Kevin Drum - August 2010

Arguing About the Mosque

| Mon Aug. 16, 2010 6:16 PM EDT

Dan Drezner fully supports the construction of Cordoba House (i.e., the "Ground Zero" mosque) but says there's one argument against the mosque's opponents that he's tired of:

I'm getting really sick of "the terrorists will win" line of criticism being levied against those wishing to prevent construction of the mosque. Over the past few days, I've seen bipartisan criticism of the mosque criticism along the lines of, "this line of argumentation is the best way to help Al Qaeda."....You know, I remember oh so many years ago the constant use of "if you say X, or criticize policy Y, or challenge official Z, then the terrorists win" kind of discourse. It was horses**t then, and it's horses**t now. I'll be damned if I'm going to see debate in the United States circumscribed because of fears of how Al Qaeda will react.

....Should Sarah Palin, Newt Gingrich, Abe Foxman et al be criticized for making ill-informed, incoherent, and idiotic arguments? Sure, and as loudly as possible, please. But quit bringing Al Qaeda into it. Silencing debate on national security grounds is so very 2002.

I think this is right, but too narrow. I agree that the Cordoba House controversy is unlikely to have more than a minuscule direct effect on al-Qaeda and its sympathizers. But there are still a couple of related effects that are important. The first is the impact that it has on Muslim public opinion in general. This probably isn't huge either, but it's one more straw on the camel's back, and as such it's certainly not helpful to U.S. security. Second, this controversy promotes the idea that we're engaged in a war of civilizations, not just a fight against the al-Qaeda franchise, and this does national security no favors either.

And while we're at it, there's a third effect: one of the reasons that there's been virtually no homegrown Muslim terrorism in America is because, even imperfectly, we've always done a pretty good job of allowing Muslim immigrants to assimilate, to worship freely, and to work without discrimination. Because of this, there's very little of the resentment and bitterness that's helped to fuel terrorist cells in Europe. Call me naive, but I'd say this is a national security plus. Why would anyone want to endanger it?

In related news, I think Doug Mataconis has lost his marbles if he's impressed by this statement from New Jersey governor Chris Christie:

"We have to bring people together. And what offends me the most about all this, is that it’s being used as a political football by both parties. And what disturbs me about the president’s remarks is that he is now using it as a political football as well....My principles on this are two-fold. One, that we have to acknowledge, respect and give some measure of deference to the feelings of the family members who lost their loved ones there that day. But it would be wrong to so overreact to that, that we paint Islam with a brush of radical Muslim extremists that just want to kill Americans because we are Americans. But beyond that....I am not going to get into it, because I would be guilty of candidly what I think some Republicans are guilty of, and the president is now, the president is guilty of, of playing politics with this issue, and I simply am not going to do it."

Asked if he’d call upon both parties to stop, he said, "Well, that again will be playing politics with the issue. I said what I feel about it, and I don’t believe it is up to me to pontificate on other people about what they should do. I just observe what I observe."

A political football from both parties? Spare me. Republicans, and the right more generally, have spent weeks demonizing the proposed mosque. They've painted it as treacherous, insensitive, and a menace to American values. Fox News has been been running the outrage machine 24/7. A-list pundits and top elected officials have joined in. But when, finally, Barack Obama steps in with a modest statement of support for religious freedom, both parties are now equally inclined to demagoguery? Give me a break.

As for Christie himself, will he take even a modest stand for tolerance? Goodness no. Then he'd be playing politics. He's merely an observer, you see.

Uh huh. Anyone here actually buy this? Let's see a show of hands.

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Traffic Fatalities in New York City

| Mon Aug. 16, 2010 5:18 PM EDT

According to a newly released report about pedestrian safety, "2009 was the safest year on record in New York City history." In fact, says the NYC Department of Transportation, New York is safer than Copenhagen, Seattle, and San Francisco.

