Kevin Drum

China and the IMF

| Thu Oct. 30, 2008 2:10 PM EDT

CHINA AND THE IMF....The IMF, and western governments in general, have been remarkably eager to extend financial help to emerging economies as the global financial crisis has unfolded. Brad Setser suggests that this might be because they feared that China would step in and make them obsolete:

I wonder if the possibility that institutions like the IMF could be bypassed if they didn't respond more quickly and creatively than in the past didn't help to spur the recent set of policy changes. Those in the IMF's Executive Board who normally would object to unconditional lending didn't block the new short-term lending facility — perhaps at least in part because of recognition that the IMF potentially isn't the only game in town (or in the world).

This comes via Dan Drezner, who suggests a flip side: despite their vast reserves of dollar holdings, Russia and China aren't really stepping up to the plate:

For all their aspirations to great power status, both countries lack the policy expertise necessary to take on greater leadership roles. This leads to profound risk aversion, which leads to inaction. On the flip side, the U.S. is accustomed to talking to the countries in crisis, which both provides it with more information and allows Washington to act more quickly.

As long as we're taking guesses here, here's one of my own. Normally, IMF help tends to be a little slow in coming because they insist on onerous terms that are political death for the leaders of the target countries. The IMF usually doesn't budge much, however, because it feels like it needs to incentivize good behavior. If its terms were lax, countries would all feel free to follow profligate economic policies and then head over to Uncle IMF whenever they got a little behind. They want their terms to be onerous, and the upshot is that it takes a while before a country is in bad enough shape to agree to an IMF rescue.

But two things are different this time. First, the crisis has hit very, very fast. It's not taking a year or two for countries to figure out that bankruptcy is unavoidable, it's taking a month or two. Second, this isn't a case of a single country that made some bad choices. It's plainly a global conflagration, and furthermore, one that was primarily stoked by the United States, not by emerging economies doing stupid things. Everyone was doing stupid things, and the entire world is heading down the toilet, which means that the IMF's usual onerous terms just aren't necessary. The moral hazard issue isn't a big one.

So: given the global nature of the crisis, the IMF is willing to offer more generous terms than usual for its aid. And given the speed and depth of the crisis, failing countries are facing reality faster than usual. Result: more and faster IMF/western aid than usual.

And yes, Russia has its own problems and China has never played this game before. They'll probably dip their toes in the water eventually this time, and then next time feel a little more confident in taking a more active role. In the meantime, whatever the reason, it's heartening that the IMF is facing reality and changing their policies this time around. This crisis really is different.

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R.I.P. Tax Revolt?

| Thu Oct. 30, 2008 1:41 PM EDT

R.I.P. TAX REVOLT?....It's been increasingly chic in liberal circles over the past year or so to declare the death of the tax revolt. Born in California in 1978, raised to adulthood by Ronald Reagan, given a second wind by George Bush, and now, finally, ready to retire from public life. For example, here was Mark Schmitt early last year:

The truth is that we are heading down a path toward fiscal crisis that will inevitably require a major increase in revenues. In case that sounds like a euphemism, I'll say it plainly: Taxes must go up. If Democrats try to avoid that fact, they'll become mired in trench warfare with Republicans over small-bore increases that will cost them political support and won't really address the problem. But if Democrats seize the opportunity to define a new era of the politics of taxes, as Republicans did 30 years ago, they can shape the debate in a way that may actually help them to achieve some of their most-cherished policy goals.

So how's that going? At the time I remember thinking that Mark's piece was fairly persuasive, but the 2008 campaign sure doesn't seem to bear it out. Barack Obama, the progressive candidate, has certainly not campaigned on tax increases. In fact, he has loudly and consistently based his campaign almost entirely on a promise to cut taxes for 95% of Americans. He could probably fund the national debt for the price of the ads touting his tax cutting credentials. Amidst all that, the only teensy weensy concession he's made to higher taxes is an increase — all the way to 1990s levels! — for the highest earning 5%.

This is, of course, about as moderate a tax policy as you could possibly hope for. But even so, he's only barely gotten away with it. The response from the McCain campaign to that teensy weensy increase has been to go completely ballistic, accusing Obama of everything from socialism to Marxism to wanting to firebomb Joe the Plumber's cozy little Ohio cottage. In the end, it looks like this barrage of inanity won't work, but conservatives are sticking to it and they really do seem to be getting at least some traction with it. If Obama had nodded even slightly further in the direction of tax hikes, there's a good chance McCain would be making serious inroads on him right about now.

