Why Obama Negotiates

Why is Barack Obama allowing Republicans to make demands on him as a condition of raising the debt ceiling? The other day I suggested that it was because he wants Republicans to make demands on him. And why is that? Partly I think it's because he genuinely wants to address spending levels but wants Republican cover for it. Greg Sargent says the other half of the answer lies in Obama's desire to win back independents:

As David Axelrod said in a recent interview with bloggers, after the midterms Obama’s advisers concluded that they needed to get back to “first principles” and recapture what’s been “central to Barack Obama’s public life and outlook.” Axelrod defined Obama’s first principles as follows: “you don’t have to agree on everything, or even most things, to work together on some things.”

It seems clear that Obama and his advisers think laying down a firm marker — playing the game the way Republicans do — makes him sound like just another Washington politician. Saying “no,” as Krugman puts it, risks miring Obama in the same mud as all the rest of the partisan mud-slingers on both sides. The health care wars left Obama splattered with that mud. Signaling openness to compromise at the outset while articulating general principles as opposed to bottom lines — whatever it does for the Dems’ negotiating position — is central to Obama’s political identity and is the best way to recapture the aura that propelled him into the White House in the first place. It might be called “Beer Summit-ism.”

I think this is about right. My guess is that Obama views the lame duck compromise last year as both a policy and a political win. And I think he's probably right. Likewise, he also views some modest combination of spending cuts and revenue increases (probably via reductions in tax expenditures) as both a policy and a political win, but by making Republicans go first he gets cover for his left flank and gets to seem like the reasonable compromiser. Lefties won't like it but their grumbling will be mostly pro forma, and independents will be impressed.

And Republicans would be wise to go ahead and agree to something. It might be a political win for Obama, but frankly, they don't seem especially serious about trying to win the presidency next year. Might as well give Dems a political win now when it doesn't really make much difference.

Hooray for Doctor Shortages!

The healthcare reform bill of 2009 will provide health services to more people. Conservatives pointed out that this was a problem because the law didn't also create more doctors to help all these new patients. They had a point:

So Page 519 of the sprawling 2010 law to overhaul the health-care system creates an influential commission to guide the country in matching the supply of health-care workers with the need. But in the eight months since its members were named, the commission has been unable to start any work.

The group cannot convene, converse or hire staff because $3 million that it needs for its initial year has been blocked by two partisan wars on Capitol Hill — strife over the federal budget and Republicans’ disdain for the health-care changes that Democrats muscled into law 14 months ago.

To translate: lack of primary care physicians is a big problem when it's a good way of attacking Democrats, but solving the problem of primary care physicians is also a big problem — when it's a good way of attacking Democrats, anyway. This comes via Jon Cohn, who remarks acidly, "It's almost as if the Republicans are more interested in political symbolism than they are in making sure people can see the doctor in a timely fashion." Almost!

The Death of Uncertainty

Josh Barro notes that conservatives have been yammering away about "uncertainty" for the past couple of years, insisting that things like liberal health care reform rules and new financial regulations are causing investment to seize up until the future is clearer. But not anymore:

Isn’t it odd that we’re not hearing it in regard to the debt limit negotiations? A debt limit standoff certainly fosters uncertainty, discouraging investment and growth....As with any policy, there could be good reasons to manufacture a debt limit impasse despite the uncertainty it creates. (In my view, there aren’t, but there could be.) Still, opponents of a clean debt limit increase need to account for the uncertainty that their preferred policy will foster.

Since I'm not a conservative and I don't have to pretend to be nice, I'll provide the obvious answer: nobody ever really believed in this argument in the first place. Financial uncertainty has certainly been the cause of weak investment ever since the Great Collapse, but regulatory uncertainty has never been a big issue one way or the other — and conservatives have known this perfectly well all along. This is why right-wingers who are allegedly allergic to uncertainty can blithely threaten to force a reckless default on U.S. debt unless they get their way on their pet budget issues. It's because uncertainty has always been a purely political attack, not one grounded in either ideological consistency or empirical evidence. When it outlives its political usefulness, it's easily discarded.

Following the Money

Via Felix Salmon, this chart shows the amount of money flowing into commodity markets following the Great Collapse of 2008. At a minimum, there are two things going on here. First, the Fed's quantitative easing program made lots of cheap money available to Wall Street. Second, with the housing market in tatters and the real economy in deep recession, there were a limited number of places to invest that money. However, emerging markets were still hot, and that was likely to drive an increase in demand for commodities. So with commodities looking set for a rise and no other investment opportunities presenting themselves, Wall Street piled on. Anything worth doing is worth overdoing, after all, and modern finance seems almost purpose-built to overreact to changes in world markets.

