Kevin Drum

Quote of the Day: Externalities

| Mon Nov. 22, 2010 1:02 PM EST

From Tyler Cowen, on whether the TSA's new full body scanners are worth it:

Keep in mind there are significant negative externalities from exploding airplanes.

Don't you just love reading economist bloggers? In any case, there's more at the link, and Tyler suggests that if Americans really want to get outraged over something air related, they should get outraged over the "lack of markets in allocating scarce resources," and "airlines which ruthlessly screw you over, repeatedly, and lie to you and mistreat you." Roger that.

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Blood in the Streets

| Mon Nov. 22, 2010 2:47 AM EST

Paul Krugman writes today about Alan Simpson's eagerness for a "bloodbath" when Republicans try to shut down the government next year:

How does this end? Mr. Obama is still talking about bipartisan outreach, and maybe if he caves in sufficiently he can avoid a federal shutdown this spring. But any respite would be only temporary; again, the G.O.P. is just not interested in helping a Democrat govern.

My sense is that most Americans still don’t understand this reality. They still imagine that when push comes to shove, our politicians will come together to do what’s necessary. But that was another country.

It’s hard to see how this situation is resolved without a major crisis of some kind. Mr. Simpson may or may not get the blood bath he craves this April, but there will be blood sooner or later. And we can only hope that the nation that emerges from that blood bath is still one we recognize.

Forecasting 2012

| Sun Nov. 21, 2010 1:00 PM EST

Good news for Barack Obama today! Um, sort of. Ray Fair has released a forecast of the 2012 presidential race based on his well-known political/econometric model, and he says Obama will win in a landslide.

That is, he'll win in a landslide if Ray Fair is also good at forecasting future economic growth:

It thus comes down to what the economy will be in the next two years, which is, of course, what the equations are all about. If the recovery is robust, which my economic model predicts will begin to happen in the middle of 2011, Obama wins easily. If the recovery is only modest, the election will be close, with an edge for the Republicans. If there is a double dip recession, Obama loses by a fairly large amount.

His topline forecast is that Obama wins 55.88% of the popular vote, which sounds reasonable for an incumbent president presiding over a robust economy. But if recovery is fairly flat, which is hardly out of the question, suddenly Republicans are favored to win the White House.

With that in mind, then, what was it we were saying yesterday about Republican incentives relative to the economy? Mitch McConnell made their priorities clear a few weeks ago, after all: "The single most important thing we want to achieve is for President Obama to be a one-term president." If Ray Fair is to be believed, there's only one way for that to happen.

Seething Over the Economy

| Sat Nov. 20, 2010 7:03 PM EST

Dean Baker writes today about "several center-left blogger/columnists" — that's me! — who have suggested that "progressives should be happy to cut a deal now on Social Security and other issues related to the budget." But he says that's wrong. The real problem is that we need to rescue the economy today:

More than 25 million people are unemployed, underemployed, or have given up looking for work altogether. For most of these people, every day is a struggle to support their family and hold onto their home. The projections do not show any substantial improvement in this situation for years.

The priority for policy must be getting people back to work....Remember, these people are unemployed not because they did anything wrong, but because people like Alan Greenspan, Ben Bernanke and others in policymaking positions messed up on their jobs.

Following directly off this point, it is amazing how right in front of our own eyes, the Wall Street gang has managed to divert the public's attention from the wreckage caused by their greed and incompetence to the "entitlement problem" (i.e. Social Security and Medicare). This is the moment where we should be looking to restructure and downsize the financial industry.

I agree almost entirely. My main disagreement is over Social Security, where I wish I could persuade progressives that a deal to shore up its finances now — while privatization is largely off the table — would be good both for Social Security itself and for the liberal project more generally. But in today's atmosphere I can understand why that's a hard sell.

