Kevin Drum

Chart of the Day: Oil Is Getting Harder and Harder to Find

| Wed Jul. 23, 2014 12:46 PM EDT

Oil expert James Hamilton has an interesting summary of the current world oil market up today, and it's worth a read. His bottom line, however, is that $100-per-barrel oil is here to stay:

The run-up of oil prices over the last decade resulted from strong growth of demand from emerging economies confronting limited physical potential to increase production from conventional sources. Certainly a change in those fundamentals could shift the equation dramatically. If China were to face a financial crisis, or if peace and stability were suddenly to break out in the Middle East and North Africa, a sharp drop in oil prices would be expected. But even if such events were to occur, the emerging economies would surely subsequently resume their growth, in which case any gains in production from Libya or Iraq would only buy a few more years.

The chart on the right shows the situation dramatically. In just the past ten years, capital spending by major oil companies on exploration and extraction has tripled. And the result? Those same companies are producing less oil than they were in 2004. There's still new oil out there, but it's increasingly both expensive to get and expensive to refine.

(And all the hype to the contrary, the fracking revolution hasn't changed that. There's oil in those formations in Texas and North Dakota, but the wells only produce for a few years each and production costs are sky high compared to conventional oil.)

In a hypertechnical sense, the peak oil optimists were right: New technology has been able to keep global oil production growing longer than the pessimists thought. But, it turns out, not by much. Global oil production is growing very slowly; the cost of new oil is skyrocketing; the quality of new oil is mostly lousy; and we continue to bump up right against the edge of global demand, which means that even a small disruption in supply can send the world into an economic tailspin. So details aside, the pessimists continue to be right in practice even if they didn't predict the exact date we'd hit peak oil. It's long past time to get dead serious about finding renewable replacements on a very large scale.

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Lots of Americans Think Obamacare Has Benefited Nobody

| Wed Jul. 23, 2014 12:00 PM EDT

Greg Sargent points us to an interesting new CNN poll about Obamacare. It asks the usual question about favoring or opposing the law, with the usual results. The basic question shows that Obamacare is unpopular by 40-59 percent, but when you add in the folks who "oppose" it only because they wish it were more liberal, it flips to 57-38 percent. In other words, if you confine yourself to garden variety conservative opposition to Obamacare, there's not nearly as much as most polls suggest.

But then there's another question: Has Obamacare helped you or your family personally? About 18 percent say yes. How about other families? Do you think Obamacare has helped anyone at all?

And guess what: A huge majority of Republicans and conservatives don’t think the law has helped anybody in this country.

Among all Americans, the poll finds that 18 percent say the law has made them and their families better off....Meanwhile, 44 percent say the law hasn’t helped anybody — a lot, but still a minority.

Crucially, an astonishing 72 percent of Republicans, and 64 percent of conservatives, say the law hasn’t helped anyone. (Only one percent of Republicans say the law has helped them!) By contrast, 57 percent of moderates say the law has helped them or others. Independents are evenly divided.

Perhaps these numbers among Republicans and conservatives only capture generalized antipathy towards the law. Or perhaps they reflect the belief that Obamacare can’t be helping anyone, even its beneficiaries, since dependency on Big Gummint can only be self-destructive. Either way, the findings again underscore the degree to which Republicans and conservatives inhabit a separate intellectual universe about it.

Maybe I shouldn't be, but I'm a little more dismayed by the news that even a large number of moderates and independents don't think Obamacare has helped anyone. In a way, that's more disturbing than the dumb—but predictable—knee-jerk Republican view that automatically produces a "no" whenever the question relates to something positive about Obamacare.

I guess the lesson is that liberals still haven't done a very good job of promoting the benefits of Obamacare. Maybe that's an impossible task since, after all, it's not as if you can expect the media to run endless identical stories about local folks who finally got health insurance. Still, it's a funny thing. If you passed a law that gave cars to 10 million poor Americans, pretty much everyone would agree that some people benefited from the program. But if you pass a law that gives health insurance to 10 million poor Americans, lots of people think it's just a gigantic illusion that's helped no one. What's more, the number of people who believe this has increased since last year's rollout.

