Kevin Drum

Credit Card Follies

| Thu Jul. 16, 2009 4:39 PM PDT

Ah, credit card interchange fees.  One of my favorite subjects.  Here's how they work: every time you buy something with plastic the merchant pays a 2-3% fee to the credit card company.  You never see this fee, though, because merchants are contractually forbidden from charging you an extra 2-3% for credit card purchases.  Instead, they just add it to the price of their products and pass it along to everyone, including customers who pay by cash or check.  The whole process is invisible.

Merchants are unhappy about this arrangement.  But generally speaking, what they're unhappy about isn't the invisibility.  They're unhappy about the size of the interchange fee, which they'd like to be lower.

Now, it's obvious why merchants and banks fight over the size of the fee.  A big fee is good for banks and a small fee is good for merchants.  But they both seem to be fine with the invisibility of the fee.  Why?

Again, it's pretty obvious: If fees were tacked onto credit card purchases, people would use their credit cards less.  That's bad for banks.  But if they used their credit cards less, it probably also means they'd spend less, period.  That's bad for merchants.  It's better for both parties to keep the fees invisible and keep everyone spending lots of money.

This has recently become the subject of a major lobbying effort, but instead of trying to make interchange fees transparent, merchants are mostly just trying to convince Congress to regulate them downward.  Andrew Martin reports:

But retailers may have a tough time convincing Congress that consumers would benefit if the effective interchange rate, which has increased slightly in recent years, is dialed back. Many other countries, including Israel and Australia, have required banks that issue cards to reduce the fee. Yet there is little evidence that the savings were passed along.

In Australia, where regulators required banks to cut the interchange rate for Visa and MasterCard purchases to 0.5 percent from 0.95 percent, the banks offset their loss by reducing rewards programs and raising annual fees, according to a 2008 report by the Government Accountability Office.

So what's wrong with that?  In fact, I'd go further: let's kill two birds with one stone and just abolish interchange fees altogether.  Card companies would then be forced to charge higher annual fees to credit card users — fees that (a) would fall solely on the people actually using credit cards and (b) would make it obvious just how much credit cards actually cost.  That strikes me as an excellent idea.  Credit cards aren't a free lunch, and there's no reason that consumers should be fooled into thinking they are.

And if that means consumers end up using credit cards less — well, what's wrong with that?  It's the free market in action.

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The AMA Comes Around

| Thu Jul. 16, 2009 12:28 PM PDT

Here's a pleasant surprise: the AMA has decided to endorse healthcare reform.  And not just any healthcare reform.  Jon Cohn reports that they've endorsed the House Tri-Committee plan, one of the better proposals out there:

This is unexpected. Or, at least, I wasn't expecting it. Recent signals from the AMA suggested they were reluctant to embrace reform, in no small part because they believed a public insurance option would underpay them. But the AMA letter contains no caveats. It is a straightforward endorsement.

And that makes it a pretty big deal. No, the AMA is not as powerful, nor as representative of the medical community, as it once was. But an unqualified endorsement for the most liberal plan out there has large symbolic value, given the role AMA played in killing health care reform for most of the 20th Century.

I'm not sure what all is going on behind the scenes (Jon thinks this might be a quid pro quo for higher Medicare reimbursements), but it's good news.  Max Baucus, please take note.

The Climate Change Elevator Pitch

| Thu Jul. 16, 2009 11:55 AM PDT

Sarah van Schagen wants to know how to talk to a cab driver about cap-and-trade.  Matt Yglesias responds:

The main point has to do with car ownership. One good reason to take a cab somewhere is that you don’t own a car. Conversely, one good reason to drive somewhere is that having already bought a car you’ve incurred the bulk of the costs involved in driving anyway. So if you nudge people toward less car ownership, you’ll end up with fewer total vehicle miles traveled but more cab riding. It’s win-win. More generally, insofar as people live in denser patterns of settlements (which cap and trade certainly encourages) that’s more business for cab drivers.

Well....OK.  But I'd take this question a little less literally: not "what's in it for cab drivers," but "how do you convince an ordinary schmoe that higher energy prices are worth paying"?

Which is, admittedly, a very tough question indeed.  Unlike plain old regulation, in which the costs to consumers are hidden, cap-and-trade brings it right out in the open.  The whole point (well, one of the points) of cap-and-trade is to raise the price of conventional energy so that people will use less of it.  But who wants to volunteer for a higher electric bill or a more expensive fill up?

One tack, obviously, is to emphasize that your electric bill is likely to go up only modestly and that you'd get a rebate check that would cover some or all of the increase.  Another would be to point out that some of the money will be used to subsidize cleaner energy sources, something that most people support.  A third alternative is......

What?  Let's face it: this is a hard sell.  Global warming is a long-term problem that's hard to get people genuinely hot and bothered about.  What's worse, self-interest is far and away the most potent political force there is, and when policies leave the realm of airy rhetoric and enter the realm of kitchen table reality it's pretty hard to persuade people to vote against their self-interest with only a fig leaf and some righteous wonkitude as cover.

