Kevin Drum - October 2011

Peak Oil and the Great Recession

| Wed Oct. 19, 2011 6:47 PM EDT

Jim Hamilton, an economist at UC San Diego who has done extensive work on the economics of oil spikes, has just published a summary of the current state of oil macroeconomics called "Oil Prices, Exhaustible Resources, and Economic Growth." His conclusion: "The historical record surely dictates that we take seriously the possibility that the world could soon reach a point from which a continuous decline in the annual flow rate of production could not be avoided."

Translation: peak oil might not be far away, and we should take it pretty seriously. And Hamilton's research suggests strongly that when peak oil does arrive, it's not going to be pretty:

Coping with a final peak in world oil production could look pretty similar to what we observed as the economy adapted to the production plateau encountered over 2005-2009. That experience appeared to have much in common with previous historical episodes that resulted from temporary geopolitical conflict, being associated with significant declines in employment and output. If the future decades look like the last 5 years, we are in for a rough time.

Most economists view the economic growth of the last century and a half as being fueled by ongoing technological progress. Without question, that progress has been most impressive. But there may also have been an important component of luck in terms of finding and exploiting a resource that was extremely valuable and useful but ultimately finite and exhaustible. It is not clear how easy it will be to adapt to the end of that era of good fortune.

"Pretty similar" to 2005-09 means a big spike in oil prices that causes a big recession. The chart on the right shows what he means. The green line shows expected economic growth. The dashed line shows the Great Recession. And the red line? That's his estimate of the effect of the huge spike in oil prices in 2007-08. If Hamilton is right, then the oil spike is responsible for about two-thirds of the Great Recession all by itself. The housing and credit bubbles are only responsible for a fairly small piece of it.

But even if Hamilton is wrong about the precise trajectory of the 2008 meltdown, the evidence is now clear that oil spikes have a very significant effect on the economy. And as the production of oil starts to plateau, oil prices are going to spike a lot. In fact, they're likely to spike every time the global economy starts to grow. As I said the last time I reported on Hamilton's work:

If this model is accurate—and if the ceiling on global oil production really is around 90 mbd and can be expanded only slowly—it means that every time the global economy starts to reach even moderate growth rates, demand for oil will quickly bump up against supply constraints, prices will spike, and we'll be thrown back into recession. Rinse and repeat.

Hamilton's language is cautious, but this is basically what he's saying. Oil controls our economic future more than we'd like to believe.

Via Stuart Staniford, who calls Hamilton's paper "thoroughly researched, superbly argued, and very clearly written."

Advertise on MotherJones.com

The GOP's Campaign Against a Man Who Doesn't Exist

| Wed Oct. 19, 2011 2:57 PM EDT

There is nothing more important for a Republican presidential candidate than opposing everything that Barack Obama supports.1 In a way, this might actually be more important for Jon Huntsman than the others, since he spent some time working for Obama and is thus automatically suspected of consorting with the enemy. After reading Huntsman's incoherent op-ed about banking reform, Matt Yglesias thinks this has caused Huntsman to completely lose it:

This is, I think, part of the problem with conservative discourse being so dominated by jeremiads against mythical Obama administration initiatives. What Huntsman wants to do, in essence, is repeal a made up provision of Dodd-Frank in order to replace it with what Dodd-Frank already does, add on something the administration already proposed adding on, and then do an unrelated tax reform. But he insists that he thinks Dodd-Frank is a “tragically” inappropriate response to the financial crisis. So am I supposed to think he wants to modify it in a minor way on the tax side, or that he wants to drastically alter this misguided legislation? There’s no way to infer from this op-ed what it is Huntsman is saying he wants to do, which is especially problematic because contrary to myth politicians rarely lie about which initiatives they’ll pursue in office. Paying attention to policy proposals is normally a great way to figure out what’s happening. But the proposals need to be grounded in some kind of reality-tracking account of what the status quo is.

The entire Republican campaign so far has been like this. It's not enough to oppose the stuff that Obama has actually done, even though there's plenty of it. You also have to oppose things he hasn't done (apology tours, debasing the dollar), things you're sure he wants to do if you take your eyes off him for even a second (raising taxes, selling out Israel), and things that you've just made up out of nowhere (taking away your guns, instituting Sharia law). It really makes for an Alice-in-Wonderland campaign season.

1Except for cutting taxes on the rich, of course. But that goes without saying.

