Kevin Drum

How to Gut Regulations the Old Fashioned Way

| Wed Oct. 27, 2010 12:08 PM EDT

Is George Painter just another old guy suffering from the effects of Alzheimer's disease? Or is he perfectly in control of his faculties and quite correct when he says that Bruce Levine, his longtime colleague as an administrative law judge for the Commodity Futures Trading Commission, made a vow 20 years ago never to rule against an investment firm? He made the charge in his resignation letter last month:

There are two administrative law judges at the Commodity Futures Trading Commission: myself and the Honorable Bruce Levine. On Judge Levine's first week on the job, nearly twenty years ago, he came into my office and stated that he had promised Wendy Gramm, then Chairwoman of the Commission, that we would never rule in a complainant's favor. A review of his rulings will confirm that he has fulfilled his vow. Judge Levine, in the cynical guise of enforcing the rules, forces pro se complaints to run a hostile procedural gauntlet until they lose hope, and either withdraw their complaint or settle for a pittance, regardless of the merits of the case.

Michael Hiltzik looks into Painter's charges here, and concludes that (a) he seems pretty lucid, and (b) he seems to be right. It's a great example of how you can effectively gut a financial regulatory regime without actually going through the hassle of getting the regulations themselves changed. Just hire someone someone who refuses to enforce the regulations, and voila! They might as well not exist. Nice work, George H.W. Bush.

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Afghanistan: Not Going So Well After All

| Wed Oct. 27, 2010 2:11 AM EDT

The Washington Post's Greg Miller has a front-page response today to Carlotta Gall's recent optimistic report in the New York Times about our military offensive against the Taliban in Kandahar:

An intense military campaign aimed at crippling the Taliban has so far failed to inflict more than fleeting setbacks on the insurgency or put meaningful pressure on its leaders to seek peace, according to U.S. military and intelligence officials citing the latest assessments of the war in Afghanistan.

....The blunt intelligence assessments are consistent across the main spy agencies responsible for analyzing the conflict, including the CIA and the Defense Intelligence Agency, and come at a critical juncture. Officials spoke on the condition of anonymity because they are not authorized to discuss the matter publicly.

....Among the troubling findings is that Taliban commanders who are captured or killed are often replaced in a matter of days. Insurgent groups that have ceded territory in Kandahar and elsewhere seem content to melt away temporarily, leaving behind operatives to carry out assassinations or to intimidate villagers while waiting for an opportunity to return.

Hmmm. It sounds like the intelligence guys and the military guys are going to have a wee bit of disagreement when they get together for the review of Afghanistan planned for December. They have met the enemy, and it is them.

Quote of the Day: Secret Campaign Cash

| Wed Oct. 27, 2010 1:42 AM EDT

From Justice Anthony Kennedy, writing earlier this year about corporate campaign donations in the Citizens United case:

With the advent of the Internet, prompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions. This transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages.

Oops. David Savage has more in the LA Times today.

Public vs. Private

| Wed Oct. 27, 2010 12:21 AM EDT

Are public employees paid more than equivalent private sector employees? Several recent studies suggest they aren't, but AEI's Andrew Biggs thinks those studies are flawed. He's willing to accept their conclusions about basic wages, but thinks their estimates of future retiree benefits are off. California, as usual, is the example du jour:

As many people are aware, public sector defined-benefit pension plans are significantly underfunded. Using private sector accounting standards, which is necessary to make apples-to-apples comparisons, the typical public pension is less than 50 percent funded....A good guess of true public pension compensation is to divide the reported pension contribution of 8.2 percent by the 50 percent funding level of California pensions, producing a value for promised pension benefits of 16 percent of compensation. This increases the 2 percent pay advantage that the CWED study already acknowledges to a public sector pay premium of around 10 percent.

