Kevin Drum

Common Sense on Hedge Funds

| Mon Feb. 23, 2009 2:03 AM EST
Noam Scheiber points to some genuinely good news in today's New York Times piece about Barack Obama's upcoming budget outline.  From the Times:

The president will propose to tax the investment income of hedge fund and private equity partners at ordinary income tax rates, which are now as high as 35 percent and could return to 39.6 percent under his plans, instead of at the capital gains rate, which is 15 percent at most.

Senior Democrats in Congress joined with Republicans in 2007 to oppose that increase. But with Wall Street discredited and lucrative executive compensation a political target, the provision could prove more popular among lawmakers.

This refers to the "carried interest" loophole, which allows hedge fund management fees to be counted as capital gains on the theory that — well, there was never really much of a theory for it at all.  If you invest your own money and make a return, that's a capital gain.  But if you get a piece of the return for managing someone else's investment, that's a management fee.  It's ordinary income, and there's really no plausible theory under which it should be counted as capital gains.

Except, of course, under the theory that hedge fund managers would prefer to pay low capital gains taxes on their income, and since hedge fund managers contribute lots of money to political campaigns they usually get whatever they want.  It really was just about that crude, and Democrats displayed colossal cowardice when they refused to eliminate this loophole two years ago.  It's good to see that Obama is going to try to embarrass them into finally doing the right thing and making rich people pay the same rate on their income as everyone else.

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Nate Silver Finally Gets One Wrong

| Sun Feb. 22, 2009 9:49 PM EST
Penélope Cruz won the Oscar for Best Supporting Actress?!?  But Nate Silver said it would be Taraji P. Henson.  Can we ever trust him again?

UPDATE: Ben Stiller's Joaquin Phoenix bit was pretty funny.

Mau Mauing Rahm Emanuel

| Sun Feb. 22, 2009 7:13 PM EST
Matt Yglesias thinks Rahm Emanuel should stop whining about Paul Krugman's criticism of the stimulus bill.  In fact, he should thank him:

If you propose something, and every single progressive in all the land immediately lauds it as the greatest bill ever written, then your legislation is now an extreme left proposal and it’s doomed. If you’re going to make concessions to political reality then you need to weather a bit of criticism from your left — that’s what establishes the proposal as moderate and sensible. Things like “some liberal economists such as Paul Krugman say the proposal is too small” is a helpful piece of context-setting that prevents the proposal from appearing too radical.

This sounds right to me, but I wonder if it's really true?  Let's turn it around.  When Rush Limbaugh criticized George Bush's immigration plan, did that convince liberals that maybe Bush's position wasn't so bad after all?  Maybe it did!  But I'm not so sure about that.

(At least in the short term.  Constant kvetching can certainly change the center of gravity of public opinion over periods of years or decades.  But that's a different thing.)

Anyway, it seems like there ought to be some clever way to test this theory.  In general, does criticism from the extreme left or right help a bill's prospects with moderates?  How might we figure this out?  Any ideas?

DNA Testing

| Sun Feb. 22, 2009 6:45 PM EST
Over the past few years hundreds of innocent people have been freed from prison thanks to DNA evidence.  So why isn't it more widely available? Answer: because prosecutors and state governments tend to fight DNA testing requests tooth and nail.  Defense attorney and civil libertarians are on the opposite side, of course, and shortly the Supreme Court will hear a case deciding whether they'll get their wish to make testing more widely available:

They are opposed by victims rights groups; the vast majority of states, which have a patchwork of laws granting DNA access; and the federal government. The governments say that creating a constitutional right to the testing would infringe on states' rights, overwhelm them with frivolous demands and create an endless right of appeal for those convicted of the most violent crimes.

Set aside the states' right argument for now.  I'm more interested in the question of whether constitutional protections for DNA testing would, in fact, result in lots of frivolous demands and endless appeals.

If there were, literally, no restrictions at all, maybe that's what would happen.  Maybe every con with time on his hands would demand test after test just for the hell of it.  Maybe.  But if the court required even a minimal showing of cause, wouldn't frivolous requests dry up?  What's the point, after all?  If you're guilty, then you know perfectly well that DNA isn't going to get you off the hook.  So why bother?

