2012 - %3, July

Corn on MSNBC: Romney's Barclays Tie-Up

Tue Jul. 3, 2012 7:46 PM EDT

David Corn joined Georgetown Professor Michael Eric Dyson and political analyst Richard Wolffe on MSBNC's "Martin Bashir" to discuss how the Barclays interest-fixing scandal is hurting the Romney campaign. Barclays CEO Bob Diamond was set to host a fundraiser for Romney in London, before the bank was slapped with a $450 million fine and he was forced to resign.

They then discussed how the GOP message machine is misfiring on health care—and how even popular conservative pundits are complaining about Republicans as a result.

 

David Corn is Mother Jones' Washington bureau chief. For more of his stories, click here. He's also on Twitter.

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The Great Recession is All About Leverage, Leverage, Leverage

| Tue Jul. 3, 2012 7:32 PM EDT

Mike Konczal reads a new IMF report and insists that we pay attention to what it says. We're not having a long recession because it came in the wake of a financial crisis. We're having a long recession because households were overleveraged. The financial crisis was just a symptom:

There's a common wisdom among many elites that prolonged recessions are just what happens in the aftermath of a financial crisis. Most people who argue this derive it from Kenneth Rogoff and Carmen Reinhart's This Time It's Different. These arguments have always been a bit difficult to justify. Usually people who invoke them call for inaction, as if there isn't anything to be done but let the recession run its course.

The IMF report looks at OECD data on housing busts over the past 30 years and compares housing busts with large household leverage ratios with those with low ratios. Busts with large household leverage ratios have much bigger drops in consumptions years out, just like what we see in our recession. What is important is that this holds with or without financial crises.

They don't discuss it, but this implies that the causation runs the other way; countries that have giant drops in housing values and/or increases in debt-to-income ratios probably create financial crises. But this means that having a financial crisis, like we did, doesn't change the game; it just amplifies the case for normal demand-side stimulus.

In other words:

It's not: Financial crisis ---> recession

It is: Recession + leverage ---> financial crisis

According to NBER, the Great Recession started in December 2007. This is what caused the music to stop and sparked a financial crisis. But even without a financial crisis, households still would have been massively overleveraged, the music still would have stopped, and the housing bust still would have destroyed trillions of dollars of wealth.

Better policy during the aughts could have reduced the size of the recession. Failing that, better policy now could still reduce its length. And although Mike is right that there are people who nonetheless "call for inaction," he's wrong to identify them merely as generic "people." They're Republicans with a vested political interest in delaying recovery. Precision is important here.

Why Does It Take So Long to Build Stuff These Days?

| Tue Jul. 3, 2012 4:41 PM EDT

Today, Brad Plumer takes on one of my favorite fuzzy questions: why does it take so damn long to build stuff these days? There are several obvious candidates/caveats:

  • Environmental rules are a lot tougher. You can't just toss up a road these days and blithely ignore its impact on nearby streams and habitats.
  • There are a lot more legal delays than there used to be. Some come from NIMBY opposition, some come from interest groups, and some come from property owners. Put them all together and you spend a lot more time in court than you did in the past.
  • Building something brand new in a relatively empty area is pretty easy. Building a replacement in a place congested with infrastructure, especially when you have to keep the old thing operating until the new thing is finished, is a lot harder.
  • We're probably fooled by the length of time that a few high-profile projects take. We all carp about how it's taken over a decade to build the Freedom Tower — though the original WTC took that long too — but we barely notice that a hundred routine projects went ahead simultaneously and took no more time than they ever have.

On the environmental front, it turns out that approvals for big projects really do take a lot longer than they did in 1970: eight years on average instead of two, according to the Regional Plan Association of New York, New Jersey, and Connecticut. Does that mean environmental rules should be relaxed? Brad urges caution:

[As] the report notes, it’s quite possible to build large roads and bridges very quickly under existing environmental rules. Consider Minneapolis. Back in 2007, the city’s Mississippi River Bridge on I-34W collapsed, killing 13 people. It was a widely publicized disaster. Lots of headlines. What’s more, Minneapolis needed to rebuild the bridge immediately — it was a crucial route with heavy traffic. So all the local and federal agencies huddled together to make it work. And they managed to leap through all the environmental hoops and rebuild the bridge in less than 14 months:

Despite its urgency, the project was not granted a single waiver or exemption from the permitting or environmental review process. It completed the same NEPA steps as would any typical transportation project of a similar scope and scale. The only difference was the level of federal leadership and advanced coordination that occurred. All federal agencies and project sponsors understood their roles and responsibility and began work immediately upon hearing of the tragedy.

