Kevin Drum - September 2011

Tonight's Freak Show

| Mon Sep. 12, 2011 11:37 PM EDT

Sorry for the radio silence about tonight's debate, but I'm still in a state of shock. This was a full-on freak show. No blog description can do it justice, I'm afraid. It was just two continuous hours of stupid prepackaged zingers, chuckleheaded ignorance, and reactionary one-upsmanship for the benefit of the adoring tea party audience. Even Jon Huntsman decided that full-bore idiocy was his only chance to make an impression. Mitt Romney tried gallantly to stay just barely on the right side of sanity, but it's not clear that it helped him any. The CNN pundits seemed much more impressed with Rick Perry's virile "presence."

Jesus, what a depressing experience. Europe is about to implode, there's a pretty good chance that this could be enough to tip our economy back into recession too, and one of those clowns on the stage tonight might end up being president when it happens. Lord help us.

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Some Gutsy Talk on Social Security

| Mon Sep. 12, 2011 4:57 PM EDT

Just last week Rick Perry called Social Security a Ponzi scheme and a "monstrous lie." This week he revises and extends those remarks in USA Today:

Our elected leaders must have the strength to speak frankly about entitlement reform if we are to right our nation's financial course and get the USA working again. For too long, politicians have been afraid to speak honestly about Social Security. We must have the guts to talk about its financial condition if we are to fix Social Security and make it financially viable for generations to come.

Now, I'm pretty sure the Washington Post would have given Perry a little more room on their op-ed page if he'd truly wanted to speak frankly and gutsily about how to fix Social Security, as opposed to merely saying that we ought to speak frankly about it and then calling it a day. But for some reason, Team Perry decided that USA Today, with its vast hotel-bound audience and 300-word limit, was a better bet.

Which is too bad, because of course, we should speak frankly about the financial condition of Social Security. So here's some gutsy talk for y'all: Social Security has a small long-term funding shortfall. It can be fixed easily. The CBO recently estimated that Social Security has a long-term cumulative deficit of 0.6% of GDP, and the table below lists 30 options for fixing this. All you have to do is pick some combination of options that adds up to 0.6% and you're done. It's so easy that even Rick Perry can do it.

Personally, I'd wait and begin phasing in changes starting in about 20 years or so, which would require picking a basket of options that adds up to something like 1.2% or so. But that's just little old coastal left-winger me. Either way, though, whether you make the changes now or later, it's all pretty simple. And that, my friends, is some gutsy talk.

Taxes and Growth

| Mon Sep. 12, 2011 2:58 PM EDT

I'm embarrassed. I just turned in a piece about conservative economic myths, and a few hours later Paul Waldman reminds me that in the section about how tax cuts always supercharge the economy, I completely forgot to mention this:

Republicans are remarkably consistent in how they talk about the economy, no matter what actually occurs. For example: In 1993 they said, loudly and clearly, that if Bill Clinton's budget with its top-rate income tax increase passed, the result would be a "job-killing recession." It did pass, and 23 million jobs were created over the next eight years. In 2001, they said, loudly and clearly, that if we passed George W. Bush's tax cuts rolling back those increases and cutting other taxes further, the economy would explode with job-creating growth. Over the following eight years, only 3 million jobs were created. The relative success of Clinton and Bush didn't change the arguments they make about taxes one iota.

To my mind, Democrats don't shove this in their faces nearly often enough. They could win almost any debate with their opponents by saying, "We had two tests of my Republican friend's economic theories in the last two decades. They were called the Clinton administration and the Bush administration. And they both proved him wrong."

Roger that. Within reason, high taxes don’t hinder growth and low taxes don’t stimulate it. We hardly need a pile of sophisticated Greek-letter econometrics papers to tell us this. Just a slightly better memory than I apparently have.

Anyway, keep this in mind now that Obama has said that he wants to pay for his jobs plan with higher taxes on the rich. We'll hear all the usual wailing from the right about this, but it's based on nothing. If going back to Clinton-era taxes dooms us to Clinton-era growth, sign me up.

