Kevin Drum - September 2011

Europe Fiddles While Greece Crumbles

| Wed Sep. 21, 2011 9:47 AM EDT

Martin Wolf writes today about the crisis in the eurozone. I'm not sure he'd put things quite this way, but here's my shortened version:

  1. Greece cannot pay its debts. Period. It has no choice but to default.
  2. Once it defaults, it will be unable to borrow and it will be forced to cut spending even more than it has already. This will damage its economy further, which in turn will reduce tax revenues, which will require further spending cuts, which will damage its economy further, et cetera without end.
  3. This is obviously unacceptable. The only answer for Greece would be to exit the euro and devalue its currency. As painful as this would be, it would almost certainly be regarded as preferable to years or decades of economic collapse.
  4. But Greek exit from the euro would cause staggering damage to the rest of Europe and its banking system — far, far more damage than they'd suffer from merely increasing their bailout of Greece. See Wolf's column for more on this. It must be avoided at all costs.
  5. Thus, the only option left is for Europe to prop up Greece for years. For all practical purposes, this doesn't mean loaning Greece money, it means giving Greece money. Lots of it.

Europe has not yet truly faced up to the fact that #5 is really their only option. It's infuriating, the public hates it, and Europe's political leaders want no part of it. But as Wolf says, "The eurozone then cannot stay where it is, cannot undo what it has done and finds it traumatic to go forward. But the very notion of exit is destabilising. They made it; and they must now make it work." Like Wolf, I don't think they have any choice. The only question is how far past the 11th hour they'll go before finally accepting this.

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Endless War Becomes Ever More Endless

| Wed Sep. 21, 2011 9:04 AM EDT

The Obama administration plans to step up its attacks against the Taliban in Pakistan whether Pakistan likes it or not:

In what amounts to an ultimatum, administration officials have indicated that the United States will act unilaterally if Pakistan does not comply. White House officials and Defense Secretary Leon E. Panetta are said to be adamant in their determination to change the approach, according to officials who spoke on the condition of anonymity about internal administration deliberations.

Although he declined to provide details, Panetta told reporters at the Pentagon on Tuesday that “we are going to take whatever steps are necessary to protect our forces” in Afghanistan from attacks by the Haqqani network, which has had a long relationship with Pakistan’s intelligence service.

In related news, the Obama administration is stepping up its drone attacks in Yemen and Somalia:

One of the installations is being established in Ethi­o­pia, a U.S. ally in the fight against al-Shabab, the Somali militant group that controls much of that country. Another base is in the Seychelles, an archipelago in the Indian Ocean, where a small fleet of “hunter-killer” drones resumed operations this month after an experimental mission demonstrated that the unmanned aircraft could effectively patrol Somalia from there.

The U.S. military also has flown drones over Somalia and Yemen from bases in Djibouti, a tiny African nation at the junction of the Red Sea and the Gulf of Aden. In addition, the CIA is building a secret airstrip in the Arabian Peninsula so it can deploy armed drones over Yemen.

I guess this must be part of Obama's policy of appeasement in Africa and the Middle East that I've heard so much about recently.

GOP to Country: Drop Dead

| Wed Sep. 21, 2011 12:25 AM EDT

We've talked before about the Republican genius for taking advantage of political norms that have traditionally been followed by both parties but have never been actual rules. This has produced a growing list of partisan ambushes like mid-decade redistricting, turning the Senate into a 60-vote body, holding the debt ceiling hostage, etc. So what's the next norm to be flattened by the GOP steamroller in a surprise attack? In what must be a new record, Stan Collender writes today about two norms that Republicans have crushed into dust in a single week.

First up is a letter from the Republican leadership to Ben Bernanke that ominously warns him to "resist further extraordinary intervention in the U.S. economy." This comes on the same day that the IMF slashed its estimate of economic growth for 2011 and 2012 to an almost recession-like 1.5% — precisely the time that the Fed probably should carry out a few extraordinary interventions in the economy.