There's not much question that, eventually, taxes are going to have to go up. George Bush has ensured that. But it looks like we've been a little premature in declaring the end of the tax revolt. Apparently it still has few last gasps left in it.

Economy Watch - 10.30.2008

| Thu Oct. 30, 2008 1:08 PM EDT

ECONOMY WATCH....I guess it's now official that the economy sucks:

The U.S. economy shrank by .3 percent in the third quarter, government data released this morning shows, confirming an economic slowdown that was already showing itself through steady job losss and declining consumer sales.

....The drop in personal consumption was a particular drag on growth. Consumer spending accounts for about 70 percent of U.S. economic activity, and it dropped at a 3.1 percent annualized rate between July and September — the biggest quarterly decline in more than 20 years.

....It was in large part a jump in government spending — at the federal, state and local levels, with a more than 18 percent annualized increase in defense spending — that held off an even steeper decline. Overall government spending added 1.15 percent to GDP.

With his usual impeccable timing and sense for the public mood, John McCain naturally took this moment to....stop talking about the economy and instead try to suddenly "steer the presidential-campaign conversation to national security." Nice work, Senator.

As for the economy itself, I think everyone now agrees that we're in a recession. But did it start in the third quarter, or did it start last December? It almost feels like we need a new word here. High schools now call their advanced algebra classes "precalculus," and the first half of this year feels like it was a "prerecession." There really didn't seem much doubt about where we were headed, but technically we weren't quite there. Now we are.

The Obama Infomercial

| Thu Oct. 30, 2008 12:35 PM EDT

THE OBAMA INFOMERCIAL....The Nielsen people just emailed to tell me that Barack Obama's infomercial last night was viewed by 21.7% of all households watching TV. That compares to 38.3% for the final Obama-McCain debate.

Is that good? Bad? I'm not sure, really. But with the kind of money the Obama campaign has, I guess it doesn't matter much.

What did everyone think of it? I thought it was (duh) really well done and did a good job of presenting Obama as both a serious candidate and a normal human being. On the other hand, the tales of woe struck me as a little heavy handed. I think it might have been better if it had been a little less gloomy.

A World Series We Can Believe In?

| Thu Oct. 30, 2008 1:48 AM EDT

A WORLD SERIES WE CAN BELIEVE IN?....A friend points out that the last time the Phillies won the Series was October 1980, ushering in the election of Ronald Reagan and a long era of conservative ascendency. Tonight the Phillies won again. Another sign of a new era in politics? Maybe!

Homeowner Bailout Update

| Wed Oct. 29, 2008 7:47 PM EDT

HOMEOWNER BAILOUT UPDATE....The Washington Post reports that the White House is getting ready to announce a plan that would help up to 3 million homeowners avoid default:

Under the program being discussed, the lender would agree to reduce borrowers' monthly payments based on their ability to pay. The reductions could be achieved by lowering the interest rate, slashing the amount owed or extending the repayment period.

....In exchange, financial institutions that agree to participate in the program would receive a government guarantee for a portion of any losses occurring if borrowers default on the reconfigured loan.

For what it's worth, a Treasury spokesman told the Wall Street Journal that media reports about the program are "simply inaccurate," so take this with a grain of salt. Still, I'll bet it's not too far off the mark, and it sounds like a decent plan. It would be nice to see a chunk of that $700 billion being put to use helping someone other than a bunch of bankers.

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Quote of the Day #2 - 10.29.08

| Wed Oct. 29, 2008 5:59 PM EDT

QUOTE OF THE DAY #2....From George Newman, arguing that it's the prospect of a Barack Obama victory next week that's caused the stock market to collapse and the economy to go into recession:

Have you thought of how a Treasury Secretary George Soros would engineer the double taxation of the multinationals' world-wide profits, and what this would mean for investors (to say nothing of full-scale industrial flight from the U.S.)? The market now has.

Have you thought of how an Attorney General Charles J. Ogletree would champion a trillion-dollar reparations-for-slavery project (whittled down, to be fair, to a mere $800-billion, over-10-years compromise), and what this would do to the economy? The market now has.

....Have you thought of how a Health and Human Services Secretary Hillary Clinton would fix drug prices (generously allowing 10% over the cost of raw materials), and what this would do to the financial health of the pharmaceutical industry (not to mention the nondiscovery of lifesaving drugs)? The market now has.

This is from — of course — the Wall Street Journal editorial page. But will even their loyal readers swallow something this inane?

Via Brad DeLong.

