Kevin Drum

Sticky Benefits

| Thu Oct. 15, 2009 2:10 PM EDT

As this CBPP chart points out, there was no net inflation in 2009, which means that Social Security recipients won't receive a benefit increase in January.  Sacre bleu!  That can hardly be allowed, so naturally politicians are taking swift action:

President Obama on Wednesday attempted to preempt the announcement that Social Security recipients will not get an increase in their benefit checks for the first time in three decades, encouraging Congress to provide a one-time payment of $250 to help seniors and disabled Americans weather the recession.

....An increase in benefit checks each January has been a yearly ritual since the mid-1970s, when the government moved to ensure that its subsidies to retirees, pension recipients and others who receive Social Security benefits kept pace with inflation. Thursday's announcement by the Labor Department will mark the first time that the federal formula used since then, which is tied to the consumer price index, will translate into no increase at all.

Now, I don't really have any objection to giving seniors an extra little bonus this year. Their 401(k)s and whatnot are sucking pretty bad, so why not?  A little extra stimulus is a good idea even if this isn't the most defensible use of federal money I can think of.

Still, this does go to show the power that sustained inflation holds on our imaginations.  Technical arguments about CPI calculations aside, the fact is that seniors haven't gotten a benefit increase for decades.  It's just not the way the program works.  But the fact that their checks keep going up makes it seem like they have.  So now, despite the fact that the huge benefit increase of last January combined with the deflation of the past 12 months means seniors really are getting higher benefits for the first time in recent memory, it doesn't seem like it.  So adjustments must be made and appearances kept up.  Sticky wages indeed.

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Cracking the Whip

| Thu Oct. 15, 2009 1:30 PM EDT

Is it really true that the Democratic leadership acts like a high school social club while the Republican leadership acts more like the mafia?  Step out of line in GOP-land and they'll make you pay dearly: money, committee assignments, and more will be savagely withdrawn if you vote the wrong way.

Maybe.  But Politico reports that Republicans might not be quite the tough guys they were a decade ago:

Mitch McConnell and his deputies in the Senate Republican leadership are responding very cautiously to Olympia Snowe’s decision to become the first GOP vote for a Democratic health care reform bill.

....Senate Minority Whip Jon Kyl (R-Ariz.) [...] said a heavy-handed approach “doesn’t work.” And indeed, it could backfire — not just with Snowe but with other Republicans who’ve indicated that they could cross over to help Democrats pass some of President Barack Obama’s top domestic policy initiatives.

....Republican leaders know that if they crack down hard on Snowe, they risk pushing her and other wavering Republicans into the arms of the Democrats. So, instead, they’ll lobby their own intensely in order to keep the GOP united and force the Democrats to find 60 votes by themselves.

Well, it's tougher to maintain discipline as a minority party than it is when you're in the majority.  And John Boehner is no Tom DeLay.  In any case, maybe they've given up: healthcare reform now seems to have devolved into a furious battle over last-minute goodies, which is probably good news.  That's what usually happens when a bill actually looks likely to pass and everyone wants to make sure they aren't left off the gravy train.  They wouldn't be bothering if they thought the whole thing was never going to see the light of day.

Revenge of the Nerds

| Thu Oct. 15, 2009 12:10 PM EDT

This is so far over my head that it might as well be written in Martian, but it's still fascinating in its own geeky way.  A new paper by a group of Princeton computer scientists and economists uses Intractability Theory to demonstrate that a smart underwriter can deliberately construct a derivative that will implode and the buyer can never prove it.  Not even in theory:

The paper shows the example of a high-volume seller who builds 1000 CDOs from 1000 asset-classes of home mortages. Suppose the seller knows that a few of those asset classes are "lemons" that won't pay off. The seller is supposed to randomly distribute the asset classes into the CDOs; this minimizes the risk for the buyer, because there's only a small chance that any one CDO has more than a few lemons. But the seller can "tamper" with the CDOs by putting most of the lemons in just a few of the CDOs. This has an enormous effect on the senior tranches of those tampered CDOs.

