Kevin Drum

"Guess Your Age" Goes Digital

| Wed Feb. 24, 2010 3:23 PM EST

According to Pew's "How Millennial Are You?" quiz, I am not, in fact, a Baby Boomer. Interpolating from the graph, they think I was born in 1969, which makes me sort of an early Gen Xer. Only 11 years off!

I'm not sure why. Is it because I have a Facebook profile? A cell phone? Because I think interracial marriage is just fine? I'm not sure. The reason I'm nowhere close to being a Millennial is obvious (no text messaging, no tattoos, no video game playing, etc.), but the reason I don't fit the Baby Boomer profile is a little more mysterious.

Anyway, this either means I retain some youthful vigor or else that I have failed to grow up. Take your pick. The quiz is here.

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Limbaugh's Waterloo?

| Wed Feb. 24, 2010 2:07 PM EST

One possible benefit of the Obama presidency: it's driven Rush Limbaugh so mad that he's dropping his guard and allowing his racist demagoguery to get more and more overt. Just possibly, this might finally prod a few conservatives to disown him. Just possibly.

What's the Deal With the BloomBox?

| Wed Feb. 24, 2010 1:47 PM EST

On Sunday I watched 60 Minutes do a segment about Bloom Energy, a new fuel-cell startup from Silicon Valley that's supposedly created a revolutionary new energy source. Unfortunately, I was left completely in the dark about how good the technology really is. The BloomBox runs on various kinds of gas, but the primary fuel source for most customers will likely be natural gas, so the obvious question is: does it produce electricity more efficiently than a gas-fired power plant? Today, the New York Times sort of tells us:

Bloom executives said the energy server, which can be installed in a matter of hours, operates at an efficiency of 50 to 55 percent and can reduce greenhouse gas emissions 50 to 100 percent depending on the type of fuel used.

Mr. Sridhar said the Bloom Energy Server has been generating electricity at a cost of 8 to 10 cents a kilowatt-hour. In California, where Bloom has installed 30 fuel-cell systems, commercial electricity rates averaged about 14 cents a kilowatt-hour in October 2009, according to the latest figures from the United States Department of Energy. Elsewhere, commercial rates averaged 7 to 24 cents a kilowatt-hour.

....Bloom executives said the company spent years developing a proprietary seal made from low-cost materials to prevent cracks and leaks. They estimate that the Bloom boxes will have a 10-year lifespan and that the company will have to swap out the fuel-cell stacks twice during that time. Mike Brown, an executive with UTC Power, a leading fuel-cell maker, said the fuel cells need to last at least four or five years for the technology to be competitive.

Hmmm. I'm still a little stumped. The average price of electricity to commercial customers in the U.S. is about 10 cents per Kwh, roughly the same as the BloomBox. But does the BloomBox price take into account replacing the fuel-cell stacks every three or four years? That's not clear. But even if it does, this suggests that the BloomBox will be a decent — though hardly transformational — power source only in areas where electricity costs are higher than average, not for the mass market. As for greenhouse gas emissions, it's hard to see an apples-to-apples benefit. If you compare a gas-fueled BloomBox to a gas-fired electric plant, greenhouse gas emissions ought to be the same, shouldn't they? The fuel cells don't do anything to the carbon content of the gas, after all. So is the environmental benefit simply the fact that a BloomBox can also run on greener fuel sources, and can do it more easily than most big generation facilities? I'm still a little confused here.

I suppose this will all get sorted out in time and we'll learn what's really going on. But even more mysterious is this:

The byproduct of fuel cells is water, and Bloom has patented and proved a fuel-cell design that could also tap electricity generated by solar panels and wind farms to electrolyze water to produce hydrogen that could be used as fuel in the cell. “That’s the killer app,” said Mr. Sridhar, who said such a product probably would introduced within a decade.

