Kevin Drum

Rich People Cheer As Republicans Cut IRS Budget

| Wed Dec. 10, 2014 10:11 AM EST

Steve Benen points me to the last paragraph of today's Washington Post story about our shiny new $1 trillion spending package:

At domestic agencies, the EPA’s budget would be cut by $60 million, and the IRS would lose $345.6 million. The nation’s tax agency also would be banned from targeting organizations seeking tax-exempt status based on their ideological beliefs.

Isn't that great? Republicans loathe the EPA as an engine of economic destruction that's dedicated to destroying the coal industry, shredding the Fifth Amendment, and regulating American corporations into bankruptcy. But even at that, they only lost $60 million. The IRS, by contrast, lost six times as much.

I'm sure the public justification is punishment for the IRS's supposed targeting of conservative tea party organizations. But in fact, this is business as usual. After being decimated for years following the Roth hearing witch hunts of the 90s, the IRS managed to slowly but steadily rebuild its enforcement staff during the aughts. Things had gotten bad enough that even George Bush was on board. Then Republicans took over Congress after the 2010 elections, and enforcement was once again targeted for cuts. In every year since then, the IRS budget has declined, enforcement staff has been cut, and audit coverage has gone down.

Why? It's simple: If the IRS budget gets cut, it means fewer audits of corporations and rich people. Any other questions?

Advertise on MotherJones.com

It's Only Taken Us 5 Years to Forget the Single Biggest Lesson of the Financial Meltdown

| Tue Dec. 9, 2014 7:24 PM EST

Yesterday the Federal Housing Finance Agency issued new underwriting guidelines that allow some home buyers to take out mortgages with down payments as small as 3 percent. Dean Baker brings down the hammer:

The NYT misled readers about the relative risk from low down payment loans in an article on the decision by the government to allow Fannie Mae and Freddie Mac to purchase loans with just 3 percent down payments. The piece cited several commentators saying that the risk of defaults would not increase substantially by lowering down payment requirements.

A study by the Center for Responsible Lending found that the default rate for loans with down payments of between 3 to 10 percent was nearly 9 percent [correction: 6.8 percent]. This is more than 80 percent [45 percent] higher than the default rate it found for mortgages with down payments of 10 percent or more.

....It is dubious housing policy to encourage moderate income people to take out mortgages on which they are likely to default....I think it's great to help low and moderate income people get good housing. But this policy is about helping banks get their bad mortgages insured by taxpayers.

This decision by the FHFA is almost criminally myopic. After all, the go-go years that produced a towering housing bubble and then ended in an epic global financial meltdown are less than a decade in the past. Have we really forgotten so soon the primary lesson of these years?

For the record, here it is: If there was a single primary culprit in the collapse of the global economy, it was excessive leverage. It was embedded in exotic financial instruments. It was encouraged by weak banking regulations. It was exploited by traders and executives who all knew they could make a quick buck as long as the music kept playing. In the end, though, it turned Wall Street into a house of cards that didn't have the strength to withstand meaningful losses. When those losses finally, inevitably, materialized, the financial system collapsed.

But it's not just bank leverage that's a problem. Wall Street's most dangerous debt all originated with consumers, who had been relentlessly encouraged to take on ever more debt and ever more leverage for nearly a decade—mostly in the form of risky mortgages that were almost designed for failure thanks to down payment requirements that got steadily weaker as the housing bubble steadily inflated. If you make a 20 percent down payment, your leverage is 4:1. That's fine. If things go south, your house can lose a lot of value and you're still OK. (And so is your bank.) With a 10 percent down payment, your leverage is 9:1. That's more dangerous. But a 3 percent down payment? Now we're talking about leverage of 32:1. That's crazytown territory. Even a moderate setback can wipe you out completely. Put enough loans like that together and then lash them into leverage-soaked financial derivatives that no one truly understands, and a moderate setback can wipe out the entire financial system.

The FHFA's justification, of course, is that this 3 percent deal is only being offered to people with strong credit histories. But that's always how it starts, isn't it? The question is, where does it end?

Nowhere good. The single biggest lesson of the 2008 meltdown is that a strong financial system is built on a foundation of limited leverage. Limited leverage for everyone. Anything else is a foundation of sand. How can we have forgotten that so soon?

