Kevin Drum - May 2011

The Global Economy as Slow Motion Train Wreck

| Tue May. 24, 2011 7:13 AM PDT

The Wall Street Journal reports that investors have turned distinctly bearish on the global economy:

The negative news began late Friday, after the outlook on Italy's $1.9 trillion of government debt was lowered to negative by credit-ratings firm Standard & Poor's, which cited weak growth prospects and a slipping economic reform agenda. Then on Sunday, Spain's ruling party suffered a crushing defeat in weekend elections. The heavier-than-expected losses for the Socialist Party of Spanish Prime Minister José Luis Rodríguez Zapatero raise questions about his government's ability to pursue plans to overhaul the euro zone's fourth-largest economy and thereby ward off an international bailout.

This follows a growing political backlash elsewhere in Europe over the bailouts of Greece, Ireland and Portugal that is seen as making any additional support for those countries even harder to galvanize than in the past.

....By late Sunday in New York, the focus had shifted to the other side of the globe as fresh economic data raised concerns about the pace of economic growth in China, with whom the fortunes of other Asian economies are closely linked.

Once the housing bubble collapsed, a recession was inevitable. But the severity and length of the ensuing slump wasn't inevitable, and a second slump certainly isn't either. And yet, either a second recession or its near equivalent now seems more likely than not thanks to our increasingly 18th century approach to economic management over the past year. It's as if we've deliberately gone back to leeches and bleeding as cures for what ails us, and now we're surprised that the patient is getting worse instead of better.

This didn't have to happen. It still doesn't have to happen. It's a manmade catastrophe born of reactionary stupidity and political cowardice. We might still get out of this with our skins barely intact, but if we do it will be thanks only to dumb luck. Buckle up.

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Why Do Hotels Tolerate Sexual Predators?

| Mon May. 23, 2011 9:36 PM PDT

Are hotel housekeepers sexually accosted by guests very often? Jacob Tomsky provides the answer:

Sadly, yes. And more often than you’d think. It’s not an everyday occurrence but it happens enough to make this question all too familiar: “Mr. Tomsky, can you give the new girl Room 3501 until next Tuesday? That man is back, the one who loves to let his robe fall open every time I try to clean.” So, yes, we assign the room to the new girl.

But not before hotel managers roll up to the room, flanked by security guards, to request that the guest vacate during cleaning, or at least promise to remain fully clothed or risk expulsion. Often it need not be discussed in detail: those guests who can’t seem to tie their robe properly usually know exactly what they’re guilty of. Typically, an unsolicited phone call from management inquiring if the service in their room is up-to-standard, and offering to send a manager to supervise the next cleaning, improves their behavior. I remember one exhibitionist guest, in New Orleans, cutting me off before I could get down to business:

“Sir, this is Jacob, the housekeeping manager — ”

“O.K., fine, O.K.!” And he hung up. That was that.

Unfortunately, this doesn't really surprise me. Honestly, though — and I suppose I'm just being naive here — I'm surprised hotels don't have a no-tolerance policy for this kind of stuff: do it once and you're thrown out and blacklisted forever. What's the justification for extending even the slightest forbearance toward this kind of behavior?

UPDATE: Money, of course. Eric Hines tweets the answer: "Because luxury hotels would go out of business if they blacklisted every rich guy unaccustomed to women saying no."

UPDATE 2: Then again, maybe not. Though in the context of a hotel, I suspect it's easier to distinguish real sexual harrassment from the accidental kind than Megan suggests.

What Do Shoppers Look for in an Online Review?

| Mon May. 23, 2011 4:52 PM PDT

A recent paper about which features are most important to travelers shopping for a hotel online concludes that the answer is "proximity to a beach." Unfortunately, says Felix Salmon, a hotel can't do much about that:

What they can do is address the second-most important variable: readability. Just having well-written reviews, it turns out, is much more important than having good reviews: the rating given in the review was much less significant, as were aspects of the review relating to cleanliness, check-in, service, and the like....So Zappo’s, instead of getting people to write good reviews, just got them to fix reviews which already existed — deal with spelling errors, correct grammar, that kind of thing. And anecdotally [], Zappo’s saw a “substantial” improvement as a result of its investment in cleaning up such things.

