Kevin Drum

California Night Sweatin'

| Thu Jul. 2, 2009 11:59 AM EDT

Just for the record, since I get asked this a lot: the reason I'm not writing about the California budget mess, even though I live in California, is because I just can't stand to.  Sorry.  If you ever thought there was a group of lawmakers who could make the U.S. Congress look like a sober, highminded deliberative body, the clowns in Sacramento are them.

In case you're interested, here's the latest.  No budget agreement is on the horizon, but on June 29 Dems tried to pass a bill that would have saved a bit of money.  It was a technical measure related to how education money is distributed via Proposition 98, but the bottom line is that it would have saved the state about $3 billion. It had to be passed before June 30 or not at all, but Arnold Schwarzennegger flatly refused to consider it.  Why?  Who knows.  No "piecemeal" budgeting, he says.  He wants an entire budget all at once that slashes $24 billion without increasing taxes so much as a dime, or nothing at all.  Why?  Again, who knows?  It's like trying to figure out a five year old.

So, anyway, our gargantuan budget deficit, much of it caused by almost lunatic irresponsibility on Schwarzenegger's part in the first place, is now about $3 billion higher because of further lunatic irresponsibility on Schwarzenegger's part.  And while Dems may not exactly be heroes in this mess, at least they're doing something.  Proposing things.  Trying to keep the state from resorting to IOUs for blind people.  Hoping to do something to prevent our credit rating from going down the toilet, making our budget problem even worse.  Something.  Meanwhile, Schwarzenegger has no plans at all, and the sullen Republican rump in the Senate and Assembly just sits around and votes no on everything.  No proposals, no ideas, no nothing.  Just no, no, no.

Like I said, it makes Washington DC look like the second coming of Periclean Athens.  Depressing.  But if you really want to know more — and you're a stronger man than me — check out the fine folks at Calitics.  They'll keep you up to speed.

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Good News on Healthcare

| Thu Jul. 2, 2009 11:20 AM EDT

When Republicans passed the Medicare prescription drug bill in 2003, they didn't really need to worry much about how to finance it.  Their plan was straightforward: first, have the administration lie repeatedly about the cost of the bill and make sure Congress never knew about it.  Second, don't worry about financing it anyway.  Just blow another hole in the deficit and move on.

Democrats, bless their goo-goo little hearts, are doing their best to actually pay for their healthcare reform project.  That would make things hard enough, but unfortunately, they're making things even more difficult for themselves via some fairly stunning incompetence at getting cost estimates out of the CBO.  In turn, Republicans are twisting the CBO estimates to make them look even worse than they are.  This isn't especially highminded of them, but hey — politics ain't beanbag, and Dems know how the CBO scoring process works as well as anyone.

Anyway, today we have new cost estimates.  Sort of.  To get them, though, you have to paste together several items.  Ezra Klein tries to explain:

The short version is this: CBO estimates that by 2019 the bill will cover 21 million people at a cost of $597 billion. But — and this is important — the HELP Committee's bill doesn't include the Medicaid expansion, because Medicaid is under the sole jurisdiction of the Finance Committee. But if Medicaid is expanded to 150 percent, it will cover an additional 20 million at a cost of about $1 trillion. Add in the savings that Finance is expected to get from reforming Medicare and you're looking at a bill that will cost $1 trillion to $1.3 trillion and cover 42 million people (which would mean 97 percent of the legal population in 2019 would have health insurance) by 2019.

The headlines will still probably get this wrong because it requires putting together several different numbers.  And Republicans will undoubtedly try to twist the numbers to their advantage — which is exactly what you expect an opposition party to do.  Democrats have really made a hash out of these competing estimates, leaving themselves open to all sorts of attacks they wouldn't have to put up with if they'd produced some reasonably clean bills for CBO to score.

But anyway, this is where we're at now.  The difference between this estimate and the previous ones appears to come mostly from the addition of an employer mandate, and covering 97% of the population for a little over $100 billion per year is probably quite doable if this is where things stay.  Add a strong public option and the cost might even come down some more.

Read the whole post for more, and read Jon Cohn for a different take on the same numbers.  It's too bad it's taken so long to get here, but it's basically good news.

Housekeeping Note

| Thu Jul. 2, 2009 1:22 AM EDT

Quick note.  Two or three times a week our resident MoJo editor and politics junkie Laura McClure drops by with a post called MoJo Mix.  The idea is to highlight a few good items on our other blogs — MoJo, Blue Marble, and The Riff — that the politics junkies here might be interested in reading too.  It's worth checking out.

