Kevin Drum - August 2013

Friday Cat Blogging - 23 August 2013

| Fri Aug. 23, 2013 11:57 AM PDT

Today's catblogging features one of Marian's favorites, "Sweetheart Watercolor Quilt #1." (It's numbered like a Jackson Pollock painting because there's also a Sweetheart Watercolor Quilt #2. You'll see that one later in the year.)

This quilt is machine pieced and machine quilted. The quilting, which includes stippling and feathers, was done by the fabulous Janna, our family's go-to quilter. It's designed to be a wall hanging or a small lap quilt. But there's more! According to Marian, "it's not exactly an I Spy quilt," but it does feature a duck, a chick, a butterfly, a bunny, and a bird, if you can find them—which you probably can't since the resolution of this photo is too low. However, if you or a small child of your acquaintance would like to find all the hidden critters, just click here for a larger photo. The answer key is here.

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Here's How Europe's Woes Are Continuing to Haunt America

| Fri Aug. 23, 2013 11:04 AM PDT

The great and good are all gathered this week at Jackson Hole, sort of a Davos for powerful nerds that's run by the Kansas City Federal Reserve. Neil Irwin reports that Robert Hall of Stanford presented an assessment of "why the housing crash and financial crisis caused such sharp and prolonged economic pain," which prompted a comment from Hyun Song Shin of Princeton. You may recall Shin as the ideal median economist, but in this case he's pointing out that one big problem with the economy is that bank credit has been anemic for the past few years. As the chart on the right shows, banks normally lend at about 2.5 percentage points above the Fed's target interest rate, but ever since 2009 they've been lending at about 4 points above the Fed's target. This isn't a huge problem for big companies, which mostly rely on bonds to finance themselves, but it is a big problem for small companies, which rely more on mortgages and bank loans.

This reminded me of something Shin predicted a couple of years ago. During the housing bubble years, he said, European banks were indirectly providing about $5 trillion in credit to U.S. borrowers, nearly as much as American banks provided. But after the financial crisis, as European banks were forced to delever, that funding dried up. This is one way that America is suffering from Europe's woes: Credit remains very tight, and as a result, interest rates on ordinary bank loans remain stubbornly high. Shin's latest set of charts seem to suggest that he was right—or at least partly right—two years ago when he wrote about the malign effect of European delevering on American finance. We're not immune just because we're an ocean away.

Chart of the Day: Steve Ballmer Is the -$18 Billion Man

| Fri Aug. 23, 2013 10:16 AM PDT

Alex Tabarrok points out today that when Steve Ballmer announced early this morning that he would be retiring as Microsoft's CEO, the value of the company suddenly jumped by $18 billion. Ouch.

Yep, Britain Is Spying on the Middle East

| Fri Aug. 23, 2013 9:33 AM PDT

Here's the latest on high-tech surveillance among Western intelligence agencies:

Britain runs a secret internet-monitoring station in the Middle East to intercept and process vast quantities of emails, telephone calls and web traffic on behalf of Western intelligence agencies, The Independent has learnt.

....The Independent is not revealing the precise location of the station but information on its activities was contained in the leaked documents obtained from the NSA by Edward Snowden....Information about the project was contained in 50,000 GCHQ documents that Mr Snowden downloaded during 2012. Many of them came from an internal Wikipedia-style information site called GC-Wiki. Unlike the public Wikipedia, GCHQ’s wiki was generally classified Top Secret or above.

....The data-gathering operation is part of a £1bn internet project still being assembled by GCHQ. It is part of the surveillance and monitoring system, code-named “Tempora”, whose wider aim is the global interception of digital communications, such as emails and text messages. Across three sites, communications — including telephone calls — are tracked both by satellite dishes and by tapping into underwater fibre-optic cables.

This isn't all that interesting at the level of pure substance. After all, most of us probably already figured that Middle East fiber-optic cables were being tapped by someone. The fact that it's GCHQ rather than NSA is an intriguing tidbit, but that's about all.

But it does raise some other questions. How did the Independent get hold of some of Snowden's documents? There are a limited number of sources, after all. And is this exposure truly in the public interest, or should it have been kept secret since it doesn't really hint at either wrongdoing or even a broader scope of surveillance than anyone expected? Comments?

UPDATE: Snowden denies that he was the source; Glenn Greenwald denies that he was the source (and is skeptical that any other journalist working with Snowden was the source); and the Independent seems to deny that the British government was the source. Very strange.

Here's Hoping That Obamacare Is Better Than That Appalling Obamacare

| Fri Aug. 23, 2013 8:33 AM PDT

A few days ago I mused on the possibility that when Obamacare finally hits the streets, the actual state programs that implement it will refer to it as the "Affordable Care Act" and all the folks who hate Obamacare might not even recognize it. It turned out that Jonathan Bernstein has been making this same point for a while—great minds think alike and all that—but today Sarah Kliff passes along the perfect anecdote to support this. It comes from HuffPo's Jason Cherkis, and what I'd forgotten is that the state programs don't even call it ACA. They all have their own names:

A middle-aged man in a red golf shirt shuffles up to a small folding table with gold trim, in a booth adorned with a flotilla of helium balloons, where government workers at the Kentucky State Fair are hawking the virtues of Kynect, the state’s health benefit exchange established by Obamacare.

