Kevin Drum

Fixing Global Warming For 40 Cents a Day

| Fri Jun. 18, 2010 5:00 AM EDT

I was pretty hard on President Obama's oil spill speech on Tuesday, and one reason was his unwillingness to use the occasion to press for a serious climate policy. It's true, as Dave Roberts points out, that Obama talked about raising efficiency standards, investing in clean energy tech, and setting renewable energy standards, all of which are important things. But he very deliberately didn't mention climate change, didn't mention cap-and-trade, and didn't mention carbon pricing even in passing. He just punted.

Would talking about a carbon policy have made any immediate difference? Probably not. The politics of the energy bill currently in Congress look pretty dismal right now, and no amount of presidential oratory is likely to change that. Still, changing public opinion takes time and repetition, and when you have a big audience primed to hear about energy policy, it's foolish to let the chance pass without even giving it a mention.

But there's another reason it was disappointing that Obama didn't mention carbon pricing: his own EPA had handed him a perfect excuse just one day before. In a detailed analysis of John Kerry's American Power Act, the EPA provided estimates of how it would affect carbon emissions and how much it would cost the average American. The results were remarkably reassuring.

On the emissions front, the APA would have a dramatic effect: US emissions would be cut nearly in half by 2030 compared to doing nothing. That's an enormous impact.

But how much would it cost? The answer is: almost nothing. According to EPA's models, if we do nothing, consumption of goods and services in the United States will increase 74.1% by 2030. If APA is passed, consumption will increase 73.4%.

That's it. We can cut carbon emissions nearly in half, and the net cost will be a decrease in consumption of 0.7% in 2030. EPA figures this comes to an average annual cost of $146 per household. That's 40 cents a day per family.

A prime time address was the perfect time to plant this seed with the American public, to let them know that we can address climate change at a distinctly non-scary cost. But that chance slipped away unused. It was a wasted opportunity.

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The Global Economy as Slow Motion Train Wreck

| Thu Jun. 17, 2010 11:52 PM EDT

With governments around the world now obsessed with cutting spending even though the economy is still in a deep slump, here is Barack Obama in a statement aimed mainly at European leaders:

"I am committed to the restoration of fiscal sustainability," Obama said, "but it is critical that the timing and pace of consolidation in each economy suit the needs of the global economy, the momentum of private sector demand, and national circumstances." The United States is setting budget goals for 2013, for example, but in the interim "will pursue measures to support the recovery in private demand and return the unemployed to work," he wrote.

And here is Paul Krugman translating Obama's government-ese into English:

Many economists, myself included, regard this turn to austerity as a huge mistake. It raises memories of 1937, when F.D.R.’s premature attempt to balance the budget helped plunge a recovering economy back into severe recession....But despite these warnings, the deficit hawks are prevailing in most places — and nowhere more than here [in Germany], where the government has pledged 80 billion euros, almost $100 billion, in tax increases and spending cuts even though the economy continues to operate far below capacity.

....German deficit hawkery [...] has nothing to do with fiscal realism. Instead, it’s about moralizing and posturing....There will, of course, be a price for this posturing. Only part of that price will fall on Germany: German austerity will worsen the crisis in the euro area, making it that much harder for Spain and other troubled economies to recover. Europe’s troubles are also leading to a weak euro, which perversely helps German manufacturing, but also exports the consequences of German austerity to the rest of the world, including the United States.

But German politicians seem determined to prove their strength by imposing suffering — and politicians around the world are following their lead. How bad will it be? Will it really be 1937 all over again? I don’t know. What I do know is that economic policy around the world has taken a major wrong turn, and that the odds of a prolonged slump are rising by the day.

I'm not sure I agree with that last sentence. The odds of a prolonged slump seem to me to be within a hair of 100% right now. I'm really not sure there's anywhere for them to rise to.

How to Stimulate the Economy in One Easy Step

| Thu Jun. 17, 2010 4:15 PM EDT

I don't often agree with Tyler Cowen without reservation, but when he's right, he's right:

The real fiscal problem is spending contraction at the state level (expanding and contracting spending are not symmetric in their effects; contracting spend hurts more than expanding spending helps). The correct fiscal policy move would have been, and still is, to take Medicaid away from the states and make it fully federal. This would give state budgets a huge break, and help employment, yet as a one-time change it reduces the moral hazard problems from ongoing outright grants.

Sign me up!

