Quote of the Day: Bombs for Peace

From Matt Steinglass, commenting on President Obama's offer to sell Israel F-35 fighter jets in return for a 3-month settlement freeze in the West Bank:

Paying for peace negotiations in fighter planes is a bit like paying for carbon offsets in Hummers.

Voltaire would have been proud.

Banking on GM

The LA Times reports on this year's big coming out party on Wall Street:

General Motors Co. is set to reemerge as a public company this week in one of the year's hottest initial public stock offerings, but many American taxpayers who helped rescue the company won't be going along for the ride.

That's because most Americans won't have access to the new shares of the Detroit automaker....Some experts said an opportunity to reward average Americans is being wasted, even though the Treasury Department said two months ago that individuals would have "ample opportunity" to participate in the IPO. "Wall Street thumbed its nose at" individual investors, said David Menlow, president of research firm Ipofinancial.com. "We continue to help Wall Street out, and Wall Street seldom feels the need to say thank you."

I guess being a zillionaire investment banker means never having to say you're sorry.

Generally speaking, of course, this is no surprise. Retail investors almost never get a piece of the action in hot IPO deals. That's reserved for other bankers, rich clients, and friends and family. U.S. taxpayers might properly consider themselves "family" in this case, but Wall Street very decidedly doesn't.

Personally, I probably wouldn't recommend that retail investors get involved in a deal like this. But who cares what I recommend? The Obama administration should show a bit more common sense here. Taxpayers paid for the GM bailout, and if taxpayers want to gamble a bit of their pin money on GM's recovery then they probably ought to have first crack at it, not the Wall Street titans for whom this is just another few blips on their computer screen. Obama has been almost obsessive about demonstrating that the government isn't controlling the companies it bailed out, but for this he should have made an exception. The little guys should have come first.

Ben Bernanke's Secret Code

Over at The Corner, J.D. Foster examines the Fed's rationale for its quantitative easing program and finds it so inexplicable that he concludes it's nothing more than a pretext for their real reason — a reason so incendiary that Ben Bernanke dare not speak its name. Ladies and gentlemen, here it is:

What Bernanke is silently worried about is the possibility that Congress will allow all the 2001 and 2003 tax relief to expire at the end of the year, or that Congress will allow those provisions most important to the economy to expire — e.g., the lower tax rates on small businesses and the lower rates on capital gains and dividends. Slamming a sputtering economy with a major tax hike threatens to induce another recession, and with inflation already near zero, the possibility of deflation becomes very real. But Bernanke can’t or won’t say so.

Foster's incredulity is based on an op-ed in which Bernanke explains why the Fed embarked on its QE program. In it, Bernanke says he's worried about deflation, but also says that growth next year will probably be about average. But deflation can't possibly be a worry if the economy is growing normally, so he must be hiding the real reason for QE2.

Perhaps. But let's take a look at what Bernanke actually said in the op-ed Foster links to:

Unfortunately, the job market remains quite weak; the national unemployment rate is nearly 10 percent, a large number of people can find only part-time work, and a substantial fraction of the unemployed have been out of work six months or longer. The heavy costs of unemployment include intense strains on family finances, more foreclosures and the loss of job skills.

Today, most measures of underlying inflation are running somewhat below 2 percent, or a bit lower than the rate most Fed policymakers see as being most consistent with healthy economic growth in the long run. Although low inflation is generally good, inflation that is too low can pose risks to the economy — especially when the economy is struggling. In the most extreme case, very low inflation can morph into deflation (falling prices and wages), which can contribute to long periods of economic stagnation.

Even absent such risks, low and falling inflation indicate that the economy has considerable spare capacity, implying that there is scope for monetary policy to support further gains in employment without risking economic overheating. The FOMC decided this week that, with unemployment high and inflation very low, further support to the economy is needed.

Italics mine. Bernanke could hardly be clearer: deflation is a distant and small risk. He's not immediately worried about that. What he is worried about is massive and persistent unemployment, and he thinks that with inflation well controlled he can use QE2 to stimulate the economy and reduce unemployment without risk.

He might be wrong about that. Who knows? But his explanation is simple and direct and makes perfect sense. There's no need to dig feverishly for some buried Da Vinci code in order to prove that it's really all about taxes. I know conservatives are reluctant to hear this, but marching orders or not, not everything has to be about taxes.

