Kevin Drum

The Truth in Propaganda Act

| Tue Apr. 13, 2010 11:18 AM EDT

Barack Obama has apparently decided on a plan to fight back against the Citizens United decision that allows corporations a nearly unlimited ability to spend money in political campaigns:

The White House and leading Democrats in Congress are close to proposing legislation that would force private companies and groups to disclose their behind-the-scenes financial involvement in political campaigns and advertising, officials involved in the discussions said Monday. One provision would require the chief executive of any company or group that is the main backer of a campaign advertisement to personally appear in television and radio spots to acknowledge the sponsorship, the officials said.

Well, corporations can already spend unlimited sums on initiative campaigns in California, and I wouldn't mind seeing a law like this in place here. Sort of a corporate version of the "I approve this message" that we require from actual human candidates.

My current bête noire is Proposition 16, a slimy little initiative called the "Taxpayers Right to Vote Act." (Great name, isn't it?) It's the brainchild of Pacific Gas & Electric, which is outraged by the effrontery of public utilities that compete with it and wants to require a two-thirds vote before any public utility would be allowed to launch or expand its public power service. You probably couldn't get a two-thirds vote in most places to pass a Mothers Day resolution, so Prop 16 effectively shuts down PG&E's competitors completely.

Their current ad is narrated by the most reasonable looking soccer mom you've ever laid eyes on, and it's in heavy rotation financed by PG&E's millions. The opposition, ironically, isn't allowed to really oppose the measure at all since public utilities aren't allowed to spend public money on political campaigns. Sweet, isn't it? There's nothing much to be done about that, but it would be nice to even the scales just a wee bit by requiring Peter Darbee to append his corporate mug to the end of every one of those ads and say "I'm the chairman of PG&E and I approve this message." People ought to know just whose pocketbook is being lined here, after all.

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Quote of the Day: Election Time in Britain

| Mon Apr. 12, 2010 8:04 PM EDT

From the Guardian's Jonathan Glancey, who concludes that it's hard not to get the feeling that "both parties are sending themselves up" after seeing the manifestos released ahead of Britain's May 6 election:

The Tories' starchy blue "Invitation to Join the Government of Britain" reminds me of a book of trusty, well-established hymns. One can easily imagine I Vow to Thee my Country alongside Blake's Jerusalem....Labour's image of a heroic Soviet-style family, circa 1950, seems to be an in-house joke by someone who enjoys Private Eye's lampoon of Gordon Brown as the Supreme Leader of a half-cock, Soviet-style state.

I don't have a huge dog in this fight, but I will say this: David Cameron's pledge to offer "California-style referendums on any local issue if residents can win the support of 5% of the population" is the most willfully wrongheaded idea I've heard in a long time. I mean, have you checked out the Golden State lately, David? "California-style referendums" have not exactly done California any favors.

When Did the Great Recession End?

| Mon Apr. 12, 2010 7:06 PM EDT

Is the Great Recession over? NBER is the official dater of recessions, and last week they declined to say that this one was officially done. Bruce Bartlett comments:

I'm rather astounded at all the ill-informed commentary I have read today in normally responsible places such as the Financial Times to the effect that the National Bureau of Economic Research is not sure that the recession is over. That is not at all the case. I am 100% certain that every member of the Business Cycle Dating Committee knows perfectly well that the recession ended some time ago. What the committee is unsure about is precisely when the recession ended.

By coincidence, I happened be over at the NBER site yesterday because I was wondering how long it usually took to officially call the end of a recession, and the answer is right on the main business cycle dating page for the last four downturns:

  • The November 2001 trough was announced July 17, 2003.
  • The March 1991 trough was announced December 22, 1992.
  • The November 1982 trough was announced July 8, 1983.
  • The July 1980 trough was announced July 8, 1981.

