Kevin Drum - August 2011

Chart of the Day: Still in Debt

| Tue Aug. 16, 2011 9:55 AM EDT

Via Stuart Staniford, here's a chart showing the latest figures for total outstanding household debt as a percent of disposable personal income. Bottom line: American families are still heavily overleveraged, and it doesn't look like we're going to get back down to pre-bubble levels until 2015 or 2016. Stuart's conclusions:

  • US household deleveraging is a slow, painful, but orderly process.
  • It's likely to continue for a number of years more.
  • It's a drag on growth but is not going to cause the end of the world as we know it.  

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Rick Perry Gets Suckered By an Urban Legend

| Mon Aug. 15, 2011 11:24 PM EDT

Generally speaking, blogging is like shouting into a hurricane: it might make you feel better, but hardly anyone hears you and it rarely has any real-world impact. Still, every once in a while something you write makes a teensy tiny bit of difference. So this email made my day:

I was at the Iowa State Fair today and caught Rick Perry's speech. He started talking about this stupid new regulation that would require farmers to get commercial drivers licenses if they drive their tractors across the road. I remember reading about this very issue on your blog so I yelled "That's not true" a couple of times (as can barely be heard on the video at the link) and later asked the Des Moines Register's political editor to fact check the story.

I exchanged emails with her tonight and she sent me a link to their story. So thank you for empowering Iowans like me to challenge the presidential candidates who keep coming to our state.

OK, it's not a lot. But in the fight against dumb right-wing urban legends, every little bit counts.

Quote of the Day: Ben Bernanke Would be Treated "Pretty Ugly" in Texas

| Mon Aug. 15, 2011 8:43 PM EDT

From Rick Perry, revving up an Iowa crowd about the treachery of Fed chairman Ben Bernanke:

If this guy prints more money between now and the election, I dunno what y’all would do to him in Iowa but we would treat him pretty ugly down in Texas. Printing more money to play politics at this particular time in history is almost treasonous in my opinion.

I guess this kind of pseudo-populist buffoonery goes down well with the tea partiers. But I really have a hard time believing that it impresses much of anyone else, no matter which party they belong to.

Repeal the 17th Amendment!

| Mon Aug. 15, 2011 8:17 PM EDT

Several people today, after combing through Rick Perry's book, have noted his peculiar dislike of the 17th Amendment. In case you're a little fuzzy on which amendment is which, this is not the one that implemented the income tax. It's the one that mandated the direct election of senators, instead of having them appointed by state legislatures. That's right: Perry is opposed to electing senators. 

At this point you're probably shaking your head. Where the hell did that come from? Answer: as I learned while I was researching my piece on the tea party last year, it has a long pedigree. Here is Robert Welch, founder of the John Birch Society, writing in 1966 about the Master Conspiracy threatening the United States and the world:

The direct election of senators was of tremendously more importance than was realized when the Seventeenth Amendment was adopted in 1913. For as long as the senators for any state had been elected by the legislature of that state, they clearly represented the state itself as a sovereign entity within a federal union, and not just the citizens of the United States within certain boundaries....The Insiders, however wanted gradually and eventually to bring a concentration of all governmental power into the hands of the executive department of one central government. And the direct election of senators was actually their first huge legalistic step in that direction.

I don't know if there was an anti-17th Amendment movement prior to Welch. I'm not aware of one. But at the very least, it was a mainstay of the John Birch Society as far back as the 60s and it's popped up periodically on the fringe of movement conservatism ever since. In the 80s, W. Cleon Skousen, a big early influence on the JBS and later a big influence on Glenn Beck, began pitching repeal of the 17th Amendment again, and a few years after that Ron Paul took up the banner. Former Sen. Zell Miller of Georgia introduced a bill in 2004 to repeal the amendment, and in 2009 repeal became a talking point among the tea party crowd. Now Rick Perry is on board.

So it's not quite as odd as it sounds. Or maybe I should say, it's every bit as odd as it sounds. But it's nothing new. Just a minor part of the same old Kool-Aid the hard-right fringe has been serving up for decades.

No, Ron Paul Doesn't Deserve Any More Attention

| Mon Aug. 15, 2011 6:04 PM EDT

Roger Simon writes today that Ron Paul got "shafted" by the media because he got no credit for his second-place finish in the Ames straw poll:

“Close” does not fully describe Paul’s second-place finish. Paul lost to Bachmann by nine-tenths of one percentage point, or 152 votes out of 16,892 cast.

