Kevin Drum - October 2011

Obama and the Wall Streeters

| Thu Oct. 6, 2011 11:18 AM EDT

It's prediction time. Do you think that President Obama, in the reasonably near future, will embrace the Occupy Wall Street movement? Cast your vote in comments. 

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No, the Tea Party Has Never Cared About Wall Street

| Thu Oct. 6, 2011 10:00 AM EDT

Will Bunch is exactly right about this:

One of the biggest myths about the Tea Party is that a driving force in its creation was anger over bank and Wall Street bailouts. It's true that some rank-and-file joiners did feel that way at first, but they were quickly co-opted by the movement leaders — including radio talkers and groups funded by the Koch Brothers — into worshipping the rich instead.

The tea partiers really do hate TARP, and they hate the auto bailout, and they hate the Fed and its money debasing ways. But the tea party's leaders have always been careful to give those things plenty of lip service while channeling all the movement's real energy into the issues that its big-dollar funders have always cared about most: lowering taxes on the wealthy, reducing regulations on corporations, and cutting spending on the poor.

After all, tea partiers could have poured their energy into protesting the AIG bailout. They could have poured their energy into insisting that Dodd-Frank be tightened up. They could have poured their energy into demands that the Fed be reformed and made more transparent.

But those were never more than side issues. The real issues for the tea partiers have always been healthcare reform, tax cuts, deficit fever, and EPA bashing. And in the most obvious tell of all, they were actively opposed to Dodd-Frank, a bizarre stand for an allegedly anti-bailout movement. The tea party, in the end, simply isn't anything new. It's the same old right-wing fluorescence we see every couple of decades or so, with all the same hobbyhorses. The media really should have figured that out by now.

13 Ways In Which Republicans Are Wrong

| Thu Oct. 6, 2011 12:01 AM EDT

I've got a piece coming up in the next issue of the magazine about five economic memes that deserve to die. By the time it was done, it had actually turned into six memes, but apostate Republican David Frum goes me seven better today by listing 13 — yes, 13! — ways in which the Republican consensus on the economy is wrong, wrong, wrong:

  1. It is wrong in its call for monetary tightening.
  2. It is wrong to demand immediate debt reduction rather than wait until after the economy recovers.
  3. It is wrong to deny that “we have a revenue problem.”
  4. It is wrong in worrying too much about (non-existent) inflation and disregarding the (very real) threat of a second slump into recession and deflation.
  5. It is wrong to blame government regulation and (as yet unimposed) tax increases for the severity of the recession.
  6. It is wrong to oppose job-creating infrastructure programs.
  7. It is wrong to hesitate to provide unemployment insurance, food stamps, and other forms of income maintenance to the unemployed.
  8. It is wrong to fetishize the exchange value of the dollar against other currencies.
  9. It is wrong to believe that cuts in marginal tax rates will suffice to generate job growth in today’s circumstance.
  10. It is wrong to blame minor and marginal government policies like the Community Reinvestment Act for the financial crisis while ignoring the much more important role of government inaction to police overall levels of leverage within the financial system.
  11. It is wrong to dismiss the Euro crisis as something remote from American concerns.
  12. It is wrong to resist US cooperation with European authorities in organizing a work-out of the debt problems of the Eurozone countries.
  13. It is wrong above all in its dangerous combination of apocalyptic pessimism about the long-term future of the country with aloof indifference to unemployment.

I have to say, once people break with the Republican Party these days, they really break. They don't become Democrats or anything, but if anything, they actually savage their former comrades more than Democrats do. I'd love to see something this pithy from, say, Barack Obama. It's inspiring.

Sarah Palin Decides Against Demotion to President

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

Sarah Palin made it official today: she's not going to run for president. I'm posting about this just in case anyone out there was still unsure about Palin's prospects.

But riddle me this: why did she make this announcement through the lamestream media? What's up with that?

UPDATE: Ah, I see. Jay Newton-Small misled me. Palin actually made her announcement on the Mark Levin show.

A Wee Question About Financial Transaction Taxes

| Wed Oct. 5, 2011 2:12 PM EDT

Financial transaction taxes are getting some attention again, and Megan McArdle is against them:

Myself, I don't really see the charms. Tiny taxes on high-volume transactions raise a lot of money, but they also cost money to record, collect, and audit, which is why few jurisdictions have 0.25% sales taxes. And I'm not clear on what problem taxing financial transactions is supposed to solve. It's not as if our woes were caused by legions of high-frequency traders wrecking the markets with their tiny, tiny spreads.

