Kevin Drum - September 2011

Obama's Veto Threat

| Mon Sep. 19, 2011 8:13 AM PDT

Realistically speaking, there's not much chance that Congress will pass either Obama's jobs bill or his new deficit plan. To a large extent, both things are more about political positioning than they are about actually passing legislation. Matt Yglesias spins this out:

In that context, the biggest news out of today’s deficit plan from President Obama probably isn’t the plan itself but an ancillary veto threat. We’ve long known that the White House favors higher taxes on the rich, and also that it’s willing to consider agreeing to some very right-wing notions about Medicare spending as part of a grand bargain to get it. Today, though, the president is clearly stating for the first time that he will veto any plan from the super committee or elsewhere that cuts Medicare benefits without raising taxes on the wealthy. That has practical importance and makes it much more likely that we’ll end up getting the super committee trigger cuts rather than a new Democratic rollover.

If Obama sticks to his veto threat, this is true. And I suspect he will stick to his veto threat. After all, if this is mostly about political positioning, then the position Obama very clearly wants to monopolize is that he's the guy who defends middle-class entitlements while demanding that the rich pay their fair share. A veto threat is a good way to dramatize this, and an actual veto would be even better.

The next step is for congressional Democrats to rein in their parochial interests and back this up loudly and completely. I don't know if they're smart enough to do this, but if they do, it would be pretty good branding. Republicans are the party of low taxes on millionaires even if it means a higher deficit; Democrats are the party of fiscal prudence and making millionaires pay the same tax rates as the rest of us. If they can really stick to this, every scrap of polling evidence suggests it would be pretty popular.

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David Vitter's Crony Capitalism

| Sun Sep. 18, 2011 10:34 PM PDT

Time's Michael Grunwald writes today about Louisiana Sen. David Vitter's charges of crony capitalism in the Solyndra affair:

“We can’t afford any more crony capitalism,” Vitter said in Wednesday. Vitter should know. He’s written a bunch of letters to the Energy Department’s loan program seeking loans for renewable energy firms.

For example, on July 1, 2009, Vitter and Democratic Senator Mary Landrieu of Louisiana wrote Energy Secretary Steven Chu to support a loan application by the V Vehicle Company, a clean-car start-up (backed by T. Boone Pickens and the venture capital leviathan Kleiner Perkins) that was planning a Louisiana factory. “This vehicle would serve as a catalyst for job creation,” they wrote. A year later, Vitter joined the entire Louisiana delegation in another letter pushing “expedited consideration” for VVC. Alas, the Energy Department rejected the loan, citing concerns about the company’s financial viability. Vitter must have been annoyed by all this due diligence, because in December 2010–after VVC changed its name to Next Autoworks–he, Landrieu and Congressman Rodney Alexander tried once more. “Every day that Next Autoworks’ application is delayed is another day that workers cannot be hired,” the wrote. So far, no luck.

No wonder Vitter’s angry: His cronies are losing!

Read the whole thing. It's really a delightful post. As Grunwald says, the Solyndra story isn't really about Solyndra itself anyway. It's just another failed investment, after all. "No, the Solyndra story is about renewable energy. If we don’t want to be dependent on petro-thugs for our survival, if we don’t want to broil the plant, if we don’t want the health of our economy to hinge on the energy futures markets, we’re going to have to reduce our dependence on fossil fuels. But certain industries have a strong interest in strangling green energy in its cradle. And those interests are well represented in Louisiana."

Paul Ryan Insults Our Intelligence Yet Again

| Sun Sep. 18, 2011 6:33 PM PDT

Oh look. What a surprise.

After three decades of public policy that led to the super-rich doubling their share of national income while paying tax rates a fifth lower than before — yes, folks, that's way more money and way lower tax rates — 

After three decades of policies that lavishly rewarded the super-rich — and produced wage stagnation for everyone else, a massive financial collapse that ravaged the middle class, and enormous deficits that they'll be asked to pay off eventually —

After three decades of that, what do Republican leaders call President Obama's plan to raise taxes a bit on millionaires?

Class warfare, of course. The sheer gall is staggering. Still, why should they stop? They'll never get ashamed of hawking that old-time snake oil as long as hawking it keeps working.

