Kevin Drum

Playing Chicken With Republicans

| Tue Dec. 1, 2009 12:23 PM EST

I'm as intrigued by an unusual bit of contrarianism as the next guy, but Tyler Cowen seriously jumps the shark here:

Another example of misleading good vs. evil thinking stems from the budget.  Many people believe:

3. "If the Republicans win, they will irresponsibly cut taxes and do nothing real to control spending."  You may have even seen this view in the blogosphere.

One response to this is 4. "We should ensure that the Republicans do not win and criticize them every chance possible."

An alternative response is 5. "Sooner or later the Republicans will in fact win and I cannot prevent that.  Right now the Democrats should spend less money, given the truth of #3.  In this regard the Republicans, although evil, are in fact correct in asking the Democrats to spend less money, if only to counterbalance their own depravity."

I do not see many people entertaining #5.

No, I suppose not.  "I think we should rein in social spending in order to create some budget room for more tax cuts for the rich in 2017" really doesn't seem like a very politically savvy suggestion.

Anyway, this is hardly something that we liberals haven't thought about.  Just the opposite, actually: liberals are very keenly aware of Republican efforts to wreck the budget in order to prevent Democrats from ever spending money on their own priorities.  In fact, "keenly" understates things.  So this time around we've quite consciously decided not to let this stand in our way.  We'll do our best to keep things like healthcare reform deficit neutral, and we'll try to honor PAYGO rules, but beyond that we're at least going to try to enact some liberal social policies.  The days of scrimping on food because Dad is threatening to blow a wad in Vegas the first time we let him out of our sight are over.

And if America eventually elects Dad to the White House anyway even though he hasn't yet cleaned up his act?  Then America's in big trouble.  But at least America will have better healthcare.

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Chart of the Day: Active Mutual Funds Still Suck

| Tue Dec. 1, 2009 11:20 AM EST

You probably already know this, but here's yet another paper that demonstrates the foolishness of putting money into actively managed mutual funds.  The authors used historical data and simulations to figure out if actively managed funds performed better than passive investments, and the chart on the right shows the answer: the blue line represents active funds and the red line represents the average distribution of passive investments.  The zero point on the x-axis represents average performance.

Along the entire curve, the authors found that a higher percentage of funds performed worse than passive investments.  For example, about 70% of active funds perform at zero or worse, compared to only 50% of passive invesetments.  90% perform under +1.0 compared to only 80% of passive investments.

If you drop out fees, active funds do slightly better: there are still more big losers than with passive investments but there are also a few more big winners.  When you add in fees, though, this small effect is completely swamped and active funds are lousy investments all the way around.  Don't waste your money.

Next up: could somebody please do with hedge funds?  I suspect the results would be about the same.  Via Felix Salmon.

The Inevitability of Afghanistan

| Mon Nov. 30, 2009 5:14 PM EST

Like me, Fred Kaplan is glad he's not president right now.  Why?  Because he can't figure out what he thinks we ought to do in Afghanistan:

As with confronting most messes in life, the initial impulse is to flee. But if we simply pulled out, it's a near-certain bet that the Taliban would march into Kabul, and most other Afghan towns they'd care to, in a matter of weeks....Another problem with withdrawing is that it would signal, correctly or not, a huge victory for anti-American forces generally. If we left Afghanistan to the Taliban (and, by extension, al-Qaida), especially after such a prolonged commitment (at least rhetorically), what other embattled people would trust the United States (or the other putative allies in this war) to come in and protect them from insurgents? None, and they could hardly be blamed.

....I am uncomfortable making this case for two reasons. First, it's reminiscent of the bankrupt rationales, involving "credibility" and the "domino theory," for staying in Vietnam long after that war was widely viewed as a horrible mistake. But Afghanistan is different. The Taliban are not the Viet Cong, and Osama Bin Laden is not Ho Chi Minh; there is no case, this time, that the enemy has a just claim to power. And the stakes are much higher: Communists ruling South Vietnam was never a serious threat to our security;1 al-Qaida controlling a huge swath of South Asia is.

The second reason I'm uncomfortable about even saying this is that the argument can, and almost certainly will, be used to justify staying in Afghanistan if it turns out that this war is futile, too. It's easy to hear the generals saying, a year from now, "Three more brigades should do the trick, Mr. President" and "If we pull out now, Mr. President, our credibility will be severely compromised."

It's pretty hard to see how this ends well.  But I think what it demonstrates most strongly is the fantastic political nightmare involved in ever pulling out of a war that hasn't been decisively won.  Vietnam is the big-ticket example here, of course, but there are better ones.  Take Somalia.  After the Black Hawk Down incident in 1993, conservatives demanded that Bill Clinton pull out immediately.  Not another American life was worth risking for a barren patch of dirt on the Horn of Africa.  Clinton refused, insisting that we "finish the work we set out to do," and kept troops in country for another six months before withdrawing in an orderly way.

