Kevin Drum Feed | Mother Jones

Reporting on Oil

Kevin Drum — Fri, 19 Mar 2010 06:02:03 +0000

Here's a story that shows the value of the Freedom of Information Act:

The U.S. government faces shortcomings in producing its oil-inventory data, according to internal Department of Energy documents, casting doubt on figures that affect the production and prices of the world's most important industrial commodity.

The documents, obtained through a Freedom of Information Act request, expose several errors in the Energy Information Agency's weekly oil report, including one in September that was large enough to cause a jump in oil prices, and a litany of problems with its data collection, including the use of ancient technology and out-of-date methodology, that make it nearly impossible for staff to detect errors. A weak security system also leaves the data open to being hacked or leaked, the documents show.

....On Sept. 16, the EIA released data showing almost four million barrels of oil had vanished from the Cushing storage hub in Oklahoma during a single week. The market paid particular attention because Cushing is the nation's most important commercial storage facility. Its oil is used to fill orders from buyers on the New York Mercantile Exchange. Oil futures jumped 2.2% after the report.

But out of the sizable drop at Cushing, 1.7 million barrels represented a correction made after the EIA discovered a previous error in one company's reporting, according to the emails. James Beck, who heads the team that conducts the weekly survey, confirmed the correction in an interview.

Good to know.

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Zoning and Sprawl

Kevin Drum — Thu, 18 Mar 2010 23:28:28 +0000

Matt Yglesias has been making the case recently that zoning and land use laws encourage suburban sprawl, and if we did away with them we'd have a greater number of dense, walkable neighborhoods. Cato's Randall O'Toole took exception, so Matt condensed his argument into PowerPoint form:

Throughout America there are many regulations that restrict the density of the built environment.
Were it not for these restrictions, people would build more densely.
Were the built environment more densely built, the metro areas would be less sprawling.

There's a lot I could say about this, but that's a mistake in a blog post. So I'll stick to one main point: these regulations aren't something that's been imposed by "government." They exist because people really, really, really want them.

I need to be clear here: I'm neither praising nor condemning this, just describing how things are. To get an idea of how strongly people feel about this, you really need to come live in a suburb for a while. But failing that, consider the balance of power here. Corporations would like to be able to build wherever and whatever they want. Wealthy land developers would like to be able to build wherever and whatever they want. And local governments hate single-family neighborhoods because they're a net tax loss: they cost more in services than they return in property tax remittances. And yet, even with corporations, wealthy developers, and local governments all on one side, suburban zoning is ubiquitous. This is a triumvirate that, under normal circumstances, could get practically anything they wanted, but in this case it's not even a close fight. Suburban residents have them completely overwhelmed.

That's how strong the desire is for suburban sprawl. Again: I'm not taking a position on whether this is good or bad. And I'm not saying the fight is hopeless. I'm just saying that everyone needs to understand what they're up against here. It's not zoning per se that causes sprawl, it's the fact that lots of registered voters actively want sprawl and have successfully demanded rules that keep density at bay. These kinds of land use regulations aren't going away without the mother of all knock-down-drag-out fights first.

And now for a second point, even though I said I wouldn't make one: walkability is very difficult to create. It's not enough to build a bunch of houses with shopping nearby. It's not enough to have a few big apartment buildings. And there's no practical way to convert an existing suburb into a high-density area. The thing is, you can't be 90% walkable. You have to be 100% walkable, and for a development of any size you have to jam people together to get enough density to truly make that happen. You will never get this outside a central business core where the price of land is so high that you have no choice.

So....I dunno. Maybe eventually we'll run out of oil and everyone will have to move into urban cores whether they like it or not. Short of that, though, I just don't see how it's going to happen. Working to keep existing city centers walkable seems eminently doable and eminently worth doing. Outside of that, though, building a truly walkable neighborhood strikes me as the next best thing to impossible.

So here's a serious question: outside of a big city core, has anyone ever successfully built a walkable, high-density suburb? Not a village or a small town. I mean something really dense and walkable: a place where sidewalks are busy, mass transit is good, and there are plenty of high-rise apartment buildings. I know the New Urbanist folks talk about this a lot, but do any actually exist? Educate me, peeps.

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Reining in Healthcare Costs

Kevin Drum — Thu, 18 Mar 2010 18:14:21 +0000

Ezra Klein does a good job of describing why healthcare reform not only should pass, but probably will pass:

If you're a liberal House Democrat, here's what you'd be voting against: Legislation that covers 32 million people. A world in which 95 percent of all non-elderly, legal residents have health-care coverage. An end to insurers rescinding coverage for the sick, or discriminating based on preexisting conditions, or spending 30 cents of each premium dollar on things that aren't medical care. Exchanges where insurers who want to jack up premiums will have to publicly explain their reason, where regulators will be able to toss them out based on bad behavior, and where consumers will be able to publicly rate them. Hundreds of billions of dollars in subsidies to help lower-income Americans afford health-care insurance. The final closure of the Medicare Prescription Drug Benefit's "doughnut hole."

If you're a conservative House Democrat, then probably you support many of those policies, too. But you also get the single most ambitious effort the government has ever made to control costs in the health-care sector. According to the Congressional Budget Office, the bill cuts deficits by $130 billion in the first 10 years, and up to $1.2 trillion in the second 10 years. The excise tax is now indexed to inflation, rather than inflation plus one percentage point, and the subsidies grow more slowly over time. So one of the strongest cost controls just got stronger, and the automatic spending growth slowed. And then there are all the other cost controls in the bill: The Medicare Commission, which makes entitlement reform much more possible. The programs to begin paying doctors and hospitals for care rather than volume. The competitive insurance market.

