Kevin Drum

The Long, Hard Slog Revisited

| Wed Oct. 7, 2009 1:15 PM EDT

Yesterday I suggested that Barack Obama hadn't done as much as he could over the past couple of years to move public opinion in specific liberal directions that would help his legislative agenda.  Jonathan Bernstein, after noting correctly that Obama's strategy on healthcare reform has basically been to coopt and bribe all the major players, says this is not just a legislative strategy, but also a strategy for moving public opinion among centrists and independents:

John Zaller tells us [...] that public opinion is led by elites, and that people basically are ready and willing to adopt the opinions of those they like and respect, while they are pretty good at ignoring and rejecting what they hear from those they don't like and don't respect.

Loose partisans and true independents aren't ideologues and are unlikely to become ideologues. What you probably can do — what Reagan probably did — is to teach them, if they like you, to say that they're "conservative" or "liberal" and to adopt a handful of public policy positions that you advocate....But you don't do that by reasoning with them, or with inspiring them with great speeches. You mostly do that, as crude as it sounds, by winning. You do it by creating winning coalitions that put Establishment People on your side.

....The convincing doesn't happen, either in the short term or the long term, from presidential eloquence. The convincing comes when, for example, you've been a Republican main street AMA member all your professional life, and you suddenly find that the AMA is supporting health care reform while the Republicans are attacking the AMA. Even then, you may still be resistant to Obama...until you start hearing him saying the things that you're reading in the AMA newsletter (or however the AMA communicates with doctors. I don't know).

Now, there's no question that Obama and the Democrats in Congress are doing this.  They've basically coopted the insurance companies, the AMA, big pharma, AARP, and corporate interests by giving away goodies to all of them.  This isn't exactly the Schoolhouse Rock version of how a bill becomes law, but it's certainly the real-world way.  And it works pretty well as long as you can get the coalitions to stick together and keep the bribery from stinking up the joint too badly.

But does this actually move public opinion at the same time?  Maybe!  The mechanism here is certainly plausible, and not one that I've paid a lot of attention to in the past.  I'll put it in the back of my mind and give it some thought.

There's no question, though, that winning is indeed a powerful aphrodisiac.  Healthcare reform might be controversial right now, but if Obama gets a bill onto his desk and signs it, it will become a huge triumph almost overnight.  Support for both the bill and for Obama will rise steadily, and Democrats of all kinds will reap the benefit of being seen as tough enough and savvy enough to get it passed.  This is the fundamental reason that I'm optimistic about healthcare reform.  Every Democrat in Congress knows that if reform fails, they'll be viewed as losers and they'll pay the price at the polls in November.  They have to pass something if they want to remain in power.  That's a prospect that concentrates the mind powerfully.

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No Exit

| Wed Oct. 7, 2009 12:48 PM EDT

Betsy McCaughey's mendacious article "No Exit," which ran in the New Republic in 1994, has long been given a share of the credit for killing the Clinton healthcare plan.  Andrew Sullivan, who was TNR's editor at the time, says he's addressed all this before, he's sorry he published the piece, he ran plenty of rebuttals, and anyway Clinton's bill had plenty of other problems too.  Fine.  But he also tells us today that he tried to correct some of McCaughey's worst excesses but failed:

One key paragraph — critical to framing the piece so it was not a declaration of fact but an assertion of what might happen if worst came to worst — became a battlefield with her for days; and all I can say is, I lost. I guess I could have quit. Maybe I should have. I decided I would run the piece but follow it with as much dissent and criticism as possible. I did discover that she was completely resistant to rational give-and-take. It was her way or the highway.

He lost?  He was the magazine's editor.  So who forced him to run the piece?  Andrew says he doesn't think it's professional to "air the specifics of internal battles after the fact," but you can hardly go this far without doing exactly that.  He's basically implying pretty strongly that he didn't want to run the piece but had to anyway, and had to run it precisely to McCaughey's specifications.  That's pretty extraordinary.  Having said that much, surely he owes us the rest of the story?