....There’s also another factor contributing to the flawed interpretation of data: Retiree health benefits aren’t counted as worker compensation. Most public employees receive free or subsidized health coverage after they retiree, a benefit that most private sector workers do not get. Given how early most public employees retire and the high cost of health insurance for older individuals, this retiree health coverage can be worth several hundred thousands of dollars over the course of their lifetimes....How much is this coverage worth? Using data from the Pew Foundation, I calculated how much each state would need to put aside each year, as a percentage of workers’ wages, to fully fund their retiree healthcare. For California, the answer is around 12 percent of pay, among the highest in the country. Accounting for retiree health coverage would increase total compensation by around 8 percent, pushing the total California public pay advantage to around 18 percent.

The form of this argument strikes me as basically sound because I've had the same reaction to all these recent comparisons of public and private sector pay: they seem OK on wages and current benefits, but don't appear to fully take into account the value of future benefits. At the same time, I'm not sure that using the 50% underfunding figure is entirely justified since a lot of that is based on losses suffered recently by pension funds during the housing crash. If investments recover over the next few years, pension funds may turn out not to be as underfunded as we think right now.

As for the retiree healthcare benefits, I'd certainly be interested in seeing some other folks try to calculate this stuff. In general, though, I find Biggs's 8% figure easy to believe given the skyrocketing cost of healthcare. But whatever the right number is, it ought to be taken into account.

Anyway, I hope that some of the organizations that have produced these reports respond to Biggs. It's a conversation worth having, and it would be nice to at least get everyone on roughly the same page about which numbers to include and how big they are.

Did a Small Stimulus Doom the Democrats?

| Tue Oct. 26, 2010 6:31 PM EDT

Yesterday Paul Krugman argued that if Democrats had enacted a bigger stimulus in 2009, they'd be looking at manageable losses next week instead of huge ones:

Could the administration have gotten a bigger stimulus through Congress? Even if it couldn’t, would it have been better off making the case for a bigger plan, rather than pretending that what it got was just right? We’ll never know.

What we do know is that the inadequacy of the stimulus has been a political catastrophe. Yes, things are better than they would have been without the American Recovery and Reinvestment Act: the unemployment rate would probably be close to 12 percent right now if the administration hadn’t passed its plan. But voters respond to facts, not counterfactuals, and the perception is that the administration’s policies have failed.

There's something about this argument that bugs me. It's not that it's wrong, it's just that it's exaggerated. A bigger stimulus almost certainly wouldn't have saved the Democrats' bacon. Here's what I mean:

  • The actual stimulus bill that was passed in Feburary 2009 amounted to about $800 billion. The biggest bill anyone was talking about at the time was $1.2 trillion. That's 50% bigger, and presumably would have been about 50% more effective.
  • For calendar 2010, CBO estimates that the stimulus bill reduced unemployment by something between 0.7 and 1.8 points. Split the difference and the consensus average is about 1.2 points. A stimulus bill that was 50% bigger would therefore probably have reduced unemployment by 0.6 points more than the actual bill.

If this is in the ballpark, it means that with a bigger stimulus bill unemployment today would be 9%, not 9.6%. That would have been well worth the price, but just because it was worth doing doesn't mean it would have made a big electoral difference. Unemployment of 9% is still enormously high, and almost certainly well above the point at which voters start to freak out. You can make similar arguments for GDP growth, disposable income, or any other economic statistic. A bigger stimulus might have made a difference, but it just wouldn't have been big enough to change the dynamics of next week's elections other than very modestly.

Now, if Democrats end up losing control of the House by three seats, the potential for even a modest improvement will seem like a pretty big deal. Still, modest is modest. It's most likely true that the stimulus was too small, but like every other electoral just-so story, it probably doesn't explain as much as you might think.

UPDATE: In comments, several people suggest that the real issue is that the stimulus should have been bigger and better. About 40% of the stimulus was in the form of tax cuts, which have a low fiscal multiplier. So if the stimulus had been $1.2 trillion, and all of it had been spending, we might be talking about a difference of two points of unemployment, not 0.6 points.

That might be true. It depends a lot on estimates of fiscal multipliers, which are pretty tricky because there's so little empirical evidence available on the subject. Still, the argument for a bigger and better stimulus is definitely stronger than the argument for a merely bigger stimulus.

(Unless, of course, you're talking about a truly gargantuan stimulus. But in that case, you're really talking pie in the sky. There just wasn't support in Congress for that.)