The cost controls in the bill are a good start. But they're going to have to get better over time to have any chance of seriously reining in healthcare inflation, and it would be nice to think that once the partisan warfare is over and Republicans give up their fantasy of repealing the bill after a November triumph, they'll finally get serious about cost controls too. Because one way or another, it's going to take both parties giving cover to each other to get the job done.

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The Enemy Belligerent Act of 2010

Kevin Drum — Thu, 18 Mar 2010 17:13:31 +0000

Marc Ambinder wrote about John McCain and Joe Lieberman's "Enemy Belligerent, Interrogation, Detention, and Prosecution Act of 2010" a couple of weeks ago, but I missed it. It's basically designed to allow us to detain enemy belligerents indefinitely if they meet certain criteria:

The bill asks the President to determine criteria for designating an individual as a "high-value detainee" if he/she: (1) poses a threat of an attack on civilians or civilian facilities within the U.S. or U.S. facilities abroad; (2) poses a threat to U.S. military personnel or U.S. military facilities; (3) potential intelligence value; (4) is a member of al Qaeda or a terrorist group affiliated with al Qaeda or (5) such other matters as the President considers appropriate. The President must submit the regulations and guidance to the appropriate committees of Congress no later than 60 days after enactment.

The bill applies to U.S. citizens as well as foreign nationals, and the determination of whether someone is "high value" is made by the High-Value Detainee Interrogation Team and confirmed by the Secretary of Defense and the Attorney General. Glenn Greenwald provides his usual mild-mannered commentary:

It's probably the single most extremist, tyrannical and dangerous bill introduced in the Senate in the last several decades, far beyond the horrific, habeas-abolishing Military Commissions Act. It literally empowers the President to imprison anyone he wants in his sole discretion by simply decreeing them a Terrorist suspect — including American citizens arrested on U.S. soil. The bill requires that all such individuals be placed in military custody, and explicitly says that they "may be detained without criminal charges and without trial for the duration of hostilities against the United States or its coalition partners," which everyone expects to last decades, at least. It's basically a bill designed to formally authorize what the Bush administration did to American citizen Jose Padilla — arrest him on U.S. soil and imprison him for years in military custody with no charges.

Well, sometimes mild-mannered commentary is just what the doctor ordered. This sounds every bit as bad as Glenn says it is. Basically, it reminds me of the Alien and Sedition Acts, which we've long since decided was not exactly a shining bright spot in our nation's history.

My hope is that the reason this bill has gotten so little attention is that no one thinks it has any chance of passage. Unfortunately, given the current mood of the country and the obvious angst of centrist Democrats about attacks on their terrorism-fighting credentials, that hardly seems plausible. Of course it has a chance of passage. This is well worth keeping an eye on.

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Corporate Douchebaggery Watch

Kevin Drum — Thu, 18 Mar 2010 16:20:18 +0000

This kind of story always strikes me as just plain weird. Back in 2007, WellPoint pledged that its charitable foundation would give $30 million in grants to help the uninsured:

However, WellPoint's public records indicate that from 2007 to 2009 the foundation gave less than $6.2 million in grants targeted specifically at helping uninsured Americans get access to coverage and care — barely one-fifth of what was promised and just 11% of the charity's total giving over the last three years.

"It was just not something that the company really wanted to do," said one former executive, who, like others interviewed for this story, asked not to be identified out of concern that discussing WellPoint could have adverse career consequences. "So it went by the wayside."

WellPoint's flack says that she's been "assured" that they have, in fact, given $30 million to help the uninsured, but the reporting process is "complicated" and they don't care to break the numbers down for nosy outsiders. Translated, that means they didn't do it. But why? $30 million is chump change for these guys. Why bother reneging on this promise? Are they trying to confirm that they're the scumbags everyone thinks they are? Or did they just not figure that anyone would ever follow up on this?

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All Systems Are Go

Kevin Drum — Thu, 18 Mar 2010 16:03:02 +0000

One of the roadblocks in the way of the reconciliation rider to the Senate healthcare bill is that, in order to meet reconciliation rules, it has to decrease the budget deficit by at least $1 billion. According to the latest CBO score, that's no problem:

The incremental effect of enacting the reconciliation proposal — assuming that H.R. 3590 had already been enacted — would be the difference between the estimate of the combined effect and the previous estimate for the Senate passed bill, H.R. 3590. That incremental effect is an estimated net reduction in federal deficits of $20 billion over the 2010-2019 period over and above the savings from enacting H.R. 3590 by itself.

Click the link for details. The reconciliation rider would also continue to reduce federal deficits in the decade after 2019, just like the main Senate bill. As far as I know, this is the last hurdle in the way of healthcare reform aside from, you know, actually voting on it. That should happen sometime this weekend.

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Quote of the Day: Do the Right Thing

Kevin Drum — Thu, 18 Mar 2010 15:15:54 +0000

From Marjorie Margolies-Mezvinsky, who I've blogged about before, on her vote to pass Bill Clinton's budget in 1993:

While it is easy to say my balanced-budget vote cost me reelection, that assumes the line of history that followed the bill's passage. Had I voted against it, the bill wouldn't have passed, the Republican opposition would have been emboldened, the Clinton presidency would have moved into a tailspin . . . and all of this could have just as easily led to my undoing.