Restarting the Credit Markets

| Wed Oct. 7, 2009 12:26 PM EDT

The New York Times reports that bank lending is still frozen because the debt securitization market, which collapsed last year, is still dead.  And if banks can't bundle up their loans, securitize them, and sell them off, they just won't make any loans.  "As long as the market remains closed," says the piece, "banks will be reluctant to make loans for commercial real estate, since they would have to hold on to them, rather than package them into securities."  Paul Krugman is curious about this:

But here’s my question: why does it have to be a return to shadow banking? The banks don’t need to sell securitized debt to make loans — they could start lending out of all those excess reserves they currently hold. Or to put it differently, by the numbers there’s no obvious reason we shouldn’t be seeking a return to traditional banking, with banks making and holding loans, as the way to restart credit markets. Yet the assumption at the Fed seems to be that this isn’t an option — that the only way to go is back to the securitized debt market of the years just before the crisis.

Why? Are we still convinced that securitization is a far superior system to conventional banking, and if so why?

Good question.  Does it have to do with still weak bank capitalization?  After all, if banks are still deleveraging, there's no way for them to expand their loan books unless they can sell off the new loans they make.  So it's either securitization or nothing.

Alternatively, it could be that banks simply aren't willing to take on the risk of new loans and are only willing to extend credit if they can sell off the risk to someone else.  But that doesn't seem like much of an explanation.  Back in the boom years, there were plenty of eager buyers for loan bundles who didn't care much about the quality of the underlying loans, but those days are long gone.  If the loans aren't top notch, nobody will take them.  So there's not much point in trying to move the risk around just for its own sake.

In any case, I wonder if this is really a worthwhile concern?  Securitization has been around for decades and isn't necessarily a bad thing.  It only becomes bad when the securities themselves, which are relatively simple, get bundled into ever more complex bundles of CDOs, CLOs, synthetic CDOs, etc. etc., all with implicit leverage of 30:1.  It's the second and third level bundling and the outrageous leverage that helped fuel the recent credit bubble, not plain jane securitization.

Anybody have some alternative explanations?

Chart of the Day

| Tue Oct. 6, 2009 8:26 PM EDT

Good news for haters of the nanny state: New York City's new law requiring calorie counts on chain restaurant menu boards doesn't appear to be making any difference.  In fact, it might be causing people to eat more.

The full study is here.  Results are below.  The researchers chose 14 fast-food outlets in low-income NYC neighborhoods (Newark was a control group) and interviewed a few hundred people both before and after the calorie labeling law went into effect, asking them if they'd noticed the calorie counts and if they'd changed their selection because of it.  Then they got receipts from each respondent so they could find out what they'd actually purchased.

The results were pretty dismal: only about half the respondents even noticed the calorie counts and only 15% said they influenced their choice.  But the receipts told an even more dismal story: overall, people actually purchased more calories after the law went into effect.  The results aren't statistically significant, though, so basically all the researchers can really say is that the law (so far) hasn't had any effect.  The only glimmer of good news is that among people under 35, respondents who noticed the labeling did seem to cut back a bit.  No other subgroup showed any effect.  So who knows?  Young people probably respond to this kind of thing more quickly than older people, so maybe it's just going to take some more time before all this stuff sinks in.

Sucking You Dry

| Tue Oct. 6, 2009 3:06 PM EDT

I've written a bit lately about how banks make a lot of money by exploiting complexity and confusion.  This works all the way from the small (overdraft fees) to the huge (weird credit derivatives that no one really understands).  Apparently the healthcare industry, which was never exactly a model of straight talk and plain speaking in the first place, is taking lessons.  No longer content to simply bill for procedures, they've started including a separate "facility fee" for every visit:

One billing consultant has estimated that the fees could generate an additional $30,000 annually per physician for hospitals.

Critics [...] regard the fees as disguised price increases that ratchet up the cost of care at a time consumers can least afford it. Many say that facility fees underscore the urgent need for transparency in pricing for medical services and exemplify the relentless cost-shifting that is driving more Americans into medical debt and bankruptcy. It is common for facility fees to be applied to an insurance plan's hospital deductible, which can be thousands of dollars higher than a physician deductible.

...."It's like a barber saying, 'That'll be $20 for a haircut and $10 for sitting in my chair,' " said Wisconsin state Rep. Chuck Benedict, a Democrat and retired neurologist from Beloit. Benedict's bill to require hospitals to post notices about the fees and furnish upfront cost estimates was defeated in 2007; he has introduced a similar bill this year. Legislation has also been proposed in New Hampshire.

