The "Volcker rule" is a simple thing. Basically, it says that if you're a bank that takes deposits and benefits from federal deposit insurance, you can't also make risky trades that might blow up your bank and cost the taxpayers a bundle. Wall Street never liked the rule, because banks make a lot of their money these days trading for their own accounts and didn't want their trading profits cut off. They fought the idea in Congress, but in the end, the Dodd-Frank bill that passed in 2010 included a version of the Volcker rule in its final draft.

Was this a victory for common sense? Hardly. Last month regulators unveiled their first take on the actual implementation of the Volcker rule, and it had become a monster. "Only in today's regulatory climate could such a simple idea become so complex, generating a rule whose preamble alone is 215 pages, with 381 footnotes to boot," complained American Bankers Association Chief Executive Frank Keating.

Poor banks! But step back for a moment. How did Paul Volcker's baby get so bloated? Keating's crocodile tears aside, the answer is: banks. When it comes to financial regulation, fighting against new laws is merely their first line of defense. When they lose, as they did in the Dodd-Frank battle, the action simply moves to the regulatory agency charged with implementing the law. James Stewart explains what happened next:

When the proposed regulations for the Volcker Rule finally emerged for public comment, the text had swelled to 298 pages and was accompanied by more than 1,300 questions about 400 topics.

…"Here's the key word in the rules: 'exemption,'" former Senator Ted Kaufman, Democrat of Delaware, told me. "Let me tell you, as soon as you see that, it's pronounced 'loophole.' That's what it means in English." Mr. Kaufman, now teaching at Duke University School of Law, earlier proposed a tougher version of the Volcker Rule, which was voted down in the Senate. "We've been through this before," he said. "I know these folks, these Wall Street guys. I went to school with them. They're smart as hell. You give them the smallest little hole, and they'll run through it."

This is probably the biggest reason that no one should take too seriously Republican complaints about burdensome regulations strangling the economy. The truth is that most reformers prefer fairly simple rules. In the tax world, they'd prefer to simply tax all income. In the environmental world, they'd prefer to set firm limits for pollutants. In the financial world, they'd prefer blunt rules that cut off risky activity at its knees.

But businesses don't like simple rules, because simple rules are hard to evade. So they lobby endlessly for exemptions both big and small. This is why we end up with tax subsidies for bow-and-arrow makers. It's why we end up with environmental rules that treat a hundred different industries a hundred different ways. It's why financial regulators don't enact simple leverage rules or place firm asset caps on firm size. Those would be hard to get around and might genuinely eat into bank profits. Complex rules, conversely, are the meat and drink of $500-per-hour lawyers and whiz kid engineers. If the rules are complicated enough, smart lawyers can always find ways around them. And American corporations employ lots of smart lawyers.

Keep this firmly in mind the next time you hear someone from the Chamber of Commerce complaining about how many thousands of pages of regulations they have to comply with. Some of that is inevitable: We live in a complex world, and that means the rules are sometimes complex too. But they don't have to be anywhere near as complex as they end up being. We could have a simple tax code, simple environment rules, and blunt financial regulations. We could probably cut the size of agency regulations by 10 times if we wanted to.

But businesses don't want to. Sure, they'd prefer no regulation at all, but they know that's not in the cards. So in public they bemoan complexity, but in private they fight endlessly for more of it. To their lawyers, every single extra page is an extra opportunity to make more money.

I'm pretty astonished at the number of people sympathizing with Rick Perry's debate debacle last night because, hey, we've all had a brain freeze, right? Happens to the best of us.

I guess I should join in the fun. So here it is: I've been on TV exactly once, and I did exactly what Perry did. I told Bill Moyers I had three points to make, I made two of them, and then I trailed off and forgot the third. Luckily, it was a taped show, and that bit ended up on the cutting room floor. So none of you ever saw it.

So does this mean I should cut Perry a break too? Please. Sure, this could happen to anyone. But Perry didn't forget a complicated point, and he didn't forget something he had just formulated in his mind. He blanked on a single word. And he blanked in a way that made it obvious this wasn't something he really knew or cared about. It was just a talking point. He was like a kid reciting a poem in front of class and forgetting his lines.

