Kevin Drum - August 2013

"Relevance" Joins "Imminence" and "Is" in Pantheon of Meaningless Words

| Wed Aug. 14, 2013 3:35 PM EDT

Jeffrey Rosen says that the Obama administration's white paper defending the NSA's surveillance programs is "flimsy and weak":

The White Paper, released on August 9, is surprisingly mostly in the lameness of its effort to justify what it calls “Bulk Collection of Telephony Metadata under Section 215 of the Patriot Act.” The core of the argument is an attempt to redefine the meaning of the word “relevance” beyond recognizing, just as the administration’s earlier, and equally flimsy, drone memos attempted to redefine the meaning of the word “imminence” in the context of responding to an imminent threat

....As the Electronic Privacy Information Center notes in a brief filed last week with the Supreme Court, both Congressional supporters and opponents of Section 215 explicitly interpreted the “relevance” language to limit bulk collection of data, not to permit it. On July 17, during a House judiciary committee hearing, Representative James Sensenbrenner, the author of section 215, said that Congress amended the law in 2006 to impose the relevance requirement in “an attempt to limit what the intelligence community could be able to get pursuant to Section 215.” And during the debate over the 2006 amendments, Sen. Ron Wyden and others stressed that the relevance standard would address “concerns about government ‘fishing expeditions.’”

There's something that has never rung quite true to me about this. Congress knew all about the bulk collection of telephone records in 2006. It was big news. If they truly meant to rein it in, there was nothing stopping them from including clear language to that effect. So why didn't they? Especially given that many (most? all?) of them knew perfectly well that the program was never halted?

Beyond that, I still don't understand why NSA and the Obama administration are so resistant to reforming this program. After all, they don't have to collect all the metadata. They could simply require the phone companies to keep it. Alternately, some other agency could collect it, and release it only if served with an individualized warrant. This would be inconvenient, but if NSA really does only 300 searches per year, as they claim, it wouldn't be that inconvenient. Nor would it take too much time if the warrant procedures were set up efficiently. Either of these alternatives would reduce the fear that NSA can simply trawl through phone records whenever it wants, and would do so without seriously compromising its ability to conduct genuine investigations.

So why the reluctance to do something like this?

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Deregulation May Not Have Been a Boon For Airline Passengers After All

| Wed Aug. 14, 2013 12:27 PM EDT

The LA Times opines this morning on the Obama administration's decision to block a merger between American Airlines and US Airways:

The best illustration of the virtues of deregulation may be the U.S. airline industry, which Congress liberated from most nonsafety-related rules in 1978. The cost of flying plummeted as a host of new players entered the business to compete with the major national airlines.

But as anyone stuck in coach class will tell you, flying isn't much fun anymore. Airlines cram more people onto planes that offer less legroom. Conveniences that used to be included in the standard ticket price now carry extra fees. And when passengers are stranded by bad weather or mechanical problems, they may be forced to wait hours to find space on later flights that are routinely overbooked.

Such problems could conceivably be solved if competition forced the airlines to pay more attention to customer service.

Hmmm. I'm generally in favor of stronger antitrust action, but I have to admit that the airline industry wouldn't be my first choice of a hill to die for. I mean, this is an industry that earned a whopping 0.1 percent profit last year—and that wasn't a bad year. In fact, since 9/11, any year with a nonnegative profit is a pretty good year for U.S. airlines.

That's why flying in coach is such a miserable experience. It's because most airlines have been chronic money losers for the past decade and are desperate for ways to increase their revenues. But Osama bin Laden is the culprit here, not consolidation. Frankly, we might all be better off if airlines had a bit more pricing power and could just raise their fares instead of being forced to play all their endless games with seat pitch and baggage fees and so forth.

Beyond that, you might be surprised to learn that it's an open question whether deregulation was such a boon for the flying public in the first place. In a 2007 paper, David Richards looked at airline fares since 1950 and concluded that deregulation accomplished little. Fares had been going down before 1978 and they kept going down afterward. Yield per passenger-mile showed no change before and after deregulation (see chart on right). Growth in passenger miles traveled actually slowed after deregulation, and fares were mostly about the same as they would have been under the old CAB formulas. His conclusion: "This paper makes clear that the grant of pricing freedom to the airline industry has generally resulted in average prices being higher than they would have been had regulation continued under the DPFI rate-setting policies."

What did happen, Richards found, was that fares decreased on routes between big cities and increased on routes between smaller cities. That may or may not have been a good thing on net, but it's certainly a far different story than the one we usually hear about deregulation. For more on this, see "Terminal Sickness," a fascinating look at airline deregulation and the death of the mid-tier market by Phillip Longman and Lina Khan.

This all changed in 2001, when the public stayed away from flying in droves and airlines really did start slashing their fares. But that had nothing to do with either deregulation or consolidation, and in any case, the results have been disastrous. The Obama administration may be right to oppose the American-U.S. Airways merger, but it's a trickier question than it appears on the surface.

