Kevin Drum

Quote of the Day: Jeb Bush Is Still Chasing Economic Unicorns

| Thu Jul. 9, 2015 12:40 AM EDT

From Jeb Bush, asked about his economic plans:

My aspiration for the country and I believe we can achieve it, is 4 percent growth as far as the eye can see. Which means we have to be a lot more productive, workforce participation has to rise from its all-time modern lows. It means that people need to work longer hours and, through their productivity, gain more income for their families.

Lots of people are mocking Bush for suggesting that Americans don't work long enough hours. But aside from being tone-deaf, he didn't really say anything wrong here. Economic growth is the product of hours worked and productivity growth, so he got that right. It's true that Bush's use of "productivity" in the third sentence is a bit confusing because he's suddenly using it in its generic sense, not its formal economic sense, but that's no more than the slight clumsiness that's inevitable in live settings.

In any case, an aide later explained that when Bush talked about longer hours, he was referring to the underemployed and part-time workers, not suggesting that Americans in general needed to work more weekends. That's fine. No one has a problem with that. The real issue here is different: Bush is once again merely stating economic platitudes. He wants 4 percent growth. Of course he does. Everyone wants that. He then repeats himself: he wants higher productivity and he wants the underemployed to work more hours. It's like saying his goal is to lose weight, and then "explaining" that this means more exercise and fewer calories. No kidding. But what's the plan for making it happen? That's what we're interested in.

I know, I know: lower taxes will supercharge the economy blah blah blah. Eventually he'll have a 20-page white paper that's about 19 pages of argle bargle and one page outlining his brilliant new tax plan. Wake me up if he ever says anything that goes beyond fantasyland.

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Quote of the Day: Second Thoughts Now Plaguing Greece

| Wed Jul. 8, 2015 11:22 PM EDT

From Iosif Perdikaris, a Greek pensioner who can no longer find insulin at any of his local pharmacies:

“How am I supposed to manage my diabetes without my insulin?” Mr. Perdikaris screamed at the pharmacist.

He said he was starting to regret voting against creditors’ terms for a bailout in last Sunday’s referendum.

“I voted ‘no’ and now look at this,” he said. “I can’t get my medications, and next week we may be using drachmas.”

This is just the start.

American Corporations Are Getting Flabby. They Need More Competition.

| Wed Jul. 8, 2015 9:48 PM EDT

Greg Ip says American corporations could use more competition. Preach it, brother:

In a perfectly competitive world, firms ought to exploit [...] cheap borrowing costs to add profitable new capacity and products, until all the added competition pushes profits down. That’s not happening.

....The main reason companies are reluctant to invest is that economic growth has been sluggish....Yet companies may also feel less compelled to invest because they face less pressure from competitors....Across the country, the rate of new-business formations has been trending down for decades.

....While the most comprehensive data on market concentration is available only until 2007, it supports the picture of ebbing competitive vigor. That year, the four biggest firms controlled at least half of the market in 40% of individual manufacturing sectors, up from 30% in 1992, according to Rineesh Bansal of Deutsche Bank: “The story of American business over the last generation…is one of declining competition.”

.....What could explain growing market concentration? John Kwoka of Northeastern University says that in the past 20 years, the Federal Trade Commission has become less likely to challenge mergers in industries with five or more big competitors, while maintaining stiff scrutiny where just a handful of competitors prevail.

As Ip says, the main reason for weak investment and slow startup growth is the sluggish state of the economy. But that only explains the past few years, and these trends have been going on for decades.

I remain uncertain about why there are so many fewer startups than there were 30 or 40 years ago. Some of it may be simply less demand for mom-and-pop businesses like restaurants and dry cleaners as chains have gobbled up more and more market share. Some of it may be increased regulatory barriers of various kinds. Some of it may be that outside of glamorous places like Silicon Valley, where VC money reigns supreme, ordinary bank loans to start a small business are harder to come by. I'm just not sure. I've read a number of reports about this phenomenon, but they typically show little except the gross numbers. There's simply not enough detail broken out to come to any firm conclusions.

Consolidation among big companies is a little easier to explain. There have always been incentives for big companies to merge, and those incentives are probably even stronger in an economy where competition is global. Still, in the past there was a strong pushback against that trend from antitrust authorities. That changed a few decades ago when Robert Bork convinced everyone that reduced competition per se wasn't a problem. As long as a merger would benefit consumers, it should be allowed.

That's a seductive argument, but I suspect it's lethal in the long run. If you look at the history of innovation over the past couple of centuries, there's little question that fear of competition—from both startups and from mature competitors—has been a key ingredient. If you let competition degrade, even with the best of intentions, you're going to pay for it eventually—and "eventually" may come sooner than you think. In fact, those chickens are already coming home to roost, and things are only going to get worse if we don't (a) start getting serious again about antitrust and (b) figure out why startup activity has declined. A dynamic economy needs both.

