Kevin Drum

Obama and the Bankers

| Wed Dec. 16, 2009 12:11 PM EST

Matt Yglesias echoes a thought that's been bouncing around in my head lately too: sometimes you need to pick a fight even though you know you can't win.  Big ticket items like healthcare and climate change are bad candidates for that kind of thing, since a public fight with Congress might sink the whole thing.  But:

Financial regulation, it seems to me, would be that issue. In broad terms, the idea of regulating big banks is popular. And substantively speaking, a weak bill that’s full of loopholes would genuinely do very little good. We’re not in imminent danger of a bubble/crash replay but if we do something called “financial regulatory reform” we’re unlikely to do it again until there is a new panic. So there’s a strong case for coming out swinging against denouncing a too-weak bill as a sham and drawing some bright lines. If it doesn’t happen, I’ll do some Taibbi-style denunciations of Geithner & Rahm.

I agree, but I'd spin it a little differently.  Healthcare is an example of a standard issue major bill: it has lots of moving parts that all interlock, and the whole thing is a delicate balance designed to hold together just long enough to get 60 votes.  Screw with one piece and the whole edifice might come crashing to the ground.

But I think financial reform is different.  You can do it in lots of little pieces if you want, and taking a populist stand on one piece doesn't necessarily endanger everything else.  So why not do it?  Why not pick a signature issue or two and really hammer away?  Make a few fire-breathing speeches about how you agree with Alistair Darling about taxing banks that hand out huge bonuses and will be sending legislation to Congress to make that happen.  It'll probably fail, but at least it moves the conversation forward and gets the public engaged.  The fact that you fought the good fight won't really hurt you (the nation's bankers obviously don't think much of you already), and far from sinking the whole reform effort, it might actually help keep the rest of the bill(s) from getting watered down even more.  A couple million postcards has that effect sometimes.

Of course, this all depends on what Obama really thinks of financial reform in the first place, and that's a bit of mystery.  It would be nice to get a bit of a hint, though.

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Fed Chair of the Year: It's Ben!

| Wed Dec. 16, 2009 11:29 AM EST

A concerned reader writes:

After Stengel announced on Morning Joe that Time's Man of the Year was Bernanke, I heard a pop.  So, I just wanted to make sure that wasn't your head exploding.

First of all, it's Person of the Year, you sexist dolt. But anyway, I'm fine, thanks very much, and happy to see that the Obama administration now has a second Time award to go along with its single (so far) Nobel Peace Prize.  But what I really want to know is: what did Bernanke do this year?  It's true that I didn't want him reappointed, but I freely acknowledge that, a few mistakes aside, he did a helluva job last year.  So what's the deal?  Was 2009 really so boring that Time's editors decided they had to reach back a year to find someone worth putting on their cover?

Is Rising Income Inequality a Problem?

| Wed Dec. 16, 2009 12:08 AM EST

In the American Prospect today, Dalton Conley argues that income inequality doesn't really matter much.  What matters is increased government spending on the poor so they have the same opportunities as everyone else.  Bruce Bartlett comments:

At the risk of getting Conley's membership in the liberal club revoked, I think he is right. I have never understood how I am worse off if the top 1% of households increase their share of national wealth or income as long as the absolute level of wealth and income of the other 99% is unchanged. It may be aesthetically displeasing, but it doesn't impose any actual costs on anyone as long as the pie is not fixed. Of course, were that the case it would be different. Gains by the wealthy would necessarily come at the expense of everyone else.

Implicitly, liberals tend to believe the pie is fixed. But, generally speaking, it isn't. A rising tide does tend to lift all boats even if those at the top get lifted a lot more. But Conley is also right to ridicule the view, common among many conservatives, that enriching the wealthy somehow automatically benefits the poor. That's obviously nonsense....For this reason, I have always been more sympathetic to programs that aid the poor than other conservatives.

I agree that inequality per se is probably overemphasized by liberals.  But I think that both Conley and Bartlett miss something essential.  A strong safety net and a commitment to equal opportunity for everyone is certainly important, and this can be funded to some extent by progressive taxes that end up redistributing income downward.  But something else is crucial too: a robust, thriving middle class.  Not a middle class that receives an ever increasing stream of government bennies to make up for its stagnant wages, but a middle class that's growing organically, one that sees its own future as brighter than its present and its children's as brighter yet.  If you lose that, all the government programs in the world won't make up for it.

