Kevin Drum - July 2011

Michele Bachmann's Headaches

| Tue Jul. 19, 2011 12:33 AM EDT

The Daily Caller reports that Michele Bachmann frequently suffers from severe migraine headaches:

The Minnesota Republican frequently suffers from stress-induced medical episodes that she has characterized as severe headaches. These episodes, say witnesses, occur once a week on average and can “incapacitate” her for days at time. On at least three occasions, Bachmann has landed in the hospital as a result.

“She has terrible migraine headaches. And they put her out of commission for a day or more at a time. They come out of nowhere, and they’re unpredictable,” says an adviser to Bachmann who was involved in her 2010 congressional campaign. “They level her. They put her down. It’s actually sad. It’s very painful.”...."When she gets ‘em, frankly, she can’t function at all. It’s not like a little thing with a couple Advils. It’s bad,” the adviser says. “The migraines are so bad and so intense, she carries and takes all sorts of pills. Prevention pills. Pills during the migraine. Pills after the migraine, to keep them under control. She has to take these pills wherever she goes.”

....Of particular concern to some around her is the significant amount of medication Bachmann takes to address her condition. The former aide says Bachmann’s congressional staff is “constantly” in contact with her doctors to tweak the types and amounts of medicine she is taking. Marcus Bachmann helps her manage the episodes.

I have no idea if this is really serious or not. Still, it sure sounds like something that deserves a more considered response from Bachmann's flack than an opaque statement that her headaches are "under control" and "I’m not going to go into her medical history.” If she wants to be president of the United States, her medical history is no longer something she can just blandly pretend is no one's business but hers. Just ask Thomas Eagleton.

UPDATE: Atrios thinks this is all stupid: "Aside from 'imminent death is likely' I really have never understood why people think random health issues matter."

Look, maybe this story is wrong or overblown. If so, Bachmann can explain and it becomes a non-story. But multiple members of her staff are claiming that this "random health issue" is something that happens frequently and is incapacitating when it occurs. If it's true, then yes, of course this matters in someone who wants to be president of the United States. I know we're all supposed to be disgusted by the media's relentless campaign preoccupation with minor personal issues, but sometimes these things actually matter.

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No, We Will Not Default the Debt on August 4

| Mon Jul. 18, 2011 6:24 PM EDT

All three credit rating agencies have now announced that they'll downgrade the United States if it fails to pass a debt limit increase and then defaults on its bond payments. Fitch is the latest:

The Fitch credit rating agency has warned that it could downgrade the nation's credit rating from AAA to B-plus as soon as Aug. 4 if a deal is not struck to raise the debt limit.

....First, the rating would be placed on Credit Watch Negative — a move already adopted by fellow rater Standard & Poor's. Two days after the deadline, the Treasury has a $90 billion bond due to mature. If the government does not pay in full that bond, Fitch would immediately knock the rating down several notches to B-plus — the highest possible rating for a nation in default.

God knows I don't want to downplay the urgency of all this, but WTF? Unless I'm missing something big here, defaulting on a bond payment is the last thing the government would do. There are a whole raft of other disastrous things (furloughs, Medicare payments delayed, Social Security checks reduced, etc. etc.) that would have to happen first, and even if they did, the Treasury Department probably has the constitutional right to do whatever it has to do to make debt payments anyway.

So what's going on here? Why the pretense that we might default on a bond payment on August 4? There's precisely zero chance of that happening no matter what Congress does.

Quote of the Day: The WSJ Editorial Page Sinks Even Further

| Mon Jul. 18, 2011 1:53 PM EDT

From Felix Salmon, on a Wall Street Journal editorial over the weekend that lashed out at Rupert Murdoch's critics:

That editorial has achieved the remarkable feat of making the WSJ editorial page even less respected than it was before.

I'm not sure I've ever read an editorial quite so self serving and plainly written in a blind rage. It's here if you want to read the whole thing. More from Andrew Sullivan here and David Carr here.

Liberalism and its Discontents

| Mon Jul. 18, 2011 1:14 PM EDT

Back in the 90s, if you'd asked me what my political persuasion was, I probably would have said I was sort of a neoliberal (in the American, Charlie Peters-ish sense of the word). My political leanings are liberal, but my temperament is technocratic and market oriented, and that made me a pretty good fit for the neoliberal team.

