Kevin Drum - December 2010

Thinking About Alternate Universes

| Tue Dec. 14, 2010 2:22 PM EST

Felix Salmon pushes back on the idea that established companies have screwed up repeatedly by not buying startup internet companies that eventually became giants:

But how valuable were those opportunities, really? If Blockbuster had spent $50 million on Netflix, then it would just have run out of money that much more quickly. There’s no chance that Blockbuster’s management would have let Netflix grow, unencumbered, in the way that it did independently. Similarly, Google would have been stifled as part of Excite: it would have been nothing more than one of many search algorithms competing on the internet.

Buying internet companies is very, very hard: even if they are set to be very successful on their own, that’s no reason to believe that they will have similar success in-house. Google bought Foursquare back in 2005, when it was called Dodgeball, but then closed it down; only when its founders left Google and recreated the company as Foursquare on their own were they able to succeed.

I think that's right. When my grandfather's hitch in the Navy was up in 1920, he chose to be discharged in Los Angeles. At one point shortly after that he was offered the chance to buy an acre of land on Wilshire Boulevard for $500, and this naturally led to stories later in life about how it was a missed opportunity because that acre today would be worth a million dollars.

But of course, that's not what would have happened. More likely, the land would have been worth $1,000 in 1925 and he would have sold it then. A tidy profit, to be sure, but nothing more. Still no riches to hand down to his grandchildren.

It's the same with most internet startups: you have to think not about what they've become in the real world, but what would have happened to them in the alternate universe where they got purchased early in life. The answer is that most of them would wither away if they were part of some larger, more established company with powerful internal factions determined not to let a new division kill their cash cows. These kinds of acquisitions can sometimes work OK if you're buying something brand new that doesn't cannibalize an existing part of your business, but even then it's a crapshoot.

I'm curious: is there a big company anywhere in the world that has a pretty good track record buying small internet startups and then nursing them into giants? In theory, big companies do offer some benefits: money, distribution channels, legal departments, etc. In reality, that never seems to be enough to make up for the loss of independence. Are there exceptions? I can't think of any, but maybe I don't pay close enough attention.

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Enumerated Powers and the Individual Mandate

| Tue Dec. 14, 2010 1:34 PM EST

Austin Frakt points to the latest figures from Massachusetts, which implemented Mitt Romney's universal healthcare scheme a few years ago, and the news is pretty good. Nearly 98% of Massachusetts residents are now insured, including 97% of working age adults and nearly 100% of children and the elderly. At a guess, the outlier result among Hispanics is mostly due to noninsurance among undocumented workers, which means the insurance rate among legal residents is probably close to 98%. Thanks Mitt!

So how did Massachusetts do it? The answer, of course, is that RomneyCare includes an individual mandate. You're required to buy health insurance or else face a penalty. This, along with subsidies for poor people, has prompted nearly everyone to get insured.

Which is as good an opportunity as any to muse on the weirdness of the U.S. constitution. How is it, after all, that a mandate to buy health insurance is plainly legal for the state of Massachusetts, but a district judge can rule that it isn't legal for the federal government? The answer, of course, is that the U.S. constitution is an odd duck: it doesn't simply allot power between the central government and the states, which is a fairly common feature of democratic constitutions, nor does it merely prohibit the central government from doing certain things, which is also common. It goes further: it specifically lays out the things the federal government is allowed to do. If it's not on the list, it can't be done.

State governments, as well as most other constitutional democracies, aren't set up this way. The state of Massachusetts can basically do anything it wants as long as it's arguably rational and not specifically prohibited or reserved to the federal government. And this works out fine, which is why it's so odd to hear opponents of a federal individual mandate chatter so furiously about slippery slopes and tyranny. After all, the argument goes, if the commerce clause of the constitution is interpreted to mean the federal government can force you to buy health insurance, what can't the federal government do?

Well, they can't keep you from owning a gun, they can't deny you a fair trial, they can't stop you from voting, and they can't prohibit you from saying anything you want. Among other things. But if all 50 states in the union can force you to buy health insurance, and none of them have yet turned into tyrannies because of it, why should we think that allowing the federal government the same power might turn it into a tyranny?

