Kevin Drum - April 2011

Our Big Fat Greek Time Bomb

| Wed Apr. 20, 2011 10:46 AM PDT

Greece has no realistic chance of ever paying its external debt. So it needs to default restructure. But if it restructures, German and French banks are screwed. What to do?

Answer: dither some more. But dithering won't help. Greece is a time bomb waiting to go off, and it doesn't look like there's any realistic hope of defusing it.

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Reality and Taxes

| Wed Apr. 20, 2011 9:45 AM PDT

Ross Douthat has responded to my post on taxes, and I want to respond back. I know this kind of back-and-forth can get tedious quickly, so I'll try to keep it relatively brief. But I'd like to make five points:

  • I said that federal taxes had averaged 21% of GDP over the past 30 years, and Ross correctly points out that it's federal spending that's averaged 21%. On a macro level this might or might not matter ("to spend is to tax"), but it does matter if we're trying to figure out how voters will react to an increase in the total tax take. However, I continue to believe that the impact would be much less than Ross thinks. The federal tax take was around 20% of GDP during the Clinton era, so here's what we're talking about: letting the Bush tax cuts expire in a couple of years and then raising tax rates by about four or five points of GDP over the next 20 or 30 years. Done reasonably and fairly, I just don't believe that an increase this gradual would be wildly oppressive.
  • In any case, what choice do we have? Spending has averaged 20-21%, and it's just not plausible that we can actually cut that while the nation is rapidly aging. The best we can realistically do is rein in the growth rate. I think we'd be better off facing that reality and planning a decent tax code to handle it, rather than waiting for catastrophe and whatever disastrous tax plan would likely come out of it.
  • Am I happy about asking middle-class families to pay more taxes during an era, as Ross says, of middle-class wage stagnation and growing income inequality. Nope. And obviously I'd like to attack that inequality at its roots. Still, Social Security and Medicare are fundamentally middle-class programs, and I think it's fair to ask the middle class to pay for them. The rich should pay too, but they shouldn't be turned into welfare programs supported by the rich for the benefit of others. That's corrosive in a lot of ways, and like FDR, I don't support this.
  • Should Medicare be means tested so the taxes of the middle class aren't supporting healthcare for the rich? Maybe. I'm wide open to a lot of proposals for reining in healthcare costs, including some conservative ones. But even if we do a great job on this, Medicare costs are still going to go up. There's simply no plausible path that points in any other direction.
  • Would higher tax rates hurt economic growth? Both Ross and Reihan Salam say they would, but the evidence is slim to nonexistent. All taxes carry deadweight losses, but there's very little evidence that they affect growth rates noticeably at the levels we're talking about here. And Scandinavia — small, culturally homogeneous, and well educated — isn't the only reason to think that higher tax rates aren't economically destructive. Countries like Japan, Germany, and France have also done fine, and they're all large countries with widely varying tax rates and rates of ethnic diversity.

Needless to say, a lot of our disagreement is simply irreconcilable. We just have different views of what the social safety net should look like and how it should be funded. But really, the most discouraging part of all this is how pointless the conversation is. If I were put in a room with Ross and Reihan and we had to hammer out some kind of grand Medicare/taxing/spending/deficit plan, we might be able to do it. It would be pretty bloody, but maybe we could come up with something we all preferred to doing nothing. Unfortunately, Ross and Reihan are at the extreme fringe of the conservative movement. Any real-life deal has to go through real-life conservatives, and they're not willing to concede even Ross's modest view that "taxes will probably go up somewhat relative to the post-World War II average." They don't even think taxes should stay where they are today. They want to cut taxes in the face of an aging population, and they're still resolutely dedicated to this fantasy-based proposition, come what may. Liberals just don't have any negotiating partners here.