Senate Report: We Tortured Prisoners, It Didn't Work, and We Lied About It

| Tue Dec. 9, 2014 1:31 PM EST

Via the Washington Post, here are the top 10 key findings of the Senate torture report:

In plain English: The torture was far more brutal than we thought, and the CIA lied about that. It didn't work, and they lied about that too. It produced so much bad intel that it most likely impaired our national security, and of course they lied about that as well. They lied to Congress, they lied to the president, and they lied to the media. Despite this, they are still defending their actions.

The rest of the report is just 600 pages of supporting evidence. But the core narrative that describes a barbarous, calculated, and sustained corruption of both our national values and our most fundamental moral principles is simple. We tortured prisoners, and then we lied about it. That's it.

Quote of the Day: Questions About Torture Are "Not Helpful"

| Tue Dec. 9, 2014 11:38 AM EST

From Jose Rodriguez, the head of the CIA's Counterterrorism Center in 2002, after field agents began questioning both the utility and legality of extended waterboarding sessions:

Strongly urge that any speculative language as to the legality of given activities or, more precisely, judgment calls as to their legality vis-à-vis operational guidelines for this activity agreed upon and vetted at the most senior levels of the agency, be refrained from in written traffic (email or cable traffic). Such language is not helpful.

This is, I suppose, not just the banality of evil, but its prolixity as well. Rodriguez, of course, is the guy who would eventually destroy videotapes of CIA torture sessions on the pretense of "protecting" the people who worked for him.

There's more at the link from the New York Times, which got an advance copy of the Senate torture report and is now releasing it. Along with everyone else in the world, I'll be posting bits and pieces that stand out as I read them. As much as I have the stomach for, anyway.

I Boldly Predict That The 2015 Senate Will Be the Same as the 2014 Senate

| Tue Dec. 9, 2014 10:37 AM EST

Brian Beutler writes today about the recent Republican practice of gumming up the Senate by deluging every bill with a tidal wave of awkward, superfluous, or just plain dumb amendments designed to force Democrats to cast politically embarrassing votes ("Is Senator Catnip really opposed to free flag pins for all vets?"):

To deny Democrats even symbolic victories, Senate Republicans have flooded each legislative debate with amendments—some pertinent, some absurd—that Democrats didn’t want to vote on, or that threatened the legislative coalition behind the underlying bill. When Reid has stepped in to protect his members from these votes, McConnell has used it as a pretext to filibuster.

....With McConnell coming into control of the Senate, the dynamic will now flip....Thus his promise to open up the Senate...."The notion that protecting all of your members from votes is a good idea politically, I think, has been pretty much disproved by the recent election,” he said.

....I hope McConnell sticks to his guns on this one, because he’s completely correct about it. And if there’s a reason to think he will, it’s that it’s entirely consistent with his other, profound insights about the basic nature of legislative politics in America....McConnell wouldn't choose a more genteel legislative strategy if it weren't in his interest. But if he can prove that taking hard votes like this doesn't actually make much of a difference politically, then he can prove that the amendments themselves are worthless, or at least not to be feared, and perhaps make Congress a less ridiculous place in the long run.

Ahem. Mitch McConnell is notable for many things, but a commitment to principled process improvements in the Senate is rather notably not one of them. As Beutler says, demanding the right to offer a few hundred amendments to every bill is merely a pretext for filibustering, not the real reason. McConnell does it to annoy Harry Reid, not because he has a lifelong dedication to an open Senate.

In any case, the issue is a little more complicated. How many amendments can each side offer? Who gets to offer them? What order are they voted on? Is there a time limit on debate? How do you resolve competing amendments on the same subject? The only way to make this work is to have a cast-iron set of rules governing all this stuff. Without that, it will implode the first time someone breaks whatever gentleman's agreement McConnell strikes with Reid. And I don't think McConnell has the power or the votes to enact a cast-iron rule on amendments.

So....I'd put this in the general category of generic blather that switches sides whenever the parties trade majorities. For the past few years, McConnell has been for filibusters and against limitations on amendments. Starting in January, some alleged Democratic perfidy will quickly give him cover to switch his position, and Harry Reid will switch his too. Life will then go on exactly as before. You heard it here first.

American Lives Will Be Saved, Not Lost, If We Release the Senate Torture Report

| Mon Dec. 8, 2014 2:35 PM EST

The Senate torture report seems likely to be published this week in some form or another, but there's already a campaign in full swing to keep it under wraps. Why? Because its release might put Americans in danger. Paul Waldman acknowledges that this might be true, but provides the right response:

The cynicism necessary to attempt to blame the blowback from their torture program on those who want it exposed is truly a wonder. On one hand, they insist that they did nothing wrong and the program was humane, professional, and legal. On the other they implicitly accept that the truth is so ghastly that if it is released there will be an explosive backlash against America. Then the same officials who said "Freedom isn't free!" as they sent other people's children to fight in needless wars claim that the risk of violence against American embassies is too high a price to pay, so the details of what they did must be kept hidden.

