Kevin Drum

Planning for Climate Change

| Thu Mar. 25, 2010 12:45 AM EDT

So what are the likely economic effect of tighter greenhouse gas regulations and the adoption of a cap-and-trade system for pricing carbon emissions? Conservatives insist it would devastate the economy, but in California, at least, a new report says the effect would be pretty small:

It concluded that the measure will yield modest job gains statewide, will have a negligible effect on the state's overall economy — the eighth largest in the world — and could benefit some sectors like alternative energy businesses.

...."These policies can shift the driver of economic growth from polluting energy sources to clean energy and efficient technologies, with little or no economic penalty," the report said. Thousands of manufacturing, mining and utilities industry jobs will be lost, but service, finance, and other sectors will gain similar numbers, leaving the most populous U.S. state about the same in terms of total jobs, income and growth, the report said. Five scenarios found a maximum effect of tens of billions of dollars on state output of $2.5 trillion in 2020.

So: no economic catastrophe. On the other hand, there are certainly specific sectors that would be affected. Which gives me a good opportunity to plug a new project called The Climate Desk, a collaborative project of Mother Jones, the Center for Investigative Reporting, Grist, Slate, The Atlantic, Wired, WNET, and the Nation Institute. Our website will be up soon, but reporting projects are already underway. In particular, Felix Salmon of Reuters is looking into the ways that not just specific sectors, but specific companies, are preparing themselves for the downside risk of climate change. A few days ago he posted an update on what he's found out so far:

First, there’s the banks. I heard of one Brazilian bank — I’m not sure which one — which was asked for a 20-year loan to fund a major agricultural project in the Amazon, and which responded by asking for an environmental audit. They don’t want to lend money to a coffee project, say, if the land is not going to be arable for coffee in 20 years’ time. Has anybody heard tales of environmental models playing a role in banks’ loan underwriting?

Secondly, there’s the hospitality industry, especially the parts of it which have a lot of assets on islands and beaches and the like. Are any of these companies doing environmental studies on coastal erosion and sea-level rise, and if so, how are they managing those risks? This isn’t a question of insuring against a disastrous event happening in the next year or two — that can be done by writing a check. It’s more a question of positioning the company so that it wouldn’t be devastated by the inability to insure against a disastrous event in the future, if insurers decide the risks are too big.

Finally there’s companies like ADM or Heinz, which are creating new crops designed to cope well with low-water conditions or large swings in temperatures. This is the point at which risk mitigation becomes profitable in and of itself: once you’ve mitigated risks by creating those crops, you can cash in on demand for those crops if and when climate change causes demand for them to rise.

Anybody know of any other examples? The SEC recently decreed that companies have to disclose the effect of climate change in four different areas, which means that more and more companies will be forced to take this seriously. If you know of any interesting corporate reactions to a warming world, leave 'em in comments.

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Reforming the Filibuster

| Wed Mar. 24, 2010 8:32 PM EDT

Why doesn't Harry Reid force Republicans who want to engage in filibusters to really filibuster? Read the phone book, recite the constitution, etc. Answer: because he has to keep at least 50 Democrats on the floor at all times to make this happen. Otherwise the filibusterer will just demand a quorum call and then take a nap or go home until enough Dems are rousted out of bed to keep the Senate in session. Basically, a majority of the Democratic caucus has to stay on the Senate floor at all times, while the Republicans can just tag team, each one talking for a few hours and then handing the baton off to a colleague.

Senator Frank Lautenberg wants to change that by making "dilatory quorum calls" out of order after a cloture motion has been filed:

In response to the growing misuse of the filibuster as a tool to obstruct work in Congress, Senator Frank R. Lautenberg (D-NJ) today announced introduction of the Mr. Smith Bill to require Senators who want to filibuster a bill to actually show up on the Senate floor and engage in debate. Once debate ends and Senators no longer seek to speak, the vote could be held immediately.

“If a Senator wants to delay our work in the Senate, then that Senator must show up on the floor and debate,” stated Sen. Lautenberg. “Filibusters should happen on Capitol Hill, not from the Capital Grille. If any of my colleagues feel strongly enough about a bill or nomination to stop all work in the Senate, they should have no problem standing on the Senate floor to explain their opposition to the American public.”

The problem, of course, is that Lautenberg's bill can be filibustered, and since it's a rule change it would require 67 votes to pass. There's no chance of that, obviously. But National Review editor Daniel Foster explains how it could be done:

The bar would be lowered significantly at the beginning of the next Congress in January 2011, however. At that point, only a simple majority will be required to change the Senate's standing rules.