So will this be as disastrous as the housing bubble? Probably not, because, as Felix says, commodity investments probably aren't as highly leveraged as subprime investment vehicles became:

The impossible-to-answer question is how much of that investment is leveraged, in one way or another. The lesson of the commodities crash is ultimately a hopeful one: it didn’t set off any panic, and Main Street didn’t suffer much in the way of visible losses. And I don’t think that Wall Street has a leveraged long position in commodities in the same way that it had a leveraged long position in subprime in 2008. So the systemic risks posed by any commodities bubble are probably small.

Still, this is clearly now a speculators’ market, and that’s bad news for commodity-reliant industries. They’re up against finance types, now, which is never a pleasant position to be in. The crash will come — but only after real-world end-users have hedged their needs at very high prices.

The aspect of this that bothers me the most is the same one that's been in the back of my mind for quite a while: this kind of pile-on, leveraged or not, is an indication that there are too few good investment opportunities in the world of real goods and services. There have been indications that this is the case for years now, and in the long run that strikes me as more dangerous than any specific bubbles.

Obama's Peanut Gallery

Glenn Greenwald:

There are about 30 obsessive, truly unstable Obama cultists who sit on Twitter all day, literally, smearing with vile, rancid invective anyone who criticizes their Leader - last night's target: @JoanWalsh - just look at her stream to see what they spew every day, all day, at anyone who commits the Supreme Sin of criticizing the President of the United States. Every day they find a new heretic - it's the same 30 people over and over - whose only life activity seems to be this

Only 30? Actually, that doesn't seem so bad to me. I would've figured that Obama still had at least a few thousand die-hard supporters on Twitter. This is either a sign that the mental health of the left is fairly good, or else that Obama is going to have a tougher time getting reelected than I think.

The Incredible Shrinking Steering Wheel

Marian's car is 12 years old and she's ready for a new one. So yesterday we went out car shopping, and I discovered an odd thing: steering wheels seem to be smaller than they used to be. I didn't bring along a tape measure or anything, but I'd guess that the steering wheels in the cars we looked at had a diameter an inch or so less than either of our current cars, which are both more than a decade old.

Was this an optical illusion? Or are they really smaller these days? And if so, why? Is it just a change in fashion? Or is there some functional reason for this? Any car nuts out there who know the answer?

And while we're at it, what's the deal with the declining height of the line where the windshield meets the roof of the car? Visibility was at least modestly compromised for me in several of the cars we looked at, and I'm not Shaq-tall, just a little taller than average. This is annoying.

What's the Opposite of Gold Buggery?

I like to feel that I'm at least slightly inured to the daily eruption of flaky conservative ideas, but maybe not. Here's today's:

With the United States poised to slam into its debt limit Monday, conservative economists are eyeballing all that gold in Fort Knox. There’s about 147 million ounces of gold parked in the legendary vault. Gold is selling at nearly $1,500 an ounce. That’s many billions of dollars in bullion.

“It’s just sort of sitting there,” said Ron Utt, a senior fellow at the Heritage Foundation. “Given the high price it is now, and the tremendous debt problem we now have, by all means, sell at the peak.”

Yes, indeed. Let's sell at the peak. I wonder how long Utt thinks the peak would last once word got out that the federal government had started selling its gold stocks. A week? A day? An hour? Given the migration of algo trading into the commodities markets, the correct answer might be closer to a minute.

I doubt that there's really any good reason for the federal government to retain massive amounts of gold these days. Selling it off over the course of, say, ten or twenty years, might make sense. But trying to sell truckloads of it right now in order to forestall raising the debt ceiling? Surely even flaky conservatives can see the problem with that.

On the bright side, it would probably cause Glenn Beck to invent a whole new universe of conspiracy theories. That might make it worthwhile all on its own.

Watched Pots and Quantum Cats

They say a watched pot never boils. This is, obviously, just an Olde Wyfes' Tayle, but it demonstrates that old wives had a surprisingly sophisticated anticipation of the Copenhagen interpretation of quantum mechanics. Still, there are tayles and then there are tailes. So what if it's a feline observer doing the watching? The theoretical mystery of Schrödinger's Cat provides no clear answer, so more empirical evidence is needed. We had pasta for dinner last night, which provided us with an ideal test bed to answer this question once and for all.

Here's the answer: as long as Inkblot was watching our pot last night, it didn't boil. A little later he got distracted by some Cosmic Catnip, and the pot boiled. So even if you have a brain the size of a peanut, you count as a quantum mechanical observer of the universal wave function. Science marches on.

Should experts be required to disclose conflicts of interest? Sure. But Courtney Humphries writes in the Boston Globe that it doesn't actually do any good:

Cain, Loewenstein, and Moore conducted a series of experiments meant to mimic a situation in which a person in authority — such as a doctor, consultant, or real estate broker — is giving advice that influences another person’s decision. Certain study participants were required to make an estimate — evaluating the prices of houses, for instance. Meanwhile, other participants were selected to serve as experts: They were given additional information with which to advise the estimators. When these experts were put in a conflicted situation —  they were paid according to how high the estimator guessed — they gave worse advice than if they were paid according to the accuracy of the estimate.