But here's the thing on Dean's broader point. I've been a registered Democrat since I was 18. And I completely agree that our economic priority right now ought to be a huge dose of fiscal stimulus. Unfortunately, it seems pointless to waste my breath on that argument. We have a Democrat in the White House and he's not making that argument. The Democratic leadership in Congress isn't making it either. If they were, the Blue Dogs in my party wouldn't support higher spending anyway and it would die. And even if the Blue Dogs came around, Republicans would block it.

So should I keep screaming into the void about fiscal stimulus even though it's obviously not going to happen? Probably. But without help from anyone in the party I call home, it's pretty hard to maintain the energy for endless amounts of quixotic blogging.

In other words, I'm frustrated. No. That's not nearly strong enough. I spend most of my time just seething whenever I think about this. Especially because of what Dean says in the final paragraph I quoted: we're where we are because Republicans put us here. But no one cares. We're still letting them call the shots.

The facts of the past decade are pretty clear, after all. George Bush inherited an uncommonly vigorous economy from Bill Clinton: growth was high, business was booming, wages were growing, and the federal government was running a surplus. This ended in 2001, but it ended with one of the mildest and shortest recessions on record and provided Bush with a chance to fully apply Republican orthodoxy to the economy: multiple rounds of tax cuts, light regulation, and the most business friendly atmosphere from the White House imaginable. The result was catastrophic. The Republican expansion from 2001 through 2007 was the weakest since World War II: productivity and GDP gains were mediocre, employment growth was weak, and wages were stagnant. Only corporate profits prospered. And this period of historically weak growth was ended by a financial disaster worse than any since the Great Depression. That's the Republican legacy of the aughts: a strong economy turned first anemic and then completely crippled. Welcome to Washington, President Obama.

It simply beggars imagination that Republicans and the business community have managed to make everyone forget this so soon. But they have. And so instead of talking about how big a stimulus package we should pass, we're talking about cutting off unemployment benefits, reducing federal spending, insisting that states tighten their belts, retaining tax cuts for the rich, and halting the scourge of "regulatory uncertainty." It's just mind boggling.

And yet, that's where we are. And I'm really not sure what to do about it.

The Liberal Noise Machine

| Sat Nov. 20, 2010 3:12 PM EST

Back in August, Stan Collender said that for cynical electoral reasons Republicans were likely to oppose any action to improve the economy:

It’s not at all clear [] whether Bernanke realizes that the same political pressure that has brought fiscal policy to a standstill in Washington is very likely to be applied to the Fed if it decides to move forward. With Republican policymakers seeing economic hardship as the path to election glory this November, there is every reason to expect that the GOP will be equally as opposed to any actions taken by the Federal Reserve that would make the economy better.

On Monday, Matt Yglesias chimed in, suggesting that the White House needed to be prepared for "deliberate economic sabotage" from Republicans. On Friday, after taking note of recent Republican attacks on the Fed's quantitative easing program, Paul Krugman agreed:

The core reason for the attack on the Fed is self-interest, pure and simple. China and Germany want America to stay uncompetitive; Republicans want the economy to stay weak as long as there’s a Democrat in the White House.

Steve Benen collected these quotes today and added his concurrence: "We're talking about a major political party," he said, "possibly undermining the strength of the country — on purpose, in public, without apology or shame — for no other reason than to give themselves a campaign advantage in 2012."

Strong statements! But here's what's really remarkable: virtually no one in any position of authority has picked up on this since Collender first suggested it. On the Republican side, practically everyone from the party leaders on down is thoroughly convinced that Barack Obama is one or more of: a socialist, an appeaser, a Chicago thug, a racist, a would-be killer of grandmas, and a president who wants to undermine everything that makes America great because he's ashamed of his country. This is just standard rhetoric from Fox News pundits, radio show hosts, rank-and-file members of Congress, and party poobahs. It's hardly even noteworthy anymore.

