Kevin Drum - December 2011

Nobody Knows How to Solve Europe's Real Problem

| Thu Dec. 15, 2011 1:40 AM EST

I was, uncharacteristically, modestly optimistic on Friday about last week's deal to save the eurozone. Britain's opt-out, I said, actually made it more likely that everyone else would approve the deal, and maybe that consensus would help to calm markets, at least for a while.

Then again, maybe not:

The deal reached at the emergency European summit meeting in Brussels last Friday was supposed to cement a consensus for better fiscal discipline and reassure the financial markets about the European Union’s resolve. By Wednesday, it was clearly not convincing investors.

…At least four more European Union members—none of them using the euro—have expressed reservations about the agreement, which only Britain definitively opposed at the summit meeting. Some leaders said in Brussels that they wanted to consult their parliaments. Hungary, Sweden, Denmark and the Czech Republic now say they want to see the text of the proposed treaty, which is meant to enforce strict limits both on members’ annual budget deficits and on their cumulative debts, before fully committing themselves. France and Germany hope to have a draft of the treaty approved by the end of March and ratified by the end of 2012.

The fiscal strictures are meant to prevent future crises, but the financial markets appear to be much more focused on whether the euro zone nations will put their money where their mouths are now, when they say they will defend the euro and its members.

Frankly, I think the deal would have been better if it had been limited solely to eurozone countries. I mean, what are the odds that any country that doesn't use the euro (and doesn't plan to) would agree to give the EU a veto over its national budget?

But that aside, it looks like investors are no more willing to be sold a bill of goods than they ever have. In the short term, the problem is that Europe needs a massive infusion of rescue funds and it needs the ECB to act as lender of last resort. Neither of those things is part of the deal. And in the long term, it's not budget deficits Europe needs to worry about, it's trade and capital flow imbalances. The deal doesn't address that either, and no wonder. Cutting deficits is, relatively speaking, fairly simple. (Not easy, but at least conceptually simple.) But rebalancing trade flows? I'm not sure anyone even knows how to do that. The normal mechanism is via currency devaluations, but within the eurozone that's obviously not a possibility.

This is Europe's biggest problem. The ECB could put out the short-term fire if it agreed to guarantee periphery debt. That's a political nonstarter right now, but at least everyone knows it's an option if things really start to implode next year. But trade and capital flow balancing? Nobody even has a clue what to do about that. But without it, future crises and future bailouts are inevitable.

It's no wonder the eurocrats are desperately clinging to budget austerity as the answer to their problems. It's like the drunk looking for the car keys under the street light. The answer isn't there, but at least the light is better.

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Newt Gingrich's Plan to Bankrupt Medicare

| Wed Dec. 14, 2011 8:27 PM EST

So what would Newt Gingrich do to rein in Medicare costs? Today he told Ben Domenech that he likes the idea of premium support — that is, giving seniors a lump sum and having them buy private insurance — but he also likes the idea of making it voluntary:

And then I would go to the insurance industry and say to them, is there a way you could make a premium support option really desirable? Well, it turns out Medicare Advantage has 25% of the market despite the opposition of the bureaucracy. So, if you had a bureaucracy that favored market oriented systems, you might actually get to 50% much faster than you think.

God help us. Here's the problem: Medicare Advantage costs more than traditional Medicare. A recent study suggests that in 2009 (the most recent year available) it added 3.5% to the total cost of Medicare. That's about $17 billion. If Gingrich's enthusiastic bureaucracy managed to double the number of seniors choosing Medicare Advantage, it would cost us an extra $35 billion per year.

And what do we get for that money? A research report by Austin Frakt and others estimates that only about 14 cents out of each dollar goes for additional services. So under Gingrich's plan, Medicare costs would go up by $35 billion, and of that, about $30 billion would be wasted.

