Kevin Drum

It's All About Affordability

| Fri Sep. 4, 2009 2:50 PM EDT

As long as we're on the subject of what's really important in the healthcare negotiations right now, you might want to check out Jordan Rau's piece at the Kaiser Health Network.  It's all about affordability: regardless of whether or not the final bill includes a public option, health insurance will still be virtually unaffordable for a lot of people.  And the key to fixing that in the real-world depends on the level of federal subsidies provided to low and medium income families who don't have employer insurance and have to buy insurance themselves.  This is where the rubber meets the road.  Those subsidies are where the bulk of the cost of healthcare reform comes from, and figuring out a way to finance it is by far the biggest problem Congress faces.  Go read.

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Quote of the Day

| Fri Sep. 4, 2009 2:02 PM EDT

From Minnesota Governor Tim Pawlenty, wondering just what President Obama is going to do with all those letters that schoolkids send him after his classroom speech on Tuesday:

There are going to be questions about — well, what are they are going to do with those names and is that for the purpose of a mailing list?

Sometimes the classics are best, you know?  Fox News prepared the ground for this with its suggestion a couple of weeks ago that Obama was trying to create an enemies list when it asked for examples of healthcare myths, but now the Obama team is apparently creating an enemies list for future Democratic presidents.  Or a true believers list.  Or something.  Clever!

You know, this whole first-day-of-school-presidential-speech thing might not have been the greatest idea in the world, but the reaction to it makes death panels look practically sane by comparison.  Socialism!  Cult worship!  Jedi mind control!  And the worst part of it, just as it was with the death panels, is how eager party leaders have been to fan the flames of this stuff.  If it was just talk radio, that would be bad enough.  But Tim Pawlenty is a governor.  And he's even reputed to be a fairly boring sort of governor.  But he knows the drill: if you want to survive in the Republican Party today, you have to prove that you can't be out-crazied.  Consequences be damned.

This stuff just has to backfire on them eventually, doesn't it?  Please tell me yes.

Fighting the Power

| Fri Sep. 4, 2009 1:21 PM EDT

For the last couple of weeks Bob Somerby has been complaining that liberals are lousy at message framing.  Conservatives have their big government/low taxes message down to a science, but we just flail around.  Flail, flail, flail.  Finally, today, he offers up his take on what our fundamental message ought to be:

You can’t expect Obama to compensate for the lack of a strong, well-established counter-narrative. But if we ever do build such a narrative, it would probably turn on these points:

First, it would turn on some well-crafted statement of an obvious fact: Big Moneyed Interests will try to loot you. They’ll do it every time — till they’re stopped.

Second, it might turn on a second obvious fact: Big Moneyed Interests will send tribunes out to deceive you. They will lie in your faces — till they’re stopped.

If Democrats and liberals hadn’t dozed all these years, we might have familiar, well-crafted versions of these obvious truths at our disposal. Voters might have heard those well-crafted statements many, many times....But if such messaging pre-existed, Obama could talk about the conduct of the insurance companies — and the things he said would fit into a larger framework, a framework voters pre-understood. But on your side, that larger framework simply doesn’t exist. Your side has slumbered, burbled and dozed. We are simply too lazy and indifferent — and too bought — to spend time on such messaging.

Well, I'm all for this.  Bill Clinton did yeoman work moving the Democratic Party toward the center and helping it regain power, but unfortunately he did it at the expense of also transforming it into a "business friendly" party.  It would be nice to turn that around.

But how?  Unfortunately, even among those of us who aren't bought one way or another, there are an awful lot of people like me: business skeptical, perhaps, but not really business hostile.  I think the business community need to be treated like teenagers on a football team: lots of good energy and good hustle, but they work best when they're guided by a firm hand.  I want corporations regulated fairly strictly, but not because I bear most of them any malice or anything.  I just know that, like any teenager, they'll test their boundaries to the breaking point, so those boundaries need to be clear and well enforced.

That's not a real clean message, though.  Better go with Bob's instead, I guess.

Zen Koan of the Day

| Fri Sep. 4, 2009 12:45 PM EDT

From Ezra Klein, meditating on what it will take to get Republicans to act like grownups:

The lesson of this process has been that the only path to bipartisanship — if one in fact exists — is effective partisanship.

Indeed.  But he's right.  Call me Pollyanna if you want, but I continue to think that beneath all the hysterical political theater of August, not that much has changed.  Support for healthcare reform has always been broad but shallow, and to the extent that some of that support has turned into opposition, that opposition is also shallow.  Among independents, there's a good chance that a lot of that newfound opposition can be turned around as the stage moves back to Washington DC and the conversation becomes a little quieter.

What's more, I think Republicans know this, which is why they're continuing to bluster so loudly.  For reasons that have always escaped me, the media takes conservative bluster a lot more seriously than liberal bluster, and Republicans are taking advantage of this by trying to win the debate simply by loudly claiming they've won the debate.  But they know they haven't, and if Democrats seriously hold out the threat of passing healthcare reform via reconciliation — which requires only 51 votes and would therefore produce legislation much more liberal than a bill passed via standard order — Republicans are likely to give in and start negotiating in tolerably good faith.  Enough of them, anyway, to pass a bill.

