By a vote of 53 to 38, the Senate failed to break a filibuster of Robert L. Wilkins, a federal judge who was nominated to fill one of three vacancies on the United States Court of Appeals for the District of Columbia Circuit....The impasse over Mr. Wilkins followed Republican blockades of two other candidates for the court since Oct. 31. Unlike previous fights over judicial nominees, the dispute is not as much about the judges’ individual political leanings....Rather, Republicans are seeking to prevent Mr. Obama from filling any of the three existing vacancies on the 11-seat court, fearing that he will alter its conservative tilt.
....Republicans are on the verge of exhausting the last bit of tolerance Democrats have shown for such regular use of the filibuster on nominations. Senator Patrick J. Leahy of Vermont, the Senate’s longest-serving current member, who has fought to safeguard the institution’s traditions, said Monday that momentum was building toward a rules change — a move so controversial that it is referred to as the nuclear option.
“I’ve never seen anything like this,” Mr. Leahy said.
Leahy has been a pretty straight shooter on judicial nominations, honoring Republican holds and defending traditional Senate prerogatives. If he's finally losing patience, it's possible that Democrats are finally ready to eliminate the filibuster on judicial nominees. Here's hoping.
(And while they're at it, how about eliminating the filibuster on executive branch nominees too? That's even less defensible.)
The Postal Service inflamed the general public earlier this year when it tried to eliminate Saturday delivery, but now it's really playing with fire. Stamp collectors are up in arms over their latest venture, and you do not want to piss off stamp collectors:
On Tuesday, the U.S. Postal Service is scheduled to release 20 postage stamps honoring Harry Potter, and officials at the cash-strapped agency hope the images, drawn straight from the Warner Bros. movies, will be the biggest blockbuster since the Elvis Presley stamp 20 years ago.
But the selection of the British boy wizard is creating a stir in the cloistered world of postage-stamp policy. The Postal Service has bypassed the panel charged with researching and recommending subjects for new stamps, and the members are rankled, not least of all because Potter is a foreigner, several members said.
....“Harry Potter is not American. It’s foreign, and it’s so blatantly commercial it’s off the charts,” said John Hotchner, a stamp collector in Falls Church and former president of the American Philatelic Society, who served on the committee for 12 years until 2010. “The Postal Service knows what will sell, but that’s not what stamps ought to be about. Things that don’t sell so well are part of the American story.”
Meh. I just googled Harry Potter stamps, and it looks to me like half the countries in the world have already issued them. If France and Albania can do it, why can't we? So go ahead. Next up for the America haters: Babar postage stamps. I'd buy some.
We find that more academically competent individuals are being drawn into the teaching profession....driven mainly by the proportion of teachers with SAT scores that fall in the top quartile of the distribution. This finding of increasing academic competence for newer entrants to the teacher labor market also shows up when we use undergraduate GPA as our indicator of academic competency, though research by Cory Koedel indicates that inconsistent grading standards across academic majors may render this measure less meaningful.
G&W's research suggests that schools are drawing fewer teachers from the bottom quartile of SAT scores and more teachers from the top quartile. You can see this in the thick red line in the chart on the right (taken from the original paper), which shows the number of teachers from the class of 2008 with different SAT scores: compared to 1993 and 2000, there are fewer from the lower ranks, about the same number from the middle ranks, and more from the higher ranks. Megan McArdle suggests this is mainly due to the Great Recession:
As insecurity in the private-sector labor market increases, the value of public-sector job protections effectively increases, meaning that candidates will be willing to accept lower pay in exchange for the guarantee that it will be nearly impossible to fire them....It’s also possible that a lot of college students suddenly and for no apparent reason decided they wanted to be teachers around the same time that the job market became massively more insecure. But I’m betting it’s no coincidence. Bad news for the graduating seniors, but good news for the nation’s schools.