But I'm just a liberal partisan hack and obviously I have it in for Perry. So I'll turn the mike over to conservative partisan hack Jonah Goldberg:

I think people in some ways are letting Perry off easy precisely because this “gaffe” was so egregious (we’ve all frozen up in front of audiences before. I think I can remember every time it’s happened to me with excruciating accuracy)....But put aside the queasy awkwardness of the moment for a second. Perry couldn’t remember that he wants to shut down the Department of Energy!? For weeks, energy reform was the only substantive policy he’d put forward. Energy is still one of the only topics he can discuss with anything approaching fluency. But he couldn’t remember he wanted to shut down DOE?

....His performance last night confirmed — with an exclamation point — the negative narrative of his entire campaign. Everyone could forgive Ron Paul if he spaced out on the name of a cabinet agency he wanted to shutter, because everyone knows that Ron Paul knows what he knows and has no problem explaining himself under normal circumstances. People are much more unsure about Perry and he compounded that uncertainty last night. It’s fine to say everyone has these bad moments. That’s true. Everyone makes mistakes. What you look for are patterns. Last night was so deadly because Perry reinforced his pattern rather than deviated from it. And he was already on borrowed time.

Right. And with that, I will now repeat my most brilliant political prediction ever. This was #4 on my list of reasons that Rick Perry won't win the Republican nomination:

He's too dumb. Go ahead, call me an elitist. I'm keenly aware that Americans don't vote for presidents based on their SAT scores, but everything I've read about Perry suggests that he's a genuinely dim kind of guy. Not just incurious or too sure about his gut feelings, like George W. Bush, but simply not bright enough to handle the demands of the Oval Office. Americans might not care if their presidents are geniuses, but there's a limit to how doltish they can be too.

I demand abject apologies from everyone who gave me a hard time over this. Rick Perry is too dimwitted to be president. End of story.

Matt Yglesias points us to the latest forecast from the European Central Bank. It's pretty horrifying. They're projecting a eurozone economy that's barely growing at all in 2012:

  • Unemployment = 10.1%
  • Real GDP growth = 0.5%
  • Domestic demand growth = 0.3%
  • Output gap = -2.2%

And inflation that's extremely well controlled:

  • Inflation = 1.6%
  • Compensation growth = 0.4%

Question: Is the ECB acting like a central bank that thinks its economy is flatlined and inflation shows no signs of being a problem? It sure doesn't seem like it, does it?

Sarah Kliff reports that Massachusetts is trying to decide if it should put a cap on hospital charges:

In a report this past spring, the state found that some Massachusetts doctors charge six or seven times as much as their colleagues for the exact same procedures. Across the board, a three-fold variation in prices was pretty standard.

There’s a pretty simple explanation for all the price variation: hospitals negotiate specific rates for specific insurance companies....Insurers and hospitals alike closely guard those pricing agreements as proprietary information, with neither party wanting to see their pricing agreement undercut by a competitor.

Massachusetts wants to do away with all of that. In a proposal released Wednesday, the Massachusetts Special Commission on Provider Price Reform recommends allowing a panel of state regulators to reject rates charged by hospitals and providers if they’re too high....That would be a really big shift from where we are now, where price negotiations are usually a private matter between insurers and providers, and it’s nearly impossible to figure out how much a given procedure costs.

There's another side to this too. Suppose I decided I wanted to leave Mother Jones and go write a book. Or maybe just retire because my 401(k) is in such awesome shape these days. Well, I couldn't. Even if I had the independent income for it, no health insurer in the country would take me on. I'm a 53-year-old male with high blood pressure and high cholesterol. It's controlled well with meds, but that doesn't matter. I'm far too high a risk for anyone to want my business.

