Kevin Drum - October 2013

At the University of Chicago, Elevators Are Finally for Everyone

| Wed Oct. 9, 2013 4:12 PM EDT

After five months of agitation, the leaders of the University of Chicago have finally agreed that their sensibilities will not be too badly offended if they occasionally end up sharing an elevator car with a blue-collar maintenance worker. Corey Robin has the story here.

Remind me again which century we live in?

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The Weird Politics of Republican Hostage Taking

| Wed Oct. 9, 2013 1:41 PM EDT

So there's a weird thing going on with the Republican hostage-taking strategy. All of them agree that taking hostages is hunky dory, but there's a split over which hostage should be taken. Some Republicans think the party should go ahead and fund the government and then have an all-out fight using the debt ceiling as leverage. John Boehner, Charles Krauthammer, and Marc Thiessen are in this crew. On the other side, we have Republicans who think we should go ahead and raise the debt ceiling and use the government shutdown as leverage for conservative demands. Tea party firebrands Erick Erickson and Matt Kibbe are on this team.

Here's the weird part: The (relative) moderates want to rely on the debt ceiling for leverage, even though breaching the debt ceiling would be far more catastrophic than a government shutdown. The (relative) extremists are shying away from the horror of a debt ceiling breach and just want to continue the shutdown. Doesn't this seem backward?

It depends on what the real motivations are. Team Boehner claims that they want to use the debt ceiling as a hostage because it's better leverage. But Team Erickson doesn't believe them. They apparently think this is just cover. The moderates know perfectly well that a debt ceiling breach would cause a market panic that in turn would force Republicans to cave in. So they're only pushing this line because they want a way out of the fight, and this will do it. Conversely, a fight over the government shutdown could go on for a long, long time, and eventually Democrats might end up caving in.

That's my take on the oddness of which players are on which team, anyway. Is it correct? I'm not sure. I need Dave Weigel or Robert Costa or someone like that to help interpret the wall posters here.

Should Credit Card Companies Get to Decide Who Does Business on the Web?

| Wed Oct. 9, 2013 12:10 PM EDT

A few days ago David Segal wrote a story in the New York Times about the latest in sleazy internet rackets: companies that post mug shots from arrests and make money by charging people to take them down. Maxwell Birnbaum, a college freshman who got caught with a few Ecstasy pills in his knapsack, will soon have a clean record in the eyes of the law, but not anywhere else:

In the eyes of anyone who searches for Mr. Birnbaum online, the taint could last a very long time. That’s because the mug shot from his arrest is posted on a handful of for-profit Web sites, with names like Mugshots, BustedMugshots and JustMugshots. These companies routinely show up high in Google searches; a week ago, the top four results for “Maxwell Birnbaum” were mug-shot sites.

The ostensible point of these sites is to give the public a quick way to glean the unsavory history of a neighbor, a potential date or anyone else. That sounds civic-minded, until you consider one way most of these sites make money: by charging a fee to remove the image. That fee can be anywhere from $30 to $400, or even higher. Pay up, in other words, and the picture is deleted, at least from the site that was paid.

But that's not the end of the story. Segal followed up with credit card companies, and they all agreed to shut down the mug shot scammers:

“We looked at the activity and found it repugnant,” said Noah Hanft, general counsel with the company. MasterCard executives contacted the merchant bank that handles all of its largest mug-shot site accounts and urged it to drop them as customers. “They are in the process of terminating them,” Mr. Hanft said.

PayPal came back with a similar response after being contacted for this article....American Express and Discover were contacted on Monday and, two days later, both companies said they were severing relationships with mug-shot sites. A representative of Visa wrote to say it was asking merchant banks to investigate business practices of the sites “to ensure they are both legal and in compliance with Visa operating regulations.”

This is worthy of applause. And yet....it's also worthy of a pause. It's possible that there's no slippery slope here and nothing to worry about, but it's worth asking whether we really want credit card companies making moral judgments about which businesses should be blacklisted from doing business on the web. It's certainly possible to envision a public outcry over something that ends up cutting off a business for unpopular political views, not just semi-extortion schemes like the mug shot guys. It's worth some thought.

Don't Expect Janet Yellen to Make Any Waves at the Fed

| Wed Oct. 9, 2013 11:27 AM EDT

The big news in central banking today is Janet Yellen's impending nomination to replace Ben Bernanke as head of the Federal Reserve. As lots of people will tell you, she's fantastically well qualified; she'll be the first woman to head the Fed; and she's a monetary dove. (Or an "unemployment hawk" if you prefer.)

That's the nickel take on Yellen, and so far, in the dozens of pieces I've read about Yellen last night and this morning, I haven't seen anything else about her that's truly new or interesting. Until now. This is from an interview Jim Tankersley did with Yellen last November:

On using monetary policy to try to get the economy revving:

“There are a lot of things holding back the economy. If one were making a list of the top five or ten things holding back the economy, you wouldn’t say money being too tight, and interest rates being too high were on it. But interest rates and credit conditions are what we can affect. They are not the problem, but they can be part of the solution.”

