Kevin Drum

Our Unbalanced World

| Tue Nov. 9, 2010 2:17 AM EST

One of the effects of the Fed's new quantitative easing program is that it will weaken the dollar slightly and possibly reduce the U.S. trade deficit a bit. That's a positive thing, but the Wall Street Journal reports that international reaction to the Fed's program is growing increasingly harsh:

Global controversy mounted over the Federal Reserve's decision to pump billions of dollars into the U.S. economy, with President Barack Obama defending the move as China, Russia and the euro zone added to a chorus of criticism.

....On Monday, China's Vice Finance Minister Zhu Guangyao said the U.S. isn't living up to its responsibility as an issuer of a global reserve currency. The Fed's move doesn't "take into account the effect of this excessive liquidity on emerging-market economies," he said.

The top economic aide to Russian President Dmitry Medvedev said Russia will insist at the G-20 summit that the Fed consult with other countries ahead of major policy decisions.

....German Finance Minister Wolfgang Schäuble lashed out at U.S. pressure on Berlin to rein in the country's surging exports, telling Der Spiegel magazine, "The American growth model...is stuck in a deep crisis."

This is just crazy. Exporting countries like China and Germany have relied on the United States as the ultimate consumer nation for years. The whole world has. And everyone knows this is unsustainable. Schäuble calls it a "deep crisis" and he's right.

But they're addicted to it every bit as much as we are, which is why they go nuts when we take (extremely modest) measures to weaken the dollar in an effort to get our trade balance just a bit more balanced. So they need to make up their minds. Do they think America can run trade deficits forever? Or do they think we need to get our trade house into some semblance of order? If it's the latter, do they think we should start doing it now, or should it always be put off until "someday"? What exactly do they want?

Trade deficits can't last forever. Period. The only question is whether America's trade deficit goes away slowly and steadily, or if it goes away all at once during some kind of global panic. The rest of the world, to judge by their hysteria over the Fed's actions, is willing to risk the panic as long as it happens sometime in the future and mostly affects us. I'm not.

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DADT and the Courts

| Tue Nov. 9, 2010 1:55 AM EST

Responding to my post earlier today about Republicans, not Democrats, being primarily responsible for blocking repeal of Don't Ask Don't Tell, Glenn Greenwald tweeted:

DADT was gone - done - and Barack Obama brought it back, probably for years. That's just a fact.

Glenn was talking about the fact that the Department of Justice is appealing a September district court ruling that held DADT unconstitutional. But this is an argument I have a real problem with. It's not because I have a problem with court rulings on issues like this, but because I have a problem with district court rulings on issues like this being used as a handy excuse for presidents to overturn laws they don't like.

Let's face it: if you pick your jurisdiction right you can probably find a district court judge to rule just about anything unconstitutional. It would be easy, for example, to find a district court judge somewhere to say that the healthcare reform law was unconstitutional. If this happened in 2013 and President Palin decided not to appeal the ruling, thus overturning the law, what would we think of this? Not much, and rightfully so. A district court judgment is just flatly not sufficient reason to overturn an act of Congress.

I guess the reason this is on my mind is that George Bush is back in the news, and it strikes me that this is the same category of reasoning he used to justify the use of torture on enemy combatants. Bush, of course, didn't bother with the fig leaf of a court ruling, but he used OLC memos to provide the same kind of excuse to uphold only the laws he wanted to uphold. A lot of liberals spent a lot of time condemning this at the time, and we were right to do so. This is really not a tactic we should be defending now just because the law at stake is one we don't like.

On a different note, I sometimes think that Republicans must be busting a gut over all this. Here they are, working loudly and relentlessly to prevent the repeal of DADT, and what's the result? Lots of liberals sniping at each other. You can almost hear Karl Rove cackling over his Diet Coke. Political strategy rarely pays off so beautifully.

The Senior Vote

| Mon Nov. 8, 2010 3:53 PM EST

Speaking of senior citizens and how they voted this year, why did they suddenly decide to vote en masse for Republicans? Part of the reason is that everyone voted en masse for Republicans this year. Still, seniors switched in even higher numbers than most groups, despite the fact that the economic turndown actually affects them less than most other age groups. Here's one explanation:

“I’ve been saying since August 2009, that there was a tsunami — in this case a senior citizen tsunami — headed towards Capitol Hill,” said Jim Martin, chairman of the 60 Plus Association, a conservative campaign group targeted toward older voters. “That tsunami came ashore.”

....“I think that there is a level of fear that has grown with seniors vis-à-vis the Obama health care plan,” said Republican pollster Steve Lombardo. “Anytime that there’s change, I think seniors are going to be more concerned that that change is going to affect them in a negative way.”

