Kevin Drum - June 2010

You'll Pry Our Funders from Our Cold Dead Hands

| Fri Jun. 18, 2010 1:02 PM EDT

In the Citizens United case, the Supreme Court ruled that corporations could spend freely on political campaigns but left the door open for Congress to impose disclosure and transparency rules. So that's what House Democrats set about doing. Unfortunately, the NRA doesn't really want anyone to know who their funders are, and they threatened to carpet bomb Capitol Hill with postcards if they weren't exempted from the proposed rules. So they were. Now everyone else wants a piece of the action too:

Top Democrats abandoned plans for a Friday vote in the House on the legislation, known as the Disclose Act, after liberal groups and members of the Congressional Black Caucus rose up against the deal with the NRA.

....The anger boiled over Thursday afternoon during meetings between House Speaker Nancy Pelosi (D-Calif.) and members of two crucial voting blocs: the CBC and the conservative Blue Dog Democrats. The Black Caucus objected to the bill's potential impact on the NAACP and other civil-rights groups, while the Blue Dogs are spooked by opposition from the business lobby ahead of the November elections, according to aides familiar with the meetings.

[Chris] Van Hollen's office said he remained confident a deal could be reached. He attempted to bridge differences Thursday by expanding the number of potential groups that would be exempted from disclosure requirements, from those with more than 1 million members to those with more than 500,000.

Give it time. We'll eventually get that number down to groups that have more than 100 members and have been in existence for at least two weeks. And then the Supreme Court will say they were just kidding the first time around, and Congress doesn't actually have the power to mandate disclosure on private groups anyway. Ain't politics grand?

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Bending the Rules on the Gulf

| Fri Jun. 18, 2010 12:08 PM EDT

Lousiana governor Bobby Jindal is mad at the Coast Guard because they shut down some oil skimming barges while they confirmed that there were fire extinguishers and life vests on board. Doug Mataconis sympathizes:

I’m not against martime safety, of course, but it strikes me as more than a little absurd that the Coast Guard it worry about life vests and fire extinguishers while the Governor of Louisiana is worrying about stopping the oil from entering the Louisiana marshes. At the very least, it would seem reasonable that, in an emergency situation such as the one the Gulf Coast has been in since April 20th, the enforcement of rules like these could be modified so that they don’t interfere with actual productive work.

If there is a reason to fault the Federal response to the oil spill, I think it can be found in actions like this where the blind adherence to rules stands in the way of reasonable efforts to get the job done.

It's pretty hard to take the other side of this argument. But I wonder. We are, after all, talking about barges that are sucking up oil, and the last time I checked oil was pretty damn flammable. Everyone wants the cleanup operation to proceed with breakneck speed, but that's exactly when people get tired and sloppy. And I wonder what everyone would think of the Coast Guard's ridiculous rules if they waived them and then some boat went up in a huge fireball because a spark caught somewhere and no one had a fire extinguisher handy? Do you think we'd all understand and give the Coast Guard a pass for not enforcing its own safety rules because this was, after all, an emergency? Or would there be a raging 24/7 media-fueled hysteria about yet another government agency that hasn't learned the lesson that you can't cut corners on obvious common-sense safety rules? Do I even need to ask?

Anyway, the boats were only idle for 24 hours. Maybe the Coast Guard screwed up by making them wait even that long, but it's not quite the open and shut case Jindal thinks. Ditto for all the other ideas that local authorities have. Some of them are good and the feds should green light them. But you know what? I'll bet a fair number are kind of stupid too, and the feds are right to put their resources elsewhere.

Everyone Hates China

| Fri Jun. 18, 2010 11:11 AM EDT

China has warned the rest of the world — again — to back off on demands to let its currency rise. Dan Drezner comments:

China's strategy here is of a piece with their behavior over the past nine months or so, which, intentionally or not, could be characterized as "Pissing Off as Many Countries As Possible."

Seriously, it's a distinguished list. The Europeans are furious at China because of how the country acted at Copenhagen. The Japanese and South Koreans are furious at China because of how Beijing has handled the Cheonan incident. India is unhappy with China's naval aspirations, nuclear aid to Pakistan, trade imbalances, and an unsettled border. A fair number of ASEAN nations are upset with China's currency policies and its reassertion of territorial claims and spheres of influence in the South China Sea. And then there's the United States, where despite some understanding between Obama and Hu, the People's Liberation Army and the Ministry of Commerce seem bound and determined to derail any warming trend between the two countries.