More Sweetheart Deals

| Wed Jul. 1, 2009 9:14 PM EDT

Back in October, when we started bailing out banks with TARP funds, the Treasury received warrants from each bank in return for their investment.  Several of these banks have now paid back the TARP money, but what about the warrants?  While I was on vacation the Treasury announced its plan for selling the warrants back:

The Treasury Department said the banks will make the first offer for the warrants. Treasury will then decide to sell at that price or make a counteroffer. If the government and a bank cannot agree on a fair price for the warrants, the two sides will have the right to use private appraisers.

This is ridiculous.  This isn't like the toxic waste on bank balance sheets that can't be sold because it's impossible to value.  If you want to know how much the warrants are worth, just offer them to the highest bidder.  Simon Johnson has it right: "The only sensible way to dispose of these options is for Treasury to set a floor price, and then hold an auction that permits anyone to buy any part — e.g., people could submit sealed bids and the highest price wins."

If the Obama administration wants us to believe that it's not entirely in thrall to the banking industry, it needs to stop offering absurd sweetheart deals like this to banks that already received sweetheart deals in the original TARP bailout — and are continuing to benefit from trillions of dollars in various Fed support programs and liquidity guarantees.  Just auction the damn warrants.

Is Waxman-Markey Worth It?

| Wed Jul. 1, 2009 2:03 PM EDT

I've got a bit of a ramble teed up on climate change and the Waxman-Markey bill, which unfortunately means that my conclusion is going to be buried at the end of a long post.  So if that's all you want to read, feel free to skip down to the last two paragraphs.  The rest is just throat clearing.

Still here?  Then here's the ramble.  Over the past couple of weeks there's been a lot of blogospheric chatter surrounding a cost-benefit analysis of Waxman-Markey done by Jim Manzi.  I'm not going to link to the dozens of posts going back and forth about it, but suffice it to say that Manzi concludes that W-M isn't a good deal.  Over the next century, it's going to cost us more in lost economic growth than it will benefit us in reduced global warming.

I didn't get involved in this conversation for a simple reason: I've been on both the producing and receiving end of too many cost benefit analyses to trust them.  If you're being relatively honest and if you're dealing with fairly concrete, short-term issues, they're useful tools, but even then it's still the case that you can manufacture strikingly divergent conclusions by manipulating your assumptions and inputs by surprisingly small amounts.  Cost-benefits usually look like they're grounded in hardheaded thinking simply because they're numerically based, but quite often they're nothing of the kind.

And that's in the best case.  Climate change is far worse.  Not only are we decidedly not talking about concrete, short-term issues, but there's a huge asymmetry in what we can say about the cost side and the benefit side of fighting global warming.

On the one hand, you have the actual science of climate change.  And although climate models are enormously complex and subject to considerable uncertainty, they're fundamentally based on physics, chemistry, and thermodynamics.  We know how much CO2 we're pumping into the atmosphere and we can project with pretty good confidence how much that's going to increase over the next century if we do nothing to stop it.  We know how the greenhouse effect works, we have pretty good historical records of how CO2 concentration correlates with global temperatures, and we have a pretty good sense of the feedback loops involved in things like melting icecaps and saturation of the ocean sinks.  Basically, our level of uncertainty is within tolerable bounds here.  And what we know is that if we do nothing, global temps are absolutely certain to rise 2°C over the next century, fairly likely to rise by 4-5°C, and at least somewhat likely to rise by 6-7°C.  The lower number would be bad but, just possibly, manageable.  You could at least make an arguable case, as Manzi does, that the cost of preventing an additional 2°C is higher than it's worth.  The two bigger numbers, however, would be catastrophic.  Unfortunately, the science increasingly suggests that these higher numbers are considerably more likely than we thought even a few years ago, and any serious cost-benefit analysis needs to address that.  Using only the lower number avoids tackling the real problem we're up against.

So that's the climate analysis in a nutshell.  On the opposite hand you have the economic analysis.  And that's simply hopeless.  An economic analysis that goes even ten or twenty years into the future is as much guesswork as anything else.  One that goes a hundred years into the future is just voodoo.  It looks like economics, but you might as well be throwing darts.  Compounded over a century, even minuscule changes in assumptions and operating parameters produce enormous changes in your conclusions, and the result is that you end up deep in the weeds arguing over tiny differences in those assumptions instead of simply admitting that they're flatly impossible to forecast.  That's good for slowing down the debate, but not much else.

(For a couple of more detailed versions of this argument, see Dave Roberts here and Patrick Appel here.)