Good to hear! I don't know for sure if fatalities per 100,000 population is the right measure to use (fatalities per 100,000 vehicle miles driven is one alternative), and I also don't know if the decline in fatalities is due to better driving, aggressive DOT safety programs, or better emergency room care. But it's good news any way you look at it.

In any case, I went browsing through the report to see if I could find any interesting notes, and in the interest of stereotype bashing here's a couple of charts showing who's responsible for whatever mayhem remains on New York streets. Answer: men. The chart on the left shows who's behind the wheel when pedestrians are killed or seriously injured (KSI), and it's overwhelmingly men. Mostly young and middle aged men. There's a slight bit of karmic justice here, though, because the chart on the right shows who the victims are. Again, mostly men. So men drive like aggressive idiots, killing and injuring hundreds every year, and they also walk like aggressive idiots, thus getting killed by the hundreds every year.

The full report is here. It's got plenty of other little tidbits if you're interested in who, what, when, where, and why pedestrians are likely to get killed or injured in New York City. Have fun with it, and be careful out there.

Will Insurance Companies Game the ACA?

| Mon Aug. 16, 2010 11:39 AM EDT

Starting in 2014 insurance companies will no longer be allowed to discriminate against people with preexisting conditions. They'll have to take all comers for (almost) the same price, regardless of how healthy they are.

The incentive here is obvious: within the confines of the law, insurance companies will do their best to lure the healthiest patients into their programs and convince the sickest ones to switch. But how much leverage do they have to do this? Looking for clues, Aaron Carroll takes us back to a study done in 1997, when Medicare patients were allowed to switch back and forth between HMOs and traditional fee-for-service plans:

What did the researchers find? People who wound up joining the (private) HMOs used 66% less care before joining than those who stayed in the (public) Medicare group. Somehow the private insurance HMOs figured out a way to get the healthy people to jump ship out of the another plan into theirs!

Not only that, but people who left the (private) HMOs and went back to the (public) Medicare used 180% more care after leaving than the people who stayed. Somehow the private insurance HMOs figured out a way to convince the sicker people to jump ship back to the public plans.

Fascinating! But I'm not sure this tells us as much as it seems to. It does appear to tell us that private insurers are pretty good at marketing themselves to healthy people and then signing them up as customers. But the dice are loaded here: they were competing against a publicly funded fee-for-service program that didn't care if the sickest patients got dumped on them. In fact, it's worse than that: the fee-for-service folks probably wanted the sickest patients since it meant more money for them. So the private insurers may have done a good job of maximizing their profit, but only because their competition didn't fight back. Under ACA, it's mostly going to be private insurers vs. private insurers, and that's a whole different ball game.

But what about the second half of this study, which shows that private insurers were good at dumping sick people? That's more worrisome. It's still the case that they could only succeed as well as they did because the public system wasn't fighting back. But that only speaks to why they succeeded so brilliantly. When it's private insurers vs. private insurers, dumping tactics probably won't work as well, but they'll still have to be used by any insurer who wants to stay in business. After all, if even one private insurer is aggressively trying to dump its sick patients, every other private insurer has to do the same thing if they want to stay profitable. In the end, the sick patients might all stay in the system (though there will probably be some leakage to Medicaid), but they're going to be treated badly the entire time as insurers do their best to get them exasperated enough to try switching to someone else.

Aaron's conclusion: "Insurance companies are very, very good at what they do. I don’t doubt that they will find ways to remain profitable. That’s not a moral judgment. I don’t hate them for it; it is their nature." In other words, the fight isn't over yet. The quality and detailed nature of the regulations HHS puts in place are going to make a big difference to the success of ACA. Insurance companies are going to be keeping a very sharp eye on this, and hopefully the rest of us will too.

