Kevin Drum

Sarkozy Threatens to Leave the Euro

| Sat May 15, 2010 10:25 AM EDT

Megan McArdle passed along an El Pais story yesterday saying that French president Nicolas Sarkozy threatened a week ago to abandon the euro unless Germany agreed to a French plan to rescue Greece. This didn't seem to pass the smell test to me, so I skipped past it. But today the Guardian confirms it:

Nicolas Sarkozy threatened to abandon the euro unless Angela Merkel dropped her hostility to the EU's €750bn safety net for the single currency, sources in Brussels and European capitals said yesterday...."It was a standup argument. He was shouting and bawling," said one official in Brussels. "It was Sarkozy on steroids," said a European diplomat. "He's always very energetic. This time he was very emotional, too."

....Diplomats at the time reported that the summit was going very badly and would continue through the night. But it ended half an hour later after Sarkozy abruptly announced he was leaving. "Sarko said: 'For me it's over. I'm stopping this if we can't agree,' " said a diplomat.

I doubt that Sarkozy was even nominally serious about this, but as Megan says, this is a big deal anyway. It shows both that dissolution of the euro isn't entirely unmentionable and that Germany's opposition to the Greek bailout was stronger than anyone thought. The former, I suppose, was inevitable, and the latter actually makes it more likely. As Paul Krugman says, it's hard to think of any other solution to Europe's problems. Even defaulting completely on its debt wouldn't really help Greece much at this point.

Question: is there any way to artificially "adjust" a country's exchange rate in the eurozone? I don't see how, but maybe there's some clever synthetic way of accomplishing the same thing as a currency devaluation without leaving the euro. Has anyone heard of such a thing?

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Green Cards Once Again Green

| Fri May 14, 2010 8:39 PM EDT

Here's a post from The Corner's resident immigration guy:

It's Finally Green Again! [Mark Krikorian]
Here's the redesigned look of the green card:

It hasn't actually been green for decades, in part, I think, because of bureaucratic stubbornness — they weren't going to give in to some silly nickname. They seem to have thought better of that, which is good.

I'm genuinely curious: why is this good? In fact, why does anyone care one way or the other if a green card is actually green? Has this been some pet peeve of the anti-immigration community for years? Inquiring minds want to know.

Basketball Trivia

| Fri May 14, 2010 6:04 PM EDT

In the history of the NBA, 24 players have won five or more championship rings. Of those, 23 won most or all of them as a member of one of four dynasties: the George Mikan Lakers, the Bill Russell Celtics, the Magic/Kareem Lakers, and the Michael Jordan Bulls. Who was the 24th?

Friday Cat Blogging - 14 May 2010

| Fri May 14, 2010 1:53 PM EDT

Yesterday was just a beautiful day here in Southern California, so the cats were out playing in the garden. Inkblot was sniffing around the flowers, occasionally looking up to ask why someone kept pointing a giant glass eye in his direction. Domino sat serenely with the sun hitting her directly enough that you can actually see her face in this picture, not just a furry black blob. And today? It's looking just as good. Have a nice weekend, everyone.

More on the Long-Term Unemployed

| Fri May 14, 2010 12:54 PM EDT

Just a quick additional note about long-term unemployment — i.e., those who have been unemployed more than six months. Normally, the long-term unemployment rate is considerably lower than the short-term rate, and tracks roughly equal with the rate of the medium-term unemployed (those out of work 15-26 weeks). The chart snippet on the right, with long-term unemployment in red, shows this. So if this recession had followed the usual pattern, long-term unemployment would have peaked a few months ago at about 2% of the labor force and would now be down in the neighborhood of 1.5% or so. Instead, it's at nearly 4.5% and still climbing.

Here's what this means: if this recession were following the usual pattern, total unemployment would have peaked several months ago not at 10%, but at around 7% or so. This is just a back-of-the-envelope figure after looking at the raw BLS numbers, but it's in the right ballpark. And that's a huge difference. Unemployment of 7% is bad, but it's not catastrophic.

I don't yet have anything deep to say about this. I'm still just noodling over the data. But as this makes clear, the depth of our current recession is almost entirely due to the fantastically high and unprecedented amount of long-term unemployment. I don't know if that's cause or effect or something in between, but it's important.

