Kevin Drum - October 2012

IMF Report Says Austerity is a Great Way to Tank Your Economy

| Thu Oct. 11, 2012 12:20 PM EDT

I'm just full of charts today. Sorry about that. But Paul Krugman has a pretty interesting one this morning from the latest IMF World Economic Outlook. Here's the background: the IMF report shows that countries which implemented big budget-cutting austerity measures have done worse than countries that didn't. That part is easy. But it doesn't prove anything. Countries that are in bad trouble are probably the ones that had to cut back the most in the first place. So it's not necessarily austerity that's causing their problems.

So the IMF boffins took a look at forecasts instead. After all, forecasters already know which countries are in the biggest trouble and make their predictions after taking that into account. But guess what? It turns out that their forecasts were more wrong for countries that implemented severe austerity programs. And they were wrong by a lot:

We find the coefficient on planned fiscal consolidation to be large, negative, and significant....Overall, depending on the forecast source and the specification, our estimation results for the unexpected output loss associated with a 1 percent of GDP fiscal consolidation are in the range of 0.4 to 1.2 percentage points.

So forecasters, knowing that, say, Greece was in trouble, predicted a slowdown in growth. But the austerity program forced on the Greeks slowed them down even more. Conversely, countries like Germany, that expanded their budgets, did better than expected. Roughly speaking, it turns out that you get an output loss of 1% for every 1% of austerity.

This is a clever bit of data analysis, though it shouldn't come as a surprise to anyone. Austerity simply isn't the answer to a severe economic downturn. It just makes things even worse than you thought they'd be.

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Is "Moderate Mitt" a Myth?

| Thu Oct. 11, 2012 11:48 AM EDT

Yesterday Bill Clinton mocked the less conservative, more measured version of Mitt Romney who showed up at Wednesday's debate with a new nickname. "I thought, 'Wow, here's old Moderate Mitt. Where ya been, boy? I missed ya all these last two years.'"

It's true that Romney took a deliberately more moderate tone on Wednesday. But did he really seem more moderate to the average voter watching the debate? John Sides brings the data and says no: The circled dots on the chart below indicate public perception of Romney before and after the debate, and they show no difference. If he won the debate, it was due more to energy and focus than to the emergence of Romney 3.0. More at the link.

Chart of the Day: New Unemployment Claims Drop Sharply

| Thu Oct. 11, 2012 11:06 AM EDT

Was last week's unemployment drop a statistical fluke? There's no way to say for sure, but I think the evidence suggests that it's mostly quite real. Today, via Steve Benen, we get further confirmation of this: initial unemployment claims, which have been on a steady downward trajectory for the past two years, have dropped sharply over the past month, culminating in an unexpected drop of 30,000 in just the past week. The usual caveat applies: this is a noisy series and a single data point doesn't prove anything. But this recent drop is in line with both September's encouraging unemployment number as well as the overall trend of the past two years. Sorry, Jack.

Three Countries Take a Tiny First Step Toward More Sensible Drug Laws

| Wed Oct. 10, 2012 5:59 PM EDT

Why are U.S. drug laws so draconian? Partly it's because Congress wants it that way, but partly it's because the United States is a signatory to the Single Convention on Narcotic Drugs, which pretty much requires us to keep the production and distribution of psychoactive drugs prohibited. Because of this, there's not much chance of significantly changing our drug laws unless we also change the Single Convention. That's why Mark Kleiman thinks a recent joint declaration of Colombia, Guatemala and Mexico could be "significant news." Here are some key excerpts:

We declare:

....2. That despite the efforts of the international community over decades, the use of [illicit drugs] continues to increase globally, generating substantial income for criminal organizations worldwide.

....6. It is urgent to review the approach so far maintained by the international community on drugs, in order to stop the flow of money from the illicit drug market.

....10. That the United Nations should exercise its leadership, as is its mandate, in this effort and conduct deep reflection to analyze all available options, including regulatory or market measures, in order to establish a new paradigm that prevents the flow of resources to organized crime organizations.