What Are You Really Covered For?

| Wed Apr. 20, 2011 8:47 AM PDT

Would healthcare costs in the United States be controlled better if people had more "skin in the game"? That is, if instead of insurance picking up the tab for everything, we had to pay more for medical services ourselves, making us a little more selective about what medical care we need and what medical care we don't? There's some evidence that says the answer is yes, and if it's implemented in a smart way (as in France, for example, where copay amounts vary depending on the value of the treatment) there might be a place for this. The problem, as Aaron Carroll pointed out a few days ago, is that Americans already pay more for medical services than residents of most other countries, but our healthcare costs are going up faster anyway.

But why do Americans pay so much? Part of the reason is that published averages include the uninsured, who have high out-of-pocket expenses. But that's not all. Even the insured, it turns out, have pretty high out-of-pocket expenses. Via Catherine Rampell, here's a chart from the Labor Department that shows coverage of various conditions by private sector health plans. It includes everything that's even partly covered, and as you can see, it leaves a lot to be desired. Sure, office visits and basic hospital costs are covered. But if you need an organ transplant or kidney dialysis or diabetes care? You're probably out of luck. Hell, even maternity care and physical therapy are a crapshoot. But just remember: America has the best healthcare in the world, baby. Don't let anyone ever tell you otherwise.

Our Ongoing Medicare Follies

| Tue Apr. 19, 2011 10:11 PM PDT

Everybody agrees we need to restrain the growth of Medicare. Unless, of course, someone proposes an actual way to restrain the growth of Medicare.

We are ruled by idiots. Bipartisanly, of course.

It's Not Just Rude, It's Ruining Your Brain

| Tue Apr. 19, 2011 9:38 PM PDT

Is it rude to be constantly checking messages while you're socializing with someone else? That's a matter of opinion. But a professor friend emails to remind me that rudeness is actually the least of the problems with the perpetual multitasking of the smartphone generation:

This is the way kids these days think. My administration calls it "the millennial student" and apparently we are supposed to cater to their habits. Fully half of my 60 person general physics class this semester sits in the back of the room on either phone or laptop. They're not taking notes. The good ones are working on assignments for other classes (as if being present in mine causes the information to enter their pores). The bad are giggling at Facebook comments.

....But here's the thing: there is convincing evidence that this inveterate multitasking has a serious, measurable and long lasting negative effect on cognitive function. Look up Stanford psychologist Clifford Nass sometime. There's a lovely episode of Frontline from a year or so ago featuring him. He has shown that multitaskers are not only bad at multitasking, but they are also worse than nonmultitaskers on every individual one of the tasks.

That's the millennial student and it isn't something to be catered to. Put the damn iPhone down before you make yourself stupid.

I should have remembered that! Nass has been studying "high multitasking" for years, and his results are pretty unequivocal. Here's the Frontline interview:

What did you expect when you started these experiments?

Each of the three researchers on this project thought that ... high multitaskers [would be] great at something, although each of us bet on a different thing.

I bet on filtering. I thought, those guys are going to be experts at getting rid of irrelevancy. My second colleague, Eyal Ophir, thought it was going to be the ability to switch from one task to another. And the third of us looked at a third task that we're not running today, which has to do with keeping memory neatly organized. So we each had our own bets, but we all bet high multitaskers were going to be stars at something.

And what did you find out?

We were absolutely shocked. We all lost our bets. It turns out multitaskers are terrible at every aspect of multitasking. They're terrible at ignoring irrelevant information; they're terrible at keeping information in their head nicely and neatly organized; and they're terrible at switching from one task to another.

....We were at MIT, and we were interviewing students and professors. And the professors, by and large, were complaining that their students were losing focus because they were on their laptops during class, and the kids just all insisted that they were really able to manage all that media and still pay attention to what was important in class -- pick and choose, as they put it. Does that sound familiar to you?

It's extremely familiar.... And the truth is, virtually all multitaskers think they are brilliant at multitasking. And one of the big new items here, and one of the big discoveries is, you know what? You're really lousy at it. And even though I'm at the university and tell my students this, they say: "Oh, yeah, yeah. But not me! I can handle it. I can manage all these," which is, of course, a normal human impulse. So it's actually very scary....