That's true, though I'm a little surprised to see an NR editor admitting it so candidly. But as near as I can tell, it's absolutely correct that Senate rules can be changed at the beginning of a new session as long as Democrats retain their majority and the vice president is willing to provide the needed rulings on objections from the minority. Harry Reid has already said he's willing to consider this, which means the rest is up to Joe Biden and his boss. No word from them, yet, though.

Better Than People

| Wed Mar. 24, 2010 4:55 PM EDT

In the past, if a business owner wanted to take out a political ad, he had to pay for it himself. Now, in the post-Citizens United world, he can have his company take it out instead, and that's exactly what the president of a small company in Texas did recently. Matt Yglesias comments:

If nothing else, this suggests that Citizens United is going to be a significant tax break for politically active smallish business owners. If you used to be a guy who shelled out $10,000 a year on political contributions, then you used to need to pay yourself substantially more than that in nominal salary, then pay taxes on the money, and then hand out the ten grand. Now if you own the business, you can have the company pay and then instead of it being income on which you pay tax, it becomes an expense for the business.

Yeah, it's nice to be able to use pre-tax dollars for this kind of thing, isn't it? I'm still a notable squish on the whole subject of Citizens United, but we're now pretty clearly dealing with an unlevel playing field. Corporations aren't just being treated like people, they're being treated better than people.

UPDATE: Apparently this isn't right. In fact, political expenditures by corporations are required to come out of after-tax dollars. This might still provide a tax advantage depending on what tax rates apply, but it's not as black-and-white as Matt or I suggest.

Quote of the Day: Israel and America

| Wed Mar. 24, 2010 2:18 PM EDT

From Matt Steinglass, on the evolution of Israeli-American relations:

In the old days, when I would break out my rather crummy Hebrew in a conversation with Israelis, I would usually get indulgent smiles and questions about how I'd learned it, which would quickly segue into a discussion about Jerusalem neighbourhoods and so forth. It was a good way to establish a bit of friendly intimacy....But since sometime at the beginning of this decade, I've noticed, this doesn't seem to happen so much anymore....I don't know what lies behind this wariness. But let's put it this way: address a Dutchman in Dutch and he'll wind up asking you what you think of Holland. Address a Vietnamese person in Vietnamese and he'll wind up asking you what you think of Vietnam. Address an Israeli in Hebrew and, these days, I find, he doesn't really want to know what you think about Israel.

Not lately, anyway. More at the link.

The Dismal Outlook for Financial Reform

| Wed Mar. 24, 2010 1:23 PM EDT

I'm going to keep collecting reactions to Chris Dodd's financial reform bill until I feel like I've made some sense out of it. First off, here's Ryan Avent on Dodd's approach to dealing with banks that are too big to fail:

To address TBTF concerns, the bill is relying very heavily on resolution authority, as opposed to measures limiting firm size or leverage or interconnectedness through direct means or the use of strong incentives. So you ensure that some firms will be really big and systemically risky, and then you give regulators discretion to use or not use resolution authority. Discretion, under these circumstances, is exactly what you don't want. It creates doubt in markets that regulators will actually pull the trigger, which will lead to greater risktaking by firms, which will make it more difficult for regulators to pull the trigger in times of crisis.

In fact, it's probably even worse than that. The problem with resolution authority is that it's like a nuclear bomb: it causes a lot of damage and you don't want to haul it out except as a last resort. So the default position for regulators is always going to be the same as it is for the banks themselves: do everything they can to avoid using it. Troubled banks will propose plan after plan to unwind their risky positions and earn their way back to solvency, and regulators, who are terrified of pulling the trigger on a big bank that might still have a chance of survival, will allow things to continue spiraling. And when the shit finally and irrevocably hits the fan, the problem will be massively greater than anyone ever thought it could be.

Much better, then, to try to keep banks from getting into crisis in the first place. That means reasonable leverage and capital regulations. Mike Konczal compares the House approach on this to Dodd's approach:

In both bills, regulators have discretion in how to set limits, as determined by internal risk managers. In the House Bill though, there’s a strict limit: no systemically risky firm can have leverage greater than 15-to-1. In the Senate, the FSOC will make recommendations to the Federal Reserve. The Federal Reserve will do like, whatever it wants — it could follow the recommendations. Or it could not.

This solution in the House Bill is a satisficing solution — there are almost certainly firms that could handle being leveraged 16-to-1. However we don’t trust the regulators to be able to detect that firm and also not bend the rules for firms that couldn’t handle that leverage. So we write down a clear rule.

And these clear rules are exactly what the lobbyists are going to go after.

