Kevin Drum

Banks are the Taxpayer's Best Friend

| Tue Jan. 12, 2010 12:24 PM EST

The award for worst lobbying effort of the day comes from a banking industry flack who's opposed to Barack Obama's plan to levy a tax of some kind on the financial sector:

Wayne Abernathy, executive vice president of the American Bankers Association, said in a telephone interview that an industry-specific fee would create a “real fairness issue,” forcing banks to pay for parts of the bailout that “didn’t work.” In addition, Abernathy said, banks are paying an “excellent” return to the Treasury.

That's right: out of the trillions of dollars of help provided to the industry, there was probably a billion here or there that didn't have any effect. And that whole economic collapse thing is really turning out to be a windfall for taxpayers anyway! It would be really unfair to hold bankers accountable for any of this.

More PR like this, please. We'll have pitchforks and torches in the streets yet.

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The Point of Education

| Tue Jan. 12, 2010 11:49 AM EST

Matt Yglesias notes a new paper which suggests that a free market in charter schools really can improve education, but only as long as the charters take all comers and don't cherry pick students based on ability:

This is why a reasonably regulated charter school system holds a lot of [promise] but things like vouchers and the new fad for “education tax credits” do not. Once upon a time people on the right could be found to say good things about charter schools, since teacher’s unions often don’t like them. But crucially charter schools don’t do anything to entrench the privileges of the wealthy, so the main right-wing advocacy organizations have moved past them to more inequality-boosting alternatives.

Fair? Or a partisan cheap shot? I vote for fair. How about you?

Revisiting the Intelligence Failure

| Mon Jan. 11, 2010 9:41 PM EST

Was the underwear bomber plot an egregious breakdown of U.S. intelligence?  Bruce McQuain at QandO summarizes the case for a massive failure to connect the dots:

  1. His dad, a former minister in Nigeria, informed the US embassy there that his son had been radicalized (the dad obviously had a reason for concern).
  2. US intelligence had been following him for a while, dubbing him “the Nigerian” (one assumes there was a reason).
  3. He was on a watch list (one assumes there was a reason).
  4. He had been banned from Britain (yup, one assumes there was a reason).
  5. The British intelligence service had identified him to our intelligence agencies in 2008 as a potential threat (sigh, uh, yeah, reason).
  6. He’d just visited Yemen, an al Qaeda hotbed (given the first 5, one can reasonably guess at the reason).
  7. He bought a one-way ticket to the United States in Africa through Europe (red flag 1).
  8. He paid cash (red flag 2).
  9. He checked no luggage (red flag 3).

You can find a pretty similar outline almost anywhere. But the more we learn, the less this seems to be holding water. Let's go through the list one by one:

  1. Jim Arkedis, a former intelligence analyst: "For the record, 99 percent of the time, walk-in sources to U.S. Embassies are of poor-to-unknown quality. That includes friends and family members who walk into the embassy and claim their relatives are potential dangers. Why? Family relations are tangled webs, and who really knows if your uncle just might want you arrested in revenge for that unsettled family land dispute."
  2. This is true. But we didn't have a name, only a tip that "a Nigerian" might be planning an attack.
  3. Yes. But as the LA Times puts it, he was on a list of half a million people with "suspected extremist links but who are not considered threats."
  4. Yes, but not because of any suspected terrorist ties. From the New York Times: "[Home Secretary Alan] Johnson said Mr. Abdulmutallab’s application to renew his student visa was rejected in May after officials had determined that the academic course he gave as his reason for returning to Britain was fake....The rejection of the visa renewal appeared to have been part of a wider process initiated by British authorities this year when they began to crack down on so-called fake colleges that officials said had been established in large numbers across Britain in an attempt to elude tightened immigration controls."
  5. No, they didn't. From the Telegraph: "Diplomatic sources said that the Prime Minister’s spokesman had intended to refer to information gleaned by MI5 after the Christmas Day incident following an exhaustive examination of records going back through Abdulmutallab’s time in Britain up to October 2008."
  6. True.
  7. No, it was a roundtrip ticket.
  8. Nigeria and Ghana (where Abdulmutallab bought his ticket) are largely cash economies. Andrew Sprung tells us that Abdulmutallab "would certainly raise no alarms by paying cash."
  9. This is apparently true.

The Christmas bombing attempt might well turn out to be a serious intelligence failure. But the evidence so far suggests that the only red flags known to U.S. intelligence were (a) a walk-in warning of dubious value from Abdulmutallab's father, (b) warnings that "a Nigerian" was planning an attack, (c) Abdulmutallab's recent trip to Yemen, and (d) his lack of checked luggage. That's not very much.

