Kevin Drum

Republicans Bag a Convert

| Tue Dec. 22, 2009 12:59 PM EST

Apparently some congressman from Alabama named Parker Griffith has decided to switch from the Democratic Party to the Republican.  At first that seemed a little odd.  Yeah, he's pretty conservative for a Democrat, but despite all the pulling of hair and gnashing of these teeth these days, there's really not much chance of Republicans regaining control of the House next November. So why switch to a minority party?

My guess is that Wikipedia tells us pretty much all we need to know:

[The Alabama 5th district] last supported a Democrat for president in 1976, and George W. Bush won the district by double-digit margins in 2000 and 2004.

Due to these trends, most forecasters rated the district as a toss-up. CQ Politics forecasted the race as 'No Clear Favorite', The Cook Political Report ranked it 'Democratic Toss Up', and The Rothenberg Political Report rated it 'Pure Toss-Up'.

Griffith defeated [Wayne] Parker in a sweeping upheaval, taking 52 percent of the vote to Parker's 48 percent.

52% is a "sweeping upheaval"? Sounds more like a squeaker to me.  Most likely then, Griffith is just a reverse Arlen Specter: an ideological centrist who figured that he'd most likely lose reelection in a tough midterm environment if he didn't switch. So he switched.

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Walking Away

| Tue Dec. 22, 2009 12:30 PM EST

Should homeowners who are underwater on their mortgages just walk away the same way a business would if it were broke? Or should they try their uttermost to fulfill their promises, giving up only as an absolute last resort? Both Megan McArdle and Steve Randy Waldman agree that what's at issue here are social norms that we should tamper with gingerly if at all.  Megan says this means borrowers should do everything they can to repay mortgages even if it doesn't make financial sense:

Someone who borrowed money to buy a house in 2006 was borrowing money under the tacit moral norms of the time.  And in that normative system, it is customary and expected that people who borrow money to buy a home, will attempt to pay it back to the best of their ability, and not just walk away because they no longer feel like paying the mortgage.

....If people attached no moral force to debt repayment [...] lending standards would be vastly tighter, and much more dependent on personal relationships with bankers, which sounds all twee and sweet and community oriented but also used to quite firmly restrict access to capital to more affluent citizens who had longstanding relationships with a bank (or had cosigners who did).  It is doubtful that non-recourse mortgages could continue to exist long term — either the law would change, or the mortgage market would shrink dramatically.  Bankruptcy laws would probably become tighter, because unlike the (mostly) dreadful 2005 reform, bankers would have a valid case that loose bankruptcy was curtailing credit access too much.  Trivial blemishes on your credit score would mean that you probably couldn't get a mortgage.  The federally guaranteed mortgage debt business would probably get the same treatment that we have given tax debts and federally guaranteed student loans, which is to say that if the losses became too high, Congress would probably pass a law making it impossible to discharge those debts in bankruptcy.

Steve thinks the moral argument is more forceful on the other side of the lender-borrower relationship:

We have, and have long had, the expression “it’s just business”. When spoken by one businessman to another in the context of even a tragic transaction, like calling in a loan that will force a firm to fold, we recognize the words as legitimate, a kind of apology. But if a businessman uses the same phrase while creating trouble for an individual in her role as customer, tenant, or borrower, it marks the businessman as, well, a jerk (to use McArdle’s very excellent descriptor)....There have always been businesses that sought every legal cover to profitably mistreat people. But such businesses used to be disreputable.

....As McArdle acknowledges (I think) with respect to revolving debt, over the past few decades the financial industry has increasingly applied the norms of hard-nosed business to its interactions with customers....Along a whole variety of dimensions, the financial industry has increasingly violated those expectations. Lenders drafted contracts with fees and other “revenue enhancers” that borrowers are unlikely to fully understand, and profited when borrowers managed them poorly. They enthusiastically marketed loans to individuals whom they were perfectly able to foresee could not easily bear the debt, against collateral whose valuation they knew to be dodgy, then sold those loans via circuitous paths to investors who literally could not know what they were buying.

....I think that underwater homeowners ought to walk away from their loans for the very same reason McArdle want us to consider them jerks for doing so. We both want to see norms we consider valuable enforced. I think that banks violated a great many norms of prudence and fair dealing in their practices during the credit bubble, and that they violate the fundamental norm of reciprocity by fully exploiting their own legal rights while insisting that borrowers have a moral obligation not to exercise a contractual option. In order to strengthen norms I consider crucial, I hope transgressors face legal and social consequences (strategic default and reduced shame attached to default) that will alter their behavior going forward.

