Debt Brake

All this talk of cut, cap, and balance among Republicans sounds nice, but as a policy matter, the balanced budget amendment seems like a bad idea. There are perfectly legitimate reasons to run deficits much of the time, particularly when the economy is weak. Requiring a 2/3 majority of congress to do so runs the risk of bad economic management during the next downturn. The BBA has no chance of actually becoming law, but there is a more flexible policy option out there that the GOP should consider, one that has worked quite well in Switzerland.

In the early 2000s Switzerland adopted a constitutional “debt brake” in response to a decade of surging deficits and economic weakness. The policy sets a spending rule based on economic performance and penalizes spending above that rule in an adjustment account that must be balance across an economic cycle.

In other words, the spending rule allows for deficits to boost demand during downturns but then requires surpluses when the economy is stronger. It’s worked beautifully for Switzerland, which has had declines in debt-to-GDP ratio over the past ten years. In fact, it’s quite popular in Switzerland, where more than 90% of voters reaffirmed the measure in a recent referendum. Two years ago, Germany adopted a similar measure as well.

What works for Switzerland and Germany may not work here. The United States has military responsibilities and other spending requirements that far exceed those western European states. And American bureaucrats may be more willing or adept at circumventing the rules than their counterparts in Switzerland or Germany.

Yet both of these problems would affect a BBA as well. For serious BBA advocates, the debt brake seems like a better option because it wouldn’t force spending cuts at times when the economy is already quite weak. Instead, it would add a countercyclical dimension to the spending rule, such that the budget was in balance over a complete economic cycle rather than every individual year.

For many republicans, the BBA vote is just a political toy. They don’t much care if the policy is unworkable because they never intend it to pass. For those who are more serious about deficit reduction, the Swiss model would be worth a look.

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Google Books settlement thrown out

A federal judge threw out a complicated legal settlement reached between Google, the Authors Guild, and the Association of American Publishers, which set out rules by which Google could digitize and share copyrighted works.

The settlement had allowed Google to scan and digitize books (offered up by a number of University libraries) in exchange for compensation to book publishers and authors. The deal also restricted how much of certain books Google was allowed to place online. The settlement, negotiated last year, was enormously complicated and difficult to reach. But it paved the way for Google’s pretty cool effort to digitize enormous numbers of books and make them searchable online. Google has already digitized something like 15 million books from a dozen or so University libraries.

Now, as many predicted, it’s been thrown out in federal court, sending the two sides back to square one. Predictably, judge Denny Chin had copyright issues with the settlement. More importantly, he struck the settlement down on anti-trust grounds because it would have given Google unique rights to profit from many books, especially orphaned works whose authors are unknown.

The deal is a win for some authors and book sellers who benefit from additional sales, but it’s a big loss for people who need to do quick, cost-effective online research.

As a student, Google Books is an invaluable resource. It has books that Princeton’s library doesn’t have and take days to get through Borrow Direct otherwise. I can search the text of a book for the most relevant material rather than searching manually and less accurately with an index or table of contents. If I need to quickly reference one or two pages, I can look them up without trekking to a library.

In short, it makes life far simpler and easier even for someone who has access to a 6 million volume University library system. For the average person without access to that sort of resource, it’s even more important.

Fortunately, the decision leaves the door open for a revised settlement. This means that Google Books could return, perhaps on more open terms that allow more players into the game. Hopefully the decision will be net beneficial for consumers of information, not for copyright holders who already enjoy excessively zealous protections.

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Big Data

Fascinating article on GigaOm today about how Netflix will use its enromous troves of user data to license and promote original content. Netflix keeps data on each of its users viewing and rental habits. It uses that data to suggest content that they might like and also to manage demand for its physical movie collection. It’s data and recommendation engine have been a critical reason for the service’s stickiness and success. (This HBS case study has a lengthy description of the Netflix model and explains the importance of the recommendation engine if you’re really interested.)

Now, Netflix will capitalize on its huge quantity of user data in licensing its own new shows, not just streaming television content. Netflix announced this week that it would run a new show called House of Cards, a political drama based on a book by Michael Dobbs. It chose the show after analyzing its user data to figure out what type of show would be popular with its subscribers. It will also use individual user data to recommend the show to customers that are likely to enjoy the show. With these data resources, it has far more certainty in its choice of show than the average television network. It’s a fascinating innovation on Netflix’s core business, and I’ll be interested to see where it goes from here.

In particular, I wonder if Netflix could sell similar data servies to major networks thinking about what new shows they should run for a given season. Buying access to representative samples of Netflix user data could give them better visibility into what shows will play well and to what targeted audiences. The data could be far more granular than the Nielsen ratings that they use now.

Computer processing power and storage have gotten cheap enough to make these enormous databases really useful. Movies are just one industry where data like Netflix has could be really useful. Think about all of the information that firms like Amazon, Newegg, or Twitter could bring to the table.

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Two pieces of interesting news from Libya

Two interesting stories from the Libyan war make me even more skeptical of the Obama Administration’s competence in handling the issue.

First, the Arab League issued a pretty strongly worded criticism of the UN intervention. Admittedly, the Arab League is in a pretty tough place on this issue. It’s advocating a foreign intervention in an autocratic Arab state to stop its leader from harming his own people, while most of its members are autocratic Arab states who repress their own people. But what the hell? Just 8 days ago the Arab League strongly advocated a UN-enforced no-fly-zone.

