Kevin Drum

The Future of Taiwan

| Thu May 13, 2010 11:25 AM EDT

Dan Drezner has finally met a free trade agreement he doesn't like. The treaty in question is one that would liberalize trade between China and Taiwan, and by itself that's fine:

The security ramifications are troubling, however. While China's economic leverage over the United States is limited, this kind of agreement would ratchet up the asymmetric dependence of Taiwan on the Chinese economy. Maybe Taiwan has already crossed the point of no return with regard to interdependence with the mainland — but this agreement would surely guarantee crossing that threshhold.

What would China do with this leverage? I don't know, I really don't. If Beijing plays the long game, they would allow for the build-up of political interest groups in Taiwan with a powerful incentive to appease the People's Republic in order to keep the economic relationship unruffled. The thing is, China has often been clumsy in its initial attempts to translate economic power into political influence, and I could easily see such a misstep occurring a few years from now.

Perhaps I'm being paranoid about this. The one thing I'm certain about, however, is that the most likely flashpoint for a great power confrontation between the United States and China is anything involving Taiwan. So I get veeeeeeerrrrrrry nervous about anything that upsets that particular apple cart.

The future of China and Taiwan is, obviously, impossible to project with even minimal clarity. But I've long thought that the most likely scenario starts with increased economic ties and then moves toward things like artfully worded mutual nonagression treaties, followed by limited formal diplomatic ties and then by a sort of shadow version of what Hong Kong is to mainland China today. Then, eventually, Taiwan and China are reunited. The whole process might take the better part of a century, and I figure that China can probably deal with that.

But a million things could go wrong in the meantime. And of course I might be entirely wrong about how this plays out. But if everyone stays calm, my guess is that things end with a whimper, not a bang.

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Today in Financial Reform

| Thu May 13, 2010 10:18 AM EDT

Ezra Klein lists the amendments to the Senate financial reform bill that are up for votes today, and you will be entirely unsurprised to learn that this is the one I'm most interested in:

Collins amendment to mandate minimum leverage and risk-based capital requirements for insured depository institutions, depository institution holding companies, and nonbank financial companies that the Council identifies for Board of Governors supervision and as subject to prudential standards. (#3879)

Leverage! Even the smallest move in the direction of mandating reasonable limits on leverage is more important than the biggest move in pretty much any other direction. The White House opposes legislative caps on leverage because they're busily negotiating international standards and don't want to have their hands tied. I say: tie their hands. It might, to coin a phrase, give them some additional leverage in these negotiations. And if the Basel III talks don't go well, at least we'll have some regulations of our own.

(But will banks all flee New York for friendlier climes if we have tough leverage regulations and other countries don't? This is sort of an all-purpose threat against every serious piece of financial regulation ever proposed, so I wouldn't pay too much attention to it. And Collins' amendment isn't exactly a killer: all it says is that the "appropriate" agencies shall establish minimum capital requirements, and those minimums "shall not be less than the generally applicable risk-based capital requirements....nor quantitatively lower than the generally applicable risk-based capital requirements that were in effect for insured depository institutions as of the date of enactment of this Act." There's a lot of leeway there.)

Elsewhere, Edmund Andrews argues that we should pay attention to the fight over federal pre-emption. The question is, should federal laws be a floor, with states allowed to set more stringent requirements if they want? Or should federal laws apply across the board?

To the banks, federal pre-emption is an absolute top priority. They’ll tell you it’s incredibly hard to deal with a patchwork of regulations in 50 states. (Just think of the unintended consequences!) But the real reason is they don’t want to have to lobby in 50 different states when they can focus all their lobbying in Washington. It’s true that some states were even worse than Washington about regulating banks, but one strong state attorney general often provides a template for all the others. Just think about the role of state AG’s in tobacco litigation. That’s what really scares banks.

This time, according to Andrews, it's mostly centrist Democrats who are fighting to weaken state rules. I'm actually sympathetic in general to the argument for nationwide rules when it comes to interstate commerce like banking, but I think Andrews is right: in the case of banking regulation, states can be the laboratories of democracy just as effectively as they can in other areas, and experimenting with tougher regs is probably a useful exercise. Let's not cut them off at the knees.

Is the Iraq Withdrawal Slowing Down?

| Thu May 13, 2010 12:26 AM EDT

We're supposed to be well on our way to getting out of Iraq, but the Guardian reports that the drawdown of American troops has hit a roadbump thanks to the continuing disarray following the March parliamentary elections:

The White House is likely to delay the withdrawal of the first large phase of combat troops from Iraq for at least a month after escalating bloodshed and political instability in the country. General Ray Odierno, the US commander, had been due to give the order within 60 days of the general election held in Iraq on 7 March, when the cross-sectarian candidate Ayad Allawi edged out the incumbent leader, Nouri al-Maliki.

