Kevin Drum - August 2011

Is Flood Insurance Stupid?

| Tue Aug. 30, 2011 1:12 PM EDT

Matt Yglesias thinks that offering flood insurance to people who build houses in floodplains is idiotic:

The National Flood Insurance Program [NFIP] offers sub-market insurance rates to people who want to build houses in very flood prone areas. It’d be as if we had a special program to offer subsidized health insurance to people who refuse to wear seatbelts. Sounds nuts? And yet there it is.

Naturally, I was thinking about this over the past few days as Hurricane Irene was powering its way north, and I think the words we choose have an important effect on how we think about this stuff. If you call it "subsidized" flood insurance, it sounds like a boondoggle for morons. But what if you simply think of it as a safety net program for rare but unavoidable natural disasters? Then it doesn't sound so bad.

And that's probably the right way to think about it. There are a lot of floodplains in America, many of them in places that are economically important. If you think we should depopulate all of them, that's one thing. But assuming you don't think that, then there has to be some way to handle widespread flood damage when it occurs. Unfortunately, the private sector won't do it for the same reason the private sector won't offer individual health coverage to most people. Don Taylor explains:

Private companies could not compel the purchase of their product absent legislation, so would face tremendous adverse selection problems and/or no one buying their insurance. Into this situation stepped the federal government in 1968, and with a variety of modifications, it has remained the only flood insurance provider in the United States for the past four-plus decades.

NFIP can compel the purchase of insurance. If you live in a designated floodplain, you have an individual mandate to purchase flood insurance. And most of it isn't subsidized. Taylor again: "Around 80% of covered properties are assessed full-risk premiums based on Army Corps of Engineers models; the other 20% have subsidized premiums because the covered dwelling was built prior to the identification of SFHAs in 1974."

This doesn't eliminate the question of whether federal flood insurance is a good idea, whether any of it should be subsidized, or whether the public/private nature of NFIP is a good idea. But it does suggest that NFIP isn't flatly nuts. There are millions of dwellings currently insured for flood damage in over 20,000 towns and cities. There's just no way to take a wrecker to all those houses and raze all those towns. That means insurance has to be available to them, and the only entity capable of spreading the risk widely enough to make flood insurance efficient is the federal government. Thus NFIP.

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Only An Idiot Turns Down Free Money

| Tue Aug. 30, 2011 12:29 PM EDT

Some decisions are hard and some decisions are easy. When someone offers you a thousand dollars on the condition that you pay back $900 in seven years, that's one of the easy ones. But as Ezra Klein writes today, that's the position we're in right now. The federal government's long-term borrowing rate is -0.34%:

Here’s what this means: If we can think of any investments we can make over the next seven years that have a return of zero percent — yes, you read that right — or more, it would be foolish not to borrow this money and make them.

....Our infrastructure is crumbling, and we know we’ll have to rebuild it in the coming years. Why do it later, when it will cost us more and we very likely won’t have massive unemployment in the construction sector, as opposed to now, when the market will pay us to invest in our infrastructure and we have an unemployment crisis to address?

....Everyone knows we have worthwhile investments to make. The real reason we won’t take advantage of this remarkable opportunity is ideology: Republicans argue that deficits are the only thing that matters for our recovery — unless anyone attempts to close them through tax increases, and then tax rates are the only thing that matters for our recovery. And Democrats have stopped even attempting to challenge them.

It's true that this money still has to be paid back, and principal repayments are as real as interest costs. Still, we're being offered free money. Only an idiot would turn it down.

No Expertise Please, We're Republicans

| Tue Aug. 30, 2011 11:14 AM EDT

Jonah Goldberg isn't happy about all the attention some of us pay to so-called experts:

The cult of experts has acolytes in all ideological camps, but its most institutionalized following is on the left. The left needs to believe in the authority of experts because without that authority, almost no economic intervention can be justified. If you concede that you have no idea whether your remedy will work, it's going to be hard to sell it to the patient. Market-based ideologies don't have that problem because markets expect events in ways experts never can.

