Kevin Drum

Stock Buybacks Are a Symptom, Not a Disease

| Thu Aug. 28, 2014 11:42 AM EDT

Paul Roberts writes in the LA Times today about stock buybacks:

Here's a depressing statistic: Last year, U.S. companies spent a whopping $598 billion — not to develop new technologies, open new markets or to hire new workers but to buy up their own shares. By removing shares from circulation, companies made remaining shares pricier, thus creating the impression of a healthier business without the risks of actual business activity.

I agree: that statistic is depressing. In fact, back in the days of my foolish youth, when I dabbled a bit in stock picking, one of my rules was never to invest in a company that had done a share buyback. I figured it was a sign of tired management. If they couldn't think of anything better to do with their money than that, what kind of future did they have? Moving on:

Share buybacks aren't illegal, and, to be fair, they make sense when companies truly don't have something better to reinvest their profits in. But U.S. companies do have something better: They could be reinvesting in the U.S. economy in ways that spur growth and generate jobs. The fact that they're not explains a lot about the weakness of the job market and the sliding prospects of the American middle class.

....Without a more socially engaged corporate culture, the U.S. economy will continue to lose the capacity to generate long-term prosperity, compete globally or solve complicated economic challenges, such as climate change. We need to restore a broader sense of the corporation as a social citizen — no less focused on profit but far more cognizant of the fact that, in an interconnected economic world, there is no such thing as narrow self-interest.

I agree with some of what Roberts says about American corporations increasingly being obsessed with short-term stock gains rather than long-term growth. It's also true that stock buybacks are partly driven by CEO pay packages that are pegged to share price. Those have been standard complaints for decades. But it's misleading to suggest that US companies could be spurring the economy if only they'd invest more of their profits in growth. That gets it backwards. Companies will invest if they think they'll get a good return on that investment, and that decision depends on the likely trajectory of the macroeconomy. If it looks like economic growth will be strong, they'll invest more money in new plants and better equipment. If not, they won't.

The macroeconomy doesn't depend on either companies or individuals acting altruistically. You can't pass a law banning stock buybacks and expect that companies will invest in plant expansion and worker training instead. They'll only do it if those investments look likely to pay off. Conversely, forcing them to make investments that will lose money does nothing for the economy except light lots of money on fire.

You want companies to invest in the future? The first step is supporting economic policies that will grow the economy. If we were willing to do that, corporate investment would follow. If we don't, all the laws in the world won't keep the tide from coming in.

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Economy Doing Ever So Slightly Better Than We Thought

| Thu Aug. 28, 2014 9:58 AM EDT

The economy is doing ever so slightly better than we thought:

Gross domestic product, the broadest measure of goods and services produced across the economy, grew at a seasonally adjusted annual rate of 4.2% in the second quarter, the Commerce Department said Thursday. The agency had previously estimated the second quarter's growth rate at 4%, relying on incomplete data for international trade, inventories and other sectors.

Nobody should mistake this for anything meaningful. Obviously it's better for GDP to be revised up than down, but this particular change is so small that it's not really noticeable. GDP growth for the first half of the year now clocks in at about 2.1 percent instead of 1.9 percent, but that's pretty anemic either way.

Have We Reached Peak Kevin?

| Wed Aug. 27, 2014 4:28 PM EDT

In the Guardian today, Paula Cocozza writes about her effort to hunt down the origin of the phrase "peak X." She turned to linguist Mark Liberman, who runs the Language Log blog, but he says it's a hard idiom to track:

There is some good news, though. Liberman remembers the first time he noticed the phrase. It was in 2008, when the US writer John Cole blogged that "we may have hit and passed Peak Wingnut", a derogatory term for rightwingers.

Cole's post is nearly six years old, but can he recall what inspired the phrase? "I came up with 'peak wingnut' because I was shocked," Cole says. "The Republicans seemed to get crazier and crazier. The source of it is [US blogger] Kevin Drum. At the Washington Monthly, one of the things he was always talking about was peak oil."

This comes as news to Drum, who now writes for the web magazine Mother Jones. He was not the only person writing about peak oil, of course, but he was the one Cole read. "I'm very proud of that," he says. "I had no idea that I had been so influential."