We should all keep an open mind on this. But the more facts that come out, the less it seems as if the intelligence failure was really that serious. There were only a few vague warnings in the system, not the panoply of blinking red alarms that we've been hearing about. If the current information turns out to be true, it's hard to imagine that any real-life intelligence system would ever have been likely to pick up on a guy like Abdulmutallab. Before December 25th, he just didn't seem that dangerous.

The Vicious Cycle of Stagnant Wages

| Mon Jan. 11, 2010 6:29 PM EST

Here's my capsule view of the great financial meltdown of 2008: For the past couple of decades, the benefits of economic growth have gone almost entirely to the rich. But the middle class still wanted to prosper, so the rich loaned them money to continually improve their lifestyles. That worked for a while. And then it didn't.

This is a fairly idiosycratic view, and obviously not the whole story. And although plenty of economists have condemned growing income inequality and years of middle class wage stagnation, none of them (as far as I know1) have explicitly given it a share of the blame for the economic collapse of 2008. But via Mike Konczal, I finally have a credentialed ally. Take it away, Raghuram Rajan:

In a new book he is working on, entitled “Fault Lines,” Rajan argues that the initial causes of the breakdown were stagnant wages and rising inequality. With the purchasing power of many middle-class households lagging behind the cost of living, there was an urgent demand for credit. The financial industry, with encouragement from the government, responded by supplying home-equity loans, subprime mortgages, and auto loans....The side effects of unrestrained credit growth turned out to be devastating-a possibility that most economists had failed to consider.

Like anyone, I'm pleased when I find someone to confirm my prejudices. And this is definitely one of them. Growth in a modern mixed economy2 is fundamentally based on consumer spending, and middle class consumers can increase their spending in only three ways: (1) real wage growth, (2) borrowing, or (3) drawing down savings. Only the first is sustainable. So if we want the American economy to grow consistently over long periods, we have to focus our economic machinery on median wage growth. We've done it before, we can do it again if we're smart, and the result would be good for everyone: the rich would get richer, the middle class would get richer, and the poor would get less poor. The alternative is booms, busts, and continued social erosion. So let's be smart, OK?

1This is, obviously, a pretty big caveat. But I'd be delighted to hear that I'm out of touch and lots of serious economists have made this case before.

2A democratic one, anyway. In a culture ruled by the wealthy classes, growth can be sustained pretty much any way that the wealthy classes want — and needless to say, this is a disturbingly accurate description of the past few decades. As long as the helots don't complain, though, it can continue for a surprisingly long time.

Filibuster Redux

| Mon Jan. 11, 2010 5:54 PM EST

Ezra Klein says he didn't find Tom Geoghegan's argument about the unconstitutionality of the filibuster convincing. Fine. But he just lost my vote for Chief Justice of the Supreme Court.

But as long as we're on the subject, let me add one further argument. The following sentence is pretty much the sum total of what the constitution has to say about how the Supreme Court operates:

The judicial Power of the United States, shall be vested in one supreme Court, and in such inferior Courts as the Congress may from time to time ordain and establish.

The constitution does assume that there will be multiple judges on the Supreme Court. However, it doesn't say that rulings require only a majority vote of the justices. Why? Because it never occurred to the framers that they had to say so. It was such an obvious and common convention that they just assumed it. And if anyone today tried to create a rule that effectively prevented a majority of justices from issuing opinions, they'd be (pardon the expression) laughed out of court.

The same is true for Congress. As Geoghegan notes, the framers specifically spelled out cases where non-majority votes were required, something that pretty clearly demonstrates that majority voting was the baseline they were working from. If it had ever occurred to them that anyone would seriously suggest otherwise, is there really any question that they wouldn't have made it explicit?

Modern Security

| Mon Jan. 11, 2010 3:22 PM EST

Julian Sanchez notes today that 20-somethings aren't as concerned about privacy as, say, 50-somethings:

On the one hand, this shouldn’t be terribly surprising. Quite apart from the recent proliferation of social networking technology, generational researchers have long contrasted the heavily supervised and scheduled upbringings of (middle class) Millennials born in the ’80s and early ’90s with that of their “latch key” Gen X predecessors. And for anyone currently of college age, post-9/11 levels of security theater are viewed not as a novel expansion of official intrusion, but as the baseline, as normal. This can’t be a matter of total indifference to the fogeys among us, because shifting norms will affect both legislators’ willingness to ratchet up surveillance and, at least potentially, judicial assessments of which “expectations of privacy” society is prepared to recognize as “reasonable” for Fourth Amendment purposes.