Apparently Arab League leaders didn’t understand what a no-fly-zone really meant. Arab League Secretary General Amr Moussa argued today that, “What is happening in Libya differs from the aim of imposing a no-fly zone…And what we want is the protection of civilians and not the shelling of more civilians.” Frankly, this is nonsense. It wasn’t exactly a secret that a no-fly-zone would require coalition forces to target the Libyan air defenses and aircraft. Robert Gates said so incredibly clearly about 10 days before the Arab League endorsed the idea. Maybe they weren’t listening to the American Secretary of Defense as he described a military operation against what was then one of their member states?

The Arab League’s criticism won’t have much practical impact on the mission. Arab states still plan to contribute militarily to the operation. In some ways, it’s more embarrassing for the Arab League than anyone else. Still, it’s not good news to lose the diplomatic support of a highly visible regional organization like that.

Second and perhaps more interesting, Robert Gates said today that the no-fly-zone mandate does not permit the coalition to depose Qaddafi. Most commentators seemed to have assumed that Qaddafi was on his way out now that western powers were involved militarily. David Cameron has also been pretty clear that Qaddafi “needs to go”. So it’s particularly interesting to see the Secretary of Defense saying exactly the opposite.

Not quite sure what signal Gates is trying to send with this statement – surely he must have some goal in making such an important announcement. The Sec Def may be sending a signal to Qaddafi, promising not to depose him if he comes to the negotiating table.

On the other hand, Gates’ message may have been aimed at allied leaders and domestic actors. In this interpretation, the speech was an effort to avoid mission creep by articulating limited objectives to the public and to our allies. Given Gates’ hesitance about the whole operation, this seems like a reasonable reading of his speech.

As I wrote last night, I hope that the United States has the resolve to finish Qaddafi now that we’re involved in the first place. From that standpoint, this speech worries me a bit.

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Worst foul ever and then 1.4 seconds later a new worst foul ever

Today, Butler upset no. 1 seeded Pitt in the NCAA tournament. I watched most of the game when I should have been working on my thesis. But the end of the game included the worst foul that I’ve ever seen.

Butler was up by 1 with about 2 seconds left having just hit a crucial shot to take the lead. The game should have been over, but then Butler committed an insane foul on Gilbert Brown just a second after the inbounds play. Absent the foul, Pitt had no chance of scoring. But now they had a decent free throw shooter at the line with two shots to win the game.

This has to be the worst foul in history. You’ve got the game won. Pitt can’t move the ball 90 feet in 2.2 seconds and make a basket. The only thing you’ve got to do is NOT FOUL. But Shelvin Mack just couldn’t make that happen.

But then a minor miracle happened. Gilbert Brown hits the first free throw to tie, but misses the second one. Butler rebounds the missed free throw under its own basket with less than a second on the clock. So, the game goes to overtime right? Butler escapes the horrible foul but has to play with a more talented no. 1 seeded team for five more minutes.

Except that’s not what happened. With 0.8 seconds left, Pitt’s Nasir Robinson fouls Matt Howard on the rebound. Shelvin Mack’s horrifyingly bad foul from a moment ago can’t even compete with this one. There is literally no way that Butler could get down the court in less than a second to put in a shot for the win. It’s not physically possible. But now Matt Howard goes to the line to shoot two shots, needing only one for the win. He gets the first one, and Butler wins in regulation. There are no words to describe how stupid a foul this was; I won’t even bother trying. Just watch the video and judge for yourself.

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You know a military operation has problems when…

It’s led by French forces. Fortunately, after some initial French leadership, the big boys took over in Libya. The WSJ reports that American and British forces targeted Libya’s Soviet-era air defense system with a cruise missile barrage.

U.S. and U.K. forces on Saturday unleashed around 110 Tomahawk cruise missiles against Libyan targets. U.S. Vice. Adm. William Gortney told reporters that the missiles, which struck Libya around 3 p.m. EDT, were aimed at more than 20 Libyan air-defense sites.

Good to see that the U.S. will play a major role rather than delegating entirely to European powers. Now that the war has begun in earnest, I sincerely hope that the U.S. and other western powers have the resolve to win the war and the peace afterwards. Eliminating Qaddafi will be worse than worthless if western powers do not commit to making post-war Libya a successful state. Unfortunately, this may be easier said than done.

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In the too little too late category…

The UN has approved a no-fly zone for Libya. Russia, China, India, Germany and Brazil all abstained on the resolution, avoiding a veto but indicating significant international uncertainty about whether this is the right approach.

News articles indicate that French forces will be deployed in the region to enforce the no-fly zone within just a couple of hours. Other nations, including the United States, will follow up with their own forces. Libya may ground its air forces rather than risk more direct involvement by the US and other powers.

What’s less clear is how effective the no-fly zone will be with government forces loyal to Qaddafi driving toward the outskirts of Benghazi. The Libyan military is qualitatively superior to the militias even without air forces. Its tanks and other armored vehicles may be able to capture the city even without air support. As of yet, the UN has not authorized any hostile military action against Qaddafi’s forces. In fact the resolution includes language specifically opposing an occupation force in the country.

My take: Seems like a pretty weak move that’s unlikely to stop Qaddafi from reconquering the country. Not clear why western states pushed so hard for a deployment that may not do much at all. Given the number of abstentions, they probably couldn’t have gotten a better agreement from the UN Security Council. But why waste the political capital to push for the resolution at all if the result is so toothless? Perhaps NATO countries weren’t willing to fight in Libya on their own and decided to use the UN as political cover to defend inaction. Unless they have some significant information that I don’t, it’s hard to believe that this will be effective.

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