Kevin Drum - October 2011

Friday Cat Blogging - 28 October 2011

| Fri Oct. 28, 2011 9:00 AM EDT

On the left, Domino really is staring at the giant rose this week. It's not just a trick of perspective. On the right, Inkblot is reacting warily as Domino explores a gigantic bag that had been full of electronic goodness just a few moments before.

Why the early catblogging this week? Because Southern California Edison has kindly informed us that electric power in our neighborhood will once again be out for the day. So no blogging for me. This post was prescheduled Thursday night, and my computer has been safely shut down for the duration. Have a good weekend, all.

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Quote of the Day: Some Wee Questions for the SEC

| Thu Oct. 27, 2011 11:33 PM EDT

From Jed Rakoff, the federal judge overseeing the SEC fraud settlement against Citigroup:

How can a securities fraud of this nature and magnitude be the result simply of negligence?

Good question! This is #9 of nine questions that Rakoff has about the settlement, in which Citigroup has been fined an arbitrary amount, with no real explanation for how the amount was calculated, no real explanation of just what the fraud entailed, and no admission by Citigroup of any culpability. I suspect that Rakoff isn't going to get any satisfactory answers to his questions, but good for him for asking.

Banks Surrender on Debit Card Fees — For Now

| Thu Oct. 27, 2011 11:10 PM EDT

Good news from the Wall Street Journal:

A month after Bank of America got pummeled by consumers and politicians for introducing plans for new debit-card fees, most other big U.S. banks are steering clear of imposing similar charges.

Following eight months of consumer testing, J.P. Morgan Chase & Co. has decided that it won't charge customers who use their debit cards to make purchases....J.P. Morgan joins U.S. Bancorp, Citigroup Inc., PNC Financial Services Group Inc., KeyCorp and other large banks that have said in recent days that they won't impose monthly fees on debit cards. None of those banks said they made their decisions because of the outcry over Bank of America's fees.

Well, of course they didn't say it. But I think we can all take a pretty good guess that Bank of America's PR debacle had something to do with it.

BofA imposed its monthly debit card charge to make up for lower interchange fees mandated by Dodd-Frank, and that's why other banks have been considering it too. But as far as I'm concerned, banks could have avoided this mess completely simply by allowing merchants to pass along interchange fees to their customers if they wanted to. That is, allow merchants to post a sign saying "2% surcharge on all debit card purchases" and see what happens. If merchants try it, but competition eventually forces them all to stop, that's a convincing signal that interchange fees are a reasonable cost of business for having a reliable, risk-free payment system. If not, then not. But banks resolutely refused to allow this, which suggests very strongly that they knew perfectly well their fees were out of line and would get passed along to consumers in a free market. And having those fees passed along would have caused consumers to use their cards a lot less. So the last thing they wanted was transparent fees subject to normal market forces.

I don't know how this is all going to turn out. It's possible, of course, that banks will eventually figure out some other hidden or semi-hidden fee structure to replace the interchange fees. Obviously they're going to try to make up their lost interchange fee revenue somewhere. But my hope is that as long as they're forced to make it up with transparent fees of some kind, consumers will have a chance to react normally to those charges and market forces will then have a chance to exert some discipline on the banks — as they're doing now with the monthly debit card fee. This will keep fees as low as possible and consumers will benefit. We'll see.

The Price of Plutocracy

| Thu Oct. 27, 2011 2:34 PM EDT

With income inequality on everyone's radar today, the Center on Budget and Policy Priorities tweets this:

Quite so. This gives me an excuse to repost one of my favorite tables. It compares how much income various groups make today vs. how much they would be making if everyone's incomes, rich and poor alike, had grown at similar rates since 1979. As you can see, by 2005 the bottom 80% were collectively earning about $743 billion less per year while the top 1% were earning about $673 billion more. It's sort of uncanny how close those numbers are. For all practical purposes, every year about $700 billion in income is being sucked directly out of the hands of the poor and the middle class and shoveled into the hands of the rich.

One of the points this drives home is just how much the story of growing income inequality really is a story of the top 1%. Inequality has increased within the bottom 99%, but not all that dramatically. It's really the top 1% and the top 0.1% where all the action is. So if the Occupy Wall Street folks are ever looking for an alternate slogan, they might consider "Give us back our $700 billion."

