Kevin Drum - September 2013

Yes, Obama Will Sign a Clean CR Because Obama is Basically OK With the Sequester

| Fri Sep. 20, 2013 10:02 AM EDT

Here's the expected state of play on the budget: Today the House will vote for a Continuing Resolution that includes a defunding of Obamacare. It will go to the Senate, which will strip out the Obamacare language and send it back to the House. Republicans in the House are then in a world of hurt: thanks to rebellion in their own ranks, they don't have the votes to pass either a clean CR or anything else. This means John Boehner will be left twisting in the wind for a good long time as the government is shut down and the public gets angrier and angrier at Republican lunacy.

At least, that's the conventional wisdom about where we're headed, says Noam Scheiber:

Or at least it was where we were headed until yesterday, when the White House tipped its hand. According to Politico, the White House is hoping to persuade (or hoping Nancy Pelosi can persuade) 40-50 Democrats to vote for a clean CR if it comes before the House to ensure that it passes. To put it slightly differently: The White House believes Boehner won’t be able to pass the clean CR with House Republican votes alone, thereby putting him on track for the political disaster of a shutdown. In order to avoid this fate, the White House will urge Democrats to provide the margin of passage. (A White House aide tells me the Politico account is a bit overstated—there’s nothing being urged just yet, and certainly no directives issued to Pelosi. But the aide doesn’t deny that this would be the preferred approach should the situation arise. My understanding is that House Democrats, for their part, are more inclined to let the GOP hang itself, or at least demand a higher level of spending in exchange for their votes.)

Scheiber thinks this is crazy. Why help out Boehner? Why not let the tea partiers get a shutdown out of their system now, instead of pushing them into even more of a frenzy for a shutdown when the debt ceiling is reached?

I think part of the answer comes from a continued misreading of Obama. Sure, his official budget calls for spending at higher levels than the sequester, but that's for show. All of his previous actions suggest that Obama is actually OK with the sequester. He's not in love with it or anything, but he's basically OK with lower spending levels and lower deficits. He'd choose a different method if he could, but the sequester has the virtue of lowering the deficit in a way he can blame on Republicans, thus assuaging his own base. So he'll accept it if he has to.

Given that, it's no surprise that he'll save Boehner's bacon if he can. He gets lower spending that he's basically OK with. He gets to maintain his persona as the adult in the room. And Boehner ends up owing him a favor.

Does this mean that tea partiers will be even more frenzied about shutting down the government over the debt ceiling since they didn't get to nuke the government over the budget? Probably. But I suspect that the Republican leadership is less willing to play games over the debt ceiling. They really do understand how dangerous this is. The posturing will last right up to the 11th hour, but in the end I think everyone will blink. They just aren't willing to wreck America's standing as an honest creditor and tank financial markets in the process. With a bit of minor face-saving attached (perhaps approval of the Keystone XL pipeline, which I suspect Obama secretly doesn't mind too much), it's possible that the debt ceiling may get raised without too much drama too.

Of course, this all depends on Boehner being able to get even 180 Republicans to vote for a clean CR, which will almost certainly require the support of Eric Cantor. Whether Cantor goes along is a bit of a wild card. Stay tuned.

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Republicans Warn Republicans of Imminent Crackup

| Fri Sep. 20, 2013 1:02 AM EDT

The Wall Street Journal thinks congressional Republicans are idiots for pretending they can force the president to defund Obamacare. Karl Rove agrees that defunding is plainly impossible and everyone knows it. Rich Lowry, editor of National Review, says the whole defunding campaign is nothing more than "theatrics," and a clean budget bill will end up passing the House in short order.

This is not a bunch of RINOs talking. They'd repeal Obamacare in a heartbeat if they could. But they're smart enough to know that tea-party Republicans are boxing themselves into a corner with no exit possible except a humiliating and ruinous capitulation. That's Highway 1.

Alternatively, they could drive a hard bargain on other items and quite possibly come out the other end with half a dozen genuine victories. That's Highway 2.

So which road are Republicans going down? Highway 1, of course. As a native Californian, I can confirm that this is indeed a very scenic route that will satisfy your yearning for a dramatic—and occasionally even hair-raising—ride. Unfortunately, it doesn't always get you where you want to go.

Health Care Spending Will Peak Around 2025 and Then Flatten Out

| Thu Sep. 19, 2013 7:44 PM EDT

This is apropos of nothing. I happened to be fiddling around with CMS health care expenditures and decided to take a look at how spending has increased year-over-year as a share of GDP for the past four decades. (Example: If spending increases from a 16 percent share of GDP to a 16.4 percent share of GDP, that's a year-over-year 2.5 percent growth rate.)

The chart below is a rolling 5-year average to smooth out the noise. Roughly speaking, it shows a steady decrease in the growth rate. If things continue along these lines, health care spending will continue increasing until it reaches about 21-22 percent of GDP sometime in the mid-2020s. The aging of the baby boom generation might send that number a little higher, but not by a lot, I suspect. The mechanism is simple: As spending goes up, our collective resistance to higher spending increases, and that's the ultimate brake on health care expenditures. I'm willing to bet that U.S. spending on health care will never top 25 percent of GDP. It might not even top 23 percent.

