Kevin Drum - January 2013

Everything is Hunky-Dory at Google

| Fri Jan. 4, 2013 9:43 AM EST

Last month, after Robert Bork died, there was a brief spate of articles about his influence on antitrust law. In a nutshell, antitrust law used to be about preventing companies from getting too big, but Bork convinced the legal community that antitrust law should really be about consumer welfare. If a company is providing good value to consumers, then it's OK regardless of how big it is or how large its market share is.

Today brings a concrete example of this principle in action. The Justice Department has been investigating Google for the past couple of years, but on Thursday they wrapped up their investigation and backed off their case almost entirely. Google won an almost total victory:

“The way they managed to escape it is through a barrage of not only political officials but also academics aligned against doing very much in this particular case,” said Herbert Hovenkamp, a professor of antitrust law at the University of Iowa who has worked as a paid adviser to Google in the past. “The first sign of a bad antitrust case is lack of consumer harm, and there just was not any consumer harm emerging in this very long investigation.”

....The main thrust of the investigation was into how Google’s search results had changed since it expanded into new search verticals, like local business listings and comparison shopping. A search for pizza or jeans, for instance, now shows results with photos and maps from Google’s own local business service and its shopping product more prominently than links to other Web sites, which has enraged competing sites.

But while the F.T.C. said that Google’s actions might have hurt individual competitors, over all it found that the search engine helped consumers, as evidenced by Google users’ clicking on the products that Google highlighted and competing search engines’ adopting similar approaches.

Google made a number of arguments in its own defense, and consumer welfare was only one of them. Still, it was almost certainly the main reason they won, and it's still not clear to me that this is really what's best for consumers in the long run. Did Google users click on the products they highlighted? Sure. Did they buy some of the stuff? Sure. Were they happy with their purchases? Sure. Is that, ipso facto, evidence that there's no long-run harm from a single company dominating the entire search space? I doubt it. After all, John D. Rockefeller could have argued that consumers bought his oil and were pretty happy with it, so what was the harm in his controlling the entire market?

The tech industry moves fast enough that antitrust might genuinely not be a big issue there. In the end, it wasn't antitrust that hurt IBM and Microsoft. It was the fact that the industry moved rapidly toward smaller computers and then the internet, and neither company was really able to react fast enough to dominate these new spaces. Nonetheless, I'm skeptical of the tautology at the heart of the consumer welfare argument. If a company is successful, then by definition people must be buying its stuff. On this basis, bigness is simply unassailable anymore. That has broad societal implications that I suspect we're not taking seriously enough.

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We Don't Have a Spending Problem. We Have an Aging Problem.

| Fri Jan. 4, 2013 6:02 AM EST

Ever since Ronald Reagan first said it, Republicans have been fond of insisting that "we don't have a revenue problem, we have a spending problem." But it turns out that isn't true. Let's take a look at the raw data.

Spending first. In 1981, when Reagan took office, the federal government spent 22.2 percent of GDP. That figure dropped steadily for the next two decades, and by the year 2000 spending was down to 18.2 percent of GDP. Expenditures went up after that, but the Office of Management and Budget estimates that by 2017, spending will once again be 22.2 percent of GDP, exactly the same as it was 30 years ago. In other words, spending hasn't gone up at all.

But even that overstates the problem. The chart below shows federal spending since the Reagan era. You'll notice a few things:

  • There are always small spikes during recessions. You see them in 1980, 1990, and 2000. This is perfectly natural: when the economy is bad, the federal government spends more on unemployment insurance, food stamps, Medicaid, and other forms of aid.
  • The first serious upward spike in spending came under George W. Bush and a Republican Congress. They were the ones who decided to fight two wars, enact a big Medicare expansion, and increase spending on other programs, both domestic and defense.
  • The other big upward spike came in 2008, and it was purely a temporary result of the Great Recession. This doesn't show that spending is out of control, just that the 2008 recession was bigger than any since the Great Depression.

But even with the 2008 recession, federal spending is still on track to be lower a decade from now than it was when Reagan took office. More details here. The plain fact is that spending simply hasn't been our big problem over the past three decades.

So how about tax revenue? The basic chart is below. It shows that tax revenue was 19.6 percent of GDP when Reagan took office, and it's projected to be 19.2 percent of GDP in 2017.

The facts are pretty clear. Spending isn't our big problem. The recession spike of 2008 aside, it's about the same as it was 30 years ago. But instead of paying for that spending, we've repeatedly cut taxes, which are now at their lowest level in half a century. Tax revenue will go up as the economy improves, but even five years from now it will still be lower than it was when Reagan took office.

