Kevin Drum

Ho Ho Ho

| Wed Jan. 14, 2009 10:11 AM PST

HO HO HO....December sales, as expected, were pretty miserable:

Retail sales tumbled by 2.7% last month from the previous month on a seasonally adjusted basis, the Commerce Department said Wednesday.

....The producer price index, due for release Thursday, is expected to show a 2% drop in prices. Consumer prices due out Friday are expected to have declined 0.8%.

Adjusted for inflation, then, sales were down only 1.9% I'd do better if I could, but that's about the most positive spin I can come up with.

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Strawman Watch

| Wed Jan. 14, 2009 10:00 AM PST

STRAWMAN WATCH....Mickey Kaus thinks economic growth and tight labor markets are the key to low-end wage growth. Unions aren't. I disagree, and a few days ago wondered how Mickey proposed to get to his paradise of endless economic growth anyway. Today he responds:

And Drum has a plan for "low-end wage growth" that doesn't involve restoring the economy? Good luck with that. There's a double Nobel waiting for him, I guess. A triple Nobel if he can boost wages at the bottom while simultaneously letting in millions of unskilled low-wage immigrants. ... P.S.: Drum seems to be explicitly embracing "pie-slicing" — redistributing shares of a non-growing economy — as an alternative to "pie enlargement." Nothing, at first glance, so terribly wrong with that. But can Drum point to a period in modern American history when low-end wages grew without an expanding economy?

Is this supposed to be serious? For the record: yes, of course I support economic growth. Of course it's a precondition for low-end wage growth. I've never even hinted at anything so idiotic as "redistributing shares of a non-growing economy." But we've had economic growth for most of the past three decades and it hasn't been enough to boost median wages more than a smidge. It's pretty obvious by now that we need more than just economic growth to get median (and low-end) wages growing again, and I think greater union density (it's currently less than 10% in the private sector) is probably part of the answer.

As for reducing the influx of low-wage immigrants, I'm fine with that. I always have been — though I have different ideas about how to get there than Mickey. Still, the evidence suggests that this will have only a tiny effect on low-end wages. We're going to need a better plan than just building a fence along the southern border.

Barack Obama 2.0

| Tue Jan. 13, 2009 11:43 PM PST

BARACK OBAMA 2.0....Barack Obama is apparently planning to create a permanent political organization designed not just to help him win reelection in 2012, but to help him get his policy agenda passed in the meantime:

The organization, known internally as "Barack Obama 2.0," is being designed to sustain a grass-roots network of millions that was mobilized last year to elect Obama and now is widely considered the country's most potent political machine.Organizers and even Republicans say the scope of this permanent campaign structure is unprecedented for a president.

....Though the plan still is emerging, one source with knowledge of the internal discussion said the organization could have an annual budget of $75 million in privately raised funds. Another said it would deploy hundreds of paid staff members — possibly one for every congressional district in certain politically important states and even more in larger battlegrounds such as Florida, Ohio, Colorado, Virginia and North Carolina.

....The Obama system will be used at least in part to influence members of the president's own party. For example, Democratic lawmakers in Republican-leaning districts might resist voting for an Obama-backed global warming bill. In that case, the White House or DNC could use the new network for phone campaigns, demonstrations or lobbying trips to push lawmakers to stick with Obama.

This is something that Mark Kleiman more or less predicted many months ago. (To me, anyway. I'm not sure if he blogged about it.) His conjecture was that Obama's organization had fundamentally redefined presidential politics thanks to its huge pool of dedicated volunteers and its ability to quickly raise unheard-of sums of money. After all, what congressman is likely to buck the boss if the boss can offer — or withhold — hundreds of thousands of dollars without batting an eye and mobilize — or withhold — hundreds of thousands of phone calls and telegrams depending on how closely you toe the presidential line? Every president has a certain amount of power he can bring to bear against holdout legislators, but Obama's organization brings this to a whole new level.

If this turns out to be right, Congress is going to learn pretty quickly that the ballgame has changed. Should be fun to watch.

Yet More Bailout

| Tue Jan. 13, 2009 11:08 PM PST

YET MORE BAILOUT....When Barack Obama asked President Bush to request the second $350 billion in TARP money, I got sort of a sinking feeling. After all, he wouldn't do that unless he figured the economy was still in such dire shape that there was a good chance he might need the money right away. Apparently that's the case:

On Tuesday, [Ben] Bernanke publicly made the case that one of the most unpopular and most scorned programs in Washington — the $700 billion bailout program — needs to pour hundreds of billions more into the very banks and financial institutions that already received federal money and caused much of the credit crisis in the first place.

