Kevin Drum

Assignment Desk Watch

| Mon Sep. 28, 2009 2:07 PM EDT

If the New York Times is serious about its shiny new plan to cover the conservative noise machine more thoroughly, they better jump on this one right away.  By tomorrow it will probably be gone, yet another important story missed by the mainstream media.  Get cracking, guys.

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The Case of the Missing Documents

| Mon Sep. 28, 2009 1:44 PM EDT

Two years ago the ACLU filed a request for records about torture and detainee abuse.  Part of what they got was a list of 181 documents the government considered exempt from release.  But when the feds took another look this year, they couldn't find ten of the documents on the original list.  What happened?  Nick Baumann speculates:

"It was impossible to ascertain whether the discrepancy was the result of an error by the prior administration when it created the original...index or whether the prior administration misplaced the documents in question," Tracy Schmaler, a Justice Department spokeswoman, told Mother Jones. In other words, CIA and Justice Department lawyers might have mistakenly listed documents that never existed in the first place.

But is it plausible that the inconsistency could be merely a clerical error? After the Bush administration created the index, a CIA official swore under oath that she had reviewed the documents on the original list. And one of the disputed documents was listed on the original index as a 46-page memo "providing legal advice," classified as top secret and dated 25 July 2002. Schmaler says the Obama administration's search never found a document matching that description. Could the CIA and Justice Department lawyers who composed the original list have mistakenly included a non-existent memo — complete with a date and precise page count?

Well, maybe there were two 46-page memos written on 25 Jul 2002.  Or, um, maybe it was actually a memo about restraining booze, not detainee abuse.  Or something.  I'm sure it will all be cleared up soon.  Move along folks.  Nothing to see here.

The Third Rail

| Mon Sep. 28, 2009 1:04 PM EDT

Conor Friedersdorf comments on Glenn Beck's recent heresy that a McCain presidency might have been even worse than an Obama presidency:

It is therefore no surprise that Comrade Beck is now being turned on by Comrade Limbaugh and Comrade Levin (the one among the trio who actually believes most of what he says)....

Well, Levin might believe most of what he says, but I was at Blockbuster the other day and found myself thumbing through a copy of his recent bestseller, Liberty and Tyranny(Why does Blockbuster now sell books?  That's a question for another time.)  To my surprise, it turns out that for all his bombast, Levin is a wimp.

The end of his book is taken up by a "conservative manifesto," and it's chock full of fire-breathing stuff.  Eliminate the income tax, eliminate corporate taxes, put a hard cap on the size of the federal government, eliminate tax-exempt status for all environmental groups, rein in judicial review, insist on originalism as the only proper way to interpret the constitution, make governments pay property owners for all zoning changes that affect them, wipe out all teachers unions, no national healthcare, crank up military spending, put God back in government, etc. etc.  I'm paraphrasing a bit, but you get the idea.  It's hardcore right-wingerism.

Obviously, then, a guy like this wants to do away with Social Security and Medicare, right?  Well, hold on there, pardner.  Let's not go off half-cocked.  Sure, they're "poisonous snake oil," but all Levin can bring himself to suggest is that young people be educated about the intergenerational "trap" of entitlements so that they can be "contained, limited, and reformed."  Educated!  Limited and reformed!  That's it.

Pretty weak tea for a firebreather.  Even among the wingers, it turns out, Social Security is a third rail.  After all, I guess Levin wants old people to buy his book too.

Who Benefits From Medicare Advantage?

| Mon Sep. 28, 2009 11:44 AM EDT

When Congress passed the Medicare prescription drug plan in 2003, it provided two ways for seniors to get access to pharmaceuticals: they could enroll directly in a prescription drug plan or, via Medicare Advantage, they could enroll in an HMO that offered drug coverage.  Medicare Advantage, of course, has long been controversial because the government provides subsidies to HMOs to participate, which means that it's more expensive to taxpayers than standard Medicare.

Still, Medicare Advantage enrollees enjoy extra benefits.  The program also provides incentives for HMOs to enter new areas and compete with each other.  So it's not as if the subsidies are being completely wasted.

