Kevin Drum

World Cup Thread

| Tue Jul. 6, 2010 2:14 PM EDT

I'll be rooting for the Netherlands for the rest of the World Cup. Why? Because I like tulips and windmills and the kid with his finger in the dike. Because I think it's remarkable that such a small country has such a successful soccer history, and I think it's about time for them to finally get their hands on the top trophy. Because they have such a good healthcare system. Because — at least in my experience — they seem to combine friendliness with a surprisingly robust sense of rationality. Because Switzerland and Denmark didn't make it out of group play. Because I've liked the Netherlands since the first time I visited.

So in honor of the Netherlands, here's a snapshot taken during that first visit in 1967. This is Madurodam, a miniature city in The Hague that my brother and sister and I were all pretty captivated by at the time. Beat that, Legoland. Judging from their website, Madurodam has been considerably spruced up since our visit, and I suppose that means I should take a trip over to Europe one of these days and check it out. In the meantime, though, I'll settle for rooting for their soccer team.

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The Future of Oil

| Tue Jul. 6, 2010 1:11 PM EDT

Mike Konczal notes the startling news that U.S. investment in resource extraction (primarily oil and gas exploration) has now overtaken investment in manufacturing. But I think he goes astray here:

In 2001 we decided to lift a lot of rules and a massive amount of resource extraction went into place in a very short time span. This was done with the privatization of regulation (deregulation). We thought that the capital markets would be enough to oversee this massive change in our resources and handle the risk appropriately, and we did it in a really short amount of time. Instead of an eternal problem facing human society, it’s about a small group getting power in the White House and shredding the laws, oversight and process concerning how our environment and private companies interact, no doubt making themselves rich in the process. Less Icarus, more Cheney. What does this hold for the future? Notice that the regulators were put into crony sleep mode exactly at the moment where they were most needed.

Obviously some of that happened. But the primary shape of this story is pretty obvious. When oil prices skyrocketed following the OPEC embargoes of the 70s, investment in oil exploration went up. When oil prices crashed in the 80s, investment went down. When they skyrocketed again in the aughts, investment went up. Bush/Cheney policies obviously helped, but this is mostly a pretty simple market reaction to high prices.

And the future? I'd count on that blue line continuing to rise. It will certainly have rattles and bumps along the way, but the era of cheap oil is over, and permanently high prices make even expensive investment in hard-to-extract oil worthwhile. The final fate of American manufacturing is still unclear, but I doubt that it will ever match resource extraction again.

David Brooks on Fiscal Stimulus

| Tue Jul. 6, 2010 12:13 PM EDT

David Brooks has one of his patented "arguing with myself" columns in the Times today, and this one is about whether fiscal stimulus is a good idea. Here's where he ends:

These days, debt-fueled government spending doesn’t increase confidence. It destroys it. Only 6 percent of Americans believe the last stimulus created jobs, according to a New York Times/CBS News survey. Consumers are recovering from a debt-fueled bubble and have a moral aversion to more debt.

You can’t read models, but you do talk to entrepreneurs in Racine and Yakima. Higher deficits will make them more insecure and more risk-averse, not less. They’re afraid of a fiscal crisis. They’re afraid of future tax increases. They don’t believe government-stimulated growth is real and lasting. Maybe they are wrong to feel this way, but they do. And they are the ones who invest and hire, not the theorists.

The Demand Siders are brilliant, but they write as if changing fiscal policy were as easy as adjusting the knob on your stove. In fact, it’s very hard to get money out the door and impossible to do it quickly. It’s hard to find worthwhile programs to pour money into. Once programs exist, it’s nearly impossible to kill them. Spending now creates debt forever and ever.

....But the overall message is: Don’t be arrogant. This year, don’t engage in reckless new borrowing or reckless new cutting. Focus on the fundamentals. Cut programs that don’t enhance productivity. Spend more on those that do.

Two things occur to me. The first is that a columnist like Brooks doesn't have to pander to public opinion. He should leave that to politicians. If he thinks more debt is dangerous, he should say so and explain why. If he doesn't, he should say that. What he shouldn't do is throw up his hands and say that since the public feels X, then we must do X. After all, part of the reason the public feels X is because people like David Brooks keep telling them that.

Beyond that, though, I guess my question is what he thinks the downsides are here. That is, what's the downside of more stimulus vs. less stimulus? The downside of less stimulus, I think, is obvious: if the Krugmanites are right, it will mean years and years of grinding unemployment and slow growth. It means pain and destitution for millions.