My guess is that Chinese authorities just don't feel like they have any choice. They've got a tiger by the ears and no good way to get it under control. More broadly, they seem to have fully bought into the idea that any growth rate less than 8% or so spells doom, and that simply doesn't give them any breathing space. So they're holding on for dear life and figuring that Western annoyance, as usual, will be fairly transient. We gotta have someone to make cheap toys for us, after all, the same as we gotta have cheap oil. So we'll gripe at China for a while, just like we'll gripe about OPEC from time to time, but in the end we put up with trade deficits from both — a bigger one from OPEC than from China — because we don't really know how to correct the imbalances in our own economy that prompted the deficits in the first place. We're riding the same tiger as everyone else.

Investing in the Real World

| Fri Jun. 18, 2010 10:28 AM EDT

The Financial Times reports that U.S. corporations are flush with cash and plan to use it to.....engage in stock buybacks. "From an economy-wide perspective," frets Matt Yglesias, "a general perception among firms that increased buybacks are the way to go is a sign of a world in which the people running successful businesses don’t see profitable investment opportunities."

Yep. And the same was largely true during credit bubble of the aughts. It's one of our economy's most fundamental problems: increasingly, investors simply don't believe that there are great opportunities to invest in the real world. So instead they invest in the shiny, bubbly financial world. This is, needless to say, not a good thing. In the long run, it's only investment in the real world that provides sustainable growth and prosperity, and it's only rising income and consumption among the broad middle class that makes the real world an attractive investment opportunity in the first place. Our ruling classes need to figure this out pronto.

Fixing Global Warming For 40 Cents a Day

| Fri Jun. 18, 2010 5:00 AM EDT

I was pretty hard on President Obama's oil spill speech on Tuesday, and one reason was his unwillingness to use the occasion to press for a serious climate policy. It's true, as Dave Roberts points out, that Obama talked about raising efficiency standards, investing in clean energy tech, and setting renewable energy standards, all of which are important things. But he very deliberately didn't mention climate change, didn't mention cap-and-trade, and didn't mention carbon pricing even in passing. He just punted.

Would talking about a carbon policy have made any immediate difference? Probably not. The politics of the energy bill currently in Congress look pretty dismal right now, and no amount of presidential oratory is likely to change that. Still, changing public opinion takes time and repetition, and when you have a big audience primed to hear about energy policy, it's foolish to let the chance pass without even giving it a mention.

But there's another reason it was disappointing that Obama didn't mention carbon pricing: his own EPA had handed him a perfect excuse just one day before. In a detailed analysis of John Kerry's American Power Act, the EPA provided estimates of how it would affect carbon emissions and how much it would cost the average American. The results were remarkably reassuring.

On the emissions front, the APA would have a dramatic effect: US emissions would be cut nearly in half by 2030 compared to doing nothing. That's an enormous impact.

But how much would it cost? The answer is: almost nothing. According to EPA's models, if we do nothing, consumption of goods and services in the United States will increase 74.1% by 2030. If APA is passed, consumption will increase 73.4%.

That's it. We can cut carbon emissions nearly in half, and the net cost will be a decrease in consumption of 0.7% in 2030. EPA figures this comes to an average annual cost of $146 per household. That's 40 cents a day per family.

A prime time address was the perfect time to plant this seed with the American public, to let them know that we can address climate change at a distinctly non-scary cost. But that chance slipped away unused. It was a wasted opportunity.

The Global Economy as Slow Motion Train Wreck

| Thu Jun. 17, 2010 11:52 PM EDT

With governments around the world now obsessed with cutting spending even though the economy is still in a deep slump, here is Barack Obama in a statement aimed mainly at European leaders:

"I am committed to the restoration of fiscal sustainability," Obama said, "but it is critical that the timing and pace of consolidation in each economy suit the needs of the global economy, the momentum of private sector demand, and national circumstances." The United States is setting budget goals for 2013, for example, but in the interim "will pursue measures to support the recovery in private demand and return the unemployed to work," he wrote.

And here is Paul Krugman translating Obama's government-ese into English:

Many economists, myself included, regard this turn to austerity as a huge mistake. It raises memories of 1937, when F.D.R.’s premature attempt to balance the budget helped plunge a recovering economy back into severe recession....But despite these warnings, the deficit hawks are prevailing in most places — and nowhere more than here [in Germany], where the government has pledged 80 billion euros, almost $100 billion, in tax increases and spending cuts even though the economy continues to operate far below capacity.

....German deficit hawkery [...] has nothing to do with fiscal realism. Instead, it’s about moralizing and posturing....There will, of course, be a price for this posturing. Only part of that price will fall on Germany: German austerity will worsen the crisis in the euro area, making it that much harder for Spain and other troubled economies to recover. Europe’s troubles are also leading to a weak euro, which perversely helps German manufacturing, but also exports the consequences of German austerity to the rest of the world, including the United States.

But German politicians seem determined to prove their strength by imposing suffering — and politicians around the world are following their lead. How bad will it be? Will it really be 1937 all over again? I don’t know. What I do know is that economic policy around the world has taken a major wrong turn, and that the odds of a prolonged slump are rising by the day.