You can, of course, try to concoct some story in which growing income inequality has boosted economic growth, so that the gains of the rich have been solely from income that nobody would have gotten otherwise. But it's a pretty tough story to tell, because there's simply no evidence for it. The American economy hasn't been growing any faster over the past 30 years than it did in the 30 years before, it's just distributed the gains of its growth disproportionately to the rich.

To bring this home a little more vividly, take a look at the row labeled "41-60." That's the dead middle of the income distribution. If all income groups had grown at the same rate over the past 30 years, that median household would today be making about $10,000 more than they are. That's the price we pay for our growing plutocracy.

Want more charts? This one comes from the chart pack we did for my article earlier this year, "Plutocracy Now." Click the link if you want to read it, or else click here if you just want to browse the charts.

Raw Data: What Our Kids Is Doing

| Thu Oct. 27, 2011 12:52 PM EDT

Via Brad Plumer, here's the latest data from Common Sense Media about the media diets of young children in America. To be honest, I'm a little surprised that TV watching is only two hours a day for 5-8 year-olds. On the other hand, I'm sort of appalled that 75% of 0-2 year-olds watch TV, and of those, the average TV-watching time has increased from 1:02 to 1:30 over the past six years. In that age group, it probably ought to be zero. Other interesting nuggets:

  • 30% of kids under two have a TV in their bedroom.
  • Only about 60% of kids read or are read to every day. More reading, please.
  • 92% of high-income kids have high-speed cable. Only 42% of low-income kids do. The divide is about the same along the educational spectrum.

More at the link.

Wall Street is the New Wal-Mart

| Thu Oct. 27, 2011 11:49 AM EDT

Matt Yglesias has an interesting notion today. He suggests that selling luxury goods to the wealthy is all well and good, but if you want to get truly rich you need to sell to a mass market. Think Henry Ford, Sam Walton, and Bill Gates. But what if you peer into the future and conclude that the middle class is going to be fairly stagnant while the rich are going to get ever richer and richer? What kind of mass market is there in goods for the rich? There are only so many yachts they can buy, after all.

Another of way saying this is that as the rich get richer, they spend a smaller and smaller share of their income on ordinary consumption. That leaves more and more money to be socked away as savings:

But rich people also don’t just “save” money in the way that middle class people do on a larger scale. They purchase large quantities of financial services. So to the extent that you anticipate income to be increasingly concentrated at the top, it makes more sense to go into selling financial services than into selling non-finance items. The people who get rich with non-financial enterprises (Bill Gates, the Walton family) are all selling to mass markets. Lots of people make a living selling luxury goods to the top 1 percent, but nobody becomes a billionaire that way. Unless they’re selling financial services.

As a corollary of sorts, I'd note that people have a tendency to do dumb things with money. That should come as no surprise. But when middle-class folks do dumb things, the consequences just aren't that bad. The consequences might be bad for them, but on a macro level, the middle class just doesn't have all that much money to do dumb stuff with. That's because they spend most of their income on food, clothes, housing, gasoline, and so forth.

But rich people? When their money starts to pile up so high that it's burning holes in their bespoke suits, they start doing dumb stuff on an epic scale. And Wall Street is there to cheerfully cater to their every dumb whim, and then toss in a few even dumber ones that they'd never thought of before. If you keep this up for a few years you get 2008. Social justice to the side, this is, in my mind, one of the key reasons why we should care about reducing income inequality. The middle class can more or less be trusted to do useful things with the bulk of its money. The rich can't.

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How We Shop

| Thu Oct. 27, 2011 11:31 AM EDT

Shopping expert Paco Underhill explains how we shop:

Some people predict that the Internet is going to replace the retail store. It's already killed Borders. What impact could it have on, say, buying a bed or a toaster?

Buying an electronic appliance generally involves three visits, or missions. A scouting mission, a narrowing mission, and a purchasing mission. Of those three missions, at least one or two might be happening online, whereas it previously would be happening in store. The role of the Internet is an information-gathering -- scouting and narrowing -- vehicle. It doesn't mean less buying. It means less day-to-day traffic.

