Kevin Drum

Nice Try, Terry

| Thu May 28, 2009 6:39 PM EDT

From the Washington Post:

Consumer activist Ralph Nader accused Terry McAuliffe Thursday of orchestrating an effort to remove him from the presidential ballot in 2004 when McAuliffe was chairman of the Democratic National Committee.

Nader said that McAuliffe offered him an unspecified amount of money to campaign in 31 states if Nader would agree to pull his campaign in 19 battleground states.

I sort of hope this is true.  I've never been a big McAuliffe fan before, but this would certainly raise my opinion of him.

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More Tough Talk

| Thu May 28, 2009 3:29 PM EDT

It would be nice to see an English-language translation of the entire interview, but M.J. Rosenberg has some fairly eye-popping tough talk on Israel from former ambassador Martin Indyk over at TPMCafe.  It's worth checking out.

Spending and Taxes in California

| Thu May 28, 2009 3:15 PM EDT

Are California's budget woes due to skyrocketing spending?  Michael Hiltzik says this is a myth:

Analyzing the 2008-09 budget bill last year, the legislative analyst determined that since 1998-99, spending in the general fund and state special funds — the latter comes from special levies like gasoline and tobacco taxes — had risen to $128.8 billion from $72.6 billion, or 77%.

During this time frame, which embraced two booms (dot-com and housing) and two busts (ditto), the state's population grew about 30% to about 38 million, and inflation charged ahead by 50%. The budget's growth, the legislative analyst found, exceeded these factors by only an average of 0.2% a year.

There's a lot of truth to this, but I think it goes too far.  For starters, Hiltzik uses a special measure of inflation, not the usual CPI-U, and he doesn't include spending from bond measures.  The chart on the right, using budget data from the Department of Finance, shows per-capita spending including bond measures, adjusted for inflation using the standard CPI figures from the BLS.  There are two things that jump out at you.  First, even using a standard measure of inflation, Hiltzik is right: per capita spending in the decade between 1999 and 2009 has barely budged.  It's up about 6%.

At the same time, if you compare it to 1997 it's up 23%.  California went on a spending spree during the dotcom boom and we never returned to our old levels even after the bust.  What's more, spending in the years between 1999 and 2009 was up even more.  In the decade between 1997 and 2007, per capita spending increased an impressive 39%.  We've tightened our belt considerably in the past couple of years, but that's against the background of some pretty sizeable increases in the intervening years.

California has multiple problems.  Prop 13 reduced our tax base permanently and made it all but impossible to adjust other taxes to make up for it.  Citizens have approved bond measure after bond measure in the seeming belief that because they don't raise taxes, they also don't cost any money.  The governor and the legislature have relied on way too much smoke and mirrors.  But spending has also gone up.  There's just no way to understand the whole picture without acknowledging that.

UPDATE: California's population actually grew about 15% between 1998 and 2008, not 30%.  However, that was just an arithmetic error on Hiltzik's part.  The overall budget growth result that he quoted from the LAO is correct.

(I used population figures from the Census Department in my calculations.  So the per capita spending numbers in the chart should be correct.)

Economic Fascism

| Thu May 28, 2009 2:04 PM EDT

The latest firestorm in the conservosphere concerns Chrysler's shutdown of a quarter of its dealer network.  Capitalism at work, you say?  More like crony capitalism, my friends:

Is the Obama administration punishing Chrysler dealers for their politics? A preliminary analysis by Doug Ross suggests that could be the case.

....[Ross] started with the list of Chrysler and Dodge dealerships which will be closed as a result of the government-mandated Chrysler bankruptcy plan. Then he marked those dealers whose names appeared more than once in the list. Next, he checked which ones contributed to political campaigns. Every one of them had donated almost exclusively to Republican candidates. Ross found only one dealer on the closing list who had contributed to the Obama campaign, a $200 donor in Waco, Texas.

....Shades of the Nixon enemies list, we first saw signs that Obama wasn’t above playing hardball with his political opponents during the active campaign.

Nate Silver puts his high-powered statistical brain to work on his puzzler and concludes....wait for it....that there's no there there.  "It turns out," he says, "that all car dealers are, in fact, overwhelmingly more likely to donate to Republicans than to Democrats — not just those who are having their doors closed."  Big surprise.

