Kevin Drum - May 2010

Quote of the Day: Obama on McCain

| Tue May 4, 2010 12:40 PM EDT

From Barack Obama, after witnessing first hand John McCain's complete bewilderment over the financial implosion during a White House meeting shortly before the 2008 election:

Maybe I shouldn't be president. But he definitely shouldn't be.

Roger that.

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Is America Just an Oversized Ireland?

| Tue May 4, 2010 12:14 PM EDT

In a review of Fintan O'Toole's Ship of Fools, a book about the boom and bust of the Irish economy, Henry Farrell summarizes the pathologies of Irish political culture and then concludes:

Yet is American politics so very different? Irish politics is profoundly shaped by perceptions regarding the difference between those who have influence within the system and those who are relegated to the periphery....This is as plausible a description of the United States as of Ireland. In the U.S. system, too, the broad imperatives of globalization are marshaled by well-connected and "untouchable" business interests to defeat regulatory oversight, of the financial system and elsewhere. The American version of these interests is less roughly spoken than its Irish equivalents, and wears better suits, but otherwise it is not very different from the forces that brought Ireland to near collapse. If Ireland once seemed like a miniature America, America looks increasingly like an oversized Ireland. A comparison that was once all too self-congratulatory now has disturbing implications.

I had a hard time staying interested in Ship of Fools even though it's a short read. That's not because it's an especially bad book — though I would have preferred a little bit more analytical meat to go with the unrelenting outrage — but because if you covered up the names you could have fooled me into thinking it was just another book about America's financial collapse. If O'Toole is to be trusted, the only real difference is that American politicians will generally be prosecuted if they're caught in obvious and provable corruption while Irish politicians aren't. Beyond that, though, the political culture is pretty much the same, the financial culture is pretty much the same, the real estate boom was pretty much the same, and all the rhetoric that supported it was pretty much the same.

Obviously that's not O'Toole's fault, and certainly the details are often interesting in their own right. But basically, "Ireland was a mini-America" pretty much sums up the whole thing. Move along, nothing to see here.

Mirandizing the Times Square Bomber

| Tue May 4, 2010 11:17 AM EDT

Matt Steinglass on the arrest of Faisal Shahzad for the attempted Times Square bombing:

One unanswered question: will anyone bother trying to drum up a ridiculous controversy over whether or not the FBI read Mr Shahzad his Miranda rights when they arrested him? I predict not.

Matt wrote that around 7 am this morning. Within minutes, John McCain was on Imus.....drumming up a ridiculous controversy over whether or not the FBI read Mr Shahzad his Miranda rights: "Obviously that would be a serious mistake," he said. "Don't give this guy his Miranda rights until we find out what it's all about." Village idiot Peter King chimed in too. Others will undoubtedly follow.

But then, just to upset everyone's applecart, when Fox & Friends tried to get some mileage out of this pseudo-controversy this morning, Glenn Beck pushed back: "He's a citizen of the United States, so I say we uphold the laws and the constitution," he said. So now Glenn Beck is a voice of reason within the conservative movement? My world has been turned upside down.

Tallying Up the Cost of Gasoline

| Tue May 4, 2010 11:00 AM EDT

Jon Chait talks about the externalities associated with oil drilling and gasoline use:

Most public attention has focused on the cost of emitting carbon into the atmosphere, but the costs of cleaning up the inevitable spills, and the military foreign policy costs of enriching petro-states, which tend to be unfriendly, and having to secure foreign oil supplies are highly significant. If all these costs were paid at the point of sale, people would switch to other energy sources.

If you were to sum up the cost of IQ losses from leaded gasoline (now gone, of course, but the effects live on), the asthma epidemic among today's kids, military protection of the Middle East, global warming, garden variety smog, plus all the more prosaic things like traffic jams and so forth, I wouldn't be surprised if the real cost of a gallon of gasoline would have to go up by three or four dollars to pay for it all. Hell, if the BP blowout ends up costing, say, $5-10 billion, which isn't an unreasonable guess at this point, that's a nickel a gallon just for that.

On another note, William Galston has a piece here speculating that the real blame for the blowout ultimately rests with Dick Cheney. I sort of hope that turns out to be true. It would restore my faith in the proper workings of the universe.