So where we stand is fairly simple: we have a pretty good idea of what climate change is going to do to the planet, and we have a pretty good idea that there's at least a reasonable chance that the results are going to be catastrophic (and much more catastrophic for some than for others).  However, we don't have a good idea of the economic impacts of addressing climate change, and we never will.  The problem is simply too nonlinear and too long-term to be analyzable, especially when the differences between high-end and low-end projections are on the order of two or three percent.  When it comes to climate change, cost-benefit on anything other than a very broad scale is a mug's game.

Still, let's grant several things.  First, Waxman-Markey is a kludge of a bill.  It's possible that its cost-benefit is negative, and it's almost certain that, by itself, its cost benefit is quite small even if it is positive.  Second, W-M's carbon caps by themselves will probably have only a tiny effect on rising temperatures.  Third, global warming is a hopeless problem if we don't get the rest of the world to address it too.  If China and India and the rest of the developing world don't play along, nothing the U.S. and Europe do by themselves will be enough to halt it.

That's all true.  So why support Waxman-Markey?  There are all sorts of reasons.  For one thing, it's a good start.  Also: it may be hard to persuade other countries to join us, but it will be impossible if we aren't willing to do something ourselves.  And although the cap-and-trade piece of the bill starts out weak, at least it puts in place the administrative framework we'll need down the road if and when we work up the will to address climate change more seriously.

But here's what I think is the overriding reason to support W-M despite its flaws: even if it's weak, and even if the rest of the world doesn't join in immediately, it starts to align incentives in the United States in favor of inventing and deploying green technologies.  (Ditto for the ETS cap-and-trade system in Europe.)  And that's critically important: it's in the advanced economies of the world that new green technologies will be invented.  And it's in the advanced economies of the world that existing green technologies will be proven to work on a wide scale.  Once that happens — once the technologies are proven and economies of scale start to bring down their costs — the rest of the world will start to adopt them too.  W-M, in its final form, may not be a strong bill, but by raising the price of carbon even a little bit, it makes the development and deployment of green tech far more likely in the United States, and therefore, far more likely on a global basis too.

And that's critically important.  Conservation and efficiency and cutting back are all necessary parts of addressing climate change, but human nature being what it is, that's never going to be enough.  We're going to have to invent entire new technologies as well.  W-M makes that more likely, and that's why it needs to be passed.  Warts and all.

What's Next for South Carolina?

| Wed Jul. 1, 2009 12:19 PM EDT

As Mark Sanford's increasingly bizarre effort to turn the South Carolina governor's office into an extension of the Oprah Winfrey show barrels toward its seemingly inevitable conclusion, the Washington Post introduces us to André Bauer, the lieutenant governor who will take over if Sanford resigns:

Bauer, 40, has made a career of running against South Carolina's establishment — and winning. Elected to the state legislature at age 26, he became known as an ambitious politician, rising quickly and winning the state's No. 2 position in 2002.

Yet as lieutenant governor, he has become known as much for his personal behavior as for his political record. In 2003, he was charged with driving 60 mph and running two red lights in downtown Columbia. When pulled over, Bauer was so aggressive that a police officer pulled a gun on him.

In 2006, Bauer was stopped by a state trooper who clocked him driving 101 mph on an interstate highway. He used his state-issued radio to tell the officer he was "S.C. 2" — the code for lieutenant governor — and was not ticketed. Then, weeks later, Bauer was injured when the single-engine airplane he was piloting crashed and burned.

....Over the years, Bauer's romantic life has stirred rumors, the latest bubbling up in recent days. In an interview Monday with the State, a Columbia newspaper, Bauer voluntarily brought up the subject of his sexual orientation. "Is André Bauer gay? That is now the story," the lieutenant governor was quoted as saying, adding his answer: "One word, two letters. 'No.' Let's go ahead and dispel that now."

I live in California, so I can hardly throw stones at another state's dysfunctional politics.  But I can still throw pebbles.  The Palmetto State really knows how to pick 'em, doesn't it?

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Time Zone Blues

| Wed Jul. 1, 2009 11:59 AM EDT

There are pros and cons to living in the Pacific time zone.  Today, it's all downside.  Apparently Sarah Palin's PAC put out a truly bizarre video on YouTube, but by the time I woke up and got around to watching it, it had already been taken down.  Boo! I want my Sarah!

Descriptions are here, here, and here.  If anyone knows where I can see a bootlegged copy or something, let me know.

UPDATE: Apparently it wasn't SarahPAC that created this video after all.  Just some weird Palin supporter.  More here.