But couldn't I just go without health insurance and simply pay out of pocket for medical care? In theory, yes, although I suspect my choice of doctors would be fairly limited. But here's the thing: it would cost a fortune. If I ended up having that heart attack that my cardio symptoms say is coming someday, the resulting hospital bill wouldn't be $50,000. Or $100,000. That's only the bill if your insurance company pays. The list price is more like $300,000. Or maybe more. I might be able to afford the risk of a $50K hospital bill, or even a $100K hospital bill. But not a $400K hospital bill.

I've long considered this wildly unfair. So I'd do both less and more than Massachusetts. I wouldn't necessarily cap hospital charges, but I would insist that hospitals charge everyone the same rate. They can negotiate whatever rate they want, and that might be quite different in rural hospitals vs. urban hospitals. But once a hospital has a rate, it's posted publicly and that's what everyone pays. Big insurance companies, small insurance companies, individuals, whatever.

Hopefully, of course, this will become largely moot in a couple of years. Obamacare will mostly solve all this — assuming Republicans don't successfully repeal it — because health insurers will no longer be allowed to turn me away. I'll still have to pay annual premiums, but I won't have to run the risk of getting hit by a half-million dollar hospital bill. It's one of the many market pathologies that Obamacare will address, and one that's well worth addressing.

A couple of days ago I was watching yet another McDonald's ad for their McRib sandwich and found myself wondering why. Not "Why am I watching this?" or even "Why would a loving God allow the McRib to exist?" I was wondering why, given its apparent popularity, McDonald's only offers it for sale periodically. Why not make it a regular product?

But the truth is that I don't really care very much, so I didn't even go so far as to Google the subject. I figured there was probably some weird but prosaic marketing reason and then returned to whatever I was doing before.

But it turns out that, in fact, this really is a mystery. Apparently it's not just a simple matter of asking McDonald's and getting an answer. They're not fessing up, apparently. But Willy Staley has a theory, encapsulated in this chart:

Basically, Staley thinks that McDonald's sells the McRib only when pork prices are low:

The theory that the McRib’s elusiveness is a direct result of the vagaries of the cash price for hog meat in the States is simple: in this thinking, the product is only introduced when pork prices are low enough to ensure McDonald’s can turn a profit on the product. The theory is especially convincing given the McRib's status as the only non-breakfast fast food pork item: why wouldn't there be a pork sandwich in every chain, if it were profitable?

....Now, take a look at this sloppy chart I’ve taken the liberty of making. The blue line is the price of hogs in America over the last decade, and the black lines represent approximate times when McDonald’s has reintroduced the McRib, nationwide or taken it on an almost-nationwide “Farewell Tour” (McD’s has been promising to get rid of the product for years now).

....Looking further back into pork price history, we can see some interesting trends that corroborate with some McRib history.....

Much more at the link, including some self-criticism of this theory. For what it's worth "Counter Theory 3" is the one that I always vaguely assumed was the explanation, but now I'm not so sure. Maybe it really is just economics red in tooth and claw.

Tyler Cowen writes that we're way past the time when modest measures might save Italy and the eurozone:

Why should another two percent inflation a year turn the tide? The inability to implement any kind of credible rule means that the “in the moment” solution has to be all the stronger. So the “answer,” if that is the right word, is ten percent inflation a year for the eurozone — plus the firehose to Rome — to get the real value of those debts down and quickly. Maybe twelve.

I don’t feel like debating whether this would be better or worse than the status quo; I am content to suggest it probably won’t happen, not even if German and French leaders understand the gravity of the situation, which I suspect they do....It’s a common meme these days that the German leaders “don’t get it,” but I view it in reverse: they’re the ones who understand how grave a problem it is, and how truly hard to fix it would be, which is why they are not doing more. They don’t see the point in pulling out the peashooter against the elephant, and the blunderbuss is not yet available, if it ever will be.

Perhaps. Public statements from various German worthies have been contradictory enough that you can reasonably draw a lot of different conclusions about what they do and don't understand. But Tyler may be right. One plausible interpretation of German actions is that they're simply playing a very high-stakes game of poker. They know it's inevitable that they're going to go all-in at some point, but they want the periphery countries to commit as much as possible to the pot first. After all, even a blunderbuss won't work unless there's a pretty serious willingness to accept substantial fiscal reforms among the folks getting the bailouts.

