Kevin Drum

Addicted to Debt

| Tue Jul. 14, 2009 10:19 AM PDT

The world has become addicted to debt.  Wall Street loves it because you can play far more interesting games with debt than you can with equities.  Consumers love it because it makes up for stagnant wages.  Investors love it because it gooses their returns.

As a result, there's way too much of it.  So how do we cut it down to size?  Felix Salmon suggests that although massive regulatory interventions are probably doomed to failure, we could, at a minimum, stop subsidizing debt by getting rid of its tax advantages:

At the moment, companies pay tax not on earnings before interest but earnings after interest — that gives them an incentive to lever up as much as possible. Last year, Steve Waldman had a great post entitled “Eliminate the business interest tax deduction“; it's well worth (re)reading in light of what has happened since.

In general the multi-trillion-dollar edifice of debt financing is predicated on all manner of artificial tax advantages which are given both to borrowers and to fixed-income investors; tax-free municipal bonds and mortgage-interest tax relief are just two of the most egregious examples here.

Forcibly converting mortgages into some kind of shared-equity arrangement where banks get direct exposure to the house price is fraught with difficulty; abolishing mortgage-interest tax relief, however, is easy. And it raises much-needed money for the government as well.

I wouldn't exactly agree that eliminating the mortgage interest tax deduction is easy, but point taken.  It's at least within the realm of imagination.

In the past, debt has received preferential tax treatment because it was thought to be good for the economy: it lowered hurdle rates for businesses and encouraged capital-intensive expansions; it gave a boost to the housing industry and encouraged home ownership; and it increased purchasing power and encouraged consumer spending. But that was back in the dark ages, when debt was relatively more expensive than it is now.  The financial world has changed a lot in the past 50 years, and debt is now far cheaper, far more easily available, far more efficiently hedged, and far more broadly (and deeply) traded than it was in the immediate postwar era.  Its tax advantage might have been justifiable in the past, but it isn't anymore.  We should get rid of it.

(We won't, of course, any more than we'll get rid of agricultural payments or road-building subsidies.  If you scratch most free market capitalists you'll find a socialist just below the surface.  But we can still dream.)

Advertise on MotherJones.com

Spending Like Cats and Dogs

| Tue Jul. 14, 2009 8:37 AM PDT

Here's an interesting healthcare tidbit.  AEI's Andrew Biggs presents us with this chart showing increased costs of human healthcare compared to increased costs of veterinary healthcare:

The point here is supposed to be that even in an area of healthcare where there's no insurance and we have to pay everything out of pocket, costs are still skyrocketing.  So maybe having "skin in the game" doesn't really have much effect after all.

Which is interesting — except for one thing: it might not be true.  As John Schwenkler points out, a big part of the increase is accounted for by a large increases in the number of pets.  We aren't necessarily spending a lot more per pet, we just have more pets.  In fact, he points to some market research that suggests cats have actually gotten cheaper over the years: we spent $85 per cat in 2001 but only $81 in 2007.  (Dogs, conversely have gotten a little more expensive, but only by 11%, not the 30-40% the chart suggests.)

So which data is correct?  Beats me.  But considering the high-pressure sales job vets have adopted in recent years, I have a hard time believing that cat expenditures have gone down.  After all, we didn't use to get their teeth cleaned or spend a couple hundred bucks a year on fancy flea/heartworm/hookworm/etc. goop.  Now we do.  Caveat emptor.

Death Spiral Watch

| Mon Jul. 13, 2009 10:09 PM PDT

A friend emails:

Um, did Sarah Palin just write a whole editorial about cap and trade and not mention global warming once?

Yes!  Yes she did!  And the Washington Post printed it!  The Republican death spiral, the Washington Post death spiral, and the Sarah Palin death spiral continue apace.

Taibbi's Bubble Machine

| Mon Jul. 13, 2009 5:40 PM PDT

A few days ago I described Matt Taibbi's recent Rolling Stone piece about Goldman Sachs as "terrible."  And it was!  He made one outrageous assertion after another without bothering to back any of them up.  He flitted from idea to idea without developing any of them.  The whole piece was disjointed and embarrassing.