The Fed, of course, is traditionally supposed to be left free of political influence. But there's an election coming up and, as Stan puts it, the GOP sees economic hardship "as the path to election glory this November":

Why take on the Fed? The Republicans have some direct control over fiscal policy because they can either refuse to consider a proposal in the House where they are in the majority or can filibuster legislation in the Senate where they are in the minority. Because the Fed is an independent agency, the GOP can only do what they did today in the letter by threatening to bring down the wrath of god if it dares take any action to get the economy moving.

....My question: If Rick Perry — one of the wanna-be GOP candidates for president — says that Bernanke's actions to date have been treasonous, what do you call today's Republican demand that the federal agency with the legal responsibility and the potential power to help GDP grow and unemployment to fall not do anything to help the American economy?

What do you call this? Well, as of yesterday, you can call it politics as usual.

Next up is a legislative norm arcane enough that I'd never heard of it. Apparently the Republican leadership is planning to hold off on approving a budget even though the spending levels for FY2012 have already been agreed to. Instead they're going to pass only a short-term continuing resolution. Why? There's really no good reason. They just want another chance to hold the White House hostage:

The commonly assumed but unstated reason for a short-term CR is that the House GOP wants to have increased political leverage on budget and other issues by being able to hold yet another potential government shutdown over the heads of Congressional Democrats and the White House. This time it supposedly will be policy riders — changes in authorizations — rather than spending levels that will be the biggest points of contention.

....This will sound quaint to some and unimaginable to others, but there was a time when doing what the GOP apparently is planning by authorizing on appropriations bills was considered by most Members of Congress to be as much a major legislative sin as usurping another committee’s jurisdiction....In fact, authorizing in an appropriations bill has been considered so taboo on Capitol Hill that Republicans and Democrats on the authorization committee that would be affected by the proposal typically have worked together to prevent it from happening.

Them's the breaks, suckers. It was a nice tradition while it lasted. And keep in mind that the week is young. There's no reason that Boehner and company should be satisfied with exploding only two norms this week. There might be more yet to come.

Lies, Damn Lies, and Average Tax Rates

| Tue Sep. 20, 2011 9:59 PM EDT

President Obama has proposed that we enact some version of the "Buffett Rule," which would ensure that millionaires pay at least the same tax rate as middle class workers. But do millionaires really pay lower rates than truck drivers in the first place? The AP fact checks Obama's claim and finds it wanting:

On average, the wealthiest people in America pay a lot more taxes than the middle class or the poor, according to private and government data....This year, households making more than $1 million will pay an average of 29.1 percent of their income in federal taxes....In 2009, taxpayers who made $1 million or more paid on average 24.4 percent of their income in federal income taxes, according to the IRS.

Hmmm. There's an awful lot of averages there. But you need to be pretty careful with that stuff. The average household income in Redmond, Washington, is $66,000, but that doesn't mean Bill Gates is pinching pennies to save up a down payment for his next car.

The whole piece is pretty ridiculous. Obama's point isn't that millionaires pay lower tax rates than truck drivers. It's that some millionaires pay lower tax rates than truck drivers — and as a simple matter of fairness and equity they shouldn't. Take a look at the table below, extracted from the Tax Policy Center. It doesn't just show the tax rates of mere millionaires, it shows the tax rates of the top 400 super-duper millionaires. Back in 1992, only 33 of them paid less than 20% of their income in federal taxes. Today, 289 of them do. That's just not right.

On Fox News, they brush this off with a yawn. "It's because most of their income comes from capital gains," they repeat tirelessly, as if that was sufficient explanation all by itself. But why? Surely even trust fund babies ought to pay some kind of minimum tax rate no matter where their income comes from. Is a 20% tax floor on the income of the rich really so outrageous?

Did Obama Get Rolled?

| Tue Sep. 20, 2011 7:31 PM EDT

Was Barack Obama a naive waif who came to Washington untested and unready, and then struggled to control his White House staff? That's the portrait Ron Suskind paints, and to a certain extent I imagine it's true. In fact, I imagine it's true of every president. There's just no training position for the presidency, and no one walks into the job fully prepared.

