Kevin Drum - October 2010

Afghanistan Update

| Thu Oct. 21, 2010 1:36 AM EDT

I don't know how seriously to take this, but I could use some good news and I guess I'll take it wherever I can find it. So here it is: Carlotta Gall reports in the New York Times that our offensive in Kandahar is going pretty well:

NATO commanders are careful not to overstate their successes — they acknowledge they made that mistake earlier in the year when they undertook a high-profile operation against Marja that did not produce lasting gains. But they say they are making “deliberate progress” and have seized the initiative from the insurgents.

Western and Afghan civilian officials are more outspoken, saying that heavy losses for the Taliban have sapped the momentum the insurgency had in the area. Unlike the Marja operation, they say, the one in Kandahar is a comprehensive civil and military effort that is changing the public mood as well as improving security.

....Apparently surprised by the intensity of the strikes on their supply routes, bomb factories and command compounds, many Taliban commanders pulled out to Pakistan, and most of the fighters have also slipped away or hidden their weapons, NATO commanders, local residents and the Taliban themselves say.

Now, "slipping away" is what insurgents always do when confronted with overwhelming force, and the question is whether we can stop them from slipping right back in. But like I said: for the moment, this sounds like good news. And who knows? Maybe Karzai can actually take advantage of it somehow. Here's hoping.

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Quote of the Day: The Great Conservative ACA Sham

| Wed Oct. 20, 2010 3:30 PM EDT

From Boeing spokeswoman Karen Forte:

If you would've asked me if we would've made these changes without the enactment of the law, I would've said yes.

The subject is the healthcare reform law, and whether Boeing is making changes to its health plan because of the law's new regulations. The answer is no. Contrary to what they said in a letter to employees, they were planning to make them anyway.

Once again with feeling: healthcare reform is a wonderful excuse for companies to use when they decide to pare back benefits. It's also a wonderful talking point for conservatives to haul out whenever anything changes in the healthcare industry. There's just one thing: the claims are almost never true. Either the changes aren't actually happening in the first place or they're changes that would have happened anyway.

You should expect to continue hearing a tidal wave of claims that ACA is damaging access to healthcare in one way or another. About 1% of the time there will be something to it. The other 99% of the time it will quickly turn out to be hooey, but you won't find out about that on the front page. You'll find out about it, at best, on page A17. Caveat emptor.

Watching the Collapse

| Wed Oct. 20, 2010 2:11 PM EDT

Noam Scheiber writes today about two different views of the recession. The first, represented by Johns Hopkins economist Chris Carroll, relies on a model that says recovery depends on three things: wealth, unemployment expectations, and access to credit. As they recover, so will the economy: "The beauty of Carroll’s model is that it explains, with uncanny precision, consumer behavior going all the way back to the late ’60s. Those three simple variables — wealth, unemployment, and credit — tell you most of what you need to know about changes in the saving rate, and their predictive power has held up even through 2010."

The second, represented by Japanese economist Richard Koo, says the data of the past 40 years is useless because we're not going through a normal business cycle recession. We're in the middle of a balance sheet recession, the same kind that Japan went through in the 90s: "Whereas Carroll assumes people base their saving decisions on the same factors both before and after the crisis, Koo says the way they make decisions beforehand tells you little about their behavior afterward. The crash doesn’t just pummel the value of their assets (like housing). It creates a kind of psychological trauma that preoccupies them with paying down debt before they can think about borrowing again."

So who's right?

Early last year, economists at the San Francisco Fed observed that, if you extrapolate from the Japanese experience, the deleveraging process would take about a decade, during which time the saving rate would rise to about 10 percent, subtracting about half a percentage point from GDP growth each year (a huge amount when GDP is only growing by 2-3 percent). Slightly less alarmingly, the economist Allen Sinai has constructed an index of household financial conditions based on the measures of leverage we’re talking about. Sinai says the index recorded its all-time worst reading in early 2009 and estimates it’ll take another two or three years to get back to a level that’s healthy by historical standards.

We should be able to figure out whether we’re living in Chris Carroll’s world or Richard Koo’s over the next few six to nine months; the first big set of indicators — data on spending and saving from this year’s third quarter — should be out in the next few weeks. In either case, the economy probably needs more stimulus — 9.6 percent unemployment is much too high by any measure. But if it’s Koo who better approximates reality, the stimulus need could be acute at a time when GOP congressional gains have made it a political nonstarter.

