Kevin Drum - March 2010

Immigration Reform and the Wingers

| Tue Mar. 30, 2010 5:04 PM EDT

Earlier this morning I mentioned that political issues usually stay fairly subdued until something happens to make them salient. Only a few wonks care about Social Security until the president proposes to privatize it. Healthcare stays on the back burner until the president proposes to reform it. Etc.

The hook for that post was immigration reform, and over at the Boston Phoenix David Bernstein says there's more to it:

I would add to that, that in today's conservative marketplace the rhetoric and anger boil up when it pays. Health care reform is a great example. Drum is only half-right when he writes that "Opposition to healthcare reform was mild until 2009, when Barack Obama turned it into an active issue." In fact, I would argue, opposition remained mild well after Obama started actively pushing it, and even as it moved well on its way toward nearly becoming law last summer.

Truth is, it's really not a core money-maker for the right. A year ago, or two years ago, conservative organizations couldn't raise a dime off it, and conservative radio shows couldn't keep listeners by talking about it — even when it became "active" last spring. But eventually they found ways to make it pay; the first to find a way to do it was Dick Morris, in his June bestseller Catastrophe, with the argument that Obama's health care plan would inevitably lead to rationing, meaning bureaucrats deciding which old people to let die; Sarah Palin then coined "death panels" and a thousand direct-mail solicitations were launched. Dick Armey and others swooped in for their piece of the profit, leading to the summer recess Townhall Meetings, and the ball was rolling.

Unlike healthcare reform, immigration/nativism always pays in the conservative marketplace — although Drum is quite right, that it doesn't pay nearly as well when there's nothing in the news about it. Nevertheless, last summer when I asked the head of a conservative direct-mail-funded organization what topics were money-makers for him and others in the business, his top answers were the old stand-bys of amnesty and English as the official language.

Among the hard core right-wingers, this is probably true — though they sure seem able to pivot mighty fast to pretty much any topic at all when they put their minds to it. But yeah: some topics are basically always on tap, just waiting for any old nudge to put them back into the fundraising rotation.

David then goes a bit further and suggests that this explains why Rahm Emanuel and Chuck Schumer plan to introduce immigration reform this year even though it has no chance of passing. Basically, they want to drive the tea party right crazy, thus helping to turn out lots of Hispanics in November to vote for Democrats. Very Machiavellian! And plausible, too.

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Plastic Bags and Econ 101

| Tue Mar. 30, 2010 4:21 PM EDT

Via Matt Yglesias, WeLoveDC reports on the results of the District's new tax on plastic bags:

The District’s 5-cent bag tax, which started in January 2010, netted approximately $150,000 during its first month of enactment. According to the D.C. Office of Tax and Revenue, only 3 million bags were issued in the month of January compared to 2009’s 22.5 million bags per month average, and it appears that the new law DC shoppers has been successful in altering shopping bag habits faster than was expected.

Impressive! So why has a small charge been so effective? The actual amount of money involved is pretty tiny, after all. Some guesses:

  1. There's excellent substitutability here, since it's easy to reuse plastic bags a few times or switch to infinitely reusable cloth bags.
  2. People respond disproportionately to being charged for things they've been conditioned to think of as free.
  3. Green agitprop has put lots of people right on the knife edge of switching to resusable bags already, so a tiny nudge is all that was needed.
  4. There's a bit of an optical illusion here: Customers are still using plastic bags, but insisting that they be filled to bursting so they use fewer of them.
  5. Something else.
  6. All of the above.

A question for DCers: how does this tax work? That is, how does the cashier know how many bags to charge you for before all your groceries are bagged? Do they have to wait to finish ringing you up to see how many bags the bagger uses? Does that slow things down? Is that another incentive to bring your own bags?

Apropos of my reason #3, it didn't take much to get me to switch. About a year ago my local Gelson's started giving away cloth bags now and again and the checkers always ask if you have them before they start bagging. It was a tiny thing, but it was just enough to put it at the top of my mind and get me to bring my cloth bags with me when I went shopping. Sometimes a nudge is all you need.

Why Terrorists Fight

| Tue Mar. 30, 2010 2:30 PM EDT

This feels like a bit of a chestnut, but guess what? It turns out that conservatives are still yammering on about how Muslim jihadists hate us for our freedoms. And it's true, of course, that Sayyid Qutb was famously influential in the Arab world with his dire warnings about Western degeneracy — based largely on his visit to the lewd-n-lascivious America of the late 1940s. Oddly, though, jihadists remained pretty quiet for the next few decades anyway. Daniel Larison:

In fact, attacks on Americans and American installations began after we inserted ourselves into the region’s conflicts and began establishing a military presence there. Hegemonists can obsess over the writings of Qutb all they want, but it will not change the reality that anti-American jihadist violence did not occur until the misguided 1982-83 intervention in Lebanon. U.S. and Israeli military operations and policies of occupation provoke much broader, more intense resentment among Muslims than any general dissatisfaction with the decadence of Western culture and its deleterious effects on their own societies.