So what's our real problem? That's simple: America is getting older and healthcare costs are rising. That means we'll need to spend more money in the future on Social Security and Medicare. There's simply no way around that unless we're willing to immiserate our elderly, and that's not going to happen. Not only is it politically inconceivable, but the truth is that even Republicans don't want to do it, no matter how tough a game they talk. Like it or not, this means that over the next 20 or 30 years, spending on the elderly is going to go up by three or four percent of GDP.

This is where we stand. Spending in general has been well controlled for the past 30 years, averaging about 21 percent of GDP. With good management, that might go down a point or two, but certainly no more. Probably the lowest we can realistically hope for is about 19-20 percent of GDP. Add in the increased spending on the elderly, and federal outlays are going to be in the neighborhood of 23-24 percent of GDP by around 2030.

Those are simply the facts. Even under a scenario where we control spending pretty tightly, spending is going to go up to about 24 percent of GDP. There's really no politically feasible way of keeping it any lower. Anyone who cares about the deficit, then, needs to understand that in the long run, taxes need to go up to about 24 percent of GDP too.

We don't have a spending problem. We have an aging problem and a taxing problem.

No, a $1 Trillion Platinum Coin is Not Legal

| Fri Jan. 4, 2013 1:44 AM EST

For some reason, the possibility of evading the debt ceiling by minting a $1 trillion platinum coin is getting some blogospheric love again. This is based on a 2000 revision to the U.S. statute on money and finance that reads:

The Secretary may mint and issue bullion and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.

Read literally, this places no limitations on the Treasury Secretary's authority to mint platinum coins. If Tim Geithner wants to mint a $1 trillion coin and deposit it at the Fed, he can do it.

I would just like to point out, once again, that this is ridiculous. During the very short floor debate on this amendment it was repeatedly referred to as a "technical correction," and that's obviously what was intended. Oklahoma Rep. Frank Lucas described it this way:

Also contained in the bill is a clarifying section inserting the word ‘‘platinum’’ inadvertently dropped when Congress authorized production of platinum and platinum bullion coins a few years ago....This is a small bill, but important to the mint and important to coin collectors. It has no cost implications whatsoever.

No particular restrictions were placed on the design or issuance of platinum coins, but this paragraph was plainly intended to apply to bullion and commemorative issues for coin collectors. That's all.

There is, apparently, a widespread belief that courts will uphold a literal, hypertechnical reading of legislative language regardless of its obvious intent, but I'm quite certain this isn't true. Courts are expected to rule based on the most sensible interpretation of a law, not its most tortured possible construction. I don't think there's even a remote chance that any court in the country would uphold a Treasury reading of this law that used it as a pretense for minting a $1 trillion coin.

I am, obviously, not a lawyer. So if someone with actual legal training in the appropriate area of the law says I'm wrong, then I guess I'm wrong. But I'm not much afraid of that happening. This whole notion is the kind of thing that Herman Cain would come up with. It's time to stop treating it seriously.

Who Gerrymanders More, Democrats or Republicans?

| Thu Jan. 3, 2013 8:16 PM EST

A couple of months ago I linked to a bit of research showing the effect of gerrymandering on House races. Long story short, Eric McGhee concluded that gerrymandering produced about 7 extra Republican seats this year while Sam Wang figured it at about 6.3 seats. A few days ago, Sam took a deeper dive into the data (read his full post if you want to understand his simulation methodology) and came up with a bit more detail about how that breaks down. His bottom line number is now slightly higher than it was before, showing a Republican advantage of about 7.1 seats, but the reason this number is so low is a little surprising. I've modified his main results table a bit for the nine states that show a substantial discrepancy between vote share and seat share. Here it is:

  D %vote D sim R sim D seats R seats Discrepancy
Pennsylvania 50.7% 8.4 9.6 5 13 R+3.4
Texas 39.9% 9.4 26.6 12 24 D+2.6
Ohio 47.9% 6.5 9.5 4 12 R+2.5
North Carolina 50.9% 6.2 6.8 4 9 R+2.2
Michigan 52.7% 7.2 6.8 5 9 R+2.2
Arizona 45.6% 3.2 5.8 5 4 D+1.8
Virginia 49.0% 3.7 5.3 2 7 R+1.7
Illinois 55.4% 10.3 7.7 12 6 D+1.7
Indiana 45.8% 3.2 5.8 2 7 R+1.2
Nonpartisan           D+4.4
D-controlled           D+1.7
R-controlled           R+13.2
Net, all 9 states 48.5% 58.1 83.9 51 91 R+7.1

There was serious gerrymandering in only one Democratic state: Illinois, for a total advantage of 1.7 seats. But there was serious gerrymandering in six Republican states, for a total advantage of 13.2 seats. Republicans tried hard to gerrymander themselves into a majority, but it turned out that two nonpartisan states (a commission in Arizona and a court in Texas) ended up producing 4.4 extra Democratic seats.

