Kevin Drum - May 2012

Does Greece Have More Leverage Than Anyone Thinks?

| Tue May 8, 2012 12:41 PM EDT

Atrios writes:

Is still a mystery to me why Greece doesn't just default on all of its debts, or threaten to anyway. They've always had more bargaining power than they have chosen to use.

I wish Duncan would spend more than a sentence or two on this recurrent theme of his. I'm curious what his thinking is. After all, it's no mystery why Greece doesn't "just default." They don't default because if they did they'd lose all the aid money that Germany is sending their way. And since Greece is already cut off from the bond markets, that means they'd be forced to balance their budget immediately, which in turn would mean far sharper cuts than anything they've experienced so far. It would make today's austerity look like a picnic. The entire country would all but implode.

So what's their bargaining power? Presumably, the fact that, in the end, Germany would be unwilling to let Greece implode. If Greek politicians just flat out refused to make the cuts Angela Merkel wants, she'd eventually back down because a full default followed by the exit of Greece from the eurozone would be unthinkable.

Maybe. But I'd sure like to see someone make a case for that. A Greek exit would be a big hit to the European project; it would have economic repercussions beyond Greece's border; and it would reawaken fears that if Greece can leave, maybe other, more important countries can too. But there's a flip side to this: the economic impact outside Greece wouldn't be all that big, and the devastation that Greece would suffer would be a mighty powerful signal to Italy and Spain and Portugal that they'd best not tempt fate themselves.

Hell, at this point Germany might actually prefer for Greece to exit the euro and implode. And even if German leaders weren't quite willing to let Greece go, they're still hemmed in by public opinion — and public opinion in Germany is pretty unfriendly toward Greece these days.

Anyone want to make the contrary argument in any detail? Just how much bargaining power does Greece really have right now?

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Mitt Romney's Panic Over Imaginary Ghosts From the Right

| Tue May 8, 2012 12:03 PM EDT

Jonah Goldberg pens just about the most scathing critique of Mitt Romney that I've ever seen in the LA Times today. I don't think he meant it to be quite as scathing as all that, but in the end it is. The subject is Richard Grenell, the gay foreign policy spokesman who left the Romney campaign after vitriolic attacks from Bryan Fischer, a radio host with the American Family Association. Here's Goldberg:

I've talked to many prominent Christian conservatives about this, and the idea that Fischer speaks for them is ludicrous. Fischer, who's argued that the 1st Amendment doesn't protect the religious freedom of non-Christians, doesn't speak for any members of the Christian right I know.

Gagging Grenell was a bad play for the Romney team because it guaranteed the issue wouldn't go away. The only way to dispel concerns about the man's fitness for the job was to let him do his job. Muzzling him until he resigned was the worst possible way to handle it because all it did was feed crocodiles like Fischer.

So: not only did Romney feel like he had to appease the Christian right in a particularly craven way, but he wasn't even appeasing the Christian right. Instead he was seized by panic, appeasing an imagined Christian right that — if Goldberg is correct — didn't really have all that big a problem with Grenell in the first place. Apparently the mere whiff of opposition from the social conservative base was enough to send Romney scurrying for cover.

I'm not plugged into movement conservatism enough to know if this is right. But if it is, it's a brutal indictment of Romney's fitness to be president.

Austerity is Austerity, No Matter How You Get There

| Tue May 8, 2012 11:10 AM EDT

Via Tyler Cowen, Veronique de Rugy presents the chart on the right as evidence that Europe isn't really undergoing any kind of real austerity after all. There are, obviously, some problems here: the figures are in nominal euros/pounds, there's no adjustment for population growth, and anyway, the whole point of the anti-austerity Keynesians is that during a massive recession spending should be sharply higher, especially in the face of relatively tight central bank policy. Spending that's flat or slightly down is massively contractionary.

But there are two other curiosities here that interest me more. First, de Rugy says this:

The most important point to keep in mind is that whenever cuts took place, they were always overwhelmed by large counterproductive tax increases....I wish anti-austerity critics would start acknowledging that taxes have gone up too — in most cases more than the spending has been cut.

Has this been a problem among the anti-austerity crowd? There are arguments over what kind of stimulus is most efficient, with Keynesians generally concluding that direct government spending is best, but their main obsession is simply about running big central government deficits any way you can. For this reason the Keynesian crowd all agrees that tax increases are counterproductive during a zero-bound recession, and that's part of the reason for criticizing the European approach.

