Kevin Drum - October 2010

The National Security State

| Tue Oct. 5, 2010 12:42 PM EDT

Presidential Directive Number 12 requires that the federal government enact "secure and reliable forms of identification" for all employees. Sounds reasonable. However, George Bush's implementation of Presidential Directive Number 12 effectively means, as I wrote a few years ago in a post about NASA, that "if you want to work for NASA in any capacity, you're now required to sign away your privacy rights in advance. Ditto for just about any other government agency that decides to implement this directive. It's just another lovely little policy being 'institutionalized' for George Bush's successor."

Well, Bush's successor is now in office, Presidential Directive Number 12 has indeed been institutionalized, and it applies to everyone, not just those who handle classified information. Today, Dennis Byrnes, the chief engineer for flight mechanics at the Jet Propulsion Laboratory, is at the Supreme Court listening to his lawyer argue against the government's position that it can mount essentially any investigation whatsoever against anyone who does any work whatsoever for the federal government. That includes Byrnes, whose job is 100% civilian and unclassified in nature:

In 2007, I and all other JPL employees were told that we would be required to submit detailed personal data and sign a release form allowing investigators to look at all aspects of our personal lives. Anyone who refused would lose their access to JPL; in essence, they would be fired. I, and many of my colleagues, found this appalling and quite unacceptable.

....Neither I nor any of the plaintiffs have anything to hide. I care nothing for my personal privacy. I care for the terrible damage being done to the guarantees of our Constitution. I care for the loss of trust most of us once had in our government. I care that the longstanding trust and collegiality between engineers and scientists at JPL and their management is being destroyed and replaced by a poisoned atmosphere of mistrust by employees and heavy-handed paternalism by management. I care that all across the country, many talented technical people will leave government service or choose not to apply in the first place because of this unwarranted assault on their constitutional freedoms. I fear that carried to its natural end, this process, with its false promise of national security at the expense of freedom, will forever damage our country.

This is all part of the creeping normalization of the national security state. Not just airports, but metal detectors in every government building. Police officers who demand that you stop taking pictures of public places. Security cameras everywhere. Drug stores that make you sign a form to buy cold medicine. And in this case, a requirement that you sign away your privacy rights completely even if nothing you do is sensitive or classified or even remotely related to national security.

We're never going back to 1950. I get that. But as this stuff becomes ever more ubiquitous, we start to forget there was ever a time when we didn't live our lives under constant surveillance and constant suspicion. We'll regret that if we don't take a deep breath sometime very soon.

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The Third Party Chimera

| Tue Oct. 5, 2010 11:42 AM EDT

Megan McArdle reacts to Thomas Friedman's cri de coeur for a third party to save us from the craven mendacity of our current party duopoly:

It's not that I'm against third parties, mind you. It's just that when I look at multiparty states elsewhere, I can't say that they look noticeably more honest than our two-party system. A third party might be an improvement over the ones we've got. But I doubt it would get into office by telling us the truth: that solving our problems is going to mean hefty tax increases or unpleasant spending cuts, or both. American voters seem to like being lied to.

That's pretty much my usual reaction to this idea. Lots of other countries have multiparty democracies, and they don't seem noticeably more willing to make tough choices than ours. Besides, contrary to the usual Friedmanesque conventional wisdom, a successful third party in America would probably be socially conservative and economically liberal, which I don't think is what Friedman has in mind.

Just in general, "how does this work in other countries?" is an underasked question. It's not a panacea, since every country has different demographics, different history, different cultural institutions, and different political traditions, and it's not that the answers are always clear — they usually aren't — but international comparisons do provide some useful guidance. Parliamentary vs. presidential, private healthcare vs. national, socialism vs. capitalism — you can infer some useful information about all these things if you're willing to look beyond our borders and take other countries seriously, neither downplaying differences nor using them as excuses to ignore anything you don't like. You can also get a pretty good idea of what doesn't matter, and my quick read is that having more than two parties doesn't generally improve things.

Will Financial Reform Work?

| Tue Oct. 5, 2010 1:36 AM EDT

Will financial reform help create a safer banking system? Last week I said that a key sign would be falling profits, since safer banks ought to be less profitable banks. Unfortunately, banks seem pretty bullish about profits, a sign they don't really think all the new regulations will change their business practices much.