I'm going to take this opportunity to write something potentially really ignorant. But hey — how else do you learn new things aside from putting yourself in a position to get viciously called an idiot in the blogosphere?

So then: when we talk about FTTs, the usual topic is, as Megan implies, high-frequency traders who make money by executing millions of computerized trades that each produce only a tiny profit. Introduce an FTT and they'd become unprofitable and high-frequency trading might go away. I'm perfectly fine with this, since I'm on record as having a dim view of high-frequency trading, but by itself I agree that it isn't enough of a reason to mount an FTT. Besides, if we really think high-frequency trading is dangerous, we should just ban it and move on.

So here comes the possibly ignorant part. One of the most dangerous aspects of the financial system of the aughts — not the only one, but one of them — came from the virtually frictionless nature of modern money flows. That prompted traders to follow a strategy similar to the one that blew up Long Term Capital Management in the 90s: seek out trades that are only barely profitable, and then lever them up enormously. Even a spread of a tenth of a percent is a money spinner if you can lever it up 30:1 or 100:1 with mountains of cheap money.

My question, then, is whether an FTT would slow this down. Basically, any trade with a spread of less than 0.25% would automatically be unprofitable. There would still be plenty of marginally profitable trades, of course, but they'd tend to be a little less exotic. Lots of people can spot an arbitrage opportunity of 0.4%, so they wouldn't last long. The real problem lies in the clever, minuscule trades that stay hidden long enough to be profitable at high levels of leverage but that blow up spectacularly when they go bad. If we had fewer of them, the entire system would be a little more stable.

I can think of several reasons why I might be wrong about this. I don't know, for example, how this would affect big banks, or how it would affect the construction of rocket-science securities like the subprime CDOs that brought down Wall Street in 2008. Maybe the small-spread trades I'm thinking of aren't really as widespread as I think. Or maybe the danger would simply get transferred wholesale from trades with 0.1% spreads to trades with 0.35% spreads.

Hopefully someone who actually knows how high finance works will see this and provide some kind of definitive answer. I've long thought that aside from limiting leverage, which is clearly Job 1 for a more stable financial system, we also need to throw just a little bit of sand in the gears and slow things down slightly. Capital controls, for example, might be a good idea for a lot of countries if they're kept small: just enough to prevent massive hot money flows but not big enough to seriously affect capital formation. An FTT seems like something along these lines.

But I'm open to being swatted down. I'm looking at you, Economics of Contempt.

Is #OWS What We've All Been Waiting For?

| Wed Oct. 5, 2011 12:45 PM EDT

Over at The Corner, Andrew Stiles recounts a conversation he overheard this morning about the Occupy Wall Street protest. The speaker wasn't especially lucid and ended up explaining that he was just generally opposed to greedhead capitalists:

Sure. Because we all know splendidly greed- and corruption-free socialist government is, and how "the 99 percent" of Americans are just clamoring for it. Certainly, this one fellow doesn't speak for all the protesters, but being familiar with how a (frighteningly) large portion of my generation thinks—and in many cases, has been taught to think—this seems like a fairly accurate distillation of their collective mindset: vague, incoherent, idiotic.

Funny, isn't it? Conservatives sure get plenty offended when people use language like this to talk about tea partiers. But find some guy in a coffee shop who dislikes bankers but can't really articulate a fully fleshed out worldview to explain it, and suddenly an entire generation is a bunch of morons.

I'm going to continue to allow other people to follow OWS more closely than me—Andy Kroll has a good piece about union involvement here, and Michelle Goldberg has another here—but I do find it sort of fascinating. The lack of a clear message has never bothered me, any more than the lack of a clear message in the early days of the tea party bothered conservatives. If OWS continues to grow, messages will start to germinate organically. Some of them will spring from the anarchist roots of the founders, but they'll become fringe issues pretty quickly and shouldn't scare off the rest of us—sort of like tea party demands to repeal the 17th amendment. Others will be more mainstream: repeal of the Bush tax cuts on the rich, stricter financial regulations, more stimulus spending, etc. These will become the equivalent of tea party demands for lower taxes and reduced spending.