Protecting the Oil Industry

| Fri May 14, 2010 12:12 PM EDT

If drilling for oil has the potential to cause vast damage, then the drillers of oil need to have the financial wherewithal to repair that damage when it occurs. That's the kind of personal responsibility the Republican Party stands for. So Republicans certainly wouldn't object to raising the liability cap for offshore drilling accidents so that taxpayers aren't the hook for the costs. Right?

You underestimate the Republican party. None other than Alaska Republican Lisa Murkowski stood up to object. Yes, the senator from the state that got hammered by the Exxon Valdez spill objected to raising the liability cap.

And what was her argument? If the liability cap is raised, that might exclude small oil companies from being able to get the insurance and financing necessary to drill offshore. After all, only the oil giants could afford $10 billion. That is to say: only the oil giants can afford to clean up after themselves.

You're not dreaming. That's really the argument. Murkowski wants small, independent oil companies to be able to privatize the profits of offshore drilling but offload the financial risks to the public. And she frames it as avoiding a "Big Oil monopoly" on drilling. She's just defending mom-and-pop oil shops! The gall is breathtaking.

That's David Roberts. On a historical note, this is pretty much how the nuclear power industry is treated too. Back in 1957, when no one knew just how dangerous nuclear plants were, insurance companies were unwilling to write open-ended policies for them. Congress, however, didn't want that to get in the way of nuclear development (too cheap to meter, after all!). So they required plant operators to buy the biggest policies they could, and then put taxpayers on the hook for any damages above that.

Oh wait. No they didn't. Actually, they set up a $10 billion insurance pool funded by the industry. Taxpayers were on the hook for anything above that, but at least the industry as a whole was responsible for the first $10 billion. If Murkowski is so worried about all those small oil companies, maybe she should support the same kind of fund for offshore drilling. But I guess that would be socialism. Or something.

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Expanding the House

| Fri May 14, 2010 11:47 AM EDT

Bruce Bartlett argues that congressional districts are too big and that we should pare them down by increasing the number of congressmen:

Conservative columnist George Will has argued that increasing the size of the House would obviate the need for campaign finance restrictions. It is the huge size of congressional districts that requires mass communications, such as costly television advertising, which drives the need for vast sums of money requiring congressmen to spend so much time fundraising.

....Some will say that greatly increasing the size of the House will make it into a zoo, as if it isn't already with so many thousands of staff people, constituents and lobbyists wandering around. When one looks at other countries, it's interesting to see that most have lower houses of their legislatures that are larger than our House of Representatives even though their populations are much smaller than ours.

....It's not realistic to even think about going back to congressional districts with 30,000 people — that would require a House of Representatives with more than 10,000 members. But neither is it feasible to continue raising the size of each congressional district infinitely. At some point, an adjustment needs to be made. I think the reapportionment that will follow this year's Census is as good a time as any to do it.

This is a pretty common suggestion, but here's my problem with it. Right now, each member of Congress represents about 700,000 people. That's obviously too many to allow old-fashioned shoe leather campaigning. But what would it take to get back to that? I live in a city of 200,000, and even at that running for mayor or city council is only barely a shoe leather operation. If you want members of Congress who truly represent their neighbors because they actually know them, instead of members who just know how to raise money and schmooze with local power brokers, you'd probably want districts no bigger than 150,000 or so. That would require a Congress of about 2,000 members.

Would that be a good idea? Maybe! But I think that's about what it would take. Once you get above 200,000 people in a district, I think you've hit a tipping point: it doesn't really matter how much bigger they get. Once mass media is the only way to keep in touch with constituents, the only question left is which kind of mass media to use. And who really cares about that?

So: would a Congress with 2,000 members be worth it? On the bright side, it would be harder for lobbyists to influence. On the down side, it would make party discipline even more of a joke than it already is. And we'd have to build a new Capitol building to house this seething mass of pols. Color me unconvinced.

Car Dealers Preying on the Military

| Fri May 14, 2010 11:05 AM EDT

It's nice to finally have some heavy firepower on the side of consumer finance protection. Literally:

Car dealers, a well-organized small-business lobby with members in nearly every legislative district, have swarmed the Senate in recent weeks clamoring to be exempt from the legislation's proposed protections against loan scams. But in a letter released Thursday, a top Pentagon official said soldiers need to be protected from "unprincipled auto lending" so they can concentrate on their primary mission: "protecting our great nation."

