Kevin Drum - June 2011

Things That Make Me Go "Hmmm"

| Thu Jun. 2, 2011 8:55 AM PDT

In a post about a spat between the United States and Europe over who's implementing financial reform faster, Felix Salmon says:

In the short term, the biggest winners in any fight between regulatory authorities are always going to be the banks, who will happily arbitrage differing regional regulatory regimes and take advantage of their parents’ squabbles to stay out drinking all night. In the long term, however, even the banks would ultimately prefer a single global regulatory regime with clear ground rules and a level playing field — something which lets them concentrate on their main job, of banking, rather than expending enormous effort on lobbying and loopholes.

Really? In the long term, I'd guess that clear rules and a level playing field are the last thing that big banks want. Lobbying costs are a drop in the bucket to them and produce returns that make Bernie Madoff look like a piker. What's more, over the past couple of decades big banks have made it crystal clear that they have very little interest in their "main job" and are instead intensely obsessed with bending rules and discovering clever innovations that will make them trillions of dollars in trading profits. "Banking" is for suckers.

This is why simple, blunt rules are best in the financial industry. Sure, they'll end up being inefficient in some ways and unfair in others. That's inevitable. But it pales compared to the inefficiency and unfairness of business as usual. Unfortunately, that's largely what we still have in the aftermath of Dodd-Frank and Basel III. They're better than the status quo, but they simply aren't blunt enough to rein in the rocket scientists of Wall Street for long. And that's just the way Wall Street likes it.

Advertise on MotherJones.com

Chart of the Day - Capping Malpractice Damages in Texas

| Thu Jun. 2, 2011 8:08 AM PDT

Does tort reform reduce healthcare costs by cutting down on frivolous medical malpractice lawsuits? Maybe. But how about the specific type of tort reform supported most strongly by the conservative movement, namely caps on non-economic damage awards? The evidence on that score is pretty strong: it has no effect at all. Today, Aaron Carroll presents the latest evidence about damage caps from a study of Medicare costs in Texas before and after they passed a damage cap law:

So what happened to costs of care after that law was put in place? Citizen Watch analyzed just that using data from the Dartmouth Atlas of Health Care....Texas is blue, the nation is red, and the law went into place at the dotted line. If anything, Texas’s Medicare spending seems to have gone up faster than the nation’s since 2003. Hardly a persuasive argument for tort reform = cost control.

Of course, you barely even need a study to understand the extreme unlikelihood of this working. The goal is to reduce the rate of unnecessary testing that doctors perform merely due to fear of frivolous lawsuits, but frivolous lawsuits, almost by definition, are small and aren't affected by damage caps. The only cases affected by caps are big, serious cases of malpractice, and those are both rare and complicated. They usually turn on some kind of gross negligence, and they're demonstrably non-frivolous. Capping damages in these cases simply has no effect at all on behavior meant to deter nuisance suits and therefore no effect on the practice of defensive medicine.

Of course, this is so obvious that even the Texas legislature surely understands it. However, they also understand something else: trial lawyers make their money on the big, serious cases, and if you cap damages in the big cases then you also limit the income of trial lawyers. And trial lawyers are big contributors to the Democratic Party. So capping damages in serious cases of malpractice does nothing to harm the storefront purveyors of frivolous lawsuits, but it does harm two other groups: victims of serious malpractice and the Democratic Party. That's a shame about the victims, but hey — you can't make an omelette without breaking a few eggs. It's all for the greater good, my friends.

Return to Kurdistan - Part 2

| Thu Jun. 2, 2011 3:00 AM PDT

This is the second part of a three-part series of dispatches from Jonathan Dworkin, an infectious diseases fellow at Brown who spent several months in Iraqi Kurdistan in 2006 and returned for a followup visit in May. Part 1 is here. The final installment will appear tomorrow.


In 2006, during my first week in Sulaimania, a physician colleague made an off-hand comment. He told me that speech here is free, but “not as free.” It struck me as a revealing phrase, but I did not realize how soon the issue would become paramount. In the Kurdish provinces there has been a steady growth of independent media since 2003. During my 2006 visit this consisted mostly of newspapers, including one called Hawlati, or “the people.” This was a cautious beginning, and most criticism of the ruling parties was measured. In the last five years, however, there has been a rapid growth in the independent media, which now consists of satellite television channels, magazines, and websites, as well as newspapers. As is typical with television, and particularly with web media, the change has led to more vitriolic criticism of the government. The government’s response has been one of the defining disasters of the Kurdistan region.