The other main contention in comments is that Obama did a lousy job of setting expectations so that he could go back for more money if the economy didn't respond the way he thought it would. I'm less sympathetic to this argument. Given Republican obstructionism, I simply don't think Obama ever had a chance of getting a significant amount of additional stimulus after the first package passed. Even the meager $150 billion the House passed in late 2009 never went anywhere, and I doubt that different rhetoric from Obama would have affected that much.

How Plebe Are You?

| Tue Oct. 26, 2010 2:32 PM EDT

Claire Berlinski, after reading Charles Murray's Washington Post op-ed about out-of-touch elites, translates his criteria for eliteness into a "How Plebe Are You?" quiz. I think this deserves meme-dom, so I'm passing it along. Here are my answers:

1. Can you talk about "Mad Men?" No.
2. Can you talk about the "The Sopranos?" No.
3. Do you know who replaced Bob Barker on "The Price Is Right?" I think so.
4. Have you watched an Oprah show from beginning to end? Yes.
5. Can you hold forth animatedly about yoga? No.
6. How about pilates? No.
7. How about skiing? No.
8. Mountain biking? No.
9. Do you know who Jimmie Johnson is? Yes.
10. Does the acronym MMA mean anything to you? Yes.
11. Can you talk about books endlessly? Yes.
12. Have you ever read a "Left Behind" novel? No, though I recently read The Shack.
13. How about a Harlequin romance? Yes. I once got the idea in my head that I should try writing a romance novel. This was a superlatively dumb idea, but I did it anyway (it was an adventure romance set in Peru). Before I started, though, I read half a dozen Harlequin romances to get a flavor for the thing. They were surprisingly badly written.
14. Do you take interesting vacations? Define "interesting." But I suppose the answer is yes.
15. Do you know a great backpacking spot in the Sierra Nevada? No.
16. What about an exquisite B&B overlooking Boothbay Harbor? No.
17. Would you be caught dead in an RV? I never have been, but I wouldn't mind trying it.
18. Would you be caught dead on a cruise ship? Marian and I took a Tahiti cruise once. I didn't really care for it, though.
19. Have you ever heard of of Branson, Mo? Yes.
20. Have you ever attended a meeting of a Kiwanis Club? No.
21. How about the Rotary Club? No.
22. Have you lived for at least a year in a small town? No, I'm a child of the suburbs.
23. Have you lived for a year in an urban neighborhood in which most of your neighbors did not have college degrees? No. See above. On the other hand, neither of my next-door neighbors had college degrees when I was growing up.
24. Have you spent at least a year with a family income less than twice the poverty line? No.
25. Do you have a close friend who is an evangelical Christian? Yes.
26. Have you ever visited a factory floor? Yes.
27. Have you worked on one? No.

Keep in mind that you have to know how to score these questions. For example, the correct plebe answer to questions #1 and #2 is No, while the plebe answer to #3 and #4 is Yes. However, if you don't know at least this much, you should just give up and accept your out-of-touch elite status without complaint.

Anyway, I scored 17 out of 27, which is 63% — though I would do much better if graduating from a non-Ivy League university got as much attention as it did in Murray's op-ed. Are we grading on a curve here?

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Politics in Orange County

| Tue Oct. 26, 2010 1:19 PM EDT

Over in my mother's congressional district, the Republican candidate is getting creative:

Republican Van Tran, the upstart challenger to Rep. Loretta Sanchez (D-Calif.), is betting on voters sniffing out his opponent's struggles — literally.

Tran is sending out a scratch-and-sniff direct mail piece attacking Sanchez that features a hideous odor emanating from it....On the inside of mailer, the piece says, "Something smells rotten about Loretta. It's the stench of Washington." Below that is the scratch and sniff panel.

A GOP source who experienced the Eau de Sanchez put it this way: "It is a horrible odor, like the combination of the five or six worst possible scents you can imagine."

Of course, keep in mind that this used to be a district represented by A-list loon Bob Dornan, and this seems like exactly the kind of thing he would have done. It's good to see that north Orange Country Republicans are keeping the flame alive.

