Kevin Drum

Bernanke on the Stimulus

| Tue Mar. 3, 2009 11:17 AM EST
Ben Bernanke's profile has been a little bit lower since Barack Obama took office, but today he testified before Congress and backed Obama's aggressive spending plans:

U.S. Federal Reserve Chairman Ben Bernanke on Tuesday appeared to back the White House's efforts to stimulate the economy, saying aggressive action is needed now to avoid an economic calamity even as it adds trillions of dollars in new government debt.

...."By supporting public and private spending, the fiscal package should provide a boost to demand and production over the next two years as well as mitigate the overall loss of employment and income that would otherwise occur," Mr. Bernanke said in prepared testimony to the Senate Budget Committee.

Basically, Bernanke had nothing good to say about our current mess.  Things are bad and getting worse.  Interestingly, however, he did have one slightly encouraging thing to say about the long-term deficit: he thinks it will be mitigated somewhat when we start selling off all the toxic waste that we're buying up right now. "If all goes well," he said, "the disposition of assets acquired by the Treasury in the process of stabilization will be a source of added revenue for the Treasury in the out years."

If all goes well, that might be true.  I wonder what the odds are of all going well?

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A Deal With Russia?

| Tue Mar. 3, 2009 1:31 AM EST
Peter Baker of the New York Times reports on the latest diplomatic move from Barack Obama:

President Obama sent a secret letter to Russia’s president last month suggesting that he would back off deploying a new missile defense system in Eastern Europe if Moscow would help stop Iran from developing long-range weapons, American officials said Monday.

....The officials who described the contents of the message requested anonymity because it has not been made public. While they said it did not offer a direct quid pro quo, the letter was intended to give Moscow an incentive to join the United States in a common front against Iran.

....The officials who described the contents of the message requested anonymity because it has not been made public. While they said it did not offer a direct quid pro quo, the letter was intended to give Moscow an incentive to join the United States in a common front against Iran.

I'm not sure what to make of this.  The story shows every sign of being an official leak, something that Obama wanted to make public prior to Hillary Clinton's meeting with the Russian foreign minister later this week.  But does making it public really help its chances of being accepted?  Doesn't seem like it.  Or perhaps the leak was designed more to put pressure on Iran than it was to put pressure on Russia?

Very odd.  Consider me mystified by this.

Oops

| Mon Mar. 2, 2009 9:56 PM EST
We're still waiting for the release of many of the Bush-era legal opinions that were used to justify warrantless wiretapping, torture, and indefinite detention.  Today we got to see a few of them, including a remarkable memo written by George Bush's own Office of Legal Counsel during the final week of his presidency:

In a memo written five days before President Barack Obama took office, Steven Bradbury, the then-principal deputy assistant attorney general, warned that a series of opinions issued secretly by the Justice Department's Office of Legal Counsel "should not be treated as authoritative for any purpose."

The memo, unusual for its critique of a current administration's legal opinions, was released by the Justice Department Monday along with eight other previously secret opinions.....Attorney General Eric Holder said Monday that he planned to release as many of the Bush administration's OLC memos and opinions as possible "while still protecting national security information and ensuring robust internal executive branch debate and decision-making."

The full memo, written on January 15, is here, and retracts nine separate opinions from the Yoo/Bybee/Haynes era at the OLC.  In particular, it turns out that one of the early Yoo opinions made the risible argument that the FISA act didn't apply to Bush's warrantless wiretap program because the text of FISA didn't specifically say it applied to national security matters.  The January memo calls this "problematic and questionable, given FISA's express references to the President's authority."  Orin Kerr at the Volokh Conspiracy is more scathing:

If I'm reading this correctly, then, the original Yoo memos on the TSP had argued that FISA didn't apply because there was nothing in the statute that indicated clearly an intent to regulate national security surveillance. This would have been an extremely lame analysis, though....It's hard to read the phrase "procedures in . . . the Foreign Intelligence Surveillance Act of 1978 shall be the exclusive means by which electronic surveillance . . . may be conducted" as not clearly indicating an intent to regulate electronic surveillance in the national security area. Indeed, much of the point of FISA was to regulate that.