There's no reason, really, except the status quo. We have this weird constitution, forged by men who were indisputably brilliant but nonetheless scarred by recent events and writing a democratic governing document for the first time in history. All things considered, they did a helluva job. But the Apple II was a helluva job too, and that doesn't mean it was the last word in personal computers. The enumerated powers of the constitution may be something we have to live with, but living with it for two centuries shouldn't blind us to the fact that it's still a pretty strange restriction on the power of our central government.

Christians Against Religious Freedom

| Tue Dec. 14, 2010 12:47 PM EST

A group of atheists recently managed to scrounge up $2,400 to put ads on four municipal buses in Fort Worth. The New York Times reports:

The reaction from believers has been harsher than anyone in the nonbeliever’s club expected. Some ministers organized a boycott of the buses, with limited success. Other clergy members are pressing the Fort Worth Transportation Authority to ban all religious advertising on public buses.

....The ads have incited anger in some places. Vandals destroyed two bus ads in Detroit, ruined a billboard in Tampa, Fla., and defaced 10 billboards in Sacramento. One billboard in Cincinnati was taken down after the landlord received threats....But nowhere has the reaction of believers been so forceful as in Fort Worth, to the delight of Fred Edwords, the national director of the United Coalition of Reason.

....Some of the fiercest criticism has come from black religious leaders. The Rev. Kyev Tatum Sr., president of the local Southern Christian Leadership Conference, has called for a boycott of the buses, saying the ads are a direct attack during a sacred time in the Christian calendar....While Mr. Tatum and about 20 other pastors have urged their congregations to avoid the buses, a smaller group met recently with the transportation authority’s president to demand that the policy allowing religious advertising on buses be reversed Wednesday at a meeting of the authority’s board. The bus system in nearby Dallas bans all religious ads.

Religious people sure are touchy. They don't seem to mind competing with each other, so what's the problem with competing against atheism? Seems like a fair fight to me.

But this is what happens whenever a minority group of any kind tries to demand reasonable treatment: the majority group instantly takes it as a vicious, personal attack. The same dynamic played out when it was blacks vs. whites, men vs. women, or gays vs. straights. Acceptance of a minority group on equal terms is almost universally deemed threatening to a majority group that considers its superior status to be something akin to natural law. Welcome to the latest incarnation of the culture wars.

Republicans and the Tax Deal

| Tue Dec. 14, 2010 12:08 PM EST

Hmmm. Last week I wrote a post suggesting that, in the end, Republicans would get scared off by their tea party wing and leave it up to Democrats to pass the Obama tax deal. So I proposed a pool: how many Republicans will actually end up voting in favor? I figured 30 in the House and five in the Senate.

But I never published the post. Republican support at the time seemed so strong and so widespread that I figured I was wrong. This time, Lucy wasn't going to pull away the football. Republicans really did lust after those tax cuts for the rich so much that they couldn't not vote for them.

But maybe I should have had the courage of my convictions. I see that Mitt Romney denounced the deal today, and Ezra Klein notes that Rush Limbaugh, Sarah Palin, and the Tea Party Patriots are also opposed. His conclusion: "I'd bet there are plenty of elected Republicans looking to bail. What they need is an excuse. If the House Democrats manage to make any real changes to the deal, they'll have one — and so will John Boehner and Mitch McConnell." Added to that, there's the dawning realization that the stimulus from the tax deal might be just big enough to all but guarantee Barack Obama a second term in the White House.

So we'll see. The cloture vote did pass 83-15 yesterday, so signs of a revolt are pretty muted right now. And maybe I'm overestimating Republican cynicism — though that's pretty damn hard to do these days. But an awful lot of them would probably like to see the bill pass, just not with their vote attached to it. In the end, I still wouldn't be surprised to see it get just barely enough votes to make up for a few Democratic defections. Maybe ten votes in the Senate instead of five, but no one should be shocked if it's nothing higher than that.

Quote of the Day: Ending the War

| Mon Dec. 13, 2010 11:54 PM EST

The last words of Richard Holbrooke, President Obama's chief envoy to Afghanistan and Pakistan, before he was sedated for surgery on Friday:

"You've got to stop this war in Afghanistan."

That would be a fitting memorial.