Race and the Tea Party

| Mon Sep. 12, 2011 2:00 PM EDT

What motivates people to become tea partiers? Conservative ideology, of course. But how about age, gender, income, church attendance, and party ID? Not so much, according to a study by Emory political scientist Alan Abramowitz:

In order to compare the effects of the independent variables, I calculated the change in the probability of supporting the Tea Party associated with an increase of one standard deviation above the mean on each independent variable with all other independent variables set at their means. For example, an increase of one standard deviation above the mean on the ideology scale is estimated to produce an increase of almost 19 percentage points in Tea Party support.

The results in Table 5 show that ideological conservatism was by far the strongest predictor of Tea Party support. In addition to conservatism, however, both racial resentment and dislike for Barack Obama had significant effects on support for the Tea Party. These two variables had much stronger effects than party identification.

Table 5 is below. Conservative ideology and racial resentment swamp every other factor. Maybe that doesn't matter. Maybe it's counterproductive to even mention racial resentment these days. Maybe it's unfair to lots of tea partiers who care only about taxes and big government. But unless there's a problem with Abramowitz's data, it's there. Pretending that it's not doesn't make it go away.

The Last Refuge of a Scoundrel

| Mon Sep. 12, 2011 12:20 PM EDT

Jamie Dimon, CEO of JPMorgan Chase, says that new capital adequacy rules are "anti-American":

The Basel III capital rules are designed to make the financial system safer by making banks build up risk-absorbent “core tier one” capital to at least 7 per cent of risk-weighted assets. The biggest, including JPMorgan, have to reach 9.5 per cent.

“I’m very close to thinking the United States shouldn’t be in Basel any more. I would not have agreed to rules that are blatantly anti-American,” he said. “Our regulators should go there and say: ‘If it’s not in the interests of the United States, we’re not doing it’.”

He objected to both the additional buffer of 2.5 per cent and the way capital is calculated. Mortgage-servicing rights, a US market feature which takes cashflow from homeowners paying mortgages, are strictly limited in counting towards tier one capital. Mr Dimon also criticised global liquidity rules, arguing that regulations that viewed covered bonds – a European market feature – as highly liquid but discounted government-backed mortgage-backed securities in the US were unfair and that other details hit investment banking activity core to US banks hardest.

Dimon is getting a lot of grief over this, and rightfully so. Still, I think the right lens to look at this isn't really Dimon-centric, tempting though that is. The truth is that all international financial negotiations, and Basel negotiations most famously, are always endlessly bogged down by parochial minutiae. Every country has a slightly different economy that depends on slightly different things. For example, here's a Wall Street Journal report on the Basel negotiations a year ago:

The French are demanding changes that would allow their three largest banks — Societe Generale SA, Credit Agricole SA and BNP Paribas SA — to continue owning insurance subsidiaries without facing steep penalties. The Germans and French want banks' minority investments in other institutions to count toward capital standards. The Japanese have raised concerns about no longer counting deferred tax assets as capital. U.S. officials want banks, such as Bank of America Corp. and J.P. Morgan Chase & Co., to continue to be allowed to count mortgage-securitization rights as capital.

This stuff goes on endlessly because every country has a banking sector that specializes in certain things and not in others, and a business sector that relies on financing in one form but not another. When the dust settles, every country usually loses out on a few of its sacred cows. In our case, it was treatment of mortgage-backed securities. German banks got their way on covered bonds but are still upset over treatment of silent participations. French banks that rode out the financial crisis without problems are unhappy about getting stuck with the same rules as banks that didn't. And of course, European banks in general are less well capitalized than American banks and are likely to have more problems with Basel's core capital standards than ours.

It's possible that the U.S., on net, didn't do as well as some other countries, but I doubt it. More likely, U.S. negotiators, for obvious reasons, wanted tough capital standards, wanted tough liquidity standards, wanted to rein in the use of mortgage-backed securities, and simply didn't consider any of them an America-vs.-the-world issue. But then again, neither does Jamie Dimon. He considers it a JPMorgan-vs.-other-banks kind of issue — as well he should. His newfound sense of financial patriotism should be taken with a large shaker of salt.

