Kevin Drum

Free Markets vs. "Free" Markets

| Fri Feb. 27, 2009 12:59 PM EST
Should the federal government provide loans to college students?  Or should it let the private sector make the loans but agree to guarantee them because otherwise the private sector wouldn't be interested?  Rep. Howard McKeon (R–Ca) thinks the latter.  Matt Yglesias, who's apparently on a first name basis with the distinguished congressman, comments:

The interesting thing here is not just the particulars of the policy, but the bizarre view of the role of government that Howard is espousing. Rather than a debate between progressives who want the government to provide a public service and conservatives who want the service to exist just insofar as it can be supported by the private market, we have a debate where both sides agree that the service ought to exist but the right thinks it’s important that it be done in a less efficient more costly manner....You have essentially the same debate over Medicare Advantage between Democrats who want the government to provide seniors with costly medical services and Republicans who want Democrats to provide seniors with an even more costly version of those services by bringing private insurance companies in as middlemen. It’s ludicrous.

This really does highlight the right's frequently bizarre notion of "free markets."  The only reason that private lenders are part of the college loan program in the first place is because the program was started in the 60s, and at the time banks were really the only institutions set up to make widescale loans.  The government didn't have much choice except to use them as their origination arm and provide guarantees as a carrot to get them to participate.

The revolution in finance during the 70s and 80s changed all that, of course.  The government doesn't need to pay banks to originate its loans any more than it needs to make the loans using gold bullion.  But Republicans are convinced that having Uncle Sugar subsidize loans so that Sallie Mae can make outsize profits is somehow ordained by natural law.  It must be more efficient because Sallie Mae is a private organization!  And everyone knows that federal programs are cesspools of waste and inefficiency.

But it ain't true, and it ain't true of Medicare Advantage either.  Sometimes the private sector does things better than the government, and sometimes it doesn't.  In particular, when the main job at hand is cutting checks, the government is actually pretty damn efficient.  There's not much to it these days, and with no middleman to get in the way the feds can provide money at a much lower cost than private lenders.

Bill Clinton tried to get rid of the private component of the college loan program, but he met a lot of resistance and didn't try all that hard.  Hopefully Obama will try harder.  After all, taxpayers deserve to have their money spent as efficiently as possible, right?

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Quote of the Day - 02.27.09

| Fri Feb. 27, 2009 12:29 PM EST
From an AP story about Los Alamitos mayor Dean Grose, who sent out an email picture depicting the White House lawn planted with watermelons under the title "No Easter egg hunt this year":

Grose says he accepts that the e-mail was in poor taste and has affected his ability to lead the city. Grose said he didn't mean to offend anyone and claimed he was unaware of the racial stereotype linking black people with eating watermelons.

Uh huh.  He just happened to pick watermelons randomly.  What a dick.

GDP Meltdown

| Fri Feb. 27, 2009 11:54 AM EST
Now we know why the economy feels a whole lot worse than the official statistics suggest — and it's not because our feelings are off kilter:

The economy at the end of last year contracted at a far faster rate than initially estimated, a government report released Friday said.

....Output fell 6.2 percent at an annualized rate in the fourth quarter of 2008, revised downward from a previous estimate of a 3.8 percent decline. The drop was even steeper than many economists had feared — the consensus estimate had been a 5.4 percent decline — and was much lower than the 0.5 percent contraction from the previous quarter.

That's an enormous revision.  I wonder how Commerce screwed up so badly?

Apparently the answer is that they miscounted business inventories.  No telling how.  But the good news, such as it is, is that this means inventories are lower than we thought.  And since inventory overhang keeps businesses from ordering more stuff, the lower number means that maybe things will pick up slightly more than we expect this quarter.  Maybe.

Cap and Trade Revenue

| Fri Feb. 27, 2009 4:32 AM EST
This is from the budget outline released by the Obama administration on Thursday:

After enactment of the Budget, the Administration will work expeditiously with key stakeholders and Congress to develop an economy-wide emissions reduction program to reduce greenhouse gas emissions approximately 14 percent below 2005 levels by 2020....