Click the link to read the whole thing. The language is obviously cautious, but it seems clear that these three countries, which have suffered more than most from drug-related violence, would like to rethink the Single Convention in order to make the drug trade less lucrative. This might or might not go anywhere, but it's certainly worth some attention from anyone who wants to see drug laws rationalized. Renegotiating the Single Convention won't happen anytime soon, but it's a necessary first step.

Breaking: It Turns Out That Protecting Our Embassies Costs Money

| Wed Oct. 10, 2012 1:56 PM EDT

Via Steve Benen, I see that Darrell Issa might have a wee problem on his hands when he holds his hearings today about inadequate security at the Benghazi consulate. Dana Milbank reports:

House Republicans cut the administration’s request for embassy security funding by $128 million in fiscal 2011 and $331 million in fiscal 2012....Last year, Secretary of State Hillary Clinton warned that Republicans’ proposed cuts to her department would be “detrimental to America’s national security” — a charge Republicans rejected.

Ryan, Issa and other House Republicans voted for an amendment in 2009 to cut $1.2 billion from State operations, including funds for 300 more diplomatic security positions. Under Ryan’s budget, non-defense discretionary spending, which includes State Department funding, would be slashed nearly 20 percent in 2014, which would translate to more than $400 million in additional cuts to embassy security.

That's the problem with budget cutting: it sounds great when you're thumping tubs on the campaign trail in front of adoring tea party crowds, but when the actual work of governing comes up, those cuts have to come from actual programs that do actual things. Like protecting our embassies.

Quote of the Day: Don't Just Reform Patents, Get Rid of Them

| Wed Oct. 10, 2012 12:41 PM EDT

In 1958, the Austrian economist Fritz Machlup concluded that the patent system was essentially useless. Half a century later, Michele Boldrin and David Levine say that nothing has changed:

One might hope that if it is indeed worth preserving such a large government intrusion into private activity that during the intervening six decades evidence would emerge that patents do indeed serve the desired purpose of encouraging innovation. Sadly the story of the past six decades is the opposite. In new industries such as biotechnology and software where innovation was thriving in the absence of patents — patents have been introduced. Given this continued extension has there been a substantial increase in innovation in recent years? On the contrary, it is apparent that the recent explosion of patents in the U.S., the E.U. and Japan, has not brought about anything comparable in terms of useful innovations and aggregate productivity.

Boldrin and Levine don't just go after software patents in this paper. They claim that pretty much all patents are useless, serving more to allow big companies to inhibit competition than to protect small companies with bright ideas. And while they admit that getting rid of patents altogether is pretty unlikely, a couple of their suggestions seem like they could form the basis for some worthwhile reforms:

  • Cross industry variation in the importance of patents suggests we may want to start tailoring patents length and breadth to different sectorial needs. Substantial empirical work needs to be done to implement this properly, even if there already exists a vast legal literature pointing in this direction.
  • Reversing the burden of proof: patents should be allowed only when monopoly power is justified by evidence about fixed costs and actual lack of appropriability. The operational model should be that of “regulated utilities”: patents to be awarded only when strictly needed on economic grounds. This requires reforming the USPO, which is urgently needed in any case.

The full paper is here. Brad Plumer has a very good summary here.

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The Marketing of Mitt Romney

| Wed Oct. 10, 2012 11:18 AM EDT

Doyle McManus explains Mitt Romney's success in last week's debate:

Once the two candidates met on an equal footing in Denver, many voters were amazed to meet a Romney who seemed like an earnest businessman looking for ways to fix the economy — a Romney who insisted that, contrary to his previously stated positions, he didn't want to cut taxes for the wealthy, abandon healthcare reform or reduce education spending (issues that polls find especially important to female voters).

But at least he's still militantly anti-abortion, right? Ummm....

“There’s no legislation with regards to abortion that I’m familiar with that would become part of my agenda,” the Republican presidential nominee told The Des Moines Register in an interview. The Romney campaign walked back the remark within two hours of the Register posting its story. Spokeswoman Andrea Saul told the National Review Online's Katrina Trinko that Romney "would of course support legislation aimed at providing greater protections for life."

