Kevin Drum - April 2010

Downgrading Europe

| Thu Apr. 29, 2010 11:00 AM PDT

Greece, Portugal, and Spain all got downgraded by the ratings agencies this week. AP reports on the reaction:

The rating agencies that sort good investments from junk are once again injecting fear into financial markets. Only this time it's for warning investors about a possible threat — Europe's debt crisis — rather than for failing to see one coming.

....European Union officials weren't pleased by the negative ratings. ''Who is Standard & Poor's anyway?'' EU spokesman Amadeu Altafaj Tardio said Wednesday. He said the agency should better assess ''realities on the ground,'' such as financial rescue talks in Athens ''that are making rapid and solid progress.''

Color me unsympathetic. Tardio sounds like every CEO talking his book ever quoted in the Wall Street Journal. However, this does demonstrate one of the problems you'd have if you got rid of the ratings agencies and just had the SEC do the job instead. Rating the securities issued by U.S. banks is one thing, but can you imagine the United States government downgrading the sovereign debt of friendly countries? I can't. And if they did, can you imagine the reaction? I can. Oh yes, I surely can.

The ratings process, obviously, has big problems. But although putting ratings under the thumb of the U.S. government might solve one of those problems, it would also create a whole set of new ones. This remains a very difficult problem.

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Grim Reality From the Pentagon

| Thu Apr. 29, 2010 10:25 AM PDT

The Pentagon released a new report on operations in Afghanistan yesterday, just a few weeks before their make-or-break offensive in Kandahar begins:

The new report offers a grim take on the likely difficulty of establishing lasting security, especially in southern Afghanistan, where the insurgency enjoys broad support. The conclusions raise the prospect that the insurgency in the south may never be completely vanquished, but instead must be contained to prevent it from threatening the government of President Hamid Karzai.

The report concludes that Afghan people support or are sympathetic to the insurgency in 92 of 121 districts identified by the U.S. military as key terrain for stabilizing the country. Popular support for Karzai's government is strong in only 29 of those districts, it concludes.

....The report also notes that insurgents' tactics are increasing in sophistication and the militants have also become more able to achieve broader strategic effects with successful attacks. The Taliban continue to use threats and targeted killings to intimidate the Afghan population.

At the same time, Taliban shadow governments, which can include courts and basic social services, have strengthened, undermining the authority of the Afghan government, according to the report.

Following the happy-talk optimism that marked most of the Bush years, Gen. Petraeus and the rest of the Pentagon have obviously decided that it's better to manage expectations than to raise them. And managing them they are. After reading this, I'll probably be happy if McChrystal emerges next fall and announces that he's confident we'll be out of Afghanistan by the time I qualify for Medicare.

Luntz's Latest

| Thu Apr. 29, 2010 9:38 AM PDT

Frank Luntz, coming off his bravura performance trying to stop financial reform by labelling it a "bailout fund" regardless of what's actually in the bill, is back for an encore. In the latest display of the rhetorical pretzel bending for which he's famous, he explains why financial reform is a sham:

The Democrats supporting the current legislation have assured an anxious electorate that whatever funds are used to create whatever regulatory scheme created will come from the banks, not the taxpayers. Let me emphasize that so that even casual readers will catch it: the Democrats promise that you won't pay for their legislation, banks will.

Really?

Since when have corporations ever paid taxes, fees or penalties? Employees end up paying in the form of lower salaries and benefits. Customers end up paying in the form of higher costs.

And in this case, every account holder will be forced to pay higher fees on their checking account and savings account. That's you, my friendly reader. Can you say "checkbook tax"? I can, and I think lots of candidates will be saying it come November.

Yeah, I think Frank can say "checkbook tax." I also think he can write it, post it, put it on billboards, and tap it out in Morse code. But he might have bitten off more than he can chew this time. Tax incidence theory does indeed suggest that taxes on corporations are partly passed through to consumers, but Republicans have never had any notable success convincing Joe Sixpack of this, despite almost endless efforts to do so.

Still, forewarned is forearmed. At least we know which particular brand of sophistry is likely to sweep like a firestorm through Fox/Rush/Drudge land over the next few days. Keep your eyes peeled.

I Am Open Minded. Hooray!

| Thu Apr. 29, 2010 9:11 AM PDT

Recent research suggests that web users are pretty catholic in their news reading habits. Conservatives read liberal sites and liberals read conservative sites.  Slate wants to check this theory out, so they produced an applet that tells you just how isolated you are, news-wise:

Here's how it works: When you click on the "Profile Me" button, we will check which news sites you've visited recently. Then, using the same Web site rankings Gentzkow and Shapiro used in their research, we'll tell you how "isolated" you are....We do not save the information, just your overall score, which will be used solely to compare you to other Web surfers and possibly, if enough of you try it out, other Slate readers.