Simply put, you could be Margolies-Mezvinskied whether you vote with or against President Obama. You will be assailed no matter how you vote this week. And this job isn't supposed to be easy. So cast the vote that you won't regret in 18 years.

If anything, defeat of the healthcare bill is likely to lead to bigger House losses this November than otherwise. So good policy is good politics, no matter how distant or hard to believe that seems in the heat of the moment. So let's all do the right thing, OK?

By the way, after being offline for most of yesterday due to a computer upgrade that took (surprise!) longer than I expected, I'm now typing this post on a blazing fast new box loaded with gobs of memory and Windows 7. Does it seem even slicker and more insightful than usual?

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You and Your Browser

Kevin Drum — Wed, 17 Mar 2010 18:30:46 +0000

Via Tyler Cowen, this comes from a Microsoft Research paper about why ordinary people are probably justified in ignoring most security advice on the internet:

Browser vendors have invested considerable effort in making it harder to ignore certificate errors. In Firefox version 3, when encountering an expired, invalid or self-signed certificate the user sees an interrupt page explaining that the SSL connection failed. If he chooses to add an exception he sees another interrupt page with more warnings and a choice to add an exception or "get me out of here." If he elects (again) to add an exception he must click to get the certificate, view the certificate, and then add the exception. Internet Explorer 8 is somewhat less intrusive, but the procedure also seems designed to suggest that adding exceptions is very risky. Is it? Ironically, one place a user will almost certainly never see a certificate error is on a phishing or malware hosting site. That is, using certificates is almost unknown among the reported phishing sites in PhishTank. The rare cases that employ certificates use valid ones. The same is true of sites that host malicious content. Attackers wisely calculate that it is far better to go without a certificate than risk the warning. In fact, as far as we can determine, there is no evidence of a single user being saved from harm by a certificate error, anywhere, ever.

I've long wondered about those certificate errors I get from time to time, but apparently they're just that: errors. Now I know I can just ignore them and still sleep soundly at night.

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Quote of the Day: Rock Bottom

Kevin Drum — Wed, 17 Mar 2010 18:01:20 +0000

From Time's Jay Newton-Small, suggesting that Democrats have hit rock bottom and have nowhere to go but up — if they pass healthcare reform, that is:

Oh how quickly things can change. If you pass the bill, next week's coverage is likely to trumpet triumph, the most productive legislative session since LBJ, an historic and seminal victory....As Republicans used to say before the 2004 elections defending Medicare Part D, it's hard to spend hundreds of billions of dollars expanding health care coverage and not have it be a net positive in the polls.

Memories are short, but healthcare reform is forever. And passing historic legislation that improves people's lives in concrete ways is the best way to beat the midterm blues.

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Inflationary Demons

Kevin Drum — Wed, 17 Mar 2010 17:37:23 +0000

Matt Yglesias notes that Michael Kinsley has a strange column in the Atlantic this month ("My Inflation Nightmare") warning about the possibility of runaway inflation in our future. I read it a few days ago and shrugged. But it stuck with me anyway. Here's Matt:

What’s strange about the column is that I don’t know how I could possibly refute it. Kinsley freely acknowledges that “virtually every leading economist across the political spectrum” disagrees with him, and he doesn’t dispute the details of any of their analyses. He also acknowledges that while it would be possible for him to make investment decisions that reflect his belief in a coming period of inflation, he’s not doing it “because I lack the courage of my convictions.”

....I note that not only does Kinsley’s column explicitly discuss the lack of evidence for Kinsley’s thesis, but it also details the theoretical error Kinsley is making—thinking too moralistically about the economy. He says “on economic matters, I’m a puritan.”....In his view, a greater punishment must be over the horizon for the sake of the moral order. And since recession is, by his lights, not enough the only other economic calamity on the menu is inflation. And so, he deduces, we must be heading for inflation, even though he himself recognizes the reasoning as so specious that he won’t use it as the basis for investment decisions.

I'm going to defend Kinsley a bit. One reason is that although he freely talks about the inner demons that prompted his heresy, he does, in fact, also offer up a concrete reason for his fears: "My specific concern is nothing original: it’s just the national debt....We talk now of trillions, not yesterday’s hundreds of billions." This is not a completely nonsensical concern, even if it would be better expressed as a percent of GDP rather than in raw dollars. What's more, if Kinsley had wanted to write something a little more sophisticated, he could have spent some time on the Fed's likely problems unwinding its trillion dollar balance sheet over the coming years, something that has at least the potential for sparking inflationary pressures if it isn't timed pretty delicately.

But that's not the real reason for defending Kinsley. The real reason is this: I sort of agree with him. Is it because we were both around for the 70s and remember what happened then? Maybe, though Paul Krugman and Brad DeLong were around then too and they're not worried. And intellectually, like Kinsley, I agree with them: inflation just doesn't seem like a big issue right now. But what about a few years from now? It really does look as if our political system is going to find it next to impossible to control our long-term federal deficit, and at the same time the dollar is going to have to come down in value eventually. Both of these things, along with the Fed's operations, pose inflationary potential. And I have a fairly healthy respect for the proposition that if the Fed loses its reputation as an inflationary hawk, it's much harder to get back than you might think.

So here's the question: if all the people you respect say that inflation isn't a big issue; if all the market evidence points toward moderate inflationary expectations; and if your fears of inflation are almost certainly grounded in demons from your youth — if all that's true, but you still feel the fear anyway, what should you do? Nothing? Or should you write about it, being honest along the way about what's driving you?