Is Afghanistan Still Winnable?

| Thu Jun. 17, 2010 4:02 PM EDT

Things are not going well in Afghanistan. But Spencer Ackerman argues that Obama's strategy is still the best bet out there:

The American public has never debated, in a rigorous and bloodless way, just how proportional it is to confront a network of a few thousand extremists — this was Petraeus’s estimate during an exchange with Sen. Graham this morning — through a commitment of something upwards of $300 billion to date and roughly 100,000 troops. The damage that extremist network can export is real. But it’s increasingly insubstantial. If Umar Farouk Abdulmutallab, the perpetrator of the most sophisticated al-Qaeda plot in years, had succeeded, he would have killed an order of magnitude fewer people than on 9/11 — 300 people. Out of a nation of 300 million. And that is ultimately how asymmetrical warfare succeeds: what bin Laden calls “Bleed to Bankruptcy.”

....If the choice is between Going Big and Doing Nothing, both favor al-Qaeda. But if the choice is to restrict al-Qaeda’s freedom of movement while combatting the strategic-depth network in Afghanistan; divesting ourselves of the responsibilities to secure Afghanistan; and bolstering the capabilities of our Afghan and Pakistani security-sector and governance-sector allies; then we’re getting somewhere. And these things are related: al-Qaeda would not be relying on the scrubs on the bench like Abdulmutallab and Faisal Shahzad if they were not feeling pressure.

And this is why, ultimately, I do think the strategy in Afghanistan/Pakistan makes sense. It’s a near-optimal balance of risks and benefits within the boundaries of a finite commitment. That is: the surge represents the best chance of rolling back years of Taliban advances in Afghanistan while giving the Afghan government a chance to actually govern and building a durable security sector, so that after July 2011, the Taliban is just less relevant to people’s lives — and, across the border, supporting and encouraging the Pakistani military to perform similar operations to restrict the space in which al-Qaeda and its strategic-depth groups operate.

I think there's something missing here. It's perfectly reasonable to argue that we should have limited goals in Afghanistan and that those limited goals are worth fighting for. But you still have to address the fundamental question: can we achieve those goals? I assume Spencer thinks we can, but he doesn't really make a case for it.

Now, granted, this isn't something you can demonstrate conclusively one way or another. But at this point, after nine years in Afghanistan; after the failure of our newly retooled strategy in its first outing in Marjah; after learning that Hamid Karzai has essentially given up on us; and after hearing Gen. David Petraeus all but admit that he doesn't think he can meet the July 2011 deadline he originally agreed to — after all that, someone really needs to make a good case that we can do what Spencer wants to do: roll back the Taliban and "give the Afghan government a chance to actually govern and build a durable security sector." Because at this point, you'd have to be Pollyanna herself not to be awfully skeptical that we can do this at all, regardless of time or troop commitments. We can certainly contain the Taliban pretty much forever if we're willing to leave 50,000 troops in Afghanistan pretty much forever, but we all know we aren't willing to do that.

So can we do it? I really need to hear the case — and it better not rely on the fantasy that this is just like Iraq, and if a Petraeus surge worked there then it can work in Afghanistan too. That won't fly. Neither will a fantasy speech by Barack Obama. We need to hear something far more convincing. Because in the end, no matter how bad you think things might be if we exited Afghanistan, there's no point in staying if we simply don't have any reasonable chance of succeeding.

So can we? Someone convince me.

Robbing the Poor to Give Air Miles to the Rich

| Thu Jun. 17, 2010 1:23 PM EDT

Felix Salmon has a nice post about the hidden fees banks charge to sustain their business. It starts like this:

Why do most people hate their bank? Because their relationship is based on the lie of “free checking”, and a relationship based on a lie is always going to be a dysfunctional relationship. Checking is never free, but in recent years banks have been able to conjure the illusion of free through a system of regressive cross-subsidies, where the poor pay massive overdraft fees and thereby allow the rich to pay nothing.

Interchange fees are a cross-subsidy too: this time it's merchants who help pay for the checking accounts of the rich. In fact, they do more than pay for their checking accounts, they pay them a nice tax-free income, when the rich people accept debit rewards cards.

This is fundamentally my problem with overdraft and interchange fees: they're basically surreptitious ways for the poor to subsidize the rich. There's no law against that, of course, but the practice is so grotesque that in this case I'm perfectly willing to make one.

