Kevin Drum

Quote of the Day: Rand Paul on Medicare

| Wed Sep. 29, 2010 11:06 AM EDT

From Rand Paul, talking 15 months ago about problems with Medicare:

Medicare is socialized medicine! People are afraid of that because they'll say "Ohhh, you're against Medicare." No, I'll say, "We have to do something different. We can't just eliminate Medicare, but we have to get more to a market-based system." It's counter-intuitive to a lot of people, but you have to pay for things if you want prices to come down. So you really need higher deductibles. And the real answer to Medicare would be a $2,000 deductible, but try selling that one in an election. But that's the real answer.

That's via Steve Benen, who reports that Paul is outraged that his Democratic opponent has highlighted his support for a $2000 deductible, which as you can imagine, is not going down well with Kentucky's seniors. But the video is here, and it sure doesn't look like anything is taken out of context. Paul supports the deductible idea but admits that it's a terrible campaign idea. And of course, now he's in a campaign. So he no longer wants anyone to know that he said this. And who can blame him?

Want to know more? Check out "Tea and Crackers," Matt Taibbi's latest in Rolling Stone. It's ostensibly about the tea party movement, but about half the piece is actually about Rand Paul. Enjoy.

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Tax Cut Followup

| Wed Sep. 29, 2010 10:50 AM EDT

This is arcane, but I guess I need to follow up on my post last night about the CBO's report on extending tax cuts. I think I've figured out what's going on.

The CBO chart is below, and it doesn't seem to match the data in Table 4. But it does, sort of. Take the bar for full extension of tax cuts with a weak labor response. According to Table 4, its effect in 2020 is to reduce real GNP by 1.6%. That's if everyone assumes there's no response. But if we assume that government spending will be reduced after 2020, a lifecycle model predicts that the net effect of extension is only -1.4%. If we assume a tax increase after 2020, the lifecycle model predicts that the net effect is -0.8%.

Now average all those together and you get -1.26%. That rounds to -1.3%, and that's what's shown in the chart. If you average all the other options they also match the chart.

Is this simple arithmetic averaging legit? Beats me. And I'm not even sure who to ask. But apparently that's what they did.

One more thing, though. The CBO model suggests that in all cases, a policy response to full extension of the tax cuts reduces the long-term damage. However, a policy response to extension of just the middle-class cuts increases the long-term damage or has only a tiny effect. This seems like a very strange result. Why does a policy response (either lower spending or higher taxes) have a strongly positive effect in one case and a bad or negligible effect in the other? Again, I'm not even sure who to ask. But it seems odd even if you're a supply side die hard.

Your Bad Economic News for the Morning

| Wed Sep. 29, 2010 8:38 AM EDT

Earlier this year, government bond spreads in several European countries ballooned dangerously in response to the Greek debt crisis. In May the EU came to the rescue, Greece agreed to a combined loan/austerity package, and spreads settled down. The crisis was over.

But for how long? As the chart on the right shows, spreads have been steadily rising since May in Greece, Ireland, and Portugal, and now stand as high or higher than they were at the height of the crisis. And Spain may be next. Edward Hugh explains in a long post that ends with an analogy:

According to one popular analogy currently circulating , the EuroArea countries could be likened to a group of 16 Alpine climbers scaling the Matterhorn who find themselves tightly roped together in appalling weather conditions. One of the climbers — Greece — has lost his footing and slipped over the edge of a dangerous precipice. As things stand, the other 15 can easily take the strain of holding him dangling there, however uncomfortable it may be for them, but they cannot quite manage to pull their colleague back up again. So, as the day advances, others, wearied by all the effort required, start themselves to slide. First it is Ireland who moves closest to the edge, getting nearer and nearer to the abysss with each passing moment. And just behind Ireland comes Portugal, while some way further back Spain lies Spain, busily consoling itself that it is in no way as badly off as the others who have already lost there footing. But if Spain cannot hold out, and all four finally go over, each dragged down by the weight of those who preceded them, then this will leave some 12 countries supporting four, something that the May bailout package only anticipated as a worst-case scenario.

This is especially bad news since widening spreads can easily become self-fulfilling prophecies. Greece, Ireland, and Portugal were in big enough trouble already, but high interest rates on their debt could turn a difficult situation into an impossible one, requiring yet another massive bailout that might have catastrophic knock-on effects. And remember: we're all one big happy global economy these days. If Europe catches a cold, we're going to catch it too.