Then there's this:

Also, if this data were adjusted for inflation (which I would prefer but the data isn’t available)....

What's up with this? A few days ago I was trying to get European GDP numbers for some project or other, and about halfway through I realized that my data was no good unless it was in real dollars/pounds/euros. So I went looking, but couldn't find numbers more recent than 2010. FRED didn't have more up-to-date figures, and when I went to Eurostat they didn't have them either. Why? They know the nominal numbers, and they have inflation data for each country, so why aren't real GDP and spending figures available all the way up to Q1 of 2012?

In my case, I ditched the post I was planning to write because, although the nominal data made my point, it obviously wasn't accurate. In de Rugy's case, she just went ahead anyway. Which of us made the right call?

UPDATE: I have just been taught how to extract real GDP data from Eurostat. I'd tell you all how to do it, but then I'd have to kill you.

Seriously, whoever designed that interface should be shot. Why not just outsource their data presentation to the St. Louis Fed and dump it all into FRED?

Long-Term Trends Favor Gay Marriage

| Tue May 8, 2012 10:30 AM EDT

Andrew Sullivan points out today that for the second year in a row a majority of Americans say they favor legalizing same-sex marriage. But the real news is in the long-term trend:

On a wide variety of issues related to gays, polling over the years has shown a consistent trend: although there are short-term ups and downs, over longer periods the public has become steadily more supportive of gay equality at the rate of about 1-2% per year. And the same is true here. Public opinion has shifted 23 points in 12 years.

The good news here is obvious: this is at the high end of the 1-2% range, and given that the national number is 50%, it means that there are plenty of states on the right edge of the bell curve where the number is 60% or higher. The bad news, such as it is, is that breakthrough progress probably won't come until about two-thirds of the country is on board with same-sex marriage. That's most likely still a decade away. There's a lot more work to be done.

Venture Capital is Even More Broken Than We Thought

| Mon May 7, 2012 8:33 PM EDT

Back during the dotcom boom of the 90s, venture capital funds performed pretty strongly. Since then they've pretty much sucked. So what happened? Felix Salmon directs our attention today to a new report from the Kauffman Foundation that addresses this question in considerable detail. The basic answer, I think, comes early on in the report:

Investing in venture capital in the early to mid-1990s generated strong, above-market  returns, and performance by any measure was good. What has happened since?....Longtime venture investor Bill Hambrecht notes that, “When you get an above-average return in any class of assets, money floods in until it drives returns down to a normal, and I think that’s  what  happened.”

Yep. There's no such thing as an asset class that consistently outperforms the market on a risk-adjusted basis. If it does, money will keep piling in until it doesn't.

But things are worse than that. According to Kauffman, VC fund returns aren't just average, they're lousy. This means that money should be exiting until returns go up. But that's not happening: "Despite more than a decade of poor returns relative to publicly traded stocks, however, there appears to be only a modest retrenchment.... We wonder: why are [investors] so committed to investing in VC despite its persistent underperformance?" The chart on the right tells the story. Since 2000, the best performing funds have an internal rate of return that's only barely positive. The worst funds actively lose money. Taken as a whole, the return on all funds is just about zero. Kauffman says that its VC portfolio hasn't outperformed the Russell 2000 stock index since 1997.

Felix comments further:

If you look at the performance of VC funds during the golden years of 1986-1999, it turns out that once you strip out the top-performing 29 funds, the rest — more than 500 — collectively invested $160 billion, and managed to return $85 billion to investors. If you can’t get into one of the best funds — and everybody knows which funds those are — then there’s really no point investing in venture capital at all. But what happens is that some investment board looks at VC returns inclusive of the best funds’ returns, and then mandates a certain investment in VC which assumes they’ll have some kind of access to those top-tier funds. And that’s an extremely dangerous assumption to make, because most of the time it won’t be true.

After looking at the evidence, Kauffman concludes that most VC funds manage their investments not to produce long-term returns, but to provide high returns after about two years, just in time for them to go out for their next round of capital raising. What's most interesting, though, is that Kauffman doesn't really blame VC funds for this state of affairs. They blame institutional investors, who (a) put aside preset amounts for VC investment regardless of the state of the market, (b) don't pay attention to proper investment metrics, (c) have such high turnover that no one is really much interested in long-term returns in the first place, and (d) agree sheeplike to pay fees to VC funds in a way that practically begs them to game the system.

