Kevin Drum

Is Obama Getting Closer to War With Russia?

| Wed Feb. 4, 2015 7:13 PM EST

Here's the latest on Ukraine:

Ashton B. Carter, President Obama’s choice to become his fourth secretary of defense, said Wednesday that he was “very much inclined” to provide arms to Ukraine to fend off Russian-backed rebels, something the White House so far has resisted.

“We need to support the Ukrainians in defending themselves,” Carter said at his Senate confirmation hearing....“I am inclined in the direction of providing them with arms, including . . . lethal arms,” he said.

Needless to say, it's unlikely Carter would say this publicly without at least some level of blessing from the White House. This is pretty plainly a signal from President Obama that he's thinking about changing his policy toward Ukraine.

I'm noting this without comment because, frankly, I'm not sure how I feel about it. But I will say at least one thing: this is harder than it sounds. "Arming our allies" always sounds like a nice middle ground for armchair generals in Congress—nestled safely in between economic sanctions (weak!) and boots on the ground (war with Russia!)—but weapons are useless without a trained army to use them. And right now Ukraine barely has an army worth the name.

Generally speaking, providing arms is a very long-term strategy. We have to get the arms over to Ukraine. We have to train the Ukrainians to use them effectively. The Ukrainian army needs to up its game. This takes at least a year, and probably a good deal more. In the meantime, the risk is that Russia will react to the flow of arms by deciding that it needs to stop pussyfooting around and just send in its own troops before it's too late.

Unfortunately, Ukraine has been an inept kleptocracy for over a decade, and that makes them a lousy ally. We can provide them with arms pretty easily, but training them to use those arms effectively is a whole different story. We learned that in both Iraq and Afghanistan over the past decade, and if we go down this road we might just learn it all over again in Ukraine.

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Book Bleg

| Wed Feb. 4, 2015 2:40 PM EST

OK, this is a bit of an odd request. But here it is. I need something to read, and since my alertness level is a little on the weak side these days, I need something easy on the brain cells. The ideal choice would be, say, a 10-part fiction series that's basically beach reading. In other words, something that's pretty light but will last me a long time. It doesn't have to be quite Harry Potter level, but that's the sort of thing to be thinking of.

Nonfiction that's not too dense is fine as well. Any suggestions?

Will Republicans Shut Down the Department of Homeland Security?

| Wed Feb. 4, 2015 1:39 PM EST

Paul Waldman notes today that Republicans have made a hash out of their first month in control of Congress, and I'd say he's right about that. They keep getting distracted by events—executive actions from President Obama, vaccination pratfalls, infighting over symbolic votes, etc.—and that's prevented them from doing much to advance their real agenda. Here's one example:

Republicans tried to pass a bill to fund the Department of Homeland Security and repeal President Obama’s executive actions on immigration. Senate Democrats filibustered it, and in its current form it’s dead, meaning we’re headed for another shutdown mini-crisis. Spoiler alert: Republicans will lose, caving in and funding the department.

Hmmm. Although I agree with Waldman in general, Brian Beutler makes an interesting argument that he might be wrong in this particular case. Maybe Republicans won't cave on the Homeland Security funding bill:

There’s something unique and confounding about the very premise of using DHS funding as a bargaining chip, and it scrambles the customary pattern....Unlike other GOP threats, this one isn’t an unsupportably dangerous, but canny bluff. To many casual spectators, threatening not to increase the debt limit sounded meaningless, or perhaps even like a good idea, when in fact the consequences of a collision with the debt limit would have been catastrophic. Threatening to shut down the Department of Homeland Security, by contrast, sounds incredibly reckless, but has little weight behind it. As a national security bureaucracy, nearly all of DHS’ functions and employees are exempt from the shutdown protocols that delay Social Security checks and require national parks to close.

It’s the easiest threat in the world for Democrats to demagogue but one that Republicans can make without courting genuine devastation, and many of them are thus catching on to the possibility that the political damage wouldn’t stick. Ron Johnson, the Wisconsin Republican who heads the Senate Homeland Security committee is prepared to see the fight through past the deadline, precisely because “only 13.6 percent of DHS employees were furloughed” in the last shutdown. “[T]he national security aspects, the aspects of the department that keeps America safe, are continuing to function no matter what happens in this very dysfunctional place.”

I don't know what to think of this, but it's an interesting argument. Republicans may end up deciding that they can go ahead and shut down DHS without suffering any real damage. After all, the stuff people care about—the Security part of the Department of Homeland Security—would continue running regardless. So the public either wouldn't care much, or might even side with Republicans. It all depends on what functions are lost during a shutdown and how much opposition Republicans can gin up against Obama's immigration actions.