But it does turn that they're being mostly wasted.  Austin Frakt, a health economist at Boston University, provides the dismal numbers:

My work (with Steve Pizer and Roger Feldman) shows that for each additional dollar spent by the federal government (taxpayers) on the program since 2003, just $0.14 of it can be attributed to additional value (consumer surplus) to beneficiaries....

What do we make of the other $0.86? That goes to the insurance companies but doesn’t come out “the other end” in the form of value to beneficiaries. In part it pays for the additional benefits themselves and in part it is captured as additional insurer profit.

Conversely, standard prescription drug plans provide more than a dollar of benefit for each dollar spent.  Roughly speaking, these plans cost taxpayers about 75 cents for each dollar of value they provide.

Bottom line: if healthcare reform cuts back on Medicare Advantage, the effect on retirees would be tiny.  Putting even half of the cuts back into standard prescription drug plans would almost certainly make everyone better off except for insurance companies.  The full paper is here.

Quote of the Day

| Sun Sep. 27, 2009 12:52 PM EDT

This is from Binyamin Appelbaum's front-page story in today's Washington Post about the Fed's unwillingness to regulate subprime lending by affiliates of commercial banks:

"There was a long period when things were going very well and regulation was viewed as something that got in the way," said Alice Rivlin, the Fed's vice chairman from 1996 to 1999 and now a fellow at the Brookings Institution.

The Fed also minimized repeated warnings about mortgage lending abuses in part because it was an institution dominated by big-picture economists focused on the health of the broader economy rather than the problems faced by individual borrowers.

[Former Fed chairman Alan] Greenspan said in an interview that he did not think the Fed was suited to policing lending abuses because of its focus on broader issues, but he added, "I'm not sure anyone could have done it better." He said the administration's plan to create a consumer protection agency was "probably the right decision."

Greenspan is exactly right.  This is more than just the usual issue of regulatory capture (though it's that too).  The Fed is a bad choice to regulate this stuff because their first priority is always going to be macroeconomic stability.  That's exactly as it should be, but it means that regulating consumer products will simply never be anything more than an afterthought for them.

The same is true for virtually every other existing regulator too: they already have settled missions and settled cultures that value specific tasks.  Consumer lending regulation isn't one of them, so it will never be able to compete effectively for attention.  The only place it has a chance of succeeding is at a new agency in which everyone from top to bottom considers it their primary mission in life.  That's what a strong CFPA brings to the table.

Will it eventually be captured by the industry it's supposed to regulate?  Sure.  And then we'll have to try to fix things again.  But no solution is eternal, so that's hardly a good reason not to act.  We should set up a CFPA that's as strong as we can make it; that has its incentives aligned as precisely as we can align them; and that has an institutional base of power that allows it to actually get things done.  It won't be perfect, but it will be a lot better than anything we have now.

The Meltdown List

| Sat Sep. 26, 2009 8:01 PM EDT

Off the top of my head, here's a list of the various things people have blamed for last year's economic meltdown:

1. Housing bubble
2. Mortgage securitization mania
3. Massive growth of complex credit derivatives
4. Mortgage fraud, growth of NINJA/liar/HELOC/option ARM/etc.
5. Asian savings glut
6. Long-term current account imbalances
7. Ratings agency flimflam
8. 2007-08 oil shock
9. Overuse of leverage on Wall Street
10. Easy money policy from Fed
11. Reliance on bad risk models (VaR, CAPM, etc.) that led to consistent undervaluation of risk
12. Too much debt (both household and financial sector)
13. Government efforts to increase homeownership
14. Repeal of Glass-Steagall

I don't have any particular agenda here.  I'm just collecting reasons, and obviously there's quite a bit of overlap on this list already.  But I'm still looking for more!  If I'm missing anything that a significant number of people think had a significant effect, please leave it in comments.

UPDATE: Added from comments:

15. Pay practices that provided incentives for risky behavior
16. Greenspan/Bernanke put (i.e., the widespread belief that the Fed would bail out any big bank that failed)
17. Inadequate regulation of shadow banking sector
18. Poor bank capitalization regulations that allowed too much off-balance-sheet risk

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Adapting to Climate Change

| Sat Sep. 26, 2009 5:39 PM EDT

Are conservatives stuck over climate change because they're devoted to free market principles and there just aren't any free market solutions to reducing CO2Matt Yglesias thinks this is too kind an interpretation:

How about reductions in subsidies for fossil fuel production and consumption? The free market credentials seem impeccable. Or how about a “green tax shift” in which carbon is taxed or carbon emission permits are auctioned and the revenue is used to finance deficit-neutral reductions in other taxes?