....The recent Moscow subway bombings are instructive on this point. The bombings are outrageous atrocities for which there is no excuse or justification, but one would have to be a blind fool to say that Chechen grievances, which outside jihadists have been exploiting for the last decade, are based in morally offensive Russian pop culture. It is acceptable for hegemonists to acknowledge this when Russia is the target of terrorist attacks, but when it comes to acknowledging U.S. and allied policies as important contributing factors we are treated instead to these sweeping cultural arguments and close readings of Sayyid Qutb.

Like I said, this is sort of a blast from the past. But worth being reminded of now and again.

Loopholes Are Forever

| Tue Mar. 30, 2010 1:22 PM EDT

On Saturday the Wall Street Journal editorial page loudly moaned about a provision of the healthcare bill that, they said, was prompting a "wave" of announcements of corporate losses. "This wholesale destruction of wealth and capital came with more than ample warning," they wrote ominously. "Turning over every couch cushion to make their new entitlement look affordable under Beltway accounting rules, Democrats decided to raise taxes on companies that do the public service of offering prescription drug benefits to their retirees instead of dumping them into Medicare." I linked to this briefly the other day, but it's worth a little bit of explication.

It's true: there has been a wave of press releases announcing multi-million dollar writedowns from some of America's biggest corporations. In fact, as Igor Volsky points out, these press releases seem downright coordinated. So what's going on? It all goes back to George Bush's expansion of Medicare prescription drug benefits:

The Medicare Part D legislation gives subsidizes of about $1,300 per retiree per year to businesses that provide prescription drugs to their retirees and permits companies to deduct the value of credit....The new health care law, however, pays for itself by eliminating waste in the system and it closes this particular double dipping provision. Companies would still receive the tax-free subsidy, but they’ll no longer be able to deduct it. And they’re angry.

Well, who wouldn't be angry? Getting a government subsidy and being able to deduct it from your tax bill is a helluva juicy deal. I sure wish I could do something like that. But I'm not a giant corporation, so I can't.

Anyway, it turns out that corporations who qualify for this sweetheart deal accounted for it as a future addition to their earnings stream. Now the stream is gone — after 2013, anyway — so they have to reverse that accounting charge. It's very sad. Still, there's no actual money involved. No one has to write a check to anyone else. Corporations just have to add a footnote to their next quarterly report saying that the government has come to its senses and will no longer allow them to write off an expense that the government is paying for in the first place.

As a friend once said, you could spend your whole life correcting the Journal's editorial mendacity once you let yourself get sucked down that particular rabbit hole. But this one is likely to become a common talking point, and it's arcane enough that hardly anyone understands what's so bogus about it. Now you do, and you can pass it along to your friends the next time you hear it.

Two Economic Models

| Tue Mar. 30, 2010 12:10 PM EDT

Yves Smith gets a look at the infamous "plutonomy" reports from Citigroup that were highlighted by Michael Moore in Capitalism: A Love Story, and notes that the authors blame low savings rates in the U.S. on growing income inequality. As the rich get wealthier, they feel comfortable spending more and more of their income, and "They just account for too large a part of the national economy; even a small fall in their savings rate overwhelms the decisions of all the rest." Yves comments:

But behaviors on both ends of the income spectrum no doubt played into the low-savings dynamic: wealthy who spend heavily, and struggling average consumers who increasingly came to rely on borrowings to improve or merely maintain their lifestyle. And let us not forget: were encouraged to monetize their home equity, so they actually aped the behavior of their betters, treating appreciated assets as savings. Before you chide people who did that as profligate (naive might be a better characterization), recall that no one less than Ben Bernanke was untroubled by rising consumer debt levels because they also showed rising asset levels. Bernanke ignored the fact that debt needs to be serviced out of incomes, and households for the most part were not borrowing to acquire income-producing assets. So unless the rising tide of consumer debt was matched by rising incomes, this process was bound to come to an ugly end.