No president since Woodrow Wilson or Franklin Roosevelt has been more enamored with the cult of expertise than Obama. That none of his economic predictions have panned out is not surprising. What is surprising is that so many people are surprised.

What's remarkable about this column is that Goldberg isn't disparaging a particular kind of expertise or a particular kind of bias he finds endemic. His specific shots are limited to economists and climate scientists, but the column is basically a takedown of all expertise. (Which he conflates with prediction, but never mind.) In the conservative world Goldberg prefers, it's apparently much better to ignore the experts and just let events unfold.

Next week's column will undoubtedly be an attack on liberals for claiming that Republicans are anti-science — with no sense of irony at all. I can't wait.

Science and Human Life

| Tue Aug. 30, 2011 10:23 AM EDT

Pascal-Emmanuel Gobry on the great abortion question of our time:

The biological, moral and legal status of the unborn child isn't a question of metaphysics.

Whether life begins at conception isn't a matter of religious faith, it's a scientific question, and the answer isn't very hard. Of course, you can choose to disbelieve it, just like you can choose to not to believe that CO2 molecules redirect infrared variations.

Now, science isn't a moral guide. The fact that a fetus is a living human being doesn't necessarily entail that it should receive legal protection. But again, resolving this issue requires no recourse to metaphysics.

It requires asking what are the criteria for qualifying as a person endowed with rights.

I'm afraid there's some semantic hairsplitting going on here. Of course a fetus is life; so is a human egg, and so is a human sperm. That's never been at issue. But in the context of abortion, life is just shorthand for human life, and whether a blastocyst or a fetus qualifies as human is very much a religious and metaphysical question. It's certainly not a scientific one.

The list of criteria for being a person endowed with rights starts with being a human being. Those of us in the pro-choice camp don't believe that the mere presence of cellular machinery and a human genome makes one a human being. Those in the pro-life camp do — though I'd note that for many of them, their actions don't back up this professed belief.1 But whichever camp you're in, this isn't a question that science can answer. Pretending otherwise is little more than a tawdry rhetorical trick designed to give your arguments an authority they haven't earned.

1If you really, truly believe that a fertilized egg is a human life, your opposition to abortion will be absolute with the sole exception of abortion that's necessary to save a mother's life. You won't support exceptions for rape and incest any more than you'd allow the killing of a child who was the product of rape or incest. You'll also oppose fertility treatments, which routinely create and destroy more fertilized eggs than they use.

Some pro-lifers do indeed feel this way. But many don't. At a visceral level, these semi-opposers obviously have an aversion to abortion that stems from some source other than a belief that human life begins at conception.

Healthcare Reform Doing Both Better and Worse

| Mon Aug. 29, 2011 6:45 PM EDT

According to the Kaiser Family Foundation, healthcare reform is getting steadily more popular among Republicans and steadily less popular among Democrats. Weird, huh? But as the chart below shows, the popularity of ACA peaked among Dems in January and then started declining, while it bottomed out among Republicans in March and then started rising. Using advanced mathematical techniques, I can forecast that ACA will be equally popular among both Democrats and Republicans in March 2012:

Just kidding, of course. But I think this goes to show what happens when something falls out of public view. Roughly speaking, I think that ACA has been replaced on the cable shoutfest circuit with other topics, which means it's becoming less of a tribal totem. So you no longer say you hate it just because you're a Republican and Fox News says you're supposed to hate it. You only say you hate it if you really do. Ditto in reverse for Democrats. It's becoming less of a culture war issue and more a simple question of whether it provides you any benefits that you care about. And on that score, it's always been better for conservatives than they think (they get their doughnut hole removed just like everyone else) and worse for liberals than they think (most of them won't really see much difference in their healthcare).

This immediate trend won't keep up (the 2012 campaign is likely to put ACA back on the partisan front burner), but this kind of convergence is still pretty likely over the long term. After all, is there much of a partisan split these days about whether you like Medicare or not?

Quote of the Day: Rick Perry Says RTFM

| Mon Aug. 29, 2011 2:45 PM EDT

From Rick Perry, doubling down on the mountain of crazy in his book, Fed Up!:

I haven’t backed off anything in my book. Read the book again, get it right. Next question.