Hold on. They're saying that we can use solar panels to create electricity, pump the electricity into a BloomBox to create hydrogen, use the hydrogen to power a fuel cell, and this is somehow more efficient than simply using the electricity directly generated by the solar panel? My thermodynamics professor would have been scandalized. Am I missing something here?

The Press and Reconciliation

| Wed Feb. 24, 2010 12:39 PM EST

If Democrats want to pass a healthcare bill, there's only one way to do it: the House needs to pass the existing Senate bill and then the two sides need to agree to a few limited changes. These changes would be passed through both House and Senate via "reconciliation," which allows budget-related measures to be approved with a simple majority. Technically, it's not that hard. But politically, as Bob Somerby points out after watching a CNN report, Democrats start out at a huge disadvantage because the press has basically already adopted Republican talking points to explain how this works:

What the heck is “reconciliation?” So far, we’ve been told that it’s “a controversial parliamentary short-cut”—a “fast-track approach,” a “tactic.” The controversial tactic “would allow Democrats to pass health-care reform without any Republican support.” HOWLER readers may know what that means—but many CNN viewers did not. Who knows? According to what they had just heard, such viewers may have thought that “reconciliation” would let health reform pass by a majority vote among Democrats. More likely, they still didn’t have any real idea how the “tactic” works—although the very first thing they had been told is that it’s “controversial.”

Guess what, kids? That’s loaded language.

The truth, of course, is simpler. The basic healthcare bill has already been passed in the Senate via regular order. The House can pass the Senate bill and President Obama can sign it into law via regular order. Changes to the bill that affect revenues and outlays — i.e., things that affect the budget — can then be tacked onto a budget bill later this year and passed on an up-or-down vote via the budget reconciliation process. Here's a reconciliation primer:

It was created in 1974 as a way of ensuring that annual budgets could be passed without being filibustered.

It has been used to pass the annual budget in all but seven years since 1980. It's a routine procedure used by both Republicans and Democrats.

It was used to pass Ronald Reagan's 1981 tax cut and both of George Bush's big tax cuts.

It was used to pass welfare reform.

Virtually every healthcare reform of the past three decades, including COBRA, EMTALA, S-CHIP, and others has been passed via reconciliation.

There's nothing wrong with the media reporting that Republicans oppose the use of reconciliation to amend the healthcare bill. Of course they do. But they owe it to their audience to explain that reconciliation does nothing more than allow a simple majority vote to pass budgetary issues and that it's been used routinely by both parties for decades. That's just the simple truth.

The Future of the Economy

| Wed Feb. 24, 2010 12:00 PM EST

Paul Krugman says that Martin Wolf is depressing reading today. I should say so. First, he recapitulates the basics: a huge credit bubble has produced way too much debt in the world's rich countries, which means that private actors are busily deleveraging as fast as they can. That is, they're spending a lot less than they make and saving the excess. So now what?

We can identify two alternatives: success and failure.

By “success”, I mean reignition of the credit engine in high-income deficit countries. So private sector spending surges anew, fiscal deficits shrink and the economy appears to being going back to normal, at last. By “failure” I mean that the deleveraging continues, private spending fails to pick up with any real vigour and fiscal deficits remain far bigger, for far longer, than almost anybody now dares to imagine. This would be post-bubble Japan on a far wider scale.

Unhappily, the result of what I call success would probably be a still bigger financial crisis in future, while the results of what I call failure would be that the fiscal rope would run out, even though reaching the end might take longer than worrywarts fear.

....I can envisage two ways by which the world might grow out of its debt overhangs without such a collapse: a surge in private and public investment in the deficit [i.e., rich] countries or a surge in demand from the emerging countries. Under the former, higher future income would make today’s borrowing sustainable. Under the latter, the savings generated by the deleveraging private sectors of deficit countries would flow naturally into increased investment in emerging countries.

As Wolf points out, though, nobody is seriously interested in either of these two solutions. The first requires continued high federal deficits combined with a surge in private investment. The second requires huge capital flows into emerging countries to spur investment and consumption there. Both of these are political poison.