Israelification

So what would a better security system look like for our airports? Several readers suggested "Israelification" — which initially struck me as problematic. It's pretty intrusive, isn't it? According to Rafi Sela, president of a global transportation security consultancy, no it's not. The following summary, in an interview with Sela in the Toronto Star, describes the 6-layer security protocol Israel uses:

The first layer of actual security that greets travellers at Tel Aviv's Ben Gurion International Airport is a roadside check. (1) All drivers are stopped and asked two questions: How are you? Where are you coming from? "Two benign questions. The questions aren't important. The way people act when they answer them is," Sela said. Officers are looking for nervousness or other signs of "distress" — behavioural profiling.

....Once you've parked your car or gotten off your bus, you pass through the second and third security perimeters. (2) Armed guards outside the terminal are trained to observe passengers as they move toward the doors, again looking for odd behaviour. (3) At Ben Gurion's half-dozen entrances, another layer of security are watching. At this point, some travellers will be randomly taken aside, and their person and their luggage run through a magnometer.

....You are now in the terminal. (4) As you approach your airline check-in desk, a trained interviewer takes your passport and ticket. They ask a series of questions: Who packed your luggage? Has it left your side? "The whole time, they are looking into your eyes — which is very embarrassing. But this is one of the ways they figure out if you are suspicious or not. It takes 20, 25 seconds," said Sela.

....(5) At the check-in desk, your luggage is scanned immediately in a purpose-built area....The screening area is surrounded by contoured, blast-proof glass that can contain the detonation of up to 100 kilos of plastic explosive [and] all the screening areas contain 'bomb boxes'. If a screener spots a suspect bag, he/she is trained to pick it up and place it in the box, which is blast proof. A bomb squad arrives shortly and wheels the box away for further investigation.

....(6) You now finally arrive at the only one which Ben-Gurion Airport shares with [U.S. and Canadian airports] — the body and hand-luggage check....It's fast — there's almost no line. That's because they're not looking for liquids, they're not looking at your shoes. They're not looking for everything they look for in North America. They just look at you," said Sela. "Even today with the heightened security in North America, they will check your items to death. But they will never look at you, at how you behave. They will never look into your eyes ... and that's how you figure out the bad guys from the good guys."

Of course, Israel has one smallish airport to worry about, not dozens of huge ones, and it's possible that their system can't be scaled up adequately to work in the United States. Also, although Sela doesn't really mention it, Israel engages in unapologetic and intrusive racial profiling, which simply wouldn't pass constitutional muster in the United States. I don't know how much of a difference that makes, or whether you could import the Israeli system without it. (It's worth noting too that TSA does use behavioral profiling in a program called SPOT — Screening of Passengers by Observation Techniques. However, it got a pretty negative review from the GAO earlier this year. Whatever it is that SPOT is doing, either it's not the same as what the Israelis do or else we just don't do it very well.)

Anyway, I'm not endorsing anything in particular here. But I asked earlier for a better airport security plan, so I thought I'd pass along one possible answer. At least if we have the alternatives on the table we have something more to talk about than just the idiocy of the 3-ounce container rule.

Assignment Desk II: Airport Security

I just read what seems like the millionth article/blog post/rant about how stupid our airline security procedures are. The latest versions are inspired by the growing use of backscatter scanners that display a vague outline of what you look like naked; the increasingly intrusive patdowns that TSA is performing on passengers who refuse to go through the backscatter machines; and a cell phone video (no longer available, apparently) of a TSA agent trying to pat down a 3-year old girl going through a meltdown.

I'm glad to see these rants. Maybe eventually it means we'll actually make some changes to our security theater. But what I haven't seen is an informed take on what airport security ought to look like. We all hate taking off our shoes and pulling out our laptops and being limited to three ounces of liquid and not being allowed to meet people at the gate anymore — we hate all of that. But if it's all useless, what should we do instead? Shouldn't someone write that article?

UPDATE: More here.

Triumph of the Cretins

This is insane. James O’Keefe secretly records a New Jersey teacher in a private conversation complaining that another teacher had called a student a nigger but kept his job anyway — and the first teacher is suspended and has her pay docked.

This defies belief. O'Keefe is a cretin, but why the district superintendent and the school board caved in on this is hard to fathom. The cynicism on one side and the cowardice on the other is truly staggering.

Reining in the Superbugs

Via Austin Frakt, Aaron Kesselheim and Kevin Outterson have an op-ed in the Boston Globe about the spread of antibiotic-resistant "superbugs." The problem, they note, is largely due to overuse of antibiotics, which spurs the evolution of the superbugs:

Right now, drug companies have financial incentives to maximize sales to turn a profit as quickly as they can — as soon as a new antibiotic hits the market, it’s in a race against the patent clock and competitors. To maximize profits, some companies market antibiotics for conditions that aren’t necessarily proven to respond to that treatment — like minor ear aches in children. And doctors are willing to prescribe them, especially if faced with a patient or parent who is demanding a quick fix.

