2010 - %3, March

Paging Dr. James Franco

| Tue Mar. 30, 2010 1:57 PM EDT

Dear Dr. Franco James,

I read with great distress this morning of your plan to matriculate in the PhD program in English at Yale University. This would be where most people congratulate you on your acceptance. But most people are sycophants who mistake fame and physical attractiveness for innate character. I am not one of those people. I've known the truth about you ever since you made a campy joke of my alma mater, the US Naval Academy, in an Annapolis performance that by comparison gives Officer and a Gentleman the gravitas and dynamism of an Olivier stage romp. 

This Yale thing, of course, would not be your first foray into the hallowed halls of academe. You dropped into UCLA, then dropped out, then back in. You almost gave a commencement speech there, then didn't. Then you went to my other alma mater, Columbia, for a master's in fine arts with an emphasis on creative writing, as well as a nap. At the same time, you also enrolled in NYU's Tisch School for acting. 

And now, Yale wants you. To the list of earthly phenomena that mystify me—the riddle of Schroedinger's cat, the Second Law of Thermodynamcs—I now add this: The Ivies and other top-tier institutions shower degrees on you like so many Sony HD minicams in an Oscar-party grab-bag giveaway. And I must strenuously object. Please read the following appeal:

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Why Terrorists Fight

| Tue Mar. 30, 2010 1:30 PM EDT

This feels like a bit of a chestnut, but guess what? It turns out that conservatives are still yammering on about how Muslim jihadists hate us for our freedoms. And it's true, of course, that Sayyid Qutb was famously influential in the Arab world with his dire warnings about Western degeneracy — based largely on his visit to the lewd-n-lascivious America of the late 1940s. Oddly, though, jihadists remained pretty quiet for the next few decades anyway. Daniel Larison:

In fact, attacks on Americans and American installations began after we inserted ourselves into the region’s conflicts and began establishing a military presence there. Hegemonists can obsess over the writings of Qutb all they want, but it will not change the reality that anti-American jihadist violence did not occur until the misguided 1982-83 intervention in Lebanon. U.S. and Israeli military operations and policies of occupation provoke much broader, more intense resentment among Muslims than any general dissatisfaction with the decadence of Western culture and its deleterious effects on their own societies.

....The recent Moscow subway bombings are instructive on this point. The bombings are outrageous atrocities for which there is no excuse or justification, but one would have to be a blind fool to say that Chechen grievances, which outside jihadists have been exploiting for the last decade, are based in morally offensive Russian pop culture. It is acceptable for hegemonists to acknowledge this when Russia is the target of terrorist attacks, but when it comes to acknowledging U.S. and allied policies as important contributing factors we are treated instead to these sweeping cultural arguments and close readings of Sayyid Qutb.

Like I said, this is sort of a blast from the past. But worth being reminded of now and again.

Loopholes Are Forever

| Tue Mar. 30, 2010 12:22 PM EDT

On Saturday the Wall Street Journal editorial page loudly moaned about a provision of the healthcare bill that, they said, was prompting a "wave" of announcements of corporate losses. "This wholesale destruction of wealth and capital came with more than ample warning," they wrote ominously. "Turning over every couch cushion to make their new entitlement look affordable under Beltway accounting rules, Democrats decided to raise taxes on companies that do the public service of offering prescription drug benefits to their retirees instead of dumping them into Medicare." I linked to this briefly the other day, but it's worth a little bit of explication.

It's true: there has been a wave of press releases announcing multi-million dollar writedowns from some of America's biggest corporations. In fact, as Igor Volsky points out, these press releases seem downright coordinated. So what's going on? It all goes back to George Bush's expansion of Medicare prescription drug benefits:

The Medicare Part D legislation gives subsidizes of about $1,300 per retiree per year to businesses that provide prescription drugs to their retirees and permits companies to deduct the value of credit....The new health care law, however, pays for itself by eliminating waste in the system and it closes this particular double dipping provision. Companies would still receive the tax-free subsidy, but they’ll no longer be able to deduct it. And they’re angry.

