Kevin Drum

Friday Cat Blogging - 10 April 2009

| Fri Apr. 10, 2009 2:02 PM EDT

Today we have rare footage of Inkblot and Domino sleeping.  Together, that is.  Look: their feet are almost touching!  Isn't that exciting?

Well, it passes for excitement around here, anyway.  May your weekend be equally exciting.

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Boring is Good

| Fri Apr. 10, 2009 1:43 PM EDT

Paul Krugman wants banking and finance to become boring again:

The banking industry that emerged [in the 1930s] was tightly regulated, far less colorful than it had been before the Depression, and far less lucrative for those who ran it. Banking became boring, partly because bankers were so conservative about lending: Household debt, which had fallen sharply as a percentage of G.D.P. during the Depression and World War II, stayed far below pre-1930s levels.

Strange to say, this era of boring banking was also an era of spectacular economic progress for most Americans. After 1980, however, as the political winds shifted, many of the regulations on banks were lifted — and banking became exciting again....And the meltdown came.

....But my sense is that policy makers are still thinking mainly about rearranging the boxes on the bank supervisory organization chart. They’re not at all ready to do what needs to be done — which is to make banking boring again.

Part of the problem is that boring banking would mean poorer bankers, and the financial industry still has a lot of friends in high places. But it’s also a matter of ideology: Despite everything that has happened, most people in positions of power still associate fancy finance with economic progress.

This is right on target.  High finance is always going to be more exciting than, say, running a regulated electric utility, but it shouldn't be a lot more exciting.

I've had the same thought on a narrower scale too.  There's a real sense in which credit derivatives and structured finance — things like credit default swaps and CDOs — are genuinely useful.  They shouldn't be outlawed.  But if they're done properly, the spreads on these instruments ought to be pretty thin.  Selling CDS ought to be about as exciting as selling property insurance and selling CDOs ought to be about as exciting as running a mutual fund.  But when you get to a point where merely packaging a bunch of securities and then rearranging them makes them suddenly far more lucrative — a blatant violation of the Law of One Price — you should know immediately that something is badly wrong.  These things should be reliable money spinners, but not much more.

So what's the best way of shrinking the financial industry and making it more boring?  This is plainly the key to any future regulatory reform.  Trying to cap pay, or even trying to reform how pay is established, is a hopeless task as long as the industry itself is huge and swimming in money.  But if you shrink the industry, pay takes care of itself.

Taxing the Dead

| Fri Apr. 10, 2009 12:52 PM EDT

Michael Kinsley has a stemwinder today in the Post about the idiocy of Democrats holding out against their own president on reform of the estate tax.  Obama wants to keep the basic rate at 45% and the exclusion at $7 million per couple.  The holdouts want 35% and $10 million.  Ramesh Ponnuru comments:

Kinsley glancingly refers later to the possibility that the prospect of leaving an estate might motivate people to work harder. But he completely ignores what seems likely to be a bigger effect: that it would motivate wealthy people to spend less. You can agree or disagree with the case that the estate tax impedes capital formation. Ignoring the debate seems like a poor way of winning it.

I'll confess that I've pretty much ignored this debate myself.  I mean, you name the tax, and conservatives always have some white paper or another making an arcane argument for why raising it would wreck the economy and end up producing less tax revenue out of the ensuing rubble.  The linked analysis is typical of the genre, full of vague handwaving and precisely zero actual evidence.

Frankly, the prospect of higher estate taxes inducing wealthy people to buy platinum-plated bathroom fixtures instead of gold-plated ones doesn't strike me as a very serious objection here.  Ponnuru thinks this "seems likely" to happen if the estate tax is kept at 45%, but I guess I'd like to see some evidence of this before I waste any time trying to refute it.  This is generally good advice in any tax argument, of course, but it's particularly good advice in estate tax debates, which are so rife with outright lies from conservatives — farmers! small businesses! socialism! — that it's usually an offense against the English language to call them debates in the first place.  If we're going to spend any serious time on this topic, I'd rather spend it on finding ways to keep the super-rich from loopholing their way out of paying any estate tax at all, not pretending that our nation's brave farming families will be devastated by a mere $7 million exemption.

