Kevin Drum - March 2011

Quote of the Day: Balancing the Budget

| Thu Mar. 31, 2011 7:05 PM EDT

From Bruce Bartlett, on the latest product of the GOP hive mind:

In short, this is quite possibly the stupidest constitutional amendment I think I have ever seen. It looks like it was drafted by a couple of interns on the back of a napkin.

Come on, Bruce. Don't hold back. Tell us what you really think. 

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A Tale of Three Charts

| Thu Mar. 31, 2011 3:55 PM EDT

Actually, this is a tale of three versions of the same chart. The first one comes from John Taylor and shows fixed investment plotted against unemployment from 1990 to the present:

This is a very striking correlation, and Taylor jumps to an immediate conclusion, namely that "the most effective way to reduce unemployment is to raise investment as a share of GDP." Because of this, he applauds the recent move to "lighten up on the anti-business sentiment coming out of Washington." But Justin Wolfers isn't so sure. Why start at 1990? What happens if you use the full time series all the way back to 1948? You get this:

Wolfers concludes that Taylor's correlation is spurious, "advocacy, dressed up as science." If you look at a longer timeframe, there's virtually no correlation at all.

But Paul Krugman thinks the 1990-2010 data is worth looking at. However, after decomposing it, he concludes that the recent plunge in fixed investment is mostly due to the collapse of the housing bubble. Business investment isn't doing badly at all — and in any case, surely the causation runs in the other direction, with unemployment affecting investment? So he flips the axes, replots the data to look at business investment only, and then Brad DeLong dresses up the chart a bit. Here's what he gets:

Brad's conclusion: not only is business investment a "bit stronger" right now than you'd expect from the data, it's "substantially stronger. 2% of GDP stronger — that's $300 billion a year more in business investment than we would have expected to see with the unemployment rate this high."

Interesting! But I have an entirely different question. First: why did the correlation change so dramatically right around 1990 or so? Second: why did it apparently change again right around 2009? Brad attributes the 2009 break to changes in policy:

Had there been no fiscal and banking rescue policies and if investment had not been boosted by policy, the unemployment rate might as a result be at the 16% of the Blinder-Zandi Republican policy baseline, and only THE ONE WHO IS knows how low business investment spending would be — but it would surely be a lot lower than it is now.

But what about the break around 1990? What accounts for that? Or, perhaps more pertinently, what was it about 1990-2007 that was different from both the period before and after?

UPDATE: Possible answer here!

Obama and Global Warming, Part 2

| Thu Mar. 31, 2011 1:30 PM EDT

Is the Obama administration willing to sell out the EPA in order to get a budget deal, as the AP reported yesterday? Greg Sargent gets a statement from the White House that says it's not:

As the administration has made clear, the funding bill should not be used to further unrelated policy agendas, and we remain opposed to riders that do that, including as it relates to the environment.

That's not exactly the most Shermanesque kind of denial I've ever seen, but still good to hear. Plus, as Greg says:

As a side note, even Republicans I’ve spoken with privately concede that they’re well aware that it’s unlikely that the latter is a concession they could win, since it would be very hard for many Congressional Dems to support any budget deal containing it.

More later as this develops.

Wall Street and the Public

| Thu Mar. 31, 2011 11:39 AM EDT

Matt Yglesias points us to today's Financial Times' report on Jamie Dimon's latest predictions of doom for big finance:

Jamie Dimon, chief executive of JPMorgan Chase, launched a broadside against financial regulation on Wednesday, warning that new capital rules could be “the nail in our coffin for big American banks”.

....Restrictions on debit card fees charged to retailers are also coming under attack in Congress....“It basically penalises us for having debit cards,” he said. “I think it was very unfairly done in the middle of the night with no facts and analysis whatsoever. This is not the way legislation should be done.”

Attacking another aspect of Dodd-Frank, Mr Dimon said rules requiring companies to put up collateral as they trade derivatives would “damage America”. Gesturing at the chief executive of Caterpillar, Mr Dimon predicted the industrial company would take its derivatives business to Singapore.

So Dimon doesn't like higher capital rules, doesn't like derivatives regulation, doesn't like debit card rules, and we already know what the entire industry thinks of the new Consumer Finance Protection Bureau. Long story short, he doesn't really think the financial industry needs any new regulations at all, thankyouverymuch.

