Kevin Drum

The Problem With Europe

| Thu Jan. 27, 2011 2:12 PM EST

Ryan Avent notes today that the relatively tight monetary stance of the European Central Bank has been nearly ideal for Germany. But that's a problem:

The funny thing here is that the ECB is not Germany's central bank; it's the central bank for the euro area. Growth in Germany has hugely outstripped that of other euro zone economies over the past year, especially those on the debt-addled European periphery. Ireland's nominal GDP growth rate was sharply negative in GDP, which isn't the easiest environment in which to try to pay down debts. A monetary policy that's pretty good for Germany is terrible for most of the euro zone. And if the ECB tightens policy because of rising headline inflation, then it will be contracting while austerity programmes around the continent kick into high gear, again hitting peripheral countries the hardest. It's almost as if the ECB wants to make sure that struggling countries can't meet their debt reduction goals.

....Food and energy issues aside, euro zone inflation overall is unlikely to get out of hand thanks to falling price pressures around the periphery. But in Germany, faster growth is finally turning into some inflation. So what the ECB should do, both in order to facilitate recovery across the entire euro zone and to speed internal euro zone rebalancing, is let German inflation run a bit. But all indications are that the ECB sets policy based on conditions in Germany. And so premature and costly tightening looks likely.

Obvously this is bad for lots of Europeans outside Germany, but just to be selfish for a moment, it's probably also bad for us. It's already the case that growth in the world's developed countries is too sluggish while growth in developing countries is heating up dangerously. This is the "two track" recovery that people talk about, and while some of it is probably inevitable, the last thing we should be doing is making it worse. The euro-area economy, like ours, is big enough that sluggish growth there eventually affects the entire world, including us. Right now, Europe simply has too many growth problems to remain a slave to Weimar-era phobias about inflation creeping above 2%.

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Three Questions About Those Middle East Revolts

| Thu Jan. 27, 2011 1:51 PM EST

Dan Drezner has three questions about the revolts currently sweeping the Middle East:

1) How much logic will be contorted in an effort to argue that the 2003 invasion of Iraq was the trigger? I'm thinking a lot.

2) Which neoconservative impulse will win out — the embrace of democratic longing, or the fear of Islamic movements taking power?

3) A year from now, will Tunisia actually be a democracy? The "Jasmine Revolution" portion of this story is easy — it's the grubby parts of institution-building and power-sharing that muck things up.

Let's see. On #1, I'd say that calling it pretzel bending will end up being an insult to pretzels. #2 is easy: neocons will embrace the democracy part and take credit for it and denounce the Islamist part and blame Obama for it. On #3, the answer is no.

Any other questions?

The Virtue of Unions

| Thu Jan. 27, 2011 12:58 PM EST

Mike Konczal argues that strong labor unions and full employment are better for the economy than high taxes on rich people to fund "a kind of pity-charity liberal capitalism." Matt Yglesias agrees:

I think that’s correct, but that “full employment” is doing almost all the work here even while Konczal’s emotional emphasis seems to be on bargaining power. After all, if you have strong labor unions and a government that doesn’t fight for full employment, then what happens is the unions use their bargaining power to cut insider/outsider deals at the expense of the unemployed. One of the great virtues of American unions in their heyday is that they used their political muscle to push the government to fight for full employment, which was excellent and it’s a political voice we’re desperately missing today. But that’s not to say that the unions themselves are a viable substitute for full employment. A market economy is either going to operate near full employment, or else people will only share in its benefits thanks to handouts. That’s true for any given set of labor market institutions.

Sure, full employment is doing most of the work here. But that's the point of a strong labor movement: it forces the government to fight for full employment. It fights for lots of other stuff too, and that's the whole virtue of organized labor. It's true that they also produce a modest wage premium for their own members, but if that's all they did then I wouldn't care much about them and neither would most other liberals.