Zappo's is a shoe company, not a hotel, but they figured that if readability of online reviews made a hotel more desirable, then it might make shoes more desirable too. And apparently they were right.

But take another look at the table of important variables, which I clipped from the paper. The highest positive correlation indeed goes to beaches and the second highest goes to review readability. But there's more to life than positive correlations: the highest correlation of all — by a mile — is review "subjectivity." In other words, people hated it when reviews were just personal stories or vague declarations that a hotel was great. And if there's a negative correlation for subjectivity, that means there should be a positive correlation for the opposite of subjectivity. And indeed there is. From the paper: "The negative sign on subjectivity means that customers are positive influenced by reviews that describe factual characteristics of hotels, and do not want to read personal stories of reviewers."

So if you want to game online reviews, don't worry too much about paying Indian sweatshop workers a few rupees each to write phony positive reviews for your product. Instead, pay them a few rupees each to write lots of simple, factual reviews. If you can hire workers with good English skills, that's a bonus, but the main thing is to remember Joe Friday's advice: "Just the facts, ma'am."

And for the record: Unlike Felix, who isn't sure what he thinks about what Zappo's is doing, I don't think that paying workers to "clean up" other people's reviews even comes within light years of being ethical. You just don't change other people's words without getting their permission, especially when it's for the sole purpose of duping shoppers into thinking that Zappo's customers are a bit tonier than they really are. In fact, I'd say that creating phony but purely factual reviews is probably a step higher on the ethics scale. If Zappo's is under the impression that this is perhaps clever but still entirely kosher, they have a very strange moral compass in their executive suite. If their review "cleanup" ever becomes common knowledge, I'm pretty sure they'll be forced to back down and apologize mighty quickly.

Quotes of the Day: Sarah Palin Edition

| Mon May. 23, 2011 12:06 PM PDT

From a review of Blind Allegiance, a confessional memoir by former Sarah Palin aide Frank Bailey:

Bailey also helped smear a neighbor who complained about excessive tourist traffic around the governor’s mansion. After hearing of the gripe, Palin sent her daughter Piper out to sell lemonade and then derided her neighbor for protesting children at play. Soon, the neighbor was portrayed on conservative blogs as “sick,” “unhinged” and “drug-addicted.” “By the time we finished with our politics of destruction, he surely regretted ever mentioning the governor’s name,” Bailey writes. “He learned firsthand why so few people were willing to speak out against Sarah Palin.”

And this from Gabe Sherman's New York piece on Fox News chief Roger Ailes:

“He thinks things are going in a bad direction,” another Republican close to Ailes told me. “Roger is worried about the future of the country. He thinks the election of Obama is a disaster. He thinks Palin is an idiot. He thinks she’s stupid. He helped boost her up. People like Sarah Palin haven’t elevated the conservative movement.”

Well, Sarah Palin is an idiot. I guess this just goes to show that even Roger Ailes has to be right occasionally.

Deep Sixing the Home Mortgage Deduction

| Mon May. 23, 2011 11:02 AM PDT

Seth Hanlon says that the home mortgage deduction is more valuable for high earners than for low earners. Here's the data:

This seems to suggest that eliminating the mortgage interest deduction would raise effective marginal rates more on rich people than on middle earners, so it would be a progressive thing to do. But I have a couple of questions about this:

  • Above the $40,000 line, the mortgage interest deduction seems to amount to about 1% of income for everyone. But a tax increase of one percentage point is a bigger deal for a median earner than it is for a high earner. So it's not clear just how progressive it would be to get rid of this deduction.
  • This data is solely for owner-occupied housing. But renters benefit too, since landlords can deduct mortgage interest just like homeowners. This reduces their average costs and therefore (on average) reduces rent levels. You need to account for this to see how much benefit there is for workers who earn less than $40,000.

I'm probably in favor of phasing out the mortgage interest deduction regardless since I think we're well past the time when the federal government has any legitimate interest in spurring homeownership. Still, I'm not sure it would be all that progressive a move.