Today, the Wall Street Journal begs to differ:

Investor presentations by top bank executives in London last week, combined with increasingly dour projections for the third quarter that ended Thursday, are crystallizing the challenges banks face. "The business models on the Street are going through dramatic changes," says Clayton Rose, professor of management practice at Harvard Business School, based on the most drastic shifts in the "political, regulatory, and economic environment since the 1930s in the financial industry."

....Return on average equity for the major investment banks, a key barometer of profitability, could be halved from the 20% range a few years ago, according to SNL Financial. And costs are rising, leading to expected waves of industry job cuts.

Morgan Stanley and Goldman, the two major firms that derive most of their earnings power from Wall Street businesses, are expected to earn about $12.1 billion in profits this year — 23% less than in 2006, their peak earnings year, according to Thomson Reuters. Their revenues are still largely dependent on trading, with about 60% of 2009 and estimated 2010 revenues coming from trading, according to Sanford Bernstein.

It's too early to know for sure how this is going to turn out, so for now consider this just another data point. On the one hand, a big part of this anticipated profit crunch is due to lower volumes of stock trading, something that wasn't really affected by the financial reform bill. So that doesn't mean much. On the other hand, the Journal story suggests that higher capital requirements, curbs on prop trading, and derivatives rules are also a big part. If that's the case, maybe the new rules will really have some bite. Stay tuned.

Republican Mouths vs. Insurance Industry Money

| Tue Oct. 5, 2010 1:21 AM EDT

Noam Levey has a wonderfully revealing piece in the LA Times today about the health insurance industry's hopes and dreams for a Republican Congress next year. The insurers, it turns out, like the new healthcare reform rules that force everyone to get health insurance, but they aren't so keen on all those other pesky regulations:

The insurance industry, attracted by the prospect of millions of new customers as a result of the coverage mandate, initially backed President Obama's campaign to overhaul the healthcare system. And insurers scored a key victory when Democrats abandoned plans to create a government insurance plan, or "public option." But insurers are increasingly balking at the myriad new directives in the healthcare law.

Among other things, the law prohibits insurance companies from denying coverage to sick children and canceling policies when customers get sick. The law bars insurers from placing lifetime caps on how much they will pay when their customers get ill. Many consumers will also get new rights to appeal denied claims and win new access to preventive care without being asked for copays.

"The health reform law did not deliver the uninsured in the way that insurers wanted," said veteran healthcare analyst Sheryl Skolnick, senior vice president at CRT Capital Group.

That final quote is priceless. "The health reform law did not deliver the uninsured in the way that insurers wanted." Apparently they wanted the uninsured trussed up and delivered to their doorsteps wallet first, but without any actual obligation on their part to provide decent service in return. And they know just how to get their wish: "The industry would love to have a Republican Congress," says Wendell Potter, a former Cigna insurance executive. "They were very, very successful during the years of Republican domination in Washington."

But this is creating a wee problem for everyone. You see, Republicans are loudly proclaiming right now that they want to eliminate the part of the law that forces everyone to buy insurance. But that's exactly the part of the law that insurance companies like. In fact, they want to see it strengthened. At the same time, they want to get rid of the popular parts of the law that keep insurance companies from figuring out ways to screw patients. But those are the provisions that Republicans say they'll keep if we turn over Congress to them.

And yet, the insurance companies are massively funding Republicans this cycle anyway. Why would that be? It's almost as if they're sure that Republicans are just blowing campaign smoke and will support their agenda once they're safely in office. They're so sure, in fact, that they're willing to put their money where their mouths are to the tune of millions of dollars.

So which do you believe? Republican mouths or insurance industry money? Decisions, decisions.....

Firefighting in Obion County

| Mon Oct. 4, 2010 9:26 PM EDT

Everybody is chattering today about the South Fulton Fire Department. Why? Because they provide fire protection for the city of South Fulton, Tennessee. If you live outside the city, you have to rely on the County of Obion to provide fire services.