That's why I've never found this argument very persuasive.  Prisoners who know they're guilty have little incentive to demand DNA tests.  Conversely, though, prosecutors have loads of incentive to deny DNA tests, even — or maybe especially — in cases where it might well prove wrongful conviction.  This suggests that the court should adopt some kind of balancing test: not an absolute right to endless DNA testing, but at least a presumption in favor of it.  Make the hurdle just high enough to deter the genuinely frivolous, but low enough that nobody has to rot in prison for years just because they didn't have access to a simple test.  We are, after all, in favor of not imprisoning innocent people.  Right?

Rahm Emanuel

| Sun Feb. 22, 2009 3:17 PM EST
I sometimes get the feeling that it's impossible to write a bad profile of Barack Obama's chief of staff, Rahm Emanuel.  Or at least, impossible to write a boring profile.  The guy's just too good a quote machine.  Here he is in Ryan Lizza's recent New Yorker piece complaining about critics who didn't like the way the stimulus bill turned out:

“They have never worked the legislative process,” Emanuel said of critics like the Times columnist Paul Krugman, who argued that Obama’s concessions to Senate Republicans — in particular, the tax cuts, which will do little to stimulate the economy — produced a package that wasn’t large enough to respond to the magnitude of the recession. “How many bills has he passed?”

....The stimulus bill was essentially held hostage to the whims of Collins, Snowe, and Specter, but if Al Franken, the apparent winner of the disputed Minnesota Senate race, had been seated in Washington, and if Ted Kennedy, who is battling brain cancer, had been regularly available to vote, the White House would have needed only one Republican to pass the measure. “No disrespect to Paul Krugman,” Emanuel went on, “but has he figured out how to seat the Minnesota senator?” (Franken’s victory is the subject of an ongoing court challenge by his opponent, Norm Coleman, which the national Republican Party has been happy to help finance.) “Write a fucking column on how to seat the son of a bitch. I would be fascinated with that column. O.K.?” Emanuel stood up theatrically and gestured toward his seat with open palms. “Anytime they want, they can have it,” he said of those who are critical of his legislative strategies. “I give them my chair.”

Read the rest, of course.  It doesn't really turn over any fresh ground, but it's still good stuff for political junkies.

Sleep

| Sun Feb. 22, 2009 2:23 PM EST
All of us have things we believe in even though we don't really have any evidence for them.  One of mine has to do with the causal direction of depression and sleep problems.  The conventional wisdom says that depression causes you to sleep badly, but I've long thought it was more likely the other way around: poor sleep makes you depressed.  So I'm happy to report that Science™ has finally caught up with my uninformed prejudices:

Doctors studying psychiatric disorders noticed long ago that erratic sleep was somehow connected. Adults with depression, for instance, are five times as likely as the average person to have difficulty breathing when asleep, while between a quarter and a half of children with attention-deficit hyperactivity disorder (ADHD) suffer from sleep complaints, compared with just 7 per cent of other children.

Until recently, however, the assumption that poor sleep was a symptom rather than a cause of mental illness was so strong that nobody questioned it. "It was just so easy to say about a patient, well, he's depressed or schizophrenic, of course he's not sleeping well - and never to ask whether there could be a causal relationship the other way," says Robert Stickgold, a sleep researcher at Harvard University. Even when studies did seem to point in the other direction, the findings were largely overlooked, he says.

....So how does poor sleep lead to behavioural and psychological problems? Some of the links are apparent. For example, every parent knows that tired children usually become hyperactive rather than sleepy. Sleep disruption also bumps up stress hormone levels, which could contribute to daytime anxiety, a component of many psychiatric disorders. More intriguingly, it now seems sleep disruption can fundamentally interfere with the brain's ability to process emotion and to react to an emotional stimulus in an appropriate way.

[Etc. etc.]

I used to look forward to sleep.  It was relaxing; it was pleasant; it would make me feel better about the world.  But it's been a long time since that was so.  Now it's just something I do when I get tired every night, with no prospect that I'll feel anything other than tired and grumpy when I wake up in the morning and then stay that way pretty much all day.  Unfortunately, there doesn't seem to be anything wrong enough with my sleep that it's obvious on a routine sleep test.  I found out years ago that I have mild sleep apnea, but it's pretty mild and the fix is a C-PAP machine, which I tried but was never able to tolerate for an entire night.  So no help there.

But now, science is on the case!  Hooray!  Maybe they'll finally start taking this stuff seriously.  Maybe.  (Via Andrew Sullivan.)

