Kevin Drum - July 2010

Watching the Economy

| Tue Jul. 27, 2010 11:15 AM EDT

Stuart Staniford takes a look at global oil production figures as a proxy for economic growth and comes away unhappy:

In the short term, global oil production is a sensitive indicator of the state of the global economy, and I'm not aware of any other publicly available proxies for the overall state of the world's economy that are as timely.

In this case, given that prices are falling rather than rising, and that OPEC undoubtedly has some spare capacity, the question becomes one not about whether supply is struggling to rise, but rather about whether demand is faltering or even declining.

Whether this presages a renewed contraction in the global economy, a stagnation, or just a transient hiccup in the ongoing recovery, I'm not certain of yet. But certainly each passing month of lower oil production will add to the concern.

Are there any economic indicators that look healthy right now? Not that I can think of. Corporate profits are up, of course, as are Wall Street salaries, but that's small comfort to those of us in the non-millionaire class. Most core indicators are, at best, stagnant, while others are downright gloomy. This one is in the latter category.

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The Great Interchange Fee Scam

| Tue Jul. 27, 2010 10:35 AM EDT

Adam Ozimek is obviously trying to make my head explode this morning. Today he points to a new paper from the Boston Fed that investigates the consequences of credit card interchange fees. The basic background is this: (1) card companies charge merchants a 1-2% interchange fee on all credit card purchases, (2) merchants raise the prices of all their products slightly in order to cover this cost, and (3) because most merchants charge everyone the same price, regardless of whether they use cash or credit, cash users end up paying a little more than they should while card users pay a bit less than the actual cost of the interchange fee they incur. So what does it all mean?

On average, each cash-using household pays $151 to card-using households and each card-using household receives $1,482 from cash users every year. Because credit card spending and rewards are positively correlated with household income, the payment instrument transfer also induces a regressive transfer from low-income to high-income households in general. On average, and after accounting for rewards paid to households by banks, the lowest-income household ($20,000 or less annually) pays $23 and the highest-income household ($150,000 or more annually) receives $756 every year.

Isn't that peachy? This is the result of allowing an effective monopoly in the card business, thus giving network providers the power to force merchants to keep interchange fees hidden instead of charging them directly to card users. Vast masses of poor and middle income families end up paying a few dollars into the system every year while a small number of upper income families reap the benefits.

This is why I don't like hidden fees: there's rarely much point in keeping something hidden if it's fair and equitable. You only do that if someone is getting screwed. And guess who gets the shaft more often than not?

Quote of the Day: Political Footballs in Congress

| Mon Jul. 26, 2010 11:34 PM EDT

From Sen. Kay Hagan (D–NC), bemoaning the Judiciary Committee's inaction on a measure congratulating Jimmie Johnson for winning the 2009 NASCAR Sprint Cup:

I hope we can overcome the stalemate on sports resolutions, so that we can again congratulate great athletes in North Carolina and across the country.

Preach it, senator. You speak for millions of patriotic Americans who are furious at Congress's refusal to honor the University of South Carolina baseball team, the University of Alabama football team, the LSU baseball team, Duke University's basketball team, and U.S. Open golf champion Lucas Glover. Maybe if you ask the White House, Obama will honor these fine athletic heroes via a recess proclamation.
 

Did You Like Inception?

| Mon Jul. 26, 2010 8:24 PM EDT

Do I really have to put a post about Inception below the fold even though it's been out for over a week? I guess so. So it's below the fold.

Steve Gibson is Coming After You

| Mon Jul. 26, 2010 7:03 PM EDT

Threat Level reports that a guy named Steve Gibson has hit on a semi-new way to make money:

Borrowing a page from patent trolls, the CEO of fledgling Las Vegas-based Righthaven has begun buying out the copyrights to newspaper content for the sole purpose of suing blogs and websites that re-post those articles without permission. And he says he’s making money.

