Kevin Drum - July 2012

Pakistan Opens Supply Routes, Mitt Romney Licks His Chops

| Wed Jul. 4, 2012 10:18 AM EDT

Today's news from the front lines:

The U.S. and Pakistan resolved a bitter seven-month standoff when Washington apologized for killing two dozen Pakistani soldiers in errant airstrikes and, in return, Islamabad agreed to reopen crucial supply routes for American and coalition military forces in Afghanistan.

....Secretary of State Hillary Rodham Clinton phoned Pakistan's foreign minister, Hina Rabbani Khar, and said she was sorry for the deaths caused when U.S. combat helicopters and fighter jets mistakenly attacked two Pakistani border posts Nov. 26.

I'm not knocking Clinton for doing this. It was a sensible resolution to a damaging standoff. But I suppose it means we now need to brace ourselves for several more weeks of "apology tour" nonsense from the Fox News set. Sigh.

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No Taxation Without Representation! A Field Guide to Voter Suppression

| Wed Jul. 4, 2012 9:35 AM EDT

Looking for some reading to keep you busy before it's time to fire up the grill today? Well, we've got your "no taxation without representation" package right here.

Happy Fourth of July!

Obamacare's Taxes, Round 2

| Wed Jul. 4, 2012 12:43 AM EDT

When I wrote a post a couple of days ago about the size of Obamacare's tax increase, I thought I was bending over backward to be fair. I could have estimated the average size of the increase over ten years — which would have included all the early low-tax years — but even though that's fairly standard for budgetary purposes I thought it would be cherry picking. Likewise, I didn't use Jerry Tempalski's estimate of the four-year cost of the bill — a very modest 0.18% of GDP — even though that's the standard he used for all the other tax increases he analyzed. Technically, this would have been an apples-to-apples comparison and it would have made Obamacare's taxes look very small, but again, it seemed like cherry picking.

So instead I used the figure that PolitiFact calculated for the end of the initial ten-year period, the largest possible figure you could reasonably use, and compared it to Tempalski's four-year estimates for the other bills. Even at that, Obamacare still came in as only the tenth largest tax increase since 1950.

But it turns out this isn't good enough for Sen. Jim DeMint. He insists on a different standard, based on a single sentence in a CBO long-term budget outlook from 2010:

Under the extended-baseline scenario, the impact of the legislation on the revenue share of GDP would rise over time, CBO estimates, boosting revenues by about 1.2 percent of GDP in 2035.....

That would be a pretty sizeable tax increase, but are you wondering why DeMint used a CBO estimate from 2010? That's because CBO's 2012 estimate clocks in at only 0.8 percent of GDP, something I imagine DeMint knows perfectly well.

That's pretty hackish, but the larger problem here, which DeMint also knows, is that he's inventing a brand new standard for comparing tax legislation out of thin air. Nobody knows how a tax law is going to play out over 25 years.1 Nobody knows what the economy is going to look like a quarter of a century from now. Nobody can estimate the cumulative size of incentive effects between now and 2035. There's nothing wrong with CBO taking its best shot at a long-term estimate, but for all these reasons and more, a 25-year time horizon has never been a standard for comparing tax bills. DeMint knows this, just like he knows that CBO's most recent estimate is a lot lower than the outdated 2010 estimate he tried to put over on us.

Crikey.

1That's especially true in this case, since CBO's revenue estimate is based largely on the effect of Obamacare's Cadillac tax on healthcare plans. This tax is extremely sensitive to assumptions about the rise of healthcare costs and to the response of both corporations and consumers to the tax.

The Great Recession is All About Leverage, Leverage, Leverage

| Tue Jul. 3, 2012 7:32 PM EDT

Mike Konczal reads a new IMF report and insists that we pay attention to what it says. We're not having a long recession because it came in the wake of a financial crisis. We're having a long recession because households were overleveraged. The financial crisis was just a symptom:

There's a common wisdom among many elites that prolonged recessions are just what happens in the aftermath of a financial crisis. Most people who argue this derive it from Kenneth Rogoff and Carmen Reinhart's This Time It's Different. These arguments have always been a bit difficult to justify. Usually people who invoke them call for inaction, as if there isn't anything to be done but let the recession run its course.