Bottom line: The net result is still fairly modest, thanks to the vagaries of nonpartisan redistricting. At the same time, the effect of partisan gerrymandering is larger than we thought. The sum of Democratic and Republican gerrymandering is a net Republican advantage of 11.5 seats. That's still not enough to say that the Republican House majority is solely due to gerrymandering, but it's close.

The Prison Population is Dropping. Can You Guess Why?

| Thu Jan. 3, 2013 5:24 PM EST

Keith Humphreys has a nomination for the most underreported public policy story of the past year: The continuing decline in the number of Americans who are behind bars or on probation/parole. Alex Tabarrok illustrates the trend with the chart on the right.

What's going on? At the risk of sounding like a broken record today, part of the answer is probably lead. Lead emissions rose throughout the 50s and 60s, leading to a rise in crime through the 70s and 80s. Incarceration rates went up dramatically during the high-crime years, and many of the people put behind bars served long sentences. So even though crime rates started to fall in the early 90s, incarceration rates kept going up for a while as new criminals were added to a system that already had a lot of long-term residents.

Eventually that turned around, and the incarceration rate turned around too. But it turns out there's actually something even more interesting going on if you dig into the data. Rick Nevin, one of the lead researchers who played a key role in figuring out the lead-crime connection, has a short paper about incarceration rates at his website, and his key point is this: over the past decade, incarceration rates for young offenders have gone down, while incarceration rates for older offenders have remained high. (In fact, they're actually up a bit, probably the result of recidivism.) The chart below shows the raw data:

Note how this fits the lead hypothesis. Young people, who were raised in the post-lead era, have sharply lower arrest rates than in the past and sharply lower prison rates. At the same time, older people, who were raised during the era when lead emissions were high, still have high arrest rates and therefore high incarceration rates. However, as the oldsters serve out their sentences and finally get too old for criminal activity, the lower arrest rates of young people are finally lowering overall incarceration rates. Nevin explains more in his paper, and also added a comment to my article with some additional details about black-white incarceration trends between 2001-11:

Over the same 10 years , the incarceration rate for black men ages 18 and 19 fell by 46%, and fell 40% for black men ages 20-24, and 31% for black ages 25-29. Over that same 10 years, the incarceration rate for black men ages 35-39 fell 12% and the rate for black men age 40-44 increased 11%.

....The incarceration rate is now declining for black males ages 35-39, but rising for white males in that age bracket, because that age group today reflects years when slum demolition in black neighborhoods reduced severe lead paint hazards over the 1960s, as urban sprawl caused more gasoline lead fallout in predominantly white suburbs.

You will often hear inaccurate and misleading statistics about the lifetime risk of incarceration for black males. That data reflects what the risk of incarceration was for black males born across years of pandemic lead poisoning, in urban slums with severe lead paint hazards and additive exposure to urban gasoline lead fallout. That "lifetime risk" does not apply to young black males today.

I'm going to caution everyone again that no one is suggesting that lead is solely responsible for the rise and fall of either crime rates or incarceration rates. There are plenty of other factors. But the evidence is very strong that lead plays a key role. And the good news is that since the drop in lead emissions is permanent, crime rates are likely to stay fairly low and incarceration rates are likely to continue to fall. Someday, instead of hearing about overcrowded prisons, we'll be tearing down old prisons because there aren't enough inmates left to keep them in business.

Politicians Should Learn Bigger Lessons From Their Pet Causes

| Thu Jan. 3, 2013 2:23 PM EST

Harold Pollack highlights an excerpt from a Chicago Sun-Times interview with Sen. Mark Kirk, who suffered a stroke last year and has spent the time since in intensive rehabilitation:

“I will look much more carefully at the Illinois Medicaid program to see how my fellow citizens are being cared for who have no income and if they suffer from a stroke,” Kirk said.

He said in general a person on Medicaid would be allowed 11 rehab visits in Illinois. “Had I been limited to that I would have had no chance to recover like I did. So unlike before suffering the stroke, I’m much more focused on Medicaid and what my fellow citizens face.” [italics added.]

Harold says that this comment "commands respect," and in one way, of course it does. But in another way, it's one of my big bugbears. Politicians all seem to have their own pet causes, and all too often they're related to something personal. A congressman's wife had breast cancer, so he supports funding for breast cancer research. A senator's kid has multiple sclerosis, so she supports MS research. A governor's state gets hit with a hurricane, so he supports a huge federal aid bill for hurricane damage. This goes on and on and on.