In a way, the dynamics here are similar to TARP. The serious objection to TARP isn't that we should have just let the banking system collapse, it's the fact that we bailed out our banks with too few strings attached. We should have nationalized them, or broken them up, or insisted on major compensation clawbacks first. This is my guess about what's going on in Germany. They're going to bail out Italy and the others eventually, but they want to have plenty of strings attached. And that won't happen until the level of panic is considerably higher than it is right now.

That's the optimistic view, anyway.

Ryan Avent gazes bleakly across the Atlantic at Italy, and sees only a yawning abyss gazing back at him:

I have been examining and re-examining the situation, trying to find the potential happy ending. It isn't there. The euro zone is in a death spiral. Markets are abandoning the periphery, including Italy, which is the world's eighth largest economy and third largest bond market. This is triggering margin calls and leading banks to pull credit from the European market. This, in turn, is damaging the European economy, which is already being squeezed by the austerity programmes adopted in every large euro-zone economy. A weakening economy will damage revenues, undermining efforts at fiscal consolidation, further driving away investors and potentially triggering more austerity. The cycle will continue until something breaks. Eventually, one economy or another will face a true bank run and severe capital flight and will be forced to adopt capital controls. At that point, it will effectively be out of the euro area. What happens next isn't clear, but it's unlikely to be pretty.

....I hate to get this pessimistic about the situation. It feels panicky and overwrought. I can't believe that Europe would allow so damaging an outcome as a financial collapse and break-up to occur. And I still don't understand why, if this is all as obvious as it seems to me, equities aren't down 20% now, rather than 2% or 3%. But the window within which something could be done to prevent it is closing, and fast. I hope to be proven astoundingly wrong in my assessment, but I'm struggling to see alternative outcomes.

Megan McArdle, after pondering the contradictions of democracy, comes to the same conclusion. Because any plausible solution to Europe's problems must necessarily be hugely unfair to someone, no solution will be forthcoming and our Creditanstalt moment might be imminent:

I used to write about developing countries a fair amount. Time and again they would make these bizarre and pointless moves, like suddenly and for no apparent reason defaulting on a bunch of debt....And the other journalists and I would cluck our tongues and say "Why can't they do the right thing when it's so . . . bleeding . . . obvious?"

Then we had our own financial crisis and it became suddenly, vividly clear: democratic governments cannot do even obvious right things if the public will not tolerate it. Even dictators have interest groups whose support they must buy.

This has come home to me forcefully several times over the last few years, but never more than now....I am very much afraid that the euro zone is about to plunge us into phase two of the global financial crisis--and that as with the Great Depression, phase two may be even worse than the dismal years we've just endured. In search of fairness, we may all get a lot more justice than any of us really wants.

I am, oddly enough, not quite this pessimistic yet. I say "oddly" because I pretty much agree with these assessments and I'm a naturally pessimistic person in the first place. But I still think that, at the 11th hour and 59th minute, when the depth and malignancy of the abyss really and truly sinks in, Europe's leaders will finally do what needs to be done. Not willingly, maybe not even legally, but they'll do it.

I am, however, less sure of this than I used to be. Instead of a 90% chance of this being the eventual outcome, I'd now put it at maybe 60%. Maybe.

You know you want it. So here it is. The end of Rick Perry's presidential campaign, if there's any justice.

Oh hell, here's some more Perry, just for the entertainment value. Don't pretend you aren't enjoying this:

BARTIROMO: Governor Perry, name the top programs that you would cut in terms of long-term deficit reduction. Include Medicare, Medicaid, Social Security, and defense spending in the order you see fit.

PERRY: Well, every one of those — and by the way, that was the Department of Energy I was reaching for a while ago.