The Odd Statistics of Student Loan Delinquency

| Wed Oct. 19, 2011 1:50 PM EDT

Suzy Khimm notes today that student loan delinquency rates are continuing to rise:

As USA Today notes, outstanding student loans have now hit a record high of more than $1 trillion, and “Americans now owe more on student loans than on credit cards,” according to the new data. Since the peak of the crisis in 2009, they’ve become increasingly able to pay off their credit cards and mortgages. But the student loan debt crisis has continued mostly unabated.

There's something a little odd here, though. The big spike in 2002 is almost certainly an artifact, possibly due to a change in the interest rate structure of student loans that was scheduled to take effect in 2003 but then repealed in 2002. So ignore that. But take a look at a couple of other things:

  • Even now, the 90-day delinquency rate is lower than it was during the boom years of the late 90s.
  • The other categories of loans all started showing suddenly higher delinquency rates starting in 2007-08, a sign of financial distress. But ever since the 2002-03 spike, student loan delinquency rates (as well as default rates) have been rising steadily. Whatever's happening, it's not really due to the recession. Just eyeballing the numbers, it doesn't look like the growth in delinquency rates changed at all after 2008. It just kept growing at its usual rate.

So what's going on? Well, credit card delinquencies are probably declining because banks have cut off a lot of credit. Mortgage delinquencies are probably falling because homes are being foreclosed. HELOCs and auto loan delinquencies haven't fallen at all, just like student loans.

I'd like to see the cost of college remain reasonable, especially the cost of public universities, and I think the growth in student loan debt is probably a bad thing overall. I want to motivate more kids to go to college, not put in place incentives not to. Still, the delinquency problem for student loans doesn't really appear any worse than for any other kind of loan, and compared to the 90s it's actually better. It's possible that the 2002-03 spike has misled us by artificially pushing delinquency rates temporarily below their natural level. If it weren't for that, student loan delinquency rates might have looked pretty flat over the past decade. More analysis, please.

Anderson Cooper's Debate Gaffe

| Wed Oct. 19, 2011 12:20 PM EDT

Jonathan Bernstein suggests that the real loser of last night's debate wasn't Rick Perry or Herman Cain or Mitt Romney. It was CNN's Anderson Cooper:

There are plenty of fact-checkers around, and I don’t really consider it part of my job here to think about where candidates messed up, especially since a lot of their factually incorrect statements are just playing to their audience, and you sort of have to expect a lot of that. But Anderson Cooper, the CNN moderator, has no excuse: his claim that 47% of American pay no taxes was inexcusable. Just terrible. The correct stat is that 47% of US households don’t pay federal income taxes, which is very different. It’s bad when politicians get basic factual stuff wrong; it’s terrible when CNN does. To me at least, the debate had a clear loser, and it was Anderson Cooper and CNN for that question.

Repeat something often enough, and everyone ends up believing it. The tea party should feel proud of its handiwork, and Cooper should be ashamed for getting sucked in by it.

For the record: About 47% of Americans pay no federal income tax. This is generally because they're poor, elderly, or have low incomes and qualify for child tax credits. Details here. But even the poorest still pay plenty of taxes: about 13% of their incomes, according to the conservative Tax Foundation. This is because they pay excise taxes, payroll taxes, sales taxes, property taxes, and various other taxes. Details here.

The Harrowing Politics of Mortgage Relief

| Wed Oct. 19, 2011 11:24 AM EDT

Last night I briefly noted that among the Republican candidates at Tuesday's debate, "Nobody even pretended to have anything to say about housing." If you want to know what I was talking about, Dave Weigel rounds up the responses under the headline, "The GOP Candidates on Foreclosures: A Study in Mush." That's about right. And that's true for both fringe candidates and front runners alike. Tim Murphy has more on Mitt "Let It Hit Bottom" Romney here.

In fairness, President Obama hasn't exactly been a profile in courage on this issue either. But the Republican responses are a grim reminder of just how bad the politics of housing are. Voters may say they hate bailing out the banks — and they do! — but they hate bailing out the profligate next-door neighbors even more. No politician in America seriously wants to risk voter wrath by doing that.

Tonight's Debate Roundup

| Tue Oct. 18, 2011 9:55 PM EDT

Everyone took shots at Herman Cain's 9-9-9 plan tonight, but they mostly didn't draw much blood. Cain just out-blustered them, and he was helped by the fact that the rest of the field had a hard time really going after him hard. After all, how can a bunch of conservatives attack a plan that's basically conservative flat-taxism on steroids? It's especially hard when Cain is apparently willing to flatly lie about the fact that it would raise taxes on the poor and middle class by a lot.

