Kevin Drum

Deflation is Coming

| Wed Jul. 14, 2010 11:12 AM EDT

John Makin is not exactly a raging lefty economist, but he's got his hair on fire over deflation anyway:

At this point in the postbubble transition to deflation, fiscal rectitude and monetary stringency are a dangerous policy combination, as appealing as they may be to the virtuous instincts of policymakers faced with a surfeit of sovereign debt. The result of Europe's embrace of fiscal rectitude will be — paradoxically in the eyes of some — to export deflation to the United States, Asia, and the emerging markets.

....The link between volatile financial conditions and the real economy has been powerfully underscored by the events since mid-2007. Growth has suffered and subsequently recovered given powerful monetary and fiscal stimulus. And yet, the damaged financial sector, unable to supply credit; a jump in the precautionary demand for cash; and a persistent overhang of global production capacity have combined to leave deflation pressure intact. The G20's newfound embrace of fiscal stringency only adds to the extant deflation pressure.

No wonder no country wants a strong currency anymore, as attested to by Europe's easy acceptance of a weaker euro. The acute phase of the financial crisis is over, but the chronic trend toward deflation that has followed it is not.

Italics mine. I think Makin believes that he's only saying the same thing that Milton Friedman would say if he were still alive. Unfortunately, conservatives no longer seem to care what Milton Friedman might say. After all, there's an election coming up. Haven't you heard?

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Quote of the Day: Tax Cuts Pay For Themselves!

| Tue Jul. 13, 2010 6:15 PM EDT

From Republican Minority Leader Mitch McConnell:

There's no evidence whatsoever that the Bush tax cuts actually diminished revenue. They increased revenue, because of the vibrancy of these tax cuts in the economy.

I keep hearing that conservatives actually have a nuanced view of tax cuts, not the laughable caricature that liberals impute to them. But it sure looks like their top guy in the Senate has exactly the laughable caricature we've always thought he did. I now eagerly await an outpouring of criticism from conservatives upset at McConnell for being such a pandering rube and giving the movement a bad name.

UPDATE: Karl Smith at Modeled Behavior tweets: "I have a chart I use on Bush tax cuts, has broken even the hardest of partisans. Will post & tweet later." Really? The hardest of partisans? This I have to see.....

UPDATE 2: Well, here's the chart. And it's a good one! But I somehow have a feeling that the hardest of partisans will remain unmoved.

Kids and the Internet

| Tue Jul. 13, 2010 5:57 PM EDT

I wasn't planning to make this Jonah Goldberg day here at the blog, but he and Nick Schulz have a piece in National Review this week so strange that I just have to wonder what they were thinking. The problem they're addressing is the prevalence of porn on the internet, and they concede right off that government regulation ought to be avoided ("There’s something to be said for keeping the Internet out of the hands of progressive planners"). Instead they offer this:

Here is one proposal. Right now, there are many “top-level domains” — .com, .org, .biz, .gov, .edu., etc. We propose the creation of a .kids domain that would be strictly reserved for material appropriate for minors 18 years and under. Most sites would probably be able to mirror themselves on a .kids domain with little to no extra effort. Most corporations, schools, and other organizations have perfectly harmless material that kids and teens can view without causing their parents to stay up at night. The sites of the Smithsonian, McDonald’s, Disney, PBS, and countless other institutions are already perfectly safe for minors. Other websites would need a little tweaking, but not much. Only a relative handful of them — porn, dating services, adult-themed chat rooms, R-rated movie sites, et al. — would be explicitly barred from the .kids domain. The others would simply have to tone down or pare down their offerings.

....Merely creating a new domain wouldn’t create a neighborhood or safe zone for kids. But it would give the private sector the wherewithal to help parents, without handing jurisdiction of content over to the government or requiring parents to rely on notoriously unreliable filters. Programming a browser to recognize only a .kids address would be simple. Devices and software could be designed to make it impossible for kids to wander into bad neighborhoods.

Never has the danger of the passive voice been so thoroughly demonstrated. Who, exactly, would decide what is and isn't acceptable for this domain? Not the federal government, they say, but who then? The private sector? Which part of it? Some souped up international version of the MPAA? The United Nations? And what would they allow? "Heather Has Two Mommies"? Not if the Boy Scouts were in charge. Palestinian textbooks about the Israeli occupation of the West Bank? Not if the ADL gets a vote. Taliban cartoon primers for young girls about their proper role in an Islamic household? Not if NOW has anything to say about it.