I'd vote for writing about it, for one simple reason: if smart people are still worried about this even though the experts say there's nothing to worry about, the experts need to do a better job of telling us why we're nuts. Brad DeLong, I invite you to write a Kevin Drum Smackdown Watch about long-term inflationary fears. Pretend you're writing a response to a respected liberal economist, since that's more likely to produce a serious scholarly survey. Tell me why I'm crazy.

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Half a Parliament is Worse Than None

Kevin Drum — Wed, 17 Mar 2010 16:47:29 +0000

The New York Times reports today on just how deliberate the Republican strategy of obstructionism has been:

Before the health care fight, before the economic stimulus package, before President Obama even took office, Senator Mitch McConnell, the Republican minority leader, had a strategy for his party: use his extensive knowledge of Senate procedure to slow things down, take advantage of the difficulties Democrats would have in governing and deny Democrats any Republican support on big legislation.

....For more than a year, he pleaded and cajoled to keep his caucus in line. He deployed poll data. He warned against the lure of the short-term attention to be gained by going bipartisan, and linked Republican gains in November to showing voters they could hold the line against big government.

Jon Chait comments:

Let me be clear about something: I am not blaming McConnell¹....Electoral politics is a zero-sum competition. Most democracies have systems where the opposing parties work in open conflict to each other, and, contra David Brooks, this does not result in Hutu vs. Tutsi slaughter.

Yes, there was a long period in American politics where racial cleavages created a situation where the parties had little internal ideological cohesion, and as a result Washington developed a series of cultural norms discouraging the practice of cohesive parties maximizing their electoral self-interest. Over time, though, such social norms will never hold up. Ultimately, the parties are going to maximize their partisan self-interest as allowed under the rules. If you don't like the result, you need to change the rules.

The next time Democrats find themselves in the minority, there's going to be a lot of establishment pressure not to follow the McConnell model. Be bipartisan. Don't obstruct. That would be terrible advice. I hope that Democrats would remember 2009-2010 well enough to favor a reform of the Senate to disallow holds, the filibuster, and other counter-majoritarian tactics. But if they can't succeed in changing the rules, they should follow McConnell's example, because he has shown the way to do it.

Italics mine. Changing the rules is the key. It's true that most democracies "have systems where the opposing parties work in open conflict to each other," but that's because they also have parliamentary rules that make it possible for a majority party to govern. We don't. Over the past couple of decades we've slowly morphed into a country with a de facto parliamentary legislature but without the parliamentary machinery that makes it work. The irony, as usual, is rich: conservatives, who normally rail against liberal attraction to European models of governance, have apparently decided that one European tradition they like is parliamentary-style party cohesion. But if that's what they want, they need to support parliamentary style rules as well. A strong country can't have one without the other.

¹I'd actually put this differently. I don't blame McConnell for obstructing healthcare reform. It's a big bill and it was always going to inspire intense opposition. And minority parties should have some ability to obstruct and delay huge bills like this. However, I do blame him for obstructing everything. It's one thing to treat big legislation as a partisan affair — it is! — but it's another to gum up the works just for the sake of gumming up the works, as the GOP has done on bills and appointments that ended up getting virtually unanimous support on their final vote. Enough's enough.

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Our Fabulous Bipartisan Senate

Kevin Drum — Wed, 17 Mar 2010 16:14:31 +0000

Last month a jobs bill came up for a cloture vote in the Senate. Five Republicans voted for it. Today it came up for a final vote. Eleven Republicans voted for it. Chuck Schumer hailed the result: "Today is really a turning point. And there are two words that symbolize it — jobs and bipartisan."

Hmmm. Doesn't sound like a turning point to me. It sounds like lots of Republicans are still willing to posture and obstruct against anything and everything Democrats try to do, even bills that they actually approve of and want to be recorded favoring. The only difference is that this time there were six Republicans in that category instead of 20 or 30. Not exactly a new era in comity.

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What's the Next Step After "Insane"?

Kevin Drum — Wed, 17 Mar 2010 15:56:59 +0000

I might be getting myself in trouble by blogging about something where I don't know the backstory, but check out the latest from California:

Gov. Arnold Schwarzenegger, taking aim at what remained of a deficit-cutting package drafted by Democrats, said Tuesday he planned to veto $1.1 billion in projected savings realized largely through cuts to public transit. Democratic lawmakers had approved the measure as part of a package they said would have addressed $4 billion of California's estimated $20-billion deficit.

....Republican lawmakers, whom majority Democrats were able largely to bypass in writing their budget plan because it did not raise taxes, cheered the governor's planned vetoes.

....Schwarzenegger said he would reject the lawmakers' gasoline tax plan because it differed from the proposal he first made in January. Schwarzenegger's plan would have lowered gas taxes by 5 cents per gallon. The plan Democrats pushed through the Legislature would keep gas taxes at their current level.

This is insane. In order to tackle a massive deficit, Democrats were willing to cut a billion dollars out of transit funding — a traditional Democratic priority — and Schwarzenegger vetoes it because they didn't also include a tax cut. As a way of tackling a massive deficit. And the California Republican caucus cheers.

I can't even think of anything snarky to say. It's like living in a Lewis Carroll novel, except with real people. Assuming you still consider California Republicans to be real people, that is.

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Online Advertising Watch

Kevin Drum — Wed, 17 Mar 2010 15:25:25 +0000

After sitting through an SXSW panel about magazines on the iPad, Felix Salmon has a brainstorm about online advertising:

After the panel ended, I got to talking to one attendee about bridal mags, and it struck me that the bridal category could be one of the first to be truly revolutionized by the iPad. After all, bridal mags are quite unashamedly bought for the advertising content, rather than any supposedly independent editorial: the idea is that brides-to-be will flick through them, looking carefully at pretty much every ad, searching for that idea which inspires them to spend thousands of dollars on something for their wedding.

