More Tough Talk

It would be nice to see an English-language translation of the entire interview, but M.J. Rosenberg has some fairly eye-popping tough talk on Israel from former ambassador Martin Indyk over at TPMCafe.  It's worth checking out.

Are California's budget woes due to skyrocketing spending?  Michael Hiltzik says this is a myth:

Analyzing the 2008-09 budget bill last year, the legislative analyst determined that since 1998-99, spending in the general fund and state special funds — the latter comes from special levies like gasoline and tobacco taxes — had risen to $128.8 billion from $72.6 billion, or 77%.

During this time frame, which embraced two booms (dot-com and housing) and two busts (ditto), the state's population grew about 30% to about 38 million, and inflation charged ahead by 50%. The budget's growth, the legislative analyst found, exceeded these factors by only an average of 0.2% a year.

There's a lot of truth to this, but I think it goes too far.  For starters, Hiltzik uses a special measure of inflation, not the usual CPI-U, and he doesn't include spending from bond measures.  The chart on the right, using budget data from the Department of Finance, shows per-capita spending including bond measures, adjusted for inflation using the standard CPI figures from the BLS.  There are two things that jump out at you.  First, even using a standard measure of inflation, Hiltzik is right: per capita spending in the decade between 1999 and 2009 has barely budged.  It's up about 6%.

At the same time, if you compare it to 1997 it's up 23%.  California went on a spending spree during the dotcom boom and we never returned to our old levels even after the bust.  What's more, spending in the years between 1999 and 2009 was up even more.  In the decade between 1997 and 2007, per capita spending increased an impressive 39%.  We've tightened our belt considerably in the past couple of years, but that's against the background of some pretty sizeable increases in the intervening years.

California has multiple problems.  Prop 13 reduced our tax base permanently and made it all but impossible to adjust other taxes to make up for it.  Citizens have approved bond measure after bond measure in the seeming belief that because they don't raise taxes, they also don't cost any money.  The governor and the legislature have relied on way too much smoke and mirrors.  But spending has also gone up.  There's just no way to understand the whole picture without acknowledging that.

UPDATE: California's population actually grew about 15% between 1998 and 2008, not 30%.  However, that was just an arithmetic error on Hiltzik's part.  The overall budget growth result that he quoted from the LAO is correct.

(I used population figures from the Census Department in my calculations.  So the per capita spending numbers in the chart should be correct.)

Economic Fascism

The latest firestorm in the conservosphere concerns Chrysler's shutdown of a quarter of its dealer network.  Capitalism at work, you say?  More like crony capitalism, my friends:

Is the Obama administration punishing Chrysler dealers for their politics? A preliminary analysis by Doug Ross suggests that could be the case.

....[Ross] started with the list of Chrysler and Dodge dealerships which will be closed as a result of the government-mandated Chrysler bankruptcy plan. Then he marked those dealers whose names appeared more than once in the list. Next, he checked which ones contributed to political campaigns. Every one of them had donated almost exclusively to Republican candidates. Ross found only one dealer on the closing list who had contributed to the Obama campaign, a $200 donor in Waco, Texas.

....Shades of the Nixon enemies list, we first saw signs that Obama wasn’t above playing hardball with his political opponents during the active campaign.

Nate Silver puts his high-powered statistical brain to work on his puzzler and concludes....wait for it....that there's no there there.  "It turns out," he says, "that all car dealers are, in fact, overwhelmingly more likely to donate to Republicans than to Democrats — not just those who are having their doors closed."  Big surprise.

So that's that.  But I want to defend Doug Ross and the RedState folks who publicized this anyway.  I'm serious.  Sure, it turned out that nothing was going on, but you know what?  If George Bush's administration had gone down this road, I'd want someone to watch them like a hawk too.  The crackpotty writing may be a source of amusement, and I have no doubt that these guys are, as usual, going to embarrass themselves in an Ahab-like quest to prove that Obama really did force Chrysler to target Republican donors — with the lapdog mainstream media covering up for him because, you know, that's what they do.  But even so, I say dig away.  Even blind squirrels find nuts occasionally, and if the government is going to be running car companies, then this is exactly the kind of thing people should be watching out for.  That's what opposition parties are for.

As Bob Somerby reminds us frequently, the real damage to Bill Clinton didn't come from the crackpots and their conspiracy theories.  It came from the mainstream media eagerly picking up on these theories even when there was nothing there.  As long as modern-day Jeff Gerths hold their fire unless there's some real smoke, we'll be OK.