Unions have lots of pathologies: they can get entranced by implementing insane work rules, they can get co-opted by other political actors, and they can end up fighting progress on social issues, just to name a few. But they fight for economic egalitarianism, and they're the only institution in history that's ever done that successfully on a sustained basis. That's what makes them so indispensable to liberalism and that's what makes them the sworn enemies of conservatism.

You just can't pull labor and full employment apart. It's not a matter of emphasis. A country without a strong labor movement is almost inevitably one in which economic and political power is overwhelmingly on the side of business interests and rich people, and that means you're not going to have sustained full employment because that's not what business interests and rich people want. It's all about power, baby, power.

The Immigration Show

| Thu Jan. 27, 2011 2:37 AM EST

Even though deportations of illegal immigrants are up under the Obama administration, the LA Times reports that Republicans want to return to the high-profile workplace raids of the Bush era. But why return to a less efficient program? Let's take a look:

Targeting employers is part of an effort by the administration to thwart illegal immigration by reducing the demand for illegal jobs, which draws hundreds of thousands across the border each year to look for work. "There is a laser-like focus on holding employers accountable. In the final analysis, they are the ones supplying the jobs. It is the greatest use of the resources," [Kumar] Kibble said.

Under Obama, cases against employers are up sharply: Immigration and Customs Enforcement quadrupled the number of employer audits after Obama took office, increasing the number of inspections and arrests against those who knowingly hire illegal immigrants. Businesses were fined $6.9 million in fiscal 2010, up from $675,000 in 2008.

That explains it. The Obama approach might be more effective, but it actually targets the business community, and we can't have that, can we? Better to do something showy but ineffective instead.

Is Tunisia the First Domino?

| Wed Jan. 26, 2011 11:00 PM EST

Joshua Tucker makes an argument today that Tunisia might be the leading edge of a broader revolt in the Middle East, just as Poland was the leading edge of the fall of communism in Eastern Europe in 1989. But then I think he undermines his own case:

One fundamental difference that I can not help noting between 1989 and 2011, however, is the lack of a powerful external actor enforcing the non-democratic regimes in the Middle East. East-Central European communist propaganda notwithstanding, few probably doubted by the 1980s the most of the region would throw off communism if Moscow ever gave them the opportunity to do so. Thus perhaps the most crucial information transmitted by the success of the Polish and Hungarian revolutions was precisely the fact that the Russians were not planning on intervening. I'm not sure there is anything analogous in place in the Middle East.

I'm no expert on 1989, but I think it's hard to overstate the importance of Mikhail Gorbachev in all this. For a variety of reasons, he chose not to intervene to prop up the communist regimes in Eastern Europe, as his predecessors had done in 1956 and 1968, and that made all the difference. If Soviet tanks had rolled into Warsaw or Prague, there's no telling how much longer the Iron Curtain would have remained standing.

It's pretty unlikely that anything similar will happen in the Middle East. After all, its leaders know the lesson of 1989 just as well as we do. As Marc Lynch puts it, "Dictators learn from each other, not just from the past." Still, after ticking off all the reasons that the Tunisian revolt probably won't spread successfully, he says that skepticism sounds a bit hollow this time:

There are plenty of reasons to see Tunisia as a one-off. And yet... it doesn't feel that way. The scenes in Cairo yesterday stand as a sharp rebuke to any analytical certainty. The Egyptian regime was fully prepared, its security forces on alert and deployed, the internet disrupted and al-Jazeera largely off the table... and yet tens of thousands of people still poured into the streets and put together one of the largest demonstrations in contemporary Egyptian history.

Tunisia has manifestly inspired people across the region and galvanized their willingness to take risks to push for change, even without any clear leadership from political parties, Islamist movements, or even civil society. The Tunisian example has offered the possibility of success, and models for sustained action by a decentralized network, after a long and dispiriting period of authoritarian retrenchment. Al-Jazeera and the new media have played their role in reshaping political opportunities and narratives, but it is people who have seized those opportunities. And the core weaknesses of these Arab states — fierce but feeble, as Nazih Ayubi might have said — have been exposed. They have massively failed to meet the needs of their people, with awesome problems of unemployment, inflation, youth frustration and inequality combined with the near-complete absence of viable formal political institutions.