(Cain kept claiming that a new report on his website showed that the poor and middle class wouldn't see their taxes go up. That apparently prompted enough excitement to crash his site. When it came back up, I found the report, which doesn't appear to include any kind of distributional analysis at all.)

In other news, Rick Perry was awake this week! Maybe a little too awake. His constant interruptions of Romney early in the debate didn't make him look good, and his obviously calculated resurrection of the 2007 foofaraw over Romney's gardening service employing illegal immigrants carried the stink of desperation to me. Perry didn't seem to have the audience on his side during these episodes, either.

Romney did fine, as usual, but looked a little more aloof than usual. But maybe I'm just imagining that.

Aside from that there wasn't much new. Perry wants to defund the UN. Everyone wants to slash foreign aid. Nobody even pretended to have anything to say about housing. The whole tone of the debate was testier than usual, something that will probably get even worse as we get closer to the primaries.

Those are just my initial reactions, of course, and as usual, I have no idea whether actual conservatives are likely to react the same way. Probably not.

UPDATE: Andrew Sprung's reaction:

There were so many lies, slanders, panderings, nostrums and nonsensical statements that it makes me weary to even think of itemizing them. I was happy, however, to note that this seven-headed monster spent a fair amount of energy biting itself — that is, several candidates accused each other of lying, flip-flopping, being unworthy of trust. Santorum accused Perry of being for TARP before he was against it — when in fact, it seems, Perry simply made good use in 2009 of his gutless equivocation in October 2008. Perry histrionically rehashed the 2007 debate charge that Romney hired illegal immigrants to mow his lawn and then lied about it, for which Romney's defense boiled down to "it's so hard to get good help these days" — and Perry, in a shoutfest, flat-out accused him of lying. Herman Cain did the job on himself without much help, claiming that he didn't say(or mean) three things that he's said quite recently — that the U.S. should put up an electrified border fence, that it should negotiate with al Qaeda if they took a U.S. hostage, and that the unemployed are to blame for their predicament. Michele Bachmann used every question as an occasion to demonize Obama and was duly ignored by everyone else.

Another edifying evening. I'd like to think that after a few more such victories Romney will be finished (for the general). Pretty to think so.

And David Corn:

The most interesting assaults of the night came from Mitt Romney—and they were aimed at Rick Perry. Again and again, he manhandled the Texas governor, who is in single-digits in recent voter surveys. Every time, Perry toke a poke at Romney—on jobs in Massachusetts, on using a gardening firm that hired undocumented immigrants, on whatever—Romney was ready for him and slammed him in response much more effectively.

....Romney is worried about a Perry comeback. I didn't clock it, but it sure felt as if Romney spent more time with Perry in his sights than Cain. This would suggest that Team Romney considers Cain still the flavor of the nanosecond who will eventually flame out....Perry, though down and out (and downer and outer after this debate), could still revive—if only because he has the bucks to rebuild. He does have the money to wage a monumental ad campaign against Romney.

I agree. It's still a Romney-Perry race, and Romney knows it.

Advertise on MotherJones.com

The Culture Wars Are Everywhere

| Tue Oct. 18, 2011 7:02 PM EDT

Dave Roberts writes today about a federal program that has no net cost, supports the fastest growing industry in the country, leverages private capital at more than 4:1, and supports tens of thousands of new jobs:

So you'd think this would be a home run, right? At a time when jobs are at the top of every politician's mind, surely a bit of low-cost economic stimulus that doesn't increase the deficit and leverages tons of private capital and creates tens of thousands of jobs can serve as the rare locus of bipartisan cooperation. Right?

Except the industry in question is the solar industry. And because this industry involves clean energy rather than, I dunno, tractor parts, it has been sucked into conservatives' endless culture war. Rather than lining up to support the recession's rare economic success story, Republicans are trying to use the failure of a single company — Solyndra — as a wedge to crush support for the whole industry.

....This. Is. Insane. Right in front of our noses is what everyone says they want: a growing industry, creating jobs, leveraging economic stimulus into enormous private-sector investment. And Republicans are going to let it die! And Democrats are going to let them!

Even after following this stuff pretty closely for the past decade, it never fails to gobsmack me the way conservatives turn everything into a culture war issue. Because Dave is right: solar power is a great industry on pretty much any metric. It's growing, it's clean, and it provides lots of good jobs. At a minimum, it's as good as any other industry, and repurposing solar tax credits into solar cash grants in order to help a broader array of small businesses is sort of a no-brainer.