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R.I.P. Socks

| Sat Feb. 21, 2009 1:54 PM EST
Sad cat news today:

Word tonight that Socks Clinton, the one-time Arkansas stray adopted by the Clintons who rose to international prominence and literary fame as sole feline inhabitant of the White House, died today....Upon leaving the executive residence in Washington, the Clinton family gave the cat to the president's secretary, Betty Currie, who had recently lost her own pet.

....Though reticent in public, Socks was known as an affectionate creature, even tolerating the First Dog, a brown Labrador named Buddy, who was killed in a 2002 collision with a car near the Clintons' suburban New York home.

....Some foreign leaders were said to have even requested to have their photo taken with the First Kitty, which he tolerated because he favored diplomacy over militancy. At the end Socks was reported unwilling to eat and unable to stand. He had a last walk outdoors Thursday in Currie's arms.

This has been a bad year for presidential cats. Rest in peace, Socks.

Safe Haven

| Sat Feb. 21, 2009 1:17 PM EST
Looking for a safe haven for your money?  Beirut probably isn't the first place that comes to mind. But it turns out that back when Wall Street was running wild, Lebanon's central banker, Riad Toufic Salame, was busy keeping his country's banks some of the safest in the world:

In 2005, he defied pressure from the Lebanese business community and bucked international trends to issue what now looks like a prophetic decree: a blanket order barring any bank in his country from investing in mortgage-backed securities, which contributed to the most dramatic collapse of financial institutions since the Great Depression.

....He says the mortgage-backed securities worried him from the start. He watched curiously as investment bankers engaged in what he calls "rituals" to please the credit ratings agencies and got back such safe assessments of their products. He didn't get it. Why were these considered safe investments? They were just too complicated. They went against a major tradition in Lebanese and Middle Eastern banking: Know to whom you're fronting cash and who's going to pay you back.

"We could not really sense who would be responsible in the end to collect these loans," he said. "And we do not perceive banking as being a place to speculate on financial instruments that are not really concrete."

"Know to whom you're fronting cash and who's going to pay you back."  Words to live by.

Friday Cat Blogging - 20 February 2009

| Fri Feb. 20, 2009 3:52 PM EST | Scheduled to publish Fri Feb. 20, 2009 4:07 PM EST
Today's theme is "Looking Skyward."  On the left, Inkblot is reacting to a bird flying overhead.  On the right, Domino is bonding with a potted plant.

And speaking of birds flying overhead, the Guardian reports that 200 British cats are being outfitted with a device called "catnav" to track their predatory habits.  "Some experts believe Britain's 9m cats could be killing more than 150m birds, mice, rabbits, moles and other creatures every year," they warn us.  "We know what cats do in our homes — they sleep," says one of the researchers, "But we have virtually no idea of what they get up to outdoors, particularly at night. Now we can find out."

Well.  I'd just like to take this opportunity to quantify Inkblot and Domino's contribution to this bird and mole carnage.  That would be zero.  Jasmine once dragged in an already wounded bird and allowed Inkblot to play with it, but neither Inkblot himself, nor our pudgy little Domino, is capable of anything more than dreaming about such things.  Domino, in fact, can barely find her own food bowl at times.  (Inkblot has no such difficulty.)  The Irvine pest population may rest easy.

Smoke and Mirrors

| Fri Feb. 20, 2009 3:15 PM EST | Scheduled to publish Fri Feb. 20, 2009 3:24 PM EST
No more smoke and mirrors for the Obama administration!

For his first annual budget next week, President Obama has banned four accounting gimmicks that President George W. Bush used to make deficit projections look smaller. The price of more honest bookkeeping: A budget that is $2.7 trillion deeper in the red over the next decade than it would otherwise appear, according to administration officials.

The new accounting involves spending on the wars in Iraq and Afghanistan, Medicare reimbursements to physicians and the cost of disaster responses. But the biggest adjustment will deal with revenues from the alternative minimum tax, a parallel tax system enacted in 1969 to prevent the wealthy from using tax shelters to avoid paying any income tax.

....“The president prefers to tell the truth,” said [Peter R. Orszag, director of the Office of Management and Budget], “rather than make the numbers look better by pretending.”

This is good.  Seriously.  It really is.  The cynical among us, however, might note that highballing the current deficit also makes it a lot easier to show progress in reducing it in the future.  Not that that ever occurred to them, I'm sure.