Kevin Drum

Spreading the Wealth

| Wed Oct. 29, 2008 12:40 PM EDT

SPREADING THE WEALTH....It seems as if shortly before every election someone starts pushing a story about how congressional Democrats are being stingy in sharing their personal warchests for the common good. Tom Edsall has this year's version:

While sitting on more than $100 million in donations and most facing no contest this year, the Senate's 51 Democrats have given the party's key Senatorial Campaign Committee, the DSCC — headed by Chuck Schumer (D-NY) this year — $11.3 million, or just over $220,000 apiece on average.

....New York Senator Hillary Clinton, who is not up for election until 2012 and who has $6.68 million cash on hand, gave a total of $115,000 to the DSCC. Indiana's Evan Bayh, who has $11.3 million on hand and is up in 2010, gave $15,000. Barbara Boxer who has an even $4 million in the bank in preparation for her re-election bid in 2010, donated $30,000.

Come on, fat cat senators. Spread the wealth! Wouldn't it make your collective day to kick Mitch McConnell out of the Senate?

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Quote of the Day - 10.29.08

| Wed Oct. 29, 2008 12:23 PM EDT

QUOTE OF THE DAY....From flat-taxer Andrew Sullivan, coming around to the idea that maybe progressive taxation is OK after all:

We have seen a massive shift in income inequality in the last couple of decades. Over time, that inequality can destabilize a democracy. It removes many from income tax altogether, it concentrates wealth in too few hands who can use it to corrupt the political system, and it leads to an oligarchy susceptible to populist onslaught (hello, Mr Dobbs). Aristotle's advice that polities should be concerned about the strength of the middle class, and that no democracy can long endure without one, is well worth absorbing.

A reader emailed me about this with understandable annoyance ("I give him two weeks before he quotes himself as coming up with this whole idea"), but I say: welcome to the party. Sure, Andrew's probably only saying this because he's currently in defend-Obama-at-all-costs mode, but still, Aristotle was right:

Those who have too much of the goods of fortune, strength, wealth, friends, and the like, are neither willing nor able to submit to authority....On the other hand, the very poor, who are in the opposite extreme, are too degraded....Thus arises a city, not of freemen, but of masters and slaves, the one despising, the other envying; and nothing can be more fatal to friendship and good fellowship in states than this: for good fellowship springs from friendship; when men are at enmity with one another, they would rather not even share the same path. But a city ought to be composed, as far as possible, of equals and similars; and these are generally the middle classes.

....Thus it is manifest that the best political community is formed by citizens of the middle class, and that those states are likely to be well-administered in which the middle class is large, and stronger if possible than both the other classes, or at any rate than either singly; for the addition of the middle class turns the scale, and prevents either of the extremes from being dominant. Great then is the good fortune of a state in which the citizens have a moderate and sufficient property; for where some possess much, and the others nothing, there may arise an extreme democracy, or a pure oligarchy; or a tyranny may grow out of either extreme — either out of the most rampant democracy, or out of an oligarchy; but it is not so likely to arise out of the middle constitutions and those akin to them.

You'd think that if Aristotle could figure this out 2,300 years ago, modern conservatives could figure it out too. Maybe soon they will.

UPDATE: From comments: "Aristotle was a damn Socialist! How come you don't have a counter-point from Hermias the Plumber?" Indeed.

Arnie's Taxes

| Wed Oct. 29, 2008 11:48 AM EDT

ARNIE'S TAXES....California Governor Arnold Schwarzenegger yesterday warned schools to expect huge budget cuts this year:

The news, delivered in a conference room outside the governor's office, came as a shock to the educators, who were told to prepare for immediate cuts in the range of $2 billion to $4 billion.

....Analysts say early data indicate that the state budget — passed only a month ago — has fallen about $10 billion into the red. A deficit that size represents nearly 10% of all general fund spending.

....School officials say the governor is focused on the sales tax because it is one of the few available sources of new revenue that would create immediate cash. Other potential tax hikes, such as increased income taxes for the wealthy, would not boost state coffers for more than a year, when taxpayers begin to file under the new rates.

Golly, governor, California already has the highest state sales tax in the country, but I can think of at least one other broad-based revenue source that could be brought on line fairly quickly: an increase in the vehicle license fee that returns it to the same rate California had for virtually its entire history — had, that is, until you demagogued your way into office on a platform of slashing it by two-thirds and stopping all that "crazy deficit spending," a promise that you broke almost instantly when you asked the voters to replace the lost revenue with heavy borrowing in the middle of our last budget crisis. Increasing the VLF back to its historical 2% rate would bring in about $5 billion or so and could be enacted right away. How about it?

POSTSCRIPT: Yes, I'm still bitter about this. Very, very bitter. Can you tell?

