# Kevin Drum

## Quizlet of the Day

| Tue Apr. 20, 2010 11:43 PM EDT

According to a study of students in the College of Arts and Sciences at the University of Oregon, the major with the highest average SAT math scores is....Math. You probably guessed that. But here's a harder one: which major had the highest SAT reading scores? Answer below the fold.

## Elmo and Broccoli

| Tue Apr. 20, 2010 8:15 PM EDT

In a demonstration of the awesome power of Matthew Yglesias, the blogosphere is abuzz today about broccoli. In particular, the buzz is about whether or not it's possible to get kids to eat more of the stuff:

Findings from Sesame Workshop’s initial “Elmo/Broccoli” study indicated that intake of a particular food increased if it carried a sticker of a Sesame Street character. For example, in the control group (no characters on either food) 78 percent of children participating in the study chose a chocolate bar over broccoli, whereas 22 percent chose the broccoli. However, when an Elmo sticker was placed on the broccoli and an unknown character was placed on the chocolate bar, 50 percent chose the chocolate bar and 50 percent chose the broccoli.

My reaction: Give me a break. You're seriously asking me to believe that 22% of preschool kids will spontaneously choose a piece of broccoli over a chocolate bar? And that merely slapping a picture of Elmo on the broccoli will increase that to 50%? Sorry. I'm not buying it.

And I'm right not to. This study is five years old, had a sample size of 104, and probably took all of an hour to conduct. Here's how it worked:

Researchers went into schools and showed children two cards: one with a picture of broccoli, the other with a snapshot of chocolate. At this stage, 78 percent of the kids preferred the chocolate card. When researchers put Elmo in the chocolate card and a generic red puppet in the broccoli card, the preference for chocolate shot up to 89 percent. But when Elmo was placed next to the broccoli and the generic character next to the chocolate, children's preferences split right down the middle.

Cards! In a classroom! Fuhgeddaboudit! Unless it's real food and the kids really get a free choice, color me unconvinced. The researchers themselves apparently agreed, leading to a proposed followup:

The Atkins grant will fund a broader study that uses real foods rather than photos (as in the first study), and will fund research to see the impact of product placement (broccoli, not chocolate) in Sesame Street episodes. Research begins as early as fall, with results as early as fall 2006.

Hmmm. And what happened to this study? Beats me. If it ever got completed, I can't find it. That might be because I don't know how to search for it properly, or it might be because it produced null results and therefore got tossed in the same dustbin as all the other null results that make for boring reading and never find a home. If anybody knows anything about it, let us know in comments.

DISCLOSURE NOTIFICATION: Like our 41st president, I can't stand broccoli. And I adore chocolate. So I'm naturally skeptical. It's true that we'll be having broccoli with our roasted chicken tonight, but only if by "we" you actually mean "Marian." I'll be having a salad or something.

## The Cost of Medicaid Expansion

| Tue Apr. 20, 2010 5:34 PM EDT

I got an email a few days ago asking whether the Medicaid expansion included in the healthcare reform bill would blow up state Medicaid budgets. I answered it and then forgot about it. Or I would have, anyway, except that we have an election for governor this year in California and Silicon Valley zillionaire Steve Poizner keeps running ads on my TV accusing Silicon Valley zillionaire Meg Whitman of, somehow, supporting Obamacare, which will blow up the state budget. Poizner's attack doesn't even make sense — it's just another round of these two moderate Republicans denouncing each other for being too liberal — but still: will Obamacare blow up state budgets? Basically, the answer is no:

The federal government will assume 100 percent of the Medicaid costs of covering newly eligible individuals for the first three years (2014-2016). Federal support will phase down slightly over the following several years, so that for 2020 and all subsequent years, the federal government is responsible for 90 percent of the costs of covering these individuals. According to CBO, over the next ten years, the federal government will pay $434 billion of the cost of the Medicaid expansion, while the states will pay roughly$20 billion.

