Kevin Drum

Obama's Speech: Will He "Go Big"?

| Tue Jun. 15, 2010 12:30 AM EDT

So what's Obama going to say in his big oil spill speech tomorrow? Something narrow and technocratic, or will he toss a long bomb into the end zone? Marc Ambinder:

A senior administration official to whom I put the question this morning responded that Obama recognizes that the moment to assert his command over the disaster that is the BP oil spill has passed. Another official said Obama will use the time to "go Big. That's where he does best."

....If Obama goes big, there is really only one way he can attempt it: he must call on Congress to put a price on carbon by the end of the year. The pivot from gushing oil to climate change is at once harder than it seems and blindingly obvious. Oil is polluting the Gulf; it's not raising temperatures. The transition to a more ecologically friendly economy will require carbon creation. It will also require economic sacrifice.

....If Obama went big, the political ramifications would be serious and unpredictable. The Senate and House campaign committees would plotz....But, at times, the President has different equities than members of his party. This is one of them. Figuring out how to solve this existential problem is on Obama's shoulders, not Congress's, really. Climate change denialism is rising, and no one on the President's level is fighting back. The chances of building a consensus for climate change legislation will not be helped by the addition of a few Republican senators. More vulnerable Democrats are up for re-election in 2012 than in 2010. If now isn't the right moment, there may never be a better one.

I don't know if Obama is going to do this, but I have to admit it would fit his usual MO: wait a while for everyone else to talk themselves out, and then, when the chaos seems at its maximum, step in to make sense of things for everyone. If he does it right, his proposals (whatever they are) will seem eerily inevitable once we finally hear them. We'll go from unstructured turmoil one day to a unified narrative the next. It won't last long, and the political realities will still probably prevent any serious action, but for a short while his plan will seem not just right, but blindingly obvious. It's a neat trick.

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A Modest Tax Proposal

| Mon Jun. 14, 2010 6:44 PM EDT

I figure Mark Halperin is useful for letting us know what the current DC conventional wisdom is, and today he says that the business community's love affair with Barack Obama is over. To be honest, I thought it was over sometime around January 21st of last year, but what do I know? In any case, Halperin writes that not only do the nation's CEOs hate the White House, but things are still going downhill:

The President's current priorities are all liable to make a now bad relationship that much worse. The financial regulation bill is viewed as a typically ignorant Washington overreach. The ongoing efforts to deal with the BP spill are seen as proof that Obama is an incompetent manager and serial scapegoater of large corporate interests. And the attempt to use the Gulf crisis to revive the stalled effort to get Congress to pass major energy legislation appears to many business types as a backdoor gambit to raise taxes on corporations, mom-and-pop enterprises and consumers.

Even by bizarro standards I don't get the "scapegoater of large corporate interests" thing at all. Is the business community upset that Obama is blaming BP for a blowout at BP's oil platform? Or what?

But forget that. The other two items suggest a way to take those business lemons and make lemonade out of them. Here's my idea: Obama should propose that the corporate income tax be abolished completely, to be replaced by a carbon tax and a financial services tax. And then sit back and see what happens.

Here's the pitch: corporate income taxes are a drag on businesses and are ultimately paid by consumers anyway. That's bad. Conversely, a tax on carbon would reduce our oil use and spur energy efficiency. That's good! Likewise, a tax on financial transactions would reduce speculative volatility and help stabilize the financial sector. Also good! So we'd trade one bad tax for two good Pigovian taxes.

What's more, although receipts from the corporate income tax are down right now thanks to the recession, within a couple of years they should be back up to around $400 billion a year. A financial services tax is probably worth around $100 billion a year, give or take, and that means we'd need a carbon tax of around $300 billion to keep everything revenue neutral. This is far higher than anything we could dream of without the grand corporate income tax bargain and holds out hope of being big enough to actually make a difference.

Am I serious about this? Why not? Everyone should love it. Taxing carbon and financial speculation is a lot more useful than taxing business activity, and I imagine the boffins on the appropriate committees could figure out ways to keep the distributional impacts fairly small. And getting rid of the corporate income tax would not only make business owners deliriously happy (or should, anyway), but it would remove forever Congress's ability to provide quiet subsidies and corporate welfare handouts for their buddies. Conventional wisdom says that the corporate tax code needs to be seriously overhauled every few decades, but why bother? Why not get rid of it altogether instead?

