Kevin Drum

The Sweet Song of Bipartisanship

| Wed Jan. 28, 2009 7:57 PM EST

THE SWEET SONG OF BIPARTISANSHIP....Welcome to Washington, President Obama:

[Today] the House approved an $819 billion stimulus plan that will serve as the cornerstone of President Obama's efforts to resuscitate the economy, an early victory for the new president but still a disappointment because of the lack of Republican votes.

The measure passed 244 to 188, with 11 Democrats and 177 Republicans voting against it.

There are 178 Republicans in the House and 177 of them voted today. Every single one of them voted against the bill. In case there were still any doubters, I think it's now safe to say that the GOP caucus has decided to pick up where it left off last year, in full-on obstruction mode.

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Atheists

| Wed Jan. 28, 2009 7:44 PM EST

ATHEISTS....One of Andrew Sullivan's readers is annoyed with us atheists:

Telling me what you don't believe tells me very little....But you can no more avoid making a positive choice about the source of meaning in your life and the universe than you can avoid living in some country. You can talk about which country is best to live in, but the atheist pretends you can live in no country at all.

You gotta live somewhere, and you gotta believe in something, because your beliefs are being expressed every day in how you live your life. Atheists should be forced to articulate their positive position (say, secular humanism) as price of admission to the conversation.

This is a very odd complaint. I suppose the answer varies with the atheist (some people with a vague belief in "spirituality," for example, might describe themselves as atheists), but surely the bulk of us simply believe in a physical universe governed by physical laws. If you asked me, my rough answer would be, I believe in quantum mechanics, with the right to revise and extend if evidence for something better comes along.

Or, sure, secular humanism. Whatever. But although it's probably true that most conversations of this sort revolve around conventional religions and whether or not we believe in them, surely the flip side of that is fairly obvious even if it's not always directly articulated. Isn't it?

Clawback

| Wed Jan. 28, 2009 3:58 PM EST

CLAWBACK....Instead of nationalizing wobbly financial institutions, the Obama administration may be planning to set up a "bad bank" to buy up the toxic waste that's currently clogging up bank balance sheets. The problem, as usual, is valuation: buying up bad assets doesn't do any good unless you pay more than the current market price for them. After all, if $150 billion in junk is currently valued by the market at $15 billion, then the bank has a $135 billion loss on its books. Ouch. But if the feds buy it up at its market price, nothing has changed. The bank still has to book a $135 billion loss, and that loss makes it borderline insolvent and unable to loan out money.

Now, the argument the bank will give you is that the market has gone nuts: sure, mortgage defaults are up and that means mortgage-based assets have taken big losses. But "big" means maybe 30%, not 90%. Wait a few years for the panic to pass and heads to clear, and that junk will be worth $100 billion, not $15 million. That's its real value.

So if the feds are going to buy up this stuff, this story goes, they should do it at the higher price. That helps keep banks solvent, and taxpayers will get their money back down the road.

It's a nice theory. But Dean Baker says that if we're going to do this, taxpayers need more than a wink and a promise that they'll get back their investment. They need something with claws:

While the more obvious way to deal with the problem is to simply take over the bankrupt banks, and then put their junk in a bad bank, like with we did with the bankrupt thrifts in the 80s, there is a relatively easy way to limit the extent to which the bad bank is simply bank welfare.

We can just attach a clawback provision, under which the bank will be forced to make up any money that the bad bank loses on their junk, plus a penalty. For example, if Citibank sells $100 billion in junk, and the bad bank ends up selling it for $70 billion, then Citibank has to cover this $30 billion loss, plus a 20 percent penalty ($6 billion). This structure will both ensure that Citibank doesn't run off with our money and also discourage banks from trying to mislead the bad bank about the true value of their junk.

This is not as clean as nationalization, and technically speaking, I don't know how the clawback provision would show up on the bank's books. Expert opinion welcomed on this point. But if the Obama economics team wants to avoid nationalization — and I don't blame them for treating this as a last resort — this seems like the cleanest way to handle the asset side of the ledger.

Chart of the Day - 1.28.2009

| Wed Jan. 28, 2009 2:52 PM EST

CHART OF THE DAY....Via Taegan Goddard, Gallup reports on tracking poll data from 2008. They conclude that there are only five solid Republican states — representing a grand total of 2% of the population — left in the entire country. Full report here. Heckuva job, GOP! Congratulations to Utah for topping the list.

*Overwhelming

| Wed Jan. 28, 2009 2:25 PM EST

OVERWHELMING....Byron York reports from the trenches:

Just talked to a very clued-in Republican on the Hill. This person wouldn't predict a unanimous Republican vote against the Democratic stimulus package, but said there would be "minimal" GOP support of the bill. "I don't know if it will be unanimous, but Democrats are not going to have the kind of bipartisan support the president was trying to get," he told me. An "overwhelming" number of Republicans will vote no, he predicted.

