Kevin Drum - September 2011

Rick Perry Bravely Speaks Out

| Thu Sep. 15, 2011 1:42 PM EDT

Time magazine has an interview with Rick Perry this week. Is this his first real interview since announcing his candidacy? I'm not sure, but it's the first one I've seen. Here's one tidbit:

What should happen next in Afghanistan?

I think we need to try to move our men and women home as soon as we can. Not just in Afghanistan, but in Iraq as well....Our overall objective has to be to [...] drive out those who would do harm to our country. I think we’ve done that in Iraq and Afghanistan. We have substantial ways to continue to put the pressure on the bad guys, if you will, and I don’t think keeping a large force of United States uniform military in Afghanistan for a long period of time is particularly in the interest of the U.S., or for that matter, in Afghani interest.

That's....interesting. Definitely not something from the neocon wing of Republican thinking. But Perry is certainly attuned to the tea party id, and I'd take this a sign that even there people have mostly lost interest in Afghanistan and Iraq as "central fronts in the war on terror." The fact that Perry is implicitly endorsing Obama's strategy in both places strikes me as pretty meaningful.

But in case you're thinking that maybe this means Perry is surprisingly informed and flexible on foreign affairs, there's also this:

Beside the Bible or other religious texts, which book has influenced you most over the last decade?

I don’t know about influencing me the most — I’m reading a couple of books on China right now that are most interesting. After a trip to Beijing and Shanghai and Taiwan, I realized how important that region of the world is to America and to the world. So Kissinger’s book on China, I’m wading through it, and I’m reading another book by Aaron Friedberg [A Contest for Supremacy] that is a really fine read about China, their very long view of the world and our need to really pay attention to what’s going on in that part of the world.

Seriously? He's just now realizing how important China is? Urk.

There's also some stuff about Social Security, of course. Perry once again congratulates himself for bravely bringing up a subject that, in fact, has been discussed to death for decades, and once again declines to offer any actual proposals. "The idea that we’re going to write a Social Security reform plan today is a bit of a stretch from my perspective." I can't imagine why, since you could probably paper over the Capitol dome with Social Security plans, but that's his stand and he's sticking to it. It's terrible, it's broken, it demands immediate attention, and......one of these days he'll give it some serious thought. Urk again.

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The Texas (Urban) Miracle

| Thu Sep. 15, 2011 12:58 PM EDT

Ryan Avent says that the "Texas Miracle" is really a Dallas/Austin/Houston miracle. Texas creates most of its new jobs in its cities:

The big secret to success is Texan cities’ willingness to capitalize on their advantages through an extraordinary openness to growth....Houston’s famous willingness to build means that when new residents want to move in, housing supply quickly adjusts and prices stay low.

....That’s not how it works elsewhere. Beginning in the 1990s, rising incomes for skilled workers, especially in technology industries, made California’s cities more attractive. Strict local building rules made it difficult to accommodate new housing demand, however, sending prices soaring. Middle-class households have been only too willing to leave pricey San Francisco for affordable Houston, and that constant flow of people helped support the Texas economy through the recession. While construction employment is falling across most of the country, for instance, Texas added 24,000 construction jobs over the past year. Relocation into a city is good for the local economy, increasing demand for things like housing and consumer goods, which translates into new jobs that are conveniently filled by the newcomers.

It is over the long-term, however, that the impact of openness is most keenly felt. The great migrations to Dallas and Houston represent huge flows of human capital that will support economic growth for decades. During the tech boom of the late 1990s, Silicon Valley struggled to attract skilled workers thanks to soaring housing costs.

This is an abridged version of the argument Ryan makes in The Gated City, his new Kindle Single. I had sort of a mixed reaction to TGC, which I should probably put down in pixels fairly soon before I forget it completely, but that may or may not ever happen. In the meantime, here's the nickel version. Roughly speaking, Ryan makes the case that cities are incubators of innovation and entrepreneurship and are therefore engines of economic growth. I buy this pretty much completely. His next step, however, is a little trickier: by restricting access to existing big cities (via zoning laws, NIMBYism, etc.), he believes we're also reducing our economic growth potential.

My question here is whether correlation means causation. Yes, cities, by their nature, are more productive than rural areas. But does that automatically mean we want our current big cities to become as big as possible? Does productivity stay high no matter how jam-packed a city gets, or do we eventually get a similar (or better?) bang for the buck by keeping New York at its current size and directing urban wannabes to new cities like Houston and Phoenix? International comparisons of urban density vs. economic growth might be helpful here, though I imagine it would be something of an econometric nightmare.