....Any fair assessment of Ames, therefore, would have said the winds of the Republican Party are blowing toward both Bachmann and Paul. Nonsense, some would say. Straw polls are just organized bribery, with the campaigns buying the tickets and distributing them to supporters. (And, in fact, this is what I wrote before Ames.)

What they really show, many argue, is not where the philosophical heart of the party is, but the organizational abilities of the candidates. Fine, I’ll buy that. But why didn’t Paul get the same credit for his organizational abilities as Bachmann did for hers?

I'm really tired of nonsense like this. Ron Paul isn't getting any attention because he doesn't deserve any attention, and Simon knows it. Paul has a small but fervent fan base that hasn't grown noticeably since he ran and flamed out in 2008, and he has a well-known (but meaningless) ability to fire up this little fan base for assorted minor events like this. That's his organizational ability and everyone is keenly aware of it. At the presidential level, he deserves about as much respect as Harold Stassen.

The media gets lots of stuff wrong, but not this. On the importance of Ron Paul in the Republican race for president, they've called it exactly right.

The Real Michele Bachmann

| Mon Aug. 15, 2011 2:03 PM EDT

Over the next few months we're going to be treated to an endless slew of articles about Rick Perry that treat him as just another normal, garden variety presidential candidate. It's going to be a master class in how fast the bar of crazy can get lowered.

Ditto for Michele Bachmann, who was universally considered a wild-eyed bombthrower just a few short years ago, but is now talked about in the sober tones of poll matchups, caucus votes, and winning coalitions. So just to remind everyone of what was common knowledge back in the halcyon days of — well, 2010, I guess, here are a couple of new profiles of Bachmann. Tim Murphy tells her life story in MoJo this month:

Since her election to Congress in 2006, Bachmann has earned a reputation as one of the lower chamber's biggest bomb throwers. She has accused the president of harboring "anti-American" views, warned that census data could be used to round up dissenters into internment camps, and declared that the Treasury Department is quietly planning on replacing the dollar with a global currency. To her critics, Bachmann is flat-out crazy, a purveyor of, as Rep. Keith Ellison (D-Minn.) put it, "psycho talk."

....In Washington, Bachmann has shown no signs of letting up; if anything, the stakes have gotten even higher and the nation, under the stewardship of President Obama, has careened that much further along the road to ruin. She's made her mark by framing her opponents' views in the most dire terms—charging that the Obama administration would deny conservatives health care, and that AmeriCorps, the Peace Corps' domestic equivalent, is a forerunner for "reeducation camps for young people." To Bachmann, the Obama administration is a "gangster government," unmoored entirely from the biblically supported constitutionalism she's espoused since her Oral Roberts days. Her rigid conservative dogma, an outlier at the outset of her first congressional campaign, has set the tone for the 112th Congress.

And Michelle Goldberg sounds the alarm on the doctrine of Dominionism that animates both Bachmann and Rick Perry:

Put simply, Dominionism means that Christians have a God-given right to rule all earthly institutions. Originating among some of America’s most radical theocrats, it’s long had an influence on religious-right education and political organizing. But because it seems so outré, getting ordinary people to take it seriously can be difficult. Most writers, myself included, who explore it have been called paranoid.

....We have not seen this sort of thing at the highest levels of the Republican Party before. Those of us who wrote about the Christian fundamentalist influence on the Bush administration were alarmed that one of his advisers, Marvin Olasky, was associated with Christian Reconstructionism. It seemed unthinkable, at the time, that an American president was taking advice from even a single person whose ideas were so inimical to democracy. Few of us imagined that someone who actually championed such ideas would have a shot at the White House. It turns out we weren’t paranoid enough. If Bush eroded the separation of church and state, the GOP is now poised to nominate someone who will mount an all-out assault on it. We need to take their beliefs seriously, because they certainly do.

Read 'em both. And weep.

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Sticky Wages and Long-Term Unemployment

| Mon Aug. 15, 2011 12:31 PM EDT

When an economy goes into recession, an obvious response should be lower wages for workers. However, there's lots of empirical evidence that employers are reluctant to lower the wages of their workers, and it's easy to understand this on a social basis: it's bad for morale, it makes managers feel like dicks, etc. etc. Even in a very bad recession like the one we just went through, most employers weren't willing to go any further than making some modest cuts in benefits (higher copays for health insurance, lower contributions to retirement funds, and so forth). 