So that's 20 months, 22 months, 8 months, and 13 months. And since the current recession is sort of broadly U-shaped, not V-shaped, it would hardly be surprising if the waiting time for NBER's official call is toward the high end of this range. In any case, if the recession did officially end in mid-2009, as most analysts think, that was only 11 months ago and it would be perfectly normal for NBER to take another few months to get its numerical ducks in a row regardless of its shape. More here from Robert Gordon, a member of the NBER recession dating committee.

Taming the Derivatives Bankers

| Mon Apr. 12, 2010 2:10 PM EDT

If you're a big bank, how do you make money? Consumer deposits? That was great back in the 50s, not so great now. Stock broking? It was a money machine until 1975, now it's for chumps. Bond underwriting? Bor-r-r-r-ing.

Basically, anything that's liquid and transparent and openly traded is hard to make a buck on. What you need are things that are opaque and hard for customers to understand. That's why, for example, credit cards with lots of hidden charges are more profitable than credit cards that just assess a simple annual fee. And it's why over-the-counter credit derivatives became so lucrative in the aughts. Each one is custom made, their structure is rocket science complicated, and instead of being traded on an exchange they're bought and sold directly by dealer-banks that can charge fat fees because it's next to impossible for customers to know if they're being fleeced or not. And because OTC credit derivatives tend to be very large securities, it makes sense for people to want to deal only with very large banks that are likely to make good in case of a big payout. Bob Litan of Brookings explains how this evolved into an oligopoly which is going to be very resistant to reform:

There are parties with a significant presence in derivatives markets — indeed, some would say a dominant presence — for whom central clearing, and certainly exchange trading and greater price transparency, is not in their economic interest. Here, of course, I refer to the major derivatives dealers — the top 5 dealer-banks that control virtually all of the dealer-to-dealer trades in CDS.

....Market-makers make the most profit, however, as long as they can operate as much in the dark as is possible — so that customers don’t know the true going prices, only the dealers do. This opacity allows the dealers to keep spreads high....Central clearing and other steps to which it could and should lead — exchange trading and greater price transparency — would threaten these revenues, potentially in a big way, for several reasons.

[Reasons given, and potential outcomes listed.]

....All of these outcomes are good for investors, the buy-side and end-users of derivatives, but not necessarily for dealers as a group if the buy-side and end-users are able to directly access exchanges and clearinghouses....It is understandable, of course, why the main dealer-banks would not want such a world to come about, and thus individually each of them has reasons to slow or resist change, their commitments to clear virtually all new “eligible” derivatives notwithstanding. For reasons spelled out earlier, those commitments fall far short of the kind of cleared, exchange traded, and transparent environment that would be in the best interest of the financial system and the economy as a whole.

Long story short, Litan basically says that even if we pass regulatory reform, the dealer-banks that currently control the market in OTC derivatives have a ton of incentive to slow-walk anything that creates genuine transparency. This all comes via Mike Konczal, who adds this:

If you thought we’d at least get our arms around credit default swap reform from a financial reform bill, you should read this report from Litan as a giant warning flag. In case you weren’t sure if you’ve heard anyone directly lay out the case on how the market and political concentration in the United States banking sector hurts consumers and increases systemic risk through both political pressures and anticompetitive levels of control of the institutions of the market, now you have. It’s not Matt Taibbi, but it’s much further away from a “everything is actually fine and the Treasury is in control of reform” reassurance. Which should scare you, and give you yet another good reason for size caps for the major banks.

Mike suggests that this is a good reason to take more seriously the idea of breaking up big banks: if there were 20 or 30 dealer-banks instead of five, they just wouldn't have the same power to set prices and maintain opacity in the OTC derivatives market. True enough. At the same time, it's also a good argument for passing blunt reforms. Nothing is perfect, but blunt rules about equity trading have worked well for decades even though there are loads of incentives to game the system. OTC derivatives obviously can't be standardized to the same degree, but blunt rules could still take us a long way in that direction.

