2011 - %3, December

NAACP Decries "James Crow Esq."

| Tue Dec. 6, 2011 12:16 PM EST
NAACP President Ben Jealous

State-level voting restrictions are an attempt to suppress the minority vote and prevent them from exercising political influence, according to a report released by the NAACP and the NAACP Legal Defense Fund Monday.

"Jim Crow is poll taxes, James Crow Esquire it's having to pay for an ID,” said NAACP Sr. Vice President for Policy and Advocacy Hilary Shelton on a conference call with reporters Monday. NAACP officials referred to the voting restrictions as "James Crow, Esq.," so as to distinguish them from the violent tactics associated with enforcing Jim Crow segregation. "The intent seems to [be to] disenfranchise people of color disproportionately," said NAACP President Benjamin Jealous. 

The report exhaustively details how 25 states have passed laws restricting voting rights, either by requiring photo identification or proof of citizenship at the polls, limiting early voting, passing stricter absentee ballot requirements, curbing third-party voter registration drives and venues for registration, implementing stricter felony disenfranchisement laws, and imposing residency requirements that make it harder for people to register to vote after they've moved. The Brennan Center has estimated that stricter voting requirements could make it harder for five million eligible voters to cast ballots. While Republicans have argued such rules are necessary to combat "voter fraud," examples of the kind of in-person voter fraud that might be curbed by such requirements are miniscule

All of these new restrictions disproportionately impact the poor and minorities, the NAACP report states, and that's by design. While the report does not blame Republicans directly, it describes the restrictions as a "backlash" against an empowered minority vote in 2008 when the participation gap between eligible black and white voters was nearly eliminated. Echoing Ari Berman's* reporting for Rolling Stone, NAACP officials on the call singled out the American Legislative Exchange Council as the source of legislation implementing restrictions on voting. 

"We are experiencing an assault on voting rights this year, that is disturbing in its scope and intensity," said NAACP LDF Director of Political Participation Ryan Haygood. "It's not a mistake that the very channels through which many voters of color showed up at the polls at 2008 are" the ones being blocked, he added. In fairness, the laws are likely also the result of a 2008 Supreme Court decision upholding a strict voter ID law in Indiana despite evidence that it would disproportionately disenfranchise minorities. 

Some statistics from the report: 25 percent of blacks and 15 percent of Latinos don't have photo IDs, compared to eight percent of whites. In 2010, 14 percent of Latino voters and 12 percent of blacks registered through private voter registration drives, compared to six percent of whites. Blacks and Latinos are also far more likely to have moved recently. Forty-eight percent of Latinos and 43 percent of blacks moved within the last five years, compared to 27 percent of whites, making them far more likely to be impacted by, for instance, residency requirements in Wisconsin that only allow voters to register after having lived in the state for twenty-eight days. The disparate impact of felony disenfranchisement laws hits African-Americans particularly hard—38 percent of the more than 5 million Americans affected by felony disenfranchisement laws are black. 

The NAACP and NAACP LDF aren't the first to draw comparisons between Jim Crow-era voter restrictions and today's vote fraud push by conservatives. Democratic National Committee Chair Debbie Wasserman-Schultz caused a firestorm last June when she said that Republicans were trying to "literally drag us all the way back to Jim Crow laws" with stricter voting requirements. 

"The interest is not [what's in] their heart, it's their policy," said Rev. William Barber, President of the NAACP North Carolina State Conference. "If they implement these policies, and they know who these policies are going to impact, it is disparate racial treatment.”

Shelton was more blunt. "It's more sophisticated, but it really is the same old strategy being played out yet again.”

*A previous version of this piece referred to the author of the Rolling Stone piece as Ari Melber; it was Ari Berman.

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Mitt Romney's Aides Spent 6 Figures to Wipe Out State Records

| Tue Dec. 6, 2011 12:15 PM EST

The plot thickens in the case of GOP presidential candidate Mitt Romney's missing emails from his time as Massachusetts governor. Reuters reports that Romney administration staffers spent almost $100,000 to buy up the hard drives in their state computers before Romney left office, preventing reporters, oppo researchers, and anyone else from obtaining the administration's internal deliberations. Staffers also purged administration emails from state servers. All of this took place months before Romney announced his first presidential run, in February 2007.

Here's more from Reuters:

Romney's spokesmen emphasize that he followed the law and precedent in deleting the emails, installing new computers in the governor's office and buying up hard drives.