And that's a bit of a wild card. So far, Obama's immigration plan has polled pretty well, but that could change once it becomes a political hot potato and people really start paying attention to the demagoguery from the Republican side. We might find out that support for the immigration plan is wide but very, very shallow.

Of course, even a fight over DHS would be a distraction for Republicans, something they really weren't planning on spending time on. So if it weren't for the fact that compromise is considered basically treasonous in the tea party era, I'd say that some kind of modest compromise might be possible here. And who knows? It might still be. Despite all the sound and fury, the hard truth is that none of this is really all that big a deal.

But it might become one, even if Republican leaders would prefer otherwise. That's the downside of giving tea partiers control of their agenda, isn't it?

There Are New Hints Today of a Nuclear Deal With Iran

| Wed Feb. 4, 2015 1:08 PM EST

AP reports that there are hints of progress in talks with Iran over its nuclear program. The US and its allies have been insisting that Iran substantially reduce the number of centrifuges it operates, which so far Iran has refused to do. This leaves Iran in a position where it could enrich enough uranium to make a bomb in less than a year. But now a new proposal is on the table:

According to the diplomats, the proposal could leave running most of the nearly 10,000 centrifuges Iran is operating but reconfigure them to reduce the amount of enriched uranium they produce.

One of the diplomats said the deal could include other limitations to ensure that Tehran's program is kept in check. For one, Iran would be allowed to store only a specific amount of uranium gas, which is fed into centrifuges for enrichment. The amount of gas would depend on the number of centrifuges it keeps.

Second, Iran would commit to shipping out most of the enriched uranium it produces, leaving it without enough to make a bomb. Iran denies any interest in nuclear weapons and says its program is for peaceful uses such as nuclear power and medical technology.

Is this for real? Even Iranian president Hassan Rouhani says "we have narrowed the gaps." That's promising, but in the end there's just no way to tell yet what this means. Reconfiguring centrifuges is clearly not as permanent a solution as destroying centrifuges, since they can always be reconfigured back to their original state. But then again, nothing is a permanent solution. If Iran agrees to a deal, and later decides to renege on it, then it's going to renege. It will build more centrifuges or reconfigure existing ones, and the difference is fairly small. As with all deals everywhere, it fundamentally depends on both sides abiding by it. That's just the reality of international agreements.

Politically, though, a deal like this might put Republicans in a tough position. Let's suppose the best: Iran's nuclear capability is substantially reduced; there are strict controls on both uranium feedstock and the amount of enriched uranium that remains in Iran; and a suitably stringent monitoring mechanism is put in place. In return, sanctions are gradually lifted.

How would Republicans react? Their initial response would almost certainly be to oppose the deal. And who knows? That might be their final response too. But the 2016 presidential campaign throws a monkey wrench into things. On the one hand, flat-out opposition would play well with the tea party base. Can't look weak, after all. On the other hand, flat-out opposition puts Republican candidates in a tough spot, especially during the general election. What's their alternative, after all? You can count on Iran to make it crystal clear that this is the only deal on the table—and if it's not accepted, they'll accelerate their nuclear program. So if Republicans oppose it, they need to endorse either tougher sanctions or else military action. The former doesn't have much oomph, and the latter would scare the hell out of mainstream voters.

Obviously things aren't as simple as this. There are ways to tap dance around all this. Still, if the deal looks reasonable to voters, it could become a dangerous campaign issue for Republican candidates. Stay tuned.

FCC Chairman Finally Gets Fully Behind Net Neutrality

| Wed Feb. 4, 2015 12:32 PM EST

FCC chairman Tom Wheeler is now officially on board supporting the strongest possible version of net neutrality. Here's his first-person statement:

Originally, I believed that the FCC could assure internet openness through a determination of “commercial reasonableness” under Section 706 of the Telecommunications Act of 1996. While a recent court decision seemed to draw a roadmap for using this approach, I became concerned that this relatively new concept might, down the road, be interpreted to mean what is reasonable for commercial interests, not consumers.

That is why I am proposing that the FCC use its Title II authority to implement and enforce open internet protections.

Using this authority, I am submitting to my colleagues the strongest open internet protections ever proposed by the FCC. These enforceable, bright-line rules will ban paid prioritization, and the blocking and throttling of lawful content and services. I propose to fully apply—for the first time ever—those bright-line rules to mobile broadband. My proposal assures the rights of internet users to go where they want, when they want, and the rights of innovators to introduce new products without asking anyone’s permission.

