Kevin Drum - December 2008

Chart of the Day - 12.19.2008

| Fri Dec. 19, 2008 11:49 AM PST

CHART OF THE DAY....Via The Pew Forum On Religion & Public Life, here's the makeup of the 111th Congress. Note that the number of Americans who lack affiliation with any church is about 48 million or so. The number of members of Congress who are willing to admit lack of same is: zero one*. Apparently Rick Warren speaks for great big chunks of America when he says, "I could not vote for an atheist."

*Pete Stark came out of the closet earlier this year. Thanks, Rich C!

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Lowbrow Poetry Bashing

| Fri Dec. 19, 2008 11:21 AM PST

LOWBROW POETRY BASHING....Elizabeth Alexander has been selected to write a poem for Barack Obama's inauguration. In case you're wondering what we're all in for, here's an excerpt from "Autumn Passage":

On the miraculous dying body,
its greens and purples.
On the beauty of hair itself.

On the dazzling toddler:
"Like eggplant," he says,
when you say "Vegetable,"

"Chrysanthemum" to "Flower."
On his grandmother's suffering, larger
than vanished skyscrapers,

September zucchini,
other things too big.

Uh huh. Feel free to rip me several new holes in comments, but this reminds me of nothing so much as this. I sure hope Alexander keeps her inaugural poem short.

Franken Leads Minnesota Senate Race

| Fri Dec. 19, 2008 10:48 AM PST

FRANKEN LEADS MINNESOTA SENATE RACE....The Minneapolis Star Tribune reports that, following a state Supreme Court ruling allowing the counting of contested ballots to go forward, Al Franken has opened up a large lead in Minnesota's senate race:

The intense scrutiny of "voter intent" resumed this morning by the five-member board charged with directing Minnesota's recount in the U.S. Senate race between incumbent Republican Norm Coleman and Democratic rival Al Franken, and the first 90 minutes of ballot rulings turned the challenger's slight deficit into a growing triple-digit lead.

....On Thursday, the board reviewed Coleman's challenges of hundreds of Election Day ballots, and the day's work saw the unofficial margin between the candidates dwindle to within a handful of votes. Then, as the board took up and rejected more Coleman challenges today, Franken pulled ahead in the opening minutes and steadily built his advantage beyond 150 within the first two hours.

Granted, a couple hundred votes isn't usually considered a "large lead" in a senate race. But in this contest, that's about as large as it gets. Nate Silver projects that Franken's lead will grow to 430 after all the challenged ballots are counted, then shrink to about 40 after withdrawn challenges are processed. Shall we just start calling him "Landslide Al" now?

Good News, Bad News

| Fri Dec. 19, 2008 10:33 AM PST

GOOD NEWS, BAD NEWS....Today brings yet another parting gift from George Bush: several thousand megawatts of new coal-fired power plants. Breathe deep, America. On the brighter side, Joe Romm is pretty excited over the appointment of John Holdren as the president's science advisor:

I have known Holdren for over a decade and have discussed energy/climate issues with him many times. He probably has more combined expertise on both climate science and clean energy technology than any other person who could plausibly have been named science adviser. You can see a video of an excellent talk he gave here (along with talks by Chu and me). For a more recent BBC interview, see "The Climate Quote of the Week."

I would say that if Holdren is named (on Saturday), it is an even stronger signal than the terrific choice of Steven Chu for Energy Secretary that Obama is dead serious about the strongest possible action on global warming....Holdren ain't in the "do something but not enough to avoid catastrophe" crowd.

If Holdren is OK with Joe Romm, he's OK with me. As I said yesterday, I think there's only just so much you can conclude based on appointments by themselves, but so far Obama's picks in the area of science and energy certainly suggest in the strongest possible terms that he plans to take a very serious, very activist approach to global warming.

Yet More Bailout

| Fri Dec. 19, 2008 9:39 AM PST

YET MORE BAILOUT....As expected, President Bush today announced a bailout of Detroit's automakers. But it wasn't the prepackaged bankruptcy option that everyone was talking about yesterday. In fact, it was nearly identical to the congressional deal that collapsed last week but with one big difference:

The loan deal [] requires the companies to quickly reduce their debt by two-thirds, mostly through debt-for-equity swaps, and to reach an agreement with the United Auto Workers union to cut wages and benefits so they are competitive with those of employees of foreign-based automakers working in the United States.

The debt reduction and the cuts in wages were central components of proposal by Senator Bob Corker, Republican of Tennessee, who tried to salvage the bailout legislation.

Those talks had deadlocked on a demand by Republicans that the wage cuts take effect by a set date in 2009, while the union had pressed for a deadline in 2011 after its current contract expires.

The plan announced on Friday by Mr. Bush offered a compromise between those positions, by making the requirements non-binding, allowing the automakers to reach different arrangements with the union, provided that they explain how those alternative plans will keep them on a path toward financial viability.

Republican senators apparently had a chance last week to make binding requirements on the auto unions if they'd only been willing to compromise a bit on the date. But they wouldn't, so instead they supposedly got the date they wanted but only as part of a "non-binding" deal. Sounds like a bad tradeoff to me. They should have taken the binding offer when it was on the table.

UPDATE: More here from Jonathan Cohn.

New Credit Card Rules

| Fri Dec. 19, 2008 9:08 AM PST

NEW CREDIT CARD RULES....New regulations designed to stop some of the most egregious credit card abuses were adopted yesterday. That's the good news. Here's the not-so-good news:

The regulations, which take effect in July 2010, would block card companies from applying higher interest rates on existing balances. Late fees could not be charged without giving consumers at least 21 days to make a payment.