In a sense this is unfair. It's always possible for emergency projects to move quickly if you're willing to suck up resources and attention from other projects. But this isn't free: those other projects pay the price. In another sense, though, that's the whole point: if we streamlined agency coordination and committed to proper staffing, we could give that level of resources and attention to a lot more projects. If the RPA report is right, delays aren't inherent in the process, they're merely a product of how much money we're willing to spend.

However, this still doesn't answer the question of why environmental approvals take so much longer than they used to. Are the rules more complex? Is agency coordination worse? Or are we understaffing the agencies compared to the 70s? The RPA report has plenty of suggestions for improvement, but it doesn't answer that.

Feds Announce Record Fine for Michigan Oil Spill

| Tue Jul. 3, 2012 4:21 PM EDT

Just ahead of the two-year anniversary of the giant oil spill in Michigan, the federal government has handed down a $3.7 million fine and a notice of 24 violations to the Canadian company responsible for the pipeline.

The July 2010 incident dumped upwards of 20,000 barrels of diluted bitumen—a heavy form of petroleum—into the Talmadge Creek, a tributary of the Kalamazoo River. The Department of Transportation's Pipeline and Hazardous Materials Safety Administration said it is the largest fine the office has ever assessed. The company was also cited for failing to address corrosion in the pipeline, and for not responding fast enough to the spill.

But as Anthony Swift, an attorney with the Natural Resources Defense Council, points out, even that record fine probably isn't enough to make pipeline operators fix problems:

At $3.7 million, federal pipeline regulators are proposing the largest fine in the agency’s history for noncompliance with minimum safety standards – and yet it’s a tiny fraction of what compliance will cost Enbridge. Nearly a year after the Kalamazoo River spill, Enbridge announced that it would finally replace 75 miles of corroded pipeline on its Line 6B pipeline at an expected to cost $286 million. In this context, the PHMSA fine hardly amounts to a slap on the wrist, amounting to a small cost of doing business than a meaningful incentive to make the business decision that protects the public and environment.
Of course, the cost of the Kalamazoo spill, at over $750 million, far exceeds both PHMSA’s paltry fining authority as well as the cost of replacing corroded pipe and complying with regulations. However, remember that the Kalamazoo River tar sands spill was an order of magnitude greater than the worst case spill scenario anticipated by Enbridge. Overly optimistic risk assessments seem to permeate the pipeline industry. The National Transportation Safety Board (NTSB) found overly optimistic risk assessments to be one of the causes of the tragic, and preventable, San Bruno explosion which killed eight people.

For more on the Enbridge spill, see Inside Climate's excellent three-party series on the incident and its lasting impacts or this piece from Ted Genoways on a whistleblower who has been on a crusade to get the company to clean up its act. It's also worth noting that Enbridge has a history of spills in the US. Will a record fine lead to any changes at the company?

Aerial Firefighting Capacity Declines as Wildfires Grow

| Tue Jul. 3, 2012 1:09 PM EDT

C-130 air tanker dropping water: Technical Sergeant Rick Sforza, United States Air Force, via Wikimedia CommonsC-130 air tanker dropping water: Technical Sergeant Rick Sforza, United States Air Force, via Wikimedia CommonsThe US Air Force, which grounded the remaining seven of its eight C-130 air tankers after a crash in South Dakota on Sunday, has cleared the fleet to fly again today.

The downed C-130 was from an Air National Guard wing in Charlotte, North Carolina. Four of six crew members are confirmed killed, reports MSNBC.

The Air Force C-130s are are called upon when US Forest Service can't adequately fight wildfires with private and commercial fleets. This year all eight Air Force tankers were activated simultaneously to fight wildfires in the West. The last time that happened was in 2008.

Current large wildlfires underway in the US: USDACurrent large wildfires underway in the US (click here for larger version): USDA

You can see in the map above the location of large fires in the US as of 03 July 2012. Until the seven remaining USAF C-130s get back online, all 55 of these fires will be sharing 14 civilian air tankers for air support.