That's....remarkable. Yellen doesn't seem to think that monetary policy even makes the top ten list of things that could help the economy right now. Admittedly, her wording is a little bit opaque. Technically, all she says is that current Fed policy isn't one of the big things holding back the economy. But the implication is pretty clear: if that's true, it means that there aren't any changes to Fed policy that could have a significant positive effect on the recovery.

In one sense, I suppose this isn't a big surprise. Yellen has been one of the architects of current Fed policy, and nobody thinks she's the kind of person likely to promote radical new ideas. Still, the fact that monetary policy right now doesn't even make her top ten list means that she thinks Fed policy right now is essentially ideal. Once you get outside the top ten, after all, you're dealing with effects so small they're barely noticeable. Steady as she goes, folks.

The Name is Bond. Premium Bond.

| Wed Oct. 9, 2013 10:33 AM EDT

I have to give Matt Levine credit for finally promoting a genuinely interesting theory about how to overcome the debt ceiling follies. No platinum coins, no dubious constitutional workarounds, just a simple new kind of treasury bond, which he calls a premium bond.

It's simple. When an old $1,000 bond matures, replace with another $1,000 bond that sells for $2,000. That provides the government with an extra thousand dollars. And why would anyone buy it? Because the interest rate would be really high, around 20-30 percent or so. Unless I'm missing something, this would be unquestionably legal; the math works out fine for investors; and it provides the federal government with lots of extra money.

Now, as Matt Yglesias points out, whether they're legal or not, issuing these bonds would almost certainly set off "an avalanche of litigation and uncertainty" about their status. And that might scare off investors. And as Levine points out, this is still banana republic terroritory, but "as lunatic schemes go, it gives off less of a banana-republic-from-outer-space whiff than the platinum coin does." In other words, in the real world it's not going to happen.

Why write about it then? Just because it's an impressive display of human ingenuity and flexibility. It's amazing the ideas we can collectively come up with once there's a gun to our heads and we have to.

UPDATE: Since this isn't going to happen, it probably doesn't bear too much scrutiny, but as I was eating breakfast I got to wondering about the "unquestionably legal" part of this. If you sell it for $2,000, does that mean it's a $2,000 debt no matter what denomination you put on the bond itself? I'm not sure! Perhaps some lawyers with idle time on their hands will weigh in on this.

UPDATE 2: A reader emails:

The amount of debt represented by any bond is the amount the bond promises to pay back, regardless of the purchase price. If the bond promises to pay $1000 at maturity, it’s $1000 of debt regardless of whether it sells for $1 or $100,000. In addition, the debt limit statute doesn’t affect the interest rate, which floats independently of the principal. The “premium bond” idea is unquestionably cockamamie, but it has no whiff of illegality about it.

Huh. Well, maybe so. I wonder what a judge would say? In any case, if this is really how it works, why even bother with the $1,000 face value? Why not issue a one mil bond that pays out a million percent interest (or whatever) and sells for $10,000? In other words, basically a guaranteed coupon with essentially no value at maturity at all. That would put the debt ceiling out of business for good.

Obamacare Isn't the First Program to Have Opening Day Headaches

| Wed Oct. 9, 2013 12:11 AM EDT

It's easy to get alarmed about the widely-reported problems with the Obamacare website. People can't log in; can't create accounts; and have to endure crashes and software failures once they do finally get on. It's a mess. And it's an embarrassing mess.

At the same time, it's easy to overreact. Today, Stephanie Mencimer reminds us of what it was like during the early days of the Massachusetts program that served as a template for Obamacare:

After the law went into effect in Massachusetts, state offices were totally overwhelmed by the number of people clamoring to sign up for insurance, or what the state's Medicaid director dubbed the "stress of success." Lost paperwork, computer glitches, confusion over who was eligible for what, and not enough staff to handle the workload meant that in those early days, consumers could wait several months after submitting an application to finally get coverage....In the first two months, only 18,000 of more than 200,000 potentially eligible people had successfully signed up through the connector, according to Jonathan Gruber, an MIT professor who helped design the Massachusetts system and served on the Connector board.

....But guess what? Eventually the kinks got worked out and people got covered. Enrollment opened in October 2006, and by the deadline for getting mandatory coverage, July 1, 2007, the Boston Globe reported, 20,000 more people had signed up for insurance on the exchange than the state had expected—12,000 of them in just the two weeks before the deadline. Total enrollment went from 18,000 in December 2006 to 158,000 a year later, says Gruber.

Read the whole thing for more. None of this means that we should be dismissive about the technical problems with the exchanges. At the same time, most of the state programs are already working pretty well, and the federal program is slowly but surely getting better. There's still plenty of time to sign up; phone banks are accessible in addition to the website; and the navigator program is just starting to get underway. Within a few weeks, things will be working tolerably well and people will begin signing up in large numbers. By January 1, we'll likely have millions of satisfied customers signed up via the exchanges, and the early hiccups will be forgotten.