Italics mine. This is the great contradiction at the heart of American capitalism: the rich want to keep middle class incomes stagnant so there's more money left over for them, but they also want to encourage the middle class to consume ever more, for more or less the same reason. Needless to say, this doesn't work in the long run. America's merchant princes need to make up their minds: do they want strong economic growth that benefits everyone (including the rich) or do they want crappy economic growth but with the extra money reserved all for them? Decisions, decisions.....

Immigration Coming Off the Back Burner?

| Tue Mar. 30, 2010 11:38 AM EDT

Ezra Klein starts off a post this way:

There's been plenty of overheated rhetoric and creative paranoia on display this year, but nativism has been, to me, the dog that didn't bark. The Tea Parties haven't been very focused on immigration, and while abortion and socialism both became major issues during health-care reform, fears that the bill would cover illegal immigrants (it won't, incidentally) never became a marquee issue.

Not to pick on Ezra or anything, but this attitude betrays a surprisingly common misconception about political issues in general. The fact is that political dogs never bark until an issue becomes an active one. Opposition to Social Security privatization was pretty mild until 2005, when George Bush turned it into an active issue. Opposition to healthcare reform was mild until 2009, when Barack Obama turned it into an active issue. Etc.

I only bring this up because we often take a look at polls and think they tell us what the public thinks about something. But for the most part, they don't.1 That is, they don't until the issue in question is squarely on the table and both sides have spent a couple of months filling the airwaves with their best agitprop. Polling data about gays in the military, for example, hasn't changed a lot over the past year or two, but once Congress takes up the issue in earnest and the Focus on the Family newsletters go out, the push polling starts, Rush Limbaugh picks it up, and Fox News creates an incendiary graphic to go with its saturation coverage — well, that's when the polling will tell you something. And it will probably tell you something different from what it tells you now.

Immigration was bubbling along as sort of a background issue during the Bush administration too until 2007, when he tried to move an actual bill. Then all hell broke loose. The same thing will happen this time, and without even a John McCain to act as a conservative point man for a moderate solution. The political environment is worse now than it was in 2007, and I'll be very surprised if it's possible to make any serious progress on immigration reform. "Love 'em or hate 'em," says Ezra, illegal immigrants "aren't at the forefront of people's minds." Maybe not. But they will be soon.

POSTSCRIPT: And keep in mind that one of the reasons the tea parties haven't (yet) taken up the immigration fight is very specific to the agenda of Dick Armey and FreedomWorks. I doubt that Armey will win this battle in the long run, though.

1Granted, polls do give us a general idea of where we're starting from. If immigration reform were polling at 80%, for example, I'd feel pretty good about it since that number could deteriorate 20 points and it would still have a lot of support. But if it's polling at around 50-60% — which it is — that's dangerous territory. Once the yelling starts you can expect that number to go down a bunch, and suddenly it won't be a popular issue to tackle during an election year.

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What's Our Real Trade Deficit With China?

| Mon Mar. 29, 2010 11:53 PM EDT

Is our trade deficit with China exaggerated? The Wall Street Journal reports on the difference between accounting for the entire value of finished goods that are imported from China vs. only the value-added of the goods imported from China:

A study by the Sloan Foundation in 2007, for example, found that only $4 of an iPod that costs $150 to produce is made in China, even though the final assembly and export occurs in China. The remaining $146 represents parts imported to China. If only the value added by manufacturers in China were counted, the real U.S.-China trade deficit would be as much as 30% lower than last year's gap of at $226.8 billion, according to a number of economists.

At the same time, the U.S. trade deficit with Japan would have been 25% higher than the $44.8 billion reported last year, because many goods that China and others export to the U.S. contain parts purchased in Japan.

....But it is a tough nut to crack. Economists can look up, for example, that China exported 52,176 metric tons of screws, bolts and nuts to South Korea in 2009, according to Global Trade Information Services, a consultancy based in Geneva. But they can't trace those pieces to figure out if they wound up in exported products.

Experts also don't agree on what should be considered an intermediate good. Should the imported fuel used to power the factory be counted? What about the consultant flown in from London?

More at the link.

Quote of the Day: Sarkozy on Healthcare

| Mon Mar. 29, 2010 7:58 PM EDT

From French President Nicolas Sarkozy, speaking today at Columbia University:

Welcome to the club of states who don't turn their back on the sick and the poor....The very fact that there should have been such a violent debate simply on the fact that the poorest of Americans should not be left out in the streets without a cent to look after them ... is something astonishing to us.

Sarkozy was something of a darling of the right when he was first elected, thanks to his support of laissez-faire economics and general embrace of American values. But the financial collapse of 2008 turned him into something of a regulatory hawk, and now there's this. I'll bet the American right doesn't think much of him anymore.