Judge Hudson's Weird Decision

| Mon Dec. 13, 2010 10:04 PM EST

Judge Henry Hudson's opinion declaring the individual mandate unconstitutional is a curious thing. The federal government basically argued that (a) PPACA regulates the healthcare market and (b) the healthcare market is plainly an instance of interstate commerce. So broad regulation of the healthcare market is well within the purview of the Commerce Clause of the constitution. Furthermore, since individuals get sick and receive medical care whether or not they have healthcare coverage (and whether or not they can pay for it), a decision not to buy health insurance has a significant effect on the healthcare market. Therefore, forcing people to buy healthcare coverage is a reasonable provision in a bill meant to regulate the healthcare market.

But here's what Hudson has to say about that:

If a person’s decision not to purchase health insurance at a particular point in time does not constitute the type of economic activity subject to regulation under the Commerce Clause, then logically an attempt to enforce such provision under the Necessary and Proper Clause is equally offensive to the Constitution.

I'm no lawyer, but that's just not right. As defined by Hudson, the Necessary and Proper Clause serves no purpose at all, because anything that isn't specifically authorized elsewhere in the constitution logically can't be authorized by the Necessary and Proper Clause either. But the Necessary and Proper Clause isn't meant to merely add an exclamation point to other provisions of the constitution. Rather, it says that rationally related subsidiary means are constitutional as long as the overall ends are constitutional. To make Hudson's paragraph meaningful and non-tautological, it would have to read like this:

If regulation of the healthcare market does not constitute the type of economic activity subject to regulation under the Commerce Clause, then logically an attempt to enforce an individual mandate under the Necessary and Proper Clause is equally offensive to the Constitution.

This would be true. But no one is arguing that Congress can't regulate the healthcare market, so it also doesn't matter. The entire issue at stake here is whether the individual mandate is a reasonable means to implement a piece of regulation that, broadly speaking, is clearly within Congress's purview. But because Hudson peremptorily sweeps this away with his odd tautology, he never really engages with the key question in the entire case. 

For reasons that Jack Balkin summarizes well here, I think the Supreme Court will end up agreeing that the individual mandate is well within the range of means that Congress can choose from in order to regulate a large and important sector of interstate commerce. But whether they do or not, it's hard to believe that they or any other court will take Hudson's facially preposterous reading of the Necessary and Proper Clause seriously.

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Gambling on the Future

| Mon Dec. 13, 2010 3:37 PM EST

Robert Samuelson thinks the Great Recession has eroded America's appetite for financial risk. Matt Yglesias has the right response:

The allergy toward risk-taking isn’t a consequence of the recession, it’s something that existed even beforehand. After the dot-com bubble and the Enron/Worldcom accounting scandals, people were looking for safe investments. And the selling part of housing (for ordinary households) and mortgage-backed securities (for big shots) was that this was supposed to be a basically safe non-speculative investment with a somewhat higher yield than a savings account or a treasury bond. That turned out to be an illusion, but it was a risk-averse pursuit from the beginning.

The entire decade of the aughts was marked by an almost fanatical aversion to risk. All those synthetic CDOs and credit default swaps, all the super senior tranches that banks smugly kept on their books, the whole panoply of measurement tools like VaR and the Gaussian copula — all of them were designed to convince investors that risk had been engineered out of the system. That's why they were so popular. Not because Bush-era investors were bold capitalists with confidence in the future, but just the opposite: it was because Bush-era investors were desperately looking for high-yield investments that were essentially fully hedged and risk free. It was a fool's paradise, all right, but it was a fool's paradise based thoroughly and explicitly on avoiding risk.

Now, of course, it's worse. Investors are still risk averse, but they're also operating in a recessionary environment in which good investment opportunities are genuinely hard to find and financial engineering no longer seems like a panacea. What's changed isn't the fundamental timidity of America's modern millionaire class, only the fact that it's now a lot more obvious.

Should the Supremes Rule on Healthcare?

| Mon Dec. 13, 2010 2:12 PM EST

A district judge in Virginia has ruled that the individual mandate clause in the healthcare reform bill is unconstitutional. Two other district judges have previously ruled the other way. In the normal course of things, these rulings will be appealed, several circuit courts will hand down their opinions, and the Supreme Court will eventually provide a final determination. But Rep. Eric Cantor wants to cut out the red tape:

To ensure an expedited process moving forward, I call on President Obama and Attorney General Holder to join Attorney General Cuccinelli in requesting that this case be sent directly to the U.S. Supreme Court. In this challenging environment, we must not burden our states, employers, and families with the costs and uncertainty created by this unconstitutional law, and we must take all steps to resolve this issue immediately.