In the meantime, I'll just make an obvious point: no tax lives in isolation.  The question isn't whether a tax is good or bad, it's whether it's better or worse than other taxes.  After all, money has to come from somewhere, and whenever I ask myself whether it's better for that money to come out of the pockets of dead people or live people — well, I always come up with the same answer.  Selfish of me, I suppose.

The Decline of the West

| Fri Apr. 10, 2009 11:23 AM EDT

George Packer has a chat with his roofer about why he's so irritable these days.  It's not the recession, it turns out:

It turned out that cell phones had become a major headache in his work. Customers called him all the time, expecting him to hear every little complaint even while he was wrestling with a roof hatch. Meanwhile, they were more and more unreliable, not answering their phones, missing scheduled appointments.

....“It’s the technology,” the roofer said. “They don’t know how to deal with a human being. They stand there with that text shrug” — he hunched his shoulders, bent his head down, moved from side to side, looking anywhere but at me — “and they go, ‘Ah, ah, um, um,’ and they just mumble. They can’t talk any more.” This inadequacy with physical space and direct interaction was an affliction of the educated, he said — “the more educated, the worse.”

....This was a completely new phenomenon in the roofer’s world: a mass upper class that was so immersed in symbolic and digital cerebration that it had become incapable of carrying out the most ordinary functions — had become, in effect, like small children with Asperger’s symptoms. It was a ruling class that, out of sheer over-civilization, was quickly losing the ability to hold onto its power.

WTF?  These folks call constantly on their cell phones, so it's not that they've lost the ability to carry on a verbal conversation.  It's just that they can't do it face-to-face.  Do I have that right?

Is anyone else skeptical about this?  Obviously I have zero experience with 20-something metrosexuals in New York City, but, seriously?  Is this happening?  More anecdotes, please.

Chart of the Day - 4.10.2009

| Fri Apr. 10, 2009 11:01 AM EDT

Via Felix Salmon, this chart shows how much overdraft charges cost you.  The bar on the left (labeled POS) is from point-of-sale debit card overdrafts.  Here are the numbers: the average overdraft is $17, it's paid back in an average of five days, and the average charge is $35.  Result: you're paying $1.94 for every dollar "borrowed."  You'd probably need scientific notation to figure out the APR.

But here's the kicker:

When debit cards first came into common use, they promised the convenience of a credit card without the cost, because debit card users were required to have the funds in their account to cover their purchase or withdraw cash. As recently as 2004, 80 percent of banks still declined ATM and debit card transactions without charging a fee when account holders did not have sufficient funds in their account. But banks now routinely authorize payments or cash withdrawals when customers do not have enough money in their account to cover the transaction, so debit cards end up being very costly for many account holders.

Italics mine.  This is just so you understand how deliberate this strategy is.  The banks could easily decline NSF transactions.  They used to.  But they don't anymore because the fees from inadvertant overdrafts are so lucrative.  Alternatively, they could charge reasonable fees, since the actual administrative cost of overdrafts is minuscule these days.  But they don't.

And who pays these fees?  Small account holders with modest incomes, of course.  That's the modern banking industry for you.

The Decline of Fearmongering

| Fri Apr. 10, 2009 10:11 AM EDT

In 1950 Joe McCarthy had in his hands a list of 205 communists.  In 2009 Rep. Spencer Bachus (R-Ala.) has in his hands a list of 17 socialists.  Conservatives really have lowered their sights over the past half century, haven't they?  It's kind of sad.

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Goldman's Capital

| Thu Apr. 9, 2009 11:30 PM EDT

From the Wall Street Journal:

Goldman Sachs Group Inc., riding a rising market, is considering making a multibillion-dollar offering of its shares to investors as part of an effort to repay a $10 billion government loan, according to people familiar with the matter.

...In October, the Treasury Department forced the nation's largest banks, including those that didn't need additional capital, to take government funds. Goldman received $10 billion....Goldman executives privately say the firm doesn't need new capital to pay back the loan but doing so would signal its financial health.

Let's not shilly shally here: I don't believe a word of this.  If Goldman could pay back the loan, which they only received six months ago, they'd just do it.  Conversely, there's simply no way they'd try to raise private capital in the worst environment for stock offerings since the Depression unless they really needed the money.  What they say "privately" to the contrary isn't worth the paper it's not written on.