The White House is in hard-sell mode. It's been pushing the case for Judge Sonia Sotomayor, President Obama's choice to replace retiring Supreme Court Justice David Souter. It held a conference call on Wednesday for White House correspondents, during which various legal scholars praised her "judicial modesty." White House press secretary Robert Gibbs has been deriding rightwing opposition at his daily briefings. And his press shop has been emailing reporters various statements supportive of Sotomayor--including what could be one of the oddest endorsements to be circulated by a White House in recent years. Or ever.

One email from the White House listed a slew of positive comments about Sotomayor. They came from former and current judges who have worked with her, Republican Senator Olympia Snow (who has called the nominee "well qualified"), New York District Attorney Robert Morgenthau, a bunch of legal scholars, and Larry Klayman. Yes, Larry Klayman. Ring a bell? He's best known--or infamous--for having been an overly litigious conservative crusader who, through his Judicial Watch outfit, hurled numerous lawsuits against Clintonites during the 1990s.

The Fed's Legacy

Ezra Klein writes about the federal response to the banking crisis:

Recently, I asked an administration official which government program we'd remember as making the most difference in averting catastrophe. Where will the history books place the credit?

"It'll be the Federal Reserve," he replied. "It'll be their decision to increase the size of their balance sheet from whatever it was before the crisis to whatever it is now." The Fed's decisions, of course, have attracted relatively less press coverage, both because the Federal Reserve doesn't speak to the press as often as the Treasury Department and because new Federal Reserve policies don't spark tiffs with the Congress, or the Republican Party, or outside economists. As such, the Fed is a bit harder for reporters to write about. But there's some evidence that it will be Ben Bernanke, rather than Tim Geithner, who our children — at least our nerdier children, the ones who study the recession of 2009 — will read about.

I don't think there's any question that this is right.  Both TARP and the stimulus bill were important, but the trillions of dollars in alphabet soup programs from the Fed have dwarfed them both.  Their relative obscurity in the mainstream media, however, probably has less to do with the Fed's low profile or lack of political fireworks and more to do with the fact that these programs are just really, really hard to describe in understandable terms.  It's not impossible to explain the impact of term lending facilities or guarantees of the commercial paper market, but it's a helluva lot harder than explaining a bank bailout or a hundred billion dollars in infrastructure spending.

Regarding Bernanke, though, it's well to remember Richard Posner's pithy summing up of his performance: "He is like a general who having been defeated in battle because of his errors manages the retreat of his army competently."  I'm still not sure that even the retreat was managed all that competently — there might well be additional financial shoes to drop over the next year — but even if it turns out that the worst is behind us, both of these sides of Bernanke's crisis management are part of his legacy.  It's still not clear what the history books are going to say about Bernanke and his Fed.

Sandwiched in the New Yorker's profile of Carlos Helu Slim, the Mexican billionaire who's bailing out the New York Times, is this dreadful item:

Thomas Friedman, the Times’ chief foreign affairs columnist, lauded the efforts that Arthur Sulzberger, Jr., has made to keep the newsroom intact, saying, "I just have a great deal of admiration for him." He told me that since taking his current post, in 1995, he has never been asked by Sulzberger what he was planning to write, or how high his travel expenses would be. "To be able to say what I want to say and go where I want to go—other than a Sulzberger-owned newspaper, you tell me where that exists today." (Of course, star reporters like Friedman live in a special universe, even at the Times.)

Robert F. Kennedy Jr., who is (no joke!) apparently a water bottler in addition to being an environmental activist, has a good op-ed on bottle redemption laws in Thursday's New York Times. The piece focuses on New York's law, but Kennedy's criticisms apply to similar legislation everywhere:

A good new deposit bill could encourage recycling of new classes of beverage bottles and also provide financing for curbside programs that capture other kinds of recyclable waste, like juice cartons, ketchup bottles and mayonnaise jars. These are all made from the same plastic and glass as soda, beer and water bottles, yet fewer than one in five of them are being recycled. Since such containers are not subject to deposit laws, their recycling is driven only by moral imperative or local ordinances, and these incentives function best when supported by robust curbside recycling programs or other easy recycling options.