That's a sharp decline in aerial firefighting resources since a decade ago when 44 tankers were devoted to firefighting. Today only nine air tankers are flown exclusively on US Forest Service contracts, reports the Guardian:

President Barack Obama signed a bill last month hastening the addition of seven large tanker planes to the nation's rundown aerial firefighting fleet, at a cost of $24m, but the first planes won't be available until mid-August.

Further hampering the US fleet, another aerial firefighting plane, a Lockheed P2V, crashed in Utah recently, killing two pilots. Another crash-landed in Nevada with no loss of life.

 

Fire probability maps based on ensemble models of mean change (click for larger version): Max A. Mortiz, et al, EcosphereFire maps showing mean change (A, C) and degree of model agreement (B, D) for the periods 2010-2039 (top) and 2070-2099 (bottom). Click for larger version: Max A. Moritz, et al, Ecosphere Meanwhile a paper published last month in Exosphere, the open-access, peer-reviewed journal of the Ecological Society of America, forecasts big increases in wildfires in the Northern Hemisphere this century as global temperatures continue to rise.

As you can see in the map above (image D), the intermountain West of North America, large portions of Alaska, the Canadian Arctic, northern Scandinavia, plus most of Central Asia and Siberia are predicted to suffer 90 percent more fires between 2077 and 2099. Most of the rest of the Northern hemisphere is forecast to experience 66 percent more wildfires.

High Park Wildfire, Colorado: The National Guard via FlickrHigh Park Wildfire, Colorado: The National Guard via FlickrThe two trends—declining aerial firefighting capacity and increasing wildfires—makes for a highly combustible future.

Toss in the match from a recent paper in PNAS showing how wildfire suppression in the American West beginning in the 20th century created a monster build-up of combustible fuels, combined with a spread of fire-prone species and increased tree mortality from insects and warming temperatures...

Well, it looks like we're in danger of losing control of "the control of fire"—the only thing that truly separated us from other animals in our early evolution.

I wrote more about the PNAS paper here.

The GOP's Weirdly Misguided Obamacare Tax Frenzy

| Tue Jul. 3, 2012 12:08 PM EDT

After the Supreme Court ruled that the individual mandate was constitutional because it was a tax, conservatives went ballistic. President Obama raised taxes! But the GOP's presidential candidate, Mitt Romney, disagreed:

That message, delivered first by a top aide to Mr. Romney on television and later by the campaign, contradicts top Republican Party officials and leaders in Congress, who have spent the last several days eagerly accusing the president of levying a new tax.

....For much of Monday, Republicans sought to minimize the differences between themselves and Mr. Romney by trying to focus on Mr. Obama’s own shifting characterization of the health care mandate. In 2010, Mr. Obama said the mandate should not be called a tax.

I'm genuinely stumped by all this. Why are Republicans making such a big deal out of the mandate being a tax? I can think of at least four reasons why they shouldn't:

  • They know perfectly well that Romney can't agree on this. He implemented a mandate in Massachusetts, and he can never, ever concede that this was a tax.
  • Obamacare already includes plenty of other taxes. Does one more really help their message much?
  • Their whole crusade against the mandate has always been based specifically on the idea that it's a liberty-destroying command from the government to buy something you don't want. Even among the tea party set, a tax isn't viewed as anywhere near as tyrannical as a mandate.
  • What's the point? Everyone who hates the mandate will keep on hating it regardless of whether it's a tax or a penalty.

Seriously, I'm befuddled by this. The whole tax angle seems like a loser to me. It muddies up the notion that the mandate is unconstitutional, it creates obvious friction with their presidential nominee, and it seems unlikely to change anyone's mind or to gin up the base any more than it's already ginned up. Why are they doing this? Is it just reflex? What am I missing here?

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Maybe Destabilizing the Overnight Lending Market Would Be a Good Thing

| Tue Jul. 3, 2012 11:15 AM EDT

Stephen Williamson has a long post up today questioning the wisdom of having the Fed adopt NGDP targeting, someting that enjoyed a boomlet of blogosphere chatter a few months ago. Most of the post is above my pay grade, but something he said piqued my interest in a different subject. NGDP targeting, says Williamson, could produce instability in the overnight lending market:

I think there are benefits to financial market participants in having a predictable overnight interest rate, though I don't think anyone has written down a rigorous rationale for that view. Who knows what would happen in overnight markets if the Fed attempted to peg the price of NGDP futures rather than the overnight fed funds rate? I don't have any idea.