Got it. For public consumption, Romney barely considers abortion worth a mention. For the conservative press, he's a gung-ho abortion warrior. Or, as David Brooks remarked in his usual low-key way on Frontline last night, describing Romney's sudden lurch to the right when he decided to run for president:

He went to where the market was and he became the product he was selling. And that, on the one hand, is sort of effective. On the other hand, it's sort of disquieting. Because you think, who is he? What would he be as president? Does he believe anything? And these are the open questions that plague everybody who watches him.

Romney's business career taught him a lot about the power of market research and brand management. It's nice that he's found a new career where he can put that to use, isn't it?

Foreign Policy May Suddenly Become a Serious Campaign Topic

| Wed Oct. 10, 2012 10:18 AM EDT

The war along the Turkish border is heating up:

With Syria’s civil strife coursing through major cities and unsettling neighboring countries, the Turkish military sounded a somber warning on Wednesday that it may respond more forcefully after days of shelling from Syria....The exchange of fire has raised concerns that the conflict will ignite a broader crisis in the region. On Tuesday, the NATO secretary general, Anders Fogh Rasmussen, emphasized that NATO, of which Turkey is a member and which considers an attack on one member to be an attack on all, had “all necessary plans in place to protect and defend Turkey if necessary.”

Meanwhile, the U.S. ground presence in the region is ramping up:

The United States military has secretly sent a task force of more than 150 planners and other specialists to Jordan to help the armed forces there handle a flood of Syrian refugees, prepare for the possibility that Syria will lose control of its chemical weapons and be positioned should the turmoil in Syria expand into a wider conflict.

....Officials said the idea of establishing a buffer zone between Syria and Jordan — which would be enforced by Jordanian forces on the Syrian side of the border and supported politically and perhaps logistically by the United States — had been discussed. But at this point the buffer is only a contingency.

Over at the Atlantic, Robert Wright explains why full-scale war between Turkey and Syria is a genuine possibility. It's sort of a cross between Vietnam and World War I. Stay tuned.

Quote of the Day: Should Obama Call Romney a Liar?

| Wed Oct. 10, 2012 1:23 AM EDT

From Paul Ryan, talking about the Democratic presidential campaign with a Michigan radio host:

It seems pretty clear that their new strategy is basically just call us liars.

Well....yeah, I guess so, and that would be a pretty sleazy thing to do if Romney and Ryan were being honest and above board about their plans. But they aren't. William Gale of the Tax Policy Center is the co-author of a report showing that Romney's tax plan is mathematically impossible, and that's made him the target of endless attacks from the Romney campaign. Here he explains in plain English just what his study concluded:

Suppose Governor Romney said that he wants to drive a car from Boston to Los Angeles in 15 hours. And suppose some analysts employed tools of arithmetic to conclude that "If Governor Romney wants to drive from Boston to LA in 15 hours, it is mathematically impossible to avoid speeding." After all, the drive from LA to Boston is about 3,000 miles, so to take only 15 hours would require an average of 200 miles per hour. Certainly other road trips are possible — but the particular one proposed here is not.

The Obama campaign might put ads out that say Romney wants to speed or is going to speed. Romney's campaign might respond by saying the study is a "joke" and "partisan," that he supports speeding laws and would never, ever speed, and it is ridiculous to suggest that he would. The Romney campaign and its surrogates might say that the analysts must be wrong because they don't even know what his road plan is or which car he would drive. Besides, Romney never really said he wanted to go LA, he might want to go somewhere closer; he could get to LA without speeding if he took more than 15 hours; he could get somewhere else in 15 hours without speeding. And so on.

With a few substitutions, this is almost exactly how the tax debate has evolved....Romney can't do all of the tax cut proposals he has advocated, remain revenue neutral, and avoid taxing households with income below $200,000 or cutting taxes for higher income households.

Let me translate: Romney is lying about his tax plan and he knows it. When he's called on it, however, he turns around and smears the folks who pointed out his lie.