In principle, an alert buyer can detect tampering even if he doesn't know which asset classes are the lemons: he simply examines all 1000 CDOs and looks for a suspicious overrepresentation of some of the asset classes in some of the CDOs. What Arora et al. show is that is an NP-complete problem ("densest subgraph"). This problem is believed to be computationally intractable; thus, even the most alert buyer can't have enough computational power to do the analysis.

Arora et al. show it's even worse than that: even after the buyer has lost a lot of money (because enough mortgages defaulted to devalue his "senior tranche"), he can't prove that that tampering occurred: he can't prove that the distribution of lemons wasn't random. This makes it hard to get recourse in court; it also makes it hard to regulate CDOs.

This gives caveat emptor a whole new meaning.  As if we didn't already know.

Quote of the Day

| Thu Oct. 15, 2009 11:08 AM EDT

From John Shadegg (R–Ariz.), searching for just the right words to describe Democratic efforts to make sure everyone has access to decent healthcare:

You know, it occurs to me, and I’ll go through these other scandals very quickly, but what we’re really getting here is we’re not just getting single-payer care. We’re getting full on Russian gulag, Soviet-style gulag health care [...] It appeared in last Friday’s Wall Street Journal. You can Google it. You can pick up the phone and call Kim Strassel. You can ask her about Soviet-style gulag health care in America, where powerful politicians protect their constituents.

OK, OK, this was really a quote from yesterday.  Sue me.  But it's a good example of what I mean when I suggest that today's right-wing lunacy is different from left-wing lunacy of the Bush years.  Sure, there were lefty bloggers who went over the top about Amerika and how the NSA was bringing 1984 to life and so forth, but for the most part you didn't have members of Congress taking to the House floor and joining in.  They largely managed to keep a slightly more even keel.  But on the Republican side, after a mere few months of Obama, this kind of stuff has become routine.  They've joined the Caps Lock crowd feet first.

In other words, they're nuts.  A Soviet gulag?  Does this clown even know what a gulag is?

Goldman and the Economy

| Thu Oct. 15, 2009 10:49 AM EDT

Do rising profits on Wall Street mean that the economy is finally starting to pick up?  Not quite.  Here's how Goldman Sachs' soaring third-quarter revenue breaks down:

Goldman's business from fixed income, currency and commodities trading again bolstered its bottom line, with revenue more than tripling. Revenue from its principal investments soared 55% from second quarter after losing money a year earlier.

Investment-banking revenue fell 31% and financial advisory revenue dropped 47%.

In other words, even more than usual, Goldman is a hedge fund with a smallish investment bank tacked onto the side.  They made better bets than the other guys, but the kind of business that would indicate a recovering economy is still very much in the tank.

Burn it Down and Salt the Earth

| Wed Oct. 14, 2009 2:20 PM EDT

The Wall Street Journal reports that the good times are rolling again:

Major U.S. banks and securities firms are on pace to pay their employees about $140 billion this year — a record high that shows compensation is rebounding despite regulatory scrutiny of Wall Street's pay culture.

....Total compensation and benefits at the publicly traded firms analyzed by the Journal are on track to increase 20% from last year's $117 billion — and to top 2007's $130 billion payout. This year, employees at the companies will earn an estimated $143,400 on average, up almost $2,000 from 2007 levels.

I sort of feel like I've run out of things to say about this.  There's an insanity here that's almost beyond analysis.  Wall Street can spark an economic slowdown that misses destroying the planet and causing a second Great Depression only by a hair's breadth — said hair being an 11th hour emergency infusion of trillions of taxpayer dollars — and then turn around and use those trillions to return to bubble levels of profitability within a year.  And they can do it even though the rest of the economy is still suffering through the worst recession since World War II.  It's mind boggling.