Well, who wouldn't be angry? Getting a government subsidy and being able to deduct it from your tax bill is a helluva juicy deal. I sure wish I could do something like that. But I'm not a giant corporation, so I can't.

Anyway, it turns out that corporations who qualify for this sweetheart deal accounted for it as a future addition to their earnings stream. Now the stream is gone — after 2013, anyway — so they have to reverse that accounting charge. It's very sad. Still, there's no actual money involved. No one has to write a check to anyone else. Corporations just have to add a footnote to their next quarterly report saying that the government has come to its senses and will no longer allow them to write off an expense that the government is paying for in the first place.

As a friend once said, you could spend your whole life correcting the Journal's editorial mendacity once you let yourself get sucked down that particular rabbit hole. But this one is likely to become a common talking point, and it's arcane enough that hardly anyone understands what's so bogus about it. Now you do, and you can pass it along to your friends the next time you hear it.

Would a Gas Tax Work?

| Tue Mar. 30, 2010 11:30 AM EDT

Part of the compromise being worked out on climate and energy in the pending Senate bill is expected to be a fee on transportation fuels, rather than including oil refiners under a cap and trade program. The idea has been given a thumbs-up by oil companies, and environmental groups are also fans of the idea -- a rare coincidence these days. But will the policy work?

If done properly, it could be. Most environmental groups are supportive of the idea of a fee on fuels, or a "gas tax," if you prefer, but only if the fee goes to other programs that would help reduce oil use. The transportation sector accounts for 28 percent of US emissions, so it's not a small issue when we’re talking about a climate bill.

The linked fee would be an additional price added to fuels to pay for the carbon cost. It could be 25 cents, or it could be $4, if we wanted to be more like, say, Europe. The fee would be tied to the price of pollution permits in the greater carbon market. Oil companies like BP and ConocoPhillips favor the approach (which they suggested last year) because it frees them from the complex cap and trade program and instead puts the burden of reducing oil use on consumers. Oil-friendly senators like it too. And a lot of environmental groups say they're open to it as well.

"We generally like the idea of having a gas tax," said Kate McMahon, an energy policy campaigner at Friends of the Earth. "But it has to be really big ... I don't see Congress putting 50 percent tax on gasoline. That’s what we would need in terms of a price signal."

To be effective, a fuel fee has to cause people to use less oil -- by driving less, buying a more fuel-efficient vehicle, or switching to public transportation. Studies have found that a gas fee has to get into the dollar figures to actually change people's habits. A report released this month by researchers at Harvard’s Kennedy School of Government found that "gas prices greater than $7/gallon" may be needed in order to meet the environmental goal of reducing emissions from automobiles 14 percent by 2020. Even the price spike to over $4 a gallon two summers ago didn't curb American driving all that much; we’re a society constructed to encourage use of the personal automobile, and a culture that really, really likes it.

"A price signal, unless it's a big price signal, is unlikely to have a big effect," said Deron Lovaas, federal transportation policy director at the Natural Resources Defense Council. Thus, he says, "What matters just as much as the price is where the investment goes." If that money is going to be used to build new roads, it's probably not going to help the climate very much. But it might if the money goes to programs to ease congestion on existing roads or, better still, create public transportation systems that get people out of cars.

Will that happen? Unclear. The bill's Republican co-conspirator, Sen. Lindsey Graham of South Carolina, last week indicated that the price would probably be fairly low, and he told reporters that the majority of the money will come back to consumers via a rebate. "Any money not going back to the consumer from this linked fee has to go to something that the country needs, like retiring the debt, or I won't support it," said Graham.

If the fuel fee is low, and consumers are just going to pocket it again, that probably won’t do much to change their habits. Neither will using the revenues to pay down the debt. And if we're also larding the bill up with increased domestic drilling, we're certainly not sending the right signals about oil use in general.

There are also political challenges to setting a fee on gasoline. After the House bill was maligned as an "energy tax," there are plenty of worries among Senate Democrats about putting an actual tax on gasoline. Several Democratic staffers have expressed concern that the policy won't make be easy to sell back home. And they’ve also expressed concerns that the oil companies just like this approach because it's easier to demonize.