And just like the tea party, mainstream logistical support will be key. The tea party movement thrived partly because of genuine grass roots anger, but also because it got lots of publicity from Fox News and plenty of money and organizational support from national conservative groups. Likewise, on our side, union support is key because, even in their current emaciated state, unions are still the only big, institutional pressure groups in America focused almost entirely on economic issues. Jon Cohn puts it pretty well:

During my lifetime, the activist left has gone through several incarnations, focusing on a series of different causes. For much of the 80s and 90s, very generally speaking, the focus was largely on identity politics. Then attention moved to globalization and then, during the Bush presidency, to wars abroad.

As far as I can tell, this is the first time the activist left has focused seriously on issues of economic opportunity at home. In fact, I think it's the first time such issues have been front and center since the 1930s, although I'll defer to the historians on that one. Either way, this movement has a chance to help shape the debate over economic policy in this country—not merely about the financial industry, which is the object of protests right now, but also about inequality generally.

This is a point I was trying to get across in my article earlier this year about unions and plutocracy. My main takeaway was: With unions in a state of decline, what will take their place as a big, organized, persistent source of left-wing pressure on economic issues? I didn't know the answer then, and I still don't. But Occupy Wall Street has a chance—a fighting chance, anyway—of becoming that.

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Mitt Romney is the Perfect Cyborg Tea Party President

| Wed Oct. 5, 2011 12:00 PM EDT

Andrew Sullivan reacts to Jon Stewart's evisceration of Mitt Romney's flip-flopping:

If Romney's shifts were connected to new facts, or new arguments, they would have some punch. But what's amazing about him is that all of them seem clearly caused purely by opportunism in a party lurching toward fundamentalism in religion (the Bible), economics (no revenue increases ever) and politics (the Constitution, as viewed by someone in the late eighteenth century).

OK, sure. Point taken. Romney is a shameless panderer. He'll do whatever you want him to do as long as you'll promise to vote for him.

It's not a pretty sight. But it also makes him the perfect tea party candidate. Don't they see this? With a guy like Rick Perry, you never know. The right person whispers in his ear and suddenly he decides that he hates cancer so much that he doesn't care about conservative principles. Cancer is more important. Do you think Mitt Romney would ever do that? No siree. He'd run that baby dispassionately through the Computron 9000 that passes for a brain and then he'd do exactly what you want him to do. Because he wants you to vote for him. So as long as you keep the pressure on, Romney will never disappoint you.

Romney's big problem, of course, is that tea partiers won't necessarily figure this out on their own — they just think he's an unreliable flip-flopper — and it's hard to figure out how to get the message across to them. It's not like he can give a speech saying he doesn't care about principle and will just abjectly do whatever the tea party wants him to do, so help him God. Still, good politicians always figure out how to get messages like this across with a wink and a nudge in just the right place. Romney can do it too if he devotes enough CPU cycles to the problem.

The Big Pitfall of Online Education

| Wed Oct. 5, 2011 11:33 AM EDT

Sorry for the late start this morning. Here in the third-world city-state of Irvine the power went off yet again last night, and this morning my computer was corrupted in some strange way. I have since tossed some garlic at it, shaken some oracle bones in its vicinity, and used my ISP's web interface to delete a bunch of email. This has produced conditional success. If everything continues working after a restart later today, I'll declare victory over Windows and Southern California Edison. Wish me luck.

Anyway. Speaking of online education — isn't that what we were just speaking about? — Matt Yglesias makes a point so obvious today that I've long wondered why I so seldom hear anyone acknowledge it:

There’s just a basic problem with the general incentives-focused view of the world. Investing some time during the years 15-22 to equip yourself with a quantitative analysis toolkit is something that’s definitely rewarded in the marketplace. And you can find all the relevant textbooks, lectures, information, etc. online already. And yet the number of people who’ve self-taught calculus is tiny. 

Right. Professors lecturing in front of whiteboards may not seem very whiz bang in the era of Facebook, but the medium is definitely not the message here. Aside from the social virtues of a physical college campus, its real virtue is that it sets up a commitment structure: you feel obligated to go to class, and once you're in class you feel obligated to do the homework, etc. Even at that lots of students don't go to class and don't do the homework, but lots do. But if you're studying online, you have to self-motivate at a much higher level. And it's a level that, frankly, most of us just aren't capable of.