Angela Merkel in Trouble

| Mon Jun. 14, 2010 1:56 PM EDT

I'm not sure quite what to make of this, but.....

German chancellor Angela Merkel's centre-right coalition government looked to be close to collapse today, weakened by a string of disagreements and intense infighting over austerity cuts, policy reform and the departure of senior conservatives.

....Merkel called at the weekend for the government partners to bury the hatchet over their disagreements after a week when relations reached such a low that members of her government had variously referred to each other as "wild pigs" and "gherkin troops" (rank amateurs).

But much of the mistrust and anger is being directed at Merkel herself. This week's Spiegel magazine called her the Trummerfrau, a reference to German women who cleared away the rubble after second world war bombings. It painted a picture of a woman presiding over a government in ruins and used its title page to request the government in one word to "Aufhören!", or stop.

Apparently Merkel's budget cuts and unwillingness to raise tax rates on the rich are her current headache. "The package has also stoked the anger of Merkel's French counterpart, Nicolas Sarkozy, who has accused the Germans of creating an atmosphere that will stifle growth in Europe at a time when it should be stimulated." Sarkozy's an odd duck, for sure, but when he's right he's right.

Afghanistan's Lithium: Hype or Reality?

| Mon Jun. 14, 2010 12:27 PM EDT

As James Risen notes in his New York Times piece today about Afghanistan's newfound trillion-dollar mineral wealth, it's not really newfound. The Soviets knew about it two decades ago, the Afghans have known it about it for nearly as long, and survey flights confirmed it a couple of years ago. So why is everyone suddenly anxious to talk about it on the record now? Is it just a coincidence that this is happening at the same time that the U.S. is obviously struggling in its counterinsurgency campaign? Marc Ambinder pushes back hard today:

The way in which the story was presented — with on-the-record quotations from the Commander in Chief of CENTCOM, no less — and the weird promotion of a Deputy Assistant Secretary of Defense to Undersecretary of Defense suggest a broad and deliberate information operation designed to influence public opinion on the course of the war.

....The general perception about the war here and overseas is that the counterinsurgency strategy has failed to prop up Hamid Karzai's government in critical areas, and is destined to ultimately fail. This is not how the war was supposed to be going, according to the theorists and policy planners in the Pentagon's policy shop.

What better way to remind people about the country's potential bright future — and by people I mean the Chinese, the Russians, the Pakistanis, and the Americans — than by publicizing or re-publicizing valid (but already public) information about the region's potential wealth? The Obama administration and the military know that a page-one, throat-clearing New York Times story will get instant worldwide attention. The story is accurate, but the news is not that new; let's think a bit harder about the context.

More here from James Ridgeway, who says the mineral announcement "is not news and looks like an Obama PR campaign to buttress US involvement in the war." And always remember: if there's one thing that we know the Petraeus-era Pentagon is good at, it's PR campaigns.

My DNA, My Self

| Mon Jun. 14, 2010 11:52 AM EDT

The FDA has ordered companies that provide DNA testing to consumers to prove that their tests work:

FDA official Alberto Gutierrez, who sent the letters, said that companies selling diagnostic tests must present scientific evidence that a test result, either positive or negative, is linked to a disease or the risk of one. They don't have to show that the information is useful to patients or doctors. However, Gutierrez said in an interview that if a person can do nothing about a genetic risk discovered through a test, "that at least should be stated somewhere." He added that companies are also responsible for anticipating possible harm from a test — such as a person adjusting their drug doses on the basis of a result — and should take steps to "mitigate that risk."

Alex Tabarrok is outraged. There's no question that the tests are safe — generally you just swab your cheek and mail the swab to the testing company — and "genetic tests provide information, personal information about our bodies and our selves. The FDA has no standing to interfere with the provision of such information." Tim Fernholz disagrees:

The FDA's request is common sense: They're asking the producers and marketers of genetic tests to prove their scientific validity, a necessary step given that people could — and often do — make potentially costly or dangerous decisions about their health based on the results of these tests. Tabarrok doesn't answer this argument in his post; he simply focuses on the fact that collecting genetic material for the tests is safe. But without evidence that a test works, how can consumers make safe decisions? Given the relative novelty of this technology, scientific evidence doesn't seem like much to ask.