What the fuel policy looks like and how it plays out politically will be among the more interesting debates to watch when Sens. Kerry, Graham, and Lieberman roll out their bill following the Easter recess. There’s been a lot of hand-wringing about whether their effort can actually be considered a climate bill after all the special interests have been appeased. But considering the campaign that the American Petroleum Institute waged against the House bill last summer, it's no surprise that the trio has made keeping them happy a top priority.

Two Economic Models

| Tue Mar. 30, 2010 11:10 AM EDT

Yves Smith gets a look at the infamous "plutonomy" reports from Citigroup that were highlighted by Michael Moore in Capitalism: A Love Story, and notes that the authors blame low savings rates in the U.S. on growing income inequality. As the rich get wealthier, they feel comfortable spending more and more of their income, and "They just account for too large a part of the national economy; even a small fall in their savings rate overwhelms the decisions of all the rest." Yves comments:

But behaviors on both ends of the income spectrum no doubt played into the low-savings dynamic: wealthy who spend heavily, and struggling average consumers who increasingly came to rely on borrowings to improve or merely maintain their lifestyle. And let us not forget: were encouraged to monetize their home equity, so they actually aped the behavior of their betters, treating appreciated assets as savings. Before you chide people who did that as profligate (naive might be a better characterization), recall that no one less than Ben Bernanke was untroubled by rising consumer debt levels because they also showed rising asset levels. Bernanke ignored the fact that debt needs to be serviced out of incomes, and households for the most part were not borrowing to acquire income-producing assets. So unless the rising tide of consumer debt was matched by rising incomes, this process was bound to come to an ugly end.

Italics mine. This is the great contradiction at the heart of American capitalism: the rich want to keep middle class incomes stagnant so there's more money left over for them, but they also want to encourage the middle class to consume ever more, for more or less the same reason. Needless to say, this doesn't work in the long run. America's merchant princes need to make up their minds: do they want strong economic growth that benefits everyone (including the rich) or do they want crappy economic growth but with the extra money reserved all for them? Decisions, decisions.....

Indoor Tanning Salon Tax Racist?

| Tue Mar. 30, 2010 10:46 AM EDT

Filling in for Glenn Beck on his radio show, conservative radio host Doc Thompson recently made the stunningly outrageous claim that a tax on indoor tanning salons, as included in the health care reform bill, is racist. Such a tax, Thompson claimed, discriminates against "all light-skinned Americans" because only white-skinned Americans use tanning salons. Never mind the deadly effect tanning beds and the like have on your skin and health, nor the fact that the tax would generate $2.7 billion over ten years to help pay for health care. No, that couldn't have anything to do with why the tax was included in the health care bill.

Here's an excerpt of Thompson from the Beck show, via Think Progress:

Racism has been dropped at my front door and the front door of all lighter-skinned Americans. The health care bill the president just singed into law includes a 10 percent tax on all indoor tanning sessions starting July 1st, and I say, who uses tanning? Is it dark-skinned people? I don’t think so. I would guess that most tanning sessions are from light-skinned Americans. Why would the President of the United Stats of America—a man who says he understands racism, a man who has been confronted with racism—why would he sign such a racist law? Why would he agree to do that? Well now I feel the pain of racism.

Which goes to show: Give a man a mic and he'll say pretty much anything. To be fair, it's one thing for the tanning salon lobby to cry foul and rail against the new tax. It's quite another to claim the tax is "racist," adding to the plight of "light-skinned Americans" around the country. Then again, crazier ideas have seen the light of day on Glenn Beck's radio show.

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Immigration Coming Off the Back Burner?

| Tue Mar. 30, 2010 10:38 AM EDT

Ezra Klein starts off a post this way:

There's been plenty of overheated rhetoric and creative paranoia on display this year, but nativism has been, to me, the dog that didn't bark. The Tea Parties haven't been very focused on immigration, and while abortion and socialism both became major issues during health-care reform, fears that the bill would cover illegal immigrants (it won't, incidentally) never became a marquee issue.