This is reasonable sounding. However, the most recent data is for teachers hired in 2008, which predates the big spike in unemployment starting in 2009. So I'm not quite convinced. I'd like to see data through 2013 to confirm what's going on. Given the steep rise in private-sector unemployment and the precipitous decline in private-sector job security over the past five years, we should expect to see schools becoming even more selective about who they're willing to hire. If the recession story is true, the data should show at least another 5 percentile point increase in the SAT scores of new teachers.
Over at the Prospect, David Callahan writes that a new critique of rising income inequality is starting to get some attention. It doesn't rely on arguments about fairness, but on arguments that high income inequality hurts economic growth:
This argument follows a simple causal chain: unequal growth concentrates wealth in the hands of a tiny slice of consumers who can only spend so much money. In turn, the vast majority of earners are left with little extra cash for goods and services. Resulting weak demand undermines growth. Low growth makes everyone poorer than they otherwise might be, including those who own the means of production. Inequality produces other bad economic outcomes, too, such as the underutilization of the nation's human capital, inadequate public investment in both human and physical capital, and social ills that are costly to address, diverting away resources from investment.
The basic idea here is that low and middle-income people spend most of their income, while rich people spend only a fraction of what they earn. So if the rich get a bigger share of total income, then total consumption goes down and the economy flounders. Here's a simple example to give you an idea of how this works. Suppose a country has a total income of $1,000. Furthermore, rich people spend half the money they make while everyone else spends their entire income:
Bottom 99 percent receives $900 of income and spends all $900.
Top 1 percent receives $100 of income and spends $50.
Grand total consumption = $950.
Now suppose that income inequality goes up:
Bottom 99 percent receives $800 of income and spends $800.
Top 1 percent receives $200 of income and spends $100.
Grand total consumption = $900.
This makes a lot of intuitive sense. Unfortunately, the evidence doesn't really seem to support it. "I've been surprised at just how much the rich can spend," said Jared Bernstein, former chief economist to Joe Biden, when I called to ask him about this last year. He's a pretty progressive guy, but he just didn't think there was much convincing research to back this theory.
However, there are some other theories that strike me as better grounded. One theory suggests that as inequality goes up, the rich save more and the middle class borrows more, eventually causing an economic crisis when the debt bubble bursts. There's also an argument that rising inequality leads to the financialization of an economy, which produces economic instability. Or that rising inequality produces political instability as the rich gain more and more influence on the levers of politics. Or that inequality leads to poorer educational opportunities for the middle class, which in turn produces low growth.
Are any of these correct? I happen to particularly believe the first one might be, but the plain truth is that it's still pretty speculative. You can state the thesis in a few paragraphs (simple example here, more scholarly example here), and that's about all there is to say about it. To go further, we need evidence, and this is why all of us on the left should be pleased at the founding of the Washington Center for Equitable Growth, which is dedicated to commissioning serious research on the causes of inequality and how they relate to economic growth.
For myself, I'll happily continue to favor lower levels of inequality purely for reasons of basic fairness and human decency. It's just flatly obscene for the top 10 percent to be hoovering up nearly all the fruits of economic growth while everyone else stagnates. I can't think of any reason why anyone would consider this an acceptable state of affairs. Nonetheless, as Callahan notes, that's not enough for most people. If we want to convince them that this is a problem worth addressing, we need other arguments.
Last week Israel announced it would build 20,000 new settlement homes in the occupied West Bank. It kinda sorta withdrew this plan in the face of international outrage. Then Benjamin Netanyahu went on CNN to blast President Obama's peace overtures to Iran, while a key advisor told the Financial Times that Israel was ready and willing to bomb Iran whether America liked it or not. Dan Drezner says the technical IR term for this behavior is "wigging out":
Israeli jaw-jawing about a military strike puts it into a corner with no good exit option. Netanyahu's definition of a bad nuclear deal seems to include... any nuclear deal. So say that one is negotiated. What can Israel do then? Netanyahu could follow through on his rhetoric and launch a unilateral strike. Maybe that would set Iran back a few years. It would also rupture any deal, accelerate Iran's nuclear ambitions, invite unconventional retaliation from Iran and its proxies, and isolate Israel even further. If Netanyahu doesn't follow through on his rhetoric, then every disparaging Israeli quote about Obama's volte-face on Syria will be thrown back at the Israeli security establishment. Times a hundred.
