Kevin Drum - August 2011

How To Lie With Figures

| Wed Aug. 3, 2011 2:05 PM PDT

This is hardly the biggest deal in the world, but it caught my eye so I'm passing it along. It's a "Taxpayer's Statement" mailed to me by my congressman, John Bayard Taylor Campbell III, chairman of the Budget and Spending Task Force of the Republican Study Committee. Take a look at the highlighted lines:

Miscellaneous taxes sure are up! Or wait — the statement calls them "miscellaneous receipts." Hmmm. Let's look at the footnote:

This includes taxes from a variety of places including gaming activity fees, Dept. of Interior fees, Puerto Rico, and other sources.

"Other sources" may sound like it's part of "taxes from a variety of places," but it turns out it's a completely independent clause. The vast bulk of that number, about $75 billion, is profit from the Federal Reserve's investments that have been returned to the Treasury. But even if you read the footnote you wouldn't know that. It just looks like the gummint is sucking up ever more of your money.

In the great game of misleading people about taxes, this is a misdemeanor at most. Maybe a parking ticket. Still, Campbell sure has gone to some lengths to make sure that taxes look high (and growing) and profit from the evil Fed is kept safely out of sight.

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The Importance of Good Statistics

| Wed Aug. 3, 2011 11:07 AM PDT

Ryan Avent reviews some ancient history today. As we all know, the 2009 stimulus package was smaller than it should have been given what we knew at the time. But it was way smaller than it should have been if we'd only known what was really going on. The House passed an $800 billion stimulus bill on January 26th:

Two days after that, Americans received grim news about the economy: in the fourth quarter of 2008, GDP contracted at a 3.8% annual pace—the worst quarterly performance since the deep recession of 1982....Unfortunately, the situation was far more dire than anyone in the administration or in Congress supposed.

Output in the third and fourth quarters fell by 3.7% and 8.9%, respectively, not at 0.5% and 3.8% as believed at the time. Employment was also falling much faster than estimated. Some 820,000 jobs were lost in January, rather than the 598,000 then reported. In the three months prior to the passage of stimulus, the economy cut loose 2.2m workers, not 1.8m. In January, total employment was already 1m workers below the level shown in the official data.

So what would Obama have proposed if he'd known that GDP had just contracted by 8.9% instead of 3.8%? Beats me. But even as cautious as he is and as mainstream as his advisors were, surely a recession that was more than twice as bad as they thought would have produced a stimulus that was something on the order of twice as big. I've never thought that the difference between, say, an $800 billion stimulus and a $1 trillion stimulus was a very big deal, but the difference between an $800 billion stimulus and a $1.6 trillion stimulus sure would have been.

BEA has a long track record of not doing a good job on GDP figures when the economy is turning sharply. It's too late to cry over spilt milk now, but if there's a way to get better at this it might help us out next time.

Quote of the Day: Hostages and Ransom Demands

| Wed Aug. 3, 2011 10:31 AM PDT

From Mitch McConnell, crowing over the debt ceiling fight:

I think some of our members may have thought the default issue was a hostage you might take a chance at shooting. Most of us didn't think that. What we did learn is this — it's a hostage that's worth ransoming. And it focuses the Congress on something that must be done.

Fine. I have no problem with talk like this. And on the bright side, this means that the pearl clutchers at Fox News will stop hyperventilating about Democrats who called Republicans hostage takers. Right?

Turning the Tables on the Debt Ceiling

| Wed Aug. 3, 2011 9:56 AM PDT

Mitch McConnell, the Republican leader in the Senate, has made it clear that he considers hostage taking over the debt ceiling to be the new normal. From now on, Republicans are going to use the threat of default as a routine legislative maneuver. Michael Shear thinks Democrats should reciprocate and do the same when a Republican is president, but Jon Chait isn't sure this will work:

As a practical matter, I doubt this. In order to hold the debt ceiling hostage, you need, at the very least, extremely high levels of party discipline (in the House and the Senate, lest the upper chamber openly break ranks and isolate your hostage-taking wing.) You also probably need a propaganda apparatus that can create its own empirical reality in which the experts who warn that failing to lift the debt ceiling would create dire consequences are all wrong. I don't think the Democratic Party has either of these.