However, Theresa Dolan, former director of administration for the governor's office, told Reuters that Romney's efforts to control or wipe out records from his governorship were unprecedented.

Dolan said that in her 23 years as an aide to successive governors "no one had ever inquired about, or expressed the desire" to purchase their computer hard drives before Romney's tenure.

The cleanup of records by Romney's staff before his term ended included spending $205,000 for a three-year lease on new computers for the governor's office, according to official documents and state officials.

In signing the lease, Romney aides broke an earlier three-year lease that provided the same number of computers for about half the cost—$108,000. Lease documents obtained by Reuters under the state's freedom of information law indicate that the broken lease still had 18 months to run.

As a result of the change in leases, the cost to the state for computers in the governor's office was an additional $97,000.

The Boston Globe first reported earlier this month that Romney staffers had deleted emails from a government server.

That said, some paper records from the Romney administration do remain in the state archives in Massachusetts, including emails and internal memos. Some of those documents formed the basis of a November Mother Jones story revealing how Romney and his administration prioritized hoovering up as much federal money as possible as they grappled with a $3 billion budget deficit—a message at odds with Romney's current support for slashing federal spending and downsizing the federal government.

Mitt Romney Winning the Race for the 1 Percent

| Tue Dec. 6, 2011 12:07 PM EST

The Washington Post reports today that Barack Obama has received donations from 30 billionaires while Mitt Romney has received donations from 42 billionaires. Ho hum. But there's this fascinating little tidbit halfway through the story:

Romney has attracted the support of Redskins owner Dan Snyder and other billionaires, including California real estate developer Donald Bren, who is worth $12 billion, and developer and publisher Sam Zell, who is worth $5 billion.

As a lifelong reader of the Los Angeles Times, I'd say that the support of Sam Zell ought to be reason enough to disqualify anyone from the presidency. I suppose there's a good chance that he's not actually much more of an asshole than hundreds of other billionaires, but he sure went out of his way to make it more obvious than usual. He's just lucky that LA also has Frank McCourt around, which means there's at least one zillionaire here that we all hate even more.

8-Year-Old to Bachmann: "My Mommy's Gay"

| Tue Dec. 6, 2011 12:00 PM EST

This video of an eight-year-old cub activist named Elijah confronting Rep. Michele Bachmann (R-Minn.) on gay rights hit the tubes on Sunday and went viral pretty fast. It's pretty easy to see why: Elijah tells Bachmann, "My mommy's gay but she doesn't need any fixing." Bachmann's response, other than momentary shock, is to wave "bye, bye" to the kid. 

Watch:

Bachmann is currently lagging in single digits in Iowa, where by all accounts she needs a strong showing. But she's built up enough of a reputation for her opposition to gay rights that, even as she slides in the polls, she still has a pretty sizable bullseye on her back and has been on the receiving end of a number of similar video ambushes.

Who's Responsible For the Euromess?

| Tue Dec. 6, 2011 9:30 AM EST

A few days ago Tyler Cowen kicked off a discussion of whether or not Germany (and the core European countries in general) have acted more virtuously than Greece (and the periphery countries in general) during the decade since the euro was introduced. It was unclear how much he was simply presenting a debating case vs. how much he actually believed his own arguments, and in that spirit I want to present a different case. This one is about how Europe got where it is today and who deserves a bigger share of the blame for its current mess. I'm not suggesting this is the only way to look at things, or even necessarily the best way, but I do think it's an instructive way. So here it is in seven easy steps.

1. The introduction of the euro made cross-border capital flows far more frictionless. As a result, money began flowing from the sluggish economies of the core countries (mostly Germany, but also France, Benelux, and others) to the more capital-starved economies of the periphery. You can tell two basic stories about why this happened:

a) A "push" story: Investors chasing higher yields actively pushed money into the more vibrant economies of the periphery.

b) A "pull" story: Profligate national governments, addicted to living beyond their means, pulled money into the periphery via heavy borrowing, which crowded out private borrowing.

Most likely, both of these were part of what happened and both reinforced each other. But generally speaking, if the pull story were true you'd expect to see increases in nominal interest rates in the periphery. As the table above shows, that's not what happened, which means the push story is more likely to be the primary explanation. The primal sin here is that for years supposedly sophisticated investors in the core shoveled money into the periphery with abandon, ignoring the obvious risks of doing so.