You know, some regulatory changes need a substantial amount of lead time because they're fairly complex to implement. These aren't those kind. They don't require 18 months of preparation. They barely require one month of preparation. They could have taken effect January 1st if regulators had been inclined to make a statement. Another opportunity missed.

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Capital Gains

| Fri Dec. 19, 2008 8:53 AM PST

CAPITAL GAINS....Today, the New York Times reports that the housing bubble was partly fueled by tax changes in 1997 that eliminated capital gains taxes on home sales:

The different tax treatments gave people a new incentive to plow ever more money into real estate, and they did so....By itself, the change in the tax law did not cause the housing bubble, economists say. Several other factors — a relaxation of lending standards, a failure by regulators to intervene, a sharp decline in interest rates and a collective belief that house prices could never fall — probably played larger roles.

But many economists say that the law had a noticeable impact, allowing home sales to become tax-free windfalls. A recent study of the provision by an economist at the Federal Reserve suggests that the number of homes sold was almost 17 percent higher over the last decade than it would have been without the law.

Of course, that's not the only thing the 1997 law did. It also reduced the general capital gains rate from 28% to 20% just as the dotcom boom was taking off, helping turn that into a monstrous bubble too. Nice work, Washington!

Closing Gitmo

| Thu Dec. 18, 2008 11:27 PM PST

CLOSING GITMO....This is more a contingency plan than a firm commitment, but it's still good to hear that Gitmo may be on its way to the dustbin of history:

The Defense Department is drawing up plans to close the Guantanamo Bay military prison in anticipation that one of President-elect Barack Obama's first acts will be ordering the closure of the detention center associated with the abuse of terror suspects.

....The prison, built to hold suspected terrorists after the 2001 U.S.-led military intervention in Afghanistan, now houses about 250 detainees, including Khalid Sheikh Mohammad and others accused in connection with the Sept. 11, 2001, terrorist attacks.

...."If this is one of the president-elect's first orders of business, the secretary wants to be prepared to help him as soon as possible," Morrell said. "The request (for a closure plan) has been made, his team is working on it so that he can be prepared to assist the president-elect should he wish to address this very early in his tenure."

It's worth reiterating that closing Guantanamo doesn't address the fundamental issue of what to do with all the detainees. There are still some very difficult issues to settle on that score. But it would be a helluva good start.

The President Speaks

| Thu Dec. 18, 2008 7:03 PM PST

THE PRESIDENT SPEAKS....George Bush is leaving office in style, isn't he? In his farewell interviews so far, he's said this:

Bush: One of the major theaters against al Qaeda turns out to have been Iraq. This is where al Qaeda said they were going to take their stand. This is where al Qaeda was hoping to take ...

Raddatz: But not until after the U.S. invaded.

Bush: Yeah, that's right. So what?

Then he explained his approach to economic management:

I've abandoned free-market principles to save the free-market system.

And finally there was this, after Ben and Henry gave him some bad economic news:

So I analyzed that and decided I didn't want to be the President during a depression greater than the Great Depression, or the beginning of a depression greater than the Great Depression.

That's some analysis. He's really decided to go out with a bang, hasn't he?

In related news, Pew has a new poll out in which they asked people to describe Bush in a single word. The biggest gainers since 2004 were incompetent, idiot, and ignorant. You're shocked, aren't you?

Was Keynes Right?

| Thu Dec. 18, 2008 5:37 PM PST

WAS KEYNES RIGHT?....Tyler Cowen is skeptical that a massive spending-driven stimulus plan will bring the economy back to life. For various reasons he discounts the usual Depression-era examples (the New Deal, Nazi rearmament, WWII) and then says:

My point is simple: it is very hard to find examples of successful fiscal stimulus driving an economic recovery. Ever. This should be a sobering fact....The bottom line is this: we are being asked to believe that a big, trillion or even multi-trillion fiscal stimulus can boost the current macroeconomy. If you look at history, there isn't good reason to believe that. Any single example, such as the Nazis, can be knocked down for lack of relevance or lack of correspondence to current conditions. Fair enough. But the burden of proof isn't on the skeptics. It's up to the advocates of the trillion dollar expenditure to come up with the convincing examples of a fiscal-led recovery. Right now we're mostly at "It wasn't really tried." And then a mental retreat back into the notion that surely good public sector project opportunities are out there.

But do we need examples? I'd argue that we're basically in terra incognita today. In the postwar era, we've virtually never seen an industrialized country, let alone the whole world, stuck in a liquidity trap before. The only example that comes to mind is Japan in the 90s, and their experience with fiscal stimulus was pretty mixed. Depending on your preconceptions, you could take the Japanese experience either as proof that massive stimulus doesn't work or as evidence that not enough was done. And either way, it's only one example, so it would hardly be proof enough for skeptics anyway.

That leaves us with theory, which suggests that government spending when monetary policy has lost traction helps to stimulate the economy. But even if doesn't, my question to Tyler is this: what harm does it do to try? Assuming that stimulus spending is implemented even modestly well, it will, at a minimum, help out a bunch of people with continued employment and produce a bunch of infrastructure improvements that will enhance our future welfare. The downside is more debt, and I'm open to the argument that this is a bad thing to the extent that this debt is funded from overseas and produces further deterioration in our current account balance. But is that the argument against spending? Or is it something else?