Title II is the law that currently regulates telephone networks as common carriers. Applying this to broadband internet gives the FCC extremely strong powers to guarantee free and equal internet access to everyone, just as they currently do for telcos.

The argument against doing this is that Title II has a lot of baggage designed specifically for telcos—baggage that makes sense for telephones but not for internet connections. Wheeler recognizes this, and says that he plans to "modernize" Title II. Under his proposal, for example, "there will be no rate regulation, no tariffs, no last-mile unbundling."

This is a huge win for net neutrality advocates. Nonetheless, it would be a bigger win if it spurred Republicans to take seriously a compromise bill that regulates broadband legislatively. Title II may be a big stick, but it's not necessarily a permanent one. Aside from the fact that it's open to court challenges, it could also be eliminated by a future FCC just as easily as it gets created by today's FCC. If a Republican becomes president in 2016 and appoints a majority Republican FCC, Wheeler's proposal could get tossed out with a simple vote of the five commissioners.

Either way, though, this is a welcome move. Either we get a modernized Title II, or else Wheeler's proposal lights a fire under Sen. John Thune that produces a compromise solution from Congress. So far Democrats haven't been especially open to working with Thune, but I hope they change their minds. Maybe negotiations would go nowhere. If so, nothing is lost and Title II becomes the law of the land. But there's always the chance that with Title II as a backstop, negotiations could produce something genuinely useful. As with all compromises, net neutrality advocates would almost certainly lose some things they value. Republicans wouldn't get everything they want either. But both sides—as well as the broadband industry itself—would gain permanence, and that's worth something.

Here's the Big Problem With Liberals' "Middle Class" Agenda

| Wed Feb. 4, 2015 12:38 AM EST

President Obama recently advanced two proposals designed to help the middle class—part of a middle-class agenda that's recently become something of a liberal rallying cry for the 2016 election. The first proposal was a mortgage plan available to anyone who bought a home. The second was a college tuition plan that would have helped middle-income workers with money saved by eliminating 529 college savings plans.

The mortgage plan has met with considerable enthusiasm. The tuition plan, by contrast, flamed out within days and has already been withdrawn. Mechele Dickerson comments:

While both of these proposals ostensibly targeted the middle class, the mortgage plan was lauded because its financial relief applies to all homeowners, regardless of how much they earned. The 529 proposal, by contrast, was doomed because of a fatal flaw: it actually tried to provide relief for just the middle class, carving it out by income.

The success of one and not the other was actually quite predictable. The mortgage proposal, though modest, was welcomed because it was designed to make it easier and cheaper for families to buy homes. Republicans, Democrats, Americans and the financial entities that benefit all agree that any plan that increases homeownership rates is good, even if most of the benefits go to higher-income households and barely reach the middle class.

....The same is true with 529 plans....Fewer than 3 percent of families save for college using 529 plans, according to Federal Reserve data....Since it’s the richest who have the largest accounts, most of the benefits of the tax break go to them. While the average account has about $20,000 in it, the accounts of the top 5 percent average more than $106,000.

This highlights one of the fundamental problems of liberal attempts to help the middle class. In theory, universal programs like Obama's mortgage plan are designed to help the middle class, and this is what makes them both popular and politically palatable. In practice, though, the bulk of their benefits usually go to the well off, and this is what really makes them politically palatable. That's why the tuition program met an instant death. It really did help the middle class—and only the middle class—and this meant it lacked the all-important political support of the well off. In fact, since the well off would be losing a benefit to pay for it, it attracted their instant opposition. And that was that.

As Dickerson says, the problem here is that the American definition of "middle class" is so broad. We basically have the poor on one end and the 1 percent on the other, and everyone in between considers themselves middle class. So if you say your program helps the middle class, it needs to help virtually everyone—including lots of people who make an awful lot of money. It's a good bet that virtually all of those folks with $106,000 in their 529 accounts think of themselves as middle class even if they earn well more than six-figure incomes.

Needless to say, this makes "middle class" programs really expensive. In practice, they have to be effectively universal, and since benefits often scale with income (as with tax deductions and savings plans), including the top 5 percent of the income ladder in these programs balloons their price tag by a whole lot more than 5 percent.

There are answers to this. You can offer tax credits rather than tax deductions. You can cap savings programs. But if you do very much of this, you effectively eliminate benefits for the well off and you lose their support. And as plenty of research has shown, it's the well off who really have political clout. This means you have to buy them off if you want to do something for the middle class, and that makes "middle class programs" a lot pricier than you'd think. It's something that any liberal agenda to help the middle class is going to have to figure out.