Is there any silver lining here?  Probably not, but I'll try: If Wall Street can shrug off the worst recession of our lifetimes as if it's a minor fender bender and get the party rolling all over again in less than 12 months, it means the next bubble is already in the works and its collapse will be every bit as bad as this one.  That in turn means it will almost certainly happen while today's politicians are still in office.  So maybe news like this will finally spur lawmakers to realize once and for all that the financial industry needs to be cut down to size.  Half measures won't do it.  Self-regulation won't do it.  Compensation limits won't do it.  Byzantine, watered-down rules won't do it.  Something like a Morgenthau Plan for Wall Street is the only thing that has even half a chance of working.

Will Congress finally get this?  Probably not.  The financial lobby is just too strong.  But we can hope.

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Karzai Revisited

| Wed Oct. 14, 2009 1:06 PM EDT

Matt Yglesias pushes back today on my contention that a counterinsurgency effort in Afghanistan is probably doomed unless the national government is largely accepted as legitimate by the Afghan public.  He's not in favor of a big COIN effort, but:

At the same time, I think [] critics have developed a tendency to drastically understate the extent to which COIN could “work” in Afghanistan.

....I went and looked up the most corrupt countries on earth at Transparency International and [...] Afghanistan, as you can see, is pretty corrupt. That said, it’s not really far out of line with local norms. Sundry other central Asian states join it at the bottom of the barrel. And while it’s true that some of the most corrupt countries are anarchic failed states, the examples of Myanmar and Turkmenistan clearly indicate that establishing effective control over your territory doesn’t at all require you to develop good governance or be respected by the people.

Well, sure, but I don't think anyone is arguing that corrupt states can't be effective.  The difference, though, is that a foreign superpower isn't fighting a war in any of those other places.  That's the issue: not whether corrupt states can "work," but whether a foreign army can successfully fight an insurgency when it's allied with a government that has little local support.  In fact, the success of the surge in Iraq, which Matt mentions, is precisely due to the fact that, corrupt or not, Nouri al-Maliki's government had built up a shaky but workable coalition among Shiites, Kurds, and Sunnis.  It wasn't exactly a shining beacon of good governance, but a combination of bribery, al-Qaeda overreach, sectarian cleansing, and a ceasefire from the biggest opposition group opened up just enough space for a counterinsurgency operation to work.  Without at least that minimal level of support for the Maliki government, the surge almost certainly would have failed.

In the modern era, as far as I know, the track record of success for counterinsurgencies led by foreign powers fighting alongside unpopular local governments is approximately zero.  In fact, I'm pretty sure it's exactly zero.  So the question isn't whether Karzai is corrupt — of course he is — the question is how wide his support is.  That's actually a bit of a tricky question, especially in the fractious tribal politics of Afghanistan, but it's the question to ask.  Corruption is just a symptom, not the core problem.

To Jab Or Not To Jab?

| Wed Oct. 14, 2009 12:20 PM EDT

I think Shannon Brownlee is on a crusade to convince me never to see a doctor again.  And she's doing a good job!  Today, she has a pretty interesting article in the Atlantic questioning whether flu vaccines actually have any effect at all:

Study after study has found that people who get a flu shot in the fall are about half as likely to die that winter — from any cause — as people who do not....Yet in the view of several vaccine skeptics, this claim is suspicious on its face.....When researchers from the National Institute of Allergy and Infectious Diseases included all deaths from illnesses that flu aggravates, like lung disease or chronic heart failure, they found that flu accounts for, at most, 10 percent of winter deaths among the elderly. So how could flu vaccine possibly reduce total deaths by half? Tom Jefferson, a physician based in Rome and the head of the Vaccines Field at the Cochrane Collaboration, a highly respected international network of researchers who appraise medical evidence, says: “For a vaccine to reduce mortality by 50 percent and up to 90 percent in some studies means it has to prevent deaths not just from influenza, but also from falls, fires, heart disease, strokes, and car accidents. That’s not a vaccine, that’s a miracle.”