That sounds disturbingly accurate. I need a new laptop, and a couple of weeks I started my scouting mission. On the internet. Last week I spent an afternoon on a narrowing mission, visting Fry's, Micro Center, Best Buy, the Microsoft Store, and the Sony Store. Two days ago I accidentally noticed a sale on one of the models at the top of my list, so today I'll probably head out on my purchasing mission.

Of course, I could just as easily have accidentally noticed a sale on the internet, in which case our local bricks-and-mortar retailers would have been out of luck. Still, Underhill has a point. The internet probably spurs nearly as much shopping as it cannibalizes.

Also of note is his anecdote about a Japanese department store that has a private club for loyal customers. Interesting! Sounds like something Nordstrom should try.

The Future of #OWS

| Thu Oct. 27, 2011 10:44 AM EDT

Dahlia Lithwick says that the media's bafflement toward the Occupy Wall Street movement is the result of its obsession with simple storylines that can be explained in 60 seconds or less:

Mark your calendars: The corporate media died when it announced it was too sophisticated to understand simple declarative sentences. While the mainstream media expresses puzzlement and fear at these incomprehensible “protesters” with their oddly well-worded “signs,” the rest of us see our own concerns reflected back at us and understand perfectly. Turning off mindless programming might be the best thing that ever happens to this polity. Hey, occupiers: You’re the new news. And even better, by refusing to explain yourselves, you’re actually changing what’s reported as news. Because it takes a tremendous mental effort to refuse to see that the rich are getting richer in America while the rest of us are struggling. Maybe the days of explaining the patently obvious to the transparently compromised are finally behind us.

By refusing to take a ragtag, complicated, and leaderless movement seriously, the mainstream media has succeeded only in ensuring its own irrelevance. The rest of America has little trouble understanding that these are ragtag, complicated, and leaderless times. This may not make for great television, but any movement that acknowledges that fact deserves enormous credit.

I'd like to think this is true. Unfortunately, my instincts tell me that the corporate media is stronger than Lithwick gives it credit for. As weeks drift into months, and the OWS movement continues to shun the very idea of alliance building, political action, or stronger messaging, it looks more and more as if it's going to drift into irrelevance without accomplishing anything. Heavy-handed police action could change that, of course, but at this point it sort of looks to me as if its most promising destiny is to be v1.0 of whatever springs up in its wake. If things go well, OWS will inspire someone else to create a similar group that's better at mobilizing public outrage, but OWS itself won't be part of it. That's no bad thing if it happens that way, but not what OWS's creators were hoping for.

Chart of the Day: The Government and the Rich

| Thu Oct. 27, 2011 9:59 AM EDT

This chart from the Pew Economic Mobility Project is actually a few months old, but it seems newly relevant in light of the Occupy Wall Street protests. If you want to know why people are angry, this tells the story. If you want to know why people don't think much of government, this tells the story. If you want to know why people are overwhelmingly in favor of increasing taxes on the rich, this tells the story. Basically, this chart tells a lot of stories.

Rick Perry Figures Out How to Improve His Debate Performance

| Wed Oct. 26, 2011 5:49 PM EDT

Rick Perry has figured out the answer to his embarrassingly bad debate performance. He's just not going to participate in debates anymore:

“We are going to evaluate each debate as it comes and take each one on its own merits,” said Perry spokesman Mark Miner, adding that for now, Mr. Perry is confirmed only for the next GOP debate, set for Michigan Nov. 9th....“The primaries are right aroud the corner and there is simply more to do than there is time to do it,” Mr. Miner said.

But isn't this going to open up Perry to charges that he's scared to face his opponents? Don't be silly, says Perry's South Carolina chairman, Katon Dawson:

“You have to prioritize exactly what you’re campaign is going to do and what it’s going to look like and what you’re best at,” he said in an interview. “I don’t think Rick Perry has ever hidden from anything.”

So there you have it. Perry's not hiding from anything. He's just choosing to stay off national TV because it makes his dimness a little too painfully obvious to voters who are trying to choose a leader of the free world. Better to focus instead on what he's best at: attack ads and laughably flimsy policy proposals.