I'd like to say that this is just typical Newt, shooting off his mouth about some clever idea without really thinking it through. But it's not. It's part of the continuing conservative infatuation with Medicare Advantage, something that's nothing short of breathtaking considering its gruesome record so far. Then again, maybe it's not so breathtaking. After all, $30 billion in waste to you and me is $30 billion in extra profit to the insurance industry. That's who Newt wants to ask for advice, and as far as they're concerned, Medicare Advantage is already really desirable.

If you want to rein in the growth of Medicare, you'll have to look elsewhere. Premium support models that incorporate competitive bidding might help keep costs down a little bit, but Medicare Advantage won't. It just makes the problem worse — and doubling it will only make a big problem twice as bad.

Chart of the Day: Mitt Romney's Road to Victory

| Wed Dec. 14, 2011 1:55 PM EST

John Sides and Alex Lundry carried out an interesting polling experiment recently. First, they asked Republican voters who they preferred for president. The big winner was Newt Gingrich. Then they showed them InTrade probabilities of victory for each candidate:

Seeing these probabilities did make a difference: 35% of respondents changed their preferred candidate. The general election probabilities were particularly effective: about 40% of people who saw these probabilities—either by themselves or with the nomination probabilities—changed their minds.

The chart on the right is a composite, showing what happened when voters were showed any of the InTrade probabilities. But Romney did even better among those who were showed only the general election probabilities:

Among those who saw only those probabilities, Romney led Gingrich, 36% to 29%....Romney benefited most when respondents were cued to think about electability in November 2012 and who is most likely to defeat Obama.

This is especially impressive since InTrade gives Romney only a modest general election advantage over Gingrich. But that was enough. Apparently, just getting people to think about electability is enough to produce a huge swing from Gingrich to Romney.

The sample size on this poll is fairly small, so don't take the specific numbers super seriously. Still, the swing from Gingrich to Romney is big enough that it's almost certainly for real. If Romney wants to win, his best bet is to pound daily on the idea that nominating Gingrich will just give Obama an easy ride to a second term.

Debtors' Prison is Back!

| Wed Dec. 14, 2011 1:24 PM EST

Hey, guess what? Debtors' prison is back! Not the fetid and dreary kind from Dickens novels, of course, but a shiny, impersonal, high-volume, 21st century variety. It all revolves around something called "in personam" debt collection, which has two stages: discovery and collection. Mike Konczal explains:

The court orders the debtor to disclose information about his property, location of his assets, etc. to help creditors track down those assets. Then the court orders certain payments to be made, which allows for collection. This court order is enforced through the court’s authority to hold debtors in contempt, which in turn is enforced through threats of imprisonment.

....So how does this go wrong? The most obvious way is that this in personam debt collection method — which should be reserved for “extraordinary” situations — is used regularly by today’s collectors. Given that a debtor’s liberty is at stake, it seems very important that there are strict rules for this practice and that these actions are used only when appropriate. But as Shepard finds, “in personam remedies are often initiated and executed on a high-volume basis and with a striking degree of informality.”

....In many jurisdictions, bail posted to get out of being jailed for contempt of the discovery process is used to pay creditors. Besides being a great deal for creditors — as noted above, people often pay a huge economic penalty to get out of jail — it functions as a de facto debtors’ prison. As law professor Alan White described this process, “If, in effect, people are being incarcerated until they pay bail, and bail is being used to pay their debts, then they’re being incarcerated to pay their debts.”

You will be unsurprised to learn that the targets of this practice seldom have lawyers, seldom know their rights, and get no help from judges. Creditors, needless to say, suffer from none of these handicaps. Read the whole thing for more.

Quote of the Day: The Cult of Mormon

| Wed Dec. 14, 2011 12:57 PM EST

From Craig Bergman, the now-former Iowa director for Newt Gingrich's campaign:

A lot of the evangelicals believe God would give us four more years of Obama just for the opportunity to expose the cult of Mormon. There’s a thousand pastors ready to do that.

