Kevin Drum

The Safest Street in America

| Mon Jul. 12, 2010 12:34 PM EDT

As the economy (hopefully) begins to pick up, one of the things that will make recovery difficult is the problem of sectoral shifts. That is, the industries that lost jobs in the recession aren't necessarily the same ones that will gain jobs in the recovery. So if you're a guy who's installed drywall for the past 20 years, you're in dire straits even if the economy starts going gangbusters. There are millions of construction workers who are going to have to find a brand new line of work over the next few years, and that change won't be an easy one.

But guess what? There's one industry where, although a massive sectoral shift would be a blessing, it's not happening: high finance. Here's the New York Times today:

While much of the country remains fixated on the bleak employment picture, hiring is beginning to pick up in the place that led the economy into recession — Wall Street.

Isn't that sweet? But Annie Lowrey says it's even worse than that:

Granted, Rae Rosen believes that Wall Street is hiring in anticipation of better times. But the article, and the data, show that times are already pretty darn good. The Wall Street firms that made it out of the credit crunch and the financial collapse alive are doing just fine, in fact. They have less competition from companies like Lehman Brothers and Bear Sterns. That means more profits.

They also are benefiting handsomely from low interest rates. It is Banking 101: Wall Street firms borrow billions from the government for close to nothing, lend it out and make money on the margin. That means more profits.

Companies like Goldman Sachs are more profitable now than they were in the boom years. That, really, is why they are hiring — not because they are betting on a strong economic recovery. They are making money hand-over-fist despite the fact that the rest of the economy is ailing terribly, and only starting to turn around.

The financialization of the American economy has been a disaster. Forget all that stuff about the hollowing out of our manufacturing base or increased global competition or waves of immigrants taking away our jobs. Those are all legitimate issues of one stripe or another, but the far bigger issue is that a gigantic chunk of our productive capacity — Wall Street — is deployed almost solely to make money for one sector of our economy: Wall Street. Until that changes, until the financial industry is focused primarily on providing capital and services to other people, we're always going to suffer from either (a) underperformance in the real economy or (b) an endless boom and bust cycle. Take your pick.

There's one key metric that will tell us whether financial reform is working: the size and profitability of the FIRE sector. (That's Finance, Insurance, and Real Estate.) If it shrinks considerably, it means financial reform, despite all the watering down, has basically done its job. But if the FIRE sector remains enormous, it hasn't. We'll know in a few years.

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Lead of the Week

| Mon Jul. 12, 2010 11:57 AM EDT

I would like to nominate this for least surprising lead of week:

The sweeping legislation that grew out of Toyota Motor Corp.'s sudden-acceleration crisis — heralded as the most important auto safety bill in a decade — has been scaled back significantly in the face of auto industry opposition.

You can substitute any rich interest group you like for "auto industry" in this story and you've pretty much written the recent history of American politics. Pretty uplifting, no?

The Real Truth About Elections

Who's going to win this year? Let's look at the evidence.

| Mon Jul. 12, 2010 11:45 AM EDT

A little while back I was talking (well, emailing) with MoJo's editors about possible election-related stories for our next issue. One idea I pitched was, basically, about how nothing matters in national elections except the economy and a couple of other smaller issues — primarily candidate quality, the current party balance, and who holds the White House. But mostly the economy.

In the end I decided to write about something else because, let's be honest: this subject is kind of a downer. Who really wants to read a few thousand words about how nothing we do really matters because the election will be almost entirely decided based on the state of the economy a few months before November? Probably not too many people. But that didn't stop Ezra Klein, who's perfectly willing to spill the bad news:

We think of campaigns in terms of people, but they're often decided by circumstances. "The media and the popular mind really think that candidates and the campaigns make a huge difference," says Michael Lewis-Beck, author of "Forecasting Elections." "But it's not as big a difference as the fundamentals operating behind the scenes every day." In some ways, that's comforting: Politicians are judged more on the condition of the country than on the elegance of their campaign.

But for the Obama administration, it's likely chilling: The economy is still weak, and there aren't 60 votes in the Senate for further stimulus spending. And even if there were, it is too late for them to make a major difference in the economy before November. Democrats needed to pass a bigger stimulus back in 2009, not in late 2010. What they do from here might help the economy, but it's not likely to affect their reelection.

Does the truth really set you free? Or just bum you out? I guess it depends. In any case, Ezra's crack team at the Post has also put the truth into chart form: on the left is presidential results based on the state of the deficit, and it's a messy plot that tells you nothing. Nobody, it turns out, cares about the deficit even if they say they do. On the right is presidential results based on the state of income growth, and guess what? Everyone cares about their incomes. That's a nice, clean regression line.

By the way, this chart also shows the power of incumbency. The main overperformers (i.e., candidates who did better than the state of the economy predicts) were in 1996, 1956, 1984, 1972, and 1964. All of these were one-term incumbents seeking reelection. Conversely, the main underperformers were 1952, 1968, and 2000. All of these involved an incumbent party that had already been in office for two terms or more. Basically, a combination of economic growth and boredom determines presidential elections almost completely.