There's another thing to be said about this: Our conduct during the early years of the war on terror almost certainly inflamed our enemies, bolstered their recruitment, and prolonged the wars in Afghanistan, Iraq, and elsewhere. This cost thousands of American lives.

President Obama may have banned torture during his administration, but is there any reason to think we've now given up torture for good? Not that I can tell, and it will cost many more thousands of American lives if it happens again. So for our own safety, even if for no other reason, we need to do everything we can to reduce the odds of America going on another torture spree.

How do we do that? Well, all it will take for torture to become official policy yet again is (a) secrecy and (b) another horrific attack that can be exploited by whoever happens to be in power at the moment. And while there may not be a lot we can about (b), we can at least try to force the public to recognize the full nature of the brutality that we descended to after 9/11. That might lower the odds a little bit, and that's why this report needs to be released. It's not just because it would be the right thing to do. It's because, in the long run, if it really does reduce the chances of America adopting a policy of mass torture again in the future, it will save American lives.

Advertise on MotherJones.com

Economists Are Almost Inhumanly Impartial

| Mon Dec. 8, 2014 12:29 PM EST

Over at 538, a team of researchers takes on the question of whether economists are biased. Given that economists are human beings, it would be pretty shocking if the answer turned out to be no, and sure enough, it's not. In fact, say the researchers, liberal economists tend to produce liberal results and conservative economists tend to produce conservative results. This is unsurprising, but oddly enough, I'm also not sure it's the real takeaway here.

The methodology they used to calculate bias involves a series of bank shots. Here's how it's done. First, take a group of economists with known ideologies. Second, examine the word choices in their papers. Third, create an algorithm that links ideology and word choice. Fourth, apply the algorithm to a large group of economists. Fifth, examine the numerical results in their papers. Sixth, normalize the results within fields to see how left- or right-leaning their conclusions are. Seventh, plot numerical results vs. predicted ideology.

Whew! There are, needless to say, error bars at every step along the way. Still, you will end up with a regression line eventually, and you can see it in the chart on the right. Sure enough, it shows that liberal economists tend to produce more liberal results, and vice versa for conservative economists.

That, however, is not the conclusion I draw from all this. What I see is a nearly flat regression line with a ton of variance. Those blue dots are all over the place. If the authors say their results are statistically significant, I believe them, but it sure looks to me as if (a) the real-world error bars are pretty big here, and (b) economists as a whole are remarkably unbiased. I mean, look at that chart again. I would have expected a much steeper line. Instead, what we see is just the barest possibility that ideology has a very slight effect on economists' findings.

If these results are actually true, then congratulations economists! You guys are pretty damn evenhanded. The most committed Austrians and the most extreme socialists are apparently producing numerical results that are only slightly different. If there's another field this side of nuclear physics that does better, I'd be surprised.

One Simple Truth About Facebook That Snobby Elitists Can't Seem to Wrap Their Heads Around

| Mon Dec. 8, 2014 11:10 AM EST

Alex Tabarrok mulls the question of whether advertising-supported products are fundamentally less attuned to customer needs than, say, Apple products:

Apple’s market power isn’t a given, it’s a function of the quality of Apple’s products relative to its competitors. Thus, Apple has a significant incentive to increase quality and because it can’t charge each of its customers a different price a large fraction of the quality surplus ends up going to customers and Apple customers love Apple products.

Facebook doesn’t charge its customers so relative to Apple it has a greater interest in increasing the number of customers even if that means degrading the quality. As a result, Facebook has more users than Apple but no one loves Facebook. Facebook is broadcast television and Apple is HBO.

No one loves Facebook? This is a seriously elitist misconception. It's like saying that Tiffany's customers all love Tiffany's but no one loves Walmart.

But that's flatly not true. Among people with relatively high incomes, no one loves Walmart. Among the working and middle classes, there are tens of millions of people who not only love Walmart, but literally credit them with being able to live what they consider a middle-class lifestyle. They adore Walmart.