This is the real threat, I think, not all the clamor pro and con over the public option.  The reconciliation process has problems of its own, but in the end Democrats can do whatever they want if Joe Biden is willing to play along and they don't lose their nerve.  Republicans know this.  If it becomes clear that Democrats are serious, they'll cave and Obama will get his bill.

Yet More Airstrikes in Afghanistan

| Fri Sep. 4, 2009 12:10 PM EDT

Another NATO attack, this time on a pair of trucks hijacked by the Taliban, another public relations disaster:

The Taliban had stolen the trucks and were driving them across Char Dara district, an insurgent stronghold, when the vehicles got stuck on a bridge, officials and locals said.

....Local Afghan security forces alerted the international NATO-led command, known as the International Security Assistance Force, who then called in an airstrike. The bomb struck the tankers, causing a huge blast that immediately killed those in the vicinity and burned many others in the area, locals said.

The NATO-led command, in a statement, said it had "observed insurgent activity and assessed civilians were not in the area" before ordering the strike.

Unfortunately, it turned out the when the truck got stuck on the bridge, villagers flocked out to start siphoning fuel away.  So when the trucks were attacked and exploded, lots of villagers were killed along with lots of insurgents.

And our man Hamid Karzai?  Naturally he stepped right up and thundered that "targeting civilian men and women is not acceptable."  Thanks, Hamid.  That should help keep things calm.

More troops aren't likely to help with this sort of thing.  Maybe there was an Afghan screwup, maybe there was a NATO screwup, maybe no one screwed up and it's just impossible to ever be 100% sure that civilians aren't around.  So it's going to happen again.  And apparently, when it does, Karzai will make our position even worse and more dangerous than it already is by making the most inflammatory possible suggestion about how it happened.  Does this really sound like a country we should be sending more troops to?

The Geithner Plan

| Fri Sep. 4, 2009 2:16 AM EDT

Via Felix Salmon, I see that Tim Geithner has unveiled his plan — or, more accurately, his guiding principles — for regulating leverage more effectively in the financial industry.  And it's not bad.  Basically it requires (a) stronger capital requirements across the board; (b) higher capital requirements for bigger firms, which would make larger firms somewhat less profitable; (c) an emphasis on real capital, not shell games; (d) higher capital requirements in good times and lower requirements in bad times; (e) a simple leverage constraint as sort of a backup to the more complex main capital rules; (f) stronger regulation of off-balance-sheet vehicles; (g) some kind of minimum liquidity requirement so that banks can't be wiped out in just a matter of days by a bank run; and (h) extension of all these rules to big non-banking entities (the "shadow banking" system).

All of these are described in general terms, and I note that (h) is described in especially dodgy terms.  So we won't know how serious Geithner is about this stuff until he rolls out the details.  But at least he seems to singing the right songs.

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Pulling the Trigger

| Fri Sep. 4, 2009 1:53 AM EDT

Let's check out the news on the healthcare front today.  In the New York Times, we have David Brooks suggesting that Obama throw out all the work of the past six months and start completely from scratch on a wonky curve-bending plan that would have approximately zero support in any known galaxy.  Sounds great.  In the Washington Post, we have GOP Senator Bob Corker telling us that if Democrats would just get rid of that mean old public option, Republicans will flock to support healthcare reform.  You betcha.  And in the LA Times, we're told that a public option might be politically acceptable after all as long as it goes into effect only after something "triggers" it.  What that something might be is still unclear, but basically insurance companies would have to reduce costs somehow, and if they don't do it then the public option would be triggered and they'd all have to start competing with the feds.

In other words, things are all over the map.  The trigger idea is sort of interesting, though.  Not because it's new and innovative, but because it's the kind of thing that seems to pop up as a compromise proposal pretty frequently and to no avail.  Alan Greenspan and Paul O'Neill tried to sell the idea of a trigger for the 2001 tax cuts, but nobody bought it.  The Baker Commission basically proposed triggers for withdrawing from Iraq, but that turned out to be DOA.  And here in California, when higher car registration fees got automatically triggered by a growing budget deficit, it caused such hysteria that we ended up tossing out our governor and electing an action star in his place.  Didn't work out so well.

So triggers don't have a really illustrious history.  But maybe it'll work this time.  Anybody know of any examples of successful triggers?  That is, triggers that actually produced a successful compromise at the time of legislation and didn't cause all hell to break loose when they took effect?  We need some data, people.

Jacko Finally Laid to Rest

| Fri Sep. 4, 2009 1:00 AM EDT

More than two months after his death, Michael Jackson is finally being buried tonight.  With Neverland evidently a no-go, the family chose to inter him intead in the Great Mausoleum at Forest Lawn cemetery in Glendale:

The cemetery prides itself on a high level of security, with guards shooing away loiterers and restricting mausoleum visits largely to people authorized by the family of the deceased.

Mark Masek, who maintains cemeteryguide.com, which tracks entertainers’ graves, said that a couple of weeks ago guards stopped him from taking pictures outside the mausoleum and forced him to delete the images.

