Kevin Drum

Fill the Seat!

| Fri Sep. 18, 2009 12:32 AM EDT

Back in 2004, when Mitt Romney was governor of Massachusetts and John Kerry looked like he had a chance of winning the presidency, the Democratic state legislature passed a bill to prevent Romney from appointing a replacement.  They didn't want him naming a Republican to take over Kerry's seat, after all.  So the new rules called for empty Senate seats to be filled by a special election instead.

But now it's 2009, a Democrat is governor, and the legislature is thinking they should change the rules back and allow the governor to name a quick replacement for Ted Kennedy. Apparently they're halfway there:

After hours of testy debate, the Massachusetts House of Representatives on Thursday approved legislation allowing Gov. Deval Patrick to appoint an interim successor to Senator Edward M. Kennedy.

The House voted 95 to 58; the measure now goes to the State Senate, which could take up the proposal on Friday....Therese Murray, a Democrat and president of the State Senate, has remained publicly noncommittal on the proposal despite calls from the Obama administration and from Victoria Reggie Kennedy, Mr. Kennedy’s widow. The Senate, which like the House is overwhelmingly Democratic, is said to be split on the issue.

Well, look, I sympathize with Sen. Murray and the mixed feelings of her fellow Dems.  This is obviously Calvinball, after all.  But seriously, ask yourselves this: do you think the Texas legislature would hesitate even a few hours to do the same thing in reverse?  Or any other Republican state legislature?

I didn't think so.  Now go change the law and let Deval Patrick fill that Senate seat.  Don't be chumps.

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Quote of the Day

| Thu Sep. 17, 2009 4:48 PM EDT

From Marion Maneker's profile in Slate of finance blogger Felix Salmon:

The first time I met Salmon late last year, he appeared at lunch on a second-hand bicycle having pedaled over from the East Village wearing a puffy powder-blue jacket made from wispy fibers that gave him the air of a costumed-animal character at a theme park.

Ouch.  I sure hope Maneker never decides to write a profile of me.

Watching the Henhouse

| Thu Sep. 17, 2009 2:18 PM EDT

By law, two of the five commissioners of the Commodity Futures Trading Commission can't be from the president's party.  To fill those two slots, the president normally defers to senior leaders of the opposition party.  In the senate that would be Mitch McConnell, and for one of the two GOP positions McConnell has recommended one of his own former staffers: Scott O'Malia, the Republican clerk of the Senate Energy and Water Development subcommittee.

But before he worked for the Senate, O'Malia was a lobbyist.  And not just any lobbyist: back in the early 2000s he worked for Mirant, a company engaged in Enron-like misconduct that pushed relentlessly for deregulation of energy trading. Now, though, O'Malia says the Enron debacle opened his eyes to the problems caused by exactly the kind of deregulation his former employer championed.

Maybe so.  But surely the Republican Party can find someone who's been a little more dedicated to regulation all along?  David Corn and Daniel Schulman have the full story here.

Metrics for Afghanistan

| Thu Sep. 17, 2009 1:54 PM EDT

Well, we finally have our metrics for winning the war Afghanistan.  All 46 of them.  Or, more accurately, 46+, since there an undefined number of classified metrics as well.  Call it 50 in round numbers.

Some of them are ridiculously vague.  For example, "Status of relations between Afghanistan and its other neighbors," whatever that means.  Some are at least theoretically measurable: "Volume and value of narcotics."  Some have already been missed: "Afghan Government's... ability to hold credible elections in 2009 and 2010."  Some are darkly humorous: "Development of an enduring, strategic partnership between the U.S. and Pakistan."

I don't know what to think about this.  I just don't know.  It's not like I'm against the idea of setting out specific goals and trying to measure how well we're achieving them.  On the other hand, if you wanted to resurrect the ghost of Robert McNamara and convince everyone that Afghanistan is Vietnam 2.0, you could hardly do a better job than this list.  I don't doubt for a second that McNamara had something exactly like it in 1965 when he was meeting with LBJ and the Joint Chiefs in the Oval Office.

Still, if I had to pick out the one thing that bothers me most about this plan, it's how implicitly utopian it is.  We're not just trying to kill some terrorists here, we're apparently trying to turn both Pakistan and Afghanistan into thriving, peaceful, incorruptible, Westernized democracies.  But that's a hundred-year project, and it's not something we've ever demonstrated much skill at.  So what, exactly, makes us think we're going to be good at it this time around?

