Kevin Drum

Gold Bugs

| Wed Sep. 29, 2010 4:52 PM EDT

CJR's Ryan Chittum picks up on one of my pet peeves:

The Wall Street Journal goes page one with a misleading story about gold, splashing this headline across four columns atop the page:

       Gold Vaults to New High

Gold hit $1,306 an ounce yesterday, which is a nominal record. Emphasis on nominal. That doesn’t mean anything, really. The real record was set thirty years ago at $2,318 in 2010 dollars. The Journal, incredibly, doesn’t mention this once in its story. This isn’t just an institutional knowledge failure, it’s one of numeracy.

With rare exceptions, inflation-adjusted prices should always be considered the baseline when you're reporting on trends. I know that it can make for clumsy writing, but that's life. It's the right thing to do, and nominal prices should be the ones in parentheses if you need to include them. Adjusted for inflation, gold peaked 30 years ago at a daily fix of about $2,300 and a monthly average of about $1,800. We're still quite a ways from that record.

However, this is an excuse for me to ask about something else: what is the deal with gold, anyway? I understand that historically it responds to panics, which explains why gold prices have been rising for the past couple of years. But why did it double between 2001 and 2008? Those were nice, low-inflation times, not the kind of environment that's usually friendly to gold bugs. What's the story here?

UPDATE: Via comments, a reminder that not everything is about us. China deregulated gold ownership in 2001, and since then demand in both China and India has boomed. So perhaps that's (part of) the answer.

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Who is Obama Allowed to Assassinate?

| Wed Sep. 29, 2010 4:10 PM EDT

National Review editor Kevin Williamson once again tries to persuade his fellow conservatives that the American government should not have the right to assassinate American citizens:

I am not a lawyer, but it seems clear to me that the state of our law is such that anybody with sufficient legal training can make a reasonably strong-sounding argument for any policy he chooses, and that if his argument is wrong, it is likely to be wrong in ways that are non-obvious....So, set aside the legal questions for a second. The Awlaki case speaks to something even more fundamental than law: Decent nations do not permit their governments to assassinate their own citizens. I am willing to give the intelligence community, the covert-operations guys, and the military proper a pretty free hand when it comes to dealing with dispersed terrorist organizations such as al-Qaeda and its affiliates. But citizenship, even when applied to a Grade-A certified rat like Awlaki, presents an important demarcation, a bright-line distinction in our politics.

....If Awlaki were to be killed on a battlefield, I’d shed no tears. But ordering the premeditated, extrajudicial killing of an American citizen in Yemen or Pakistan is no different from ordering the premeditated, extrajudicial killing of an American citizen in New York or Washington or Topeka — American citizens are American citizens, wherever they go. I’m an old-fashioned limited-government guy, and I am not willing to grant Washington the power to assassinate U.S. citizens, even rotten ones.

Actually, I'd like to know if the Obama administration really does believe that it has the authority to assassinate U.S. citizens in Washington or Topeka in the same way it believes it has the authority to assassinate them in Sanaa and Karachi. And if not, why not?

Unfortunately, they've declared the entire thing to be a state secret, so we'll never find out. But as far as any of us are allowed to know, their official stand is that the entire world is a battlefield in the war against terrorism, and therefore killing terrorists is fair game anywhere in the world. Even if Williamson is right that a good lawyer can defend pretty much any proposition, I'd sure like to see the legal justification for that. At a bare minimum, you'd think that in a free democracy we'd all have the right to hear at least that much.

Glenn Beck and Fox News

| Wed Sep. 29, 2010 2:24 PM EDT

From Mark Leibovich's profile of Glenn Beck today:

When I mentioned Beck’s name to several Fox reporters, personalities and staff members, it reliably elicited either a sigh or an eye roll. Several Fox News journalists have complained that Beck’s antics are embarrassing Fox, that his inflammatory rhetoric makes it difficult for the network to present itself as a legitimate news outlet.

Look, I'm willing to blame Glenn Beck for a lot of things. But making it difficult for Fox to present itself as a legitimate news outlet? That's a bridge too far. You really can't tie that one around Beck's neck, folks.

Yet Another Nannygate

| Wed Sep. 29, 2010 1:35 PM EDT

Well, we have another nanny scandal in California. Meg Whitman's former nanny and housekeeper, Nicky Diaz Santillan, now represented by Gloria Allred, says she worked for Whitman for nine years, during which she was "exploited, disrespected, and humiliated." Her story: she was hired in 2000 and was never asked if she was here illegally. But she claims Whitman knew her status and received multiple letters from the Social Security Administration asking about it, none of which she responded to. Instead, she told Diaz to "check on this" but never did anything further. Then, in June 2009, when Diaz asked Whitman to help her legalize her status, she was fired. She believes it was because Whitman had announced her run for governor and could no longer afford to employ an undocumented worker.

