Do We Really Want Better Intelligence?

Foreign Policy magazine is running a package called "Unconventional Wisdom," and Stephen Sestanovich's contribution is to tell us that conventional wisdom debunking isn't what it used to be. Anne Applebaum then proves his point with a piece about the ongoing idiocy of TSA and the Department of Homeland Security:

Terrorists have been stopped since 2001 and plots prevented, but always by other means. After the Nigerian "underwear bomber" of Christmas Day 2009 was foiled, DHS Secretary Janet Napolitano claimed "the system worked" — but the bomber was caught by a passenger, not the feds. Richard Reid, the 2001 shoe bomber, was undone by an alert stewardess who smelled something funny. The 2006 Heathrow Airport plot was uncovered by an intelligence tip. Al Qaeda's recent attempt to explode cargo planes was caught by a human intelligence source, not an X-ray machine. Yet the TSA responds to these events by placing restrictions on shoes, liquids, and now perhaps printer cartridges.

Given this reality — and given that 9/11 was, above all, a massive intelligence failure — wouldn't we be safer if the vast budgets of TSA and its partners around the world were diverted away from confiscating nail scissors and toward creating better information systems and better intelligence? Imagine if security officers in Amsterdam had been made aware of the warnings the underwear bomber's father gave to the U.S. Embassy in Abuja. Or, for that matter, if consular officers had prevented him from receiving a visa in the first place.

This is conventional wisdom these days, as near as I can tell, so no points for originality. But it raises a question: we all hate TSA's physical security procedures, but the fact is that we don't much like the idea of tightening up TSA's non-physical operations either. Several years ago, Congress told TSA to screen passengers more tightly, and the result was expanded watch lists, expanded no-fly lists, and the proposed CAPPS system, which was designed to identify all passengers and cross reference them with government records and commercial databases to produce a "risk score" that indicated the appropriate screening level for each traveler. Needless to say, everyone screamed about this, so it was scrapped and replaced by a more modest system called Secure Flight.

But if physical security is mostly eliminated, it seems inevitable that it will be replaced with beefed up intelligence and surveillance operations, as well as beefed up tracking of individuals a la CAPPS. But if that's what we get, I wonder if we're going to like it any better?

Boehner and Healthcare Reform

Austin Frakt on the scheduling of a vote to repeal healthcare reform in the House:

I think the January 12 scheduling is telling. It significantly ahead of the State of the Union address (Jan. 25 or so, I believe). That means that it’ll be old news by the time Obama gets to reset the message. What’s likely going on is that Boehner, knowing that repeal won’t go anywhere, that it is a symbolic vote, wants to send a signal to the GOP base without really getting in the way of more important business. In a sense, the schedule suggests to me that Boehner knows that the repeal vote is not itself very serious. If he wanted to make a bigger show of it, why not schedule it for a day or two before the State of the Union? Why not do it the day of the speech itself? That would be very confrontational.

This seems pretty obviously true to me. Boehner knows two things: (a) he has to schedule a repeal vote because the tea partiers will go into open revolt if he doesn't, and (b) it's a dead letter with nothing more than symbolic value. So he's scheduling a quick vote with no hearings and no CBO scoring just so he can say he's done it, after which he can move on to other business he actually cares about.

The only thing that puzzles me is why he's being so obvious about it. Is this a genuine signal to Obama that he's kinda sorta willing to work with him on future legislation? Is it a signal that Boehner is tired of the tea partiers already? Or what? It really does seem like he's giving tea partiers the back of his hand a little too obviously here.

Banana Monoculture and Its Discontents

Felix Salmon on the blight threatening world banana production:

It turns out that the banana we all know and love — the Cavendish — is actually the second type of banana grown in enormous quantities and exported across Europe and North America. The first was the Gros Michel, which was wiped out by Tropical Race One; you might be saddened to hear that “to those who knew the Gros Michel the flavor of the Cavendish was lamentably bland.” Indeed, Chiquita was so sure that Americans would never switch to the Cavendish that they stuck with the Gros Michel for far too long, and lost dominance of the industry to Dole.

