Kevin Drum - November 2011

Charts of the Day: Kaiser's Fascinating Obamacare Data

| Wed Nov. 30, 2011 6:31 PM EST

The Kaiser Family Foundation does regular polling about the public's view of healthcare reform, and the results are always interesting. This month's results, however, are even more interesting than usual. I might write a longer post about some of this later, but for now I just want to briefly highlight a few of the questions that most caught my interest. The full poll results are here. My top five most interesting results are below.

Overall favorability toward Obamacare has gone down only slightly since last year. But look at the partisan breakdown: Republicans and Independents have stayed rock steady the entire time. The decline has been almost entirely due to waning favorability among Democrats.

Among those who don't like Obamacare, nearly half admit that their dislike has nothing much to do with the law itself. They're just mad at Obama and/or Washington DC.

Only 37% of the public feels favorably toward Obamacare, but 50% want to keep or expand it. It turns out that many of the unfavorable/don't know opinions aren't from people who dislike healthcare reform, they're from people who don't think Obamacare went far enough.

Virtually every specific aspect of Obamacare is viewed favorably by over half the public. The only exception is the individual mandate. Even Republicans, it turns out, like most of the specific provisions of the law.

A fifth of the public says Obamacare has affected them negatively. But nearly all of this is because people have been convinced that Obamacare has caused their premiums to go up and their benefits to go down. Needless to say, this is nothing more than a fantasy fueled by Fox News.

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Saudi Arabia Finally Gives Up

| Wed Nov. 30, 2011 2:21 PM EST

Saudi Arabia has long said that it has loads of untapped reserves and would, within a few years, be on track to increase oil production from 10 million barrels per day to as much as 15 million barrels of oil per day. But Saudi production has stayed stubbornly at 10 million barrels. Last week, the CEO of Saudi Aramco said that global production from tar sands and shale oil now looked so promising that there was no need for more oil from the Kingdom:

"Rather than supply scarcity, oil supplies remain at comfortable levels, even given rising demand from fast-growing nations like China and India....All that makes spending on aggressive energy programmes unlikely," he said, adding that abundant affordable hydrocarbon supplies challenged investment in renewable technologies. As a result, Saudi Aramco had no plans to increase its oil production capacity to 15 million barrels per day, Falih said.

Should you believe this? No, you shouldn't. Chris Nelder has a nice piece today at SmartPlanet called "Why energy journalism is so bad," and at the end he provides six pieces of advice for reading press reports about oil and energy more broadly. Here's one of them:

2. Discount the sources. If the cited authority represents the oil and gas industry, you should view their forecasts as propaganda, not truth. Particularly when the authority is from an OPEC producer. OPEC (like the IEA) is a fundamentally political organization, and everything they say in public has a political calculus behind it. For example, I read the unconventional oil optimism expressed by the Saudi official cited at the top of this piece as their way of jawboning down peak oil fears, and throwing analysts off the scent of a trail which leads to serious questions about whether Aramco can increase spare production capacity, and whether the world’s most productive oil field, Ghawar, has indeed gone into decline.

Saudi Arabia has been making excuses for years for their inability to produce more than 10 million barrels of oil per day. This is the latest, and seemingly, the most definitive. They're publicly stating — for the first time, I think — that they aren't going to keep up the pretense anymore. Their exploration and drilling program is over, and 10 million barrels is as good as it's ever going to get.

The rest of Nelder's piece is worth reading if you want to understand a bit more about how energy journalism is put together. There really is reason to think that shale oil and fracking (as well as tar sands) will boost production of fossil fuels over the next decade or two. But you should be very, very skeptical of the happy talk about massive new finds and how this means energy independence at last. This stuff is promising, but every field isn't going to pan out at the most optimistic end of the forecasts, just like conventional oil fields don't all pan out at the most optimistic end of the forecasts. Caveat emptor.