Top Ten Financial Reform Loopholes

| Tue May 4, 2010 10:08 AM EDT

Ezra Klein points us to a White House list of "The 10 Most Wanted Lobbyist Loopholes," and it's good reading. Here are my top four from the list:

5. Removing the Derivatives Trading Requirement to Protect Wall Street Profits.

6. Stretching the Derivatives “End-User” Exemption into a Hedge Fund Loophole.

7. Creating an “AIG Loophole.”

9. Letting Firms Make Loans Without Skin in the Game.

Why these four? Because they're all related to limiting leverage. #5 is related because clearinghouses would require collateral for derivatives trades. #6 because it keeps the clearing requirement robust. (Clearing is a subset of exchange trading, and I assume that it's the clearing requirement that the White House is really interested in here.) #7 because it would extend capital requirements to at least parts of the shadow banking sector. And #9 because it effectively limits leverage at both the consumer level and the mortgage originator level.

But the whole list is worth reading. Even in its current state the Senate bill is only OK, not great. Holding the lobbyists at bay is the minimum requirement for keeping it even that good.

Can NASA Outsource Space Travel?

| Mon May 3, 2010 5:47 PM EDT

I had dinner with some friends the other night, and one of the guys who showed up was Rand Simberg, an aerospace engineer who writes frequently about NASA and space flight in general. As it happens, Rand and I disagree about the value of a manned space program, and since he's a conservative, we disagree about nearly everything else as well. But it turns out there's at least one thing we agree about: Barack Obama's plan for space exploration is both pretty conservative and pretty good.

At least, I thought we agreed. But then I read Charles Homans' piece about the space program in the latest issue of the Washington Monthly. Here's how he describes it:

Under the budget released by the Obama administration in February, NASA was to get out of the business of human spaceflight altogether, at least for the near future — no more space shuttle or rockets, no capsules or moon-landing apparatus. In their place, NASA would oversee something very different: a $6 billion, five-year contract for a handful of private companies to ferry American astronauts to and from the International Space Station — to operate a fleet of space taxis, more or less. Human spaceflight, the province of national identity and aspiration since Yuri Gagarin first hurtled into orbit, was going to be outsourced.

....The idea in a nutshell is this: if NASA helps commercial companies get their rockets onto the launch pad, and those companies find a market for their services beyond NASA, the agency’s human spaceflight program will finally be free of its expensive obligations to maintain its rudimentary orbit-oriented activities....With the money it saves, NASA can redouble its research and development efforts to acquire the technology it needs to push the boundaries of exploration once again.

And here's Rand:

I find the current debate over President Obama’s new space policy mind-bendingly ironic. We have a radical president bent on socializing and nationalizing everything from the auto industry to hospitals, but when he comes up with a policy that actually harnesses free enterprise, we hear from conservatives nothing but complaints.

....If we can finally get on with the business of letting private industry take on the (literally) mundane task of getting people only 200 miles above and let NASA focus on new technologies, there is plenty of time over the next few years to decide exactly where to go from there....The important thing is that we had to euthanize NASA’s expensive, unneeded new rockets and move on to the more critical development of opening up space. We’re now on a path to do so, assuming that Obama’s plan survives Congress.

Sounds good! Unfortunately, the Homans piece goes on to take a pretty gimlet-eyed view of whether the private-enterprise version of hauling people and cargo into earth orbit is actually likely to succeed. The genius of private enterprise, of course, is that it might, and it might do so in ways that nobody can predict. That's why I support it: I'm not thrilled at the idea of spending massive amounts of taxpayer money on manned space flight, but I am willing to spend moderate amounts of taxpayer money on seed money to help the private sector do it.

But will it work? Homans, frankly, doesn't provide much hope that it will: the market, he says, is just too small, consisting mostly of space station ferrying and unmanned satellite launches. And not only is that market small, but it's not growing either. Space tourism is another possibility, but launching people into orbit is no $200,000 lark that any Wall Street tycoon can afford. The Russians charge $20 million a pop for this, and that price would have to come way down before there was much of a demand for this kind of excursion.

There's more — including a grim description of what happened when the Pentagon tried to outsource its satellite launch capability under Bill Clinton — and none of it is very hopeful sounding. I think I may be about to retreat back to my original position: NASA should fund unmanned exploration but get out of manned space flight entirely. Let's hope private industry proves me wrong.