Ben Smith reports that Whitman agrees on the broad outlines of the story, but says she was deceived by Diaz and never knew her status. She fired Diaz only after she found out. So far this story is pretty sketchy on both sides, so stay tuned.

Diaz's actual legal claim, by the way, is for wages that she claims she wasn't paid during her employment. Obviously, though, the damage to Whitman is primarily the accusation that she knowingly employed an undocumented worker.

Was Keynes Right?

| Wed Sep. 29, 2010 12:35 PM EDT

Tyler Cowen on problems with the theory underlying contemporary Keynesian economics:

Aggregate demand macroeconomics works in many cases and it almost always "works" (predicts well) when the macro forces are pointed toward destructive ends. We are not sure why it works at all, or if it always works, and yet we see a great fervor of belief in it and a demonization of those who are skeptics.

Am I misunderstanding this? Right now macro forces are indeed pointed toward destructive ends, aren't they? So if AD macro almost always works in those cases, doesn't a great fervor of belief in it make sense even if we're not 100% sure why it works?

Manufactured Ignorance

| Wed Sep. 29, 2010 11:16 AM EDT

Bob Somerby on the widely-reported Pew poll showing that most people don't know much about either their own religion or anyone else's:

Can we talk? We the people always turn out to be “deeply ignorant,” on any information survey. In response, major broadcasters feign surprise. It’s how such things are done.

My favorite, as longtime readers know, is the annual geography survey that always produces howls of indignation. 70% of high school kids don't know where France is! 80% can't find Kansas City on a map!

Of course, no one ever bothers testing adults, who would probably do just as poorly. Just as they do poorly on surveys of American history, constitutional knowledge, current events, and everything else. Most of us just don't know very much about anything.

And least of all about complicated legislative proposals. A couple of days ago I linked to an AP poll that asked people what they thought about healthcare reform. I decided to devote my post to the question of whether a more liberal proposal would have been more popular (almost certainly not), which didn't leave room to talk about a long series of questions AP asked about the legislation itself. Basically, they wanted to find out what people knew about the law, and the answer is: meh. Of the true items AP mentioned, 69% thought they were part of the law. Of the made-up items, 37% thought they were part of the law. Not bad, I guess (and note that these numbers assume that I know which items were right and which were wrong), but it's still the case that 20% of the country thinks you'll have to disclose major diseases to your employer, 30% think the law requires insurance companies to charge smokers an extra $1,000, 40% think death panels will be empowered to pass judgment on individual treatment, and 50% think the law requires doctors to treat illegal immigrants.

Now where do you think so many people could have gotten these ideas? It's not just simple ignorance at work, though that's certainly part of it. It's the noise machine. If you listened to Rush and Sean and Sarah and Glenn and Drudge all day, you'd probably believe most of this stuff too. And you'd oppose the law. Who wouldn't?

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Quote of the Day: Rand Paul on Medicare

| Wed Sep. 29, 2010 10:06 AM EDT

From Rand Paul, talking 15 months ago about problems with Medicare:

Medicare is socialized medicine! People are afraid of that because they'll say "Ohhh, you're against Medicare." No, I'll say, "We have to do something different. We can't just eliminate Medicare, but we have to get more to a market-based system." It's counter-intuitive to a lot of people, but you have to pay for things if you want prices to come down. So you really need higher deductibles. And the real answer to Medicare would be a $2,000 deductible, but try selling that one in an election. But that's the real answer.

That's via Steve Benen, who reports that Paul is outraged that his Democratic opponent has highlighted his support for a $2000 deductible, which as you can imagine, is not going down well with Kentucky's seniors. But the video is here, and it sure doesn't look like anything is taken out of context. Paul supports the deductible idea but admits that it's a terrible campaign idea. And of course, now he's in a campaign. So he no longer wants anyone to know that he said this. And who can blame him?

Want to know more? Check out "Tea and Crackers," Matt Taibbi's latest in Rolling Stone. It's ostensibly about the tea party movement, but about half the piece is actually about Rand Paul. Enjoy.

Tax Cut Followup

| Wed Sep. 29, 2010 9:50 AM EDT

This is arcane, but I guess I need to follow up on my post last night about the CBO's report on extending tax cuts. I think I've figured out what's going on.