I'm sure that eventually someone will come up with a solution to this. Until then, though, this is really the key issue, not the quality or widespread acceptance of online learning. We have to figure out a way to make even average students willing to sit through hours and hours of instruction alone in their rooms. That's not something the human brain was really evolved to do.

Why Republicans Should Like Mitt Romney

| Tue Oct. 4, 2011 5:18 PM EDT

Ramesh Ponnuru says that David Brooks is right to suggest that Mitt Romney is a perfectly fine Republican candidate:

In particular, I agree that the programmatic differences among the major candidates are small and not especially important: The party has reached a consensus on most issues. He’s right as well about the general-election appeal of a solid-citizen candidate. But there are several important questions Brooks does not address.

1) How much of that consensus would Romney actually act on? That question has to be asked about any candidate but for various reasons it has to be asked especially of Romney.

2) Can Romney mobilize public opinion behind the Republican program? Brooks describes Christie as someone who could do that, then drops the subject.

3) Is that consensus correct? If not can Romney supply what it lacks?

4) When new issues come up for which the consensus has no answers, what would President Romney do?

I suppose these are the kind of questions I'd be asking too if I were a Republican, but from an outside perspective they all seem like pretty small beer. It's true that the policy differences between Romney, Perry, and Christie are pretty tiny, but I also suspect that the differences in temperament and affect, which seem bigger, really aren't. The whole thing reminds me a lot of the Obama-Clinton primary, which involved a stupendous amount of sturm und drang over two candidates who, frankly, probably would have ended up being mostly the same in office.

As it happens, my preference for Romney isn't due to the fact that I think he's secretly more liberal than Perry. He probably is, but I doubt that would make any real-world difference, and liberals are kidding themselves if they think it would. My preference is based solely on the fact that in a crisis, I think he'd be pretty likely to act soberly and sensibly. I don't have the same confidence in Perry.

As for Ponnuru's questions, I think he's on the wrong track. In 2008, both Obama and Hillary Clinton had ambitious agendas that they had a legitimate chance at passing. The Republican Party had imploded, the financial meltdown provided a crisis atmosphere, and Democrats were likely to win big majorities in Congress. Neither Romney nor Perry has any of that working for them. The battle lines are drawn, neither side is likely to back down much, and even in the best case Republicans aren't going to win anything close to a filibuster-proof majority in the Senate. A Republican president just flatly won't be able to get an awful lot done. Conservatives are kidding themselves if they think otherwise.

So if Romney is elected president: (1) He'll act on whatever he can get the votes for, which probably won't be a lot. (2) He won't be able to mobilize public opinion any better or worse than anyone else. It's mostly set in stone on the big issues. (3) The conservative consensus isn't going to change, regardless of whether it's right or wrong, so that's not something to worry about. (4) What new issues? When was the last time that something so new cropped up that the conservative movement didn't quickly coalesce around a fairly limited set of correct responses? Even 9/11 and the financial crisis were swallowed by the prevailing conservative consensus pretty quickly.

Romney is an analytic tactician, but that should make Republicans feel good, not uneasy. He knows the base is suspicious of him, and he'll do everything he can to assure them of his conservative bona fides. He's sort of like Richard Nixon but with a different environment. Nixon didn't care much about domestic policy, so he was willing to do whatever Congress and public opinion favored. Romney doesn't care all that much either, but in 2013 that means he'll be willing to do whatever the tea party and the Republican leadership favor. Similar temperaments, different incentives. He'll be the most reliable conservative president imaginable. So instead of Ponnuru's critieria, Republicans should instead be focusing on (1) electability, (2) electability, and (3) electability. And Romney is clearly the most electable candidate in the Republican field.

From my perspective, that's not good. At the same time, I'm pretty sure Romney won't panic and do something really stupid just because the tea party is getting restless. At the moment, that's about the best I can hope for from these guys.

Chart of the Day: Perry's Plummet

| Tue Oct. 4, 2011 2:20 PM EDT

Here's the latest poll average from Real Clear Politics. Apparently, the more they see of Rick Perry, the less Republican voters like him.