Kevin Drum - October 2010

Not Your Father's Recession

| Tue Oct. 19, 2010 11:00 AM PDT

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.

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Medical Inflation: A Case Study

| Tue Oct. 19, 2010 10:17 AM PDT

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.

And Now, China

| Tue Oct. 19, 2010 9:48 AM PDT

China's financial mandarins are finally getting worried enough to do something about their bubble economy:

China’s central bank unexpectedly announced Tuesday that it would raise interest rates for the first time in nearly three years, apparently in the hopes of dampening inflation and cooling off this country’s hot property market.

....Analysts said they were surprised by the decision, because a bank oficial had suggested just days ago that no rate increase was needed. Still, late Tuesday the bank announced the first rate increase here since 2007. Analysts said it was one of the strongest signals yet that Beijing is having difficulty managing the country’s growth.

....The decision to raise the rates came after a surge in bank lending in September, reports of higher property prices last month and indications that inflation may have risen sharply in September, after a big jump in August.

China's economy is more opaque than most, but I think big governments everywhere react approximately the same way to bad news: too slowly and too weakly. Thus, the fact that China is finally taking modest but highly public action to rein in their property bubble and cool down inflation suggests to me that their economy is in more serious trouble than anyone thinks. I suspect they're now in about the same position that the U.S. and the rest of the world were in during 2007: they know things are going south, but they're still hoping against hope that the problem is temporary and manageable and can be muddled through with only modest measures. By the time they finally face up to the fact that it's not, it will probably be too late.

I hope that one of two things turns out to be the case. (1) I'm wrong. (2) The rest of the world economy is in good enough a shape a year or two from now to handle a major Chinese downturn. I don't have a ton of faith in either one of these possibilities, though.

Ace of Spades Day

| Tue Oct. 19, 2010 9:18 AM PDT

Today is my birthday. I can now boast one year for every club, diamond, heart, and spade in a deck of cards. Not a pinochle deck. Not a skat deck. A standard deck. But not one with jokers, at least. Give me another twenty years and I'll finally be old enough to run for governor of California.

In cat years, however, I'm only about nine. So there's that.

Apologize Yes, Surrender No

| Tue Oct. 19, 2010 8:43 AM PDT

Eliot Spitzer's fate isn't a big concern of mine, but I think Matt Yglesias is exactly correct about why he was hurt more by his scandal than other politicians have been by theirs: because he allowed himself to be hurt by it.

I think the contrasting fates of Spitzer and guys like Clinton or Senator David Vitter (R-LA) shows that Spitzer’s problem was much simpler than [a lack of friends in high places] — he resigned. When a reasonably popular public official is hit with a scandal of a personal nature, the natural immediate first reaction of his same-party colleagues is to want to get rid of him. After all, no reason this guy should be a millstone around all of our necks. That leads to an initial torrent of criticism from friendly-ish sources and a wave of pressure to resign. But if you resist that first wave, apologizing for your conduct but refusing to apologize for your years of public service and highlighting the pernicious special interests who’d love to see you brought low, you basically flip the dynamic. Now you’re definitely going to be a millstone around everyone’s necks so the question becomes how heavy a stone?

Suddenly all your same-party colleagues have an incentive to defend you and to attack your enemies. Suddenly an incumbent Republican in Louisiana is just another guy with a safe seat. An incumbent President presiding over an economic boom is super-popular. And I bet an incumbent Democratic governor in New York could have cruised to re-election.

This seems to be nearly universally true. Sure, there are some things that a politician can't bounce back from, but garden variety sex scandals and corruption charges aren't among them. Especially in today's supercharged partisan atmosphere, all you have to is tough it out and before long the folks on your side of the aisle will reluctantly line up behind you. Short of impeachment, after all, nobody can force you to resign, and if you time your scandal properly it will be "old news" by the time election season rolls around.

For all that we obsess over this stuff, the plain truth is that Americans don't care much about sexual peccadillos. Liberals don't care, conservatives don't care, and social conservatives really don't care. In fact, being a social conservative is practically like having a Get Out of Jail Free card in your vest pocket for this kind of stuff. All you have to is tearfully confess to your sinning, admit that you've let down both your family and the Lord, and promise to rededicate yourself to a life of virtue in the future with the help of your church and your supporters. If you do that, then as near as I can tell, you'll be more popular than you were before. Sinning and repenting is the best proof there is that you're really one of the family.

So anyway, Spitzer probably shouldn't have resigned. If he'd gutted it out for a couple of months the whole thing would have gone away.

The World's Greatest Tax Cut?

| Mon Oct. 18, 2010 10:48 PM PDT

Michael Cooper writes today that the Obama tax cut, which was part of the 2009 stimulus bill, was so subtle that lots of people think their taxes have gone up under Obama:

In a troubling sign for Democrats as they head into the midterm elections, their signature tax cut of the past two years, which decreased income taxes by up to $400 a year for individuals and $800 for married couples, has gone largely unnoticed. In a New York Times/CBS News Poll last month, fewer than one in 10 respondents knew that the Obama administration had lowered taxes for most Americans.