The Most Anti-Environment Congress in History

| Mon Sep. 12, 2011 10:58 AM EDT

Here's a handy tool from the redoubtable Henry Waxman: a searchable database of Republican votes to dismantle environmental protections in the current session of Congress. Just in its first six months! And it doesn't even count the growing popularity of calls from GOP presidential candidates to simply eliminate the EPA lock, stock, and barrel. (Excuse me: the "job-killing EPA." Precise terminology is important here.)

Anyway, it's handy stuff if you want to know with precision just how deeply Republicans are committed to undermining the environment in the service of their corporate interests. You can search by agency, by topic, or by legislation. The full database is here. Have fun.

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Republicans and Their Demons

| Mon Sep. 12, 2011 10:40 AM EDT

What's the smart play for Republicans regarding Obama's jobs package? I think it's pretty simple: stay calm, pass one or two items so that you don't look mindlessly obstructive on an issue that's important to voters, and call it a day. The effect this has on the economy won't be big enough to materially affect the election, so why not?

The big question, of course, is whether Republicans are still capable of playing smart politics these days. Matt Yglesias points us to a Politico story suggesting that many conservatives are already griping about passing even a few small parts of Obama's jobs bill:

"Obama is on the ropes; why do we appear ready to hand him a win?" said one senior House Republican aide who requested anonymity to discuss the matter freely. "I just don't want to co-own the economy by having to tout that we passed a jobs bill that won't work or at least won't do enough."

…"To assume that we're naturally for these things because we've been for them does not mean we will be for them if they cause debt, if they [have] tax increases and if they take money from the free-enterprise sector, which creates jobs," said Texas Rep. Pete Sessions, who heads up the House Republican campaign arm.

These two quotes encapsulate the problems facing the GOP: on the one hand, their all-but-complete addiction to mindless obstructionism as a legislative strategy these days, and on the other, a tea party wing that's fanatically contemptuous of any ideological deviation. These are very different things: One is a scorched-earth tactical approach to politics and the other is a scorched-earth political faction with no taste for ideological compromise. Either of them alone might be enough to keep the GOP from acting in its own best interests, and both of them together may present a barrier that's simply insurmountable. Their voices were fairly muted in the immediate aftermath of Obama's speech, but they'll gain strength and vitriol as actual legislation starts to become more concrete.

So the question is, can the GOP's political pros keep these parts of their electoral id reined in long enough to act in their own rational self-interest? Or have obstructionism and tea partyism simply become too deeply ingrained in their governing strategy and political coalition to be turned off even briefly when it makes sense? The debt ceiling battle was inconclusive on this front: Republicans did manage to find a compromise eventually, but the obstructionist/tea party sentiments in the party sure kept them from finding one for a very long time. With a little bit less at stake this time, and with the supercommittee sellout already on the books, there just might not be any taste for further restraint. We'll see.

Could Your Congressman Pass a Turing Test?

| Mon Sep. 12, 2011 1:07 AM EDT

I know this is hardly an original observation, but the other day I happened to watch a few old clips of politicians being interviewed (in this case, "old" = 30 years ago) and it reminded me — again — of just how mind-numbing their descendents are. This has become such a routine part of our daily lives that most of the time we barely even notice it, but honestly: everything, and I mean every last word, that comes out of politicians' mouths these days is predigested boilerplate. It's just an unending stream of stale, endlessly repeated, poll-approved talking points. Democrats and Republicans alike. Every single time. They simply never speak like normal people anymore.

I dunno. Maybe we're all like that now. Have I said anything original lately? Maybe not. But every few months I happen to notice this phenomenon again, and it seems freshly creepy every time. It's easy not to think about it, but when you do, even for a few seconds, it's pretty obvious that this just isn't natural. Politics has always been partly about acting, but even politicians are supposed to be human beings for at least part of their lives. Within living memory they were, but no longer. What the hell has gone wrong with us?

Cheyne-Stokes Breathing in the Eurozone?

| Sat Sep. 10, 2011 1:26 PM EDT

A few weeks ago, writing about the latest death spasms in the European banking system, I said: "The overnight market can dry up — well, overnight if a bank's solvency comes into question.... It might not happen in a week, but it's sure starting to look like it might happen in a month or two."

Well, we're now halfway through "a month or two." So how are things going? Paul Krugman surveys recent events and asks:

Did the euro just enter its death throes? OK, I know that sounds over the top, and I hope it is. But recent developments are really, really bad.