And look at the bright side: for all of Obamacare's problems, it's already working better than Congress. And unlike Congress, it's almost certain to get better.

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Why Are We Talking About the Debt Ceiling Crisis As If It's Normal Politics?

| Tue Oct. 8, 2013 5:48 PM EDT

I was noodling over Obama's debt ceiling press conference during lunch, and the thing that struck me—again—was how hard it is to truly communicate his postion. And I sympathize. I've written about the basics of the debt ceiling hostage crisis at least a dozen times, and I still don't feel like I've ever been able to get across just how radical the whole thing is.

Except for Newt Gingrich in 1995, no one has ever shut down the government as a threat to get something they want. And except for John Boehner in 2011, nobody has ever threatened to breach the debt ceiling as leverage to get something they want. That's because it's basically nuclear chicken, threatening to destroy the economy unless you get your way. It's unthinkable.

And yet, it's now become so institutionalized that Republicans can repeat over and over their mantra that "President Obama refuses to negotiate," and eventually it starts to get some traction. Reporters who should know better write columns suggesting that Obama should try to bargain his way out of this. Conservative pundits complain not about the hostage taking itself, but about the fact that Republicans should be sure to choose the superior—i.e., most damaging— hostage-taking opportunity available. And Obama is forced to take the stage and try out an extended series of metaphors to explain exactly what's going on. And then we all sit around and analyze his speech and nitpick his metaphors and game out how this might end.

It's crazy. How do you get across how insurrectionary this is? Raising the debt ceiling isn't a concession from Republicans that deserves a corresponding concession from Democrats. It's the financial equivalent of a nuclear bomb: both sides will go up in smoke if it's triggered. Ditto for the government shutdown. And ditto again for the piecemeal spending bills, which are basically a way for Republicans to fund only the parts of government they like but not anything else.

You can't govern a country this way. You can't allow a minority party to make relentless demands not through the political system, but by threatening Armageddon if they don't get what they want. It's not what the Constitution intended; it's not something any president could countenance; and it's reckless almost beyond imagining.

And most important of all, it's not something that should get written about as if it's just a modest escalation of normal political disagreements. It's not normal. At all. But how do you get this across? How do you get across just how non-normal it is that we're even talking about it?

Quote of the Day: $3.5 Million Is Chickenfeed

| Tue Oct. 8, 2013 5:03 PM EDT

From Supreme Court Justice Antonin Scalia:

I don't think $3.5 million is a heck of a lot of money.

This remark came in the context of oral arguments over campaign finance limits. Scalia's position seems to be that since there's a ton of money already flooding our political campaigns, there's not much reason not to allow even vaster sums to sluice through the system. I guess you have to be a constitutional scholar to understand this logic.

Obama Talks About the Debt Ceiling

| Tue Oct. 8, 2013 2:22 PM EDT

President Obama has been holding forth on the debt ceiling and the government shutdown for over an hour now, and you can't fault him for his ability to stay on message. He's been clearer than usual, and less stuttery than usual, and he's repeated his basic position over and over and over: I'll negotiate about anything, but not as ransom to prevent economic chaos. Democrats have asked Republicans for budget meetings 19 times over the past six months, and they've refused because they wanted to wait until they could use threats to get what they wanted. That's unacceptable. Unilateral threats to burn down the country are unacceptable. But take the threats off the table, and then we can talk.

Will it work? I don't know. I'll leave the detailed commentary to others. But I did like it when Obama told one reporter (I forget which one) "You know they've been planning to use threats to get their way for months. You've been reporting on it." It's true. Reporters know perfectly well how this all happened. It's not as if Republicans have made any secret of their plans, after all.

Investors Are Getting Ever More Nervous About a Treasury Default

| Tue Oct. 8, 2013 2:01 PM EDT

Last week I linked to a report showing a sharp increase in rates for treasury bonds that mature in late October. This is a signal that markets are starting to get genuinely nervous about the possibility of delayed payment on these notes. Today, Neil Irwin passes along the latest on this. As the chart on the right shows, the rates on short-term bills have hovered right around zero percent for all of September. Then, starting October 1, rates started to rise. In the past 48 hours, they've spiked enormously:

There are reports, including this one from Reuters, indicating that some of the biggest money managers in the world are starting to avoid U.S. government debt that matures in the near future out of fear they will not be repaid promptly. Bond investors seem to be confident that the U.S. government will make good on its obligations in the longer term --securities that mature a year or more from now are actually seeing their rates fall. But they are becoming less confident that these short-term securities will pay on time.

Ironically, this can create self-fulfilling problems for the Treasury. Treasury bills roll over every week, on Thursdays. Here's how it works: The government issues the bills for a "discount," then refunds the par value when they come due. So, for example, an investor might pay $995 for a bill that returns $1,000 in three months, for an equivalent of about a 2 percent annual interest rate.

As Irwin says, there's an easy answer to this. Just raise the debt ceiling.