Pay for Non-Performance

| Tue Oct. 26, 2010 1:01 PM EDT

The Economist's Matt Steinglass, responding to yesterday's post about skyrocketing incomes of the rich, offers this note:

A few years back, this paper did an extended investigation of increasing CEO compensation, and found that while "abuses and downright crookery" were part of the story, CEO pay gains were justified by increased returns to investors. That, however, was in 2007, before the global financial crisis erased many of those gains.

This is revealing about high-end pay packages on two levels. Increased compensation has mostly been the effect of huge pay increases in the financial sector and among Fortune 5000 executives. But as Matt points out, the increasing returns their companies enjoyed were largely illusory. That's now a lot more obvious than it was five years ago, but there's nonetheless been no movement to reduce executive/financial pay in response.

Still, not all of those increasing returns were illusory. A lot of it was perfectly real. More broadly, then, the question is this: if returns are increasing everywhere, do CEOs as a class deserve ever increasing pay packets? Why? If a single company does significantly better than its competitors, that's a sign that its executive team is doing something right. But if the global economy as a whole is booming, and most companies are just riding the wave, that's a sign of absolutely nothing. CEOs as a class aren't responsible for global economic conditions, and individual CEOs deserve no special consideration for merely benefitting from a growing economy.

This, to me, has always been the smoking gun in conversations about executive pay. If corporate executives are really being paid for performance, they should be paid richly if their performance is significantly better than the competition and less if their performance is worse. They shouldn't be paid richly if their performance merely matches the overall growth rate of their industry or the economy as a whole. For the most part, though, that's exactly how they've been paid ever since the early 80s. Merely average performance drives outlandish pay increases, and the penalty for poor performance is almost nonexistent. Corporate executives, as a group, are wildly risk averse, and over the past few decades have mostly been paid simply for going along for the ride when the economy is doing well.

As soon as that changes, I'l be open to arguments about CEOs deserving their astronomical pay packets. But there's no sign of it yet.

The Mystery of Obama

| Tue Oct. 26, 2010 12:24 PM EDT

What happens if Republicans win control of one or both houses of Congress in November? Ezra Klein says he'll put money on a bigger tax cut getting passed but thinks the odds of big deficit reduction are tiny. Matt Yglesias thinks the odds of a big deficit reduction are even tinier, since Republicans don't actually care about deficit reduction.

And me? I don't know, because I don't really feel like I understand President Obama's position in all this. It's pretty obvious what House Republicans will do: extend all the Bush tax cuts and possibly try to make a few modest cuts in spending. It's less obvious what the Senate will do, but even if Democrats retain control there are going to be several members of their caucus willing to compromise on the kind of program House Republicans want to pass. So that means big tax cuts and small spending cuts, and therefore an increase in the deficit.

But what about Obama? Would he veto such a program and risk shutting down the government? Or is he still dedicated to looking postpartisan? Will he become a born-again deficit fighter after the elections? That's the wild card, and I honestly have no idea where he stands on this. To make it even worse, he's going through a lot of staff changes, and there's no telling what kind of advice he'll be getting compared to the past couple of years.

So Obama is the central mystery here, I think. If I could figure out what he's going to do, I'd be a lot more willing to make a prediction. But I can't.

Five Memes That Deserve to Die

| Tue Oct. 26, 2010 11:00 AM EDT

My latest for the magazine is online now, and it's a pre-election piece called "Five Memes That Deserve to Die." That's the subhead, anyway. The real headline is "Invasion of the Brain-Devouring Platitudes," which goes better with the conceit of our horror movie cover featuring Sarah Palin as a 50-foot woman. (Explained here.) Basically, it's a collection of five memes about the election that I'm pretty sure are wrongheaded regardless of how things turn out next Tuesday. Which is convenient, since I don't know how things are going to turn out next Tuesday.

As it happens, I wasn't very happy with how the piece turned out. But I've always wondered what the journalistic etiquette is for that kind of thing. Go ahead and admit it? Or just promo it as usual? I'm not sure. Besides, I read through it again this morning and it didn't seem all that bad after all. So maybe I was just in a cranky mood the week I wrote it. I'm sure you'll all let me know in comments.