I'm not sure I agree with that last sentence. The odds of a prolonged slump seem to me to be within a hair of 100% right now. I'm really not sure there's anywhere for them to rise to.

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How to Stimulate the Economy in One Easy Step

| Thu Jun. 17, 2010 4:15 PM EDT

I don't often agree with Tyler Cowen without reservation, but when he's right, he's right:

The real fiscal problem is spending contraction at the state level (expanding and contracting spending are not symmetric in their effects; contracting spend hurts more than expanding spending helps). The correct fiscal policy move would have been, and still is, to take Medicaid away from the states and make it fully federal. This would give state budgets a huge break, and help employment, yet as a one-time change it reduces the moral hazard problems from ongoing outright grants.

Sign me up!

Is Afghanistan Still Winnable?

| Thu Jun. 17, 2010 4:02 PM EDT

Things are not going well in Afghanistan. But Spencer Ackerman argues that Obama's strategy is still the best bet out there:

The American public has never debated, in a rigorous and bloodless way, just how proportional it is to confront a network of a few thousand extremists — this was Petraeus’s estimate during an exchange with Sen. Graham this morning — through a commitment of something upwards of $300 billion to date and roughly 100,000 troops. The damage that extremist network can export is real. But it’s increasingly insubstantial. If Umar Farouk Abdulmutallab, the perpetrator of the most sophisticated al-Qaeda plot in years, had succeeded, he would have killed an order of magnitude fewer people than on 9/11 — 300 people. Out of a nation of 300 million. And that is ultimately how asymmetrical warfare succeeds: what bin Laden calls “Bleed to Bankruptcy.”

....If the choice is between Going Big and Doing Nothing, both favor al-Qaeda. But if the choice is to restrict al-Qaeda’s freedom of movement while combatting the strategic-depth network in Afghanistan; divesting ourselves of the responsibilities to secure Afghanistan; and bolstering the capabilities of our Afghan and Pakistani security-sector and governance-sector allies; then we’re getting somewhere. And these things are related: al-Qaeda would not be relying on the scrubs on the bench like Abdulmutallab and Faisal Shahzad if they were not feeling pressure.

And this is why, ultimately, I do think the strategy in Afghanistan/Pakistan makes sense. It’s a near-optimal balance of risks and benefits within the boundaries of a finite commitment. That is: the surge represents the best chance of rolling back years of Taliban advances in Afghanistan while giving the Afghan government a chance to actually govern and building a durable security sector, so that after July 2011, the Taliban is just less relevant to people’s lives — and, across the border, supporting and encouraging the Pakistani military to perform similar operations to restrict the space in which al-Qaeda and its strategic-depth groups operate.

I think there's something missing here. It's perfectly reasonable to argue that we should have limited goals in Afghanistan and that those limited goals are worth fighting for. But you still have to address the fundamental question: can we achieve those goals? I assume Spencer thinks we can, but he doesn't really make a case for it.

Now, granted, this isn't something you can demonstrate conclusively one way or another. But at this point, after nine years in Afghanistan; after the failure of our newly retooled strategy in its first outing in Marjah; after learning that Hamid Karzai has essentially given up on us; and after hearing Gen. David Petraeus all but admit that he doesn't think he can meet the July 2011 deadline he originally agreed to — after all that, someone really needs to make a good case that we can do what Spencer wants to do: roll back the Taliban and "give the Afghan government a chance to actually govern and build a durable security sector." Because at this point, you'd have to be Pollyanna herself not to be awfully skeptical that we can do this at all, regardless of time or troop commitments. We can certainly contain the Taliban pretty much forever if we're willing to leave 50,000 troops in Afghanistan pretty much forever, but we all know we aren't willing to do that.

So can we do it? I really need to hear the case — and it better not rely on the fantasy that this is just like Iraq, and if a Petraeus surge worked there then it can work in Afghanistan too. That won't fly. Neither will a fantasy speech by Barack Obama. We need to hear something far more convincing. Because in the end, no matter how bad you think things might be if we exited Afghanistan, there's no point in staying if we simply don't have any reasonable chance of succeeding.

So can we? Someone convince me.

Robbing the Poor to Give Air Miles to the Rich

| Thu Jun. 17, 2010 1:23 PM EDT

Felix Salmon has a nice post about the hidden fees banks charge to sustain their business. It starts like this:

Why do most people hate their bank? Because their relationship is based on the lie of “free checking”, and a relationship based on a lie is always going to be a dysfunctional relationship. Checking is never free, but in recent years banks have been able to conjure the illusion of free through a system of regressive cross-subsidies, where the poor pay massive overdraft fees and thereby allow the rich to pay nothing.

