Kevin Drum

Joe the....Um....Whatever

| Thu Oct. 16, 2008 4:23 PM EDT

JOE THE....UM....WHATEVER....Chris Orr is agog at the attention conservatives are paying to supposed weathervane du jour Joe the Plumber:

Do not expect this ardor to be dampened by the facts that Wurzelbacher is not an independent, makes nowhere near the $250,000 that prompted his question to Obama, and is not, in fact, a licensed plumber.

Okay, but at least his name really is Joe, isn't it? That counts for something.

UPDATE: I was just kidding, but it turns out his name isn't Joe. It's Samuel. Sheesh. But I guess he goes by Joe.

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Oil Bubble Watch

| Thu Oct. 16, 2008 2:24 PM EDT

OIL BUBBLE WATCH....The latest on oil prices:

In New York, oil futures fell as much as 8 percent to $68.57 a barrel on Thursday, their lowest since June 2007. Oil has lost half its value since hitting a record closing price of $145.29 a barrel in July.

....Global oil demand is undeniably slowing, particularly in developed nations. Japanese oil consumption dropped 12 percent in August, while in the United States, demand has been cut by 8 percent in September.

Still, consumption is growing in developing nations, albeit at a slower pace. The International Energy Agency expects global oil demand to grow by just 400,000 barrels a day this year, to 86.5 million barrels a day. At the beginning of the year, the agency was expecting growth of more than 2 million barrels for 2008.

So does this mean that this year's runup in oil prices was a speculative bubble after all? At first I didn't think so, but by the middle of the year I was beginning to wonder. Still, even at the height of the bubble in June, the best I could say was that the price spike "had a bit of a bubbly feel to it" but that I didn't really have any solid evidence to back that up.

I still don't, really. The problem is that there were genuine supply and demand issues pushing prices up beginning in 2007. But as prices skyrocketed, demand eventually went down. Then the banking crisis kicked into high gear and everyone got afraid that we were headed for a global recession. Those are both perfectly normal reasons for the price of oil to fall.

On the other hand, the "Enron loophole" that the bubble pushers kept talking about got closed in June too. And a couple of months ago the CFTC discovered that "financial firms speculating for their clients or for themselves account for about 81 percent of the oil contracts on NYMEX, a far bigger share than had previously been stated by the agency." So maybe it really was a speculative bubble after all.

Bottom line: Occasionally you get a massive, long-running thing like the housing bubble, which is visible (to some people at least) even while it's happening. Most of the time, though, bubbles are pretty hard to identify. This particular runup is hard to call even in hindsight.

POSTSCRIPT: However, one thing is obvious: this kind of price instability is going to be with us for a long time as oil demand bumps up against maximum oil production. Full story here.

Shorthand

| Thu Oct. 16, 2008 12:59 PM EDT

SHORTHAND....Via Sullivan, John Podhoretz says McCain screwed up last night:

The problem, in my view, is that the shorthand in which McCain spoke about these matters made them comprehensible only to those of us who are already schooled in them. In almost every case, Obama answered McCain's shorthand with longhand — with detailed, even long-winded answers that gave the distinct impression he was more in command of the details of these charges than the man who was trying to go after him on them.

That's what I meant last night when I said McCain was talking in "code." Over and over he'd respond to Obama with a brief staccato outburst — "health of the mother," "statute of limitations," "marketing assistance program," "helping FARC," etc. — that political junkies might have understood, but probably no one else. He sounded like a guy who had so many preplanned attacks lined up that he could barely spit all of them out in the allotted time. At times he almost seemed like he was gasping for air.

Overall, I don't take too seriously the insta-polls that are released right after the debate. They show that Obama won, but a lot of that was just because Obama has high support levels right now, and you're way more likely to think your guy won the debate than the other guy. Still, I think this was the worst of McCain's debate performances. He might have pepped up the base a bit, but he didn't help himself with anybody else.

The Campaign in a Nutshell

| Thu Oct. 16, 2008 12:27 PM EDT

THE CAMPAIGN IN A NUTSHELL....This picture is a microcosm of the entire campaign. It's totally unfair, it could happen to any of us, it's just an unfortunate trick of timing and angle, but....well, nothing is going right for John McCain this year, is it? The guy is cursed.