....We need incentive-based policies that ensure that antibiotics are not oversold and their usefulness undermined. Under our proposal, payment for new antibiotics would be conditioned on meeting conservation and resistance targets set by the government....Instead of being subject to the traditional patent period, the manufacturer would earn revenue on the drug by showing that careful marketing and infection-control activities had slowed the rate at which resistance had developed.

I don't have the chops to evaluate the specific plan that Kesselheim and Outterson propose. But something along these lines urgently needs to be done. There's just one problem: it requires a considerable amount of government intervention because free markets on their own provide no incentive to care about this problem. In other words, it requires death panels. That does not bode well for the prospect of bipartisan action to do anything about this.

Assignment Desk

There's been a lot of pundit stategerizing about the lame duck session that started today, but I have a question: just how much is it possible, even theoretically, to get done? I figure there's a maximum of 20-25 calendar days available before final adjournment, and as we all know, Republicans have loads of procedural roadblocks available to them that eat up calendar time. So what's the most that can get done? Two bills? Maybe three? Is more than that even conceivable?

Any congressional wonks care to weigh in on this and set expectations for us?

Orszag on Social Security

It's natural to be pleased when some famous and well-regarded person agrees with you completely. So naturally I'm pleased that Peter Orszag's view of the Simpson-Bowles Social Security proposal is nearly identical to mine. Nice work, Peter!

But seriously: he's right. Overall, it's a fairly progressive plan:

Compared with the benefits promised by the current system, the recommended benefits for the poorest 20 percent of recipients would increase by about 5 percent, while those for the wealthiest retirees would fall by almost 20 percent. Furthermore, the plan would not create private accounts within Social Security — the most controversial issue that came up when reform was last debated in 2005. Why not lock in a reform when private accounts are off the table?.

....All of which suggests that Democrats in Congress should support the basic construct of the Bowles-Simpson proposal, while arguing for some changes to improve it. That has not, however, been their reaction thus far.

As Orszag also notes, the biggest flaw in the plan is that it raises the retirement age from 67 to 68. This is regressive, unfair to low-income workers with shorter life expectancies, and could be easily eliminated by rebalancing the entire plan so it has roughly a 50-50 split between revenue increases and benefit reductions. But that's fairly easily done. Bottom line: liberals should be giving the Social Security reform section of the Simpson-Bowles plan a little more love than they have so far.

Deficit Politics

Ryan Avent wonders why the deficit has become such a big deal suddenly. Maybe it's because the bond market is panicking? Nope. The bond market is quite calm at the moment. Then maybe it's because the public is panicking? Apparently not, according to survey data anyway:

It actually looks as though the public doesn't care about the deficit either, at least relative to the state of the general economy. So why is the deficit such a big issue right now, at least in Washington?

The short answer is that President Obama has given the press a nice news peg in the form of the impending release of a report from his deficit reduction commission. Another question, then, is why the president felt the need to appoint a deficit reduction commission. And the answer there is some combination of "the deficit actually needs to be addressed" and "the president felt there was a political weakness that needed defending". Why the president felt a weakness on deficits is another, mysterious issue.

I don't think this is quite right. Leaving aside whether it was a good or bad idea, the deficit commission was a response to deficit hysteria, not the cause of it. And I don't think it was all that mysterious, either: it was basically a response to an excellent political game played by Republicans. Think about it: if you're opposed not just to a single initiative from the opposing party, but to every initiative from the opposing party, what's a handy umbrella for expressing that uniform opposition? Answer: deficit panic. After all, just about everything Democrats propose can be spun as a deficit buster. And it's pretty easy to to gin up the Republican base with talk of eventual doomsday and devalued currency. The deficit is just a perfect issue for Republicans and they did a great job of getting the maximum mileage out of it.

So you have to give Republicans an attaboy for playing the game well. The question is why Team Obama felt like they had to respond. And here I suspect Ryan is basically right. Obama probably really does believe the long-term deficit needs to be addressed, and he's pretty famous for listening to his inner technocrat even if it annoys his base and makes for poor politics. And he probably really did believe that the existence of the commission would take some of the air out of the Republican attack. This is more mysterious, since there was never any chance of that happening. There's no way that a nonbinding commission was ever going to have the slightest effect on what Republicans knew was a very effective line of attack against Democrats.

But it's too late now. As Ryan says, it all might have made some sense if Obama could have spun "medium-term deficit reduction as a means to create the fiscal room for more stimulus." But he never even tried to do that, and the moment when he could have pulled it off is long gone. Too bad. It would have been good politics and good policy.