All perfectly reasonable. Except that the County of Obion doesn't provide any fire services. So if you live in the nearby vicinity and want fire protection, you have to pay South Fulton $75 per year. Gene Cranick didn't pay the fee, so a few days ago, after he started a fire in a couple of barrels in his backyard and the fire got out of control, the South Fulton Fire Department didn't respond when he called. "I thought they'd come out and put it out, even if you hadn't paid your $75, but I was wrong," he explained succinctly.

This has spawned a lot of outrage. How could the South Fulton Fire Department just sit around and not respond? Both the fire chief and the mayor are getting a lot of heat. But I have a different question: why is the County of Obion apparently not generating any outrage of its own? This is not a new problem, after all. The county has declined to provide fire services for a long time, it's been a lively issue for a long time, and they know perfectly well that local cities won't always respond to their fires. Courtesy of the world wide web, for example, here's "A Presentation Regarding The Establishment And Implementation of a County-Wide Fire Department," dated March 18, 2008, describing exactly how fire services work in the County of Obion. Also included in this document: a plan to create an Obion County Fire Department by merging the services of the various municipal fire departments in the county along with a plan to raise about half a million dollars to fund it. Revenue would come from either a 0.13 cent property tax increase, a fee on electric meters, or a flat subscription fee.

The county commissioners of Obion County apparently decided against this plan. Didn't want to increase taxes, I suppose. As a result, Gene Cranick's house burned down.

His isn't the first one, either. The county knew this was a longstanding problem, they knew it might happen again, and two years before Cranick's house burned down they had a proposal in front of them to address it. But they didn't. If anyone should be getting grief over this, shouldn't it be them?

How Climate Legislation Failed

| Mon Oct. 4, 2010 5:52 PM EDT

Ryan Lizza has a big piece in the New Yorker about the failure of climate legislation to move forward this year, and it's worth a read. But I agree with Jonathan Zasloff: if you come away thinking that the White House is mainly at fault here, you've taken away the wrong message.

Quick summary: early on there were two possible strategies for getting a bill through the Senate. The first was to round up four or five Republican supporters, since everyone knew there were at least a few Democrats who would never come on board. That never really went anywhere because there just weren't any. In the end, Lindsey Graham was the only Republican willing to support a climate bill.

So then there was Plan B: get industry groups on board, and hope that they could put pressure on Republicans to do the right thing. So John Kerry, Graham, and Joe Lieberman (collectively KGL) went to work. They got the Chamber of Commerce on board by promising to preempt EPA regulation. They got T. Boone Pickens on board by promising a bunch of tax incentives for natural gas. They got the big oil refiners on board — for a few weeks, anyway — by agreeing to remove refineries from the cap-and-trade regime and instead have them pay something called a "linked fee."

Along the way there were some screwups. The White House unilaterally agreed to support $54 billion in nuclear loan guarantees. Then the EPA agreed to slow down its plans to regulate carbon. Finally, at the end of March, Obama announced a plan to allow more offshore drilling. All of these are things that KGL wanted to hold in reserve as bargaining chips with wavering Republican senators. But even so, they kept plugging away until April, when a White House source apparently told Fox's Major Garrett that Obama opposed the linked fee. Graham's policy aide, Matthew Rimkunas, emailed Lieberman's aide, Danielle Rosengarten:

The subject was “Go to Fox website and look at gas tax article asap.” She clicked on Foxnews.com: “WH Opposes Higher Gas Taxes Floated by S.C. GOP Sen. Graham in Emerging Senate Energy Bill.” The White House double-crossed us, she thought. The report, by Major Garrett, then the Fox News White House correspondent, cited “senior administration sources” and said that the “Obama White House opposes a move in the Senate, led by South Carolina Republican Lindsey Graham, to raise federal gasoline taxes within still-developing legislation to reduce green house gas emissions.” Including two updates to his original story, Garrett used the word “tax” thirty-four times.

“This is horrific,” Rosengarten e-mailed Rimkunas.

“It needs to be fixed,” he responded. “Never seen [Graham] this pissed.”