I wonder what their economic assumptions are here?  Here's the revenue timeline, starting in 2012:

At first glance, this strikes me as odd.  With only slight variations, it assumes $80 billion in revenue every year between 2012 and 2019.  But that doesn't really make sense.  What you normally expect with a carbon trading program is that you begin with a high cap (carbon emissions in 2012 will probably start out 10% higher than 2005 emissions) and then ratchet the cap down every year after that.  As the cap goes down, the price of permits goes up.  It's true that the number of permits goes down at the same time, but this shouldn't be enough to make up for the higher permit price.  Overall, until the green technology buildout hits a critical mass, the revenue from the program should go up considerably over time.

But not in this one.  I wonder why?

Tattoo Removal

| Thu Feb. 26, 2009 6:54 PM EST
Greg Sargent watches wingnut TV so you don't have to:

Conservatives are hammering the House’s new $410 billion spending bill because it contains $200,000 for what they’re derisively referring to as “tattoo removal.” Fox News’ Sean Hannity, Drudge, and at least one GOP official on MSNBC, among others, have been all over this today.

....The tattoo pork story kicked off in earnest when the New York Post flagged the “tattoo removal” pork in a story this morning. It was subsequently pushed by Drudge with the headline: “Congress: Big Bucks To Canoes And Tattoos.”

I hardly need to tell you that this is yet another crock to go along with volcano monitoring, field mouse protection, and the train to Las Vegas.  Read Greg for the whole story.  But I suppose resistance is futile.  Nothing is going to stop conservatives from combing through this bill forever looking for minusucle items to fan up some faux outrage over.  They're a tired bunch these days, and this is pretty much all they've got left.

Raining Money

| Thu Feb. 26, 2009 5:49 PM EST
James Kwak explains why the latest Treasury rescue plan is great for Wall Street, not so great for the rest of us:

There is nothing inherently wrong with convertible preferred stock. In Silicon Valley, for example, venture capitalists almost always invest by buying convertible preferred. The idea is that in the case of a bad outcome, the VCs are protected, because their shares have priority over the common shares held by the founders and employees....However, in a good outcome, the VCs can exchange their preferred shares one-for-one for common. So if the company gets sold for $100 million, the VCs convert, and they now own 50% of the common stock, so they get $50 million.

....The key in the Silicon Valley example is that the VCs have the option to convert or not. The Treasury Department's new Capital Assistance Program has this precisely backwards....The bank, AT ITS OPTION, can choose to convert the preferred shares into common, at 90% of the average closing share price during the 20 days ending on February 9.

....What's wrong with this? Well, nothing, if your goal is to give banks money. What you've just done is stick the government with the downside risk — we could get paid back in worthless stock — while the bank shareholders get all the upside potential. You've done this by giving the bank, for free, an option that has value. Back of the envelope, Peter [Boone] thinks this option is worth about 65 cents per dollar of money invested. (It's worth so much because bank stocks are so volatile these days.) Put another way, for every $10 billion of capital we invest this way, we are giving away another $6.5 billion.

The rest is a little complicated but worth reading anyway.  "There are some very clever people in Treasury these days," Kwak says, and they're expending a lot of brainpower figuring out ever more elegant ways to spend taxpayer dollars in ways that won't offend the delicate sensibilities of the folks getting the checks.

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Feeding at the Federal Trough

| Thu Feb. 26, 2009 3:56 PM EST
Gail Collins on Bobby Jindal's response to Obama's speech on Tuesday:

Louisiana has gotten $130 billion in post-Katrina aid. How is it that the stars of the Republican austerity movement come from the states that suck up the most federal money? Taxpayers in New York send way more to Washington than they get back so more can go to places like Alaska and Louisiana. Which is fine, as long as we don’t have to hear their governors bragging about how the folks who elected them want to keep their tax money to themselves. Of course they do! That’s because they’re living off ours.

They are indeed.  Wonky details here.