But the mirror image of that — Democrats saying that Republicans are deliberately sabotaging economic recovery — is virtually invisible. Krugman finally said it yesterday, but that's it among high-profile liberal leaders. For the most part they're just not willing to go there. This, in a nutshell, is the difference between the conservative noise machine and the liberal noise machine. One is noisy, the other is....restrained. We'll see if that changes now that Krugman has brought his cannons to bear.

POSTSCRIPT: For what it's worth, my own view isn't that Republicans are consciously trying to sabotage the economy. Rather, I think it's really easy to convince yourself of things that are in your own self-interest, and that's mostly what they've done. A bad economy is in their self-interest, so they've convinced themselves that every possible policy to improve things is a bad idea.

Of course, excuses like that from mushballs like me are the reason the liberal noise machine is sort of anemic in the first place.

Friday Cat Blogging - 19 November 2010

| Fri Nov. 19, 2010 3:48 PM EST

On the left, Domino peers suspiciously at the camera while enjoying a warm day under a beautiful azure sky. On the right, Inkblot plays games with the camera while skulking around in the garden. Currently, he's doing his skulking a couple of houses away, safely distant from all the carpet installation and floorboard renovation currently being done on his house. He doesn't get it, though. The floor doesn't squeak when he walks on it, so what's the problem?

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Ireland and the Eurozone

| Fri Nov. 19, 2010 3:10 PM EST

Mohamed El-Erian says that instead of being bailed out, Ireland should default on its debts and devalue its currency:

In a wider policy debate, debt restructuring would be considered as a possible pre-emptive option rather than a disorderly inevitability; thought would be given to the possibility of the weakest Euro-zone members taking a type of sabbatical from the club and rejoining on a stronger and more sustainable basis.

That sounds great — though whether Irish leaders think it sounds great is another thing entirely. What's more, it seems to me that this has been considered before. Here is Felix Salmon's take:

Right now [...] it’s possible to structure a default and devaluation in such a way that the country concerned emerges in a strong fiscal position and with a healthy growth outlook. But the longer we wait, the harder that becomes.

I do think that it would be grossly unfair should the lenders to Ireland’s insolvent banks find themselves getting bailed out by Irish and EU taxpayers at 100 cents on the dollar. Is a sovereign debt restructuring the only way to avoid that? I’m not sure. And it’s also politically all but impossible to build a mechanism into the eurozone allowing countries to exit and re-enter again at a more competitive level, now that the currency union has been deliberately designed without that possibility in place.

Well, I'm confused. A debt default is certainly possible — default is always possible — but exiting and re-entering the eurozone is more than just politically difficult, isn't it? Once something like that happens, there just isn't a eurozone anymore. No one will believe it. If Ireland leaves (and I'm not even sure how that would work technically), it needs to be gone for good.

And who knows? If there's a way to pull that off, maybe that's what will happen. But that's always been the core of the problem. Countries have defaulted on debt lots of times, and often it works out just fine. But it has to be accompanied by devaluation, and that can't happen in a country that's part of a wider currency union and has no control over its exchange rate. Or am I missing something here?

COICA To You Too

| Fri Nov. 19, 2010 2:10 PM EST

Yesterday the Senate Judiciary Committee unanimously approved the Combating Online Infringements and Counterfeits Act, which allows the Attorney General to summarily blacklist internet domain names that are "dedicated to infringing activities." Meaning, of course, copyright infringement. Tim Lee is unimpressed:

Under COICA [...] the courts would issue orders not against the owners of the domain name (who may be overseas) but against domain-name registrars and the operators of DNS servers here in the United States. This means that thousands of systems administrators would be required to maintain a large and constantly-changing list of blacklisted domains. This is a significant and unfair administrative burden on private parties who have absolutely no connection to infringing activities.

The legislation falls far short of constitutional due process requirements. Legal injunctions would be issued upon the attorney general’s mere accusation of “infringing activities.” Not only would the owner of the domain name not have an opportunity to contest the allegations, he would not even have to be notified. And the parties who would receive notice under the legislation—DNS registrars and server administrators—will typically have no knowledge of or connection to the accused domain, which means they would have neither the knowledge or the motivation to dispute unreasonable orders.