New Comment System Up and Running

| Mon Aug. 16, 2010 10:47 AM EDT

I was gone while all the new comment system plumbing was installed, so I almost forgot to ask: how do you like it? Anything not working for you? Any random gripes or complaints? The main reason for installing it was to cut down on spam, but just so you know, it sports a few other new features too:

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Quote of the Day: Dying As You Lived

| Mon Aug. 16, 2010 10:40 AM EDT

From Keith Humphreys, riffing on the question of whether notorious atheist Christopher Hitchens, who was recently diagnosed with cancer, is likely to have an end-of-life religious conversion:

For about eight years, I was a hospice volunteer, and had the honor to attend many people throughout their dying process. One of the most reliable rules was that people died as they had lived. Happy people were happy at the end, crabby people were crabby, anxious people were anxious. The story of human personality development is largely one of continuity. Temperamental differences measured within an hour of birth predict temperament 20 years later, and people who win million dollar lotto prizes tend, within a year, to return to being precisely as happy or unhappy as they were before their big win....The best bet therefore for an atheist is that s/he will die an atheist, just as Baptists, Hindus, Jews and Mormons tend to face death with the same religious views they have always had.

I would ask you how you feel about this passage, but I figure your reaction probably depends on your temperament and is therefore preordained. But what the hell. Go ahead and tell us anyway.

GZM Goes National

| Mon Aug. 16, 2010 10:09 AM EDT

The New Black Panther story never really took off. Shirley Sherrod disappeared from the news after a few days. Birthright citizenship seems to be sliding back under the rock it came from. Thank God, then, for the Ground Zero mosque, which National Journal informs me went "national" while I was gone this weekend:

Until Friday night, the controversy over a proposed mosque near the site of the World Trade Center in NYC was a phenomenon of cable news networks, an obsession in the narrow I-95 corridor. Then, Pres. Obama weighed in.

....House Min. Leader John Boehner signaled GOPers would press the issue in a Saturday statement in which he called both the mosque itself and Obama's reaction "deeply troubling." If Boehner's saying it, most House GOPers will follow suit.

— Associating Obama with the mosque is less geared toward influencing the midterm elections than it is about undermining Obama's hopes in '12. GOPers' goals in '08 were partly about making Obama seem like the "other," and criticism during his first term has focused on his efforts at building international cooperation. In a time of economic angst, voters tend to focus inward, and appealing to the international community leaves Obama open to GOP attacks, fair or unfair....Expect Dem candidates across the country to be forced to choose between their president and the GOP's position.

Meanwhile, over in the New York Times, following in the footsteps of giants, Ross Douthat puts a sophisticated conservative sheen on this latest bout of hysterical bigotry. Aside from the complete lack of actual evidence for anything he says, I especially like his endorsement of both "fair means and foul" to make sure newbies get the message that they need to toe the WASP line. That's a nice touch.

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Friday Cat Blogging - 13 August 2010

| Fri Aug. 13, 2010 1:56 PM EDT

The first thing Domino did when we brought her home from the shelter three years ago was hop into a bookcase. This is a little harder now than it used to be because she's a little bigger and the space in the bookcases is a little smaller, but she still manages from time to time. So here she is on Wednesday reliving the glory days of her youth. On the right, Inkblot has decided to steal her favorite spot of morning sunshine underneath the skylight at the top of the stairs, and he's feeling pretty smug about it.

As for me, I'm heading to the airport to spend the weekend in 90-degree weather in northern California. In the meantime, courtesy of my sister, here's some Friday Gorilla Blogging, starring Bawang, Bawang's adopted daughter, and a Nintendo DS. And also, a....

HOUSEKEEPING NOTE: We're upgrading our comment system (yay!), so comments will be turned off later today. Details here. I'm not quite sure exactly when they'll be back on, but Monday morning for sure unless something goes catastrophically wrong. See you then.

