Kevin Drum

Forbes Jumps the Shark

| Sun Sep. 12, 2010 2:02 PM EDT

I am flabbergasted. I was about to write a quickie "Quote of the Day" post starring Newt Gingrich, who apparently now thinks Barack Obama "is so outside our comprehension" that he can only be fathomed "if you understand Kenyan, anti-colonial behavior." But as I followed the quote backward, I learned that it was based on something that Dinesh D'Souza wrote. So I followed back again, and it turns out that the source isn't just something D'Souza wrote in some obscure lunatic outlet, it's the cover story of Forbes this week.

The. Cover. Of. Forbes.

Now sure. Steve Forbes is an ultraconservative true believer. But this is still a mainstream business magazine,1 not a John Birch Society newsletter. And D'Souza is the guy who wrote an entire book blaming 9/11 on the "cultural left," a book that expressed such obvious sympathy for the revulsion of conservative Muslims toward the American left's "deluge of gross depravity and immorality" that even most of the folks at National Review couldn't stomach it.

So now he has a new book out, and this week he's abstracting it on the cover of Forbes. D'Souza is ostensibly so bewildered by Obama's mainstream liberalism (climate change! national healthcare! non-nationalization of banks! progressive taxation!) that he insists Obama is completely incomprensible except when viewed through the lens of gibberish like this:

So who was Barack Obama Sr.? He was a Luo tribesman who grew up in Kenya and studied at Harvard. He was a polygamist who had, over the course of his lifetime, four wives and eight children. One of his sons, Mark Obama, has accused him of abuse and wife-beating. He was also a regular drunk driver who got into numerous accidents, killing a man in one and causing his own legs to be amputated due to injury in another. In 1982 he got drunk at a bar in Nairobi and drove into a tree, killing himself.

An odd choice, certainly, as an inspirational hero. But to his son, the elder Obama represented a great and noble cause, the cause of anticolonialism. Obama Sr. grew up during Africa's struggle to be free of European rule, and he was one of the early generation of Africans chosen to study in America and then to shape his country's future.

....It may seem incredible to suggest that the anticolonial ideology of Barack Obama Sr. is espoused by his son, the President of the United States. That is what I am saying. From a very young age and through his formative years, Obama learned to see America as a force for global domination and destruction. He came to view America's military as an instrument of neocolonial occupation. He adopted his father's position that capitalism and free markets are code words for economic plunder.

....His proposal for carbon taxes has little to do with whether the planet is getting warmer or colder; it is simply a way to penalize, and therefore reduce, America's carbon consumption.....Rejecting the socialist formula, Obama has shown no intention to nationalize the investment banks or the health sector. Rather, he seeks to decolonize these institutions, and this means bringing them under the government's leash....If Obama shares his father's anticolonial crusade, that would explain why he wants people who are already paying close to 50% of their income in overall taxes to pay even more....Obama supports the Ground Zero mosque because to him 9/11 is the event that unleashed the American bogey and pushed us into Iraq and Afghanistan. He views some of the Muslims who are fighting against America abroad as resisters of U.S. imperialism....Finally, NASA. No explanation other than anticolonialism makes sense of Obama's curious mandate to convert a space agency into a Muslim and international outreach.

This is the cover story of Forbes this week. And I am flabbergasted.

1Right? Or am I out of touch? Does Forbes run this kind of drivel routinely these days? Or is this peculiar even for them?

UPDATE: I see that Daniel Larison got here a few days ago. His takedown is worth a read.

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Boehner Land

| Sun Sep. 12, 2010 2:05 AM EDT

I imagine that Eric Lipton's piece in the New York Times today about John Boehner's almost comic dependence on business lobbyists was assigned a few weeks ago. But it's certainly convenient that it appeared at the same time that Democrats are trying to introduce Boehner to the American public as the face of the Republican Party:

He maintains especially tight ties with a circle of lobbyists and former aides representing some of the nation’s biggest businesses, including Goldman Sachs, Google, Citigroup, R. J. Reynolds, MillerCoors and UPS. They have contributed hundreds of thousands of dollars to his campaigns, provided him with rides on their corporate jets, socialized with him at luxury golf resorts and waterfront bashes and are now leading fund-raising efforts for his Boehner for Speaker campaign, which is soliciting checks of up to $37,800 each, the maximum allowed.