How do they get away with this? You'll be unsurprised to learn that it's all due to a weird loophole inserted in federal legislation a few years back:

[Facility fees are] the result of an obscure change in Medicare rules that occurred nearly a decade ago. Called "provider-based billing," it allows hospitals that own physician practices and outpatient clinics that meet certain federal requirements to bill separately for the facility as well as for physician services. Because hospitals that bill Medicare beneficiaries this way must do so for all other patients, facility fees affect patients of all ages. Doctors' offices owned by physicians and freestanding clinics are not permitted to charge them.

And how do you find out if the the clinic you're going to is allowed to assess the fee?  Good luck!  The short answer is that you probably can't.

Anyway, you all know what I'm going to say next, don't you?  So I'll say it: the American public is flat out nuts to put up with this.  It's not as if France and Sweden have solved all the world's healthcare problems or anything, but at least they've solved this one.  If you need medical care in those countries, you just go to your doctor and get it.  No games, no tricks, no hidden fees.  Why anyone would prefer our fantastically expensive, jury-rigged, insecure, and maddeningly complex system to theirs is beyond me.

Capitalism: A Love Story

| Tue Oct. 6, 2009 2:22 PM EDT

Yesterday I saw Michael Moore's Capitalism: A Love Story.  It was kind of discouraging.

But not for the obvious reason.  Right now I'm working on a piece for the magazine that has a different focus than Moore's film but basically the same theme: the outrageous conduct of the financial industry over the past decade or so.  But it turns out this is really hard to document.  Surprisingly hard.  There's plenty of outrageousness to choose from, but most of it is either too dry (numbers, numbers, numbers), too complex to hit you in the gut (derivatives, Fed policy, etc.), too distant from the real center of action, or too hidden to really get at effectively.  Moore, it turns out, had the same problem.

For example, there's a segment early in the film about the Wilkes-Barre "Kids for Cash" case, where a local judge cozied up with a private juvenile detention facility and sent lots of kids there who hadn't really done anything to merit being locked up.  That's outrageous!  But it's also garden variety fraud, not a serious slam against capitalism.

Likewise, the segment on Detroit is heart wrenching, but frankly, not really a condemnation of either capitalism or Wall Street's recent escapades.  And when, toward the end of the film, Moore does turn his lens on Wall Street, he never really lands a killing blow.  There's a mishmash of public stunts (the "citizen's arrest" gag), criticism of TARP and Goldman Sachs, some hits on the cult of deregulation, and a few other things, but they never quite add up.  He's obviously trying to make the point that the finance industry (and, more broadly, the rich) basically own Congress and everything else, but at least for me, it never quite came together.  It was just too scattershot.

And I really wanted it to come together.  Because, as I said, that's pretty much the theme of the piece I'm writing right now, and I'm having a helluva hard time with it.  Like a lot of people, I believe pretty strongly that if the public really understood everything that had happened over the past decade, it would be torches and pitchforks time.  But making the case is a lot harder than it sounds.  Even Michael Moore, it turns out, had a pretty hard time with it.

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The Nobel Prize for Catblogging

| Tue Oct. 6, 2009 1:21 PM EDT

You think I'm joking, don't you?  Au contraire:

Half of the $1.4 million prize went to Charles K. Kao for insights in the mid-1960s about how to get light to travel long distances through glass strands, leading to a revolution in fiber optic cables. The other half of the prize was shared by two researchers at Bell Labs, Willard S. Boyle and George E. Smith, for inventing the semiconductor sensor known as a charge-coupled device, or CCD for short. CCDs now fill digital cameras by the millions.

Without CCDs to take the pictures and fiber optics to carry them from my house to the server that broadcasts them to the world, there would be no Friday Catblogging.  So congratulations to Drs. Kao, Boyle, and Smith.  The catbloggers of the world salute you.  The cats of the world would salute you too if their appreciation of light went beyond coveting sunny patches on the floor.

The Long, Hard Slog of Change

| Tue Oct. 6, 2009 11:51 AM EDT

Brendan Nyhan takes a look at support for Barack Obama's healthcare plan following his big speech a couple of weeks ago and comes away unimpressed:

There was a small bounce in support for health care reform after the speech, but part of the effect dissipated. Meanwhile, estimated opposition to reform, which dipped in the wake of the speech, quickly rebounded toward previous levels and is now greater than it was before the speech.