Today's Assignment: A Definition of Family That Everyone Can Love

| Wed Jul. 8, 2015 2:44 PM EDT

Will Saletan tweets unhappily that his son was "marked down 5 percent on a high school health test because he chose this 'incorrect' definition of family." David French is unhappy too:

How reassuring that our educators — in their infinite wisdom — have expanded the definition of “family” to “a collection of individuals who care for and about each other.” But to paraphrase The Incredibles — If everyone is family, then no one is. I’ve “cared for and about” my classmates in high school, college, and law school. I’ve “cared for and about” my colleagues at every job I’ve held. I guess we’re all family now.

Look, this is probably just a lousy question. Even Saletan and French, I assume, would agree that answer C is obviously incorrect. Adopted children are family. In-laws are family. Stepfathers are family. "Related by blood" just flatly doesn't work.

On the other hand, yes, answer E seems mighty broad—though I'm not sure if there's any decent way to succinctly define family at all. I'll note that my dictionary needs four separate definitions just to encompass the usage we're talking about here (i.e., not including crime syndicates, taxonomic classifications, etc.).

But there's no need to get too outraged about this. There's certainly value in teaching our kids that sharing DNA isn't the exclusive definition of family. And while we should probably be able to do better than answer E, the more I think about it, the harder it gets. Anyone want to take a stab? We all promise not to laugh.

Router Failure Grounds Entire United Fleet

| Wed Jul. 8, 2015 1:30 PM EDT

Greece is in trouble. China is in trouble. Puerto Rico is in trouble. The New York Stock Exchange has been shut down over a "technical issue." And United Airlines has halted all its flights:

United midday on Wednesday said that the grounding had been caused by a computer-network router that malfunctioned, which disrupted its passenger reservations system. That meant that many passengers couldn’t check in for their flights. The disruption affected some places more than others, but it covered the entire network, which was why United decided to ground its entire mainline and United Express fleet worldwide.

Yikes! The malfunction of a single router torpedoed United's reservation system for an entire day? That must be a pretty delicate network they're running there.

If Iran Talks Fail, Iran Will Likely Become a Nuclear Power

| Wed Jul. 8, 2015 12:01 PM EDT

Zack Beauchamp points to a valuable piece in Foreign Affairs today about the Iran nuclear negotiations. In it, Dalia Dassa Kaye reminds us that failure wouldn't just mean a return to the status quo that existed before talks began. It would, instead, almost certainly lead to conditions on the ground that are far more dangerous than they were before we even started:

The first and most dangerous scenario is that Tehran could break out of the interim nuclear agreement, the Joint Plan of Action, which has essentially frozen Iran’s nuclear program for nearly two years. With no promise of lasting and more significant sanctions relief, Iran may decide to resume its nuclear enrichment program at levels that reduce the time it would need to weaponize its nuclear program.

....To make matters worse, unless it is clear that Iran is at fault for the breakdown in nuclear talks, the current broad international support for sanctions against Iran could weaken....Key international powers, and even some in Europe, may tire of self-imposed restrictions, especially if Iran appeared to have negotiated in good faith. So, Iran could find itself less isolated over time, especially if Congress rejected the deal, leaving the United States to blame for the failure. Indeed, this is the worst-of-both-worlds outcome—few constraints on Iran’s nuclear program and dissipating international pressure on Iran.

A return to military escalation with Iran is also more likely in a no-deal Middle East. Iranian hardliners’ arguments that the West was never really interested in a deal with Iran will appear vindicated....This could lead to an expansion of Iran’s already destabilizing regional activism, particularly in Iraq, Syria, and in its relationship with Hezbollah.

As Beauchamp points out, sanctions against Iran were never going to last forever, either with or without a deal. That's just real life when an effective sanctions regime requires the cooperation of dozens of countries, including some who have iffy relationships with us in the first place, like China and India, and others who simply aren't willing to play along forever in a losing cause, like Japan and South Korea. So the question is whether to let the talks fail, in which case the sanctions will almost certainly crumble in as little as a year or two, or to strike a deal, in which case the sanctions will go away but we'll get something in return.

The alternative is to let the talks fail and then restart them in search of a better deal. But this is a fantasy. If these talks fail, there aren't going to be new talks. What will happen is that sanctions will slowly decay and Iran may well decide it no longer has any incentive to halt its nuclear weapons program. If you're willing to deal in the grown-up world, rather than the fantasy neocon world, those are your choices. Go ahead and take your pick—but don't pretend there are magic unicorns just over the horizon if only we showed a little more toughness. There are no unicorns.

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Greece Puts Off Day of Reckoning Another 24 Hours

| Wed Jul. 8, 2015 11:06 AM EDT

Greece submitted its proposal to the Troika today to extend its bailout program for three years. It was one page long. Here's an excerpt:

As you might expect, this is going over like a lead balloon. The Inspector Javerts of the eurozone will not be put off with vague promises of reform. Until they see details, and see them in a way that Greece can't wriggle out of, they will just sit stony-faced and wait. The response of Guy Verhofstadt, leader of the European Parliament’s liberal party, was typical: “You are talking about reforms but we never see concrete proposals of reforms,” he said, in a speech that was greeted with loud applause. The previous night, Angela Merkel told reporters without emotion that "the conditions for starting negotiations on a program in the framework of the E.S.M. continue not to exist."

