Kevin Drum

Friday Cat Blogging - 14 May 2010

| Fri May 14, 2010 2:53 PM EDT

Yesterday was just a beautiful day here in Southern California, so the cats were out playing in the garden. Inkblot was sniffing around the flowers, occasionally looking up to ask why someone kept pointing a giant glass eye in his direction. Domino sat serenely with the sun hitting her directly enough that you can actually see her face in this picture, not just a furry black blob. And today? It's looking just as good. Have a nice weekend, everyone.

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More on the Long-Term Unemployed

| Fri May 14, 2010 1:54 PM EDT

Just a quick additional note about long-term unemployment — i.e., those who have been unemployed more than six months. Normally, the long-term unemployment rate is considerably lower than the short-term rate, and tracks roughly equal with the rate of the medium-term unemployed (those out of work 15-26 weeks). The chart snippet on the right, with long-term unemployment in red, shows this. So if this recession had followed the usual pattern, long-term unemployment would have peaked a few months ago at about 2% of the labor force and would now be down in the neighborhood of 1.5% or so. Instead, it's at nearly 4.5% and still climbing.

Here's what this means: if this recession were following the usual pattern, total unemployment would have peaked several months ago not at 10%, but at around 7% or so. This is just a back-of-the-envelope figure after looking at the raw BLS numbers, but it's in the right ballpark. And that's a huge difference. Unemployment of 7% is bad, but it's not catastrophic.

I don't yet have anything deep to say about this. I'm still just noodling over the data. But as this makes clear, the depth of our current recession is almost entirely due to the fantastically high and unprecedented amount of long-term unemployment. I don't know if that's cause or effect or something in between, but it's important.

Protecting the Oil Industry

| Fri May 14, 2010 1:12 PM EDT

If drilling for oil has the potential to cause vast damage, then the drillers of oil need to have the financial wherewithal to repair that damage when it occurs. That's the kind of personal responsibility the Republican Party stands for. So Republicans certainly wouldn't object to raising the liability cap for offshore drilling accidents so that taxpayers aren't the hook for the costs. Right?

You underestimate the Republican party. None other than Alaska Republican Lisa Murkowski stood up to object. Yes, the senator from the state that got hammered by the Exxon Valdez spill objected to raising the liability cap.

And what was her argument? If the liability cap is raised, that might exclude small oil companies from being able to get the insurance and financing necessary to drill offshore. After all, only the oil giants could afford $10 billion. That is to say: only the oil giants can afford to clean up after themselves.

You're not dreaming. That's really the argument. Murkowski wants small, independent oil companies to be able to privatize the profits of offshore drilling but offload the financial risks to the public. And she frames it as avoiding a "Big Oil monopoly" on drilling. She's just defending mom-and-pop oil shops! The gall is breathtaking.

That's David Roberts. On a historical note, this is pretty much how the nuclear power industry is treated too. Back in 1957, when no one knew just how dangerous nuclear plants were, insurance companies were unwilling to write open-ended policies for them. Congress, however, didn't want that to get in the way of nuclear development (too cheap to meter, after all!). So they required plant operators to buy the biggest policies they could, and then put taxpayers on the hook for any damages above that.

Oh wait. No they didn't. Actually, they set up a $10 billion insurance pool funded by the industry. Taxpayers were on the hook for anything above that, but at least the industry as a whole was responsible for the first $10 billion. If Murkowski is so worried about all those small oil companies, maybe she should support the same kind of fund for offshore drilling. But I guess that would be socialism. Or something.

Expanding the House

| Fri May 14, 2010 12:47 PM EDT

Bruce Bartlett argues that congressional districts are too big and that we should pare them down by increasing the number of congressmen:

Conservative columnist George Will has argued that increasing the size of the House would obviate the need for campaign finance restrictions. It is the huge size of congressional districts that requires mass communications, such as costly television advertising, which drives the need for vast sums of money requiring congressmen to spend so much time fundraising.

....Some will say that greatly increasing the size of the House will make it into a zoo, as if it isn't already with so many thousands of staff people, constituents and lobbyists wandering around. When one looks at other countries, it's interesting to see that most have lower houses of their legislatures that are larger than our House of Representatives even though their populations are much smaller than ours.