Yes indeed. Greece looks increasingly hopeless, and the rest of Europe appears increasingly in little mood to help. Just the opposite, maybe. So what to do? Barry Eichengreen says eurobonds and fiscal union are a great idea, but they'll take months or years to put in place. And Europe doesn't have months or years: "The most recent Greek rescue, put in place barely six weeks ago, is on the brink of collapse. The crisis of confidence has infected the eurozone’s big countries. The euro’s survival and, indeed, that of the European Union hang in the balance." Three things need to happen right away:

The first urgent task is for Europe to bulletproof its banks. Doubts about their stability are at the center of the storm. It is no coincidence that bank stocks were hit hardest in the recent financial crash.

....The second urgent task is to create breathing space for Greece. The Greek people are making an almost superhuman effort to stabilize their finances and restructure their economy. But the government continues to miss its fiscal targets, more because of the global slowdown than through any fault of its own.

....The third urgent task is to restart economic growth. Financial stability, throughout Europe, depends on it. Without growth, tax revenues will remain stagnant, and the capacity to service debts will continue to erode. Social stability, similarly, depends on it. Without growth, austerity will become intolerable.

I keep thinking that, when Greek default, cascading bank failures, or dissolution of the eurozone — or all three — appear truly imminent, European leaders will finally buckle down and do what needs to be done. But the last couple of weeks haven't done much for my confidence on this score. If anything, Europe seems to be drifting ever further toward lifeboat ethics. The bad kind, that is. The every-man-for-himself kind. And we finally seem to be genuinely close to a point of no return. Once the financial markets decide to attack — either a country or a banking system — they can't be bought off with half measures. It's either a full-scale, damn-the-torpedoes rescue or else it's catastrophe. And right now a full-scale rescue isn't looking very likely. Instead, "austerity" is the order of the day, which is sort of like thinking that maybe the steerage decks are really the best place to ride out the sinking of the Titanic.

But hey, that's just Europe, right? It's not going to affect us, is it? Why, just a few days ago, Ben Bernanke said that our financial exposure to European problems was "manageable." So there's nothing to worry about. But then again, this is the same guy who said in 2007 that "the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained." So maybe it's time to stock up on canned goods after all.

Is there a silver lining? No, there isn't. But if you insist on one, here it is: since this time the epicenter of the problems is Europe, it's possible that President Obama can convince the troglodytes in the Republican Party that any contagion that hits Wall Street is sort of like a foreign invasion. That seems like the only thing likely to get their blood flowing, so maybe we'll actually be able to respond. You never know.

How About Some Infrastructure Spending?

| Sat Sep. 10, 2011 12:00 PM EDT

The Great Southern California blackout was apparently caused by an electrical grid that collapsed after a single series capacitor was taken offline in Yuma, Arizona, causing a cascading series of failures:

The failure of a single piece of equipment in Yuma, Ariz., ignited a massive blackout that left more than 4 million people without power, baffling utility officials and highlighting the vulnerability of the U.S. electrical grid.

Authorities in Arizona said Friday that safeguards built into the system should have prevented the breakdown at a Yuma substation from cascading across southern Arizona and into California and northern Mexico. They didn't, and the resulting instability led to the sudden shutdown of the San Onofre nuclear power plant, cutting off power to a large swath of Southern California.

...."We're struggling," said Daniel Froetscher, vice president of energy delivery for APS, the largest electricity provider in Arizona. "We have to take a hard look at the system design and figure out exactly what happened....We don't know the underlying causes."

The proximate cause remains unknown, but I'm going to take a guess and say that the ultimate cause is an aging electrical grid that's increasingly unable to handle big loads and small failures. This problem is hardly unique to the United States (Europe has suffered half a dozen blackouts as big as Thursday's in the past decade), but that's no reason to be complacent about it. If only we could pony up lots of cheap money to do something about this. But from where? It would have to be, oh, I don't know, some kind of nationwide infrastructure bank or something, sponsored by some entity that can issue long-term bonds practically for free.

Just a pipe dream, I guess. Nothing like that exists. Luckily I have plenty of spare battery-operated lanterns around.