Why? Certainly not because they think health insurance is worthless. Just try taking away theirs and you'll find out exactly how non-worthless they consider it. Is it because they don't think Obamacare policies are "real" health insurance? Or that all these people had health insurance before and the whole thing is just a scam? Or what? It's a peculiar view that deserves a follow-up.

Nobody Knows What Makes a Good CEO

| Wed Jul. 23, 2014 10:51 AM EDT

Bloomberg has done a bit of charting of CEO pay vs. performance, and their results are on the right. Bottom line: there's essentially no link whatsoever between how well CEOs perform and how well they're paid:

An analysis of compensation data publicly released by Equilar shows little correlation between CEO pay and company performance. Equilar ranked the salaries of 200 highly paid CEOs. When compared to metrics such as revenue, profitability, and stock return, the scattering of data looks pretty random, as though performance doesn’t matter. The comparison makes it look as if there is zero relationship between pay and performance.

There are plenty of conclusions you can draw from this, but one of the key ones is that it demonstrates that corporate boards are almost completely unable to predict how well CEO candidates will do on the job. They insist endlessly that they're looking for only the very top candidates—with pay packages to match—and I don't doubt that they sincerely think this is what they're doing. In fact, though, they don't have a clue who will do better. They could be hiring much cheaper leaders and would probably get about the same performance.

One reason that CEO pay has skyrocketed is that boards compete with each other for candidates who seem to be the best, but don't realize that it's all a chimera. They have no idea.

Will Republicans Finally Find a Tax Cut They Hate?

| Tue Jul. 22, 2014 9:38 PM EDT

Charles Gaba makes an interesting point about today's Halbig decision: if upheld, it would amount to a tax increase. Everyone who buys insurance through a federal exchange would lose the tax credits they're currently entitled to, and losing tax credits is the same as a tax increase. This in turn means that if Democrats introduce a bill to fix the language in Obamacare to keep the tax credits in place, it will basically be a tax cut.

This leaves Republicans in a tough spot, doesn't it? Taken as a whole, Obamacare represents a tax increase, which makes it easy for Republicans to oppose it. But if the Halbig challenge is upheld, all the major Obamacare taxes are unaffected. They stay in force no matter what. The only thing that's affected is the tax credits. Thus, an amendment to reinstate the credits is a net tax cut by the rules that Grover Norquist laid out long ago. And no Republican is allowed to vote against a net tax cut.

I'm curious what Norquist has to say about this. Not because I think he'd agree that Republicans have to vote to restore the tax credits. He wouldn't. He's a smart guy, and he'd invent some kind of loophole for everyone to shimmy through. Mainly, I just want to know what loophole he'd come up with. I'm always impressed with the kind of sophistries guys like him are able to spin. It's usually very educational.

Seven Hours of Sleep Is Just About Optimal

| Tue Jul. 22, 2014 8:11 PM EDT

How much sleep does a normal, healthy adult need? The Wall Street Journal reports:

Several sleep studies have found that seven hours is the optimal amount of sleep—not eight, as was long believed—when it comes to certain cognitive and health markers, although many doctors question that conclusion.

Other recent research has shown that skimping on a full night's sleep, even by 20 minutes, impairs performance and memory the next day. And getting too much sleep—not just too little of it—is associated with health problems including diabetes, obesity and cardiovascular disease and with higher rates of death, studies show.

That's sort of interesting. In the past, I would have had no idea how to guess at this. I always slept exactly the same every night, so I always felt about the same every morning. Over the past couple of years, however, my sleeping habits have become far more erratic, spanning anywhere from six to eight hours fairly randomly. And sure enough, I've vaguely come to the conclusion that six hours makes me feel tired throughout the day, and so does eight hours. Seven hours really does seem to be pretty close to the sweet spot.