The Chinese Housing Bubble

| Mon Apr. 12, 2010 1:02 PM EDT

Over in Beijing, Bertel Schmitt has dinner with an American insurance company CFO and the Chinese head of a Chinese/American bank. He reports back:

When the discussion came to the Chinese real estate bubble, my Chinese banker friend emphatically acknowledged that China is in a huge one. Mostly in the tier one cities, but getting into the tier 2 cities also. He said that it is an absolute insanity. People buy homes and apartments, and keep them empty. Vacancy rates in tier one cities are sometimes higher than 30 percent. About 60 skyscrapers in Beijing are vacant. He congratulated me on my choice of renting, and suggested I should move, because rents are actually coming down. Caused by the oversupply of unsold properties, held for speculative purposes.

So what happens when a real estate bubble bursts in a country with a semi-state-controlled economy like China? Beats me. But it can't be good no matter what kind of country China is, can it?

Is Climate Economics a Mirage?

| Mon Apr. 12, 2010 12:40 PM EDT

Stuart Staniford, after reading Paul Krugman's NYT Magazine piece about climate economics, is skeptical that we can reduce carbon emissions 83% by 2050. After all, the economy is going to grow a lot during the next forty years:

If the economy is going to be a bit more than three times larger, but we are only going to emit 17% of the current level of carbon emissions, then the carbon intensity of the economy — that is the ratio of carbon emitted per dollar of goods and services created, is going to have to be only 5% of the current value. Next you have to figure that there are certain things in an industrial society that are very hard to do without liquid fuel — construction and agricultural machinery come to mind, along with aviation. Relying heavily on biofuels is a very dubious prospect in a world that also needs to feed 9 billion (assumed wealthier) people from its limited agricultural land. So you can probably figure that the residual 5% of carbon emission intensity is all going to go on these kind of specialized uses that are hard to substitute.

Therefore, these goals basically imply that the ordinary living and working of most citizens would be essentially carbon free by 2050. That is in 40 years time.

....Now, the lifetime of cars is much less than 40 years, so they will all be replaced anyway; that's not a problem (though there are certainly are questions about the ultimate scalability of that many electric cars). But the median age of a house is 35 years [...] and of course other kinds of infrastructure tends to last even longer than houses.

....Now, think of it this way: suppose you have a certain amount of money to spend over the next forty years that is your share of industrial society's surplus. You could take that money and either a) tear down your house and replace it with a super-insulated carbon-neutral one of about the same size, or b) add an extra floor and a swimming pool to the house you have and continue to power it with cheap fossil fuels (coal and shale gas, let's say). I would argue that this is, very roughly, what the choice between business as usual and an 80% reduction in carbon emissions means in personal terms.

This strikes me as both right and wrong. Are we likely to meet our goal of cutting carbon emissions 83%? Probably not. I imagine Stuart is right about that. But is that cause for despair? Hardly. If we aim for 83%, maybe we'll get to 60% instead. And perhaps that will turn out to be enough. Or, if it isn't, perhaps some modest geoengineering will get us the rest of the way. And if that's not enough and geoengineering isn't acceptable even on a modest scale — well, at least we've only got 23% to go. Any way you look at it, we're better off than if we shoot for a more "reasonable" goal of 60% and only make it to 40%.

Beyond that, of course, we don't necessarily have to live in super-insulated passive solar houses or work in super insulated zero-emissions offices and factories. Ordinary efficiency gains can get us a long way toward lower — if not zero — emissions, and what energy needs remain might be provided by solar, geothermal, or other sources. It's not an all-or-nothing proposition.

I think it's too easy to be overwhelmed by the scope of the climate change problem. It's unquestionably fantastically difficult, and any sober look at human nature, developing country growth, and capital stock inertia suggests that we're going to have a very hard time meeting our most ambitious goals. But there really are pretty feasible ways of getting a lot of the way there, and if carbon pricing and other programs motivate the next Thomas Edison to invent something remarkable a year or a decade before it might have otherwise happened, who knows? That might get us the rest of the way.

And if it doesn't? Well, look: three degrees of temperature increase is still better then five degrees. Six inches of sea rise is better than 12 inches. A hundred million dead is better than a billion dead. This stuff is worth doing even if it's not perfect. After all, what is?