I got steadily off that bus over the years, partly because the whole neoliberal project was based on the assumption that moderation from Democrats would prompt similar moderation from Republicans that would eventually turn down the temperature of the culture wars and produce better overall governance. Needless to say, that's not quite what happened, something that Charlie Peters himself recognized and was unhappy about. More recently, though, I've moved even further away from the neoliberal persuasion because my nose has been rubbed a little too firmly in the fact that it simply doesn't work politically. The world is a messy place governed by messy interest groups and messy countervailing powers, and if you absent yourself from that world you'll get steamrolled. Henry Farrell discusses this today:

There is a real phenomenon that you might describe as left neo-liberalism in the US — liberals who came out of the experience of the 1980s convinced that the internal interest group dynamics of the Democratic party were a problem. These people came up with some interesting arguments (but also: Mickey Kaus), but seem to me to have always lacked a good theory of politics.

To be more precise — Neo-liberals tend to favor a combination of market mechanisms and technocratic solutions to solve social problems. But these kinds of solutions tend to discount politics — and in particular political collective action, which requires strong collective actors such as trade unions. This means that vaguely-leftish versions of neo-liberalism often have weak theories of politics, and in particular of the politics of collective action.

I see Doug [Henwood] and others as arguing that successful political change requires large scale organized collective action, and that this in turn requires the correction of major power imbalances (e.g. between labor and capital). They’re also arguing that neo-liberal policies at best tend not to help correct these imbalances, and they seem to me to have a pretty good case. Even if left-leaning neo-liberals are right to claim that technocratic solutions and market mechanisms can work to relieve disparities etc, it’s hard for me to see how left-leaning neo-liberalism can generate any self-sustaining politics.

This is a point I tried to make in different form a few months ago in "Plutocracy Now." Political change requires big, sustained institutional pressure, and in the past that came mainly (though not exclusively) from organized labor on the left and from the business community on the right. But organized labor is now all but dead as a motivating force in American politics, and this means that the nature of America's two main parties has been turned on its head. In the 70s, Republicans were in a certain amount of disarray, while Democrats were the party supposedly captured completely by interest group politics. Today, it's just the opposite: Republicans have been captured almost entirely by a coherent and mutually cooperative set of interest groups who know exactly what they want, while Democrats are at war with themselves, owing allegiance both to middle class interests and corporate funders, and unable to choose between them. Barack Obama is an almost perfect example of this tension, and it's the reason for his longstanding problems with the progressive wing of the Democratic Party. 

In any case, it's pretty obvious which organizing principle has been more successful over the past couple of decades, and it hasn't been the liberal one. Put simply, the middle class simply doesn't have any kind of big, persistent, institutional representation in American politics any more, and that's left the field open for corporations and the rich to increasingly dominate economic policy. They know where their interests lie and they aren't afraid to fight for them.

Unfortunately, answers to this dilemma are thin on the ground, and Obama certainly hasn't figured out an answer. He's just trying to muddle through somehow. I don't know the answer either. But as I said a few months ago, "If the left ever wants to regain the vigor that powered earlier eras of liberal reform, it needs to rebuild the infrastructure of economic populism that we've ignored for too long. Figuring out how to do that is the central task of the new decade." It still is.

Screwing Consumers, One Filibuster at a Time

| Mon Jul. 18, 2011 11:25 AM EDT

Here on the left, everyone has long wanted President Obama to nominate Elizabeth Warren to head up the new Consumer Financial Protection Bureau. It was mostly her brainchild, after all, and she's been running it on an interim basis for nearly a year (as a "special advisor" to the president). But opposition to her appointment is strong, and over the weekend Obama decided instead to nominate Richard Cordray, a former Ohio attorney general who's been running the enforcement arm of the CFPB since December.

The problem with this is that Warren isn't the only potential head of the CFPB that Republicans dislike enough to filibuster. In fact, they dislike all of them. But it's not personal, just business. They hate the whole idea of the CFPB so much that they've promised to keep anyone from running the agency unless some changes are made. Mike Konczal elaborates:

What are the strengths of the way the CFPB is structured in the Dodd-Frank Act? There are many, especially the consolidation of consumer regulation and focus on research. But three structural strengths stand out: it has a single director, there’s been careful attention paid to its budgeting process and it is just like other regulators in terms of accountability but with focus on consumer protection as its primary goal. These three parts of the CFPB were carefully planned, designed and fought for.

