Kevin Drum - December 2011

Quote of the Day: Newt Gingrich is Disillusioned With Politics

| Sat Dec. 31, 2011 12:26 PM EST

From Newt Gringrich. Yes, that Newt Gingrich:

Politics has become a really nasty, vicious, negative business and I think it's disgusting and I think it's dishonest.

I realize that keen self-awareness is probably a handicap for a big-time politician, but seriously? Newt Gingrich is complaining about how vicious politics has gotten? Newt Effing Gingrich? Jesus.

In other news, Politico reports that Ron Paul has suddenly become media shy now that he too faces questions about his past positions — positions that he's lying about and doesn't want to answer for. Imagine that. He's just another garden-variety politician after all.

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Friday Cat Blogging - 30 December 2011

| Fri Dec. 30, 2011 2:29 PM EST

I have pretty much managed to blog this entire week without mentioning Iowa. True, there was that one joking reference to orcs yesterday. And that RomneyBot post on Wednesday. Still, not bad! Especially considering the dearth of news on any other subject, which forced me instead to write about pickles and the ellipsis. I even gave up (mostly) on baiting the PaulBots, who just don't seem to have the same ALL CAPS magic that they used to, possibly because their hero is now so obviously lying about his past that even they're embarrassed for him. Plus he's still a lunatic crank.

So how about we call it a year before I'm tempted to ruin my record and actually say something substantive about Iowa, which, if we're being honest, we all know we don't really care about? Consider it done. But first, some year-end thanks. First, to my copy editor, SS, who keeps my subjects and predicates matched and my hyphens on the straight and narrow. Second, to my editor, MB, who I fear because she badgers me into writing pieces for the magazine but who I love because she badgers me into writing pieces for the magazine. Third, to my regular correspondents, who actually make it worth my while to read my email in the morning. You know who you are. Finally, and preeminently, to Marian, who keeps me ticking away, and to Inkblot and Domino, who we all know are the real stars of this blog. You can see them all on the right in this year-ending commemorative photo, with Marian, as usual, buried under a pile o' cats.

Happy New Year, everyone.

America's 20-Year Investment Drought

| Fri Dec. 30, 2011 1:34 PM EST

This year has been the year of the Chart of the Year. Seriously. Charts on blogs, especially economic charts, have become such a big deal that I counted at least half a dozen year-end roundups of the "Best Charts of 2011." Despite my love of charts, though, I haven't chosen a chart of the year myself. There's just no single chart that explains everything.

But if there were, this one from Michael Mandel comes pretty close:

Ben Bernanke's "savings glut" got a lot of attention a few years ago as a macro-level explanation for the housing/credit bubble of the aughts: huge pools of money flowed into America, and that money flowed into housing, producing a bubble. But the flip side of that is an investment drought. After all, that tsunami of cash didn't have to flow into housing, but it did. The problem was that people with money increasingly didn't feel like they had very many productive, real-world alternatives for their investment dollars. Here's Mandel:

This chart, which runs through the third quarter of 2011, displays several disturbing patterns:

  • Despite rebounding from its recession valley, net business investment as a share of net national product is still far below historical levels.
  • Household and institutional net investment as a share of net national product is at a 40-year low.
  • And perhaps most disturbing, government net investment is only 1% of net national product, a 40-year low.

Let me repeat that: Government net investment as a share of net national product is at a 40-year low. I had to check this last one a couple of times to make sure it was really true. This is a true failure of national economic policy. Government is punking out, just at the time when a public investment surge is needed to make up for the private investment drought. As a country, we should be investing more, not less.

There are lots of things happening in the economy besides this, and if you want to, you can even convince yourself that there's not much going on in this chart except a steep drop in construction that's making the overall investment picture look worse than it is. There's a little bit to that, I think, but only a little bit. Household investment was obviously heavily impacted by the housing bust, but business investment and government investment have been on a secular decline for more than two decades now.

Is this because we're entering an era that's fundamentally less capital intensive than it used to be? After all, Facebook has built up a multi-billion dollar business with only a few thousand employees and a level of investment in plants and equipment that Andrew Carnegie would have laughed at. That may be part of it, but it's hardly comforting regardless. One way or another, American capital needs to be marshaled for use in the real world, but increasingly the real world simply doesn't look like a great investment opportunity. Recovery is going to be mighty tough as long as that remains the case.