So that's that.  But I want to defend Doug Ross and the RedState folks who publicized this anyway.  I'm serious.  Sure, it turned out that nothing was going on, but you know what?  If George Bush's administration had gone down this road, I'd want someone to watch them like a hawk too.  The crackpotty writing may be a source of amusement, and I have no doubt that these guys are, as usual, going to embarrass themselves in an Ahab-like quest to prove that Obama really did force Chrysler to target Republican donors — with the lapdog mainstream media covering up for him because, you know, that's what they do.  But even so, I say dig away.  Even blind squirrels find nuts occasionally, and if the government is going to be running car companies, then this is exactly the kind of thing people should be watching out for.  That's what opposition parties are for.

As Bob Somerby reminds us frequently, the real damage to Bill Clinton didn't come from the crackpots and their conspiracy theories.  It came from the mainstream media eagerly picking up on these theories even when there was nothing there.  As long as modern-day Jeff Gerths hold their fire unless there's some real smoke, we'll be OK.

The Fed's Legacy

| Thu May 28, 2009 12:53 PM EDT

Ezra Klein writes about the federal response to the banking crisis:

Recently, I asked an administration official which government program we'd remember as making the most difference in averting catastrophe. Where will the history books place the credit?

"It'll be the Federal Reserve," he replied. "It'll be their decision to increase the size of their balance sheet from whatever it was before the crisis to whatever it is now." The Fed's decisions, of course, have attracted relatively less press coverage, both because the Federal Reserve doesn't speak to the press as often as the Treasury Department and because new Federal Reserve policies don't spark tiffs with the Congress, or the Republican Party, or outside economists. As such, the Fed is a bit harder for reporters to write about. But there's some evidence that it will be Ben Bernanke, rather than Tim Geithner, who our children — at least our nerdier children, the ones who study the recession of 2009 — will read about.

I don't think there's any question that this is right.  Both TARP and the stimulus bill were important, but the trillions of dollars in alphabet soup programs from the Fed have dwarfed them both.  Their relative obscurity in the mainstream media, however, probably has less to do with the Fed's low profile or lack of political fireworks and more to do with the fact that these programs are just really, really hard to describe in understandable terms.  It's not impossible to explain the impact of term lending facilities or guarantees of the commercial paper market, but it's a helluva lot harder than explaining a bank bailout or a hundred billion dollars in infrastructure spending.

Regarding Bernanke, though, it's well to remember Richard Posner's pithy summing up of his performance: "He is like a general who having been defeated in battle because of his errors manages the retreat of his army competently."  I'm still not sure that even the retreat was managed all that competently — there might well be additional financial shoes to drop over the next year — but even if it turns out that the worst is behind us, both of these sides of Bernanke's crisis management are part of his legacy.  It's still not clear what the history books are going to say about Bernanke and his Fed.

Tough Talk on Settlements

| Thu May 28, 2009 11:55 AM EDT

I missed this yesterday:

Rebuffing Israel on a key Mideast negotiating issue, Secretary of State Hillary Rodham Clinton said Wednesday that the Obama administration wants a complete halt in the growth of Jewish settlements in Palestinian territory, with no exceptions.

....The administration has communicated its position "very clearly, not only to the Israelis, but to the Palestinians and others, and we intend to press that point," Clinton said in an appearance at the State Department with Egyptian Foreign Minister Ahmed Aboul Gheit.

I don't have a lot to say about this, aside from the fact that it's impressively tough rhetoric coming from an American administration.  I wonder if they can stick to it?

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Regulatory Reform

| Thu May 28, 2009 12:27 AM EDT

The Washington Post reports on the Obama administration's plans for regulatory reform of the financial industry:

Senior administration officials are considering the creation of a single agency to regulate the banking industry, replacing a patchwork of agencies that failed to prevent banks from falling into the worst financial crisis since the Great Depression, sources said.

....Senior officials [also] favor vesting the Federal Reserve with new powers as a systemic risk regulator, with broad responsibility for detecting threats to the financial system. The powers would include oversight of previously unregulated markets, such as the derivatives trade, and of market participants such as hedge funds.

....The new [bank] regulator would assume responsibility for the safety and soundness of banks, currently divided among the Fed and three other agencies: the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the Federal Deposit Insurance Corp. The OCC and the OTS would probably disappear, while the Fed and the FDIC would retain other responsibilities.

For what it's worth, I'd say that having a single bank regulator is long overdue.  The current structure not only doesn't make sense, but allows banks to shop around for the most lenient regulator they can find, prompting a race to the regulatory bottom.  It's also a problem for big banks, which end up under the regulatory authority of multiple agencies.