....Michael Steel, a spokesman for Mr. Boehner, said the industry ties only help make Mr. Boehner a better Republican leader. “Like the American people, Boehner — a former small-business man — is most concerned right now about the issue of jobs,” he said. “So he often speaks with employers, rather than, for example, labor unions or environmentalists who support job-killing policies.”

....His clique of friends and current and former staff members even has a nickname on Capitol Hill, Boehner Land. The members of this inner circle said their association with Mr. Boehner translates into open access to him and his staff....One lobbyist in the club — after lauding each staff member in Mr. Boehner’s office that he routinely calls to ask for help — ticked off the list of recent issues for which he had sought the lawmaker’s backing: combating fee increases for the oil industry, fighting a proposed cap on debit card fees, protecting tax breaks for hedge fund executives and opposing a cap on greenhouse gas emissions.

Two quick notes. First, it's telling that Boehner's friends and flacks hardly even bother trying to spin this. Boehner does whatever the business community wants and they don't figure they really need to deny it. Second, as I said, the timing of the story is convenient for Democrats. But it would be even more convenient if more Democrats could say with a straight face that they don't act pretty much the same way. Just sayin'.

Friday Cat Blogging - 10 September 2010

| Fri Sep. 10, 2010 2:45 PM EDT

This picture of Domino is one of my favorites ever. I couldn't really tell you why. It just seems so perfectly feline. (However, she wasn't staring in the window because she wanted me to open the door and let her in. That's usually the reason, but this time it turned out she was engaged with some sort of insect on the front porch and wasn't trying to get my attention at all. She just wanted to catch her bug.) Over on the right, Inkblot has burrowed himself under a quilt, something that's suddenly attracted his interest just this week. I guess the weather must be turning colder. He didn't really do the job right, though, so as soon as I finished taking pictures of him I lowered the quilt so he could have a more cave-like hidey hole. He seemed pleased.

Yet More on Basel III!

| Fri Sep. 10, 2010 1:23 PM EDT

Felix Salmon passes along the news that the new Basel III capital requirements will be announced this weekend. Can you feel the excitement?

He also links to a new BIS report that asks: What's the effect of higher capital standards, anyway? Banks argue that it will increase the cost of borrowing and therefore slow economic growth, and they're probably right about that. However, it will also reduce the frequency and severity of banking crises. So what's the net effect?

First things first: How big is the effect of banking crises? Do they merely have a temporary negative effect on economic growth, which gets washed away during the subsequent recovery? Or is the output level permanently lowered? Here's a series of charts from the report:

I've added the green lines to roughly show the pre-crisis trend level. In some cases (notably Mexico) this obviously overstates things, since the pre-crisis growth rate was probably unsustainable. But in most cases it looks as if the effect is a permanent reversion to a lower output baseline that never gets made up by higher growth — at least not in the medium term of 20 years or so. The BIS report offers up several explanations for why this is so, but the bottom line is simple: banking crises appear to have a large and permanent effect on the output level. It's worth paying a small price to avoid them.

And the price of higher capital requirements is indeed small. The report estimates that a 1% rise in capital standards has a 0.04% effect on economic growth. So what's the net effect? Well, if the effect of banking crises is moderate but permanent, it's shown in the red line in the chart below:

This chart estimates the long-term effects of higher capital ratios and liquidity requirements after the transition period to the higher requirements is over, and the results are pretty stunning. If capital requirements increase from 7% to 12%, the net effect on the annual level of output is nearly two percentage points upward. The BIS report analogizes this to a burglar alarm in an art museum: it costs you a little bit every year, but it's well worth it if it prevents the theft of a priceless masterpiece.