Not to pick on Ezra or anything, but this attitude betrays a surprisingly common misconception about political issues in general. The fact is that political dogs never bark until an issue becomes an active one. Opposition to Social Security privatization was pretty mild until 2005, when George Bush turned it into an active issue. Opposition to healthcare reform was mild until 2009, when Barack Obama turned it into an active issue. Etc.

I only bring this up because we often take a look at polls and think they tell us what the public thinks about something. But for the most part, they don't.1 That is, they don't until the issue in question is squarely on the table and both sides have spent a couple of months filling the airwaves with their best agitprop. Polling data about gays in the military, for example, hasn't changed a lot over the past year or two, but once Congress takes up the issue in earnest and the Focus on the Family newsletters go out, the push polling starts, Rush Limbaugh picks it up, and Fox News creates an incendiary graphic to go with its saturation coverage — well, that's when the polling will tell you something. And it will probably tell you something different from what it tells you now.

Immigration was bubbling along as sort of a background issue during the Bush administration too until 2007, when he tried to move an actual bill. Then all hell broke loose. The same thing will happen this time, and without even a John McCain to act as a conservative point man for a moderate solution. The political environment is worse now than it was in 2007, and I'll be very surprised if it's possible to make any serious progress on immigration reform. "Love 'em or hate 'em," says Ezra, illegal immigrants "aren't at the forefront of people's minds." Maybe not. But they will be soon.

POSTSCRIPT: And keep in mind that one of the reasons the tea parties haven't (yet) taken up the immigration fight is very specific to the agenda of Dick Armey and FreedomWorks. I doubt that Armey will win this battle in the long run, though.

1Granted, polls do give us a general idea of where we're starting from. If immigration reform were polling at 80%, for example, I'd feel pretty good about it since that number could deteriorate 20 points and it would still have a lot of support. But if it's polling at around 50-60% — which it is — that's dangerous territory. Once the yelling starts you can expect that number to go down a bunch, and suddenly it won't be a popular issue to tackle during an election year.

How the Pentagon Rewrote DADT

| Tue Mar. 30, 2010 10:01 AM EDT

When the Pentagon announced last week that it will relax its "Don't Ask Don't Tell" rules on gays in the military, the move was applauded by gay rights advocates as a first step toward repealing the policy altogether. Mother Jones has obtained a copy of the revised rules which shows exactly how the policy has been tweaked.

The new rules, announced last week by Defense Secretary Robert Gates, are intended to make it more difficult for military service members to be discharged for being gay. Gates mentioned some of the key revisions to the rules, such as greater restrictions on the evidence that can be used to dismiss gay service members. Only high-ranking officers will have the authority to launch investigations or decide that a discharge is necessary.

The document provides more detail about the changes, including revisions that Gates didn't focus on in his announcement. For example, the new policy rewrites the definition of "homosexual conduct" that constitutes grounds for dismissal. Previously, the military had used a broad definition which included the "propensity or intent" to engage in "homosexual acts." The new policy defines such conduct more narrowly, describing the grounds for misconduct as "engaging in, attempting to engage in, or soliciting another to engage in a homosexual act or acts, a statement by a Service member that he or she is a homosexual or bisexual, or words to that effect, or marriage or attempted marriage to a person known to be of the same biological sex." While the terms haven't been radically overhauled, the narrower definition could make it more difficult for investigations to be initiated.

Big Finance vs. Big Hollywood: Who Wins?

| Tue Mar. 30, 2010 9:24 AM EDT

Last month, I told you the strange story of box office futures, new financial products that Wall Street wants to make available to schmoes like you and me:

For years, Cantor Fitzgerald, a Wall Street investment firm, has been operating the "Hollywood Stock Exchange," a fake-money game in which players trade "stocks" to bet on how films will do at the box office. Now Cantor could soon get government permission to make a real-money version of the game—a market in which players can gamble on the success or failure of, say, Pirates of the Caribbean 4. Critics are worried that this new market could be vulnerable to insider trading and create bizarre incentives for moviemakers—and that it will also enlarge the risky family of financial products that helped trigger the economic crisis.

