Kevin Drum

Taxing the Rich

| Mon Jul. 26, 2010 2:16 PM EDT

I may be more sympathetic to certain kinds of regulations than Matt Yglesias is, but I'm certainly open to higher taxes on the rich as well. Via Matt, then, here's a Wall Street Journal chart showing exactly who would be affected by Obama's tax plan (which allows Bush's tax cuts on high earners to expire) vs. the Republican plan of extending the entire Bush package. Call me crazy, but after a decade of living large in ever more sumptuous beach houses and promoting policies that almost wrecked the economy, I think the folks earning a million bucks a year can probably afford to pay an extra 5% in taxes. Seemed to work OK in the 90s, anyway.

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Should Your Boss Get To See Your Credit Report?

| Mon Jul. 26, 2010 12:31 PM EDT

Should we ban businesses from pulling your credit score as part of their hiring process? Megan McArdle thinks it's a lousy practice, but not one that the government should prohibit:

I've no doubt that there are a few people out there who have been unjustly hurt by this; but we cannot regulate every bad business decision that hurts a few people. Each regulation may sound fine on its own, but collectively, they massively raise the compliance cost of starting a business and hiring workers, two things we want to support. So we need to set some sort of bar to ensure that we're only regulating things that have substantial, widespread negative impact.

Yesterday I used this as the jumping-off point for a massive lament on the subject of how liberals talk about regulation, but today I want to make a much more specific point: I don't think of this as a regulation that should be aimed at small businesses or at hiring managers in general. Rather, I think of it much more broadly as a regulation that should be aimed at the credit reporting agencies who are aggressively marketing this service. In the same way that medical records are available only to people with a legitimate medical need, I think that credit records should be available only to those who actually extend credit. Beyond that, they're private. Employers don't get them, the FBI doesn't get them, journalists don't get them, and my neighborhood association doesn't get them. I don't care how much each of these people really, really thinks it would be handy to have a peek at them. Short of a subpoena or a court order, my financial records are my business. You can't have them.

Does this raise the compliance cost of starting a business? Hardly. If a prospective employer asked my doctor for a copy of my medical records, he'd just say no. The compliance cost is zero. Ditto for credit scores. Until a few years ago no one bothered asking for them, and if releasing these records were prohibited, they'd go back to not bothering. The compliance cost is zero. As for the credit reporting agencies, they've been placed in a privileged position where they're allowed to collect sensitive privateinformation — just as doctors and banks and census takers are. That privileged position means they have a heightened responsibility for maintaining privacy, not a license to use their databases for anything that can make them an extra buck or two.

I'm a privacy crank. I know that I don't always persuade people that we should take this stuff more seriously, especially in an era of Facebook and Twitter and thousands of databases just a mouse click away. But I wish we would. As Megan points out, "I sort of suspect it's not the CFO who has to submit to the indignity of having HR paw through his credit card utilization and unpaid library fees." If CFOs deserve to have their privacy respected, so do the rest of us.

UPDATE: Just to make myself clear: I'm not proposing that we make any changes to employment law regs. Let employers do whatever they want. I am proposing that we write a regulation prohibiting credit reporting agencies from releasing credit information to anyone not directly involved in extending credit. This wouldn't add any burden to businesses or give them any additional rules they have to know about. It only affects the credit bureaus.

Front page image courtesy of Laughing Squid/Flickr.

Carbon Pricing and Regulatory Uncertainty

| Mon Jul. 26, 2010 11:17 AM EDT

Bloomberg writes today about the months-long effort by utility companies to get Congress to pass a climate bill that includes a cap-and-trade component. Industry lobbyist Ralph Izzo is discouraged:

“I don’t know what more you can do,” Izzo said. “We are essentially volunteering to be the first to be regulated and people don’t want to do it.”

....“The odds are still very long,” said David Brown, senior Vice President for Federal Government Affairs at the Chicago- based utility Exelon Corp., who estimates he’s held hundreds of meetings with senators and staff on the issue. “Everybody’s just exhausted.”