On an iPad, that experience can become much more immersive and interactive: brides could spend days if not weeks flicking through the offerings of all the different advertisers, adding various products and ideas to their virtual scrapbooks, finding local retailers for anything they're interested in, and firing off carefully-curated scrapbooks, in PDF form, to their wedding planners, parents, bridesmaids — even occasionally the fiancé too. I don't know how much inclusion in that kind of an app would be worth to an advertiser, especially one who jumped in and created deep wells of content rather than simply repurposing their print ads. But clearly there's an opportunity here for brands to really connect with readers in a new and very exciting way.

Maybe! But I wonder. If the big draw of these magazines really is advertising, won't some bright soul just start up a bridal advertising aggregation site that skips all that annoying editorial stuff in the first place? It would be nothing but a great browsing experience for ads, and since it could be run by a staff of one, the cost to advertisers would be tiny. If this took off, it could be the death of bridal magazines, not their rebirth.

Unless that editorial content turns out to be more important than we think. Upcoming brides, what say you?

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Why is Obama Ignoring the Lehman Scandal?

Kevin Drum — Wed, 17 Mar 2010 03:06:40 +0000

Mike Konczal thinks the Lehman Brothers accounting scandal is being wasted:

One thing that I’m finding surprising is that the President and the Treasury Secretary aren’t out there beating the hell out of this story. For financial reformers, this report should be like a “Get 2 Free Financial Reforms” monopoly-style card falling out of the sky. Why isn’t the administration thumping the hell out of this story?

I remember when Anthem Blue Cross Blue Shield decided to raise rates 39% in the middle of a recession and Obama immediately got on the point that this is exactly why we need comprehensive health care reform. I remember thinking at the time “If a giant scandal blows up in the financial sector, I bet he’ll go equally as hard as to why this proves we need comprehensive financial reform.”

Oddly, that isn’t happening. Senator Ted Kaufman is giving a speech today about how this fraud calls for tougher regulation, which is fantastic. Why isn’t the administration?

Mike suggests that part of the answer is that Tim Geithner is compromised by his past presidency of the New York Fed. After all, he can hardly scream blue murder about Lehman's bookkeeping outrages when he was the guy who was supposed to be overseeing their bookkeeping in the first place.

There's probably something to this. Sellout Obama apologist that I am, though, I think there's another, less sinister possibility: the White House wants all its ammunition focused on healthcare right now. They'll spare a few words on other topics here and there, but basically this is not the week for anything to push healthcare reform off the front page. If it passes the House this weekend, however, financial reform probably moves to the top of the list when Obama's overseas trip is over.

At least, I hope so.

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Our Apathetic Investor Class

Kevin Drum — Tue, 16 Mar 2010 19:11:14 +0000

Atrios today:

I think the reaction to the Lehman scandal (not particularly strong generally) is very telling. The investor class should, much more than me, care that a major company was engaged in accounting fraud and should worry, much more than me, that other companies are doing the same. That they aren't says a lot about how the game really works.

It's true. When it comes to the general public, the lack of interest is pretty understandable: Lehman's collapse is old news, the whole "Repo 105" scam is hard to explain, and everyone already assumes that Wall Street bankers are a bunch of crooks anyway.

But the investor class is a different story. They understand Lehman's accounting trick perfectly well, and even the ones that never invested with Lehman know that this same kind of thing can bite them in the ass if someone else does it.

So why don't they care more? It's obvious why banks don't want more banking regulation — who wants to be regulated, after all? — but there are lots of wealthy investors out there who ought to be screaming for it. But they don't seem to be. Part of this might be a result of the rentier class solidarity I mentioned earlier today, but it's hard not to think that all the government bailouts and Fed programs are part of it too. Basically, rich investors just didn't lose enough. When the banks got bailed out, a lot of them did too. So they aren't really all that angry about what happened. And anyway, they might want to use a similar scam themselves someday. Memories are short and Congress is powerless, after all. It's every mogul for himself.

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China's Empty Threat

Kevin Drum — Tue, 16 Mar 2010 18:13:54 +0000

What should we do about China? The basic problem is simple: China runs a huge trade surplus — exporting way more stuff to the rest of the world than they import back — and that means the rest of the world runs a huge trade deficit with them. That includes the United States. And for us, the problem is even worse because we also run a big trade deficit with OPEC countries in order to satisfy our boundless thirst for oil. What to do?

In the case of oil, there's not much to do except use less of the stuff. In the case of China, however, our trade deficit is largely artificial: it only exists because Chinese goods are so cheap, and they're only as cheap as they are because China manipulates the value of its currency down, which in turn causes the dollar to be overvalued. Dean Baker:

This is of course unsustainable. The only way that this deficit can be corrected is by reducing the value of the dollar....This decision would mean that the United States could finally get its trade deficit down to a manageable level. The trade deficit has been the leading imbalance in the U.S. economy over the last decade. The large trade deficit required very low private savings and/or large budget deficits. This is an accounting identity. If the country is a net borrower from abroad (this is what a trade deficit means), then it must have low national savings. There is no way around this story.

In reality, China is pointing a water gun at our heads. We should beg them to become unhappy with our fiscal and monetary policies and stop investing in Treasury bonds. The improvement in the trade deficit that will result from the fall in the dollar will create ten times as many jobs as any "jobs bill" that President Obama can possibly get through Congress.