Unfortunately, I don't seem to have much control over this. I wake up whenever I wake up, and that's that. Today I got up at 6, tried to get back to sleep, and finally gave up. There was nothing to be done about it. And right about now I'm paying the price for that.

What Happens If Obama Loses the Halbig Case?

| Tue Jul. 22, 2014 2:54 PM EDT

So let's suppose the Halbig case goes up to the Supreme Court and they rule for the plaintiffs: in a stroke, everyone enrolled in Obamacare through a federal exchange is no longer eligible for subsidies. What happens then? Is Obamacare doomed?

Not at all. What happens is that people in blue states like California and New York, which operate their own exchanges, continue getting their federal subsidies. People in red states, which punted the job to the feds, will suddenly have their subsidies yanked away. Half the country will have access to a generous entitlement and the other half won't.

How many people will this affect? The earliest we'll get a Supreme Court ruling on this is mid-2015, and mid-2016 is more likely. At a guess, maybe 12 million people will have exchange coverage by 2015 and about 20 million by 2016. Let's split the difference and call it 15 million. About 80 percent of them qualify for subsidies, which brings the number to about 12 million. Roughly half of them are in states that would be affected by Halbig.

So that means about 6 million people who are currently getting subsidies would suddenly have them yanked away. It's even possible they'd have to pay back any tax credits they'd received previously.

So what's the political reaction? The key point here is that people respond much more strongly to losing things than they do to not getting them in the first place. For example, there are lots of poor people in red states who currently aren't receiving Medicaid benefits thanks to their states' refusal to participate in Obamacare's Medicaid expansion. This hasn't caused a revolt because nothing was taken away. They just never got Medicaid in the first place.

The subsidies would be a different story. You'd have roughly 6 million people who would suddenly lose a benefit that they've come to value highly. This would cause a huge backlash. It's hard to say if this would be enough to move Congress to action, but I think this is nonetheless the basic lay of the land. Obamacare wouldn't be destroyed, it would merely be taken away from a lot of people who are currently benefiting from it. They'd fight to get it back, and that changes the political calculus.

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The (Possibly) Frightening Implications of the Halbig Case

| Tue Jul. 22, 2014 1:07 PM EDT

In the Halbig case that struck down subsidies on federal Obamacare exchanges earlier today, one of the key issues was deference to agency interpretation of the law. Longstanding precedent holds that courts should generally defer to agency interpretations as long as they're plausible. They don't have to be perfect. They don't even have to be the best possible interpretations. They merely have to make sense.

The DC circuit court decided that there really wasn't any serious ambiguity in the law, and therefore no deference was due to the IRS's interpretation that state and federal exchanges were meant to be treated the same. The dissent was scathing about this, since the record pretty clearly showed tons of ambiguity. So if and when this case makes it up to the Supreme Court, what's going to happen? A lawyer buddy of mine is pessimistic:

Sadly, I think the Supreme Court will eagerly uphold the challenge because it gets to an issue that conservatives have generally despised: deference to administrative agencies' interpretation of statutes.

It's long been a fundamental principle in administrative law that an agency's interpretation of a federal statute that they are charged with enforcing is entitled to judicial deference, unless such deference is unreasonable. Conservatives would prefer that courts not defer to the government because #biggovernment. Thus, they want to weaken the deference standard and Halbig gives them basically a two-fer. Or a three-fer since the agency interpreting the statute is the IRS: Take out Obamacare, knock back the deference standard, and punch the IRS. This invariably will help advance the conservatives' legal goals because with a lower deference standard, their eccentric theories (such as on tax issues) have a better chance of surviving.

In normal times, the deference standard would likely be left intact because weakening it raises serious issues with government enforcement across all agencies, and courts are loath to send the country into a tailspin. But those days are apparently long past. Truly frightening times.