The CBO chart is below, and it doesn't seem to match the data in Table 4. But it does, sort of. Take the bar for full extension of tax cuts with a weak labor response. According to Table 4, its effect in 2020 is to reduce real GNP by 1.6%. That's if everyone assumes there's no response. But if we assume that government spending will be reduced after 2020, a lifecycle model predicts that the net effect of extension is only -1.4%. If we assume a tax increase after 2020, the lifecycle model predicts that the net effect is -0.8%.

Now average all those together and you get -1.26%. That rounds to -1.3%, and that's what's shown in the chart. If you average all the other options they also match the chart.

Is this simple arithmetic averaging legit? Beats me. And I'm not even sure who to ask. But apparently that's what they did.

One more thing, though. The CBO model suggests that in all cases, a policy response to full extension of the tax cuts reduces the long-term damage. However, a policy response to extension of just the middle-class cuts increases the long-term damage or has only a tiny effect. This seems like a very strange result. Why does a policy response (either lower spending or higher taxes) have a strongly positive effect in one case and a bad or negligible effect in the other? Again, I'm not even sure who to ask. But it seems odd even if you're a supply side die hard.

Your Bad Economic News for the Morning

| Wed Sep. 29, 2010 7:38 AM EDT

Earlier this year, government bond spreads in several European countries ballooned dangerously in response to the Greek debt crisis. In May the EU came to the rescue, Greece agreed to a combined loan/austerity package, and spreads settled down. The crisis was over.

But for how long? As the chart on the right shows, spreads have been steadily rising since May in Greece, Ireland, and Portugal, and now stand as high or higher than they were at the height of the crisis. And Spain may be next. Edward Hugh explains in a long post that ends with an analogy:

According to one popular analogy currently circulating , the EuroArea countries could be likened to a group of 16 Alpine climbers scaling the Matterhorn who find themselves tightly roped together in appalling weather conditions. One of the climbers — Greece — has lost his footing and slipped over the edge of a dangerous precipice. As things stand, the other 15 can easily take the strain of holding him dangling there, however uncomfortable it may be for them, but they cannot quite manage to pull their colleague back up again. So, as the day advances, others, wearied by all the effort required, start themselves to slide. First it is Ireland who moves closest to the edge, getting nearer and nearer to the abysss with each passing moment. And just behind Ireland comes Portugal, while some way further back Spain lies Spain, busily consoling itself that it is in no way as badly off as the others who have already lost there footing. But if Spain cannot hold out, and all four finally go over, each dragged down by the weight of those who preceded them, then this will leave some 12 countries supporting four, something that the May bailout package only anticipated as a worst-case scenario.

This is especially bad news since widening spreads can easily become self-fulfilling prophecies. Greece, Ireland, and Portugal were in big enough trouble already, but high interest rates on their debt could turn a difficult situation into an impossible one, requiring yet another massive bailout that might have catastrophic knock-on effects. And remember: we're all one big happy global economy these days. If Europe catches a cold, we're going to catch it too.

And that's not all. Closer to home, housing bubble Cassandra Meredith Whitney is back with a report on municipal debt. She believes that cities and states — but mostly cities — are on the verge of a massive wave of defaults that are going to reprise the systemic bank defaults of 2008. "The similarities between the states and the banks," she told Maria Bartiromo on Tuesday, "are extreme to the extent that the states have been spending dramatically, growing leverage dramatically. Muni debt has doubled since 2000." Felix Salmon adds:

The more lasting effect of widespread defaults will be in the real economy, where public employees and public services will start feeling the pinch of forced austerity. Once you approach default, no one will roll over your debt any more and no one will insure your bonds. So you have to slash your budget: you have no choice. That process has barely begun, in the U.S., and depending on the timing, it could contribute markedly to a bout of deflation or even a double-dip recession. If the first recession had its causes in the nexus of finance and real estate, its follow-up could well be based in local government.

As a resident of California — #1 on Whitney's list of disaster areas — I find this all terrifyingly plausible. Buckle your seatbelts.

Enthusiasm Gap Update

| Tue Sep. 28, 2010 11:42 PM EDT

A new NBC/Wall Street Journal poll reports that the enthusiasm gap is tightening as the election nears:

Among likely voters — identified by their past voting history and their high level of interest in the November midterms — 46 percent prefer a Republican-controlled Congress, versus 43 percent who want a Democratic-led one.

That’s a decline (though within the margin of error) from the 49-to-40 percent lead Republicans held in late August. The NBC/WSJ pollsters attribute the tightening to increased enthusiasm for the upcoming midterms by African Americans (who saw a six-point gain in high interest) and Hispanics (who saw an 11-point gain).

Perhaps the reality of a tea party-controlled Congress is finally sinking in.