"Right now," Drezner says, "Israel is pretty much pissing all over the Obama administration." Netanyahu obviously has good reason to think that Republicans will support him in this unreservedly, but he better be careful. Even Obama-hating tea party types can start to get a little antsy when a foreign leader is so obviously contemptuous of American interests and the American president.
It's time to take bets. Last week the stars aligned and the media went into an insane feeding frenzy about what Obamacare's rollout problems meant. Democrats in disarray! No, wait. It's worse. Democrats are running for the exits! No, wait. Next year's midterms are set to be a disaster! No, wait. Obamacare is doomed! No, wait. Liberalism is doomed!
So here's the bet. This has pretty obviously become a game of one-upsmanship, and it seems to be continuing this week. For a story to get attention, it has to be even more hysterical than anything that's come before, so that's what we're getting. It's a doom-mongering bubble.
But bubbles always burst eventually. So when will the backlash arrive? What story will, in retrospect, be seen as the pinnacle of panic-stricken hysteria? Who will write it? When will it appear? Make your guess in comments.
Ezra Klein writes today that reporters should stop asking if Obamacare is "Obama's Katrina." After all, Katrina killed 1,833 people. The Obamacare rollout has killed zero people. So knock it off.
Now, I'm on record as not really minding these kinds of comparisons. Usually, when you see a comparison to Hitler or slavery or Katrina or something like that, it's obviously not meant to be taken literally. It's just that these are the historical events big enough that everyone knows about them, and that makes them handy reference points. I'm in a distinct minority on this, but aside from some of the most egregious abuses, I don't really object to this kind of stuff.1
However, Klein raises another point that's interesting for a different reason: nobody really needs to compare Obamacare to Katrina because there's a much more apt comparison at hand: the rollout of Medicare Part D in 2006. It was a disaster! And it was a health care plan! What better comparison do you need?
And yet, no one uses it. No one. Why is that? It's not because it was too long ago. Washington reporters all remember 2006. It's not because it wasn't a fiasco. It was. It's not because it didn't affect lots of people. It did. It's not because seniors didn't complain loudly. They did. And yet, despite all that, no one uses it. Why?
Here's my guess: It's because in 2006 there was no liberal equivalent of Drudge and Limbaugh and Fox News on the left. That's changed a bit since, but MSNBC is still a shadow of the Drudge/Fox/Limbaugh axis. These guys are simply way better at milking a narrative and getting the traditional media to play along. And the Obamacare narrative is tailor-made for them. Bureaucratic failure. Broken promises. Rising costs. Their outrage is taken as entirely sincere, and for that reason it gets amplified into a feeding frenzy in the media that makes the Obamacare rollout seem not just modestly worse than the Medicare Part D rollout, but an epic disaster unparalleled in the history of social welfare.
In fairness, there's a second reason: The Medicare Part D rollout might have been a debacle, but it didn't cost anyone anything. It was literally something for nothing, so nobody ended up with higher monthly bills to complain about. That's the miracle of being a fiscally irresponsible party that funds new programs without bothering to pay for them. Democrats could have done the same thing with Obamacare and avoided a lot of its rollout problems, but they mostly decided to be responsible and pay for things honestly. As usual, it turns out that Americans don't appreciate that much.
1This is not a license to be an idiot. If you start calling Obamacare "Obama's Holocaust," then you're an idiot.