Paul Krugman agrees, but takes a different approach to explaining the problem. An undervalued renminbi is a symptom of the real problem, which is that China is buying too many U.S. treasury bills:

Although people don’t always think of it this way, what the Chinese government is doing here is engaging in massive capital export — artificially creating a huge deficit in China’s capital account. It’s able to do this in part because capital controls inhibit offsetting private capital inflows; but the key point is that China has a de facto policy of forcing capital flows out of the country....By creating an artificial capital account deficit, China is, as a matter of arithmetic necessity, creating an artificial current account surplus. And by doing that, it is exporting savings to the rest of the world.

....Notice that I didn’t mention the value of the renminbi at all in this account. It’s there implicitly: a weak renminbi is the mechanism through which China’s capital-export policy gets translated into physical exports of goods. But you want to keep your eye on the ball: it’s the artificial capital exports that are the driving force here.

Both posts are worth reading. Krugman and Baker both agree that China's threat to stop buying U.S. treasuries is not only hollow, it's something we should actively favor. If they started dumping their U.S. assets, China would lose money on the deal and the dollar would fall in value, which would help correct our trade deficit. What's not to like?

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Collective Action in the Boardroom

Kevin Drum — Tue, 16 Mar 2010 17:36:16 +0000

Over at his new home at the Harvard Business Review, Justin Fox writes about the relative silence of nonbanking corporate executives on financial regulatory reform:

It's nonfinancial businesses, not financial firms, that create lasting wealth. This is not a moral distinction. It's just the way the world works. The finance sector enables wealth creation, but the innovations that make the economy grow over time come from elsewhere. The financial industry really ought to be seen, and treated, as a servant of the real economy. It's when finance takes the lead and begins to drive economic activity, as it did during the Internet stock bubble of the late 1990s and the mortgage lending craziness of 2003-2007, that we get into big trouble. And even when it's not blowing bubbles, the financial sector can be too successful for the rest of the economy's good.

....So while the rest of the business world needs a financial sector that's healthy enough to extend credit, it also ought to favor a regulatory structure that keeps the financiers from getting too big for their britches. Explicit restrictions on pay tend not to work, so the real goal should be to rein in financial-sector profits, especially the phantom profits that come from inflating speculative bubbles. That's where leverage limits come in, and restrictions (like the "Volcker rule" that's kinda/sorta included in the Dodd bill) that try to wall off riskier financial activities from those deemed so essential that they're backed up by government guarantees.

Justin argues that this corporate silence is basically an agency problem: Wall Street frothiness is actually good for top CEO pay even if it's bad for business as a whole. True. But I'd add another thing: business executives tend to stick together. Partly this is ideological — they really are a conservative bunch and they really do believe that excessive regulation is bad — and partly it's just plain logrolling. An airline executive might believe that financial sector reform would benefit the airline industry, but he also knows that someday he's going to want help fighting some kind of government regulation of the airline industry. The best way to ensure this is to stick together and oppose government regulation no matter which sector it's aimed at.

You see the same thing at work in healthcare. Most big corporations would benefit from healthcare reform — in fact, they'd benefit from a root-and-branch government takeover of healthcare — but ideologically they don't like the idea, and in any case they don't want to abandon their fellows in the healthcare industry. This kind of tribalism broke down a bit this time around, but not a lot. For the most part, corporate executives either stayed on the sidelines or actively opposed healthcare reform. In the corporate world, it's all for one and one for all.

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Deem and Pass Revisited

Kevin Drum — Tue, 16 Mar 2010 17:05:20 +0000

I've been mulling over the "deem and pass" strategy a bit more since I wrote about it earlier this morning, and I think it's worth saying again what a bad idea this is. Not because it's unconstitutional or unprecedented, but just because the political optics are so horrible. Here's my best crack at a graphic demonstration. First, take a look at a likely Republican attack ad this fall:

Cue ominous music. Liberal Joe Smith voted for a bloated, big-government takeover of healthcare that spends trillions, balloons the national debt, and puts a federal bureaucrat between you and your doctor [etc.]

And here's the version if the bill moves through the House via deem and pass:

Cue ominous music. Liberal Joe Smith voted for a bloated, big-government takeover of healthcare that spends trillions, balloons the national debt, and puts a federal bureaucrat between you and your doctor....Cue even more ominous music....and then he tried to pull the wool over your eyes by pretending he didn't really vote for it at all. Joe Smith: not just a big-spending liberal, a contemptible, sneaky [add other words from the Newt Gingrich lexicon here] big-spending liberal.

I know that House Democrats aren't much interested in sniping like this from the peanut gallery, but they really need to man up on healthcare. Memories are short, and deem-and-pass probably won't matter a lot by November. But it will matter a bit, and that bit will be entirely negative. Best to bite the bullet and cast your vote proudly.

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The Mullen Doctrine

Kevin Drum — Tue, 16 Mar 2010 16:27:55 +0000

Spencer Ackerman reports today on the Mullen Doctrine, unveiled in a speech at Kansas State University earlier this month. Echoing Clausewitz, Adm. Mike Mullen, chairman of the Joint Chiefs of Staff, told his audience that war is diplomacy by other means:

Perhaps Mullen’s most provocative “principle,” as he called it in the speech, is that military forces “should not — maybe cannot — be the last resort of the state.” On the surface, Mullen appeared to offer a profligate view of sending troops to battle, contradicting the Powell Doctrine’s warning that the military should only be used when all other options exhaust themselves. Powell’s warning has great appeal to a country exhausted by two costly, protracted wars, one of which was launched long before diplomatic options had run out.