The IMF report looks at OECD data on housing busts over the past 30 years and compares housing busts with large household leverage ratios with those with low ratios. Busts with large household leverage ratios have much bigger drops in consumptions years out, just like what we see in our recession. What is important is that this holds with or without financial crises.

They don't discuss it, but this implies that the causation runs the other way; countries that have giant drops in housing values and/or increases in debt-to-income ratios probably create financial crises. But this means that having a financial crisis, like we did, doesn't change the game; it just amplifies the case for normal demand-side stimulus.

In other words:

It's not: Financial crisis ---> recession

It is: Recession + leverage ---> financial crisis

According to NBER, the Great Recession started in December 2007. This is what caused the music to stop and sparked a financial crisis. But even without a financial crisis, households still would have been massively overleveraged, the music still would have stopped, and the housing bust still would have destroyed trillions of dollars of wealth.

Better policy during the aughts could have reduced the size of the recession. Failing that, better policy now could still reduce its length. And although Mike is right that there are people who nonetheless "call for inaction," he's wrong to identify them merely as generic "people." They're Republicans with a vested political interest in delaying recovery. Precision is important here.

Why Does It Take So Long to Build Stuff These Days?

| Tue Jul. 3, 2012 4:41 PM EDT

Today, Brad Plumer takes on one of my favorite fuzzy questions: why does it take so damn long to build stuff these days? There are several obvious candidates/caveats:

  • Environmental rules are a lot tougher. You can't just toss up a road these days and blithely ignore its impact on nearby streams and habitats.
  • There are a lot more legal delays than there used to be. Some come from NIMBY opposition, some come from interest groups, and some come from property owners. Put them all together and you spend a lot more time in court than you did in the past.
  • Building something brand new in a relatively empty area is pretty easy. Building a replacement in a place congested with infrastructure, especially when you have to keep the old thing operating until the new thing is finished, is a lot harder.
  • We're probably fooled by the length of time that a few high-profile projects take. We all carp about how it's taken over a decade to build the Freedom Tower — though the original WTC took that long too — but we barely notice that a hundred routine projects went ahead simultaneously and took no more time than they ever have.

On the environmental front, it turns out that approvals for big projects really do take a lot longer than they did in 1970: eight years on average instead of two, according to the Regional Plan Association of New York, New Jersey, and Connecticut. Does that mean environmental rules should be relaxed? Brad urges caution:

[As] the report notes, it’s quite possible to build large roads and bridges very quickly under existing environmental rules. Consider Minneapolis. Back in 2007, the city’s Mississippi River Bridge on I-34W collapsed, killing 13 people. It was a widely publicized disaster. Lots of headlines. What’s more, Minneapolis needed to rebuild the bridge immediately — it was a crucial route with heavy traffic. So all the local and federal agencies huddled together to make it work. And they managed to leap through all the environmental hoops and rebuild the bridge in less than 14 months:

Despite its urgency, the project was not granted a single waiver or exemption from the permitting or environmental review process. It completed the same NEPA steps as would any typical transportation project of a similar scope and scale. The only difference was the level of federal leadership and advanced coordination that occurred. All federal agencies and project sponsors understood their roles and responsibility and began work immediately upon hearing of the tragedy.

In a sense this is unfair. It's always possible for emergency projects to move quickly if you're willing to suck up resources and attention from other projects. But this isn't free: those other projects pay the price. In another sense, though, that's the whole point: if we streamlined agency coordination and committed to proper staffing, we could give that level of resources and attention to a lot more projects. If the RPA report is right, delays aren't inherent in the process, they're merely a product of how much money we're willing to spend.

However, this still doesn't answer the question of why environmental approvals take so much longer than they used to. Are the rules more complex? Is agency coordination worse? Or are we understaffing the agencies compared to the 70s? The RPA report has plenty of suggestions for improvement, but it doesn't answer that.