A Global Meltdown

| Thu Feb. 26, 2009 3:26 PM EST
I wrote a little post yesterday rounding up some of the bad economic news from around the world (exports plummeting in Japan, Italy rescuing its banks, Eastern Europe turning into a basket case, Russian GDP down 8%, etc. etc.), but then my browser crashed and I didn't feel like reconstructing it after I was back up and running.  But the bottom line was simple: there's a world of economic pain out there, and economic pain frequently turns into political and national security pain too.

Unsurprisingly, it turns out that the White House is worried about the same thing, and has asked the CIA to begin preparing a daily report on the global economic crisis:

The CIA's role in producing the report underscores the level of anxiety within the administration over how rapidly the economic downturn is spreading, as well as its potential to hobble foreign governments and trigger instability overseas.

The report, called the Economic Intelligence Brief, was launched at the request of the White House and delivered for the first time Wednesday.

[CIA Director Leon] Panetta said the document would survey major economic developments internationally and focus on how plunging markets and credit pressures are driving the decisions in nations including Russia and China.

The report covers "economic, political, leadership developments" in other countries as well as "the implications of those developments in terms of the U.S. economy," Panetta said.

We're not going to see pitchforks and torches in the United States, but we might in a few other countries before this is all over.  This is a smart move by Obama.

UPDATE: Along these lines, Cernig directs our attention to the recent armed mutiny among the 42,000 members of the Bangladesh Border Guards over lack of pay.  Global warming is implicated too.

Michael Klare has a much more detailed piece on this general subject over at Salon:

If you want to be grimly impressed, hang a world map on your wall and start inserting red pins where violent episodes have already occurred. Athens (Greece), Longnan (China), Port-au-Prince (Haiti), Riga (Latvia), Santa Cruz (Bolivia), Sofia (Bulgaria), Vilnius (Lithuania) and Vladivostok (Russia) would be a start. Many other cities from Reykjavik, Paris, Rome and Zaragoza to Moscow and Dublin have witnessed huge protests over rising unemployment and falling wages that remained orderly thanks in part to the presence of vast numbers of riot police. If you inserted orange pins at these locations — none as yet in the United States — your map would already look aflame with activity.

Obama's new briefing is going to be a busy one.

Federal Pay

| Thu Feb. 26, 2009 2:58 PM EST
Federal employees are sharing the pain in Obama's FY2010 budget:

Civilian employees of the federal government will be limited to a 2 percent pay increase in 2010 under the proposed budget released this morning by the Obama administration.

...."It's a modest increase, but it certainly is prudent," said Jacque Simon, public policy director for the American Federation of Government Employees...."While it's certainly a modest pay increase, federal employees recognize the severity of the economic situation, and we're viewing it from that context."

Over the past 12 months the Consumer Price Index has gone up 0.4%, so a 2 percent raise isn't exactly iron-fisted.  No wonder the union guy is taking this so serenely.

Chart of the Day - 2.26.2009

| Thu Feb. 26, 2009 1:51 PM EST
Henry Farrell says today that self-reported ideology is pretty unreliable when it comes to blog readers:

Netroots blog readers may identify themselves as being a mixed bag of ideologies....But self-identification here is misleading, as we can see if we look at a scale measuring blogreaders’ attitudes to a number of hot-button political issues such as abortion and the Iraq war, where left and right disagreed strongly at the time the data was gathered.

....Here, we don’t see anything like an even spread between those who are strongly liberal (i.e. inclined to take the ‘liberal’ position on all of these issues), and those who are moderate liberals or centrists. Instead, left blog readers tend to clump heavily at the strongly liberal end of the spectrum, with pretty well no centrists worth talking about.

The same thing is true for conservative blog readers.  I don't find this surprising, but I think a caveat is in order.  The issue scale is apparently based on a survey of only five questions (“partial-birth” abortions, funding for stem cell research, withdrawing troops from Iraq, raising the minimum wage, and extending capital gains tax cuts), and this doesn't allow for much nuance.  For example, there's not much question that I'm further toward the center than, say, Glenn Greenwald or Jane Hamsher, but on this scale we'd all come out identically as raging communists with perfect 5-0 liberal scores.  I think you'd need to dig quite a bit deeper than this to get decent read on the real views of the blogreading public.