2010 - %3, June

Federal Stimulus, State Sedative

| Wed Jun. 30, 2010 10:03 PM EDT

Over at The Corner, Ramesh Ponnuru recommends a post by Alan Reynolds of Cato:

A recent Washington Post column by Ezra Klein dreamed up a new excuse for the conspicuous failure of Obama’s so-called stimulus plan. Klein argues that the stimulus of federal spending has been offset by the “anti-stimulus” of fiscal austerity by state and local governments.

....But it is easy to identify each sector’s direct contribution to the overall growth rate of real GDP from a St. Louis Fed publication, “National Economic Trends.” State and local government spending was rising during the first three quarters of the recession, and the drop in the fourth quarter of 2008 accounted for just 0.25% of the 5.37% annualized decline in GDP. In the first quarter of 2009, state and local spending subtracted just 0.19% from real GDP, but federal spending subtracted more (0.33%) due to cuts in defense spending. Government obviously made only a minor contribution to the 6.4% drop in overall GDP.

....The table shows that government spending on goods and services had nothing to do with the recovery (transfer payments don’t contribute to GDP). As a matter of simple accounting, the state and local sector has been a very minor negative force — scarcely comparable to the Fed’s inaction in 1930-32.

This is a very peculiar argument. If you cut through the fog of words, here's the table from the St. Louis Fed report that Reynolds is relying on:

The stimulus bill passed in February 2009 and presumably started taking effect in the second quarter of 2009 and beyond (red shaded area). Add up the numbers and they show that federal spending was responsible for 1.58 percentage points of GDP growth during that period while state spending was responsible for -0.36 percentage points of GDP growth. Look at just the three most recent quarters and it's even worse: 0.73 points of growth from the feds and -0.84 points from the states. In other words, it's exactly what Ezra said: the federal stimulus has been largely offset by declines in state spending.

Now, it's true that federal spending in general has a fairly small impact on total GDP. But that's because when you remove transfer payments the federal government only accounts for about 15% of total spending. The rest is private sector. There's nothing mysterious about this.

I dunno. Maybe I'm missing something. I'm not sure that this is a very illuminating way to judge the effect of the stimulus on GDP in the first place, but to the extent that it is, it backs up Ezra completely: the federal stimulus has been largely counteracted by state cutbacks, just like he said.

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Time to Repeal Godwin's Law

| Wed Jun. 30, 2010 6:16 PM EDT

You know what I'm tired of? Godwin's Law. Who do I need to see about getting it repealed?

In theory, of course, Godwin's Law is merely descriptive. But in practice it's an endlessly tiresome way of feigning moral indignation. Here's how it usually works in real life:

  • Person A makes a comparison between something happening today and something the Nazis did.
  • Person B expresses outrage. How dare you?!?
  • Person A clarifies, and the clarification is always the same: I'm not saying that today's bad thing is as bad as what the Nazis did. I'm just illustrating.
  • Person B will have none of it. All comparisons to Nazis are ipso facto outrageous.

Glenn Greenwald and Joe Klein act out this kabuki to perfection today. You can put me on Glenn's side here. Not on the substance of the argument (where I think both sides have a point), but simply on whether or not it's OK to illustrate a point by reaching into the history of World War II for an analogy. I say: why not? WWII analogies are extremely useful because they're familiar to almost everyone. In this case, Glenn is arguing that the invasion of Iraq wasn't justified by the fact that the Kurds welcomed it, and he could have illustrated his point by saying that, likewise, Vietnam's invasion of Cambodia wasn't justified because they were welcomed by some of the survivors of the killing fields. But you know what? Not many U.S. readers are familiar with that bit of history, so the analogy wouldn't help much. If you're looking for something that lots of people will understand quickly, Hitler and World War II are fertile fields.

Yes, yes: historical analogies should be used carefully, and if you really are suggesting that [blank] is as bad as Hitler/Nazis/the Holocaust, then you'd better be damn sure you mean it. But if you're just reaching for a point of comparison that will be widely understood, then why not? Contra Klein, this isn't a "litigator's trick." It's just a handy way of making an easily understood comparison. And if Godwin doesn't like it, tough.

The Politics of Healthcare Reform

| Wed Jun. 30, 2010 4:49 PM EDT

So how's healthcare reform doing among the unwashed masses? According to a new Kaiser poll:

  • 48% have a favorable view of the law.
  • 41% have an unfavorable view.
  • Of that 41%, only 27% want the law repealed. (The remainder think it ought to be given a chance for a while.)