OK, fine, I'm rooting for Carroll to be right. And I'll even make a point in his favor: the Japanese have always been famous savers, so it's quite possible that American savings rates aren't going to follow the same trajectory theirs did.

Still, that just means we might be slightly better off than Japan, not different. What's more, there's a point in Koo's favor that Scheiber doesn't mention: Japan at least had the advantage of working through its recession during a global economic expansion. We don't. In the end, Koo almost certainly has the better of this argument, but even if he's only partly right, we are, quite plainly, fiddling while Rome burns. We know what we need to do to save our economy from a decade of ruinous stagnation, and we're simply choosing not to do it. It's almost beyond belief.

Via Mike Konczal, who has more on this, including a few charts like the one above.

The Emperor's Clothes

| Wed Oct. 20, 2010 1:29 PM EDT

Jon Cohn asks a question about the provision in the healthcare reform bill that requires everyone to get health insurance:

The individual mandate continues to be health care reform's most controversial element, both in the courts and on the campaign trail. And many of the mandate's critics see this as a matter of principle. Requiring people to carry health insurance, they say, compromises individual freedom. I don't agree with that argument, but I understand it.

What I don't understand is why the requirement scares people without such strong libertarian instincts.

Answer: it doesn't.

This is what makes writing about policy so frustrating. The answer to Jon's question is pretty obvious. Conservatives have no problem in general with mandating behavior. Nor do they have any problem with mandating affirmative behavior. In the context of healthcare reform, many of them have supported the individual mandate in the past. And the smart ones, at least, understand perfectly well why a mandate is necessary in order to make the broader healthcare reform package work.

Their opposition isn't based on any special principle. It's based on the fact that (a) they don't like healthcare reform and (b) people don't really like being forced to do stuff. This makes the mandate a convenient point of attack. Most non-libertarians don't really care about the mandate, but once Glenn and Sean and Rush have them suitably foaming at the mouth about Barack Obama's relentless attack on all that we hold dear in this country, getting them upset about the mandate is a pretty easy upsell.

But you can't just say this, even though it's plainly true. You have to pretend to take conservative arguments about this seriously. You have to write detailed responses, complete with quotes from law professors and health experts. You have to pretend that this is an actual issue, not just a handy attack point. And so we all spend mountains of time in a sort of pundit fantasyland where we all agree to talk about stuff that we all know nobody truly cares about.

Anyway: Conservatives don't like Barack Obama. They don't like social welfare programs. They don't like healthcare reform. So they're looking for handy ways to attack it, and the mandate fits the bill. Liberals would do the same thing if the shoe were on the other foot. There's no need to complicate what's going on here.1

1I will, of course, continue to complicate this kind of thing regularly myself. It's what I do, after all. But I'm pretty sure that I lose a hundredth of an IQ point every time I do, which means my career as a writer is probably self limiting.

China's Dumb Embargo

| Wed Oct. 20, 2010 12:25 PM EDT

China's decision to respond to U.S. complaints about its trade practices by embargoing exports of rare earth minerals is, obviously, pretty stupid. Even if it succeeds in garnering some concessions, it's sent a crude, ear-splitting message to the rest of the world that China can't be trusted as a trade partner. If they keep it up, they'll end up going down the same self-destructive path that Russia has gone down with its endless gameplaying over natural gas deliveries to western Europe. Dan Drezner comments:

China's foreign economic policies with respect to raw materials suggests that Beijing doesn't think market forces matter all that much — what matters is physical control over the resources. This is a pretty stupid way of thinking about how raw materials markets function, and it's going to encourage some obvious policy responses by the rest of the world. Non-Chinese production of rare earths will explode over the next five years as countries throw subsidy after subsidy at spurring production. Given China's behavior, not even the most ardent free-market advocate will be in a position to argue otherwise.

More importantly, China's perception of how economic power is wielded in the global political economy is going to have ripple effects across other capitals. If enough governments start reacting to China's economic statecraft by taking similar steps to reduce interdependence with that country, then China will have created a self-fulfilling prophecy in which geopolitics trumps economics. Another possibility is that the rest of the would will operate as before in dealing with each other, but treat China differently, developing CoCom-like structures and fostering the creation of explicit economic blocs.