"This is such a bad idea on so many levels," says Lynn Stout, a law professor at UCLA and an expert in derivatives, the category of financial instruments that includes Cantor's proposed box office futures. "What they want to do is basically open up a casino for people who want to make money for predicting the next blockbuster."

Now, with regulatory approval for Cantor's box office futures exchange scheduled for as early as next month, the movie industry has finally weighed in on the idea. Late last week, the Motion Picture Association of America's interim chief executive, Bob Pisano, sent a letter to the Commodity Futures Trading Commission, the regulator responsible for approving the box office futures plan. As it turns out, the studios are worried about a lot of the same things that other critics of box office futures talk about—insider trading, for example. The Los Angeles Times explains the implications of all this:

Regardless of how the trading commission views these questions, opposition by the MPAA could be a major blow to the planned exchanges, as both were hoping to attract Hollywood insiders. Since the MPAA represents Paramount Pictures, Sony Pictures, Twentieth Century Fox, Universal Pictures, Walt Disney Studios and Warner Bros., Pisano's letter is a sign that none of them want to get involved and would discourage their partners from doing so.

"The only thing it seems to be doing is setting up a way for people to gamble on domestic box office receipts," MPAA Executive Vice President Greg Frazier said in an interview. "That is not good for our members who first and foremost have an image and integrity to protect."

Will Big Hollywood be able to stop Big Finance's plans? We'll find out soon enough.

The Wall St. Lobby's Flip-flop

| Tue Mar. 30, 2010 9:01 AM EDT

If you need any more reason to distrust Wall Street's lobbying armada, which has spent millions to undercut a new financial reform bill, then look no further than an op-ed from Elizabeth Warren, the staunch consumer advocate and bailout watchdog, published today. In it, Warren highlights the utter hypocrisy of the banking lobby's aim to neuter, if not outright kill, a new, independent consumer financial protection agency.

Among the banking lobby's top talking points for fighting this consumer agency is that it would separate what's called "safety and soundness" regulation (your run-of-the-mill bank oversight, basically) and consumer protection measures, like cracking down on predatory lenders, usurious interest rates, and unfair credit card penalties. For instance, Scott Talbott, a top lobbyist for the Financial Services Roundtable, a powerful finance trade organization, told the New York Times that his organization "believe[s] that consumer protection and bank supervision should be housed under the same roof."

But as Warren points out, the position of Big Finance's biggest advocacy group, the American Bankers Association, was the exact opposite just a few years ago. In 2006, the FDIC, Federal Reserve, and other government regulators were considering allowing bank regulators to keep an eye on subprime mortgages, those tricky—and toxic—products that would help topple the economy. The ABA, when it caught wind of this potential move, sent a letter to the FDIC arguing against merging bank oversight and consumer protection, saying this "marriage of inconvenience between supervision and consumer protection appears to blur long-established jurisdictional lines." The association recommended that "the safety and soundness provisions relating to underwriting and portfolio management be separated from the consumer protection provisions." (The ABA, in a sign of true prescience, also said subprime mortgages weren't "inherently riskier" than plain vanilla mortgages and that letting bank regulators oversee subprime loans "overstates the risk" of them.)

This, Warren concludes, shows that Wall Street's "lobbyists’ consistent theme is unmistakable: they oppose meaningful rules in the consumer credit market." She goes to write:

The ABA’s premise that the country can’t have both meaningful consumer protection and safety and soundness is wrong. In fact, its defense against an independent consumer agency boils down to this: if banks can’t trick and trap people with fine print and legalese, they won’t be able to turn a profit.

When other industries have argued that tricking their customers is an essential part of their profit model, they haven’t gotten far. For example, it might be profitable in the short run to substitute baking soda for antibiotics, but basic safety regulations prevent such moves—and the pharmaceutical industry still manages to do just fine. In fact, the industry flourishes, bringing better, cheaper products to customers.

Similarly, the consumer agency now before the Senate is designed to cut out tricks and traps pricing, fine print that no one can read, and sharp practices that strip billions of dollars from consumers...

In the weeks ahead, the Senate does not need to decide between safety and soundness and consumer protection.