And midterm elections? Pretty much the same deal. But despite what I said at the top, don't let this fool you into thinking that working hard for your candidate or your party doesn't matter. These models work because they assume that both sides are fighting hard and basically cancel each other out. If you give up and leave your fate in the hands of the gods, you'll soon discover that the gods are not amused.

Let Us Now Praise the USPS

| Mon Jul. 12, 2010 1:36 AM EDT

Over at Jon Cohn's place, Alexander Hart explains why the post office is better run than you think. Go read it. I don't have any big axe to grind in favor of the USPS — in fact, I'm pretty annoyed at how complicated it is to calculate postage these days on supposedly "odd" size envelopes — but the fact is that they're actually pretty efficient and pretty cost effective. I'd welcome private competition for first class mail, but just go ahead breathe the words "universal service" and see how many private sector companies are still eager to compete with the post office for 46 cents an ounce.

Anyway, Hart explains why the post office always seems so perennially broke and why this is mostly a mirage. It's worth a quick read.

Stoppage Time Bleg

| Sun Jul. 11, 2010 3:25 PM EDT

Can someone please explain the rules and/or cultural conventions governing stoppage time in soccer? Does the referee actually use a stopwatch to keep a cumulative total for each half? Or is it just a rough estimate based on how much non-playing time he thinks has elapsed? And why is stoppage time kept a secret in games with three referees? Can anyone point me to something that explains not the official rules, but the actual normal conventions for how this all works?

How Would You Fix Social Security?

| Sat Jul. 10, 2010 12:32 PM EDT

Responding to yesterday's post showing that high-income men live quite a bit longer than low-income men, an anonymous commenter writes:

The data is a very strong argument for removing the ceiling on Social Security payments — that is, collecting Social Security on 100% of wages, no matter how high (while not adjusting benefits). That's because the Social Security system, now, assumes that life expectancy is the same for low-income and high-income workers, while in fact low-income workers collect benefits for far fewer years. So higher-income workers *should* pay more than they do today.

That's an interesting point, no? Fair is fair. (Though you can adjust that 100% to 90% or 95% or whatever floats your social equity boat.) And while we're on the subject, the Congressional Budget Office recently issued a report (here) that includes a nice table that allows you to play the Social Security game from the comfort of your own home. Basically, CBO estimates that Social Security is out of balance by 0.6% of GDP over the next 75 years, which means you need to come up with a basket of changes from their list that adds up to 0.6%. So choose away and build your own Social Security rescue plan!

And when you're done with that relatively trivial exercise, it'll be time to move on to Medicare. Unfortunately, that's a wee bit harder and no handy little table will provide the answers. Which, of course, is why people prefer spending their time on Social Security. It's mostly grandstanding, but if they ever actually fixed it they'd have no choice but to tackle genuinely difficult problems. And what kind of moron gets elected to Congress to do that?

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Friday Cat Blogging - 9 July 2010

| Fri Jul. 9, 2010 2:47 PM EDT

TGIFCB. To celebrate, today we have action cats! I just wanted to prove that Inkblot and Domino do indeed occasionally wake from their slumbers and actually motivate themselves around the homestead.

BTW, over the last few months I've been fiddling around with Photoshop a little more aggressively than before, and today is a testament to what can be done with it. The original picture of Domino was hardly more than a black smudge. But a few minutes of diddling around with the lasso tool and a variety of settings turned it into quite a passable picture. It's pretty amazing. Below the fold I've put both versions of the photo (reduced to identical size) so you can see for yourself.

But enough about boring computer software. How about some more cats instead? Hooray! First, courtesy of my sister, who keeps close tabs on the pet-loving British press, here's an adopted seagull who thinks it's a cat. The cats it now lives with apparently think it's a cat too. And second, courtesy of Rich Lowry (reaching across the aisle to us lefty cat lovers), here's the story of three Marines in Afghanistan who adopted some kittens so adorable there probably ought to be a law against it. Enjoy!

Barack Obama, Scourge of Wall Street?

| Fri Jul. 9, 2010 11:53 AM EDT

Contra Mike Konczal, Tim Fernholz argues that if you actually look at the details, the Obama administration was pretty consistently on the side of firm bank regulation. It's true that they didn't support the Kaufman-Brown amendment to break up the banks, but Tim says they did support a wide range of other good proposals:

The idea that Treasury "always end[s] up leaving their fingerprints on the side of less structural reform and in favor of the status quo on Wall Street" is false. In terms of structural reform, Treasury — and President Obama in particular — were the strongest advocates in government for an independent consumer finance regulator. Other structural reforms that they supported, including merging two bank regulators, the Volcker rule, the (delayed but still real) Franken amendment for ratings-agency reform, serious constraints on the Fed's emergency bailout powers, the new derivatives regime, the new liquidation authority, and higher capital requirements for the largest banks, including new-fangled contingent capital. Treasury had been talking about reducing risk since this project got under way.

Hmmm. I sure don't recall Treasury fighting for higher capital requirements in legislation. I thought they pretty consistently wanted that left to the Basel III negotiations instead. And I guess I'm not as sure as Tim that they were ever really behind Blanche Lincoln's derivatives proposal or Al Franken's ratings agency amendment until passage was all but assured — at which point it didn't matter much.