I asked my mother once if she remembered the bananas of her youth being better than the bananas of today, and she didn't. So maybe this whole banana blight thing is overrated. Then again, maybe not. Do I have any readers old enough to remember the taste of Gros Michel bananas? What were they like?

UPDATE: Commenter cld provides the dope:

The older bananas were tremendously better. They were larger and sweeter and rather creamier and the seeds within were longer and you could sort of taste them.

The texture of the Cavendish is more fibrous and not so even. On the other hand I think they keep a lot better than the Gros Michel, which would have spots all over it. (I mean on the inside).

Social Security Dealmaking

Atrios disagrees with my contention that a deal on Social Security could put it into balance for a good long time:

Social Security Will Never Be In Actuarial Balance

Not for more than a couple of years, anyway. If there's some deal to get there, then inevitably the Social Security Trustees will, perfectly justifiably, tweak a few assumptions about future economic activity so that there will be a DOOM scenario, an EVERYTHING'S AWESOME scenario, and a "uh oh maybe in about 40 years we will have a problem" scenario. And then Fred Hiatt will print another million ZOMG WE MUST DESTROY SOCIAL SECURITY NOW IN ORDER TO SAVE IT FORTY YEARS FROM NOW columns and some future president will marvel at those worthless IOUS and blah blah blah.

I don't really want to get into a blogspat over this, but this just isn't right. It's true that the Social Security Trustees normally produce three scenarios for future solvency (the 2010 version for trust fund solvency is on the right), but even critics almost universally use the intermediate scenario when they write about Social Security's finances. There's actually a plausible case to be made that the optimistic scenario has historically been closer to reality, but nonetheless, it's the middle scenario everyone uses. Even Fred Hiatt.

As for the actuaries making tweaks to their economic models, they do indeed do this. But if you look over trustees reports for the past 20 years you'll see that those tweaks have been small, have pushed in both directions, and have had only a tiny net effect on their projections. Obviously that could change in the future, but on past performance there's no real reason to think that tweaks to the forecast models will produce large changes to the forecasts themselves.

Needless to say, nothing is forever. Once we create food in replicators and have robot slaves to do all our work for us, I suppose no one will care about Social Security at all. But it's entirely possible to cut a deal on Social Security that will insure its long-term solvency for at least several decades, and that's about as much as anyone can ever hope for in real life.

And as long as I'm writing about this again, I'll reiterate a couple of points. First, the idea here is not that hardcore conservatives will stop attacking Social Security if a deal is reached. The idea is that they'll be ignored once they lose the support of centrist Beltway opinion — which they will if the intermediate trustees forecast shows the program in balance. Second, my support for a deal obviously depends on reaching a good deal. If Republicans refuse to consider revenue increases, then no deal. If they insist on means testing or increases to the retirement age, then no deal. Etc. But there are decent compromises available, and we should be just as willing to explore them as we are to reject deals that aren't good enough.

The Next Implosion

At our New Year's Eve party, I briefly got into a conversation with a friend about the next shoe to drop here in Orange County: now that residential real estate has finished (or nearly finished) its implosion, it's time for commercial real estate to implode. But that's not just a problem for Orange County, of course. Matt Yglesias points us to Gillian Tett:

The [Institute of International Finance] calculates that in March 2008, there was about $25bn worth of pre-crisis investment grade commercial real estate in distress. By March this year, however, that number had exploded to $375bn (and has probably swelled since).

Thus far, the banks have “dealt with potential delinquency problems in part by extending loans until 2011-13”, the IIF notes. Or, in layman’s terms, they have swept it under the carpet. But while this avoided defaults, the IIF reckons that about $1,400bn of CRE loans must be refinanced before 2014. Alarmingly, “nearly half of these are at present ‘underwater’, ie have mortgages in excess of the current value of the property”, it adds.