No surprise there: People with a conflict gave biased advice to benefit themselves. But the twist came when the researchers required the experts to disclose this conflict to the people they were advising. Instead of the transparency encouraging more responsible behavior in the experts, it actually caused them to inflate their numbers even more. In other words, disclosing the conflict of interest — far from being a solution — actually made advisers act in a more self-serving way.

“We call it moral licensing,” Moore says. “After having behaved honestly and virtuously, you then feel licensed to indulge in being a little bit bad.”

And what about the other side of the relationship? Do the people receiving information act more skeptically when they know about conflicts of interest? Not really. It turns out that sometimes they actually act less skeptically because they don't want to make it seem as if they now distrust the person sitting across the table from them.

Bottom line: disclosure may be a good thing, but by itself it doesn't do much good. We need regulations that change incentives, not merely disclose them.

Kafka and Credit Bureaus

Tara Siegel Bernard of the New York Times reports on the abominable way that credit reporting bureaus treat consumers — unless those consumers happen to be rich and well connected:

The three major agencies, Equifax, Experian and TransUnion, keep a V.I.P. list of sorts, according to consumer lawyers and legal documents, consisting of celebrities, politicians, judges and other influential people....For everyone else, disputes are herded into a largely automated system. Their complaints are often electronically ferried to a subcontractor overseas, where a worker spends, on average, about two minutes figuring out the gist of the matter, boiling it down to a one-to-three-digit computer code that signifies the problem — “account not his/hers,” for example — and sending a dispute form to the creditor to investigate.

....Consumers who have trouble fixing errors through the dispute process can quickly find themselves trapped in a Kafkaesque no man’s land, where the only escape is through the court system. “You are guilty before you are proven innocent in a situation like this,” said Catherine Taylor, 45, of Benton, Ark., who said she had been denied employment and credit because her filing was mixed up with a felon who had the same name and birthday.

....The bureaus, meanwhile, do not have an economic incentive to improve the system, consumer advocates say, because their main customers are the creditors, not consumers.

That last sentence is true: credit reporting bureaus have very little incentive to keep their records straight. If there's a problem, it's up to you to notice it and it's up to you to beg them to fix it. It's also up to you to prove that their information is wrong. The credit reporting industry has probably done more to promote use of the adjective "Kafkaesque" than Kafka himself.

The core reason that the process is so often Kafkaesque is that credit reporting bureaus don't care. If they make a mistake, it doesn't cost them anything. If a member bank or credit card issuer passes along bogus information to them, it doesn't cost either the bank or the bureau anything. They simply don't have much incentive to get things right. (In fact, they actually make money by selling special credit protection packages to protect consumers from the mistakes that bureaus make in the first place.) That's why, a few years ago, I wrote a piece for the Washington Monthly suggesting that we should give them an incentive:

There's no need to create mountains of regulations, which are uniformly despised by the credit industry. Instead, simply make the industry itself — and any institution that handles personal data — liable for the losses in both time and money currently borne by consumers. The responsible parties will do the rest themselves.

How would this work? Congress could assign specific minimum values — statutory damages — for each of the acts associated with identity theft. Extending credit without conducting adequate background checks, or issuing a faulty credit report thanks to undiscovered theft of identity, might be worth $10,000 per incident. Losing someone's personal information in the first place might be worth less — perhaps around $1,000 — since only a small percentage of cases of information loss ultimately lead to a full-fledged theft of identity.

The establishment of statutory damages would allow consumers to bring personal or class-action lawsuits for any of these transgressions. (Currently, such suits are difficult to win because breaches of privacy are extremely hard to value — some courts even flirt with the notion that privacy has no value at all.) And consumers would not need to show that those responsible for the theft acted negligently. When your money is stolen from a bank, the bank is liable no matter how diligently it tried to protect it. That's why banks take care of your deposits. If the credit industry and other data-handlers knew that the legal system would hold them responsible for extending credit to impostors, issuing inaccurate credit reports, or losing data, you can bet they'd figure out better ways to stop those things from happening.

The beauty of this solution is that by giving the credit industry a financial stake in solving the problem, it uses market-based self-interest rather than top-down federal mandates....On a more basic level, the plan relocates the burden of responsibility for identity theft in a way that makes intuitive sense. If a company makes a mistake — by neglecting to conduct adequate background checks before extending credit, by issuing inaccurate credit reports or by failing to safeguard sensitive information — that company pays the price.

Alternatively, we could ratchet up the regulatory regime surrounding credit reporting bureaus, and that appears to be the path we're going to eventually take. Roughly speaking, that's how it's already done in Europe, and it works OK. But it's not the only option.