I doubt that it will come to this, but since it's a slow news day I'll toss out a related take: to what extent is this a free speech question? Genetic testing services, as Tabarrok says, are obviously safe, and they aren't "devices" in the usual sense. Basically, all these services are doing is selling information. Any actual treatment you get would have to come from an actual MD who's licensed to provide it and can discuss test results with you in greater detail.

Now, is it possible that you'll do something on your own in response to one of these tests? Sure. On the bright side: maybe you'll exercise more. On the not-so-bright side: maybe you'll indulge in some kind of quack remedy for a nonexistent disease. Of course, you could do either of these things based on advice from your brother-in-law the plumber, too, and there's nothing the FDA could do about it. And there are, if the magazine rack at my local drugstore is a fair sample, already gazillions of firms that provide "scientific" advice for ailments ranging from acne to Crohn's disease. Or I could just call up 1-900-ASTROLOGY and get my advice from them. All perfectly legally.

So is consumer genetic testing any different? It probably is, and I'm happy to see the FDA get involved here, if only to fire a shot across the bow. Still, if I just have an uncontrollable itch to know what my genome looks like, is there any reason I shouldn't be able to scratch that itch regardless of whether the FDA wants me to?

For more, see Shannon Brownlee's piece from last year, "Google's Guinea Pigs," and Michael Mechanic's followup report last month on Henry Waxman's investigation of the consumer genome testing industry.

Arar Case Finally Closed

| Mon Jun. 14, 2010 11:12 AM EDT

Maher Arar, the Canadian citizen who was detained during a stopover at JFK and then renditioned to Syria and tortured thanks to vague notions that he might be associated with al-Qaeda, has lost his last chance for redress in U.S. courts:

The U.S. High Court on Monday declined review of Arar’s case — a development that means the Syrian-born man’s case “now never will be heard” in an American courtroom, according to the U.S.-based constitutional rights organization arguing on his behalf.

....In the wake of the high court decision, the Center for Constitutional Rights is calling on U.S. President Barack Obama and the U.S. Congress to follow Ottawa’s lead in issuing an apology and compensation to Arar.

“The courts have regrettably refused to right the egregious wrong done to Maher Arar. But the courts have never questioned that a wrong was done. They have simply said that it is up to the political branches to fashion a remedy,” said CCR attorney David Cole.

There's really no silver lining to this, but if there were, I suppose it's the fact that maybe the U.S. government will feel that a remedy is more acceptable now that there's no chance of a court intervening. We'll see.

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Quote of the Day: Screaming and Shouting

| Mon Jun. 14, 2010 10:34 AM EDT

From Al Giordano, venting about the elevation of panic and crisis into daily routine in the modern media environment:

You’re expected to write or talk or shout about every crisis of the week, so you — I'm talking to you, fellow and sister media workers! — run to Wikipedia and the rest of the online library to pull up some factoids and buzzwords that fool the crowd into thinking the reporter or communicator really knows what he and she are writing or talking about.

I would say this description is, more often than it should be, a little too close to the truth for comfort. (Via Andrew Sullivan.)

Afghanistan Strikes It Rich

| Sun Jun. 13, 2010 11:45 PM EDT

Just a few hours after I surveyed the scene in Afghanistan and suggested that a decade from now "we'll all be wondering why we were ever there," James Risen of the New York Times proposes an answer:

The United States has discovered nearly $1 trillion in untapped mineral deposits in Afghanistan, far beyond any previously known reserves and enough to fundamentally alter the Afghan economy and perhaps the Afghan war itself, according to senior American government officials.

....An internal Pentagon memo, for example, states that Afghanistan could become the “Saudi Arabia of lithium,” a key raw material in the manufacture of batteries for laptops and BlackBerrys. The vast scale of Afghanistan’s mineral wealth was discovered by a small team of Pentagon officials and American geologists.

....The value of the newly discovered mineral deposits dwarfs the size of Afghanistan’s existing war-bedraggled economy, which is based largely on opium production and narcotics trafficking as well as aid from the United States and other industrialized countries. Afghanistan’s gross domestic product is only about $12 billion. “This will become the backbone of the Afghan economy,” said Jalil Jumriany, an adviser to the Afghan minister of mines.