That doesn't bode well for conservatives who think that wholesale repeal is the road to electoral victory in November — though admittedly that 27% number might be higher in certain specific right-leaning swing districts where Democrats are most vulnerable. Still, as Jon Cohn points out, overall approval of healthcare reform, as measured by Pollster's poll averaging, is slowly but steadily increasing. It's gone up from 40% to 44% since February and has now crossed the critical point where it's viewed as a net favorable. If it keeps trending this way for the rest of the year, it'll be at around 49% approval by November.

The overall politics of repeal still differs dramatically in different congressional districts, of course, but numbers like this make it virtually impossible for the Republican leadership in Congress to seriously push for total repeal as a partywide platform. Like it or not, healthcare reform is here to stay.

5 Ways the Chamber Shills For BP

| Wed Jun. 30, 2010 4:16 PM EDT

Earlier this year, Tom Donohue, the CEO of the US Chamber of Commerce, described himself and his colleagues as industry's "political reinsurance salesmen." He explained: "We're the people that you could come to. . .when you were in trouble [and we] were going to be there for you." Well, the reinsurance policy that the Chamber sold to BP has been activated in grand form. Here are five ways that the US Chamber of Commerce has shilled for the unpopular oil company since the early days of its Gulf disaster:

  • On Monday, the Chamber pushed for a permanent end to the Obama administration's ban on deepwater oil drilling. Karen Herbert, the president of the Chamber's Institute for 21st Century Energy, said the ban "has had a chilling effect on activity" in the Gulf and shouldn't block" responsible development."
  • This week, the Chamber is lobbying against the SPILL Act, which would overturn an archaic law, the Death on the High Seas Act, that limits the ability of ship passengers (and the families of dead Deepwater Horizon workers) to sue for damages.
  • Last week, a lobbyist for the Chamber's Institute for Legal Reform helped defeat a bill in the Louisiana legislature that would have made it easier for the state's attorney general to sue BP for damages. The bill would have allowed the AG to try the case with the help of private attorneys working on contingency, a privilege that allows AGs in 48 other states to attract top legal talent.
  • In a roundtable discussion held in May by the Christian Science Monitor, Donohue said that Congress should not lift a $75 million cap on BP's liability for the spill. "It's generally not the practice of this country to change the laws after the game," he said. He also complained that oil execs were being "unfairly beat up like unruly children for the TV cameras." And he argued that some of the gusher's cleanup cost would need to be shouldered by taxpayers: "Everybody is going to have to contribute to this cleanup," he said. "We’re all going to have to do it. . . .We’re going to have to get the money from the government and the companies.  And we’ll figure out a way to do that."
  • In early May, the Chamber lobbied hard for an amendment to the Senate's financial reform bill that would create a regulatory loophole for many companies that use derivatives, the risky financial instruments that played a large role in the financial crisis. The loophole would apply to BP.

And the love between the Chamber and BP doesn't stop there. Even before the Deepwater Horizon exploded, the Chamber and its affiliates were working extensively to loosen government controls on the British oil company. In 2006, BP gave $3 million to a 527 group that was created by Allan Zaremberg, the president of the California Chamber of Commerce, to defeat a tax on oil and gas producers that would have funded alternative energy research. And of course, the US Chamber has led efforts to water down carbon caps in national climate legislation—a move that BP supports despite its rhetoric about going "beyond petroleum."
 
Clearly, though, BP needs the Chamber more now than ever. Any lobbying that BP does in Washington would be useless if not counterproductive at this point, yet the nation's baddest big business bully still inspires fear on Capitol Hill. Still, even the mighty Chamber must ponder how long to defend the most unpopular kid in class. Because when Democrats and Republicans alike are distancing themselves, the Chamber's reinsurance comes at a hefty political price.

 

Chart of the Day: Torture for Thee, But Not For Me

| Wed Jun. 30, 2010 1:48 PM EDT

Via Andrew Sullivan, a new study from the Joan Shorenstein Center finds that major U.S. newspapers routinely referred to waterboarding as torture until 2002, when they suddenly stopped. Unsurprisingly, the U.S. media's attitude toward waterboarding depended almost entirely on who was doing it:

News articles that considered other countries or individuals committing waterboarding were far more likely to classify waterboarding as torture than articles that dealt with the U.S. using waterboarding.