And what happened?  Conservatives turned around and immediately started building up a mythology that Clinton had lacked spine and immediately ran for the exits at the first sign of trouble.  Just like a Democrat to be so weak-kneed!  What's more, it's now received wisdom on the right that it was this panicky withdrawal that first convinced Muslim fanatics that America was weak and could be attacked with impunity.  In the end, Clinton took a hit for withdrawal even though he was the one who insisted on not cutting and running.

If that's what happens to a Democratic president who played a hawkish role in a small, unimportant war, what would happen to a Democratic president who played a dovish role in a big, important war?  Nothing good.  Pulling out of Afghanistan would have all the actual effects Kaplan talks about, but it would also be a political disaster.

I still plan to wait for Obama's speech tomorrow before I decide if his Afghanistan strategy is smart or not.  But even if it is, it was probably sadly inevitable.  The institutional support for war among the American chattering classes is just too powerful.

1Hoo boy.  That's easy to say now, but at the time it sure seemed every bit as important as al-Qaeda controlling a big chunk of Afghanistan seems to us.

Protectionism

| Mon Nov. 30, 2009 2:49 PM EST

I think Matt Yglesias makes a pretty good political point here about trade policy:

If you convince people that it’s not possible for monetary authorities to boost employment, and that it’s unwise to use fiscal policy to boost employment, then it starts to look irresponsible for politicians not to use trade restrictions to protect the jobs of people in their state/district. When an economy is near full employment you can say trade makes the pie bigger and people who lose their jobs will get new jobs. But [if] we’re years away from full employment — which both the Fed and the White House seem to think — then getting laid-off is catastrophic.

The Fed is obviously more concerned about inflation than it is about unemployment right now, and Congress likewise seems unwilling to do very much more to help create jobs.  In an environment like that, public pressure for trade restrictions becomes hard to resist.  So if free traders really want to keep protectionist sentiment tamped down, they'd be well advised to start supporting domestic policies that create jobs, bring down unemployment, and reduce the kind of financial fear that drives protectonist sentiment in the first place.

ClimateGate

| Mon Nov. 30, 2009 1:15 PM EST

As near as I can tell, ClimateGate is almost entirely a tempest in a teacup.  Among the stash of emails recently hacked from computers at the Climatic Research Unit (CRU) at the University of East Anglia, one mentioned a "trick" for producing a nice looking graph, but the word "trick" was plainly used in the sense of "technique," not chicanery.  There's nothing questionable there.  Another bunch of emails shows that when scientists are communicating privately they can be as catty and nasty as anyone else.  It's good gossip fodder, but nothing more.  Another set of emails deals with outraged reaction to a particular journal article, but this isn't news.  It was an entirely public incident when it happened a few years ago, and half the board of the journal resigned in protest.  The emailers were determined not to have shoddy science published in peer-reviewed journals, and there's nothing wrong with that.

Then there are some emails about which research should and shouldn't be included in the next IPCC report, which, again, is entirely normal.  Every scientist who worked on the IPCC report surely had opinions about which research was on point and which was shoddy.  Finally, there's the revelation that CRU has destroyed some raw temperature data, but this happened back in the 1980s, before global warming was even on anyone's radar screen, and was obviously motivated by space considerations (they were paper records), not any kind of coverup.  What's more, the raw data is still available from the original sources that provided it to CRU anyway.

Unfortunately, there are also a couple of messages that suggest an effort to destroy emails that might have been subject to a Freedom of Information request.  That's a genuine problem, though it's not clear to me just how big a problem it is.

So on a substantive level, there's really very little to this.  Certainly nothing that changes the actual science of climate change even a little.  The earth is still warming and disaster is still highly likely if we sit around and do nothing.  But George Monbiot thinks we lefties have our heads in the sand if we think that makes any difference:

I have seldom felt so alone. Confronted with crisis, most of the environmentalists I know have gone into denial. The emails hacked from the Climatic Research Unit (CRU) at the University of East Anglia, they say, are a storm in a tea cup, no big deal, exaggerated out of all recognition. It is true that climate change deniers have made wild claims which the material can't possibly support (the end of global warming, the death of climate science). But it is also true that the emails are very damaging.

....The crisis has been exacerbated by the university's handling of it, which has been a total trainwreck: a textbook example of how not to respond....When the emails hit the news on Friday morning, the university appeared completely unprepared. There was no statement, no position, no one to interview. Reporters kept being fobbed off while CRU's opponents landed blow upon blow on it. When a journalist I know finally managed to track down Phil Jones, he snapped "no comment" and put down the phone. This response is generally taken by the media to mean "guilty as charged".

....The handling of this crisis suggests that nothing has been learnt by climate scientists in this country from 20 years of assaults on their discipline. They appear to have no idea what they're up against or how to confront it. Their opponents might be scumbags, but their media strategy is exemplary.