All of this is arguable, of course, and depends on your estimates of the cost of banking crises vs. the cost of higher capital standards. But if the BIS is even in right ballpark here, higher capital standards are a slam dunk. We'd be idiots not to adopt them.

UPDATE: I've reworded this is in a few places to make it clear that we're talking about permanently lower output levels here, not permanently lower growth rates. Japan and Mexico do show lower growth rates, but the main point of the BIS report is that banking crises cause an output shock that can only be made up by several years of above-average growth, and that doesn't seem to be the norm.

Breaking: Tax Cuts for the Rich Remain Unpopular

| Fri Sep. 10, 2010 12:17 PM EDT

A new Gallup poll is out and it shows the same thing as every other poll recently taken on this subject: most people would prefer to keep in place tax cuts for the middle class but not extend tax cuts for the rich. So why isn't everyone rushing to embrace this stand? At a minimum, there are three reasons:

  • It's a pretty thin plurality. 44%-37% isn't exactly a tsunami of public opinion.
  • As with most polls, this one doesn't measure depth of feeling. But here's a guess: the 44% who want to end tax cuts for the rich don't actually care all that much about it. Sure, it would be nice, but hey — did you see the Vikings last night? Favre looked terrible, didn't he?
  • As noted before, politicians don't really care much what you think unless you're rich. And it's a pretty fair guess that nearly all the rich people in the country are in the 37% that wants to extend all the tax cuts. And they care about this a lot.

In addition, of course, you have district-level dynamics that don't show up in a national poll. If you're campaigning in a district where 55% of the registered voters want to extend the tax cuts for everyone, then that's probably the stand you're going to take. The rest of the country really doesn't matter to you.

Oh — and did I forget venality and cowardice? Stir that into the mix too. Never forget venality and cowardice.

Why the Fed is Hawkish

| Fri Sep. 10, 2010 11:42 AM EDT

Fed presidents are chosen by regional Fed boards, and regional Fed boards are chosen via a complex arrangement that, in practice, ensures that all the seats go to local bankers and business leaders. So why do these board members tend to be so hawkish? Wouldn't they be better off with an expansionary monetary policy that keeps the economy growing? Matt Steinglass uses the Minneapolis Fed as a case study:

You could argue that the fact that local banks pick the Class B directors, while the Fed's governors pick the Class C directors, ensures that ultimately they're representing the interests of banks, and not so much those of business — let alone those of consumers, labour, civic associations, or every other way to group citizens in order to express their many interests. That's actually a violation of the spirit of the Fed's charter. Class B and Class C directors are supposed to "encompass the broad economic interests of the District, including industry, agriculture, services, labor, consumers, and the nonprofit sector." The fact that every single member of the Minneapolis Fed is either a banker or a business executive makes a travesty of that principle. The interests of consumers and workers ought to be represented in choosing regional Fed presidents.

But I still think you need to have a theory as to why a group of prominent local businesspeople would be more likely to pick a regional Fed president who wants tight monetary policy than one who wants loose monetary policy. And at that point I think you start getting into the fuzzy terrain of people's economic ideologies, which aren't always entirely coherent.

OK, I'll offer up a simpleminded theory in two parts. First, local bankers and business folks, when you get right down to it, don't believe in modern economics. I don't mean that they believe in, say, Milton Friedman's economics compared to Paul Krugman's economics, I mean that in their hearts they basically don't get it at all. They may have been socialized not to admit it, but I'll bet that deep in their hearts most of them don't quite understand why we're not still on a gold standard.

Second, in the same way that Germans are supposedly still scarred by the great hyperinflation of the 20s, I think American business leaders are still scarred by the stagflation of the 70s. And what they think they know about stagflation is that it was caused by overeducated Keynesian technocrats fiddling with the money supply and then brought to heel by the common-sense hard money policies of Paul Volcker and Ronald Reagan. And by God, they don't want to go back to that. So they're hawkish.