Obama's Lead

| Wed Oct. 29, 2008 3:57 PM EDT

OBAMA'S LEAD....I notice that a number of liberal pundits are starting to worry in public that maybe John McCain is making up some ground and that maybe, just maybe, he could end up pulling ahead by election day. And sure, anything is possible. But I suspect that this growing fear is due in large part to the fact that, even now, a lot of people really aren't quite sure why Obama is winning.

That includes plenty of conservatives, too, who are practically insane with frustration over what's going on. After all, they've pulled out all the usual stops. They've called Obama a traitor, a radical, an appeaser, a terrorist lover, an Israel hater, and a socialist. And that stuff usually does the trick. So what's wrong this time?

Obama himself is part of it. He's been pretty unflappable and, like FDR, uses humor and mockery effectively to deflect a lot of the fever swamp stuff. His campaign is part of it too. It helps a lot when your response includes not just humor and mockery, but four TV ads to every one of McCain's.

And then there's the X factor: for some reason, the public just isn't buying the old swill this year. Is it because of the economy? Because they're tired of Republicans? Because they think Obama is The One? Who knows? And because we don't really, truly know, we're afraid that maybe if McCain finds just the right pitch, just the right attack line, just the right dodge, the whole thing could come crashing down and the public will, once again, start buying the old swill after all.

But I think that's exactly the wrong way to look at it. If it were just personality, maybe picking Sarah Palin as his running mate really would have turned things around. If it were just ads, maybe a better ad from McCain might do the trick. But if the real problem is that public opinion has turned against modern, GOP-style conservatism in a big way — and that really does seem to be the case — then Obama has the strongest possible kind of lead. Like Adam Smith's invisible hand, it may seem mysterious, but it's no less powerful for all that.

North Carolina Watch

| Wed Oct. 29, 2008 3:01 PM EDT

NORTH CAROLINA WATCH....Liddy Dole airs an ad against Kay Hagan accusing her of being a pagan:

"Godless Americans and Kay Hagan. She hid from cameras. Took godless money," the ad concludes. "What did Kay Hagan promise in return?"

This is like a spoof from Saturday Night Live or something. Godless money? Is the Republican Party really this bound and determined to give up what small shreds of credibility they still have left?

Watching this campaign has been sort of like watching The Office. (The Gervais version, anyway.) It's sort of excruciating, and you keep wanting to turn your head away in embarrassment, but you're mesmerized despite it all and you keep watching. And after each episode you think they really can't top that. But then they do.

Less than a week to go, though. It's longer than The Office, but the campaign still has to end eventually.

Media Bias Explained....Finally

| Wed Oct. 29, 2008 2:33 PM EDT

MEDIA BIAS EXPLAINED....FINALLY....You may have noticed that conservatives have gone absolutely ga-ga over the idea that the media has been not just biased against them during this campaign cycle, but virtually bought-and-paid-for chattel of the Obama '08 campaign. "The national media has become a feminized, electronic vote-for-Obama nagging machine," says Dan Perrin. "Will the Obamedia cover that?" sneers Andy McCarthy about the cost of Obama's plane trip to visit his dying grandmother. (Seriously.) "Michael S. Malone at ABC beautifully, if tragically, with shame, reports on the 'get-a-room' performance of the national media in this presidential election year," says Jules Crittendon.

Michael Malone? The right-wing tech writer? Yep. Malone, it turns out, has the usual litany of complaints: Why isn't the press interviewing Obama's drug dealer? Why aren't they staking out Bill Ayers' home? What's up with Joe the Plumber? Etc. Kinda tedious. But if you make it to the end, there's comedy gold when he finally explains why the media is so in the tank for Obama. The reason, it turns out, is because the press is run by a bunch of fifty-somethings working in a dying industry:

In other words, you are facing career catastrophe — and desperate times call for desperate measures. Even if you have to risk everything on a single Hail Mary play. Even if you have to compromise the principles that got you here. After all, newspapers and network news are doomed anyway — all that counts is keeping them on life support until you can retire.

And then the opportunity presents itself — an attractive young candidate whose politics likely matches yours, but more important, he offers the prospect of a transformed Washington with the power to fix everything that has gone wrong in your career.

With luck, this monolithic, single-party government will crush the alternative media via a revived fairness doctrine, re-invigorate unions by getting rid of secret votes, and just maybe be beholden to people like you in the traditional media for getting it there.

That's the answer! It's not reporters who are the real problem, it's a cabal of middle age editors who are desperately trying to elect a president who will pay them back for their support by destroying blogs and rejuvenating the Newspaper Guild. Seriously. That's his theory. And, of course, it was worth a link from Instapundit.

But the big question is: how did he find out? Who leaked? Whoever it is, we need to find the bastard and make him pay. This could ruin everything.