But too many politicians, and this especially includes self-described fiscal conservatives, simply can't draw the obvious conclusion from all this: namely that you shouldn't support help for the poor and the sick and elderly only if you personally happen to know someone who's poor or sick or elderly. All of these people exist whether or not they happen to be family members.

So I'd suggest to Kirk that he broaden his horizons. Making sure that Medicaid helps stroke victims is a great idea. But an even better idea is making sure that Medicaid also helps victims of diseases that Mark Kirk hasn't personally confronted. Medicaid should help everyone. It's not just a plaything for a small subset of pet causes.

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Lead and Crime: I'll Be on the Leonard Lopate Show Today at 1:20 pm

| Thu Jan. 3, 2013 12:06 PM EST

If you're in New York City, I'll be on the Leonard Lopate show on WNYC today at 1:20 pm discussing my story about the connection between lead and violent crime. Tune in!

And while I'm on the subject, there are a couple of quick items I'd like to mention that may or may not have been clear from my article:

  • Am I saying that gasoline lead is fully responsible for the nationwide drop in violent crime over the past two decades? No. Absolutely not. There are plenty of other factors, including the end of the crack epidemic, changes in policing tactics, higher incarceration rates, and more. The precise effect of all these things is a matter of controversy, but they almost certainly all played a role. However, I am saying that they probably played a smaller role than we think.
  • Is the lead-crime connection 100% proven? No. However, the evidence, which started out fairly thin ten years ago, is now quite extensive. In fact, one of my motivations for writing this piece was the fact that the criminology community has paid very little attention to the lead hypothesis, and I think it's time they did. If it's wrong, they should do the research to show that it's wrong. But if it's right, that should change the way we look at other crime-fighting tactics. Change #1, in my opinion, would be our current policy of mass incarceration, which quite likely had done as much good as it would ever do by the mid-80s. Given the decline in violence over the past two decades, and the possibility that it's probably due to a permanent decrease in lead emissions, it's quite likely that we could safely cut back on incarceration rates at this point.

More on this later.

Update: Listen to the interview here:

The Near-Rich Did Really Well in the Fiscal Cliff Deal

| Thu Jan. 3, 2013 11:44 AM EST

Who were the biggest winners from the fiscal cliff deal? The invaluable Tax Policy Center has a preliminary analysis up, and it shows how much various income groups will save as a result of the deal. (These are savings compared to going over the cliff and letting the Bush tax cuts expire completely.)

A couple of notes. First, this doesn't include the effect of the expiration of the payroll tax holiday or of the stimulus tax cuts, so it probably overstates the gains to the working and middle classes. Second, even with that, the near-rich are the biggest winners here. They'll pay about 4-5 percent less in taxes than they would have if we'd gone over the cliff. The very rich will pay about 2 percent less in taxes, which is nearly as good a deal as the middle class got.

Bottom line: the very rich did slightly worse than the rest of us in this deal. But only slightly.

POSTSCRIPT: On the other hand, the very rich will also start paying Obamacare taxes this year. That wasn't part of the fiscal cliff deal, but if you count that, they're getting clipped more than the poor and the middle class.

They Hate Each Other, They Really Hate Each Other

| Thu Jan. 3, 2013 10:48 AM EST

Ezra Klein has been reading through all the fiscal cliff tick-tocks—and thank God for that, since I sure didn't want to do it—and extracts the ten juiciest tidbits today. They're pretty good, and you should take a look if you haven't already had your fill of fiscal cliff posturing. Here's #1:

From the National Journal: "The speaker's team fell prey to overconfidence. They just didn't believe that Obama meant what he said about raising tax rates for the wealthy....Yet when Boehner's aides started haggling with their counterparts at the White House in the days before Thanksgiving, they ran into a wall. There would be no deal without higher tax rates on the wealthy and an extension of the debt limit, the president's aides said. Take it or leave it. The president was willing to dive off the cliff."

This is more important than it might seem: If the White House had agreed to raise revenue through tax reform, there'd be no way to raise revenue through tax reform in future negotiations. Because the White House raised its revenue through increasing rates, it can still raise revenue through tax reform in a future negotiation.

Ezra's comment is important, though I imagine it cuts both ways. It's true that if you do tax reform now, you can't use it to raise revenue in the future. At the same time, if you raise rates now, you also can't use that to raise revenue in the future.