So what's the bright side? That Wolf is wrong, I suppose. Like Krugman, though, I suspect that at most he's a little pessimistic. The next few years aren't going to be pretty, and the political will in the United States to tackle real problems of this magnitude just isn't there. Democrats are too scared, Republicans care only about the electoral blood they smell in the water, and the public just wants to lash out at whoever caused this. Meanwhile, Wall Street is rocking along as if nothing had ever happened. This, not the loss of the public option or a minor compromise on the excise tax, is the real price we're paying for a broken political system.

Our Oppressed Billionaires

| Wed Feb. 24, 2010 10:48 AM EST

Sure, you already know this. But it never hurts to post a reminder with a nice graphical memory aid. Nickel summary: the richest of the rich have gotten even richer over the past two decades — 400% richer for the top 400, according to CBPP, in a nice bit of symmetry — and at the same time their federal income tax rates have gone down from 30% to 16%. Needless to say, this is further evidence that America's heirs and Wall Street tycoons, the targets of endless class warfare from liberals and Democrats, deserves to have the estate tax eliminated. They've suffered enough already.

But you come here for more than snark. You want substance. So here's some substance:

The low effective tax rate for the top 400 filers is largely due to the fact that capital gains and qualified dividends are taxed at much lower rates than ordinary income....It is not surprising that two of the largest reductions in effective tax rates for the top 400 filers occurred in two two-year periods (1996-1998 and 2002-2004) that coincided with the capital gains tax cuts enacted in 1997 and 2003.

The second half of this paragraph seems fine: tax rates for the wealthy really did fall starting in 2003, which is almost certainly due to the Bush tax cuts. But the Clinton capital gains cuts took effect in mid-1997. How could they be responsible for a drop that began in 1996? What happened in 1995 to get the ball rolling?

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The Party of No (Jobs)

| Wed Feb. 24, 2010 1:58 AM EST

Some headlines today:

#1: Jittery Shoppers Dim Stores' Hopes "Americans show little sign of regaining the confidence that once made them world-champion shoppers, and that caution has retailers leery about the prospects for the economy in 2010."

#2: Nearly 25% of all mortgages are underwater "First American CoreLogic, the research firm that monitors housing equity, reported Tuesday that 11.3 million homeowners — or 24% of all homes with mortgages — were underwater as of the end of 2009."

#3: Number of US ‘problem’ banks soars "No longer confined to Wall Street, the financial crisis has cascaded over to regional and community banks that are feeling a disproportionate amount of the pain. 'The great recession has very much become a Main Street problem,' said Richard Brown, the FDIC’s chief economist."

#4: Lending Falls at Epic Pace "U.S. banks posted last year their sharpest decline in lending since 1942, suggesting that the industry's continued slide is making it harder for the economy to recover."

And then there's this one, about Republican Scott Brown's vote to support a tax cut that would help employers increase hiring:

#5 GOP's Brown branded turncoat for vote on jobs bill "Literally overnight, the fledgling Republican senator who ended Democrats' filibuster-proof majority by winning a special election in Massachusetts has gone from being the darling of America's conservative activists to being their goat....The conservative Drudge Report colored a photo of Brown on its home page in scarlet. Cries of 'let down,' 'betrayal,' 'sell out,' and 'RINO' — Republican In Name Only — flew around Twitter. By Tuesday afternoon, more than 4,200 people had left comments on Brown's Facebook page, the majority of which were harshly negative."

Ladies and gentlemen, the modern Republican Party. In the midst of the deepest, sharpest economic slowdown since the Great Depression, only five of 41 GOP senators were willing to vote for a modest jobs bill based entirely on tax cuts. One of those five, a conservative hero a mere four weeks ago, is practically excommunicated from the movement for voting in favor of the bill. A bill, to repeat, based entirely on tax cuts that would spur hiring. What's left to say?