And that's not all. Closer to home, housing bubble Cassandra Meredith Whitney is back with a report on municipal debt. She believes that cities and states — but mostly cities — are on the verge of a massive wave of defaults that are going to reprise the systemic bank defaults of 2008. "The similarities between the states and the banks," she told Maria Bartiromo on Tuesday, "are extreme to the extent that the states have been spending dramatically, growing leverage dramatically. Muni debt has doubled since 2000." Felix Salmon adds:

The more lasting effect of widespread defaults will be in the real economy, where public employees and public services will start feeling the pinch of forced austerity. Once you approach default, no one will roll over your debt any more and no one will insure your bonds. So you have to slash your budget: you have no choice. That process has barely begun, in the U.S., and depending on the timing, it could contribute markedly to a bout of deflation or even a double-dip recession. If the first recession had its causes in the nexus of finance and real estate, its follow-up could well be based in local government.

As a resident of California — #1 on Whitney's list of disaster areas — I find this all terrifyingly plausible. Buckle your seatbelts.

Enthusiasm Gap Update

| Wed Sep. 29, 2010 12:42 AM EDT

A new NBC/Wall Street Journal poll reports that the enthusiasm gap is tightening as the election nears:

Among likely voters — identified by their past voting history and their high level of interest in the November midterms — 46 percent prefer a Republican-controlled Congress, versus 43 percent who want a Democratic-led one.

That’s a decline (though within the margin of error) from the 49-to-40 percent lead Republicans held in late August. The NBC/WSJ pollsters attribute the tightening to increased enthusiasm for the upcoming midterms by African Americans (who saw a six-point gain in high interest) and Hispanics (who saw an 11-point gain).

Perhaps the reality of a tea party-controlled Congress is finally sinking in.

The Effect of Tax Cuts

| Tue Sep. 28, 2010 7:25 PM EDT

CBO director Doug Elmendorf testified today about the long-term effect of extending the Bush tax cuts, and his chart showing the difference between extending only the middle-class cuts vs. extending all the cuts has been making the rounds. Basically, CBO says that although temporary tax cuts would stimulate the economy right now, the effect of permanent tax cuts would be strongly negative in the long run because they'd blow up the deficit and crowd out private investment.

I was going to comment on this, but after reading through the full report it looks to me like the chart is wrong. As near as I can tell, it's drawn from data in Table 4 (page 31) but somebody in the graphics department drew the bars wrong. Take a look at the effect of a permanent extension. The original chart (in blue, below) suggests that under two different scenarios the long term negative effect of full extension is equal to or less than the negative effect of just a middle class extension. That doesn't really make sense. The revised chart (in red, at bottom) shows that full extension has a stronger negative effect than a middle class extension. This seems more intuitively correct.

I'm not actually sure of that, though. Mainly I just want to know what CBO's real opinion is. Is the chart correct or is the table correct? Or am I comparing the wrong things? I've got an email out to CBO to ask about this, and I'll let you know if I hear back.

UPDATE: My email provider decided to bounce my emails to CBO, so I never got a reply. However, I think I've figured out where the numbers in the chart came from. Unfortunately, that just prompted a followup question. Details here.

Obama and the Senate

| Tue Sep. 28, 2010 1:42 PM EDT

Ezra Klein says the Obama administration hasn't done enough to change Senate rules, and Jon Cohn agrees:

White House officials complain bitterly about the constraints the filibuster places on them, and rightly so. But they've expended relatively little energy speaking out about it and even less energy (as far as I know) actually trying to end it. That's not the only reason for their political struggles or even the main reason, obviously, but it certainly hasn't helped.

I dunno. Seriously, what could Obama have done on this score? He has no authority over Senate rules. Nor would using the bully pulpit do much good since the subject is too arcane for most of the public to care about, especially with everything else that was on the agenda over the past two years. (You think it's hard to get people excited about healthcare reform in the middle of a recession? Try getting them excited about procedural reform in the Senate. I can only imagine the derision Obama would be facing if he'd spent lots of time on this in 2009 when he should have been focused like a laser on jobs, as all the pundits keep reminding us.) What's more, even in theory the filibuster can only be eliminated at the beginning of session. So jabbering about it wouldn't have done any good anyway.