....It's not realistic to even think about going back to congressional districts with 30,000 people — that would require a House of Representatives with more than 10,000 members. But neither is it feasible to continue raising the size of each congressional district infinitely. At some point, an adjustment needs to be made. I think the reapportionment that will follow this year's Census is as good a time as any to do it.

This is a pretty common suggestion, but here's my problem with it. Right now, each member of Congress represents about 700,000 people. That's obviously too many to allow old-fashioned shoe leather campaigning. But what would it take to get back to that? I live in a city of 200,000, and even at that running for mayor or city council is only barely a shoe leather operation. If you want members of Congress who truly represent their neighbors because they actually know them, instead of members who just know how to raise money and schmooze with local power brokers, you'd probably want districts no bigger than 150,000 or so. That would require a Congress of about 2,000 members.

Would that be a good idea? Maybe! But I think that's about what it would take. Once you get above 200,000 people in a district, I think you've hit a tipping point: it doesn't really matter how much bigger they get. Once mass media is the only way to keep in touch with constituents, the only question left is which kind of mass media to use. And who really cares about that?

So: would a Congress with 2,000 members be worth it? On the bright side, it would be harder for lobbyists to influence. On the down side, it would make party discipline even more of a joke than it already is. And we'd have to build a new Capitol building to house this seething mass of pols. Color me unconvinced.

Car Dealers Preying on the Military

| Fri May 14, 2010 12:05 PM EDT

It's nice to finally have some heavy firepower on the side of consumer finance protection. Literally:

Car dealers, a well-organized small-business lobby with members in nearly every legislative district, have swarmed the Senate in recent weeks clamoring to be exempt from the legislation's proposed protections against loan scams. But in a letter released Thursday, a top Pentagon official said soldiers need to be protected from "unprincipled auto lending" so they can concentrate on their primary mission: "protecting our great nation."

"Soldiers who are distracted by financial issues at home are not fully focused on fighting the enemy, thereby decreasing mission readiness," Army Secretary John M. McHugh wrote Wednesday to Senate Banking Committee Chairman Christopher Dodd (D-Conn.). Top Pentagon officials don't usually weigh in on non-military legislation. But they have complained that shady car loans have been particularly harmful to military personnel — often young, inexperienced consumers who have other worries when they walk into car lots near military bases.

Stephanie Mencimer wrote a really good piece last year about the way car dealers routinely scam service members. It's worth a read. And maybe give Sen Sam Brownback (R–Kansas), sleaze's biggest defender, a call after you've finished it.

The Future of Advertising

| Fri May 14, 2010 11:24 AM EDT

Ezra Klein comments on the ineffectiveness of online advertising:

What always interests me about this observation is the implication that offline advertising is similarly worthless. There are certain types of advertising that get treated as content: People scan the newspaper for department-store sales, for instance. But an ad for Tide? Or Intel? You notice it, but you don't care about it. But everyone placed those ads so everyone kept placing those ads. And hey, having your brand noticed was worth something.

Online, however, that "not caring" has become too undeniable. The tiny handful of click-throughs, most of them accidental, are almost an insult to the advertiser. The right comparison here is old medical techniques that were widely used until information arrived showing them worthless. Advertising worked for everyone so long as the limited supply made it look really high-value to advertisers and the absence of information let them fool themselves into believing it really effective. But at least with online advertising, there's so much supply, and so much proof that it's not very effective, that the prices paid by advertisers are coming into line with the amount of attention people pay to their advertisements. And that's grim news for industries that rely on advertising.

Italics mine. This is a little unfair to the Mad Men of the world and their clients. They've always known perfectly well that advertising doesn't always work. "I know I waste half the money I spend on advertising," said the founder of Wanamaker's department store. "The problem is, I don't know which half." But marketing firms really do have plenty of ways of measuring the effectiveness of advertising, and the fact is that most traditional advertising does have an impact. (In many cases, too big an impact for my taste, in fact.)

But that's largely because it's intrusive. In newspapers and magazines it takes up a lot of space. On TV and radio it interrupts the programs you're watching. Junk mail catches your eye with lots of coupons. The print/TV equivalent of direct clickthroughs might be just as low as it is for web advertising, but in addition these ads make an impression that, over the medium and long term, affects how people shop.