So it won't cost states an extra dime through 2016, by which time our recession will presumably be over, and even after that states will only pay for a tiny fraction of the increased costs. As CBPP points out, states will pay about 4% of the total costs of Medicaid expansion over the next ten years. This represents an increase in overall state Medicaid spending of slightly over 1%.

Put another way, that $20 billion in state spending will insure an additional 16 million people, which works out to a cost per person of$125 per year over the next decade.  That's a pretty good deal. And not exactly fiscal Armageddon.

## Quote of the Day: The Financial Doomsday Machine

| Tue Apr. 20, 2010 4:00 PM EDT

From noted pinko Martin Wolf, after observing that the real cost of the recent financial meltdown is far more than official estimates:

Financial systems are important servants of the economy, but poor masters. A large part of the activity of the financial sector seems to be a machine to transfer income and wealth from outsiders to insiders, while increasing the fragility of the economy as a whole. Given the extent of the government-induced distortions in the system, even the fiercest free marketeer should accept this.

Italics mine. So what to do? "There are two broad approaches now under discussion. The official one is to make something roughly like the present system far safer, by raising capital and liquidity requirements, moving derivatives on to exchanges and enforcing prudential regulation. The alternative is structural reform. Which is the least bad option? I plan to address that issue next week." Betcha he votes for structural reform.

## Fact Checking the Sunday Talkers

| Tue Apr. 20, 2010 2:31 PM EDT

A few weeks ago, Jake Tapper of ABC's This Week asked PolitiFact to fact check his show. None of the other Sunday shows have followed suit, and Jay Rosen wonders why. In particular, he wonders why David Gregory, the host of NBC's Meet the Press won't do it:

I see two other possibilities for his refusal to adopt the fact check: one banal, the other more troubling. The banal: He's too proud to adopt something that a competitor picked up on first; it would look like a "me too" response and he is the market leader, first in the ratings and heir to the chair that Tim Russert held. The more disturbing possibility is that he thinks Tapper's policy may give Meet the Press a competitive edge in booking guests who won't want to be checked so vigorously. (As opposed to competing with an even better fact check, which would probably cause Bob Schieffer at Face the Nation to adopt the same policy, forcing the guests to accept the new rules or flee to cable, which has a fraction of the viewers.)

Look at it this way: the Washington politician who's been on Meet the Press more than any other is John McCain. On April 6, Politifact's truth-o-meter rated McCain a pants-on-fire liar for claiming that he never called himself a maverick. See what I mean?

This whole thing has always struck me as just a little odd. Does fact checking guests motivate them to stay away from your show? If the fact checking were aired on the following week's show it might have an impact, but all Tapper is doing is posting the PolitiFact writeups on the show's website later in the week. Are there really any politicians who are afraid of this?

The whole fact checking idea seems like it has possibilities, but unless it's done on the air by a group with editorial independence, it's hard to see it having much impact. A web-based fact check just doesn't draw much of an audience. (Via Steve Benen.)

UPDATE: Tapper responds via Twitter: "Rome wasn't built in a day. The original @jayrosen_nyu proposal was for a web-based fact check, we're trying it out."

## Hating on Wall Street

| Tue Apr. 20, 2010 2:13 PM EDT

Via John Sides, here's the result of a Gallup poll that tested question wording on financial reform:

This isn't a huge difference, but it's certainly worth noting. The spread in favor of regulation is 14 points when you mention "Wall Street" banks but only 3 points when you don't. Republicans, of course, are well aware of this already, which is why they've chosen to endlessly repeat "Wall Street bailout" as their preferred lie about what the Senate financial reform bill does. Surely the good guys should be doing the same?

(Not lying, that is. The "Wall Street" thing.)

## Today is Weed Day

| Tue Apr. 20, 2010 12:56 PM EDT

The first time I ran into the term "420" as a reference to marijuana smoking was last year when I was writing my magazine piece about pot legalization. Why did it take until I was age 50 to hear about this? Because I'm practically Mormon in my personal habits and for some reason the term has never really gotten a lot of play in mass culture. But just for fun, here's Ryan Grim explaining where it came from:

A group of five San Rafael High School friends known as the Waldos — by virtue of their chosen hang-out spot, a wall outside the school — coined the term in 1971. The Huffington Post spoke with Waldo Steve, Waldo Dave and Dave's older brother, Patrick, and confirmed their full names and identities, which they asked to keep secret for professional reasons. (Pot is still, after all, illegal.)