So now I have three items for my future obituary: creator of Friday catblogging, popularizer of the lead-crime theory, and just possibly the kinda sorta inspiration for the Peak X meme. Not bad!

New Discovery Cuts Brainwashing Time in Half

| Wed Aug. 27, 2014 1:43 PM EDT

The frontiers of science continue to expand:

In experiments on mice, scientists rewired the circuits of the brain and changed the animals' bad memories into good ones. The rewriting of the memory wasn't done with drugs but by using light to control the activity of brain cells. While science is a long way from achieving a similar feat in people, it adds to a body of research that is starting to uncover the physiological basis of memory.

Yes, I know what you're wondering. And the answer is yes:

The researchers said they were able to do the opposite as well—change a pleasurable memory in mice into one associated with fear.

So I guess that wraps up both Brave New World and 1984 all in one nice, neat package. What could go wrong?

Quote of the Day: Let's Just Drop a Few Bombs and See What Happens

| Wed Aug. 27, 2014 12:45 PM EDT

From Bill Kristol, during an appearance on conservative radio host Laura Ingraham's show, bringing his megawatt analytic powers to bear on the problem of ISIS in Iraq:

What’s the harm of bombing them at least for a few weeks and seeing what happens? I don’t think there’s much in the way of unanticipated side effects that are going to be bad there.

You can't make this stuff up. We liberals often accuse folks like Kristol of mindlessly advocating military action all the time, no matter what. But we're exaggerating, aren't we? Nobody literally wants to unleash an air campaign just to see what happens. Nobody just casually ignores the possible drawbacks. That's ridiculous! Why do we insist on juvenile caricatures like this?

I don't know. Why do we?

White Privilege? What White Privilege?

| Wed Aug. 27, 2014 11:54 AM EDT

Here's the latest from the annals of criminal justice in America:

Beverly Hills police officials said Tuesday that it was "extremely unfortunate" that officers handcuffed and detained an African American film producer who was in the city to attend a pre-Emmy party.

Producer Charles Belk "matched the clothing and physical characteristics" of a suspected bank robber when he was pulled over by officers on Friday evening....“Hey, I was ‘tall,’ ‘bald,’ a ‘male’ and ‘black,’ so I fit the description.”

Come on, Charles! Buck up. Mistakes can happen. I'm sure the Beverly Hills PD would have treated a white guy who fit the description of a bank robber exactly the same way. In fact, I'll bet this happens all the time to Bill O'Reilly.

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Chart of the Day: The Federal Deficit Is In Pretty Good Shape These Days

| Wed Aug. 27, 2014 10:51 AM EDT

You already know this—don't you?—but just to refresh your memories, here's the latest projection of the federal deficit from the Congressional Budget Office. As you can see, for the entire next decade CBO figures that the deficit will be running at a very manageable 3 percent of GDP, right in line with historical averages. Be sure to show this to all your friends who are consumed with deficit hysteria. There's really not much reason to panic about this.

Now, CBO's forecast doesn't take into account future booms or busts in the economy, since they can't predict those. And as the chart makes crystal clear, that's what causes big changes in the deficit. It's the economy, stupid, not runaway spending. When times are good, the deficit shrinks. When times are bad, it gets worse. If you really want to avoid big deficits in the future, stop obsessing about cutting spending on the poor, and instead spend some time obsessing about economic policies that will help grow the economy.

Obama's Iraq Policy Has Been Pretty Masterly

| Tue Aug. 26, 2014 1:00 PM EDT

I'm not a diehard supporter of Barack Obama's foreign policy. Some of his actions I just plain disagree with: the surge in Afghanistan, the enormous increase in drone use, his almost inhuman patience in putting up with Bibi Netanyahu's nearly open contempt for him. Then there are other actions of his that were arguably justifiable but have worked out less well than he hoped. However, they mostly represent very, very tough problems. And foreign policy is hard—especially now. Almost nobody gets even a small fraction of what they want out of it.

That said, the relentless criticism of Obama's approach toward ISIS strikes me as unusually shortsighted. As near as I can tell, he's handled it almost perfectly so far. If we had offered air support to destroy ISIS six months or a year ago, it probably would have made things worse. Iraq flatly wasn't able to provide the ground troops to complement an air campaign, and America would have shared in the inevitable fiasco. We also would have been explicitly bound to Nouri al-Maliki and his policies, which were the very ones responsible for the rise of ISIS in the first place. The outcome of all this would have been the worst of all possible worlds for American interests.

