Kevin Drum - March 2010

Lede of the Day

| Mon Mar. 29, 2010 1:50 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.

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A Measles Mystery

| Mon Mar. 29, 2010 12:43 PM EDT

Via Dave Munger, David Gorski takes on some dishonest graphs from the anti-vaccine crowd purporting to show that vaccines don't keep anyone from getting sick. One problem: they use falling death rates in the pre-vaccine era to show that communicable diseases were dying off even before vaccines were introduced. But this isn't the same thing as incidence rates. Better medicine can reduce the number of people dying even if the same number of people are still getting sick. Then Gorski takes on a graph of Canadian data that does use incidence rates, in this case showing that the incidence of measles in Canada dropped steadily between the 30s and the 60s, even before the measles vaccine was introduced:

I was immediately suspicious of this graph, though. The reason should be obvious; the decline in measles incidence is far too smooth. Measles incidence typically varies greatly from year to year. Fortunately, in his chutzpah, Obomsawin included a link to the actual source of the graph. Naturally, I couldn’t resist checking it out, and I found that the link leads to the Canadian Immunization Guide section on the measles vaccine. And this is the actual graph from which Obomsawin allegedly extracted his data [It's the orange chart above. –ed.]

Note how Obomsawin left out a section of eight years when measles was not nationally reportable. Also note how he has, to be charitable, cherry picked the years to produce the impression of a smoothly declining measles incidence from 1935 to 1959. As I said, it doesn’t get much more intellectually dishonest than that.

OK. But this still provokes a question: Before 1950 measles incidence was about the same in Canada and the United States. (The charts use different measurements but they represent about the same incidence rate.) So why did measles incidence in Canada drop dramatically between 1950-1960 while it stayed steady in the U.S.? Did Canada do something else around 1950 to reduce measles exposure? Or what? Because it sure looks like something happened north of the border.

Stupak and the Bishops

| Mon Mar. 29, 2010 11:29 AM EDT

Rep. Bart Stupak (D–Mich.), who opposed healthcare reform up until the last second because of his doubts about its abortion language, took his cues largely from Richard Doerflinger, associate director of the United States Conference of Catholic Bishops' Secretariat of Pro-Life Activities. Plenty of other Catholic groups eventually agreed that the bill's language was actually pretty restrictive, but the bishops never did. Eventually, of course, Stupak came around too, and Nick Baumann reports that he's had a change of heart about the bishops too:

In the days since Stupak voted for the bill, relations between his bloc and the bishops have soured. "The church does have some work to do in dealing with frayed nerves and divisions on policy questions," Doerflinger told Catholic News Service. Last week, Stupak attacked the bishops and other anti-abortion groups for "great hypocrisy" in opposing Obama's executive order after having supported former President George W. Bush's executive order banning stem cell research in 2007. He told the Daily Caller he believed the bishops and the groups they were allied with were "just using the life issue to try to bring down health-care reform." In other words, he suspected he was wrong to trust that his former allies were acting in good faith.

That's the final paragraph. Read the rest to see how Stupak got there.

Is Zinc a Miracle Drug?

| Mon Mar. 29, 2010 11:12 AM EDT

Chris Hayes tweets:

11:10 am: Honest question: is there some trick for people who fly all the time to not constantly get sick? 

11:23 am: Lots of votes for airborne and zinc.

Forget Airborne. Let's talk about zinc. Every instinct in my body tells me it doesn't work. It's a scam. There's no double-blind evidence for it. Etc. But I use the nasal spray version of Zicam and....it seems to work! Even though I'm really skeptical about it, which ought to wipe out any possible placebo effect. Unless I secretly do believe it in the lizard part of my brain responsible for such things.

Or maybe I just think it works because I've never kept serious track of how I respond. Who knows? Thus, today's question: do you use zinc for colds? Does it seem to work? And why aren't there any good clinical studies of it? You'd think some academic type would be curious enough about it to get a small NIH grant or something and check it out. Anybody know of some academic type who's done this?