LA Times Chart Proves That Movies Are Getting Worse and Worse

| Fri Dec. 30, 2011 12:29 PM EST

The LA Times treats us today to the charts on the right, which show the declining fortunes of the movie industry. The first chart is self-explanatory: total attendance has been on a steady downward trajectory since 2002. The second chart shows the parallel decline of "multiple," which is a film's total gross compared to its opening weekend gross. In 2002, the average film ultimately grossed four times its opening weekend. By 2011 that had dropped to about three times. Here's the explanation:

Average opening weekend ticket sales have stayed fairly constant over the last decade, when adjusted for inflation. Avid moviegoers excited to see a new picture as soon as possible (think "Twihards" or "Harry Potter" fanatics) still flock to theaters as eagerly as ever in the first few days of release.

It's the more casual audiences, the type of people who read reviews and wait to hear what their friends say, that are becoming increasingly difficult to lure to the multiplex.

"The primary culprit for declining box office is that people who are unsure at first if they want to see a movie are now more likely to wait to see it on DVD or video on demand," said Vincent Bruzzeze, motion picture group president for research firm Ipsos MediaCT. "There's no reason to believe that the problem is movie quality or distraction from other activities like video games."

Hmmm. Teenagers who are eager for something to do on Friday night and don't really care much about subtleties like theme and character development, have continued to see as many movies as they ever have. Conversely, people who "read reviews and wait to hear what their friends say" are staying away in droves. So how does this point away from declining movie quality as a problem? It sounds to me like that's exactly what the problem is. If you devote yourself almost completely to shallow dreck and high-octane stunts, then teenagers with unformed tastes and a desperate need to get out of the house will still flock to the theaters. But the rest of us, the ones who wait a few days to see if a movie actually has anything going for it beyond being filmed at the world's highest building, are less and less likely to bother.

In other words, Hollywood is making pictures that callow teens like but mature adults increasingly don't. That's about as good a definition of declining quality as you could ask for, no?

Photo of the Day: Mitt Romney's Chair Holder

| Fri Dec. 30, 2011 11:29 AM EST

This young man has snagged a coveted entry-level job on the Iowa campaign trail: chair holder-upper for Mitt Romney. If he does his job well and Mitt doesn't fall over too many times, he can expect to be promoted to door holder-opener. Who says social mobility is dead in America?

UPDATE: Turns out this is a real person! It's Garrett Jackson, Romney's body man for the past year. More here.

Germany on the Couch

| Fri Dec. 30, 2011 11:01 AM EST

What accounts for the German attitude toward finance? A few months ago, Michael Lewis explained their weakness for buying up toxic assets in a long article that compared those toxic assets to a shit sandwich and suggested that Germans snapped them up because of their longstanding fascination with shit and excretion. Seriously. But what about Germany's equally longstanding and uncompromising angst over debt? That's all down to Weimar-era hyperinflation, right? Not so, says John Plender:

The fear of currency debasement was entrenched long before the 20th century. Frederick the Great in the Seven Years War debauched the currency several times to fund the fighting. Note, too, that Goethe’s Faust Part II brilliantly describes the perils of inflation. Mephistopheles urges the emperor to use undiscovered gold beneath his lands as putative collateral for promissory notes to pay the army. When the emperor and his court find they can print money without restraint, their wild spending leads to an inflationary spiral and civil chaos.

Poor Germany! First they're slaves of excrement and now they're slaves of Faust. I wonder if anyone will ever bother taking the time to figure out what really motivates German attitudes toward financial probity?

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Nullification Makes a Comeback

| Fri Dec. 30, 2011 6:00 AM EST

In the 19th century, the theory of nullification, and the crisis it provoked, was all about states' rights. Nullification advocates argued that the constitution was a compact between sovereign states, and therefore states could choose to ignore federal laws that they considered unconstitutional.

The Civil War largely put an end to this clash, but in the 21st century there's a new theory of nullification. This one, though, isn't about a conflict between states and the federal government. It's about a conflict within the federal government. There isn't yet any modern-day John Calhoun to articulate this new theory of nullification in detail, but the nickel version is pretty simple: it says that a single senator can nullify a duly passed statute of the United States.

In one sense, this is just the latest front in the Republican war against executive branch nominees of the Obama administration. But until now, that war has been merely an escalation: more nominees are being filibustered than ever before, creating logjams in the federal court system and a shortage of leadership in the executive branch. It's a big problem, but nothing has actually been shut down because of it.