I'm going to punt. We have a pretty good idea of what happens when norms break down on the lender side (housing bubble, big crash, huge recession, etc.), but we don't have a very good idea of what would happen if borrower norms broke down even further than they did during the bubble. Tentatively, then, I'd side with Steve: better to deal firmly with the devil we know than to worry overmuch about the devil we're only guessing at, especially when devil #1 is the far more knowledgable and deep-pocketed one. That said, I think both Megan and Steve make good and intriguing points, and I don't feel like I've thought about this long enough to take a firm stand on either side.  But it's a good conversation, worth reading in full. Here it is: Megan #1, Steve #1, Megan #2, Steve #2.

Is Obama a Patsy?

| Tue Dec. 22, 2009 11:20 AM EST

Over at TNR, David Fontana tells the story of Barack Obama's conciliatory attempts to nominate judicial moderates:

Back in September, The New Yorker's Jeffrey Toobin reported that the administration nominated [David] Hamilton in order to show that it was taking a new, post-partisan approach to judicial appointments. And Hamilton is indeed a moderate: He was backed by Richard Lugar, a Republican senator from his home state of Indiana, and was endorsed by the head of the Indiana chapter of the Federalist Society....Yet Hamilton was voted out of the Senate Judiciary Committee on a strictly party-line vote. He was filibustered on the floor of the Senate. And, after cloture was successfully invoked, not a single Republican besides Lugar voted to confirm him.

Hamilton isn't unique. Obama's other federal appellate nominees have also been generally moderate, safe choices. A majority of them have served as prosecutors (usually considered evidence that a judge might lean more to the right than liberals would want). Beverly Martin, a nominee from Georgia, was endorsed by both Republican senators from the state. Albert Diaz was a lawyer for Big Tobacco. Barbara Keenan has upheld the death penalty for crimes committed by juveniles.

But none of this matters.  Hamilton was filibustered and only two of Obama's other 11 nominees have been approved so far. Republicans are engaged in full-on obstruction of everyone Obama nominates no matter what. So why bother trying to make nice? If Republicans are going to do the scorched-earth thing regardless, why not nominate some real liberals?  Scott Lemieux agrees:

I'm generally wary of the idea that Congress would magically start generating better policy if Obama would just become more uncompromising. But with respect to judicial appointments, Obama's preemptive concessions really have been counterproductive. It's not at all surprising that his attempts to put forward moderate appointments is not working — after all, we're dealing with conservatives willing to claim that Cass Sunstein is a wide-eyed radical.

And, what's worse, putting forward moderate nominees will continue the asymmetry in which Republican presidents take the ideological direction of the federal courts very seriously while Democratic presidents are willing to settle for moderates to focus on other priorities. There's no reason to continue this. Given that Republicans will portray anyone to the left of Anthony Kennedy as a lawless Trotskyite, Obama needs to make stronger liberal appointments and accept that not everyone will get confirmed.

I assume the question here is "when," not "if."  Obama clearly seems dedicated to a program of compromise and bipartisan comity, and he wants to keep at it long enough to give it a real chance of working.  But how long is long enough?  I never really believed Republicans were ever likely to respond to olive branches in the first place — they need a few more years in the wilderness before they're willing to really take stock of the corner they've painted themselves into — so I'm not a good judge of this.  But it's been nearly a year now and Republicans, if anything, are more intransigent than they were on inauguration day. How much longer does Obama give them? Another year? Two? At what point does he finally give up and decide that he's just being played for a patsy?

Bernanke and California

| Tue Dec. 22, 2009 1:39 AM EST

Binyamin Appelbaum and David Cho have a nice story in the Washington Post today about the Fed's lackadaisical regulation of banks in the decade before the housing bust.  It's worth a read.  As a native Southern Californian, though, this passage jumped out at me:

In January 2005, National City's chief economist had delivered a prescient warning to the Fed's board of governors: An increasingly overvalued housing market posed a threat to the broader economy, not to mention his own bank and others deeply involved in writing mortgages.

The message wasn't well received. One board member expressed particular skepticism — Ben Bernanke.

"Where do you think it will be the worst?" Bernanke asked, according to people who attended the meeting, one in a series of sessions the Fed holds with economists.

"I would have to say California," said the economist, Richard Dekaser.

"They have been saying that about California since I bought my first house in 1979," Bernanke replied.