Obviously I'm just engaging in armchair sociology here. But I suspect that the rarified arguments of the MIT economics department vs. the Chicago economics department simply wash over most of these guys. As far as they're concerned, the only thing the government can do successfully is control inflation, so that's what they're going to do. They are not, repeat not, going to be the villains who let the inflation genie out of the bottle again, and that's that.

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Here's What's the Matter With Kansas

| Fri Sep. 10, 2010 5:00 AM EDT

Why has income inequality grown so explosively over the past 30 years? Why do so many working and middle class voters cast their ballots for a party that's so obviously a captive of corporations and the rich? Why is there no longer any real sustained effort to improve the lot of the middle class?

There's no shortage of answers. There's the "What's the Matter With Kansas" theory. There's the demise of labor unions. There's the well-worn story of the rise of conservative think tanks. There's the impact of globalization on unskilled and semi-skilled labor. There's the growing returns to education in a world that grows more complex every year.

But these are all limited and therefore unsatisfactory explanations, and no one has yet put them all together into a single organic whole that feels genuinely complete and compelling. Until now. The book that finally does it is called Winner-Take-All Politics, by Jacob Hacker and Paul Pierson, and it puts together all of these pieces with a clarity of explanation that's breathtaking. I hesitate to summarize their argument for fear of ruining it, but here's the nickel version:

  1. In the 60s, at the same time that labor unions begin to decline, liberal money and energy starts to flow strongly toward "postmaterialist" issues: civil rights, feminism, environmentalism, gay rights, etc. These are the famous "interest groups" that take over the Democratic Party during the subsequent decades.
  2. At about the same time, business interests take stock of the country's anti-corporate mood and begin to pool their resources to push for generic pro-business policies in a way they never had before. Conservative think tanks start to press a business-friendly agenda and organizations like the Chamber of Commerce start to fundraise on an unprecedented scale. This level of persistent, organizational energy is something new.
  3. Unions, already in decline, are the particular focus of business animus. As they decline, they leave a vacuum. There's no other nationwide organization dedicated to persistently fighting for middle class economic issues and no other nationwide organization that's able to routinely mobilize working class voters to support or oppose specific federal policies. (In both items #2 and #3, note the focus on persistent organizational pressure. This is key.)
  4. With unions in decline and political campaigns becoming ever more expensive, Democrats eventually decide they need to become more business friendly as well. This is a vicious circle: the more unions decline, the more that Democrats turn to corporate funding to survive. There is, in the end, simply no one left who's fighting for middle class economic issues in a sustained and organized way. Conversely, there are lots of extremely well-funded and determined organizations fighting for the interests of corporations and the rich.

The result is exactly what you'd expect. With liberal money and energy focused mostly on non-economic concerns, the country moves steadily leftward on social issues. With conservative money and energy focused mostly on the interests of corporations and the rich—and with no one really fighting back—the country moves steadily rightward on econonomic issues. Thomas Frank's famous working-class Kansans who vote against their own economic interests are easily explained. It's not just that conservatives appeal to them on social grounds, it's that there's no one left to really make the economic case to them in the first place. And even if anyone did, they have little reason to believe that Democrats would actually follow through in concrete ways. So why not vote on abortion and gay rights instead?

I'm not doing Pierson and Hacker justice here. In fact, I'm not really even trying to. What I am doing is telling you to buy a copy of their book and read it. Seriously. Just get a copy and read at least Parts I and II. No book is perfect, and I feel a little silly gushing too much, but this is the most complete and sustained explanation I've ever read of why, over the past 30 years, America has gone the direction it has even while most other countries haven't. And although Hacker and Pierson's sympathies are obvious, this isn't a polemic. It's an explanation. For me, it was a 300-page "Aha!" moment.

More later. In the meantime, though, buy the book. I can almost guarantee you won't be disappointed.

Quote of the Day: Just a Coincidence, Folks

| Thu Sep. 9, 2010 8:55 PM EDT

From a spokesman for the rally in Anchorage this weekend being staged by Glenn Beck and Sarah Palin:

Event promoter Christopher Cox says the 9/11 date is a coincidence. Cox originally eyed Sept. 4, but didn't want to compete with the Alaska State Fair.