The most glaring example that the banking system needs even more help is Citigroup. Though it already has received $45 billion from the Treasury, it is in such dire straits that it is breaking itself into parts.

....Since last September, no major banks have failed and the credit markets have thawed somewhat. But analysts said the problems are still acute, if less apparent on the surface. Banks have received $200 billion in fresh capital from the Treasury since last fall and have borrowed hundreds of billions of dollars more from the Fed. But in the meantime, the economy fell into a severe downturn last fall that is likely to continue until at least this summer.

....Citigroup is not alone. JPMorgan Chase, Bank of America, Wells Fargo and most other big banks all expect enormous losses as millions of consumers default on their mortgages, credit cards and automobile loans. Other losses are expected on loans made to commercial real estate developers, small businesses and for highly leveraged corporate buyout deals.

It's not as if this is a big surprise or anything, but still. Crikey.

Super Contango

| Tue Jan. 13, 2009 10:27 PM PST

SUPER CONTANGO....Normally, it costs more to buy a barrel of oil for delivery six months from now than it does to buy a barrel of oil today. After all, if you're not going to take delivery of my oil until July, then I'm going to want the spot price of the oil plus the cost of storing it plus the cost of having to wait for my money. So maybe a barrel of oil that costs you $38 today will cost you $41 for delivery six months from now.

But instead of $41, what if the July price is $53? Then anyone who wants to can make a guaranteed killing. Accept the contract, buy a tankerful of oil, store it for six months, and then deliver it. Even after the cost of storage and the interest on the loan you took out to buy the oil, you'll make a quick and easy twelve bucks per barrel profit.

Sounds nice, but since this profit opportunity is so obvious it should get arbitraged away almost instantly. In short, a situation like this should never happen — certainly not for long periods, anyway. But it has:

On Monday, oil for February delivery closed at $37.59 a barrel on the Nymex, or nearly $15 lower than July's contract price....Such a distance between contracts is unusual, sparking industry insiders to term the phenomenon — which reached an apex in late December — "super contango."

When the price spread is greater than the storage cost, "there is an opportunity to arbitrage at a profit without risk," said James Williams, an economist at energy research firm WTRG Economics.

So what's going on? One possible explanation is that most of the easy storage is already full, so it's not really possible to make a quick buck on this even if you want to. But even if that's the case, there's yet another option: oil producers can pump less oil now (essentially "storing" it in the ground) and then pump it out in July for delivery at the higher price. But apparently they're not doing that. John Hempton figures there are two possible explanations: (1) they're already pumping at full capacity, so they can't promise to pump extra oil in July even if they want to, or (2) oil producers are so desperate for cash that they're willing to take money now even if it's way less than they could get for the same stuff six months from now.

#1 doesn't seem to be true. So that leaves #2: thanks to plummeting oil prices, OPEC countries are in serious economic turmoil and desperate for any cash they can get their hands on right now. Either that or else there's an option #3 that's not obvious. Any ideas?

Deconstructing W

| Tue Jan. 13, 2009 6:12 PM PST

DECONSTRUCTING W....Howard Fineman on Hardball yesterday:

George Bush has never accepted the proposition that the world is complicated.

Me in the Washington Monthly three years ago:

I've long viewed George Bush as a temperamental conservative, the kind of guy you meet in a bar who slams down his drink and asks belligerently, "You know what this country needs?" — and then proceeds to tell you.

I think we're both saying about the same thing. But I was more colorful! In any case, I think this is about the closest I've ever come to describing Bush's essential character. Just thought I'd share.

UPDATE: Matt Yglesias thinks I'm being unfair to drunk guys in bars. Maybe so!

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Tuesday Tree Blogging

| Tue Jan. 13, 2009 5:35 PM PST

TUESDAY TREE BLOGGING....The wind was too strong for the tree removers to come yesterday, but today the Santa Anas died down and our Jacaranda is no more. A sad moment, but it had to be done. Tomorrow the roots come out. Your before and after tree blogging is below.