I have a very bad feeling about this. It could quickly turn into a toxic combination of stupendous wealth, superpower conflict, oligarchs run wild, entire new levels of corruption, and a trillion new reasons for the Taliban to fight even harder. And for the cynical among us, this line from Risen's piece — "American and Afghan officials agreed to discuss the mineral discoveries at a difficult moment in the war in Afghanistan" — suggests that the Obama administration might be eagerly thinking about these discoveries as a shiny new reason to keep a military presence in Afghanistan forever. I can hardly wait to see what Bill Kristol thinks of this.

On the other hand, maybe it represents lots of new jobs, enough money to suck away the Taliban's foot soldiers, and the stable income base Afghanistan needs to develop a modern infrastructure. I doubt it, but you never know.

That aside, if you read the entire piece it turns out that the story (and the timeline) of how this mineral treasure was discovered is pretty interesting. Enjoy it while you can.

So How Are Things Going in Afghanistan?

| Sun Jun. 13, 2010 2:22 PM EDT

On Wednesday, Jon Boone of the Guardian reported on the hottest topic of conversation in Afghanistan right now: the sudden resignations of Amrullah Saleh, head of the National Directorate of Security, and Hanif Atmar, the interior minister, from the government of Hamid Karzai:

[Saleh] has said little about why he quit, other than that the Taliban attack on last week's peace jirga or assembly in Kabul was for him the "tipping point".... According to Saleh's aides, the final straw came last Sunday when Karzai apparently questioned his loyalty during a stormy meeting at the presidential palace, appearing not to believe Saleh and Atmar's account of how two insurgents armed with rocket launchers, one dressed as a woman, were able to get so close to a meeting of 1,600 national leaders.

Saleh's colleagues say that Karzai even accused the two men of a plot with the Americans and the British to wreck his peace plan.

Saleh's friends say that, because Karzai believes NATO is unable to deal with insurgent sanctuaries on the eastern border, he is looking for an alternative strategy: rather than use western support to "harden" Afghanistan against its neighbour, he is instead striking a less robust attitude to Pakistan and the Taliban.

This has gotten surprisingly little attention in the American press, but on Friday Dexter Filkins of the New York Times added a few more details:

Two senior Afghan officials were showing President Hamid Karzai the evidence of the spectacular rocket attack on a nationwide peace conference earlier this month when Mr. Karzai told them that he believed the Taliban were not responsible.

“The president did not show any interest in the evidence — none — he treated it like a piece of dirt,” said Amrullah Saleh, then the director of the Afghan intelligence service.

....Underlying the tensions, according to Mr. Saleh and Afghan and Western officials, was something more profound: That Mr. Karzai had lost faith in the Americans and NATO to prevail in Afghanistan....“The president has lost his confidence in the capability of either the coalition or his own government to protect this country,” Mr. Saleh said in an interview at his home. “President Karzai has never announced that NATO will lose, but the way that he does not proudly own the campaign shows that he doesn’t trust it is working.”

According to Boone, Karzai's change of heart has been a year in the making: "His views were crystallised in the aftermath of last year's election when millions of votes were found to be fraudulent; Karzai blamed the US, UK and United Nations for the fraud."

I haven't seen too much more reporting about this, so it's hard (as usual) to decipher what's going on. Part of it probably has to do with tribal loyalties: Saleh is a Tajik and a longtime foe of the primarily Pashtun Taliban. Karzai, as an ethnic Pashtun, is more open to finding some kind of working compromise with them. Beyond that, Karzai probably has some quite reasonable doubts about both America's willingness to stay in Afghanistan very much longer and about the prospects for our counterinsurgency strategy to defeat the Taliban. Given that, some kind of compromise with the Taliban and with Pakistan might be his most realistic hope for survival right now.

Anyway: read both pieces. As always, it's too murky to know for sure what's happening, but one thing seems fairly clear: Gen. Stanley McChrystal's upcoming military operation (or "process" as it seems to be called now) in Kandahar is pretty much our last chance to demonstrate that we can deal with the Taliban effectively. If it doesn't work, American troops are going to pull out and Karzai is going to go his own way. And right now, given that the strategy depends not just on defeating the Taliban but on turning things over quickly to plainly unqualified Afghan troops, the odds of success don't look so good. My prediction: a couple of Friedman Units from now, Obama and Karzai are going to find some colorably face-saving way to declare that America has done everything it can and it's time for Afghans to take responsibility for their own future. Our longest war will draw to a sputtering close with neither victory nor defeat, and a decade from now we'll all be wondering why we were ever there.