Feds Let Whale Off the Hook, Settle for Minnows Instead

| Wed Aug. 14, 2013 10:33 AM EDT

Good news! We're getting criminal charges in the "London Whale" case:

Prosecutors are expected to charge Javier Martin-Artajo, a Spaniard who led the team that made the disastrous trades, and Julien Grout, a Frenchman responsible for recording and distributing daily values on the group's positions. They don't, however, plan to bring charges against Bruno Iksil, who made the wagers that earned him the nickname, according to a person close to the situation.

Wait. What? The actual whale himself is getting off scot-free? Only his underlings are facing trial? Yep. Turns out that Iksil has agreed to rat out his former colleagues, and in return the feds have agreed not to charge him.

That's just weird. I've heard of going easy on the small fry in order to get the goods on a bigger fish, but I've never heard of letting the ringleader skate in order to get the goods on the small fry. Welcome to Wall Street.

CORRECTION: Martin-Artajo was Iksil's boss. Only Grout was an underling. Apologies for the error.

Today's Most Interesting Argument Against Larry Summers as Fed Chair

| Wed Aug. 14, 2013 12:30 AM EDT

It's funny: I don't actually care all that much about whether the next Fed chair is Janet Yellen or Larry Summers, but I do find the debate pretty fascinating. Today, Felix Salmon argues that Summers' crisis management skills are vastly overrated. Not because Summers doesn't have good crisis management skills—something I'm a little skeptical about myself—but for the far more interesting reason that he thinks crisis management skills just don't matter:

The actions of the Fed chair during normal times are of paramount importance: they determine how much growth there is in the economy, how much unemployment there is in the economy, how much the country’s bonds and stocks are worth, and even how likely it is that we might encounter another crisis. The Fed chair is one of the two most important offices in the USA, the other one being the presidency.

That said, however, there’s one time that it doesn’t really matter who the Fed chair is — and that’s when you’re in the midst of a fully-blown financial crisis. At that point, the Fed just moves straight in to Global Firefighter mode....Look, indeed, at what happened in 2008-9: the world’s major central banks all responded in pretty much the same way, and indeed coordinated their actions very effectively. They easily agreed on a system of unlimited swap lines, which provided abundant liquidity, in any currency, in any affected country. Certainly there were stupid decisions made during the crisis, but those stupid decisions were made by finance ministers, not by central bankers.

....In other words, when there’s a crisis, it really doesn’t matter whether you’re Ben Bernanke or Mervyn King or Jean-Claude Trichet — or Janet Yellen or Larry Summers or pretty much anybody else bar Rand Paul. The central banker’s crisis playbook is a thin document, and easy enough for anyone to master. It’s what central bankers do when there isn’t a crisis that matters, since they’re all going to do exactly the same thing when there is one.

Salmon thinks the more important skill isn't crisis management, but crisis prevention. And on that score, he's firmly on Team Janet:

Summers has demonstrated essentially zero crisis-prevention skills: his deregulatory instincts helped make the financial crisis more likely and more severe when it happened....As a result, Obama should be bending over backwards to appoint not the candidate who can best manage a financial crisis, but rather the candidate who is most likely to stop a crisis from happening in the first place. That candidate is Janet Yellen.

I don't really have a considered opinion about this. I certainly agree about Summers' deregulatory instincts being a problem, but mainly I'm posting this to see what other people think. Is it a common view that when the shit hits the fan, pretty much every competent central banker will do the same thing? Or is Salmon stretching a wee bit too far to find anti-Larry talking points?

Our Response to the 2008 Financial Crisis Wasn't Great, But it Wasn't That Bad Either

| Tue Aug. 13, 2013 7:31 PM EDT

Yesterday Paul Krugman suggested that the neoclassical synthesis in economics—"the idea that we can use monetary and fiscal policy to make the world safe for laissez-faire everywhere else"—has failed its biggest real-world test: guiding us safely out of the financial collapse of 2007-08. It's not that printing money and running big deficits don't work. Krugman thinks they do. But the events of the past few years have shown that it's politically impossible to keep them going long enough to truly do the job of rescuing an economy in crisis. Central banks chicken out when their balance sheets get too scary looking, and national legislatures chicken out when deficits get too scary looking. It's obvious that national leaders simply aren't courageous enough to keep up the therapy long enough to cure the patient.

Krugman obviously has a point, but I'm less pessimistic than him for two reasons. First, the 2008 crisis and the subsequent recession had a couple of unique political features. In the United States, we had the rise of the tea party and its nihilistic approach to partisan politics. That won't necessarily last forever. In Europe we had the problem of a new and shaky currency union. That will either implode completely or else it will eventually morph into a true fiscal union. In either case, the euro straitjacket will be gone.