I suppose that's true.  But here's the thing: "they" were right.  California went through a housing bubble in the 1980s that burst in 1990.  I should know: I bought a house in 1989 and lost $40,000 on it before finally caving in and selling it four years later.  In all, it took nearly a decade for housing to regain its pre-bubble value — at which point, a brand new bubble was heating up.

It was myopic enough to believe in 2005 that housing wasn't overpriced on a nationwide basis.  But to specifically dismiss concerns about California even though it had been in the trough of a housing crash a mere 10 years earlier? That's just willful blindness.

Healthcare Ping Pong?

| Mon Dec. 21, 2009 7:52 PM EST

Should ping pong become the new liberal sport? That is, should the House just skip the conference committee on healthcare reform entirely and simply vote on the bill produced by the Senate?  This is, for some reason, known as ping-ponging, even though it doesn't really involve any kind of back and forth.  In fact, the whole point is to eliminate the back and forth. But whatever.  Is this a good idea?

I suppose institutional pride will prevent the House from agreeing to do this, but at this point I wonder just what they're likely to gain from a conference report? On abortion, the Senate bill is already better less atrocious than the House bill, its mandate penalty is smaller, and its defined benefit packages are more flexible.

The House bill has several advantages of its own, but among the big ticket items the public option is DOA and the others (somewhat wider coverage and more generous Medicaid expansion) would increase the price of the bill and are pretty clearly unacceptable to the centrist bloc in the Senate.  That leaves the funding mechanisms: an excise tax on high-cost healthcare plans and a higher payroll tax on the wealthy in the Senate bill vs. higher income taxes on the wealthy in the House bill.

The excise tax has a sound policy justification, but a big chunk of the liberal constituency dislikes it anyway and I could certainly see a compromise here: raise the limit on the excise tax so it hits only the very richest plans and then combine it with a smaller income tax hike.  Maybe that's worth going to conference for.  But it's hard to see any other substantial improvements that are likely to come out of it.

So: go to conference and risk another month of squabbling and possible defections?  Or take the imperfect Senate bill and get it passed for certain within a few days of returning from recess? Seems like a close call to me, but ping ponging doesn't look like a bad option at this point.

UPDATE: More here on some of the procedural issues.  Turns out that ping pong might be more likely than we think thanks to yet more Republican obstruction.

UPDATE: 2: Austin Frakt points out another drawback of avoiding a conference committee: there would be no chance to fix the Senate's terrible "free rider" employer mandate.

The Aging of Science

| Mon Dec. 21, 2009 2:57 PM EST

Via Alex Tabarrok, here's sort of an interesting chart showing the age of NIH grant recipients over time.  In a way, it visually understates just how much recipients have gotten older.  In 1970, 61% of grants were given to researchers who were 35 or younger.  In 1980 that fell to 29%, in 1990 to 9%, in 2000 to 4% and in 2007 to 3%. That's a huge drop, and 35 isn't exactly spring chicken age, either.  Make of this what you will.

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Tweet!

| Mon Dec. 21, 2009 1:59 PM EST

The latest tweet from @motherjones:

BREAKING: @kdrum embraces Twitter. Follow him immediately. http://bit.ly/59QyTP

Now that's breaking news!  Where's Drudge's red siren when you need it?

But it's true.  I'm giving Twitter a second try.  So far today I've insulted Richard Cohen and dissed partial RSS feeds.  On Saturday I insulted Pat Toomey and the Club for Growth and on Sunday I insulted some people from North Carolina.  Not bad, eh?  I'll never be another Ashton Kutcher, but I imagine I'll end up tweeting a dozen times a day or so.  If you're interested, I'm at http://twitter.com/kdrum.

The Public Option

| Mon Dec. 21, 2009 1:34 PM EST

Earlier this year I sat next to Jane Hamsher on a plane for an hour or so and we chatted about healthcare. No surprise what the main topic was: she was making the case for an uncompromising stand in favor of a public option, and I was arguing that insurance reform and subsidy levels were more central.  Also unsurprisingly, neither one of us changed our mind.

The demise of the public option, combined with the individual mandate, is at the core of the liberal dislike of the current Senate bill.  Jane summarizes the problem here in her list of ten reasons to oppose the bill:

1) Forces you to pay up to 8% of your income to private insurance corporations — whether you want to or not....3) Many will be forced to buy poor-quality insurance they can’t afford to use, with $11,900 in annual out-of-pocket expenses over and above their annual premiums.