Basically, what banks have learned is this: it's mostly poor people who pay overdraft fees. That makes sense, of course: they're the ones most likely to run out of money, aren't they? The thing is, it's easy to fool unsophisticated consumers into not noticing these fees, or into thinking that they'll never have to take advantage of them. But banks know better. They know to three decimal places how often low-income customers are likely to screw up slightly and overdraw their account by twenty bucks. And when they do, they're charged obscenely more than the actual cost of servicing the overdraft. So who benefits? I do. I always have plenty of money in my checking account and I've never overdrawn it. So the entire debit card system is, for me, free.

The same is true for interchange fees. Banks charge merchants far more in interchange fees than it costs to actually run their payment networks, and merchants pay because they have no choice. Visa and Mastercard are functional monopolies, so if you want to do business with them — and what merchant can afford not to? — you have to pay whatever they tell you to pay. This cost gets passed on to consumers, of course, and the poor and working class pay it. The middle class and the rich, however, don't: they basically get the fees rebated in the form of reward cards.

So you have two cases here of a system that costs money to operate, and in which the costs are largely borne by the poor in order to make them free (or cheap) to the better off. If you can sleep easily at night even after you understand how this works, you have a heart of stone.

So what's the alternative? Simple: fees that are fair and transparent. Overdraft fees should cover the average actual cost of overdrafts plus a small amount. Interchange fees should cover the actual cost of operating an electronic payment network. Credit card interest rates should cover the risk-adjusted cost of actually loaning out money. 

Beyond that, get rid of reward cards, which are surely one of the most ridiculous and unjustifiable frauds ever invented. Seriously: banks deliberately overcharge their customers and then rebate a fraction of it in the most circuitous and confusing way possible? And to make it worse, they do it in a way deliberately designed to transfer wealth from the poor to the rich? Karl Marx probably wouldn't have been cynical enough to predict that banks would ever operate like this.

Finally, start charging annual fees again if that's what it takes to make debit and credit card networks profitable. Felix quotes the president of a credit union that serves a low-income community who says "we don't want to fee our members." I sympathize. But the fact is that they already do, and they know it. The only difference is that the fees they charge are hidden, capricious, and generally regressive. We can do better.

Giving Republicans Some Rope

| Thu Jun. 17, 2010 11:52 AM EDT

I'll confess to some lingering unease over the American ritual of forcing CEOs to grovel in front of grandstanding congressional committees whenever their companies have done something wrong, but in the case of BP's Tony Hayward I'll make an exception. And I'll especially make an exception because it gives Republicans a chance to do this:

In his opening remarks, Representative Joe Barton, a Texas Republican, apologized to Mr. Hayward....Mr. Barton called the president's meeting with the oil company "a tragedy" and "a shakedown."

....In his opening remarks, Representative John Sullivan....charged that the Obama administration is "focused on the politics of putting the oil and gas industry out of business."

....In his opening remarks, Representative Parker Griffith, an Alabama Republican said that "if we're going to talk about the environment," he'd "like to remind the committee that the greatest environmental disaster in America has been cigarettes." That means, he said, that the spill is "not going to be the worst thing that's ever happened to America."

And this:

Georgia Republican Representative Tom Price, chairman of the Republican Study Committee, [] said BP's willingness to go along with the White House's new fund suggests that the Obama administration is "hard at work exerting its brand of Chicago-style shakedown politics."

....And former Texas Republican Representative Dick Armey, a leading voice in the conservative Tea Party movement, told a Christian Science Monitor breakfast this week that Obama lacks the constitutional authority to set up such a fund.

....In addition, conservative Republican Representative Michele Bachmann of Minnesota was quoted as telling the Heritage Foundation think tank on Tuesday that the escrow account was a "redistribution-of-wealth fund."

This is great! And I really think the White House should have held off on criticizing Smokey Joe for his "shakedown" statement. All it does is put the GOP on alert. The better strategy is to stay mum, lull Republicans into thinking they can get away with this stuff, and then wait for their remarks to go completely over the top. It'll happen. In fact, if Dems play this right it won't take long before the entire Republican Party is demanding that the government pay BP to replace the Deepwater Horizon platform that failed because of thuggish, business-hating Democratic energy policies. Or something.

So stay cool, folks. All Republicans need is a little nudge. Tea party delirium will take care of the rest.

UPDATE: More great quotes here!

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Getting a Handle on Healthcare

| Thu Jun. 17, 2010 11:21 AM EDT

Ezra Klein notes today that U.S. healthcare costs, which are projected to skyrocket over the next few decades, are by far the biggest driver of long-term deficits:

If you wanted to be optimistic about this, you could say that this represents a sort of opportunity. In sharp contrast to, say, France's health-care sector, our health-care sector is dramatically, joyously, wildly inefficient. We pay so much more than anyone else and get so much less that it's easy to imagine a world in which we have a drastically different health-care system that's both better than the one we have now and that's wiped out our deficit.