And comparing this to George Bush's constant call for "up or down votes" doesn't seem relevant either. Did that ever really do him any good? Aside from judicial appointments, I don't think the filibuster was really a big issue for Bush. For better or worse, he mostly chose to push bills that (a) could be passed by reconciliation — like the 2001 and 2003 tax cuts, (b) had plenty of Democratic support — like NCLB and the war resolution and the PATRIOT Act and Medicare prescriptions and the bankruptcy bill, or (c) that he didn't really like but caved in on — like Sarbanes-Oxley and McCain-Feingold. His biggest failure came on Social Security privatization, and that was so unpopular it probably didn't even have 50 votes. The filibuster just wasn't an issue.

I'd like to see the filibuster eliminated and I'd like to see unanimous consent eliminated. (For the latest abuse on that score, click here.) But the big issue here isn't Obama, I think. It's whether Harry Reid can round up even 50 votes for it when the 112th Congress meets in January. Maybe the president could help this along, but then again, he might just make things worse too. Senators haven't historically been too excited about presidents trying to push them around, after all.

Democrats haven't played this issue well, but that's where I'd put the blame. I'm not sure Obama had as much leverage here as people are suggesting.

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Taxing the Other Guy

| Tue Sep. 28, 2010 12:38 PM EDT

Matt Yglesias notes that commuters in DC are split pretty evenly between drivers and transit users:

This means that something like higher taxes on downtown parking garages would generate lots of revenue from non-residents without disadvantaging the majority of DC residents. The revenue could then be used to reduce the district’s sales tax or increase the personal exemption of the DC income tax. Not only would that be good tax policy, it would shift the balance of power in the future further in the direction of rolling back car-subsidization policies.

Italics mine. I don't really have an opinion on higher parking taxes. It's probably a good idea, just the same as taxes on gasoline or carbon emissions would be a good idea. Almost anything that cuts down on driving is a good idea.

But I'm curious: is it my imagination, or have we seen a recent wavelet of cities and states trying to figure out ingenious ways to tax nonresidents more stiffly? Commuter taxes are one way, higher hotel taxes are another, fees on sporting event tickets and jacked up highway tolls are yet others. So two questions. First, is this sort of thing really becoming more popular, or have I just happened to notice it more over the past couple of years? Second, is it a good idea? Are nonresidents really free riders on urban awesomeness who aren't paying their fair share, or does this kind of thing run the risk of spiraling into a morass of competitive taxes that will end up hurting everyone? Just wondering.

Wage Equality State By State

| Tue Sep. 28, 2010 12:20 PM EDT

According to the Census Bureau, median household income fell by $1,500 last year, a drop of 2.9%. However, if you're lucky enough to still be working full time, your earnings went up slightly, and women's earnings went up more than men's:

For full-time, year-round workers, the 2009 ACS median earnings for women were 78.2 percent of men’s earnings [...] and the ratio of women’s earnings to men’s earnings was up from 77.7 percent....At 88.2 percent, the District of Columbia was among the highest ratios of women’s to men’s earnings. Wyoming, at 65.5 percent, was among the lowest.

The map below shows how each state fares when it comes to gender equality in wages.

Obama's Defense

| Tue Sep. 28, 2010 11:11 AM EDT

Jann Wenner reports in Rolling Stone today that after his recent interview with President Obama was over, Obama returned briefly to the Oval Office and tacked on a coda, speaking "with intensity and passion, repeatedly stabbing the air with his finger":

It is inexcusable for any Democrat or progressive right now to stand on the sidelines in this midterm election. There may be complaints about us not having gotten certain things done, not fast enough, making certain legislative compromises. But right now, we've got a choice between a Republican Party that has moved to the right of George Bush and is looking to lock in the same policies that got us into these disasters in the first place, versus an administration that, with some admitted warts, has been the most successful administration in a generation in moving progressive agendas forward.

....If we want the kind of country that respects civil rights and civil liberties, we'd better fight in this election. And right now, we are getting outspent eight to one by these 527s that the Roberts court says can spend with impunity without disclosing where their money's coming from. In every single one of these congressional districts, you are seeing these independent organizations outspend political parties and the candidates by, as I said, factors of four to one, five to one, eight to one, 10 to one.