The full report is here. Felix has much more here if you want an abbreviated version. Bottom line: as with everything else, there's no magic. Nothing outperforms the market automatically, and Wall Street doesn't care how it makes its money. Generating returns is fine, but keeping suckers on the hook and extracting rents from them is fine too. Caveat emptor.

I Am an Idiot, Part 784

| Mon May 7, 2012 7:32 PM EDT

I have owned my current car for eleven years. Today, for the first time, I noticed that there's a knob on the dashboard that controls the delay time for the windshield wiper. Discuss. 

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Dark Money Group Darkens Obama's Skin Color in Ad

| Mon May 7, 2012 2:48 PM EDT

Vets For a Strong America has gotten a lot of attention for its recent video attacking President Obama for taking too much credit for the Osama bin Laden killing. Here at Mother Jones' southern regional headquarters, though, the most exciting part of the video was the fact that they used a headline from one of my posts a few days ago. Booyah! However, even after waiting for a week, I haven't seen anybody point out the truly most egregious part of the video: darkening the image in an obvious attempt to exploit racial stereotypes that associate dark skin tones with criminal thuggishness. Remember the hue and cry when Time magazine did that to O.J. Simpson in 1994? Remember the hue and cry when Hillary Clinton's campaign supposedly did that to Obama during the 2008 primary, even though it actually hadn't? But this time nobody cares. I guess times have changed.

UPDATE: I am — obviously, I think — not personally suggesting that dark skin tones make you a thug. But this is a very well-worn racial stereotype, and photo manipulation like this has an ugly history. I really don't think there's a benign explanation for crude Photoshopping like this. I've modified the text to make this clear.

Is There Anything Left That Conservatives Won't Believe About Obama?

| Mon May 7, 2012 1:15 PM EDT

A few days ago I tweeted:

This post deserves an award of some kind. Nominations are open for type of award. ow.ly/azgix

And what was the mysterious post I was promoting? It was a gobsmacking piece of pretzel bending from Ben Shapiro taking a triple bank shot off a sentence in a memo that Leon Panetta circulated last year just before the bin Laden raid. The president has approved the operation, Panetta wrote, and Admiral William McRaven is in operational control. "Any additional risks are to be brought back to the President for his consideration." This is, needless to say, a nothingburger. Of course the military is in operational control of a special teams mission. Of course additional risks should be brought to the president's attention. This is the way things work. But Shapiro managed to figure out a different angle:

It doesn’t show a president willing to take the blame for a mission gone wrong. It shows a CYA maneuver by the White House. The memo puts all control in the hands of Admiral McRaven — the “timing, operational decision making and control” are all up to McRaven. So the notion that Obama and his team were walking through every stage of the operation is incorrect. The hero here was McRaven, not Obama. And had the mission gone wrong, McRaven surely would have been thrown under the bus.

The memo is crystal clear on that point. It says that the decision has been made based solely on the “risk profile presented to the President.” If any other risks — no matter how minute — arose, they were “to be brought back to the President for his consideration.” This is ludicrous. It is wiggle room. It was Obama’s way of carving out space for himself in case the mission went bad. If it did, he’d say that there were additional risks of which he hadn’t been informed; he’d been kept in the dark by his military leaders.

This was so absurd that I thought nothing more of it. I was impressed at the level of creative nutbaggery involved, but that was all. I tweeted it and forgot it.

Today, however, Dave Weigel sets me straight. Shapiro's post apparently went viral among the Breitbart/Fox/Drudge set:

The Shapiro Theory got around the world faster than the swine-bird flu in Contagion. His post has been tweeted more than 160,000 times and shared on Facebook nearly 25,000 times. Time's original story has been shared on Facebook fewer than 100 times.

On April 30, three days after the memo was released, the Shapiro Theory became Michael Mukasey's theory....Four days later, Sean Hannity invited Mukasey onto his Fox News show to share the theory.

....To paraphrase Newt Gingrich: These are dispatches from Cloudcuckooland....This must be why the Obama campaign celebrates Christmas every day that the media discusses OBL — it drives Bush loyalists absolutely insane when they realize Obama gets the credit.