In May of 2010 a Kurdish student named Sardasht Osman was abducted outside his college in Erbil, the capital of the Kurdistan region. Two days later his body was found in Mosul. It was a gruesome murder, and it was highly unusual. Erbil, like the rest of the Kurdish region, has experienced almost no terrorism-related violence in the Iraq War. The unofficial boundary between Kurdish and Arab Iraq is patrolled by the peshmerga, Kurdish soldiers who man checkpoints along all the major roads. Furthermore, Osman was a well-known critic of Massoud Barzani, the Kurdish region’s president, and he had written several inflammatory articles for Kurdish websites. In an article written five months before his death, he wrote metaphorically that he wished he could marry one of Barzani’s daughters, so that he could benefit from the family’s famous nepotism.

For months before his death Osman had received anonymous threatening calls. These increased in intensity after the article dealing with Barzani’s daughter. His friends and family say that he was terrified, particularly around government security vehicles. He went to the police in Erbil, but he received no help. After the murder, Barzani’s government promised an investigation. The conclusion of an anonymous committee was that Osman was connected to a terrorist group, and his death was due to his refusal to participate in terrorism. This report — notably clumsy considering Osman was a well-known secularist — was immediately rejected by everyone who knew the victim. Even the terrorist group, Ansar al Islam, took the unusual step of denying the killing. Human Rights Watch, in a report on journalistic freedom in Iraq, concluded that the investigation was bogus.

If the incident were isolated, the Kurdish government might have some leeway. Unfortunately the murder is part of a broader context of ugly attacks on journalists and opposition members. A Times story on the murder referenced the Kurdistan Journalists Syndicate, which reported 357 cases of intimidation, assault, or arrest in 2009. Libel suits and threats to shut down “unlicensed” media outlets are the most common forms of harassment. As Michael Rubin has pointed out, Kurdish authorities have not investigated the murder of an opposition journalist for Lvin magazine in 2008, nor did they investigate the murder of an opposition politician in Dohuk in 2005. Human Rights Watch, in its report on the Osman murder, documented several threats made against Osman’s friends and family after they refused to accept the findings of Barzani’s anonymous commission. Most importantly, the media crackdown has not ended with the cessation of the recent protests. Intimidation is ongoing, as evidenced by the arrest of the editor of Lvin during my current visit.

Speech in Iraqi Kurdistan is not free, but it is valued. Sardasht Osman’s murder led to large protests, which foreshadowed the even larger protests this spring. Despite the violence, opposition media continue to proliferate. Nalia, the television station recently burned down in German Village, is again up and running. The secular opposition Goran (“Change”) Party has an immensely popular channel, which each night features stories of government abuse and corruption. Hawlati and the other independent papers are now the most respected, and the internet is proving as difficult to control here as it has in other countries. Given the personal risks people take to speak their mind in Kurdistan, it is immensely reassuring to see such a growth in activity. The press here is bruised, but it is kicking harder than ever.

The damage done to the Kurdish government’s credibility, though, may be irreversible. Rather than establishing normal party politics, accepting criticism, and ultimately allowing for a healthy ebb and flow of power, they are digging in. They are, as many here have pointed out, imitating the Arab despotisms that they have long claimed to despise. This explains the growing pessimism in Sulaimania. Though people have not given up on the project of building a democratic society, most no longer have faith in their ability to shape their government. Violence is the new reality, and opposition is the only path left open to them.

Zero Tolerance Losing Its Appeal?

| Wed Jun. 1, 2011 8:20 PM PDT

The Washington Post reports that we're having a sudden outbreak of common sense:

Nearly two decades after a zero-tolerance culture took hold in American schools, a growing number of educators and elected leaders are scaling back discipline policies that led to lengthy suspensions and ousters for such mistakes as carrying toy guns or Advil.

....The shift is a quiet counterpoint to a long string of high-profile cases about severe punishments for childhood misjudgments. In recent months, a high school lacrosse player was suspended in Easton, Md., and led away in handcuffs for having a pocketknife in his gear bag that he said was for fixing lacrosse sticks. Earlier, a teenager in the Virginia community of Spotsylvania was expelled for blowing plastic pellets through a tube at classmates.

....In Delaware, for example, zero-tolerance cases were a repeated issue in the Christina School District, where a 6-year-old with a camping utensil that included a knife was suspended in 2009. Discipline procedures were revamped last year, giving administrators the discretion to consider a student’s intent and grade, as well as the risk of harm. Out-of-school suspensions in the state’s largest school system fell by one-third in a year.

How on earth did we ever stampede ourselves into adopting en masse a policy aimed at children that didn't consider age, intent, and risk of harm? It was like we were suffering from a bout of collective insanity. I understand the problems that teachers and principals have these days, both with legal liability and with parents who scream about discrimination whenever their little darlings are alleged to have misbehaved. But there's just no way that zero tolerance was ever the best answer to these problems. Hopefully we're all finally figuring that out.