I don't even object to this idea. I just don't see how you could make it work on an open, global network like the internet. Surely if you're going to spend 2,000 words on a topic like this, you're obligated to at least mention the single biggest obstacle in its way?

Toyota Cars: Not As Bad As You Think

| Tue Jul. 13, 2010 4:57 PM EDT

Toyota cars really do suffer from sticky accelerator pedals and floor mats that can trap accelerator pedals to the floor. But those of you who remember the great Audi 5000 debacle of the late 80s will be unsurprised to learn that the bulk of recent reports of runaway acceleration in Toyota vehicles were likely the result of [drumroll please] driver error:

The U.S. Department of Transportation has analyzed dozens of data recorders from Toyota Motor Corp. vehicles involved in accidents blamed on sudden acceleration and found that at the time of the crashes, throttles were wide open and the brakes were not engaged, people familiar with the findings said. The results suggest that some drivers who said their Toyota and Lexus vehicles surged out of control were mistakenly flooring the accelerator when they intended to jam on the brakes.

....NHTSA has received more than 3,000 complaints of sudden acceleration in Toyotas, including some dating to early last decade, according to a report the agency compiled in March. The incidents include 75 fatal crashes involving 93 deaths.

However, NHTSA has been able to verify only one of those fatal crashes was caused by a problem with the vehicle, according to information the agency provided to the National Academy of Sciences. That accident last Aug. 28, which killed a California highway patrolman and three passengers in a Lexus, was traced to a floor mat that trapped the gas pedal in the depressed position.

I'm not sure what can be done about this. A brake override only works if there's a genuine throttle problem and you really do have your foot on the brake. But what would stop people from mistakenly jamming the accelerator to the floor and then panicking? There are just too many legitimate occasions for flooring the accelerator to put in place a system that stops it. Any ideas beyond the ones carmakers have already adopted?

The Palin-ization of Politics

| Tue Jul. 13, 2010 3:15 PM EDT

Like me, Michelle Cottle thinks Sarah Palin is a natural PR genius. In the current issue of the New Republic she muses about how Palin manages to pull it off:

Her byline pops up now and again in the opinion pages (supporting McCain, bashing enviros). She periodically hits the campaign trail with favored candidates. She is a prolific and passionate tweeter. Her Facebook page overflows with thoughts on global events both past (DDay, Reagan’s Brandenburg Gate speech) and present (Israel, border security, the need to drill, baby, drill); news of upcoming appearances (a rally at the Lincoln Memorial with Glenn Beck, a possible U.K. jaunt to meet Margaret Thatcher); the latest media atrocities committed against her; and her rolling endorsements of “commonsense conservative” candidates who tickle her fancy. And, any day now, filming is scheduled to start on the docu-travelogue series in which Palin will “bring the wonder and majesty of Alaska” to TLC viewers.

In the midst of this aggressive visibility, however, Palin keeps a tight grip on her time in the public eye. She rarely sits down with non-conservative interviewers and eschews mix-’em-up formats pitting her viewpoint against that of a more liberal counterpart.

....It’s an unconventional media strategy, to be sure....Yet it’s hard to deny that Palin’s p.r. approach has not only succeeded but succeeded brilliantly. How? The most obvious element at work here is that Palin operates not as a politician but as a celebrity. “Most politicians can’t get on the cover of People,” sighs another GOP campaign veteran. “She’s on the cover almost every week.” The rules are different for celebrities: Palin’s megawattage enables her to command attention for every word and gesture, even as she largely stiff-arms The New York Times and “Meet the Press.” Similarly, candidates desperate for her endorsement are unlikely to (publicly) whine about whatever attention she dribbles their way, no matter how arbitrary or last-minute.

Palin is, in some sense, sui generis. And yet, I wonder if her press strategy is really such a unique consequence of her celebrity-hood or rather a sign of things to come? There's no question that she's pulled off her particular schtick better than anyone else in American politics, but there are others who have gone a ways down this road too. One is Barack Obama, who restricted press access to a startling degree during his presidential campaign. Keeping presidential campaign reporters on a tight leash is a trend that's been building for years, with every campaign more tightly controlled than the last, but still, Obama pretty clearly took this to a new level.