We have to get folks off the sidelines. People need to shake off this lethargy, people need to buck up. Bringing about change is hard — that's what I said during the campaign. It has been hard, and we've got some lumps to show for it. But if people now want to take their ball and go home, that tells me folks weren't serious in the first place.

If you're serious, now's exactly the time that people have to step up.

Well, that's not going to be popular with Obama's lefty critics, though obviously you'd expect a mushy sellout like me to agree with him. And I do! But I'd also make a distinction. If you're, say, Glenn Greenwald, I wouldn't expect you to buy Obama's defense at all. All of us have multiple interests, but if your primary concern is with civil liberties and the national security state, then the problem isn't that Obama hasn't done enough, it's that his policies have been actively damaging. There's just no reason why you should be especially excited about either his administration or the continuation of the Democratic Party in power.

On the other hand, if your critique is the broader and more common one — that Obama has moved in the right direction but has been too quick to compromise and hasn't accomplished enough — then I think you should take his defense of his record way, way more seriously. It's all too easy, like Velma Hart, to convince yourself that he could have waved a magic wand and gotten a bigger stimulus and a better healthcare bill and stronger financial regulation and a historic climate bill. But honestly, you have to buy into some pretty implausible political realities to believe that (Olympia Snowe would have voted for a trillion-dollar stimulus, there were Republican votes for a climate bill if only it had been a bigger priority, healthcare reform could have been passed via reconciliation, Harry Reid could have unilaterally ended the filibuster, etc.). The votes just weren't there and the president's leverage over centrist Dems and recalcitrant Republicans just wasn't very strong. Maybe he could have done better, but the evidence says that, at best, he could have done only a smidge better.

And the alternative? Well, if the prospect of ripping apart healthcare reform, shutting down the government, deep sixing START, slashing social spending, and reliving the glory days of investigations over Christmas card lists isn't enough to get you motivated, I guess I'm not sure what is. I wish I got more warm and fuzzies from Obama too, and I wish, like Mike Tomasky, that his "fetish of not kowtowing to public opinion" were a little less ostentatious. But letting Darrell Issa take over the House Committee on Oversight and Government Reform doesn't seem like a very good way of getting that message across.

OK then. I think I'll go donate a hundred bucks to someone. Who do you think it should be?

Everything Old is New Again

| Tue Sep. 28, 2010 9:00 AM EDT

So, how about that whole tea party movement, eh? Quite the contemporary phenomenon, isn't it? After all, they mostly seem to be mad about newly skyrocketing deficits, a recently passed healthcare bill, an unprecedented bank bailout, and a huge new stimulus bill enacted last year. But no. That's really not it at all:

Too many observers mistakenly react to the tea party as if it's brand new, an organic and spontaneous response to something unique in the current political climate. But it's not. It's not a response to the recession or to health care reform or to some kind of spectacular new liberal overreach. It's what happens whenever a Democrat takes over the White House. When FDR was in office in the 1930s, conservative zealotry coalesced in the Liberty League. When JFK won the presidency in the '60s, the John Birch Society flourished. When Bill Clinton ended the Reagan Revolution in the '90s, talk radio erupted with the conspiracy theories of the Arkansas Project. And today, with Barack Obama in the Oval Office, it's the tea party's turn.

....The growth of the tea party movement isn't really due to the recession (in fact, polling evidence shows that tea partiers are generally better off and less affected by the recession than the population at large). It's not because Obama is black (white Democratic presidents got largely the same treatment). And it's not because Obama bailed out General Motors (so did George W. Bush). It's simpler. Ever since the 1930s, something very much like the tea party movement has fluoresced every time a Democrat wins the presidency, and the nature of the fluorescence always follows many of the same broad contours: a reverence for the Constitution, a supposedly spontaneous uprising of formerly nonpolitical middle-class activists, a preoccupation with socialism and the expanding tyranny of big government, a bitterness toward an underclass viewed as unwilling to work, and a weakness for outlandish conspiracy theories.

That's me in the latest issue of the magazine. But don't despair: it turns out there is one thing new about the tea parties after all. But you'll have to click the link and read to the end of the story to find out what it is. Enjoy.