Second, as Ryan Avent writes today, we have learned something since the Great Depression. When the financial crisis hit, the Fed flooded the market with liquidity. It kept the banks open. Congress passed TARP. And a stimulus package and then a mini-stimulus were both put in place.

That wasn't enough. Politically, as Krugman says, we lost our nerve before we finished the job. Nonetheless, it was a helluva lot more than we did in response to the Great Depression, and as Avent's chart on the right illustrates, it shows up in the economic data. The financial crisis of 2007-08 was as bad as the crisis of 1929-32—maybe worse, in fact—but the subsequent course of the economy has been way better and the aggregate amount of human misery has been way less. Avent looks at the long term:

Through the first 12 years of these experiments, today's macroeconomic-policy framework (consisting of a much more robust safety net, countercyclical monetary and fiscal policy, and aggressive action to prevent financial-sector collapse) is clearly better than the one we had around in the 1930s....The "massive waste we've seen since 2008" has nothing on the waste of the 1930s and 1940s. In the absence of an alternative politico-economic framework that looks capable of delivering even better results we should be extremely reluctant to abandon the current working strategy.

A second thing to keep in mind is that the policy revolutions that develop in the aftermath of a macroeconomic disaster can take decades to run their course. We can very reasonably be frustrated with the policy performance of the past six years while also remaining hopeful that the intellectual battle will eventually be decided in a positive way.

....We learn from failure. It took the Great Recession to tell us where there has been intellectual progress in the fields of economics and political economy and where there has not. But there has been progress and there almost certainly will be more: building on the strengths of the broad neoclassical synthesis. If the trials of the last half decade yield one-tenth the intellectual dividend of those of the 1930s, then the world has good reason to expect the future to be quite a lot better than the past, in much the same way that the recent past is a world apart from the horrors of the 1930s.

Our shift to deficit hysteria in 2010, a mere six months into the recovery, was unprecedented in recent history. Government spending has kept increasing for years in the aftermath of every other recent recession, and only in this one did it actually decrease in real terms. This was the result of tea party know-nothingism, and the entirely unnecessary human immiseration it caused is an endless source of shame—or should be, anyway. So it's easy to see why Krugman feels the way he does. But the tea party won't last forever, and in any case, even they weren't able to prevent us from acting rationally enough to stave off the worst. Economic progress may be slow, but it's not nonexistent.

From the Archives: Is Lead Really the Main Cause of Violent Crime?

| Tue Aug. 13, 2013 2:12 PM EDT

Maybe it's just coincidence, but over the past week I've suddenly gotten a flurry of new responses to my January piece about lead and crime. Roughly speaking, they're mostly complaints that crime has lots of causes, and it's a mistake to claim that lead is preeminently important. I understand where this criticism comes from, but here's the thing: I agree with it. That's why it's important to understand exactly what the lead hypothesis claims to explain: not all crime, but only the specific crime wave of 1965-2010. (In America, anyway. The dates vary in other regions of the world.) So because this has cropped up again, I'm going to reproduce a post I wrote shortly after the article came out. Of all the things I didn't explain well enough in the original piece, this is the one I most wish I had illustrated more clearly.


Whenever you write about a complicated subject, you struggle with how best to explain things. In the end, you always hope you got your point across in a way that sinks in, but you're never quite sure. And one of the things I'm not sure I explained well in my piece about the link between lead and violent crime is precisely how important the effect of lead on crime is. After all, the causes of crime are varied and complex. Surely lead isn't the whole answer?

It's not, and I don't want anyone to come away from my article thinking that. If we eliminated every microgram of lead from the planet, we'd still have plenty of crime. So here's a way to think about it. If you take a look at violent crime rates in America, you'd expect to see a sort of baseline level of crime. That level will depend on lots of things: poverty, drugs, guns, race, family structure, etc. But starting in the mid-60s, we saw an enormous rise in crime, well above any sensible sort of baseline. Then, in the 90s, we saw an equally enormous decline. The chart below illustrates this. (The numbers themselves aren't precise, so don't take them too seriously. I'm just trying to illustrate a point.)

The baseline crime rate is the light red portion at the bottom. It goes up and down a bit over time, but also—and I'm guessing here—shows a steady, modest rise since the 60s. Most likely, the reason for this lies with all the usual suspects.

But then, in dark red, there's the huge crime wave that lasted nearly 50 years from start to finish. That's the part the lead hypothesis aims to explain. And the reason we need an explanation is simple: the usual suspects simply don't seem to do a very good job of accounting for a gigantic, temporary rise and fall in violent crime rates. Within the criminology community, literally no one predicted the huge decline in crime that began in the early 90s. Their focus was on all the usual sociological causes, and they had no reason to think those were going to suddenly improve.

