Kevin Drum - February 2012

Working for a Living Not Such a Great Deal Anymore

| Tue Feb. 21, 2012 1:35 PM EST

Karl Smith predicts that this chart will "make the rounds," and since Karl is always right I guess I'd better post it. Here it is:

Technically, the point of this chart is that prices go up at about the same rate as labor costs, but no more. If you try to raise prices too much, competition will eventually force you to lower them. Likewise, if you try to push labor costs down, workers will go elsewhere and you'll eventually have to increase wages to attract new employees. Generally speaking, labor gets a fairly steady percentage of economic output, and as productivity goes up, wages go up.

Until about 2000, that is, when wages began to stagnate but prices rose steadily anyway. Output continued to increase, but none of the increase was going to workers. Karl's thesis is that the Industrial Revolution was a one-time deal and it's over now:

We are returning to an environment where productivity gains do not accrue to unskilled labor because they are imbedded in the brains of the innovators....What this chart hides, but I believe is also true is that capital is facing a similar collapse....For now, it is still in the interest of innovators to tap public equity markets and doing so means that they come under some — but not absolute — pressure to pay a dividend.

However, I have a hard time believing this will not come to an end. The money available in private pools will be sufficiently large that innovators can strike side deals that let them walk away with almost all the profits.

Savers will get nothing.

Is this true? I don't know. The big brains will have to fight it out. The reason I'm posting this chart is because it's a new addition to my collection of evidence that our current economic problems started not in 2008, but in 2000 — or, possibly, in the mid-90s, but masked for a few years by the dotcom boom. Something fundamentally changed around then, and you can see this in a whole host of economic indicators.

But what? There are plenty of theories, but I'm not sure which ones to believe. However, I've sort of semi-promised my editors a magazine piece on this subject sometime in the year 2014 or so, so I'm continuing to collect this stuff.

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Hearts and Minds Not Being Won in Afghanistan

| Tue Feb. 21, 2012 12:54 PM EST

The Washington Post reports that mobs of angry Afghans converged on Bagram Air Base today, outraged over reports that American workers had burned copies of the Koran. Gen. John Allen has apologized profusely, but what really happened here? The Post explains:

U.S. officials said that the copies of the Koran were mistakenly included in a bundle of material bound for an incinerator on the base. The books were quickly removed once Afghan employees told American soldiers that burning them would be deeply sacrilegious.

But that intervention happened only after the pages of some books were charred. Afghan employees of the base carried those remains outside the Bagram’s front gate as evidence of what had happened, galvanizing a growing crowd of protesters. “The people who do this are our enemies,” said a 27-year-old who has worked at a warehouse on the base for two years. “How could I ever work for them again?”

So some soldiers made a mistake, it was immediately corrected, but nonetheless "pages of some books were charred." Riots ensued.

There's really nothing to be learned here about American waste disposal procedures on foreign bases. It was a screwup. Screwups happen. I don't have the slightest doubt that Allen will make it crystal clear to everyone in his command that this had better never happen again.

Rather, the lesson to be learned is that stuff at this level is inevitable. You will never run an operation so perfectly that nothing like this ever occurs. And yet, this is precisely the kind of thing that is routinely used to gin up outrage at a moment's notice. We think we can somehow win the hearts and minds of Afghans, but how can we do that when an incident like this can easily ruin a year's worth of good works? Even with the most perfectly run operation, incidents like this are going to happen at least once a year.

We are not going to win their hearts and minds. In the past half-century American military operations have never successfully won anybody's hearts and minds. It's time to acknowledge this and leave Afghanistan.

Our Screwed-Up Tax System

| Tue Feb. 21, 2012 10:52 AM EST

Bruce Bartlett writes today that the federal tax code violates principles of both horizontal and vertical equity. The table below illustrates his point:

Reading across the chart, people who make roughly the same amount of money can pay wildly different tax rates. In the middle quintile, tax rates vary from 1.7% to 23.5%. In the richest quintile, tax rates vary from 12.1% to 29.3%. That's a violation of horizontal equity, the principle that people who make similar amounts of money ought to pay roughly similar taxes.