Pretty rancid stuff. On a political level, though, the interesting question is whether there's any way for Obama to make hay with this. The dispiriting answer, I think, is that he probably can't. Let me unpack that a little, because a lot of liberals were unhappy with Obama for not calling out Romney more forcefully on this during Wednesday's debate. But Obama did call out Romney on taxes on three different occasions. Here they are:

#1: Now, Governor Romney’s proposal that he has been promoting for 18 months calls for a $5 trillion tax cut, on top of $2 trillion of additional spending for our military. And he is saying that he is going to pay for it by closing loopholes and deductions. The problem is that he’s been asked over 100 times how you would close those deductions and loopholes, and he hasn’t been able to identify them.  [Etc.]

#2: And the fact is that if you are lowering the rates the way you described, Governor, then it is not possible to come up with enough deductions and loopholes that only affect high-income individuals to avoid either raising the deficit or burdening the middle class. It’s — it’s math. It’s arithmetic.

#3: It just reminds me of, you know, he says that he’s going to close deductions and loopholes for his tax plan. That’s how it’s going to be paid for, but we don’t know the details....And at some point, I think the American people have to ask themselves, is the reason that Governor Romney is keeping all these plans to replace secret because they’re too good? Is it because that somehow middle-class families are going to benefit too much from them?

Could Obama have done more? Maybe a little. But there are really only two ways he could have been substantially more effective. The first would have been to somehow hammer home the math. Color me skeptical that there's any way to do that for your average undecided voter, who can probably balance his checkbook but not much more. They'd zone out almost instantly.

The second way is to just call Romney a liar to his face. But the conventional wisdom says you can't do that. It's too negative and voters don't like it. Personally, of course, I think it would be fascinating to watch Obama buck that conventional wisdom and flatly accuse Romney of lying, followed by a challenge to Romney to prove him wrong by laying out a set of deductions that will cover his 20% rate cuts. Fascinating! But it's also the kind of pipe dream that only bloggers can indulge in. In reality, no matter how satisfying it might feel, the conventional wisdom is probably right. It would hurt Obama, not help him.

Why? Because one of the weird aspects of American politics is that voters, no matter how cynical they claim to be, basically accept politicians at their word when they make concrete promises. Romney says he won't raise middle class taxes? Then he won't. Romney says his plan won't increase the deficit? Then it won't. The fact that it might be mathematically impossible doesn't seem to carry any weight. It's all just confusing numbers, after all. What matters is whether you think Mitt Romney would look you in the eye and tell a bald lie. Most people don't, and unless you've literally got a secret video with smoking gun evidence proving otherwise, they consider accusations of lying to be playground level mudslinging.

Maybe that's weird. Maybe that's unfair. But it's reality, and it's a pretty good deal for Mitt Romney.

How Much Did Wednesday's Debate Help Romney?

| Tue Oct. 9, 2012 7:59 PM EDT

Did Obama's poor debate performance cause his poll standing to crater? There's good reason to doubt this. Obama's drop has been large enough that, almost literally, the debate could have been the cause only if every single undecided voter watching on Wednesday had decided overnight to vote for Romney. Historically, there's simply no precedent for this. Presidential debates typically have only a modest impact on campaigns, and it's not as if Obama staggered onto the stage shitfaced or something.

But if you're not convinced, take a look instead at the Pollster poll average below. I've labeled it for easy reference. Between September 27 and October 3 — before the debate had an impact — Romney gained 3.5 points on Obama. Between October 3 and October 8 he gained another 0.4 points. In other words, nearly all of his gain came before the debate, not after.

Other poll averages I've looked at show different trajectories. RCP shows Romney gaining ground starting at the end of September, but (unlike Pollster) shows that he gained more ground after the debate than before. Nate Silver shows all of Romney's gain coming after the debate, but his model also shows a fairly smallish gain. There's no unqualified answer here. Still, the balance of the evidence suggests that Romney was bouncing back from his terrible September well before last Wednesday, and has gained modestly but not titanically since then. There's obviously been some mean reversion to the fundamentals here, and it's not yet clear just how big an impact the debate has really had. We'll know more over the next few days.