If I'm reading this correctly, it might explain why Senators Feinstein & Specter introduced legislation back in '06, at the height of the legal controversy over the TSP, that would "re-state" that FISA was the exclusive means for national security surveillance. A lot of people giggled at this idea at the time: Why restate what Congress already said? However, if the Bush Administration at some point indicated to Specter and Feinstein what the reasoning was of the initial OLC memos, Feinstein and Specter would have known something we didn't. "Re-stating" the point in new legislation could have been designed to provide the "clear statement" that the Yoo memo argued was necessary.

It's hard to believe that even John Yoo seriously advanced this argument.  Given the plain text of the FISA statute, it simply can't be made in good faith.  But he did.

The Dynamic Duo

| Mon Mar. 2, 2009 2:41 PM EST
David Cho of the Washington Post reports that Larry Summers and Tim Geithner have become outsized voices on Obama's economic team. A few weeks ago, for example, they teamed up to keep Obama focused on the long-term deficit:

Meeting in January on the eighth floor of the transition team's office in downtown Washington, Geithner pressed the incoming president to commit to cutting the deficit to 3 percent of the economy over the next five years, which would keep the nation's debt roughly in line with normal economic growth. Summers quickly backed him.

Some, including economist Jared Bernstein, resisted, saying that such a strict limit would make it more difficult to confront the many challenges ahead and that the size of the government's emergency response to the economy and financial markets would make the cap tough to maintain.

In February, the entire economic team convened in the windowless Roosevelt Room in the White House. Obama abruptly ended the debate. Geithner and Summers would have their way.

Tim Fernholz says "this doesn't sound too good," but I think that's too quick a judgment.  Bernstein may have lost this battle, but he wasn't shut out of the conversation, and in any case it's a battle he probably deserved to lose.  The long-term deficit is important, both in substantive and optical terms.  Substantively it's important because it's related to the current account deficit, which eventually needs to start coming down.  We can't keep borrowing from China forever.  And optically it's important because Obama needs to appear fiscally responsible if he wants to achieve his long-term goals.  So far Republicans haven't been able to make the "wasteful spending" charge stick, but if they ever get any traction with it the public is likely to start turning against Obama's plans.  One way to keep that from happening is for him to take economic fundamentals seriously and to make sure the public knows he's taking them seriously.

If the Bernstein faction starts to lose every battle, then that's a problem.  But it's only been a few weeks so far, and I suspect that he's going to win a few on some other issues.  But Obama did the right thing this time.

Spending is Up!

| Mon Mar. 2, 2009 1:08 PM EST
Surprisingly, consumer spending increased in January.  Not by much, mind you: it came to about a 0.2% rise when adjusted for inflation.  But that's still better than nothing.

Or is it?  The Wall Street Journal rounds up reaction:

Do not be fooled by the rise in incomes and consumption this month.....It would be a huge mistake to assume that the January rise in consumer spending represents anything more than statistical noise....Rising unemployment and continued economic weakness makes it unlikely that spending will improve much if any in the months immediately ahead....Consumption will remain in the doldrums for some time yet....The trend in real consumption, however, remains downwards, and the further decline in consumers’ sentiment signals continued declines....The January monthly changes in income and spending paint a completely misleading picture of economic activity at the start of the first quarter.

On the bright side, there was this from Wachovia's analyst: "While this up-tick does not likely signal the start of a string of increases, we will take any good news on the economy these days."  Me too.  But it turns out that January's increase was mostly related to automatic cost-of-living adjustments in things like Social Security checks, so it's nothing to get very excited about.