Hoo boy. There's some stuff in that book that any sane presidential candidate would be deftly trying to "clarify" at every opportunity. I guess Perry is choosing another path. Should be fun.

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We've Got a Tough Decade Ahead

| Mon Aug. 29, 2011 2:02 PM EDT

Tyler Cowen points us today to a set of predictions from Michael Pettis that he thinks are "mostly correct." Most relate to China, which Pettis thinks is going to enounter some heavy economic weather in the near future, and I don't disagree. But he also has some things to say about Europe. Here's his forecast for Germany:

Germany will stubbornly (and foolishly) refuse to bear its share of the burden of the European adjustment, and the subsequent retaliation by the deficit countries will cause German growth to drop to zero or negative for many years.

....If Germany does not take radical steps to push its current account surplus into deficit, the brunt of the European adjustment will fall on the deficit countries with a sharp decrease in domestic demand....For one or two years the deficit countries will try to bear the full brunt of the adjustment while Germany scolds and cajoles from the side. Eventually they will be unable politically to accept the necessary high unemployment and they will intervene in trade – almost certainly by abandoning the euro and devaluing. In that case they automatically push the brunt of the adjustment onto the surplus countries, i.e. Germany, and German unemployment will rise. I don’t know how soon this will happen, but remember that in global demand contractions it is the surplus countries who always suffer the most. I don’t see why this time will be any different.

Pettis has been bearish on the euro for a long time, and he's even more bearish now. Here's a bit more detail on his prediction that the eurozone is going to crack up:

Spain will leave the euro and will be forced to restructure its debt within three or four years. So will Greece, Portugal, Ireland and possibly even Italy and Belgium.

...The only strategies by which Spain can regain competitiveness are either to deflate and force down wages, which will hurt workers and small businesses, or to leave the euro and devalue. Given the large share of vote workers have, the former strategy will not last long. But of course once Spain leaves the euro and devalues, its external debt will soar. Debt restructuring and forgiveness is almost inevitable.

I don't know if Pettis is right, but this sounds all too plausible to me. Leaving the euro seems impossible for a number of reasons, but the fiscal integration necessary to save the euro seems impossible too. That's also Wolfgang Münchau's take: "While I cannot see how Greece or Italy can remain in the eurozone indefinitely without a eurobond, I find it equally hard to see Germany, Finland and the Netherlands agreeing to it." So I guess it's a question of which one turns out to be more impossible. Or, perhaps, a question of which faction caves first.

If you held a gun to my head and forced me to guess, I actually think I'd guess that a eurobond and a massive bailout of the PIIGS is more likely than a breakup of the eurozone. At the same time, it's easy to be too complacent about the integration of Europe states over the past 65 years. They're not likely to go to war against each other anytime soon, but that doesn't mean that all the old animosities are gone. They're just lurking below the surface, and a prolonged crisis could create a climate of public opinion that simply doesn't allow for a sensible solution. When the eventual crisis comes, and it's not possible to shove it any further into the future, the euro may not survive

Why College Costs so Much

| Mon Aug. 29, 2011 12:36 PM EDT

Benjamin Ginsberg writes in the Washington Monthly about one reason that the cost of attending university has skyrocketed over the past few decades:

Forty years ago, America’s colleges employed more professors than administrators. The efforts of 446,830 professors were supported by 268,952 administrators and staffers.

....In 2005, colleges and universities employed more than 675,000 fulltime faculty members or full-time equivalents. In the same year, America’s colleges and universities employed more than 190,000 individuals classified by the federal government as “executive, administrative and managerial employees.” Another 566,405 college and university employees were classified as “other professional.”

Faculty growth has been roughly in line with growth in enrollment, which Ginsberg pegs at 50% over the past four decades. By contrast, support staff of various kinds has increased by nearly 500,000, a growth rate of 182%.

There's more at the link, including Ginsberg's take on why this is a bad trend even aside from all the money it costs. Maybe we need fewer adjunct professors and more adjunct administrators?