“They are not kidding,” he said, predicting fans would have trouble finding and documenting Mr. Jackson’s crypt. “If they wanted to restrict access and keep people out, they could not have picked a better place,” he said.

Actually, that's not the half of it.  My father's parents are buried in the Great Mausoleum — granddad was apparently great friends with Forest Lawn founder Hubert Eaton — so a few years ago I trekked up there to take a look at their crypt.  The folks in the front office looked up the location for me after I demonstrated that I was indeed named Drum and therefore likely to be a genuine relative of the deceased, and off I went.  But lemme tell you: the place is a maze.  I found the right location and took a few pictures, and then spent the better part of an hour trying to find my way out.  I was afraid I'd end up spending the night there.

Plus the whole place is sort of creepy.  Not a good place to get lost.  So even if you're a Jacko fan, I recommend you skip the whole crypt worship thing.  The guards will hassle you if you're not on their approved list, and even if you do manage to finagle your way in, you might never get out.  You have been warned.

Who Let Lehman Fail?

| Thu Sep. 3, 2009 10:12 PM EDT

Hmmm.  Last we heard, the official story about the collapse of Lehman Brothers blamed it on pesky legalities: Barclays was ready to do a deal to acquire Lehman at the last minute, but only if they got government backstopping as part of the acquisition.  Treasury, however, didn't have the legal authority to provide any guarantees, so there was no acquisition and Lehman went into bankruptcy.

Now, this story has always seemed a little fishy, partly because it's changed a bit from time to time, and partly because Treasury had already provided support for the rescue of Bear Stearns, Fannie Mae, and Freddie Mac, and would provide support for AIG just a few days later.  So if they had the legal authority for that, why not Lehman?

In the Guardian today, Larry Elliott and Jill Treanor report that the real reason the deal fell through was entirely different: it was just a cockup.  The Brits thought the Americans would support the deal all along, and the Americans never made it clear they wouldn't:

In London, the Treasury, the Bank of England and the Financial Services Authority all believed that the US government would step in with a financial guarantee for the troubled Wall Street bank. The tripartite authorities insist that they always made it clear to the Americans that a possible bid from Barclays could go ahead only if sweetened by US money.

....The UK tripartite authorities — the FSA, the Bank of England and the Treasury — had expected the US government to stand behind Lehman in the way that it had backed two crucial mortgage lenders the previous week and helped to orchestrate the bailout for Bear Stearns in March.

If the UK authorities were expecting the Americans to bail out Lehman, that means the Americans never brought up any legal hurdles.  And they surely would have mentioned it if that's what was really standing in the way of a deal.  Right?  So what's the real reason?

Mysteriouser and mysteriouser.  Especially since the Guardian piece has absolutely no sourcing whatsoever aside from the typically dramatic all-purpose British lead, "a Guardian/Observer investigation has revealed."  So take this with a grain of salt — particularly since the most likely British sources have an obvious interest in making sure someone else is to blame for the post-Lehman global financial meltdown.  No one is very eager to take the blame for that, after all

What Went Wrong?

| Thu Sep. 3, 2009 4:27 PM EDT

Paul Krugman writes in the New York Times magazine this week about how economists got everything so wrong.  "As I see it," he says, "the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth."  Brad DeLong puts it this way:

The big lesson, I think, is that Wall Street is much less sophisticated than we imagined it was: Goldman Sachs simply did not do any of the due diligence it needed to do to understand the AIG-specific risks it was assuming, Citigroup was unable to manage its own derivatives book to understand what "liquidity put" risks it was assuming, and as for Bear Stearns, Lehman Brothers, Merrill Lynch — hoo boy...

Oh my, yes.  Wall Street bankers are smart, and rich, and experienced, and knowledgable — but they aren't sophisticated.  They are hairless apes a few gene mutations removed from the savannah who only think they're sophisticated.

So what to do?  Krugman thinks the Great Recession will affect macroeconomics about the same way that black body radiation1 affected physics: it will uproot it completely.  Markets are no longer plausibly efficient, neoclasscial economics plainly doesn't work, and market agents are far more irrational than anyone thinks:

So here’s what I think economists have to do. First, they have to face up to the inconvenient reality that financial markets fall far short of perfection, that they are subject to extraordinary delusions and the madness of crowds. Second, they have to admit — and this will be very hard for the people who giggled and whispered over Keynes — that Keynesian economics remains the best framework we have for making sense of recessions and depressions. Third, they’ll have to do their best to incorporate the realities of finance into macroeconomics.

Many economists will find these changes deeply disturbing. It will be a long time, if ever, before the new, more realistic approaches to finance and macroeconomics offer the same kind of clarity, completeness and sheer beauty that characterizes the full neoclassical approach. To some economists that will be a reason to cling to neoclassicism, despite its utter failure to make sense of the greatest economic crisis in three generations. This seems, however, like a good time to recall the words of H. L. Mencken: “There is always an easy solution to every human problem — neat, plausible and wrong.”

Sounds like a good time to become an economist, if you ask me.  There's work to be done.

1Sorry for the obscure reference, non-science folks.  Max Planck's solution to the black body radiation problem in 1900 was the starting point of quantum mechanics, which uprooted all of classical physics.  See here for more.