Kevin Drum - April 2012

Europe Still on Slow Motion Course to Disaster

| Wed Apr. 25, 2012 12:06 PM EDT

Stories about problems in the eurozone often compare the "industrious" north to the "carefree" south. Or maybe the "easy-going" south. Or the "sun-drenched" south. The word lazy is seldom actually used, but it's almost always implied. They're just a bunch of sluggards down in Italy and Spain and Greece and Portugal!

As it happens, this isn't true. According to OECD figures, Italians average about 34 hours of work per week. Portugal clocks in at 33 and Spain at 32. The industrious French, by contrast, work an average of only 30 hours per week. Germans punch in 27 hours per week and the Dutch 26.

The problem isn't laziness, it's lack of productivity. Italians simply don't produce as much per hour as Germans, which means that in order to be competitive they have to be paid less. But over the past decade, thanks to hot currency flows into the south, inflation in Europe's periphery has been high and wages have risen. A currency devaluation could take care of this, but since Germans and Italians all use the euro these days, that's not possible. Nonetheless, one way or another, labor costs need to go up in Germany and France and down in Italy and Spain.

Unfortunately, as Paul Krugman points out this morning, that's just not happening. Not nearly fast enough anyway. Labor costs in Italy have actually risen more than in Germany, and even in Spain and Portugal, which have risen less, the difference is tiny. Spain has made up less than one percentage point on Germany and only about three percentage points on France. At that rate, relative labor costs won't get to where they need to be for decades.

"You can argue that adjustment is happening here," says Krugman, "but it’s painfully slow — and not remotely fast enough to avert catastrophe on the current course." This is true. At the same time, it's also true, as Tyler Cowen points out, that "There does not exist any coherent, workable, political incentive-compatible plan whereby [periphery] governments borrow more, spend more, and 'invest for growth.'" Something along the lines of Jay Shambaugh's plan might work, but nothing along those lines is yet on offer, and Europe simply doesn't have decades before something gives and the eurozone collapses. The question is, how long do they have?

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Newt Gingrich Maybe Kinda Considering Dropping Out

| Wed Apr. 25, 2012 11:07 AM EDT

Following his razor-thin 29-point loss to Mitt Romney in Delaware last night — along with his somewhat, um, larger losses in other states — Newt Gingrich is thinking seriously about reassessing his position:

Former House Speaker Newt Gingrich is expected to suspend his presidential campaign within the next week, according to a Republican operative familiar with the decision....“Over the next few days we're going to look realistically at where we're at,” Gingrich said in a speech in Concord Tuesday night. He said he would assess the race “as somebody who's a unifier and somebody who's realistic.”

That's our Newt: a realist and a unifier. So maybe in a week or so he'll announce that, you know, he could have won, but for the good of the party he's dropping out. Because that's just the kind of selfless, big-hearted guy that he is. Yeesh.

John Boehner and the Amazing Student Loan Non-Vote

| Tue Apr. 24, 2012 7:00 PM EDT

Here's the latest from Speaker of the House John Boehner:

Steve Benen does a fine job of explaining why this is so ridiculous. But on the bright side, at least Boehner — or the intern who tweeted this for him — called the 2007 Congress "Democratic-controlled" rather than "Democrat-controlled." Thanks, Mr. Speaker!

As for the substance of the student loan issue, I'll confess to feelings of extreme ambivalence about it. I'm feeling less and less confident over time that increases in federal student aid actually end up aiding students, rather than simply giving universities and trade schools more headroom to raise their fees. But I think I need to study up on this further before I take sides.

Sometimes Your Kids Are Safer If You Just Leave Them Alone

| Tue Apr. 24, 2012 6:11 PM EDT

If you think that modern parents are entirely too protective of their children, this story is for you:

Although nobody keeps national statistics, orthopedic specialists say they treat a number of toddlers and young children each year with broken legs as a result of riding down the slide on a parent’s lap. A study at Winthrop University Hospital in Mineola, N.Y., found that nearly 14 percent of pediatric leg fractures over an 11-month period involved toddlers riding down the slide with a parent.

....“This fracture is entirely preventable,” said Dr. [Edward] Holt, who has created a warning poster for local pediatrician offices and a YouTube video alerting parents to the hazard....To prevent the injury, the best solution is to allow a child to slide by himself, with supervision and instructions on how to play safely. Young children can be placed on the slide at the halfway point with a parent standing next to the slide. At the very least, parents should remove a child’s shoes before riding down the slide with the child on their laps, and make sure the child’s legs don’t touch the sides or sliding surface.