So what's next? In breaking news, the Fourth Circuit court has just upheld the federal subsidies in Obamacare, ruling squarely on deference grounds—and disagreeing completely with the DC circuit opinion, which held that the legislative language in Obamacare was clear and plain. In fact, said the Fourth Circuit, the statute is ambiguous, and therefore the court owes deference to the IRS interpretation. This is good news for Obamacare, especially if today's DC circuit decision by a three-judge panel is overturned by the full court, thus giving the government two appellate court wins. If that happens, it's even possible that the Supreme Court would decline to hear an appeal and simply leave the lower court opinions in place.

But I'd say an eventual Supreme Court date still seems likely. There's no telling if my friend's read of the politico-legal climate among the Supreme Court's conservative majority is correct, but I thought it was worth sharing.

Europe Agrees to Levy Moderate New Sanctions Against Russia

| Tue Jul. 22, 2014 12:38 PM EDT

Europe has agreed to further sanctions against Russia in response to the shootdown of MH17:

The EU will widen its sanctions against Russia to include more individuals and consider targeting the defence sector, the Dutch foreign minister says. Frans Timmermans said "unanimous" and "forceful" decisions had been taken on enhanced sanctions against Russia over the Ukraine conflict.

....A new sanctions list naming individuals and organisations will be drawn up by EU ambassadors by Thursday, Mr Timmermans told reporters after meeting his EU colleagues in Brussels. He said there was also agreement that the European Commission would look at further measures to be taken against Russia in the fields of defence, concerning "dual-use goods in the field of energy", and in financial services.

The Telegraph reports that not everyone is impressed:

[The sanctions] are not likely to satisfy not the United States and more hawkish members of the EU, including Poland and the Baltic states, who lobbied for tough sanctions against the Russian economy. In their conclusions, the ministers said they would only ask the 28-nation bloc's executive arm to prepare for more forceful economic sanctions — including targeting the arms, energy and financial sectors.

No surprises here. Most European leaders are willing to do more, but not too much more. They simply have too much invested in their economic ties with Russia to take more drastic steps.

DC Circuit Court Kills Federal Subsidies for Obamacare. Next Stop Is Probably the Supreme Court.

| Tue Jul. 22, 2014 11:35 AM EDT

Well, the DC circuit court has ruled 2-1 that Obamacare subsidies apply only to exchanges set up by states, not to exchanges set up by the federal government. This is because one section of the law says that taxpayers can receive tax credits only if they enroll in a plan "through an Exchange established by the State under section 1311 of the [ACA]." The court ruled that a state is a state, and as far as that goes, it's reasonable enough. Even if this was merely a drafting error, it's pretty clear that the federal government isn't a state.

The problem is that there's more to it than that. The court is also required to ensure that its interpretation of a single clause doesn't make a hash out of the entire statutory construction of a law. The majority opinion makes heavy weather of this for a simple reason: virtually everything in the language of the law assumes that subsidies are available to everyone. Why, for example, would federal exchanges have to report detailed subsidy information if no one even gets subsidies on federal exchanges in the first place? The court blithely waves this off, suggesting that it's merely to allow the IRS to enforce the individual mandate. But that's pretty strained. Enforcing the mandate requires only a single piece of information: whether a taxpayer is insured. It doesn't require detailed information about eligibility for subsidies and the amount of the subsidies each taxpayer gets. The fact that all these details are required certainly suggests that Congress assumed everyone was getting subsidies.