So I dunno.  Just keep plugging, I guess, with the understanding that there are a large number of people who won't ever be convinced to sacrifice even a small amount in return for a better planet in the future.  For people like this, it's probably best just to move on and save your energy for someone whose mind is yet to be made up.

Unless, of course, you have a better idea.  Which you might.  I remember once trying to explain something to a group of order entry clerks and having no luck.  They just didn't get it.  But the manager of the group understood what I was getting at and rephrased it in a way that wouldn't have occurred to me in a million years.  Immediately they all nodded their heads.  Mission accomplished.  So maybe all we need is the right translator.

Books That Defeated Me

| Thu Jul. 16, 2009 10:28 AM PDT

What famous books haven't you read?  That's too easy a question.  Tons of 'em.  But what famous (or, in a pinch, reasonably well known) books have you given the old college try but just couldn't get past the first hundred pages or so?  I can think of five big ones off the top of my head:

Ulysses
Moby-Dick
Bleak House
The Brothers Karamazov (twice!)
Foucault's Pendulum

I'm not sure what sets these books apart.  It's not that I'm allergic to long books.  I plowed through War and Peace, Les Miserables, and Infinite Jest just fine.  I've read plenty of other Dickens (though I'm not really much of a fan) and nearly everything by Dostoyevsky except the Brothers K.  Ulysses is famously difficult, so no surprise there, but I'm not sure why I gave up on Moby-Dick.  Probably the middle third did me in.  Just wasn't interested enough in whales.  And frankly, I don't even remember Foucault's Pendulum, let alone why I gave up on it.  And I suppose I ought to throw the Bible onto this list too, since I've often thought I should read the whole thing but then given up pretty quickly for fairly obvious reasons.  How about you?

Are the Culture Wars Winding Down?

| Thu Jul. 16, 2009 9:38 AM PDT

Demographics guru Ruy Teixeira says that the era of the culture wars is drawing to a close.  Why?  Demographics, of course:

First, Millennials — the generation with birth years 1978 to 2000 — support gay marriage, take race and gender equality as givens, are tolerant of religious and family diversity, have an open and positive attitude toward immigration, and generally display little interest in fighting over the divisive social issues of the past.

....Second, the culturally conservative white working class has been declining rapidly as a proportion of the electorate for years.

....Other demographic trends that will undermine the culture warriors include the growth of culturally progressive groups such as single women, and college-educated women and professionals, as well as increasing religious diversity. Unaffiliated or secular voters are hugely progressive on cultural issues and it is they — not white evangelical Protestants  —who are the fastest-growing “religious” group in the United States.

Over at the Democratic Strategist, somebody named "staff" predicts a positive feedback loop that will soon turn culture war issues into a political backwater:

The point here isn't, or isn't just, that the American population is becoming more progressive on cultural issues. It's that as cultural issues lose political punch, the incentives for conservatives to focus on them decline, further reducing the politicization of culture.

Teixeira himself says that while this may eventually be the case, it could take a while before the culture warriors calm down: "Indeed, reaction to their current desperate plight may lead them to intensify their efforts in some states, especially where demographic change has been slow or where local right-wing culture war institutions retain strength." I think that's right.  Barack Obama has been remarkably successful at marginalizing culture war issues so far, but it's not clear to me that he can keep this up forever.  It's going to be a rough road before we get to Teixeira's promised land. Fasten your seat belts.

Chart of the Day

| Thu Jul. 16, 2009 8:37 AM PDT

Via Conor Clarke, this chart shows the effective federal tax rate paid by the rich over the past 15 years.  The basic story is simple: As their incomes have gotten ever higher, their tax rates have gotten ever lower.  So if tax rates on the rich are raised to help pay for healthcare reform, as some Democrats are proposing, it would just return us to the rates of the early 90s, not some hellish confiscatory dystopia.  Bruce Bartlett says that if this happens, Republicans have only themselves to blame:

For many years, I have urged conservatives to think about ways of raising new net revenue for the government. My fear has always been that sooner or later, pressure to raise taxes will become overwhelming. If there wasn't a conservative option available, then the default policy would be to sharply raise tax rates on the wealthy. Now it looks as if that day has arrived.

....In the end, higher tax rates on the rich are inevitable if only because of expiration of the Bush tax cuts next year. Since that would just return rates to where they were in the 1990s when growth was robust, any claim that this will destroy the economy should be taken with many grains of salt.

Still, it would be better to pay for health reform some other way. But if Republicans refuse to propose any alternative, insisting instead that taxes should never be raised for any reason, they pretty much guarantee that Democrats will raise the top rate. If that happens, Republicans will bear some responsibility as well.

Yep.  If I were designing a system from scratch I'd probably finance it differently too.  But Republicans have been so successful at demonizing taxes over the years that there aren't very many practical alternatives open any more.  Returning top marginal rates to the level they were at in the 90s is one of the few left.

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Assassination by PowerPoint

| Thu Jul. 16, 2009 8:15 AM PDT

Robert Baer writes in Time about the CIA program that's been kept secret from Congress for the past eight years.  It was, as well all know by now, an "assassination squad":

Like many of these stories, there's less to it than meets the eye. The unit conducted no assassinations or grabs. A former CIA officer involved in the program told me that no targets were picked, no weapons issued and no one sent overseas to carry out anything. "It was little more than a PowerPoint presentation," he said. "Why would we tell Congress?"