I'd add one more thing to this: what, exactly, would Democrats be holding out for if they did this? Republicans have an ideal topic: in return for raising the debt ceiling, we need to work on reducing the national debt. To a lot of voters, regardless of whether they approve, this at least makes sense. It seems natural, not artificial.

But what would Democrats do? Hold up the debt ceiling unless Republicans agree to bring the troops home from Yemen (or wherever our troops are a few years from now)? Hold up the debt ceiling unless Republicans agree to pass an immigration bill? Hold up the debt ceiling unless Republicans agree to reduce carbon emissions? None of these things seem even remotely tied to the idea of debt, which makes them far more obviously artificial than what Republicans did. And that means less public support and less media support.

That's a drag, but it's reality. Partisan tactics don't always work in mirror image form. We need to have our own outrageous tactics, not necessarily the same outrageous tactics as Republicans.

(Though Jon does offer an interesting twist: next time, maybe Dems should hold up the debt ceiling until Republicans agree to abolish the debt ceiling entirely. I don't know if that would work either, but it's an idea.)

Tackling Healthcare in the Supercommittee

| Wed Aug. 3, 2011 9:09 AM PDT

Yesterday I suggested that if we really had to have a Supercommittee tasked with closing the long-term deficit further, it ought to be focused on healthcare since that's where our long-term deficit problem lies. But I left it to healthcare experts to figure out just what the committee should do.

The first thing to keep in mind, of course, is that when it comes to Medicare about half of our future increases are due to an aging population. Unless you're a big Soylent Green fan there's just nothing we can do about that, so we should face reality and accept the need for a gradual increase in Medicare taxes (or some other funding source) to handle that.

But we can also save money by making Medicare more efficient. PPACA does some of this already, but what more could we do? Austin Frakt is an expert, and he has some ideas:

  • More competitive bidding.
  • Prescription drug formularies to reduce pharmaceutical costs to VA levels.
  • Support comparative effectiveness research.
  • Based on that research, insist on paying for only the cheapest effective treatments.
  • Get tougher on setting rates for all healthcare providers, as the most efficient systems in other countries do.
  • Etc.

There's more at the link. If you want to get a handle on what we could do if we were really serious about cutting Medicare costs without sacrificing quality of care, it's a good place to start.

Wall Street Suddenly Facing Reality?

| Wed Aug. 3, 2011 8:14 AM PDT

I opened up my LA Times this morning and here's what I read (the headline is from the print edition)

Stocks Sink As Market Fears Mount
Investors are spooked by the prospect of even modest bederal budget cuts in an anemic recovery

Two years after the last recession ended, Wall Street is showing rising fear that the U.S. economy could be headed for a new downturn....Despite some relief that Washington could forge an eleventh-hour compromise on the debt ceiling, analysts said the prospect of even modest federal budget cuts in an anemic economy was spooking markets.

"Investors are looking past the budget situation and realizing this is an austerity plan," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "We have an economy that's struggling to stay afloat and we don't have the ammunition to keep prodding it forward."

Oh really? Now you tell us?

There are really only two options here. (1) The Times is wrong. (2) The Times is right and America has the stupidest goddamn investors on the planet. For months they sat around cheering on the tea partiers and declaring solemnly that the federal budget was just like a household budget and we needed "real action" on the debt in order to build confidence in the economy. Then, suddenly, when they got it, they realized that what they really wanted wasn't dumb slogans but actual policies that would help spur the recovery. And that means looser monetary policy and fiscal stimulus.

So which is it? Has Wall Street really been sitting idly by during the whole debt ceiling debacle and has only now realized what it really means? Can they really be so steeped in the Fox News fantasyland that it never occurred to them until now that cutting federal spending during an economic downturn wasn't really a great idea? Seriously?

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Quote of the Day: The Conservative Nanny State

| Tue Aug. 2, 2011 9:46 PM PDT

From Conor Friedersdorf, writing about a new bill reported out of the House Judiciary Committee today:

Under language approved 19 to 10 by a House committee, the firm that sells you Internet access would be required to track all of your Internet activity and save it for 18 months, along with your name, the address where you live, your bank account numbers, your credit card numbers, and IP addresses you've been assigned.