As always, I continue to be amazed at the creativity of the arguments conservatives come up with. It never would have occurred to me to interpret Panetta's memo the way Shapiro did, and if it had occurred to me I would never have said so publicly because it would have been too embarrassing to admit that the thought had crossed my mind. Going further and pretending that I actually took the idea seriously would have been flatly out of the question. The mountain of mockery I could expect even from my own partisans would have been too much for me.

But Dave is right: the idea of Obama getting credit for killing bin Laden just drives conservatives up a tree. At this point, many of them are, apparently, literally willing to believe anything that suggests otherwise. Shapiro's post is obvious claptrap, but that doesn't matter. It's an anti-Obama lifeline to cling to, so cling they will. Shapiro obviously knows his audience well.

Fareed Zakaria on the Real Problem With Big Government

| Mon May 7, 2012 12:20 PM EDT

Via Glenn Greenwald, here is reliable mainstream pundit Fareed Zakaria on America's ever burgeoning national police powers:

The rise of this national security state has entailed a vast expansion in the government's powers that now touch every aspect of American life, even when seemingly unrelated to terrorism. Some 30,000 people, for example, are now employed exclusively to listen in on phone conversations and other communications within the United States.

....So we continue to stand in absurd airport lines. We continue to turn down the visa applications of hundreds of thousands of tourists, businessmen, artists and performers who simply want to visit America and spend money here, and become ambassadors of good will for this country. We continue to treat even those visitors who arrive with visas as hostile aliens — checking, searching and deporting people at will.

....We don't look like people who have won a war. We look like scared, fearful, losers.

In a related vein, Glenn points to a column by the Miami Herald's Edward Wasserman explaining why federal authorities don't feel like they need to harass reporters about giving up their sources anymore:

As a national security representative told Lucy Dalglish, director of the Reporters Committee for Freedom of the Press, “We’re not going to subpoena reporters in the future. We don’t need to. We know who you’re talking to.”

Cue Glenn: "Just think about that: issuing subpoenas to journalists to force them to reveal their sources is now obsolete — unnecessary — because the U.S. Government’s Surveillance State is so vast, so comprehensive, that it already knows who is talking to whom." Are you feeling safer yet?

Romney's Business Schtick Probably Not Much of a Winner

| Mon May 7, 2012 11:47 AM EDT

One of Paul Waldman's pet peeves is the idea that being a successful businessman gives you any special insight into running the macroeconomy of the United States. Well guess what? It's one of my pet peeves too! Go figure. Maybe Paul and I should have lunch someday and swap pet peeves. I bet they'd match up pretty well.

In any case, as Paul points out, Romney's economic proposals don't have much to do with his career as a private equity manager anyway:

Romney does have a lengthy economic plan, but it amounts to the same thing Republicans always advocate: tax cuts, particularly on the wealthy; spending cuts in domestic programs; eliminating regulations; free trade; undermining labor unions, and so on. The closest thing to an innovative idea is the creation of a "Reagan Economic Zone," which presumably will create wealth through the repeated incantation of the great one's name.

Which is just the point: if Mitt Romney's experience in private equity gives him such unique understanding of the economy, why is what he proposes exactly what you'd hear from any Republican who spent his working life in government? It's partly because Romney is a Republican, and things like tax cuts and reductions in regulation are just what Republicans believe. But maybe it's also because when it comes to the things government can do to affect the economy, being a businessman doesn't give you such special insight after all.

As it happens, I'm not sure that Romney's business schtick is really such a good one for him. After all, when was the last time America elected a president whose background was primarily in business? That would be — never. I mean, sure, Bush Jr. rounded up investors for a baseball team and Jimmy Carter was a peanut farmer, experiences that they used as part of their resumes, but they basically ran as politicians. The last person to seriously run as a businessman was Ross Perot, and that didn't work out so well.

Like it or not, most Americans don't really trust business figures to run the country on their behalf. They expect business figures to run the country on behalf of business, and that's a very different thing. What's happening, though, is that Romney keeps saying he's a businessman, and because the economy is weak and voters are taking that out on the incumbent, Romney's poll numbers have remained fairly healthy. But my guess is that he could be doing even better if he'd tone down the wealthy capitalist routine. All he's doing is leaving himself wide open to some pretty obvious and pretty devastating attacks from the Obama campaign.