....The withdrawal order is eagerly awaited by the 92,000 US troops still in Iraq — they mostly remain confined to their bases. This month Odierno was supposed to have ordered the pullout of 12,500, a figure that was meant to escalate every week between now and 31 August, when only 50,000 US troops are set to remain — all of them non-combat forces.

Hmmm. On the other hand, Reuters has this:

The Pentagon said on Tuesday the U.S. drawdown from Iraq was on schedule despite this week's deadly bombings and persistent political uncertainty.

The United States aims to withdraw 40,000 troops from Iraq over the next four months — a major logistical challenge which the Pentagon says will get under way in earnest in June.....Pentagon Press Secretary Geoff Morrell [] said he did not believe the pace of the withdrawal during the month of May had been altered because of recent events in Iraq. But he added the top U.S. commander in Iraq had some flexibility as long as the September 1 deadline was met.

So the May drawdown hasn't happened yet, but that doesn't mean the withdrawal is slowing down. There's still some "flexibility" here.

I don't know what this means. But it's worth keeping an eye on. I really do believe that everyone from Obama on down on our side and from Maliki on down on the Iraqi side wants the withdrawal to go ahead on schedule. But there are always reasons to delay things. Always. The only way we'll ever get out is to forge ahead regardless.

Religion and Death

| Wed May 12, 2010 8:12 PM EDT

Responding to my post yesterday about atheism, Andrew Sullivan asks me an unexpected question:

If I may intrude, and ask a question I do not mean to be loaded, just curious: I wonder what Kevin thinks happens to him when he dies? And how does he feel about that — not just emotionally but existentially? These questions can be addressed without talking of God. And yet they reveal something about what it is to be human.

The fact that I didn't expect this is telling in itself: this is, obviously, one of, if not the key question in most religious traditions. But I just don't think about it very often. Still, I'll take a crack at it.

To answer the first question: I don't think anything happens when I die. My best guess is that my consciousness/ego/soul simply ceases to exist.

And how do I feel about this? Well, obviously in some sense I fear death. We all do. I'd have a pretty strong reaction if my doctor told me I had a month to live. But aside from that purely primal response, does it bother me that my consciousness will eventually cease to exist forever? Not really.

I understand that this is a pretty unsatisfying answer. But it's not glib. It's just a plain description of what my interior life is like. I don't go through life like Woody Allen, thinking that human existence is an implacable existential horror. But neither does it bother me that my own existence won't last forever. It never has, not in childhood and not now. And I'm not sure why. It just doesn't.

For what it's worth, my instinct tells me that this is primarily an aspect of temperament you're born with. Either you have a strong emotional reaction to the idea of eventual nonexistence or you don't. If you do, religion is the most common way of dealing with it. The particular religion you choose is obviously mostly cultural, passed down from your parents and peers the same way you learn a particular language as a child, but the motivating fear itself probably isn't.

But either way, does this really reveal something essential about what it means to be human? In one sense, yes: a knowledge that someday we'll die is unique to humans (though fear of death plainly isn't), and our response to that knowledge has been a defining feature of human cultures for millennia. Still, there are hundreds of other things that are unique to humans too, and I don't think there's any special reason to give this one pride of place.

And one final footnote. Since Nietzsche keeps coming up in these discussions, keep this in mind: he may have had a healthy trepidation about what the world might be like if, indeed, God were truly dead, but a lot of time has passed since then and we pretty much know the answer now. In the land of Nietzsche's birth, less than half the population believes in God and less than a quarter can be called Christian in any but the most anthropological sense. Over the past half century Europe has become essentially a secular society, and it seems to be working out fine. I suppose you might argue that this is a fool's paradise, that they're subsisting off the dwindling religious capital of the past two thousand years, but that case gets harder and harder to make with every passing year. They've basically given up religion and nothing has happened. They still produce plenty of art and science, they live happy lives, their moral sense is intact, they haven't become nihilists, and they appear to love and cherish their families and friends just as much as they ever have. If Nietzsche were alive today, he'd probably consider the tradition of tragic atheism that he himself created to be rather quaint. Perhaps we should too.

The Truth About the Trust Fund

| Wed May 12, 2010 6:44 PM EDT

Veronique de Rugy hauls out a familiar argument today: we can't rely on Social Security's trust fund to keep it healthy for the next few decades.

In practice, [] the trust fund and interest payments it receives are simply accounting fiction. For years, the federal government has been borrowing the Social Security Trust Fund assets for its daily spending. The fund has nothing left in it except IOUs from the federal government. In fact, even the interest is paid in IOUs.

