I see that Republicans have finally caved in on the idea of extending the existing payroll tax cut:

"In all likelihood we will agree to continue the current payroll tax relief for another year," Senate Republican leader Mitch McConnell said after a closed-door meeting of his colleagues....Trying to get ahead of the game, McConnell proclaimed Republican support for the payroll tax cut extension and told reporters his party would soon propose its own ideas for covering the cost of the tax cut.

....Among the ways to potentially cover the cost of renewing the payroll tax cuts are: cutting federal farm subsidies, selling some government assets, reducing federal pensions and administrative savings in the Medicare healthcare program for the elderly. All these ideas have been discussed in past budget negotiations.

When it comes to a modest tax cut that mainly benefits middle-class workers, Republicans had to be dragged kicking and screaming to the table, and even now insist that any extension has to be fully paid for. But when it comes to the Bush tax cuts, which are huge and primarily benefit the well-off, they fight for them passionately and bristle at the very idea of paying for them. Funny, that. It's almost as if the only tax cuts they really care about are ones for the rich.

I'm sure there's a more innocent explanation, though, and it is only my bitter liberal embrace of endless class warfare that has led me astray here.

The Wall Street Journal reports exciting news:

U.S. exports of gasoline, diesel and other oil-based fuels are soaring, putting the nation on track to be a net exporter of petroleum products in 2011 for the first time in 62 years.

....That the U.S. is shipping out more fuel than it brings in is significant because the nation has for decades been a voracious energy consumer. It took in huge quantities of not only crude oil from the Middle East but also refined fuels from Europe, Latin America and elsewhere to help run its factories and cars.

...."It looks like a trend that could stay in place for the rest of the decade," said Dave Ernsberger, global director of oil at Platts, which tracks energy markets. "The conventional wisdom is that U.S. is this giant black hole sucking in energy from around the world. This changes that dynamic."

Before you get too excited about this, you should know that it's completely ridiculous. It's true that the United States has recently been importing lower volumes of refined petroleum products and exporting higher volumes. It's even true that shale oil and fracking have increased U.S. production of crude oil and gas in recent years, and that, combined with the Great Recession, means that net imports of all petroleum products have declined sinced 2005. Nonetheless, as the EIA chart below shows, when you add up both crude oil and refined products, the United States continues to import a net of 9.4 million barrels per day. That's 3.4 billion barrels per year.

You'd only know this if you read the Journal article pretty carefully (it's a single sentence in the 7th paragraph) but the United States is still a giant black hole sucking in energy from around the world. What's more, that dynamic is not going to change anytime soon. Sorry to be such a killjoy.

So let's suppose that Herman Cain pulls out of the presidential race. Right now, RCP has the poll numbers looking like this:

  • Gingrich 23.8 percent
  • Romney: 21.3 percent
  • Cain: 15.5 percent

The evidence suggests that Cain's supporters will break to Gingrich by about a 2:1 margin, which would put Gingrich ahead of Romney by roughly 34 to 26 percent. Is that game over for Romney?

Maybe, but not so fast. At that point, the race finally fulfills its manifest destiny: It becomes the crazies vs. the noncrazies. And then the question is who the 15 percent of undecided voters are going to break for. My guess: about 2:1 for Romney, which puts them in roughly a dead heat again.

What happens then? My belief all along has been that the noncrazies still outnumber the crazies among the Republican rank and file. Not by a lot, maybe, but by enough. And the noncrazies will carry the day for Romney. However, Intrade suggests this is rapidly becoming a bad bet.

Of course, I've also believed for a long time that eventually European leaders will come to their senses and keep their continent from imploding. That's not looking like such a good bet either.

Bottom line: My deep-seated belief in the eventual triumph of noninsanity, which has already taken some big hits lately, is about to be decisively marked to market very soon in two very high profile contests. Tick tick tick.

Tod Kelly tells a story about a commercial nursery that hired his firm a few years ago to help get their workers compensation claims under control. After examining the nursery's operations, they made several recommendations about buying some new equipment and updating their training:

As we were wrapping up, as an aside, we noted that one of their larger ongoing back injury claimants was an illegal alien. We could close that claim out quickly, we told them, by letting the injured worker know that we would have light duty work for him were he able to legally work for the nursery. Since he wasn’t able, he could be terminated and all future indemnity costs would disappear. As soon as we explained this, the brothers began looking at each other, wide eyed and smiling. I cringed inwardly. I knew we had just made a mistake.

The updated equipment was never purchased, of course. And taking the time to train or stretch was seen as a waste of the company’s time and money. The claims continued to flood in, but now with each claim came notification from the employer that they had “reason to suspect” the claimant was an illegal worker, along with a request to send the light-duty letter so we could avoid making indemnity payments. Over the course of the next year the number of employee injuries increased 20%. But without indemnity costs their annual claims cost decreased 55% — and their insurance premiums went down as a result. They were able to terminate our services the next year with a glowing letter of recommendation.

Today they have moved from being one of a top-100 nursery to being a top-15, and by all accounts are going strong.

If this reminds you a lot of The Jungle, you aren't the only one. The rest of the piece is worth a read too.

Conventional wisdom watch, bond market edition:

James Carville on the bond market, circa 1993: "I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody."

Karl Smith on the bond market, circa 2011: "I used to think if there was reincarnation, I wanted to come back as the bond market. But now I want to come back as the repo market. The repo market even intimidates the bond market."