Obama's Agenda

| Wed Oct. 29, 2008 11:06 AM EDT

OBAMA'S AGENDA....Matt Ygelsias thinks Barack Obama is more activist than some people give him credit for:

Every time I read Ezra Klein pooh-pooing Barack Obama's domestic agenda, I feel a bit baffled. He's running on a platform that promises universal preschool, dramatic cuts in carbon emissions and investments in clean energy infrastructure, health insurance that would be affordable for all, comprehensive immigration reform, substantial labor law reform, large new spending on K-12 initiatives, and tax reform to make the federal code much more progressive overall.

I think that's a fair point. I'd say that his positions on tax reform (where the public face is primarily an endlessly repeated promise to cut taxes for almost everyone) and immigration reform (which hasn't gotten much public play at all) have been decidedly understated, but Obama has pretty clearly put himself on the side of big, important reforms in the areas of energy, healthcare and union organizing. (I'm a little less sure about education, where I feel like I sometimes get mixed signals about how big a priority this is with him. But that might just be the luck of the draw in which ads and speeches I happen to have seen.) He's also committed to withdrawal from Iraq, and so far at least, he hasn't backed away from that.

No question then: if Obama manages to get out of Iraq and pass significant legislation in the areas of healthcare and energy, and nothing more, that would make his first term wildly successful. If he also adds some serious labor law reform and financial market regulation to the mix, progressives ought to be pretty delirious by 2012.

The only question is, will he do it? The foundations all seem to be there (majorities in Congress, a viable electoral coalition, and a public seemingly open to change), but Obama's past history, both in the Illinois Senate and the U.S. Senate, is clearly one of caution and tactical compromise. In my case, then, my doubts lie not in whether he has the right policy instincts, but in whether he's got the temperament to seize the moment, stick to his guns, force recalcitrant committee heads to follow his lead, and get a big agenda passed. I sure hope so, but I think that's the big question mark, not whether he's campaigning on the right set of priorities.

The Cost of the Crisis

| Wed Oct. 29, 2008 1:51 AM EDT

THE COST OF THE CRISIS....The latest international bailout news:

Hungary has been granted a multi-billion dollar rescue package by the IMF, the EU and the World Bank. The deal, worth $25bn (£15.6bn;19.6 euro), is intended to help Hungary cope with the ongoing effects of the world financial crisis.

Given the numbers that we've all gotten used to lately, I know this doesn't like all that much. But it's over 10% of Hungary's GDP. Meanwhile, BBC Business Editor Robert Peston estimates that taxpayers around the globe have spent (so far!) about $8 trillion to shore up the world's banks. That's more than 10% of total global GDP.

Given that, it seems likely that when it's all said and done, the U.S. is also going to spend 10% of GDP or more to bail out the financial industry here. That would be somewhere in the neighborhood of $1.5-2 trillion — double or triple what we've allocated so far. That fits the data I presented a couple of weeks ago, and it's also about what Paul Krugman thinks is possible. Buckle up.

Chart of the Day - 10.28.2008

| Tue Oct. 28, 2008 9:50 PM EDT

CHART OF THE DAY....Newspaper accounts of housing prices usually provide year-to-year comparisons, which are useful for some purposes but not for others. In particular, if house prices start to stabilize, you won't see it in the year-to-year charts because prices will still be way below their level from a year ago even if they aren't dropping any further. "21% below their peak" doesn't really tell you much about what's happening now.

For that, you want to see how prices compare to the previous month. Back in August I posted a Case-Shiller chart showing monthly comparisons (through June) that suggested prices might be stabilizing, but with a caveat that this stuff is seasonal and the good news might not hold up. Sure enough, it hasn't. Here is this month's chart (with prices through August), and it shows that month-to-month prices are not only still declining, but declining faster than they were earlier in the summer.

The rate of decline is still nowhere near its nadir in February, but this is yet more evidence that we still have a ways to go before housing prices bottom out. And people know it: this month the consumer confidence index fell to 38.0, lower than during the 1974 recession, lower than during the 1980 recession, lower than ever recorded before. And credit card companies are "sharply curtailing" credit lines. And to top it all off, we're running up an "ecological debt" of $4 trillion per year.

But the stock market is up! Why? Apparently because investors are looking forward to the Fed cutting interest rates tomorrow. Sure, the Fed is only contemplating this because the signs of recession are so bleak, and it's unlikely that interest rate cuts will have much of an effect anyway, but who ever said Wall Street investors were smart?

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John McCain, Holy Man

| Tue Oct. 28, 2008 6:15 PM EDT

JOHN McCAIN, HOLY MAN....David Gelernter says that John McCain's big problem is that he's just too damn modest about his own saintliness:

Of course no candidate can advertise his own moral stature; he can use weak words like "maverick" and "I have been tested," but can't quite say "I stand before you as a hero of proven nobility."

No, I guess he can't, can he? Luckily, Gelernter does it for him: "In Hebrew he would be called a tsaddik — a man of such nobility and moral substance that he approaches holiness." Here's an example of McCain's alleged holiness:

McCain is only a part-time conservative and has never inspired enthusiasm on the right; but no one doubts that each of his leftward excursions has been a matter of principle and not convenience. His outspoken, unwavering support for Israel in the face of American Jewish indifference is a perfect example of principled versus self-interested politics.