Dave Weigel thinks stories about Democrats freaking out over Obamacare are overstated:
You can find anonymous Democrats to panic about anything, and you can find plenty of Democrats willing to trash implementation so far, on the record. But recently, when I was talking to one of the Democrats assigned to win House seats in 2014, I got the impression that the panic is tied largely to the crisis of healthcare.gov. If the website sucked wind through Thanksgiving, said the Democrat, it was dreadful but, for Democrats, survivable. If it failed into 2014? That would blow open doors for Republican-led delay bills, and the party's vulnerable members would start to endorse those bills, because what choice would they have?
Day to day, it's very easy to write a "collapse of liberalism" story. Talk to Democrats, though, and you learn that to a staggering degree they think a fixed website would end the general crisis. One month of increased signups—that's all they want. Ask them how they feel in mid-December.
I agree on all points. The Obamacare rollout has unarguably been a fiasco, but memories are short, both on Capitol Hill and in the country at large. Fix things fairly soon and it will be a non-issue in next year's election.1 And it really is all about the website. That's a problem. By contrast, it's still not clear just how big a problem rate shock is. There's no question that it's hit a fair number of people, and as with any bell curve, there's no question that there are a few people on the right tail who are getting hit badly. But in the absence of hard data, my growing sense is that the number of people with a serious case of rate shock is fairly modest. It's not a nothingburger, but it doesn't feel like a political catastrophe either. Jon Cohn provides some details here.
(As a reader reminded me this weekend, network shock might actually be a bigger issue. It's one thing to get a rate increase. That's bad, but it's often tolerable, and everyone in the individual market is pretty used to big annual premium increases anyway. But a lot of plans on the exchange restrict doctor networks fairly severely, and this could be a big problem for people who are loyal to their current physicians. On the other hand, rate shock is mostly a problem for people who make too much money to qualify for subsidies, and they can always buy outside the exchanges. So even here, it's unclear just how many people are really affected.)
All that said, I'm a little surprised at how little concrete data we have on a lot of this stuff. After a month and a half, we're still mostly just trading and debunking anecdotes.
NOTE: Image above courtesy of MoJo senior editor Dave Gilson. I couldn't not use it, could I?
1Especially if Republicans decide to hijack the news cycle in January with some more insane budget demands. Given their almost comical lack of party discipline in this area, I'd say this is a good bet.
John Quiggin wants to rein in big banks, and figures the best way to do it is to separate basic banking (taking in deposits, making loans) from everything else (trading, M&A, derivatives, etc.). Matt Yglesias objects, because we're already trying to do a limited version of this with the Volcker Rule and it's turned out to be really, really hard:
I could keep droning on about this, but I'll stop. The point is that other people ought to drone on a bit more about which rules, exactly, they want to see put in place and why the objections to those rules are wrong. The general argument that the backstopped segment of the banking system should be ringfenced from the speculative bit is so persuasive that the U.S. Congress already passed a law purporting to do it. Yet obviously finance has hardly been dethroned from its commanding place in American political economy, and guaranteed banks haven't stopped engaging in big speculative trades.
This is one of my perpetual problems with complaints about regulation. It's easy to say we should have less of it, and probably we should. And yet, the plain fact is that we live in a really big, really complicated society. There's just no getting around that. And that means our regulatory apparatus is going to be big and complicated too. I'm not sure there's any getting around that either.
In the case of high finance, I happen to think that I'd probably trade all of Dodd-Frank for a simple but severe minimum leverage requirement. But even if we all agreed about that, it's not as if that would be a trivially easy regulation to write. Leverage is a ratio, and you have to define both the numerator and the denominator, both of which are very complex when you're dealing with big banks. You also have to make sure your new reg applies not just to chartered banks, but to the shadow banking system as well. (AIG wasn't a bank, but its failure caused plenty of problems.) That adds yet more complexity. And then you have to stay ahead of all the bright boys and girls who will figure ways around your shiny new rule as time goes by.
And that's the best case: a complex environment where, at least arguably, there's a relatively simple rule that might serve us better than a thousand smaller rules. You really don't run into that very often. In most cases, it's really hard to think of a simple rule that works well and fairly. If you're a libertarian who thinks a modern mixed economy can work great with only minimal regulation in the first place, this isn't a problem. You'll just take a chainsaw to the regulatory state. For the rest of us, though, the answers aren't easy. It's just not clear how a complex society can run without fairly complex rules.
