Kevin Drum - February 2009

Good News

| Thu Feb. 12, 2009 11:29 AM EST
GOOD NEWS....Some modestly good news today:
U.S. retail sales jumped 1% in January, reversing a six-month declining trend and defying economists' expectations by posting the biggest increase in 14 months.
What else?  For my local readers, a solar firm has signed yet another deal to provide Southern California with 1,300 megawatts of solar electricity.  The first plant should be operational in four years.

And the California legislature has supposedly reached a deal to "balance" the state budget.  It includes $15 billion in spending cuts, $15 billion in tax increases, and $12 billion in smoke and mirrors — which isn't a bad ratio considering how prevalent accounting tricks usually are.  Now all we have to do is round up two or three non-insane Republicans to vote for it.  Stay tuned.

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Site Update

| Wed Feb. 11, 2009 8:37 PM EST
NEW SITE....This is it: our new site is now up and running.  Hooray!  However, there are almost certainly still some bugs in the system, so please be patient for the next couple of days as we work out the kinks and improve the performance.  If you find a bug, or have any kind of complaint, email it to:
web-feedback@motherjones.com
A note on comments: in order to reduce comment spam, we've installed a captcha app that asks you to type in a word in order to verify that you're actually a human being.  If you register a username, however, you don't need to do this.  If you don't want to register, you should feel free to comment regardless, but if you're a regular it's probably worth your while to register.

Welcome to the new site!

The Textbook Ripoff

| Wed Feb. 11, 2009 8:21 PM EST | Scheduled to publish Wed Feb. 11, 2009 6:20 PM EST
THE TEXTBOOK RIPOFF....Andrew Gelman:

I received a free copy in the mail of an introductory statistics textbook; I guess the publisher wants me to adopt it for my courses....I showed the book to Yu-Sung and he said: Wow, it's pretty fancy. I bet it costs $150. I didn't believe him, but we checked on Amazon and lo! it really does retail for that much. What the....? I asked around and, indeed, it's commonplace for students to pay well over $100 for introductory textbooks.

Andrew wants to know why textbooks are so expensive. Henry Farrell too. Add me to the list. I've heard various explanations for the skyrocketing cost of textbooks. They're bigger these days. They use more color. They include CDs and multimedia bells and whistles. Etc. But here's a data point. I only have one of my college textbooks still in my possession, but I just got it off the shelf to see if it had a price in it. It did: $17.25. That was in 1976, and adjusted for inflation it comes to $64 in today's dollars. So what does it currently cost on Amazon? Answer: $132. It is, as near as I can tell, the exact same book. Same binding, same number of pages, same charming lack of color. In fact, browsing through it, it looks as if it's being printed from the same plates as it was in 1976. This, then, is obviously a book that ought to be cheaper today than it was three decades ago. The costs of production have long since been paid back, there's a ton of competition from the used book market since the book hasn't changed in 30 years, and I imagine that author royalties are the same as ever. For reference, a similar size commercial hardback would run about $40 these days. So what is the deal? Why are textbooks such a ripoff?

Chart of the Day - 2.11.2009

| Wed Feb. 11, 2009 5:04 PM EST | Scheduled to publish Wed Feb. 11, 2009 2:49 PM EST
CHART OF THE DAY.... This is from Brad Setser. Chinese exports are down 17.5%, but imports are down a stunning 43%:

What worries me the most? The possibility that the sharp y/y fall in imports doesn’t just reflect a fall in imported components or a fall in commodity prices, but rather a major deceleration in China’s domestic economy....At a time when the world is short demand, China seems to be subtracting from global demand not adding to it. The best solution: an absolutely enormous domestic stimulus in China.

A massive stimulus in the United States is probably necessary, but it's still a dicey proposition since we're running a big trade deficit and need to curtail our domestic consumption in the long run. But China is running a big trade surplus, which makes it unproblematic for them to increase domestic consumption, and their economic growth last quarter was perilously close to zero. They're the ones who really need to stimulate their economy. If the Chinese economy tanks, the rest of the world will get dragged down even further with it.

Middle East Update

| Wed Feb. 11, 2009 5:00 PM EST | Scheduled to publish Wed Feb. 11, 2009 1:54 PM EST
MIDDLE EAST UPDATE....It's hard to have even a shred of hope left these days for some kind of solution to the Israeli-Palestine dispute, and the combination of Hamas's rise following the Gaza war and Likud/Yisrael Beiteinu's rise in yesterday's Israeli election is just one more nail in the coffin. At this point, to have any kind of optimism at all, you would need to either have supernatural faith in Barack Obama's negotiating powers or else be the world's most fervent fan of "only Nixon can go to China" geopolitics. Aside from that, it's difficult to see even the possibility of moving forward.

For more, check out Ezra Klein here and Stephen Walt here. But don't bother if you're hoping to be reassured. That's just not in the cards right now.

Quote of the Day - 02.11.09

| Wed Feb. 11, 2009 1:01 PM EST | Scheduled to publish Wed Feb. 11, 2009 12:48 PM EST

QUOTE OF THE DAY....From Rep. Steve Austria (R–Ohio), explaining that FDR's deficit spending in 1933 was responsible for an event that began in 1929:

“When (President Franklin) Roosevelt did this, he put our country into a Great Depression. He tried to borrow and spend, he tried to use the Keynesian approach, and our country ended up in a Great Depression. That’s just history.”

Republicans really do have a unique definition of "history," don't they? Via Matt.