Who You Gonna Believe?

| Mon Aug. 29, 2011 11:27 AM EDT

Soon-to-be colleague Adam Serwer writes today about a New Jersey Supreme Court ruling about the reliability of eyewitness testimony. In a word, it sucks:

It may seem shocking just how unreliable your eyes can be. The ruling cites studies that showed eyewitnesses picking the wrong person out of a lineup as often as they picked the right one, along with another study showing that even when witnesses are told the person might not be in the lineup, they'll choose an innocent person about a third of the time. The reason is that our memories may seem vivid, they're often not as accurate as we think they are. While lineups are constructed of similar looking individuals precisely to force the witness to think strongly about what they remember, this may result in witnesses unconsciously conforming their memory to the available choices.

The most complex part of eyewitness misidentification, though, is the fact that people who wrongly identify someone are often really confident they've made the right choice — and that confidence is persuasive in court.

This evidence has been around for decades, and it's common knowledge throughout the legal profession. Everyone knows about it, including prosecutors, though they'll generally refuse to acknowledge it for obvious reasons. The fact is that even under ideal conditions most of us are lousy at IDing people, and under the conditions of most crime scenes we're a whole lot worse. There are several things that are known to make eyewitness identification less reliable, and all or most of them are usually in play when you're watching a crime unfold:

  • The action is often far away.
  • It's often dark and the light is bad.
  • There's lots of tension and your adrenaline is pumping.
  • Everything happens quickly.
  • The culprits often belong to a different ethnic group than the eyewitness, and we're all much worse at distinguishing between people of a different race.

There's more, but you get the idea. As Adam says, though, this makes little difference to the witnesses themselves. Just as everyone thinks they're a great driver, just about everyone thinks they're great at remembering faces, too, even if they did get only a brief look in dim light from 50 feet away.

This isn't a topic I've spent a ton of time on, but knowing the basics, and knowing just how widely appreciated this stuff is in the criminal justice profession, I've always been a little surprised that the Supreme Court hasn't weighed in with some new guidelines on the use of eyewitness identification. I'm not talking about the usual stuff, like insisting that police conduct lineups properly, but something deeper: guidelines about how eyewitness testimony can be used in court, how the circumstances have to be disclosed, what kind of instructions the jury should get, and so forth. This is about as fundamental a part of getting a fair trial as there is. Perhaps this New Jersey decision is the first step in making this happen.

The Return of Alan Krueger

| Mon Aug. 29, 2011 10:11 AM EDT

President Obama plans to nominate Alan Krueger to be chairman of the Council of Economic Advisors today, taking over from Christina Romer, who held the position for the first two years of his presidency, and Austan Goolsbee, who held it until last month. Krueger is most famous for his research suggesting that it's possible to raise the minimum wage modestly without hurting employment levels, research that makes conservatives literally apoplectic if you mention it. Think I'm exaggerating? Krueger did the research with UC Berkeley's David Card, and Card shortly decided to abandon the subject because of the furious response it provoked. Here's his explanation for never wanting to do research on the minimum wage again:

It cost me a lot of friends. People that I had known for many years, for instance, some of the ones I met at my first job at the University of Chicago, became very angry or disappointed. They thought that in publishing our work we were being traitors to the cause of economics as a whole.

Now, who knows? Maybe Card is just unusually thin-skinned. But I don't think so. This is the kind of thing that happens when you suggest that there's more to life than simple Econ 101 models. The right hasn't had time to respond to Krueger's appointment yet, and maybe they'll decide to give this a pass since (a) CEA chair isn't exactly a high profile appointment among their tea party base, and (b) they already had their shots at him back when he worked at Treasury. But I imagine we'll start hearing about it soon. Probably ferocious denunciations of Krueger as an ivory tower professor who denies the common sense operation of supply and demand, has no ground level experience in the business world (where he would have learned first-hand the crippling effects of raising the minimum wage), and is intent on, um — debasing the dollar. Yeah. Debasing the dollar.

Or something. Anyway, it should start soon. Should be fun in a B-list kind of way.