....But that’s not what we have. Not because market-oriented approaches are inadequate to the challenge but because too many of the key institutions that espouse market-oriented approaches are run by people who are too corrupt, incompetent, immoral, stupid, or cowardly to get their side to take the problem seriously.

Generally speaking, I agree.  There are a few conservatives out there who have argued in favor of free-marketish solutions like Pigouvian taxes and the like, but they're pretty thin on the ground.  The vast bulk of the conservative movement has simply decided to declare climate change a hoax and refuse to even consider doing anything about it.

Still, there really is a philosophical problem here too.  Eliminating subsidies for fossil fuels is a good idea, but it's also a drop in the bucket.  (And Democrats tend to be pretty big offenders on the subsidy front too.)  Revenue-neutral taxes could go a lot further, but they're not enough either.  Conservatives know that if they actually fess up to the full scope of the global warming problem, they're eventually going to have to accept some pretty serious government intervention to halt it.  Things like fuel economy standards, green research and development programs, moratoriums on coal-fired plants, tax incentives for conservation, new building efficiency standards, and much, much more.  There's nothing wrong with any of this stuff, but there's no question that it's a considerable amount of interference in the market.

Still, conservatives could adapt if they were smart.  After all modern conservatives have never really been very dedicated to free markets.  They're dedicated instead to being business friendly, which is quite a different thing.  And while not every business sector can benefit from new climate change regulations1, an awful lot of them can2.  So why not accept the science of climate change and then simply press for the most business friendly solutions possible?  It would mean rewarding a different set of business partners than they're used to, but so what?  Might as well start currying favor (and campaign contributions) from the businesses of the future instead of the businesses of the past.  Right?

1Coal-fired electricity, beef production, and SUVs, for example.  Those are almost certainly losers no matter what approach you take to limiting climate change.

2Nuclear/wind/solar electricity, biofuel production, weatherproofing, electric cars, etc. etc.

Of Frogs and Demagogues

| Sat Sep. 26, 2009 3:38 PM EDT

Let's revisit the boiling frog controversy, shall we?  Basically, it's an urban legend: it says that if you toss a frog in a pot of boiling water, it will jump out (or try to).  But if you put it in a pot of cold water and turn up the heat slowly, it will sit idly by as it boils to death.  Turns out it's not true, though: the second frog will indeed try to jump out when the water temperature gets too high.

So why the persistence of the legend?  If it's such a useful metaphor, why don't we have any good substitutes?  Well, James Fallows, who started all this, says we do.  For example, people with cats slowly get accustomed to the smell of a litterbox in their home:

So, to answer Kevin Drum's question: we don't cling to the frog story, even knowing it's false, because there is no possible other illustration from the realm of shared human experience that would illustrate progressive desensitization. The litterbox problem is one that is actually true — and I bet a million times more people have experienced it than have actually seen a boiled frog. There's some other psycho/linguistic reason why the boiled frog story has caught on. But for the moment, this is my candidate for a new image: the reeking kitty-litter box. If someone has a better candidate, great.

Two similar suggestions are here.  But there's a problem: none of them are a substitute for the boiling frog.  The difference is simple.  In the case of the litterbox, we're slowly acclimating to something unpleasant.  There are a million examples of humans doing this.  But the frog is doing something else entirely: it's dying.  Nobody ever died from an overripe litterbox.

That's the power of the frog metaphor.  Not merely that we can get used to unpleasant things, but that we'll literally allow ourselves to be killed as long as the pain is turned up slowly enough.  And that's not all: not only will we die, but we'll hardly even notice that it's happening.

Now, I'd argue that the reason there are no good substitutes for the frog metaphor is because this never happens1.  No normal animal, human or otherwise, will fail to react to death-inducing pain.  Period.

So that explains that.  But we're still left with a question: why then is the boiling frog metaphor so popular and enduring?  If, despite being technically wrong, it were a genuinely useful illustration of a rare but not unheard-of human condition, that would be one thing.  But it's not.  So what gives?