The red ovals illustrate the violation of vertical equity, the principle that people who make more money ought to pay higher tax rates. Although the federal tax system is generally progressive, there are startling exceptions. The most heavily taxed segment of fourth quintile, which represents incomes of around $80-100 thousand, pays higher rates than the most lightly-taxed segment of the fifth quintile, which represents incomes of $100+ thousand.

The reason for this is partly because we tax different kinds of income very differently, and partly because the tax code is littered with targeted deductions and tax credits that some people can claim but not others. If you make a lot of money from dividends and capital gains, you pay a much lower rate than someone who makes a similar amount from wages. If you own a big home, you get to take a mortgage interest deduction not available to someone who doesn't.

In theory, tax rates are lower on capital gains and dividends because this raises the stock of capital, which is good for the economy. But as Bruce dryly points out, "The empirical question of whether sharply lower taxes on capital, and hence the wealthy, has actually raised saving, investment and productivity is one I will revisit. Suffice it to say that since 2003, when the current tax rates on capital gains and dividends were instituted, the economy offers little, if any, evidence on this score." He has more at the link.

Greece Gets Another Reprieve

| Tue Feb. 21, 2012 12:41 AM EST

After receiving €110 billion in bailout money two years ago, Greece received another €130 million today. Before it was approved, however, the eurozone finance ministers received a confidential report with some grim news. The Financial Times got hold of a copy:

The 10-page debt sustainability analysis, distributed to eurozone officials last week but obtained by the Financial Times on Monday night, found that even under the most optimistic scenario, the austerity measures being imposed on Athens risk a recession so deep that Greece will not be able to climb out of the debt hole over the course of a new three-year, €170bn bail-out.

It warned that two of the new bail-out’s main principles might be self-defeating. Forcing austerity on Greece could cause debt levels to rise by severely weakening the economy while its €200bn debt restructuring could prevent Greece from ever returning to the financial markets by scaring off future private investors.

....The report made clear why the fight over the new Greek bail-out has been so intense. A German-led group of creditor countries — including the Netherlands and Finland — has expressed extreme reluctance to go through with the deal since they received the report.

It's not clear to me why this report changed anyone's attitude toward Greece. Of course the austerity measures being imposed on Greece are going to send them into an even more wrenching recession. And of course no one in their right mind is going to loan money to Greece for many, many years to come. This can't possibly have come as a surprise to anyone, could it?

If Europe wants Greece to survive as part of the eurozone, its member countries are probably going to have to commit to a nearly open-ended flow of fiscal transfers, just as California is implicitly committed to an open-ended flow of fiscal transfers to Mississippi:

A “tailored downside scenario” in the report suggests...Greece would need about €245bn in bail-out aid, far more than the €170bn under the “baseline” projections eurozone ministers were using in all-night negotiations in Brussels on Monday....Even under a more favourable scenario, Greece could need an additional €50bn by the end of the decade on top of the €136bn in new funds until 2014 being debated by finance ministers on Monday night.

I'm willing to bet that even these scenarios are unduly rosy. A more realistic analysis would probably produce even grimmer news, but that's the price of a fixed-exchange-rate area. If the eurozone's rich countries aren't willing to sign up for this, they probably should have just cut the cord now and thrown Greece to the wolves.

UPDATE: Felix Salmon is blunter than I am: even the "tailored downside," he says, "still looks astonishingly optimistic." His whole piece is worth a read. It explains the deal in pretty lucid terms.

In Which I Finally Learn What Women are For

| Mon Feb. 20, 2012 5:53 PM EST

A few days ago James Poulos wrote an essay in the Daily Caller titled "What Are Women For?" After I saw it linked for the tenth or twelfth time I finally clicked through to see what all the clamor was about, and I'm not being snarky when I say that I simply couldn't figure out what he was getting at. The writing was so circuitous and so pseudo-academic that it was inscrutable. Then, a followup essay declared that "The wave of anger and condemnation that has come from some quarters is dramatic evidence that the column’s central contention is right." I sort of doubt that, but in any case there's no way of judging this until we know what the column's central contention is.