That's now changing. Republicans are refusing to allow votes on President Obama's nominee to head the new Consumer Financial Protection Bureau and on his nominees to fill vacancies on the National Labor Relations Board. In both cases, the Republican refusal is explicity aimed at shutting down these agencies. In the case of the CFPB, it's because the law that created it gives certain powers to its director, and without a director those powers can't be exercised. In the case of the NLRB, it's because they can't function at all unless a minimum of three out of five seats are filled. When Craig Becker, already a recess appointment because of a  Republican filibuster last year, finishes his term at the end of 2011, only two seats will remain filled and the NLRB will grind to a halt.

Republicans make no bones about why they're doing this. They opposed the CFPB from the start, and they're now using the filibuster as a way of unilaterally preventing it from operating even though it was lawfully created by a vote of Congress and signed into law by the president. Likewise, they're afraid the NLRB is about to make some rulings they dislike, so they're using the filibuster as a way of shutting it down by denying it a quorum. Since, in practice, a single senator can place a hold on a nominee, this means that a single senator is now able to shut down an entire agency of the federal government simply out of dislike for what it's doing.

President Obama's options are limited. Republicans are keeping the Senate technically in session by having a few senators meet for a few minutes every couple of days, a ploy that prevents Obama from making recess appointments. So Obama has only a few choices. He can make a recess appointment anyway, arguing that these senate "sessions" are shams, and then fight it out in court. Or, as Theodore Roosevelt did in 1903, he could make a series of recess appointments in the minutes or seconds between adjournment of the current session and the opening of a new one on January 3rd.

Is Obama likely to do either of these things? Pundits and bloggers love to chew over these kinds of unconventional possibilities, but Obama himself has shown little appetite for them. There are probably two reasons for this. First, he's afraid that Republicans would become even more obstructionist than ever if he went down this road. Second, he's unsure how the public would respond to this kind of hardball. The former has probably become less salient over time, given that there's not an awful lot more obstructionist that Republicans can become at this point. But at the same time, the latter has become more salient because there's an election coming up. So although the liberal base would love to see Obama show more spine on the appointment front, he probably won't. Obama has consistently ignored his base in favor of the independents he needs to win reelection, and he's consistently demonstrated that he thinks independents are put off by partisan confrontation.

But if that's the case, it's likely that our modern-day nullifiers will win by default. John Calhoun would be proud.

Are People Who Invest in Hedge Funds Morons?

| Thu Dec. 29, 2011 9:04 PM EST

From Amy Orr in the Wall Street Journal:

Much has been made about hedge funds’ failure to keep up with the major stock market benchmarks this year.

Wait. Haven't I heard this story before? Oh right:

But 2011 is merely the latest disappointment in a string of misses that stretches back nine years, according to one analysis of the hedge fund industry.

Money invested in hedge funds since 2003 would have generated a return of 18% through November, according to data compiled by Hedge Fund Research. That puts it far behind the Standard & Poor’s 500-stock index, which has generated returns of 29% over that same period, once dividends are factored in, according to Simon Lack of SL Advisors. The hedge fund underperformance is even starker when placed next to a small basket of investment grade corporate bonds, as measured by the Dow Jones Corporate Bond Index. That benchmark has gained 77% since 2003. Factor in hedge fund managers’ customary 2% management fee and a 20% cut in profits, and the gap widens even more.

....For those who really want to invest with hedge funds, his advice is simple: Ask managers to cut fees. “Fees are at least twice as high as they should be,” Mr. Lack said. “If they all just cut fees by 50%, the world will keep turning but it will give investors a fairer share of profits.”

Measuring hedge fund performance is tricky, since most of them don't just report their performance in nicely printed four-color reports the way regulated mutual funds do. And obviously there are some hedge funds that have consistently delivered outsized returns.

But most of them don't, as a steady stream of research reports has made obvious for years. And yet, rich people with lots of money have continued to eagerly shovel their money into these funds, most of which have mediocre returns and all of which have astronomical management fees.

Why? Obviously it's a great racket for hedge fund managers, who get paid enormous fees and benefit from the carried interest loophole, which allows them to pay taxes on their earnings at low capital gains rates even though they've invested no money of their own and their fees are "capital gains" only because a benevolent Congress has deemed it so. Conversely, for hedge fund customers, the whole enterprise seems to be little more than a fancy way to feel sophisticated and plugged-in while lighting their money on fire.

The whole thing is just a gigantic mystery. Either (a) hedge funds actually do better than outside researchers think, or (b) rich investors are really, really stupid. Is there an option C?

