Kevin Drum - 2012

Oil and the Weak Dollar

| Fri Mar. 2, 2012 4:23 PM EST

Responding to my post this morning about gasoline prices, several people have asked why I didn't say anything about the weakness of the dollar as a possible culprit. Answer: because the dollar isn't especially weak right now, and in any case, the value of the dollar has only a slight effect on the global price of oil. Obviously a weak dollar makes all imports more expensive, so it does play a role in domestic prices, but as you can see from the chart below — where the dollar value is inverted and rescaled to show the relationship more clearly — the strength of the dollar has very little relationship to the price of oil. In 2007-08, the price of oil spiked from $60 to $140 while the dollar weakened only slightly. The recent spike began in November, while the dollar was strengthening. After that the dollar weakened a bit, then strengthened last month. It's just not a big factor here.

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Has Right-Wing Media Become an Albatross for the Right Wing?

| Fri Mar. 2, 2012 3:39 PM EST

As you probably already know, Rush Limbaugh plumbed some new depths of loathsomeness a couple of days ago when he claimed that Sandra Fluke, a Georgetown student who's testified in favor of mandated contraceptive coverage in healthcare plans, was a slut:

What does it say....that she essentially says that she must be paid to have sex? What does that make her? It makes her a slut, right? It makes her a prostitute. She wants to be paid to have sex. She's having so much sex, she can't afford the contraception. She wants you and me and the taxpayers to pay her to have sex. What does that make us? The pimps.

Tod Kelly mulls over the larger meaning of this:

In the late 90s through the early and mid 00s, the GOP found that it could increase both number of voters and voter passion by aligning itself with a media machine that was initially created to build ratings from shock value....The GOP found, much to its delight, that by using the segment of the media that it controlled, it could continually rally its base and win elections without dealing with the traditional difficulties of having to sell superior policy proposals....In a world as hard and difficult as politics, the GOP found a way to make everything easy.

But, as Terry Pratchett has oft said, the problem with the easy way is that eventually it makes everything so damn hard.

The media business model the Right chose to embrace was based on the shock-radio model. An inherent flaw with this type of model is that while it leads to quick ratings and advertising profits, it it can be difficult to sustain. If you spend one week calling the President a liar and an idiot, it’s not going to be long before calling him a lying idiot isn’t really all that shocking. You have to continually push just a little bit more as you go, or risk being irrelevant in the shock-media world.

....Somewhere along the line, however, this model has to break down — partly because you eventually reach a ceiling where the base that believes the ever-increasingly shocking claims is small enough to make the party you’re backing politically irrelevant, and partly because to those that aren’t part of the machine or the base you begin to look increasingly out of touch. Birtherism is a fairly good example of this ceiling being reached, as are the Death Panels and Obama/Hitler youth programs. Unfortunately for the Right, however, once you tie yourself and your success so inexorably to the machine it becomes almost impossible to untangle yourself from it.

Question #1 of the day: Is this true? Is the right being hurt by its media machine these days? Question #2: Are liberals in danger of going down the same road?

Who Should We Blame for High Gas Prices?

| Fri Mar. 2, 2012 2:45 PM EST

This morning's topic was why gasoline prices have been rising. Today, the Washington Post essays a vastly more important topic: who are we blaming for rising gasoline prices? Here's the answer in colorful bar chart form:

What to think of this? The primary correct answer is "supply and demand," which isn't on the list, and the secondary correct answer is tension in the Middle East, which garners 11% of the answers. "Other mentions" gets the most votes, but just what are these other things that people are blaming? The answer, it turns out, is: government, speculators, Congress, gas guzzlers, rising global demand, George Bush (!), the economy, OPEC, greed, Democrats, Republicans, and (my favorite) everybody/everything.

If you put the answers in a different set of buckets, it looks something like this:

  • 31% — The government in one way or another
  • 19% — Greedy corporate gits in one form or another
  • 11% — Tension in the Middle East
  • 10% — Supply and demand in one way or another
  • 10% — Something else
  • 24% — Don't know

(Don't blame me that this adds up to 105%. Apparently some people gave more than one answer.)