Food Politics

| Mon Mar. 2, 2009 12:34 PM EST
Ezra Klein glosses a story from Haaretz:

Israel, it seems, has been denying shipments of pasta headed for Gaza. Senator John Kerry, who'd been visiting Israel, heard about the idle trucks filled with food aid and asked around. "Israel does not define pasta as part of humanitarian aid," he was told. "Only rice shipments." A call Kerry made to Ehud Barak quickly got the pasta added to the list of acceptable humanitarian aid. Comments from Representative Brian Laird helped lentils onto the list of officially allowed foods. American politicians do not like seeing starvation used to change electoral outcomes.

Of course, there's another way we could guarantee that food gets through to Gaza: tell the Sixth Fleet to escort UN aid ships into Gaza.  It'll never happen, but it would work, wouldn't it?

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Big Ideas

| Mon Mar. 2, 2009 12:19 PM EST
Jon Chait defends Rush Limbaugh:

Rush Limbaugh is drawing some ridicule for saying, "One thing we can all do is stop assuming that the way to beat [the Democrats] is with better policy ideas." But I think he's basically right. Good ideas are meritorious. But being meritorious isn't what wins elections. Most voters have only the faintest idea what policy ideas candidates advocate when running or implement when in office. External conditions (such as the economy, but war and scandal matter also) have much more influence over which party wins.

I agree — up to a point.  I do think that the GOP needs to moderate some of the hardcore social positions that have alienated young voters in droves, but aside from that it's not shiny new ideas that will save them.  That's not what saved Democrats, after all.  National health care?  That's been on our wish list for about a century.  Fighting global warming?  Liberals  have been environmentalists since the 60s.  Fiscal stimulus?  Can you say "New Deal"?  Pulling out of Iraq?  Not exactly a milestone in progressive thought on foreign policy.

You can take this too far, of course.  Liberals might be longtime environmentalists, but global warming is a newish issue and a market-oriented cap-and-trade program is a newish way of dealing with it.  Our healthcare plans this time around are different (and frankly, more modest) than in the past.  Obama is pulling out of Iraq but getting us ever deeper into Aghanistan.

So: not new ideas, perhaps, but certainly different takes on classic ideas.  What's more, Dems have also backed down on social issues a bit over the past decade, sometimes in fact (gun control), sometimes only rhetorically (abortion).  This is likely to eventually be the road back for Republicans too.  Cut down on the gay bashing and the hellfire preachers who are too often seen as forces of intolerance, and then come up with newish ways of selling small government and lots of overseas wars.  It'll work someday.  Not anytime soon, but someday.

Countercyclical Capping

| Sat Feb. 28, 2009 3:10 PM EST
A few days ago I suggested that although Barack Obama's revenue projections for his greenhouse gas cap-and-trade plan might be a little optimistic, they were "in the right ballpark."  Partly this is because the plan won't take effect until 2012, and I suspect that demand for energy will rise by then, increasing the auction revenue for permits enough to generate $80-100 billion per year.  Megan McArdle disagrees:

I doubt economy-driven demand will have recovered by 2012.  The major economies are crashing so hard that it will take years of growth to get demand back where it was, and the big developing countries that drove demand past capacity are in worse shape than we are....

[In addition] I think it is decidedly iffy whether congress actually passes any cap and trade system with teeth.  For a cap and trade system to work, it will have to make energy more expensive at a time when incomes are declining.  This will be very, very, very unpopular.

These are reasonable points, but my guess is that (a) demand will have largely recovered by 2012 and (b) the initial permit price will be low enough not to have a huge effect on the price of energy at first.  So it won't be all that unpopular.  Beyond that, though, there's another point buried here that's worth unpacking a bit.

In my magazine piece (which you should read!) I go into a little more detail about the difference between cap-and-trade and a carbon tax, but the nickel version is simple: Financial folks generally prefer a tax because it's predictable.  You know exactly how big the tax is now and how big it will be in the future, and that allows you to plan your investments.  Conversely, you don't really know what effect any particular tax rate will have on carbon emissions.  You have to take your best guess.

