Kevin Drum - January 2009

Money For Main Street

| Tue Jan. 6, 2009 1:11 PM PST

MONEY FOR MAIN STREET....Currently, businesses that lose money are allowed to use those losses to offset profits from the past two years. The result in some cases is a refund against past taxes. Part of Barack Obama's stimulus bill is a plan to increase this period to five years, which apparently would provide businesses with about $25 billion in additional tax refunds this year. Matt Yglesias isn't impressed:

As stimulus, this doesn't work. Businesses spend money based on calculations of the likely returns on spending. Insofar as it's profitable to expand operations, businesses will spend money on expanding operations. Insofar as it's not profitable to expand, businesses won't expand. Transferring lump sums of money to existing firms doesn't alter the profit-loss calculus. A firm with no expansion opportunities it sees as profitable will just pocket the lump sum and consider itself fortunate. And a firm with expansion opportunities it sees as profitable will only be very marginally impacted by an infusion of cash.

I'd be curious to hear from other folks on this. Technically, this sounds right, but I think the reality might be a little different. Lots of things in the business world are sticky, and jobs are one of them. Corporations generally don't like to lay off employees, partly for business reasons (they don't want to lose good workers that they might not be able to rehire later), partly for ordinary human reasons (most bosses really don't enjoy laying people off), and partly just because of inertia. So it's possible that a tax refund that eased the P&L a bit might prompt them to keep on more workers than pure hard-hearted economic calculations might dictate. It would probably be a fairly small effect at the margins, but it might still be noticeable. Especially if the rest of the stimulus package gives business owners hope that the downturn might be short-lived.

Besides, all this does is change the tax timing anyway. Corporations that booked big losses in 2008 will be able to carry them forward against future profits regardless, which will decrease their taxes in the future. But maybe we're better off letting them get their refunds now, rather than two years from now when the economy has picked up again?

Alternatively, this is just another big corporate giveaway. Any nice liberal economists care to weigh in on this?

UPDATE: Via Jon Cohn, Dean Baker shreds the tax write-off proposal:

The break that allows businesses to write-off losses against taxes paid 4-5 years ago (as opposed to 2 years in current law) is simply a give-away to the financial industry and homebuilders. These are likely to be the only businesses that will have losses so large that they can't fully deduct them from earnings over the last two years.

This tax cut has nothing to do with stimulus. It is difficult to imagine that this sort of tax break would even be considered if it were not for the political power of the financial industry.

More from Jon about the stimulus package here.

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Geoghegan Running for Congress

| Tue Jan. 6, 2009 12:20 PM PST

GEOGHEGAN RUNNING FOR CONGRESS....Via Jim Fallows and others, I see that Tom Geoghegan (pronounced Gay-gan) is running for the House seat vacated by Rahm Emanuel. I can't say that I've read a huge number of Geoghegan's books and essays, but I've read enough to be pretty impressed. I guess this comes from two sources:

  • He has a fascinating writing style. I don't really have the vocabulary or esthetic sensibility to describe it properly, and if I did it would almost certainly seem like it shouldn't work. But it's sort of the writing equivalent of the bumblebee: it shouldn't be able to fly, but it does. (And stings, too!) I'd kill to be able to write as effectively and idiosyncratically as Geoghegan does.

  • He's a labor lawyer who's completely dedicated to the cause, but I've always gotten the sense that his eyes are wide open. He know which side he's on, and he knows why, and he can explain it in very plain English, but he never makes the mistake of thinking that unions are beyond reproach. They're human institutions, sometimes they suck, sometimes they're shortsighted, but they're still necessary and they're still the best bet we have to counterbalance the massive influence of corporations and the rich on the political and economic process.

The basic Geoghegan bio is on his Facebook page here. Kathy G. has a more personal account here. Fallows has this to say:

The remarkable thing is that in Geoghegan's case writing has been a sideline. Day by day for several decades he has been a lawyer in a small Chicago law firm representing steel workers, truckers, nurses, and other employees whose travails are the reality covered by abstractions like "the polarization of America" and "the disappearing middle class." Geoghegan's skills as a writer and an intellectual are assets but in themselves might not recommend him for a Congressional job. His consistent and canny record of organizing, representing, and defending people who are the natural Democratic (and American) base is the relevant point.

Geoghegan is running against a gaggle of competitors, including Cook County commissioner Mike Quigley, State Representative Sara Feigenholtz, Alderman Pat O'Connor, State Representative John Fritchey, and several others. I have no idea how to handicap the race, but it should be an interesting one to watch.