Back to the Future?

| Mon Mar. 29, 2010 10:55 AM EDT

Flat wages and rising consumption are a bad mix. Together, they mean more debt and less savings, exactly the combination that led us off a cliff during the Bush years. Ryan Avent:

But that's all over now, right?

Well, perhaps not. Real personal consumption expenditures grew in February, by 0.3%, following on an increase of 0.2% in January. That's the fifth consecutive monthly increase, which seems like good news; certainly markets are taking it as a positive this morning. The problem is that incomes barely rose in February — by less than 0.1%. And they declined in January. And what happens to savings when spending rising and incomes are flat?

This, of course, encapsulates our current dilemma: in order to escape from the current recession we need more consumption. Government deficits help but aren't enough on their own. So we need more private consumption even though the recession is constraining wages. It's a problem. The obvious response is that rebuilding savings can wait, and that's true. But not forever. Eventually consumption needs to flatten out and wages need to rise. But when?

The Future of Healthcare Reform

| Mon Mar. 29, 2010 10:16 AM EDT

Over at the New Yorker, John Cassidy has a long post arguing that healthcare reform is going to cost more than either Democrats or the CBO think. Most of the post is a rehash of all the fuzzy accounting arguments we've heard before, so I'm going to skip those. Another part argues that even with a fine in place, lots of individuals will ignore the mandate and choose to go without insurance anyway. I think Austin Frakt does a good job of disposing of that here.

But what about small businesses that currently insure their employees? Today they have two big incentives to offer health coverage as part of their compensation package: (1) they can offer it more cheaply than their workers could buy it on their own, and (2) they can offer it to everyone. In today's system a lot of middle-aged employees would be unable to get insurance at all if they were dumped onto the individual market. But that changes when the reform bill kicks in:

Take a medium-sized firm that employs a hundred people earning $40,000 each — a private security firm based in Atlanta, say — and currently offers them health-care insurance worth $10,000 a year, of which the employees pay $2,500. This employer’s annual health-care costs are $750,000 (a hundred times $7,500).

In the reformed system, the firm’s workers, if they didn’t have insurance, would be eligible for generous subsidies to buy private insurance. For example, a married forty-year-old security guard whose wife stayed home to raise two kids could enroll in a non-group plan for less than $1,400 a year, according to the Kaiser Health Reform Subsidy Calculator. (The subsidy from the government would be $8,058.)

In a situation like this, the firm has a strong financial incentive to junk its group coverage and dump its workers onto the taxpayer-subsidized plan. Under the new law, firms with more than fifty workers that don’t offer coverage would have to pay an annual fine of $2,000 for every worker they employ, excepting the first thirty. In this case, the security firm would incur a fine of $140,000 (seventy times two), but it would save $610,000 a year on health-care costs. If you owned this firm, what would you do? Unless you are unusually public spirited, you would take advantage of the free money that the government is giving out. Since your employees would see their own health-care contributions fall by more than $1,100 a year, or almost half, they would be unlikely to complain. And even if they did, you would be saving so much money you afford to buy their agreement with a pay raise of, say, $2,000 a year, and still come out well ahead.

Now, this is not quite as devastating as Cassidy thinks. For starters, he's cherry picking the absolute sweet spot for gaming the system. Go much below $40,000 and you're mostly talking about jobs that don't offer health coverage in the first place. Go much above it and the subsidies get lower very quickly. And of course unmarried employees are treated differently than married ones. If there were 50 million workers in the position Cassidy describes, that would be a problem. But it's probably a lot less than that. What's more, it's quite possible that Congress will tweak the rules as time goes by to try and maximize coverage while minimizing gaming like this. It won't be entirely successful thanks to pushback from interest groups of various kinds, but I think it's naive to think that there will no legislative response at all to the real-life rollout of the reform bill.

But....that's only part of my response to this. The other part is this: I think this is a good thing. If it hit a huge number of workers at once, it might not be. But if it gradually erodes the employer-based healthcare system in this country and replaces it with an evolving version of the reform bill passed last week — well, I'm all for that. Linking healthcare to employment has always been ridiculous, and anything that pushes in the direction of breaking that link is a positive development.