Indeed. So what did New York's lawmakers do instead of following Kennedy's suggestions? They applied a new bottle deposit to water alone, exempting water with any sugar added, and effectively incentivizing consumers to prefer sugary drinks like Vitamin Water to good, old-fashioned H2O. Horrible idea, New York legislature!

I missed this yesterday:

Rebuffing Israel on a key Mideast negotiating issue, Secretary of State Hillary Rodham Clinton said Wednesday that the Obama administration wants a complete halt in the growth of Jewish settlements in Palestinian territory, with no exceptions.

....The administration has communicated its position "very clearly, not only to the Israelis, but to the Palestinians and others, and we intend to press that point," Clinton said in an appearance at the State Department with Egyptian Foreign Minister Ahmed Aboul Gheit.

I don't have a lot to say about this, aside from the fact that it's impressively tough rhetoric coming from an American administration.  I wonder if they can stick to it?

Two weeks ago, President Barack Obama abruptly changed course and refused to release photos that allegedly show American servicemen and servicewomen torturing detainees in Iraq and Afghanistan. Now we have a better sense of exactly how horrible those photos might be. Major General Antonio Taguba, who was in charge of investigating the abuses at Abu Ghraib, told the British paper the Telegraph that the photos "show rape" of prisoners by Americans:

At least one picture shows an American soldier apparently raping a female prisoner while another is said to show a male translator raping a male detainee.

Further photographs are said to depict sexual assaults on prisoners with objects including a truncheon, wire and a phosphorescent tube.

Gen. Taguba says he supports President Obama's decision to withold the photos, arguing that "The mere description of these pictures is horrendous enough, take my word for it." Fine—the debate over whether to release the photos is legitimate. I have a more immediate question. If the government is in possession of photographic evidence of an American soldier raping someone, has that soldier been prosecuted? The relevant section of the Uniform Code of Military Justice is here:

(a) Any person subject to this chapter who commits an act of sexual intercourse with a female not his wife, by force and without consent, is guilty of rape and shall be punished by death or such other punishment as a court-martial may direct.

It would take a pretty incompetent prosecution to fail to convict someone of a rape for which there is clear photographic evidence. But I can't find any public reference to such a court martial, let alone a conviction. Earlier this month, ex-soldier Steven Green was convicted for raping and killing an Iraqi girl and killing her family, but that pretty clearly didn't happen in prison, and there's no mention of photographic evidence of it. So either the photos don't show what Taguba says they show, or there's something else going on here. People not identifiable in the photos, maybe? I'm looking into this.

Regulatory Reform

The Washington Post reports on the Obama administration's plans for regulatory reform of the financial industry:

Senior administration officials are considering the creation of a single agency to regulate the banking industry, replacing a patchwork of agencies that failed to prevent banks from falling into the worst financial crisis since the Great Depression, sources said.

....Senior officials [also] favor vesting the Federal Reserve with new powers as a systemic risk regulator, with broad responsibility for detecting threats to the financial system. The powers would include oversight of previously unregulated markets, such as the derivatives trade, and of market participants such as hedge funds.

....The new [bank] regulator would assume responsibility for the safety and soundness of banks, currently divided among the Fed and three other agencies: the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the Federal Deposit Insurance Corp. The OCC and the OTS would probably disappear, while the Fed and the FDIC would retain other responsibilities.

For what it's worth, I'd say that having a single bank regulator is long overdue.  The current structure not only doesn't make sense, but allows banks to shop around for the most lenient regulator they can find, prompting a race to the regulatory bottom.  It's also a problem for big banks, which end up under the regulatory authority of multiple agencies.

The "systemic risk regulator" I'm less enthused about.  It's not necessarily a bad thing, but it's not clear to me that it would have done much to prevent the asset bubble of the past decade.  After all, the problem there wasn't the lack of a central regulator, but the simple fact that no one felt like there was a lot of risk in the system in the first place.  Regulating derivative markets may be a good idea, but the real issue isn't giving the Fed additional powers, it's getting it to take systemic risk seriously in the first place.

In any case, I'll repeat something I said earlier: specific regulations are all well and good, but I'd sure like to hear first what general principles are guiding these decisions.  My picks are (1) stronger limits on leverage, wherever and however it occurs, (2) a stronger commitment to countercyclical policies, and (3) a little more sand in the gears.  These might be the wrong principles to choose, but if they are, I'd like to hear which ones are right before a tidal wave of regulations comes heading down the pike.