Speaking of that, though, here is Jacob Hacker:

We political scientists generally subscribe to the "minimal effects" view of campaigns, in which both sides are savvy enough that their efforts cancel each other out. And this certainly seems like an election in which the fundamentals have swamped any campaign strategies either side has used. But I think it's time to recognize that Obama has done something more profound in this cycle than simply run a smart campaign; he is showing that the old Republican strategy on economic policy of calling for tax cuts and criticizing government, while thowing mud in every other area, has real limits when the other side directly confronts it with arguments for "investment" and more carefully targeted tax policies.

I really think this is off base. Yes, Obama has run a good, disciplined campaign, but I think Jacob was right the first time around: the fundamentals have dominated every step of the way. Sure, Obama's calls for investment might deserve some small credit for his success, but come on: every Democrat has learned to call their spending programs "investments." That's a no-brainer. What's more, this isn't the cornerstone of Obama's economic program anyway. His cornerstone is a platform of huge tax cuts, which he's been publicizing with massive advertising blitzes in every battleground state in the country. Joe the Plumber might not be happy with Obama's plan, but as Obama himself keeps hammering away at, 95% of the country should like it just fine.

Aside from all the other fundamentals pointing to a Democratic victory this year, Obama has been successful mainly because (a) he's fought tax cuts with tax cuts, and (b) the financial crisis has swamped everything else. I would really, really like to think that Obama has found the magic bullet for fighting the tax cut loonies at the Journal and the Club for Growth, but the evidence just doesn't back it up. Unfortunately for the cause of liberalism, he's chosen instead to cave in and fight entirely on their turf. This is almost certainly a tactically wise decision, but it's not something progressives should be very happy about.

Roe v. Wade

| Thu Oct. 16, 2008 11:59 AM EDT

ROE v. WADE....I don't want to spend a ton of time rehashing last night's debate, but what did John McCain mean in this exchange about Supreme Court nominees?

Schieffer: But even if it was someone — even someone who had a history of being for abortion rights, you would consider them?

McCain: I would consider anyone in their qualifications. I do not believe that someone who has supported Roe v. Wade that would be part of those qualifications. But I certainly would not impose any litmus test.

First, he'd consider anyone "in their qualifications." Then he says that support for Roe v. Wade would be a qualification that would cause him to reject a candidate. But then he says there's no litmus test.

What did that mean? Just random incoherence? Or is there some subtlety I'm missing?

Debate Miscellany***

| Wed Oct. 15, 2008 11:37 PM EDT

DEBATE MISCELLANY....Some miscellaneous notes:

  • On CNN, John King just said "19 days is a long time." Really? Does anyone else think 19 days is really all that long a time?

  • Conventional pundit wisdom seems to accept that a vigorous attack shows strength. But that's not true. Think of all the genuinely strong people you've known in your life. What sets them apart is that they stay calm when other people are attacking. McCain doesn't seem to get this, and neither do the conservatives who were insisting that McCain needed to haul out the heavy artillery tonight. Obama does.

  • From Ezra Klein: "The angry energy showed on McCain's face as clearly as in his answers. CNN, at least, had the split screen, and McCain was grimacing, twitching, blinking, sighing, smirking, eye-rolling. Scores of YouTubers are, as we speak, constructing videos that will be nothing but a three minute collection of McCain's angry tics."

  • Here's a remarkable thought: John McCain was almost certainly the Republican Party's strongest candidate this year. Any of the others would be doing even worse right now. If Mitt Romney or Rudy Giuliani had won the nomination we'd be heading toward the biggest landslide in half a century.

  • Todd Gitlin asks: "If almost all the postgame pundits thought McCain had a good night; but the snap polls show that overwhelming percentages thought Obama "won"...what does the discrepancy tell you? Either (a) the pundits had some extraordinary insight denied to ordinary benighted Americans, or (b) the pundits' snap judgments are worthless — in fact, a negative indicator."

    Guess #1: Pundits really like fireworks, and they think sharp attacks show strength and vitality. But the public, outside of the hardcore base on both sides, mostly views them as petty and mean. Guess #2: The pundits gave McCain way too much credit for the quality of his attacks. Sure, he delivered them with a sort of crotchety energy, but most of them were actually pretty lame. Guess #3: They all felt sorry for him and were just trying to think of something good to say about him before they declared the race irrevocably over.

