Kevin Drum

Theory vs. Reality

| Mon Jul. 12, 2010 1:44 PM EDT

Jon Cohn thinks President Obama was right to make a recess appointment of Donald Berwick as head of the Centers for Medicare and Medicaid Services. But today he says that conservative Tevi Troy has a pretty good counterargument:

Being a confirmed appointee really makes a difference at the agencies, and it is worth taking some political hits to give your nominees that important blessing. Given the Democrats' strong 58 seat majority in the Senate, Dr. Berwick could have gotten there if the White House had just let the process play out.

When I told Jonathan that I disagreed with him on this issue, he said that if the Republicans were willing to promise that they would not filibuster Dr. Berwick, then he would be willing to say that the White House was wrong to go this route. I disagree. Nobody, Republican or Democrat, could or should make that promise, as we can't know what information the confirmation process will reveal. Furthermore, the Republicans had not filibustered or obstructed this nomination before the recess took place, largely because they wanted to have a chance to question Dr. Berwick on his controversial views.

I agree with this argument in theory.1 The problem I have with it is that it implicitly requires us all to pretend to be idiots who don't pay attention to the actual way that actual politics works these days. Republicans haven't filibustered Berwick yet? Of course not, but does anyone care to place cash money on them not doing it? Anyone? And Republican questioning of Berwick's "controversial views"? We all know what this means: Berwick is a commie who has said nice things about Britain's National Health Service. This is not exactly going to be the Lincoln-Douglas debates here.

Look: I still think Troy has a good argument. In theory. If a position is supposed to be confirmed by the Senate, then the Senate should be allowed to hold hearings. And maybe Obama should have sucked it up and let these hearings proceed. But the Republican Party has made it pretty clear that they're only willing to hold real hearings and allow real votes on high profile nominees that the press and the public actually pay attention to: cabinet positions and Supreme Court nominees. They don't want ordinary voters to realize what they're up to, after all. Other nominees all fly under the media's radar and have become the victims of routine obstructionism. I'm not quite sure why we're all supposed to pretend we don't know this.

1Except for the fact that I don't think the head of CMS should be a Senate-confirmed position in the first place, of course. But let's set that aside for the moment.

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Financial Reform Update

| Mon Jul. 12, 2010 11:51 AM EDT

And speaking of financial reform.....

Apparently Scott Brown has agreed to support the financial reform bill in the Senate. Susan Collins got on board a few days ago. So that gives us 57 Democrats and two Republicans. One more to go and we have 60. So it's all going to come down to Olympia Snowe and Chuck Grassley. Kinda makes you tingle all over, doesn't it? 

The Safest Street in America

| Mon Jul. 12, 2010 11:34 AM EDT

As the economy (hopefully) begins to pick up, one of the things that will make recovery difficult is the problem of sectoral shifts. That is, the industries that lost jobs in the recession aren't necessarily the same ones that will gain jobs in the recovery. So if you're a guy who's installed drywall for the past 20 years, you're in dire straits even if the economy starts going gangbusters. There are millions of construction workers who are going to have to find a brand new line of work over the next few years, and that change won't be an easy one.

But guess what? There's one industry where, although a massive sectoral shift would be a blessing, it's not happening: high finance. Here's the New York Times today:

While much of the country remains fixated on the bleak employment picture, hiring is beginning to pick up in the place that led the economy into recession — Wall Street.

Isn't that sweet? But Annie Lowrey says it's even worse than that:

Granted, Rae Rosen believes that Wall Street is hiring in anticipation of better times. But the article, and the data, show that times are already pretty darn good. The Wall Street firms that made it out of the credit crunch and the financial collapse alive are doing just fine, in fact. They have less competition from companies like Lehman Brothers and Bear Sterns. That means more profits.

They also are benefiting handsomely from low interest rates. It is Banking 101: Wall Street firms borrow billions from the government for close to nothing, lend it out and make money on the margin. That means more profits.

Companies like Goldman Sachs are more profitable now than they were in the boom years. That, really, is why they are hiring — not because they are betting on a strong economic recovery. They are making money hand-over-fist despite the fact that the rest of the economy is ailing terribly, and only starting to turn around.

