Republicans and the Rich, Part LXXVII

The unconditional subjugation of the Republican Party to the interests of the rich, the super-rich, and the hyper-rich remains impressively monolithic. That is all.

Making Basel Work

The Financial Times reports that the new Basel III banking standards might get toughened up in a few countries:

Top bankers in the UK, US and Switzerland are braced for their national regulators to impose tougher capital requirements than those required by Sunday’s landmark global agreement, even as investors bid up bank shares on relief that the standards were not more rigorous....Global banks based on Wall Street, in the City and Switzerland fear they will face the toughest rules.

They point to the “Swiss finish” that regulators there have traditionally applied on top of global standards and the UK’s willingness to be tougher on other issues, such as pay. They also said US regulators were likely to consider shorter timetables and may face pressure from Congress to be tougher.

Well, we can hope. And we can hope that these same regulators will toughen up on the risk weighting of assets while they're at it. At this point I think we can all agree that AAA-rated MBS should probably require a wee bit bigger capital cushion than the same amount of United States treasury bonds, right?

Quote of the Day: More Preservatives, Please

From Robert Waldmann, responding to criticism of preservatives in food:

I stress this post is not a joke. I think that BHA and BHT are good for people's health. I even think that use of BHA and BHT are partly responsible for the increase in life expectancy since they were introduced.

You may read his reasoning here.

The End of Tennis

Ah, tennis. The rain-delayed U.S. Open — currently suffering through yet another rain delay — is on right now, and twitterer @jenningscraig says, "Would love to hear some commentary on this year's tourney." Sadly, though, the truth is that I've only watched bits and pieces of the Open this year. In fact I find myself following tennis less and less every year.

Why? Because it's gotten boring. Sure, today's players are phenomenal athletes, covering the court like gazelles and routinely hitting breathtaking shots. But every match is the same, what I've come to think of as "thug tennis": huge topspin forehands, booming two-handed backhands, and endless baseline rallies. The power and shotmaking are mesmerizing at times, but in the end, I can hardly tell the players apart these days.

I always thought that the beating heart of tennis was in the matchups between the top baseliners and the top serve-and-volleyers. Brilliant points, contrasting styles, and blinding speed. I loved those matches. Borg-McEnroe. Lendl-Edberg. Sampras-Agassi. But a few years ago the last generation of serve-and-volleyers retired — guys like Sampras, Rafter, Henman, and Martin — and today, thanks to improved racket technology that favors returners more than servers, there aren't any left in the top ranks. The clay court season now lasts 12 months a year.

And so I've slowly lost interest. Roger Federer is the last player who's really attracted my attention: he's a baseliner like everyone else, but it's a different, more fluid style that's a joy to watch regardless. And at least he has a one-handed backhand to set him apart a little bit. But that's about it. I still watch tennis, but I'm not glued to the set and I don't really mind that much if I miss a final — especially if Federer isn't in it. When he retires I'm not sure if I'll bother watching very much at all anymore.

I know the current state of the game has lots of fans, but aside from an intellectual admiration I just can't work up a lot of enthusiasm these days. In the end, new racket technology and the coaching that went along with it have finally conspired to spoil the game for me.

Is the Gulf Recovering Faster Than Expected?

This is all tentative and preliminary, so don't break out the champagne yet. Still, it's increasingly looking like the Gulf might be recovering from the BP blowout more quickly than we expected:

As the weeks pass, evidence is increasing that through a combination of luck (a fortunate shift in ocean currents that kept much of the oil away from shore) and ecological circumstance (the relatively warm waters that increased the breakdown rate of the oil), the gulf region appears to have escaped the direst predictions of the spring.

While its findings were disputed by some, the National Oceanic and Atmospheric Administration reported several weeks ago that the oil was breaking down and dispersing rapidly, probably limiting future damage from the spill.

And preliminary reports from scientists studying the effects on marshes, wildlife and the gulf itself suggest that the damage already done by the spill may also be significantly less than was feared — less, in fact, than the destruction from the much smaller Exxon Valdez spill in Alaska in 1989.

On the less optimistic front, however, the piece acknowledges that "The spill’s greatest scientific challenge may be understanding how the oil is interacting with the undersea environment. The oil was released 5,000 feet beneath the water’s surface and then treated with an unprecedented volume of chemical dispersants. Some enormous fraction — how much is disputed — formed at least one great undersea plume of microscopic droplets." For more on this, see Julia Whitty's definitive take on the potential undersea damage in our current issue.