This is hard to argue with.  It's one thing to say that big profits for pharmaceutical companies are valuable because they fund future research, but insurance companies? I think Tyler Cowen is the only person I've seen even trying to make a case that private insurance adds anything much to the healthcare pie, and even he didn't make much of a sustained effort.  Insurers are basically just middlemen, and they add virtually nothing to either the quality or availability of healthcare.

But I still think this needs to be unpacked a little.  First: there's nothing wrong per se with taxpayer money going to private companies.  It happens all the time.  And what's the difference between (a) paying money in taxes that then gets paid out to private companies and (b) being required to pay money directly to the same private companies?  Nothing, really.

So the big question isn't whether the individual mandate is inherently offensive, it's whether a public option improves it much.  And this is where I have a hard time accepting the argument that we should go ballistic over its demise.  Here's the CBO on the various factors that would affect the cost of premiums if a public option were part of the healthcare bill:

Those factors would reduce the premiums of private plans in the exchanges to a small degree, but the effect on the average premium in the exchanges would be offset by the higher premium of the public plan itself. On balance, therefore, the provisions regarding a public plan would not have a substantial effect on the average premiums paid in the exchanges.

Roughly speaking, CBO says that less healthy people would probably choose the public option.  This decreases costs in the private sector but increases them in the public. Net overall effect: nada.  It just moves people around a bit.

Now, my own guess is that if the public option were more robust, and grew over time, it would have a larger effect thanks to administrative efficiencies.  But reality being what it is, I doubt that those efficiencies would amount to much more than 5%.  That's about $500 for a $10,000 policy.

That's not nothing, but it's not much, either.  And it's dwarfed by things like the size of the subsidies and future efforts to rein in healthcare costs.  I'd cheer getting rid of insurance companies, but the cost savings from doing so would be a one-time thing that would get eaten up within a couple of years or so.  It's bending the growth curve of healthcare that's more important, and insurance has very little to do with that. It mostly depends on reforming the provider side and the delivery systems, which can happen within either a public or a private system.

So I guess we come back to where we started: I'd love to have a public option in the Senate bill, but the ground-level benefits seem pretty modest. I just can't see deep-sixing the whole package over it.  Better to pass it now and work on tightening the insurance reforms and expanding the subsidies in the future.  And maybe adding a public option someday too.

Chart of the Day: The $14 Trillion Bailout

| Mon Dec. 21, 2009 12:11 PM EST

This comes from Nomi Prins, and it's part of the package of bailout stories in the new issue of the magazine (available at newsstands now!).  Click to see the whole chart, which adds up programs from both the Treasury and the Fed.  The eventual cost to taxpayers of these programs will be less than $14 trillion, of course, but make no mistake: the value to the banking industry was the whole enchilada.  And despite the much ballyhooed repayment of a fraction of the TARP funds, they're still using most of it.

Kamikaze Democrats?

| Mon Dec. 21, 2009 11:58 AM EST

I see a meme developing among conservative-ish opponents of healthcare reform:

Megan McArdle: "Democrats are on a political suicide mission; I'm not a particularly accurate prognosticator, but I think this makes it very likely that in 2010 they will lost several seats in the Senate — enough to make it damn hard to pass any more of their signature legislation — and will lose the house outright."

Sean Trende: "I don't think they're close to finding their Grail.  I think the better analogy is probably that they're close to their Moby Dick. And we all know what happens to Captain Ahab once he finally harpoons his white whale."

Ross Douthat: "Public opinion has turned dramatically against the bill, and every swing-state Democrat who votes for it is courting political suicide."

Sounds grim! And Trende in particular marshals plenty of wonky, district level evidence to support this view. But I'm going to repeat what I said over the weekend: the Feiler Faster thesis is largely true, and healthcare will be mostly forgotten within a few months.  This bill affects a relatively small number of people; the people who are affected are almost all benefitting from it; and nothing much is going to happen until 2014 anyway.  The tea partiers will stay mad, but they weren't going to vote for Democrats in 2010 regardless.  Moderates and independents, I think, will end up voting on other issues.

Which isn't to say that Dems are going to do well in 2010.  The economy still sucks, after all, and there's additional difficult legislation coming down the pike.  What's more, although I doubt that healthcare reform is a suicide run, it's also true that it doesn't really offer enough short-term benefits to give people much reason to vote for Democrats.

Still, I think the effect will be moderate at most.  The big wild card, though, will be the Jane Hamsher wing of the liberal movement.  If, even after healthcare passes, they decide to keep campaigning against it, that could do some real damage. We'll have to wait and see about that, though.