But that said, how does Obama compare to other presidents? After all, every White House features plenty of chaos, plenty of policy dysfunctionality, and lots of interpersonal feuds (remember all the stories about Condi Rice vs. the alpha male Cheney/Rumsfeld/Libby/Addington pack?). Jonathan Alter suggests that Suskind's portrayal is a wee bit overblown:

I have a whole chapter in my book where I talked to all the former Clinton people who now work for Obama. I asked them all, compare Clinton and Obama....They thought Clinton was more creative and his policymaking, but they prefer to a person Obama in a crisis, which was what they were in. He was decisive and making as many decisions in a week as Bill Clinton made in a year, and making the decisions crisply. The idea that somehow all the former Clinton officials working for Obama were longing for Bill Clinton because they had this inexperienced president who didn't know what he was doing is not what they were saying at the time. I was talking to not just a few, but pretty much all of the former Clinton people in the White House at high and mid-levels. 

I don't doubt for a second that Obama struggled with the demands of managing an enormous crisis from the first day he stepped into the Oval Office. At the same time, I suspect that a lot of what people are interpreting as indecisiveness or inexperience is really something different: it's the fact that Obama agreed with the "wrong" advisors. They're reading about all the internal debates, noting that Obama eventually came down on a side they consider preposterous, and concluding that he got steamrolled. But as Karl Smith says, the more likely explanation is simply that Obama doesn't agree with them:

We observe a President not pushing for more stimulus and not appointing doves to the FOMC. What could be the reason? You could come up with all sort of theories involving intrigue and political strategery. However, here is one you might want to try: the President doesn’t want to do stimulus and is not interested in appointing doves to the FOMC.

Indeed, if I observe a person who cannot communicate — my baby for example — trying to avoid a situation, I am likely to conclude “Charlie does not want to do that.” I think this is generally sound reasoning.

There are, of course, political considerations always at work. On additional stimulus, for example, it's clear that Obama thought it was politically impossible and therefore not really worth debating at length on a policy level. More broadly, though, he just came down more often on the side of Geithner and Orszag than of Romer and Summers. That may have been a mistake, but it doesn't mean he got steamrolled. It just means that he was genuinely persuaded that the deficit is a problem that needs to be seriously addressed.

Zombie Lies: Taxes and Small Businesses

| Tue Sep. 20, 2011 4:55 PM EDT

A loyal reader had the misfortune of hearing Rep. Phil Gingrey (R–Ga.) blather on the radio this morning about the woeful effect that a tax hike on the rich would have on "the small business owners and job creators." He asks, "Can you please do a post providing us with an evidence-based response to this? I have little doubt that most small business owners are pulling in less than 250K and that most people making over 250K aren’t small business owners, but my hunch doesn’t have much credibility."

But his hunch is exactly right! In fact, this is a zombie lie, and as you might expect with a zombie lie, I've written about it before. So here's a reprint of what I wrote 14 months ago, suitably updated with shiny new quotes making the same old complaints:


Back in the day, one of the key Republican arguments against the estate tax was that it forced hardworking, salt-of-the-earth children of small farmers to sell the family plot in order to pay their taxes after dad died. It was a sad story, but with one problem: no one could find even a single small farmer who had been forced to liquidate in order to satisfy Uncle Sam's voracious maw. Even the American Farm Bureau Federation was eventually forced to admit that it couldn't come up with a single example, and a few years later the Congressional Budget Office estimated that under the now-current exemption level, only a tiny handful of small farms were likely to owe any estate tax to begin with — and of those, only about a dozen lacked the assets to pay their taxes. And even those dozen had 14 years to pay the bill as long as the kids kept running the farm. In other words, the story was a fraud from beginning to end.