So: it won't be as bad as Cassidy thinks. And anyway, it's actually an incentive in the right direction. Count me as pleased, not alarmed.

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Blunt Rules

| Mon Mar. 29, 2010 9:15 AM EDT

Everyone agrees that excessive leverage was one of the core causes of the 2008 financial crash. So how do we fix this? Stronger capital requirements for banks is the usual answer, but that supposes that regulators can be trusted to impose tough standards on an industry that will fight tooth and nail to resist them. David Leonhardt:

In a way, this issue is more about human nature than about politics....“When things are going well,” Paul A. Volcker, the former Fed chairman, says, “it’s very hard to conduct a disciplined regulation, because everyone’s against you.

....One way to deal with regulator fallibility is to implement clear, sweeping rules that limit people’s ability to persuade themselves that the next bubble is different — upfront capital requirements, for example, that banks cannot alter....“We don’t know where the next crisis is going to come from,” Geithner told me. “We won’t be able to foresee it.We’re not going to pre-empt all future bubbles. So we want to build a much bigger cushion into the system against those basic human limitations. I don’t want a system that depends on clairvoyance or bravery.” He added, “The top three things to get done are capital, capital and capital.”

Sounds good! So what are Geithner & Co. planning to do about it?

Their solution is to depend on capital requirements to prevent another financial crash. They refer to these requirements as cushioning or foam on the runway. So long as a firm has enough hard assets — and can get access to their cash value — it can survive a lot of bad investments and a lot of ineffective oversight.

....But there is reason to wonder whether the capital cushions, at least in their current form, will be enough to overcome human limitations. The administration and Congress have been deliberately vague about what the capital ratios will be. They have not given out numbers or explained a myriad of details: how the ratios will vary by firm size, for instance, or how they will deal with so-called off-balance-sheet assets. Their approach has the advantage of keeping technicalities free of Capitol Hill horse-trading, much as setting interest rates is a process left to the Fed, not Congress. Vagueness also allows American regulators more freedom to coordinate with regulators in other countries. On the other hand, by remaining out of the public eye, capital requirements become yet another issue that will ultimately depend on discretion. Wall Street firms will have a chance to persuade the Fed that maybe they do not need as much capital as people first thought. No doubt, the firms will offer some highly sophisticated mathematical models to make their case.

....What is the alternative? Canada offers another telling lesson. It relies more on blunt rules than the United States does. Canada requires any mortgage with a less than 20 percent down payment to be insured, and those mortgages are much less common there. It also sets a standard leverage ratio of no more than 20. As Julie Dickson, the chief financial regulator in Canada, told me, “We become nasty when banks get close to it.”

Blunt rules inevitably have their problems. But they also send signals that can outlast a given administration or a given moment in the business cycle. In Canada, the well-publicized conservative capital rule not only restrained Canadian banks, but it also served as an immutable reminder to regulators and kept them from falling under the sway of bubble thinking.

At the risk of being branded one of those liberal haters of American exceptionalism, sign me up for the blunt rules approach.

It's not that blunt rules are any kind of panacea. Wall Street bankers dedicate their lives to figuring out clever ways to circumvent regulations, and they'll keep doing that no matter how blunt the regulations are. What's more, Leonhardt is right: the last thing we want is Congress micromanaging the regulation of risk in the financial system.

But that's the whole point of blunt rules: they may not be perfect, but they don't require Congress to do anything more than set them in the first place. You still have to trust regulators to act reasonably, but even if they don't you at least have the backstop of statutory limits that are hard to get around. Not impossible to get around, but blunt rules at least require a little bit of noise and public attention to overcome.

The big question, of course, is that even if you support this approach, just what should those blunt rules look like? They have to apply to all sources of leverage in all kinds of big financial firms, but how do you define that? What limits should regulators labor under? What's the simplest way of making sure that leverage can't just be hidden in someplace that no one anticipated when the orginal rules were written? Etc.

I'm not sure. But there are reasonable answers to these questions, even if they aren't perfect. The first step, though, is agreeing that we need blunt rules in the first place.