Well, yeah. Seniors might very well be concerned that Medicare changes are going to affect them in a negative way. But there's that pesky passive voice again. Why were seniors concerned about this? No fancy political science is needed here: the answer is tens of millions of dollars spent on demagogic advertising like this. There's no need to get any more complicated about it.

Chart of the Day: Generation Gap

| Mon Nov. 8, 2010 3:27 PM EST

Via Jon Chait, the New York Times ran an interesting graphic this weekend showing demographic breakdowns of election results going back to 1982. Here it is for age groups:

Basically, all age groups were relatively evenly split between Democrats and Republicans until 2004, when the youth vote started to blow out for Democrats, and 2010, when older voters went heavily for Republicans. That's not quite what I would have expected, so this is a useful corrective. The other charts are interesting too.

NOTE: The NYT exit poll numbers don't match the numbers at the CNN site, though they're close. I'm not sure why this is. If anyone knows, enlighten us in comments.

Our Ruling Class

| Mon Nov. 8, 2010 2:51 PM EST

Matt Yglesias on the conservative love affair with Ireland during the Bush era:

I wouldn’t try to blame their property crash on low tax rates. But by the same token a frightening number of pundits went “all-in” on the idea that Ireland’s conserva-friendly tax policies were behind a boom that was in fact driven by a real estate bubble. There needs to be some accountability for this, because it appears to quite genuinely be the case that relaxed financial regulation is a can’t-lose strategy for (temporarily) attracting financial inflows, sparking an asset price bubble, and boosting growth. But that doesn’t mean countries should do it. And we need a system of international praise and esteem that’s not so blind to these issues.

Italics mine. Good luck with this. I've never spent too much of my energy on the Dean Baker-ish crusade about how we keep listening to all the people who got everything wrong during the aughts, but that's mostly just a matter of writing temperament, not because I disagree with him. But it's getting harder and harder not to jump on the bandwagon. I mean, we've now got mainstream Republicans suggesting we should (kinda sorta) go back on the gold standard, we've got conservative economists who believe we should raise interest rates because inflation is our biggest worry right now, and we've got a victorious GOP that thinks spending cuts and deregulation are the key to prosperity — all aided and abetted by an economically illiterate pundit class seemingly convinced that accounting identities are just guidelines and the federal government should be run the same way you and I run our family budgets.

I mean, it's almost as if the entire scientific community agreed about the fundamental chemical and thermodynamic reality of GHG-induced global warming but instead we listened to a bunch of cranks who — oh wait. We are listening to them, aren't we?

Never mind. I'll just retreat back into my cave now. Somebody send up a flare when it's safe to come back out.

Is In-Flight WiFi in Danger?

| Mon Nov. 8, 2010 2:26 PM EST

I think Bruce Schneier might be overreacting here:

Okay, now the terrorists have really affected me personally: they're forcing us to turn off airplane Wi-Fi. No, it's not that the Yemeni package bombs had a Wi-Fi triggering mechanism — they seem to have had a cell phone triggering mechanism, dubious at best — but we can imagine an Internet-based triggering mechanism. Put together a sloppy and unsuccessful package bomb with an imagined triggering mechanism, and you have a new and dangerous threat that — even though it was a threat ever since the first airplane got Wi-Fi capability — must be immediately dealt with right now.

Please, let's not ever tell the TSA about timers. Or altimeters.

The two linked reports are actually pretty weak tea. The Gizmodo post is based on a New Scientist report, and the New Scientist report is basically sourced to one guy: Roland Alford, the managing director of "an explosives consultancy in Chippenham," who says he "expects" in-flight Wi-Fi technology to be scrutinized in future security reviews. And maybe it will be. Frankly, the TSA security folks wouldn't be doing their jobs if they didn't do at least that. But the fact that one guy thinks in-flight Wi-Fi will be scrutinized doesn't mean that in-flight Wi-Fi will actually be banned. Or even restricted. It's probably reasonable to expect the worst from TSA as a default reaction, but this particular report is literally based on nothing. I woldn't panic yet over this.

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DADT on the Chopping Block?

| Mon Nov. 8, 2010 1:43 PM EST

Adam Serwer reads the Wall Street Journal today and finds a story saying that Senate Democrats are planning to jettison repeal of DADT from this year's Pentagon funding bill:

Look, if Democrats can't repeal a policy more than two thirds of the American people, including a majority of conservatives want gone then they can't expect people to vote for them....That Democrats would cave on this now shows how far the party of Harry Truman has fallen. In December the Defense Department is reportedly set to release a study showing that, like the American people, most servicemembers aren't opposed to gays and lesbians openly serving. That's in contrast to the vast opposition of most servicemembers to racial integration in the 1940s; if Truman had insisted on staying his hand until a political climate as favorable as this one had come along, integrating the military might not have happened until decades later. 