Gingrich may have fired Bergman, but that doesn't change the truth of what he said. The antipathy of evangelicals toward the Mormon church is widely known and of long standing, and it's a real problem for Romney even if it doesn't get talked about much. If you don't believe me, check out "Mitt Romney's Evangelical Problem," from the September 2005 issue of the Washington Monthly. Nothing much has changed in six years.

Euromess Starting to Cross the Atlantic

| Wed Dec. 14, 2011 1:34 AM EST

One of the ways in which a financial crisis in Europe can affect America is via credit channels. As I wrote a few weeks ago, European banks provide quite a bit of credit to the U.S. market these days, so if they're forced to tighten lending that could cause a credit contraction here too.

As the chart on the right shows, it looks like this has already started to happen. But how bad could it get? And what would it mean for the American economy? Via Joe Weisenthal, Jan Hatzius of Goldman Sachs provides some rough numbers:

If [European banks] decided to shrink at the same pace as in the period from 2008Q1 to 2009Q1 — the fastest decline during the global financial crisis — this would imply a decline of just under 25%. If so, the direct hit to US credit growth would be about 0.8 percentage point (that is, 3.3% multiplied by 25%)....How much could a 0.8% drop in credit supply shave off of US GDP growth? [A bit of explanation follows....] This would imply that a retrenchment by Euro area banks could result in a hit of 0.4 percentage point to US growth.

On the bright side, this is a worst case scenario. On the not-so-bright side, this is only one of the channels by which a European recession could affect us. We might not catch pneumonia just because Europe does, but we're still likely to get a pretty bad cold.

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How Many People Do Cellphones Kill?

| Tue Dec. 13, 2011 9:18 PM EST

The NTSB today recommended a total ban on cellphone use while driving. That would include both handset use and hands-free use. Here's the Washington Post:

Distracted driving, some of it due to cellphone use, contributed to an estimated 3,092 deaths in highway crashes last year, according to the National Highway Traffic Safety Administration.

…Some drivers acknowledged Tuesday that distractions have become a problem, but they were not ready to endorse a total ban either. It’s not as if the NTSB is proposing banning talking to passengers or eating, said Arlington County resident Peter Hogan, who thinks hands-free devices should be allowed. "It's distracting, but almost everything you do can be distracting," he said.

There's really no reason to say that "some" fraction of 3,092 highway deaths is due to cellphone use. You can just go to the FARS database and look up the numbers. If you do, you'll find that cellphones were implicated in 223 highway fatalities in 2010. Eating and drinking were implicated in 36 deaths and the "other occupant" category was implicated in 211 deaths.

(These are highway fatalities only. The figures approximately double if you include all roads.)

This is the kind of data you need to know if you want to decide how you feel about a cellphone ban. On the one hand, knowing the actual numbers might make you feel that a ban is unwarranted. Maybe you don't think that 223 deaths is enough to justify the heavy hand of a nationwide ban. On the other hand, you also can't just wave your hands and pretend that it's no worse than eating or drinking. As it turns out, cellphones are implicated in six times more deaths.

There are plenty of other things you might want to know. How does the number of chatty drivers compare to the number of hungry drivers? How reliable is the reporting of these crash statistics? How do our figures compare to other countries? Still, if you're going to report about this stuff, you should at least provide the basic raw numbers.

On Plan B, Honesty Would Be Best Policy

| Tue Dec. 13, 2011 3:37 PM EST

A group of Democratic senators has written a letter to HHS secretary Kathleen Sebelius asking for the "specific rationale and the scientific data" she relied on when she overturned last week's FDA recommendation to make the Plan B contraceptive available over the counter. Greg Sargent posts a copy of the letter at his site and then comments:

This letter — which is signed by Patty Murray, Barbara Boxer, Kirsten Gillibrand, Maria Cantwell and 10 male senators — is strongly worded stuff, particularly when directed at a Democratic president. It stops just short of accusing the Obama administration of deliberately ignoring science in making this decision. It also puts the administration in an awkward spot. Either it produces a scientific rationale that’s acceptable to these Senators, which will will be extremely difficult at best, or it will face more criticism for failing to justify its policy, reinforcing the sense that this Democratic administration abandoned science and put politics first.