And they were right. For the most part, they didn't improve. It's true that the crack epidemic of the 80s burned out, but no one really knows the underlying reason for that. Policing tactics changed in some places, but crime dropped everywhere, so that's not a very compelling explanation either. Aside from that, poverty didn't change much, and neither did race or guns or demographics or the number of broken familes or anything else.

The truth is that there's just not a good conventional explanation for both the huge rise and the huge fall in crime of the past half century. That's one of the reasons the lead hypothesis deserves such serious consideration. Not only does it fit the data well and make sense based on what we know about the neurological effects of lead. It's also just about the only good explanation we've got. Other factors are still important, and they probably explain rises and falls in the baseline rate of crime. But lead is the best explanation we have for the rest of it.

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Rubio: Pass Immigration Reform or Obama the Tyrant Will Do Even Worse

| Tue Aug. 13, 2013 12:31 PM EDT

Greg Sargent draws my attention to the latest from Sen. Marco Rubio:

I believe that this president will be tempted, if nothing happens in Congress, he will be tempted to issue an executive order, like he did for the Dream Act kids a year ago, where he basically legalizes 11 million people by the sign of a pen. Now, we won't get any E-Verify, we won't get any border security, but he will legalize them.

As Sargent mentions, Rubio's latest effort isn't likely to cut much ice with opponents of immigration reform. Rather, it's interesting for what it says about how Rubio views his tea party base. Basically, he's given up on reasoning with them. Instead, he figures the only way to win them over is to appeal to their paranoid belief in Obama the tyrant, the man who's unilaterally ruining America by running roughshod over Congress with his dictatorial executive order powers. Reason might not work, but perhaps they hate and fear Obama even more than 11 million undocumented immigrants.

And who would know better than Rubio? After all he helped build this base.

Kevin Drum Smackdown Watch: Judge Scheindlin Didn't Care If Stop-and-Frisk Reduced Crime

| Tue Aug. 13, 2013 11:25 AM EDT

"Wow this is a terrible @kdrum post," says Adam Serwer about my comment on yesterday's court ruling putting a halt to New York City's stop-and-frisk program. When Adam speaks, I listen! Here's the offending bit:

If stop-and-frisk really is the reason crime has dropped so dramatically in the Bronx, then a judge would be justified in weighing this against the legal issues on the other side. Even decisions based on fundamental constitutional rights aren't rendered in a vacuum.

Adam correctly points out that Judge Scheindlin didn't consider the effectiveness of stop-and-frisk in her decision, so in this case, and with this judge, it wouldn't have mattered if the policy reduced crime. Point taken.

What happened here is a common blogging sin: I used a specific case to make a general point without making it clear that I had switched gears. In general, even fundamental constitutional rights are never absolute. There are different shades of violation and there are competing interests, and judges routinely take those into account. That was the point I wanted to make.

Now, even in this case, the judge's ruling was hardly absolute. She ruled that New York's policy was so extreme that it amounted to effective racial profiling, and that was flatly unconstitutional regardless of whether it reduced crime. But a modified program would be OK, and it's possible that the degree of modification might depend on how effective various versions of stop-and-frisk are. If not for this judge, then quite possibly for another one. For that reason—not to mention the effect it should have on policy in the first place—the actual reason for New York's crime decline really does matter. Apologies for the confusion.

Chart of the Day: The Public Doesn't Know Squat About the Federal Deficit

| Tue Aug. 13, 2013 10:23 AM EDT

Paul Krugman wants to know what the general public thinks of the deficit, and Google's Hal Varian puts up a quick poll to find out. Here's the current state of public opinion:

And here's the reality:

The Google results come from an online survey, so they probably aren't completely reliable. But I'll bet they're close. It takes a long time for public opinion to change on stuff like this, and that's especially true when one side is loudly trumpeting false narratives and the other side is barely even fighting back. Hell, violent crime has been declining for over 20 years, and lots of people still think it's rising. I don't expect deficit paranoia to change an awful lot faster.

Quote of the Day: "The Reality Is All About High Prices"

| Mon Aug. 12, 2013 7:42 PM EDT

If there are lots of buyers of a service in a particular region but you're the only supplier, you have a lot of leverage to charge high prices. Conversely, if there are lots of suppliers but you're the only buyer, you have a lot of leverage to bargain prices down. In the healthcare world, hospitals are the suppliers and insurance companies are the buyers. So if there are only one or two hospitals in your region, then prices are likely to be high. Thus this comment about the trend toward consolidation of hospital chains:

“The rhetoric is all about efficiency,” said Karen Ignagni, the chief executive of America’s Health Insurance Plans, a trade group that represents insurers. “The reality is all about higher prices.”

Ignagni obviously has a dog in this fight, but she's basically right. A 500-hospital chain might be more efficient than a 100-hospital chain. But it's definitely able to charge higher prices.