But what about the unemployed? Why is it that they don't eventually lower their wage expectations enough to make themselves more employable? Tyler Cowen runs through a few of the arguments on this score and finds them all unsatisfactory. He concludes that neo-Keynesian models are badly lacking:

Often when this topic comes up I feel I am playing a game of whack-a-mole. Most of all, I am struck by how little attention people pay to their own sticky nominal wage hypotheses. If that were the problem, and if unemployment were today’s biggest issue (a totally plausible claim), you might expect people to blog the microfoundations of nominal wage stickiness very, very often. You might expect ethnography. Micro-level data. Lots of juicy anecdotes and journalistic features, not just on the unemployed but on the stickiness itself. Perhaps some micro-level advice. Dozens, no hundreds of blog posts on the all-important microfoundations of the #1 social problem of our time.

But no, there’s not much of those to be seen. At some level it is understood, if only implicitly, that the sticky nominal wage theory is an embarrassment — when it comes to the unemployed across the longer run (but not the employed). It doesn’t get too close a look.

What else? Few people want to come out and utter the possibility: “They’re just too stupid and too stubborn to lower their wage demands.” Mood affiliation reigns, and the prevailing mood is to express sympathy with the unemployed. In fact that sentence is not my view, but it actually makes somewhat more sense than most of what is listed above. A lot of people don’t like hypotheses which suggest the unemployed are not victims of the system, so it doesn’t get much of a hearing.

I am not an economist (IANAE for short), and I don't understand the importantance of sticky wages to models of long-term unemployment. But I guess I'm unclear about how important this really is outside of the academic modeling universe. Tyler says he doesn't believe the folk wisdom that people are just too stubborn to lower their wage demands, and I don't either. I simply know far too many examples of people who are extremely willing to accept much lower wages than they used to make. Maybe not right away, but within a few months or a year at the outside, virtually everyone is willing to accept a pretty sizeable pay cut.

One problem with this, on a purely social (i.e., non-economic modeling) basis is that employers have always been leery of hiring people at reduced wages. They're afraid you'll be bored with a less challenging job. They're afraid you'll be unhappy over your salary and bring a bad attitude to work. They're afraid you're just taking something out of desperation and will jump ship the minute something better comes along. They're afraid that your willingness to accept less is a sign that you know you're unemployable because you're a lousy worker.

But does any of this matter? Tyler suggests a different explanation for long-term unemployment that has nothing to do with wage demands: "I think, by the way, that excess capacity theories are one of the most plausible attempts to explain continuing unemployment....The firm doesn’t want to produce any more output, so the worker’s wage demands don’t matter so much. This will have real import for the analysis of monetary and fiscal policy, so the microfoundations really matter here."

This is where I get confused. In the real world of op-eds and columns and blog posts, as opposed to academic papers stuffed with Greek letters, isn't this exactly what nearly everyone is saying? It's not that workers aren't willing to accept less, and it's not that workers have suddenly become useless in our brave new high tech society. The problem is that we've gone through a financial collapse, households are overleveraged, and this has cratered demand for goods and services. With demand low, firms have no expectation that their business is likely to expand, so they aren't hiring unemployed workers at any wage. Add to that the social issues I mentioned above, and the long-term unemployed are screwed.

Obviously I'm skipping over the deep microeconomic modeling issues here, which are legitimately important to economists, but how does that really affect real-world monetary and fiscal policy? We live in a world that's got too much debt overhang, and outside of the weirdo fringe, I've mostly heard pretty similar approaches to dealing with that from both left and right. So I guess I'm a little unclear about how and whether sticky wages really matter much.

Quote of the Day: Yanking the IVs

| Mon Aug. 15, 2011 10:52 AM EDT

From James Galbraith, writing about our badly misguided approach to reviving the economy:

Federal budget deficits in this situation are like IV-bags in an emergency room: they stabilize things. IV's are definitely linked to sickness, and no one would use them if they weren't necessary. But very few doctors propose to cut back on saline while the patient is still sick. Today, however, the official economists and their followers in Congress, the White House and the media are divided between those who would remove the IV's slowly, whether the patient recovers or not, and those who'd like to charge through the wards, yanking needles from arms. The debt deal enacted earlier this month put the first group in charge, but that's pretty cold comfort.

We are doomed.