Just let your kids play. Sure, keep your eyes on them, but otherwise just let them play. They'll be fine. In fact, they'll be more than fine. They'll be better because they're figuring out how the world works all by themselves. I doubt they even need much instruction on how to play safely, either. It's a slide. Most kids grasp the principle pretty easily.

Net Immigration From Mexico Now at Zero

| Tue Apr. 24, 2012 3:16 PM EDT

The Pew Hispanic Center reports that net immigration from Mexico into the United States has probably turned negative for the first time since the Great Depression:

The standstill appears to be the result of many factors, including the weakened U.S. job and housing construction markets, heightened border enforcement, a rise in deportations, the growing dangers associated with illegal border crossings, the long-term decline in Mexico’s birth rates and broader economic conditions in Mexico.

I wonder if conservatives will ever give President Obama any credit for this? He's taken plenty of heat from lefties over his enforcement and deportation policies, after all, and he's apparently done it in the hope that if illegal immigration can be slowed or stopped, it might be possible to turn down the temperature a bit on immigration hysteria and gain support for the kind of comprehensive reform that failed back in 2006.

In theory, that should work. But I have my doubts. The problem is that the Republican Party is becoming ever more dependent on white votes and the Democratic Party is becoming ever more dependent on minority votes. For purely partisan reasons, then, they both have big incentives to keep the heat cranked up as high as they can. Compromise is becoming less and less in either party's interest. Regardless of who wins in November, 2013 is probably about the best chance for broad reform we're going to have. It's just going to keep getting harder after that.

Nobody Really Cares about Political Predictions

| Tue Apr. 24, 2012 1:05 PM EDT

Over at Salon, Jim Newell has a fun piece about all the stupid predictions that pundits made during the Republican primary campaign. There's obviously a lot of material to mine here, since every single prediction was wrong except for "Romney will eventually grind out a win." Does that mean the punditocracy is hopelessly stupid? Maybe. But I think Paul Waldman gets closer to the truth here:

U. Penn psychologist Philip Tetlock did a lengthy analysis of predictions in politics, and concluded that while most everyone is terrible at predictions, those who have one big idea that they apply to everything do far worse than those who incorporate a diversity of ideas and sources (the former are Isaiah Berlin's hedgehogs, the latter are foxes). Knowing how dangerous predictions can be has led me to be careful about tossing them around willy-nilly, but I've also noticed something else: People like predictions. When I've made an emphatic one, it tends to get more links and tweets. Whenever I see friends or relatives whom I haven't seen in a while, or meet someone who finds out what I do for a living, invariably I get asked what I think the outcome of the moment's political conflict is going to be.

I tend not to make too many predictions myself, though I confess that Romney's eventual victory seemed so obvious to me that I was always a bit flummoxed that so many people seemed so certain someone else would take him down. It's one thing to see people making lots of different predictions about, say, whether the eurozone will survive. That's a genuinely hard problem. But why were so many people willing to get on the bandwagon for Michele Bachmann or Rick Perry or Newt Gingrich? That's craziness.

But I think Paul has the answer: most pundits don't really care if they're right. It's not like they have any money riding on their predictions, after all. But predictions stir the pot, and unusual predictions stir the pot even more. This — controversy, provocation, contrarianism — is the coin of the realm for political pundits. Even among their peers they don't get any props for being right, since political reporters, in their heart of hearts, probably believe the whole enterprise is completely chaotic and inherently unpredictable in the first place.

I have to admit that I've always wondered how good my own prognostication skills are. No better than a coin flip, I'd guess, but the only way to find out for sure would be to plow through a year's worth of past posts and start grading them. There's no way I'm doing that, and there's certainly no incentive for anyone else to do it. That's true of everyone else too, which is why we never have a very good sense of who's a good forecaster and who isn't. It's because, really, we don't want to know. Hell, if someone did turn out to have a good record, we'd probably chalk it up to luck and then go on ignoring them. An accurate crystal ball just gets in the way of a good conversation, and that's the ultimate sin.