China has developed its economy pretty shrewdly over the past three decades, but over the past year or two they've become suddenly far clumsier and almost comically menacing. It's not down to any single thing — getting into tiffs with neighboring countries over barren rocks in the China Sea has been going on forever — but it becomes more apparent when you look at everything put together. Chinese leaders seem to be panicking: over demographics in the long run, managing an increasingly fractious middle class in the medium term, and over a global economic meltdown that finally seems to be seriously affecting them too in the short run. This is a potentially toxic combination, especially since, as Dan implies, all the evidence suggests that China has been gearing up for a sustained resource war with the West for a long time. The battle over rare earths is just a minor skirmish in all this, but it's a telling one precisely because it's so minor and so transparently dumb. It's not the kind of thing a smart, confident leadership pulls off.

American Exceptionalism

| Wed Oct. 20, 2010 11:40 AM EDT

Britain, unlike the U.S., has decided that if spending needs to be cut then the military has to bear some of the burden:

Though defence chiefs said today they will still have significant expeditionary forces, they will not be able to intervene on the scale of recent years. According to new defence planning assumptions, UK forces will be able to carry out one enduring brigade-level operation with up to 6,500 personnel, compared to the 10,000 now in Afghanistan, plus two smaller interventions, at any one time.

....The construction, mainly in Scottish shipyards, of two aircraft carriers — the largest ships ever built for the navy — will go ahead even though there will be no planes to fly from them until 2020 at the earliest. That is because the existing fleet of Harriers will be scrapped immediately and an as yet unknown number of US Joint Strike Fighters due to replace them will not be ready for another 10 years.

Only one of those carriers will actually be commissioned, though. Apparently penalty clauses in the contracts makes it more expensive to scrap the carriers than to build them, so they'll finish both and then mothball one of them immediately.

There's no big lesson here, though I think a lot of Americans might be surprised to hear just how constrained the British forces will become. Despite British claims, the fact is that right now the United States has virtually the only expeditionary force left on the planet. Other countries can defend themselves, or send troops across a border, but there's almost no capacity left for projecting force any further than that anywhere in the world. This is one area where American exceptionalism is truly a fact.

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Same Old, Same Old

| Tue Oct. 19, 2010 7:52 PM EDT

The outrage du jour heure comes, once again, from Delaware, where Christine O'Donnell today questioned the constitutional basis of secular government:

"Where in the Constitution is separation of church and state?" O'Donnell asked while Democrat Chris Coons, an attorney, sat a few feet away.

Coons responded that O'Donnell's question "reveals her fundamental misunderstanding of what our Constitution is. ... The First Amendment establishes a separation."

She interrupted to say, "The First Amendment does? ... So you're telling me that the separation of church and state, the phrase 'separation of church and state,' is in the First Amendment?"

Her campaign issued a statement later saying O'Donnell "was not questioning the concept of separation of church and state as subsequently established by the courts. She simply made the point that the phrase appears nowhere in the Constitution."

OK, two things. First, why does anyone still care what Christine O'Donnell says? She's a carnival sideshow who's eleven points behind in the polls and will disappear from public view in a couple of weeks. Can't we all stop obsessing over her now instead of waiting until November 2nd?

Second, isn't it common knowledge that social conservatives have questioned the modern doctrine of separation of church and state for decades? They write books about it, they give talks about it, they write law review articles about it, they blog about it, and they denounce it from the pulpit. The fact that it's news in any way is less a reflection on O'Donnell than it is on the fact that the mainstream media still doesn't do much serious reporting about social conservatives. If they did, this wouldn't have been even remotely newsworthy.

UPDATE: I still think that breathless reporting on Christine O'Donnell's every gaffe is dumb, but I see via comments that the AP dispatch above doesn't quite give the flavor of what she really said. She did question whether the phrase "separation of church and state" is in the constitution, which is a standard social conservative talking point, but a few seconds later she had this exchange (at about the 7:00 mark):

Coons: The government shall make no establishment of religion.

O'Donnell: [dubiously] That's in the First Amendment?

That's definitely a wee bit higher on the nutball scale.