The GOP Field Starts to Gel

| Mon May. 23, 2011 9:48 AM PDT

With Mitch Daniels out of the GOP presidential race, we've pretty much settled on a field, haven't we? Discounting the vanity candidates, we have:

  • Newt Gingrich
  • Tim Pawlenty
  • Mitt Romney
  • Jon Huntsman

I suppose we're also waiting for firm decisions from Sarah Palin and Michele Bachmann, but assuming they decline to run it's hard to see anyone other than Romney or Pawlenty winning. This is just a remarkably thin field.

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You and Your Beliefs

| Mon May. 23, 2011 8:57 AM PDT

Adam Ozimek on our unwillingness to truly reconsider beliefs that are integral to our self identity:

Think about beliefs that you hold and imagine yourself changing your mind. Literally imagine waking up tomorrow with a changed mind and imagine how you would or wouldn’t discuss changing your mind with people you know. Feelings will be strong for beliefs that are important to our identities or that we value for some signaling purpose, like signaling affiliation with some group. Can you actually imagine yourself with these changed beliefs, or is it unthinkable?

....Conservatives, could you imagine becoming someone believes that higher taxes and unemployment insurance don’t hurt economic growth or employment? Liberals can you imagine becoming someone who believes that that minimum wages decrease employment and fiscal stimulus doesn’t work? If the answer is no, you should think about whether it’s because holding such a belief would conflict with your identity or affiliations.

Maybe these are just bad examples, but neither one of them would cause me much angst if I had to change my mind about them. The minimum wage debate has always been balanced on a knife point, with basic theory suggesting that an increase will hurt employment but more detailed considerations suggesting there are small countervailing effects. It's hard to imagine the evidence pointing to a large effect in either direction, but if it did, I wouldn't have a lot of trouble endorsing some alternate way of helping low-income workers.1 Likewise, I didn't endorse the 2009 stimulus because I wanted to spend all that money, I endorsed it because I thought it was the best short-term way to boost an economy in big trouble. If there were indisputably a better way, I'd probably endorse that instead. (Though, as with all things, there are issues of fairness and equity that come into play too, not just pure economic considerations.)

I suppose a better example might be beliefs about taxes in general. There's an obvious tension between economic efficiency, which suggests that consumption taxes are best, and liberal attitudes toward social justice, which motivate a desire for a fair amount of progressivity. The more evidence there is that high income taxes on the rich are bad for economic growth, the bigger the tension. Luckily for me, that evidence is still fairly slim. But what if it became stronger? It's always possible to dream up progressive consumption taxes, but there are limits to what you can do with those. So there's at least the possibility of a fair amount of cognitive dissonance here.

So.....I dunno. I guess a lot of this depends not just on how liberal or conservative you are, but on how inherently pragmatic you tend to be. I have pretty concrete feelings about social justice, but I also have pretty concrete feelings about wanting policies that work well and produce minimal friction. So far this hasn't driven me to drink, but I guess there's no telling about tomorrow, is there?

1Just generally, I've always been a fan of lots of little initiatives to help the poor rather than a few big ones. This is one of the reasons why. If you put all your eggs in one basket, and that basket turns out to be problematic, you're screwed. If you have lots of little baskets, it's not too wrenching to get rid of one and simply increase the others a little bit.

Making Our Own Reality

| Mon May. 23, 2011 8:21 AM PDT

Today the LA Times ran four letters about President Obama's Middle East speech. Here's how three of them started:

Howard Karlitz: In his speech explicitly stating America's friendship with Israel and our commitment to its security, President Obama urged the Israelis to return to their 1967 borders as a means of securing peace....

Kenneth L. Zimmerman: Setting the borders for a Palestinian state the way they were before the 1967 war is the only reasonable solution....

Mike Sacks: Given the logic of Obama's proposal that Israel return to the pre-1967 borders, the following should also occur....

Obama, of course, didn't propose that Israel return to its 1967 borders. I would like to repeat that for posterity while there's still a chance that someone might believe me:

In his speech on Thursday, President Obama didn't propose that Israel return to its 1967 borders.

How is it that this has seemingly become conventional wisdom in just a few short days? Obama's formulation, after all was crystal clear and only 19 words long: "We believe the borders of Israel and Palestine should be based on the 1967 lines with mutually agreed swaps." Israelis and Palestinians have been negotiating on those exact terms for decades.