The man is impressed. “This beats Obamacare I hope,” he mutters to one of the workers.

“Do I burst his bubble?” wonders Reina Diaz-Dempsey, overseeing the operation. She doesn’t. If he signs up, it’s a win-win, whether he knows he’s been ensnared by Obamacare or not.

This is officially too good to check, but I checked anyway. If you go to the Kynect website, you can look far and wide and never get a clue that it has anything at all to do with Obamacare or ACA or even the federal government. "kynect is here to help you find the right coverage," the fact sheet says cheerily. "It’s a new kind of health insurance marketplace — convenient and easy to use. With one application, kynect will check your eligibility for programs that can help you pay for health insurance for yourself, your family or your employees." Roger that.

all right we are two nations

| Fri Aug. 23, 2013 7:44 AM PDT

From John Dos Passos, in The Big Money, on the execution of Sacco and Vanzetti:

    they have clubbed us off the streets     they are stronger     they are rich     they hire and fire the politicians the newspapereditors the old judges the small men with reputations the collegepresidents the wardheelers (listen businessmen collegepresidents judges     America will not forget her betrayers)     they hire the men with guns     the uniforms the policecars the patrolwagons

    all right you have won     you will kill the brave men our friends tonight

    there is nothing left to do     we are beaten

    ....they have built the electricchair and hired the executioners to throw the switch

    all right we are two nations

    America our nation has been beaten by strangers who have bought the laws and fenced off the meadows and cut down the woods for pulp and turned our pleasant cities into slums and sweated the wealth out of our people and when they want to they hire the executioner to throw the switch

I'm reading the U.S.A. trilogy and by chance I happened to read that passage last night. Today, Ed Kilgore tells me, is the 86th anniversary of the execution, so I thought it might be appropriate. Everything old is new again.

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Here's Obama's Plan to Make College More Affordable

| Thu Aug. 22, 2013 2:19 PM PDT

President Obama laid out a new plan today to make college more affordable:

A draft of the proposal, obtained by The New York Times and likely to cause some consternation among colleges, shows a plan to rate colleges before the 2015 school year based on measures like tuition, graduation rates, debt and earnings of graduates, and the percentage of lower-income students who attend…"All the things we're measuring are important for students choosing a college," a senior administration official said. "It's important to us that colleges offer good value for their tuition dollars, and that higher education offer families a degree of security so students aren’t left with debt they can’t pay back."

Mr. Obama hopes that starting in 2018, the ratings would be tied to financial aid, so that students at highly rated colleges might get larger federal grants and more affordable loans. But that would require new legislation. "I think there is bipartisan support for some of these ideas, as we've seen in states where the governors have been working on them," said the administration official, who spoke on condition of anonymity in order to disclose information not yet made public.

The basic idea here is that endlessly increasing the amount of federal student aid just isn't working anymore. At this point, all it does is encourage universities to raise their prices, which means that students are no better off than they were before. In fact, maybe worse, since they end up graduating with ever more gargantuan loans to pay off. Instead we need to reward universities that actually provide a good bang for the buck: a solid education and high graduation rates at a reasonable cost.

Interestingly, this is very similar to the Washington Monthly's "bang for the buck" ranking of colleges, which they started last year. Now, I have to confess that I've been sort of skeptical from the start of the Monthly's attempt to rank colleges not on the basis of pure academic excellence but on the basis of how useful they are to society. I figured it was just spitting into the wind and would never catch on. Luckily, no one asked me and they kept plugging away at it. This year, in addition to pulling in lots of useful advertising dollars, I think they can legitimately feel like they've done something to advance the national conversation on higher education. The formula that the feds come up with will undoubtedly be different from the Monthly's, but the idea will be the same. The Obama administration is basically proposing to do what they've been recommending for the past few years.

If you're curious to see how various universities rank, click here. The top 20 are on the right, and I'm happy to see my alma mater coming in at #6. Nice work, 49ers!

Now about Obama's belief that there's "bipartisan support" for some of these ideas…

Obama Names 4 to Review Group on NSA Surveillance

| Thu Aug. 22, 2013 12:22 PM PDT

ABC News reports that President Obama has chosen a group of four people to "assess whether, in light of advancements in communications technologies, the United States employs its technical collection capabilities in a manner that optimally protects our national security and advances our foreign policy while appropriately accounting for other policy considerations, such as the risk of unauthorized disclosure and our need to maintain the public trust." Here they are:

A group of veteran security experts and former White House officials has been selected to conduct a full review of U.S. surveillance programs and other secret government efforts disclosed over recent months, ABC News has learned.

The recent acting head of the CIA, Michael Morell, will be among what President Obama called a “high-level group of outside experts” scrutinizing the controversial programs. Joining Morell on the panel will be former White House officials Richard Clarke, Cass Sunstein and Peter Swire. An announcement is expected Thursday, a source with knowledge of the matter told ABC News’ Jon Karl.