Back on Tracks

| Tue Jan. 13, 2009 3:20 PM PST

BACK ON TRACKS....One of the big problems with our economy in recent years has been the massive growth of the FIRE sector — Finance, Insurance and Real Estate — at the expense of sectors that produce actual useful goods and services. Corporations have spent too much of their time engaged in M&A and stock buybacks instead of investing in new businesses, the savings glut from overseas flowed into the housing and finance market, and either through indolence or inability to attract attention, more traditional industries stagnated. In the current issue of the Washington Monthly, Phil Longman argues that this is roughly what's happened to America's freight railroads. Even though they're cheap, green, and efficient compared to trucks, they're short of track, hobbled by bottlenecks, and unable to haul a fraction of the freight they ought to:

Why don't the railroads just build the new tracks, tunnels, switchyards, and other infrastructure they need? America's major railroad companies are publicly traded companies answerable to often mindless, or predatory, financial Goliaths. While Wall Street was pouring the world's savings into underwriting credit cards and sub-prime mortgages on overvalued tract houses, America's railroads were pleading for the financing they needed to increase their capacity. And for the most part, the answer that came back from Wall Street was no, or worse. CSX, one of the nation's largest railroads, spent much of last year trying to fight off two hedge funds intent on gaining enough control of the company to cut its spending on new track and equipment in order to maximize short-term profits.

....There are many examples around the country where a relatively tiny amount of public investment in rail infrastructure would bring enormous social and economic returns....Chicago, America's rail capital, [] is visited by some 1,200 trains a day. Built in the nineteenth century by noncooperating private companies, lines coming from the East still have no or insufficient connections with those coming from the West. Consequently, thousands of containers on their way elsewhere must be unloaded each day, "rubber-wheeled" across the city's crowded streets by truck, and reloaded onto other trains. It takes forty-eight hours for a container to travel five miles across Chicago, longer than it does to get there from New York. This entire problem could be fixed for just $1.5 billion, with benefits including not just faster shipping times and attendant economic development, but drastically reduced road traffic, energy use, and pollution.

As regular readers know, I have my doubts about pouring lots of money into long-haul passenger rail, high-speed or otherwise, but freight is another story entirely. I don't need much convincing on this score. Trains can haul freight far more cheaply than trucks, both in money and carbon emissions, and an infrastructure overhaul that included electrification would make them more efficient yet. Longman suggests that an investment of $250 billion to $500 billion over the next 20 years would get 85% of all long-haul trucks off the nation's highways, reduce the nation's greenhouse gas emissions by 38% (and oil consumption by 22%), and thanks to logistical efficiencies, would also leave the our economy 13% larger by 2030 than it would otherwise be.

This is a program that would far outlast any short-term stimulus bill, of course, but that's not a bad place to get the whole thing kick started. There are plenty of projects that could begin immediately, and if they're successful then private funding would likely take over much of the burden in the out years. And for those of you who are more enthusiastic about passenger rail than I am, there's another bonus: upgrading the freight infrastructure upgrades the passenger infrastructure at the same time. What's not to like? For more, the whole piece is here.

The Truthiest New Show on Television

| Tue Jan. 13, 2009 12:02 PM PST

THE TRUTHIEST NEW SHOW ON TELEVISION....Over at TNR, Jeffrey Rosen reviews ABC's Homeland Security USA: "Every segment inadvertently reminded us why DHS officers spend so little time protecting the homeland against violent threats: Investigations that begin by looking for terrorists come up short, so officers have no alternative but to snag people for non-violent crimes." Good to know.

Stimulus Math

| Tue Jan. 13, 2009 11:52 AM PST

STIMULUS MATH....Jonathan Stein points me to a Washington Post story telling us that Barack Obama has decided to ditch the $3,000-per-job tax credit that was part of his original stimulus proposal. Good. It was a dumb and almost certainly unworkable idea. But there's also this:

Obama advisers said further adjustments may be made to the president-elect's tax priorities, including to a proposed $500 payroll tax credit for individuals. Many Democrats have criticized Obama's idea of distributing the benefit over 12 months, saying it would amount to about $20 per paycheck for workers who are paid every two weeks. They would prefer to distribute the credit over a shorter period.

I'm basically with Obama here. But I'd actually suggest something different: make the credit bigger, pay it out over two years, and have it automatically decline. For example, how about $2,000 paid out quarterly over two years? The credit would be $400 in the first quarter, $300 in the second and third quarters, and so on until you get down to $100 in the eighth and final quarter. This front loads the stimulus now, when it's most needed, keeps it going throughout the expected length of the recession, and makes it predictable enough that people know they can count on it. It might also strike a good balance between the amount of the stimulus that gets spent vs. the amount that gets saved. Worth a thought, anyway.