Who Will Tend the Machines That Tend the Machines?

| Sun Sep. 18, 2011 2:06 PM PDT

Here's another clip from Christiane Amanpour's interview with Google chairman Eric Schmidt:

AMANPOUR: But what about the very real problem, and that is many businesses seeing, precisely because of the efficiency of, let's say, online, and the new sort of technology, that it is much cheaper to buy a machine to do a job — you don't have to train it, you don't have to pay it wages — rather than hire a person. I mean, this seems to be the structural reality of the economy now.

SCHMIDT: That's been true for a hundred years. It's been true of the industrial era for literally the last century. And over and over again, American ingenuity has meant that people who were displaced were able to find new jobs in these new industries. People who did something manually learned how to operate the machine.

The smart money says that Schmidt is right. People have been complaining since the start of the Industrial Revolution that machines would make people obsolete, and they've been wrong ever since.

And yet.....Schmidt phrases this correctly: "People who did something manually learned how to operate the machine." As long as machines increased productivity enough, they created as many jobs as they destroyed even if it took a tenth the number of people to tend the machines as it did to do the same job by hand. Individuals might lose their jobs, and entire sectors might die, but the economy as a whole would employ as many people as it did before. Requiring one-tenth the labor is fine as long as GDP has grown 10x: Everyone's still employed, and even better, everyone is sharing in the output of a much bigger economy.

But that's starting to change. Now we're starting to build machines to tend the machines. That is, we're not building machines to take over physical labor, we're building machines to take over mental labor. And it's a lot less clear what that does to economy-wide employment. Even if you assume that these machines are more efficient than humans and boost overall productivity, what are the jobs that humans get transferred to? If machines are doing the physical work and machines are doing the supervisory work, all that leaves is jobs for people tending the machines that tend the machines. But once you go two levels deep like that, the economy would have to grow astronomically to keep everyone employed. One hundredth the amount of labor is fine as long as GDP grows 100x, but that's not going to happen. Energy constraints alone will prevent it, at least in the medium term.

We've only barely begun to see the thin edge of this particular wedge so far. But that's because machines still aren't very smart and can only take over supervision of the most routine jobs. Even at that, though, I suspect it's had a small effect on a certain segment of the labor force already. Not the very bottom, which is mostly pure labor and has already been decimated about as much as it's going to be. And not at the middle and top levels, where computers are still years away from being able to take over anyone's job. But what about the segment right in between, where the physical labor is minor and the mental labor isn't much more? That stuff can go away and never come back.

To take an example from the near future, what happens when Google finally builds a safe, reliable robotic car? Truck drivers are all put out of business, that's what. And if we can build a computer smart enough to drive a truck, we can build a computer smart enough to do just about anything else that your average truck driver can do. There's just nowhere to go. In science fiction novels, this gives us all time to corral our inner muses and produce endless entertainments and amusements for each other, but that's not going to happen in real life. Most of the people who lose their jobs because their cognitive skills are inferior to a machine aren't going to suddenly start creating great art. Or even mediocre art.

I'm just musing out loud here, not pretending to have thought deeply about all this. And none of this is anything close to new. But I still wonder just how soon we're going to have to face up to it. Sooner than we think, I suspect.

Google's Chairman Speaks Some Home Truths

| Sun Sep. 18, 2011 11:46 AM PDT

Christiane Amanpour talked to former Google CEO (and current executive chairman) Eric Schmidt today about why businesses are in the doldrums:

AMANPOUR: Everybody says that confidence is the name of the game, that the economy and consumers are not going to start buying, businesses are not going to start hiring again, unless they feel a period of confidence and stability, producing the kind of confidence that's necessary for a hiring binge.

SCHMIDT: The economy is today stuck behind the power curve. It needs a lot of encouragement. It needs not just something like the jobs bill, but also significant government stimulation in terms of buying power and investment. Otherwise we're set up for years of extraordinarily low growth in the economy and no real solution to the jobless problem.

But you say significant stimulus. Obviously this is a political environment where the only real conversation is about cutting. Do you see any expectation or possibility of a climate for more stimulus?

