Kevin Drum - September 2010

Yet Another Nannygate

| Wed Sep. 29, 2010 2:35 PM EDT

Well, we have another nanny scandal in California. Meg Whitman's former nanny and housekeeper, Nicky Diaz Santillan, now represented by Gloria Allred, says she worked for Whitman for nine years, during which she was "exploited, disrespected, and humiliated." Her story: she was hired in 2000 and was never asked if she was here illegally. But she claims Whitman knew her status and received multiple letters from the Social Security Administration asking about it, none of which she responded to. Instead, she told Diaz to "check on this" but never did anything further. Then, in June 2009, when Diaz asked Whitman to help her legalize her status, she was fired. She believes it was because Whitman had announced her run for governor and could no longer afford to employ an undocumented worker.

Ben Smith reports that Whitman agrees on the broad outlines of the story, but says she was deceived by Diaz and never knew her status. She fired Diaz only after she found out. So far this story is pretty sketchy on both sides, so stay tuned.

Diaz's actual legal claim, by the way, is for wages that she claims she wasn't paid during her employment. Obviously, though, the damage to Whitman is primarily the accusation that she knowingly employed an undocumented worker.

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Was Keynes Right?

| Wed Sep. 29, 2010 1:35 PM EDT

Tyler Cowen on problems with the theory underlying contemporary Keynesian economics:

Aggregate demand macroeconomics works in many cases and it almost always "works" (predicts well) when the macro forces are pointed toward destructive ends. We are not sure why it works at all, or if it always works, and yet we see a great fervor of belief in it and a demonization of those who are skeptics.

Am I misunderstanding this? Right now macro forces are indeed pointed toward destructive ends, aren't they? So if AD macro almost always works in those cases, doesn't a great fervor of belief in it make sense even if we're not 100% sure why it works?

Manufactured Ignorance

| Wed Sep. 29, 2010 12:16 PM EDT

Bob Somerby on the widely-reported Pew poll showing that most people don't know much about either their own religion or anyone else's:

Can we talk? We the people always turn out to be “deeply ignorant,” on any information survey. In response, major broadcasters feign surprise. It’s how such things are done.

My favorite, as longtime readers know, is the annual geography survey that always produces howls of indignation. 70% of high school kids don't know where France is! 80% can't find Kansas City on a map!

Of course, no one ever bothers testing adults, who would probably do just as poorly. Just as they do poorly on surveys of American history, constitutional knowledge, current events, and everything else. Most of us just don't know very much about anything.

And least of all about complicated legislative proposals. A couple of days ago I linked to an AP poll that asked people what they thought about healthcare reform. I decided to devote my post to the question of whether a more liberal proposal would have been more popular (almost certainly not), which didn't leave room to talk about a long series of questions AP asked about the legislation itself. Basically, they wanted to find out what people knew about the law, and the answer is: meh. Of the true items AP mentioned, 69% thought they were part of the law. Of the made-up items, 37% thought they were part of the law. Not bad, I guess (and note that these numbers assume that I know which items were right and which were wrong), but it's still the case that 20% of the country thinks you'll have to disclose major diseases to your employer, 30% think the law requires insurance companies to charge smokers an extra $1,000, 40% think death panels will be empowered to pass judgment on individual treatment, and 50% think the law requires doctors to treat illegal immigrants.

Now where do you think so many people could have gotten these ideas? It's not just simple ignorance at work, though that's certainly part of it. It's the noise machine. If you listened to Rush and Sean and Sarah and Glenn and Drudge all day, you'd probably believe most of this stuff too. And you'd oppose the law. Who wouldn't?

Quote of the Day: Rand Paul on Medicare

| Wed Sep. 29, 2010 11:06 AM EDT

From Rand Paul, talking 15 months ago about problems with Medicare:

Medicare is socialized medicine! People are afraid of that because they'll say "Ohhh, you're against Medicare." No, I'll say, "We have to do something different. We can't just eliminate Medicare, but we have to get more to a market-based system." It's counter-intuitive to a lot of people, but you have to pay for things if you want prices to come down. So you really need higher deductibles. And the real answer to Medicare would be a $2,000 deductible, but try selling that one in an election. But that's the real answer.

That's via Steve Benen, who reports that Paul is outraged that his Democratic opponent has highlighted his support for a $2000 deductible, which as you can imagine, is not going down well with Kentucky's seniors. But the video is here, and it sure doesn't look like anything is taken out of context. Paul supports the deductible idea but admits that it's a terrible campaign idea. And of course, now he's in a campaign. So he no longer wants anyone to know that he said this. And who can blame him?

Want to know more? Check out "Tea and Crackers," Matt Taibbi's latest in Rolling Stone. It's ostensibly about the tea party movement, but about half the piece is actually about Rand Paul. Enjoy.