Well, if I were him I suppose I wouldn't think so either. But guess what? It's only been two years since the Great Collapse, and finance industry profits have already rebounded to their bubble-era levels. That's a strong sign that finance industry leverage is also returning to its bubble-era levels, which in turn means the industry is about as dangerous as it's ever been. And Dodd-Frank is a notably weak piece of regulation, about as weak as any bill could be and still be called regulatory reform in the first place. Wall Street got off easy, and Dimon knows it.

The FT suggests that the growing pushback against regulation is coming as "anger at the financial industry subsides." Matt disagrees:

Personally, I see absolutely no reason to believe that anger at the financial industry has subsided. The Obama administration was softer on the financial industry than the public wanted, which played into the hands of the other political party. In an ideal world voters would have realized that the other political party wants to be even softer on the financial industry. But in the real world, that’s not how it worked. But I think most people are still pretty damn angry at the financial industry and don’t at all agree with Rep Bachus that the proper role of US public policy is to serve the bankers.

Unfortunately, I think the FT is right: the fact is that the public was never really all that angry at the financial industry in the first place. Tea party anger toward TARP has been mainly directed at the government, not at the financial industry. And the occasional protest against AIG bonuses aside, there's simply never been any real, concerted attack on the financial industry from either left or right. On a scale of 1 to 10, with the healthcare fight rating a 9, I'd say that anger toward banks rates about a 3. That's why Congress has been able to get away with doing so little about it.

Years ago I remember a lot of moderate liberals talking about how the Bush era radicalized them. For me, it was the economic collapse of 2008 that did it. The financial industry almost literally came within a hair's breadth of destroying the world, but even so it took only a few short months for them to close ranks with Republicans and the rich to prevent anything serious being done to rein them in. Profits are back up, new regulations are barely more than window dressing, nothing was done to help underwater homeowners, bonuses are as obscene as ever, unemployment remains sky high, and the public has somehow been convinced that this was all their own fault — or perhaps the fault of big government, or big deficits, or something. But the finance industry has escaped almost entirely unscathed. It's mind boggling. If this doesn't change your view of who really runs the world, I don't know what would.

Good News for Preemies

| Thu Mar. 31, 2011 10:51 AM EDT

Here's some good news for you. Remember a few weeks ago I wrote a post about a drug that helps prevent premature births? For years, a generic version was widely available from compounding pharmacies for about $10 per shot, but then, based largely on studies performed by the federal government, Hologic Inc. won approval of a branded version of the drug. It promptly sold the marketing rights to K-V Pharmaceutical, which jacked up the price overnight to about $1,500 per shot:

Then K-V sent letters to pharmacies threatening that the FDA would punish them if they compounded their own versions of the drug. On Wednesday, the FDA declared it would do no such thing.

In its statement, the FDA noted that the drug was important and K-V "received considerable assistance from the federal government in connection with the development of Makena by relying on research funded by the National Institutes of Health to demonstrate the drug's effectiveness."

...."In order to support access to this important drug, at this time and under this unique situation, FDA does not intend to take enforcement action against pharmacies that compound [Makena] based on a valid prescription," the agency said in a statement.

That's from the Los Angeles Times. It's not the end of the story, since I assume that K-V will now bring its legal and lobbying muscle to bear in defense of its outrageous pricing. But it's a good start.

Further Evidence on the Crazification Factor

| Wed Mar. 30, 2011 9:09 PM EDT

The latest CNN poll says that unfavorable views of the tea party have surged by more than 20 percentage points over the past year:

Nearly half of all Americans have an unfavorable view of the tea party movement....A CNN/Opinion Research Corporation survey released Wednesday indicates that 32 percent of the public has a favorable view of the two year old anti-tax movement.

Hmmm. Unfavorables are up and favorables are down, but still, 32% of the country continues to have a positive view of the tea partiers. I wonder what the floor on that number is? I'm going to take a wild guess and say that it's 27%.

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Is Obama Giving Up On Global Warming?

| Wed Mar. 30, 2011 8:43 PM EDT

AP is reporting that congressional leaders and the White House are working on a compromise budget plan that would cut $33 billion in spending. I'm a little surprised that John Boehner might be on board with this, since I figure he has to allow a government shutdown before eventually compromising if he wants to retain any credibility at all with the tea party wing of the GOP. But maybe he's decided that going through with the shutdown kabuki is pointless because the tea partiers are uncompromising zealots who can't be appeased no matter what. If that's the case, then the $33 billion figure is no big surprise.