In the NY Times, 85.8% of articles (28 of 33) that dealt with a country other than the U.S. using waterboarding against an individual called waterboarding torture or implied it was torture. Yet when the U.S. was the perpetrator, only 7.69% (16 of 208) articles said or implied that waterboarding was torture. Just 0.8% of the articles (1 of 133) dealing with the War on Terror where the U.S. was the perpetrator said or implied that waterboarding was torture.

The LA Times follows a similar pattern of avoiding the label of torture when the U.S. is responsible for using waterboarding. In articles that considered other countries using waterboarding, 91.3% of articles (21 of 23) called waterboarding torture or implied the practice was torture. When the U.S. was the violator, only 11.4% of articles (9 of 79) used this classification.

As always, where you stand depends on where you sit.

EPA Releases Dispersant Test Results

| Wed Jun. 30, 2010 1:45 PM EDT

The EPA just released the first round of results from its ongoing testing of dispersants. The agency has been studying at the short- and long-term impacts of Corexit, the type of dispersant BP has been using in massive quantities in the Gulf, and seven alternative products. Here's the agency's conclusion:

EPA’s results indicated that none of the eight dispersants tested, including the product in use in the Gulf, displayed biologically significant endocrine disrupting activity. While the dispersant products alone—not mixed with oil—have roughly the same impact on aquatic life, JD-2000 and Corexit 9500 were generally less toxic to small fish and JD-2000 and SAF-RON GOLD were least toxic to mysid shrimp.

The release includes this key caveat, however: "While this is important information to have, additional testing is needed to further inform the use of dispersants." This is only the "first stage" of testing, the agency said.

The agency also upheld their directive last month that BP reduce the use of dispersants in the Gulf, noting that "EPA believes BP should use as little dispersant as necessary." (BP has not been meeting the agency's goals, however.)

"We want to ensure that every tool is available to mitigate the impact of the BP spill and protect our fragile wetlands," said EPA administrator Lisa Jackson in a statement. "But we continue to direct BP to use dispersants responsibly and in as limited an amount as possible."

The next phase of EPA's testing will assess the acute toxicity of multiple concentrations of Louisiana Sweet Crude Oil alone and in combinations with each of the eight dispersants.

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Is the CBO Playing Politics?

| Wed Jun. 30, 2010 12:44 PM EDT

When the CBO estimates future federal budget deficits, it uses two scenarios. The first is the "current law" baseline scenario, which is just what it sounds like: it assumes that everything unfolds as if current law stays in effect forever. Everyone understands that this is a fantasy.

So they also have an "alternative scenario." If, for example, Congress "fixes" the alternative minimum tax every year without fail, then CBO assumes it will continue doing this even if Congress never permanently changes the underlying law. Ditto for several other things that Congress tends to deal with on an ad hoc basis every year.

But this year CBO has done something new: it has assumed that virtually none of the cost savings in the recently passed healthcare reform bill will take effect. Brad DeLong, assuming the guise of "Technocrat" in a debate in which he plays all sides, cries foul:

The alternative baseline is now based on judgments about the strength of the doctors' lobby and about the configuration of American rent-seeking politics rather than being merely an attempt to construct an honest baseline. It's not clear to me that CBO has the expertise to make such judgments. It is clear to me that if it is going to make them, it needs to back them up much more comprehensively than it has done.

The CBO does itself a disservice if it starts getting too heavily involved in political calculations like this. They've already made their best estimates about what effect healthcare reform will have on the federal budget, and if they want to change those estimates they should do so openly. But simply assuming that a future Congress will kill all cost savings measures with no special evidence to back that up? That's just not their job. CBO is supposed to be an honest broker, not a Washington Post op-ed columnist.

Love Boat Lobby Fights BP Victims

| Wed Jun. 30, 2010 12:13 PM EDT

A few weeks ago, I wrote a story about how the families of the Deepwater Horizon explosion victims can't really sue for major damages over BP's negligence in the explosion, thanks to an ancient maritime law called the Death on the High Seas Act (DOHSA). The story predicted that while Congress was attempting to remedy that situation with the SPILL Act, one of the biggest obstacles to justice for the rig workers would not be BP but the cruise ship industry, whose passengers occasionally suffer untimely deaths, disappearances and other accidents at sea.