The Google Panopticon Is Set to Become Even More Omniscient

| Thu Sep. 19, 2013 12:00 PM EDT

Good news, privacy buffs!

Google Inc. may stop using "cookies" to track Web users.

Hooray! Free at last, free at — oh, wait. There's some fine print?

Instead of using tiny trackers that dozens of companies attach to websites to monitor people's browsing, Google is considering a switch to a system that would create its own anonymous identifier for each individual, a Google official said Wednesday....The proposal could force advertisers to turn to Google, already the biggest player in online advertising, to get information about people's shopping habits and preferences—rather than tracking users themselves.

....Mike Anderson, chief technology officer of Tealium, a software company that helps advertisers track users, said advertisers might be willing to trade in cookies for an identifier because it could help them create more detailed portraits of consumers. Right now, advertisers may place cookies on websites, but each uses different code, so they can't tell whether they're tracking the same user.

Google's proposal, which was reported earlier by USA Today, could give the advertisers ability to track people more widely. "The Internet gets a lot cleaner at that point," Mr. Anderson said.

So instead of lots of cookies that provide each advertiser with just a little bit of information, Google will track everything itself and collect it all into one big database that knows everything about you. Isn't that great? And so much cleaner!

Blowing in the Wind

| Thu Sep. 19, 2013 11:14 AM EDT

I've been clicking my mouse morosely all morning, unable to find something entertaining to blog about. After all, how many times —

Oh forget it. Paul Waldman said it better:

How many different ways are there to say that the Tea Party Republicans are both crazy and stupid? How often can you point out that John Boehner is pathetically weak, quite possibly the most ineffectual Speaker in the history of the House of Representatives? How many times can you remind people of all the awful things that would happen if the government shuts down and/or we don't raise the debt ceiling? How many times can you scream at Republicans that they are never, ever, ever going to repeal the Affordable Care Act so they should just give it the hell up already? How many times can you cry that this would be an insane way to run a junior-high student council, much less the government of the mightiest nation on earth?

Didn't Bob Dylan write a song about this?

The Market's Reaction to QE3 Is a Little Unnerving

| Thu Sep. 19, 2013 10:00 AM EDT

The Fed's QE3 program involves the purchase of $85 billion per month of mortgage-backed securities. In June, when the Fed suggested it might "taper" this down to $65 billion, markets tanked. Yesterday, when the Fed reversed course and announced that this wouldn't happen, bond and equity markets were euphoric and shot upward on the news.

Felix Salmon thinks—almost certainly correctly—that the size of the response to yesterday's news far outstrips the size of the potential change in Fed bond purchases:

If that is indeed the case, then what we’re seeing is what you might call the QE multiplier — the amount by which every dollar of QE effects the markets as a whole. I don’t know what we thought the QE multiplier was on Wednesday, but in light of Thursday’s market action we might need to revise our guesses: the QE multiplier is, I suspect, much larger than most of us would have pegged it at.

This doesn't worry Salmon. In fact, he thinks it's a good thing. It shows that the Fed's policies have a big bang for the buck.

I agree. And yet....there's something worrisome about it too. Right now the economy is still fragile, so it's not surprising that investors reacted positively to evidence that the Fed plans to continue its support. But it's not that fragile, is it? The reaction of the market really does seem out of whack with the likely impact of the Fed's program.

So we have a few possibilities. The first is that QE3 has a big impact and investors realize that. Alternatively, it could mean the economy is more fragile than we think and investors are reacting to that. Or maybe it's not especially fragile, but markets don't believe it and are far more skittish than they should be. Or it could mean that QE3 is mainly just a profit-making opportunity for financial institutions, and they're reacting rationally to it.

Three out of four of these are bad things. I'd feel a lot better about yesterday's news if I were sure that none of them was the real explanation for the market's apparent euphoria.

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Inflation, Syria, and a New President May Bring Iran to the Negotiating Table

| Thu Sep. 19, 2013 1:07 AM EDT

The crippling effect of ever-tightening economic sanctions—which have halved oil exports and produced ruinous inflation—along with the election of a new president, seems to have nudged Iran into getting serious about negotiating some kind of truce with the West:

In a near staccato burst of pronouncements, statements and speeches by the new president, Hassan Rouhani; his foreign minister, Mohammad Javad Zarif; and even the supreme leader, Ayatollah Ali Khamenei, the leadership has sent Rosh Hashana greetings to Israel via Twitter, released political prisoners, exchanged letters with President Obama, praised “flexibility” in negotiations and transferred responsibility for nuclear negotiations from the conservatives in the military to the Foreign Ministry.

“They’re putting stuff out faster than the naysayers can keep up,” said Gary Sick, an Iran expert with Columbia University. “They dominate the airwaves.”

....The current moment differs significantly from an earlier reform period under President Mohammad Khatami, when the rules on public behavior and freedom of expression were relaxed. But in contrast to the current situation, Mr. Khatami never had the serious backing of the Iranian political establishment. “Our supreme leader, Mr. Khamenei, has given the green light; that means there will be no groups trying to sabotage potential talks like in the past,” Mr. Ghorbanpour said.