Well that's a political question. But the current strategy is ludicrous. You have a situtation where the private sector sees essentially no growth in demand. The classic solution is to have the government step in, and with short-term initiatives help stimulate that demand. If they do it right, they'll invest in income and growth producing things, like highways and bridges and schools.

....So this is a pretty dark picture that you're painting. Add to that no confidence from consumers, and businesses sitting on something like 2 trillion worth of profits, which they're not going to spend apparently. Does the president have a material problem with the business community?

The real problem is not the business community. The real problem is: the Democrats and the Republicans fight for one point or another in a political sphere, while the rest of us are waiting for the government to do something concrete and predictable. What business needs is predictable, long-term plans. We need to know: Where is government spending going to be, what are the government programs going to be? And off we go.

Business can create enormous numbers of new jobs in America. All we need to see is more demand. What's happening right now is: Businesses are very well-run, they have a lot of cash. They're waiting for more demand. At the moment, business efficiency allows them to grow at 1 or 2 percent, which is what we're seeing today. They don't have to hire more people. And until we solve the problem, people are going to sit idle. And it's a real tragedy.

Why don't more CEOs talk like this? Schmidt is right: American companies need more demand. That's the uncertainty that's dominating their lives right now: economic uncertainty, not the ludicrous specter of regulatory uncertainty that Republican politicians and Fox News keep pretending is our big problem right now.

In the short term, that means doing something. We can argue forever about the relative merits of NGDP targeting vs. higher inflation vs. more stimulus vs. increasing the monetary base, but to a significant extent, these are all different names for the same thing. Eventually they won't be, but right now we should basically be doing all of the above. That would help the business community. If America's CEOs would wake up for a minute and start demanding that the GOP do something about this instead of baying mindlessly about austerity and spending cuts, we might actually get the economy moving again.

Stagnation and Taxes

| Sun Sep. 18, 2011 10:22 AM PDT

Middle-class income stagnation began in the United States in 1973. Before then incomes grew 2-3% a year, but since then have grown only about 1% a year. John Quiggin makes a simple point about why workers don't necessarily feel this for a while:

Standards of living are determined mainly by lifetime incomes, not by income in any particular year. Given the pattern described above, lifetime income for someone who worked, say, from 1940 to 1985 was well below that for someone in a similar class position who started work in 1970, just when the long increase in real wages was slowing for most and stopping for some. For every year of their working life, the 1970 starter gets a wage (adjusted for age, education and so on) that’s as high as the maximum attained by the 1940 starter after 30 years of steady growth. Unsurprisingly, that translates into a bigger house, and more of most items that require savings, whether or not their price has risen relative to the CPI.

To make this more concrete, suppose that Bob earns $10 during the first year of his working life, and forty years later, adjusted for inflation, he earns $20. Bob's average wage over his lifetime was $15, for a total lifetime income of $600.

Now suppose that Alice begins her career at the end of that period, and further suppose that income growth has flattened completely. Alice earns $20 her first year and $20 her last year, for a total lifetime income of $800. So even with a stagnant income, she's still better off than her parents, which is probably one of her main points of reference.

But now even that's coming to an end. Someone who's entered the workforce in the last decade or so not only has a stagnant income in real terms, but also a stagnant income compared to her parents. That's a double whammy, and really brings home the reality that things are tight and are going to stay tight. One conclusion you might draw from this is that if you thought the previous generation was resistant to higher taxes, you ain't seen nothin' yet. When incomes are growing smartly, higher taxes are pretty bearable. When they start to stagnate, they become more onerous. And when they stagnate completely, they become completely intolerable. I hardly need to spell out the long-term problem this poses.

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Quote of the Day: A Dismal Scientist on our Dismal Energy Future

| Sun Sep. 18, 2011 9:47 AM PDT

From Tyler Cowen, explaining (part of) his worldview:

If you study tech, you will see a bright present and also a bright future. If you study K-12 education, you will see a mixed to dismal present and a possibly bright future. If you study energy economics and the environment, you will see an OK present and a dismal future, no matter what policies we choose.