And why do they want to do that? It's all about the children, of course. Click the link for more.

When is a Regulation Not a Regulation?

| Tue Aug. 2, 2011 8:49 PM PDT

I got sucked into a regulatory vortex today. It's way down in some weeds that most of you don't care about, but let me tell you about it anyway. It's instructive.

I don't remember now where I first saw this, but apparently the conservative community is in an uproar over proposed new rules that would classify farm equipment as commercial vehicles, thus requiring farmers to get commercial drivers licenses, keep detailed logs, submit to periodic drug testing, etc. etc. It would be expensive and annoying and farmers don't like it. Just another example of the overbearing Obama administration regulating us to death.

So I got curious. What was this all about? First I went to the website of the Federal Motor Carrier Safety Administration and looked at their Request for Comment on this issue. And I got perplexed. FMCSA didn't really seem to be proposing anything at all. First, they're asking for comment on their longstanding policy about what counts as interstate commerce vs. intrastrate commerce. Second, they're asking for comment on their longstanding policy about whether a tenant farmer who pays rent in the form of a share of the crop should count as a commercial operator since he's hauling someone else's stuff when he delivers the landlord's share of the harvest. Third, they're asking for comment on what should count as an "implement of husbandry."

But here's what's weird: the first two items don't propose any new rules at all. They're solely asking for comment. The third item is a proposed new rule, but the wording suggests that FMCSA is trying to loosen regulations, not tighten them. And yet, a Google search came up with lots of people opposed to the "new rules" and precisely no one who seemed to be in favor. So what's up?

Finally I figured it out. After reading through a blog post about all this, followed by lots of outraged comments ("What else can you possibily find to TAX!!!" etc. etc.), I found an actual substantive explanation of what's going on from Adam Nielsen of the Illinois Farm Bureau. Here's how this all got started:

The issue facing us today surfaced in Illinois when State Police auditors conducting new entrant safety audits for Illinois Department of Transportation suddenly began treating farmers with “crop-share” leases as commercial “for-hire” truckers for the purposes of enforcing federal motor carrier safety rules....At the same time, state auditors began designating “implements of husbandry” as commercial vehicles resulting in a double whammy of enforcement never seen before in Illinois and forcing many farmers to be out of compliance.

So the problem was that state officials in Illinois had suddenly created a bunch of new rules. The Illinois Farm Bureau was unhappy, so they paid a call on the FMCSA:

At our first meeting at U.S. DOT in early March, FMCSA administrator Anne Ferro pledged to review the issue and get back to us quickly with answers. We were pleased when an immediate moratorium on new entrant audits in Illinois was imposed. At our meeting, Administrator Ferro also told us that she was motivated to begin building a ongoing dialogue with the agriculture industry and help her staff gain a better understanding of the movement of agricultural products and equipment. Our D.C. meeting was followed a few weeks later by a large meeting in Springfield with state and federal motor carrier regulators.

....The current Federal Register request for comments is NOT a rule making. It simply asks farm organizations, farmers, and the public for feedback on the agency’s current long standing interpretations.

So here's what seems to have happened. The FMCSA has long had rules that defined most grain haulage as interstate commerce and designated farmers hauling shared crops as commercial operators. This was never a big deal because they had never enforced those rules and neither had anyone else. But then Illinois decided to start enforcing the letter of the law and Illinois farmers were unhappy. So now FMCSA is asking whether these regulations ever made sense in the first place. Ditto for implements of husbandry, where they say that "a narrowly literal reading would mean applying the rules in circumstances where they would be impractical and produce no discernible safety benefits." So they want to make sure that the rules are more practical.

I might still be missing something here. Figuring out what's really going on just by reading rulemaking bureaucratese isn't easy. But it looks like the outrage over this is yet another example of Obama Derangement Syndrome in action. Far from trying to implement a barrage of regulations on our nation's farmers, FMCSA is apparently trying to stop state officials from implementing a barrage of regulations on our nation's farmers. But something tells me this doesn't matter. ODS is strong, and I imagine this is all going to be part of conservative lore for years. After all, everyone knows that liberals just love writing reams of pointless new regulations on hardworking small business owners. Right?