Utility companies anticipate Congress will eventually pass legislation that mandates reductions in greenhouse gases and favors renewable sources of energy, rather than letting the U.S. Environmental Protection Agency decide how best to regulate.

Still, not knowing when Congress will step in makes planning investment difficult. “There’s a lot of capital sitting on the sidelines just waiting for more regulatory clarity,” said Lewis Hay, CEO of Juno-Beach, Florida-Based NextEra Energy Resources LLC.

Italics mine. Conservatives keep complaining that the recession isn't really the fault of weak demand, it's the fault of businesses holding back on investment because of uncertainty over new regulations. This is about 90% bogus, but to the extent it's true, one solution is simply to pass regulations that make the investment picture clearer. A cap-and-trade bill would have done that. But now that it's been killed, no one knows what will happen next. Regulations from the EPA based on the Clean Air Act? A carbon tax sometime in the future? Or what?

You want regulatory certainty? Pass a cap-and-trade bill. This makes it clear what the primary regulatory tool will be; it makes it mostly clear what the future price of carbon emissions will be; and those who want even more clarity can largely hedge away the remaining uncertainty in the futures market if they want to. But now, none of that can be done. And the planet will continue to heat up. And we run the risk of the EPA being forced to make things worse by applying a badly-constructed law to the problem. Nice work, conservatives.

The Afghanistan Document Dump

| Mon Jul. 26, 2010 12:48 AM EDT

[For more on the WikiLeaks Afghan document dump, read posts by Dave Gilson here and Adam Weinstein here.

A long-awaited trove of secret government documents related to the war in Afghanistan has finally been released by WikiLeaks. There are about 92,000 documents in all, covering the years from 2004 through 2009. Three news organizations were allowed access to the documents several weeks ago on condition that they not write about it until today: the New York Times, the Guardian, and Der Spiegel. Both the Guardian and Times reports offer short bullet lists of the most dramatic revelations from the document dump. Although written independently, they're pretty similar:

New York Times


The Taliban have used portable heat-seeking missiles against allied aircraft, a fact that has not been publicly disclosed by the military. This type of weapon helped the Afghan mujahedeen defeat the Soviet occupation in the 1980s.

How the US covered up evidence that the Taliban have acquired deadly surface-to-air missiles.

Secret commando units like Task Force 373 — a classified group of Army and Navy special operatives — work from a “capture/kill list” of about 70 top insurgent commanders. These missions, which have been stepped up under the Obama administration, claim notable successes, but have sometimes gone wrong, killing civilians and stoking Afghan resentment.

How a secret "black" unit of special forces hunts down Taliban leaders for "kill or capture" without trial.

The military employs more and more drone aircraft to survey the battlefield and strike targets in Afghanistan, although their performance is less impressive than officially portrayed. Some crash or collide, forcing American troops to undertake risky retrieval missions before the Taliban can claim the drone’s weaponry.

How the coalition is increasingly using deadly Reaper drones to hunt and kill Taliban targets by remote control from a base in Nevada.

The Central Intelligence Agency has expanded paramilitary operations inside Afghanistan. The units launch ambushes, order airstrikes and conduct night raids. From 2001 to 2008, the C.I.A. paid the budget of Afghanistan’s spy agency and ran it as a virtual subsidiary.



How the Taliban have caused growing carnage with a massive escalation of their roadside bombing campaign, which has killed more than 2,000 civilians to date.

The Guardian has a very good collection of key documents here. WikiLeaks has the full document dump here. There are plenty of interesting details in the Guardian pieces, but if the bullet points above really are the biggest news from this trove, there's not an awful lot there. The commando groups have hardly been a secret, while the increase in drone strikes, the CIA's growing paramilitary activities, and the Taliban's bombing campaign have not only not been a secret, they've practically been the center of PR campaigns to make sure everyone knows about them.

On the other hand, the news that the Taliban is using surface-to-air missiles is genuinely new, as is the revelation that even now the military isn't entirely forthcoming about civilian casualties — though this apparently improved after Gen. Stanley McChrystal took over last year. Overall, however, the basic picture is basically the one we've known for a long time: a difficult, chaotic battlefield that's shown little progress since the very beginning of the war.