The GOP's Weirdly Misguided Obamacare Tax Frenzy

| Tue Jul. 3, 2012 12:08 PM EDT

After the Supreme Court ruled that the individual mandate was constitutional because it was a tax, conservatives went ballistic. President Obama raised taxes! But the GOP's presidential candidate, Mitt Romney, disagreed:

That message, delivered first by a top aide to Mr. Romney on television and later by the campaign, contradicts top Republican Party officials and leaders in Congress, who have spent the last several days eagerly accusing the president of levying a new tax.

....For much of Monday, Republicans sought to minimize the differences between themselves and Mr. Romney by trying to focus on Mr. Obama’s own shifting characterization of the health care mandate. In 2010, Mr. Obama said the mandate should not be called a tax.

I'm genuinely stumped by all this. Why are Republicans making such a big deal out of the mandate being a tax? I can think of at least four reasons why they shouldn't:

  • They know perfectly well that Romney can't agree on this. He implemented a mandate in Massachusetts, and he can never, ever concede that this was a tax.
  • Obamacare already includes plenty of other taxes. Does one more really help their message much?
  • Their whole crusade against the mandate has always been based specifically on the idea that it's a liberty-destroying command from the government to buy something you don't want. Even among the tea party set, a tax isn't viewed as anywhere near as tyrannical as a mandate.
  • What's the point? Everyone who hates the mandate will keep on hating it regardless of whether it's a tax or a penalty.

Seriously, I'm befuddled by this. The whole tax angle seems like a loser to me. It muddies up the notion that the mandate is unconstitutional, it creates obvious friction with their presidential nominee, and it seems unlikely to change anyone's mind or to gin up the base any more than it's already ginned up. Why are they doing this? Is it just reflex? What am I missing here?

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Maybe Destabilizing the Overnight Lending Market Would Be a Good Thing

| Tue Jul. 3, 2012 11:15 AM EDT

Stephen Williamson has a long post up today questioning the wisdom of having the Fed adopt NGDP targeting, someting that enjoyed a boomlet of blogosphere chatter a few months ago. Most of the post is above my pay grade, but something he said piqued my interest in a different subject. NGDP targeting, says Williamson, could produce instability in the overnight lending market:

I think there are benefits to financial market participants in having a predictable overnight interest rate, though I don't think anyone has written down a rigorous rationale for that view. Who knows what would happen in overnight markets if the Fed attempted to peg the price of NGDP futures rather than the overnight fed funds rate? I don't have any idea.

Tyler Cowen is more sanguine: "I believe overnight financial markets could adjust to a variety of reasonable regimes, and indeed the evidence across nations appears to confirm this." But I have a different question: why should we care? The modern financial system is heavily reliant on overnight lending, and it's the backbone of the shadow banking system. In 2008, the shadow banking system largely imploded, and a big part of the reason was its heavy reliance on ultra-short-term lending, which can be turned on and off almost instantly. When panic spread, the overnight spigot was turned off, and banks started to collapse. This was a major cause of the financial collapse and the resulting recession, and it's the reason that the Basel III rules adopted a couple of years ago required banks to rely more on stable, long-term funding.

Nonetheless, the shadow banking system, and its overnight lending backbone, is still enormous. And although I suppose we've gone way too far down this path to turn back now, I have to wonder just what, on a systemic level, we gain from having our financial system so dependent on overnight lending? Even if the overnight market didn't adjust well to NGDP targeting, and therefore shrunk, would that be an altogether bad thing?

How Much Do Red States Hate the Poor? The Medicaid Expansion Will Tell Us

| Tue Jul. 3, 2012 10:43 AM EDT

Ezra Klein outlines the incentives for states to sign up for the Medicaid expansion that's part of the Affordable Care Act:

Medicaid is jointly administered between states and the federal government, and the states are given considerable leeway to set eligibility rules. Texas covers only working adults up to 26 percent of the poverty line. The poverty line for an individual is $11,170. So, you could be a single person making $3,000 a year and you’re still not poor enough to qualify for Medicaid in Texas. That’s part of the reason Texas has the highest uninsured rate in the nation.

....[Under ACA] the feds will cover 100 percent of the difference between wherever the state is now and where the law wants them to go for the first three years, and 90 percent after 2020. To get a sense of what an incredibly, astonishingly, unbelievably good deal that is, consider this: The federal government currently pays 57 percent of Medicaid’s costs. States pay the rest. And every state thinks that a sufficiently good deal to participate.