Rising inequality, then, is just a symptom of the real problem: sluggish middle class wages in a country that's been growing energetically for decades.  That's the core problem.  Get median wages growing at the same rate as the country itself and inequality will take care of itself because there will automatically be less money left over for the rich.

I don't pretend to know all the reasons why middle income wages have risen so slowly for the past three decades — globalization probably plays a role, as do declining union density and the rising importance of cognitive labor — but I can certainly point a finger at a symptom: the widespread idea that workers don't really deserve to share in national productivity gains because it's management that's really responsible for them.  This is one of those conceits that the rich use to rationalize their enormous income growth, but it's plainly specious.  Ask an economist what's responsible for increased productivity, and the most likely answer you'll get is: new technology.  So if we really wanted to reward the people who are responsible for productivity growth, we'd shower riches on engineers and scientists.  But we don't.  We shower riches on the CEOs who buy their products and make use of them.

But buying a new inventory control system is hardly a sign of managerial brilliance.  It's just something that every company eventually does once a better one is invented, and the CEO who signs the purchase order to buy it is no more responsible for productivity growth than the workers who use it.  They're both piggybacking off of someone else's invention, and there's no special reason why either one should be thought more deserving of sharing in the rewards.  They both should.

Long story short, workers in thriving economies should thrive too.  When they don't, countries almost inevitably decline, and bread and circuses can never make up for it.  I think the key insight here is one that FDR knew well: people want to earn money, not have it given to them, and that's what we should focus on: getting middle class earnings growing again.  A whole lot of other problem will take care of themselves if we do.

Starting Over

| Tue Dec. 15, 2009 6:10 PM EST

I don't want to blog endlessly about healthcare reform today because, really, there's not all that much to say.  I think the Senate bill in its present state is well worth passing, other people don't, and that's that.

But there's one argument that I find perplexing.  Here's Howard Dean:

This is essentially the collapse of health care reform in the United States Senate. Honestly the best thing to do right now is kill the Senate bill, go back to the House, start the reconciliation process, where you only need 51 votes and it would be a much simpler bill.

Here's what I want to know: which one of us is living in dreamland?  If you don't like the Senate bill, fine.  Don't support it.  But in what universe will healthcare reform get revived anytime soon if it dies this year?  2010?  With the legislative plate already jammed, healthcare reform probably polling in the mid 30s, and midterms coming up?  2011?  After Republicans have gained a bunch of seats in both the House and Senate thanks to public disgust with Democratic disarray?  2012?  A presidential election year?  2013?  2014?

I usually don't say much about legislative tactics because I figure you need some serious ground level knowledge before you mouth off about what's possible and what's not on Capitol Hill.  But the fate of failed major initiatives is so obvious that I can't believe anyone is taking this seriously.  When big legislative efforts go down in flames, they almost never spring back onto the calendar anytime soon — and that's especially true when big healthcare bills fail.  It didn't happen in 1936, it didn't happen in 1949, it didn't happen in 1974, and it didn't happen in 1995.  What makes anyone think it will happen in 2010?

If healthcare reform dies this year, it dies for a good long time.  Say what you will about the Democratic leadership, but Harry Reid, Barack Obama, Rahm Emanuel, Nancy Pelosi, and Steny Hoyer all know this perfectly well.  So do John Boehner and Mitch McConnell.  (Boy do they know it.)  But if it passes, here's what we get:

  • Insurers have to take all comers.  They can't turn you down for a preexisting condition or cut you off after you get sick.
  • Community rating.  Within a few broad classes, everyone gets charged the same amount for insurance.
  • Individual mandate.  I know a lot of liberals hate this, but how is it different from a tax?  And its purpose is sound: it keeps the insurance pool broad and insurance rates down.
  • A significant expansion of Medicaid.
  • Subsidies for low and middle income workers that keeps premium costs under 10% of income.
  • Limits on ER charges to low-income uninsured emergency patients.
  • Caps on out-of-pocket expenses.
  • A broad range of cost-containment measures.
  • A dedicated revenue stream to support all this.

What's more, for the first time we get a national commitment to providing healthcare coverage for everyone.  It won't be universal to start, unfortunately, but it's going to be a lot easier to get there once the marker is laid down.  That's how every other country has done it, and that's how we did it with Social Security and Medicare, both of which had big gaps in coverage when they were first passed.