The chart above shows the official inflation rate, which is currently running at about 45 percent annually. As bad as that sounds, outside experts reckon that it's even worse, upwards of 60 to 100 percent. Both Rouhani and Khamenei know that this spells political trouble if it keeps up, which gives them a genuine motive for working toward a rapprochement with President Obama. Beyond that, the civil war in Syria must be giving them pause for thought too. Not much has been going their way recently, and one way or another they need to turn that around.

I don't think anyone who's ever dealt with Iran is willing to get too optimistic about this until there's been a whole lot more progress than we've seen so far. But since I have nothing to feel optimistic about domestically, I'd really like to at least feel optimistic about something internationally. Until this latest round of quasi-dialogue collapses into the usual set of missed opportunities and mutual recriminations, it will have to do.

Yet Another Conservative Urban Legend Takes Root

| Wed Sep. 18, 2013 7:27 PM EDT

Yesterday I noticed an item reporting that Warren Buffett thought Obamacare should be scrapped. It took about ten seconds of googling to figure out that (a) Buffett's statement was made three years ago, and (b) he was lobbying for a better bill, not for health care reform to be abandoned. In fact, he specifically said that given a choice between the status quo and the bill wending its way through Congress, he'd take the bill. I considered writing a post about this, but the source seemed to be pretty obscure and nutballish, and anyway, my big toenail needed clipping. So I didn't bother.

That might have been a mistake. It turns out that this is an object lesson in how eager conservatives are to pick up even on things that are so plainly wrong they'd embarrass a five-year-old. Jon Chait does the honors:

The quote was picked up by Jeffrey H. Anderson of the Weekly Standard — “You know things are bad for President Obama when even Warren Buffett has soured on Obamacare and says that ‘we need something else’” — and ricocheted around the conservative-news world....In fact, the Buffett quote came from comments he made in 2010, when the health-care law was being cobbled together in Congress. His denunciation of “what we have right now” refers to the pre-Obamacare status quo.

....Anderson hilariously issued an “update” to his completely false item, in which he notes: “It appears that Buffett made his anti-Obamacare comments in 2010, thereby showing that he, like most of the American people, has opposed Obamacare since even before it was passed.”

Buffett immediately issued a statement calling these reports "100 percent wrong," and pointing out that he's supported Obamacare from the very start.

Too late, Warren! This is now officially a conservative urban legend that will never, ever go away. Whether it's true or not doesn't really matter.

Bernanke to Republicans: Stop Being the Stupid Party

| Wed Sep. 18, 2013 6:00 PM EDT

Congressional Republicans have been critical of the Fed's loose monetary policies for quite some time. Today, the Fed announced that monetary policy would stay loose for the foreseeable future, and Fed chair Ben Bernanke explained that part of the reason for this is....

The austerity crusade of congressional Republicans. The Fed's official statement noted bluntly that "fiscal policy is restraining economic growth," and Bernanke expanded on that in his press conference later in the day:

Federal fiscal policy continues to be an important restraint on growth and a source of
downside risk...and upcoming fiscal debates may involve additional risks to financial markets and to the broader economy. In light of these uncertainties, the Committee decided to await more evidence that the recovery’s progress will be sustained before adjusting the pace of asset purchases.

In the Q&A session that followed, he added a few more warnings:

A factor that did concern us in our discussion was some upcoming fiscal policy decisions. I would include both the possibility of a government shutdown, but also the debt limit issue....I think that a government shutdown, and perhaps even more so a failure to raise the debt limit, could have very serious consequences for the financial markets and for the economy.

....Our ability to offset these shocks is very limited, particularly a debt limit shock, and I think it's extraordinarily important that Congress and the administration work together to find a way to make sure that the government is funded, public services are provided, that the government pays its bills, and that we avoid any kind of event like 2011, which had, at least for a time, a noticeable adverse effect on confidence on the economy.

There's nothing new here. Bernanke has said all of these things before. The bottom line is simple: If Republicans really want to see monetary policy get back to normal, they need to stop sabotaging the economy with spending cuts and debt ceiling debacles. If they do that, the recovery will strengthen and the Fed will no longer be forced to sustain loose monetary policy as a way of offsetting stupid fiscal policy.

The Century-Long Effort to De-Tax the Rich

| Wed Sep. 18, 2013 1:28 PM EDT

David Cay Johnston writes today about the tea party movement:

Four years ago, the modern Tea Party seemed to emerge from nowhere....But little was spontaneous about the new party. “Social movements that explicitly defend the interests of the rich and the almost-rich have been a recurring feature of American politics,” Isaac William Martin, a sociologist at the University of California, San Diego, reminds us in his new book, Rich People’s Movements: Grassroots Campaigns to Untax the One Percent. “Such movements shook the American polity before the Obama era, before the Reagan era, and before Barry Goldwater ran for president—before, even, the New Deal.”

Yep. The whole thing is worth a read. My version from a couple of years ago is here.