In any case, it's an intriguing argument. At the beginning of TGC Ryan suggests that restrictive urban housing policy reduces measured GDP by a quarter percent or so. I'm persuaded that this might be the case, but his actual hard evidence on this score is a little thin. It's also unfortunate, I think, that his solution to restrictive building policies sounds an awful lot like the libertarian dogma that any kind of property restriction is a "taking" that should be fully compensated by the government. That's pretty tough to swallow. There's more to life than simply letting developers build anything and everything that pops into their minds.

But these are all half-formed thoughts. It's worth reading the argument in full, and it's yet another demonstration that the Kindle Single format has real potential. For two bucks, it's a pretty good deal.

The Truth About Stimulus

| Thu Sep. 15, 2011 11:53 AM EDT

Were Department of Energy loans to green companies like Solyndra just an example of Democratic pork in the stimulus bill? Matt Steinglass says no:

This is not a good description of what happened with Solyndra. In fact, it's sort of backwards. There were elements of the ARRA that did not make for optimal stimulus, and were included largely for political reasons. But those elements weren't the DOE innovative-technology loan guarantee programme, or for that matter the kinds of government spending generally desired by liberal Democrats. They were the kinds of tax breaks for wealthy people and businesses generally desired by conservative Republicans. The DOE loan guarantees were in fact among the programmes that the Congressional Budget Office believed would provide the maximum possible stimulus....There's no mystery as to why Democrats wanted the DOE loan guarantees in the ARRA. These were "shovel-ready" projects; the corporations involved were ready to spend the money quickly.

But was there pressure to speed up the loan process? Indeed yes:

Why? Probably because in early 2009, DOE was widely viewed as a lazy, sluggish organisation, poor at managing money, that was making ridiculous bureaucratic demands on firms before it would approve the loan guarantees, which had been authorised by Congress in 2005 and launched by the Bush administration in 2007....Newly minted energy secretary Steven Chu was labouring mightily to push through the backlog of loan guarantees, telling slowpoke employees: "Tell us what you need to do in order to get them [decided] in four weeks."

....Unfortunately, when the government subsidises investment in an industry, some of the investments will fail; speeding up the process may increase the risk of failure. There are trade-offs here. Rather than loan guarantees, the government could subsidise the industry directly with grants. Then instead of a risk that taxpayers will have to pay, you have a certainty; you may also run afoul of WTO rules. Or the government could restrict its loan guarantees to companies that are already profitable. But then you're just sponsoring lazy national-champion firms, not seeding dynamic startups. Or the government could limit stimulus efforts to buying public end-products (more trains, roads, parks, museums, schools, fighter jets, public housing, etc) and let the private sector compete to supply them. But that's probably not shovel-ready and may not work as stimulus.

That last paragraph is an important one. If you've decided, for partisan political reasons, that stimulus just flatly doesn't work, then you're free to make whatever outrageous charges you want. You can complain that the program is moving too slowly (see the Washington Post today for that version) and then turn right around and complain that it's moving too fast. You can complain that it's Democratic pork and then turn around and insist on diverting the money to nuclear and fossil fuel loan guarantees. You can make up nonsensical numbers about the cost of jobs created, as if that's all the loan money is for, and your adoring fan base will cheer. You can insist that federal programs don't create any jobs and then turn around and brag about all the jobs that some new bridge-building project has brought into your district. You can basically say anything you want.

If you're on the other side, you're a little more bound by reality. And the reality is that some projects succeed and some fail. You can have more successes (maybe) by being more careful, or you can streamline the program, but at the cost of accepting more failures. If you actually decide to do something, instead of standing on the sidelines and carping, those are the risks you take. Obama and congressional Democrats took that risk in 2009, and the result saved millions of jobs and kept us from sliding into a major depression. But failures are inevitable no matter how well the programs are run, and opportunistic politicians are always going to try to take advantage of that. It comes with the territory. That's what's happening here.

Getting More Women to Run for Office

| Thu Sep. 15, 2011 10:54 AM EDT

A new paper uses a clever design to figure out if women are more willing to compete in teams than as individuals. The answer, in a laboratory test setting, is a resounding yes:

  • Even though men and women performed equally well on the task, 81% of men chose to compete as individuals compared with 28% of women.
  • When participants competed in teams, the gender competition gap shrank by 31 percentage points to 22%, with 67% of men choosing to enter the competition compared with 45% of women.