What the Markets are Really Worried About

| Tue Aug. 2, 2011 2:54 PM PDT

When European leaders announced their latest deal to save Greece a couple of weeks ago, I was pretty unimpressed: "It demonstrates yet again," I said, "that European leaders simply aren't willing or able to deal with the eurozone's problems, and probably won't be until something genuinely catastrophic happens." But after I wrote that I read a few summaries of the deal that made it sound a little better than I had thought, so I calmed down a bit. Within a few days, though, Italian and Spanish interest rates started gapping out, suggesting that financial markets considered the plan almost completely worthless. And apparently they still do:

Spanish and Italian politicians rushed to formulate a fresh response to the debt crisis engulfing their two countries as their borrowing costs hit new euro-era highs on Tuesday....The flurry of activity came against the backdrop of another big sell-off in markets. Yields on benchmark 10-year Spanish and Italian bonds peaked at 6.45 per cent and 6.25 per cent, respectively. The premiums Madrid and Rome pay to borrow over Germany also reached new euro-era highs of 404 and 384 basis points.

....Analysts said it was difficult to see what could stop Spanish and Italian rates continuing to climb, particularly in light summer trading. “What can be announced to really break that? It is difficult to see,” said Laurent Fransolet, head of European fixed income research at Barclays Capital.

It's easy to say that Italy's problems are, objectively, not that bad. Sure, their total debt is high, but their current budget is under control and their debt has a pretty long average maturity. But that hardly matters. Not only are they in trouble, but they're in a vicious circle. Because they're in trouble their rates are going up, and as their rates go up they'll be in ever greater trouble. Rinse and repeat. Ditto for Spain. And both countries are far too large for financial markets to be bought off with anything less than a truly gargantuan intervention: Spain is four times the size of Greece and Italy is five times its size.

But what are the odds of a gargantuan intervention? Not very good. It's no wonder that stock markets around the world have been dropping for a week, and continued to drop even after the U.S. debt ceiling deal was announced. For reasons both good and bad, the markets were never all that worried about the debt ceiling. But they are worried about the eurozone, whose problems are far, far more complex and intractable than ours. Our problems, after all, are at least conceptually not too hard to address: cut discretionary spending a bit and let the Bush tax cuts expire in the medium term, and get serious about healthcare expenditures in the long term. And despite what tea party Republicans would like you to believe, we have plenty of taxing headroom to address healthcare funding in the future if we need it.

Nothing so easy is available to Europe. They need to commit to monster bailouts in the short term, something that's politically nearly impossible. And they need to either break up the eurozone or commit to much closer fiscal union in the medium term, something that's equally inconceivable. And yet, it's either that or disaster. No wonder the markets are worried.

Why the Public is OK With Spending Cuts

| Tue Aug. 2, 2011 12:19 PM PDT

Greg Sargent points out today that most of the public is on the side of Republicans when it comes to the budget cuts in the debt ceiling deal:

Sixty five percent approve of deal’s spending cuts. But it gets worse. Of the 30 percent who disapprove, 13 percent think the cuts haven’t gotten far enough, and only 15 percent think the cuts go too far. One sixth of Americans agree with the liberal argument about the deal.

Well, hell, I'm not sure I blame them. The debt ceiling deal doesn't specify where the cuts are going to come from, it just sets a cap on discretionary spending over the next decade. And although the cap does make cuts compared to our current spending levels — which have ballooned partly because of George Bush's first-term spending spree and partly because of the Great Recession — compared to 2000 spending levels, it's hardly draconian. Using the numbers in the text of the law for spending levels, and making some reasonable assumptions about future inflation (2% per year) and future population growth (1% growth per year), my back-of-the-envelope calculation puts real per-capita discretionary spending at the following very rough levels:

  • 2000: $2,350 per year
  • 2021: $2,650 per year

(These are in 2005 dollars because that's what BEA uses.) Given our fragile economy, I think it's crazy to be talking about any spending cuts in the next couple of years. Looking farther out, though, it's hard to get too outraged over discretionary caps that still leave spending at a substantially higher level than we had in 2000. Maybe that's why the public is OK with all this.

(The follow-on cuts, which are supposed to come from the Supercommittee in November, would reduce these numbers further. At that point you might start to see real per-capita cuts. But we'll have to wait and see how that all works out.)