PERRY: So here what's we have to look at as Americans. And it's the entitlement programs that are eating up this huge amount of money that's out there. And it's also the spending, Congressman Paul. And when you look at Medicaid, Medicare, Social Security, and those unfunded liabilities, I think are over $115 trillion just in those three programs. Those are the places where you go where you have to make the really hard decisions in this country.

BARTIROMO: So what is your order? And you didn't mention defense spend.

PERRY: Well, obviously, Social Security is one of those where we either can go to a blended type of a program where we blend price and wages, and come up with a program, and can save billions of dollars there. But the people who are on Social Security, they need to understand something today. It's going to be there for them. Those that are working their way towards Social Security, we've made a pledge to them. Those individuals are going to have those dollars there for them.

But the young people out there, who is going to stand up for the young people in this country, those that are at the workforce today, and stand up and say, we are going to transform this program so it's going to be there for you? I will do that. I will stand up for the young people in this country and put a program into place that will be there for them.

No, I have no idea what that bolded bit means. Is he talking about CPI calculations? Maybe. If he is, does he even know it? Probably not.

I told Marian I'd take her out to dinner tonight, so that's what I'm going to do. That means no debate wrapup from me — which, frankly, is no great loss since tonight's debate has been pretty dull so far. In place of serious commentary, then, here are my debate-related tweets from tonight. Enjoy.

5:01: I guess Michael Bay style intros are the new normal for Republican debates.  

5:04 Hate to admit it, but Jim Cramer is sort of the perfect questioner for one of these spectacles.

5:14 Perry's solution for Italy: they're too big, must be broken up.

5:20 Debate so far: taxes bad, bailouts bad, Obamacare bad, illegal immigrants bad.

5:39 Good news for Rick Perry: he hasn't gotten very many questions so far.

5:48 Responding to housing question, Perry slags regulations. But Texas did well during housing bust precisely because it had stronger regs.

5:50 RT @richlowry: perry has a genius for making any policy--no matter how worthy--sound crude and simplistic

5:52 RT @emptywheel: What would you do to Fannie Mae? Cain: Is she a blonde? Does she want a job?

5:59 Gingrich is really in full asshole mode tonight.

6:03 Santorum's whining really needs to stop. Does he have any idea how unattractive it makes him?

6:17 Total Perry meltdown. Can't remember what agencies he wants to nuke.

OK, I'm glad I stayed for that last Perry moment. I expect it to be on 24/7 cable news loop within the hour. Now I'm going to dinner.

So what is Italy's problem, anyway? Daniel Gros looks at the numbers and says their capital investment is fine, their structural indicators are fine, and investment in R&D is fine. In other words, all the usual measures that economists think are important seem fine. By process of elimination, then, their problem must be lousy governance:

There is only one set of indicators on which the performance of Italy has clearly [declined]: the governance of the country. This can be measured by the Worldwide Governance Indicators (WGI) from the World Bank. The three most important indicators for the economy are:

the rule of law;
government effectiveness in general; and
control of corruption.

Italy’s performance on all three indicators has deteriorated dramatically over the last decade. Moreover, by all these measures Italy now ranks lower than any other Eurozone country (including Greece!). The difference between Italy and the Eurozone core is now over two standard deviations below the core Eurozone average.

I don't know if I buy this or not. Is governance really the only metric on which Italy has declined? Their demographics are pretty bad, after all. And they've been famous for dysfunctional government pretty much forever.

But demographics don't explain a flattening in GDP per hour worked. Not obviously, anyway. And on that measure, it looks as if Italy (the thick red line on the bottom chart) started pulling away from other nearby countries right around 1996, exactly the same time that all their governance metrics started going to hell too. So maybe that really is what's going on. Technocracy may not be getting much good press these days, but maybe a strong dose of technocracy is just what Italy needs for a while.

Then again, it might be just the opposite. In the 1990s, Italian voters rebelled against the influence of the Mafia in government, but guess what? It's possible that things ran better when the Mafia was in charge. After all, it's at least plausible that small-scale Mafia thuggery is less malignant than the industrial-scale business thuggery of a guy like Silvio Berlusconi. Something to think about.