Kevin Drum - July 2009

Financing the Future

| Thu Jul. 2, 2009 6:20 PM EDT

Josh Green has an interesting article in the Atlantic this month about green energy and how it's thoroughly taken over the geek culture of Silicon Valley:

Last year, cleantech was the third-largest recipient of venture funding, after IT and biotechnology, with investments of $5.8 billion. But that statistic doesn’t begin to convey its psychic significance. It’s all anyone wants to talk about.

Exhilaration over clean energy has so thoroughly swept Silicon Valley that it has transformed the local culture. Conspicuous consumption has given way to conspicuous conservation. The favored status symbol is no longer the giant yacht or the sprawling mansion but the home designed to be so ruthlessly energy-efficient that it generates its own power and produces a surplus that can be selflessly fed back into the grid.

....The excitement extends to President Obama’s early emphasis on renewable energy, which has convinced Silicon Valley’s leading minds that here, at last, is a president who understands. “California is the new Texas,” [Mike] Danaher exulted. “There’s a mind-set [in the White House] that innovation and entrepreneurship really can change things.”

This ties into what I was talking about yesterday: although conservation and increased efficiency are key (probably the key) components of any effort to curb global warming, to get all the way there we're going to need both the invention of new green technologies and far more widespread deployment of existing green technologies.

That takes money.  Way more money than Silicon Valley venture capitalists can provide.  And that in turn means we need policies that provide incentives to invest in this stuff — incentives that get to the right place at the right time and don't come and go with every change in congressional mood.

The rest of Green's piece is an interesting look at how not to do that.  Turns out that ever since Jimmy Carter tried to get us started on this stuff, the incentive of choice has been tax credits.  These are a problem for two reasons.  First, Congress and state legislatures have to renew them periodically, and when they don't (which is often) suddenly a bunch of promising projects go poof.  Second, tax credits only work if you owe taxes, and startups don't usually owe taxes.  To take advantage of them, then, requires you to team up with someone big who does.  Unfortunately, it turns out that there are only a very few candidates for that role:

Investment banks and hedge funds stepped in to fill the void, engineering tax-equity vehicles with suspiciously complicated-sounding names, like “partnership flip structure” and “inverted passthrough lease,” to exploit the tax benefits....For renewable-energy companies, tax-equity deals meant life or death: the combination of credits could offset two-thirds of the capital cost of a project.

....Just as Wall Street bankers bet that housing prices could never fall and got wiped out when proved wrong, Congress seems never to have imagined that Wall Street might someday have no profits and need no tax equity. Early last year, the multibillion-dollar tax-equity universe consisted of 18 providers. After September’s record carnage, the number dropped to four. Credit froze, and most projects ground to a halt. All of a sudden, not just a few start-ups but the entire renewable-energy industry was staring into the Valley of Death.

Tax credits still have their place, but the Obama administration is already supplementing them with other incentives (direct grants, loan guarantees, and direct investment by the Department of Energy, courtesy of February's stimulus bill) and planning to supplement them still further with others (chief among them tightening renewable energy standards and increasing the price of carbon via cap-and-trade).  Read the whole thing for more.  It's a good primer on how critical it is to get the financing piece of the puzzle right if we want to make serious progress on climate change.

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Quote of the Day

| Thu Jul. 2, 2009 3:05 PM EDT

From Tyler Cowen:

About a year ago, five or so people sent me links about chessboxing for "Markets in Everything."  I didn't think it was weird enough to merit inclusion in the series.  But now, with the addition of "Swedish" and "ladies" to the mix (or is it the "convivial party atmosphere"?), I think it is weird enough.

Roger that.

Cheney's Interview with the Feds

| Thu Jul. 2, 2009 1:39 PM EDT

I've been unhappy about the Obama administration's embrace of several Bush-era secrecy rules, but I'm on the fence about the latest one.  David Corn reports that they're continuing to fight the release of Dick Cheney's interview with the FBI in the Valerie Plame case:

On Wednesday night, in another move that puts the administration on the side of secrecy over openness, Obama's Justice Department filed a memo supporting its ongoing opposition to a lawsuit requesting the release of the Cheney interview. This memo included a declaration from Assistant Attorney General Lanny Breuer, who said that if the Cheney interview is made public it could cause public officials in the future to not cooperate with criminal investigations.

I guess what I'm unclear about here is the distinction, if there is one, between an ordinary FBI interview and one with a high-ranking politico.  Just speaking generally, it strikes me that it's genuinely in the public interest for interviews like these to be kept private unless they lead to criminal prosecutions.  Lots of people really would would be less forthcoming during FBI investigations if they knew their interviews might become public, so it's reasonable that the default position should be that they stay confidential.  That's certainly how I'd want things to stand if I were dishing dirt to the FBI.

Now, perhaps things should be different for non-ordinary people like vice presidents.  But I don't know if that's part of the legal argument here or not.  Are there any law bloggers out there who can step in and explain what's going on here?