Democratic spinelessness on this is worth mocking. But let's get real: the problem isn't with Senate Democrats, 97% of whom voted to repeal DADT in September. The problem is with Republicans, 100% of whom voted against repeal even though, as the Gallup poll above shows, repeal is favored by 60% of Republicans, a majority of conservatives, the Secretary of Defense, and the chairman of the Joint Chiefs of Staff.

100%. Not one single Republican was willing to buck the tea party hordes and vote for DADT repeal. Even Susan Collins of Maine, the only Republican who publicly supports repeal, concocted a transparently bogus excuse not to vote for it.

Democrats may not be profiles in courage here, but they aren't the villains on DADT repeal. They just aren't. Republicans are. They're willing to unanimously filibuster funding for the military in order to pander to the small percentage of their own party that thinks gay people are icky. And they'll keep doing it, too. They don't care about the military report due in December and they don't care whether DADT repeal would actually affect military readiness in any way. They'll defund the entire Pentagon if that's what it takes to keep the tea partiers happy. They're the enemies of national security here, not Democrats.

Ireland's Woes — And Ours?

| Mon Nov. 8, 2010 12:28 PM EST

Via Tyler Cowen, Morgan Kelly writes in the Irish Times about Ireland's foreclosure tsunami, which makes ours look like nothing worse than a good surfing day:

The gathering mortgage crisis puts Ireland on the cusp of a social conflict on the scale of the Land War, but with one crucial difference. Whereas the Land War faced tenant farmers against a relative handful of mostly foreign landlords, the looming Mortgage War will pit recent house buyers against the majority of families who feel they worked hard and made sacrifices to pay off their mortgages, or else decided not to buy during the bubble, and who think those with mortgages should be made to pay them off. Any relief to struggling mortgage-holders will come not out of bank profits — there is no longer any such thing — but from the pockets of other taxpayers.

This is the basic problem with foreclosure relief. There are a whole bunch of good arguments about why it would be good for the economy, but the public would hate it. Bailing out bankers is bad enough, but at least it's bad in a sort of abstract, far-off way. Bailing out your next door neighbor is a whole different story. That's a fast way to political oblivion. Kelly continues:

House prices are driven by the size of mortgages that banks give out. That is why, even though Irish banks face long-run funding costs of at least 8 per cent (if they could find anyone to lend to them), they are still giving out mortgages at 5 per cent, to maintain an artificial floor on house prices. Without this trickle of new mortgages, prices would collapse and mass defaults ensue.

However, once Irish banks pass under direct ECB control next year, they will be forced to stop lending in order to shrink their balance sheets back to a level that can be funded from customer deposits. With no new mortgage lending, the housing market will be driven by cash transactions, and prices will collapse accordingly.

While the current priority of Irish banks is to conceal their mortgage losses, which requires them to go easy on borrowers, their new priority will be to get the ECB's money back by whatever means necessary. The resulting wave of foreclosures will cause prices to collapse further.

Right now, the hated Fannie Mae and Freddie Mac are essentially keeping the entire American housing market afloat despite the fact that American banks, unlike their Irish counterparts, have very low funding costs and can still make money on mortgage lending. But what would things be like if Fannie and Freddie weren't around and funding costs were high? For all intents and purposes, there would probably be no mortgage market at all. If Morgan is right, that's what Ireland is facing next year.

Europe will probably figure out a way to muddle through its euro-inspired crisis, but there's no guarantee of that. Ireland, Portugal, and Greece are still teetering on the edge of bankruptcy, and the mood in the core states against further bailouts has hardened considerably since a year ago. Whether the euro survives is anyone's guess. I'd give it about an 80% chance, myself.

And if we end up living in the world where the 20% chance of a currency breakup comes to pass? Chaos in Europe, of course, but we won't avoid the storm either. Buckle up.

Quote of the Day #2: Fighting Back on Climate

| Sun Nov. 7, 2010 9:25 PM EST

From physics professor Scott Mandia, commenting on plans for 700 climate scientists to start speaking out more forcefully and publicly about global warming:

The notion that truth will prevail is not working. The truth has been out there for the past two decades, and nothing has changed.

This is a welcome development. But I hope these guys are well trained. They need to know the science cold, they need to be aware of the standard denialist talking points, they need to stick to the facts religiously, and they need to have good media training. They won't be going up against amateurs and the rules of the game won't be set by the Marquess of Queensberry. That said, this is long past due.

Quote of the Day: Rethinking Gehry

| Sun Nov. 7, 2010 4:27 PM EST

From an LA Times description of Jon Platt's redesign of Frank Gehry's Schnabel House, which he purchased four years ago:

Simple tasks such as replacing fluorescent light bulbs with LEDs were accompanied by massive undertakings, such as centralizing and consolidating the home's climate controls, TVs, lighting and security cameras onto one technologically advanced system, now managed by eight iPads.

Platt's house now requires eight iPads to control? Damn.