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Valuing the Toxic Waste

| Wed Feb. 11, 2009 12:59 PM EST | Scheduled to publish Wed Feb. 11, 2009 12:38 PM EST

VALUING THE TOXIC WASTE....Part of the Geithner bank bailout plan is apparently a scheme to partner up with the private sector to buy up the toxic assets on bank balance sheets. Will this work? John Hempton thinks it might. Right now, he says, a lot of these assets are modestly underpriced by the market and might well make decent investment opportunities — but only if the feds provide enough low-priced leverage to turn a decent investment into a great one:

So how are those assets really? Underpriced but hardly exciting....No — to be exciting you need to borrow against them. You need to be able to use leverage. Cheap leverage. Lots of leverage. And it can’t be margin loans or the like — because the asset prices are so volatile that your funding might go away.

But — with permanent cheap funding at government rates it should be profitable to buy those assets. Seven to one levered at government rates (which are a couple of percent) the returns will be spectacular.

So if the Geithner plan is to attract say one hundred and fifty billion of private risk capital and allow it permanent and secure access to say a trillion dollars of government money at a government rates then hey — I am in. (I would require the interest rate risk be matched too.)

It would be a pretty big gift from the government — as nobody — a good bank or a bad bank — can borrow at the same (extraordinarily low) rate as the US Treasury. But as a plan it might just work. And because 150 billion of real private spondulicks is at risk there are some pretty strong incentives for the private sector manager to get it right.

Basically, the idea here is that private investors are better at ferreting out the true value of the toxic waste, while the feds are the ones with the money. And I guess maybe that makes some sense. But you still have a pretty serious problem on your hands: banks don't want to sell this stuff at honest prices. So even if you get both the valuation and the funding in place, how do you force banks to sell? And if you do force them to sell, are you just driving them into insolvency?

It's possible, I suppose, that this is the real point. Use private investors to figure out the valuation. Use the Fed's balance sheet to provide funding. Use Geithner's "stress test" to figure out which banks are bust, and force them to recognize the true value of their assets whether they sell them or not. Then let the private investors buy the junk and take over the remaining husk to be run as a nationalized bank.

But....if that's the plan, why not just nationalize in the first place, skip the process of valuing the junk, and set it aside to be sold off in a few years? And perhaps that's all this is: a piece of kabuki designed to get the private sector to make the determination that some of these banks are insolvent and have to be taken over. After all, if the private sector makes the valuation, no one can claim it was just some bureaucratic maneuver by a power-obsessed Obama administration.

Or something. Like everyone, I'm just guessing here.

Awards, Not Bonuses

| Wed Feb. 11, 2009 12:54 PM EST | Scheduled to publish Wed Feb. 11, 2009 12:08 PM EST

AWARDS, NOT BONUSES....What do two failed investment banks that have received $60 billion in federal bailout cash do when they merge? Pay their people more! Sam Stein reports:

The soon-to-be-merged financial giants — Morgan Stanley and Citigroup's Smith Barney — announced the payments during an internal conference call last week, but warned advisers against describing them in terms that would cause PR headaches.

"There will be a retention award. Please do not call it a bonus," said James Gorman, co-president of Morgan Stanley. "It is not a bonus. It is an award. And it recognizes the importance of keeping our team in place as we go through this integration."

Yeah, there's nothing more important than keeping all these folks in place. There are so many other lucrative opportunities for them in the rest of the financial industry, after all. Yeesh.

Fallen Soldiers

| Wed Feb. 11, 2009 12:53 PM EST | Scheduled to publish Wed Feb. 11, 2009 11:06 AM EST
FALLEN SOLDIERS....Following a question at Monday's press conference, the Obama administration is reviewing a longstanding policy that prevents the media from photographing flag-draped coffins being returned from war zones:

Defense Secretary Robert Gates suggested today that he was open to allowing the media to photograph the flag-draped coffins of fallen soldiers as their bodies and remains are returned to the United States.

"If the needs of the families can be met and the privacy concerns can be addressed, the more honor we can accord these fallen heroes, the better," Mr. Gates told reporters.

That's the right attitude. I've been in favor of allowing reporters to record the return of fallen soldiers for years, and the Bush administration stand on this never made any sense to me. Yes, of course the pictures could be used to stoke antiwar sentiment, but the same can be said for any war-related photography. At the same time, they can also do just the opposite. But in a democracy, this is all irrelevant anyway. These are American soldiers fighting an American war, and the American public has a right to see the price of that war. This is a policy that deserves to be overturned forthwith.

Today's Healthcare News

| Tue Feb. 10, 2009 5:19 PM EST

TODAY'S HEALTHCARE NEWS....Just in case you've been getting a little too optimistic about the prognosis for serious healthcare reform this year, here's a couple of pieces of light reading to bring you down to earth.

First up, the Wall Street Journal explains that a $1.1 billion provision in the stimulus bill to fund research comparing medical treatments is in trouble. Why? Because pharma and device companies don't really want anyone finding out just how effective their treatments are. Full story here.

Second, Michelle Cottle deconstructs a story about a lobbying war over electronic medical records. Pretty much everyone from Tom Daschle to Newt Gingrich is in favor of this, so what's the problem? Answer: drug companies want to make sure that privacy provisions don't prevent them from paying hospitals and pharmacies to hawk their latest wonder drugs to their customers. Full post here.

Just another day in the healthcare trenches. I can hardly wait til we get to the hard stuff.