But, somewhat perversely, the states that get the best deal under the law are states like Texas, which have stingy Medicaid programs right now, and where the federal government is thus going to pick up the bill for insuring millions and millions of people....That is to say, the less you’ve been doing on Medicaid so far, the more the federal government will pay on your behalf going forward. And that gets to an irony of the health-care law: Red states have, in general, done less than blue states to cover their residents, so they’re going to get a sweeter deal under the terms of the Affordable Care Act.

Of course, Texas's stinginess is also one of the reasons they've weathered the Great Recession better than some states. It's not the only reason, or even the main reason, but it's part of the story. And a state like Texas, that hates, hates, hates the idea of providing for its poor might hold out against Medicaid expansion a long time, even if the absolute cost to its taxpayers is fairly small.

Still, I agree with Ezra that most states will sign up eventually. In fact, I'll make a prediction: at least 45 states will have signed up by 2015. Sarah Kliff explains part of the reason why I think this is likely:

If one industry can claim to have the most riding on states participating in the health law’s Medicaid expansion, it’s near-certainly hospitals. They have nearly $40 billion riding on whether states sign up or not.

Hospitals regularly get stuck with bills that the uninsured cannot afford to pay. Every year, the American Hospital Association adds all those bills up to calculate the total amount of uncompensated care that its members provide. Every year, the number gets bigger and bigger, hitting $39.3 billion in 2010.

The Texas share of that bill is somewhere around $3 billion per year. So what happens if we sharpen our pencils and account for that?

Under ACA, the feds pay for 100% of Medicaid expansion for the first three years, and even after 2020 they pay for 90%. For Texas, this probably means that once Medicaid expansion is fully phased in, it will cost them perhaps $2-3 billion per year, with the rest of the tab picked up by the federal government. That's a pretty small bill to begin with, but as the AHA notes, Texas and its hospitals are already paying for medical care for the people covered by Medicaid expansion. Some of that comes via emergency care, some comes via indigent care at the local level, and some comes via other state programs. A lot of that could be offloaded onto Medicaid under the new rules, so once you run the numbers it's possible that signing up for Medicaid expansion is actually a net savings for Texas.

No matter how much Rick Perry resents Obamacare, that's hard to turn down. At worst, the net cost to Texas is probably no more than a billion dollars or so, and at best they might even come out ahead. You'd have to hate the poor an awful lot to block the hospital door for long under those circumstances.

The Dog That Voted

| Tue Jul. 3, 2012 9:25 AM EDT

Hey, guess what? My piece about voter fraud in the latest issue of the magazine, "The Dog That Voted," is now out! The origins of the Republican crusade against voter fraud can be traced back to a lot of sources, but for all practical purposes it turns out that you can peg it to the 2000 election fiasco. Not the famous one in Florida, but the less famous one in Missouri, which produced three Republicans dedicated to pushing the cause of photo ID thoughout the country: John Ashcroft, the embittered U.S. senator who lost his reelection bid that night and went on to become George Bush's Attorney General; Kit Bond, Missouri's other senator, who went on to write the first-ever federal voter ID provision; and Mark "Thor" Hearne, who went on to become national counsel for the 2004 Bush campaign and then started up the American Center for Voting Rights, an organization funded by dark money and dedicated to spreading fear of vote fraud throughout state legislatures across the country. It was a lengthy campaign, but in the end it was a very effective one:

In retrospect, the campaign against voter fraud was long, patient, and strategic. Sen. Kit Bond got the ball rolling in 2002 when he made sure ID requirements were part of HAVA. In 2005, a commission on voting rights headed by former president Jimmy Carter and former Secretary of State James Baker III gave a bipartisan blessing to photo ID rules. Thor Hearne spent the following two years barnstorming the country with dramatic tales of voter fraud. Meanwhile, the Justice Department and the Bush White House browbeat US Attorneys around the country to crack down on voter fraud, even firing a handful (including David Iglesias, then the US Attorney for New Mexico) who apparently weren't zealous enough. And then, finally, the 2010 election brought new GOP majorities to 11 states—and with them a brand new wave of restrictive voting laws.