....Gibson’s vision is to monetize news content on the backend, by scouring the internet for infringing copies of his client’s articles, then suing and relying on the harsh penalties in the Copyright Act — up to $150,000 for a single infringement — to compel quick settlements. Since Righthaven’s formation in March, the company has filed at least 80 federal lawsuits against website operators and individual bloggers who’ve re-posted articles from the Las Vegas Review-Journal, his first client.

....Gibson claims Righthaven has already settled several lawsuits, the bulk of which are being chronicled by the Las Vegas Sun, for undisclosed sums.

Full disclosure: last year I received a surprise windfall of $75 because, apparently, some newspaper somewhere reprinted one of my blog posts. Mother Jones collected the licensing fee and sent it along to me. Marian and I had a nice dinner with the proceeds, and this has naturally made me permanently beholden to Big Licensing.

That said, I'm surprisingly ambivalent about this. I feel like my immediate reaction ought to be outrage over The Man using a stable of high-priced lawyers to extort settlements out of little guys who are hardly more than the e-equivalent of old style xeroxed newsletters sent to a fan base of a few hundred. Doesn't corporate America have better things to do?

On the other hand, reposting entire news articles is such a plain copyright infringement that it's hard to feel that copyright owners shouldn't have any redress. I mean, come on: everyone knows you aren't allowed to reprint entire articles.

On the third hand, threatening to sue? Seriously?

On the fourth hand, I wonder if some of the early settlements are just warmups for going after aggregation sites that repost huge quantities of material? I don't have much sympathy for these sites, the same way I didn't have much sympathy for Napster. Having RIAA take high school kids to court for sharing songs is nasty stuff, but taking down an entire site devoted to massive copyright infringement? Well, why not?

On the fifth hand, isn't this a self-extinguishing business model? If Gibson starts winning some big settlements, then people will figure out the danger and stop infringing. Or else they'll take it offshore, or hide their ownership somehow. In either case, Gibson's revenue stream dries up. RIAA was trying to get people to stop sharing songs, so their cyber-terror campaign could be judged successful if it reduced the traffic in music and video sharing regardless of whether it was a net money maker.1 But making money is all Gibson wants to do. How can he do that in the long run?

So....I dunno. On balance, it all seems pretty scummy to me unless Gibson starts going after some big guns instead of random dudes who run fan sites. Pick on someone your own size, Steve.

1I'm curious: was it successful? I'm guessing it probably wasn't, but I don't keep up enough with this stuff to know. Did song and video sharing go down at all during RIAA's five-year reign of lawsuit hell?

UPDATE: An anonymous commenter says: "Heard on the radio the other day that the RIAA has spent $57 million on lawyers and has recovered $3 million or so. Meanwhile downloads have increased 40X since they started. I haven't seen that level of incompetence since Cheney was president."

"Heard on the radio the other day" doesn't exactly scream reliability, but we'll go with it for now. Apparently the whole effort was not only incredibly dickish, it was a massive fiasco too.

Pakistan and the Taliban

| Mon Jul. 26, 2010 1:50 PM EDT

This is pretty rich. Here is Pakistan's reaction to the WikiLeaks documents showing that the ISI has long supported the Taliban in Afghanistan:

Diplomats and intelligence officials dismissed the reports as false and warned that they could have damaging consequences for Pakistan's relations with the United States, particularly whether the Americans could be trusted with sensitive information.

Yeah, that's the real problem: Pakistan might no longer be able to trust Americans with sensitive information. Points for chutzpah.

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Taxing the Rich

| Mon Jul. 26, 2010 1:16 PM EDT

I may be more sympathetic to certain kinds of regulations than Matt Yglesias is, but I'm certainly open to higher taxes on the rich as well. Via Matt, then, here's a Wall Street Journal chart showing exactly who would be affected by Obama's tax plan (which allows Bush's tax cuts on high earners to expire) vs. the Republican plan of extending the entire Bush package. Call me crazy, but after a decade of living large in ever more sumptuous beach houses and promoting policies that almost wrecked the economy, I think the folks earning a million bucks a year can probably afford to pay an extra 5% in taxes. Seemed to work OK in the 90s, anyway.