So now Thursday is the day of reckoning. The only good news for Greece, I suppose, is that Treasury Secretary Jacob Lew kinda sorta spoke up in favor of the Greeks, insisting that Greece's debt was unsustainable and needed to be restructured as part of any deal. It remains to be seen whether anyone in Europe cares about Lew's opinions.

White Ballot Access, Black Ballot Access

| Tue Jul. 7, 2015 2:26 PM EDT

Greg Sargent draws our attention today to a new report from the left-leaning Center for American Progress on, among other things, ballot access in all 50 states plus DC. They grade each state based on things like availability of preregistration, availability of in-person early voting, voter ID laws, voting wait times, and so forth.

You will be unsurprised by the results. The top map shows ballot access, with the darker colors indicating poor access. The bottom map shows the percentage of the African-American population in each state. Dark colors indicate a higher black population. Kinda funny how similar they look, isn't it?

The July Surprise

| Tue Jul. 7, 2015 12:04 PM EDT

Ed Kilgore surveys the Republican primary landscape and throws out a few thoughts about the upcoming first debate on Fox:

  • Fox will allow only ten participants, chosen by the results of five national polls taken in the week or so before August 4.
  • Right now, Donald Trump is sucking up all the media oxygen, making it hard for marginal candidates to move up in the polls and avoid being forced into the kiddie debate.
  • This makes the end of July a critical period for all the C-list candidates.

Here's Kilgore:

It's increasingly clear the polling spike marginal candidates need to make the cut needs to happen in late July—not earlier, not later....John Kasich's scheduled July 21st campaign launch probably couldn't be timed much better; if he gets a post-announcement bounce, it could bounce him right up into the top ten. For those in the danger zone who have already announced—Perry, Jindal, Santorum, Graham, Fiorina, Pataki and maybe even Christie—the only way to get this sort of bounce is to force one's way into the news.

So for these candidates, the big strategic question is whether throwing a bomb or three in late July to make the Fox debate cut is worth the long-term risk of self-marginalization. The alternative is to accept a place at the kiddie table "forum" earlier on August 6 and hope media, activists, donors and party elites don't mentally strike one's name from the insanely long list of contenders. I'm guessing most of these birds will not want to take that chance. Get ready for some serious gyring and gimbling in late July.

Sounds like fun! I hope they all take Kilgore's advice. But what kind of bombshell could they drop that would make social media go wild? Discuss in comments, please.

Greece Looks Screwed; China Looks In Trouble Too

| Tue Jul. 7, 2015 11:01 AM EDT

From the Financial Times:

Hundreds of Chinese companies have halted trading in their shares as Beijing races to insulate the economy from the country’s steepest equity decline in over two decades. The list of suspended companies has reached 760 over the past week, representing more than a quarter of all companies listed on the Shanghai and Shenzhen exchanges, according to the Securities Times, a paper published by the Shenzhen Stock Exchange.

....Beijing has taken steps to keep stocks on China’s two main indices afloat, including direct purchases of large-cap companies, a halt to initial public offerings, and a cut to trading fees. But so far its efforts have failed to staunch concerns. “There is a panic but no matter how they [the authorities] jump in, this thing just doesn’t stop falling,” said Dong Tao, an economist at Credit Suisse.

So it looks like panicky moves from the authorities aren't very effective at quelling panic in investors. I may have screwed up my Greece prediction, but at least I managed to get it right on this basic trait of human nature.

And speaking of Greece, what's happening there? The Guardian reports:

The Greek government has been told by its eurozone partners not to expect debt relief any time soon, amid fading hopes of decisive action to stop the country tumbling out of the currency union.

....Greek banks are on the brink of running out of cash, but senior European figures are already dampening hopes of any breakthrough. “What we are going to do today is to talk to each other and restore order,” said the president of the European commission, Jean-Claude Juncker, adding that there would be no overnight solution.

In a coordinated press statement, the leaders of France and Germany called on Greece to come up with “serious and credible proposals” at Tuesday’s summit which are consistent with its wish to stay in the eurozone....“We are not in the business of renegotiating debt,” said Finland’s finance minister, Alexander Stubb. “That was already done in 2011 and 2012,” referring to re-structuring of Greek debts that imposed heavy losses on private creditors.

Basically, the rest of the eurozone is telling Greece to pound sand. No debt relief, no bank rescue, nothing. They will listen to a new Greek proposal, but that's it. And apparently Greece doesn't have one. Today's meeting has been postponed to Wednesday to give the Greeks more time to throw something together.

And anyway, it looks like everyone is starting to give up on Greece. The FT suggests that EU lawyers are quietly looking for ways to allow Greece to exit the euro, an effort supported in private by nearly everyone. Publicly, however, no one wants to take the blame for precipitating Grexit. “Everybody knows what the others should do, and do not want to do what the others expect them to do,” said one senior eurozone official.

That could be the eurozone's official motto for the next few weeks. Stay tuned.