....[Those three] major strengths — a director, funding and accountability with a focus on consumer protection — are exactly what the Republicans want to dismantle. No doubt they are trying to stall and annoy the implementation of Dodd-Frank and prevent the CFPB from doing all its work — of course they are — but if there were three critical points where they could significantly weaken what the CFPB can do, these would be those three.

So there you have it. Republicans want to emasculate the agency almost completely because big banks don't much like the idea of a consumer protection bureau. One way to do that is to change the operation of the agency in a way that makes it toothless. Another way is to prevent confirmation of a director, since several of its most important powers are only allowed to be carried out by a Senate-confirmed director and those powers become dead letters if they filibuster every possible candidate. That's what Republicans have promised to do, and it's why Ezra Klein thinks it's hardly a huge loss that Obama didn't nominate Warren:

Whoever is nominated to lead the CFPB is going to spend the next year of his life being filibustered by Republicans. The very best he can hope for is a recess appointment, in which case his tenure in the position would be relatively swift. So the question isn’t who you want leading the CFPB for the foreseeable future. It’s who you want spending his or her time being stopped from leading the CFPB for the foreseeable future. And it’s not clear that the answer to that question is “Elizabeth Warren.”

The real question is, why would anyone want to be this person? Richard Cordray knows what he's in for, so why is he doing it? It's mysterious. But then again, Cordray is a five-time Jeopardy! champion, so maybe he has something up his sleeve that the rest of us can only guess at. Wait and see.

Fannie Mae and the Housing Bubble

| Mon Jul. 18, 2011 1:42 AM EDT

A few weeks ago I criticized a David Brooks column that tried to pin the blame for the housing bubble and its subsequent collapse on Fannie Mae. Afterwards, though, I felt a twinge of guilt. The column was based largely on Reckless Endangerment, by Gretchen Morgenson and Joshua Rosner, and I hadn't read the book. Maybe there was more to this than I thought. So I read the book.

And it was.....weird. The first hundred pages or so were about Fannie Mae in the 90s, when Jim Johnson turned a formerly low-key quasi-governmental utility into a full-blown Wall Street firm obsessed with growth, market share, and executive compensation. Johnson essentially used his political connections with Congress to parlay Fannie's low cost of funds (a consequence of its implicit government guarantee) into a steady stream of ever-growing profits and higher pay. This part of the book is pretty good.

Then the book morphs into something different. Fannie largely disappears from the scene, to be replaced by a couple hundred pages about the subprime mortgage market of the aughts. This part of the book was OK, but not great. Joe Nocera and Bethany McLean told the story a lot better in All the Devils are Here.

But there was also a third strand woven throughout the book, one that tried to blame Fannie Mae (and, to a lesser extent, Freddie Mac) for the Great Collapse of 2008. And this piece of the book just didn't hold up. Morgenson and Rosner's basic argument is a little hard to pin down precisely, but basically they suggest that Johnson's go-go management of Fannie in the 90s somehow gave the green light to Wall Street to go crazy in the aughts. Here's a typical passage, about bank lobbying to keep capital standards low in the late 90s:

Executives at the big banks had watched Jim Johnson's success years earlier in ensuring that capital standards at Fannie Mae would be set exceedingly low. They knew that their profits would be bolstered if they could reduce the amount of money regulators required them to set aside for problem loans. Smaller set-asides meant more money to be deployed in lending or purchases of income-producing securitieis. Banks also recognized what Johnson had — higher profits means loftier executive pay.

Nice try, but does anyone take this seriously? Banks have been keenly aware of the benefits of low capital requirements for about as long as they've been aware that higher profits mean higher executive pay: namely forever. Jim Johnson had nothing to do with it.