Well, turns out the Love Boat lobby has indeed stepped up to do BP's dirty work in fighting the SPILL Act. Late Tuesday, the Cruise Lines International Association (CLIA) sent a letter to members of the Florida congressional delegation "strongly" opposing the bill because it would allow cruise ship victims to sue the companies for noneconomic damages. That would open the industry up to real liability for all the crime and other bad stuff that happens to hapless passengers. CLIA says the bill would expose it to lawsuits that could prove to be extremely unpredictable, the same line Exxon took in its many appeals of the Valdez lawsuit. CLIA is joined in its campaign by the U.S. Chamber of Commerce, which naturally is opposed to any law that might make it easier for the little people to sue big corporations that kill them.

How the floating hotel biz will fare is unclear. Lobbying on the other side along with the BP workers' families are the Parents of Murdered Children, the National Center for Victims of Crime, and the International Cruise Victims Association, which is made up of lots of families of people who went on cruises and never came back. They have pretty compelling stories to combat the industry's need for "predictability." But as Kendell Carver, ICA's president, wrote on June 17 to Rep. John Conyers (D-Mich.), the cruise ship industry has spent millions to avoid liability for accidents on its ships (some of which seem like the stuff of a summer blockbuster disaster movie). Meanwhile, ICV is an all-volunteer organization with pretty much no money to fight back. We'll see whose influence prevails this afternoon, when the House is scheduled to vote on the bill.

The Conservative Alternate Universe

| Wed Jun. 30, 2010 12:02 PM EDT

Steve Everly responds to David Roberts's call for a carbon tax to address global warming:

The last time we imposed a tax regime of this scale was when the Progressives convinced us we needed an income tax. Four years after the 16th Amendment, Congress raised the top rate from 7 percent to 67 percent, partially to pay for cost overruns in administering the tax itself.

This is what makes debating with conservatives such a pleasure. The federal income tax was introduced in 1913. Four years later was 1917. The legislation that raised the top rate to 67% was called the "War Revenue Act." Anyone want to take a guess about just how big a factor "cost overruns in administering the tax itself" was to this measure?

The rest of the conversation isn't much more edifying. Better conservatives, please.

Fixing Social Security

| Wed Jun. 30, 2010 11:38 AM EDT

Megan McArdle responds today to the idea of balancing Social Security's books in one fell swoop by removing the cap on earnings that are hit by the payroll tax. This cap changes with inflation each year and it's currently set at a little over $100,000. If we removed the cap and taxed all income, Social Security's financing would be in great shape:

This is not actually surprising, since what this amounts to is hiking the marginal tax rates on high incomes by 15 percentage points--making the Federal Tax take on the highest incomes 55% in 2012, assuming that Obama/Congress follows through and allows the Bush tax cuts to expire in 2011.

This is obviously a gigantic hike, and moreover, when Medicare and state/local taxes are added in, would push the tax burden on the highest incomes to over 2/3 in the hightest tax jurisdictions.

Whatever you think of this plan, this is not an easy solution. It would be fought bitterly in Congress; it would cause high earners to put enormous effort into generating income in forms (capital gains) that are not subject to payroll tax; and at that level, you would start seeing serious avoidance activity, as well as possibly simply diminished effort.

This is basically right — though I think the marginal increase would be 12.4%, not 15%. But that's still a helluva lot. If we're ever going to raise marginal rates on the rich by that amount, I'd want to use it for more than just balancing Social Security's books.

Really, though, you don't need to go down this road. Contra Megan's headline ("No Easy Way To Fix Social Security"), Social Security is a pretty easy problem to address, and the reason it's easy is that you don't have to limit yourself to a single big solution. In fact, Social Security reform practically cries out for a basket of small, almost imperceptible changes. You could, for example, partially uncap the payroll tax or change the tax rate slightly (or a combination of the two); gradually increase the retirement age to 68; and adjust the inflation calculation for annual benefits slightly. This would fix Social Security's problems entirely and would be barely noticeable for most people. There are lots of other possibilities, and the more of them you put together the less painful they are. Chapter 4 of this report can help you put together your own plan.

There are several nice things about Social Security. First, it's a long-term problem. The trust fund doesn't go out of balance for several decades, so we have plenty of time to phase in changes slowly. Second, its demographics are well known and flatten out after about 2035. Unlike Medicare, which will need constant vigilance over the next few decades, a proper Social Security fix probably only has to be done once. And third, Social Security's funding problem is modest (less than 2% of GDP) and can be solved without very much pain.

Of course, even given all that, we still haven't solved it. Needless to say, this doesn't bode well for our ability to fix genuinely hard problems like climate change and healthcare costs.