The other example who comes to mind (since I live in California), is Meg Whitman, who just ran a high-profile primary campaign in a big state with virtually no interaction with the mainstream press. She gave speeches, she ran ads (boy did she run ads), and she spoke to friendly reporters occasionally, but that was about it. And guess what? It worked. She proved that you really don't need the press anymore to run a successful campaign.

Now, obviously there are some catches to all this. Obama, like Palin, had a strong aura of celebrity that he could milk. And Meg Whitman has untold riches to spend. Your ordinary schmoe candidate in a smallish state or a single congressional district can't count on either of those things.

Still, I'm putting my money on the Palin-ization of politics. Partly this is because the mainstream press is dying anyway, and partly it's because Palin and others are demonstrating that you really don't need conventional press coverage to win. In fact, as Rand Paul and Sharron Angle can testify, it's a real risk. Between YouTube and Twitter and Facebook and blogs and friendly talk radio hosts — as well as more conventional things like TV ads and database-driven phone outreach — who needs the New York Times? Increasingly, I'll bet the answer is, no one.

Scott McInnis in Hot Water

| Tue Jul. 13, 2010 2:47 PM EDT

The Denver Post reports that Republican gubernatorial candidate and former congressman Scott McInnis plagiarized a bunch of articles on water policy that he wrote a few years ago for the Hasan Family Foundation. McInnis blames it on his assistant, of course (they always do), but here's the real affront to common sense:

McInnis' water articles were a required part of his two-year fellowship at the Hasan Family Foundation in 2005 and 2006. The former congressman, who left office in 2004, was paid $300,000 to do speaking engagements and "research and write a monthly article on water issues that can be distributed to media and organizations as well as be available on the Internet."

Crikey. They paid him $150,000 a year for a dozen short essays and a few speeches? Where do I sign up for a gig like that? I'm pretty sure I can get up to speed on water issues pretty quickly even without an assistant.

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Michael Bellesiles in the News Again

| Tue Jul. 13, 2010 1:47 PM EDT

Is it possible that Michael Bellesiles has invented yet another story? Bizarrely enough, yes: it does seem at least possible, as Jim Lindgren documents here. (And I'd add that in addition to Lindgren's factual issues, Bellesiles' piece also strikes me as implausibly pat just purely as a story.) In the grand scheme of things this doesn't matter much, but it's sort of the blog equivalent of wondering whether Jennifer Aniston is really over Brad. If you've been following it, you can't help but be fascinated. Hopefully, in fairness to Bellesiles (if he's done nothing wrong) and to everyone else (if he has), the Chronicle of Higher Education will sort this all out shortly.

A Run in the Shadows

| Tue Jul. 13, 2010 1:15 PM EDT

The Economist points us today to a new paper from the New York Fed that explains the role of the shadow banking system in the great crash of 2008:

The subprime crisis may have started the fall, but the financial crisis was precipitated by a run on shadow banks. As this paper shows, there is an inherent weakness in the shadow banking system that makes it vulnerable to future bank runs.

In traditional banks, deposit insurance acts as an official put, limiting any losses suffered by retail investors. For shadow banks, the bulk of the deposits are provided by money market funds. These funds expect their deposits to be available on demand and at par....Any entity that relies on them for funding and lacks alternative sources of liquidity is inherently fragile. During times of crisis, if confidence in the credit puts guaranteed by the institutions erodes, depositors move to redeem their funds. Absent a backstop, in the form of government guarantees, a run on the system ensues.

As the chart shows, starting in 2008 the shadow banking system collapsed, with wholesale funders panicking en masse and removing 20% of their money within the space of a couple of years. That's a huge drop. The same thing didn't happen in the traditional banking system because their funding comes mostly from retail depositors like you and me, and we had no reason to suddenly panic since we knew the FDIC had us covered in the event our bank failed. So perhaps we should provide a similar backstop for the shadow sector?

But any permanent guarantee would come at the cost of added regulation. The authors propose regulating financial institutions based on function rather than form. This makes sense. Banks and shadow banks essentially perform the same function — financial intermediation. Regulation by function would remove the need for shadow banks that thrive on regulatory arbitrage, and focus on institutions that add economic value.