The book is studded with passages like this that try to imply that Wall Street might have remained sober and prudent throughout the aughts if only Fannie Mae had set a better example. Robert Kuttner gives this the treatment it deserves in the American Prospect this month:

As Morgenson and Rosner obliquely acknowledge elsewhere in the book, other Wall Street firms created the subprime bubble precisely because Fannie would not buy those loans. Morgenson and Rosner admit this contradiction when they write of the Wall Street-financed boom in poor-quality loans that took off circa 2001: “Because higher-quality borrowers were still at this time the domain of Fannie Mae and Freddie Mac, Wall Street could not hope to compete in this area. So the big investment firms stepped up their interest in alternative mortgage products offered to sub-prime or near-prime borrowers.” In other words, Wall Street went where Fannie prudently feared to tread.

Morgenson and Rosner contend that Fannie’s perdition began in the mid-1990s when the company started purchasing mortgages with down payments of just 5 percent. “Traditionally,” they write, “banks had required that borrowers put 20 percent of the property price down to secure a mortgage loan.” That’s an embarrassingly novice mistake. Veterans’ loans under the GI bill accepted zero down payments. For decades, the Federal Housing Administration has insured loans with down payments of 5 percent—and these loans were purchased by Fannie Mae. Private mortgage insurers, which began competing with the FHA in the 1960s, also offered insured loans with small down payments. How could Morgenson and Rosner have missed something so basic and central to the story? What made these loans safe and insurable and liquid in the secondary market was careful underwriting, of the property value and the borrower’s capacity to pay, not the down payment. It was the lack of serious underwriting that made subprime such a disaster.

The whole thing is well worth a read. Fannie Mae was, in a lot of ways, a rogue and quasi-corrupt agency for much of the 90s and aughts, and its behavior ended up costing taxpayers a bundle. That story deserves telling, and any honest telling leads to an obvious conclusion: at a minimum, Fannie and Freddie need to be seriously cleaned up, and quite possibly they should simply be phased out of existence entirely.

But were they responsible for the housing bubble and its subsequent collapse? Nope. They might have made the very end stages a bit worse than they had to be, but both the bubble and the collapse were almost entirely creatures of the private sector. Strained psychoanalysis of Wall Street aside, the evidence could hardly be clearer on this point.

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The Dotcom Bubble: A Response

| Sun Jul. 17, 2011 6:53 PM EDT

Earlier today I wrote about the new dotcom bubble and how similar it seemed to the last dotcom bubble. A regular reader from Silicon Valley writes to offer a different kind of complaint:

See, this is the kind of crap you get when people look at "Silicon Valley" and see Facebook. The investors I have spoken to accept a fairly stable universe of Google, Facebook, Twitter, Apple, Amazon and Netflix into the mid-future. Nobody likes to look any farther down the road than two to three years anymore, so that's the horizon.

The excitement, the "bubble" if you will, is not about creating another Facebook, it's about finding a way to enhance and monetize an established internet ecosystem. It's the cloud, it's big data, it's Hadoop, Cassandra and Mongo on commodity hardware, it's faster, cheaper storage subsystems, it's scalability and flexibility, the sudden newfound ability to just "switch on" five hundred new servers with no capital cost, and turn around and switch them off on Tuesday. It's deep, low-latency analytics, clickstream analysis, social media mining, and targeted marketing. It's mobile localized communications. It's seamless integration between the OS, the browser, the web application server and the data, all stored in remote indexed and optimized servers that autonomously move the data closer to the user.

It's really interesting and exciting stuff, and all the pieces are almost there. They're still trying to figure out how to scale web properties to hundreds of millions of users, which is incredibly hard, especially because most of them were built on the previous generation's technology — think LAMP stack with sharded MySQL and Memcached. But the infrastructure is catching up. The hardware is actually moving backwards: lower-power, cheaper, slower processors, memory and disk, but now in a clustered and distributed environment that, because failures in that kind of environment are a common event, protect themselves against failure (think multi data center replication, autonomous P2P status monitoring, disk writes to append-only tables before memory writes...).

But most people don't know or care about that stuff. They just know about Facebook and Amazon and Apple, and they get frustrated when they don't work. And that leads to these articles that get the core part of the conversation so dreadfully wrong.

I didn't actually understand most of the geekspeak here (I've been out of touch with the tech world for too long), but I think the general point is sound: too often, when people think about the future of the internet, they focus exclusively on superstar apps like Facebook or Twitter and miss the impact of business apps and the plumbing that drives them. To the extent that the internet will have an impact on future economic productivity, this is where the action is.

