Kevin Drum

Reining in the Superbugs

| Mon Nov. 15, 2010 2:44 PM EST

Via Austin Frakt, Aaron Kesselheim and Kevin Outterson have an op-ed in the Boston Globe about the spread of antibiotic-resistant "superbugs." The problem, they note, is largely due to overuse of antibiotics, which spurs the evolution of the superbugs:

Right now, drug companies have financial incentives to maximize sales to turn a profit as quickly as they can — as soon as a new antibiotic hits the market, it’s in a race against the patent clock and competitors. To maximize profits, some companies market antibiotics for conditions that aren’t necessarily proven to respond to that treatment — like minor ear aches in children. And doctors are willing to prescribe them, especially if faced with a patient or parent who is demanding a quick fix.

....We need incentive-based policies that ensure that antibiotics are not oversold and their usefulness undermined. Under our proposal, payment for new antibiotics would be conditioned on meeting conservation and resistance targets set by the government....Instead of being subject to the traditional patent period, the manufacturer would earn revenue on the drug by showing that careful marketing and infection-control activities had slowed the rate at which resistance had developed.

I don't have the chops to evaluate the specific plan that Kesselheim and Outterson propose. But something along these lines urgently needs to be done. There's just one problem: it requires a considerable amount of government intervention because free markets on their own provide no incentive to care about this problem. In other words, it requires death panels. That does not bode well for the prospect of bipartisan action to do anything about this.

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Assignment Desk

| Mon Nov. 15, 2010 2:18 PM EST

There's been a lot of pundit stategerizing about the lame duck session that started today, but I have a question: just how much is it possible, even theoretically, to get done? I figure there's a maximum of 20-25 calendar days available before final adjournment, and as we all know, Republicans have loads of procedural roadblocks available to them that eat up calendar time. So what's the most that can get done? Two bills? Maybe three? Is more than that even conceivable?

Any congressional wonks care to weigh in on this and set expectations for us?

Orszag on Social Security

| Mon Nov. 15, 2010 1:15 PM EST

It's natural to be pleased when some famous and well-regarded person agrees with you completely. So naturally I'm pleased that Peter Orszag's view of the Simpson-Bowles Social Security proposal is nearly identical to mine. Nice work, Peter!

But seriously: he's right. Overall, it's a fairly progressive plan:

Compared with the benefits promised by the current system, the recommended benefits for the poorest 20 percent of recipients would increase by about 5 percent, while those for the wealthiest retirees would fall by almost 20 percent. Furthermore, the plan would not create private accounts within Social Security — the most controversial issue that came up when reform was last debated in 2005. Why not lock in a reform when private accounts are off the table?.

....All of which suggests that Democrats in Congress should support the basic construct of the Bowles-Simpson proposal, while arguing for some changes to improve it. That has not, however, been their reaction thus far.

As Orszag also notes, the biggest flaw in the plan is that it raises the retirement age from 67 to 68. This is regressive, unfair to low-income workers with shorter life expectancies, and could be easily eliminated by rebalancing the entire plan so it has roughly a 50-50 split between revenue increases and benefit reductions. But that's fairly easily done. Bottom line: liberals should be giving the Social Security reform section of the Simpson-Bowles plan a little more love than they have so far.

Deficit Politics

| Mon Nov. 15, 2010 12:58 PM EST

Ryan Avent wonders why the deficit has become such a big deal suddenly. Maybe it's because the bond market is panicking? Nope. The bond market is quite calm at the moment. Then maybe it's because the public is panicking? Apparently not, according to survey data anyway:

It actually looks as though the public doesn't care about the deficit either, at least relative to the state of the general economy. So why is the deficit such a big issue right now, at least in Washington?

The short answer is that President Obama has given the press a nice news peg in the form of the impending release of a report from his deficit reduction commission. Another question, then, is why the president felt the need to appoint a deficit reduction commission. And the answer there is some combination of "the deficit actually needs to be addressed" and "the president felt there was a political weakness that needed defending". Why the president felt a weakness on deficits is another, mysterious issue.

I don't think this is quite right. Leaving aside whether it was a good or bad idea, the deficit commission was a response to deficit hysteria, not the cause of it. And I don't think it was all that mysterious, either: it was basically a response to an excellent political game played by Republicans. Think about it: if you're opposed not just to a single initiative from the opposing party, but to every initiative from the opposing party, what's a handy umbrella for expressing that uniform opposition? Answer: deficit panic. After all, just about everything Democrats propose can be spun as a deficit buster. And it's pretty easy to to gin up the Republican base with talk of eventual doomsday and devalued currency. The deficit is just a perfect issue for Republicans and they did a great job of getting the maximum mileage out of it.