My score is on the right: I clock in at +14, which means I visit more conservative sites than liberal ones. What an open-minded fellow I am!

Except for one thing: the vast majority of my reading is done via RSS — and most of it is liberal blogs. What's more, when I head off to Drudge or Michelle Malkin, it's mostly in hopes of finding something I can mock, not because I'm really interested in what they have to say.

Still, Slate says I'm officially open minded. Hooray for me!

Cap-and-Trade in California

| Thu Apr. 29, 2010 6:30 AM PDT

When I turn on my TV these days, I'm usually assaulted by ads from the two candidates trying to win the Republican primary for governor of California this year. Both of them are Silicon Valley moderates who are desperately trying to convince the GOP faithful that they're actually stone cold reactionaries, and the ads have gotten pretty ugly. And not just toward each other. One ad that's currently in heavy rotation, after spending its first 25 seconds trashing the opposing candidate, ends with this ominous message: "After Arnold, don't we deserve....a Republican?"

Ouch. Why are California Republicans hating on Arnold Schwarzenegger? The bill of particulars against the Governator is long, but a big part of the answer is AB32, a global warming bill passed by the Democratic legislature and signed into law by Schwarzenegger in 2006. "I say the debate is over," he had declared a year earlier, and needless to say, those are fighting words for modern conservatives.

But what makes it worse — much, much worse — is what AB32 does. This is not your run-of-the-mill conservation or energy efficiency bill. That would be bad enough. But the centerpiece of AB32 is a plan to limit California's greenhouse gas emissions, and the primary way it does this is by authorizing the California Air Resources Board to implement a cap-and-trade plan designed to reduce CO2 emissions to 1990 levels by the year 2020. It's the same kind of cap-and-trade proposal that President Obama and congressional Democrats want to impose on the entire country.

Now, this would hardly be the first cap-and-trade plan in history. That honor belongs to the effort to limit acid rain in the early 90s, which employed a cap-and-trade mechanism that was — surprise! — originally a conservative idea designed to make use of market principles to reduce sulfur pollution. Nor would it be the first CO2 cap-and trade plan. Europe is already in phase two of ETS, their continent-wide cap-and-trade program. In fact, it wouldn't even be the first CO2 cap-and-trade plan in the United States. RGGI, a cap-and-trade mechanism for ten northeastern states, started up two years ago and auctions off CO2 permits every three months. You can see the results online if you're interested. (In the most recent auction, a permit to emit a ton of CO2 sold for about two bucks.)

But none of that matters. California is still California, a bellwether for the nation, and cap-and-trade here would give the idea both exposure and legitimacy that neither RGGI nor far-off Europe ever could. And so the opposition has gotten hot. AB32 set out a 6-year implementation schedule, which means that cap-and-trade is still a couple of years off. To keep that from happening, an ugly confederation of oil companies and conservative activists has banded together to put an initiative on the November ballot that would temporarily suspend AB32 until the economy improves. How long is "temporarily"? Until unemployment is down to 5.5% for four quarters in a row. And how long would that take? State estimates suggest that California's unemployment rate won't drop to that level until 2017, which means the earliest AB32 could go into effect is 2018. But what are the odds that California won't suffer any kind of economic downturn in the next eight years? Pretty slim. The reality is that the proposed initiative would almost certainly kill off AB32 for good.

So what are the chances of repeal succeeding? Hard to say. The anti-AB32 movement is called the California Jobs Initiative, and their argument is that AB32 will cost California over a million jobs, something the state can hardly afford in the middle of a brutal recession. AB32's supporters dismiss CJI's numbers as ridiculous, and the ammunition employed by the two sides, as usual, is dueling reports. A study from Charles River Associates suggests that AB32 would reduce average household income in California by about 1%. A study from the Air Resources Board, by contrast, projects that both household income and the number of jobs in California would rise slightly by 2020. The Legislative Analyst's Office, generally considered an honest broker, suggests that California might suffer small near-term job losses if AB32 is implemented, but their analysis is pretty shallow and speculative and their conclusions were backed up with virtually no evidence at all. Energy efficiency, on net, is usually a winner, something that a wide variety of studies has confirmed.

But all three studies agree on two things: (a) the economic effects of AB32, whether positive or negative, are likely to be modest, and (b) there's a ton of uncertainty in the forecasts. The best bet is to simply admit that the most likely economic effect of AB32 is either zero or not far from it. The econometric tools at hand just don't allow us to say much more.

But that might not be enough to save AB32. A recent Field Poll showed that 58% of Californians favor the law, but that's a pretty thin majority. A barrage of industry-funded ads will probably eat into that majority, and turnout at the November election is likely to skew conservative. Add in California's 12.5% unemployment rate and you have a recipe for a pretty effective fearmongering marketing campaign.