I'm not sure what the legal issues are here, but there have certainly been times in the past when I've wondered why we bother going through the whole rigamarole of lower court decisions in cases like this. I mean, everyone knows this is going to end up at the Supreme Court anyway, and everyone knows that the Supreme Court quite plainly couldn't care less what any of the lower courts say about it. All those lower court decisions are no better than waste paper.

But maybe I'm missing some important process issues that make it unwise to just hand this off to the Supremes right away. I'm not quite sure what, though. Regardless of whether you like the law or not, it really does require a ton of planning and implementation, and that would be helped considerably by knowing for sure whether changes will be required by the Supreme Court. Tentatively, then, put me in Cantor's camp.

Tax Cut Deal Wildly Popular

| Mon Dec. 13, 2010 1:16 PM EST

ABC News and the Washington Post have the first poll out about public reaction to the Obama tax cut deal. ABC created a colorful chart of the results, so I'll link to them:

Support for the overall package was extremely high: 68% among Democrats and Independents and 75% among Republicans. But the breakdown in the chart above ought to give all of us lefties pause. It's great to see that extending unemployment benefits polled higher than any other element of the plan, but not so great that bonus tax cuts for the rich polled considerably higher than cutting payroll taxes.

Obviously wording can be an issue in polls like this, and it's notable that the tax cut question didn't provide a choice of supporting only the broad cuts but not the additional cuts for the rich, and also notable that the estate tax question didn't mention that estates under $3.5 million would be tax free in any case. On the other hand, the tax cut question specifically called out "wealthy people" and the estate tax question specifically mentioned an exemption of $5 million. So it's not as if people didn't have some idea of just whose taxes were being cut here.

But the payroll tax cut, which would specifically benefit the working and middle classes, only garnered 39% support. So what's going on? Why are so many more people in favor of an estate tax cut they'll never see but not in favor of a payroll tax cut that will put immediate money in their own pockets?

Possible answers: (a) people don't really understand that cutting payroll taxes means they'll see an immediate increase in their take home pay, (b) people associate payroll taxes so strongly with Social Security solvency that they don't want to cut them, (c) people fantastically overestimate how likely they are to have a $5 million estate when they die, (d) lots of people have a strong instinctive view that people should be able to pass on their wealth to their kids no matter how much it is, (e) people are just generally confused about all this stuff and it's hopeless to try and figure out what's really going on.

In any case, I'll say this again to wavering lefties who have suddenly decided that the tax deal is no good because the payroll tax cut will never be undone and Social Security's finances will be decimated: yes, Republicans will engage in their usual Democrats are raising your taxes! demagoguery when the tax cut expires next year, but no, it won't be very effective. There are lots of good reasons for this, and this poll provides evidence for one of them: the public isn't all that keen on cutting the payroll tax in the first place. They want Social Security fully funded, and that argument, in the end, will carry the day. Never underestimate the power of AARP.

No Labels

| Mon Dec. 13, 2010 12:29 PM EST

Sometimes I wake up and I'm instantly confused. My twitter stream is blazing with snark over some topic that I've never heard of, and every individual tweet simply assumes you know what the fuss is about. Today it's #nolabels. WTF?

Well, it turns out that No Labels is the latest centrist brainchild of....someone. I'm not sure who. But it features such luminaries as Evan Bayh, Joe Lieberman, Michael Bloomberg, David Gergen, and a bunch of others. And what are they all about? I'm not sure. A pragmatic and sensible approach to our nation's problems, of course, and God knows I'm OK with that, but beyond that it's not clear. I browsed through their Issues page, but it was mostly just explanations of problems and links to reports and white papers from other organizations.

I don't want to be instantly cynical about this. Who knows? Maybe it will catch on. But I dunno. Issues are pretty important to people, and No Labels categorically ignores social issues and doesn't go much further on the rest of the issue spectrum either, saying "we don’t want to prejudge or lock ourselves into a given position on any issue when there is a much bigger cause that can unify us as Americans."

Maybe. Turning down the outrage-o-meter certainly sounds like a good idea, but I'm not sure it means much to have a civil discussion if you don't actually engage with all the stuff that normally turns our political discourse uncivil in the first place. In any case, now you know.