2. Normally, capital flows would eventually be moderated by changes in exchange rates, but this was impossible for the periphery since they no longer had their own currencies. The result was persistent hot money flows into a fixed exchange rate area and steadily higher inflation in the periphery compared to the core. This state of affairs is widely known to be unsustainable and eventually disastrous, but it was something Germany happily ignored since it provided German savers with a place to invest their money and provided the periphery with enough cheap capital to act as a thriving market for German exports.

3. High inflation in the periphery would normally be moderated by tighter monetary policy. Again, though, this was impossible for the periphery because they didn't control their own monetary policy. The chart on the right shows actual ECB monetary policy during the aughts (red line): it was kept loose in order to keep Germany's sluggish economy growing, but this meant that monetary policy was way too loose for the periphery. The overheated economies of the periphery thus overheated even more. This was largely the fault of the core, which controlled monetary policy, not the periphery. It was Germany that needed loose monetary policy, not Greece.

4. Capital inflows produce a capital account surplus, and the flip side of a capital account surplus is a current account deficit. This is an accounting identity, not a matter of morality or recklessness. And current account deficits always produce either matching government debt (i.e., budget deficits) or matching private debt (i.e., low private savings). This is also an accounting identity, not a matter of morality or recklessness.

So all the current account deficit countries inevitably got one or the other or both. In the event, Ireland and Spain got a property bubble; Greece and Portugal ran up sizeable budget deficits. We know from painful experience that capital flows like this are unsustainable in the long run, but they can go on for quite a while until something happens to scare everyone into calling a halt and producing a sudden crisis. The 2008 financial crisis was "something."

5. There's another side to this too: banks intermediate current account deficits. This is inevitable, hydraulic. A banking system in a current account deficit country always features a high loan-to-deposit ratio, which means that banks in the periphery became dependent on skittish wholesale funding instead of more durable retail deposits. As with capital inflows, when investors suddenly decide to stop the music, wholesale funding dries up and the banking system goes into cardiac arrest.

6. This creates a vicious cycle: The financial crisis produced a recession that cratered both periphery country finances and the periphery's banking system. Budget deficits in the periphery blew out, debt levels became unsustainable, and at the same time investors began a run on their banking systems. As Hyun Song Shin puts it, "The European crisis carries the hallmarks of a classic 'twin crisis' that combines a banking crisis with an asset market decline that amplifies banking distress…In the European crisis of 2011, the twin crisis combines a banking crisis with a sovereign debt crisis, where the mark-to-market amplification of financial distress interacts to worsen the banking crisis."

In other words, as sovereign debt woes got worse, bank woes got worse too. And as bank woes got worse, sovereign debt woes got worse.

7. The damage wasn't limited to the periphery. All those capital inflows came from the core, and when the music stopped and the periphery was left in shambles, banks that had loaned out all the money were suddenly in trouble too. As an example, the chart on the right shows bank exposure to debt from Spain. German and French banks alone have over $300 billion in exposure to Spanish debt, so if Spain goes kablooey, so do they. And that brings us to the present day.


If you've read this far, let me make it clear that nothing here is meant to absolve the periphery countries from their part in this. Ireland fed the fire of its property bubble irresponsibly, Greece lied about its finances, and throughout southern Europe there was a persistent refusal to reform their labor practices, improve productivity, and live within their means. The core countries have every right to hold the periphery accountable for this.

At the same time, this is fundamentally a story of economics, not morality, and it's only in Step 1 above that the periphery countries bear even a share of the blame for what happened. The rest was either caused by deliberate core policies or else the inevitable result of those policies. Whether Germany likes to hear it or not, it's simply a fact that both sides allowed—even encouraged—capital flows to remain imbalanced for far too long. The periphery enjoyed access to cheap money and the core liked having a thriving market for its exports. The core and the periphery both rode this wave up, and now they're both going to have to ride it down.

It's also an unfortunate fact that no one handles hot money flows well, something that's doubly true in a fixed exchange rate area. Germany was no better at identifying this and doing something about it than Greece was, and they're no happier about giving up their export-driven economy than Greece is about giving up its import-driven economy.