That Elusive Common Ground

| Tue Feb. 23, 2010 6:30 PM EST

What could Barack Obama offer congressional Republicans in return for support of his healthcare bill? How about malpractice reform? Jon Cohn ponders:

The key is finding ways to fix the malpractice system so that it helps both physicians and the patients, rather than one at the expense of the other. And there are several promising possibilities for achieving that. One is to have doctors report medical errors to hospital administrators, who would then notify patients and begin negotiations....[Another] proposal — perhaps the most intriguing — is to tie malpractice to quality incentives, by offering some sort of legal protection to physicians who demonstrate they have abided by accepted clinical guidelines.

....This is where the Republicans could push the discussion forward. Both the House and Senate health reform bills encourage more experimentation. But they don't set aside enough money. If Republicans wanted to do something to change malpractice, they could call for more funding of these programs — and, perhaps, more aggressive guidance about how to handle the results.

Of course, that would mean achieving malpractice reform, a cause they've long championed, in a different manner than the Republicans have traditionally embraced. But that's the definition of compromise: Finding common ground with an adversary in order to achieve a goal you both share. Obama has shown he's willing to do that. Will the Republicans do the same?

Jon is too....decorous....to say this outright, but the answer is no. The reason is that Republicans have a very specific motivation for pursuing tort reform, and it has nothing to do with actually making tort law fairer. Here's me a few years ago, in a review of Stephanie Mencimer's Blocking the Courthouse Door:

In the 1980s and 1990s, conservative activists began pursuing a series of strategies aimed not just at increasing Republican votes and campaign contributions, but also at reducing Democratic votes and campaign contributions — and doing so in a structural way that would permanently erode the Democratic Party’s ability to win elections. The result was an increased interest in gerrymandering, union busting, voter ID laws, and the K Street Project, a party-wide program aimed at persuading lobbying firms to stop hiring Democrats.

And, of course, tort reform. Tort reform was already a natural Republican Party issue thanks to its support in the business community, but it was [Grover] Norquist, in his usual bald style, who pointed out in 1994 that there was more to it than just that: The big losers in tort reform are trial lawyers, and trial lawyers contribute a huge amount of money to the Democratic Party. “The political implications of defunding the trial lawyers would be staggering,” he wrote.

When it comes to medical malpractice, the Republican Party doesn't really care about "reform." They want one thing and one thing only: caps on punitive damages. Why? After all, big punitive awards, almost by definition, are only handed out in the worst, most egregious cases of malpractice. It's the little suits that are most likely to be frivolous.

Here's why: because big damage awards are where trial lawyers make a lot of money, and trial lawyers support Democrats. Capping damages hurts trial lawyers in a way that serious reform most likely wouldn't.

Democrats, of course, generally support trial lawyers, and in return they get a lot of money from them. Still, there are a lot of Democrats who would support serious efforts at making our malpractice system better and more efficient. This would reduce trial lawyer income, but it most likely wouldn't decimate it the way damage caps would. Republicans, conversely, only care about decimating trial lawyer income, which means that none of them are interested in serious reform. It's caps or nothing. This makes finding common ground more than a wee bit difficult.

Are Tea Partiers Nuts?

| Tue Feb. 23, 2010 1:56 PM EST

In David Barstow's terrific New York Times piece about the tea party movement, he included the following line: "It is a sprawling rebellion, but running through it is a narrative of impending tyranny." Jay Rosen has a problem with this:

That sounds like the Tea Party movement I have observed, so the truth of the sentence is not in doubt. But what about the truth of the narrative? David Barstow is a Pulitzer Prize winning investigative reporter for the New York Times. He ought to know whether the United States is on the verge of losing its democracy and succumbing to an authoritarian or despotic form of government.....Seriously: Why is this phrase, impending tyranny, just sitting there, as if Barstow had no way of knowing whether it was crazed and manipulated or verifiable and reasonable? If we credit the observation that a great many Americans drawn to the Tea Party live in fear that the United States is about to turn into a tyranny, with rigged elections, loss of civil liberties, no more free press, a police state... can we also credit the professional attitude that refuses to say whether this fear is reality-based? I don’t see how we can.