Riding Disaster to Victory

| Wed Nov. 30, 2011 12:46 PM EST

From Corey O'Brien, a Democratic commissioner in Lackawanna County, Pennsylvania, expressing frustration with President Obama:

Enough with the soft approach. He's got to say, "I'm in charge, and I'm going to get it done with or without Congress." People are furious. Everybody here is petrified they are going to lose their jobs tomorrow, and I mean everybody.

Republicans have to be chortling at this. It's exactly the response they've been hoping for as we head into election season. Greg Sargent spells it out:

Mr. O’Brien appears to be suggesting that this is a widespread sentiment among Pennsylvanians, and it’s worth entertaining the possiblity that this is right. In a climate of extreme fear and anger over the economy, people may not care why Obama can’t get his policies through....If the guy in charge can’t deliver it, the risk is that people may conclude he’s well intentioned, but too weak or ineffective to get it done. How Obama handles this problem is going to be a key dynamic to watch, particularly today in this key bellwether region.

When it comes to domestic policy, there's virtually nothing the president can do without congressional approval. The American public, however, rather famously seems not to understand this, and Republicans know it perfectly well. With no real knowledge of how public policy works, and without a press willing to make it clear, congressional obstruction is essentially invisible and cost-free. So Republicans have spent the past two years doing everything in their power to make sure the economy doesn't recover, and now they're planning to ride that bad economy to victory in November.

Pretty great strategy, isn't it?

Does Europe No Longer Have a Single Currency?

| Wed Nov. 30, 2011 12:21 PM EST

I don't always understand everything Karl Smith says, but I've learned to dismiss him at my peril. Here he is yesterday:

The ECB is no longer controlling the marginal cost of funding and that indeed the cost of such funding is rising much higher than the official 1.25% rate, at least up to 2.25% and perhaps as high as 6–7%. This incredibly contractionary monetary “policy” began sometime earlier this year and is continuing to accelerate. I put policy in scare quotes because there is no policy as such there is simply contraction.

....I don’t have it all sorted out but its not clear that there is a fully functioning money market in Europe right now. Well informed opinion suggests that there is literally a shortage of know-how on the ground....It's really maddening and quite disconcerting.

And this morning, responding to an Alphaville post by Izabella about a new liquidity program from the Italian Treasury:

The marginal cost of funds — the key instrument in monetary policy — is diverging between countries and local central banks and governments are having to step in to attempt to solve the mess. Izabella is cautious in her wording and that is a good thing. However, because I was cautious last time this happened — and roundly ignored — I will be loud this time.

The Eurozone is now a single currency area in name only. Worse, the national central banks do not have the power to control monetary policy. Which means by American or British standards there is no monetary policy in Europe right now. There is regimented chaos.

And a few hours later on an ECB program to partially backstop sovereign debt in the eurozone:

Obviously I have long advocated this as the only way to stem the crisis. At this point, however, I am not sure it will work. The ECB may have a larger problem if the marginal cost of cash is diverging across countries.

....A credible cap can keep the Eurozone from flying apart, but if short yields maintain their spread that is evidence of different effective monetary policy in different countries and possibly cripplingly tight monetary policy in the periphery. I say that with the full recognition that it is not even clear what it means to say that there is different monetary policy under the same currency. What I mean is that there are differing marginal costs of funding. Some questions:

  1. Does this extend up into the commercial paper markets?
  2. How many firms have access to credit from outside their country?
  3. How many households have access to credit from outside their country?

Of these questions I would usually consider (1) the most important but the prevalence of small and medium sized business in the periphery may mean that (2) is the most important.

I won't pretend to fully understand this, and it may be less important than Karl thinks. Roughly speaking, though, he's saying that the repo market is now controlling the cost of funds in Europe, not the ECB, and that cost is higher in the periphery than in the core. It's an inversion of what happened from 2001-07, when the ECB did control monetary policy, and that single monetary policy for the entire continent was a little too tight for Germany but far too loose for the periphery. Now, though, it's just the opposite and effective monetary policy is far too tight for the periphery.

The former led to the disaster we see today. The latter is going to make that disaster far worse. The "slow run" on the European periphery appears to be finally turning into a garden variety run, and the next stop is full-scale panic.

Either that or Karl is wrong.