....You're confident of that?

Yes. There's lots and lots of evidence. And that's just not our work. The demonstration that when you ask people to do two things at once they're less efficient has been demonstrated over and over and over. No one talks about it — I don't know why — but in fact there's no contradictory evidence to this for about the last 15, 20 years. Everything [as] simple as the little feed at the bottom of a news show, the little text, studies have shown that that distracts people. They remember both less. Studies on asking people to read something and at the same time listen to something show those effects. So there's really, in some sense, no surprise there. There's denial, but there's no surprise.

The surprise here is that what happens when you chronically multitask, you're multitasking all the time, and then you don't multitask, what we're finding is people are not turning off the multitasking switch in their [brain] — we think there's a switch in the brain; we don't know for sure — that says: "Stop using the things I do with multitasking. Focus. Be organized. Don't switch. Don't waste energy switching." And that doesn't seem to be turned off in people who multitask all the time.

Italics mine. So here's the thing: whether it's rude or not, multitasking is probably ruining your brain. You should stop. But if you can't do that, you should at least take frequent breaks where you're fully engaged in a single task and exercising your normal analytic abilities. So why not do that while you're socializing? It's as good a time as any.

Non-Boots, Meet Non-Ground

| Tue Apr. 19, 2011 4:48 PM PDT

So about those ground troops in Libya:

A rebel official in Libya's besieged city of Misrata pleaded desperately on Tuesday for Britain and France to send troops to help fight strongman Moamer Kadhafi's forces, saying "if they don't, we will die." In the first request by any insurgents for boots on the ground, a senior member of Misrata's governing council, Nuri Abdullah Abdullati, said they were asking for the troops on the basis of "humanitarian" principles.

The French foreign minister is said to be "entirely hostile" to the idea of sending in ground troops, but perhaps that phrase doesn't translate quite the way you'd think:

The EU has drawn up a "concept of operations" for the deployment of military forces in Libya, but needs UN approval for what would be the riskiest and most controversial mission undertaken by Brussels.

The armed forces, numbering no more than 1,000, would be deployed to secure the delivery of aid supplies, would not be engaged in a combat role but would be authorised to fight if they or their humanitarian wards were threatened. "It would be to secure sea and land corridors inside the country," said an EU official.

....The planning has taken place inside the office of Catherine Ashton, the EU's foreign and security policy chief....Diplomats say Ashton is pushing for a UN consent under strong pressure from the French, which is generally keen to promote projects supporting European defence and security policy.

This would be an EU force, not a NATO force, and would be tasked only with protecting humanitarian aid, not fighting for the rebels. So, just like all the other non-boots on the non-ground in Libya, this also wouldn't count as boots on the ground. Comprendre?

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The Future of China, Take 2

| Tue Apr. 19, 2011 2:52 PM PDT

A couple of weeks ago I linked to a paper predicting that China's growth would start to slow down in about five years, when its per capita income reaches $17,000. The authors based this on a comparison to a set of other countries that had also experienced high growth rates but eventually slowed down.

This week the Economist gathered a host of economists to comment, and for the most part they all agreed with the gist of the paper. However, they didn't invite Stuart Staniford, who thinks the $17,000 number is all wet. Roughly speaking, he thinks the authors chose the wrong set of countries for comparison, so he set out to get a more apt sample set:

To try to get a better grip on the situation, I did two things. Firstly, to formalize the instinct that the US has been at/near the productivity frontier at most times, I expressed every country's GDP/capita as a fraction of the US value in the same year. Then I started kicking countries out of the sample, unless they met the following criteria: they started out the sample clearly less productive than the US (I took less than 60% as my threshold), and ended up significantly more productive, relative to the US, than they had started out. Ie, we want countries where it's somewhat plausible that there's a story of underdevelopment, period of rapid catchup, followed by slowing growth once the country is a fully developed country with modern capital infrastructure and levels of productivity.