....No fair description of the current situation, nothing in what the Washington bureau and investigative staff of the New York Times has picked up from its reporting, would support a characterization like “impending tyranny.” In a word, the Times editors and Barstow know this narrative is nuts, but something stops them from saying so— despite the fact that they must have spent over $100,000 on this one story. And whatever that thing is, it’s not the reluctance to voice an opinion in the news columns, but a reluctance to report a fact in the news columns, the fact that the “narrative of impending tyranny” is ungrounded in any observable reality, even though the sense of grievance within the Tea Party movement is truly felt and politically consequential.

I think this is seriously misguided. Sure, Barstow probably wants to refrain from outright opinion mongering in a new story. But as Rosen says, that's not really the issue here. The real issue is simpler: Barstow wants to treat his readers as adults.

Here's a similar situation that I ran across a few years ago. In the LA Times, Barbara Demick (I think) was able to score a rare, long interview with a high-ranking official of the North Korean government. The resulting story basically provided the DPRK view of things, and as you might expect, that view was pretty divorced from reality. Conservatives were outraged. How could she report this stuff with a straight face? Why was she providing Kim Jong-il's thuggish regime with this kind of cover?

But I found the story fascinating and I thought the conservative critique was as misguided as Rosen's. Demick made it perfectly clear who she was dealing with, and I knew perfectly well that North Korea is a brutal dictatorship whose views can hardly be taken at face value. Everyone bright enough to read the LA Times in the first place knows that. She didn't have to treat us like fourth graders and tell us explicitly.

Ditto for Barstow and his piece on the tea partiers. He's not writing for fourth graders. He's writing for literate adults who know perfectly well that a "narrative of impending tyranny" is nuts. If he wrote a piece about a cult that thinks the world is flat, would he really need to add a sentence telling us that, in fact, this is crazy because there's a mountain of evidence telling us the world is round?

Reporters for the New York Times aren't writing grade school primers. They don't have to tell us at every turn that the Holocaust was evil, that the earth revolves around the sun, that North Korea is a horrible dictatorship, or that the United States is not about to fall into tyranny. Just as I didn't explicitly say in this post that I didn't quote Rosen's entire argument above. You already know this, and you'd think I was treating you like idiots if I insisted on mentioning it in every blog post. Barstow's only crime was not treating his readers like idiots. We should all be fine with that.

Via Conor Friedersdorf, who has actually talked to conservatives who use the "impending tyranny" trope and says that sometimes it's nuts, but other times it's just hyperbole.

Where Did All the Jobs Go?

| Tue Feb. 23, 2010 1:00 PM EST

Why were so few jobs created during the aughts? In net terms no jobs at all were created, but even if you exclude the post-bust years the aughts saw a net increase of only 7 million jobs compared to 22 million in the 90s. What happened?

Well, computerization may have played a role. Globalization too. Or maybe low federal spending on pure R&D. But in the current issue of the Washington Monthly, Barry Lynn and Phillip Longman finger an additional suspect. The problem, they note, wasn't a rise in job destruction, which was actually lower than in the 90s, but a lack of job creation. And the engine of job creation is small businesses.