Ezra Klein thinks this poll demonstrates an improvement of sorts, since 28% of Americans blamed Bush for rising gas prices after Katrina but only 18% are blaming Obama for the current rise. Maybe. But if I had to guess, I'd put this down to two things. First, Obama is just more popular than Bush was at the time. Everyone hated him after Katrina. Second, we've had a bunch of these price gyrations since 2005 and the public is getting used to them. It's harder to blame the president when this stuff happens every year or so no matter who's in office.

As for myself, I don't know. On the bright side, only 1% of Americans blame environmental restrictions on domestic drilling, despite a full-bore Republican campaign to convince them otherwise, so that's nice. On the other hand, I'd sure like to see a lot more people blaming supply and demand. Maybe 10% isn't bad, all things considered, but I was ve-r-r-r-r-y generous about what I put in that bucket. The vast majority of Americans still have no clue what's driving all this.

20 Percent of Military Fatalities in Afghanistan Are "Insider" Shootings

| Fri Mar. 2, 2012 1:25 PM EST

Domestic politics has absorbed most of my attention lately, so this came as more of a surprise to me than it probably should have:

Hours before dawn Thursday, Afghan assailants, including a man hired to teach Afghan soldiers to read, shot and killed two U.S. troops and wounded a third, Afghan and American officials said. The soldiers slain at the base in Kandahar province were the fifth and sixth U.S. military personnel to die in a span of eight days at the hands of Afghans they had worked alongside. With these latest killings, the proportion of NATO overall military fatalities caused by such "insider" shootings this year stood at nearly one in five.

There are more details later in the story, and then this:

The deaths come against a backdrop of deepening mutual mistrust between many Afghans and their Western counterparts after riots tore through the country last week over what officials said was the inadvertent burning of copies of the Koran at a U.S.-run military base....Publicly, U.S. officials have painted the Koran incident as a setback, but scarcely one that could shatter longtime bonds. They point out that the rioters made up only a tiny fraction of the Afghan population, and assert that it was a situation in which the Taliban and other Islamist militants seized an opportunity to both whip up and blend into the crowds.

But that's the whole point. Of course this is a case of the Taliban taking advantage of an incident to demagogue the U.S. presence and whip local crowds into a frenzy. Pretty obviously, though, this is the situation we're in. Our presence, for a variety of reasons,1 is unpopular enough that the Taliban can easily take advantage of small incidents like this. And they will. There will always be provocations of one kind or another. It's inevitable when you've got a hundred thousand troops who are spread out over a big, unfamiliar country and constantly under extreme stress.

Today's incident was an accidental Koran burning. Tomorrow's incident will be something else. And the next day it will be something different still. But they all point in the same direction: counterinsurgency had its chance, and it's just not going to work in Afghanistan. It's time to wish the Afghans godspeed and let them have their country back.

1For example, the fact that our military operations routinely kill and maim Afghan children and other civilians. It's not deliberate, but that doesn't matter. We still do it.

Unfortunately, Obama Probably Isn't Going to Raise Your Taxes

| Fri Mar. 2, 2012 12:13 PM EST

Noam Scheiber says that deep in his heart, President Obama doesn't just want to let the Bush tax cuts for the rich expire, he wants to let all of the Bush tax cuts expire:

In the fall of 2009, Obama’s chief congressional lobbyist, Phil Schiliro, touted a clever idea for dealing with the tax cuts: introduce a bill that would extend the middle-class cuts for two years while allowing the upper-income portions to expire. After two years, the middle-class cuts would also expire unless Congress paid for them with off-setting savings or tax increases.

Schiliro figured that, if the bill passed, the whole mess of tax cuts was likely to disappear when all was said and done....At first, Schiliro’s plan went nowhere—in truth it was as much a stunt as a serious proposal. But Schiliro had an important ally: Peter Orszag, the president’s budget director....By November 2009, Orszag had become so fond of the idea that he insisted on presenting it to the president in the Oval Office. Orszag’s fellow wonks were cool to the plan, having heard him and Schiliro sing its praises repeatedly. But the administration’s chief wonk—Barack Obama—was intrigued.

I would be delighted if this were true, but this reporting seems really, really thin to me. I mean, what's the evidence here? In a single meeting over a year ago, budget hawk Peter Orszag presented an idea and Obama....listened. That's it. Scheiber says Obama was "intrigued," but the plan never went anywhere, and Orszag, of course, is no longer part of the administration. It's never come up again, and Obama has apparently never so much as mentioned it since November 2009.