But what's the downside of more stimulus? No one can say, really. The best answer is that it might lead to future interest rate hikes or future inflation or future tax increases. But there's very little evidence to support this, and Brad DeLong, among others, makes an excellent case that even a trillion dollar stimulus would have only a tiny effect on the federal government's future solvency. So even if a big stimulus has little positive effect — which seems unlikely given current circumstances — it doesn't create much danger either. So why not try it? The fiscal purists sure don't seem to have much in the way of better ideas.

On Opposing Torture

| Tue Jul. 6, 2010 11:47 AM EDT

Jay Nordlinger is outraged:

I’ve discussed North Korea and torture. But bear in mind that the Chinese Communists are no slouch in this department. We wouldn’t want to leave them out, would we? Especially when they’re torturing Americans. Here is an article from the Associated Press: “An American geologist held and tortured by China’s state security agents was sentenced to eight years in prison Monday for gathering data on the Chinese oil industry.”

[A bit of outrage over an Obama official criticizing Arizona's immigration law during talks with the Chinese.]

There is a sickness in our society, ladies and gentlemen — a sickness of what, back in Cold War days, we called “moral equivalence.” Let’s debate that.

I'll leave to another day the burning question of whether assistant secretary of state Michael Posner should have discussed Arizona's law with the Chinese. But did Nordlinger seriously write about Chinese torture and "moral equivalence" without mentioning the fact that it was official U.S. policy to do exactly the same thing during the Bush era? According to the AP report he links to, the Chinese torture consisted of "stubbing lit cigarettes into his arms in the early days of his detention." Glenn Greenwald remarks sarcastically:

A few cigarette stubs into a forearm for a handful of days? That's it? That's "torture"? Not according to the official definition of that term adopted by the U.S. Government, as explained by John Yoo....Placing a lit cigarette on someone's arm is unquestionably painful, but clearly does not rise to the level of pain "accompanying serious physical injury, such as organ failure, impairment of bodily function, or even death."

Here's some moral equivalence for you: how about if we oppose torture everywhere, no matter who does it? That would be the mark of a healthy society.

Why Are Businesses Hoarding Cash?

| Mon Jul. 5, 2010 11:47 PM EDT

Fareed Zakaria, after noting that America's 500 biggest nonfinancial companies are sitting on $1.8 trillion of cash, wonders why they aren't spending it on new plants or expansion into new product lines:

I put this question to a series of business leaders, all of whom were expansive on the topic yet did not want to be quoted by name, for fear of offending people in Washington.

Economic uncertainty was the primary cause of their caution. "We've just been through a tsunami and that produces caution," one told me. But in addition to economics, they kept talking about politics, about the uncertainty surrounding regulations and taxes. Some have even begun to speak out publicly. Jeffrey Immelt, chief executive of General Electric, complained Friday that government was not in sync with entrepreneurs. The Business Roundtable, which had supported the Obama administration, has begun to complain about the myriad laws and regulations being cooked up in Washington.

I really have to call BS on this. Fortune 500 CEOs probably do have some genuine uncertainty about the tax and regulatory environment going forward, but big companies work with that kind of uncertainty all the time. It doesn't stop them in their tracks. What's more, most of the current uncertainty revolves around financial regs — which aren't a big deal to nonfinancial companies — and healthcare regs, which aren't a big deal to most non-healthcare companies. In other words, this stuff just doesn't have an enormous effect on the vast majority of the companies we're talking about here.

So what is keeping them from spending their cash? Why aren't they expanding? Could this question possibly be any simpler? They aren't expanding because the economy is weak and they don't see consumer demand picking up any time soon. They'll start spending as soon as they believe that's going to change. It's too bad that CEOs, even Democratic-leaning ones, tend to be so ideologically invested in regulatory issues, because they ought to be the biggest boosters out there of action to stimulate the economy. Enlightened self-interest, if nothing else, should have them marching on Congress demanding action.

Where are the Liberal Hacks?

| Mon Jul. 5, 2010 5:03 PM EDT

Last Friday, following the release of some pretty lousy employment numbers, the White House tried its best to provide some positive spin about the state of the economy ("signs of gradual labor market recovery....private sector employment has increased....continued signs of healing"). Liberal economists were having none of it, however, and Jonathan Bernstein wants to know why:

My question, which I've asked before: where are the hack liberal economists? One would think that there's a real market niche here that someone would fill. I can think of two possible reasons that it's not happening. Perhaps there is no such niche — that is, there are few Democrats out there in the nation eager to buy the product of anyone basically cheerleading for the White House. Or, perhaps the market exists, but liberal economists all have too much integrity to fill it, and insist on saying whatever they believe is true (or whatever they believe suits their policy goals), regardless of whether it rewards them with appearances on MSNBC talk shows and healthy book contracts.