Luckily for me, Rich Yeselson has better antennae than I do, and he doped it out:

Poulos is actually up to something at once deeply derivative and banal, yet astonishing in the residual, reactionary power he brings to it....[The argument] comes down to this: he thinks that women are closer to nature because they are able to give birth, i.e they have a “privileged relationship to the natural world.” And, therefore, “what they are for”, as he argues in the second essay (which is actually the more lucid of the two) is to civilize those who “fill up the world with stuff — machines, weapons, ideologies, and so on — that often objectifies and instrumentalizes people, and often distracts us from its own sterility as regards fruitful human living.” That would be men.

Aha! The role of women is to civilize men! Apparently that's the meaning of this sentence: "I’m not alone in thinking that women are uniquely able to help humanity avoid becoming enthralled to the more sterile cultural creations of men" — with sterile creations being "machines, weapons, ideologies, and so on."

That is a musty trope, isn't it? Yeesh. So I owe Rich thanks twice over. First, for letting me know that I wasn't the only one to find these essays all but impenetrable. And second, for explaining what it was all about. For more on the illustrious history behind this, just click the link.

Choosing the Right Article is Sometimes Harder Than You'd Think

| Mon Feb. 20, 2012 5:16 PM EST

Suzy Khimm asks:

Should we have a FDA for financial products?

You'll have to click the link to get Suzy's take on this question. My question is different: should it be "a FDA" or "an FDA"? If you mentally spell out the acronym, it's properly "a Food and Drug Administration." But if you mentally just sound out the letters, it's properly "an Eff Dee Ay."

This is even trickier with an acronym like, say, SAC. Even if you don't mentally spell out the whole acronym, it's still the case that sometimes this is pronounced "sack" and sometimes "Ess Ay Cee." So you might say "a SAC bomber" or "an SAC bomber." Which should it be?

This is one of those urgent Presidents Day questions. Speaking of which, is it Presidents Day or Presidents' Day? Who decides these things, anyway?

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Rick Santorum Thinks Prenatal Testing Is a Liberal Plot to "Cull the Ranks of the Disabled"

| Mon Feb. 20, 2012 1:14 PM EST

Harold Pollack is no longer amused by Rick Santorum. Here is Santorum this weekend:

One of the things that you don't know about ObamaCare in one of the mandates is they require free prenatal testing. Why? Because free prenatal testing ends up in more abortions and, therefore, less care that has to be done, because we cull the ranks of the disabled in our society. That too is part of ObamaCare — another hidden message as to what president Obama thinks of those who are less able than the elites who want to govern our country.

Even for Santorum, this is just remarkably odious. Here's Harold:

I’m writing these words with my smiling brother-in-law Vincent sitting next to me, admiring the green lunchbox that we just bought him. Vincent lives with intellectual disabilities caused by fragile X syndrome. I find the above comments indescribably insulting.

Santorum’s comments are only made uglier by their utter lack of foundation…I’ve never heard any liberal health policy wonk promote genetic technologies to “cull the ranks of the disabled” or as part of any cost-cutting plan. That ugly meme is completely made up.

…Certainly liberals are willing to spend more money on disability services. I’ve published analyses showing that states’ 2008 voting share for John McCain was strongly correlated with reductions in state expenditures for intellectual disability services during the current recession. Most of the major disability organizations supported ACA for the obvious reasons. Preexisting condition clauses, essential health benefits, health insurance for young adults, etc. are specifically pertinent for people living with physical and mental disabilities.

The chart on the right is the one Harold is talking about. As states get bluer, they spend proportionately more on intellectual and developmental disability (I/DD) programs. As they get redder they spend less. And when the recession hit, the redder the state, the more they cut back on I/DD spending. You can draw whatever conclusion you want from this. If you're as vile as Santorum, you might conclude that conservatives hate the disabled. If you're not, you might conclude that redder states tend to be poorer than bluer states and simply can't afford as much.

