined with Double Croissan’wich specials at Burger King and Olive Garden “Tour of Italy” triptychs (lasagna, chicken parmigiana and fettuccine Alfredo). On “Today” a homily on sensible dieting from the Joy Fit Club is followed by instructions in a following segment for hibiscus margaritas and churros — deep-fried, sugar-dipped Mexican crullers.

On the WE network’s show “The Secret Lives of Women,” a tribute to three women’s hard-won journey to extreme weight loss is interrupted by an ad for Baskin-Robbins Oreo sundae. It’s a world of contradictions bracketed by all-you-can-eat breakfast at Applebee’s and pay-as-you-go gastric bypass.

Anyone who's read Benforado/Hanson/Yosifon's work on the