Hmmm. There are, I'd say, more hacks among conservative economists (and economic hangers-on) than there are among liberals, so Jonathan's question is a good one. Still, I don't think that's the primary explanation here. I think it's simpler. Generally speaking, conservative economists like tax cuts. They like them all the time, but they especially like them as a stimulus measure, and that's exactly what they got from George Bush following the 2001 recession. Liberal economists, conversely, think increased spending is the best stimulus during a deep recession, and they aren't getting it from Obama. You can argue about whether this is Obama's fault or the Senate's fault or just the way things are, but still: Obama doesn't seem to be fighting very hard for the policy response that liberal economists want to see.

To the extent that Obama has done what they want, though, I'd say that liberal economists have reacted about the same way that conservatives did during the Bush era. Back then, conservatives spent a lot of time explaining how, if you looked at the numbers right, the Bush tax cuts were improving the economy. Today, liberal economists spend a lot of time explaining how, if you look at the numbers right, the 2009 stimulus bill is improving the economy. Likewise, in 2002 conservatives were insisting that we needed more tax cuts and today liberals are insisting that we need more stimulus.

So....there's not as big a difference as it seems. If Obama and Congress were giving liberal economists what they want, they'd probably be cheerleading as much as Larry Kudlow was during the Bush administration. I don't think they'd be deliberately twisting the numbers the way conservatives seem all too happy to do, but they'd still be cheerleading.

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Photoshopping the News

| Mon Jul. 5, 2010 2:28 PM EDT

Need a picture of a pensive and lonely Barack Obama stewing over the BP oil spill? Just create one! Jeremy Peters of the New York Times explains:

There was President Obama on the cover of the June 19 issue of The Economist, standing alone on a Louisiana beach, head down, looking forlornly at the ground.

The problem was, he was not actually alone. The photograph was just edited to make it look that way.

The unaltered image, shot on May 28 by a Reuters photographer, Larry Downing, shows Adm. Thad W. Allen of the Coast Guard and Charlotte Randolph, a local parish president, standing alongside the president. But in the image that appeared on The Economist’s cover, Admiral Allen and Ms. Randolph had been scrubbed out, replaced by the blue water of the Gulf of Mexico.

An Economist editor responds with some examples of obvious image alteration they've used in the past, but then falls down trying to explain why they did some pretty nonobvious alteration this time around:

I asked for Ms. Randolph [the woman next to Obama] to be removed because I wanted readers to focus on Mr. Obama, not because I wanted to make him look isolated. That wasn’t the point of the story. “The damage beyond the spill” referred to on the cover, and examined in the cover leader, was the damage not to Mr. Obama, but to business in America.

The Economist has a history of using photos more as illustrations than as objects of straight news, but this still crosses a line that a news magazine shouldn't cross. Hell, I wouldn't do something like this on my blog, let alone on the cover of the Economist. But decide for yourself. The full transformation is illustrated below — and yes, I used Photoshop to create it.

The Political Passive Voice

| Mon Jul. 5, 2010 1:34 PM EDT

Jay Newton-Small:

Remember how Jim Bunning blocked those unemployment benefits in March and everyone was outraged? Then when Tom Coburn did it in April, the outrage was a little less? With voter worries about deficit spending mounting, Republicans are now seeing benefits to blocking the extension of unemployment benefits unless they are paid for. Meanwhile, the GOP "obstructionism" continues to ignite the Democratic base. But while both parties see political gains ahead of the midterm elections, 1.3 million people are losing their only source of income this Independence Day.

It's easy to see how Republicans gain from this, and it really has little to do with "voter worries about deficit spending mounting." Last night we had some friends over for the 4th and I got to talking with one of them about politics. He's a conservative-leaning guy, but he was pretty upset about the unemployment situation. "Congress just took off for the holidays leaving this mess behind," he stewed. We went on to agree that everyone hates Congress. Its approval rating is somewhere between that of pedophile priests and Osama bin Laden.

But that's as far as it went: Congress. Not Republicans. Just "Congress." And that's why obstructionism works so well for them. Partisans are partisans and are going to hate the other party no matter what. But then there's the vast middle ground of people who lean one way or the other but don't spend all day reading blogs or listening to talk radio. And as long as they view the problem as "Congress," that's bad news for whoever's in charge at the moment.

Ben Nelson aside, there's not much question which party is holding up unemployment benefits. You know it, I know it, reporters know it, and political junkies of all stripes know it. But lots of people don't. They see a headline that says "Congress Adjourns Without Acting on Unemployment" and they don't read much further. Every time that happens, it's a big win for the GOP. And it happens a lot.