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Starving the Beast

| Mon May 3, 2010 3:12 PM EDT

Conservative Steve Chapman summarizes recent research showing that cutting taxes does not, in fact, "starve the beast." That is, it doesn't motivate the public to demand lower federal spending as deficits rise. In fact, it does just the opposite:

Forced to pay for everything they get, right away, Americans would undoubtedly choose to make do with less. But given the opportunity to party now and pay later — or never, if the tab can be billed to the next generation — they find no compelling reason to do without.

Think of it this way. If you want people to consume more of something, you reduce the price. If you want them to consume less, you raise the price. For most of the last 30 years, federal programs have been on sale, and they've found lots of buyers.

True enough. The Republican Party has basically taught Americans that deficits don't matter. We can have all the government services we want and there's no need to pay for them. Under the circumstances, who wouldn't want more government services?

Of course, over the past decade conservatives have amped up the game, and they might eventually win it. Here's how: First, slash taxes dramatically. Then increase spending explosively. Finally, destroy the economy, thus forcing a truly gargantuan increase in the federal deficit that wrecks the creditworthiness of the federal government. Eventually, whether anyone likes it or not, that's going to rein in spending.

Of course, it will only do so after spending has already gotten far higher than conservatives ever imagined — and higher taxes will be part of the endgame too. And America will basically be a banana republic. But it will constrain spending. And when it does, the GOP can finally claim victory!

The Elephant in the Room

| Mon May 3, 2010 1:45 PM EDT

Bloomberg reports on the course of financial reform:

A standoff over protecting consumers against shady lending practices is the biggest obstacle to Senate passage of the biggest redesign of U.S. financial regulations since the Great Depression.

Republicans have ended a logjam blocking Senate debate, and a federal fraud suit against Goldman Sachs Group Inc. gave new momentum for tougher Wall Street oversight. The most contentious issue remains a Democratic consumer-protection plan that Republicans say would give regulators unprecedented power over commercial lending and threaten economic growth.

It’s still “the elephant in the room” preventing a bipartisan agreement, said Tennessee Republican Senator Bob Corker. He has been involved in months of on-again, off-again negotiations with Democrats.

Huh. And here I thought resolution authority was the elephant in the room. Or was it derivatives reform that was the elephant in the room?

Or maybe it's really all three. There's always another elephant in the room, isn't there?

Quote of the Day: Hiding the Housing Bubble

| Mon May 3, 2010 1:00 PM EDT

From Alan Greenspan, arguing in a 2004 Fed meeting that arguments about a possible housing bubble should be kept private:

We run the risk, by laying out the pros and cons of a particular argument, of inducing people to join in on the debate, and in this regard it is possible to lose control of a process that only we fully understand.

Italics mine. So how'd that work out for you, Alan?

UPDATE: I've been had. Greenspan wasn't talking about the housing bubble, he was talking about a discussion of the Fed's communication policy. Apologies.

The GOP and Immigration Reform

| Mon May 3, 2010 12:05 PM EDT

Ron Brownstein recaps how the explosive growth of nativism on the right has torpedoed any chance for immigration reform:

Just four years ago, 62 U.S. senators, including 23 Republicans, voted for a comprehensive immigration reform bill that included a pathway to citizenship for illegal aliens....In 2007, Senate negotiators tilted the bill further to the right on issues such as border enforcement and guest workers. And yet, amid a rebellion from grassroots conservatives against anything approaching "amnesty," just 12 Senate Republicans supported the measure as it fell victim to a filibuster.

....For months, Sens. Lindsey Graham, R-S.C., and Charles Schumer, D-N.Y., have been negotiating an enforcement-legalization plan that largely tracks the 2006 model with some innovative updates....Yet it has been stalled for weeks because Graham had demanded that a second Republican sign on as a co-sponsor before the legislation is released, and none stepped forward.

I remember being astonished by the collapse of the GOP on this subject in 2006. It wasn't an issue I followed closely, and I vaguely figured it seemed like a pretty good bet for passage. But then, seemingly out of nowhere (to a lamestream-media-reading liberal like me, anyway) opposition among the base just exploded. It was like watching the tea parties in action opposing healthcare reform during the 2009 summer recess. The Republican leadership caved in to rabid fearmongering, Hispanics defected en masse to the Democratic Party, and the entire topic has been radioactive ever since. If you want to know what's happened to the Republican Party over the last decade or so, this is it in a nutshell.