So you have to give Republicans an attaboy for playing the game well. The question is why Team Obama felt like they had to respond. And here I suspect Ryan is basically right. Obama probably really does believe the long-term deficit needs to be addressed, and he's pretty famous for listening to his inner technocrat even if it annoys his base and makes for poor politics. And he probably really did believe that the existence of the commission would take some of the air out of the Republican attack. This is more mysterious, since there was never any chance of that happening. There's no way that a nonbinding commission was ever going to have the slightest effect on what Republicans knew was a very effective line of attack against Democrats.

But it's too late now. As Ryan says, it all might have made some sense if Obama could have spun "medium-term deficit reduction as a means to create the fiscal room for more stimulus." But he never even tried to do that, and the moment when he could have pulled it off is long gone. Too bad. It would have been good politics and good policy.

Good Economic News of the Week

| Mon Nov. 15, 2010 12:03 PM EST

Since I posted a big ol' stew of bad economic news last night, it's only fair to perk up the start of your week with some good economic news:

U.S. retail sales surged in October, rising above expectations on robust car sales and solid spending for a broad array of merchandise going into the holiday shopping season.

Separately, inventories at U.S. businesses in September rose above expectations, a sign of confidence among companies in the economic recovery as the holiday shopping season grew nearer. Retail sales rose 1.2% last month....The increase was the biggest since March and the fourth in a row. September sales rose 0.7%, revised up from a previously estimated 0.6% increase.

I don't know if this is sustainable or not. Without a big drop in unemployment and steady wage gains, I doubt it, since consumers are still deleveraging and look to be doing so for a while now. Still, it's good to see. I guess all that regulatory uncertainty isn't holding back businesses after all.

"Outspoken and Unified"

| Mon Nov. 15, 2010 2:19 AM EST

According to a report in the Wall Street Journal, criticism of the Fed over its bank bailouts had largely died down earlier this year. Then they announced their quantitative easing program. Still, things remained relatively quiet:

But last week, potential GOP presidential candidate Sarah Palin delivered a stinging speech on the move and then, in a Facebook post, criticized Mr. Obama for defending the Fed.

Last Tuesday evening, about 20 economists and others met over sea bass at the University of Pennsylvania Club in Manhattan and hashed out a broad strategy. [Paul] Ryan, who has gained notice for a plan to balance the federal budget through deep spending cuts, joined the group as they discussed ways to encourage the GOP's new House majority to unite behind what they describe as a "sound money policy."

"We talked about the importance of the right being outspoken and unified on this," said a participant. Mr. Ryan couldn't be reached Sunday.

Over the weekend, organizers began discussions with possible GOP presidential candidates, including former Massachusetts Gov. Mitt Romney and former House Speaker Newt Gingrich. On Tuesday, Mr. Boskin and another signer, Paul Singer, head of hedge fund Elliott Management, will brief GOP governors at a conference in San Diego.

So there you have it. Sarah Palin makes a speech about technical monetary policy and within a few days the entire Republican establishment is scurrying around to make sure that everyone has their monetary policy marching orders. Zhou Xiaochuan, Arkady Dvorkovich, and Wolfgang Schaeuble should be very pleased.

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Financial Crisis Not Over Yet

| Sun Nov. 14, 2010 10:01 PM EST

This weekend served up a heaping helping of my entire personal stew of economic nightmares. So here it is, your global economic news for the weekend:

LA Times: Commodities tumble on fears that China will try to slow its economy. "The fast-running bull market in commodities hit a wall Friday as prices plunged on fears that China will try to slow its economy to tame inflation. Rumors of another Chinese interest-rate hike started a chain reaction of selling across financial markets worldwide...."

Financial Times: Concern grows as Dublin spurns help. "Irish officials insisted on Sunday that they did not need fiscal assistance from the European Union, even as pressure mounted on Dublin to accept aid and present plans to restructure its banking system....Behind the scenes, the ECB has put pressure on Dublin to take steps within days that would provide an urgently needed boost to confidence in Ireland’s public finances and struggling banking system."