But what's up with this?

A Democratic lawmaker familiar with a meeting Wednesday between Obama and members of the Congressional Black Caucus said the administration made it clear that some House GOP proposals restricting the Environmental Protection Agency's regulatory powers would have to make it into the final bill....It's not clear which proposals the White House might accept, but those backed by Republicans would block the government from carrying out regulations on greenhouse gases, putting in place a plan to clean up the Chesapeake Bay and from shutting down mountaintop mines it believes will cause too much water pollution.

These kinds of leaks often turn out to be mistaken in one way or another, so it's probably best not to panic yet. On the other hand, it's notable that Obama barely even mentioned climate change or greenhouse gases in his big energy speech today. This concession to Republicans on the EPA would jibe with that, and if it's true it would mean that Obama has essentially given up completely on anything other than token action to address global warming. That should sure get the base amped up for 2012, shouldn't it?

The Power Politics of Left and Right

| Wed Mar. 30, 2011 1:27 PM EDT

Back during the brief period when Democrats controlled 60 seats in the Senate, they could have rammed through a bill to grant statehood to Washington DC. This would have guaranteed them two extra Democratic senators and at least one extra Democratic House member. So why didn't they do it? Jonathan Bernstein suggests that it demonstrates a core difference between the parties:

I think perhaps the reason is that for whatever reason, in recent years Republicans have tended to use their best legislative and executive chances to secure long-term electoral advantages, while Democrats have tended to use theirs to enact substantive policy.....The point here isn't that the Democrats are especially spineless (or that Republicans are especially ruthless) — it's that they (may) think about, and use, power differently.

....Speaking of which...this also explains another of this blog's hobbyhorses, the GOP certainty that Democrats are going to re-instate the Fairness Doctrine in order to shut down Rush Limbaugh and other conservative radio hosts. If it's true that conservatives do think as Drum and I have speculated, then their belief is explained because they know that that's what they would do if they were in a similar situation. And guess what? As soon as they gained a majority in the House (at least this time around), conservatives moved quickly to defund NPR, which they see as the liberal alternative to conservative talk radio.

This is, more or less, an answer to my question about longtime Republican efforts to defund the left: the reason that Democrats don't do the same thing is because they're more interested in passing substantive policy, and there's only so much bandwidth available to them. If you spend all your time on policy, you just don't have time to do a lot of other stuff.

I'm not sure I buy this entirely, since defunding activities are often pursued by different actors than policy activities. Still, it's an interesting notion, and one that jibes with something I've heard repeatedly on the funding side as well: conservative donors are generally eager to fund overtly political activities, while liberal funders are more interested in funding things they consider worthy endeavors. (And more likely to want lots of control over and accountability from the things they fund.) Food for thought.

Obama's New Energy Snooze

| Wed Mar. 30, 2011 12:34 PM EDT

Unfortunately, it's difficult to disagree with the Economist correspondent who wrote this about the energy proposal President Obama unveiled today:

It is hard to see his half-baked, reheated list of proposals as anything more than a reassurance to the environmentally-minded, and to Americans fretting about rising fuel prices, that the president feels their pain — unlike those nasty Republicans.

The proposal itself is pretty pedestrian, and in any case has zero chance of being approved by Congress. More details at the link, as well as from Ezra Klein and Stuart Staniford. Overall, it's hard to work up the enthusiasm even for a lengthy blog post about this, let alone anything more.

Crazytown Just Keeps Getting Crazier

| Wed Mar. 30, 2011 12:09 PM EDT

A growing swath of conservatives apparently thinks that states can seize control of all federal healthcare spending just by banding together and getting Congress to agree. They also apparently believe that states can require taxes to be paid only in gold or silver bullion. What's next? Now they believe that the House can pass its own budget, H.R. 1, without agreement from either the Senate or the president:

House Majority Leader Eric Cantor (R-Va.) said at a press conference that Republicans would consider the Government Shutdown Prevention Act on Friday. The bill would make H.R. 1 law if the Senate fails to pass a measure “before April 6” to fund the government for the rest of the fiscal year.

....“We’re serious. We want to take care of this problem so we can get on about the business of this nation and get Americans back to work,” Cantor said.

By Republican standards, I guess this actually does count as serious. But that says more about modern Republican standards than it does about the meaning of the word "serious."