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Congress Already Has Its Eyes on 2016

| Tue Feb. 3, 2015 1:47 PM EST

Steve Benen comments on the GOP's 56th vote to repeal Obamacare:

It’s quite a congressional majority, isn’t it? Nearly a month into the new Congress, Republicans have prioritized an oil-pipeline bill they know can’t pass, an immigration package they know can’t pass, changes to Wall Street safeguards they know can’t pass, anti-abortion legislation they know can’t pass, and anti-healthcare measures they know can’t pass.

Dear every pundit who said the GOP was ready prove it can be a governing party: go sit in the corner for a while.

In fairness, President Obama released a budget this week that he also knows can't pass. The truth is that both parties are jockeying for position right now, setting themselves up for the 2016 election. Republicans want to make sure their base is still with them, while Democrats are making a big play for the middle class. The symbolism of these votes is what's important right now, not whether they actually mean anything.

We should expect a lot more of this. There's going to be some compromising here and there in order to get a budget passed, but it's not clear to me that very much more than that will get accomplished. At this point, neither side really sees much upside in working on half measures when they might be able to get a full loaf after the next election.

2015 Would Be a Terrible Time for the Fed to Raise Interest Rates

| Tue Feb. 3, 2015 1:37 PM EST

The Fed has kept interest rates near zero for more than six years. With the economy finally showing signs of recovery, is it now time to think about raising rates a bit?

Normally, the answer might be yes: unemployment has trended down to below 6 percent, and orthodox theory suggests that at this level we'll start to see inflationary pressure that the Fed needs to respond to. However, as Paul Krugman points out, orthodox theory isn't telling the right story right now. Core inflation has been going down, not up, for the past two years, and it clocked in at about 1.4 percent in the most recent quarter. This is well below the Fed's target of 2 percent. So what's going on?

Recent data are perfectly consistent with the view that full employment requires an unemployment rate below 5 percent; the most recent data would suggest an even lower rate. This might or might not be right; I don’t know. But the Fed doesn’t know either.

And in the face of that uncertainty, the crucial question is what happens if you’re wrong. And the risks still seem hugely asymmetric. Raise rates “too late”, and inflation briefly overshoots the target. How bad is that?....Raise rates too soon, on the other hand, and you risk falling into a deflationary trap that could take years, even decades, to exit.

I really, really hope this is getting through.

The key issue here is probably an overreliance on the headline unemployment rate. It's now registering 5.6 percent, and under normal circumstances that would be about as low as you could expect it to go. But these aren't normal circumstances, and there's every reason to think that the headline rate isn't telling the whole story. If you look at broader measures, like the one on the right, you can see that we're still well above the level of 2006-07. There are still a whole lot of people who have simply given up looking for work and aren't being counted by the "official" numbers.

The picture is similar if you look at the employment-population ratio, which measures the total percentage of the population that's currently employed. It plummeted by nearly five percentage points during the great crash, and it's recovered less than a point of that loss over the past couple of years. There are several reasons for this, and some of this loss is permanent—the result of baby boomers retiring, for example. Still, this number probably needs to increase another couple of points before we can say we've truly reached full employment.

Finally, you can see the same story if you look at wages. If the economy were at full employment, we'd see not just inflation, but an increase in wages. So far we haven't. This is an almost certain sign that there are still plenty of people out of work who don't want to be.

Janet Yellen and the rest of the Fed are well aware of all this. It's hardly a secret. And as Krugman says, the risks here are all on one side. If it turns out that we really are at full employment and the Fed does nothing, all that happens is that we'll overshoot our inflation target for a short while. There's no harm in that, especially since we've been undershooting it for the past couple of years. But if we tighten too quickly? We risk an economic slowdown at a time when the global economy is still fragile.

This is no time to be taking chances. China is slowing down, Europe is back in recession and facing a possible Greek crisis, and emerging economies are looking distinctly dicey right now. The American economy might be the only engine keeping it all afloat. It's a lousy time to risk an economic downturn based on nothing more than a phantom fear of inflation.

Standard & Poor's Finally Pays Up For Bogus Mortgage Ratings

| Tue Feb. 3, 2015 12:44 PM EST

Standard & Poor's is finally paying up for its role in handing out bogus investment-grade ratings to risky mortgage securities during the housing bubble. Dean Starkman explains what happened:

In May 2004, as the U.S. housing market was heating up, Standard & Poor's Financial Services lost to a rival a huge deal to rate mortgage-backed securities to be issued by a major Japanese bank.

The reason? S&P's credit standards were too high, an employee complained to his boss. The company then went on to "downplay and disregard" its standards to win business, a federal lawsuit alleged, contributing to one of the most devastating financial collapses in history.