The Collapse of Lehman Brothers

| Fri Aug. 13, 2010 1:46 PM EDT

Why did Lehman Brothers collapse so quickly when their reported financial condition a week before had actually been fairly decent? Answer: because they were lying about their financial condition. Economics of Contempt has now read the entire 4000+ page (!) report written by the court-appointed examiner after Lehman's collapse, and it turns out that at the time they were reporting a $32.5 billion liquidity pool they actually had, at most, a $2.5 billion liquidity pool:

Earlier in 2008, Lehman's two main clearing banks, JPMorgan and Citi, started requiring Lehman to collateralize its intraday exposures....Lehman reluctantly agreed, but requested that the banks release the collateral at the end of each day. Why did they care if the banks released the collateral every night if it just had to be posted again the next morning? Because Lehman calculated its reportable liquidity at the end of each day, and if the clearing-bank collateral was released at the end of each day, Lehman considered it part of the "liquidity pool." By the end, roughly $19bn of the $32.5bn liquidity pool consisted of clearing-bank collateral.

In no functional sense was the clearing-bank collateral "unencumbered" — if Lehman requested the collateral back, JPMorgan and Citi would have at the very least required them to pre-fund their trades (which Lehman didn't have the cash to do), and more likely would have just stopped clearing their trades. People at Lehman admitted as much to the Examiner. And once a broker-dealer's clearing bank stops clearing its trades, the broker-dealer is finished. Including the clearing-bank collateral in its liquidity pool was not only inappropriate, but also aggressively deceptive.

Without liquidity — real liquidity, which means money that Lehman could get to within a day — Lehman was doomed. But they refused to report their true liquidity situation, and when their funders started dropping out they went bust almost instantly. This is one of the reasons why the obscure topic of the "net stable funding ratio," which is part of the Basel III negotiations, is important. More on that here.

The Price of CAPTCHA

| Fri Aug. 13, 2010 12:56 PM EDT

Via Alex Tabarrok, here's a fascinating little paper about the offshore industry that's grown up around the business of solving CAPTCHAs, those annoying distorted pieces of text that commenting systems often require you to solve before you're allowed to leave a comment. The idea is to eliminate machine-based spam, but it turns out that it's so cheap to pay people to solve them that it's hardly worth bothering with algorithmic hacks at all. CAPTCHAs, say the authors, "can increasingly be understood and evaluated in purely economic terms; the market price of a solution vs the monetizable value of the asset being protected. We examine the market-side of this question in depth, analyzing the behavior and dynamics of CAPTCHA-solving service providers, their price performance, and the underlying labor markets driving this economy."

And just how much does it cost to employ banks of computer serfs to do this work? Surprisingly little! The table below shows the going rates per thousand CAPTCHAs solved.

Chart of the Day: Oil Shocks

| Fri Aug. 13, 2010 12:03 PM EDT

James Hamilton has argued in the past that the spike in oil prices in 2007-08 can almost explain the ensuing recession all by itself. I doubt this is really the whole story, but I think it's been an underrated argument — and I think the historical impact of oil shocks in general has been underrated too. Today, Ryan Avent points to a 2009 paper by Hamilton where he quantifies things, and the chart on the right comes from that paper. It shows, roughly speaking, what happens to consumer expenditures when oil prices go up enough to reduce consumer income by 1%. The model Hamilton uses suggests a maximum response of 1.7%, but in reality it's bigger than that:

Following a decline that eventually would have reduced consumers’ ability to purchase non-energy items by 1.7%, we observe that on average consumers in fact eventually cut their spending by 2.2%. Why should consumption spending fall by even more than the predicted upper bound?

....One way that Edelstein and Kilian sought to explain these anomalies is by breaking down the responses in terms of the various components of consumption....The magnitude of the first two responses is in line with the simple expenditure-share effects, while the response of expenditures on durable goods is five times as big.

The first panel of Figure 16 looks in particular at the motor vehicles component of durables....Here the response is immediate and quite huge, with for example a 20% increase in energy prices in an environment with an energy expenditure share of 5% resulting in a 10% decrease in spending on motor vehicles. That there would be a direct link between such spending and energy prices is quite plausible.

To simplify then: oil prices go up, people stop buying cars, and that has a huge knock-on effect on the rest of the economy. Something to keep in mind before you buy stock in GM or Chrysler during the current period of (relatively) low oil prices. Those low prices might not last forever, after all.