Tough Times

| Thu Sep. 17, 2009 1:10 PM EDT

In a widely read column on Tuesday, David Leonhardt said that although unemployment is high, there's good news for those who still have jobs.  Instead of falling, as they normally would during a recession, real wages have risen at a steady clip this year.  Now, there's no question this was true in the second half of 2008, when nominal wages rose modestly but plummeting prices (especially energy prices) meant that in real terms wages skyrocketed.  Unfortunately, Dean Baker says those days are long gone:

The story then reversed in 2009. Inflation has advanced at close to a 3.5 percent annual rate thus far this year. Nominal wage growth has fallen sharply....For 2009, real wages have unambiguously been falling and are likely to continue to fall as modest increases in commodity prices are not offset by nominal wage growth.

So how does Leonhardt get the story so wrong? Most importantly he uses year over year data. This includes the large fall in prices at the end of last year, which still outweighs the impact of falling real wages through 2009. Using year over year data, we can say that real wages have risen in the last year. We will not be able to say that four months from now.

Italics mine.  Real wages have gone up if you compare August to August, which includes the big deflation in the Fall of last year.  But that's a one-off.  If you look at January to August instead, inflation is up, wage growth is anemic, and real wage growth is negative.  That's the path we're currently on, not one of rising incomes.

Chart of the Day

| Thu Sep. 17, 2009 12:28 PM EDT

Miller-McCune magazine points out today that we'll soon have new CAFE fuel standards.  EPA and the Department of Transportation announced their proposed new rules on Tuesday, and in an effort to find something interesting to say about them I present you with this chart.

Normally, CAFE is a DOT program.  But the Supreme Court recently ruled that EPA was required to regulate greenhouse gases under the Clean Air Act, so now it's a two-agency operation.  EPA's part isn't to directly regulate fuel economy, it's to regulate CO2 — though this largely amounts to the same thing.  Basically, it works like this: you multiply a car's track width by its wheelbase to come up with its "footprint" in square feet.  Then you go to this chart, which tells you how much CO2 it's allowed to emit.  A subcompact, for example, will be allowed to emit no more than 204 grams of CO2 per mile in 2016.  (That's what the technical appendix says, anyway.  The chart seems to be offset slightly high along its entire length.)

The Ninth Circuit Court has had problems with the whole "footprint" idea in the past, but EPA and DOT apparently hope that these new regs will pass judicial muster.  They also hope that car companies won't just build bigger cars, thus doing an end run around the standards.  In fact, here's what they hope the new rules will accomplish:

  • Increase fuel economy by approximately five percent every year
  • Reduce greenhouse gas emissions by nearly 950 million metric tons
  • Save the average car buyer more than $3000 in fuel costs
  • Conserve 1.8 billion barrels of oil

If the fooprint approach works the way it's supposed to, we'll reach a fleet average of 35 mpg by 2016 instead of 2020.  Time will tell.

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Downsizing Missile Defense

| Thu Sep. 17, 2009 12:37 AM EDT

Interesting news on the missile defense front:

The White House will shelve Bush administration plans to build a missile-defense system in Poland and the Czech Republic, according to people familiar with the matter, a move likely to cheer Moscow and roil the security debate in Europe.

....The Obama administration's assessment concludes that U.S. allies in Europe, including members of the North Atlantic Treaty Organization, face a more immediate threat from Iran's short- and medium-range missiles and will order a shift towards the development of regional missile defenses for the Continent, according to people familiar with the matter. Such systems would be far less controversial.

Will this buy us some goodwill from Russia?  Will it send the Bill Kristol wing of the conservative movement into Munich/striped pants/appeasement hysterics?  I'd say maybe to the first but definitely yes to the second, which all by itself probably makes it worth doing.

Letting Banks Be Banks

| Wed Sep. 16, 2009 9:33 PM EDT

Back in the dim past, investment banks were mostly in the business of providing advice and underwriting services to their clients.  Oh, they traded a bit on the side with their own money too, but not a lot.  That was sort of risky, after all.  Better to focus on giving other people advice about what to buy and sell rather than doing it themselves.

But times changed, fixed commissions went away as a guaranteed source of easy income, and proprietary trading started to grow more important.  And why not?  Since investment banks were also market makers, their prop desks had privileged access to streams of information that most investors could only dream of.  Why not use that information instead of letting it go to waste?