....One observer said the settlement would offer at least some accountability for a key player in the financial crisis. "Without the investment-grade ratings bestowed on pools of substandard mortgages, there would have been no mortgage crisis," said Jan Lawrence Handzlik of Los Angeles, a former federal prosecutor who specializes in white-collar criminal defense.

That's taking things too far. S&P and other ratings agencies certainly played a role in supercharging the housing bubble and thus contributing to its subsequent crash. Without the assurance of high ratings for CDOs and other securities that were full of fraudulent mortgages, there would have been less demand for those fraudulent mortgages. And lower demand would have meant fewer crappy mortgages, fewer defaults, and fewer problems with bank balance sheets full of toxic waste—which all came home to roost in 2008.

But there still would have been a housing bubble and a mortgage crisis, and the crash of 2008 still would have happened. The underlying factors that caused it were just too strong. Nonetheless, it's certainly true that if the bubble had been a little smaller, the crash would have been smaller too. We've all paid a big price for S&P's duplicity.

In any case, this morning the settlement with S&P was made official. They'll be paying a total of more than $1 billion:

The $1.37 billion penalty, like the statement of facts, is the product of compromise.

The penalty, half of which is earmarked for the federal government and the rest for the states, is large enough to wipe out S.&P.’s operating profit for a year, and is three times what S.&P. originally offered to settle before the Justice Department filed its lawsuit. But it also falls far short of the $3.2 billion that the government demanded after S.&P. initially refused to settle.

Is $1.37 billion enough? Probably not. But no one has ever paid more than a fraction of the damage they helped cause during the runup to the financial crash. S&P is just the latest to skate by with a ruler to the wrist but not much more.

Scott Walker Is Still Clearly a Work in Progress

| Mon Feb. 2, 2015 2:40 PM EST

I see that Martha Raddatz's interview with presidential wannabe Scott Walker is making the rounds today. And deservedly so! After listening to Walker blather a bit about America's need for "big, bold ideas," Raddatz asks him, "What is your big, bold, fresh idea in Syria?" Walker hems and haws a bit about being tough and aggressive, and then we get this:

RADDATZ: You don't think 2,000 air strikes is taking it to ISIS in Syria and Iraq?

WALKER: I think we need to have an aggressive strategy anywhere around the world. I think it's a mistake to —

(CROSSTALK)

RADDATZ: But what does that mean? I don't know what aggressive strategy means. If we're bombing and we've done 2,000 air strikes, what does an aggressive strategy mean in foreign policy?

WALKER: I think anywhere and everywhere, we have to be — go beyond just aggressive air strikes. We have to look at other surgical methods. And ultimately, we have to be prepared to put boots on the ground if that's what it takes, because I think, you know —

RADDATZ: Boots on the ground in Syria? U.S. boots on the ground in Syria?

WALKER: I don't think that is an immediate plan, but I think anywhere in the world —

RADDATZ: But you would not rule that out.

WALKER: I wouldn't rule anything out. I think when you have the lives of Americans at stake and our freedom loving allies anywhere in the world, we have to be prepared to do things that don't allow those measures, those attacks, those abuses to come to our shores.

So there you have it. Walker is so unprepared to talk about foreign policy that he gets quickly trapped into suggesting that we put more American troops into Iraq and Syria to fight ISIS. Did he really mean to do that? Or was he just feeling the pressure of a live interview and felt like he had to say something? Hard to say. A more experienced candidate would have tap danced a lot more effectively, probably with some prattle about arming our allies or something—though Raddatz undoubtedly would have pounced on that too.

Michael Tomasky remains pretty unimpressed with Walker, especially after finally listening to his big speech in Iowa from last weekend:

If this was the standout speech, I sure made the right decision in not subjecting myself to the rest of them. It was little more than a series of red-meat appetizers and entrees: Wisconsin defunded Planned Parenthood, said no to Obamacare, passed some kind of law against “frivolous” lawsuits, and moved to crack down on voter “fraud””—all of that besides, of course, his big move, busting the public-employee unions. There wasn’t a single concrete idea about addressing any of the major problems the country faces.

Well, that will come—though it's unlikely that Walker's ideas will be any different from the usual Republican boilerplate of the past decade or so. Lower taxes and less corporate regulation will supercharge the economy! Hooray!

Walker still has a ways to go before he's ready for prime time. But I'll bet he gets there. He'll learn from his mistakes, and he's just about the only Republican candidate who has potential appeal to both tea partiers and mainstream voters. Six months from now minor early stumbles like this will be ancient history, and he'll have his campaign schtick much more finely honed. He remains a serious contender.