Stay tuned.

Should Real Life Be More Like Videogames?

| Wed Jan. 26, 2011 7:04 PM EST

Game researcher Jane McGonigal writes in the Wall Street Journal today that real life isn't good enough anymore:

Gamers want to know: Where in the real world is the gamer's sense of being fully alive, focused and engaged in every moment? The real world just doesn't offer up the same sort of carefully designed pleasures, thrilling challenges and powerful social bonding that the gamer finds in virtual environments. Reality doesn't motivate us as effectively. Reality isn't engineered to maximize our potential or to make us happy.

....In a good game, we feel blissfully productive. We have clear goals and a sense of heroic purpose. More important, we're constantly able to see and feel the impact of our efforts on the virtual world around us....When we play, we also have a sense of urgent optimism. We believe whole-heartedly that we are up to any challenge, and we become remarkably resilient in the face of failure.

Well, sure. After all, games are deliberately engineered to be addictive, and they do it largely by producing an artificial world in which failure has no serious consequences and success is all but guaranteed to anyone willing to put in a moderate amount of effort. That's why we call it "entertainment." But this is nothing surprising. Lots of other leisure activities make you artificially "alive, focused and engaged in every moment" too: gambling, skydiving, and snorting cocaine, just to name a few. The difference, McGonigal thinks, is that the artificial thrills of gaming can be put to real-life use:

In 2010, more than 57,000 gamers were listed as co-authors for a research paper in the prestigious scientific journal Nature. The gamers—with no previous background in biochemistry—had worked in a 3D game environment called Foldit, folding virtual proteins in new ways that could help cure cancer or prevent Alzheimer's. The game was developed by scientists at the University of Washington who believed that gamers could outperform supercomputers at this creative task—and the players proved them right, beating the supercomputers at more than half of the game's challenges.

More recently, more than 19,000 players of EVOKE, an online game that I created for the World Bank Institute, undertook real-world missions to improve food security, increase access to clean energy and end poverty in more than 130 countries. The game focused on building up players' abilities to design and launch their own social enterprises.

After 10 weeks, they had founded more than 50 new companies—real businesses working today from South Africa and India to Buffalo, N.Y. My favorite is Libraries Across Africa, a new franchise system that empowers local entrepreneurs to set up free community libraries. It also creates complementary business opportunities for selling patrons refreshments, WiFi access and cellphone time. The first is currently being tested in Gabon.

I'd be lying if I said I wasn't pretty skeptical of this. With rare exceptions, real life is just never going to be much like a videogame. But it's certainly an interesting idea, and I'd love to be proven wrong.

UPDATE: Here's an article about McGonigal and gaming that we published on Monday.

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The CBO's Crystal Ball

| Wed Jan. 26, 2011 4:04 PM EST

Over at The Corner, Avik Roy is outraged at today's estimate from the CBO that the 2011 deficit will be $1.5 trillion. Beyond the outrage, though, he also implies that perhaps this reflects badly on the CBO's forecasting ability, since they predicted a lower deficit last year. "What’s a $500 billion, 50 percent error among friends?" he sneers. ZOMG!

To his credit, though, Roy reproduces a table showing exactly where the $500 billion "error" comes from. Here it is:

Hmmm. Estimated 2011 revenues are down $442 billion, accounting for virtually all of the difference. And where does that come from? Table A-1 in the CBO report provides the answer: nearly all of it is due to the package of tax cuts that were signed into law during the lame duck session last year. Almost none of it is due to technical changes.

So there's no "error" here. The CBO did fine. What happened was that Congress passed a whole bunch of tax cuts — cuts that I'm sure Roy supported — and those cuts increased the deficit. Only a conservative could possibly be surprised by this. Or someone trying his best to undermine the credibility of the CBO for unrelated reasons. Like, say, someone who doesn't like the CBO's contention that healthcare reform will reduce the deficit.