I don't think any of us expected Glenn Greenwald or Noam Chomsky to be appointed to this review group, but it would have been nice to have at least one person on board who's a strong voice for reining in the surveillance state. The closest we have among this group is Peter Swire, who was Bill Clinton's privacy guy. I don't know much about him, but here are some excerpts from an interview he gave last month about Edward Snowden's disclosure of NSA surveillance programs:

The telephone information database story, to me, is big news....In human history, the government has never really had a database of your location that way, and this database apparently does that....The problem with great big databases is, once they exist, people find ways to use them....Having studied the uses and abuses of the data during the anti-communist era up through the 1970s that led up to Watergate, I think that having those kinds of databases is a real problem.

....I think it's really time for a re-evaluation of whether the FISA rules are the ones we should have going forward....We should have less secrecy about the legal theories. A Freedom of Information Act request suggests that we've actually had secret court decisions that say something is unconstitutional, but we don't know what the court said was unconstitutional and we don't even know its legal theories. When it comes to secret law, that shouldn't be the way that it works in the United States.

....Another area that's ripe for change [is] to have more reporting in public, especially of summary statistics, so we have a sense of how much the investigations are about some particular person or small group of people, and how much instead the investigations are really about, "Give us every e-mail that you have in this huge database." In a world of clouds, [that] an investigation can get the whole database is really going too broad. The whole idea in the Fourth Amendment is we're supposed to avoid general warrants. We're supposed to have particularity for the searches.

This is fairly mild stuff, but at least these are the right noises to make. We'll see how hard he pushes these ideas and whether the rest of the group agrees to take them seriously.

Karl Rove Pretends That Conservatives Have a Health Care Plan

| Thu Aug. 22, 2013 10:16 AM PDT

Karl Rove stamps his feet today and insists that conservatives do too have a plan to replace Obamacare:

The president and his liberal posse have a fundamental, philosophical objection to conservative ideas on health care. They oppose reforms that put the patient in charge rather than government, that rely on competition rather than regulation, and that strengthen market forces rather than weaken them.

....In the past, with a few exceptions, Republicans talked too infrequently and with insufficient passion about health-care reform, leaving the field to the Democrats. There's a different political reality today.

Actually, liberals have a fundamental, philosophical objection to the tired repetition of stale ideas that (a) plainly won't work, (b) have no political support, and (c) contra Rove, inspire no genuine passion among Republicans other than as a way of pretending that they have a health care plan.

Rove's "plan" would blow a huge hole in the deficit; wouldn't reduce costs; and quite likely would decimate the current employer-based system without covering any of the people with pre-existing conditions who are tossed out on their asses. And the worst part of it is that Rove knows all this perfectly well. He just doesn't care. He needs words on a page, so he's put some words on a page.

In any case, if you want more than just a peevish rant from someone (i.e., me) who's too tired to bother going through Rove's collection of gimmicks and evasions point by point, we've got you covered. Aaron Carroll has the detailed version here. Paul Krugman has the short version here. Enjoy.

The Great Bubble Era Was Caused by Financial Deregulation, Not Easy Money

| Thu Aug. 22, 2013 8:55 AM PDT

Paul Krugman has an interesting post up today asking why we've had so many bubbles over the past few decades:

The answer you hear from a lot of people is that it’s all caused by excessively easy money. But let’s think about the longer-term history for a bit. Here’s long-term U.S. interest rates since the early 1950s.

What follows is a chart showing that 10-year treasury maturities went up from 1950-80 and then went down from 1980-2013. But it was pretty symmetrical: rates didn't fall below their 50s/60s level until the mid-aughts. Historically speaking, the two eras were about the same, so easy money doesn't seem like much of an explanation.

But isn't it actually even more striking than that? Shouldn't we look at real interest rates?1 Here's a rough look at real 10-year maturities since 1950:

Real long-term interest rates during the past 30 years have been consistently higher than in the 50s and 60s. It wasn't until 2008 that they fell noticeably below their 1950-1970 average. And yet, as Krugman says:

The whole era since around 1985 has been one of successive bubbles. There was a huge commercial real estate bubble (pdf) in the 80s, closely tied up with the S&L crisis; a bubble in capital flows to Asia in the mid 90s; the dotcom bubble; the housing bubble; and now, it seems, the BRIC bubble. There was nothing comparable in the 50s and 60s.

And don't forget the Nordic property bubble of the early 90s. That's a lot of bubbles. So if it wasn't easy money, what was it? Krugman again:

So what was different? The answer seems obvious: financial deregulation, including capital account liberalization. Banks were set free — and went wild, again and again.

I'll buy that up to a point. It's not as if financial regulation can prevent bubbles entirely, but it can tame them. For the past 30 years, they've been running wild because we haven't done anything to stop them. Maybe we should start.

1This is a real question. I'm actually not sure. I'm posting this partly in the hopes that if I'm wrong, someone will explain why.