"Soldiers who are distracted by financial issues at home are not fully focused on fighting the enemy, thereby decreasing mission readiness," Army Secretary John M. McHugh wrote Wednesday to Senate Banking Committee Chairman Christopher Dodd (D-Conn.). Top Pentagon officials don't usually weigh in on non-military legislation. But they have complained that shady car loans have been particularly harmful to military personnel — often young, inexperienced consumers who have other worries when they walk into car lots near military bases.

Stephanie Mencimer wrote a really good piece last year about the way car dealers routinely scam service members. It's worth a read. And maybe give Sen Sam Brownback (R–Kansas), sleaze's biggest defender, a call after you've finished it.

The Future of Advertising

| Fri May 14, 2010 10:24 AM EDT

Ezra Klein comments on the ineffectiveness of online advertising:

What always interests me about this observation is the implication that offline advertising is similarly worthless. There are certain types of advertising that get treated as content: People scan the newspaper for department-store sales, for instance. But an ad for Tide? Or Intel? You notice it, but you don't care about it. But everyone placed those ads so everyone kept placing those ads. And hey, having your brand noticed was worth something.

Online, however, that "not caring" has become too undeniable. The tiny handful of click-throughs, most of them accidental, are almost an insult to the advertiser. The right comparison here is old medical techniques that were widely used until information arrived showing them worthless. Advertising worked for everyone so long as the limited supply made it look really high-value to advertisers and the absence of information let them fool themselves into believing it really effective. But at least with online advertising, there's so much supply, and so much proof that it's not very effective, that the prices paid by advertisers are coming into line with the amount of attention people pay to their advertisements. And that's grim news for industries that rely on advertising.

Italics mine. This is a little unfair to the Mad Men of the world and their clients. They've always known perfectly well that advertising doesn't always work. "I know I waste half the money I spend on advertising," said the founder of Wanamaker's department store. "The problem is, I don't know which half." But marketing firms really do have plenty of ways of measuring the effectiveness of advertising, and the fact is that most traditional advertising does have an impact. (In many cases, too big an impact for my taste, in fact.)

But that's largely because it's intrusive. In newspapers and magazines it takes up a lot of space. On TV and radio it interrupts the programs you're watching. Junk mail catches your eye with lots of coupons. The print/TV equivalent of direct clickthroughs might be just as low as it is for web advertising, but in addition these ads make an impression that, over the medium and long term, affects how people shop.

So the web's big problem isn't clickthroughs. Of course they're low. The problem is that clickthroughs are all it has. There's a limit to how intrusive you can make ads on the web. Too big and there's no room for actual content. Too small and they're easily ignorable. Too flashy and people complain. Too annoying and people install ad blockers. "Impressions" is a meaningful concept for most advertising, and that adds to the direct effect it has. On the web, it's close to meaningless.

But someone's going to figure this out. I'm not sure how (which puts me in good company), but I'll bet that it doesn't end up being display ads, which is an attempt to replicate what works in print. It'll be something else. Maybe clever inline hyperlinks. Maybe keyword driven stuff. Maybe something no one's even thought of yet. But something.

The End of the Carried Interest Loophole?

| Fri May 14, 2010 12:57 AM EDT

Good news! The carried interest loophole, one of the most egregious gifts to billionaire private equity and hedge fund managers around, might finally be on the chopping block:

Right now, the percentage of a fund’s proceeds that investors pay to the manager — called the “carried interest” — gets taxed as if it’s capital gains (at a 15 percent rate, instead of 35 percent), even though the manager doesn’t have any money at risk. It’s as if we treated movie proceeds given to a film’s lead actor as investment income.

....Congress has a bunch of very popular business tax credits that it would like to extend, but the extensions need to be paid for, so the carried interest break is looking more likely to disappear. Senate Finance Committee Chairman Max Baucus (D-MT) said this week that there’s “a growing sense of inevitability” about the tax hike occurring, despite heavy lobbying from the financial services industry. Office of Management and Budget Director Peter Orszag agreed yesterday, predicting that “you’re going to see a change in the taxation of carried interest pass the Senate within the next few weeks.”

It would be nice to see the carried interest loophole finally meet its maker. It's a small victory, but an important one.