This, apparently, is something important enough to try to ram through the lame duck session. That shows a truly excellent sense of priorities, doesn't it?

The Great TSA Backlash

| Fri Nov. 19, 2010 2:00 PM EST

I meant to link to this yesterday but forgot. Dave Weigel has a genuinely interesting Slate piece about TSA's security procedures that sheds some light on the partisan origins of today's backlash:

According to Tom Blank, the deputy administrator of TSA in the post-9/11 years, the agency was always cognizant of how unpopular scanning could be.

"I used to sit around and look at these images, dial them back, and ask myself how do I take this to Capitol Hill and not be thrown out on my head?" said Blank. "When [Bush's second TSA administrator] Kip Hawley came in [in 2005], he changed that. He saw the politics of it and deep-sixed the program. He deep-sixed it. It got revived after the Christmas bomber."

The point about how full-body scanning got restarted is essential—it was the Obama administration picking up an idea that Republicans had cooled on. Republicans accused the administration of degrading security by dialing back war-on-terror prosecutions in the name of human rights; the response was a security measure that would affect all travelers randomly.

There's much more at the link. Basically, Dave suggests that the libertarian/conservative wing of the Republican Party has long been skeptical of TSA's powers, but felt constrained to shut up and support President Bush while he was in power. So they didn't say much of anything. Now, though, there's nothing stopping them: "The return of [their mistrust and fear of TSA] is a lagging reaction to the fact that Republicans no longer have to toe the party line on homeland security. They can say what they think, which is that the state can't be trusted." Interesting stuff.

Obama in 2011

| Fri Nov. 19, 2010 1:42 PM EST

A couple of days ago I ran a quote from Thomas Mann wondering when Obama was going to finally figure out that Republicans had declared war on him and had no interest in negotiating over legislation. Greg Sargent went back and followed up with another question: what should Obama actually do? Mann's answer:

During his first two years in office, Obama had an ambitious legislative agenda to pursue. He had to adapt his strategies to the realities of Congress, most importantly the promiscuous use of the filibuster by Republicans in the Senate and the unreliability of support on many difficult issues of a half dozen or more Democratic senators. Repeated and extended efforts at negotiations with Republicans were essential, if only to deliver all 60 Democrats/Independents once Franken was elected and Specter switched parties. His campaign rhetoric on a postpartisan politics, however naive or disengenuous, had to be given a try.

The context in the 112th Congress is entirely different. With no expectations of passing important new legislation or of garnering anything from Republicans in Congress but political bait, he should pursue his substantive agenda where he can act on his own and use Congress as a place to submit a genuinely serious set of proposals to deal with the country's more serious challenges (with no expectation that any will pass) and couple them with high visibility straight talk to the American people about the course he is proposing.

That sounds about right, if only because Obama has no real choice in the matter. The more interesting question is how effective he can be in fighting back against the conservative media machine. He hasn't shown much talent at that so far.

That still leaves the lame duck session, though, and I'm surprised there hasn't been more movement there. Obama wants to pass DADT repeal, New START, and raise the debt ceiling. Conservatives want permanent extension of all tax cuts. That sure sounds like fertile ground for a deal to me. I'd be pretty surprised if there weren't half a dozen Republicans basically willing to make a trade: their votes on the Dem priorities in return for Dems agreeing to hold a vote on permanent extension of the tax cuts. After all, none of the three Dem priorities are real killers for moderate Republicans in safe seats (or seats not coming up for reelection soon).  And permanent extension of the tax cuts isn't that big a deal for Dems. I'd trade it away for those other three things and live to fight another day on taxes.

Maybe there's just not enough floor time for all those things. I don't know. But it sure seems as if a deal here is doable.