The "systemic risk regulator" I'm less enthused about.  It's not necessarily a bad thing, but it's not clear to me that it would have done much to prevent the asset bubble of the past decade.  After all, the problem there wasn't the lack of a central regulator, but the simple fact that no one felt like there was a lot of risk in the system in the first place.  Regulating derivative markets may be a good idea, but the real issue isn't giving the Fed additional powers, it's getting it to take systemic risk seriously in the first place.

In any case, I'll repeat something I said earlier: specific regulations are all well and good, but I'd sure like to hear first what general principles are guiding these decisions.  My picks are (1) stronger limits on leverage, wherever and however it occurs, (2) a stronger commitment to countercyclical policies, and (3) a little more sand in the gears.  These might be the wrong principles to choose, but if they are, I'd like to hear which ones are right before a tidal wave of regulations comes heading down the pike.

The Banking Crisis Revisited

| Wed May 27, 2009 7:17 PM EDT

In an interview with Peter Baker, Bill Clinton says that although he regrets not regulating derivatives more strictly, he doesn't think that repealing the Glass-Steagall Act and allowing commercial banks to merge with investment banks was a big cause of our financial meltdown:

On the Glass-Steagall, I’ve really thought about that because No. 1, nonbank banking was already a major part of American life at that time. Letting banks take investment positions I don’t think had much to do with this meltdown. And the more diversified institutions in general were better able to handle what happened....I believe if you look at the blurring of the lines which already existed before that bill was signed — the bill arguably gave us a framework, at least, for which this process, which was happening anyway, could be regulated. So I don’t think that’s such a good criticism.

I think actually, if you want to make a criticism on that, it would be an indirect one; you could say that the signing of that legislation sped up what was happening anyway and maybe led some of these institutions to be bigger than they otherwise would have been and the very bigness of some of these groups caused some of this problem because the bigger something is and the newer it is the harder it is to manage.

I think this is roughly right.  And frankly, even the "indirect" criticism that repeal of Glass-Steagall produced a glut of banks too big to fail seems a little hard to swallow.  After all, even if Citi and Bank of America had remained purely commercial banks they still would have been too big to fail.  Hell, Bear Stearns, a modest sized investment bank, was too big to fail.  In the event, I doubt very much that Glass-Steagall had much if anything to do with our banking disaster.

On the other hand, I've also been thinking a lot about the financial meltdown of the past two years and wondering how much of what we think we know is really true anyway.  Structured finance, for example, has gotten a lot of blame for the crisis, but Dean Baker argues persuasively that derivatives and financial engineering didn't really have much to do with it.  It was purely and simply the result of a housing bubble, and the size of the collapse and the ensuing recession are pretty much what years of academic research predicts given the size of the price runup.  You just don't need anything more to explain it.

In a similar vein, Jim Hamilton has suggested that if you model the 2007-08 runup in oil prices you get pretty much the recession that we got.  And James Surowiecki points out that the IMF's estimate of capital shortages in the American banking system isn't actually as large as a lot of us have been thinking — and the market seems to agree.  Bank stocks have been rising since early March, and after the stress test results were announced banks started raising startling amounts of private capital almost immediately.

What else?  John Hempton has argued that the FDIC's takeover of Washington Mutual, which was responsible for at least part of the flight of private capital from the banking sector, was an act of unwarranted panic.  Recent events suggest he was right.  Likewise, it turns out in retrospect that the collapse of Lehman Brothers wasn't quite the catastrophe we thought it was at the time.  Rather, it was panic in the wholesale funding markets caused by Reserve Prime breaking the buck — an event related to the Lehman collapse but by no means the same thing.

None of this is to downplay what happened.  Fannie and Freddie and Bear and Lehman and AIG really did all collapse.  The Fed really was forced to intervene in financial markets in unprecedented ways.  The banking system really did require a lot of recapitalization.  Exports really have dropped like a stone.  The global economy really is shrinking for the first time since the Depression and trade imbalances remain stubbornly high.

But here's the weird thing.  We're at a point where one of two things will happen.  Either we're close to bottoming out, as many people seem to think, which will mean that the pessimists weren't really right.  The biggest asset bubble in the past half century will have caused a bad recession but nothing worse.  Alternatively, the pessimists are right and this is just a short breather.  The worst is yet to come as home loans continue to reset, trade balances stay out of whack, consumption remains sluggish, and the world economy remains sensitive to further disasters — disasters that are almost certain to come sooner or later.