As a certified fogey, I'm obviously one of those who does view modern security theater as a "novel expansion of official intrusion." And it bugs the hell out of me. But it's easy to understand how it seems entirely normal to anyone born to it. I'm reminded of how surprised I was when I first read this passage from Bob Schieffer's memoir, This Just In:

These days, friends are never really sure I'm serious when I tell them that the Pentagon, like most of official Washington, was still open to the public in the 1970s....No one was required to show identification to enter the building, nor were security passes required....During the time that Jim Schlesinger was secretary of defense, I would sometimes drop by on a Saturday morning, and if his door was open, I would stick my head in and ask if anything was going on.

Not only was I surprised when I read that, but at first it seemed almost shocking. Just leaving the Pentagon open to any citizen who wanted to walk in? That's anarchy! In 20 years, I suppose that's how a lot of people will feel when we tell them that, yes, we really were once allowed to bring bottles of water onto airplanes.

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The Unconstitutional Filibuster

| Mon Jan. 11, 2010 2:32 PM EST

I happen to think the filibuster is unconstitutional. This is a minority view, and also a quixotic one since the Supreme Court will never allow itself to get involved in this, but I still think it's true. So I was naturally happy to see Tom Geoghegan tilt at the filibuster windmill in the New York Times this weekend and lay out the constitutional argument explicitly. The filibuster, Geoghegan says, has probably always been unconstitutional, but in its current form, where no actual floor debate is required and it's been morphed into a routine requirement for 60 votes to pass any bill, it's super duper unconstitutional. He lays out three reasons:

First, the Constitution explicitly requires supermajorities only in a few special cases: ratifying treaties and constitutional amendments, overriding presidential vetoes, expelling members and for impeachments. With so many lawyers among them, the founders knew and operated under the maxim “expressio unius est exclusio alterius” — the express mention of one thing excludes all others. But one need not leave it at a maxim. In the Federalist Papers, every time Alexander Hamilton or John Jay defends a particular supermajority rule, he does so at length and with an obvious sense of guilt over his departure from majority rule.

Second, Article I, Section 3, expressly says that the vice president as the presiding officer of the Senate should cast the deciding vote when senators are “equally divided.” The procedural filibuster does an end run around this constitutional requirement....

Third, Article I pointedly mandates at least one rule of proceeding, namely, that a majority of senators (and House members, for that matter) will constitute a quorum....It would be illogical for the Constitution to preclude a supermajority rule with respect to a quorum while allowing it on an ad hoc and more convenient basis any time a minority wanted to block a vote. Yet that is essentially what Senate Rule 22 achieves on any bill that used to require a majority vote.

So there you have it. An airtight case. Airtight if it were me writing majority opinions for the Supreme Court, anyway. While we wait for that glorious day, however, it's just an opinion. But still a correct one.

POSTSCRIPT: And don't even get me started on Senate holds. Did you know that the constitution requires Senate confirmation only of "Ambassadors, other public Ministers and Consuls, [and] Judges of the supreme Court"? All the rest of the confirmation circus is required only by statute, and can be changed anytime we want. And I say: change it. Restrict it to ambassadors, cabinet heads, Supreme Court and appellate judges, and a very small number of other top level agency officials (Fed chairman, SEC chairman, etc.). Leave the rest up to the president and let the Senate get on with more important business. And for God's sake, let's say goodbye to the Senate tradition — found neither in the constitution nor in law — of allowing a single blowhard senator to bring nominations to a halt just because he's pissed off about some random personal crusade. This is no way to run a country.

Chart of the Day: Afghanistan

| Mon Jan. 11, 2010 2:04 PM EST

First the bad news: public attitudes in Afghanistan regarding the U.S. presence, who they blame for violence, and life in general are worse than they were five years ago. And the good news: these same attitudes seem to have bottomed out last year and are now improving.

This all comes from a recent ABC/BBC poll of Afghanistan, and some of the results are peculiar. Support for Hamid Karzai is surprisingly high (71% say he's doing excellent or good work) — and 75% say they're satisfied with last year's election results — despite the fact that over half the country thinks the election was marked by fraud. And positive ratings for the U.S. presence, though a little bit higher than last year, have plummeted since 2005, going from 68% to 38%. On the unalloyed bright side, however, only 8% of Afghans now think that attacks on U.S. forces are justified. That's way down both from 2005 and from last year.

This is mostly just raw data. Maybe it means something, maybe it doesn't. But somehow, a combination of Barack Obama's election, a greater U.S. focus on Afghanistan, more wanton Taliban depredations, and changes in U.S. tactics seem to be making a difference. Keep your fingers crossed.