Is Rick Perry Too Radical Even For the Tea Party?

| Mon Aug. 15, 2011 10:20 AM EDT

On Saturday I posted my top ten list of reasons that Rick Perry probably can't win the Republican nomination and definitely won't win a general election against Barack Obama. Needless to say, I got a lot of pushback, and the bulk of it had to do with my belief that, even for Republicans, Perry is just a wee bit too crazy radical. The general view of my critics — one that's admittedly persuasive — is that it's pretty much impossible to be too crazy radical for today's Republican voters. Maybe so! And yet, I continue to contend that the rank-and-file of the party still contains a lot of non-crazy non-tea partiers who just aren't going to be willing to pull the lever for someone like Perry (or Michele Bachmann).

But just how weirdly radical is Rick Perry? I tossed off a few examples in my post, but over the weekend Matt Yglesias read Perry's 2010 magnum Opus Fed Up! and today he produces his own top ten list for us. Perry, it turns out, makes Mark Levin look like a squish. Here's a taste:

7. All Bank Regulation Is Unconstitutional: Criticizing the Security and Exchange Commission’s rulemaking process under the Dodd-Frank financial regulation bill, Perry asserts that “if the Constitution were shown the appropriate respect, Washington regulation writers wouldn’t have to worry about underrepresented views, because they wouldn’t have control over them in the first place” (page 94).

— 6. Consumer Financial Protection Is Unconstitutional: Further reiterates his view that all federal financial regulation is illegitimate, listing the SEC on page 44 as part of a “federal alphabet soup” in which “undemocratic unelected Washington bureaucrats” are “now (dubiously) empowered to dictate their own preferences to the American people.”

— 5. Almost Everything Is Unconstitutional: Regrets the existence of jurisprudence construing the Commerce Clause to permit “federal laws regulating the environment, regulating guns, protecting civil rights, establishing the massive programs and Medicare and Medicaid, creating national minimum wage laws, [and] establishing national labor laws.” Perry makes a partial exception for laws barring racial discrimination which he says fulfill “the intent behind the passage of the Reconstruction Era amendments.” (page 51)

And that's just the middle of the list. I suspect there's soon going to be an enormous bubble of pundits reading Perry's book and excerpting the juiciest parts, but this should get you started. In the end, this may or may not end up being too much for Republican voters this year, but it's sure as hell too much for a general election. Unless the economy falls completely off a cliff, or Barack Obama is caught on videotape sneaking out of the White House to engage in serial killings, I flatly don't see how a guy like Perry can win in November. Once Republicans figure this out, Mitt Romney is going to start looking a whole lot better to them.

Corporate America's Grand Failure

| Sun Aug. 14, 2011 10:15 PM EDT

I'm not sure what Steven Pearlstein had for breakfast this morning, but to misquote Abraham Lincoln, "Tell me what brand of cereal Pearlstein eats. I would like to send a case of it to my other columnists."

Another great week for Corporate America!

The economy is flatlining. Global financial markets are in turmoil. Your stock price is down about 15 percent in three weeks. Your customers have lost all confidence in the economy. Your employees, at least the American ones, are cynical and demoralized. Your government is paralyzed. Want to know who is to blame, Mr. Big Shot Chief Executive? Just look in the mirror because the culprit is staring you in the face.

....When it started out all you really wanted was to push back against a few meddlesome regulators or shave a point or two off your tax rate....Somewhere along the way, however, this effort took on a life of its own. What started as a reasonable attempt at political rebalancing turned into a jihad against all regulation, all taxes and all government, waged by right-wing zealots who want to privatize the public schools that educate your workers, cut back on the basic research on which your products are based, shut down the regulatory agencies that protect you from unscrupulous competitors and privatize the public infrastructure that transports your supplies and your finished goods. For them, this isn’t just a tactic to brush back government. It’s a holy war to destroy it — and one that is now out of your control.

....Please don’t tell me about your mealy-mouthed letter warning Congress not to play politics with the debt ceiling. By that point, the Frankenpols you created were not interested in your advice. The only thing that might have got their attention was a threat to cut off the flow of political money. You didn’t — and now they know they can ignore you with impunity.

The thing is, they won't really care until all this chaos affects corporate earnings. So far it hasn't, and America's CEOs — who have never suffered noticeably from a lack of self-regard — probably think that if they can guide their companies to higher profits even through the Great Recession, they must be geniuses. And why should a genius have to worry about their minions on Capitol Hill getting a little friskier than they intended?

And if it all comes crashing down? It'll be someone else's fault. Something Obama did, probably. They'll never learn.