"What is clear," says Scheiber, "is that, having been tempted to end all of the Bush tax cuts in 2009, the president would only find the idea more attractive were he to win a second term." But no: that's not clear at all. Obama wouldn't have to worry about reelection, but every single Democratic member of Congress still would, so the political calculus really wouldn't change much at all.

This is making a mountain out of a molehill. Staffers have ideas all the time. Sometimes they get a chance to present them to the president. The president usually listens politely, rather than screaming at them never to mention it again. That's all that seems to have happened here.

Which is too bad. Ditching the entire set of Bush tax cuts really is the only way we'll ever get the long-term deficit under control. If I had my way, we'd phase out the whole mess, maybe by thirds starting in 2013. But I'll bet the president doesn't agree, more's the pity.

Obama: "We've Got Israel's Back"

| Fri Mar. 2, 2012 11:53 AM EST

President Obama sat down with the Atlantic's Jeffrey Goldberg to talk about Iran and nukes in a more sustained way than I've ever seen before. Here's a snippet:

GOLDBERG: Go back to this language, 'All options on the table.'....The impression we get is that the Israeli government thinks this is a vague expression that's been used for so many years. Is there some ramping-up of the rhetoric you're going to give them?

PRESIDENT OBAMA: I think the Israeli people understand it, I think the American people understand it, and I think the Iranians understand it....I think that the Israeli government recognizes that, as president of the United States, I don't bluff. I also don't, as a matter of sound policy, go around advertising exactly what our intentions are. But I think both the Iranian and the Israeli governments recognize that when the United States says it is unacceptable for Iran to have a nuclear weapon, we mean what we say. Let describe very specifically why this is important to us.

In addition to the profound threat that it poses to Israel....it is almost certain that other players in the region would feel it necessary to get their own nuclear weapons. So now you have the prospect of a nuclear arms race in the most volatile region in the world, one that is rife with unstable governments and sectarian tensions. And it would also provide Iran the additional capability to sponsor and protect its proxies in carrying out terrorist attacks, because they are less fearful of retaliation.

....GOLDBERG: Do you see accidental nuclear escalation as an issue?

PRESIDENT OBAMA: Absolutely. Look, the fact is, I don't think any of it would be accidental. I think it would be very intentional. If Iran gets a nuclear weapon, I won't name the countries, but there are probably four or five countries in the Middle East who say, "We are going to start a program, and we will have nuclear weapons." And at that point, the prospect for miscalculation in a region that has that many tensions and fissures is profound. You essentially then duplicate the challenges of India and Pakistan fivefold or tenfold.

....GOLDBERG: ....There have been disagreements between Israel and the U.S. before, but this is coming to a head about what the Israelis see as an existential issue. The question is: In your mind, have you brought arguments to Netanyahu that have so far worked out well?

PRESIDENT OBAMA: ....One of the things that I like to remind them of is that every single commitment I have made to the state of Israel and its security, I have kept. I mean, part of your -- not to put words in your mouth -- but part of the underlying question is: Why is it that despite me never failing to support Israel on every single problem that they've had over the last three years, that there are still questions about that?

In four words, Obama says the U.S. approach toward the Middle East is: "We've got Israel's back." And he's obviously pretty pissed off over the political footsie with Republicans that Benjamin Netanyahu has been playing. Obama may have Israel's back, but it looks like his upcoming visit with Netanyahu will be, in the usual diplo-speak, "frank and productive."

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Q&A: What's Going on With Gasoline Prices?

| Fri Mar. 2, 2012 7:00 AM EST

Gasoline prices are on the rise! How come? And what does it mean? Let's do a Q&A.

Q: How much has the price of gasoline increased recently?

A: Since the beginning of the year, the average price of gasoline has increased by 42 cents, from $3.36 to $3.78 per gallon. That's from the US Energy Information Administration, and it's an average of all grades, all formulations, across all regions of the country. The price has gone up more in some regions (like California) and less in others (like the Rocky Mountain states). You can see the regional variations here.

Q: How come it's gone up so much?

A: Gasoline prices are linked very tightly to crude oil prices. Stuart Staniford has the wonky graph here and the wonky explanation: "Technically, 97% of the variance of the price of gas is explained by the price of oil."

Q: So what's the relationship?