Except — it turns out there was a reason for that: the morons at Rolling Stone hadn't actually posted Taibbi's article.  They had only posted a short series of excerpts.  I would have known that if I'd read the introductory material very carefully, but who the hell does that?  I didn't.  I just read what they posted, came away shaking my head, and panned it.

Well, I've now the read the entire piece, and I apologize.  (To Taibbi, that is, not the morons at Rolling Stone, who should have either posted the whole thing or done nothing at all.)  It's a very good takedown of the modern financial industry and well worth reading.  There are some bits here and there that I'm not sure Taibbi gets quite right, and I do think that he made a mistake in casting Goldman Sachs as the "engineer" of every bubble in the past century rather than merely an unusually big and enthusiastic member of a predatory gang that's been ripping us off for a long time.  This gives the piece a conspiratorial air that allows Goldman to laugh it off instead of being forced to engage with it, and that's too bad.  They — and everyone else on Wall Street — should be forced to engage with it.

Beyond that, there are undoubtedly some mistakes in the piece, as well as places where Taibbi goes unnecessarily over the top.  I'm still not sold on carbon permits being the next big bubble, for example.  But those are quibbles.  Overall it's a striking portait of an industry — not just a single company — of almost unbounded greed and recklessness.  Worth reading.

Quote of the Day

| Mon Jul. 13, 2009 11:53 AM PDT

From Mike O'Hare, after visiting the Monterey Bay Aquarium over the weekend:

Cannery Row has become at least thirty percent more schlocky and touristy over the last decade, but this is not necessarily a bad thing: I loved Coney Island back in the day and there's a place in the world for penny-squashing machines.

What with inflation and all, shouldn't these now be quarter squashing machines?

Trapped in the Bubble

| Mon Jul. 13, 2009 10:41 AM PDT

Via The Corner, here is Austin Hill working up some righteous populist outrage at Townhall.com:

Last week the Social Security Administration flew approximately 700 of its managers from across the U.S. and Guam to Phoenix, Arizona’s posh Arizona Biltmore Hotel and Resort, for “organizational training.” The event, which included musical entertainment and dancing, skits, catered food, cocktails, and a “casino night” featuring “door prizes,” cost us lowly taxpayers approximately $750,000.

Seriously?  SSA managed to put together a three-day corporate training session for $1,071 per person?  That's.....unbelievable.

Seriously.  That's unbelievable.  SSA must have some world class penny-pinching accountants and event planners on their staff.  I doubt there's a corporation in America that would even try to budget less than two grand a head for something like this.

And why did SSA hold their training session at the "posh" Arizona Biltmore?  Let me take a guess: because it's 120 degrees in the shade in Phoenix during July.  The heat hits you like an anvil and the Biltmore practically gives rooms away for free in order to keep the place from turning into a ghost town.  SSA probably paid less than they would have at a Holiday Inn in Schaumburg.

(Yep.  $85 per night it says here. That's really cheap for a hotel with convention facilities for 700 people.)

Apparently this has been the outrage du jour among conservatives for the past few days.  Sad.  If they knew anything about how the real world works they'd be applauding, not catcalling.

Advertise on MotherJones.com

Blah Blah Blah

| Mon Jul. 13, 2009 9:36 AM PDT

So.....how's the Sotomayor hearing going?  Let's turn on the TV.

Ah, it's Senator Tom Coburn, the guy who absolutely did not advise John Ensign to pay $96,000 in hush money to his lover's husband.  Coburn, it seems, is troubled.  He comes from the heartland.  He thinks the law should be stable.  It's the glue that binds us together.  He shakes his head.  Now he's troubled all over again.  We can't pay attention to foreign law.  The oath of office is important.  Empathy is bad.  Aristotle had it right.

Etc. etc.  Jesus.  The Senate would be a much better place if senators weren't allowed to speak.  Is there really any reason at all for an entire day of inane opening statements from these people?

UPDATE: Patrick Leahy is now spending more time blabbing about a brief outburst in the gallery than the outburst itself took.

Forms to the Left of Me....

| Mon Jul. 13, 2009 9:12 AM PDT

Alison Leigh Cowan of the New York Times investigates Standard Form 152, the form that allows federal bureaucrats to create new forms. Apparently it's being used a lot these days:

Last year, Americans spent nearly 10 billion hours [pdf] filling out more than 8,000 different government forms and other official requests for information tracked by the federal budget office. That compares with roughly one billion hours spent on similar paperwork in 1981, which in hindsight looks to have been a refreshingly uncomplicated time.