One of the clever parts of the study design was a series of different competitions that tried to untease the cause of different gender preferences. The result, say the authors, is that it really is a true difference in competitive preference, not just an artifact of risk aversion, feedback aversion, or confidence. Does this make a difference in the real world? Sure it does:

Countries that have party-list proportional representation, in which voters select a slate of candidates put forth by a party, generally have more than twice the female representation rate in their legislatures than countries that have single-member districts. Two countries that elect some members under each system, Germany and New Zealand, illustrate the differences most clearly. In the 1994 German election, 13% of the representatives elected from single-member districts were women, while 39% of the representatives elected from party-list districts were women. In New Zealand in 1996, the corresponding numbers were 15% and 45% for the single-member and party-list districts, respectively. These differences occur primarily because women are more likely to be candidates under proportional representation.

As I recall, we have much the same phenomenon in the United States. Once they decide to run, women generally do as well as men in political campaigns. The problem is that not very many are willing to run.

Our political system isn't likely to change to improve this situation, but this research does suggest there might be slate-oriented ways to get more women to run. Here's an example from my neck of the woods. In my hometown of Irvine, for historical reasons, there are basically two slates of candidates that run as a group for city council every couple of years. (I think of them as gangs, but I guess "slate" is a better word.) This system, accidental though it is, seems to attract a fair number of female candidates. People actually vote for councilmembers individually, and usually we end up with some winners from one slate and some from another. Nonetheless, merely running as part of a team seems to encourage more female participation.

That's just my impression, of course, and it might be wrong. But it might be worth another study to see if slate-like behavior, whether formal or informal, increases the number of women who run for political office in the United States.

Via Tyler Cowen.

Everybody Hates Everybody Else

| Thu Sep. 15, 2011 12:59 AM EDT

Here is one result from Bloomberg's latest poll. (God knows why they decided to turn it into a pie chart—or a donut chart, I suppose—but that's what they gave us.) At first glance, it looks like Obama is doing okay. At second glance, though, what it really means is that everybody hates everybody else. Democrats all think Republicans are responsible for screwing up the country, and Republicans all think Democrats are responsible. The only difference is that Republicans can't decide who they hate more, Obama or Nancy Pelosi.

In other news, Republicans favor Rick Perry over Mitt Romney (26 percent to 22 percent), the overall electorate favors Obama over Perry (49 percent to 40 percent), a full 19 percent of Obama supporters say they no longer support him, and a trio of researchers say there's now a 38 percent chance of a double-dip recession in the United States. You may decide for yourself which of these things to be most alarmed about.

It's Circular Firing Squad Season on Capitol Hill

| Wed Sep. 14, 2011 8:24 PM EDT

With friends like this, who needs Republicans? Today the Democratic congressional caucus, in a dazzling display of circular firing squaddishness, unloaded on President Obama's jobs bill:

“I think the American people are very skeptical of big pieces of legislation,” said Senator Robert Casey, Democrat from Pennsylvania....“I have said for months that I am not supporting a repeal of tax cuts for the oil industry unless there are other industries that contribute,” said Senator Mary L. Landrieu of Louisiana....“I have been very unequivocal,” said Representative Peter DeFazio, Democrat from Oregon. “No more tax cuts.”....“I have serious questions about the level of spending that President Obama proposed,” said Senator Joe Manchin, Democrat from West Virginia....Senator Kay Hagan declined on Wednesday to say her support for the bill that Mr. Obama spent the day touting in her state was indubitable..... “I’m going to have to look at it.“....Representative Heath Shuler, another North Carolina Democrat, said Congress should tame the deficit before approving new spending for job programs. “The most important thing is to get our fiscal house in order,” said Mr. Shuler.

Republicans must be laughing their asses off right now. For a brief moment it looked as if maybe, just maybe, Obama had put them in a tough spot: either support a jobs bill their base hated or else look like mindless obstructionists on the single issue most important to the American public. But now? All they have to do is lay low and let Democrats do the dirty work of undermining the bill for them. It's a pretty sweet deal. Sometimes politics is just too easy.

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Europe Stares Into the Abyss

| Wed Sep. 14, 2011 5:57 PM EDT

Like a lot of people, I've been trying to figure out whether Europe is doomed. I change my mind on pretty much a daily basis. So let's take stock. Greece and its massive debt load is Europe's immediate problem, of course, so here's some advice from Mario Blejer, who managed Argentina’s central bank after they defaulted on their debt in 2002:

This debt is unpayable. Greece should default, and default big....It doesn’t make sense to give money to Greece so Greece can pay the Germans back. All these projects, all the euro projects don’t make sense economically.

Kyle Bass, managing partner of Hayman Capital, agrees: "Greece has to default," he says. "It's going to be a hard default, and then it's going to be difficult to contain this contagion."