Karl didn't actually say that, of course. But acting as his PR agent, I'm making his view a little more user friendly. In any case, he's right. Sovereign bonds are the backbone of the repo market, and the repo market is the backbone of the shadow banking system. So when sovereign bonds fail, the shadow banking system fails and there's a run. And as we all know, there's no FDIC insurance for the shadow banking system.

At a guess, the shadow banking system makes up about half of the entire banking system these days, and right now the shadow banking system is looking distinctly wobbly in Europe. Somebody needs to prop it up to stop a run, and that somebody is the European Central Bank. So far, though, they aren't stepping up to the plate. The best case scenario is that Noah Millman is right, and they're just playing a very high-stakes game of chicken in order to advance German interests:

One way of looking at the sequence of events is to say that the ECB was willing to permit contagion in order to wring out inflation. I think a better way of looking at it is to say that the ECB was willing to threaten Italy with insolvency in order to give Germany more formal control over Italy’s finances. That’s incredibly hard-ball politics, but if you are not accountable to anybody (which the ECB, basically, is not) then you can play really, really hard-ball politics.

When somebody eventually makes a movie about this, perhaps it will be called Seven Days in December. I hope it has as happy an ending as the original.

Via Stephanie Mencimer, Christopher Conover at the conservative American Enterprise Institute recently highlighted a well-known fact: in any given year, 1% of the population accounts for a fifth of all healthcare spending and 5% accounts for nearly half of all spending:

We have become so accustomed to health coverage that functions as prepaid healthcare rather than as insurance against unknown risks that this distinction escapes many people (including policymakers). In a perfect world, we would have universal coverage against the risk of landing in the health spending 1 percent. Most people would gladly pay $1,161 to avoid facing bills of $116,000. But not everyone can afford to do so. ...[This is] why one Republican presidential candidate observed, a half decade ago, that "Health is about 30 times more difficult than national security." Perhaps it’s worth having a Republican presidential candidate debate on this issue alone.

Yes, perhaps it is.

Tuesday's Headlines

Here are the headlines that have greeted me in my first few minutes of consciousness this morning:

American Airlines files for bankruptcy as losses mount

States face a crushing economic outlook, fiscal survey says

Home Prices Decline

Businesses Scramble as Credit Tightens Across Europe

‘I fear German power less than I am beginning to fear German inactivity’

Militants Turn to Death Squads in Afghanistan

Radiation covers 8pc of Japan

On the bright side, Facebook seems to believe that it's worth $100 billion. That's good news for about 500 shareholders, anyway.

I shall now go to the breakfast table and see if I can do something about my blood sugar level. Maybe things won't all seem so bad when I get back.

Last week I blogged about a new paper suggesting that the European and the U.S. economies are more interconnected than most people think. The basic story had to do with credit conditions: Starting around 1999, European banks began to supply (or recycle) a lot of America's credit, and this means that when European banks start deleveraging it's likely to produce a severe credit contraction in the U.S. as well.

That conclusion was a little speculative, but you may recall that last week I also posted a chart showing that industrial orders had plunged 6.4% in the eurozone in September. Today, Tim Duy overlays U.S. industrial orders on the same chart and produces some sobering news:

Not a perfect match, but enough to suggest the idea of substantial decoupling looks like more myth than reality, especially in the face of a severe recession....Bottom Line: Don't take US resilience for granted this time around — Europe is getting ugly, and it is far too late to prevent severe recession. The best policymakers can hope for at this point is too avoid a depression.

Correlation is not causation. But whatever the reason, it sure looks as if the U.S. and European economies really are linked closely in some fundamental ways — which shouldn't be too surprising since Europe is our biggest trading partner and their banks are pretty tightly joined to the U.S. market. If Europe tumbles — and it sure looks likely that it will — we're likely to tumble too.

A friend points me to a TNR article subtitled "The peculiar anger of Mitt Romney," and it's peculiar all right. There's a lot of theorizing about where Romney's anger comes from, but there's not much evidence of this supposed anger in the first place. Despite his long and public career, the piece is only able to dredge up four examples of Romney losing his temper over the course of 30 years. In fairness, three of those examples are from the past decade, which suggests that maybe he loses his temper once every two or three years.

Something tells me this isn't something to worry about too much. Let's get back to talking about his hair and his flip-flopping, OK?

For the last month or so, Team Obama has been pummeling Mitt Romney. The DNC's latest is on the right, and Andrew Sullivan has a shorter version here. He also links to J.P. Green, who says:

I gather the strategy behind the ad is that Mitt Romney is the GOP's most formidable opponent for President Obama, and weakening him now could help one of the more vulnerable Republican candidates get the GOP nod, thereby improving Obama's reelection prospects. The strategy is a bit risky in any case. The GOP has other candidates who are electable in a declining economy, despite the clown show of recent months.

I confess that I'm a little curious about this. Are they really trying to rough up Romney enough that a patsy like Gingrich ends up with the nomination? Or are they doing it because they want to run against Romney and they know that attacks from Obama make him more credible in the eyes of the tea party? Or maybe because they think Romney is going to win the nomination regardless and they just want to set the narrative early?

This is mostly just idle curiosity on my part. I don't really care all that much, and the big picture is pretty simple: modern campaigns simply attack earlier and earlier every cycle. Still, I do wonder what the real strategy is here.