From the Annals of Chutzpah

| Sun Mar. 28, 2010 11:43 PM EDT

Shorter Wall Street Journal editorial page: Congress should never close corporate tax loopholes because this will result in corporations booking accounting charges for higher taxes.

Jeebus.

Loophole in question is explained here.

The Education of a President

| Sun Mar. 28, 2010 11:32 AM EDT

We have two related foreign policy stories today. First up is Peter Baker on Obama's negotiation with Russian President Dmitri Medvedev over a new arms control treaty. After reaching agreement, Medvedev insisted on bringing missile defense back into the treaty:

“Dmitri, we agreed,” Mr. Obama told Mr. Medvedev with a tone of exasperation, according to advisers. “We can’t do this. If it means we’re going to walk away from this treaty and not get it done, so be it. But we’re not going to go down this path.”

....If Mr. Obama overestimated his powers of persuasion in reaching quick agreement with the Russians, they misjudged how far they could get him to bend. In the end, they compromised on nonbinding language. And so, after all the fits and starts, all the miscalculations, the vodka toasts that proved premature and the stare-downs that nearly sank the whole enterprise, Mr. Obama hung up the phone again with Mr. Medvedev on Friday, this time having finally translated aspiration into agreement.

And here's Michael Hirsh on why Obama was so upset at Israeli prime minister Benjamin Netanyahu after his government embarrassed Joe Biden by announcing a new housing development in Jerusalem the day Biden arrived for an official visist:

The main reason for Obama's ire, according to a senior administration official, who asked not to be named, was that Biden had gone to Israel specifically to deliver a message to Netanyahu: the main issue is now Iran and its nuclear program, and we can't allow ourselves to be distracted by other issues or to jeopardize the emerging alliance against Tehran in support of tough sanctions — an alliance which includes most of the leading Arab states. In particular, Netanyahu — who campaigned for office himself on the primacy of the Iranian nuclear issue — can't afford to allow Israel's leading defender on this issue, the president of the United States, to look as if he's weak or lacking influence....And that of course is precisely what happened. Netanyahu's government made Obama look bad, undermining the effort against Iran.

Italics mine in both excerpts. It goes without saying that both of these stories are based on sources who have an agenda. And we don't know what that agenda is. So take this all with a few grains of salt.

But the connecting tissue here is Obama's backbone. Domestically, he played hardball to get healthcare reform done this month and he threw down the gauntlet on recess appointments this weekend. Internationally, he played hardball with Medvedev — or convinced him he was playing hardball, anyway — over arms control, and was upset with Netanyahu less over the Jerusalem housing project per se than over the fact that it was a bungle that handicapped his ability to play hardball with Iran.

Conservatives are unhappy over Obama's domestic hardball and liberals are probably uneasy over the international hardball — espcially if Hirsh's report about Iran is true. But they're opposite sides of the same coin. A good president knows when to compromise, and also knows how to beat up his opponents enough to make compromise possible. It's still early days, but Obama seems to be developing a pretty good sense for this stuff.

Staffing Up

| Sun Mar. 28, 2010 10:51 AM EDT

James Fallows outlines the stellar qualifications of Alan Bersin, nominated to head Customs and Border Protection, an agency of DHS, and then notes that Republicans refused to allow a vote on his nomination anyway. Matt Yglesias comments:

(A) This is a sign of an opposition political party gone mad. But (B) this is a poor way to organize a government. The number of political appointees in the executive branch should be reduced, the proportion of political appointees requiring congressional confirmation should be lowered, and some kind of express track to an up-or-down vote for nominees should be established. Confirming judges — lifetime members of a coequal branch of government — is one thing, but a president needs to be able to staff his administration.

Actually, I'd extend this argument to district court judges too. Just in general, it's absurd for the Senate to spend time vetting such a vast number of appointees. They should stick to cabinet level positions, heads of a few of the major agencies (Fed, SEC, EPA, etc.), ambassadors, and circuit court judges.

For what it's worth, it might also be a good idea to have set terms for judges. Say, ten years or so. Long enough to keep them independent, but not so long that every appointment has to be a pitched battle. I'm not quite sure whether this would take a constitutional amendment, though.