Roger that. Greece just flatly can't pay off its debts and will probably never be able to pay off its debts. So repudiation is inevitable, and Blejer is worth listening to on this score since Argentina has done fairly well since its crisis and subsequent default. There's more to this story, though, because Argentina didn't just default. They also abandoned their fixed peg with the dollar and allowed the peso to float, which resulted in a quick and massive currency devaluation and enormous inflation. After a period of intense pain, the devaluation worked: Argentine exports rebounded strongly because they had become so cheap, and this eventually revived the economy. But Blejer doesn't think that Greece should leave the euro, which seems odd at first since it's functionally equivalent to abandoning a currency peg, something that was part of the formula for Argentina's recovery. However, it's perfectly understandable if Forbes' Cyrus Sanati is right about what would happen if Greece abandoned the euro and switched back to a drachma that it then immediately devalued:

Moving back to its former currency would allow Greek exports to be competitive again with its neighbors, especially those that cater to tourists. Across the Aegean in Turkey, GDP grew by 8.8% in the second quarter. There is no reason why Greece couldn't capture some of that tourist market if it returns to a cheap currency.

But leaving the common currency would also lead to some nasty results. It would force Greece to raise cash to plug its budget shortfall and potentially pay yields that could run as high as 25% over German bonds, something that would probably be impossible. That would force Greece to make even larger cuts in government spending, further exacerbating its economic woes. The Greek banking system would almost certainly collapse in the changeover as the ECB would stop payments currently keeping them afloat. Without that cash infusion from the ECB, the Greek banks would be left with a massive funding gap equal to around 20% of their assets or 100 billion euros, according to an analysis by Citigroup.

A run on the Greek banking sector would result bringing economic activity in the country to a grinding halt. Imported products would be in short supply, creating serious political and social unrest throughout the country. The ensuing collapse in the Greek banking system would send shockwaves throughout Europe.

This is the rub. When Argentina abandoned its dollar peg and devalued its currency, it only affected Argentina. If Greece were to abandon the euro and replace it with devalued New Drachmas, it would affect the entire euro area. Every weak country in Europe would face crippling bank runs. After all, if you thought there was even the slightest chance of your deposits in, say, Banco de Santander or Banca Di Roma, being forcibly converted to New Pesetas or New Lira worth half what you deposited, you'd hustle over and pull out your money while the pulling was good. All of it. Pretty much every bank in Spain, Portugal, Italy, and perhaps a few other countries as well would be obliterated.

So this is basically where we're at. Greece can't pay its debts. Everyone and his dog knows this. But if Greece defaults and leaves the euro, you get the massive economic collapse and bank runs described above. Gavyn Davies says this is apparently no longer on the table:

Germany was reported to be examining these radical options at the weekend. However, having looked over the precipice, Angela Merkel, German chancellor, seems to have recoiled from them, for now. We will learn more in the next few days, but yesterday she hinted that she would still prefer a delayed, “orderly” Greek default, rather than an immediate and disorderly one. Unfortunately, neither option looks very appealing.

No indeed. But then, none of the other options look very appealing either. The only real option left is for Greece to default and for Europe's rich countries to recapitalize all the banks that would otherwise go bust thanks to their exposure to Greek bonds. But then what? Even with no debt, Greece is still a basket case, and as long as they stick with the euro there's no way to turbocharge their export market with a currency devaluation the way Argentina did. So then what? Either Europe continues to provide massive amounts of assistance for years to come, or else Greece collapses. And quite possibly a few other countries follow suit.

So as much as everyone hates the idea, massive amounts of assistance for years to come is probably the best bet. Apparently Merkel and other EU leaders are finally starting to realize this deep in their bones. It's infuriating, but the alternative isn't mere bank recapitalization and aid to Greece (which is galling but tolerable), it's continent-wide bank runs, further defaults in other countries, and the collapse of the euro. Merkel is finally looking into the abyss, and the abyss is looking back.

As for me, I guess I'm feeling slightly more optimistic about things today than I did a couple of days ago. But next week might be a different story.

The Inflection Point of 2000

| Wed Sep. 14, 2011 2:33 PM EDT

Matt Yglesias likes this chart from USA Today that illustrates what has happened to household incomes over the past decade:

In fairness, you really do need to account for rising health insurance premiums before you conclude that average incomes have dropped. I'll spare you the details, but the census data shows that overall median incomes, adjusted for inflation, have dropped $3,719 over the past decade. However, the employer share of healthcare premiums has gone up almost exactly the same amount. Toss that back in, and total household compensation (cash plus health insurance) has been pretty much flat.