Austin Frakt links to a David Cutler paper today that describes just how inefficient our healthcare sector is: at the same time that, for example, the durable goods industry has been increasing its productivity by 7% per year, and retail trade by about 4% per year, healthcare has actually been going backward. It's been getting less efficient:

Cutler’s paper explains why productivity and productivity growth are low in health care and what can be done about it. He hypothesizes why we see so little innovation in health care and suggests ways to promote it. It’s a familiar set of problems (asymmetric information, inability of plans and providers to capture long-term returns on short-term investments, plan turnover, third-party payment, etc.) and solutions (bundling, provider integration, pay-for-performance, etc.).

So: we need to figure out how to make healthcare more productive. "But we don’t know for sure how best to foster it," says Frakt. "So, we first need innovation in health policy." Indeed. But go ahead and read this op-ed too for the other side of the story. Doctors need to change the way they do business, but we patients really need to change the way we do business too.

What is Apple's Secret?

| Thu Jun. 17, 2010 10:49 AM EDT

Nick Gillespie thinks Apple is blowing it with its absurd censorship of iPhone apps. Tim Lee agrees, but says it's even worse than that:

Last year, almost every computer scientist in my group at Princeton had an iPhone. This year, two of my colleagues have bought Android phones, and I'm leaning toward getting one myself when my iPhone contract runs out next month. Nick focuses on a content-related dispute, but what really sticks in the craw of geeks are the technical limitations Apple imposes on app developers.

On the other hand, there's this:

Barely a day after its new iPhone went on sale, Apple Inc. and partner AT&T Inc. said they were so slammed with orders that they were temporarily suspending sales to make sure they didn't sell more units than they could make. Apple said it sold 600,000 phones Tuesday, the day it began taking orders online. That amounted to 10 times more advance orders than it had received for the previous version last year.

Apple's paranoid attitude toward app development on the iPhone and iPad hardly seems sustainable, but so far it sure doesn't seem to have bothered many people outside the geek community. The unwashed masses, apparently, don't really care if they can't get a cartoon version of Ulysses on their iPhone.

Of course, part of this is because Apple's competition is strangely weak — something that puzzles me. Is touchscreen development really that hard? Why is the iPhone (seemingly) so far ahead of Android-based phones? Why, even though tablets have been in development by loads of companies for over a decade, is the iPad essentially a one-of-a-kind device? I don't doubt that Apple has lots of smart developers and good supply chains and all that, but so do a lot of other companies. What's going on?

Quote of the Day: Ease Up on BP!

| Thu Jun. 17, 2010 10:07 AM EDT

Apparently BP is starting to find some defenders:

Representative Joe Barton, a Texas Republican, said a fund BP Plc agreed to establish after meeting with President Barack Obama yesterday amounted to “a $20 billion shakedown.”

“I’m ashamed of what happened in the White House,” Barton said today as a House Energy Committee panel began a hearing on BP’s Gulf of Mexico oil spill. Due process wasn’t followed during negotiations between BP and administration officials, Barton said.

This is an example of how runaway partisanship can help Democrats. Under normal circumstances, everyone would be pounding on BP as hard as they can. And for the most part, that's what's happened so far. But as Dems push ever harder, the natural GOP instinct to (a) protect business and (b) instinctively oppose everything Democrats do, is going to surface. Keep up the BP-bashing a little bit longer and eventually, just out of reflex, Fox News and the Republican Party will be calling for Obama to make payments to them. Should be fun.

Unemployment in 2012

| Thu Jun. 17, 2010 12:10 AM EDT

The UCLA Anderson Forecast is released quarterly. Here's the latest from Forecast director Ed Leamer:

Leamer explains that significant reductions in the unemployment rate require real gross domestic product (GDP) growth in the 5.0 percent to 6.0 percent range....The forecast for GDP growth this year is 3.4 percent, followed by 2.4 percent in 2011 and 2.8 percent in 2012, well below the 5.0 percent growth of previous recoveries and even a bit below the 3.0 percent long-term normal growth. With this weak economic growth comes a weak labor market, and unemployment slowly declines to 8.6 percent by 2012.

So two and a half years from now unemployment will still be at 8.6%, a rate that would normally send everyone screaming for the hills. And what is the United States Congress doing about this? For all practical purposes, absolutely nothing. It must be nice being a congressman.