Roger that. The fiddle contest and the quarterfinals of the Alaska's Got Talent competition were on the 4th, and you'd have to be pretty full of yourself to try competing with that. 9/11 was a more modest choice all the way around.

Making Medicare More Efficient

| Thu Sep. 9, 2010 5:48 PM EDT

Can the free market save Medicare? The results to date aren't very encouraging: Medicare Advantage, a program that allows seniors to enroll in private health plans, costs taxpayers about 13% more per person than standard fee-for-service Medicare. But wait! Austin Frakt reports that in some areas MA is more expensive than FFS and in other areas FFS is more expensive than MA. So why not switch to a system where both kinds of plans bid against each other, and reimbursement rates are set differently for each area depending on who submits the lowest bid?

More here, and the AEI study it's based on is here. The AEI folks claim it would reduce Medicare costs about 8% nationwide. Seems worth a closer look.

State Secrets Alive and Well

| Thu Sep. 9, 2010 3:17 PM EDT

The infamous state secrets privilege has been with us for over half a century, ever since the Supreme Court created it in 1953 (ironically, in a case in which it turned out the government was lying about national security to cover up its own negligence). Until the Bush administration, however, it was used fairly sparingly and only to toss out specific pieces of evidence that the government wanted to keep secret even from a judge's review in camera. Bush changed all that. The use of the state secrets privilege jumped, but even more critically, Bush used it to get entire cases thrown out of court. It was no longer a matter of the defense being hamstrung in what evidence it could present — bad enough already — but a matter of not being allowed to bring a case at all.

Last year the Obama administration announced that it intended to tighten things up:

The new policy requires agencies, including the intelligence community and the military, to convince the attorney general and a team of Justice Department lawyers that the release of sensitive information would present significant harm to "national defense or foreign relations." In the past, the claim that state secrets were at risk could be invoked with the approval of one official and by meeting a lower standard of proof that disclosure would be harmful....The shift could have a broad effect on many lawsuits, including those filed by alleged victims of torture and electronic surveillance.

....The heightened standard is designed in part to restore the confidence of Congress, civil liberties advocates and judges, who have criticized both the Bush White House and the Obama administration for excessive secrecy. The new policy will take effect Oct. 1 and has been endorsed by federal intelligence agencies, Justice Department sources said.

However, that same article went on to say that the new Obama policy "is unlikely to change the administration's approach in two high-profile cases," including one in which Binyam Mohamed and four other men claimed they had been kidnapped by the CIA and then tortured in CIA black site prisons. And indeed, the Department of Justice continued to assert the most sweeping version of the state secrets privilege in that case, which was upheld yesterday on a 6-5 vote by the 9th Circuit Court of Appeals. The ACLU plans to appeal, but in the meantime Marcy Wheeler comments:

So basically, the government can kidnap you and send you to be tortured — as they did with Binyam Mohamed — yet even if your contractors acknowledge what they were doing, if the government wants to call their own law-breaking a secret, the most liberal Circuit Court in the country agrees they can.

This is, needless to say, one of the things I was thinking of yesterday when I mentioned Obama's "weak record on civil liberties." In a way, of course, it's unsurprising. Not, I think, because newly elected presidents "invariably become quite enamored of executive power once they settle into the Oval Office chair," as James Joyner says. But because newly elected presidents routinely find it almost impossible to buck a national security establishment when that establishment unanimously opposes something. And I have little doubt that the entire national security establishment of the United States (and probably a few other countries as well) is dead set against ever allowing the public to know exactly what happened at those black sites. I don't think there's a president ever elected who's been able or willing to stand up against this kind of united front.

That's not to defend Obama. It was still his decision, and it's an odious one. But until, as a country, we come to our senses on national security, it's not going to matter very much who's in the Oval Office. The system is stronger than the man.