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Debate Liveblogging - 10.15.2008

| Wed Oct. 15, 2008 8:59 PM EDT

DEBATE LIVEBLOGGING....Finally. Our last presidential debate. After the last debate a reader emailed to warn me against being so grumpy, and I'll try. After all, I don't turn 50 for another few days yet. So on with the show!

Wrapup: I know I'm partisan, but McCain seemed completely out of his depth tonight. He was flitting from point to point all night without ever putting together a coherent argument, and then grabbing miscellaneous attacks from the rolodex in his head whenever some bright idea popped into his mind. His energy level was weirdly erratic, tired at times but then suddenly perking up whenever he got annoyed by something and remembered some zinger that he wanted to fire off.

McCain also interrupted a lot, and when he did he seemed clearly upset. That really didn't sound presidential. I'm sure McCain thought he was "scoring points" all evening, but his points were disjointed and often inappropriate. I really don't think this kind of thing goes over well, especially when it's sustained for 90 minutes.

Finally, McCain's facial expressions were truly bizarre. He went from angry to annoyed to smug to laughing to grumpy to grinning and then went through the cycle all over again. It was very, very weird.

As for Obama, he was fine. He didn't break through in any way, but he didn't need to. He held his own and that's probably all he needed.

UPDATE: CNN insta-poll says Obama won the debate 58%-31%. CBS poll of uncommitted voters says Obama won 53%-22%.

In the CNN poll, McCain's unfavorables went up four points after the debate. I'm not surprised. The CNN panel seems to think that McCain showed a lot of "energy," but I just don't think it came across that way most of the time. I think it came across as jumpy, seething, and, yes, erratic. Not good.

10:25 – McCain's plastic grin is totally weirding me out.

10:23 – Now McCain is talking up vouchers. Whew.

10:21 – This is the second time Obama has dissed teachers unions. I guess that's his version of a Sister Souljah moment or something.

10:19 – McCain is promoting charter schools but not vouchers. What kind of conservative does he think he is?

10:17 – I haven't really been watching the audience-o-meter during this debate. I guess I'm already bored with it. But everyone sure loves Obama's education plan!

10:14 – Who is McCain looking at while Obama is talking? He really seems like he's exchanging looks with someone in the audience. It's weird.

10:11 – McCain frequently talks in a sort of code. Obama just mentioned the Ledbetter case, and when McCain's rebuttal came up he very quickly said something about "statute of limitations" and "trial lawyer's dream" and then immediately moved on. But did anyone watching know what he was talking about?

10:09 – Now a strong defense of Roe v. Wade from Obama. Obviously he thinks this is a winning stand.

10:07 – I think McCain just said he'd be willing to nominate a judge who supports Roe v. Wade but then ten seconds later said he wouldn't. But I'm not sure.

10:06 – The average cost of a healthcare plan is $5,800? Maybe for an individual it is, but McCain's $5,000 tax credit is for an entire family. After that misrepresentation McCain then moves on to a spiel about big government big spending you should choose your own plan yada yada yada.

10:05 – Back to Joe the Plumber! Enough!

10:02 – Obama's discussion of McCain's plan started out slow, but improved when he just made a straight comparison of $5,000 and $12,000.

10:00 – McCain is now going on about fines and single-payer. I don't think most people know what he's talking about.

9:58 – Obama's response on healthcare is pretty effective. He told a very coherent story in just a minute or two. McCain, in response, is jumping from one unrelated point to another. It's like a completely random collection of healthcare points lifted in random order from his website.

9:55 – Now McCain jumps from the Colombian trade agreement to Obama wanting to sit down with Hugo Chavez. Then suddenly Obama is Herbert Hoover. I'm suffering from whiplash listening to him

9:51 – McCain is bashing Obama for opposing the Colombian trade agreement. Then he rattles off some stuff about Obama never traveling south of the border and Colombia being our best ally in the war on drugs. This does not strike me as an effective line of attack. Joe the Plumber just doesn't care.