....The tax cut was, by design, hard to notice. Faced with evidence that people were more likely to save than spend the tax rebate checks they received during the Bush administration, the Obama administration decided to take a different tack: it arranged for less tax money to be withheld from people’s paychecks.

They reasoned that people would be more likely to spend a small, recurring extra bit of money that they might not even notice, and that the quicker the money was spent, the faster it would cycle through the economy.

....But at least one prominent economist is questioning whether the method really was more effective. Joel B. Slemrod, a professor of economics at the University of Michigan, analyzed consumer surveys....After the Obama tax cut took effect, he said, only 13 percent said they would use the money primarily to increase their spending.

Wait a second. Earlier in the year, before election hysteria had fully set in, 12% of Americans knew that Obama had cut their taxes. And according to Slemrod's research, 13% said they planned to use the money to increase spending. In other words, virtually every single person who knew about the tax cuts said they planned to spend it. Doesn't that suggest that the people who didn't know about the tax cut probably spent it too? The withholding trick might have been lousy politics, but it looks like it was probably surprisingly good policy.

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Going Nuts

| Mon Oct. 18, 2010 5:10 PM PDT

Over at the Daily Standard, Andrew Ferguson says that Dinesh D'Souza — who thinks Barack Obama harbors a neocolonial rage toward all things Western — is either a hysteric or a cynic. Or maybe both. In any case, Ferguson has seen it before:

Throughout the nineties I heard mainstream Republicans describe the president as a shameless womanizer and a closeted homosexual, a cokehead and a drunk, a wife beater and a wimp, a hick and a Machiavel, a committed pacifist and a reckless militarist who launched unnecessary airstrikes in faraway lands to distract the public’s attention from all of the above.

At gatherings of conservative activists the president was referred to, seriously, as a “Manchurian candidate.” Capitol Hill staffers speculated darkly about the “missing five days” on a trip Clinton had taken to Moscow as a graduate student. Respectable conservatives in the media—William Safire, Robert Novak, Rush Limbaugh—encouraged the suspicion that Clinton’s White House attorney, a manic depressive named Vincent Foster, did not commit suicide, as all available evidence suggested, but had been murdered by parties unknown, to hush up an unspeakable secret from the president’s past.

So what happened? How did the left-wing, coke-snorting Manchurian candidate become the fondly remembered Democrat-you-could-do-business-with — “good old Bill,” in Sean Hannity’s phrase?

Barack Obama is what happened. The partisan mind — left-wing or right-wing, Republican or Democrat — is incapable of maintaining more than one oversized object of irrational contempt at a time. When Obama took his place in the Republican imagination, his titanic awfulness crowded out the horrors of Bad Old Bill; Clinton’s five days in Moscow were replaced by Obama’s three years in that mysterious Indonesian “madrassa.”

It's true: having a Democrat in the White House does this to conservatives. But here's a question: are liberals any different? Was Bush hatred any different from Clinton hatred or Obama hatred?

It's a serious question. A few years ago there were liberals who were convinced that Bush would declare martial law before the 2008 election and stay in the White House forever. There were liberals who thought Bush knew about 9/11 beforehand and allowed it to happen. There were liberals convinced of a gigantic conservative conspiracy to rig the voting machines in Ohio to steal the 2004 election. I sat across the table one day from a friend of my mother's, a lefty but a mild-mannered one, who was genuinely afraid that Bush was turning America into a fascist state. Another friend called during the 2008 campaign convinced that Sarah Palin had faked Trig's birth.

In other words, there are bizarro ideas on both sides of the fence. No argument there. And yet, there are differences. Here's my list: (1) Conservatives go nuts faster. It took a couple of years for anti-Bush sentiment to really get up to speed. Both Clinton and Obama got the full treatment within weeks of taking office. (2) Conservatives go nuts in greater numbers. Two-thirds of Republicans think Obama is a socialist and upwards of half aren't sure he was born in America. Nobody ever bothered polling Democrats on whether they thought Bush was a fascist or a raging alcoholic, but I think it's safe to say the numbers would have been way, way less than half. (3) Conservatives go nuts at higher levels. There are lots of big-time conservatives — members of Congress, radio and TV talkers, think tankers — who are every bit as hard edged as the most hard edged tea partier. But how many big-time Democrats thought Bush had stolen Ohio? Or that banks should have been nationalized following the financial collapse? (4) Conservatives go nuts in the media. During the Clinton era, it was talk radio and Drudge and the Wall Street Journal editorial page. These days it's Fox News (and talk radio and Drudge and the Wall Street Journal editorial page). Liberals just don't have anything even close. Our nutballs are mostly relegated to C-list blogs and a few low-wattage radio stations. Keith Olbermann is about as outrageous as liberals get in the big-time media, and he's a shrinking violet compared to guys like Rush Limbaugh and Glenn Beck.