The House bill is the bare minimum that's likely to work. And even at that it depends heavily on defining exactly how leverage is calculated; keeping a gimlet eye on bank shenanigans at all times; defining "bank" broadly to mean virtually any big financial institutions; getting buy-in from other countries; making sure the relevant regulators consider bank safety to be their primary mission; and then applying leverage constraints in other areas, such as residential and commercial loans. In other words: even the House version isn't all that likely to work. But it's way better than the Dodd version. Congress shouldn't micromanage, and regulators should always have the ability to tighten standards on individual banks, but Congress should put in place an absolute ceiling that can't be easily wisked away by the SEC or the Fed when times are good and everyone thinks they're going to last forever.

So that's where we are. We have a House bill that at least has the right idea, even if it probably isn't either broad or deep enough. We have a Senate bill that, even before it goes through the legislative meatgrinder, is woefully inadequate. And we still have months and months of negotiations to get through, all of it done in the shadow of a massive lobbying campaign from every financial institution in the country to water things down even more. And that's despite the fact that, as near as I can tell, that nobody really disagrees about the general shape of the problem here. There's pretty much universal agreement that reining in leverage is the single most important thing we can do to moderate future financial crises.

Color me pessimistic that this is likely to turn out well.

How Affordable Is Your Neighborhood?

| Wed Mar. 24, 2010 11:53 AM EDT

Via Atrios, the Center for Neighborhood Technology has released an updated survey of affordable housing that takes into account transportation costs as well as rent and mortgage costs. Their conclusion: there's a lot less affordable housing out there than we think:

Under the conventional definition, 30% or less of household income, 69% of U.S. communities have average housing costs that are considered “affordable” to the typical household. But in almost all metro regions of the country, when the definition of affordability includes both housing and transportation costs (at 45% of income), the number of communities considered affordable for typical households plummets, often dramatically. Across the country, only 40% of U.S. communities are affordable to the typical household when transportation costs are included.

They include a map that calculates affordability for 330 metro areas in the U.S., which means that 80% of you can check out the affordability of your neighborhood. Mine is on the right. Not very affordable! Which isn't too surprising since it boasts both expensive housing and high transportation costs. In fact, I'm surprised it's as affordable as it is.

This kind of calculation seems like a good idea, but I guess I'm left with one question: where did the 45% benchmark for affordability come from? I know these things are always a bit arbitrary, but if instead you went from 30% (without transportation costs) to, say, 50% (with transportation costs), overall affordability might end up looking about the same as it is now. So who came up with 15% as the magic number for how much transportation ought to cost?

In any case, if you're thinking of moving, the map might be kind of useful. Obviously your personal costs will depend on exactly what kind of place you live in and what kind of commuting you do (my personal affordability index is pretty awesome, for example, since all I do is walk down the stairs to go to work), but it's not a bad idea to see the numbers in black and white anyway. A lot of people with average commuting and recreational patterns don't calculate how much this actually costs, and the map forces you to take this stuff seriously. It's worth a look.

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Healthcare Reform's Immediate Impact

| Wed Mar. 24, 2010 11:21 AM EDT

This comes straight from the White House, but I'm reprinting it here because the question comes up a lot: what does healthcare reform accomplish right now? Slightly rephrased, this means, "What can Democrats campaign on this year?" Here's a lightly edited list from Nancy-Ann DeParle:

  • This year, children with pre-existing conditions can no longer be denied health insurance coverage. Once the new health insurance exchanges begin in the coming years, pre-existing condition discrimination will become a thing of the past for everyone.
  • This year, health care plans will allow young people to remain on their parents' insurance policy up until their 26th birthday.
  • This year, insurance companies will be banned from dropping people from coverage when they get sick, and they will be banned from implementing lifetime caps on coverage. This year, restrictive annual limits on coverage will be banned for certain plans. Under health insurance reform, Americans will be ensured access to the care they need.
  • This year, adults who are uninsured because of pre-existing conditions will have access to affordable insurance through a temporary subsidized high-risk pool.
  • In the next fiscal year, the bill increases funding for community health centers, so they can treat nearly double the number of patients over the next five years.
  • This year, this bill creates a new, independent appeals process that ensures consumers in new private plans have access to an effective process to appeal decisions made by their insurer.
  • This year, discrimination based on salary will be outlawed. New group health plans will be prohibited from establishing any eligibility rules for health care coverage that discriminate in favor of higher-wage employees.
  • Starting January 1, 2011, insurers in the individual and small group market will be required to spend 80 percent of their premium dollars on medical services. Insurers in the large group market will be required to spend 85 percent of their premium dollars on medical services. Any insurers who don't meet those thresholds will be required to provide rebates to their policyholders.
  • Starting in 2011, this bill helps states require insurance companies to submit justification for requested premium increases. Any company with excessive or unjustified premium increases may not be able to participate in the new health insurance exchanges.
  • This year, small businesses that choose to offer coverage will begin to receive tax credits of up to 35 percent of premiums to help make employee coverage more affordable.
  • This year, new private plans will be required to provide free preventive care: no co-payments and no deductibles for preventive services. And beginning January 1, 2011, Medicare will do the same.
  • This year, this bill will provide help for early retirees by creating a temporary re-insurance program to help offset the costs of expensive premiums for employers and retirees age 55-64.
  • This year, this bill starts to close the Medicare Part D 'donut hole' by providing a $250 rebate to Medicare beneficiaries who hit the gap in prescription drug coverage. And beginning in 2011, the bill institutes a 50% discount on prescription drugs in the 'donut hole.'