Banks and the New Rules

| Tue Oct. 19, 2010 3:46 PM EDT

Barbara Kiviat reads Bank of America's earnings press release today to find out how they're reacting to all those draconian new regulations on their credit card business. Then she translates for the rest of us:

So, let’s see. We’re getting 1) more transparent financial products; 2) better banking service; and 3) a boost to B of A’s bottom line. How could Congress have done this to us?!

Sounds like they're weathering the storm pretty well. But there's more to all this, and I want to second Kiviat's conclusion too:

I’ll be the first to admit that “upfront and transparent” pricing might very well mean higher pricing, especially for people who are used to getting a free ride when it comes to financial services — like those of us who pay off our credit card balances each month, thereby borrowing at no cost. On CNBC this morning, B of A CEO Brian Moynihan was pretty darn clear: “Instead of charging penalty fees, we’ll charge monthly fees.”

Yet, as I’ve long argued, there is nothing wrong with that. If my bank wants to charge me for a service that I am receiving — credit card usage, paper statements, a low-balance checking account — why would I be upset? Just clearly tell me what the price of the service is, and then I’ll make a decision about whether or not I want to buy it. Old-fashioned, I know, but still so beautiful. I understand that many people continue to feel the effects of the recession, and that the idea of paying more for anything right now is a painful one. But, in the long run, it only seems fair that people pay for the services they get.

My problem with credit and debit cards has never really been with the overall cost of the cards. It's a business, and banks and card networks should make money on it. What I object to is the evolution of the card industry over the past couple of decades, from one in which fees were open and fair and interest rates were relatively transparent, to one in which fees were hidden and penalties were increasingly targeted at those least able to bear them. (But also least likely to have the political clout to complain about them effectively.) The new fees will seem worse because you can see them, but they're almost certain to be less than the hidden fees you're paying now. What's more, they provide you with a better ability to decide whether you want various credit card products in the first place. That's the whole point of a Hayekian price signal, after all, but it doesn't work very well if consumers don't really know what price they're paying in the first place.

Plus there's the fact that the rich will be getting less in the way of truly revolting subsidies from the poor in the credit/debit market. That's nice too.

Not Your Father's Recession

| Tue Oct. 19, 2010 2:00 PM EDT

Over at The Corner, Stephen Spruiell is unimpressed with the Obama administration's decision to effectively spread out its tax cut over time by withholding less money from workers' paychecks each month:

To me, this demonstrates just how much of the administration’s thinking is guided by Keynesian economics, pump-priming, aggregate-demand-goosing, whatever you want to call it....But in giving small tax rebates to middle-income workers — workers whose incentives are mostly fixed — the administration chose to do the politically popular thing instead of the right (or correct, if you prefer) thing. The right thing to do, if you’re going to cut taxes, is to cut them for businesses and high earners so as to strengthen their incentives to expand, invest, produce more, and work more efficiently. Of course, these are the groups whose taxes Obama seeks to raise.

Fascinating. Not that Spruiell favors tax cuts for the rich. That goes without saying. But why does he think lowering taxes on the rich will raise their incentives to expand if there are no customers out there to buy their tidal waves of new stuff? This is a massive balance sheet recession, after all, characterized by relentless and still ongoing deleveraging. So where's the demand-side money going to come from?

I understand that conservatives owe fealty to supply-side economics at all costs, but this is ridiculous.

Medical Inflation: A Case Study

| Tue Oct. 19, 2010 1:17 PM EDT

Since it's my birthday, it's an excuse to provide a one-document explanation for why healthcare costs have skyrocketed so much in the past 50 years. Here it is:

That's the bill for my delivery. I cost $133.98. Adjusted for ordinary CPI inflation, that comes to $1,000 in current dollars. Today, an uncomplicated birth (which mine was — I was born at 8:02 pm, ninety minutes after my mother was admitted to the hospital) will run you upwards of $10,000. Add even a little bit of complication and it can easily rise to $20-30,000.

Why? Because doctors were paid fairly ordinary middle-class salaries in the 50s and there was essentially no technology involved in any of this. My mother says that her room in the hospital basically had a bed and a telephone. In the delivery room there were no epidurals, no beeping machines, no phalanx of specialists. Just piped in music, which played "Yellow Rose of Texas" while I was popping out.

We can go back to that any time we like. But I doubt there are any takers.