That's pretty much what I expect too. And hey — I don't blame them, either. The job of the opposition is to oppose, and if this were some big Republican tax cut fest following a GOP victory I'd expect Democrats to oppose that overwhelmingly too.

I really don't think the opposition party owes the president any votes just because he won the election. They owe him votes if he convinces them that, on balance, one of his initiatives is a good thing for the country, or if they get some concession they want, or if they think it's political suicide to oppose him. In other words, the usual political reasons. Contrary to what our talking heads mindlessly recite after every election, honeymoons are for newlyweds, not presidents, and stuff needs to get done for four years out of four, not just for the first hundred days. It's long past time for the media to get over its preoccupation with both of these romantic notions.

Infrastructure Blues

| Wed Jan. 28, 2009 1:49 PM EST

INFRASTRUCTURE BLUES....Some criticism of the stimulus bill from the left:

In testimony before the House Budget Committee yesterday, Alice M. Rivlin, who was President Bill Clinton's budget director, suggested splitting the plan, implementing its immediate stimulus components now and taking more time to plan the longer-term transformative spending to make sure it is done right.

"Such a long-term investment program should not be put together hastily and lumped in with the anti-recession package. The elements of the investment program must be carefully planned and will not create many jobs right away," said Rivlin, a fellow at the Brookings Institution. The risk, she said, is that "money will be wasted because the investment elements were not carefully crafted."

Ryan Avent echoes a similar concern:

Our infrastructure and energy policies need to be drastically overhauled. This is going to require careful forethought — and time. New initiatives in the stimulus might well complicate or undermine later attempts at reform. The simplest example is the highway versus transit debate; it's difficult to make headway on goals to reduce emissions and vehicle miles traveled while funding lots of new lane miles. Better to set up new guidelines for local, state, and regional planners, along with new funding streams and standards. But that can't be done in a month.

Actually, though, the spending on energy and infrastructure in the stimulus bill is fairly modest. This has earned it some criticism from various left-leaning quarters, but I guess my hope is that the reason there's so little infrastructure spending in the bill is precisely because Obama doesn't want to blindly fund a big range of "shovel ready" status quo building projects, but instead wants to think this stuff through and produce something better later in the year. We'll see.

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Change You Can Believe In

| Wed Jan. 28, 2009 12:54 PM EST

CHANGE YOU CAN BELIEVE IN....Via Andrew Sullivan, I see that Mahmoud Ahmadinejad has not been caught up in Obama fever:

The vituperative Iranian president, delivering his first public address since President Barack Obama's inauguration last week and Obama's own overture to the Muslim world this week, suggested today that the "change'' which Obama promised in his campaign means that the new American leader must apologize for U.S. "crimes" against Iran, including American support for the 1953 coup in Tehran and the backing of Iraq during the war between Iraq and Iran.

So, um, I guess this means Obama won't be making that big speech of his from Tehran, like I wanted. Cairo, anybody?

Schwarzman at Davos

| Wed Jan. 28, 2009 12:13 PM EST

SCHWARZMAN AT DAVOS....Via Felix Salmon, Andrew Ross Sorkin is pretty clearly aghast at Blackstone CEO Stephen Schwarzman's antics at Davos:

In fact, Mr. Schwarzman is already making a splash. At a discussion panel on Wednesday, hopped off his stool during a debate moderated by CNBC's Maria Bartiromo, grabbed the microphone, and boldly called for what private equity loves: More leverage!

Mr. Schwarzman argued that banks should be allowed lower capital ratios, freeing money normally laid away against losses for new lending. He also called for the end of accounting rules that forced lower and lower asset valuations. And, oh yes, the government should guarantee securitizations to help the market get moving.

But hold on a second. I've heard plenty of sensible people suggest pretty much the exact same things: capital ratios that ease up during recessions and tighten when times are good; an end to (or modification of) mark-to-market accounting rules, which force huge fire-sale asset writedowns in illiquid markets; and government backstopping of bank obligations, which was a big part of the Swedish response to their banking crisis in the 90s.

I'm not saying I agree with any or all of these proposals, but it's not as if this stuff comes from the gamma quadrant. There are plenty of reasons to dislike Schwarzman (Daniel Gross has a quick rundown here), but this particular proposition doesn't strike me as being as cringeworthy as it's being made out to be.

Gas Taxes and Climate Change

| Wed Jan. 28, 2009 11:46 AM EST

GAS TAXES AND CLIMATE CHANGE....The Washington Post editorializes today about Barack Obama's recent actions to increase fuel economy standards. They appreciate the sentiment, but:

Unfortunately, the regulatory action that Mr. Obama set in motion is not the best, or even the second-best, approach to curbing climate change. It risks creating conflicting standards across the country and further stressing the domestic auto industry while accomplishing less than could be achieved with a simple tax increase on gasoline.