What does all this mean going forward? I guess I'd say a few things:

  • Germany is justified in demanding reforms from the periphery as the price of a bailout. Partly this is just because creditors generally have that right. But it's also for practical reasons. Even if you feel that reckless lenders are morally equivalent to reckless borrowers, it's still the case that if Germany simply bails out the periphery without anything changing, they're essentially committing themselves to subsidizing the periphery forever. That's not something any country will (or should) feel obliged to do.
  • At the same time, forced austerity for its own sake is foolish. Demanding reforms that promote long-term growth is fine. Demanding austerity that will make periphery economies even worse off in the short term is counterproductive for everyone, including Germany.
  • It's probably also wrongheaded to focus so heavily on budget deficits, no matter how virtuous it seems to insist on balanced budgets. That's not what caused the eurozone's problems: Spain and Ireland ran budget surpluses during the aughts and only went into deficit after the financial crisis cratered their economies. Europe's fundamental problem wasn't budget deficits, it was capital flows within the eurozone—or, put a different way, the problem was persistent current account imbalances in a fixed exchange rate area. It was the countries with current account deficits that consistently ran into trouble, and any reforms worth doing need to address that directly. That requires changes from both the core and periphery. After all, every country can't run a budget surplus at the same time, just as capital can't flow into every country at once.
  • A non-eurozone country that ended up in the trouble the European periphery is in would most likely declare bankruptcy: They'd "restructure" their debt, meaning that banks and others who held their bonds would lose all or some of their money. The EU's leaders, however, appear to consider this unacceptable for a member of the eurozone. Unfortunately, as Felix Salmon says today, this is probably a mistake. Even if you feel that reckless borrowers are more blameworthy than reckless lenders when a crisis hits, surely lenders should retain some incentive to make sure their loans are properly vetted. A promise from the EU to always keep sovereign bondholders whole sends a message to banks that reckless lending carries no penalty at all. That's a recipe for a repeat of 2008.

As a side note, it's worth pointing out that Italy is sort of a special case here. (That's why I didn't include them in the charts above.) Their economy has been in the doldrums for over a decade, and that's something they need to address. At the same time, they were a middle-of-the-pack country on a wide variety of economic measures all through the aughts: they ran only modest current account deficits and modest budget deficits; their inflation rate was only a bit higher than Germany's; and their debt-to-GDP ratio actually declined. Their problem isn't so much that their fundamental economic position is disastrous, it's that (a) their economic position was weak and the recession made it weaker, and (b) they're much larger than any of the other periphery countries. They're ground zero of the crisis right now simply because investors have lost confidence in them, but they don't really belong in the same basket as the four other periphery countries.

Attack of the Mammoth Clones?

| Tue Dec. 6, 2011 8:02 AM EST
When they bring this fella back from the dead, he's going to have some major scores to settle.

Try figuring out if this is an excerpt from an AFP story that ran on Saturday, or the synopsis for a certain 1993-Steven-Spielberg-popcorn-movie-turned-amusement-park-ride:

Scientists from Japan and Russia believe it may be possible to clone a mammoth after finding well-preserved bone marrow in a thigh bone recovered from permafrost soil in Siberia, a report said...

Teams from the Sakha Republic's mammoth museum and Japan's Kinki University will launch fully-fledged joint research next year aiming to recreate the giant mammal, Japan's Kyodo News reported from Yakutsk, Russia...[T]he discovery in August of the well-preserved thigh bone in Siberia has increased the chances of a successful cloning. Global warming has thawed ground in eastern Russia that is usually almost permanently frozen, leading to the discoveries of a number of frozen mammoths...

Now, I think I've seen this movie before...and I distinctly recall Jeff Goldblum getting brutalized by a large dinosaur.

But in all seriousness (since the Jurassic Park angle has already been done to death on this story) the report is just the latest in the teams' efforts to bring the animal back from extinction—a phase that the species of tusked mammal have dabbled in for about 100 centuries.

The clone-a-furry-prehistoric-creature formula, according to researchers, is as follows:

  • Swap out the nuclei of egg cells from an elephant for ones taken from the frozen mammoth's marrow cells, thus creating embryos with mammoth DNA.
  • Plant those special embryos into the wombs of a bunch of elephants.
  • Each elephant—a close relative of the mammoth—delivers the resurrected-mammoth baby in roughly 22 months.

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More on the Ethical Restaurant Guide

| Tue Dec. 6, 2011 8:00 AM EST

When I was in high school in Texas in the early 1980s continuing into my college years, I worked first as a busboy/dishwasher, then grill cook, at a classic steakhouse. You know the kind: low lighting, lots of red everywhere. Indeed, busboys wore red jackets, white shirts, and black bowties; cooks had to adorn their white uniforms with an annoying red scarf.