None of this is very satisfactory, though. I think it's correct — though I'd hardly expect conservatives to agree — but it's incomplete. There's something different about left-wing and right-wing craziness that goes beyond just the ideological differences. I've never been able to really put my finger on it, though. Maybe someday.

Iraq Update

| Mon Oct. 18, 2010 11:58 AM PDT

Members of the Sunni Awakening, whose turn against al-Qaeda was instrumental in helping the surge to reduce violence in Iraq in 2006-07, have complained for a long time that the Shiite government treats them badly and shouldn't take their continued loyalty for granted. Now, the New York Times reports, those vague threats are becoming more concrete:

Although there are no firm figures, security and political officials say hundreds of the well-disciplined fighters — many of whom have gained extensive knowledge about the American military — appear to have rejoined Al Qaeda in Mesopotamia. Beyond that, officials say that even many of the Awakening fighters still on the Iraqi government payroll, possibly thousands of them, covertly aid the insurgency.

The defections have been driven in part by frustration with the Shiite-led government, which Awakening members say is intent on destroying them, as well as by pressure from Al Qaeda. The exodus has accelerated since Iraq’s inconclusive parliamentary elections in March, which have left Sunnis uncertain of retaining what little political influence they have and which appear to have provided Al Qaeda new opportunities to lure back fighters.

The success of the surge has always been hard to assess. As pretty much every critic has said, its goal was to reduce violence in order to provide the conditions for a political settlement. But that political settlement has never come, and it's starting to look like it never will. The surge and the Awakening (and the other Four S's) may have delayed a full-blown Sunni-Shiite civil war, and that delay might have eliminated the possibility for good. But an Iran-centric Iraq engaged in a low-level insurgency with its Sunni minority for years or decades? Yeah, that's still possible.

The Latest From Alaska

| Mon Oct. 18, 2010 11:09 AM PDT

I try pretty hard not to spend too much of this blog's time reacting to the various outrages of the day, especially during campaign season, but WTF?

The editor of the Alaska Dispatch website was arrested by U.S. Senate candidate Joe Miller's private security guards Sunday as the editor attempted to interview Miller at the end of a public event in an Anchorage school.

Tony Hopfinger was handcuffed by the guards and detained in a hallway at Central Middle School until Anchorage police came and told the guards to release Hopfinger.

Instead of just hustling Miller away from Hopfinger's presence, they cuffed Hopfinger and then (according to Hopfinger) erased his video recording? Seriously? Miller's a real man of the people, isn't he? As Adam Serwer tweeted, "Imagine if Dem 'bodyguards' had handcuffed a journalist. you'd need a new planet to fit all the Nazi references." No kidding. I think Fox News headquarters would probably literally melt down from the collective outrage.

Our Computerized Future

| Mon Oct. 18, 2010 10:12 AM PDT

Adam Ozimek imagines a future in which we all wear a "brain mounted computer," described as an "iPhone-like-device that is connected to a special contact lens that so that screens float in front on your face, and you steer the whole thing with your brain. The most important facts about this technology is that a) nobody will be able to tell whether you’re looking at your computer or not, and b) it will always be available to you."

As far as anyone who knows you can tell you will never misspell a word, not know a fact, forget the words to a song, or know any piece of data. Quick: what was the per-capita GDP of Guatamala in 1976? Anyone with a brain mounted computer will be able to tell you.

....Education will have to change drastically, and the fact based portion of schooling will become trivial. You’ll only need to learn how to look stuff up in a given field. All of accounting will take a week to learn. All fields will be trained more like librarians are today.

Call me skeptical on two grounds. First, I'd say Adam is thinking too small. If this kind of thing is inevitable, it will pretty quickly turn into a lot more than just a gateway for raw data. Knowing how to spell Guatemala and having instant access to its per-capita GDP in 1976 ($686 according to these guys) will be the least of the wonders of our computer-aided future.

But even if he's right, the fact is that librarians don't know how to do accounting. Nor do they know how to perform brain surgery, calculate an IS-LM curve, or write a blog post.1 There are lots of kids whose computer retrieval skills are vastly superior to mine, but it does them no good if they're trying to figure out anything more complicated than the showtime for Jackass 3D. That's because aside from trivia, fact retrieval isn't very useful unless you know what facts to look for in the first place, how to evaluate those facts, whether they're reliable, how to put them into context, what's missing, and what it all means. My retrieval skills are better than virtually any teenager's not because of my technical prowess, but because I have some idea of what to search for in the first place, how to follow those results to other results, and how to figure out if the stuff I find is meaningful in any but the most frivolous way. And that's because I have a store of background knowledge available to me from decades of broad-based fact gathering and actual learning. Faster retrieval, I like to say, makes smart people smarter and dumb people dumber. If anything, it makes schooling, including the fact-based part, more important than ever.

1OK, they might know how to write a blog post. But you know what I mean.