A week later Graham had pulled out and the bill was effectively dead. And there's not much question that Obama didn't help matters much. But Jonathan identifies the key passage from the story, which took place months before any of this other stuff:

Back in Washington, Graham warned Lieberman and Kerry that they needed to get as far as they could in negotiating the bill “before Fox News got wind of the fact that this was a serious process,” one of the people involved in the negotiations said. “He would say, ‘The second they focus on us, it’s gonna be all cap-and-tax all the time, and it’s gonna become just a disaster for me on the airwaves. We have to move this along as quickly as possible.’ ”

That's it. I've long thought that Obama's approach to climate change was woefully inadequate, but even if Obama had done everything in his power to move climate legislation forward there's simply no evidence that it would have worked. With public support so weak, one story on the Fox News website was enough to sink Graham's support. If it had ever gotten to the point of being treated to the kind of 24/7 Fox treatment that Graham was afraid of — and it would have — there isn't a single Republican who would have touched the KGL bill with a bargepole. Industry "support," which mostly means only that they would have been slightly less vicious in their opposition than usual, would have meant nothing. There would have been no Republican support. Period.

Lizza's piece is a good one, and it's worth reading the whole thing. But be sure to back away from the trees occasionally to take stock of the forest. All of the insider byplay is interesting in a human sort of way, but underneath it all it's clear that the bill simply never had a chance. No conceivable combination of policies and giveaways would have produced 60 votes. It's time for Plan C.1

1Also known as Plan EPA. I think history's ultimate judgment on Obama will depend on whether he has the guts to lend his support to a strict EPA enforcement plan that might, in the end, finally force the Senate into action. Stay tuned.

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How the Recession Affected Us

| Mon Oct. 4, 2010 2:43 PM EDT

I tweeted this over the weekend, but it really deserves a weekday post of its own. It comes from Michael Linden and Heather Boushey and it shows how incomes have changed just during the recession of the past two years. In both years, the well-off did better than the poor and the middle class, and last year the well-off and the rich actually improved their lot while everyone else continued to slide.

This is only a two-year snapshot, so you don't have to worry about different inflation rates or different consumption baskets or any of that stuff. None of it is anywhere big enough to matter over the course of 24 months. Basically, the story of the past decade is this: the rich did really well during the Bush years while the middle class stagnated (even the inequality skeptics don't really question this); the rich got some great tax cuts at the same time; and then, when the recession caused by their recklessness hit, they suffered the least while the poor and middle class suffered the most:

All those facts and figures reinforce what most people already know: The middle class took this recession right on the chin while the rich suffered no more than a glancing blow. And yet somehow in Washington the talk is all about tax cuts for rich people.

....This is how absurd our national conversation has become. We’re actually fighting over whether we should borrow hundreds of billions of dollars and give that money to the only group of people in the country who are already back on track. Instead of focusing on a policy that would exclusively benefit those who make more than $250,000 a year we should be discussing how to get wages and middle-class incomes rising again, the best ways to bring people out of poverty, and what we can do to address the ever-widening disparities between the super-rich and everyone else. Our priorities are indeed skewed when the dominant argument over economic policy pertains to $100,000 tax cuts for millionaires while our middle class is barely treading water.

"Absurd" only barely begins to describe this. Disgraceful and revolting are more like it.

Real Genius

| Mon Oct. 4, 2010 2:13 PM EDT

Ezra Klein points out today that Mark Zuckerberg wasn't responsible for the invention of social networking. Technology had made the idea possible, and lots of people were doing it:

This is a rather common phenomenon: It's called "simultaneous invention," and it happens all the time: Technology advances to the point that the next step is obvious to multiple people, and so they all take the next step at approximately the same time. In the end, one of them gets the patent, or the market share, and so squeezes the other out and becomes synonymous with the invention. That's what happened with Alexander Graham Bell, who in all likelihood invented the telephone after Elisha Gray.

Go to London and ask someone on a street corner who invented the light bulb, and if you're an American you'll probably be surprised at the answer you'll get. Likewise, Darwin and Wallace conceived of natural selection at about the same time, Newton and Leibniz both invented calculus, and huge masses of inventors were responsible for automobiles, airplanes, and computers.

But here's a question I've never taken the time to research properly: what inventor was most ahead of his time? That is, which one invented something important that was so out of the blue that it probably would have been decades or more before someone else invented it if he hadn't? Let's limit this to the past few centuries and actual working products, not just sketches and descriptions. I don't really have any good candidates here, though I suppose accidental inventions like penicillin might be in the running. How about Isaac Newton's invention of modern mechanics? Was anyone else close to that when Principia was published in 1687? Any other nominees?