....The history of flu vaccination suggests other reasons to doubt claims that it dramatically reduces mortality. In 2004, for example, vaccine production fell behind, causing a 40 percent drop in immunization rates. Yet mortality did not rise. In addition, vaccine “mismatches” occurred in 1968 and 1997: in both years, the vaccine that had been produced in the summer protected against one set of viruses, but come winter, a different set was circulating. In effect, nobody was vaccinated. Yet death rates from all causes, including flu and the various illnesses it can exacerbate, did not budge.

So why do people who are vaccinated get less sick?  Skeptics say it's because people who get the vaccine are healthier in the first place.  In fact, it's called the "healthy user effect" (catchy!), and a researcher named Lisa Jackson did a study a few years ago showing that people who got vaccinated during flu season were also much less likely to die even outside flu season.  They really do seem to be a healthier group in the first place.

So what to do?  I've never gotten a flu vaccine before, and to the best of my knowledge I've never had the flu either.  I was thinking of finally caving in this year and getting one, but now I'm not so sure.  I don't suppose it does any harm, but I don't generally accept that as a good reason for doing anything else, so I'm not sure why I'd find it persuasive in the case of flu vaccines either.

In any case, apparently there's wide agreement even among skeptics that the vaccine is effective in children, and that immunizing healthcare workers and some others is a good idea in order to prevent the spread of flu.  For the rest of us, I guess it depends on who you believe.  Either way, though, Sumit Majumdar, a physician and researcher at the University of Alberta, offers this advice: “There’s no worse place to go than the hospital during flu season.  But we don’t tell people this.”  Now he has.

UPDATE: After reading through the comments, I realize that my writing here was sloppy.  Apologies.  So just to be clear: Brownlee's article questions whether the flu vaccine reduces flu deaths, not whether it works at all.  If you want to reduce your chance of getting the flu and feeling crappy for a couple of weeks, get the shot.  It might or might not have much effect on your risk of dying, but it does lower your risk of getting sick.

Chutzpah Watch

| Wed Oct. 14, 2009 11:27 AM EDT

Via Dan Drezner, I see that the Saudis have an intriguing proposal:

Saudi Arabia is trying to enlist other oil-producing countries to support a provocative idea: if wealthy countries reduce their oil consumption to combat global warming, they should pay compensation to oil producers.

That's obviously not too likely to happen, but someone help me out here.  My recollection is that one of the roadblocks to raising gasoline taxes back in the Carter/Reagan era was Saudi opposition.  They figured it would reduce oil consumption and therefore reduce both oil prices and oil revenue.  So this is basically the same position they've held for 30 years or so.

Is this true?  My memory is vague on this.  But I could swear that this is more of the same old same old, just updated for the 21st century.

The Karzai Problem

| Wed Oct. 14, 2009 1:49 AM EDT

I'm not usually especially smitten with Tom Friedman's musings on war and nation building, but he's on the right page here:

I understand the huge stakes in stabilizing Afghanistan and Pakistan. Gen. Stanley McChrystal, our top commander there who is asking for thousands more troops, is not wrong when he says a lot of bad things would flow from losing Afghanistan to the Taliban. But I keep asking myself: How do we succeed with such a tainted government as our partner?

....I am not sure Washington fully understands just how much the Taliban-led insurgency is increasingly an insurrection against the behavior of the Karzai government — not against the religion or civilization of its international partners. And too many Afghan people now blame us for installing and maintaining this government.

....We have been way too polite, and too worried about looking like a colonial power, in dealing with Karzai. I would not add a single soldier there before this guy, if he does win the presidency, takes visible steps to clean up his government in ways that would be respected by the Afghan people.

If Karzai says no, then there is only one answer: “You’re on your own, pal. Have a nice life with the Taliban. We can’t and will not put more American blood and treasure behind a government that behaves like a Mafia family. If you don’t think we will leave — watch this.” (Cue the helicopters.)

If Obama and McChrystal can come up with a truly plausible plan for stabilizing Afghanistan, I think I could gulp hard and support it.  But the absolute bare minimum requirement for such a plan is a national government that's largely supported by the population.  Like Friedman says, it doesn't have to be Switzerland, but it has to be good enough.  Without that, Afghanistan really is Vietnam 2.0.