What's more, as Matt points out, owners of CRE aren't subject to the guilt-laden appeals to moral probity that homeowners are. Rather, "commercial property is owned by rich businessmen who’ll be expected to act like rich businessmen and try to maximize profits." This means they'll just default if it makes sense to do so. And in a lot of cases, it probably will. You can add this to the ever-expanding list of possible shocks to the global economy (oil, China, PIIGS, municipal defaults, etc.) that might still derail a fragile economic recovery. Buckle up.

The Financialization of America

Scott Sumner tries to explain why finance is so much more lucrative today than it was in the 50s and 60s:

Today the most productive members of society are not those who produce things, they are those who discover the things that need to be produced. Once you have the blueprint, it is easy to produce many types of software and pharmaceuticals. The big money goes to those who figure out the blueprint, but also to those who allocate capital to the guy who has the idea for a Google, or Facebook, or Twitter.

....And then there’s globalization, which means decisions about allocating capital can vastly improve productivity even in the old-line industries that were dominant in the 1960s, when the rest of the world hardly mattered. Finance is not that important in an agricultural economy or even in an economy where the mass production of goods can be done with almost military precision. It becomes extremely important in an economy where it is not at all clear what should be produced, or on what continent that production should take place.

This seems pretty unpersuasive. If Wall Street were making truckloads of money on their VC investments, then OK. Maybe he'd have a point. But I'm pretty sure that true venture capital constitutes a tiny fraction of finance sector earnings. Likewise, allocating capital to old-line industries is just....allocating capital to old-line industries. Why does it matter whether those industries are in Pittsburgh or Mumbai?

If the finance sector were truly creating lots of extra value, then most of us probably wouldn't mind that bankers were taking home outsize paychecks. But are they? Are overall global growth rates higher today than they were 50 years ago? Is productivity growth higher? Is modern finance repsonsible at all for higher economic growth than it was in 1965?

It sure doesn't seem like it — though I'm open to contrary evidence. Rather, it seems as if the explosion in finance over the past three decades has mostly consisted of rent seeking and massive increases in leverage and hidden risk thanks to post-Bretton Woods globalization and deregulation. The actual benefit to the rest of mankind is a little hard to suss out.

Doing a Deal on Social Security

Digby reposts a summary today of last year's "Fiscal Responsibility Summit," in which Gene Sperling — now a top contender to replace Larry Summers as head of the NEC — said the Obama administration was interested in cutting a deal on Social Security, and warns against taking the bait:

I know I've posted that too often and regular readers are sick of it. But it's terribly important, I think, to understand that the rationale for liberals in this thing is that they are doing a good thing for the program, taking it "off the table" for the next 50 years and "making it sound." Now, I don't know if they really believe it, but it doesn't matter. What matters is that in the current environment whatever changes they come up with will come at the expense of the elderly because there will be no deal that requires tax hikes.

Atrios agrees:

I don't know why some liberals think that there is some deal, good or bad, which can somehow take the Social Security issue off the table until the end of time. As Ben Bernanke said, that's where the money is and they'll be trying to steal it in perpetuity. Cutting granny's benefits a bit won't change that.

I just don't think this is true. It's possible that Republicans will never agree to a Social Security deal that increases taxes, but keep in mind that Republicans are mainly obsessed with taxes on the wealthy. A small increase in payroll taxes and/or an increase in the payroll tax cap wouldn't affect the millionaire class much and might get a fair amount of GOP support. In any case, the only way to find out is to try. If they won't do the deal, then they won't do the deal.

But assume that a deal is possible. If it is, I think it's wrong to insist that it will come solely at the expense of the elderly, or that it won't do any good because Social Security will never be off the table anyway. On the first point, it's quite possible to structure a deal that requires nothing more than a very modest slowdown in the the future increase of benefit levels that (a) affects only those with fairly high incomes and (b) phases in over a period of decades. That's hardly Armageddon. On the second point, sure, Republicans will probably go after Social Security forever. But that's not what matters. What matters is that if the program is officially in balance then Republicans no longer have the traction to succeed. Benefit cuts are unpopular, after all, and conservatives by themselves don't have either the desire or the ability to buck the public on this unless they also have the support of the Washington Post/Pete Peterson Beltway elite. And they won't have that once the program is officially solvent. A deal on Social Security kicks the legs out of the centrist support they need in order to have any chance of reducing benefits in the future.