The first best option obviously would have been to follow the FDA recommendation and simply allow OTC sales of Plan B. However, the second best option would have been to fess up. This is what happened in 1998 when the Clinton administration decided not to endorse needle-exchange programs. Chris Mooney provides the play-by-play:

In 1998, Health and Human Services Secretary Donna Shalala fully acknowledged the science up front. "We have concluded that needle-exchange programs...will decrease the transmission of HIV and will not encourage the use of illegal drugs," she stated, even as she went on to explain, awkwardly, that the programs would not be supported: "We had to make a choice. It was a decision. It was a decision to leave it to local communities."

In contrast, the Bush administration simply twisted the science. In an extraordinary February 2005 editorial, the Washington Post revealed that to justify the decision to oppose needle-exchange programs (which are especially disliked by religious conservatives), a Bush official directed the paper "to a number of researchers who have allegedly cast doubt on the pro-exchange consensus."

In this case, the Bush administration deliberately tried to mislead the Post about the scientific evidence on needle-exchange programs. The Clinton administration simply admitted that it was making a policy decision.

The Obama administration ought to do the same here. There's a perfectly reasonable case to be made that even if Plan B is safe, the Obama administration doesn't believe it's appropriate to make it available to young children without their parents' knowledge. That's a policy decision, and everyone accepts that policy doesn't have to be dictated solely by science.

Sebelius would be well advised to give up on trying to twist the science and simply admit that there were other considerations at work. It might not make Plan B fans any happier, but at least it would be more honest.

Chart Porn From the BBC

| Tue Dec. 13, 2011 2:42 PM EST

The BBC, in an apparent effort to compete with Britain's well-known fondness for tabloid sensationalism, offers up this today:

Top economists reveal their graphs of 2011

Be still, my beating heart! Unsurprisingly, it turns out that most of the top faves are related to the euro crisis, and to be honest, even by my standards they aren't all that super interesting. Still, it's worth a quick stroll. To whet your appetite, here's a chart from Carl Emmerson, deputy director of the the Institute for Fiscal Studies. His explanation:

This shows the Bank of England's estimate of what the market thinks is the likelihood of sovereign defaults in selected countries in the next five years. Prior to the crisis the market did not see any sizeable difference between these countries despite very different levels of public and private sector debt. The estimated chance of a default increased sharply for many in the aftermath of Lehman's demise in late 2008 but these increases have been dwarfed by those since early 2010.

If the Bank of England is to be believed, Greece, Portugal, and Ireland all have about a 50% or greater chance of defaulting by 2016.

Chester Alan Arthur Gets the Shaft from Obama Administration

| Tue Dec. 13, 2011 2:15 PM EST

From the mailbag:

As part of the Obama Administration’s Campaign to Cut Waste, Vice President Biden today announced the U.S. Mint would suspend the production of Presidential dollar coins for circulation. Today, nearly 1.4 billion surplus dollar coins are sitting in Federal Reserve vaults due to lack of demand for the coins. By halting this unnecessary production, the Administration will save taxpayers at least $50 million per year in production and storage costs....More than 40 percent of the $1 coins that the United States Mint has issued have been returned to the Federal Reserve, because nobody wants to use them....As a result, nearly 1.4 billion excess dollar coins are already sitting unused in Federal Reserve Bank vaults — enough to meet demand for more than a decade. But until today, the Mint was on pace to produce an additional 1.6 billion dollar coins through 2016. 

Okey dokey. Chester Alan Arthur is the unfortunate target of this ruthless attempt to pare back government. However, James Garfield, who was released on November 17, should be in plentiful supply for years to come.