So the web's big problem isn't clickthroughs. Of course they're low. The problem is that clickthroughs are all it has. There's a limit to how intrusive you can make ads on the web. Too big and there's no room for actual content. Too small and they're easily ignorable. Too flashy and people complain. Too annoying and people install ad blockers. "Impressions" is a meaningful concept for most advertising, and that adds to the direct effect it has. On the web, it's close to meaningless.

But someone's going to figure this out. I'm not sure how (which puts me in good company), but I'll bet that it doesn't end up being display ads, which is an attempt to replicate what works in print. It'll be something else. Maybe clever inline hyperlinks. Maybe keyword driven stuff. Maybe something no one's even thought of yet. But something.

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The End of the Carried Interest Loophole?

| Fri May 14, 2010 1:57 AM EDT

Good news! The carried interest loophole, one of the most egregious gifts to billionaire private equity and hedge fund managers around, might finally be on the chopping block:

Right now, the percentage of a fund’s proceeds that investors pay to the manager — called the “carried interest” — gets taxed as if it’s capital gains (at a 15 percent rate, instead of 35 percent), even though the manager doesn’t have any money at risk. It’s as if we treated movie proceeds given to a film’s lead actor as investment income.

....Congress has a bunch of very popular business tax credits that it would like to extend, but the extensions need to be paid for, so the carried interest break is looking more likely to disappear. Senate Finance Committee Chairman Max Baucus (D-MT) said this week that there’s “a growing sense of inevitability” about the tax hike occurring, despite heavy lobbying from the financial services industry. Office of Management and Budget Director Peter Orszag agreed yesterday, predicting that “you’re going to see a change in the taxation of carried interest pass the Senate within the next few weeks.”

It would be nice to see the carried interest loophole finally meet its maker. It's a small victory, but an important one.

Biggest Oil Spill in History?

| Fri May 14, 2010 1:47 AM EDT

Is it going to be possible to ever cap the Deepwater Horizon oil blowout? Maybe not, says National Geographic:

Such recovery operations have never been done before in the extreme deep-sea environment around the wellhead, noted Matthew Simmons, retired chair of the energy-industry investment banking firm Simmons & Company International....Slant drilling — a technique used to relieve pressure near the leak — is difficult at these depths, because the relief well has to tap into the original pipe, a tiny target at about 7 inches (18 centimeters) wide, Simmons noted.

"We don't have any idea how to stop this," Simmons said of the Gulf leak....If the oil can't be stopped, the underground reservoir may continue bleeding until it's dry, Simmons suggested.

And how much oil would that be? Via the New York Times:

BP’s chief executive, Tony Hayward, has estimated that the reservoir tapped by the out-of-control well holds at least 50 million barrels of oil.

That would be about 2 billion gallons of oil. If all of this floods out, it would be the biggest oil spill in history by a huge margin and 20 times bigger than the biggest previous spill in the Gulf of Mexico. From the National Geographic piece: "The 1979 Ixtoc oil spill, also in the Gulf of Mexico, took nine months to cap. During that time the well spewed 140 million gallons (530 million liters) of oil — and the Ixtoc well was only about 160 feet (49 meters) deep, noted retired energy investment banker Simmons."

Even if the well is capped, this is going to be a huge spill. The spill rate, originally estimated at 50,000 gallons a day and then 210,000 gallons a day, might actually be as much as a million gallons a day — or maybe even more. But it's hard to tell because BP is using chemical dispersants to send most of the oil to the bottom of the sea. This keeps it off the shore, but might end up doing more damage in the long run. Nobody seems to know for sure.

More on the Organization Kid

| Thu May 13, 2010 7:46 PM EDT

James Joyner pushes back on my suggestion this morning that the whole "Organization Kid" meme is overblown:

It strikes me as highly probable that “Organization Kids” are much more highly represented in elite Washington than in society as a whole. Aside from nepotism, the way to get ahead in this town is to go to the right schools, punch the right tickets, and not piss too many people off.

....Post-Bork at least, every successful Supreme Court nominee has been a cipher who claimed to have no opinion on, well, anything. The less that’s known, the harder it is to mount an attack. That’s not a slam on the nominees but rather on the system.

Well....sure. But aside from nepotism, hasn't going to the right schools, punching the right tickets, and not pissing too many people off always been the way to get ahead in Washington? And in business? And in the military? And just about everywhere else? I'm just not sure that very much has really changed on this front recently.