A: UC San Diego's James Hamilton, your go-to guy for the effect of oil prices on the economy, says his rule of thumb is that a $1 increase in the price of crude produces a 2½-cent increase in the price of gasoline. Lately, gasoline prices have been linked most closely to the price of Brent crude, and since the beginning of the year Brent has gone up from $107 to $123, a $16 increase. By Hamilton's rule, this should have produced an increase of 40 cents in the price of gasoline.

Q: Hey, that's almost exactly right! So there's nothing more to it than oil prices?

A: Pretty much. There are a few miscellaneous other factors, like refinery shutdowns and the change from winter to summer formulations, but they don't amount to much.

Q: Fine. But why have oil prices gone up?

A: In the long run, the answer is just supply and demand. Oil production has plateaued over the past few years because everyone in the world is pumping full out, and there's very little spare production capacity left. Meanwhile, because the global economy is recovering, demand has increased. Americans may be using less oil these days, but that doesn't make up for rising consumption in Asia, particularly China and India. So the basic reason for climbing oil prices is Econ 101: When global supply is stagnant and global demand goes up, prices increase.

In addition, there are other theories about why prices have specifically gone up just in the past couple of months. Bernie Sanders thinks it's because of oil speculators on Wall Street. Sanctions on Iran may be hurting their ability to ship crude. Additionally, some analysts think that some of the price increase is driven by fear that Iran might cut off oil shipments entirely, or else slow or close the Strait of Hormuz. In other words, some of it might be driven by panic.

But here's the main takeaway: Demand for oil is pushing up against supply limits, and that's a permanent condition. From now on, demand is always going to be bumping up against supply limits because even if supply rises a bit in the future, demand is rising even faster. And when supply and demand are that tightly constrained, every small bump in demand or disruption in supply causes a big swing in prices. Last year it was the war in Libya that caused a price spike. This year it's Iran. But it's always going to be something. It doesn't take much anymore to produce a $30 swing in oil prices.

Q: Is this bad news for President Obama? Aren't presidential elections heavily influenced by gasoline prices?

A: Nate Silver crunched the numbers on this and concluded that the effect was actually pretty small. High prices at the pump probably have a negative effect on an incumbent president, but not much of one.

Q: Whew!

A: Not so fast. You also need to factor in the fact that higher oil prices are likely to slow down the economy. Jared Bernstein provides the nickel summary: "In terms of the overall economy, what you worry about here is a) oil is an important production input to everything we do, and b) higher gas prices mean less disposable incomes for people. Those are the dynamics behind the rules of thumb—the ones that say a $10 increase in a barrel of oil translates into about a quarter more per gallon at the pump, and, if it sticks, could shave 0.2% off of GDP growth. Not good, and why oil is #2 on my list of threats to the recovery (right after fiscal drag and before Europe)."

James Hamilton has done a lot of academic work on the effect of oil prices on the economy, and the effect is very real. If prices stay high, it could put a damper on economic performance later this year, and that in turn could hurt Obama's reelection chances.

Q: Do you have any good news to share?

A: Not really. New shale oil finds in North Dakota might increase global supplies a bit, but probably not enough to make up for increasing demand from China and other emerging economies. Basically, prices are going to stay high for the foreseeable future; even small supply disruptions are likely to cause big price gyrations; and big supply disruptions are likely to cause full-blown recessions. Like it or not, this is our future. I recommend you buy a motorcycle.

Sometimes In-Kind Aid Really is Better Than Cash

| Thu Mar. 1, 2012 10:50 PM EST

Ed Glaeser is unhappy that we provide so much in-kind aid to the poor instead of simply giving them cash. The following is a mouthful, but bear with me:

Over the past 40 years, in-kind programs have grown steadily more important than cash transfers. In 1968, the last year of Lyndon Johnson’s presidency, the federal government spent $1.61 billion ($10.5 billion in 2012 dollars) on Aid to Families with Dependent Children (the predecessor of Temporary Aid to Needy Families); it spent $1.81 billion ($11.8 billion in 2012 dollars) on Medicaid and $505 million ($3.3 billion in 2012 dollars) for food and nutrition assistance. There was no Earned Income Tax Credit or housing vouchers, so the ratio of in-kind aid to cash transfer was 3 to 2.

The 2013 budget contains $293 billion for Medicaid, $112 billion for food and nutrition service (food stamps) and $28 billion for tenant- and project-based rental assistance, which includes housing vouchers. That is a total of $433 billion of in-kind transfers from these three primary programs.