Good times. Today, though, we're getting a rerun. The subject at hand is President Obama's proposal to tax the rich at slightly higher rates, and the question is who exactly this will hurt. The obvious answer is, "the rich," but it turns out that, just as there are small farmers begging for our sympathy, there are small rich too: namely an alleged army of hardworking, salt-of-the-earth small business owners who would also end up paying higher tax rates. "Don't forget the fact that most small businesses file taxes as individuals," Rep. Paul Ryan declared earnestly on Fox News this weekend. "So when you are raising these top tax rates, you're raising taxes on these job creators."

My correspondent wants an evidence-based response to this, so let's give him one. Step 1: The biggest part of Obama's plan is to let the Bush tax cuts for the rich expire. The Brookings Tax Policy Center took a look at this last year and estimated that only 1.9% of small businesses are in the two top brackets that would be affected by repeal of the Bush tax cuts. That's a little better than the dozen small farms affected by the estate tax, but not by much.

Step 2: About half of that 1.9% aren't really small business owners at all. They're high-income investors who get part of their income from investments in small businesses. So we're down to about 1% of small businesses that would be affected.

Step 3: The top brackets are just that: brackets. When the top rate goes up, it doesn't affect your entire income, just the portion in the top bracket. So if the top rate goes back up from 35% to 39.6%, it only affects the portion of income above approximately $400,000. A small business owner making $500,000 would see an increase of about $5,000. This is a fairly modest amount for someone making a half million dollars, and anything higher than that is hardly a "small" business to begin with. And the marginal effect is even smaller for the second-highest bracket. And the proposed "millionaire's tax" would — of course — affect only people making more than a million dollars.

So that's the case. Raising taxes on the rich at the level Obama is talking about affects only a tiny number of small businesses; it doesn't affect them very much; and it generates revenues of several hundred billion dollars. If the only thing you care about is keeping taxes low for rich people, you won't be convinced. For the rest of us, it's a no-brainer.

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Why Did Ron Suskind Misquote Anita Dunn?

| Tue Sep. 20, 2011 4:30 PM EDT

Hmmm. Speaking of whether the Obama White House had the atmosphere of a boys club, Peter Wallsten and Anne Kornblut wrote more about this in the Washington Post yesterday. There really do seem to be legitimate complaints on this score, but on one of the most dramatic quotes about this, there's a striking mismatch between what Ron Suskind heard and what he reported in his book. Here's what he said he was told by former White House communications director Anita Dunn:

Looking back, this place would be in court for a hostile workplace....Because it actually fit all of the classic legal requirements for a genuinely hostile workplace for women.

But here's the full quote:

I remember once I told Valerie [Jarrett] that, I said if it weren’t for the president, this place would be in court for a hostile workplace....Because it actually fit all of the classic legal requirements for a genuinely hostile workplace to women.

This doesn't necessarily change the substance of the charge about the White House atmosphere — though it might, depending on what Dunn meant — but it definitely changes what it suggests about Obama himself. Why on earth did Suskind leave that bit out? It's only eight words, and it's not as if he was short on space.

UPDATE: Suskind explains the quote truncation here. As it turns out, his explanation sounds pretty kosher. He says it was Dunn herself who asked for the truncation when he reviewed the material with her prior to publication.

In Which Larry Summers Has His Consciousness Raised

| Tue Sep. 20, 2011 3:34 PM EDT

Is the Obama White House a testosterone-fueled boys club? Probably. As near as I can tell, pretty much all White Houses are. This kind of stuff is hard to change, but one way it does change is when one of the boys suddenly has an epiphany. Here is Ron Suskind describing Larry Summers' epiphany in late 2009 as the Obama economic team was trying to figure out ways to squeeze a bit better performance out of the economy:

[Christina] Romer, in meeting after meeting, came back with new plans, new ways either to locate $100 billion or to pitch it to Congress. Her appeals were passionate. She said they were falling into a "the perfect is the enemy of the good" trap. "It's about doing something, anything."