[UPDATE: A friend whose husband is a plumber emails to say that plumbers do indeed care about Colombia. "Chuck says that his local has been diligent about informing the members about the murders of union organizers in Colombia." I stand corrected!]

9:47 – McCain thinks Canadian oil is OK. Good to hear! Then he jumps suddenly to a weird attack related to NAFTA. McCain seems completely unable to mount a coherent statement on a single subject. He just flits from attack to attack.

9:45 – McCain responds with a rambling, irritable attack on Obama for always wanting to increase spending. Lame.

9:43 – Obama managed to turn a question about Sarah Palin into an observation that we should increase spending on autism research but we can't do it if we have an across-the-board spending freeze. Pretty slick.

9:40 – McCain says we need to know the real truth about Bill Ayers but he himself isn't going to bring it up. No sirree. Jeebus. He's really lame at attack politics when he's face to face with Obama.

9:38 – McCain just can't seem to wipe that weird smug smile off his face while Obama is talking.

9:35 – Now McCain suddenly interrupts to say that he doesn't care about Bill Ayers but that Obama should address it anyway. ACORN too. Obama is obviously eager to have this brought up.

9:33 – Obama is now trying to bait McCain into bringing up Bill Ayers. Instead McCain is telling us that the people who come to his rallies are the most patriotic Americans around. Huh?

9:31 – McCain could hardly contain himself while Obama was talking about Congressman Lewis. Looks bad. Looks cranky and angry.

9:27 – Bob Schieffer just practically begged McCain to bring up Bill Ayers. But McCain isn't taking the bait.

9:23 – Obama giving "credit" to McCain for his position on torture, whether it's deserved or not, was a very good debating move. It makes him the alpha monkey at the table.

9:20 – McCain: "We can take a hatchet and a scalpel to the budget." Not only doesn't this make sense, it really, really doesn't make sense.

9:17 – On the other hand, McCain is just incoherent on the subject of program cuts. But then he changes gears and goes full bore for an across-the-board spending freeze. (Though he forgot to say "except for a bunch of stuff I don't want to freeze.") Then he's back to earmarks, including the projector for the planetarium in Chicago. Sheesh.

9:15 – Only 15 minutes in and already Bob Schieffer wants to know what programs we're going to cut since we're headed into a recession. Shades of Herbert Hoover. Unfortunately, Obama appears to be unwilling to fight back against this nonsense.

9:12 – McCain is lying about the corporate tax rate again. And he's doing it with the creepy smile he pastes on whenever he knows he's lying. (For the record: no, we don't have the 2nd highest corporate tax rate in the world. Our official rates are high, but there are so many exemptions in the corporate tax code that the actual rate is about average.)

9:11 – Is "Joe the Plumber" going to be the new "Joe Sixpack"?

9:09 – Now Obama is back to tax cuts, tax cuts, tax cuts. I guess that's politics, but I really hate seeing a liberal campaigning that way.

9:07 – What was with McCain's little eyebrow raise when he mentioned the name "Joe Wurzelbacher"?

9:06 – I've been less than thrilled with the fact that Obama has been campaigning so heavily on tax cuts, and I'm happy to see that although he's still doing it, he's also emphasizing other aspects of his economic plan fairly heavily too. That's the right place to be.

9:04 – Right off the bat, McCain is blaming Fannie and Freddie for the subprime crisis. What a douchebag.

8:59 – CNN has their squiggly lines again, of course, which are designed to measure the reaction of their focus group participants to the debate. But that's not good enough. In 2012 I want 30 volunteers watching the debate from inside an MRI machine to find out what they really think about the candidates.

Bursting the Bubble

| Wed Oct. 15, 2008 5:52 PM EDT

BURSTING THE BUBBLE....Responding to Mark Thoma's post about asset bubbles and how to deal with them, Matt Yglesias says:

Part of the weirdness of the housing bubble was that even if you believed there was a bubble, there was relatively little you could do about it. You can't "short" housing in any easy way. And doing something like selling your house, and moving your family into a rental with the expectation of buying back into the market after the bubble pops involves huge transaction and search costs. Looking for a new place to live is a pain-in-the-ass and moving is both annoying and expensive. It's much easier for a person who thinks real estate prices will rise to become a speculative buyer than it is for someone who thinks real estate prices will fall to become a speculative seller. It seems to me that that mismatch was one of the driving forces behind the real estate bubble.