By contrast, the budget includes only $17 billion for the Administration for Children and Families (which administers Temporary Aid to Needy Families). The Earned Income Tax Credit paid out $59.5 billion in 2010, and Obama’s proposal would eventually increase its generosity by about $1.5 billion a year. Considering just these programs, the ratio of in-kind assistance to cash aid is now to 5.6 to 1. In 1968, the in-kind share of assistance was 60 percent; now it is 85 percent.

Glaeser goes through the various justifications for relying so much on in-kind aid and dismisses each of them, but he forgets one big one: the increase here is driven mostly by Medicaid. If Medicaid had stayed at the same level as in 1968, the percentage of in-kind aid would have changed from 60% to 66%. That's still up, but it's not up that much.1

And Medicaid, of course, is the one program that really can be justified as in-kind aid. It's insurance that pays out at unpredictable intervals and in unpredictable amounts, so it can't really be replaced by a simple monthly check. That's why healthcare insurance is the usual way of paying for medical services in the first place. If insurance companies were required by law to sell insurance to all comers at a price set by the government, then a monthly check might work OK. But that's not the case right now.

Medicaid aside, there are some good arguments for getting rid of the rest of our crazy quilt system of in-kind aid and simply mailing checks to poor people. It would sure be a lot more efficient. Unlike Glaeser, though, I think some of the arguments for keeping in-kind aid also make sense. All in all, though, his column is worth a read as long as you keep in mind that once you account for Medicaid, the increase in in-kind aid over the past 40 years isn't quite as dramatic as he suggests.

1It's also worth keeping in mind that the 2013 numbers Glaeser cites for in-kind aid are artificially high compared to 1968 because of the current economic downturn. They'll go down once the economy recovers.

Diet Soda: Silent, But Maybe Not so Lethal

| Thu Mar. 1, 2012 9:58 PM EST

My colleague Tom Philpott reports on a study suggesting that diet soda is bad for you:

Known as the Northern Manhattan Study and housed at Columbia University, the project enrolled thousands of people from the community and subjected them to medical testing while recording their food consumption habits.

Among its results, a surprising one has emerged []: People who drink at least one diet soda a day are 43 percent more likely to experience a "vascular event"—i.e., strokes and heart attacks—than people who drink none....Crucially, this study accounted for factors like weight, diabetes, high blood pressure, and intake of calories, cholesterol, and sodium, study author and University of Miami epidemiologist Hannah Gardener told me in a phone conversation. In other words, nonoverweight diet soda drinkers showed significantly more risk of heart attack than nonoverweight people who don't drink diet soda.

I ran across this study a while ago, and I'd urge caution for a couple for reasons. First, the sample size was pretty small: only 116 participants drank diet soda daily. Second, there was no dose-response finding. If you drink six diet sodas per week, you're fine. If you drink seven or more, you need to get measured for a coffin. This suggests fairly strongly that something else might be going on. For example, the results might be driven by a small number of very heavy diet soda drinkers, or it might be that people who drink diet soda daily are making up for other parts of their diet that are the actual root of the problem. Even Gardener is wary of drawing any firm conclusions:

Gardener acknowledged some limitations of the diet soda study, including the use of self-reported dietary data at a single time point, and concluded that the findings are "too preliminary to suggest any dietary advice."

"If and only if the results are confirmed can we suggest that diet soda may not be an optimal substitute for sugar-sweetened beverages, which have been shown to have various health consequences," she said.

In any case, I drink three or four diet sodas a week, so I guess I'm good. Aside from that, I find that water is a pretty good hydration tool. Cheap, too.

Gasoline Does Not Cost $5 per Gallon

| Thu Mar. 1, 2012 7:14 PM EST

Larry Kudlow tweets a promo for tonight's show: 

I'll have more to say about this tomorrow morning, but for now I just want to make one point: gasoline isn't shooting up to $5 per gallon. If you look at the most expensive grade, in the most expensive formulation, in the most expensive state, at the most expensive gas station, then a gallon of gas comes close to $5. But the EIA publishes the average price of gasoline on a weekly basis, and as of this week it's.....

$3.78.

Not five bucks. The price of gas is indeed up, and that's bad news, but it's not up that much, and it's not at record-breaking highs either. As recently as last April, it was even higher. So everybody take a deep breath, OK?