So what's my point?  I'm rambling and I might not even have one.  Except for this: I'm not sure that even the people who have been right about all this stuff have been right.  I'm not sure that anyone has been right.  Something doesn't add up, and I can't quite figure out what it is.  But who knows?  Maybe I'm just doing the equivalent of adding in decimal when I should be adding in octal.  Or something.  All I can say is, things haven't unfolded the way I've expected — or the way a lot of other people have expected — and I'm not sure what that means.  Either the worst has been averted or the worst is yet to come.  You can vote in comments.

ba-ROCK and so-toe-my-OR

| Wed May 27, 2009 2:31 PM EDT

Bob Somerby reads two front-page profiles of Sonia Sotomayor and reports back:

In the Times, Sotomayor is a person who is also Hispanic. In the Post’s formal profile, Sotomayor’s ethnicity is the headlined focus. Perhaps unsurprisingly, Goldstein’s focus on ethnicity features a peculiarly trivial, unflattering selection of anecdotes and recollections.

Meanwhile, via Steve Benen, I see that immigration zealot Mark Krikorian is fighting the good fight against pronouncing her name correctly:

So, are we supposed to use the Spanish pronunciation, so-toe-my-OR, or the natural English pronunciation, SO-tuh-my-er, like Niedermeyer? [Following up the next day:] Deferring to people's own pronunciation of their names should obviously be our first inclination, but there ought to be limits. Putting the emphasis on the final syllable of Sotomayor is unnatural in English [...] and insisting on an unnatural pronunciation is something we shouldn't be giving in to.

You know, I'm lousy at pronoucing non-English words.  If you want a nicely rolled R, look elsewhere.  But so-toe-my-OR?  Give me a break.  A five-year-old can do that.  Just like we all got used to pronouncing the president's name ba-ROCK.

This is going to be a long couple of months.

Can the Mayo Clinic Save Healthcare?

| Wed May 27, 2009 1:28 PM EDT

McAllen and El Paso are very similar places: similar people, similiar diets, similar health profiles, both border towns only a few hundred miles apart from each other.  But healthcare costs in McAllen are almost twice what they are in El Paso.  What could possibly account for that?  Atul Gawande visited McAllen to find out, and ended up getting multiple answers from a group of doctors he went to dinner with one night.  Finally he got to the bottom of it:

“Come on,” the general surgeon finally said. “We all know these arguments are bullshit. There is overutilization here, pure and simple.” Doctors, he said, were racking up charges with extra tests, services, and procedures.

The surgeon came to McAllen in the mid-nineties, and since then, he said, “the way to practice medicine has changed completely. Before, it was about how to do a good job. Now it is about ‘How much will you benefit?’ ”

....The Medicare payment data provided the most detail. Between 2001 and 2005, critically ill Medicare patients received almost fifty per cent more specialist visits in McAllen than in El Paso, and were two-thirds more likely to see ten or more specialists in a six-month period....They also received two to three times as many pacemakers, implantable defibrillators, cardiac-bypass operations, carotid endarterectomies, and coronary-artery stents. And Medicare paid for five times as many home-nurse visits. The primary cause of McAllen’s extreme costs was, very simply, the across-the-board overuse of medicine.

....“In El Paso, if you took a random doctor and looked at his tax returns eighty-five per cent of his income would come from the usual practice of medicine,” [a hospital administrator] said. But in McAllen, the administrator thought, that percentage would be a lot less.

He knew of doctors who owned strip malls, orange groves, apartment complexes — or imaging centers, surgery centers, or another part of the hospital they directed patients to. They had “entrepreneurial spirit,” he said.

....About fifteen years ago, it seems, something began to change in McAllen. A few leaders of local institutions took profit growth to be a legitimate ethic in the practice of medicine. Not all the doctors accepted this. But they failed to discourage those who did. So here, along the banks of the Rio Grande, in the Square Dance Capital of the World, a medical community came to treat patients the way subprime-mortgage lenders treated home buyers: as profit centers.

This comes via Ezra Klein, who didn't excerpt anything from the piece because he wanted to encourage everyone to click on the link and read the whole thing.  Obviously I'm not quite so high-minded myself.  Plus there's the fact that I have a dim view of human nature: most of you guys aren't going to click the link no matter how much I tell you to, are you?

But you should!  It really is a good piece.  "Overutilization" is a boring buzzword that Gawande breathes real life into.  If you want to know why American medicine should look more like the Mayo Clinic — and why it would be both better and cheaper if it did — turn off the House reruns and read Gawande instead.  And if you want a different perspective on the same issue, try reading Shannon Brownlee's Overtreated.  It's good too.

(OK, fine, keep watching House.  It's a great show.  Just don't use it as your template for what medical care should look like, OK?)