That's a good question, especially since the program was an open secret. On Oct. 28, 2001, the Washington Post ran an article with the title "CIA Weighs 'Targeted Killing' Missions." And in 2006, New York Times reporter James Risen wrote a book in which he revealed the program's secret code name, Box Top. Moreover, it is well known that on Nov. 3, 2002, the CIA launched a Hellfire missile from a Predator drone over Yemen, killing an al-Qaeda member involved in the attack on the U.S.S. Cole. And who knows how many "targeted killings" there have been in Afghanistan and Iraq?

As Baer goes on to point out, assassination is a no-no: "In the CIA, that was the closest thing we had to the Ten Commandments."  But what about assassination during wartime?  A plot to assassinate Saddam Hussein in 1995 would have been illegal, but the same plot in March 2003 would surely have been OK.  In fact, we tried pretty hard to do exactly that during the "shock and awe" bombing phase that kicked off the war.

But as usual, the "war on terror" is in a gray area all its own.  Is it a real war?  Is a guy with a sniper rifle different from an Air Force specialist guiding a Predator drone?  Is the CIA under the same restrictions it would be under during peacetime?  What are the rules?

If the news reports are right about this program, it deserves a full-scale investigation by Congress.  Everybody knows we're trying to kill al-Qaeda operatives one way or another, so it's not as if we'd be revealing any dark secrets of national security.  And if the whole thing really was just a "PowerPoint presentation," it might exonerate the CIA and remove the cloud currently surrounding them.  What's the argument against doing this?

Al Franken's Perry Mason Moment

| Wed Jul. 15, 2009 10:51 PM PDT

Hey, it's Laura. Instead of doing a MoJo Mix tonight, I thought you might like this video of Al Franken's first funny as senator. His Perry Mason bit (see below) comes from Wednesday's Sotomayor hearings, (which you can watch with livestreaming MoJo commentary all week on our All Things Sotomayor blog/video extravaganza page). Worth a watch:

And if you missed the hearings Monday, Tuesday, or Wednesday, check out Stephanie Mencimer's wrap-ups: Pride and Prejudice, Where Did Sotomayor's Empathy Go?, and Sotomayor Slips Up. [For Thursday's live analysis, there's our video and live blog here, or follow Stephanie's and David Corn's coverage on Twitter.]

Laura McClure hosts podcasts, writes the MoJo Mix, and is the new media editor at Mother Jones. Read her investigative feature on lifehacking gurus in the latest issue of Mother Jones.

Fighting the Zombies

| Wed Jul. 15, 2009 6:02 PM PDT

Bryan Caplan offers up a criticism of the House healthcare reform bill:

The Krugman we've got is sold on the House health bill.  But the Krugman we had, the thoughtful economist who wrote The Accidental Theorist, would have responded differently.  Krugman Past, unlike Krugman Present, would have pointed out that when the unemployment rate is 9.7%, it's a bad idea to legislate an 8% payroll increase on businesses that fail to offer health insurance.   Employers are reluctant to hire workers at today's wages; how are they going to feel once the marginal worker gets 8% pricier?

It's not just Krugman who should be against such legislation at a time like this; so should any sensible Keynesian.

"At a time like this."  I think I've read critiques similar to this about a thousand times now.  I guess it sounds mighty clever, hoisting Keynesians by their own petard or something.  But it's nonsense.  The "pay-or-play" payroll tax increase doesn't go into effect until 2013 — and if the recession isn't over by then we've got way bigger things to worry about than a minor increase in payroll tax receipts.

Ditto for Waxman-Markey, which frequently gets the same treatment.  But W-M won't have any effect on energy prices for years, and even when it does the impact will be tiny at first.  Like healthcare reform, it won't have the slightest effect on the recession because it won't take effect until well after the recession is over.

If you want to argue that higher payroll taxes are bad in general, then fine.  I might even agree with you depending on what alternative you offer up.  But leave the recession out of it.

Reid on DADT

| Wed Jul. 15, 2009 10:15 AM PDT

Harry Reid says he'd support a permanent repeal of the Pentagon’s “don’t ask, don’t tell” policy on gays in the military:

“We’re having trouble getting people into the military,” Mr. Reid told reporters when questioned about whether he could support an 18-month moratorium on enforcing a prohibition on gays in the armed forces. “And I think that we shouldn’t turn down anybody that’s willing to fight for our country, certainly based on sexual orientation.”

Mr. Reid said he would go the proposal, being considered by Senator Kirsten Gillibrand, Democrat of New York, one better and support a permanent repeal of the ban.

This is a useful bellwether.  Reid doesn't generally stick his neck out on stuff like this, and up until recently he's been distinctly lukewarm about even engaging with the issue.  So if he's decided to take a firm stand, it's probably because he doesn't think there's really much risk in it anymore.  It's become a pretty mainstream position.  If we can just get the Pentagon brass to say the same thing, maybe we'll finally make some progress on this.