UPDATE : Jeralyn Merritt points out that FBI interviews are also kept private in order to protect the names and reputations of the innocent, those who don't get indicted:

Even though this isn't a grand jury secrecy case, I think in order to protect the privacy and reputation of those who are mentioned or discussed by the subject of a law enforcement interview, the reports of these interviews, untested by cross-examination, should remain in government hands and not subject to release via a FOIA request.

....The same rule should apply to Cheney as to everyone else. In my view, the Congressional Committee had a right to the documents since they are federal officials investigating a matter related to the subject matter of the grand jury's Valerie Plame leak investigation. But CREW and the public don't. It's too bad that Dick Cheney is the one who wins if the material is not released to CREW and the public, but I'd rather have that than a precedent that allows reports of law enforcement interviews of the average citizen who ultimately is not indicted, and who may have slandered Tom, Dick and Mary during their interview, subject to public disclosure.

How Long in Afghanistan?

| Thu Jul. 2, 2009 12:54 PM EDT

I haven't been keeping close tabs on the details of our mission in Afghanistan lately, but Steve Hynd mentions something today that's interesting.  Back in March, Barack Obama said we would be focused primarily on counterterrorism — killing bad guys — but now that's changed.  Without really announcing anything, the mission is now apparently focused on counterinsurgency and nation building:

Counter-insurgency "clear, hold and build" has entirely taken over from counter-terrorism "hunt, kill and disupt". That might be the right thing to do — although I have my doubts — but the point is that it wasn't what Obama said would happen and government policy has radically shifted in favor of an interventionist, long-war, nation-building policy straight from the military and the folks at CNAS without any official announcement or very much public debate. In fact, it's almost as if Obama himself hasn't been told.

I don't have anything much to say about this, and it might even be that Steve is drawing too strong a conclusion from a couple of hazy data points.  I'm not sure. But it seemed worth sharing.  Just how long is Obama planning on staying in Afghanistan, I wonder?

Outrage Blogging

| Thu Jul. 2, 2009 12:17 PM EDT

Via McMegan, Laura at 11D has a very good post about the evolution of the blogosphere over the past few years.  In particular, she mentions something I've noticed too:

3. Norms and practices. Bloggers have undermined the blogosphere. Bloggers do not link to each other as much as they used to.  It's a lot of work to look for good posts elsewhere and most bloggers became burnt out. Drezner and Farrell had a theory that even small potato bloggers would have their day in the sun, if they wrote something so great that it garnered the attention of the big guys. But the big guys are too burnt out to find the hidden gems. So, good stuff is being written all the time, and it isn't bubbling to the top.

I write as much as I ever have, but in my posts I link more to news sources and less to other bloggers than I used to.  I'm not sure why.  Part of it might be related to another evolution I've noticed: the political blogosphere increasingly seems to latch on to four or five outrages of the day that suck up most of its attention.  It seems like every blog I read posts about the same few political nano-scandals every day, and since I mostly find this stuff kind of boring I don't link to it very much.

I don't know for sure if that's a real trend or not.  My memory is famously fuzzy and I have a hard time really remembering what things were like four years ago compared to today.  But whatever the case, the end result is less engagement with other bloggers and less conversational tone to the blogosphere.  That may or may not be entirely a bad thing, but I kind of miss it.

Chart of the Day

| Thu Jul. 2, 2009 11:48 AM EDT

From Calculated Risk, here's a chart incorporating today's bad unemployment news.  We're now clearly in the worst slump since the Great Depression, and by far the worst slump in the past 50 years.  And if that's still not bad enough news for you, keep in mind that we're in good shape compared to Europe and China.  If and when another shoe drops (ARM resets? Eastern European defaults? a big bank collapse? an oil price spike?), it could be 2008 all over again.

On the bright side, the Wall Street Journal reports that banker pay has rebounded and is now back up to bubblicious 2007 levels.  It's good to see that not everyone is suffering.

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California Night Sweatin'

| Thu Jul. 2, 2009 10:59 AM EDT

Just for the record, since I get asked this a lot: the reason I'm not writing about the California budget mess, even though I live in California, is because I just can't stand to.  Sorry.  If you ever thought there was a group of lawmakers who could make the U.S. Congress look like a sober, highminded deliberative body, the clowns in Sacramento are them.

In case you're interested, here's the latest.  No budget agreement is on the horizon, but on June 29 Dems tried to pass a bill that would have saved a bit of money.  It was a technical measure related to how education money is distributed via Proposition 98, but the bottom line is that it would have saved the state about $3 billion. It had to be passed before June 30 or not at all, but Arnold Schwarzennegger flatly refused to consider it.  Why?  Who knows.  No "piecemeal" budgeting, he says.  He wants an entire budget all at once that slashes $24 billion without increasing taxes so much as a dime, or nothing at all.  Why?  Again, who knows?  It's like trying to figure out a five year old.