Tyler Cowen is more sanguine: "I believe overnight financial markets could adjust to a variety of reasonable regimes, and indeed the evidence across nations appears to confirm this." But I have a different question: why should we care? The modern financial system is heavily reliant on overnight lending, and it's the backbone of the shadow banking system. In 2008, the shadow banking system largely imploded, and a big part of the reason was its heavy reliance on ultra-short-term lending, which can be turned on and off almost instantly. When panic spread, the overnight spigot was turned off, and banks started to collapse. This was a major cause of the financial collapse and the resulting recession, and it's the reason that the Basel III rules adopted a couple of years ago required banks to rely more on stable, long-term funding.

Nonetheless, the shadow banking system, and its overnight lending backbone, is still enormous. And although I suppose we've gone way too far down this path to turn back now, I have to wonder just what, on a systemic level, we gain from having our financial system so dependent on overnight lending? Even if the overnight market didn't adjust well to NGDP targeting, and therefore shrunk, would that be an altogether bad thing?

How Much Do Red States Hate the Poor? The Medicaid Expansion Will Tell Us

| Tue Jul. 3, 2012 10:43 AM EDT

Ezra Klein outlines the incentives for states to sign up for the Medicaid expansion that's part of the Affordable Care Act:

Medicaid is jointly administered between states and the federal government, and the states are given considerable leeway to set eligibility rules. Texas covers only working adults up to 26 percent of the poverty line. The poverty line for an individual is $11,170. So, you could be a single person making $3,000 a year and you’re still not poor enough to qualify for Medicaid in Texas. That’s part of the reason Texas has the highest uninsured rate in the nation.

....[Under ACA] the feds will cover 100 percent of the difference between wherever the state is now and where the law wants them to go for the first three years, and 90 percent after 2020. To get a sense of what an incredibly, astonishingly, unbelievably good deal that is, consider this: The federal government currently pays 57 percent of Medicaid’s costs. States pay the rest. And every state thinks that a sufficiently good deal to participate.

But, somewhat perversely, the states that get the best deal under the law are states like Texas, which have stingy Medicaid programs right now, and where the federal government is thus going to pick up the bill for insuring millions and millions of people....That is to say, the less you’ve been doing on Medicaid so far, the more the federal government will pay on your behalf going forward. And that gets to an irony of the health-care law: Red states have, in general, done less than blue states to cover their residents, so they’re going to get a sweeter deal under the terms of the Affordable Care Act.

Of course, Texas's stinginess is also one of the reasons they've weathered the Great Recession better than some states. It's not the only reason, or even the main reason, but it's part of the story. And a state like Texas, that hates, hates, hates the idea of providing for its poor might hold out against Medicaid expansion a long time, even if the absolute cost to its taxpayers is fairly small.

Still, I agree with Ezra that most states will sign up eventually. In fact, I'll make a prediction: at least 45 states will have signed up by 2015. Sarah Kliff explains part of the reason why I think this is likely:

If one industry can claim to have the most riding on states participating in the health law’s Medicaid expansion, it’s near-certainly hospitals. They have nearly $40 billion riding on whether states sign up or not.

Hospitals regularly get stuck with bills that the uninsured cannot afford to pay. Every year, the American Hospital Association adds all those bills up to calculate the total amount of uncompensated care that its members provide. Every year, the number gets bigger and bigger, hitting $39.3 billion in 2010.

The Texas share of that bill is somewhere around $3 billion per year. So what happens if we sharpen our pencils and account for that?

Under ACA, the feds pay for 100% of Medicaid expansion for the first three years, and even after 2020 they pay for 90%. For Texas, this probably means that once Medicaid expansion is fully phased in, it will cost them perhaps $2-3 billion per year, with the rest of the tab picked up by the federal government. That's a pretty small bill to begin with, but as the AHA notes, Texas and its hospitals are already paying for medical care for the people covered by Medicaid expansion. Some of that comes via emergency care, some comes via indigent care at the local level, and some comes via other state programs. A lot of that could be offloaded onto Medicaid under the new rules, so once you run the numbers it's possible that signing up for Medicaid expansion is actually a net savings for Texas.