The Politics of Healthcare

| Wed Jul. 1, 2009 11:44 AM EDT

Jonathan Cohn takes a look at the many compromises Barack Obama is making in order to get a healthcare reform bill passed:

Put aside, for a moment, the policy merits of these moves. The politics are lousy. Obama would be in danger of producing legislation that seems to offer little up-front benefit, particularly for the electorally vital middle class. And if some of these people end up paying even modestly higher taxes to help finance reform they're not likely to be happy about it. It's hard to imagine such legislation provoking a backlash that could produce total repeal. It's not so hard to imagine such legislation creating bad political feelings, the kind that linger around until the next Election Day and pave the way for legislative retrenchment later on.

The key to healthcare reform is that it be popular with the public.  The Medicare prescription bill, for example, was generally popular because it provided a clear and concrete benefit.  Broader healthcare reform, however, is going to have a harder time.  If there's no public option, for example, and most people simply keep the employer-based healthcare they already have, then what's the selling point?  Most people will just see higher taxes funding better coverage for the poor, and you don't have to be the world's biggest cynic to understand that this isn't going to be overwhelmingly popular.  Helping the poor is all well and good, but like it or not, most of us want to know what's in it for ourselves if our taxes are going up.  That's just life.

Right now, we're running the risk that the answer is "not much."  Healthcare reform needs a little more obvious sizzle if it's going to survive the coming tsunami of conservative agitprop, and the bills wending their way through Congress don't have much of that left.  Jon is right: it's lousy politics.

Fighting over Sarah

| Wed Jul. 1, 2009 10:58 AM EDT

Sarah Palin is the gift that keeps on giving and giving and giving.  Todd Purdum's profile in this month's Vanity Fair was a fairly ordinary takedown with only a little in the way of new revelations, but even so it's managed to spark a breathtaking amount of vitriol among Republican operatives.  Jonathan Martin reports on what happened after Bill Kristol accused McCain aide Steve Schmidt of speculating during the campaign that Palin's strange behavior was due to post-partum depression:

Asked about the accusation, Schmidt fired back in an e-mail: “I'm sure John McCain would be president today if only Bill Kristol had been in charge of the campaign.”

“After all, his management of [former Vice President] Dan Quayle’s public image as his chief of staff is still something that takes your breath away,” Schmidt continued. “His attack on me is categorically false.”

Asked directly in a telephone interview if he brought up the prospect of Palin suffering from post-partum depression, Schmidt said: “His allegation that I was defaming Palin by alleging post-partum depression at the campaign headquarters is categorically untrue. In fact, I think it rises to the level of a slander because it’s about the worst thing you can say about somebody who does what I do for a living.”

But Kristol’s charge was seconded by Randy Scheunemann, a longtime foreign policy adviser to McCain who is also close to the Standard editor and was thought to be a Palin ally within the campaign. “Steve Schmidt has a congenital aversion to the truth,” Scheunemann said.

....Responding to Schmidt’s counterattack, Kristol directly fingered Schmidt: “It’s simply a fact that when the going got tough, Steve Schmidt trashed Sarah Palin, both within the campaign and (on background) to journalists. This was after Steve took credit for the Palin pick when, at first, he thought it made him look good. John McCain deserved better.”

At this, Schmidt unloaded in a lengthy telephone interview, suggesting that Kristol was carrying out a personal vendetta based out of anger over the attempt to fire Scheunemann in the final days of the campaign.

There's only one proper response to this: Palin/Sanford 2012!  Drill baby drill!

Chart of the Day

| Tue Jun. 30, 2009 7:16 PM EDT

Today's economic green shoot is the latest Case-Shiller report, which shows that although house prices are still declining, they're declining at a slower rate than before.  Hooray!

But Henry Blodget is right about this:

We're still talking about an astonishing rate of collapse....So the folks who use this slight moderation in the rate of decline to spin tales of a "bottom" or, worse, a "recovery" are smoking something.  Prices have at least another 10%-15% to fall, and they'll likely be falling for at least another year or two.

To show this graphically, I've helpfully extended the S&P chart Blodget includes in his post.  It's this simple: as long as the line is below zero, house prices are dropping.  And if price declines slow down at about the same rate they accelerated, it means we won't get back to zero until sometime in 2011.  Put even more simply: the price decline between 2007-2009 — which started slowly and then picked up steam — will probably be mirrored by the price decline between 2009-2011 — which started with a head of steam and will end up dropping ever more slowly until it finally flattens out.  And that price drop was about 25%.

So if anything, Blodget might be too optimistic.  We might still have 25% to go.