Some Tax Cuts Are More Equal Than Others

| Wed Nov. 30, 2011 11:02 AM EST

I see that Republicans have finally caved in on the idea of extending the existing payroll tax cut:

"In all likelihood we will agree to continue the current payroll tax relief for another year," Senate Republican leader Mitch McConnell said after a closed-door meeting of his colleagues....Trying to get ahead of the game, McConnell proclaimed Republican support for the payroll tax cut extension and told reporters his party would soon propose its own ideas for covering the cost of the tax cut.

....Among the ways to potentially cover the cost of renewing the payroll tax cuts are: cutting federal farm subsidies, selling some government assets, reducing federal pensions and administrative savings in the Medicare healthcare program for the elderly. All these ideas have been discussed in past budget negotiations.

When it comes to a modest tax cut that mainly benefits middle-class workers, Republicans had to be dragged kicking and screaming to the table, and even now insist that any extension has to be fully paid for. But when it comes to the Bush tax cuts, which are huge and primarily benefit the well-off, they fight for them passionately and bristle at the very idea of paying for them. Funny, that. It's almost as if the only tax cuts they really care about are ones for the rich.

I'm sure there's a more innocent explanation, though, and it is only my bitter liberal embrace of endless class warfare that has led me astray here.

Breaking: America Still a Huge Importer of Energy

| Tue Nov. 29, 2011 11:43 PM EST

The Wall Street Journal reports exciting news:

U.S. exports of gasoline, diesel and other oil-based fuels are soaring, putting the nation on track to be a net exporter of petroleum products in 2011 for the first time in 62 years.

....That the U.S. is shipping out more fuel than it brings in is significant because the nation has for decades been a voracious energy consumer. It took in huge quantities of not only crude oil from the Middle East but also refined fuels from Europe, Latin America and elsewhere to help run its factories and cars.

...."It looks like a trend that could stay in place for the rest of the decade," said Dave Ernsberger, global director of oil at Platts, which tracks energy markets. "The conventional wisdom is that U.S. is this giant black hole sucking in energy from around the world. This changes that dynamic."

Before you get too excited about this, you should know that it's completely ridiculous. It's true that the United States has recently been importing lower volumes of refined petroleum products and exporting higher volumes. It's even true that shale oil and fracking have increased U.S. production of crude oil and gas in recent years, and that, combined with the Great Recession, means that net imports of all petroleum products have declined sinced 2005. Nonetheless, as the EIA chart below shows, when you add up both crude oil and refined products, the United States continues to import a net of 9.4 million barrels per day. That's 3.4 billion barrels per year.

You'd only know this if you read the Journal article pretty carefully (it's a single sentence in the 7th paragraph) but the United States is still a giant black hole sucking in energy from around the world. What's more, that dynamic is not going to change anytime soon. Sorry to be such a killjoy.

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Finally, It's the Crazies vs. the Noncrazies

| Tue Nov. 29, 2011 4:44 PM EST

So let's suppose that Herman Cain pulls out of the presidential race. Right now, RCP has the poll numbers looking like this:

  • Gingrich 23.8 percent
  • Romney: 21.3 percent
  • Cain: 15.5 percent

The evidence suggests that Cain's supporters will break to Gingrich by about a 2:1 margin, which would put Gingrich ahead of Romney by roughly 34 to 26 percent. Is that game over for Romney?

Maybe, but not so fast. At that point, the race finally fulfills its manifest destiny: It becomes the crazies vs. the noncrazies. And then the question is who the 15 percent of undecided voters are going to break for. My guess: about 2:1 for Romney, which puts them in roughly a dead heat again.

What happens then? My belief all along has been that the noncrazies still outnumber the crazies among the Republican rank and file. Not by a lot, maybe, but by enough. And the noncrazies will carry the day for Romney. However, Intrade suggests this is rapidly becoming a bad bet.

Of course, I've also believed for a long time that eventually European leaders will come to their senses and keep their continent from imploding. That's not looking like such a good bet either.