The GOP's Economic Nihilism

| Sun Jul. 25, 2010 11:56 PM EDT

Martin Wolf on the future of fiscal policy in America:

My reading of contemporary Republican thinking is that there is no chance of any attempt to arrest adverse long-term fiscal trends should they return to power. Moreover, since the Republicans have no interest in doing anything sensible, the Democrats will gain nothing from trying to do much either. That is the lesson Democrats have to draw from the Clinton era’s successful frugality, which merely gave George W. Bush the opportunity to make massive (irresponsible and unsustainable) tax cuts. In practice, then, nothing will be done.

You should read the whole post. It's mostly a recap of the past 30 years of Republican economic nihilism, but it's a very clear, crisp recap. Wolf's conclusion is sobering:

This is extraordinarily dangerous. The danger does not arise from the fiscal deficits of today, but the attitudes to fiscal policy, over the long run, of one of the two main parties. Those radical conservatives (a small minority, I hope) who want to destroy the credit of the US federal government may succeed. If so, that would be the end of the US era of global dominance. The destruction of fiscal credibility could be the outcome of the policies of the party that considers itself the most patriotic.

Our best hope, I think, is that Republicans nominate a Palin/Ryan ticket in 2012 and then go down to such an epic defeat that they finally get some sense knocked into them. On the other hand, the last time that happened we got Richard Nixon out of the deal. So maybe we're just doomed no matter what.

Liberalism and Big Business

| Sun Jul. 25, 2010 2:03 PM EDT

As part of my therapy regime to reduce the pain in my neck and shoulders, I've been trying to blog less on weekends. In fact, I've been trying to stay away from the keyboard entirely on weekends. That should be pretty easy for the rest of the day, which will be dedicated to setting up my mother's new computer, which might be bad for my sanity but probably good for my shoulders.

In the meantime, though, I see that his trip to Vegas has prompted Matt Yglesias to double down on his argument against corporate regulation. Here's the original version:

Regulate business to prevent negative environmental externalities, sure. Basic safety, okay. But the idea that what we need is for a bunch of people to get together and say that it would be better to ban this and that and the other capitalist act between consenting adults just strikes me as the wrong way of going about things. Purely economic regulation of this sort doesn’t have a compelling track record, runs into all kinds of Hayek-esque knowledge problems, and is basically an open invitation down the road for regulatory capture and the use of rules to prevent the emergence of competition. Count me out. For me, it’s all about higher taxes to finance more and better public services. That’s my brand of liberal economics — take the rich people’s money and use it to pay for stuff, don’t tell them what to do with the companies they run.

And here he is on Saturday, responding to my post about the increasingly popular practice of checking job applicants' credit scores before hiring them. At first, he says, this sounds good:

But at the same time I try to adhere to the principle I outlined here and resist the urge to call for regulating the business practices of private firms when the issue isn’t pollution or some other case where the externalities are clear. After all, it seems like either this credit check business is a sound business practice (in which case allowing it is making the economy more efficient and ultimately building a more prosperous tomorrow) or else it’s an unsound business practice (in which case competition should drive it out).

The more I think about this, the more it bothers me. Which is odd, in a way, since I'm not really a ravenous supporter of micro-regulating the business community. For example, I'd like to see labor unions spend more time negotiating pay and benefits and a lot less time negotiating the kind of stultifying work rules that drive managers crazy. I agree with conservatives that Sarbanes-Oxley went too far and probably ought to be scaled back. And I agree with Matt that local zoning regs often become little more than hammers for NIMBYism and soft corruption.

So I get where this is coming from. Still, there are some fundamental questions here about how we expect businesses to treat both employees and consumers, and not all of those questions can be reduced to dollars and cents and higher marginal tax rates. Partly this is because, practically speaking, the rich and powerful are — well, they're rich and powerful and will never allow marginal rates to get too high. Short of another major depression, this just isn't likely to change dramatically.