So, anyway, our gargantuan budget deficit, much of it caused by almost lunatic irresponsibility on Schwarzenegger's part in the first place, is now about $3 billion higher because of further lunatic irresponsibility on Schwarzenegger's part.  And while Dems may not exactly be heroes in this mess, at least they're doing something.  Proposing things.  Trying to keep the state from resorting to IOUs for blind people.  Hoping to do something to prevent our credit rating from going down the toilet, making our budget problem even worse.  Something.  Meanwhile, Schwarzenegger has no plans at all, and the sullen Republican rump in the Senate and Assembly just sits around and votes no on everything.  No proposals, no ideas, no nothing.  Just no, no, no.

Like I said, it makes Washington DC look like the second coming of Periclean Athens.  Depressing.  But if you really want to know more — and you're a stronger man than me — check out the fine folks at Calitics.  They'll keep you up to speed.

Good News on Healthcare

| Thu Jul. 2, 2009 10:20 AM EDT

When Republicans passed the Medicare prescription drug bill in 2003, they didn't really need to worry much about how to finance it.  Their plan was straightforward: first, have the administration lie repeatedly about the cost of the bill and make sure Congress never knew about it.  Second, don't worry about financing it anyway.  Just blow another hole in the deficit and move on.

Democrats, bless their goo-goo little hearts, are doing their best to actually pay for their healthcare reform project.  That would make things hard enough, but unfortunately, they're making things even more difficult for themselves via some fairly stunning incompetence at getting cost estimates out of the CBO.  In turn, Republicans are twisting the CBO estimates to make them look even worse than they are.  This isn't especially highminded of them, but hey — politics ain't beanbag, and Dems know how the CBO scoring process works as well as anyone.

Anyway, today we have new cost estimates.  Sort of.  To get them, though, you have to paste together several items.  Ezra Klein tries to explain:

The short version is this: CBO estimates that by 2019 the bill will cover 21 million people at a cost of $597 billion. But — and this is important — the HELP Committee's bill doesn't include the Medicaid expansion, because Medicaid is under the sole jurisdiction of the Finance Committee. But if Medicaid is expanded to 150 percent, it will cover an additional 20 million at a cost of about $1 trillion. Add in the savings that Finance is expected to get from reforming Medicare and you're looking at a bill that will cost $1 trillion to $1.3 trillion and cover 42 million people (which would mean 97 percent of the legal population in 2019 would have health insurance) by 2019.

The headlines will still probably get this wrong because it requires putting together several different numbers.  And Republicans will undoubtedly try to twist the numbers to their advantage — which is exactly what you expect an opposition party to do.  Democrats have really made a hash out of these competing estimates, leaving themselves open to all sorts of attacks they wouldn't have to put up with if they'd produced some reasonably clean bills for CBO to score.

But anyway, this is where we're at now.  The difference between this estimate and the previous ones appears to come mostly from the addition of an employer mandate, and covering 97% of the population for a little over $100 billion per year is probably quite doable if this is where things stay.  Add a strong public option and the cost might even come down some more.

Read the whole post for more, and read Jon Cohn for a different take on the same numbers.  It's too bad it's taken so long to get here, but it's basically good news.

Housekeeping Note

| Thu Jul. 2, 2009 12:22 AM EDT

Quick note.  Two or three times a week our resident MoJo editor and politics junkie Laura McClure drops by with a post called MoJo Mix.  The idea is to highlight a few good items on our other blogs — MoJo, Blue Marble, and The Riff — that the politics junkies here might be interested in reading too.  It's worth checking out.

More Sweetheart Deals

| Wed Jul. 1, 2009 8:14 PM EDT

Back in October, when we started bailing out banks with TARP funds, the Treasury received warrants from each bank in return for their investment.  Several of these banks have now paid back the TARP money, but what about the warrants?  While I was on vacation the Treasury announced its plan for selling the warrants back:

The Treasury Department said the banks will make the first offer for the warrants. Treasury will then decide to sell at that price or make a counteroffer. If the government and a bank cannot agree on a fair price for the warrants, the two sides will have the right to use private appraisers.

This is ridiculous.  This isn't like the toxic waste on bank balance sheets that can't be sold because it's impossible to value.  If you want to know how much the warrants are worth, just offer them to the highest bidder.  Simon Johnson has it right: "The only sensible way to dispose of these options is for Treasury to set a floor price, and then hold an auction that permits anyone to buy any part — e.g., people could submit sealed bids and the highest price wins."

If the Obama administration wants us to believe that it's not entirely in thrall to the banking industry, it needs to stop offering absurd sweetheart deals like this to banks that already received sweetheart deals in the original TARP bailout — and are continuing to benefit from trillions of dollars in various Fed support programs and liquidity guarantees.  Just auction the damn warrants.