But if we don't pass it, we don't get any of this.  Not now, and not for a long time.  Instead of being actual liberals, we'll just be playing ones on TV.

What's in a Name?

| Tue Dec. 15, 2009 2:47 PM EST

A freelance writer tells a story of how failure finally turned into success:

I had high-quality skills and a good education. I was fast on turnaround and very professional. I hustled and I delivered on my promises, every single time. I worked hard and built the business, putting in long hours and reinvesting a lot of the money I made.

I really, really wanted to make this work. But I was still having a hard time landing jobs. I was being turned down for gigs I should’ve gotten, for reasons I couldn’t put a finger on. My pay rate had hit a plateau, too. I knew I should be earning more. Others were, and I soaked up everything they could teach me, but still, there was something strange about it [...]

One day, I tossed out a pen name, because I didn’t want to be associated with my current business, the one that was still struggling to grow. I picked a name that sounded to me like it might convey a good business image. Like it might command respect.

Instantly, jobs became easier to get. There was no haggling. There were compliments, there was respect. Clients hired me quickly, and when they received their work, they liked it just as quickly. There were fewer requests for revisions — often none at all. Customer satisfaction shot through the roof. So did my pay rate.

Without knowing more about this, it's impossible to say if this is really the whole story.  But the writer is a woman, and the pen name she chose was "James Chartrand."  And suddenly life changed.  It's all very plausible if you also remember stories like this and this.

(Via Ann Friedman.)

Taxing Carbon

| Tue Dec. 15, 2009 1:22 PM EST

Alex Tabarrok relays a suggestion today from climate skeptic Ross McKitrick for a carbon tax that would be tied to changes in global temperatures.  If temps go up, the tax goes up.  If they don't, the tax stays low.  "In theory, both climate change proponents and skeptics ought to agree to this proposal, but I predict the proponents will object," Tabarrok says, and sure enough:

Addendum: As predicted most of the objections (in the comments) are from climate change proponents.  In essence, they argue that the problem is so serious that we must act before the evidence is in.  Aside from the obvious epistemic problems with such a position do note that a) this is a way of getting agreement where otherwise there might be none b) the tax can be non-linear so it rises (in Bayesian fashion) with the strength of the evidence, i.e. the tax need not always lag.

I know this is my usual cynicism showing, but I suspect pretty strongly that (a) is just wrong.  Conservatives will never agree to anything like this as long as they're caught in their current cocoon of base pandering denialism and obstruction.  There might be individual conservatives out in think tank land who are willing to discuss this in an academic fashion, but real-world political conservatives almost unanimously think global warming is a hoax designed to allow liberals to take command of the economy.  As long as that's the case, I think ideas like this will never gain any traction.

As for (b), the devil's in the details.  The problem is that temperatures lag CO2 increases, and CO2 stays in the atmosphere essentially forever.  By the time temperatures have actually risen, say, 2°C, CO2 concentrations will already be above 500 ppm and there will be nothing we can do to bring them down.  A big carbon tax at that point will have no effect at all.  We need a tax that anticipates future changes, not one that reacts to them.

So what, then, would "strength of the evidence" mean in practice?  Since CO2 is a precursor to climate change, we inevitably have to rely on models of some kind to predict future temperatures.  But skeptics don't trust climate models, so McKitrick proposes instead a relatively simple function tied to a specific measure of temperature increase:

I suggest that for measuring the effect of greenhouse gases, s(t) should be defined as the mean temperature of the tropical troposphere. Both the UAH and RSS series for the tropical troposphere are updated monthly on-line. I will take the simple annual mean of these two as the appropriate measure.

....[Constants are selected so that the tax in 2002] is $15 per metric tonne of carbon equivalent, in line with the average of about 100 studies of the per-tonne marginal global costs of greenhouse gases as reported in Tol (2005)....As shown in Table 2, [the tax] falls below zero for much of the time prior to the late 1990s. The value reaches a peak of $35.60 in 1998, falls to $15 as of 2002 and is at $8.93 as of 2007.