Obama's Hidden Stimulus

Why does the American public seem to be convinced that the 2009 stimulus bill hasn't had any effect? Republican attacks are one reason, of course, as well as the fact that it failed to get unemployment down to the 8% level the Obama administration originally aimed for. But James Surowiecki suggests another factor as well. There was a lot of talk back when the bill was moving through Congress about the "smartest" way of implementing stimulus spending, and Surowiecki suggests that Democrats might have been too smart for their own good:

Paradoxically, the very things that made the stimulus more effective economically may have made it less popular politically. For instance, because research has shown that lump-sum tax refunds get hoarded rather than spent, the government decided not to give individuals their tax cuts all at once, instead refunding a little on each paycheck. The tactic was successful at increasing consumer demand, but it had a big political cost: many voters never noticed that they were getting a tax cut. Similarly, a key part of the stimulus was the billions of dollars that went to state governments. This was crucial in helping the states avoid layoffs and spending cuts, but politically it didn’t get much notice, because it was the dog that didn’t bark—saving jobs just isn’t as conspicuous as creating them. Extending unemployment benefits was also an excellent use of stimulus funds, since that money tends to get spent immediately. But unless you were unemployed this wasn’t something you’d pay attention to.

The stimulus was also backloaded, so that only a third was spent in the first year. This reduced waste, since there was more time to vet projects, and insured that money would keep flowing into 2010, lessening the risk of a double-dip recession. But it also made the stimulus less potent in 2009, when the economy was in dire straits, leaving voters with the impression that the plan wasn’t working. More subtly, while the plan may end up having a transformative impact on things like the clean-energy industry, broadband access, and the national power grid, it’s hard for voters to find concrete visual evidence of what the stimulus has done (those occasional road signs telling us our tax dollars are at work notwithstanding). That’s a sharp contrast with the New Deal legacy of new highways, massive dams, and rural electrification. Dramatic, high-profile deeds have a profound effect on people’s opinions, so, in the absence of another Hoover Dam or Golden Gate Bridge, it’s not surprising that the voter’s view is: “We spent $800 billion and all I got was this lousy T-shirt.”

Good policy, unfortunately, isn't always good politics. If Democrats had really been trying to get the biggest political bang for the buck, they probably would have proposed $800 billion in programs like cash for clunkers. Everyone loved cash for clunkers! But it didn't really do much to stimulate the economy. Aid to states did, but the money mostly went to government workers, and these days everyone hates government workers. I dunno. Maybe Obama should have insisted on a big slug of money going to a plan to buy every man, woman, and child in America a free weekly lottery ticket. At least people would have noticed it.

What Was Forbes Thinking?

Former Bush speechwriter David Frum comments on Newt Gingrich's endorsement of Dinesh D'Souza's recent Forbes cover story claiming that Barack Obama's mainstream liberalism can best be understood as the neocolonial racial animus of the son of a Luo tribesman:

As for the underlying D’Souza article that inspired Gingrich, what is there to be said? When last was there such a brazen outburst of race-baiting in the service of partisan politics at the national level? George Wallace took more care to sound race-neutral.

Here’s the question, though, for the rest of us: Why do Forbes (which presumably has many choices of cover material) and Gingrich imagine that such a message will resonate with their conservative audience? Nothing more offends conservatives than liberal accusations of racial animus. Yet here is racial animus, unconcealed and unapologetic, and it is seized by savvy editors and an ambitious politician as just the material to please a conservative audience. That’s an insult to every conservative in America.

This is the right question. Newt Gingrich is a firebrand who will say almost anything to get attention. Dinesh D'Souza is so consumed with a revulsion toward modern society that he sees demons everywhere he goes. It's hardly news that they're dishing out shameless bombast like this.

But Forbes? Why on earth is a mainstream business magazine giving this kind of obscenity cover story treatment? One can only assume they think their audience will buy it without complaint. Frum again:

With the Forbes story and now the Gingrich endorsement, the argument that Obama is an infiltrating alien, a deceiving foreigner — and not just any kind of alien, but specifically a Third World alien — has been absorbed almost to the very core of the Republican platform for November 2010.

Apparently so. Even for the cynical among us, the events of the past few months have been pretty astonishing. The only glimmer of good news here is that maybe — just maybe — movement conservatives are finally riding the racial animus bandwagon too hard and too blatantly. Maybe — just maybe — it's finally gotten out of control and it's going to lead to the backlash of disgust and revulsion they so richly deserve. Maybe.

Income Inequality Week Continues!

Our complex modern economy increasingly rewards education and skills. Does this explain the huge rise in income inequality over the past few decades? Ezra Klein:

That explanation is intuitively appealing, but it doesn't fit the facts. For one thing, Europe had the same technological revolution, but without the attendant increase in inequality. For another, the startling changes in inequality was between those at the 99th percentile and those in the 90th percentile. It was the tippy-top pulling away from the top, or what I like to call "the conehead economy." If you imagine the economy as the person, it's grown eight inches, and most of that growth has been in its forehead.