I don't really know what's happened here. Is it the power of Fox News? The power of AIPAC? Just the age-old power of people to hear what they want to hear and believe what they want to believe? I dunno. But it's really pretty stunning to see this kind of historical revisionism become so widespread so fast.

The State of Play in Israel

| Mon May. 23, 2011 7:53 AM PDT

Matt Yglesias on the aftermath of Bibi Netanyahu's hamhanded public lecturing of the current president of the United States last week, which largely produced bipartisan attacks on the president:

Despite Obama’s lack of desire to shift US policy, he’s subject to opportunistic political attacks from members of the opposition party, attacks which are echoed rather than rebutted by members of his own political coalition. Meanwhile, despite an overhyped trend toward younger Jewish American adopting more sympathetic views toward Palestinians, the fact of the matter is that the Palestinian cause is deeply and increasingly unpopular in the United States.

....It turns out that it’s not true that Israel needs to be willing to make tactical concessions to the Palestinians or even be polite to the White House in order to retain American support. Israel has a basically free hand to behave as it wishes, taking the pieces of the West Bank it wants....If liberal American Jews think this strategy is morally wrong (I do!) or that it’s a strategic mistake for the United States to go along with it (me too!), that it involves denying sufficient weight to the objective humanity of Palestinians, then we ought to say that. Simply assuming that it can’t work is, I think, a slightly naive read of the situation.

This is roughly correct. I happen to think Netanyahu's approach is probably disastrous for Israel in the long term, but that's certainly debatable. For better or worse, Netanyahu and his allies have very clearly decided that they can live without peace pretty much forever, occupying the land they currently occupy and keeping a stifling military presence in the rest of the West Bank. And they've also decided that their support in the United States is strong enough that they don't even have to be civil to a sitting U.S. president, let alone make actual concessions to him.

And maybe they're right. I don't see how this state of affairs can last forever, but it can probably last longer than I think. The Israeli and American right has correctly concluded that no one can stop them, after all.

A Marketing Geek Look at the GOP Primary

| Sun May. 22, 2011 8:31 PM PDT

Michael Grunwald, after observing that the Republican Party is increasingly untethered from reality, notes that there are now two kinds of GOP presidential candidates left, reality-based and wingnuts, and two possible outcomes for them, either beating Obama or losing to him. He then analyzes each possibility, which I've taken the liberty of converting into a sort of bastardized BCG matrix:

If Huntsman or Romney wins the nomination, and then Obama wins the election, the GOP will quickly shift from “loosely tethered to reality” to “out of its freaking mind.” Remember, after its crushing defeat in 2008, the party faithful concluded that John McCain lost the election because he wasn’t conservative enough—and that George W. Bush lost his popularity because of his big spending....A Huntsman or Romney defeat would just prove to the party that electoral salvation lies in ideological purity and rigid obstructionism, the kind of conclusion that already appeals to Tea Party activists who consider Obama some kind of tyrannical socialist usurper.

....On the other hand, if Huntsman or Romney wins the nomination and then beats Obama, the Republican Party might rediscover big-tent reality-based policies. (It’s also possible that Huntsman or especially Romney would cut reality loose.) Similarly, if a Tea Party true believer like Sarah Palin or even former Pennsylvania Senator Rick Santorum wins the nomination, and then Obama wins the election, the Republican Party might have a Goldwater moment where it starts to reconsider its small-tent extremism. (It’s also possible—maybe likely—that it would devise some excuse why Palin or Santorum had sold out conservatism.) And if a reality-denying extremist actually beats Obama, well, then we’re in trouble, because reality-denial isn’t going to fix the double-dip recession we must have had to make a reality-denier electable.

I endorse this pretty much completely. It's not a sure thing, by any means, but these four scenarios do seem the most likely to me. If you rank the probability of each one happening and then multiply by the badness of the outcome, you can also make an informed decision about whether you hope Republicans nominate someone at least modestly reality-based.

I continue to hope that they nominate Michele Bachmann. From this, can you deduce the probabilities and badnesses I assign to each square?