The financialization of the American economy has been a disaster. Forget all that stuff about the hollowing out of our manufacturing base or increased global competition or waves of immigrants taking away our jobs. Those are all legitimate issues of one stripe or another, but the far bigger issue is that a gigantic chunk of our productive capacity — Wall Street — is deployed almost solely to make money for one sector of our economy: Wall Street. Until that changes, until the financial industry is focused primarily on providing capital and services to other people, we're always going to suffer from either (a) underperformance in the real economy or (b) an endless boom and bust cycle. Take your pick.

There's one key metric that will tell us whether financial reform is working: the size and profitability of the FIRE sector. (That's Finance, Insurance, and Real Estate.) If it shrinks considerably, it means financial reform, despite all the watering down, has basically done its job. But if the FIRE sector remains enormous, it hasn't. We'll know in a few years.

Lead of the Week

| Mon Jul. 12, 2010 10:57 AM EDT

I would like to nominate this for least surprising lead of week:

The sweeping legislation that grew out of Toyota Motor Corp.'s sudden-acceleration crisis — heralded as the most important auto safety bill in a decade — has been scaled back significantly in the face of auto industry opposition.

You can substitute any rich interest group you like for "auto industry" in this story and you've pretty much written the recent history of American politics. Pretty uplifting, no?

The Real Truth About Elections

| Mon Jul. 12, 2010 10:45 AM EDT

A little while back I was talking (well, emailing) with MoJo's editors about possible election-related stories for our next issue. One idea I pitched was, basically, about how nothing matters in national elections except the economy and a couple of other smaller issues — primarily candidate quality, the current party balance, and who holds the White House. But mostly the economy.

In the end I decided to write about something else because, let's be honest: this subject is kind of a downer. Who really wants to read a few thousand words about how nothing we do really matters because the election will be almost entirely decided based on the state of the economy a few months before November? Probably not too many people. But that didn't stop Ezra Klein, who's perfectly willing to spill the bad news:

We think of campaigns in terms of people, but they're often decided by circumstances. "The media and the popular mind really think that candidates and the campaigns make a huge difference," says Michael Lewis-Beck, author of "Forecasting Elections." "But it's not as big a difference as the fundamentals operating behind the scenes every day." In some ways, that's comforting: Politicians are judged more on the condition of the country than on the elegance of their campaign.

But for the Obama administration, it's likely chilling: The economy is still weak, and there aren't 60 votes in the Senate for further stimulus spending. And even if there were, it is too late for them to make a major difference in the economy before November. Democrats needed to pass a bigger stimulus back in 2009, not in late 2010. What they do from here might help the economy, but it's not likely to affect their reelection.

Does the truth really set you free? Or just bum you out? I guess it depends. In any case, Ezra's crack team at the Post has also put the truth into chart form: on the left is presidential results based on the state of the deficit, and it's a messy plot that tells you nothing. Nobody, it turns out, cares about the deficit even if they say they do. On the right is presidential results based on the state of income growth, and guess what? Everyone cares about their incomes. That's a nice, clean regression line.

By the way, this chart also shows the power of incumbency. The main overperformers (i.e., candidates who did better than the state of the economy predicts) were in 1996, 1956, 1984, 1972, and 1964. All of these were one-term incumbents seeking reelection. Conversely, the main underperformers were 1952, 1968, and 2000. All of these involved an incumbent party that had already been in office for two terms or more. Basically, a combination of economic growth and boredom determines presidential elections almost completely.

And midterm elections? Pretty much the same deal. But despite what I said at the top, don't let this fool you into thinking that working hard for your candidate or your party doesn't matter. These models work because they assume that both sides are fighting hard and basically cancel each other out. If you give up and leave your fate in the hands of the gods, you'll soon discover that the gods are not amused.

Let Us Now Praise the USPS

| Mon Jul. 12, 2010 12:36 AM EDT

Over at Jon Cohn's place, Alexander Hart explains why the post office is better run than you think. Go read it. I don't have any big axe to grind in favor of the USPS — in fact, I'm pretty annoyed at how complicated it is to calculate postage these days on supposedly "odd" size envelopes — but the fact is that they're actually pretty efficient and pretty cost effective. I'd welcome private competition for first class mail, but just go ahead breathe the words "universal service" and see how many private sector companies are still eager to compete with the post office for 46 cents an ounce.

Anyway, Hart explains why the post office always seems so perennially broke and why this is mostly a mirage. It's worth a quick read.