But Mullen’s aides said the chairman was trying to make a subtler point, one that envisioned the deployment of military forces not as a sharp change in strategy from diplomacy but along a continuum of strategy alongside it. “The American people are used to thinking of war and peace as two very distinct activities,” said Air Force Col. Jim Baker, one of Mullen’s advisers for military strategy. “That is not always the case.” In the speech, Mullen focused his definition of military force on the forward deployment of troops or hardware to bolster diplomatic efforts or aid in humanitarian ones, rather than the invasions that the last decade saw.

Italics mine. To be honest, I'm not sure the American people do think of war and peace as two very distinct activities. America has sent troops into significant combat actions eight times over the past three decades — more depending on what you count as "significant" — which means that the American public is pretty damn used to the idea of troops being sent overseas at virtually the drop of a hat. Sending troops into trouble spots is very much the norm for Americans, not an unusual occurrence. Mullen seems to be acknowledging this more than he is trying to change public perceptions about it.

Now, Mullen tempered his advice by suggesting we shouldn't send troops to war unless and until all the related civilian agencies were ready to go too:

Mullen’s major proposal is that the military should be deployed for future counterinsurgencies or other unconventional conflicts “only if and when the other instruments of national power are ready to engage as well,” such as governance advisers, development experts, and other civilians. “We ought to make it a precondition of committing our troops,” Mullen said, warning that “we aren’t moving fast enough” to strengthen the institutional capacity of the State Department and USAID in order to lift the greatest burdens of national security off the shoulders of the military.

Is this something that mitigates Mullen's seeming willingness to use military force more frequently? I'm not so sure. Partly it's just the same sniping between the Pentagon and the State Department that's been around forever but has become especially acute over the past decade. But it's also partly a positive recommendation that we beef up our civilian capacity so that we can intervene overseas more effectively. Mullen is apparently afraid that lack of civilian capacity will hamstring our ability to use military force in short, intense bursts, something that he thinks we should be better at.

This ought to be more controversial than it is. The Afghanistan and Iraq wars have made it clear that the occcupation phase of wars is as important as the main combat phase, so it makes sense to focus on improving that. At the same time, those wars (as well as Kosovo) have also made it clear just how difficult and resource intensive long-term occupations are. Getting "better" at it will be immensely costly.

So: just how good do we want to be at this stuff? Good enough that we can continue to intervene frequently in overseas conflicts? Or just good enough that we can do a decent job on the rare occasions when we really need to intervene overseas? I'd vote for the latter, but in any case, it's not a decision that should be made without lots of public buy-in in the first place.

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Deem and Pass

Kevin Drum — Tue, 16 Mar 2010 15:33:57 +0000

If you have a life, you don't care about the subject of this post and have never heard of it. But then there are the rest of us, the people who read (and write!) this blog, and for us the issue of the day is "deem and pass":

After laying the groundwork for a decisive vote this week on the Senate's health-care bill, House Speaker Nancy Pelosi suggested Monday that she might attempt to pass the measure without having members vote on it. Instead, Pelosi (D-Calif.) would rely on a procedural sleight of hand: The House would vote on a more popular package of fixes to the Senate bill; under the House rule for that vote, passage would signify that lawmakers "deem" the health-care bill to be passed.

The tactic — known as a "self-executing rule" or a "deem and pass" — has been commonly used, although never to pass legislation as momentous as the $875 billion health-care bill. It is one of three options that Pelosi said she is considering for a late-week House vote, but she added that she prefers it because it would politically protect lawmakers who are reluctant to publicly support the measure.

For Republicans, this is the latest sign of a liberal apocalypse. Here's Sarah Palin tweeting frantically: "Listen2 MARK LEVIN radio;he argues Obamacare passage plan UNCONSTITUTIONAL (will Dems care about that?) Art. I is clear how bill becomes law"

Well, whatever. Republicans have used this procedural tactic before too, Democrats have challenged it, and the Supreme Court ruled that it was fine. So they're on thin ice both on grounds of partisan hypocrisy and legal fundamentals. Still, it's remarkably tone deaf for Democrats to do this. Like it or not, process has become a big issue as healthcare has dragged along into its second year, and the public really does seem to have grown weary of endless procedural wankery. What's more, there's no benefit. Any Democrat who thinks that Republican attacks this fall are going to be blunted even a smidge because, technically, they voted for the package of fixes, not the main bill, is living in fantasy land.

In fact, it will probably just make things worse. They still will have voted for the Senate bill, but it'll look like they're trying to hide the fact. That's the worst possible tack they can take. For the fence sitters, their best hope is to pass the bill — through gritted teeth if they must — and then come out of the House chamber smiling broadly and proclaiming it a historic advance for ordinary Americans of all incomes etc. etc.

To summarize then: deem-and-pass won't help anyone, puts process back in the news, will give Republicans another free shot at Democrats, and makes individual House members look like cowards. But other than that it's a great idea.