Actually, I think this is only narrowly correct. It's true that there were very few people like Mark Kleiman who were willing to sell their houses at the peak and move into apartments for a while in hopes of making money. Ironically, though, the same derivative market that turned the housing bubble into a global financial meltdown also provided investors with plenty of opportunites to make money by betting that the housing bubble wouldn't last. John Paulson famously did it by shorting CDO tranches and buying mispriced credit-default swaps. Andrew Lahde made a mint via leveraged shorting of ABX indices and other mortgage-related structured credits. Helen Thomas reports that Hayman Capital, Corriente Advisors, and Passport Capital also profited from betting against the housing market. Ordinary mortals could have done it by shorting stocks of home builders or perhaps by shorting REITs.

There were ways to do it. There just weren't enough people around smart enough to see the bubble for what it was and with the backbone to bet a lot of money that they were right about it.

Anecdotal Evidence

| Wed Oct. 15, 2008 5:04 PM EDT

ANECDOTAL EVIDENCE....Just got back from lunch with a conservative friend of mine that I hadn't seen for a couple of months. My guess is that he's never voted for a Democratic president in his life. Today, though, he dropped off his absentee ballot with the box marked for Barack Obama.

The final straw? Sarah Palin. "Can you imagine her actually becoming president?" he asked. I'll bet he's not the only one wondering.

Asset Bubbles

| Wed Oct. 15, 2008 1:59 PM EDT

ASSET BUBBLES....Should the Fed (and other central banks) try to prick asset bubbles before they get out of hand? In theory, sure, but as Mark Thoma points out, the problem is that we're not very good at recognizing bubbles in the first place: "If we didn't identify one of the largest bubbles in memory, and for the most part people didn't, I'm not confident we will be able to come to any kind of consensus about 'ordinary' sized bubbles before it's too late. And if that's the case, waiting until we are certain we are observing a bubble will delay policy beyond the point where it can be helpful."

So what to do? Mark suggests a simple solution: the Fed already reacts to ordinary inflation, which is calculated as a complex weighted average of the prices of various goods and services. When these prices rise faster than long-run fundamentals dictate — creating micro-bubbles, if you will — the Fed reacts by raising interest rates. But the Fed's definition of inflation is incomplete:

There is one set of prices, however, that theory says ought to be part of the rate-setting decision, but they are missing. And interestingly, and perhaps only coincidentally, the one set of prices that are not monitored and responded to just happen to be the place where bubbles erupt — asset prices. But if we include these prices in the Fed's policy rule so that whenever asset prices rise the Fed responds by increasing the target interest rate, and if we weight the asset prices properly so that some prices, e.g. housing prices, receive more weight (house prices are notoriously sticky, so theory says they ought to receive a lot of weight), then perhaps it's much less likely that a little bubble turns into a big bubble. Asset price inflation will be stopped by increases in the federal funds rate (and if it isn't stopped by interest rate hikes, then other measures can be implemented). With this approach, you don't have to debate whether a particular price run is a bubble or not; if it is creating asset price inflation, then there will be an automatic response of the federal funds rate to temper the increase. To me, not having to know if it is a bubble or not is an attractive feature.

This might just be an example of the recency effect on my part, but it sure seems as if the last couple of decades have produced more than the usual number of asset bubbles. What's more, they've become steadily more dangerous. On a proportionate scale, the U.S. subprime bubble wasn't actually any bigger than either the Japanese or Swedish real estate bubbles of the late 80s/early 90s, but a combination of derivative speculation and the absolute size of America compared to either Sweden or Japan magnified it into a global disaster that previous bubblemeisters could hardly dream of.

So yes: it's time to pull our heads out of the sand and start giving asset inflation some weight in Fed anti-inflation policy. It doesn't have to dominate Fed policy, it merely needs to be a factor in it. Remember: the point isn't to eliminate asset bubbles, only to try to tame them a bit. I imagine Ben Bernanke has other things on his mind at the moment, but this seems like something worth a serious rethink once the current crisis calms down a bit.