But you certainly can't conclude that either blue states or liberals in general are trying to rid the nation of the disabled. The kind of person who thinks that has no place in a presidential race.

Not Every Lapse in Judgment Deserves the Death Penalty

| Mon Feb. 20, 2012 12:48 PM EST

Courtesy of the Daily News, the poor schmoe who wrote last week's Headline of the Century explains himself:

The ESPN editor fired Sunday for using "chink in the armor" in a headline about Knicks phenom Jeremy Lin said the racial slur never crossed his mind — and he was devastated when he realized his mistake. "This had nothing to do with me being cute or punny," Anthony Federico told the Daily News. "I'm so sorry that I offended people. I'm so sorry if I offended Jeremy."

....Federico, 28, said he understands why he was axed. "ESPN did what they had to do," he said. He said he has used the phrase "at least 100 times" in headlines over the years and thought nothing of it when he slapped it on the Lin story.

Really? A hundred times? I'm notoriously poor at writing headlines, but even I don't recycle the same cliches a dozen times a year.

That aside, what are we to think of the firestorm surrounding all this? Option A: Deliberate or not, Federico's headline was acutely hurtful and offensive and ESPN had no alternative. An abject apology followed by Federico's firing was really their only choice. Option B: It was a momentary and inadvertent lapse that was removed within half an hour and immediately apologized for. It deserved a reprimand and a game plan to avoid similar problems in the future, not the death penalty.

I vote for Option B. We need to reserve the serious ordnance for real acts of malicious racism, not minor lapses of judgment. Not only is it the right thing to do, but real racism gets trivialized when stuff like this sucks up so much oxygen. A little generosity of spirit could go a long way here.

My Crystal Ball Says the Keystone XL Pipeline Will Be Approved in 2013

| Mon Feb. 20, 2012 11:53 AM EST

The LA Times reports that Canadians are getting uncharacteristically pissed off at us American types:

The prime minister is talking about being "held hostage" by U.S. interests. Radio ads blare, "Stand up to this foreign bully." A Twitter account tells of a "secret plan to target Canada: exposed!"....Canada's recent push for the proposed Northern Gateway pipeline to carry oil from the tar sands of Alberta to the nation's West Coast, where it would be sent to China, has been marked by uncharacteristic defiance.

....In January, President Obama abruptly vetoed a permit for the Keystone XL pipeline, Canada's $7-billion project to deliver oil across the U.S. Midwest to the Texas Gulf Coast, which environmentalists have long opposed.

Mix in a touch of nationalism, and Prime Minister Stephen Harper's view that Canada needs to hedge its oil bets by diversifying its export markets, and the fight was on — not only with the neighbor to the south, but also among Canadians.

My advice to the Times: this is hardly the first trade dispute between Canada and the U.S. that's spurred some heated rhetoric. That might have been worth a mention.

My advice to Canadians: settle down. It's an election year down here. In 2013, either Barack Obama will be starting his second term and he'll reverse course and approve Keystone XL because he doesn't have to care about the environmentalists anymore, or else some Republican will be president and he'll approve Keystone XL because he never cared about the environmentalists in the first place. Either way, Keystone XL will be approved after a few minor routing changes that allows everyone to save face.

Do I sound cynical about this? Well, I am.

Chart of the Day: The Surprisingly Stable Cost of Presidential Elections

| Mon Feb. 20, 2012 11:02 AM EST

This is a pretty fascinating chart from the latest issue of the magazine. (At least that's where I assume it comes from. It looks too professionally done for anything but print.) What's fascinating, to me, isn't that the costs of presidential campaigns have skyrocketed so much, but that they haven't. Until very, very recently, that is. From 1964 all the way through 2000, the cost of presidential campaigns was pretty stable, ranging around $300-600 million in inflation-adjusted terms. It was only in 2004 and 2008 that costs suddenly went through the roof.

I wouldn't have guessed that. I always figured that campaign costs had been rising inexorably for decades. But apparently not. They've only been rising inexorably for the past eight years.