No matter how much Rick Perry resents Obamacare, that's hard to turn down. At worst, the net cost to Texas is probably no more than a billion dollars or so, and at best they might even come out ahead. You'd have to hate the poor an awful lot to block the hospital door for long under those circumstances.

Corn on MSNBC: Romney's Abortion Investment

Tue Jul. 3, 2012 10:14 AM EDT

Mother Jones DC bureau chief David Corn joined host Lawrence O'Donnell on MSNBC's The Last Word to discuss Mitt Romeny and Bain Capital's $75 million investment in Stericycle, a company that disposes of medical waste—including aborted fetuses. Read his investigative piece on the subject here.

David Corn is Mother Jones' Washington bureau chief. For more of his stories, click here. He's also on Twitter.

Has the Supreme Court's Political Dynamic Shifted?

| Tue Jul. 3, 2012 9:48 AM EDT
Chief Justice John Roberts chats with Associate Justice Elena Kagan.

While being attacked as a "traitor" by conservatives, Chief Justice John Roberts is enjoying a bit of a boomlet with liberals for voting to uphold most of the Affordable Care Act. But Roberts will soon get a chance to prove himself to conservatives once again, as Politico's Josh Gerstein reports:

The chief will have plenty of chances to make his mark in the next term. Already, the justices are planning to delve into the politically charged issue of affirmative action. They may well add hot-button disputes over same-sex marriage rights and voter ID laws. And the court could even take up the constitutionality of the landmark law Congress passed nearly half a century ago to guarantee African-Americans equal access to the polls: the Voting Rights Act.

Roberts has been deeply hostile to the federal government's efforts to rectify racial inequality. Among his first big cases as chief justice was invalidating a school integration program with the tautological phrase, "The way to stop discrimination on the basis of race is to stop discriminating on the basis of race," as though there were any effective way to address racial imbalances without considering race. The high court came within a hair of striking down parts of the Voting Rights Act with the conservative justices issuing an implicit warning that they would not hesitate to do so should another challenge reach them. It seems unlikely that Roberts will give one of the most important pieces of legislation in history, the law that finally guaranteed black Americans' access to the franchise, another stay of execution. And having voted to uphold the Affordable Care Act, conservative outcomes in these cases would be insulated against liberal criticisms that the court has become politicized. 

While conservatives are bashing Roberts, Justice Anthony Kennedy's star is on the rise on the right thanks to his vote to strike down the Affordable Care Act. An upcoming case over gay marriage may determine whether his improved reputation among conservatives will endure. Republicans have appealed to the Supreme Court to hear a challenge to the Defense of Marriage Act, an issue on which Kennedy, who wrote the 2003 opinion striking down anti-sodomy laws in Lawrence v. Texas, is expected to be the swing vote. Perhaps conservatives think they win either way: If part of DOMA is struck down, religious conservatives will be more likely to flood the ballot box in November; if it's upheld, then DOMA's federal definition of marriage that excludes same-sex couples remains the law of the land.

Republicans may believe that Kennedy's vote to strike down the Affordable Care Act is a sign of a newly permanent allegiance to the court's right-wing bloc. My colleague Kevin Drum certainly seems to think so, having written that "it's really not correct to think of Kennedy as a centrist anymore." It was never really proper to view Kennedy as a centrist rather than a conservative. But Drum is being pessimistic, and Republicans cocky, if they think Kennedy is now a clone of Justice Antonin Scalia, whose recent opinions owe more to Fox News than James Madison. The same judicial philosophy that led Kennedy to join with the Democratic appointees to strike down most of Arizona's draconian immigration law and find mandatory juvenile life without parole unconstitutional could also lead one to see the individual mandate as an unconstitutional infringement on personal liberty. It could also cause Kennedy to view DOMA as a prime example of federal overreach. Kennedy has always been a conservative with a bit of a libertarian streak. 

The cases likely to come before the court in the near future will provide plenty of opportunity for Roberts to restore his standing with conservatives and for Kennedy to remind liberals that he's no Scalia. As with the Affordable Care Act case, however, it's anyone's guess how they'll actually turn out. Thanks to Roberts' vote to uphold Obamacare, the high court has a newfound legitimacy that will make it difficult to decry the results as partisan.