Documenting Hypocrisy

| Thu Apr. 9, 2009 9:21 PM EDT

In the Washington Post today, Paul Kane and Shailagh Murray wrote this:

Democrats are sure to incite Republicans if they adopt a shortcut that would allow them to pass major health-care and education bills with just 51 votes in the Senate, where Democrats are two seats shy of the filibuster-proof margin of 60 seats. The rule, known as "reconciliation," would fuel GOP charges that Obama has ditched bipartisanship.

"If they exercise that tool, it's going to be infinitely more difficult to bridge the partisan divide," said  Sen. Olympia J. Snowe (Maine), who was one of three Republicans to support the economic stimulus plan.

Media Matters took them to task for failing to note that Republicans themselves — including Snowe — have used reconciliation in the past, most notably to pass George Bush's 2001 tax cuts.  The lefty blogosphere piled on, and this afternoon, in an online chat, someone asked Kane if he wanted to defend himself.  He replied:

Paul Kane: I'm sorry, what's to defend?

Someone tell Media Matters to get over themselves and their overblown ego of righteousness. We reported what Olympia Snowe said. That's what she said. That's what Republicans are saying. I really don't know what you want of us. We are not opinion writers whose job is to play some sorta gotcha game with lawmakers.

That's what columns and blogs are for. Look, Republcians will take reconciliation as a serious poison pill to Obama's so-called bipartisan/post-partisan era. The Republicans did this, in the most direct correlation, with welfare in the mid-90s. And Democrats took it as a vicious partisan maneuver.

That's what is happening, that's what we reported.

Feisty little devil, isn't he?  But here's the question: are Post reporters obligated to mention past Republican support for reconciliation every single time they quote a Republican who now opposes it?  Here's the Post's history over the past couple of weeks: they ran a roundtable on the subject in March that gave space to all sides; Shailagh and Kane themselves wrote a feature about reconciliation last week which dutifully pointed out that Republicans have used it in the past; and over the same period there have been several other pieces in the Post that mentioned reconciliation in passing, some of which brought up previous Republican support and some of which didn't.

Is that kosher?  Or does it need to be included in every single story?  I'm hard pressed to believe that it does, any more than, say, Barack Obama's primary opposition to a healthcare mandate needs to be religiously brought up every time a healthcare story mentions the subject.  Or, more to the point, the fact that Democratic opposition to reconciliation when Republicans were running the show has now morphed into support.  Let's face it: if reporters are required to spotlight every single instance of hypocrisy whenever they quote a politician, there won't be room in their stories for anything else.

So, sure, reporters ought to hold Republicans like Snowe accountable.  But I'm not sure I see the case for insisting that they have to do it in every single piece they write.  It's a history of one-sidedness that's a problem, not the fact that some stories contain more detail and context than others.

By the way, Kane's entire online chat is worth a read.  His answer to the reconciliation question wasn't a sudden outburst of spleen against liberals.  He gives as good as he gets with everyone.  Besides, anyone who refers to Alberto Gonzales as "Fredo" can't be all bad.

(On the other hand, his answer to the question about defense spending was pretty incoherent. He definitely seemed a little unclear on the concept.)

Miscellany

| Thu Apr. 9, 2009 4:49 PM EDT

Here are two miscellaneous factlets that have caught my eye recently.  First up is On The Public Record, who is reading The Resilient City: How Modern Cities Recover From Disaster:

DAMN!  Cities NEVER give up.  Like, ever.  You cannot raze a city so bad that it goes away.  Like, some study showed that between 1100 and 1800, only forty cities stopped existing.   I suppose that makes sense.  I mean, the fact of a city not existing is so powerful that we remember it forever: Atlantis, Babylon, whatever that one was that got volcanoed.  I’ve been wondering if New Orleans and Galveston will be the leading edge of a new era of cities vanishing.  We’ll know in a generation, I guess.