Hence, the only way Social Security will not go into the red this year and in future years is if the federal government pays back Social Security. But since the money has long ago been consumed, it must borrow money from the public or raise taxes to pay its Social Security debts.

It's true: from a purely fiscal point of view, the Social Security trust fund is a fiction. But while this is true as a bare fact, the implications of this argument are pernicious and need to be vigorously confronted whenever they rear their head in public. Here's why, in the simplest possible terms.

Back in 1983, we made a deal. The deal was this: for 30 years poor people would overpay their taxes, building up the trust fund and helping lower the taxes of the rich. For the next 30 years, rich people would overpay their taxes, drawing down the trust fund and helping lower the taxes of the poor.1

Well, the first 30 years are about up. And now the rich are complaining about the deal that Alan Greenspan cut back in 1983. As it happens, I agree that it was a bad deal. If it were up to me, I'd fund Social Security out of current taxes and leave it at that. But it doesn't matter. Once the deal is made, you can't stop halfway through and toss it out. The rich got their subsidy for 30 years, and soon it's going to be time to raise their taxes and use it to subsidize the poor. Any other option would be an unconscionable fraud.

1For a slightly more detailed version of this explanation, see here. Note that "poor" is actually shorthand for both the poor and the middle class, while "rich" actually means both the rich and the upper middle class. This distinction comes into play because payroll taxes, which have built up the trust fund for the past 30 years, are primarily paid by the poor and the middle class, while income taxes, which were kept artificially low over that same period and will soon need to raised in order to pay off the trust fund debt, are primarily paid by the rich and the upper middle class.

The Last Taboo

| Wed May 12, 2010 1:42 PM EDT

In our current issue, Julia Whitty calls population control "The Last Taboo":

Faced with a world that can support either a lot of us consuming a lot less or far fewer of us consuming more, we're deadlocked: individuals, governments, the media, scientists, environmentalists, economists, human rights workers, liberals, conservatives, business and religious leaders. On the supremely divisive question of the ideal size of the human family, we're amazingly united in a pact of silence.

....Voiced or not, addressed or not, the problem of overpopulation has not gone away. The miracle of the Green Revolution, which fed billions and provided the world a sense of limitless hope, also disguised four ominous truths about Earth's limits. First, the revolution's most effective agents, chemical fertilizers of nitrogen and phosphorus, are destined to run out, along with the natural resources used to produce them. Second, the fertilizers, pesticides, and herbicides that grew the food that enabled our enormous population growth in the 20th century bore expensive downstream costs in the form of polluted land, water, and air that now threaten life. Third, crop yields today are holding stubbornly stable and even beginning to fall in some places, despite increasing fertilizer use, in soils oversaturated with nitrogen. The Green Revolution's duplicitous harvest — giving life with one hand, robbing life-support with the other — also masked a fourth ominous truth. We're running out of topsoil, tossing it to the wind via mechanized agriculture and losing it to runoff and erosion. 

Want to chime in? We're hosting a forum on population with Paul Ehrlich, Fred Pearce, Martha Campbell and others starting today. If you have questions, comments, or dissents, click here to join the conversation.

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Does the Media Care About Unemployment?

| Wed May 12, 2010 1:20 PM EDT

Brad DeLong writes today about something that I remember mentioning briefly some time ago:

The most astonishing and surprising thing I find about Washington DC today is the contrast in mood between DC today and what DC was thinking a generation ago, in 1983, the last time the unemployment rate was kissing 10%. Back then it was a genuine national emergency that unemployment was so high — real policies like massive monetary ease and the eruption of the Reagan deficits were put in place to reduce unemployment quickly, and everybody whose policies wouldn't have much of an effect on jobs was nevertheless claiming that their projects were the magic unemployment-reducing bullet.

Today.... nobody much in DC seems to care. A decade of widening wealth inequality that has created a chattering class of reporters, pundits, and lobbyists who have no connection with mainstream America? The collapse of the union movement and thus of the political voice of America's sellers of labor power? I don't know what the cause is. But it does astonish me.

I think there are two distinct issues here. The first is the government response to high unemployment, and on that score I think we're doing as much as (or more than) we did in 1983. Interest rates are at zero, the Fed has vastly expanded its balance sheet, a $700 billion stimulus bill has been passed, and federal deficits are around 10% of GDP. That's a stronger response than we had in 1983, when real interest rates were around 5% (and rising) and the federal government was running a deficit of around 6% of GDP.

But it's true — or at least, it's my impression that it's true — that the media focused way more on economic hard luck stories in the early 80s than they do now. I have a strong memory of being practically bombarded with this stuff back then. Today, though, not so much. It's not that coverage of unemployment is absent, just that it strikes me as much less urgent than it was in the early 80s.