It's also because we've gotten beyond the point where higher tax rates are even feasible as a leveling mechanism. According to Piketty and Saez, the income of the top 1% in the U.S. has more than doubled in the past three decades and the income of the top 0.1% has quadrupled. This during a time when per capita GDP has increased about 50%. In order to tax these incomes down to anywhere near the trend rate of growth for the whole economy would require top marginal rates of 70-80% or higher. Not only is that politically infeasible, but rates like this would almost certainly hurt economic growth as well.

But this isn't my biggest concern. It's true that income inequality can be partly addressed by progressive taxation, though I'd much prefer to see it addressed at the source since a healthy economy is one in which everyone benefits, not one in which a small plutocracy hoards the wealth and then doles it out to the working class if and when it can be persuaded to do so. More important is the fact that we liberals shouldn't view the relationship between businesses and individuals as solely economic transactions. There are core questions here of human dignity and basic fairness that exist quite aside from money.

Here's an example. Back in 1968, Congress passed the Truth in Lending Act. Among other things, it made credit card companies liable for charges on stolen credit cards over $50. In a purely economic sense, there's really no excuse for this. Why should a card company be responsible for your carelessness? If you're dumb enough to let someone steal your card and run up thousands of dollars in charges, it ought to be your responsibility. It's ridiculous to make a bank — and by extension, its customers — subsidize the losses of individuals who can't take care of their own finances.

Today, this argument would almost certainly carry the day. Even most liberals wouldn't fight it. It's as if we've been brainwashed against arguing that we should do something purely because it represents the way we think people deserve to be treated. We need graphs and charts and dueling models of economic distribution instead. 

But as recently as 40 years ago we didn't allow ourselves to be defined purely as pseudo-economic actors. Yes, there's an element of moral hazard in the $50 rule: people won't be as careful with their cards if they know someone else pays the bill if they get stolen. But we also recognized that, in fact, ordinary people are careful with their wallets and their credit cards regardless. And being responsible for thousands of dollars in charges could ruin an ordinary person. In fact, merely the fear of being responsible for losses like that from an everyday transaction can be debilitating. Businesses, on the other hand, can handle it. They can spread the losses among their customers, they have the resources to work on ways to reduce credit card fraud (which they did), and they can treat this responsibility as an ordinary cost of business, not a nightmare waiting to happen.

That's worth a lot. How much in dollars, I couldn't say. But there are rules and regulations we should put in place purely because they represent the way we think people should be treated. Potential employers shouldn't have access to my credit record because that's something I think we should treat as private. Banks shouldn't be able to retroactively raise interest rates on credit card balances because that's something I think is fundamentally unfair. Pharmaceutical companies shouldn't be allowed to sell drugs that don't work (even if they're safe) because I don't think sick people should be treated that way. Restaurants shouldn't be allowed to run filthy kitchens on the theory that an occasional outbreak of food poisoning isn't worth the cost of prevention. Farmers shouldn't be allowed to pay migrant workers two dollars an hour in scrip because I think adult human beings deserve better than that even if (or maybe especially if) they're desperate. I can't necessarily justify any of these things on purely economic grounds, and even if I could I'm not sure I'd want to. Because that's not truly why I believe them.

Even on the left, I feel like we've allowed ourselves to buy far too heavily into the homo economicus model of human interaction. But if I can be allowed to put on my old school lefty hat for a moment, that model just doesn't work when the power relations are too far out of whack. And to a large extent, businesses simply have the whip hand on too many things today. When you sign a form from your doctor agreeing to send all complaints to arbitration instead of to the civil court system, this isn't really an agreement between consenting adults. Once the AMA has convinced enough doctors to require this of all their patients, you no longer have a choice. You either give up your legal rights or else you go without medical services.