Where the Real Action Is

| Mon Mar. 29, 2010 7:45 PM EDT

Our story so far: on Friday I was chatting with Felix Salmon about leverage and capital requirements in the financial system, and we agreed that most of the action on this was taking place on the international stage. But because it's largely done behind closed doors, there's very little reporting on what progress is being made. Today, though, Bloomberg's Yalman Onaran sneaks in a bit about international standardmaking in a long story that's mostly about U.S. financial reform:

Looming over discussions about liquidity are rules proposed in December by the Basel Committee on Banking Supervision, a 35-year-old panel that sets international capital guidelines. The new framework would require banks worldwide to hold enough unencumbered assets to meet all of their liabilities coming due within 30 days. That amount, called the liquidity coverage ratio, could be used to offset cash outflows during a panic. Banks would also have to maintain a “net stable funding ratio” of 100 percent, meaning they would need an amount of longer-term loans or deposits equal to their financing needs for 12 months, including off-balance-sheet commitments and anticipated securitizations.

The Basel committee, which is collecting comments on the proposed rules through April 16, would establish clear definitions of liquid assets and funding needs, rather than leave those determinations to the banks. It would also set new capital requirements. The committee expects to complete its work by the end of the year and implement the regulations by the end of 2012.

The liquidity rules would reduce the annual profit of Bank of America Corp. by $1.5 billion and of Citigroup by $1.2 billion, JPMorgan estimated in a Feb. 17 report.

Bank analysts and executives say the proposals won’t be implemented in their current form. The rules are “too restrictive and we believe they could ultimately be watered down,” Barclays Plc said in a Feb. 8 report. Societe Generale SA’s Severin Cabannes has been telling investors the Basel regulations will likely be weakened, according to investors who have met with him.

As background, the original Basel standards were adopted in 1988 after more than a decade of work. They set capital standards for the banking industry and were only so-so from the start. The followup Basel II standards, which allowed banks a lot of leeway to use their own internal measures of risk, were a disaster — mainly because they allowed banks a lot of leeway to use their own internal measures of risk. So now we're on to Basel III. In English (sort of), the new standards would require banks to maintain adequate liquidity even assuming they lost all their overnight repo financing and had their balance sheet degraded via ratings downgrades. They'd also require banks to rely less on repo financing in the first place by increasing the portion of their asset base that has to be funded either by retail funds or by loans of greater than one-year maturity. Beyond that, Basel III would set new capital standards and (presumably) tighten up the requirements so that banks don't get to use their own models for estimating the risk of various asset classes. Felix comments:

The Basel rules are important, and they take a long time to coalesce into something acceptable to all the main players — especially the US, whose abundance of small banks makes it wary of rules which are generally designed for much bigger institutions. It's entirely foreseeable that the Basel committee's self-imposed 2012 deadline is going to come and go. But if and when the rules go into effect, they're going to have much more force than anything coming out of Congress or Treasury. So keep an eye on them: if they get diluted significantly from their present form, that's a bad sign.

Well, if Onaran is correct and "bank analysts and executives" are already saying the new rules are DOA and need to be watered down, then we have a bad sign right from the get-go. What's more, a lot still depends on just who these rules apply to — regulating the shadow banking system is crucial here — exactly how the rules are worded, and how quickly they get taken up by the major financial players around the world — none of which is clear yet. The big fight, I think, will be between those who want fairly blunt and primitive rules and those who want complicated, nuanced rules. The former helps keep the system stable. The latter helps banks figure out ways to outwit the rules and make more money.

So stay tuned. Given that Congress appears very unlikely to establish blunt rules of its own, this is where the action is.

Lede of the Day

| Mon Mar. 29, 2010 2:50 PM EDT

Lots of people tied for this award today, but let's give it to the Washington Post's Dan Eggen:

The Republican National Committee gave nearly $2,000 to a Southern California GOP contributor for meal expenses at Voyeur West Hollywood, a lesbian-themed California nightclub that features topless dancers wearing horse-bits and other bondage gear, according to newly filed disclosure records.

Here's what I don't get. Everyone knows that party expenditures are reported to the FEC quarterly and made public. So it's not like this stuff has any chance of staying private. And yet, every few months we see yet another idiotic expenditure like this. What's up with these guys?

Not that I want to put "these guys" into the same class as RNC chairman Michael Steele. Has any party ever had such a feckless, embarrassing chairman in recent memory? He's a real piece of work. I'm counting on the New York Post to come up with a good headline for this.