But....Tim follows this stuff a lot more closely than I do, and he makes a decent case if you read through his full post. I'm not sure I'm convinced, but since I wrote about this yesterday I recommend Tim's post for the other side of the story. It's worth a look.

Raising the Retirement Age

| Fri Jul. 9, 2010 10:01 AM EDT

Via Ezra Klein, Here's a chart from Larry Mishel that's pretty astonishing. It shows that since 1972 the life expectancy of men with low incomes has increased by two years while life expectancy for men with high incomes has increased by more than six years. That fact that the haves are healthier than the have-nots doesn't surprise me, but the magnitude of the difference is pretty stunning.

The context here, unsurprisingly, is Social Security and whether we should raise the retirement age. Obviously, increasing the retirement age to, say, 70, is a much bigger deal for someone likely to live to 79 than it is for someone likely to live to 85. In my book, this is yet another reason not to try to balance Social Security's books by changing the retirement age dramatically.

And we probably don't have to. There are plenty of other ways we could do it instead. And if we do do it, this chart suggests a couple of things: (a) the change should be modest (maybe going from 67 to 68) and (b) it should be accompanied by an explicit acknowledgement that disability retirements will be routinely available at the same age as now to workers who perform body-draining physical labor. If you put these things together it's not clear that this change is even worth pursuing, which I think is the whole point. If we insist on addressing Social Security in the near term, there are better ways of doing it than fiddling with the retirement age.

Demography is Destiny

Which way will the Millennial vote swing in the next decade?

| Fri Jul. 9, 2010 6:00 AM EDT

Back in 2002, John Judis and Ruy Teixeira wrote The Emerging Democratic Majority, which argued that demographic trends over the next several decades were set to heavily favor the Democratic Party. Unfortunately, 2002 turned out not to be a great year to make a prediction like that: Republicans gained congressional seats in the midterm elections that year, and two years later George Bush won a second term in the White House in an election that saw Republicans make even further gains in Congress.

But those gains were almost certainly heavily influenced by the increased salience of national security issues following 9/11, and in any case weren't quite as impressive as they seemed at first glance. Bush's reelection, in particular, was a razor thin affair, not the easy victory you'd normally expect for an incumbent running during good economic times. Sure enough, two years later Democrats won back Congress, and then in 2008 took back the presidency and won landslide victories in both the House and Senate.

So how do things look now? Unsurprisingly, Teixeira is pretty bullish on Democratic prospects. In a new report, "Demographic Change and the Future of the Parties," he revisits the trends he first described in 2002 and finds that they're progressing about as he predicted. Minorities have increased their share of the vote by 11 percentage points since 1988 and have become even more strongly pro-Democratic than they were eight years ago. Ditto for white college graduates, professionals, women, and the religiously unaffiliated (the fastest growing "religious" group in the country, he reports).

All of these things bode well for long-term Democratic prospects, but there's one more that might be the most important of all: the Millennial vote. Here's the basic demographic breakdown for young voters in the 2008 election:

This was [] the first year the 18- to 29-year-old age group was drawn exclusively from the Millennial generation, and they gave Obama a whopping 34-point margin, 66 percent to 32 percent....Obama got 60 percent of the youth vote or more in every swing state in the 2008 election with the lone exception of Missouri.

....The 2008 election also saw 18- to 29-year-olds increase their share of voters from 17 percent in 2004 to 18 percent....This figure will steadily rise as more Millennials enter the voting pool....The number of Millennials of voting age will increase by about 4.5 million a year between now and 2018. And in 2020 — the first presidential election in which all Millennials will have reached voting age — this generation will be 103 million strong, of which about 90 million will be eligible voters. Those 90 million Millennial eligible voters will represent just under 40 percent of America’s eligible voters.

But there's more to the story than just this. As Teixeira says, "On social issues, Millennials support gay marriage, take race and gender equality as givens, are tolerant of religious and family diversity, have an open and positive attitude toward immigration, and generally display little interest in fighting over the divisive social issues of the past." That's bad news for the Republican Party, which has shown little willingness to soften its stand on cultural concerns like these — all of which are core hot button issues for its Tea Party base. But the best news is this:

Research suggests that a socialization process occurs that leads young adults to hold onto the party identification and opinions that they developed in their formative years. This is especially true with partisan identification. Party identification is the single strongest predictor of how people vote and tends to stick with individuals once they form an attachment early in their political lives.

Even if the Republican Party eventually softens its views on social issues, it won't make much difference once the Millennials have reached age 30 and their party identification has hardened. If Teixeira is right, by the time this process is over an entire cohort of voters will be heavily pro-Democratic for the rest of their lives.

As it happens, 2010, like 2002, might not be such a great year to make this prediction: a brutal recession and the usual midterm blues are likely to produce big Republican gains this November. In the long term, though, the longer the Republican Party continues to rely on its intolerant, ultraconservative base for support, the more likely they are to write their own obituary for 2020 and beyond.