The alternative, of course, is political, not economic: pass a law that says access to courts is a basic right that can't be taken away even if your doctor or your credit card company or your employer forces you to sign a piece of paper to the contrary. Pass a law that prohibits employers from checking credit scores — even if that's economically efficient in some technical sense — simply because individuals ought to have a certain zone of privacy in their personal affairs. Pass a law that outlaws no-doc liar loans because they're bad for the country regardless of whether individuals can make money from them.

I'm rambling. Sorry. I wish I knew how to write this kind of thing better. But I just wanted to get it off my chest anyway. Corporations aren't people, and they can perpetuate unsound and unfair business practices for a lot longer than you'd think — leaving plenty of misery and personal havoc in their wake. We're perfectly justified in requiring them to treat people decently even if we don't have an economic justification for it. We used to understand that better than we do today.

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Quote of the Day: Mayberry Machiavellianism in Vegas

| Sat Jul. 24, 2010 2:26 PM EDT

From Jon Henke, tweeting from Right Online 2010, the conservative answer to Netroots Nation:

Everybody at #RO10 talks about limited government, but there is a frustrating lack of discussion of plausible policies to accomplish it.

I feel your pain, Jon. We on the left have noticed this too.

Friday Cat Blogging - 23 July 2010

| Fri Jul. 23, 2010 3:02 PM EDT

Today we have Adventures in Cat Science™! First some background: I feed the cats dry food twice a day. Inkblot normally makes a huge production out of this, meowing pitifully and pacing around and then, after I fill the dish, bowling over anything in his way to get to the food and start hoovering down his kibble. After he's satisfied, he wanders off and Domino starts eating.

Now, I've never thought this was because Inkblot is an alpha cat. Not hardly. I just think he's hungrier and more dedicated to eating than Domino is. Still, the pecking order is what it is, and when it comes to food Inkblot has always been pretty clearly on top.

Or so I thought. Some more background: Once a day the cats get some wet food. I put it on two plates, and as the picture on the right shows, Inkblot's is always on the left side of the cabinet and Domino's is on the right.

Now for the Science™. A few days ago Marian woke up before I did and apparently got tired of Inkblot's antics. So she fed the cats herself. But she does it differently. Instead of just dumping food into the bowl, she picks up the bowl, puts it on the counter, dumps in the food, and puts the bowl back on the floor. Except this time, for some reason, she put the bowl over on the right. And guess what? Domino was first to the kibble and it was Inkblot who paced around nervously waiting for his turn.

Obviously one experiment isn't Science™. But two? You bet. So I tried this myself, and sure enough: if the food is over on "Domino's side," she gets first crack at it. Our cats have apparently been territorially trained to regard spots three feet apart as belonging to one or the other. Isn't this thrilling? It should be. It's Science™!

But the experiment is over. Poor Inkblot was humiliated by the whole thing, I think. As senior cat, I figure he's entitled to a few perks, and getting first crack at the food is one of them. So the bowl is now back on the left for good. And everyone is happy.

As for normal catblogging, it's below. This is summertime sun worshipping, Domino opting for the full treatment while Inkblot opts for the shade. Either way, they both love flinging themselves on the ground and rolling around when the weather is warm

The Catch-22 of Credit Scores

| Fri Jul. 23, 2010 2:35 PM EDT

The Slacktivist comments on the increasing practice of HR departments checking credit scores before they hire people, a practice that (unsurprisingly) is heavily lobbied by the companies that sell credit scores:

Some 14.6 million Americans are out of work. Nearly 7 million of those are long-term unemployed — people who haven't been able to find a job in more than half a year. Those millions of Americans, as a direct consequence of being out of work, have lower credit scores. Those millions of Americans, as a direct consequence of looking for work, have lower credit scores. The credit agencies say that therefore the unemployed ought to remain unemployed.

....The use of credit checks in employment decisions should be banned. It is a form of discrimination against the poor — the codification and enforcement of class barriers. It is therefore a form of discrimination against those groups more likely to be poor and therefore a violation of the 14th Amendment. So it ought to be illegal already.

It's also cruel, costly, bad for business and bad for America. Outlaw it. Make the practice — both the use of such scores and the provision or marketing of such scores for that use — punishable by fines and imprisonment. Make the punishment large enough that employees practicing this form of discrimination know that it will involve serious repercussions — harm to their firm's "assets, reputation and security.