As I said, I don't think this kind of proposal is meaningful in the current political climate, but as a talking point it could be interesting.  Obviously the precise nature of the tax (how big it is, how sensitive it is to temperature changes, whether it should change annually or be set on the basis of a multi-year moving average, etc.) is all debatable.  But what about the basic idea?  If it were politically feasible, and not just a distraction from real-world proposals, would something like this be a good idea?

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Will CT Scans Kill You?

| Tue Dec. 15, 2009 12:13 PM EST

Overuse of MRI and CT scans is a common problem, due partly to physicians who like the fees from the tests and partly to patients who demand them even when they aren't needed.  But it looks like patients ought to think twice about this:

Widespread overuse of CT scans and variations in radiation doses caused by different machines — operated by technicians following an array of procedures — are subjecting patients to high radiation doses that will ultimately lead to tens of thousands of new cancer cases and deaths, researchers reported today.

....In one study, researchers from UC San Francisco found that the same imaging procedure performed at different institutions — or even on different machines at the same hospital — can yield a 13-fold difference in radiation dose, potentially exposing some patients to inordinately high risk.

While a normal CT scan of the chest is the equivalent of about 100 chest X-rays, the team found that some scanners were giving the equivalent of 440 conventional X-rays. The absolute risk may be small for any single patient, but the sheer number of CT scans — more than 70 million per year, 23 times the number in 1980 — will produce a sharp increase in cancers and deaths, experts said.

....The highest doses of radiation are routinely used for coronary angiography, in which cardiologists image the heart and its major blood vessels to look for blockages or other abnormalities. Under the normal dosages of radiation for the procedure, about 1 in 270 women and 1 in 600 men who receive it at age 40 will develop cancer as a result, reported Dr. Rebecca Smith-Bindman, a professor of radiology and epidemiology at UC San Francisco, and her colleagues.

This is bad news for patients, but undoubtedly a boon for CT scan manufacturers, who are going to make a fortune selling newer, safer machines to replace the thousands currently in use.  Siemens stock should do well.

Healthcare's Home Stretch

| Tue Dec. 15, 2009 11:34 AM EST

With the public option now out of the healthcare bill, is it still worth passing?  Regular readers will be unsurprised that I think the answer is pretty firmly yes—and that liberals who now want to pick up their toys and hand reform its sixth defeat in the past century need to wake up and smell the decaf.  Politics sucks.  It always has.  But the bill in front of us—messy, incomplete, and replete with bribes to every interest group imaginable—is still well worth passing.  First, here's me a few months ago:

If you combine (a) Medicare, (b) our current employer-based insurance regime, and (c) community rating along with subsidies for low-income families, you've essentially institutionalized universal healthcare insurance.  Not everyone will take advantage of it—there will always be a few people who go without coverage even if it's affordable—and you still a need a few other things like out-of-pocket caps.  Still, it's basically a statement that everyone in the country can and should be covered.  And once that becomes a cultural norm, it will never go away.

Even without the public option, which can be added on to the current legislative framework later if we stay on the ball and scrape up the votes for it, we're still getting community rating and subsidies for low- and middle-income families.  That's huge.  And here's Ezra Klein:

"This is a good bill," Sen. Sherrod Brown said on Countdown last night. "Not a great bill, but a good bill." That's about right. But the other piece to remember is that more than it's a good bill, it's a good start. With $900 billion in subsidies already in place, it's easier to add another hundred billion later, if we need it, than it would be to pass $1 trillion in subsidies in 2011. With the exchanges built and private insurers unable to hold down costs, it's easier to argue for adding a strong public option to the market than it was before we'd tried regulation and a new competitive structure. With 95 percent of the country covered, it's easier to go the final 5 percent. And with a health-care reform bill actually passed, it's easier to convince legislators that passing such bills is possible.

On its own terms, the bill is the most important social policy achievement since the Great Society. It will save a lot of lives and prevent a lot of suffering.

Ten years ago this bill would have seemed a godsend.  The fact that it doesn't now is a reflection of higher aspirations from the left, and that's great.  It demonstrates a resurgence of liberalism that's long overdue.  But this is still a huge achievement that will benefits tens of millions of people in very concrete ways and will do it without expanding our long-term deficit.  Either with or without a public option, this is more than Bill Clinton ever did, more than Teddy Kennedy did, more than LBJ did, more than Truman did, and more than FDR did.  There won't be many other times in our lives any of us will be able to say that.  So pass the bill.  The longer we wait, the worse it will get.  Pass it now.