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We Are What We Eat

| Mon Apr. 12, 2010 12:03 PM EDT

Via Ezra Klein, here's a fascinating little New York Times graphic that shows how much food we eat compared to other countries. Though, actually, it's not so little, which is why I'm just excerpting a snippet here. Frankly, I'm a little surprised that our consumption of packaged food isn't higher than it is. It turns out that it's not really that different from France or Spain.

But when you drill down into the details things look a lot different. We eat a lot of meat, for example, while Spaniards eat vast amounts of fruit. On the packaged side, we eat lots of microwave meals (as do the Japanese), while the French and Spaniards eat a lot of baked goods. And we're way ahead of everyone in our consumption of snacks and candy. USA! USA!

Reading Books on the iPad

| Mon Apr. 12, 2010 11:45 AM EDT

If I were to buy an iPad — and I have enough barely used electronic doodads around to suggest that I just might — I'd buy it primarily as an ebook reader that I could do other stuff with. So then: how is it as a reader? Where can you get books? How many books are available? Are pages rendered as actual pages, complete with charts/picture/tables/etc. in their correct places? Are books searchable? Etc. I already have a Kindle, but I found it very frustrating with nonfiction books, and my reading these days is something like 90% nonfiction. So I don't use it much. Should I get an iPad instead?

Samuelson's Book

| Sun Apr. 11, 2010 10:39 PM EDT

Paul Krugman says he learned something new at yesterday's MIT memorial service for Paul Samuelson:

I had no idea that the MIT economics visiting committee tried to force Samuelson to call off the publication of his 1948 textbook, on the grounds that Keynesian economics was too left-wing.

As it happens, I just finished reading Yves Smith's Econned, and she talks about this episode early in her book. As a public service, here's her synopsis:

A Canadian student of Keynes, Lorie Tarshis, published an economics textbook in 1947, The Elements of Economics, which included his interpretation of Keynes. It also suggested that markets required government support to attain full employment. It was engaging and well written, and sold well initially, but fell off quickly, the victim of an organized campaign by conservative groups to have the textbook removed. The book, and by implication Keynes, was inaccurately charged with calling for government ownership of enterprise.

Any taint of Communist leanings would damage the career of a budding academic. So aside from his refusal to accept some fundamental elements of Keynes's construct, Samuelson had another reason to distance himself from the General Theory. Samuelson said he was well aware of the "virulence of the attack on Tarshis" and penned his text "carefully and lawyer like" to deflect similar attacks.

More about Tarshis and Samuelson here. It includes the phrase "that bastard Buckley" just to spice things up a bit.

Supreme Court Handicapping

| Sun Apr. 11, 2010 7:40 PM EDT

There seems to be a remarkable consensus that Obama's shortlist for the Supreme Court consists of just three people: Elena Kagan, Diane Wood, and Merrick Garland. What's more, the conventional wisdom seems to be slowly congealing that Kagan is the favorite because she's a bit more centrist than the others and Obama doesn't really need a big fight in the Senate this summer.

But is that really true? To the extent that he takes politics into account with his choice, it seems to me that Wood is the best choice. The tea party fringe is going to find some reason to go ballistic over anyone Obama picks, so choosing a centrist doesn't really help him there. All three are well enough qualified that they're almost certain to be confirmed, so a centrist doesn't really help him there either. But what could help him is building on the progress he made in closing the "enthusiasm gap" by passing healthcare reform last month. The liberal base is starting to get a little more excited about things these days, and nominating a liberal justice — which shows that Obama is willing to nominate a liberal justice — could (a) get lefty juices flowing, (b) potentially cause conservatives to score an own goal if some of their number go overboard on the attacks, and (c) do it all without really affecting the independent vote since Wood is, after all, perfectly well qualified.

Plus she got her law degree from the University of Texas! I still haven't forgiven UT for this — and I probably never will — but at least it's west of the Mississippi. Fight the league, President Obama!