That's hard to argue with, and it explains why Tyler isn't sure a carbon tax would do much good (though he favors one anyway). Click the link for a longer list of reasons to be skeptical. Most of them are well taken, but as usual, I'd ask "Instead of what?" That is, even if a carbon tax has limited effectiveness, is it better or worse than the alternatives? My own take is that even if a carbon tax accomplishes only a third of what its supporters hope for, that still makes it a better way of raising revenue than an income tax, a payroll tax, an excise tax, a capital gains tax, a sales tax, or a dividends tax. If I'm going to discourage an activity, even just a little bit, I'd say we're better off discouraging use of dirty energy than we are discouraging work, imports, investment, or consumption. That's especially true since the latter taxes seem to discourage the latter activities only slightly, while carbon taxes appear to be reasonably effective at discouraging fossil fuel use. At the margins, and even granting that it's no panacea, it still seems like a better bet than most of the alternatives.

UPDATE: Reworded slightly to make clear that a carbon tax discourages only dirty energy use, not all energy use. Obviously it encourages people to switch to clean energy like wind, solar, geo, etc.

The Wisdom of Ignoring Crowds

| Sat Sep. 17, 2011 8:52 PM PDT

Ed Yong writes this week about various examples of crowds making better collective guesses than individuals: counting beans in a jar, guessing the weight of an ox, or the Ask The Audience option in Who Wants to be a Millionaire? And he notes a problem:

But all of these examples are somewhat artificial, because they involve decisions that are made in a social vacuum. Indeed, James Surowiecki, author of The Wisdom of Crowds, argued that wise crowds are ones where “people’s opinions aren’t determined by the opinions of those around them.” That rarely happens. From votes in elections, to votes on social media sites, people see what others around them are doing or intend to do. We actively seek out what others are saying, and we have a natural tendency to emulate successful and prominent individuals. So what happens to the wisdom of the crowd when the crowd talks to one another?

Long story short, it fails completely. This is why I've always been skeptical of the whole wisdom of crowds thing. You can make up all sorts of contrived situations where it works, but there aren't very many examples from real life where people don't communicate in one form or another and form feedback loops. We're a social species, and lots of communication is very much the norm, not the exception.

Is the crowd doomed to groupthink? Not quite. King found that he could steer them back towards a wiser guess by giving them the current best guess....But King’s study still reflects an artificial situation, because he knew beforehand what the right answer was and could provide the crowd with the closest guess. Real crowds rarely, if ever, have that luxury....You can insert your own modern case study here, but perhaps this study ends up being less about the wisdom of the crowd than a testament to the value of expertise. Maybe the real trick to exploiting the wisdom of the crowd is to recognise the most knowledgeable individuals within it.

Well, sure, and that's what most of us do on issues that are anywhere outside our own sphere of expertise — which is to say, most of them. Unfortunately, in practice most of us choose to follow experts who already agree with us. After all, track records are pretty hard to know in the best of cases, and in real life, where we seldom even agree on what constitutes being right in the first place, it's just about impossible. Sadly, neither the wisdom of crowds nor reliance on the best experts provides much of a shortcut for getting things right.

Via Andrew Sullivan.

No Compromise, No Surrender

| Sat Sep. 17, 2011 1:39 PM PDT

We've seen this result before, but here's some confirmation from a recent CBS poll. If you ask Democrats if their politicians should stick to their guns come hell or high water, virtually no one thinks that's a good idea. Compromise reigns supreme. Ask Republicans, and you get a very sizeable chunk who are ready to die for every hill — and, undoubtedly, ready to punish any politicians who aren't. I'm not sure that a single poll question can explain Washington all by itself, but if there is one, this is it. Republicans are scared of their base; Democrats aren't.

Friday Cat Blogging - 16 September 2011

| Fri Sep. 16, 2011 12:01 PM PDT

On the left, Domino is trying to figure out what happened to her squirrel. We've never had a squirrel in our backyard before, but yesterday a lovely hazel-colored specimen zipped up a tree, zipped down and into another one, zipped up that tree, and then zipped down to the fence and zipped off. Domino was mesmerized. On the right, Inkblot, as usual, is clueless about what's going on spending some quality time thinking about his next campaign white paper. I think it has to do with loan guarantees to solar-powered cat food companies or something. He's worried that in this crucial industrial sector the Chinese are eating our lunch, literally. Perhaps some nice squirrel stew would have made him feel better.