Tax Cut Followup

| Wed Sep. 29, 2010 10:50 AM EDT

This is arcane, but I guess I need to follow up on my post last night about the CBO's report on extending tax cuts. I think I've figured out what's going on.

The CBO chart is below, and it doesn't seem to match the data in Table 4. But it does, sort of. Take the bar for full extension of tax cuts with a weak labor response. According to Table 4, its effect in 2020 is to reduce real GNP by 1.6%. That's if everyone assumes there's no response. But if we assume that government spending will be reduced after 2020, a lifecycle model predicts that the net effect of extension is only -1.4%. If we assume a tax increase after 2020, the lifecycle model predicts that the net effect is -0.8%.

Now average all those together and you get -1.26%. That rounds to -1.3%, and that's what's shown in the chart. If you average all the other options they also match the chart.

Is this simple arithmetic averaging legit? Beats me. And I'm not even sure who to ask. But apparently that's what they did.

One more thing, though. The CBO model suggests that in all cases, a policy response to full extension of the tax cuts reduces the long-term damage. However, a policy response to extension of just the middle-class cuts increases the long-term damage or has only a tiny effect. This seems like a very strange result. Why does a policy response (either lower spending or higher taxes) have a strongly positive effect in one case and a bad or negligible effect in the other? Again, I'm not even sure who to ask. But it seems odd even if you're a supply side die hard.

Your Bad Economic News for the Morning

| Wed Sep. 29, 2010 8:38 AM EDT

Earlier this year, government bond spreads in several European countries ballooned dangerously in response to the Greek debt crisis. In May the EU came to the rescue, Greece agreed to a combined loan/austerity package, and spreads settled down. The crisis was over.

But for how long? As the chart on the right shows, spreads have been steadily rising since May in Greece, Ireland, and Portugal, and now stand as high or higher than they were at the height of the crisis. And Spain may be next. Edward Hugh explains in a long post that ends with an analogy:

According to one popular analogy currently circulating , the EuroArea countries could be likened to a group of 16 Alpine climbers scaling the Matterhorn who find themselves tightly roped together in appalling weather conditions. One of the climbers — Greece — has lost his footing and slipped over the edge of a dangerous precipice. As things stand, the other 15 can easily take the strain of holding him dangling there, however uncomfortable it may be for them, but they cannot quite manage to pull their colleague back up again. So, as the day advances, others, wearied by all the effort required, start themselves to slide. First it is Ireland who moves closest to the edge, getting nearer and nearer to the abysss with each passing moment. And just behind Ireland comes Portugal, while some way further back Spain lies Spain, busily consoling itself that it is in no way as badly off as the others who have already lost there footing. But if Spain cannot hold out, and all four finally go over, each dragged down by the weight of those who preceded them, then this will leave some 12 countries supporting four, something that the May bailout package only anticipated as a worst-case scenario.

This is especially bad news since widening spreads can easily become self-fulfilling prophecies. Greece, Ireland, and Portugal were in big enough trouble already, but high interest rates on their debt could turn a difficult situation into an impossible one, requiring yet another massive bailout that might have catastrophic knock-on effects. And remember: we're all one big happy global economy these days. If Europe catches a cold, we're going to catch it too.

And that's not all. Closer to home, housing bubble Cassandra Meredith Whitney is back with a report on municipal debt. She believes that cities and states — but mostly cities — are on the verge of a massive wave of defaults that are going to reprise the systemic bank defaults of 2008. "The similarities between the states and the banks," she told Maria Bartiromo on Tuesday, "are extreme to the extent that the states have been spending dramatically, growing leverage dramatically. Muni debt has doubled since 2000." Felix Salmon adds:

The more lasting effect of widespread defaults will be in the real economy, where public employees and public services will start feeling the pinch of forced austerity. Once you approach default, no one will roll over your debt any more and no one will insure your bonds. So you have to slash your budget: you have no choice. That process has barely begun, in the U.S., and depending on the timing, it could contribute markedly to a bout of deflation or even a double-dip recession. If the first recession had its causes in the nexus of finance and real estate, its follow-up could well be based in local government.

As a resident of California — #1 on Whitney's list of disaster areas — I find this all terrifyingly plausible. Buckle your seatbelts.

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Enthusiasm Gap Update

| Wed Sep. 29, 2010 12:42 AM EDT

A new NBC/Wall Street Journal poll reports that the enthusiasm gap is tightening as the election nears:

Among likely voters — identified by their past voting history and their high level of interest in the November midterms — 46 percent prefer a Republican-controlled Congress, versus 43 percent who want a Democratic-led one.

That’s a decline (though within the margin of error) from the 49-to-40 percent lead Republicans held in late August. The NBC/WSJ pollsters attribute the tightening to increased enthusiasm for the upcoming midterms by African Americans (who saw a six-point gain in high interest) and Hispanics (who saw an 11-point gain).

Perhaps the reality of a tea party-controlled Congress is finally sinking in.