Long story short, Stuart produced the chart below, which suggests China can keep growing at a fast pace until its per capita income is somewhere in the $25,000 range, which is probably still 15-20 years away. I don't have the chops to adjudicate this, but I thought it was worth highlighting a contrarian opinion anyway. China might very well slow down in the next five or ten years anyway, since it faces multiple constraints (resource scarcity, productivity limits, demographics), but the $17,000 limit is just a guess, and you should probably put some fairly large mental error bars around it.

Who's Afraid of Standard & Poor's?

| Tue Apr. 19, 2011 10:47 AM PDT

It's not like Paul Krugman needs my help in spreading his opinions, but people really ought to be paying a little more attention to the fact that right after S&P's warning yesterday morning about U.S. debt, interest rates on U.S. debt.....fell. Why? Because demand for U.S. securities rose and their price went up, as the chart below of a typical treasury index fund shows.

In other words, actual bond traders not only ignored S&P, they decided that U.S. debt was even safer than they thought before. And if S&P's warning didn't have any impact on trading in actual treasuries, it almost certainly didn't have any impact on anything else, including the stock market. As Krugman says, "People, this was a non-event."

The Indy Conundrum

| Tue Apr. 19, 2011 10:06 AM PDT

Greg Sargent notes a contradiction:

The poll finds that 63 percent of independents support dealing with the deficit by raising taxes on those over $250,000. It also finds that only 23 percent of independents support cuts to Medicare and Medicaid, versus 75 percent who oppose such cuts. Indys are far more in agreement with Obama than with Republicans on the two core questions at the heart of the fiscal debate right now.

Yet the poll also finds that only 28 percent approve of Obama’s handling of the deficit, versus 68 percent who disapprove.

How can this be? What explains such odd behavior?

This will probably satisfy no one, but I think the answer is pretty simple. First: the vast, vast majority of independents don't really have any idea what Obama's plan to handle the deficit is. They just know that (a) the deficit is high and (b) Obama is president. Beyond that, there are kids to get to school, laundry to be done, bosses to be pleased, and leaky faucets to be fixed. The details of the deficit debate are just a bit of partisan background noise that they haven't really parsed yet.

Second: the economy still sucks. Unemployment is high, wages are stagnant, housing prices are dropping, friends and neighbors are having trouble making ends meet, and taxes are due. So approval of everything Obama related is down.

I realize that these two things are sort of an all-purpose explanation for everything. Nonetheless, that's my explanation.

Going in Circles in Libya

| Tue Apr. 19, 2011 9:10 AM PDT

The LA Times reports on how things are going in Libya:

"We rushed into this without a plan," said David Barno, a retired Army general who once commanded U.S. and NATO forces in Afghanistan. "Now we're out in the middle, going in circles."

The failure of the international air campaign to force Kadafi's ouster, or even to stop his military from shelling civilians and recapturing rebel-held towns, poses a growing quandary for President Obama and other NATO leaders: What now?

Well, this, apparently:

A joint British-French military team of advisers is to be sent to Benghazi in a move that is likely to lead to accusations of mission creep....The UK-French team will advise the rebels on intelligence-gathering, logistics, and communications. In an indication of the serious nature of the move, the team will be run by a joint force headquarters, the Guardian has learned.

....William Hague, the foreign secretary, said in a statement that the team "will enable the UK to build on the work already being undertaken to support and advise the NTC [National Transitional Council] on how to better protect civilians". He added: "In particular they will advise the NTC on how to improve their military organisational structures, communications and logistics, including how best to distribute humanitarian aid and deliver medical assistance."

Hague said the British section of the team will consist of "experienced British military officers".

Bud these are advisors, not trainers, no rebels are being armed, no boots are on the ground, etc. etc. Move on, nothing to see here, folks.