Climate Change's Low-Hanging Fruit

| Mon Jan. 11, 2010 1:26 PM EST

If you don't live in California, you might not have heard of Arthur Rosenfeld. But for the past four decades, he's been the main inspiration behind a host of energy efficiency and conservation regulations that have made California the greenest state in the nation. He's retiring from the California Energy Commission this week, and today the LA Times remembers his early battles:

New homes and buildings were required to be better insulated and fitted with energy-wise lighting, heating and cooling systems. Appliances had to be designed to use less power. Utilities were forced to motivate their customers to use less electricity.

....Not surprisingly, those rules were attacked by business groups as bureaucratic job killers. Rosenfeld, who received his doctorate from the University of Chicago, was called unqualified by critics at Pacific Gas & Electric Co., one of California's largest utilities.

Yet these mandates have yielded about $30 billion annually in energy savings for California consumers. They've eliminated air pollution that's the equivalent of taking 100 million cars off the roads. They have been copied by states and countries worldwide. California's gains are so closely linked to Rosenfeld that they've been dubbed the Rosenfeld Effect in energy efficiency circles, where the 83-year-old has taken on rock star status.

Rosenfeld's ideas, far from being job killers, have been a boon for California. We have plenty of problems here in the Golden State right now, but better energy efficiency isn't one of them. In the end, Rosenfeld was right and his critics in the corporate world were wrong.

This reminds me of a current kerfuffle over energy efficiency on a national scale. McKinsey, the consultancy firm, has pressed the cause of energy efficiency for some time, and in 2007 they released a report that contained this now-famous chart (this is the 2009 version):

The point of the chart is simple: Some energy efficiency measures have a net cost and require fairly careful analysis to decide if they're worthwhile. Those things are shown on the right side of the chart. But there are lots of efficiency measures that not only reduce greenhouse gas emissions but produce net cost savings at the same time. These are the low-hanging fruit of climate change, otherwise known as "no-brainers." There are tremendous savings out there for the taking.

But there's still opposition to this idea. A couple of weeks ago Ted Gayer of the Brookings Institution wrote that McKinsey's conclusion "violates the basic principles of economics. If firms (or consumers) could reduce emissions at negative cost, then they would do so. To say otherwise is to say that they are willingly or ignorantly passing up profits." But firms and consumers do pass up opportunities to save money. Maybe it's through ignorance, maybe through laziness, maybe because of financing limitations. But there's plainly friction in the real world that doesn't always show up in simple Econ 101 models. A few days ago Brad Plumer linked to a Wall Street Journal report about an energy efficiency consultant, EnerNOC, that audited Morgan Stanley's New York headquarters and immediately saved them a bundle of money:

The reason Morgan Stanley didn't notice how much energy it was wasting, it seems, is because $100,000 was a (relative) drop in the bucket. The company wasn't behaving irrationally — it's just that those savings weren't worth a lot of extra effort. But as carbon concerns have become more prominent, firms like EnerNoc are popping up and making it easier for the Morgan Stanleys of the world to cut that waste. Now, if we had a cap or tax on carbon, it's reasonable to expect that you'd see even more attention paid to the issue, even more EnerNOCs popping up, and even more stories like the one above. As Jon Chait pointed out in his response to Gayer, one of the biggest impacts cap-and-trade could have is the simple signaling function — you'd just see companies and CEOs pay a lot more attention to the issue, which would make a galaxy of difference.

There really is low-hanging fruit in practice, even if there isn't in theory. Rosenfeld, I think, demonstrated that almost beyond doubt in California. Firms routinely overestimated the costs of regulatory compliance and routinely underestimated the cost savings. Some of this was ideological and some was just a case of hidebound management, but it was real. A nudge in the right direction can make a big difference, and if you pick the right nudge then energy efficiency often turns out to be pretty cheap. Sometimes even free.

Goldman's Charity

| Mon Jan. 11, 2010 12:20 PM EST

I don't think much of this idea:

As it prepares to pay out big bonuses to employees, Goldman Sachs is considering expanding a program that would require executives and top managers to give a certain percentage of their earnings to charity.

....While the details of the latest charity initiative are still under discussion, the firm’s executives have been looking at expanding their current charitable requirements for months and trying to understand whether such gestures would damp public anger over pay, according to a person familiar with the matter who did not want to be identified because of the delicacy of the pay issue.

I think it's great if corporations support charities or set up charitable foundations of their own. It's also great if corporations urge their employees to give to charity. But that's as far as it goes. Charitable giving isn't a smokescreen for indefensible behavior, and in any case it's not charity if you're forced to do it at the point of a gun. Bankers who make millions ought to feel obligated to give some back to the community, but if they don't, that's their business, not Goldman's.