That's a novel idea, no? And I think the current financial reform bill makes a few small feints in this direction, though nothing that seriously affects the structure of the shadow sector. We'll probably need them to destroy the world a second time before we consider taking any further action.

Make My Day, GOP

| Tue Jul. 13, 2010 12:24 PM EDT

Jonah Goldberg diagnoses the Democratic Party's woes following their early legislative successes:

Democrats steamrolled the most ambitiously liberal agenda in at least a generation. Yet liberals are miserable. Their lamentations over what they see as President Obama's lack of audacity punctuate the din, like ululating matrons at an Arab politician's funeral. This misplaced griping stems not from Obama's failure to "think big" but from a misreading of the political climate: Liberals thought they'd be popular.

Fair enough. A little florid for my taste, but then, I'm not a conservative. But it turns out that Goldberg has issues with his side too:

For a year or so, Republicans have been the so-called party of no. Contrary to the expectations of its critics, that tactic has been good for the GOP. It seems that the "tea parties," America's natural antibodies to Obamaism, have provided some vital stem cell therapy, helping to regrow the Republican spine.

But that spine is only valuable if you use it for something....Now is the time for the GOP to call Obama's bluff and offer a real choice. My personal preference would be for the leadership to embrace Wisconsin Rep. Paul Ryan's "road map," a sweeping, bold and humane assault on the welfare state and our debt crisis. Doing so might come at the cost of trimming the GOP's victory margins in November, but it would provide Republicans with a real mandate to be something more than "not-Obama."

I swear, I would pay cash money if the Republican leadership would promise to actually do this. Goldberg thinks that liberals aren't popular? That's peanuts. If Republicans made a serious run at passing Ryan's road map the party would end up just slightly more popular than the Taliban. I think there would literally not be a single demographic or interest group in the entire country still supporting them. Even the tea partiers would start pretending to be Democrats. Hell, they'd probably take up the cause of repealing the 22nd amendment and allowing Obama to be elected president for life.

Of course, it's fine for columnists and pundits to say this kind of stuff. Just trying to move the needle, after all. But I sure wish party leaders would take them up on it once in a while. Democrats, for all their faults, generally do approximately what they say they're going to do and then either pay the price or reap the benefits. Republicans don't. They parachute into Tea Party gatherings and spout stemwinders about taking an axe to government spending, but when they get back to Washington they do just the opposite — all while figuring out ever newer and more inventive ways of providing tax breaks to favored industries. If they ever actually got serious about slashing all that government spending they claim they're so dedicated to slashing, the party of Lincoln would end up on the ash heap of history.

So I dare them. I double dog dare them. Let's hear about how you're going to cut federal spending by a trillion dollars over the next five years and by a third over the next 50. Details, people. Let's hear 'em. Make my day.

Healthcare Reform and Contraceptives

| Tue Jul. 13, 2010 11:36 AM EDT

Dana Goldstein reports that conservative groups are gearing up for a fight to make sure that healthcare reform regs, which will be drafted over the next couple of years, don't include a requirement that insurance companies cover contraceptive use:

The conservative groups are particularly worried that a birth control coverage mandate could include teenage girls and young women covered under their parents' health insurance plans. "People who are insured don't want to pay for services they don't need or to which they have moral objections," said Chuck Donovan, senior researcher at the Heritage Foundation. "Parents want to have a say over what's covered and what's not for their children."

Yeah, it's all about the kids, isn't it? But then, what choice do guys like Donovan have? Abortion may be a hotly contested issue, but contraceptives aren't. Practically everyone approves of them, so you have to figure out some way to demonize them that doesn't reduce your fundraising appeal among the masses. Matt Yglesias comments:

Politically speaking, I think this is the fight progressives have been wanting to have for some time now — something that would highlight the deeply reactionary and anti-woman ideology that drives the main institutional players in the anti-abortion movement. But will it be possible to get people to pay attention? These non-abortion reproductive health aspects of the Affordable Care Act got very little attention from either side.

But I wonder how much help we'll get from President Obama? His desire to avoid hot button culture war issues is almost obsessive, and it's unlikely that he'll choose this as a hill to fight for. So it'll mostly be up to HHS secretary Kathleen Sebelius, and my guess is that she'll try to keep the whole thing very low key.