Wall Street Journal: Credit Fears, QE2, Elections Prompt Muni Selloff. "Investors sold off long-term municipal bonds in the past week, sending a shiver through a normally stable market....In recent months, with reports of financial woes in Harrisburg, Pa., and of some municipal borrowers walking away from debts, some investors have begun to question whether government borrowers are as reliable as investors' presumed about repaying loans."

Financial Times: Nervousness as bonds braced for Greek tests. "Eurostat, the Commission’s audit unit, is set to revise upwards Greece’s 2009 budget deficit figure to about 15.3 per cent of gross domestic product from the current estimate of 13.6 per cent of GDP....This could spark a sell-off in the Greek and other peripheral bond markets as investors are increasingly nervous about the ability of the weaker eurozone economies to turn round their economies and restore growth.....David Owen, chief European financial economist at Jefferies, the investment bank, said: [] 'If investors start to sell bonds of Spain and Italy in the way they have been selling Greek, Irish and Portuguese bonds, then the crisis will take on a whole new dimension.'"

All of these are trouble spots for the world economy. Throw in Eastern Europe and hot money flows into developing countries and you've got an even half dozen shocks that could send us into another tailspin. Hopefully none of them will happen. But all it would take is for one or two of them to unfold badly. Keep your fingers crossed.

Fiscal Stimulus

| Sun Nov. 14, 2010 6:12 PM EST

Bruce Bartlett:

The LA Times asked me and a bunch of people far more distinguished than myself what could be done to stimulate growth in 300 words. Although I think there is a case for further fiscal stimulus, I didn't see any point in saying so since the political chances of that were zero even before Republicans won control of the House.

I get this, of course. Still, it's kind of too bad Bruce didn't say it anyway. Sometimes I think that we reality-based folks cave in to reality a little too quickly. It may be true that we're not going to get more fiscal stimulus anytime soon, but if that option is being shut down by congressional know-nothings then at least it should be clear to everyone just how many people believe it's really our first best option and why we're not getting it. If the public thinks it's just Paul Krugman yelling about stimulus, that's one thing. If they know that it's actually a pretty mainstream position outside of the tea party right, that's quite another. And in the end, public opinion matters.

Taking the Lame Out of the Duck

| Sun Nov. 14, 2010 5:38 PM EST

Lisa Mascaro writes in the LA Times that Democrats are lowering their sights for the lame duck session:

Gone is any hint that Democrats will try to ram through the rest of the ambitious legislative goals President Obama outlined two years ago when he took office with a Democratic majority in both chambers. No one, for example, is talking about a controversial bill to reduce global warming pollution with a cap-and-trade system.

Still, Democrats are intent on closing out the 111th Congress with a few final strokes that could provide a fitting coda to what historians have called one of the most productive sessions in a generation. Despite electoral losses that handed control of the House to Republicans and diminished Democrats' majority in the Senate, Democratic leaders are pressing an agenda that would extend middle-class tax cuts, fund the government and perhaps repeal the ban on openly gay men and women serving in the military.

I never believed for a second that Democrats could pass cap-and-trade, immigration reform, or card check during the lame duck session. It was a fantasy. If they couldn't do it during the regular session, what made anyone think they could do it during a lame duck?

Frankly, if they can pass a tax plan and repeal DADT, I'd consider that a pretty productive lame duck session. I'd even propose a deal that a few moderate Republicans might be open to: extend all the Bush tax cuts for three years in return for passage of the funding bills, including DADT repeal. If Democrats managed to do that, and possibly get Senate approval of New START too, it would go a long way toward showing that they haven't been entirely cowed by their "shellacking."

Empowering Women

| Sun Nov. 14, 2010 1:51 PM EST

Dani Rodrik notes the surprising news that among the countries that have most improved their human development indicators since 1970, the stars are mostly Muslim countries, including several in North Africa:

What was their secret? Determined policies to expand educational opportunities and access to health along with a willingness to depart from the conventional wisdom of the day and experiment with their own remedies. Even though all three North African countries are Moslem, empowering of women seems to have played an important role as well:

There is now substantial evidence that the health and schooling of children can be raised by empowering women, and this is precisely what Tunisia did when it raised the minimum age for marriage, revoked the colonial ban on imports of contraceptives, instituted the first family planning programme in Africa, legalized abortion, made polygamy illegal, and gave women the right to divorce as well as the right to stand and vote for election.

This comes up repeatedly. As near as I can tell, the single most important thing that developing countries can do to ensure themselves a brighter future is to educate and empower women. I'm not sure there's even a close second.