So: why are Republicans so obsessed with voter fraud? And how effective are photo ID laws at suppressing left-leaning votes? The answers to both of these questions are a little less obvious than you might think. But it's a fascinating story. Check it out here.

Louisiana Gives Us a Taste of Mitt Romney's Education Policy

| Mon Jul. 2, 2012 8:06 PM EDT

Ed Kilgore has been sounding the alarms over Mitt Romney's education proposals for a couple of months now, and I keep meaning — but somehow forgetting — to link to his posts about this. It's probably all part of my love-hate relationship with education policy in general. But today he's got another post up on the subject, so let's take a look. He's riffing on a TPM piece about the kudzu-like growth of Bobby Jindal's voucher program in Louisiana:

In heading his state in the direction of universally available vouchers rationalized by public school failure, Jindal is not, of course, holding any of the private school beneficiaries accountable for results, or for common curricula, or, it appears, for much of anything. A big chunk of the money already out there is being snapped up by conservative evangelical schools with exotic and hardly public-minded curricular offerings, with the theory being that any public oversight would interfere with the accountability provided by "the market." So if you want your kid to attend, at public expense, the Christian Nationalist Academy for Servant-Leader Boys & Fecund Submissive Girls, that's okay by Bobby.

Does that last sentence sound a wee bit unfair? Well, here's a Reuters report from a few weeks ago about where kids with vouchers are actually likely to end up:

The top schools [] have just a handful of slots open....Far more openings are available at smaller, less prestigious religious schools, including some that are just a few years old and others that have struggled to attract tuition-paying students.

The school willing to accept the most voucher students — 314 — is New Living Word in Ruston, which has a top-ranked basketball team but no library. Students spend most of the day watching TVs in bare-bones classrooms. Each lesson consists of an instructional DVD that intersperses Biblical verses with subjects such chemistry or composition.

....At Eternity Christian Academy in Westlake, pastor-turned-principal Marie Carrier hopes to secure extra space to enroll 135 voucher students, though she now has room for just a few dozen. Her first- through eighth-grade students sit in cubicles for much of the day and move at their own pace through Christian workbooks, such as a beginning science text that explains "what God made" on each of the six days of creation. They are not exposed to the theory of evolution. "We try to stay away from all those things that might confuse our children," Carrier said.

But let's not be too hasty. If these kids are doing well, maybe we shouldn't care if they get their lessons from DVDs liberally sprinkled with Bible verses. The problem is that while public schools — and, increasingly, public school teachers — are being held rigidly accountable for their students' test scores, most voucher schools aren't. Here's the Louisiana Budget Project:

Louisiana requires almost no accountability from voucher schools....While voucher students are required to take the same assessment tests as public school students, there are no penalties for private schools if they fail to measure up to their public counterparts. In fact, Gov. Jindal vetoed language in a 2011 appropriations bill that would have removed participating schools if their students’ scores lagged those in the lowest performing schools in the Recovery School District, which incorporates most New Orleans public schools.

So if public schools have lousy test scores, they're failures and their students all get vouchers. But if the private schools have lousy test scores, then....nothing. Presumably the magic of the free market will fix them up.

And maybe it will. But this has always been the Achilles' Heel of the voucher movement: its virulent opposition to holding private schools to the same standards as public schools. In some places this means not requiring students to take standardized tests at all, while in other places — like Louisiana — it means requiring the tests but not using them to evaluate how well schools are doing. In other words, they want taxpayer dollars without being accountable to taxpayers.

To the best of my knowledge, research on school choice remains inconclusive. Some studies show benefits from voucher and charter schools, others don't. Part of the reason for this is that test data on voucher schools just isn't always available, largely thanks to lawmakers who are afraid of what it might show. So if Mitt Romney plans to adopt vouchers as his main education proposal — and he does — it would be nice to hear a little bit about accountability from him to go along with it. Unfortunately, because the true core of the voucher movement is made up of social conservatives who just want taxpayer help sending their kids to Bible schools and consider "accountability" to be a code word for an assault on religious freedom, he's not likely to do anything of the sort.