Down the Rabbit Hole

| Wed Jun. 1, 2011 12:25 PM PDT

Jon Chait points us to this remarkable imaginary conversation between Barack Obama and Paul Ryan as transcribed by the Washington Post's Ruth Marcus:

Barack: The current system can’t go on. I wouldn’t say this publicly, but my party’s wrong to pretend it can. Still, your approach goes way too far. Seniors would get help to buy private insurance but would pay a lot more than they do now.... You’re forced to make deep cuts in Medicare because you won’t agree to raise taxes and that’s the only other way to get to balance.

Paul: Look, I could maybe support higher taxes as part of an overall deal. I just can’t admit that. On costs, my plan gives extra subsidies to the poorest, sickest and oldest seniors. If those aren’t big enough, we could talk. But it makes sense for wealthier seniors to pay more. And what about the general concept? Could you accept the idea if the subsidy grew at a rate higher than regular inflation?

This is just mind boggling. Like Ross Douthat's response to me a few weeks ago about Republicans and taxes, I hardly know how to respond. I feel like one of us is living in that Spock-with-a-beard alternate universe, and I'm beginning to wonder which one of us it is.

In Marcus's case, she imagines that Paul Ryan — Paul Ryan! — is secretly willing to support higher taxes. That's crazy. There's absolutely nothing in his past history to suggest that he's anything but an unalterable, true-believing hardliner on taxes. In Douthat's case, he wrote that I was underestimating how many Republican lawmakers might accept a modestly tax-increasing budget compromise and suggested that Republican opposition to tax increases was roughly similar to Democratic opposition to spending cuts. Seriously? Of course Dems don't want to cut spending as much as Republicans do, and of course there are some Democrats who won't support domestic spending cuts of any kind. Still, there are loads of centrist Democratic senators who are quite plainly willing to talk seriously about reining in spending, but at a guess, no more than three or four Republican senators who would be willing to support a tax hike of even a dime. The situation in he House is similar. Is this really even a debatable point? Hell, virtually the entire Democratic caucus voted for $500 billion in Medicare cuts in 2009 even though they knew they'd get shellacked for it by Republicans in 2010. And they did.

I just don't get it. The Republican jihad against taxes is hardly a secret, and Republican obduracy against even the slightest tax increase is perhaps the firmest, longest held, and most widely known economic policy held by either party. Nothing else even comes close. So how can smart, experienced journalists and commentators continue to somehow believe that it's all a big show and Democrats just need to demonstrate a bit of flexibility in order to win Republican votes for a tax increase? How can they be seduced by Paul Ryan's mild tone into believing that he's just modestly opposed to tax increases and could be easily reasoned with if only President Obama would invite him over for a beer?

What's going on here? Is Spock clean shaven in my universe or theirs?

Europe's Slow-Motion Financial Collapse

| Wed Jun. 1, 2011 11:32 AM PDT

There's a small boomlet today in blog posts trying to explain what Martin Wolf is saying in his Financial Times column today. If you just want the conclusion, it's easy: Europe is screwed and no one knows what to do about it. But the details are a little trickier.

Roughly speaking, Europe's problem is easy to understand. Countries like Greece and Ireland are borrowing huge amounts of money to stay afloat. This money is coming from healthy economies like Germany and France, which aren't willing to continue loaning vast sums forever. So unless the debtor countries get their finances in order quickly — which seems unlikely — they might eventually be forced to default on their sovereign debt. The problem is that this debt is largely held by banks in healthy countries like Germany and France, and if the weak countries default, those banks are in big trouble. The German and French governments would have to undertake a bank rescue using taxpayer money, so in the end German and French taxpayers will be the ones paying the piper no matter what happens. What's more, the aftermath of such a default and rescue operation would likely be catastrophic.

Drilling down a bit further and using Greece as an example, what's happening at an operational level is that the German central bank is withdrawing credit from German commercial banks and loaning that money to Greece. But Wolf, relying on the testimony of Hans-Werner Sinn, president of the Ifo Institute for Economic Research, says that this can't go on much longer even if we wanted it to:

Prof Sinn makes three [] points. First, this backdoor way of financing debtor countries cannot continue for very long. By shifting so much of the eurozone’s money creation towards indirect finance of deficit countries, the system has had to withdraw credit from commercial banks in creditor countries. Within two years, he states, the latter will have negative credit positions with their national central banks – in other words, be owed money by them. For this reason, these operations will then have to cease.