As for Supreme Court nominees being ciphers, I don't think that's quite right either. Lots of them have past records. What is true is that confirmation hearings have become a joke in the post-Bork era, with nominees unanimously insisting that they can't testify about any case that might ever come before the court, which, since it's the Supreme Court we're talking about here, means pretty much every possible case. This is indeed a problem with the system, but it's not quite the same thing as nominees not usually having deep public records. In fact, most of them do, and Elena Kagan is a little unusual in this regard.

More generally, I think what's going on here is that I've always been a little skeptical of the kinds of cultural memes that David Brooks (and others) traffic in, and I've grown even more skeptical as time goes by. I understand completely where the "Organization Kid" thing comes from, for example, and my gut tells me there's something to it. But my gut tells me lots of things, and further reflection usually gives me pause. I don't think kids of my generation were quite the rebels we'd like to imagine we were, and in any case we've mostly grown up to become an awful lot like our parents and grandparents. Some of us are cautious, some of us are outspoken, and some of both kinds are running the world right now. Same as always. I think that turns out to be the case more often than not whenever kids of any generation are the subject. There are differences, but I've gotten to the point where I really, really want to see some solid evidence before I buy into whatever the latest theory/complaint/whine is.

Climate Change's Secret Weapon

| Thu May 13, 2010 6:09 PM EDT

Pretty much everyone agrees that it doesn't make a lot of sense to regulate greenhouse gases using the Clean Air Act. The mechanisms in the CAA just don't fit the problem very well. Still, it's better than nothing, and there's long been an implicit threat from the Obama administration that if Congress doesn't pass a climate bill then the EPA will step in and do the job for them. Today, they ratcheted up the pressure:

The Environmental Protection Agency announced Thursday it is finalizing a rule aimed at curbing greenhouse gas emissions from the largest emitters in the United States....The new rule will cover 67 percent of the greenhouse gas emissions from stationary sources such as power plants and oil refineries, EPA estimates, and in its first year will translate into 900 permits for both new sources and modifications to existing sources of global warming pollution.

The EPA's rule will apply to new sources that emit 100,000 tons of carbon dioxide per year and to existing sources that make changes that would increase their emissions by 75,000 tons per year. Brad Plumer explains what that means:

That standard will apply to only about 5501 big polluters in the entire country....Those plants will have to employ the best available control technology — although no one knows yet what that means. Becoming more efficient? Co-firing biomass? Switching to natural gas?

So a couple of things are happening here. One, it's now going to be very tough for new coal-fired power plants to get built in the United States. Given that those plants are a major source of carbon pollution, that's a significant step. Second, the EPA's clearly pressing ahead with its own regulations — and that might give the Senate the kick it needs to pass a climate bill. But the agency's also being cautious and moving very deliberately on this stuff—indeed, it's backing off from it's previously planned 25,000-ton threshold. No doubt Lisa Jackson's trying to avoid a hostile reception from senators like Lisa Murkowski, who has been insisting that EPA rules would throttle the economy and has threatened to pass a bill stripping the agency of its carbon authority. There's a fine line the EPA has to walk here.

This continues to be the big wild card on the climate front. By any ordinary measure, climate legislation looks to have a bleak future in Congress. It just flat doesn't have the votes. But if the Obama administration demonstrates that it's dead serious about letting the EPA dragon out of its lair — and so far it hasn't backed off — it's entirely possible that John Kerry and Joe Lieberman (and Lindsey Graham if he gets over his huff) might be able to scare a few Republican senators into viewing their climate bill as the lesser of two evils. I'm not sure if it's enough in an election year, but it's at least potentially a game changer.

1Wait a second, you say. Is it 900 new permits or 550 big polluters? Or does that end up being the same thing? Here's what the EPA itself says:

Under the new emissions thresholds for GHGs that begin in July 2011, EPA estimates approximately 900 additional permitting actions covering new sources and modifications to existing sources would be subject to review each year. In addition, 550 sources will need to obtain operating permits for the first time because of their GHG emissions.

I'm not sure exactly what this means. But it sounds to me like the 900 number applies to plants that are already covered by the CAA for other pollutants and will now need carbon dioxide permitting too, while the 450 number applies to plants that emit lots of carbon dioxide but haven't previously been covered by the CAA because they don't emit other pollutants. So the real number is 1,450 new permits for various sources. More later if I learn different.