Matt and Alex both double back on this and note that technology does play a major role here, and they're right: The Internet, television and other forms of mass media and communication make it much easier for one person or firm to serve a national or international audience. To use an easy example, Kobe Bryant can make more money because the Chinese watch his basketball games and pay him to endorse their products (that's not a random example, incidentally).

Two points. First the minor one: the idea that sports stars and Hollywood celebrities and J.K. Rowling are driving the growth in inequality is just flat wrong. There simply aren't enough of them. If you take a look at income statistics, the tippy top is occupied almost entirely by corporate executives, Wall Street financiers, and a motley collection of doctors, lawyers, and other high-paid professionals. Sports and entertainment personalities make up only a few percent of the total.

But there's a bigger point to make here too. It's true that one of the great mysteries of the modern American economy is that the biggest growth in income inequality hasn't been between, say, the average worker and the well-off computer programmer. The biggest growth has been between the programmer and the white shoe lawyer. And an even bigger chasm has developed between the white shoe lawyer and the Fortune 500 CEO. In other words, the biggest change in inequality has mostly been within the top 10% or so. Any explanation has to grapple with that fact.

Still, all that extra money had to come from somewhere. And there's not much question where that is: the middle classes. Basically, the overall economy has grown considerably over the past 30 years, generating lots of additional income. However, the vast middle of the wage-earning class has received only a small part of that income growth. The chart below shows how much less income the working and middle classes have gotten because their earnings didn't increase at the same rate as overall economic growth:

So about $800 billion per year has been transferred from the bottom 90% to the top 10%. In addition, it turns out that within the top 10%, almost all of that $800 billion has gone to the top 1% and especially to the top 0.1%.

So there are, in fact, two mysteries here. First, what caused middle class incomes to stagnate, thus making a gigantic pool of additional money available to the better-off? Second, why did that giant pool go almost entirely to the rich and super rich? Any theory of rising income inequality needs to answer both those questions.

Our Powerless Fed

I move sort of slowly when it comes to rearranging my reading habits, and it was only about a month ago that I finally added Economics of Contempt to my RSS feed list. And then I forgot about it. Why? Because EOC, it turns out, only puts up a new post once every few weeks or so, and nothing had popped up since I moved it from bookmark land to RSS land.

But today something finally popped up, and it was....intriguing. Thanks to Barack Obama's delays nominating new members to the Fed and to Richard Shelby's mindless obstructionism of the ones he has nominated, the Fed Board of Governors currently only has four members:

The Fed's emergency lending authority (the famed Section 13(3)) requires that any emergency lending facility to non-banks be approved "by the affirmative vote of not less than five members" of the Fed Board of Governors. Currently, there are only four members of the Fed board: Bernanke, Warsh, Elizabeth Duke, and Dan Tarullo. Donald Kohn retired earlier this month, and the Senate has yet to vote on Obama's three nominees (Janet Yellen, Peter Diamond, and Sarah Bloom Raskin).

So if an emergency crops up and the Fed needs to take action, it won't be able to. The odds of this happening are low — that's why they call them emergencies, after all — but then again, if it does, we'll really, really need to do something quickly — another reason we call them emergencies. So Shelby is playing with fire here, all because he's still nursing a grudge over Democrats passing a financial reform bill that he didn't like. Nice work, Dick.

The Foxification of the Republican Party

Pew has one of their regular surveys of media consumption out today, and it has lots of interesting tidbits. Newspaper and radio news continue to decline, online news continues to prosper (in terms of audience, if not profitability), Bill O'Reilly and Sean Hannity appeal mostly to old people, and the New York Times and Wall Street Journal are the most popular destinations for in-depth reporting.

But the most interesting chart in the report is one showing how cable news viewing habits have changed since 2000:

  • Democrats: -3% (Fox), +1% (CNN), +3% (MSNBC)
  • Independents: +3% (Fox), -2% (CNN), 0 (MSNBC)
  • Republicans:
    +22% (Fox),
    -9% (CNN),
    -6% (MSNBC)

In other words, Democrats and Independents have changed their viewing habits only slightly while Republicans have flocked to Fox and dropped both CNN and MSNBC in droves. Back in 2000, it turns out, the viewing habits of all three groups were pretty similar. Since then, as Fox has steadily amped up its conservative branding, conservatives have decided that's all they want to hear. The echo chamber must be getting pretty deafening over there.