But even if the repeal movement fails, AB32 could still be in trouble if a Republican wins the governor's race. Jerry Brown, the only serious candidate on the Democratic side, supports AB32, but both of the Republican candidates oppose it. And since the legislation allows the governor to suspend the law for a year in the event that it poses a threat of "significant economic harm," a Republican governor could effectively kill it for good by simply suspending it every year for as long as they're in office.

This makes AB32's future hazy to say the least. Supporters need to fight off a well-funded initiative campaign and make sure a Democrat is California's next governor. And they need to do it in an electoral environment that promises to be heavily favorable to the GOP and to anti-government forces in general. Four years ago AB32 promised to be the most muscular climate bill in the country. But unless a bunch of things go its way, by next year it might be dead.

Oil Spill Goes From Bad to Worse

| Wed Apr. 28, 2010 10:51 PM PDT

I haven't verified these numbers myself, but the friend who sent them to me is a trustworthy sort. Experts now estimate that five times more oil has been spilling into the water from that oil rig explosion off the coast of Louisiana than they thought before:

Okay. Here's how much they estimated was leaking before this evening: 42,000 gallons a day.

Five times that amount means approximately 210,000 gallons a day have been leaking into the Gulf.

If this spill continues unabated for two months — and that seems to be the most likely time frame at this point — we're talking about 12.6 million gallons.

Exxon Valdez? That was 10.8 million.

Enjoy your evening.

But even that might be low. SkyTruth.org estimates that the spill rate is 20 times higher than initial estimates and that 6 million gallons of oil have already spilled into the Gulf. An Exxon Valdez size spill might only be a few days away.

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Greece Plumbs the Depths

| Wed Apr. 28, 2010 8:58 PM PDT

You have to hand it to the LA Times for somehow dredging up a local angle to the Greek debt crisis:

Earlier on, with public protests against austerity plans escalating, the Athens government placed a $250,000 order for the body shields that Temecula-based Paulson Manufacturing Corp. makes for riot police and others.

Now, the order has been placed on hold. "We're waiting," the Athens government said in a short message to the company's international staff. "Their money problems in Greece are dramatically affecting us," said company President Roy Paulson.

Jeebus. The Greeks are so broke they can't even afford the protective gear they need to put down the riots caused by the country being broke. If the Germans bail them out, will they insist that the Greek government buy German riot equipment instead?

Chutzpah Watch: Financial Regulation Edition

| Wed Apr. 28, 2010 5:45 PM PDT

I've been noticing a new conservative meme lately. Basically, it's this: the government failed to stop the housing bubble, so it's folly to suggest that more government will stop any future bubble.

I don't really have anything to say about this. I'm just sort of bemused by the audacity of spending 30 years deregulating everything in sight, watching the financial system implode, and then blaming it all on weak-kneed bureaucrats. It's hard not to admire the chutzpah.

Better Coverups, Please

| Wed Apr. 28, 2010 2:28 PM PDT

China's women's gymnastics team in the 2000 Olympics has been stripped of its bronze medal after an investigation revealed that Dong Fangxiao was 14 years old at the time, not 16 as international rules require. How did our intrepid investigators figure this out? Like so:

Dong worked as a national technical official for the Beijing Olympics. Her accreditation information listed her birthday as Jan. 23, 1986, which would have made her 14 in Sydney. Also, Dong's blog said she was born in the Year of the Ox in the Chinese zodiac (Feb. 20, 1985, to Feb. 8, 1986).

Obviously China's athletic authorities are accustomed to pretty lackadaisical standards in the cover-up arena. Subtlety and thoroughness probably aren't especially urgent in authoritarian states, after all. But if they're going to compete with the West, they need to lift their game. Better coverups, please.

Obama and the Media

| Wed Apr. 28, 2010 11:36 AM PDT

If there's anything that reporters can write about at great length, it's themselves. Over at Politico, Josh Gerstein and Patrick Gavin prove that today with a 4,000 word opus about how poorly the Obama White House treats the press corps.

It's actually interesting reading in a gossipy sort of way. I'll just say this, though: I don't think this is an Obama issue, and I don't think it's a Republican vs. Democrat issue. I think it's just one of those things that gets continually worse over time. Nixon ran a tighter press shop than LBJ, Reagan ran a tighter one still (or, perhaps, a more sophisticated one), Clinton took it another step, and then Bush yet another. In the same way that (mostly) Republicans have discovered that a lot of legislative rules are actually just traditions that can be revoked whenever it's convenient, the White House over the years has discovered that it can put a tighter and tigher leash on the press and control its message better without paying any real price. I expect this process to continue regardless of who's in the Oval Office. It's just a reflection of the changing media environment.