Old Consumers, New Consumers

| Sun Jul. 17, 2011 2:08 PM EDT

David Leonhardt explains the roots of our lousy economic recovery today: "We are living through a tremendous bust. It isn’t simply a housing bust. It’s a fizzling of the great consumer bubble that was decades in the making." True enough. And in the short term, debt overhang and unemployment explain perfectly well why Walmart is increasingly noticing that its customers are running out of money at the end of each month. But I think Leonhardt skates over our real dilemma too hastily when he tries to turn this into a broader lesson about the economy:

In past years, many of those customers could have relied on debt, often a home-equity line of credit or a credit card, to tide them over. Debt soared in the late 1980s, 1990s and the last decade, which allowed spending to grow faster than incomes and helped cushion every recession in that period.

…The notion that the United States needs to begin moving away from its consumer economy—toward more of an investment and production economy, with rising exports, expanding factories and more good-paying service jobs—has become so commonplace that it’s practically a cliché. It’s also true. And the consumer bust shows why. The old consumer economy is gone, and it’s not coming back.

…The biggest flaw with the past stimulus was that it imagined that the old consumer economy might return.…A more promising approach could instead offer a tax cut to businesses—but only to those expanding their payrolls and, in the process, helping to solve the jobs crisis. Along similar lines, a budget deal could increase funding for medical research and clean energy by even more than President Obama has suggested. These are the kinds of investments that have brought huge returns in the past—think of the Internet, a Defense Department creation—and whose price tags are tiny compared to, say, Medicare or the Bush tax cuts.

This is fine as far as it goes, but it's basically a Band-Aid. I know this is too simplistic to be taken seriously, but here's my version of what happened over the past few decades:

  1. The economy grew just fine, but rich people got most of the money.
  2. They couldn't spend it all, and investment opportunities were limited, so they ended up loaning it out to the middle class in increasingly baroque ways.
  3. That worked fine until it didn't.

This problem metastasized during the aughts and ended in the Great Collapse of 2008. And I don't know how to fix it. But Leonhardt is too quick to dismiss the "old consumer economy." Modern mixed economies fundamentally depend on consumer spending growing over time, and that only happens if middle-class incomes are also growing over time. If we don't figure out a way to make that happen again, it's hard to see anything we do today producing durable economic growth in the future.

UPDATE: Jared Bernstein brings the numbers here. We haven't transcended the old consumer economy yet.

Explaining Away the Latest Dotcom Bubble

| Sun Jul. 17, 2011 12:49 PM EDT

Here's the headline that greeted me when I opened my copy of the LA Times this morning:

Boom is back in Silicon Valley
Another tech bubble? Maybe. But some analysts say there are differences this time.

Everybody knows about the boom, so I didn't care much about that. What I did care about was learning what particular sophistry is making the rounds to explain why things are different this time. After trudging though a dozen paragraphs about Tesla roadsters, traffic jams on Highway 101, brisk business at Draeger's, Mark Zuckerberg's $7 million house, Apple's new spaceship-shaped campus, and six-figure offers to entry-level engineers, I found it:

Others dismiss talk of another technology bubble. They argue that more than 2 billion people are now plugged into the Internet through high-speed connections, creating vast opportunities for companies that are lining up millions of users and growing sales, even respectable profits. This boom, they say, is being driven not by greedy investors pumping up shares of dot-coms to irrational levels on public markets, but by private investors who are battling for stakes in hot start-ups like Facebook that could turn out to be the next Google...."These are all wealthy private individuals who understand the gambles they are making. It's not like in the dot-com days when grandma was placing bets on IPOs."

Uh huh. In other words, it's not 1999 yet, it's still 1997, back when private investors were battling for stakes in hot start-ups like GeoCities and theGlobe.com that could turn out to be the next Microsoft. Grandma came a couple of years later, during the Kozmo.com era, and she'll undoubtedly reappear shortly in some form that's just different enough from her 1999 guise to keep the illusion of differentness alive. Color me unimpressed.

Good Night

| Sun Jul. 17, 2011 2:05 AM EDT

Here's a picture of the nearly full moon from a few days ago. Not bad for a cheap little camera, is it?