That's a little more difficult, but I think I'd chalk it up to the common human desire to incite dire fear about things we dislike.  (This is probably a very rational desire, too, since it's hard to get people to rouse themselves from their sofas unless you get them pretty riled up.)  So it's not enough to say, for example, that healthcare reform will lead to higher taxes and a somewhat bigger role for government in our lives, just as it's not enough to say that post-9/11 security measures will put everyone under a little more scrutiny than we're used to.  In both cases, we want to make a much more dramatic point: maybe not literally death, but the end of freedom as we know it.  The frog is a pretty useful and homey way of illustrating it.  The boiling frog is the demagogue's best friend.

1Climate change (and related slow-motion catastrophes) may seem like examples of this, but they aren't.  Even if climate change does end up killing a lot of people, it won't be because we never noticed the pain it was causing.  Just the opposite: it's because the pain is too subtle to notice.  If it ever gets to the point where we're all genuinely suffering and we know the source, we'll notice it and try to do something about.  It might be too late by then, but we'll try.

Chart of the Day

| Sat Sep. 26, 2009 1:43 PM EDT

Via Zubin Jelveh, this chart comes from Princeton economics professor Hyun Song Shin.  The data is taken from the Fed's Flow of Funds report, which shows you — unsurprisingly — how much money is flowing through various sectors of the economy.

Basically, from 1954 through 1980, the household sector grew 10x.  The corporate sector grew 10x. Commercial banks grew 10x.  And the securities sector grew 10x.  All very balanced.

The came the great deregulation. Between 1980 and 2008, the household, corporate, and commercial bank sectors once again grew by about 10x.  But securities dealers?  They exploded.  The securities sector grew by nearly 100x.

And then imploded, taking the rest of us with them.  Roughly speaking, though, the securities sector still needs to shrink by a factor of about five before they get back to the size they should be.  Here's Shin:

Overall, it would be reasonable to speculate that the securities sector that emerges from the current crisis in sustainable form will be smaller, with shorter intermediation chains, perhaps less profitable in aggregate, and with less maturity transformation. The backdrop to this development will be the regulatory checks and balances that are aimed at moderating the fluctuations in leverage and balance sheet size that were instrumental in making the current financial crisis the most severe since the Great Depression.

I'm not feeling especially optimistic right now about the the creation of new "checks and balances that are aimed at moderating the fluctuations in leverage and balance sheet size," but here's hoping he's right.

Friday Cat Blogging - 25 September 2009

| Fri Sep. 25, 2009 3:17 PM EDT

Last night, while I was doing the NYT crossword puzzle, I thought for a while that the answer to one of the clues might be the word for an inability to get to sleep.  But I just couldn't think of the word.  (And the answer turned out to be something else anyway.)  After I was finished, I turned off the light and went to bed — and then tossed and turned for an hour, unable to get to sleep because I was trying to remember the word for being unable to get to sleep.

Finally, I got up and went to lie down in the guest bedroom, thinking vaguely that a change of surrounding might work.  And it did!  I fell right to sleep.  An hour later, though, I woke up totally disoriented.  There was a box of stuff at my feet!  Why did Marian replace Domino with a box of stuff?  And there was no radio next to the bed.  Why did Marian steal my radio?!?  Then, just as I was feeling totally deranged, I shot up and realized where I was.  A diffent room entirely.  One without either a cat or a radio.  Whew.

So I went back to my usual bedroom and fell back asleep.  This morning, I woke up, went out to get the paper, and as I was halfway out to the sidewalk I suddenly thought, "Insomnia!"  Jeebus.  My brain is now officially defective.

This is a totally true story.  It has nothing to do with cats, though, aside from Domino's absence from the guest bedroom.  And the fact that cats never seem to suffer from insomnia.  Not ours, anyway, who are currently doing their best beached whale imitations.  On Wednesday, however, they were out in the garden with us.  On the left, Domino is examining one of our plants.  On the right, Inkblot — who, unlike Domino, likes being held — is being hauled around while Marian searches for tomato worms.  In this picture, I think he's staring at Domino, who has just passed by his field of vision and is obviously up to something he feels he should know more about.