UPDATE: Jonathan Bernstein wants to know what I meant by the last sentence:

Wow. I'm not even to the point of disagreeing — just real surprised. I guess I'd like to hear more of what he's thinking. Is it that in a decade, the September 11 attacks will fade from memory? That they'll be remembered, but we'll think less of their importance? That we'll think the decision to go into Afghanistan didn't follow logically from those attacks? That we'll think that deployment in Afghanistan made sense at first, but that the troops should have been gone as soon as the Taliban was first defeated? And one of those won't just be a fringe left (or right) position, but what "we'll all" be wondering?

I didn't mean to be cryptic. I was just heading out to lunch when I finished up this post. Sorry.

Obviously I don't mean that we'll have forgotten 9/11. All I meant was that pretty much everything we've done in Afghanistan has been a wasted effort aside from kicking out al-Qaeda after the initial invasion. In the fairly near future, I suspect that we're going to wonder what we were doing there for a decade after that and what we thought we could accomplish. Needless to say, though, Stanley McChrystal could yet prove me wrong.

Stimulating the Economy

| Sun Jun. 13, 2010 12:35 PM EDT

Paul Krugman has been waging a one-man war recently against the forces of darkness that think the United States needs to cut back spending because its debt level is too high. (See, for example, here, here, here, here, here and here. And that's just the blog.) Generally speaking, I'd say he's got by far the better of the argument: right now, inflation is low (as are inflationary expectations), interest rates are low, unemployment is high, the output gap is high, and consumers simply don't seem to have the wherewithal to drive a strong recovery in the short-term. A healthy dose of fiscal stimulus would almost certainly do the economy a lot of good, and almost equally certainly, would have a very modest effect on future debt levels.

A lot of conservatives disagree, but recently Raghu Rajan went even further: not only doesn't he support further fiscal stimulus, he doesn't even support keeping interest rates low. This seems crazy, and his supporting arguments don't seem very impressive either. However, he does make one point that seems worth considering:

A growing number of studies that suggest that banks (and other financial institutions) tend to take more risk, both on the asset side and through leverage, when interest rates are kept low for a long time. Clearly, banks search for yield when rates are low. I have papers with Doug Diamond that suggest that if rates are expected to be low for a sustained period (and the Fed intervenes to provide liquidity whenever the market tightens), banks also take on a lot of liquidity risk by borrowing short term and investing in illiquid assets.

Yes, none of this risk taking and illiquidity seeking seems excessive just now, especially because the European crisis has put a dampener on exuberant markets, and because banks are still nursing their past wounds. But we must remember that there was talk that covenant lite loans were back in vogue before the European problem hit us. Once the anxiety about Europe dies down, covenant lite loans, and worse, will be back. Also, we must remember that risk taking did not seem excessive in the run up to the crisis, until we learnt the banks had gone overboard.

It's true: low interest rates have the usual macroeconomic effect that we all know about, but they also have a direct effect on the psychology of the financial industry that might not be especially positive if they're maintained over a long period. It's hardly enough to change my mind on the basic issue at hand, but it's worth a thought or two.

As for the larger question, my only beef with Krugman and his supporters is this: their basic argument is that we need to spend more now but rein in spending in the long term. I agree. The problem I have is that while they give short-term stimulus plenty of ink/pixels, only rarely and in passing do they mention the need for long-term fiscal restraint. I understand why (or at least I think I do): it's just not something that deserves a lot of mental bandwidth when your main fight is over immediate stimulus and you're fighting with people who not only don't want any, but who are actively arguing for cutting spending. Still, I think this is a mistake. The short-term stimulus message would go down a lot easier if all of us demonstrated in a little more detail and a little more depth that we really, truly accept that there are some difficult decisions to be made down the road and we're willing to talk about how to make them. That means Social Security, Medicare, defense spending, and taxes. Conservatives might not be willing to get serious about all this stuff, but we liberals should be.