The Effect of Tax Cuts

| Tue Sep. 28, 2010 7:25 PM EDT

CBO director Doug Elmendorf testified today about the long-term effect of extending the Bush tax cuts, and his chart showing the difference between extending only the middle-class cuts vs. extending all the cuts has been making the rounds. Basically, CBO says that although temporary tax cuts would stimulate the economy right now, the effect of permanent tax cuts would be strongly negative in the long run because they'd blow up the deficit and crowd out private investment.

I was going to comment on this, but after reading through the full report it looks to me like the chart is wrong. As near as I can tell, it's drawn from data in Table 4 (page 31) but somebody in the graphics department drew the bars wrong. Take a look at the effect of a permanent extension. The original chart (in blue, below) suggests that under two different scenarios the long term negative effect of full extension is equal to or less than the negative effect of just a middle class extension. That doesn't really make sense. The revised chart (in red, at bottom) shows that full extension has a stronger negative effect than a middle class extension. This seems more intuitively correct.

I'm not actually sure of that, though. Mainly I just want to know what CBO's real opinion is. Is the chart correct or is the table correct? Or am I comparing the wrong things? I've got an email out to CBO to ask about this, and I'll let you know if I hear back.

UPDATE: My email provider decided to bounce my emails to CBO, so I never got a reply. However, I think I've figured out where the numbers in the chart came from. Unfortunately, that just prompted a followup question. Details here.

Obama and the Senate

| Tue Sep. 28, 2010 1:42 PM EDT

Ezra Klein says the Obama administration hasn't done enough to change Senate rules, and Jon Cohn agrees:

White House officials complain bitterly about the constraints the filibuster places on them, and rightly so. But they've expended relatively little energy speaking out about it and even less energy (as far as I know) actually trying to end it. That's not the only reason for their political struggles or even the main reason, obviously, but it certainly hasn't helped.

I dunno. Seriously, what could Obama have done on this score? He has no authority over Senate rules. Nor would using the bully pulpit do much good since the subject is too arcane for most of the public to care about, especially with everything else that was on the agenda over the past two years. (You think it's hard to get people excited about healthcare reform in the middle of a recession? Try getting them excited about procedural reform in the Senate. I can only imagine the derision Obama would be facing if he'd spent lots of time on this in 2009 when he should have been focused like a laser on jobs, as all the pundits keep reminding us.) What's more, even in theory the filibuster can only be eliminated at the beginning of session. So jabbering about it wouldn't have done any good anyway.

And comparing this to George Bush's constant call for "up or down votes" doesn't seem relevant either. Did that ever really do him any good? Aside from judicial appointments, I don't think the filibuster was really a big issue for Bush. For better or worse, he mostly chose to push bills that (a) could be passed by reconciliation — like the 2001 and 2003 tax cuts, (b) had plenty of Democratic support — like NCLB and the war resolution and the PATRIOT Act and Medicare prescriptions and the bankruptcy bill, or (c) that he didn't really like but caved in on — like Sarbanes-Oxley and McCain-Feingold. His biggest failure came on Social Security privatization, and that was so unpopular it probably didn't even have 50 votes. The filibuster just wasn't an issue.

I'd like to see the filibuster eliminated and I'd like to see unanimous consent eliminated. (For the latest abuse on that score, click here.) But the big issue here isn't Obama, I think. It's whether Harry Reid can round up even 50 votes for it when the 112th Congress meets in January. Maybe the president could help this along, but then again, he might just make things worse too. Senators haven't historically been too excited about presidents trying to push them around, after all.

Democrats haven't played this issue well, but that's where I'd put the blame. I'm not sure Obama had as much leverage here as people are suggesting.

Taxing the Other Guy

| Tue Sep. 28, 2010 12:38 PM EDT

Matt Yglesias notes that commuters in DC are split pretty evenly between drivers and transit users:

This means that something like higher taxes on downtown parking garages would generate lots of revenue from non-residents without disadvantaging the majority of DC residents. The revenue could then be used to reduce the district’s sales tax or increase the personal exemption of the DC income tax. Not only would that be good tax policy, it would shift the balance of power in the future further in the direction of rolling back car-subsidization policies.

Italics mine. I don't really have an opinion on higher parking taxes. It's probably a good idea, just the same as taxes on gasoline or carbon emissions would be a good idea. Almost anything that cuts down on driving is a good idea.

But I'm curious: is it my imagination, or have we seen a recent wavelet of cities and states trying to figure out ingenious ways to tax nonresidents more stiffly? Commuter taxes are one way, higher hotel taxes are another, fees on sporting event tickets and jacked up highway tolls are yet others. So two questions. First, is this sort of thing really becoming more popular, or have I just happened to notice it more over the past couple of years? Second, is it a good idea? Are nonresidents really free riders on urban awesomeness who aren't paying their fair share, or does this kind of thing run the risk of spiraling into a morass of competitive taxes that will end up hurting everyone? Just wondering.