Is Our Kids Studying?

| Mon Jul. 5, 2010 12:23 PM EDT

An MIT professor emailed me a Boston Globe story this morning about how lazy college students have become lately. Here's the nut of the thing:

According to time-use surveys analyzed by professors Philip Babcock, at the University of California Santa Barbara, and Mindy Marks, at the University of California Riverside, the average student at a four-year college in 1961 studied about 24 hours a week. Today’s average student hits the books for just 14 hours.

The decline, Babcock and Marks found, infects students of all demographics. No matter the student’s major, gender, or race, no matter the size of the school or the quality of the SAT scores of the people enrolled there, the results are the same: Students of all ability levels are studying less.

Aha! The internet is sapping our precious bodily fluids. Tivo and 500 channels of TV are sucking up all our kids's time. Facebook and Twitter have made it impossible for them to concentrate. Except....hold on a second:

According to their research, the greatest decline in student studying took place before computers swept through colleges: Between 1961 and 1981, study times fell from 24.4 to 16.8 hours per week (and then, ultimately, to 14).

Hmmm. The drop from 16.8 to 14 over the past 30 years is pretty trivial. This change happened almost entirely about 40 years ago, so this has nothing at all to do with growing up in the digital age. Babcock and Marks, it turns out, agree, and they also say that neither changing demographics nor changing employment patterns are to blame. So what is it? Their answer, basically, is that professors have gotten lazy and don't really feel like going to the trouble of challenging their students. After all, this gets them nothing but grief: lots of work to grade, unhappy students, and lousy teacher evaluations. Why bother?

My MIT correspondent doesn't think much of this theory — though from his email it's unclear if he disagrees about students studying less or if he disagrees about blaming professors for this state of affairs — and I, of course, don't have a clue since I'm neither a recent student nor a professor. My own experience isn't instructive: when I was at Caltech in the late 70s, I'd guess that I probably did indeed study 20-30 hours a week. When I left and transferred to Cal State Long Beach — about as far away from Caltech on the quality spectrum as you can get — I very much doubt that I studied more than 10-15 hours a week. That's hardly surprising, of course. And it tells us nothing.

So then: comments? This isn't Crooked Timber, but I know I have plenty of professors and current students who read this blog. If you're a student, how much studying do you do? If you're an instructor, does this seem to have changed much in the recent past? Let's gather some data, people.

Long-Term Deficit Posers

| Mon Jul. 5, 2010 11:17 AM EDT

Via Matt Yglesias, Adam Ozimek has a question:

Here is something I don’t understand about austerity now proponents: is cutting short term spending a second best alternative to fixing the long-term budget problem? Or does the optimal policy response include BOTH short-term spending cuts and a long-term budget fix? If the answer is the latter, then I want to know what problems aren’t solved by fixing the long-term budget problems that also require short term cuts?

I'm not in favor of short-term budget cuts, but just for the sake of conversation I thought I'd take a crack at providing the best answer I can think of to this. But then I clicked the link, and it turns out Ozimek already did it:

I think the best case against short term stimulus is to say that the government can’t be trusted to combine a serious long-term budget fix with a short term stimulus package. This means that no matter what they promise they will really pass a stimulus package without long-term cuts, which it will signal to the market that they are even more cowardly with respect to addressing the long-term problems than we first thought, and thus the fiscal position just got worse vis-a-vis politicians ability to handle it.

I'm more sympathetic to this argument than Ozimek himself is, but the real problem with it is simple: it assumes the austerity crowd is sincerely in favor of long-term budget cuts in the first place. They aren't. They say they are, of course, but the reality is that long-term cuts mean essentially one thing: cuts to Medicare. Conservatives don't want to cut defense spending; they can't cut interest payments; domestic discretionary cuts are too small to have much impact; and Social Security contributes only modestly to our long-term budget problems. It's true that long-term cuts to domestic spending (if the promises could be made credible) and to Social Security would make a difference. They just wouldn't make a big difference.

So Medicare it is. If you're serious about long-term deficits being a threat to the country and you're unwilling to raise taxes, then you have to support big-time cuts in Medicare. But the Republican Party just spent the past year loudly demonizing even the most modest cuts in Medicare as death panels and intergenerational treason. They plainly have no intention of tackling this.

So then: The austerity crowd doesn't actually care about long-term deficits. What they care about is appealing to their tea party base and winning the November election. If the Republican leadership wants to prove me wrong by releasing a detailed plan for serious cuts in Medicare spending this summer, then I'll happily eat some crow. I'm pretty sure that won't be on the menu anytime soon, though.