Now, again: maybe a deal isn't possible. There's only one way to find out. But if a deal is possible, it really would take Social Security off the table for a very long time. That would be good for the elderly, good for the country, and good for the liberal project in general. If there's any chance of doing a bipartisan deal over the next two years, Democrats should be open to it.

The $11,000 Op-Ed

Felix Salmon isn't too impressed with any of the three main candidates to replace Larry Summers as head of the NEC. Roger Altman and Richard Levin both have substantial ties to Wall Street, and then:

Finally there’s Sperling, who in some ways is the worst of the three when it comes to grubbing money from Wall Street. The other two have well-defined and easily-understood jobs; Sperling, by contrast, signed up with the Harry Walker Agency and started giving speeches to anybody with cash, including not only Citigroup but even Allen Stanford. He also wrote a monthly 900-word column for Bloomberg for $137,500 a year, which works out at about $13 per word.

This really brings things home to a scribbler like me. Being paid a million bucks a year for some kind of ill-defined financial "consulting" is one thing. I don't really know anything about what that entails. But writing? I know all about that, and $11,000 for an op-ed is a wee bit excessive, no? At least, it is if it's really just the writing you're paying for.

Darrell Issa's Agenda

Dave Weigel says that Darrell Issa's trash talk about Barack Obama being "one of the most corrupt presidents in modern times" is just that: trash talk. It's gaining him the spotlight, and now that he's got it he's going to pursue a fairly ordinary investigatory agenda:

Issa's in roughly the same position that John Conyers and Henry Waxman were in when they took over their committees in 2007. At one point, both of them went on record saying they'd consider ("keep an open mind" was Waxman's phrase) impeachment hearings. Voila, instant attention, instant pushback from leadership, and they went on to investigating the stuff that they'd intended to, like the U.S. attorney firings.

Issa became a national figure by taking a bank shot and bankrolling the petition to force the 2003 California recall; if anything he's savvier about media coverage than either Conyers or Waxman. He's got people primed for a 1995 redux of investigations of picayune scandals, but his talk about those scandals are only the entry point into what he really considers "corrupt." That's liberalism and corporatism, transparency about the ugly kludges that marked our response to the recession.

Maybe so — though I'm not sure Issa is quite as savvy as all that. Remember, when he bankrolled the recall of Gray Davis in 2003, it was because he figured it would make him California's next governor. That turned out to be a somewhat less than savvy read of the political situation.

That said, Weigel may be right about Issa's agenda. Still, my experience is that, for the most part, it's best to take politicians at face value. There aren't nearly as many of them pursuing clever three-bank shots as pundits tend to think. Issa's agenda will probably be 80% fairly normal conservative harassment, but I'd be surprised if the other 20% wasn't some pretty crazy red meat Dan Burton-esque lunacy. He may well decide that ACORN and the New Black Panthers are yesterday's news, but just wait. New stuff like that will crop up, and Issa probably won't be able to resist diving in.

Reducing Uncertainty

Republicans have been concerned about regulatory "uncertainty" holding back economic recovery, and the compromises reached during the lame duck session certainly helped to reduce uncertainty. However, the Wall Street Journal reports that at least one source remains:

The Republican gains in Congress in November's election added new questions to the outlook for health-insurance costs borne by companies. Since then, some party leaders have said they aim to reverse or at least starve the Obama health-care law; meantime, lawsuits challenge some aspects of it. "You don't know where it's going to go," said Robert J. Olson, CEO of Winnebago Industries Inc., a maker of motor homes.

So I guess the Republican caucus will listen to the business community and abandon its efforts to repeal little bits and pieces of the healthcare reform law. Right?

(Actually, it really is possible that both the healthcare sector and the business community in general, after they take a look at what kind of chaos might ensue from ad hoc partial defunding, will put some real pressure on Republicans to stand down on this. That would be an interesting turn of events, no?)