I admit that I hadn't realized before that unwavering support for Israel was such a gutsy stand for an American politician to take. Live and learn.

Obama the Cautious

| Tue Oct. 28, 2008 4:49 PM EDT

OBAMA THE CAUTIOUS....More Ezra, this time on the likely impact of a Barack Obama presidency:

If the fact of Obama's candidacy has been remarkable, however, it's hard to escape the signs that his presidency will be rather less transformative. Obama's domestic policy proposals were the weakest of the three major Democrats. His legislative instincts, as he's frequently admitted and as his career suggests, are fairly cautious. His staff is primarily comprised of competent representatives of the center-left. His campaign picked no major fights with Democratic Party orthodoxy.

This is what makes the eleventh-hour conservative meltdown over Obama (he's a socialist, a street thug, a terrorist lover, a radical leftist, etc. etc.) so strange. It's true that Obama is something of a Rorschach test, with all of us seemingly projecting on him what we'd like to see (or, in some cases, fear to see), but the reality of the man sure doesn't seem to support anything very apocalyptic. Yes, he's young, black, and charismatic, but let's get real: the real reason most people are thrilled with him is that he's not George Bush. After eight years of Republican misrule, the Democrats could have nominated Austin Powers and the world would have breathed a sigh of relief.

As for Obama himself, Ezra is responding to a Jack Shafer column that complains about reporters being completely smitten by "the notion that Obama's candidacy is momentous, without parallel, and earth-shattering." But the links he provides — presumably the best he could Google up — are pretty thin fare, mostly just a few pundits claiming that Obama might help restore respect for America abroad. In fact, what's struck me most about pro-Obama campaign punditry both in the blogosphere and the MSM is how little of it has been motivated by an active defense of Obama. Andrew Sullivan aside, the vast bulk has been anti-McCain and anti-Bush. The blogosphere, the country, and the world are just tired of Republicans. Obama has run a good campaign, but if Hillary Clinton had won the nomination (or Al Gore or John Kerry or Socks the cat) they'd all be ahead by seven points too.

Language Watch

| Tue Oct. 28, 2008 2:28 PM EDT

LANGUAGE WATCH....Yesterday a regular reader emailed me about that famous quote from a McCain advisor calling Sarah Palin a "diva":

It's sad how the Republicans struggle with sexism and it shows (brutally) in the slamming she is starting to take. Sadly, though, if the internal warfare goes unchecked, Palin will be a stereotype — the single-mindedly, narcissistic, aggressive woman who is striving for self-aggrandizement at all costs, who lacks any intellectual depth and is ultimately shallow — a true Diva. And while part of me would be very happy if Palin's capitol exposure is forever limited to tours, another part of me sees the risks of more roadblocks for women.

I've been watching the growing grumblings and have been wondering how long it would be before we saw the reference to Diva, a great put-down of powerful women. Why can't she just be another self-interested but charismatic politician who is woefully out of her element and not appropriate for this position. And leave it at that. No, I bet you'll see more sexist-based disparagement from the right before this is done.

As a father of two strong-willed girls, the whole spectacle is frustrating.

Today, Mike Allen reports the latest:

In convo with Playbook, a top McCain adviser one-ups the priceless "diva" description, calling her "a whack job."

"Whack job" isn't sexist, is it? How about that instead?

A Tiny Violin

| Tue Oct. 28, 2008 1:42 PM EDT

A TINY VIOLIN....Yesterday I read that Porsche had increased its ownership stake in VW to 74% and was seeking a "dominance" agreement that would give it control over the company. Today, via Tyler Cowen, the Financial Times reports that hedge funds are pretty unhappy about this:

VW shares rose 147 per cent after Porsche unexpectedly disclosed that through the use of derivatives it had increased its stake in VW from 35 to 74.1 per cent, sparking outcry among investors, analysts and corporate governance experts.

....The sudden disclosure meant there was a free float of only 5.8 per cent — the state of Lower Saxony owns 20.1 per cent — sparking panic among hedge funds. Many had bet on VW's share price falling and the rise on Monday led to estimated losses among them of €10bn-€15bn ($12.5bn-$18.8bn).

"This was supposed to be a very low-risk trade and it's a nuclear bomb which has gone off in people's faces," said one hedge fund manager.

Technically, the complaint is that Porsche has been less than transparent about its maneuverings, and it might well be that current German regulation is too lax in this regard. That aside, though, can I just say that my heart is not exactly breaking for the hedge funds who got burned here? The whole point of most hedge funds is to invest vast sums of money with the least possible transparency possible, and now they're complaining because somebody else has executed a slick maneuver that made what was "supposed" to be a very low-risk trade into a money loser.

Well, guess what? There's are no tablets from Mt. Sinai that guarantee hedge funds access to low-risk-high-return investments. Their bet turned out to be a bad one, and now they're unhappy about it. Boo hoo.

For more, check out the first commenter to Tyler's post. He explains pretty well what happened here and how the hedge funds got burned.