This is just flatly ignorant. The environmental policy community almost unanimously supports carbon pricing, including measures like increasing the gasoline tax, but I don't think you'd find a serious analyst in the country who thinks that a price increase at the pump is more effective at reducing gasoline use and GHG emissions than an increase in mileage standards. It would probably take a tax of three or four dollars a gallon to have the same effect on emissions as an increase in CAFE standards to 35 mpg, and we all know that's not going to happen anytime soon.

The Post editorial page needs to think before they write. Carbon pricing is an important backbone for any climate change policy, but there are lots and lots of places where ordinary regulation is cheaper, faster, and far more effective than a tax, and increasing auto mileage standards is one of them. We need them both, and Obama did the right thing here.

Mirror, Mirror

| Tue Jan. 27, 2009 9:23 PM EST

MIRROR, MIRROR....Carbon tax or cap-and-trade? Over at Gristmill, David Roberts writes that he's had a few off-the-record conversations in DC lately and has some blunt news for progressive advocates of a carbon tax:

The 111th U.S. Congress is not going to pass a carbon tax. Calls for a carbon tax, to the extent they have any effect, will complicate and possibly derail passage of carbon legislation.

It's possible that a carbon tax (and/or cap-and-dividend) bill will be introduced. One or both might even make it to a full vote, though I doubt it. But they won't pass. If you want carbon pricing out of this Congress, cap-and-trade is what you're getting. It follows that your energies are best spent ensuring that cap-and-trade legislation is as strong as possible.

Them's the facts.

I'm inclined to agree. Aside from technical issues, an awful lot of the pro-tax argument revolves around the political difficulty of getting a "clean" cap-and-trade bill. But while this is absolutely a reasonable concern (see Gar Lipow's comment to David's post for more), it's every bit as much a concern for a carbon tax bill. In fact, my guess is that it's more of a concern for a tax bill. After all, if there's anything Congress knows how to do after being in business for two centuries, it's how to muck up tax legislation for the benefit of favored industry groups.

Beyond that, though, the political picture is a little muddier. I think David is basically right: no matter what they say, conservatives are dead set against a carbon tax. But there's a wild card here. As Jonathan Adler points out, last year's decision in Massachusetts v. EPA requires the EPA to start regulating greenhouse gases under the Clean Air Act. So if nothing passes this year, that's the default machinery that will be brought to bear:

This creates an interesting conundrum for those (like me) who think regulating greenhouse gases under the existing Clean Air Act would be a colossal mistake....I'd gladly take a revenue-neutral carbon tax in exchange for exempting greenhouse gases from the Clean Air Act. I suspect others may disagree. Yet what those who oppose a carbon tax (or cap-and-trade or whatever) need to recognize is that support for the status quo is support for regulating greenhouse gases under the existing Clean Air Act — and I doubt that's an alternative many carbon tax or cap-and-trade opponents would find more agreeable.

Politically, I'm not sure how this will play out. One possibility is that once tax-phobic conservatives finally figure this out they'll (reluctantly) jump on the cap-and-trade bandwagon, figuring that its market-based mechanism is a lesser evil than letting the EPA run wild. Alternatively, they might decide that taxes aren't as bad as either the Clean Air Act or a bureaucratic cap-and-trade program, and make common cause with progressive carbon tax advocates. Or they might stick their heads in the sand and pretend that the whole thing will go away if they just refuse to support anything.

I'm not sure, though I'd guess the majority will stick to their anti-tax ways and eventually accept Door #1 if there's a strong enough push for cap-and-trade. And there's one other thing to add to the mix: If (like me) you think that Obama takes his campaign pledges seriously, then sometime this year he's going to invest a huge chunk of political capital in getting a clean cap-and-trade bill passed. After all, that's what he said he'd do. If that happens, and progressives get into a circular firing squad with themselves over it, then it means that Ann Coulter is right and liberals are idiots. Just a little something to keep in mind.

POSTSCRIPT: Just for the record, here's the nickel argument for cap-and-trade vs. a carbon tax: (1) It sets firm limits on GHG emissions, (2) Europe is already committed to it, (3) the machinery was tested during the 90s and worked well to reduce acid rain, (4) the public will view a cap more favorably than a punitive "make 'em pay!" tax, (5) it's politically more palatable than a tax, (6) Barack Obama supports it.

POSTSCRIPT 2: By request, here's the nickel argument in favor of a carbon tax: (1) a tax is economically more efficient than cap-and-trade (details here), (2) it requires much less bureaucracy, (3) it can be implemented more quickly, (4) it sets a predictable price for carbon, which encourages investment in green technology, (5) it's easier to harmonize across borders under current trade agreements.

There are also two other arguments that are widespread: (1) taxes are more transparent and less open to manipulation by special interests, and (2) taxes can be made non-regressive via rebates and dividend payment schemes. Neither of these arguments really holds water, though. Taxes are obviously open to enormous amounts of manipulation, and cap-and-trade can rebate revenues back to taxpayers the same way a tax can. On both of these scores, the two approaches are a wash.