Well, there's always Carthage.  It can be done as long as you're single-minded enough about the project.  Next up is Mark Kleiman, exploding an urban myth about marijuana cultivation:

Cannabis is not "the largest cash crop in California." That zombie statistic has a history: during the collapse of the lumbering industry in the early 1980s, the Ag Department county extension agent in Humboldt County, which grows timber and pot, was so angry about the suffering he saw around him due to unemployment among loggers that when he filled out his annual estimates of crop-by-crop revenues for his county he listed pot as #1, using a completely made-up number. Dale Gieringer of California NORML then projected that out nationally to show that cannabis was the nation's #2 cash crop, ahead of soybeans but behind corn (or maybe it was the other way around.) Since then, another NORMALista named Michael Gettman has produced even more fantastic numbers. In fact, the Abt Associates estimate put the total retail value of the cannabis trade at about $10b, about 15% of the total illicit-drug trade. That's retail price, not farmgate price. And not all of that is grown domestically; some of it comes from Mexico, from Canada, and from Jamaica.

No special axe to grind on either one of these things.  Just thought I'd share.

UPDATE: Jeez, bust one urban legend and propagate another.  Bad blogger.  In comments, coyote says:

The myth about salting the earth, etc, for Carthage is just that — a myth. Yes, the Romans trashed it, but it was such a logical trading spot that it was rebuilt, and by 400 or 500 AD it was a wealthy city again.

OK, so Carthage doesn't count.  Or does it?  If you destroy a city, drive out all the people, reduce everything to rubble, and then repopulate it a few decades later with your own people, is it really the same city?  Or is it a different city of the same name in the same place?  Hmmm.  Is there a philosopher in the house?  Did Shakespeare really write all those plays?  Or some other guy named Shakespeare?

The Circular Firing Squad

| Thu Apr. 9, 2009 2:45 PM EDT

We liberals are our own worst enemies sometimes.  Take climate change.  For over a decade we've been promoting the idea of cap-and-trade as a way of dealing with carbon emissions, partly for technical reasons (unlike a carbon tax, it imposes firm caps) but also — in fact, mostly — for pragmatic and political reasons.  A carbon tax, even if it has some theoretical advantages, is unlikely ever to happen.  We all know why.  Cap-and-trade, because it uses market mechanisms, has a proven track record with acid rain control, and raises money via auctions rather than taxes, has at least a fighting chance.

So now that liberals are in control of Congress and the White House and have an actual chance to pass legislation, what happens?  Everyone starts talking about carbon taxes instead.  Because, you know, in some theoretical economic sense you can argue that they're more efficient.  It's enough to make you scream sometimes.  At least, that's what it did to David Roberts, who must have been reading my mind after digesting Tom Friedman's most recent column:

So now, on the cusp of an enormous fight against dishonest and well-funded proponents of doing nothing, Friedman decides it’s time for “an alternative strategy, message and messenger”? Are you f*cking kidding me?! The only conceivable effect Friedman’s endorsement of an alternative bill can have is to divide support and distract attention from the best chance for a serious energy/climate bill in 30 years. His timing could not possibly be worse.

I’m sure Friedman would respond that hey, he’s not a Democratic operative. He’s an independent thinker. He’s under no obligation to stump for a bill that doesn’t make his mustache tingle. And in this he’s like all progressives. They all want to be the Smartest One in the Room. None of them want to sully their purity by compromising or rowing in the same direction. They all want to show how you clever they are, how their pony plan, their messaging, their strategy is the one those silly legislators ought to be using. Meanwhile, the coordinated opposition kicks their ass, over and over again. But at least they’re clever!

Be sure to read the rest of the rant.  As David points out, the key part of cap-and-trade is the cap, not the trade.  And contra Friedman, it's not hard to explain a cap on carbon.  In fact, it's a lot easier than trying to explain why a tax will reduce global warming.  Here's the elevator pitch: "We're going to reduce carbon emissions by setting a nationwide cap on carbon emissions."  See?  It's easy!

It's true that the trade part of cap-and-trade makes things more complicated, but it's not all that complicated.  It's just designed to lower the cost of complying with the cap and make everything a little more efficient.  Still, the cap is the key.  And as for complexity, anyone who thinks that a carbon tax — an actual, real-world carbon tax, not the chalkboard variety — would be nice and simple, hasn't been paying attention to the way Congress has been making tax policy for the past 200 years.  "Simple" is not a word that usually gets used in the same sentence.