Should Your Boss Get To See Your Credit Report?

| Mon Jul. 26, 2010 11:31 AM EDT

Should we ban businesses from pulling your credit score as part of their hiring process? Megan McArdle thinks it's a lousy practice, but not one that the government should prohibit:

I've no doubt that there are a few people out there who have been unjustly hurt by this; but we cannot regulate every bad business decision that hurts a few people. Each regulation may sound fine on its own, but collectively, they massively raise the compliance cost of starting a business and hiring workers, two things we want to support. So we need to set some sort of bar to ensure that we're only regulating things that have substantial, widespread negative impact.

Yesterday I used this as the jumping-off point for a massive lament on the subject of how liberals talk about regulation, but today I want to make a much more specific point: I don't think of this as a regulation that should be aimed at small businesses or at hiring managers in general. Rather, I think of it much more broadly as a regulation that should be aimed at the credit reporting agencies who are aggressively marketing this service. In the same way that medical records are available only to people with a legitimate medical need, I think that credit records should be available only to those who actually extend credit. Beyond that, they're private. Employers don't get them, the FBI doesn't get them, journalists don't get them, and my neighborhood association doesn't get them. I don't care how much each of these people really, really thinks it would be handy to have a peek at them. Short of a subpoena or a court order, my financial records are my business. You can't have them.

Does this raise the compliance cost of starting a business? Hardly. If a prospective employer asked my doctor for a copy of my medical records, he'd just say no. The compliance cost is zero. Ditto for credit scores. Until a few years ago no one bothered asking for them, and if releasing these records were prohibited, they'd go back to not bothering. The compliance cost is zero. As for the credit reporting agencies, they've been placed in a privileged position where they're allowed to collect sensitive privateinformation — just as doctors and banks and census takers are. That privileged position means they have a heightened responsibility for maintaining privacy, not a license to use their databases for anything that can make them an extra buck or two.

I'm a privacy crank. I know that I don't always persuade people that we should take this stuff more seriously, especially in an era of Facebook and Twitter and thousands of databases just a mouse click away. But I wish we would. As Megan points out, "I sort of suspect it's not the CFO who has to submit to the indignity of having HR paw through his credit card utilization and unpaid library fees." If CFOs deserve to have their privacy respected, so do the rest of us.

UPDATE: Just to make myself clear: I'm not proposing that we make any changes to employment law regs. Let employers do whatever they want. I am proposing that we write a regulation prohibiting credit reporting agencies from releasing credit information to anyone not directly involved in extending credit. This wouldn't add any burden to businesses or give them any additional rules they have to know about. It only affects the credit bureaus.

Front page image courtesy of Laughing Squid/Flickr.

Carbon Pricing and Regulatory Uncertainty

| Mon Jul. 26, 2010 10:17 AM EDT

Bloomberg writes today about the months-long effort by utility companies to get Congress to pass a climate bill that includes a cap-and-trade component. Industry lobbyist Ralph Izzo is discouraged:

“I don’t know what more you can do,” Izzo said. “We are essentially volunteering to be the first to be regulated and people don’t want to do it.”

....“The odds are still very long,” said David Brown, senior Vice President for Federal Government Affairs at the Chicago- based utility Exelon Corp., who estimates he’s held hundreds of meetings with senators and staff on the issue. “Everybody’s just exhausted.”

Utility companies anticipate Congress will eventually pass legislation that mandates reductions in greenhouse gases and favors renewable sources of energy, rather than letting the U.S. Environmental Protection Agency decide how best to regulate.