Ditto for Facebook. I don't love Facebook. Maybe Alex doesn't love Facebook. And certainly Facebook's fortunes rise and fall over time as other social networking products gain or lose mindshare. But there are loads of people who not only love Facebook, but are practically addicted to it. And why not? Facebook's advertiser-centric model forces them to give their customers what they want, since happy customers are the only way to increase the number of eyeballs that their advertisers want. Apple, by contrast, was run for years on the whim of Steve Jobs, who famously refused to give his customers what they wanted if it happened to conflict with his own idiosyncratic notion of how a phone/tablet/computer ought to work. In the end, this worked out well because Jobs was an oddball genius—though it was a close-run thing. But how many companies can find success that way? A few, to be sure. But not a lot.

"Quality" is not a one-dimensional attribute—and this is an insight that's seriously underappreciated. It means different things to different people. As a result, good mass-market companies are every bit as loved as companies that cater to elites. They're just loved by different people. But the love of the working class is every bit as real as the love of the upper middle class. You forget that at your peril.

The Obama Recovery Has Been Miles Better Than the Bush Recovery

| Sat Dec. 6, 2014 3:19 PM EST

Paul Krugman writes today about the dogged conservative claim that the current recovery has been weak thanks to the job-killing effects of Obamacare and Obama regulation and the generally dire effects of Obama's hostility to the business sector. But I think Krugman undersells his case. He shows that the current recovery has created more private sector jobs than the 2001-2007 recovery, and that's true. But in fairness to the Bush years, the labor force was smaller back then and Bush was working from a smaller base. So of course fewer jobs were created. What you really want to look at is jobs as a percent of the total labor force. And here's what you get:

The Obama recovery isn't just a little bit better than the Bush recovery. It's miles better. But here's the interesting thing. This chart looks only at private sector employment. If you want to make Bush look better, you can look at total employment instead. It's still not a great picture, but it's a little better:

Do you see what happened? The Bush recovery looks a bit healthier and the Obama recovery looks a bit weaker. Why? Because we added government jobs. Bush got a nice tailwind from increased hiring at the state and federal level. Obama, conversely, was sailing into heavy headwinds because he inherited a worse recession. States cut employment sharply—partly because they had to and partly because Republican governors saw the recession as an opportunity to slash the size of government—and Congress was unwilling to help them out in any kind of serious way.

This is obviously not a story that conservatives are especially likely to highlight. But there's not much question about it. Bush benefited not just from a historic housing bubble, but from big increases in government spending and government employment. But even at that his recovery was anemic. Obama had no such help. He had to fight not just a historic housing bust, but big drops in both government spending and government employment. Despite that, his recovery outperformed Bush's by a wide margin.

There are, of course, plenty of caveats to all this. First of all, the labor force participation rate has been shrinking ever since 2000, and that's obviously not the fault of either Bush or Obama. It's a secular trend. Second, the absolute size of the labor force started out smaller in 2001 than in 2010, but it grew during the Bush recovery, which makes his trend line look worse. Its growth has been pretty sluggish during the Obama recovery as people have dropped out of the labor force, which makes his trend line look better. These are the kinds of things that make simple comparisons between administrations so hard. And as Krugman points out, it's unclear just how much economic policy from either administration really affected their respective recoveries anyway:

I would argue that in some ways the depth of the preceding slump set the stage for a faster recovery. But the point is that the usual suspects have been using the alleged uniquely poor performance under Obama to claim uniquely bad policies, or bad attitude, or something. And if that’s the game they want to play, they have just scored an impressive own goal.

Roger that. If you want to credit Bush for his tax cuts and malign Obama for his stimulus program and his regulatory posture, then you have to accept the results as well. And by virtually any measure, including the fact that the current recovery hasn't ended in an epic global crash, Obama has done considerably better than Bush.

Friday Cat Blogging - 5 December 2014

| Fri Dec. 5, 2014 2:45 PM EST

In today's episode of Friday catblogging, Hilbert is trying to prove that he's a size 12. He was unconvincing, despite plenty of squirming to try to fit his entire body into the shoe box. The result was an interestingly blurred face, but not an entire cat in the box.

In other news, we've had to clear off the mantle over the fireplace because it turns out that Hopper can shinny up the bricks and start whacking away at whatever is up there. But there's more to the story. We figured that Hilbert was a bit too gravity-bound to pose any similar danger, so we were blaming Hopper whenever something got knocked over. But on Wednesday night, during the 9 pm play hour, we watched in awe as Hilbert careened across the living room floor, flung himself straight up the brick facing, and grabbed onto the mantle. He barely made it, and had to chin himself up the last few inches, but make it he did. Nothing is safe around here anymore.