As they say, read the whole thing.

UPDATE: Actually, it turns out that credit reporting agencies don't make credit scores available to employers. They make complete credit histories available, but not the scores themselves. More here.

Race and Class

| Fri Jul. 23, 2010 1:31 PM EDT

Sen. Jim Webb (D–Va.) argues in the Wall Street Journal today — as he has before — that although we still owe a debt to African-Americans who have faced centuries of both private and state-sponsored discrimination, we should stop using ethnicity in general as the basis for affirmative action programs. James Joyner comments:

While I don’t disagree with the premise, I’m not sure what policy conclusion one reaches. I fully agree and have long argued that using race as the sole criterion for policy preference should end. But, surely, we don’t want to create new categories, such as “Scotch-Irish Sons of Confederate Veterans,” for special treatment. We could target based on poverty, perhaps with some sort of regional cost of living adjustments.

Class/income-based affirmative action has long struck me as an alternative that ought to get more attention than it does. Richard Kahlenberg is a fan, and here's what he wrote about it recently in the context of university admissions:

The choice isn’t between race-based affirmative action and no affirmative action. To their credit, universities in states that banned racial affirmative action have turned to economic affirmative action programs as a way to boost racial diversity indirectly.

....Critics of class-based affirmative action have long argued that programs that use economic admissions criteria do not produce as much racial diversity as programs that use race instead. Schools like U.C. Berkeley, for example, saw a decline in black and Hispanic enrollment after the ban on race-based affirmative action was put in place. But the data show that economic affirmative action can produce a positive racial dividend. According to a 2004 Century Foundation study by Anthony Carnevale and Stephen Rose, among the most selective 146 institutions in the country, using race-based affirmative action produced student bodies whose combined black and Latino representation was 12 percent. If students were admitted strictly based on grades and test scores, the combined proportion would decline to 4 percent, Carnevale and Rose found. But using economic affirmative action, defined by parents’ income, education, and occupation, and high school quality, produced a black and Latino representation of 10 percent. Research suggests using wealth (assets) as an admissions factor could boost the racial dividend further. Class-based affirmative action, in other words, does improve racial diversity, though not as much as policies that use race as a criterion.

Class-based program programs might, in the end, provide modestly less help for ethnic minorities than current policies — though well-designed ones might not. But they have some advantages too. For one thing, they help poor people. That's worthwhile all by itself. (Kahlenberg quotes William Benn Michael as noting acidly that currently the debate in higher education is mostly about what color skin the rich kids will have.) Beyond that, there's another benefit: for all the good it does, there's no question that race-based affirmative action has drawbacks as well. It makes employers suspicious of minority graduates, wondering if their degrees were really fairly earned. It provokes a backlash among working class whites. And it's open to abuse on a number of fronts. Class-based programs don't solve all these problems at a stroke, but they go a long way toward addressing them

Would it be possible for us to adopt class-based programs? One obstacle, I think, is the insistence of conservatives on refusing to even admit that racism is a problem anymore. It's become practically a truism on the right that racism is a thing of the past, nothing more than a convenient whipping boy to be exploited by race hustlers like Jesse Jackson and Al Sharpton who prey on liberal guilt and federal largesse. This is just poisonous. There's no way that blacks or any other ethnic minority will ever take conservative complaints at face value if they flatly refuse to concede that there's even a problem left to be addressed.

This isn't normally a subject I write much about. I've done only modest reading about it, and my personal background — middle class white guy born and raised in Orange County — obviously doesn't give me any valuable personal insight. But the status quo has done, and continues to do, a lot of damage to all sides. It's probably a fantasy to think that there's any progress to be made in our current fever swamp atmosphere, but a conservative concession on the reality of race as a continuing problem — think racial profiling, penal system injustices, health system disparities, etc. — combined with a liberal concession on emphasizing class much more than we have in the past, would almost certainly be a step forward.