My Most Popular Posts of 2011

| Thu Dec. 29, 2011 2:44 PM EST

All the cool kids are doing two things at the end of the year. The first is a top ten list of most popular posts. I managed to figure out how to find this information from our Google Analytics account, and I'm so proud of myself that I'm going to share the results. Here are my highest traffic posts of 2011:

Of course, this is all a bit random since a high-traffic post is usually just a marker that the MoJo powers-that-be highlighted it or that some other high-traffic blog happened to link to it. Unfortunately, my Google Analytics skillz are just barely good enough to generate this list, not good enough to figure out who my top referrers are. Maybe next year.

The second thing that seems to be the rage this year is a review of the past year's posts to highlight my biggest mistakes. Unfortunately, my memory is nowhere near good enough to do this without help, and the Mother Jones archives aren't set up to allow quick browsing of past posts. So this one is technologically out of reach for the moment. Feel free to nominate my worst boners in comments, though.

And now, just because this was so much fun, here are the next ten highest traffic posts of the year. Enjoy.

Altogether, this is a pretty wide ranging bunch of favorites. But if you're looking for posts about the euromess, I'm afraid none of them made the top 20. Just not a very popular topic, apparently, and one where you really have to read lots of posts to get a good picture of what's going on anyway. But for what it's worth, here are the top two:

My Plan to Eliminate Annoying Robocalls

| Thu Dec. 29, 2011 1:20 PM EST

The New Republic has a roundtable today on the most overlooked stories of 2011, and most of them are on the same dreary topics that get overlooked every year: Iraq, immigration, Turkey, the economy, etc. etc. Yawn. But John Judis nails the real winner:

John Judis: The Subversion of the Do Not Call Registry

The great under- or, better, un-covered story of the year: Cardholder Services and the Do Not Call Registry. You don’t know what I’m talking about? That’s because you don’t work at home. George W. Bush’s administration invaded Iraq and let Bernie Madoff run wild; but to its credit, it established the Do Not Call Registry to block telemarketers from flooding our telephones with unwanted offers. After I registered my phone number on the Federal Trade Commission’s web site in 2004, the phone calls virtually stopped.

But guess what? Under the Obama administration, which claims to understand the power and wisdom of government regulation, they’ve begun again. I get seven or eight a day now (mostly I don’t answer them), including to my cell phone, where I get charged for them. Many of them have been from an outfit called “Cardholder Services.” And it’s not just me. Google “cardholder services” and you’ll find a plethora of complaints. I have already filed complaints with the FTC twice this year, and the second time I asked for an acknowledgement. But I never heard back, and the phone calls continue. A little while ago, I got a call on my cellphone from a number in Salem, Oregon. 503-902-8252. Complaints about this number are all over the web. So the Obama administration has not followed through on the one thing that the Bush administration did right.

I get these calls too, but luckily I have a solution! Remember a couple of years ago when you used to get three or four robocalls a day offering you a chance to extend your auto warranty? It was pretty annoying. But the FTC finally put these scammers out of business. I'll let the Wall Street Journal explain how it happened:

The Federal Trade Commission filed complaints on Thursday against two companies that were behind an automated telemarketing campaign that enraged Senator Charles E. Schumer and, authorities say, deceived thousands of people across the country.

Mr. Schumer, Democrat of New York, was in a meeting on Capitol Hill last week when he picked up his cellphone, triggering a phony, prerecorded sales pitch, ostensibly for an extended vehicle warranty.

Irate, Mr. Schumer became one of an estimated 30,000 Americans to make complaints about the robocalls with consumer protection authorities. He held a press conference to rail against the “robo-dialed harassment.”

Did you get that? 30,000 Americans had already complained about these calls and the FTC did bupkis. They obviously Do Not Care about ordinary non-powerful Americans like you and me and 29,998 others.

But then Chuck Schumer got one call on his cell phone, called a press conference, and probably threatened the FTC with complete defunding if they didn't shut down the bastards tomorrow. And guess what? The FTC shut the bastards down.

The moral of the story here is that the FTC may not care about us ordinary schlubs, but they do care about pissed-off senators. So I recommend that Judis make a recording of the Cardholder Services robocall, get the private cell phone number of some senator (he must have contacts that can help him with this), and then call the senator and play back the call. Voila! A high-level complaint will be registered from one of the princes of Washington, and the FTC will spring into action.

You may thank me later.