Interchange fees are a cross-subsidy too: this time it's merchants who help pay for the checking accounts of the rich. In fact, they do more than pay for their checking accounts, they pay them a nice tax-free income, when the rich people accept debit rewards cards.

This is fundamentally my problem with overdraft and interchange fees: they're basically surreptitious ways for the poor to subsidize the rich. There's no law against that, of course, but the practice is so grotesque that in this case I'm perfectly willing to make one.

Basically, what banks have learned is this: it's mostly poor people who pay overdraft fees. That makes sense, of course: they're the ones most likely to run out of money, aren't they? The thing is, it's easy to fool unsophisticated consumers into not noticing these fees, or into thinking that they'll never have to take advantage of them. But banks know better. They know to three decimal places how often low-income customers are likely to screw up slightly and overdraw their account by twenty bucks. And when they do, they're charged obscenely more than the actual cost of servicing the overdraft. So who benefits? I do. I always have plenty of money in my checking account and I've never overdrawn it. So the entire debit card system is, for me, free.

The same is true for interchange fees. Banks charge merchants far more in interchange fees than it costs to actually run their payment networks, and merchants pay because they have no choice. Visa and Mastercard are functional monopolies, so if you want to do business with them — and what merchant can afford not to? — you have to pay whatever they tell you to pay. This cost gets passed on to consumers, of course, and the poor and working class pay it. The middle class and the rich, however, don't: they basically get the fees rebated in the form of reward cards.

So you have two cases here of a system that costs money to operate, and in which the costs are largely borne by the poor in order to make them free (or cheap) to the better off. If you can sleep easily at night even after you understand how this works, you have a heart of stone.

So what's the alternative? Simple: fees that are fair and transparent. Overdraft fees should cover the average actual cost of overdrafts plus a small amount. Interchange fees should cover the actual cost of operating an electronic payment network. Credit card interest rates should cover the risk-adjusted cost of actually loaning out money. 

Beyond that, get rid of reward cards, which are surely one of the most ridiculous and unjustifiable frauds ever invented. Seriously: banks deliberately overcharge their customers and then rebate a fraction of it in the most circuitous and confusing way possible? And to make it worse, they do it in a way deliberately designed to transfer wealth from the poor to the rich? Karl Marx probably wouldn't have been cynical enough to predict that banks would ever operate like this.

Finally, start charging annual fees again if that's what it takes to make debit and credit card networks profitable. Felix quotes the president of a credit union that serves a low-income community who says "we don't want to fee our members." I sympathize. But the fact is that they already do, and they know it. The only difference is that the fees they charge are hidden, capricious, and generally regressive. We can do better.

Giving Republicans Some Rope

| Thu Jun. 17, 2010 11:52 AM EDT

I'll confess to some lingering unease over the American ritual of forcing CEOs to grovel in front of grandstanding congressional committees whenever their companies have done something wrong, but in the case of BP's Tony Hayward I'll make an exception. And I'll especially make an exception because it gives Republicans a chance to do this:

In his opening remarks, Representative Joe Barton, a Texas Republican, apologized to Mr. Hayward....Mr. Barton called the president's meeting with the oil company "a tragedy" and "a shakedown."

....In his opening remarks, Representative John Sullivan....charged that the Obama administration is "focused on the politics of putting the oil and gas industry out of business."

....In his opening remarks, Representative Parker Griffith, an Alabama Republican said that "if we're going to talk about the environment," he'd "like to remind the committee that the greatest environmental disaster in America has been cigarettes." That means, he said, that the spill is "not going to be the worst thing that's ever happened to America."

And this:

Georgia Republican Representative Tom Price, chairman of the Republican Study Committee, [] said BP's willingness to go along with the White House's new fund suggests that the Obama administration is "hard at work exerting its brand of Chicago-style shakedown politics."

....And former Texas Republican Representative Dick Armey, a leading voice in the conservative Tea Party movement, told a Christian Science Monitor breakfast this week that Obama lacks the constitutional authority to set up such a fund.

....In addition, conservative Republican Representative Michele Bachmann of Minnesota was quoted as telling the Heritage Foundation think tank on Tuesday that the escrow account was a "redistribution-of-wealth fund."

This is great! And I really think the White House should have held off on criticizing Smokey Joe for his "shakedown" statement. All it does is put the GOP on alert. The better strategy is to stay mum, lull Republicans into thinking they can get away with this stuff, and then wait for their remarks to go completely over the top. It'll happen. In fact, if Dems play this right it won't take long before the entire Republican Party is demanding that the government pay BP to replace the Deepwater Horizon platform that failed because of thuggish, business-hating Democratic energy policies. Or something.

So stay cool, folks. All Republicans need is a little nudge. Tea party delirium will take care of the rest.

UPDATE: More great quotes here!