UPDATE: So far, the leading contenders in comments are Einstein for the General Theory of Relativity and Tesla because — well, you know, Tesla.

Of course, I was a little slippery about whether only physical inventions count, or whether theoretical discoveries also count. Maybe we need two different categories? In any case, General Relativity seems to have a lot of support in the theoretical discovery department.

No More TARPs?

| Mon Oct. 4, 2010 12:53 PM EDT

In the Wall Street Journal today, Deborah Solomon and Naftali Bendavid point out that while TARP was wildly successful at rescuing the American banking system, it remains wildly unpopular with the American public anyway. And this might be a good thing: bailouts encourage moral hazard, and the fact that TARP is so unpopular means "the chances of another government bailout are essentially nil." Dan Drezner comments:

Now, truth be told, I'm not sure this is entirely accurate. Sure, rescue packages are unpopular now — but let the Dow Jones Industrial Average fall 800 points and politicians might react differently. If, however, the political perception is that no more bailouts from DC will be forthcoming, then it might condition financial players to act in a more prudential manner.

In other words, the Tea Party activists on the right and the netroots activists on the left might be the political lobbies that do the most to preserve the integrity of the U.S. financial system. I'll be spending the rest of the day savoring this irony. I welcome commenters trying to burst my cognitive bubble, however.

OK, I'll take a shot at that. There are only two possible states for any major economy: one in which large scale bank failures are impossible, or one in which the central government prevents large scale bank failures. Now, does anyone think the reforms of the past year have made large scale bank failures impossible? Anyone? Bueller?

Eventually a banking crash will happen again. Maybe sooner, maybe later. And when it does, the U.S. government — even a U.S. government run by Sarah Palin or Dennis Kucinich — will rescue the banking system. Because it won't have any choice.

All the big talk aside, everyone knows this and all the evidence suggests that banks know it too and haven't changed their behavior a whit. TARP was, after all, not the first banking rescue in history. Just in the last 20 years various governments have bailed out Long Term Capital Management, the Swedish banking system, the Mexican banking system, the American savings and loan industry, and a motley collection of southeast Asian banking systems. That's not even a full list, and guess what? It didn't stop banks around the world from acting stupidly in the aughts, and it didn't stop governments around the world from saving their bacon. Because they didn't have any choice.

So forget the talk about how TARP is so unpopular that it can never happen again. Of course it can, because neither the tea parties nor the netroots left has any real influence on U.S. economic policy and the banking industry knows this perfectly well. The next time they fuck up, they'll be rescued. All it will take is another banking crisis.

Welfare in California

| Mon Oct. 4, 2010 12:04 PM EDT

Here is the lead story in today's LA Times:

More than $69 million in California welfare money, meant to help the needy pay their rent and clothe their children, has been spent or withdrawn outside the state in recent years, including millions in Las Vegas, hundreds of thousands in Hawaii and thousands on cruise ships sailing from Miami.

....Las Vegas drew $11.8 million of the cash benefits, far more than any other destination. The money was accessed from January 2007 through May 2010....The $387,908 accessed in Hawaii includes transactions at more than a thousand big-box stores, grocery stores, convenience shops and ATMs on all the major islands.

When I read this, I immediately wondered how far the Times would make me read before they told me just how big a percentage of total welfare payments this represents. Let's count.

1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18....ah, here it is. Paragraph 18, buried deep on page A11 in my print edition:

The out-of-state spending accounts for less than 1% of the $10.8 billion spent by welfare recipients during the period covered, and advocates note that there are legitimate reasons to spend aid money outside of California. From the data provided, it cannot be determined whether any of the expenditures resulted from fraud.

So Vegas/Hawaii/Miami accounts for about 0.11% of total welfare expenditures. Total out-of-state spending accounts for 0.63% of all spending, but as paragraph 18 notes, quite a bit of it is probably legit ("Many recipients travel to other states in an emergency such as a death in the family," we learn in paragraph 24). So figure the total amount of fraud is probably well south of 0.5%.

All fraud is bad fraud, and if welfare payments are being used fraudulently then they should be weeded out. But I gotta say, if over 99.5% of welfare payment are being used properly, that's a helluva well run program.