 So that's your answer. Pass it along.

End Game in Afghanistan

| Wed Mar. 24, 2010 11:10 AM EDT

Carlotta Gall of the New York Times reports that one of Aghanistan's major insurgent groups has come forward with a peace proposal:

The delegation represents fighters loyal to Gulbuddin Hekmatyar, 60, one of the most brutal of Afghanistan’s former resistance fighters who leads a part of the insurgency against American, NATO and Afghan forces in the north and northeast of the country.

....Though the insurgent group, Hezb-i-Islami, or Islamic Party, operates under a separate command from the Taliban, it has links to the Taliban leadership and Al Qaeda and has fought on a common front against foreign forces in Afghanistan. A spokesman for the delegation, Mohammad Daoud Abedi, said the Taliban, which makes up the bulk of the insurgency, would be willing to go along with the plan if a date was set for the withdrawal of foreign forces from the country.

Robert Dreyfuss calls this "the most important peace initiative since the start of the war in Afghanistan in 2001" and points to other reporting suggesting that Pakistan is getting ready to deal too:

The big question hovering over all of this is: Does the Obama administration have the savvy to undertake a vast, regional approach that sees Afghanistan, Pakistan, India, Iran, Saudi Arabia, and China components and participants in a deal? Can it make all of those moving parts fit together? Can it do that, while doing the same in Iraq, where it was to work closely with Iran, Saudi Arabia, Turkey, Syria, and Jordan? And can it do all of that while hammering away at the Israel-Palestine conundrum, which is approaching a major turning point, too? Stay tuned.

Quite.

Healthcare and Income Inequality

| Wed Mar. 24, 2010 12:50 AM EDT

David Leonhardt says that healthcare reform is the most significant effort to attack growing income inequality since the beginning of the Reagan administration:

A big chunk of the money to pay for the bill comes from lifting payroll taxes on households making more than $250,000. On average, the annual tax bill for households making more than $1 million a year will rise by $46,000 in 2013, according to the Tax Policy Center, a Washington research group. Another major piece of financing would cut Medicare subsidies for private insurers, ultimately affecting their executives and shareholders.

The benefits, meanwhile, flow mostly to households making less than four times the poverty level — $88,200 for a family of four people. Those without insurance in this group will become eligible to receive subsidies or to join Medicaid. (Many of the poor are already covered by Medicaid.) Insurance costs are also likely to drop for higher-income workers at small companies.

Bill Clinton's tax changes in 1993 — increasing the top marginal rate on the rich, uncapping Medicare taxes, and increasing EITC for the poor — deserves a place on this list too, but Leonhardt is right to call healthcare reform an even bigger assault on income inequality. Rejiggering tax rates is one thing, but it's neither as permanent nor as potent as creating a program whose benefits flow primarily to the middle class and below. What's more, now that healthcare reform has been started, it's almost certain to become more expansive and more generous to the middle class over time. Legislation like this is the second best way we have of producing a genuine impact on growing income inequality.

(The first best way, of course, is creating rules of the road that boost middle class income and rein in top level incomes in the first place. Universal programs like healthcare are #2. Tax changes are #3.)

Plumbing Ever Further Depths

| Tue Mar. 23, 2010 10:42 PM EDT

Just when I thought Republicans had plumbed the final depths of playground-level obstruction, they somehow manage to take things to yet another level. There is, it turns out, a rule stating that Senate hearings can't go past 2 pm unless there's unanimous consent to continue them. This consent was routine until this week. Amanda Terkel reports:

Today, during a Senate Homeland Security Subcommittee hearing on transparency, Sen. Tom Carper (D-DE) announced that he had to stop the proceedings because of Republican blocks....The AP also reported today that Sen. Mark Udall (D-CO) had a hearing on the bark beetle canceled today “after Republicans angry over the passage of health insurance reform legislation blocked it by using an obscure Senate rule requiring a unanimous consent to hold hearings scheduled after 2 p.m.”

What's next? Complaints on Fox that Democrats are using all the good hangars in the cloakroom? A refusal to come to order until Spongebob is over? To call this behavior childish would be an insult to children everywhere. Are we really expected to take a party like this seriously?