Bottom line: My deep-seated belief in the eventual triumph of noninsanity, which has already taken some big hits lately, is about to be decisively marked to market very soon in two very high profile contests. Tick tick tick.

Why Businesses Love Illegal Immigration

| Tue Nov. 29, 2011 2:13 PM EST

Tod Kelly tells a story about a commercial nursery that hired his firm a few years ago to help get their workers compensation claims under control. After examining the nursery's operations, they made several recommendations about buying some new equipment and updating their training:

As we were wrapping up, as an aside, we noted that one of their larger ongoing back injury claimants was an illegal alien. We could close that claim out quickly, we told them, by letting the injured worker know that we would have light duty work for him were he able to legally work for the nursery. Since he wasn’t able, he could be terminated and all future indemnity costs would disappear. As soon as we explained this, the brothers began looking at each other, wide eyed and smiling. I cringed inwardly. I knew we had just made a mistake.

The updated equipment was never purchased, of course. And taking the time to train or stretch was seen as a waste of the company’s time and money. The claims continued to flood in, but now with each claim came notification from the employer that they had “reason to suspect” the claimant was an illegal worker, along with a request to send the light-duty letter so we could avoid making indemnity payments. Over the course of the next year the number of employee injuries increased 20%. But without indemnity costs their annual claims cost decreased 55% — and their insurance premiums went down as a result. They were able to terminate our services the next year with a glowing letter of recommendation.

Today they have moved from being one of a top-100 nursery to being a top-15, and by all accounts are going strong.

If this reminds you a lot of The Jungle, you aren't the only one. The rest of the piece is worth a read too.

The Shadow Banking System and the Hearts of Men

| Tue Nov. 29, 2011 1:13 PM EST

Conventional wisdom watch, bond market edition:

James Carville on the bond market, circa 1993: "I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody."

Karl Smith on the bond market, circa 2011: "I used to think if there was reincarnation, I wanted to come back as the bond market. But now I want to come back as the repo market. The repo market even intimidates the bond market."

Karl didn't actually say that, of course. But acting as his PR agent, I'm making his view a little more user friendly. In any case, he's right. Sovereign bonds are the backbone of the repo market, and the repo market is the backbone of the shadow banking system. So when sovereign bonds fail, the shadow banking system fails and there's a run. And as we all know, there's no FDIC insurance for the shadow banking system.

At a guess, the shadow banking system makes up about half of the entire banking system these days, and right now the shadow banking system is looking distinctly wobbly in Europe. Somebody needs to prop it up to stop a run, and that somebody is the European Central Bank. So far, though, they aren't stepping up to the plate. The best case scenario is that Noah Millman is right, and they're just playing a very high-stakes game of chicken in order to advance German interests:

One way of looking at the sequence of events is to say that the ECB was willing to permit contagion in order to wring out inflation. I think a better way of looking at it is to say that the ECB was willing to threaten Italy with insolvency in order to give Germany more formal control over Italy’s finances. That’s incredibly hard-ball politics, but if you are not accountable to anybody (which the ECB, basically, is not) then you can play really, really hard-ball politics.

When somebody eventually makes a movie about this, perhaps it will be called Seven Days in December. I hope it has as happy an ending as the original.

Healthcare's Unlucky Duckies

| Tue Nov. 29, 2011 12:57 PM EST

Via Stephanie Mencimer, Christopher Conover at the conservative American Enterprise Institute recently highlighted a well-known fact: in any given year, 1% of the population accounts for a fifth of all healthcare spending and 5% accounts for nearly half of all spending:

We have become so accustomed to health coverage that functions as prepaid healthcare rather than as insurance against unknown risks that this distinction escapes many people (including policymakers). In a perfect world, we would have universal coverage against the risk of landing in the health spending 1 percent. Most people would gladly pay $1,161 to avoid facing bills of $116,000. But not everyone can afford to do so. ...[This is] why one Republican presidential candidate observed, a half decade ago, that "Health is about 30 times more difficult than national security." Perhaps it’s worth having a Republican presidential candidate debate on this issue alone.

Yes, perhaps it is.