Sounds grim.  But there's some slightly good news: according the to the linked CRS report, about 80% of all those hours are dedicated to tax forms.  Aside from taxes, all that remains is about 2 billion hours of form-filling nirvana, and I'm willing to bet that 80% of that is incurred by compliance officers and other paid professionals.  That leaves only about 400 million hours for us ordinary citizens, which works out to about two hours per year per adult.

So once you do your taxes you only have about two additional hours of government form filling out to do each year.  To be honest, that's less than I would have guessed — but that's probably because I've been fooled by the fantastic increase in private sector forms that make up the unseen superstructure of the internet age.  Here's my guess for me personally: one hour spent filling out government forms in 2008 (an accountant does our taxes) and, oh, let's say 10,000 hours spent filling out various annoying and idiotically designed online forms that allow me to buy things, access sites, write blog comments, take stupid quizzes, and order new services that allow me to continue living my convenient 21st century net-centric life.

OK, maybe not 10,000 hours.  But I wouldn't be surprised if I spend 30-40 hours a year filling out various online forms for one thing or another.  How about you?

Behind the Curtain

| Mon Jul. 13, 2009 8:21 AM PDT

Dan Drezner spent the past week guest lecturing at the Barcelona Institute for International Studies and reports back:

One mildly surprising finding from surveying my students was the extent to which many of them believed that the United States government was consciously manipulating every single event in world politics.  Ironically, at the moment when many Americans are questioning the future of U.S. hegemony, many non-Americans continue to believe that the U.S. government is diabolically manipulating events behind the scenes (For example, the Ghanaians in the crowd wanted to know why Obama visited their country last week.  The standard "promotion of good democratic governance" answer did not satisfy them, They were convinced that there had to be some deeper, potentially sinister motive to the whole enterprise).

Actually, the United States probably is trying to manipulate every single event in world politics. Dan's students were right about that.  The part they're missing is that they don't understand just how bad we are at it.  Answer: really bad.

Palin vs. Palin

| Sun Jul. 12, 2009 10:12 PM PDT

The New York Times takes a look at Sarah Palin's post-campaign life up in Alaska:

Almost as soon as she returned home, the once-popular governor was isolated from an increasingly critical Legislature. Lawmakers who had supported her signature effort to develop a natural gas pipeline turned into uncooperative critics.

.... Her growing list of detractors quickly signaled that they were not impressed with her celebrity status. “We had business to do,” said State Representative Nancy Dahlstrom, a Republican who had worked on Ms. Palin’s 2006 race for governor. “It’s not all about adoration.”

....Democrats who had been crucial to her governing coalition now saw her as a foe. Republican leaders who had previously lost fights with her smelled weakness. An abortion bill she supported requiring parental consent stalled, the Legislature rejected her choice for attorney general and lawmakers became skeptical of the natural gas pipeline effort.

There was a lot more than just this, of course.  Among other things, there were money issues, personal issues, organizational issues, and an almost pathological inability to avoid a feud no matter how small or trivial.  But the fact that she found it almost impossible to govern Alaska after she returned obviously played a big role in Palin's decision to quit too.

Which got me to thinking: when was the last time someone ran for national office, lost, and then had to go back to being governor?  Answer: in the past 50 years it's happened only once, to Michael Dukakis after he lost in 1988.  And as you may recall, things didn't go swimmingly for Dukakis either when he returned to the statehouse — despite the fact that he was an experienced governor, didn't have any money problems, didn't participate in endless personal feuding, didn't try to position himself for another run four years later, didn't have tabloid magazines staked out in front of his house 24/7, was famously well organized, and had no problem discussing issues intelligently when called upon to do so.

In other words, maybe returning to run a state after participating in a brutal presidential campaign is just a tough assignment for anyone in today's media-saturated environment.  But Sarah Palin never figured that out, and if the Times is to be believed she refused to listen to anyone who tried to tell her.  As always, Sarah Palin's worst enemy was — Sarah Palin.

UPDATE: More here from the LA Times: "What is remarkable is the contempt Palin has engendered within her own party and the fact that so many of her GOP detractors are willing, even eager, to express it publicly."