UPDATE: TNR has just posted a collection of Geoghegan's writings for them here. They're all more than ten years old and I haven't read any of them, but they might be worth checking out.

Dennis Blair

| Tue Jan. 6, 2009 11:39 AM PST

DENNIS BLAIR....Last month Gary Farber noted that Adm. Dennis Blair, who is Barack Obama's choice to become our new Director of National Intelligence, has a gray spot on his record: in 1999, when he was Commander in Chief of the Pacific, he apparently cozied up with the Indonesian military at a time when they were supporting terrorist militias in East Timor — and he did it in spite of instructions to tell them it was time to shut down the militias. Here's a contemporaneous report from The Nation:

Officials say that this past April, as militia terror escalated, a top US officer was dispatched to give a message to Jakarta. Adm. Dennis Blair, the US Commander in Chief of the Pacific, leader of all US military forces in the Pacific region, was sent to meet with General Wiranto, the Indonesian armed forces commander, on April 8. Blair's mission, as one senior US official told me, was to tell Wiranto that the time had come to shut the militia operation down....But Admiral Blair, fully briefed on [a recent massacre at] Liquiça, quickly made clear at the meeting with Wiranto that he was there to reassure the TNI chief. According to a classified cable on the meeting, circulating at Pacific Command headquarters in Hawaii, Blair, rather than telling Wiranto to shut the militias down, instead offered him a series of promises of new US assistance.

Last night Gary emailed to ask why nobody seemed to care about this. My response, essentially, was "I dunno."

And I really don't. In fairness, Blair doesn't seem to have disobeyed a direct order from the president or anything. The Nation piece uses the passive voice ("was dispatched to") in its description and a later admonition to Blair came from the State Department via the U.S. embassy in Jakarta. Blair, however, apparently felt that you catch more flies with honey than with vinegar, and chose to engage with General Wiranto in hopes of gaining his trust, rather than delivering a sharp rebuke that might have seriously damaged U.S.-Indonesian relations. In an update, for example, Gary quotes a line from a Dana Priest article in the Washington Post:

Robert Gelbard, a former U.S. ambassador to Indonesia, opposed Blair's push to work with that country's military in 2000, but he endorses Blair as director of national intelligence. "We had a legitimate policy disagreement. But he has a tremendous analytic mind and commands a lot of respect in Washington. His appointment comes at a time when there needs to be a critical reassessment of what the ODNI does," Gelbard said.

These kinds of intra-government disagreements happen all the time, so it's hard to say how big a deal this really was. And Gelbard certainly doesn't seem to hold it against Blair. Still, it seems worth making sure Blair's actions in Indonesia are at least on the table. So: is this a red herring or a legitimate beef? Anyone who happens to know more about what really happened here is invited to chime in in comments.

Top Ten Bills

| Tue Jan. 6, 2009 10:53 AM PST

TOP TEN BILLS....Over at Tapped, Tim Fernholz passes along summaries of the top ten bills the Senate Democratic leadership plans to introduce this month. It starts with S.1, the stimulus bill, and runs down through troubled mortgages, healthcare, climate change, education, immigration, and a few other things. The descriptions are mostly just placeholders and don't really say much, but it's still an interesting look at Harry Reid's priorities.

Perhaps what's most interesting, though, is what's not on the list: card check, forcing hedge fund billionaires to pay ordinary taxes on their income (possibly the biggest no-brainer legislation in recent history), military procurement reform of any kind, and serious financial regulation. That's not to say this stuff won't come later. But apparently it's not part of the Top Ten.

UPDATE: A couple of commenters think card check is implied as part of S.2. Maybe so. The wording seems awfully vague if that's really their intent, but we'll see.

Bringing Us Together

| Tue Jan. 6, 2009 10:24 AM PST

BRINGING US TOGETHER....The LA Times reports on Barack Obama's attempt to get wide bipartisan support for his fiscal stimulus package:

Despite Barack Obama's decision to include as much as $100 billion in business tax breaks to his economic stimulus package to woo reluctant Republicans, obstacles to speedy, bipartisan passage remain.

...."I think he would like to have a large bipartisan vote in favor of this package. And he knows, even before we mentioned it, that the way to do that is obviously for it to have elements that are appealing to Republicans," Senate Minority Leader Mitch McConnell (R-Ky.) said after a 90-minute meeting that Obama held with Democratic and Republican congressional leaders Monday.