....I'm emphasizing this point because there's a misperception among journalists that the president can easily move public opinion. As we've seen again and again over the years, it's simply not true, but the lack of followup by the press means that the lesson is never learned.

I agree on the narrow question here: a single speech by a president probably has very little impact except in the very short term.   But I'm not sure that's the same thing as saying the presidents don't have much effect on public opinion.  It's obviously harder to measure presidential impact the more broadly you look at it, but my guess is that presidents can have a fair amount of impact if they pick one or two subjects and hit on them early and often.

This was one of my criticisms of Obama from the very beginning: his campaign was very good at inspiring people to vote for "change," but that message was only good enough to win the election.  By November 4th, the only specific change in most people's minds when they entered the voting booth was that they didn't want four more years of George W. Bush.

Now, Job 1 in a campaign is to get elected.  And "change" is one of the two classic messages for any winning campaign.  (The other is "experience counts.")  But there's not much point in getting elected unless you can accomplish something once you're in the Oval Office, and that requires a public that's solidly behind your legislative program.  Unfortunately, that's something Obama never really got, because he didn't want to take the chance of muddying his message and risking the election.  Maybe that was the right decision, but the end result is that he doesn't really have a lot of genuinely fervent public support (the kind of support that generates townhall protests in every state, lights up the congressional swithcboard like a Christmas tree, and makes politicians fear for their reelection) for his specific healthcare agenda.

It could be that there's no way to square this circle.  I don't know.  But I believe two things: (a) public opinion is the key to almost everything and (b) it's hard for a president to move public opinion.  One lesson you can take from that is that presidents are stuck.  The other is that they should treat public opinion the way Eisenhower treated World War II and mount a long, hard campaign to win it from their earliest days on the campaign trail.  I choose door #2.

Semi-Republicans Show Semi-Support for Healthcare

| Tue Oct. 6, 2009 11:10 AM EDT

Several semi-employed Republicans have recently said they support Barack Obama's healthcare reform plan, but today brings news that a couple of employed semi-Republicans do too: Arnold Schwarzenegger (technically an R but pretty much disowned by most of his party) and Michael Bloomberg (currently pretending to be an independent).  There's still not much in the way of support from anyone who's both employed and a red-blooded Republican, but it's a start.

Nationalization Revisited

| Mon Oct. 5, 2009 8:53 PM EDT

In Ryan Lizza's New Yorker profile of Larry Summers, he suggests that Summers and Tim Geithner turned out to be right about bank nationalization.  It wasn't necessary after all, and things are going just fine without it:

The results of the stress tests showed that the banks were not in as dire shape as commonly believed. Most of the nineteen banks were able raise money privately. “It worked,” the Treasury official said. “People had money to put into banks. The nationalization crowd would have had the government putting all that money in.”

Matt Yglesias isn't impressed:

The key thing here is that the arguments as being relayed to Lizza seem not to know that the proposal to apply the Swedish model to the banking sector was a proposal to nationalize insolvent banks and explicitly guarantee the debts of the solvent ones. This is precisely designed to deal with the “nationalization sets off larger panic” worry. The fact that the stress tests showed that many banks were not in such bad shape is also irrelevant. Nobody ever proposed that we nationalize banks that weren’t in trouble. The proposal was to guarantee the obligations of banks that weren’t in trouble, a low-cost move since these are the banks that aren’t in trouble. The Obama administration wound up implicitly doing that anyway, which is precisely why most of the banks were able to raise money privately. The exact same thing would have played out with the exact same banks if the troubled banks had been nationalized.

I'm on the fence about this.  I was initially a proponent of nationalizing weak banks (Citigroup being the most likely target), even though I always recognized that there were downsides, and I'm not sure I've changed my mind.  After all, the argument was never that the banking system would collapse unless we nationalized, the argument was that (a) nationalization was the best deal for taxpayers and (b) it would get weak banks back into good shape faster than just waiting for them to earn their way back to solvency.  Considering that we pumped $45 billion into Citigroup and provided them with $300 billion in asset guarantees as an alternative to nationalization, I'm still not sure that argument wasn't correct.

It's probably true that nationalization wasn't absolutely necessary, and that we'll muddle through without it.  But the fact that we're muddling through doesn't mean we live in the best of all possible worlds.  It just means we're muddling through.

That said, so far the Geithner/Summers gamble has paid off.  If we don't hit any more big bumps in the road, it will probably continue to.