Still, that's pretty bad:

This, I think, does a great job of illustrating the fact that the asset price collapse –> recession –> lost decade cycle is really something that started 10 years ago rather than a forward-looking risk. It’s often said that the 2001 recession was "brief" and "mild," but the employment and income situation kept deteriorating for years and neither the employment-population ratio nor wages ever re-obtained their previous peak. The longer we go on not effectively addressing the additional labor market trauma of 2008-2009, the more this all merges into one giant pool of long-run economic dysfunction.

I keep meaning to write more about this, and I promise that someday I will. But there's a real phenomenon here that hasn't gotten enough attention. We often point to 1973 as an inflection point for workers: Before that, median incomes rose right along with economic growth, but starting that year income growth suddenly slowed dramatically. Instead of rising 2 to 3 percent a year, household income rose less than 1 percent per year.

It now looks to me like 2000 was another inflection point. Household incomes went from 1 percent growth to zero growth, and they've been stuck there ever since. Even researchers who are skeptical that income inequality rose dramatically after 1973 mostly accept that it's definitely risen since 2000. The entire past decade has been an economic disaster on multiple fronts, and that's one of the reasons the financial collapse of 2008 has been so terrible. We had a decade's worth of labor market weakness that was partly masked by a housing bubble, and it all came crashing down within a year or two. Instead of a long, slow slide, we got ten years worth of drops compressed into 24 months. For more on this, see Scott Winship here.

And I really will try to write more about this eventually. It's important. Unfortunately, the reasons are still hazy and there are dozens of theories about what's happening. But something sure is.

Chart of the Day: Obamacare Already Working

| Wed Sep. 14, 2011 12:56 PM EDT

Jon Cohn points out today that the new Census Bureau report on poverty provides some pretty good evidence that Obamacare is already working. Thanks to the recession, the number of people without healthcare coverage has risen among most age groups. But as the chart on the right shows, among the young it's actually gone down. Why?

Why aren't 18- to 24-year-olds suffering the same fate? What makes them so special?....The circumstantial evidence suggests, very strongly, that the Affordable Care Act is the primary factor.

Remember, one of the first provisions to take effect was a requirement that insurers allow young adults, up to age 26, to stay on their parents’ policies if employer-sponsored insurance is not available. Even though that requirement didn't kick in until the fall, several insurers began offering such coverage earlier, in anticipation of the new rule....These numbers are striking — and seem to suggest that the Affordable Care Act is already helping large numbers of people.

This is what every single Republican presidential candidate and the entire Republican leadership wants to take away. Your mileage may vary, but it's not a vision of America most of us should welcome.

16-Year-Olds Not As Dangerous As We Thought

| Wed Sep. 14, 2011 11:58 AM EDT

I haven't written about this for a while, but longtime readers may remember a couple of past studies suggesting that there's not much benefit to state programs that make it hard for teenagers to get drivers licenses. Today, a new, much larger study pretty much confirms this:

A nationwide analysis of crash data suggests that the restrictions may have backfired: While the number of fatal crashes among 16- and 17-year-old drivers has fallen, deadly accidents among 18-to-19-year-olds have risen by an almost equal amount. In effect, experts say, the programs that dole out driving privileges in stages, however well-intentioned, have merely shifted the ranks of inexperienced drivers from younger to older teens.

....The researchers found that states with the most restrictive graduated licensing programs — such as those that required supervised driving time as well as having night-driving restrictions and passenger limitations — saw a 26% reduction in the rate of fatal crashes involving 16-year-old drivers compared with states without any restrictions. But the rate of fatal crashes among 18-year-old drivers in those states jumped 12% compared with the states without restrictions.

....A similar trend was seen when comparing drivers in states with strong graduated licensing programs with those in states with weak programs: The rate of fatal crashes among 16-year-old drivers was 16% lower but was 10% higher among 18-year-old drivers.

Overall, since the first program was enacted in 1996, graduated programs were linked to 1,348 fewer fatal crashes involving 16-year-old drivers and 1,086 more fatal crashes involving 18-year-old drivers.

The study can't tell us for sure why this is, but the most likely explanation is that it's not really age that's the factor in all these crashes. It's inexperience. When states tighten up requirements to get a drivers license, a lot of 16-year-olds decide not to bother getting one. They just wait until they're 18 and they can get a license under the standard rules. So when they take to the road they may be a couple of years older, but they're still brand new to driving. The result is lots of crashes.

What's the answer? Rolling back the new rules is vanishingly unlikely, especially since they don't appear to have made things actively worse. But in sort of a parody of conservative caricatures of liberal regulatory overkill — except this time it's coming from the private sector — an officer at the Insurance Institute for Highway Safety suggests that if the new laws have unintentionally made 18-year-olds more dangerous, maybe we just need more law. Tighten up requirements on 18 and 19-year-olds and we'll be all set! Huzzah!