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Why Wall Street Hates President Obama

| Tue Apr. 24, 2012 11:46 AM EDT

Brad DeLong writes today that the standard bargain between Democrats and Wall Street is simple: we might tax you a little more than Republicans, but in return we'll provide you with "competent economic management in striking contrast to that offered by the ideologically-blinded wingnuts who are the Republicans." And President Obama has done just that. So why do the lords of finance almost unanimously hate his guts these days?

A big part of it, I think, is that Obama was not just supposed to make things better: he was supposed to fix things — to bring things back to "normal"....[But] Obama did not fix things: Wall Street bankers today are a lot poorer than they were in mid-2007. And the Wall Street bankers think that Obama disses them. And the Wall Street bankers know that Obama wants to tax them.

I'm not sure I buy this. My sense is that Wall Street financiers, whatever their other blinders, take a pretty intellectual approach to the macroeconomy, and they know that the economy is doing about as well as they could have hoped back in 2008. The stock market is up, corporate profits are up, and bonuses have rebounded. From a purely self-interested financial point of view, I don't think very many of them are really dissatisfied with the Obama/Geithner/Bernanke regime.

So what is it? My guess is two things. First — and there's no point in pulling punches here — they're a bunch of spoiled brats. Over the past three decades they've gotten accustomed to the kind of deference normally offered to grand viziers of the Sublime Porte, and they're simply enraged at the fact that Obama not only doesn't seem very impressed by their accomplishments, but even criticizes them every once in a while. At this point, they have fully convinced themselves that (a) they weren't responsible for the 2008 crash in any way, (b) it's populist demagoguery to suggest otherwise, and (c) the government should stand with them against the rabble-rousers so that they have the freedom to run the world again. Obama doesn't quite agree — not totally, anyway — and that maddens them.

Which brings us to the second thing: regulation. Like a lot of business people, I think they hate regulation more than they hate reduced profits. They'll fight higher taxes, but in the end, that's a pure money thing and they're accustomed to winning and losing money battles. But regulation wounds them far more. It's a signal that they aren't to be trusted. It's a reminder that someone else can tell them what to do. It makes it harder to earn money from purely financial manipulation. Dodd-Frank and Basel III may, in the end, not be very stringent regulatory regimes, but they're still viewed as unfair punishment. And we all know how children react to punishment they view as unfair. They sulk.

In 2008 Wall Street somehow convinced itself that Obama understood them and would protect them from the mob. In reality, he's mostly done that. But he's only done it 80%, not 100%. That missing 20% is the reason they've turned on him like a pack of rabid dogs.

How the Healthcare Industry Rips You Off

| Tue Apr. 24, 2012 10:28 AM EDT

Today brings us a pair of infuriating stories about the cost of healthcare. In the first, Sarah Kliff reports the results of a study of appendectomy costs in California hospitals:

The price of appendectomy ranged from as little as $1,529 to as much as $182,955 depending on where it was performed, according to results published in the Archives of Internal Medicine. These results came after the researchers focused their data on 18- to 59-year-olds whose hospitalization lasted fewer than four days, to make sure they culled out any complications.

....“Price shopping is improbable, if not impossible, because the services are complex, urgently needed, and no definitive diagnosis has yet been made,” the authors conclude. “In our study, even if patients did have the luxury of time and clinical knowledge to ‘shop around,’ we found that California hospitals charge patients inconsistently for what should be similar services as defined by our relatively strict definition of uncomplicated appendicitis.”

Next up is a New York Times piece about a suit against insurers in New York state for consistently understating "usual and customary" rates, which allowed them to make unfairly low reimbursements for out-of-network care. The companies settled the suit by agreeing to set up a new, more reliable database of actual procedure costs:

Though the settlement required the companies to underwrite the new database with $95 million, it did not obligate them to use it. So by the time the database was finally up and running last year, the same companies, across the country, were rapidly shifting to another calculation method, based on Medicare rates, that usually reduces reimbursement substantially.

....Few dispute that [...] the new realpolitik of reimbursement is leaving millions of insured families more vulnerable to catastrophic medical bills, even though they are paying higher premiums, co-payments and deductibles.

“They’re not getting what they think they’re paying for,” said Benjamin M. Lawsky, the superintendent of the Department of Financial Services, whose investigators recently found that under the switch, 4.7 million New York State residents — 76 percent of those with out-of-network coverage — are facing reimbursement reductions of 50 percent or more. The switch “certainly creates the appearance that insurers are trying to end-run the settlement and keep out-of-network payments low,” Mr. Lawsky said.