But Republicans are against it. Why? The logic seems to be (a) global warming is a myth, (b) therefore anything associated with global warming is bad, (c) solar power is associated with fighting global warming, so (d) solar power is bad. Or something like that. I certainly can't think of any other reason why Republicans are so unanimously in love with subsidies for nuclear and coal and so passionately opposed to renewable energy in nearly every form. It's as if supporting renewables is an implicit admission that clean energy is a good thing, which in turn is an implicit admission that global warming is real. And since that's a left-wing hippie thing to believe in, they can't support renewables.

Chart of the Day: The Cost of 9-9-9

| Tue Oct. 18, 2011 6:29 PM EDT

The Tax Policy Center has done yet another analysis of Herman Cain's 9-9-9 plan, and guess what? Unless you're really rich, your taxes will go up! If you earn, say, $50,000 per year, you currently pay about 14.3% of your income in federal taxes. Under Cain's plan, you'll pay 23.8%. Whee!

And if you make the big bucks? Well, millionaires currently pay about 32.9% of their income in federal taxes. Under Cain's plan, they'll pay 17.9%. Ka-ching!

I actually think the TPC analysis is probably kinder to Cain's plan than it should be. But in any case, this is certainly the minimum damage that middle-class families can expect to see. So what do you think Cain's response will be when he gets asked about this tonight? I'm putting my money on "They're wrong." Other possibilities are "It's just a proposal, we can always tweak it," and "I was just joking."

UPDATE: Yep, Cain's answer was "They're wrong," almost verbatim. Plus some more nonsense about apples and oranges.

Debate Preview: The Electrified Fence

| Tue Oct. 18, 2011 1:40 PM EDT

Last week, Herman Cain twice suggested that we should build an electrified fence along the border with Mexico that would kill anyone who touched it. On Sunday he reversed course, insisting he had just been joking, even though video of his remarks makes it pretty clear that he was perfectly serious. Today, he reversed course again, admitting that his original remarks weren't a joke at all.

This is a pretty obvious subject for tonight's Republican debate. You can see it coming a mile away and every candidate should have a pretty well-prepared response about it. Two questions, then. First: What do you think Herman Cain will say about this? Second: with plenty of time to prepare, what do you think Rick Perry will say about it? Will he be able to string together 30 seconds worth of coherent thoughts on the issue? Or will he screw up completely as he usually does?

Republicans Getting a Pass on Their Jobs Plans

| Tue Oct. 18, 2011 12:18 PM EDT

Greg Sargent wants to know why the media is giving Republicans a huge pass on their various "jobs plans":

Obama and the Senate GOP have both introduced jobs plans. In reporting on the Senate plan, many news organizations described it as a “GOP jobs plan.” And that’s fine — Rand Paul said it would create five million of them. But few if any of the same news orgs that amplified the GOP offering of a jobs plan are making any serious effort to determine whether independent experts think there’s anything to it. And independent experts don’t think there’s anything to it — they think the GOP jobs plan would not create any jobs in the near term, and could even hurt the economy. By contrast, they do think the Obama plan would create jobs and lead to growth.

Why aren’t these facts in every single news story about the ongoing jobs debate? Why aren’t they being broadcast far and wide?

I’m trying to think of the reasons for this....[One] possible reason: Reporters and editors don’t take the GOP jobs plan seriously enough to have it evaluated by independent experts. But if this is the case, isn’t this something readers and viewers should know about? News consumers who read or view stories about the GOP jobs plan without being told this vital information risk coming away thinking that both sides are making an equally serious contribution to the debate. If reporters and editors don’t believe this, isn’t that pertinent info for their customers?

I plucked out that last reason (Greg actually tosses out three possibilities) because it rings the truest to me. I suspect that reporters are simply so used to Republicans embracing nonsense that they evaluate it on a whole different plane than they do "serious" proposals. GOP campaign plans are treated more as optics than as actual policy, as ways to signal a candidate's conservative bona fides more than as blueprints for actual legislation.

But Greg is right: this should stop. There's no reason to give these guys a pass on their laughable jobs plans that virtually no one thinks will create any actual jobs. It won't be easy, since most of the candidates (with good reason) refuse to release enough detail to make it easy to assess their plans, but it's still doable. And the press should do it.