....One day in the Fall of 1971 — harvest time — the Waldos got word of a Coast Guard service member who could no longer tend his plot of marijuana plants near the Point Reyes Peninsula Coast Guard station. A treasure map in hand, the Waldos decided to pluck some of this free bud.

The Waldos were all athletes and agreed to meet at the statue of Loius Pasteur outside the school at 4:20, after practice, to begin the hunt. "We would remind each other in the hallways we were supposed to meet up at 4:20. It originally started out 4:20-Louis and we eventually dropped the Louis," Waldo Steve tells the Huffington Post.

The first forays out were unsuccessful, but the group kept looking for the hidden crop. "We'd meet at 4:20 and get in my old '66 Chevy Impala and, of course, we'd smoke instantly and smoke all the way out to Pt. Reyes and smoke the entire time we were out there. We did it week after week," says Steve. "We never actually found the patch."

But they did find a useful codeword. "I could say to one of my friends, I'd go, 420, and it was telepathic. He would know if I was saying, 'Hey, do you wanna go smoke some?' Or, 'Do you have any?' Or, 'Are you stoned right now?' It was kind of telepathic just from the way you said it," Steve says. "Our teachers didn't know what we were talking about. Our parents didn't know what we were talking about."

At 4:20 today I'll probably be.....blogging. Or reading a paper on financial reform. Or ingesting another chapter of This Time Is Different. Exciting! For the rest of you who plan to mark April 20 with a little more gusto, happy toking. Maybe soon you'll be able to do it legally.

## Reining in Derivatives

| Tue Apr. 20, 2010 12:20 PM EDT

Noam Scheiber brings us up to speed on the state of play of derivatives regulation in the Senate finance reform bill. Big banks, it seems, are actually feeling a little fear these days:

The reason the recent developments are so remarkable is that all reforms tend to weaken as they get closer to passage, as legislators hash out compromises with powerful interests in order to secure a deal. Bizarrely, financial reform appears to be headed in the opposite direction. When it comes to derivatives, at least, the bill Senator Chris Dodd moved through his Banking Committee in March was significantly tougher than the bill the House passed in December. Then, last week, Lincoln shocked Wall Street by producing an even tougher bill than that.

....What happened? For weeks, Wall Street had viewed the Dodd language as a placeholder while Lincoln and [Saxby] Chambliss hashed out the real details. Instead, the practical effect of the Dodd language was to create a minimum standard of toughness from which Democrats would be unwilling to retreat. As Lincoln and Chambliss bargained in March, the administration began to focus on the issue and discovered its popular resonance....By the time Lincoln finally sent the administration the contours of a possible deal with Chambliss the week of March 29th, there was no way the deal could pass muster. Several days later, Michael Barr, the assistant Treasury secretary with the derivatives portfolio, told Lincoln's staff the administration would be unable to support it because it weakened the Dodd bill.

This really does seem to be the one ray of sunshine on the regulatory front right now. I'm only lukewarm toward the rest of the Dodd bill (and its House counterpart), but the soap opera over OTC derivatives regulation really has been moving in the right direction lately. And despite the best efforts of the Chamber of Commerce to pretend that regulating derivatives will hurt ordinary businesses, nobody is buying it. Derivatives may not have been the primal cause of 2008's financial meltdown, but there's no question that (a) they helped things along and (b) the social value of complex credit derivatives is pretty close to zero. It really is just the pure shuffling around of money for the sake of generating huge fees for the five big players in the market.