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Stoppage Time Bleg

| Sun Jul. 11, 2010 2:25 PM EDT

Can someone please explain the rules and/or cultural conventions governing stoppage time in soccer? Does the referee actually use a stopwatch to keep a cumulative total for each half? Or is it just a rough estimate based on how much non-playing time he thinks has elapsed? And why is stoppage time kept a secret in games with three referees? Can anyone point me to something that explains not the official rules, but the actual normal conventions for how this all works?

How Would You Fix Social Security?

| Sat Jul. 10, 2010 11:32 AM EDT

Responding to yesterday's post showing that high-income men live quite a bit longer than low-income men, an anonymous commenter writes:

The data is a very strong argument for removing the ceiling on Social Security payments — that is, collecting Social Security on 100% of wages, no matter how high (while not adjusting benefits). That's because the Social Security system, now, assumes that life expectancy is the same for low-income and high-income workers, while in fact low-income workers collect benefits for far fewer years. So higher-income workers *should* pay more than they do today.

That's an interesting point, no? Fair is fair. (Though you can adjust that 100% to 90% or 95% or whatever floats your social equity boat.) And while we're on the subject, the Congressional Budget Office recently issued a report (here) that includes a nice table that allows you to play the Social Security game from the comfort of your own home. Basically, CBO estimates that Social Security is out of balance by 0.6% of GDP over the next 75 years, which means you need to come up with a basket of changes from their list that adds up to 0.6%. So choose away and build your own Social Security rescue plan!

And when you're done with that relatively trivial exercise, it'll be time to move on to Medicare. Unfortunately, that's a wee bit harder and no handy little table will provide the answers. Which, of course, is why people prefer spending their time on Social Security. It's mostly grandstanding, but if they ever actually fixed it they'd have no choice but to tackle genuinely difficult problems. And what kind of moron gets elected to Congress to do that?

Friday Cat Blogging - 9 July 2010

| Fri Jul. 9, 2010 1:47 PM EDT

TGIFCB. To celebrate, today we have action cats! I just wanted to prove that Inkblot and Domino do indeed occasionally wake from their slumbers and actually motivate themselves around the homestead.

BTW, over the last few months I've been fiddling around with Photoshop a little more aggressively than before, and today is a testament to what can be done with it. The original picture of Domino was hardly more than a black smudge. But a few minutes of diddling around with the lasso tool and a variety of settings turned it into quite a passable picture. It's pretty amazing. Below the fold I've put both versions of the photo (reduced to identical size) so you can see for yourself.

But enough about boring computer software. How about some more cats instead? Hooray! First, courtesy of my sister, who keeps close tabs on the pet-loving British press, here's an adopted seagull who thinks it's a cat. The cats it now lives with apparently think it's a cat too. And second, courtesy of Rich Lowry (reaching across the aisle to us lefty cat lovers), here's the story of three Marines in Afghanistan who adopted some kittens so adorable there probably ought to be a law against it. Enjoy!

Barack Obama, Scourge of Wall Street?

| Fri Jul. 9, 2010 10:53 AM EDT

Contra Mike Konczal, Tim Fernholz argues that if you actually look at the details, the Obama administration was pretty consistently on the side of firm bank regulation. It's true that they didn't support the Kaufman-Brown amendment to break up the banks, but Tim says they did support a wide range of other good proposals:

The idea that Treasury "always end[s] up leaving their fingerprints on the side of less structural reform and in favor of the status quo on Wall Street" is false. In terms of structural reform, Treasury — and President Obama in particular — were the strongest advocates in government for an independent consumer finance regulator. Other structural reforms that they supported, including merging two bank regulators, the Volcker rule, the (delayed but still real) Franken amendment for ratings-agency reform, serious constraints on the Fed's emergency bailout powers, the new derivatives regime, the new liquidation authority, and higher capital requirements for the largest banks, including new-fangled contingent capital. Treasury had been talking about reducing risk since this project got under way.

Hmmm. I sure don't recall Treasury fighting for higher capital requirements in legislation. I thought they pretty consistently wanted that left to the Basel III negotiations instead. And I guess I'm not as sure as Tim that they were ever really behind Blanche Lincoln's derivatives proposal or Al Franken's ratings agency amendment until passage was all but assured — at which point it didn't matter much.

But....Tim follows this stuff a lot more closely than I do, and he makes a decent case if you read through his full post. I'm not sure I'm convinced, but since I wrote about this yesterday I recommend Tim's post for the other side of the story. It's worth a look.