Instead, Obama allowed Maliki to fail on his own, and then used the leverage of promised American air assistance to engineer his ouster. Needless to say, this hardly guarantees eventual success against ISIS, but is there really any question that it was a necessary precondition for success? I don't think so. Maliki never would have left unless he was forced out, and it was plain that his brutally sectarian governing style was fueling the insurgency, not halting it. He had to leave.

The alternative to Obama's strategy wasn't more aggressive action. That would have been disastrous. Nor would it have made a difference if Obama had left a few troops in Iraq back in 2009. Nor would stronger intervention in Syria have made a difference. It might even have made things worse. The truth is simpler. There's no single reason for the rise of ISIS, but there is a single primary reason: Nouri al-Maliki. Obama saw that clearly and kept his eye on what was important, working patiently and cold-bloodedly toward engineering Maliki's departure. It was hardly a perfect plan, and messiness was always inevitable. Nonetheless, it was the best plan available. Because of it, there's now at least a chance of defeating ISIS.

UPDATE: Does "masterly" go too far? Maybe so. But I was trying to attract attention to my main point: the ISIS threat couldn't even be addressed until Iraq's political dysfunction was addressed first. Unlike a lot of people, Obama recognized that and stuck to a toughminded approach that focused on getting rid of Maliki instead of getting distracted by endless calls for a stronger intervention before Maliki was gone. It wasn't easy, but it was the smart thing to do.

Can the new government fight ISIS more effectively? There's no way of knowing yet. But at least they've been given a chance.

Is Europe's Central Bank Finally Getting Worried About Deflation?

| Tue Aug. 26, 2014 12:21 PM EDT

Brad DeLong notes that Mario Draghi, the head of Europe's central bank, went off text in his speech at Jackson Hole. Here's his summary of Draghi's extended ad-lib:

The speech text says:

  1. The ECB knows that inflation has declined.
  2. The decline in inflation has not led to any decline in expectations of inflation.
  3. THE ECB will, if necessary, within its mandate, use QE and other policies to keep expectations of inflation from declining.

The speech as delivered says:

  1. The ECB knows that inflation has declined.
  2. My usual line is that the decline in inflation is due to temporary factors that will be reversed.
  3. That explanation is now long in the tooth: the longer "temporary" lasts the greater the danger.
  4. In fact, it is too late to "safeguard the firm anchoring of inflation expectations".
  5. Inflationary expectations have already declined.
  6. We will use all the tools we have to reverse this.

Is this deviation a mere line wobble....Is this deviation an audience effect....Or does it signal a recognition on Draghi's part that the Eurozone is heading for a triple dip, and that if he doesn't assemble a coalition to do much more very quickly to boost aggregate demand we will have to change the name "The Great Recession" to something including the D-word, and he will go down in history as the worst central banker since the 1930s?

I would like to know...

I suppose we'd all like to know. The Germans better start taking this stuff seriously pretty soon. They can't stick their heads in the sand and live in the past forever.

Wyoming Is Thinking About Accepting Medicaid Expansion After All

| Tue Aug. 26, 2014 11:54 AM EDT

Michael Hiltzik passes along the news that Wyoming's governor is the latest traitor to the cause of denying health care to poor people no matter what the cost:

The reason for Wyoming's wavering is clear: It's money.

The Health Department says Medicaid expansion could save the state $50 million or more if it expands the program, for which the federal government will pay at least 90%. Meanwhile, Wyoming hospitals say they're losing more than $200 million a year in uncompensated care for people without insurance.

The state Legislature has rejected the expansion, but Republican Gov. Matt Mead has been saying it's time to pack up. He's entering negotiations with the feds for a way to expand Medicaid next year, covering as many as 17,600 low-income residents.

I imagine that before very much longer, most of the other Midwest holdouts will go ahead and accept Medicaid expansion too. That will leave only the hard-core holdouts of the Old South, where the poor are apparently especially undeserving. I guess there must be some kind of difference between poor people in the Midwest and poor people in the South. I wonder what it could be?