Still, not knowing when Congress will step in makes planning investment difficult. “There’s a lot of capital sitting on the sidelines just waiting for more regulatory clarity,” said Lewis Hay, CEO of Juno-Beach, Florida-Based NextEra Energy Resources LLC.

Italics mine. Conservatives keep complaining that the recession isn't really the fault of weak demand, it's the fault of businesses holding back on investment because of uncertainty over new regulations. This is about 90% bogus, but to the extent it's true, one solution is simply to pass regulations that make the investment picture clearer. A cap-and-trade bill would have done that. But now that it's been killed, no one knows what will happen next. Regulations from the EPA based on the Clean Air Act? A carbon tax sometime in the future? Or what?

You want regulatory certainty? Pass a cap-and-trade bill. This makes it clear what the primary regulatory tool will be; it makes it mostly clear what the future price of carbon emissions will be; and those who want even more clarity can largely hedge away the remaining uncertainty in the futures market if they want to. But now, none of that can be done. And the planet will continue to heat up. And we run the risk of the EPA being forced to make things worse by applying a badly-constructed law to the problem. Nice work, conservatives.

The Afghanistan Document Dump

| Sun Jul. 25, 2010 11:48 PM EDT

[For more on the WikiLeaks Afghan document dump, read posts by Dave Gilson here and Adam Weinstein here.

A long-awaited trove of secret government documents related to the war in Afghanistan has finally been released by WikiLeaks. There are about 92,000 documents in all, covering the years from 2004 through 2009. Three news organizations were allowed access to the documents several weeks ago on condition that they not write about it until today: the New York Times, the Guardian, and Der Spiegel. Both the Guardian and Times reports offer short bullet lists of the most dramatic revelations from the document dump. Although written independently, they're pretty similar:

New York Times

Guardian

The Taliban have used portable heat-seeking missiles against allied aircraft, a fact that has not been publicly disclosed by the military. This type of weapon helped the Afghan mujahedeen defeat the Soviet occupation in the 1980s.

How the US covered up evidence that the Taliban have acquired deadly surface-to-air missiles.

Secret commando units like Task Force 373 — a classified group of Army and Navy special operatives — work from a “capture/kill list” of about 70 top insurgent commanders. These missions, which have been stepped up under the Obama administration, claim notable successes, but have sometimes gone wrong, killing civilians and stoking Afghan resentment.

How a secret "black" unit of special forces hunts down Taliban leaders for "kill or capture" without trial.

The military employs more and more drone aircraft to survey the battlefield and strike targets in Afghanistan, although their performance is less impressive than officially portrayed. Some crash or collide, forcing American troops to undertake risky retrieval missions before the Taliban can claim the drone’s weaponry.

How the coalition is increasingly using deadly Reaper drones to hunt and kill Taliban targets by remote control from a base in Nevada.

The Central Intelligence Agency has expanded paramilitary operations inside Afghanistan. The units launch ambushes, order airstrikes and conduct night raids. From 2001 to 2008, the C.I.A. paid the budget of Afghanistan’s spy agency and ran it as a virtual subsidiary.


 


 

How the Taliban have caused growing carnage with a massive escalation of their roadside bombing campaign, which has killed more than 2,000 civilians to date.

The Guardian has a very good collection of key documents here. WikiLeaks has the full document dump here. There are plenty of interesting details in the Guardian pieces, but if the bullet points above really are the biggest news from this trove, there's not an awful lot there. The commando groups have hardly been a secret, while the increase in drone strikes, the CIA's growing paramilitary activities, and the Taliban's bombing campaign have not only not been a secret, they've practically been the center of PR campaigns to make sure everyone knows about them.

On the other hand, the news that the Taliban is using surface-to-air missiles is genuinely new, as is the revelation that even now the military isn't entirely forthcoming about civilian casualties — though this apparently improved after Gen. Stanley McChrystal took over last year. Overall, however, the basic picture is basically the one we've known for a long time: a difficult, chaotic battlefield that's shown little progress since the very beginning of the war.