The place was part of a small Texas chain that had begun in the '30s. When I started in 1980, employees with more than six months of seniority were automatically enrolled in a profit-sharing plan. After a year, you got a decent health-insurance policy. The company even ran a credit union that paid decent interest on savings and financed cars and homes for employees. People who worked hard and excelled got steady raises. For long-time cooks, work there charted a path to the middle class.

But at a certain point, the founding owner died and his stepchildren took over. Simultaneously, the Reagan '80s came into full flower. Slowly, all of those perks disappeared. Wages froze for current employees, and dropped for new ones. Older, high-paid cooks were given the option to accept wage cuts or be fired. Long-time employees began to struggle to maintain their lifestyles.

I was a college-bound kid earning cash on the side, so the changes didn't affect me much personally. But it was an embittering experience to see people who had become like family to me be treated like dirt. In the end, the draconian changes didn't do much for the company's bottom line—it has long since collapsed, and exists now only in rump form.

We're Still at War: Photo of the Day for December 6, 2011

Tue Dec. 6, 2011 6:57 AM EST

US Army 1st Lt. Emille Prosko, 173rd Airborne Brigade Combat Team, talks to a role-playing civilian on the "Squad Attack" testing lane of the United States Army Europe's Best Junior Officer Competition in Grafenwoehr, Germany, November 15, 2011. The competition is the first of its kind in Europe and gives company-grade officers the chance to compete in multiple tasks and be named "Best Officer" for US Army Europe. Photo by the US Army.

Our Bloated Financial Industry

| Mon Dec. 5, 2011 8:44 PM EST

I've wondered for a long time why the finance industry has gotten so immensely profitable in an era of computerization, globalization, and intense competition. After all, those are things that you'd expect to reduce sector-wide profits, not increase them. The answer remains a bit mysterious, so I'm glad to see an actual economist asking something similar: namely, has the cost of financial intermediation gone up or down in recent decades? Here is NYU finance professor Thomas Philippon:

The cost of intermediation in the US is between 1.3% and 2.3% over 130 years. However, the finance cost index has been trending upward, especially since the 1970s. This is counter-intuitive. If anything, the technological development of the past 40 years — in IT in particular — should have disproportionately increased efficiency in the finance industry. How is it possible for today's finance industry not to be significantly more efficient than the finance industry of John Pierpont Morgan?

If Philippon is correct, the financial industry charges more for its basic task of matching borrowers and lenders than it used to:

What happened? Why did we get the bloated finance industry of today instead of the lean and efficient Wal-Mart?....One simple answer is that technological improvements in finance have mostly been used to increase secondary market activities, i.e., trading.

....The finance industry of 1900 was just as able as the finance industry of 2000 to produce bonds and stocks, and it was certainly doing it more cheaply. But the recent levels of trading activities are at least three times larger than at any time in previous history....I conclude that the most important questions in finance today are:

1. A positive question: Why do people (fund mangers, households, etc.) trade so much?
2. A normative question: Has increased trading led to either better prices or better risk sharing?

I would like to believe that the answer to (ii) is yes, but I am still waiting for the evidence. If the answer turns out to be no, then we would have to conclude that the finance industry's share of GDP is about 2 percentage points higher than it needs to be and this would represent an annual misallocation of resources of about $280 billion for the US alone.

Hmmm. I'm pretty sure that nearly all of the recent increase in trading volume is due to automated trading, and in particular to high-frequency trading. This is almost certainly a socially useless activity, but does it account for $280 billion in resource misallocation? Maybe. That's a big number, but not so big that it seems obviously ridiculous. What's more, if this number is correct, you should probably figure that resource misallocation in fixed-income trading is at least two or three times as big. The total could be a trillion dollars or more. That's a helluva lot of waste.

Corn on Hardball: Why Is Newt Gingrich Sucking Up to Donald Trump?

Mon Dec. 5, 2011 8:17 PM EST

David Corn and Howard Fineman joined Chris Matthews on MSNBC's Hardball to discuss why Newt Gingrich has committed to participate in a December 27 GOP debate to be moderated by birther conspiracy theorist Donald Trump. And Gingrich isn't the only one: With the exceptions of Jon Huntsman and Ron Paul, the rest of the GOP presidential candidates have have agreed to join in the debate as well.