These two stories highlight one of the biggest problems with American healthcare. Sure, it costs more than it does anywhere else, but that's not all. Thanks to weak price regulation, it's also far more variable than anywhere else, with hospitals and insurance companies constantly looking for ways to gain an edge over those with the least leverage. In the first story, they're taking advantage of people with sudden health problems who really don't have the opportunity to shop around. In the second story, they're taking advantage of people who, for one reason or another, have to seek care outside of their network.

Whose fault is this? Insurance companies for playing coverage games? Hospitals for playing cost games? Medicare for having a lousy and inconsistent payment system? Probably all of the above. And the net economic benefit of all this game playing is zero (at best). But one thing we know for sure is who pays the price for this. All of us.

Overthinking the Election

| Tue Apr. 24, 2012 9:58 AM EDT

Ezra Klein asked three political scientists to create a model for forecasting presidential elections:

The final model uses just three pieces of information that have been found to be particularly predictive: economic growth in the year of the election, as measured by the change in gross domestic product during the first three quarters; the president’s approval rating in June; and whether one of the candidates is the incumbent.

That may seem a bit thin. But it calls 12 of the past 16 elections right. The average error in its prediction of the two-party vote share is less than three percentage points.

That sure sounds like a bad model to me. Here's a simpler model that gets 13 of the past 16 elections right: the incumbent party wins if it's been in office for four years, and loses if it's been in office for eight or more years. Even if you insist that Al Gore "won" in 2000 because he won the popular vote, it gets 12 of the past 16 elections right.

So what's the point of adding two more variables if they don't provide any additional accuracy? I don't get it. However, Ezra says the value of the model is that it forces you to think about basic factors without getting distracted by ephemera like Etch A Sketch or Mommygate. So if you want to think about it, you can play with the model here. Have fun!

As the Economy Deteriorates, So Does Social Security

| Mon Apr. 23, 2012 11:15 PM EDT

The AP embarrasses itself today trying to explain why the latest Social Security Trustees report projects that the trust fund will be exhausted sooner than we thought:

Social Security is rushing even faster toward insolvency, driven by retiring baby boomers, a weak economy and politicians’ reluctance to take painful action to fix the huge retirement and disability program.

It's true that all of these things contribute to Social Security's solvency problems, but only the second has anything to do with the fact that Social Security is "rushing even faster toward insolvency." The retirement of the baby boomers and the fecklessness of Congress haven't changed at all since last year.

However, it's true that the Trustees now project that the trust fund will be exhausted in 2033, not 2036. There are some minor demographic and technical issues that contributed to this adjustment, but the biggest reason by far is that the Trustees made several changes in their assumptions about the economy:

The Trustees now assume a decline in average hours worked of 0.05 percent per year, rather than no change as they assumed last year.... Starting values for 2011 resulted in higher benefit levels and lower payroll taxes for 2012 than those projected in last year’s report. Price inflation in 2011 was higher than expected [and] the average level of taxable earnings for covered workers in 2011 was about 1.6 percent lower than estimated in last year’s report....Real interest rates for new investments during 2011 are significantly lower than projected in last year’s report, and these lower real interest rates on new investments continue for several years before reaching their ultimate levels.

Roughly speaking, the economy is weak and the Trustees have updated their models to assume that the economy will remain weak for some time. That means fewer workers paying into the system; a lower level of taxable wages; and lower returns on the treasury bonds in the trust fund as the Fed continues to hold interest rates low until the economy recovers.

Moral of the story: We need to get our economy out of a ditch, and the sooner the better. But you already knew that.

On a related note, I'm going to annoy a few of my fellow lefties and say that we should stop getting bent out of shape when people respond to the Trustees report by saying that Social Security is "going bankrupt" or "running dry" or some similar formulation. There's a hyperlegalistic sense in which this isn't accurate, but honestly, it would be a helluva dramatic event if the trust fund ran out of money and Social Security suddenly had to slash benefits by 25% in 2033 (see chart above). Referring to this as "bankruptcy" isn't all that big a rhetorical stretch, and everyone on both left and right should put away their fainting couches, ditch all the tired excuses, and get to work on a fix that would involve — say it in unison, folks! — a very modest and phased-in cut in benefits combined with a very modest and phased-in increase in taxes. This isn't a hard problem.