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End of Day Roundup

Kevin Drum — Tue, 16 Mar 2010 05:55:15 +0000

Late night tab dump:

Healthcare. Is California a bellwether for the nation again? From the LA Times: "The state's uninsured population jumped to 8.2 million in 2009, up from 6.4 million in 2007....Among those over age 18, nearly 1 in 3 had no insurance for all or part of 2009, the UCLA researchers found. The ranks of uninsured children also grew."
The Middle East. Gen. David Petraeus recently dispatched a team to the Pentagon to carry a message: lack of progress in resolving the Israeli-Palestinian conflict is endangering American troops. "The 33-slide, 45-minute PowerPoint briefing stunned Mullen. The briefers reported that there was a growing perception among Arab leaders that the U.S. was incapable of standing up to Israel, that CENTCOM's mostly Arab constituency was losing faith in American promises....The Mullen briefing and Petraeus's request hit the White House like a bombshell."
Debt Bomb. We all know about the coming wave of option ARM resets and commercial real estate defaults. But in 2012 a huge pile of junk bonds are going to come due too. "With huge bills about to hit corporations and the federal government around the same time, the worry is that some companies will have trouble getting new loans, spurring defaults and a wave of bankruptcies....Even Moody’s, which is known for its sober public statements, is sounding the alarm. 'An avalanche is brewing in 2012 and beyond if companies don’t get out in front of this,' said Kevin Cassidy, a senior credit officer at Moody’s....The result is a potential financial doomsday, or what bond analysts call a maturity wall. From $21 billion due this year, junk bonds are set to mature at a rate of $155 billion in 2012, $212 billion in 2013 and $338 billion in 2014."

And in other news, Federal Express says that my new computer will arrive tomorrow. Hooray! Or maybe not. If I disappear from the intertubes but you hear lots of swearing and broken crockery from the general direction of the Pacific Ocean, you'll know that things aren't going so well.

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From the Annals of Laughable Threats

Kevin Drum — Mon, 15 Mar 2010 23:16:08 +0000

A bunch of people have already commented on this, but it's hard to resist piling on. On Sunday, Sen. Lindsay Graham warned that if Democrats push through healthcare reform via reconciliation, "it's going to poison the well for anything else they would like to achieve this year or thereafter." Today, Brian Darling of the Heritage Foundation agreed: "If they pull off this crazy scenario they are putting together, they are going to destroy a lot of the comity in the House."

Reasonable guy that I am, I'll concede that there's a colorable argument that Democrats haven't really tried all that hard to be genuinely bipartisan. Still, that pales compared to what Republicans have done. The GOP caucus voted virtually unanimously against a stimulus bill that was 40% tax cuts. They voted against the Waxman-Markey climate bill. They pretended to negotiate for months in the Senate over healthcare reform before Max Baucus finally figured out they weren't serious. Then they voted unanimously against it. Then they did the same thing to Chris Dodd over financial reform. They've held up nominees out of sheer pique. They've filibustered everything in sight, even bills they approve of, just to clog up the Senate calendar. If Democrats float a Mother's Day resolution this year, the GOP will probably filibuster it on the grounds that it doesn't explicitly exclude illegal immigrants.

So what can Graham possibly be talking about? I mean, we're talking about the guy who floated the notion that if Obama agrees to try al-Qaeda suspects in military tribunals then he'll round up Republican support for closing Guantanamo Bay, even though he must know full well that he can't possibly hold up his end of that bargain. The well was poisoned long ago. There's no comity left. Who do these guys think they're kidding?

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An On Time Departure for Iraq?

Kevin Drum — Mon, 15 Mar 2010 18:08:14 +0000

Juan Cole provides a quick update on how things are going in Iraq:

Al-Hayat [Life] is reporting in Arabic that Lt. Gen. Charles Jacoby now says that the US military withdrawal from Iraq is on schedule and that only 50,000 US troops will be in the country by the end of August. He also affirmed that the Iraqi military and police are now capable of keeping order in Iraq, saying that the role they played in providing security during the March 7 elections shows that they have made a big advance in their capabilities.

....The parliamentary election has also not developed into an obstacle to withdrawal. Indeed, it is likely to produce a government that looks somewhat like that of summer, 2006, with Nuri al-Maliki again prime minister....That al-Maliki is likely to get a second term has pros and cons for Washington. The pros are that there will be continuity in Iraqi politics, that al-Maliki has gotten control of the armed forces and will remain in control, and that while he has good relations with Iran, he is not as close to Tehran as some of the fundamentalist Shiite parties in the Iraqi National Alliance. The cons are that al-Maliki has shown little interest in reconciliation with secular, Arab nationalist Sunnis, that he has cultivated tribal militias loyal to himself, and that he has not shown very much interest in or capacity for starting and speeding along projects key to Iraq's economic infrastructure. Washington would no doubt prefer to have an anti-Iran prime minister like Allawi, and one less hostile to Israel.

On the troop question, this jibes with various reports out of the region, including one highlighted by Marc Lynch a few days ago. As for Maliki, my instinct is that the election might actually have gone as well as we could have hoped. A Maliki win provides some stability, which Iraq needs, but a close Maliki win means he still has to pay some attention to the Sunni bloc. There were plenty of worse outcomes possible.

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Quote of the Day: Crying on Demand

Kevin Drum — Mon, 15 Mar 2010 17:37:17 +0000

From Howard Kurtz, writing about Glenn Beck's on-air pyrotechnics:

Some staffers say they have watched rehearsals, on internal monitors, in which Beck has teared up or paused at the same moments as he later did during the show. Asked about this, Balfe responded sharply: "Glenn reacts the same way to issues whether he knows people are watching or not, and is proud to show his emotions, unlike the cowardly, two-faced critics who hide behind anonymity."

Take that, you cowardly critics who don't practice your tearing up to make sure you get it right when the cameras are rolling. Beck is just a perfectionist in a fallen world.

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