....At the same time, McConnell and House Minority Leader John A. Boehner (R-Ohio) said they were not ready to endorse the overall stimulus proposal....House Minority Whip Eric Cantor (R-Va.), speaking after the closed-door meeting with Obama, said, "I think there would be a lot of support" for tax cuts among the GOP rank and file. But, he added, "we cannot afford to be burdening our children and our grandchildren with an extra trillion dollars in debt."

The more I read about this, the more perplexed I get. What is Obama's goal here? He's already tossed in something like $300 billion in tax cuts to curry Republican favor, and his spending plans amount to about $200 billion per year for two years. That's a big number, but it's also only about 1-2% of GDP. It's not that big a deal, and as a response to a massive recession it ought to be a no-brainer, even for Republicans.

But they're playing the game anyway. By pretending to be skeptical, they're hoping to wring yet more concessions out of Obama. Which is exactly what you'd expect them to do. It's politics.

But what does Obama get out of this? He's got the votes to pass his package already, and it's hard to see what a bigger vote total buys him. In fact, considering what a crowd pleaser this bill is likely to be (jobs + tax cuts + aid to states = wild popularity), it's not entirely clear why Obama is working so hard to get Republican votes. Wouldn't it be better if the public saw this bill as a Democratic victory enacted over the meanspirited, neo-Hooverite obstructionism of a dying and bitter Republican Party? Besides, when push comes to shove, my guess is that plenty of Republicans will be clamoring to vote for this bill no matter what Obama does. Who wants to be left off the gravy train with elections coming up in a mere 22 months?

(And if, against all odds, the bill ends up being unpopular, or viewed as ineffective? Or the economy continues to suck no matter what? Well, all the Republican votes in the world still won't help Obama. They'll attack him viciously whether they voted for the bill or not, and he'll own the economy, for good or ill, regardless.)

I guess this all comes down to whether you really believe Obama can change the tone in Washington. He seems to genuinely believe he can, and his actions on the stimulus bill make sense if you see them as the opening move in a long-term project to dial down the bitter partisanship of the past couple of decades. The press might eat this up (or might not, since they generally dismiss this kind of talk from Democrats), but I continue to wonder what makes Obama believe he can pull this off? There's just no evidence from history to suggest that this can work, and no evidence from the recent history of the conservative movement to suggest that they're planning to adopt a more conciliatory tone over the next few years.

So I continue to wonder: What does Obama see that I don't? What does he know that I don't? I'm flummoxed.

Political Persuasion

| Tue Jan. 6, 2009 9:30 AM PST

POLITICAL PERSUASION....Matt Yglesias mocks RNC Chairman Mike Duncan's recent burbling about how Republicans need to start using Twitter and Facebook and "the different technology that young people are using today":

I love Twitter. I have two Twitter feeds. I manage one with Twitterific and another with Twitterfox. And of course there's my iPhone interfaces, too. Twitter's neat, it's fun, I enjoy it. But you can't do political persuasion on Twitter and anyone who's at all familiar with either Twitter or political persuasion could tell you that. It's important for political movements to embrace new technologies, but part of embracing new technologies is understanding them and actually respecting what they're for and Twitter is never going to be anything other than an incidental sideshow to political activism.

I'm not so sure about that. It sort of depends on what you mean by "political persuasion," I think. A steady stream of tweets containing ever more apocalyptic messages about (for example) the imminent demise of American civilization due to immigration legislation wending its way through Congress could be effective at helping to rouse the masses to protest. Couldn't it? Matt is probably right that Twitter by itself is something of a sideshow, but all of these technologies put together (Twitter, texting, Facebook, YouTube, etc.) could end up being as effective in mobilizing the 20something generation as talk radio was mobilizing the Newt generation. And mobilization is persuasion, no?

Actually, Duncan's real problem is probably not so much that he's wrong about Twitter, but that he doesn't have any real clue about what Twitter is. He seems to treat it more like a buzzword than a genuine concept. But at least it's a start.

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Favorite Presidents

| Mon Jan. 5, 2009 6:42 PM PST

FAVORITE PRESIDENTS....At a recent debate, all the candidates for RNC chairman named Reagan as their favorite Republican. Ezra Klein comments:

It's really weird that Republican candidates for high office almost never named Abraham Lincoln as their favorite Republican president. He was, after all, a Republican. And he was inarguably more consequential than Reagan, no matter how enamored you are of Reagan's tenure. Indeed, most historians consider him America's greatest president.

Ezra chalks this up to coded racism, and maybe that's right. I guess I'd guess be a little more generous, though, and attribute it instead to the different valences of favorite vs. greatest, figuring that Lincoln would be more likely to come up if these guys were asked who the greatest Republican was. Maybe.