This weekend Paul Krugman lavished immense praise on a presentation that Larry Summers gave to the IMF a few days ago, and I'll confess that I'm a little puzzled by this. Not because it wasn't a good presentation. It was. But it's quite short and basically just tosses out an idea without really elaborating on it much. Here's the idea: we might be in a permanent condition of slow economic growth—i.e., secular stagnation.
The evidence Summers presents is pretty straightforward: during the aughts, we had a huge housing bubble, and yet the economy still performed only listlessly:
Too easy money, too much borrowing, too much [perceived] wealth. Was there a great boom? Capacity utilization wasn't under any great pressure. Unemployment wasn't under any remarkably low level. Inflation was entirely quiescent. So somehow even a great bubble wasn't enough to produce any excess in aggregate demand.
That's true enough, and you can argue that this is a new thing. As recently as the late 90s, the dotcom bubble did produce a boom and did push employment to very high levels. That in turn put pressure on employers to offer higher wages, and sure enough, wages went up.
But the housing bubble, despite being even bigger than the dotcom bubble, did no such thing. As Summers says, it didn't produce high employment; it didn't push wages up; and it didn't get the economy running at full capacity. And today, six years after the bubble burst and four years into recovery, with the world's financial plumbing once again functioning just fine, the economy still isn't running at high capacity. What's up?
When I've talked about this before, I haven't framed it as a problem of the natural interest rate going below zero, as Summers does. Instead, I've usually framed it as a problem of an investment drought. There simply aren't enough promising real-world investments available, which means that lots of money is either sitting on the sidelines or else getting diverted into financial rocket science.
Now, in one sense, this is just two ways of saying the same thing: there aren't enough promising real-world investments at current interest rates. It doesn't matter that real interest rates are already negative. Reduce them even further, and more investments will look like winners. And yet, if Summers is right and this is a permanent condition,1 we're still left with a question: what happened to produce a world in which, for an extended period of time, even negative interest rates aren't low enough to make real-world investments attractive in sufficient quantities to get the economy humming?
The answer matters, because it determines our response. Krugman mentions demographics as one possible answer: slowing population growth means slower economic growth. Another possibility is increased automation: as machines take over more and more work, there are fewer jobs available and less income to spend. There's also Tyler Cowen's great stagnation thesis. Or the possibility that increasing income inequality means that the future will have fewer and fewer middle-class buyers to power a consumer economy, and investors know it. Or perhaps, as Jared Bernstein suggests, the culprit is the financialization of America (and the world):
I wonder if the key is “secular,” as in sector, as in sectoral misallocation. Many observers of the US economy have worried about the impact of financialization—the relative growth of the finance sector—on growth. Part of the concern is the bubble machine, and part is the devotion of considerable resources to non-productive activities.
And the misallocation is profound. Who out there thinks financial markets are playing their necessary role of allocating excess savings to their most productive uses? Anyone?
Not me. And yet, I wonder if this is really something that can be blamed on Wall Street? I'm all for reining in the size of the financial sector, but I confess to thinking that there must be something deeper than this that underlies our problem. Wall Street would happily allocate more money to real-world investment opportunities if the demand were there. But it's not, even with essentially free money. For some reason, the investment community doesn't believe that expanding production of real-world goods and services to maximum levels will pay off. If Summers is right, this is not a temporary condition that can be solved with monetary policy, it's a permanent change in the economy. But why? One way or another, the answer has to get back to the real world. That's where everything starts.
1Something that's still up in the air. Usually, when bad economic times last long enough, people start to think they'll last forever. Ditto for good economic times. It may be that we're just in an unusually bad recession and need more time to pull out. However, the evidence of the aughts really does suggest that something happened to the economy starting around 2000, which means it's been going on for an awfully long time.