In November, as Obama's political capital began to wane, he took [Peter] Orszag's position at a briefing, reiterating the OMB chief's view that a small stimulus would be ineffective.

"That is oh so wrong," Romer blurted out, surprising herself, and everyone in the room, with her candor.

"It's not just wrong, it's oh so wrong?" Obama queried before launching into an unchracteristic tirade. "Enough!" he shouted. "I said it before, I'll say it again. It's not going to happen. We can't go back to Congress again. We just can't!"

....A few weeks later the economic team was back to the discussion of stimulus versus deficit reduction....Now Summers stepped up, offering, almost word for word, the position Romer had voiced previously. This time Obama listened respectfully: "I know you've got to make the argument, Larry, but I just don't think we can do it."

As they left the meeting, Romer—who was happy to have Summers speak for a small stimulus rather than leaving it all to her—said, "Larry, I don't think I've ever liked you so much."

"Don't worry," he quipped. "I'm sure the feeling will pass." But then something dawned on Summers, who'd never seemed sympathetic to the women's complaints: "You know, he sure was a lot more generous with me than he was with you."

It was an important moment. "That was the turning point," Romer said later. "After that, [Larry and I] really started to have a decent working relationship."

It's never possible to draw broad conclusions from a single anecdote. Romer, after all, was pressing her case in "meeting after meeting," and sometimes that can get tiresome when you know the boss has already made a decision. Alternately, maybe Obama had just had a bad day arguing with the Pentagon over Afghanistan earlier in the morning and his temper was frayed. Who knows?

But probably Summers was right. He probably did say the exact same thing as Romer, and he probably was treated better. At a guess, I'd say there isn't a woman alive who's attended a corporate meeting that hasn't seen this exact same dynamic play out. But no matter how many times you hear about this, there's nothing like the light bulb coming on over your head and finally feeling it in your bones. Apparently that's what happened to Summers that day.

That said, here's some advice for the men reading this: just STFU once in a while and listen instead, will you? It's surprisingly hard! But if you try, you can do it.

Jon Cohn is a Brooks Sap

| Tue Sep. 20, 2011 1:44 PM EDT

I've written before about David Brooks's strange schizophrenia. He knows that the lunatic fringe has taken over the Republican Party. I know he knows this because he's said so in blunt terms. He did it two months ago, and my response at the time was admittedly churlish: "I'll believe that Brooks has seen the light when he actually keeps this up for a few consecutive weeks."

He couldn't do it, really, but his inner demons didn't give way completely until yesterday, when he penned an anguished cri de coeur slamming President Obama for finally realizing the same thing that he himself realized in July: there's really no compromising with the modern tea party version of the GOP. You need to fight them, and you need to fight them in public. But now that it's actually happened, Brooks is an unhappy camper.

Anyway. Read the Brooks column here. Then read Jon Cohn's response. I wish I had written it.

The Great Regulation Charade

| Tue Sep. 20, 2011 1:05 PM EDT

So how about that crushing regulatory burden that our business-hating president has imposed on the American economy? Well, not so much, actually:

During Obama’s first two years in office, 555 new “significant” regulations, or ones that have a cost or benefit of at least $100 million in a year, have been enacted, according to the Office of Management and Budget. Over the eight years that former president George W. Bush was in office about 2,380 regulations were enacted, an average of 595 every two years.

Granted, these are just raw numbers, and some regulations are more onerous than others. But it sure doesn't sound like Team Obama has been a whirlwind of regulatory activity, does it?

Separately, here's a chart from a new study released today by Small Business Majority, a group that does a lot of research on healthcare and clean energy. "The best way to find out what small business owners want is to ask them," says their website, so that's what they do. And in their latest survey, small business owners said their biggest problem was uncertainty about how the economy is doing. Regulation came in a distant sixth.

One more time, then, this time with feeling: the big problem faced by businesses today is economic uncertainty, not regulatory uncertainty. Business owners may not like new rules (who does?), but their real problem is a lack of customers. That's something we could go a long way toward fixing if we really wanted to.