Wall Street and Carbon Trading

| Mon Dec. 14, 2009 11:18 PM EST

One of the criticisms of cap-and-trade from the left is that it would create a gigantic new market in carbon trading that would allow Wall Street players like Goldman Sachs to generate a huge new asset bubble to replace the late lamented housing bubble.  After all, why else would Goldman have a legion of lobbyists working overtime on Capitol Hill to try and get cap-and-trade passed?

Dean Baker pours cold water on this theory today, but then says this:

The reason for the interest is much simpler. The outstanding value of carbon permits will almost certainly run into the trillions of dollars once the system is fully up and running. The annual trading in these permits and various derivative instruments (e.g., options, futures, swaps of various types) is likely to also run into the trillions of dollars, perhaps tens of trillions.

A market that trades $10 trillion a year would generate $25 billion a year in revenue, if fees and commissions average 0.25 percent. If Goldman can capture 30 percent of these trades by getting in on the ground floor, then it stands to generate more than $8 billion each year in revenue from carbon trading. This is enough to explain Goldman's enthusiasm for cap and trade — it's all about as clear as it can possibly be.

I've seen estimates like this before and I've never quite understood where they come from.  Here's a back-of-the-envelope guess about the size of the U.S. carbon market:

  • Total annual U.S. emissions come to about 6 billion tons of CO2e (carbon dioxide equivalent).
  • Most of the permits for these emissions will simply be allocated and used.  At a guess, maybe 20% of them will be traded on the open market.  That's 1.2 billion tons.
  • Another guess: each permit will trade hands four times a year.  That's 4.8 billion tons.
  • Price per ton on the European market is currently about $25/ton, so let's use that as a rough price guideline.
  • Bottom line: the total value of the carbon trading market comes to $120 billion.

There's a lot of guesswork there, so here's another data point: in the first half of 2009, the European ETS carbon market traded 3.1 billion tons of CO2e worth about $50 billion.  That comes to $100 billion per year for a market a little bit smaller than the U.S. market.  So that checks.

In other words, something in the neighborhood of $100 billion seems like a decent guess for the size of the U.S. cap-and-trade market.  Over time, as allocations decrease and trading increases, that will go up.  But in the near and medium term, it's going to be in the range of $100-200 billion, not $10 trillion, netting traders commissions of about $500 million or so.  That's just the basic trades, of course, but the derivative market for carbon ought to be simple commodity stuff like options, swaps, and futures, not the rocket science credit derivatives that fueled the housing bubble.  I don't have a good feel for how much that expands the market, but if it's 4x then commissions will come to $2 billion or so.  If Goldman gets 30% of that, they're looking at $600 million, which is about 1% of the $50 billion or so they book in revenue every year.  Not exactly a super gigantic new market for them.

Still, even $600 million is worth lobbying for.  And anyway, this is all rough guesswork and I might be way off. But I'm still curious where the trillion dollar plus estimates have come from.  They just don't seem to be in the right ballpark to me.

The Death of the Public Option

| Mon Dec. 14, 2009 8:02 PM EST

It looks like both the Medicare buy-in and the public option are dead:

After a meeting among Senate Democrats today, Indiana Senator Evan Bayh said it looked like the proposed Medicare expansion would be dropped. “The general consensus was that we shouldn’t make the perfect the enemy of the good and in order to get all the insurance reforms accomplished and a number of other good things in the bill,” dropping the Medicare expansion “would be necessary to get the 60 votes,” Bayh told reporters.

Earlier, two top proponents of the public option, Senators Jay Rockefeller and Tom Harkin, said they would be willing to give up the public option to win passage. Harkin said he’d also be willing to forgo the Medicare expansion. The senators’ statements suggested a deal might be close. Harkin, an Iowa senator and chairman of the Senate health committee, and Rockefeller of West Virginia both said it was time to focus on what needed to be done to get a bill passed.

“This bill, without public option, without Medicare buy-in, is a giant step forward toward transforming American health care,” said Harkin. “That’s reality, there is enough good stuff in that bill that we should move ahead with it.”

Apparently CNN confirms this.  So in the space of a few days we seem to have gone from more than I expected to less than I expected.  I always figured we'd at least be able to get a public option trigger included, but if this report is right we're not even getting that.  Sic transit etc.