So why did small businesses stop prospering in the aughts? The answer they propose is a new one: consolidation. Starting in the early 80s, as the Reagan administration decided to quit enforcing antitrust laws, big companies began merging in earnest, and by the early aughts it was common for three or four firms to control upwards of half or more of entire sectors. It happened in retail, it happened in banking, it happened in pet food, it happened nearly everywhere. And not only do big firms innovate less than small firms, they also prevent innovative small firms from ever getting a chance to grow in the first place:

Dominant firms can hurt job growth by using their power to hamper the ability of start-ups and smaller rivals to bring new products to market. Google has been accused of doing this by placing its own services—maps, price comparisons—at the top of its search results while pushing competitors in those services farther down, where they are less likely to be seen—or in some cases off Google entirely. Google, however, is a Boy Scout compared to the bullying behavior of Intel, which over the years has leveraged its 90 percent share of the computer microchip market to impede its only real rival, Advanced Micro Devices, a company renowned for its innovative products. Intel has abused its power so flagrantly, in fact, that it has attracted an antitrust suit from New York State and been slapped with hefty fines or reprimands by antitrust regulators in South Korea, Japan, and the European Union. The EU alone is demanding a record $1.5 billion from the firm.

To understand just how disadvantaged small innovative companies are in markets dominated by behemoths, consider the plight of Retractable Technologies, Inc., of Little Elm, Texas. The company manufactures a type of "safety syringe" invented by its founder, an engineer named Thomas Shaw. The device uses a spring to pull the needle into the body of the syringe once the plunger is fully depressed. This helps to prevent the sort of "needlestick" injuries that every year result in some 6,000 health workers being infected by diseases such as hepatitis and HIV. Since starting the company in 1994, Shaw has carved out a modest market niche, selling his lifesaving product to nursing homes, doctors’ offices, federal prisons, VA hospitals, and international health organizations for distribution in the Third World. But he’s not been able to break into the mainstream U.S. hospital market. The reason, he says, is that a company called Becton Dickinson & Co. controls some 90 percent of syringe sales in America and enjoys enough power over hospital supply purchasing groups to all but block adoption of Shaw’s device. In 1998, Shaw sued, charging restraint of trade, and in 2004 won what looked like a stunning victory: Becton Dickinson agreed to settle for $100 million, and the purchasing groups promised to change their business practices. But according to executives at Retractable Technologies, things have only gotten worse. "We probably have less of our products in hospitals today than we did ten years ago," says Shaw, who just won a patent-infringement case against Becton Dickinson and is pursuing another antitrust suit against the company. "I have spent what should have been the most creative, productive years of my life sitting in depositions. By the time I’m done fighting, my patents will have expired."

A few years back, Bess Weatherman, the managing director of the health care division of the private equity firm Warburg Pincus, spelled out the effect of such monopoly power on investments in new health care technologies. In a Senate hearing, Weatherman testified that "companies subject to, or potentially subject to, anti-competitive practices ... will not be funded by venture capital. As a result, many of their innovations will die, even if they offer a dramatic improvement over an existing solution."

The job growth of the 80s and 90s, Lynn and Longman suggest, was largely powered by companies that were founded in the 70s — companies like Apple, Microsoft, Oracle, and Genentech. By the time the 2000s rolled around, consolidation was largely complete and the pipeline of small, innovative companies was drier than it had been in decades.

They don't pretend that this is the sole explanation for the jobless aughts, or even that they've proven their case. "As we’ve noted," they say, "there are other [theories] having to do with changes in technology and international trade. These other theories are open to debate, but at least they’re being debated. What isn’t getting talked about is the role industry consolidation might be playing in all this. That needs to change."

I agree. One of the pathologies of modern conservatism — a pathology that's shared more often than I'd like by mainstream liberals — is that they're pro-business, not pro-free market. The difference is critical. Pro-business means passing laws that your business pals like, and as economists since Adam Smith have observed, what businessmen mostly like is lack of competition. The operation of a true free market, conversely, depends crucially on competition and plenty of it. And just as crucially, that requires government intervention to prevent a few behemoths from taking over every sector of the economy. Keeping a free market free takes a lot of work.

If Lynn and Longman are right, we need to start doing that work again. It's time for economists to start seriously debating whether our sputtering job machine is due in large part to our love affair with big business.