The court, following the arguments of the plaintiffs, also makes a brave effort to figure out why Congress might have done something so transparently ridiculous as limiting subsidies to state exchanges. Their conclusion is that Congress deliberately withheld subsidies from federal exchanges as an incentive for states to set up exchanges of their own. On this point, Judge Harry Edwards was scathing in his dissent:

Perhaps because they appreciate that no legitimate method of statutory interpretation ascribes to Congress the aim of tearing down the very thing it attempted to construct, Appellants in this litigation have invented a narrative to explain why Congress would want health insurance markets to fail in States that did not elect to create their own Exchanges. Congress, they assert, made the subsidies conditional in order to incentivize the States to create their own exchanges. This argument is disingenuous, and it is wrong. Not only is there no evidence that anyone in Congress thought § 36B operated as a condition, there is also no evidence that any State thought of it as such. And no wonder: The statutory provision presumes the existence of subsidies and was drafted to establish a formula for the payment of tax credits, not to impose a significant and substantial condition on the States.

It makes little sense to think that Congress would have imposed so substantial a condition in such an oblique and circuitous manner....The simple truth is that Appellants’ incentive story is a fiction, a post hoc narrative concocted to provide a colorable explanation for the otherwise risible notion that Congress would have wanted insurance markets to collapse in States that elected not to create their own Exchanges.

There's no evidence that Congress ever thought it needed to provide incentives for states to set up their own exchanges. Certainly they could have made that clear if that had been their intention. As Edwards says, this claim is simply made up of whole cloth. In fact, he says acerbically, the entire suit is little more than a "not-so-veiled attempt to gut the Patient Protection and Affordable Care Act ":

The majority opinion evinces a painstaking effort — covering many pages — attempting to show that there is no ambiguity in the ACA. The result, I think, is to prove just the opposite. Implausible results would follow if “established by the State” is construed to exclude Exchanges established by HHS on behalf of a State. This is why the majority opinion strains fruitlessly to show plain meaning when there is none to be found.

....This court owes deference to the agencies’ interpretations of the ACA. Unfortunately, by imposing the Appellants’ myopic construction on the administering agencies without any regard for the overall statutory scheme, the majority opinion effectively ignores the basic tenets of statutory construction, as well as the principles of Chevron deference. Because the proposed judgment of the majority defies the will of Congress and the permissible interpretations of the agencies to whom Congress has delegated the authority to interpret and enforce the terms of the ACA, I dissent.

Will the Supreme Court agree? Given the obviously political motivations of most Supreme Court justices these days, I think that's hard to predict. A lot will depend on John Roberts. Having already betrayed his fellow conservatives by voting to uphold Obamacare, will he side with the government in order to show that he meant what he said and doesn't want to invite an endless series of desperate attempts to kill the law? Or has he had second thoughts, and will therefore welcome this as a chance to essentially reverse himself? I can't read his mind, so I don't know. We'll find out soon enough.

POSTSCRIPT: This ruling will, I assume, be stayed during appeal, so it has no immediate impact. The next step is for the Obama administration to either ask for an emergency en banc review from the entire DC circuit court, or to appeal directly to the Supreme Court. Either way, it will end up at the Supreme Court sooner or later.

POSTSCRIPT 2: White House press secretary Josh Earnest has confirmed that the administration will ask for an en banc review. Since the full court now has a liberal majority, they presumably hope they'll get a more favorable ruling before heading to the Supreme Court.

For Republicans, It's All Going According to Plan

| Tue Jul. 22, 2014 10:07 AM EDT

Steve Benen draws a contrast today between an activist president who's at least trying to get things done, and a dysfunctional Congress than can't even make the attempt:

Remember the VA crisis? Lawmakers quickly approved a reform bill, which now appears likely to fail because of House Republicans’ reluctance to compromise. Remember the plan to address the border crisis? The plan was for Congress to act before taking August off, but that now appears unlikely, too.

The effort to extend unemployment benefits is dead. So is raising the minimum wage. So is ENDA. No one even talks about gun background checks anymore. The Highway Trust Fund will probably benefit from a stopgap measure, but even this hardly represents real governing.

Unfortunately, I think Republicans would call this a big win. Getting things done doesn't really do them any good at the ballot box. Making the government appear impotent and incompetent does. So that's the path they've chosen.