It's hard to argue with this.  Climate change skeptics have gotten fantastic mileage out of this affair, but that's only partly because technical explanations of facially damaging statements are never very convincing to the general public.  An even bigger part of the problem is that a lot of the scientists involved haven't even been providing the technical explanations, leaving that up to others who are trying to get a handle on what's going on.  From a PR standpoint, it's been a disaster so far.

For years the CRU has resisted public release of its underlying datasets, partly for the understandable reason that they're tired of dealing with amateurs who comb though raw data looking for ways to pretend that warming isn't really happening, and partly because they don't have the authority to release it all.  Still, science is all about transparency, and annoying or not, the data should be available.  Now it probably will be, and under the worst possible circumstances.  It's going to be rough sledding for the next couple of years against the fever swamp crowd, aided and abetted by the coal industry.  Buckle up.

Too Big To Fail

| Mon Nov. 30, 2009 12:14 PM EST

The Financial Stability Board (what a great name!) has created a list of the world's top 30 "systemically important" financial institutions — aka banks that are too big to fail.  Citi and BofA make the list; Wells Fargo doesn't.  If you were in charge of Wells, would you be pleased or annoyed?

Via Felix Salmon, who wants to know why there are no American insurers on the list.  Probable answer: AIG has already failed, so they can hardly make the list, and America's other big insurers are mostly purely domestic affairs.  They're the Fed's problem, not the world's.

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Chart of the Day

| Mon Nov. 30, 2009 11:38 AM EST

I think I published an earlier version of this, but here's the latest analysis of the Senate healthcare bill from MIT economist Jonathan Gruber:

Analysis of the non-partisan information from the CBO suggests that for those facing purchase in the non-group market, the [Senate] bill will deliver savings ranging from $200 for singles to $500 for families in today’s dollars — even without subsidies. The savings are much larger for lower income populations that receive premium credits. This is in addition to the higher quality benefits that those in the exchange will receive, with actuarial values for low income populations well above what is typical in the non-group market today. It is also in addition to all the other benefits that this legislation will deliver to those consumers — in particular the guarantee, unavailable in most states, that prices would not be raised or the policy revoked if they became ill.

There are three important things to note about this.  First, the Senate bill lowers the premiums for low-cost plans across the board.  Second, in addition to this reduction, the Senate bill provides subsidies to low- and middle-income familes that makes health insurance even less expensive.  Third, it does this for a plan that covers about 70% of all medical expenses, compared to a non-reform plan that covers only about 60% of all expenses.  On an apples-to-apples basis, the Senate bill lowers premiums by about 20% and then subsidizes that lower price to reduce the cost of coverage even more.

I hardly need to mention what an enormous boon this would be for millions and millions of real flesh-and-blood people, do I?

Holiday Sales Update

| Mon Nov. 30, 2009 1:38 AM EST

Here are the holiday weekend shopping results for 2009:

Roughly 195 million consumers shopped in stores and online over the Black Friday weekend, up from 172 million last year, according to the National Retail Federation. But average spending dropped to $343.31 per person from $372.57 a year ago. Overall sales for the four-day weekend totaled $41.2 billion, up marginally from $41 billion last year, the NRF estimated.

....November sales were likely boosted by a spate of pre-Black Friday deals. Spending on Black Friday itself rose 0.5%, or $54 million, to $10.7 billion this year from last, according to ShopperTrak RCT Corp.

Everyone is probably tired of hearing this from me, but as usual, these numbers are misleading because they aren't adjusted for inflation.  CPI numbers for this month aren't in yet, but most likely the November-November inflation rate was about 2.0%, which means that sales volume was actually down 1.5% this year in real terms.  That compares to an increase of about 2% last year in real terms.

Minarets in Switzerland

| Sun Nov. 29, 2009 1:11 PM EST

No more minarets in Switzerland:

Swiss voters have supported a referendum proposal to ban the building of minarets, official results show. More than 57% of voters and 22 out of 26 cantons — or provinces — voted in favour of the ban.

The proposal had been put forward by the Swiss People's Party, (SVP), the largest party in parliament, which says minarets are a sign of Islamisation.

Is this a sign of the resurgence of hard-right anti-immigrant sentiment in Europe, or is it just an exceptional result from an exceptional country?  Switzerland is a very socially conservative place (its famous multilingual tolerance notwithstanding), so in one sense it's not a surprise that this referendum passed.  Still, it was polling at only 37% support a week ago and ended up winning with 57% of the vote.  That's a big swing from just a few final days of campaigning,1 and it suggests that it would hardly be impossible for other European countries to follow suit.2

1Unless, of course, Swiss voters have a tendency to lie to pollsters on sensitive questions like this, as they seem to in America.

2If they had referendums, that is.  Which most of them don't.  But obviously a referendum isn't the only way to accomplish something like this.

War and Peace

| Sun Nov. 29, 2009 12:37 PM EST

On Tuesday Barack Obama will announce a major escalation of the war in Afghanistan.  A week later he'll be in Oslo accepting his Nobel Peace Prize.  Pretty good timing, no?