I don't know why. Maybe Brad's reasons are the right ones. Maybe it's just been crowded out by other financial news like bank bailouts and subprime ghost towns. Maybe the social safety net is more effective now than it was 30 years ago. Maybe it has something to do with the fact that today's stubbornly high numbers are concentrated among the long-term unemployed, as shown in the chart on the right. Maybe the rise of two-earner families has reduced the pain of unemployment somewhat. Maybe nobody really believes any longer that the government can do anything about this, so it's not worth reporting on. I don't know. But like Brad, it strikes me as quite odd.

Kerry on Climate

| Wed May 12, 2010 12:16 PM EDT

Is it possible to pass a climate bill this year? After recounting the recent history of climate legislation — 38 votes in 2005, 54 votes in 2008 — John Kerry says yes:

I absolutely believe we’re closer than ever to getting across the finish line — but make no mistake, it remains difficult, even with President Obama in the White House, and even with the House of Representatives having passed their bill by the slimmest of margins last summer. But we’re going full steam ahead because, in my judgment, this may be the last and certainly the best chance for the Senate to act, especially with the fact that I think the next Senate — given a 2012 presidential campaign added to the dynamic and a lot of new Senators is going to be less likely than this one to find a path to the 60 votes needed for passage. So we’ve got to get it done this year.

....And here’s what I can tell you, a comprehensive climate bill written purely for you and me — true believers — can’t pass the Senate no matter how hard or passionate I fight on it. No, it’s got to be an effort that makes my colleagues — and that has to include Republicans so we can get to 60 — comfortable about the jobs we’re going to create and the protection for consumers and the national security benefits — and it has to address those pieces on their terms. The good news — I think we got that balance right.

Lots more detail at the link, worth reading if you want to get down in the weeds on this stuff. I hope Kerry is right about this. We should know for sure within a couple of months.

UPDATE: ClimateProgress has a nice chart comparing the Senate and House climate bills here.

Why Does Obama Hate Staten Island?

| Wed May 12, 2010 12:04 PM EDT

The New York Times writes about Elena Kagan and the three sitting Supreme Court justices who are from New York:

The four are a portrait of the city, each carrying distinct New York traits to Washington. “Kagan is so Manhattan, Scalia is so Queens, Ginsburg is so Brooklyn and Sotomayor is so Bronx,” said Joan Biskupic, the author of a biography of Justice Antonin Scalia. “They adopted in their identities the whole New York sensibility.”

Only Staten Island — “the forgotten borough,” as a woman who answered the telephone in the borough president’s office described it on Tuesday — would be without a justice to call its own if the Senate confirms Ms. Kagan.

This is really outrageous, and Obama has made a huge blunder here. I expect Republican attack ads shortly about his obvious lifelong hostility toward Staten Island.

Fannie Mae: Refreshingly Ideology Free!

| Wed May 12, 2010 11:39 AM EDT

Ezra Klein on the problems with government-sponsored housing agencies:

Fannie Mae and Freddie Mac are what happens when ideological compromise goes horribly wrong. On the one hand, they're supposed to make housing more affordable. On the other hand, they're private companies, because you wouldn't want some sclerotic government agency at the center of this. The result? Profit-maximizing corporations that enjoy the government's backing.

This is hardly the most important thing in the world, but this is wrong in an interesting way. Fannie Mae and Freddie Mac were converted into semi-private organizations (GSEs, or government sponsored enterprises) by LBJ in 1968. But it wasn't for ideological reasons. It was because Johnson was spending a lot of money on the Vietnam war, which was running up federal borrowing, so he wanted to get Fannie and Freddie's debt off the government's books. This would, technically, reduce federal debt issuance and make his Vietnam/Great Society deficits less alarming.

In other words, it was purely political and financial legerdemain, entirely ideology free. And ironically, it's almost precisely analogous to what big banks did during the late housing bubble, taking huge amounts of debt nominally off their balance sheets while, in reality, remaining responsible for it. When the shit hit the fan, the bankers had to pay the bills, and as it turns out, so did Uncle Sam for its GSEs.

So what to do about Fannie and Freddie? The conventional wisdom is that the entire housing market would collapse without them, but I'm not so sure about that once we manage to extricate ourselves from our current troubles. As a further little bit of history trivia, FDR's original plan for the FHA was that it would work with private organizations that would guarantee home loans. But after a couple of years it became clear that no private sector organizations were interested in taking on this job, so Fannie Mae was created to do it instead. Whether it's still true that the private sector is uninterested in this business in an era (or so I'm told) of endless financial innovation, I'm not so sure about. And if it turns out that it is? Well, other countries managed to muddle along for years without equivalent agencies. We probably can too.