That makes this a pretty easy win for Democrats if they're willing to seize it. Serious derivatives regulation is good policy since Lincoln's proposal would improve the stability of financial markets. It's good electoral politics since there's no public constituency in favor of weak regulation — especially since media coverage of derivatives has actually been fairly widespread and uniformly negative. And finally, it's good partisan politics since it exposes natural fault lines in the Republican Party. "The one tactical question Democrats do agree on," says Scheiber, "is that the GOP is ready to crumple."

Blanche Lincoln's derivatives language is actually so tough that at first I didn't take it seriously. I figured it was just for show (she's facing a primary challenge from the left and needs some anti-Wall Street cred) and would get negotiated away pretty quickly. But regardless of whether that was her intent, these things sometimes gain a momentum of their own. Right now, it looks like serious derivatives regulation might have a legitimate shot at becoming law.

## Why Are Banks Are So Rich?

| Tue Apr. 20, 2010 11:32 AM EDT

Annie Lowrey writes about the continuing spectacular profitability of Wall Street banks:

This is not quite a picture of a healthy industry. In a competitive marketplace, prices and fees at Wall Street firms should fall and margins should become thinner.

....The profits point to a lack of competition. That is one thing the Dodd bill — via derivatives regulation — attempts to fix. Right now, Wall Street firms do not bid for big derivatives contracts — they simply quote a price and work over-the-counter. For that reason, derivatives are wildly profitable for the companies. The Dodd bill will force derivatives pricing to become public to the market, driving down margins as companies compete.

Over the past several decades, finance has gotten bigger, faster, more global, and more computerized. In other words, more commoditized. That should drive profits down. But it hasn't. James Crotty of the University of Massachussetts calls this Volcker's Paradox, "the seemingly strange coexistence of intense competition and historically high profit rates in commercial banking," because it was first pointed out by Paul Volcker back in 1997. And in a paper he wrote a couple of years ago, Crotty identified four reasons for this paradox:

1. Rapid growth in the demand for financial products and services in the past quarter century.
2. Rising concentration in most major financial industries that makes what Schumpeter called “corespective” competition and the exercise of market power possible (thus raising the possibility that competition is not universally as intense as Volcker assumed).
3. Increased risk-taking among all the major financial market actors that has raised average profit rates.
4. Rapid financial innovation in over-the-counter derivatives that allows giant banks to create and trade complex products with high profit margins.

So: rising demand, reduced competition, higher leverage, and the growth of opaque OTC derivatives that are easy to overprice because they're one-off products that can't be easily compared to each other. As Lowrey says, the Dodd bill might address reason #4 if it ends up truly forcing most derivatives to be exchange traded, but it doesn't do much about the other three. Most likely, then, financial sector profitability is going to stay high even after financial reform has been passed, and that means the power of bankers over Congress is going to stay high too.

UPDATE: I've been trying to remember all day where I first saw this paper. Answer: over at Mike Konczal's place. He links to it here, along with lots of other interesting commentary about bank profitability.

## Factlet of the Day

| Mon Apr. 19, 2010 10:38 PM EDT

Pepsico has developed a new shape for sodium chloride crystals that the company hopes will allow it to reduce salt by 25 percent in its Lay's Classic potato chips.

A new shape for salt? How about that. I suppose the crystals somehow have more surface area or something like that. More importantly, though, this comes from an article describing a new FDA initiative to reduce the amount of salt in food:

The government intends to work with the food industry and health experts to reduce sodium gradually over a period of years to adjust the American palate to a less salty diet, according to FDA sources, who spoke on the condition of anonymity because the initiative has not been formally announced.

...."This is a 10-year program," said one source. "This is not rolling off a log. We're talking about a comprehensive phase down of a widely used ingredient. We're talking about embedded tastes in a whole generation of people."

I am so in favor of this. It's sort of like the Do Not Call list: I don't really care about ideology here, and I don't really care if this is nanny statism or government overreach or anything else. I'm just totally in favor. And you know what? By the time this is done, my guess is that nobody will even remember a difference. They'll just be eating healthier food that tastes better and doesn't cause as many strokes or heart attacks. Three cheers for the FDA.