But this is really just an excuse to observe the weird fact that for modern conservative Republicans, Reagan isn't merely their most frequently named favorite, he's pretty much their only possible answer to this question. Bush Jr. is obviously damaged goods. Bush Sr., Ford, and Eisenhower are more or less considered closet Democrats these days. Nixon was a crook. Hoover — 'nuff said. Coolidge and Harding were do-nothings. If you're restricting yourself to the past century, you're basically stuck with Reagan and no one else.

Democrats have it way better. Sure, most Dems of the past century produce mixed sentiments (especially Wilson and LBJ) but virtually every one of them is at least a plausible candidate for "favorite Democrat." Modern liberals haven't excommunicated any of them.

Why is this? Why is it that Republicans have produced only one president in the past century that they're still enthusiastic about?

Panetta to Head Up CIA

| Mon Jan. 5, 2009 5:39 PM PST

PANETTA TO HEAD UP CIA....Apparently Barack Obama has chosen Leon Panetta to head the CIA. This is a pretty unconventional choice since Panetta has no intelligence experience, but David Corn is enthusiastic:

A CIA director who has denounced torture, advocated intelligence cuts, and backed greater congressional control of covert operations — that would be....different. This appointment certainly has the potential to spark opposition from inside and outside the agency. But if Panetta manages to make it to Langley without much fuss, that would indeed signal real change in Washington.

More about Panetta at the link. Panetta on torture here.

UPDATE: Feinstein and Rockefeller apparently aren't very enthusiastic about this choice.

Finally....Election Pool Winners!

| Mon Jan. 5, 2009 1:38 PM PST

FINALLY....ELECTION POOL WINNERS!....Back in October I held a pool to guess the results of the November election. With Al Franken now the official winner of the Minnesota senate race (officially enough for me, anyway), I can finally declare a winner.

Two winners, actually. Here's how things broke down:

  • Obama won 365 electoral votes, but nobody got that exactly right. (Thanks, Nebraska!) So I rounded up all the people who predicted 364 electoral votes.

  • Democrats won 257 House seats and 59 Senate seats (counting the two independents). However, none of the folks in the 364 pool got that exactly right.

  • But two people came close. Professional prognosticator Sam Wang (founder of the Princeton Election Consortium) guessed 257 House seats and 58 Senate seats, while James Shearer predicted 260 House seats and 59 Senate seats.

Congratulations, James and Sam! A free subscription to Mother Jones is yours for the asking. Just email me your address and I'll get you signed up.

The N-Effect

| Mon Jan. 5, 2009 12:20 PM PST

THE N-EFFECT....Via Tyler Cowen, a couple of researchers have uncovered what they call the N-Effect: it turns out, they say, that people do better when competing against a small number of people than when competing against a large number.

At first, this seems unsurprising: you have a better chance of winning against a small group than a large group, a small group is less distracting than a large group, etc. There are also lots of confounding factors when you try to measure this, which makes me take their conclusions about SAT scores (they're supposedly higher in small groups) with a grain of salt. But what if you just tell people they're competing against a small group?

Experimenters asked potential participants if they would be willing to take part in a short experiment. One experimenter then handed participants a two-page packet (a cover page followed by a short quiz page) and explained they would be taking a timed quiz and their goal was to finish the quiz as fast as possible without compromising accuracy. Participants were told they were competing against either 10 or 100 other participants and that those scoring in the top 20 percent in completion time would receive $5. The short quiz contained four general knowledge multiple-choice questions (e.g. "Who is the Secretary General of the UN?") and four true-false statements (e.g., "Michigan is shaped like a shoe").

Once the first experimenter gave participants the packets and instructions, the second experimenter, blind to the experimental condition, informed participants he would begin timing them with a stopwatch. Afterwards, each participant wrote their e-mail address, in case they scored in the top 20th percentile. Participants in the top 20 percent were later paid $5.

There were no actual group dynamics at work here since the quiz was administered one-on-one. And both groups had a 20% chance of winning five bucks. But the first group finished the quiz in an average of 29 seconds, while the second took 33 seconds.

The authors do some further tests to demonstrate that this effect isn't due to mistaken ideas about odds being better in small groups, or to a decrease in motivation due to perceived task difficulty. Basically, it seems that people just feel more motivated to compete if they think they're competing against an indentifiable group rather than a large mob. The application of this conclusion to the blogosphere is left as an exercise for the reader.