By the way, did I mention that Roy mostly writes about healthcare reform?

UPDATE: Roy responds here. He's right that not all of the lost revenue comes from extension of the Bush tax cuts. The tax package passed during the lame duck session includes both extension of the Bush tax cuts and various other tax cuts implemented at the same time (the AMT patch, payroll tax holiday, etc.). I've corrected the text.

Putting a Lid on the Bloviators

| Wed Jan. 26, 2011 3:35 PM EST

I'll probably never say this again, but I think I'm actually on Darrell Issa's side here. He decided to do things a little differently at today's TARP hearing:

At the start of the hearing, chairman Rep. Darrell Issa announced the committee members would waive their opening statements and instead would have seven days to place them into the record. Rep. Elijah Cummings, the committee’s ranking Democrat, immediately fought back questioning this deviation in traditional procedure, but Issa held his ground. “I recognize that tradition is we hold the members, the witnesses here for sometimes an hour through opening statements. That is a tradition that I intend to break,” Issa said. “That doesn’t mean there won’t be opening statements in the future.”

....Rep. Dennis Kucinich later interrupted and stated, “I’ve been in the Congress for 14 years, and I’ve never — it’s just unprecedented that the ranking member not be permitted to give an opening statement.”

I don't know all the details here. I assume that Issa himself didn't give an opening statement either, and I assume that in the future the rules for statements will be fair to both sides. If not, then Issa's being a dick. But let's face it: long rounds of opening statements are a scourge. They virtually never produce anything of note, and forcing witnesses and everyone else to sit through them is a waste of time. Overall, I expect Issa to run the oversight committee like the partisan attack dog he is, but on this particular issue I salute him.

On the Impossibility of Finessing Third Rails

| Wed Jan. 26, 2011 3:15 PM EST

Felix Salmon would like President Obama to go after the mortgage interest tax deduction. Matt Yglesias comments:

The implication here is that what the country needs from the president is some bold straight talk on taxes, and I think that’s just wrong. Look at what happened when the Bush administration kinda sorta went after the mortgage interest tax deduction—wonky bloggers praised him, Democrats slammed him, Republicans ran for the hills, he abandoned the idea, and everyone forgot the whole thing ever happened. If Obama had proposed a revenue-neutral phase out of the tax deduction, you’d just get the same thing in reverse.

The right way for the White House to engage with this issue is (a) vaguely, and then (b) in private.

Actually, I'd say the right way for the White House to engage with this issue is (c) not at all. I mean, I'm all in favor of phasing out the home mortgage deduction, but it's political suicide and everyone knows it. Whether privately or not, no Republican will ever agree to it, and I don't imagine many Democrats would either. It's the fastest way I can think of to derail tax reform completely.

This is too bad, but the world is what the world is. It might be possible to propose replacing the mortgage tax deduction with a tax credit, which would be a bit more progressive, but it's a little hard trying to figure out what the political coalition for that is either. Working quietly on tax reform instead of making it into a huge public issue is a good idea (though possibly no longer feasible in the era of Fox News), but I think wonks should just give up on the idea of ditching the home mortgage deduction and focus instead on stuff that might actually happen.

Yet More Healthcare Polling

| Wed Jan. 26, 2011 1:41 PM EST

Here's yet another poll showing what people think of healthcare reform. It's from Kaiser:

This is a little different from the last poll we saw, but not a lot. Overall, 47% want to keep or expand the law and 43% want to repeal or narrow the law. Additionally, most people disapprove of defunding the law and most of the individual provisions of the law remain popular except for the individual mandate. No surprises there. But take a look at this:

Items 1, 3, and 4 are all beneficial to seniors, yet seniors are less favorable toward them than younger people. Item 2 is harmful to seniors, but seniors are more favorable toward it than younger people. Only item 5 polls about the way you'd expect it to. The differences aren't huge, and it's questionable whether everyone really understood exactly what all these provisions mean, but it's still a bit of an odd result, isn't it?