Still, I guess the thinking here is that tax reform is coming, and it's going to focus on loophole closing, not rate increases. This means it's best to leave plenty of loopholes to close as bargaining chips.

We'll see. Given the obvious, and very genuine, animosity that Democratic and Republican leaders all have for each other right now, it's not clear that tax reform is very likely. These guys really, really don't like or trust each other. The upcoming negotiations over the sequestration cuts and the debt ceiling should give us some clues about whether they can still deal with each other in any kind of professional way.

Crime Is at its Lowest Level in 50 Years. A Simple Molecule May Be the Reason Why.

| Thu Jan. 3, 2013 6:06 AM EST

I've written several posts recently about the idea that America's great crime epidemic, which started in the 60s and peaked in the early 90s, was caused in large part by lead emissions from automobiles. Long story short, we all bought lots of cars after World War II and filled them up with leaded gasoline. This lead was spewed out of tailpipes and ingested by small children, and when those children grew up they were more prone to committing violent crimes than normal children. Then, starting in the mid-70s, we all began switching to unleaded gasoline. Our kids were no longer made artificially violent by lead poisoning, and when they grew up in the mid-90s they committed fewer violent crimes. This trend continued for two decades, and it's one of the reasons that violent crime rates have dropped by half over the past 20 years and by more than that in our biggest cities. It's one of the great underreported stories of our time: big cities today are as safe as they were 50 years ago.

That's the short version of the story. The long version of the story is on the cover of the current issue of Mother Jones, and today it's available online for the first time. Click here to read it. The chart on the right illustrates the basic data that inspired the lead hypothesis: it shows lead emissions starting in 1935 overlaid with the violent crime rate 23 years later. The two curves match almost perfectly.

Now, I know my readers, and first thing a lot of you are going to do is yell at me: "Correlation is not causation!" And that's true. If this curve were the only bit of evidence we had, the connection between lead and violent crime would be pretty thin. But it's not. You should read the story to understand just how many different studies confirm this relationship. In addition, over the last decade there's been a tsunami of new medical research about just what lead poisoning—even at very low levels—does to children. It lowers IQ, of course, but it does a lot more than that:

Not only does lead promote apoptosis, or cell death, in the brain, but the element is also chemically similar to calcium. When it settles in cerebral tissue, it prevents calcium ions from doing their job, something that causes physical damage to the developing brain that persists into adulthood.

Only in the last few years have we begun to understand exactly what effects this has. A team of researchers at the University of Cincinnati has been following a group of 300 children for more than 30 years and recently performed a series of MRI scans that highlighted the neurological differences between subjects who had high and low exposure to lead during early childhood.

One set of scans found that lead exposure is linked to production of the brain's white matter—primarily a substance called myelin, which forms an insulating sheath around the connections between neurons. Lead exposure degrades both the formation and structure of myelin, and when this happens, says Kim Dietrich, one of the leaders of the imaging studies, "neurons are not communicating effectively." Put simply, the network connections within the brain become both slower and less coordinated.

A second study found that high exposure to lead during childhood was linked to a permanent loss of gray matter in the prefrontal cortex—a part of the brain associated with aggression control as well as what psychologists call "executive functions": emotional regulation, impulse control, attention, verbal reasoning, and mental flexibility. One way to understand this, says Kim Cecil, another member of the Cincinnati team, is that lead affects precisely the areas of the brain "that make us most human."

So lead is a double whammy: It impairs specific parts of the brain responsible for executive functions and it impairs the communication channels between these parts of the brain. For children like the ones in the Cincinnati study, who were mostly inner-city kids with plenty of strikes against them already, lead exposure was, in Cecil's words, an "additional kick in the gut."

We now have a huge amount of evidence linking lead to violent crime. We have evidence not just at the national level, but also at the state level, the city level, and the international level. We have longitudinal studies that track children from birth to adulthood to find out if higher blood lead levels lead to more arrests for violent crimes. And perhaps most important, this is a theory that just makes sense. Everything we now know about the effects of lead on the brain tells us that even moderately high levels of lead exposure are associated with aggressivity, impulsivity, ADHD, and lower IQ. And right there, you've practically defined the profile of a violent young offender.

You probably have a lot of questions about all this. What about other countries that eliminated leaded gasoline? Why haven't I mentioned lead paint in old housing? Don't things like policing tactics and increased incarceration matter too? And since leaded gasoline has been long since banned, why should you care about this? All these questions and more are answered if you read the full article.

I'll have more about this over the next few days, including some interesting tidbits that didn't make it into the magazine piece for one reason or another. It's really pretty fascinating stuff. I hope you have as much fun reading about it as I did writing about it.