A cap-and-trade system is similar to a tax in the sense that you have to buy a permit for every ton of carbon you emit, but the predictability is exactly the opposite.  There's a firm cap, so you know exactly what effect the plan will have on carbon emissions, but you don't know for sure what the permit price will be at any given time.  If demand for energy rises, the price of permits gets bid up.  If demand goes down, the world is awash in permits and the price goes down.

There are pros and cons to both a carbon tax and cap-and-trade, but here's one of the pros of cap-and-trade: The price of permits is likely to go up in good times, when energy demand is high, and down in bad times, when energy demand drops.  In other words, it's countercyclical.  During recessions the effective tax rate goes down, and it does so automatically.  Macroeconomically speaking, that's good.  So that's a point in favor of cap-and-trade.

As for whether Congress will pass a plan with teeth?  Good question.  As with a tax, there are lots and lots of opportunities for special interest tinkering in a cap-and-trade plan.  Auctioning 100% of the permits, rather than giving some of them away to existing polluters, is the key issue to insist on, but there are others too (it's point #9 in my article).  Later this year we'll see if Obama can keep the sausage factory on the straight and narrow.

Huckamongering

| Sat Feb. 28, 2009 2:12 PM EST
Mike Huckabee says that Barack Obama is midwifing the birth of a "Union of American Socialist Republics" in his new budget.  "Lenin and Stalin would love this stuff."

"If a prominent Democratic office holder, in 2005, delivered a speech referring to George W. Bush's agenda as 'fascism,' comparing his administration to totalitarian regimes, and casually throwing in a reference to Hitler," says Steve Benen, "that Democrat would have a very difficult time being taken seriously by the political establishment moving forward. Presidential ambitions would be largely out of the question."

"Why Huckabee thinks that federally funded research into determining which medical treatments are effective is similar to being a totalitarian mass-murderer is a bit beyond me" says Matt Yglesias.  "But it’s par for the course in the uglier corners of conservatism, they’re just not corners Huckabee’s been known for dwelling in."

"Either Huckabee is losing his ear or this is what you really have to say to get the Republican Presidential nomination in 2012," says Mark Kleiman. 

I'd say (a) yes, Huckabee really believes this stuff, (b) no, a Democrat couldn't get away with something like this, (c) yes, it's what you have to do to win the GOP nomination these days, and (d) no, nobody really cares because talk radio has inured us to this kind of stuff.  Boys will be boys.  He's just warming up the crowd.  Etc.

And the good news?  It demonstrates that things are going to get worse for Republicans before they get better.  "The party of Lincoln is now the Party of Limbaugh," says Paul Begala, and he's right.  Like most parties that have lost their way in the past, it's now clear that they'll spend at least four years insisting that what America really wants is an even more extreme version of what they voted against in 2008.  Cooler heads will eventually prevail, but not until 2016 at the earliest.  Maybe not until 2020.  Obama's really got some running room in front of him.

Epistemological Modesty

| Sat Feb. 28, 2009 1:39 PM EST
This is apropos of nothing in particular, but I'd just like to mention that the past year has been an intellectually humbling one for me.  As a general purpose blogger I'm accustomed to spouting off on topics I know only a little bit about, but all that spouting has become more difficult lately.  There's just too much stuff I'm really not sure what to think about.  For example: I don't know if we should send more troops to Afghanistan.  I don't know if fiscal stimulus will work.  I don't know what to do about Pakistan.  I don't who or what is really responsible for our financial meltdown.  I don't know if we need to nationalize some banks.  I don't know the best way to handle detainees at Guantanamo.  I don't know whether it's a good idea to bail out Detroit.  I don't have even the slightest clue how to pursue peace in the Middle East.

On the other hand, Social Security is still a minor problem, national healthcare would be better than our current jury rigged hodgepodge, torture is wrong, global warming is real, preventive war is a bad idea, gay marriage will have no ill effects on straight marriage, Sarah Palin is still an embarrassment, and Inkblot is still America's Cat1.  So there.

1Well, why not?  If the Dallas Cowboys can be America's Team and Rudy Giuliani can be America's Mayor, why can't Inkblot be America's Cat?