If I understand this correctly, the basic mechanism is that commercial banks create money, central banks are borrowing it and loaning it to other central banks in weak countries, and once there it ends up being loaned to commercial banks that are losing deposits because no one trusts them to stay solvent. But soon commercial banks in strong countries will no longer owe money to their central banks and this mechanism for fiscal transfers will have to stop.

Paul Krugman describes this as a "slow-motion bank run," and it doesn't end well. But restructuring debt in Greece and elsewhere would provoke a bank crisis in Germany, and that in turn would likely produce another financial collapse like 2008. Felix Salmon quotes a Merrill Lynch report:

While volatility is low, correlations are still very high. And that’s a combination which tends to presage nasty price crashes across many asset classes. In other words, markets are exhibiting a lot of fragility right now, and something drastic like a Greek restructuring could easily send them into a Lehman-style downward spiral.

So there's no answer. As Wolf says:

The eurozone confronts a choice between two intolerable options: either default and partial dissolution or open-ended official support. The existence of this choice proves that an enduring union will at the very least need deeper financial integration and greater fiscal support than was originally envisaged. How will the politics of these choices now play out? I truly have no idea. I wonder whether anybody does.

I don't wonder at all. I think everyone understands the basic state of play and knows perfectly well that there's simply no decent solution. Every possible path is catastrophic in one way or another, and it's human nature to try to avoid a certain doom as long as possible. The fact that waiting just makes it worse hardly matters.

Advertise on MotherJones.com

America Loses 112,000 Jobs in May

| Wed Jun. 1, 2011 9:18 AM PDT

OK, technically that headline isn't true. In fact, ADP estimates that employment grew by 38,000 jobs last month. But the American economy needs to generate about 150,000 new jobs each month just to keep up with the number of new workers entering the economy thanks to population growth. So just as you should adjust price levels for inflation, you should adjust new jobs for population growth. And on that scale, we lost about 112,000 jobs last month.

But quick! Medicare might start having funding problems in 2025 and Social Security might go into the red in 2040. Those are obviously the problems we should be dealing with right this second. And we should deal with them by cutting spending on a bunch of other programs because, um, um, um......

I forget. But I know there's a reason. My TV keeps telling me there is. Something about the rest of the world forcing us to screw the poor and destroy our economy today in order to save it tomorrow. So let's get on with the destruction.

Fear the Knife!

| Wed Jun. 1, 2011 9:01 AM PDT

Aaron Carroll writes today that modern American medicine is even worse than you thought. It turns out there's compelling evidence that arthroscopic knee surgery has no actual effect, but doctors keep doing it anyway. We could save money by just making a fake incision in your knee and doing physical therapy instead.

This made me wonder if I've been the victim of this dramatic placebo effect, since I had arthroscopic surgery on my knee about a decade ago and it worked great. But I guess not. My surgery was to repair a torn meniscus, and a torn meniscus is probably a very real thing. The useless variety of knee surgery is arthroscopic lavage, which is apparently a procedure that cleans out random crud from around your knee. Turns out the crud didn't need to be removed, though. All these knees needed was ordinary physical therapy, which they'd get along with the surgery anyway.

Aaron's point about this isn't just that this is a pretty amazing result, but that it's been largely ignored by both doctors and patients. Doctors still want to cut into knees and patients still want their knees cut into. Who wants a bunch of crud floating around in there, after all?

But now you know. If your doctor recommends arthroscopic lavage in the future, you're going to turn it down. Right?

Right?

Where's the Plan, Paul?

| Wed Jun. 1, 2011 7:39 AM PDT

Jon Huntsman in the Wall Street Journal today:

I admire Congressman Paul Ryan's honest attempt to save Medicare. Those who disagree with his approach incur a moral responsibility to propose reforms that would ensure Medicare's ability to meet its responsibilities to retirees without imposing an unaffordable tax burden on future generations of Americans.

This is arguable, but I won't argue it. Competing plans are good. But can I point out that Paul Ryan hasn't proposed a plan to save Medicare either? He's essentially provided us with a single sentence: "Give seniors a voucher for private health insurance that grows at a much smaller rate than actual healthcare costs."

That's not a plan, it's a soundbite. Ryan has declined to provide any serious details about how his idea would work, and there's a reason for this: he knows perfectly well that details would make his voucher scheme even more unpopular than it is now. With real policy and real numbers attached, people would realize just how little premium support there is, just how far down the income scale higher costs would go, and just how miserly the subsidies would be. A fleshed-out Ryan plan would inevitably be shockingly stingy thanks to his ideologically inspired notions of cost control, and if he were forced to admit just how stingy it was, the ballgame would be over.

So maybe critics of honest plans have an obligation to offer alternatives. But Ryan has produced a plan that's neither honest nor serious. When he does, then maybe Huntsman will have a point.