So use it they did.  In fact, they used it so voraciously that eventually trading became by far their biggest profit centers.  Basically, investment banks became gigantic hedge funds with a bit of investment banking tacked on to the side.  And that's not all.  By the year 2000, two more things had happened.  First, the Glass-Steagall Act was repealed in 1999, which allowed investment banks to merge with commercial banks.  Second, investment banks had all become public companies, which meant they not only had enormous amounts of capital to invest, but none of their traditionally risk-averse partners were personally liable if they lost it all.

I think you know how this all turned out.  Long story short, they lost it all.  What's more, their losses would have taken down the entire banking system if they hadn't been rescued via massive government intervention.  Along the way, the last of the investment banks technically disappeared, when Morgan Stanley and Goldman Sachs got Fed permission to convert themselves into ordinary bank holding companies.

Given all this, you might wonder if it was such a good idea to let banks engage in proprietary trading in the first place.  Instead, why not limit them to taking deposits, making loans, underwriting stock and bond offerings, giving M&A advice, and so forth?  That's what banks do, after all.

Well, it turns out that Paul Volcker is wondering the same thing:

"Extensive participation in the impersonal, transaction-oriented capital market does not seem to me an intrinsic part of commercial banking," he said in a speech to the Association for Corporate Growth in Los Angeles.

....Mr. Volcker said banks should be banned from "sponsoring and capitalizing" hedge funds and private-equity firms, and said "particularly strict supervision, with strong capital and collateral requirements, should be directed toward limiting proprietary securities and derivatives trading."

He also said collateral and leverage restrictions against the largest non-banking institutions "may be needed."

I like the way this Volcker fellow thinks.  Let banks do banking, protected by federal guarantees, while securities trading is firewalled safely away from the plumbing of the financial system.  And even at that, if your hedge fund or private-equity firm is big enough that it might destroy the world too — think LTCM — it gets regulated as well.

Anybody got a problem with that?

Paying the Piper

| Wed Sep. 16, 2009 6:05 PM EDT

My nerd license is probably going to be revoked for saying this, but I'm bored with the nonstop blogging over the Baucus healthcare bill that was released today.  (That's the "chairman's mark" for those dedicated to terminological exactitude.)  My lack of interest stems from two facts: (a) it's pretty much what we all thought it was going to be, and (b) it's basically just a starting point for negotiations, not an ending point.

Still, I'd like to highlight this comment from James Kwak:

One reason the Baucus bill is “cheaper” than the House bill is that it has lower subsidies. For illustration, let’s assume that the whole $140 billion difference is due to lower subsidies. Relative to the House bill, then, the Baucus bill costs the government $140 billion less; but it costs middle-income people exactly $140 billion more, since they have to buy health insurance. The difference is that in the House bill, the money comes from taxes on the very rich; in the Baucus bill, it comes out of their own pockets. Put another way, the Baucus bill is the House bill, plus a $140 billion tax on people making around $40-80,000 per year. That’s not only stupid policy; it’s stupid politics.

Can't argue with that.  As regular readers know, I'm more concerned with subsidy levels than I am with the public option.  This is why.  The public option is a good thing, but even in the best case it's available to only a small number of people and will likely have only a modest impact on the cost of health insurance.  Subsidy levels, conversely, affect lots of people and have a significant impact on the cost of health insurance.  According to CBPP, for example, a family making $45,000 would have to pay annual premiums of $4,800 under the Baucus plan, compared to $3,600 under the House plan or $2,500 under the Senate HELP plan.  That's a pretty big difference.

So: adopt the the Baucus version of subsidies and when 2013 rolls around you'll have lots of pissed off middle income families desperately trying to scrape up an extra five grand each year.  Adopt the HELP version of subsidies instead and these registered voters families will mostly think they're getting a pretty good deal.  And to fund it, all you have to do is raise taxes on, say, Wall Street bankers.  What's not to like?

Cool Cats

| Wed Sep. 16, 2009 3:17 PM EDT

Atrios comments on George Bush's use of language:

While I don't think Bush referring to Obama as "this cat" is really racist, in the sense of suggesting some sort of animosity towards people of color, but I think there's a reasonable chance that race played a part, in the sense that Bush would've been much less likely to refer to a white guy with that term.

But from the same article, here was Bush on another occasion:

The president asked his secretary, Karen, to bring him the Rose Garden remarks he’d just delivered that day....When he finally got them, he put his half-glasses on and looked at them. “See, this was fine today,” he said. “But we got to make this understandable for the average cat.” He proposed an outline for another speech that talked about the situation our economy was in, how we’d gotten here, and how the administration’s plan was a solution.

I think Bush just has an odd attachment to calling people "cats."  Surely some other former White House staffers could enlighten us about this, though.