Kevin Drum

Skin in the Game

| Tue May 12, 2009 1:49 PM EDT

What if we got rid of healthcare insurance and made people pay for medical services out of their own pocket?  Put more skin in the game, as it were?  Would it keep costs down and improve the quality of service?  Tyler Cowen takes a look at autism treatment and comes away skeptical.

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The Internet and You

| Tue May 12, 2009 1:23 PM EDT

Peter Suderman thinks the web isn't making us dumber, it's just making us different:

Reading on the web is almost certainly affecting the way we process information, but it’s not making us stupid. Instead, it’s changing the way we’re smart. Rather than storehouses of in-depth information, the web is turning our brains into indexes. These days, it’s not what you know — it’s what you know you can access, and cross reference.

In other words, books taught us to think like they do — as tools for storing extensive knowledge. Now the web teaches us to think like it does — as a tool for recall and connection. We won’t be so good at memorizing everything there is to know about a particular small-bore topic, but we’ll be a lot better at knowing what there is to be known about the broader category the topic fits into, and what other information might provide insight and context.

I find this an enormously appealing argument.  Unfortunately, I can't think of any evidence at all to suggest it's true.  Understanding "broader categories" — the context into which individual pieces of knowledge fit — requires you to read books.  Full stop.  Maybe someday it won't, but it does now. 

As longtime readers know, I'm generally a scourge of cranky elders who spend a lot of time kvetching about how ill educated kids are today compared to the golden age they used to live in.  Spare me.  But that doesn't mean the opposite is true either.  Kids who grow up on the internet may be great at looking up odd bits of information quickly, but my experience is that they often suck at figuring out what that information means and what conclusions it's reasonable to draw from it.  That's because they don't know the context.  They don't know the rest of the story.  And that's because they don't read enough books.

I'd love to be wrong about this.  But I'm not.  If you want to understand the world, not just collect endless factlets, you still need to read books.  If you do, the internet makes you smarter.  If you don't, it makes you dumber.

Quote of the Day - 5.12.09

| Tue May 12, 2009 12:56 PM EDT

From Rush Limbaugh, commenting on the deteriorating economy:

In the Oval Office of the White House none of this is a problem. This is the objective. The objective is unemployment. The objective is more food stamp benefits. The objective is more unemployment benefits. The objective is an expanding welfare state. And the objective is to take the nation’s wealth and return to it to the nation’s quote, “rightful owners.” Think reparations. Think forced reparations here if you want to understand what actually is going on.

The tendency of liberals to shout "racism" a little too often is not one of my side's most attractive qualities.  But it's a damn sight less disturbing than the tendency of conservatives to ignore racism when it comes crawling out from under rocks on their side.  Limbaugh's message could hardly have been more obvious if he'd donned blackface and performed a soft-shoe in his studio.

Sugar, Sugar

| Tue May 12, 2009 12:37 PM EDT

Is Congress really considering a tax on sugary sodas as part of the funding mechanism for national healthcare?  Ezra Klein says yes!  The Wall Street Journal, however, which has a big piece about soda taxes in today's paper, doesn't muster up a ton of evidence.  Here it is:

Senior staff members for some Democratic senators at the center of the effort to craft health-care legislation are weighing the idea behind closed doors, Senate aides said.

That's it?  Color me unimpressed so far.

In any case, this whole thing is ridiculous.  The issue here is highly caloric sweeteners, not soda per se.  In other words, high fructose corn syrup, which is what virtually everyone uses to sweeten their drinks these days.  So why on earth would we tax Pepsi at a penny an ounce at the same time that we massively subsidize HFCS?  And even if we got rid of the subsidies, which would be a fine idea in any case, why tax soda?  If this is the direction we want to go, why not just tax sugar and HFCS directly, regardless of what it goes into?

Saberi Released

| Tue May 12, 2009 12:10 PM EDT

The LA Times reports on the conviction and subsequent release of freelance reporter Roxana Saberi from an Iranian prison:

A copy of a classified Iranian government report about the U.S. war in Iraq in the possession of journalist Roxana Saberi was a key piece of evidence that led to her conviction on espionage charges, one of the Iranian American journalist's lawyers disclosed Monday.

But a letter from President Mahmoud Ahmadinejad calling for a careful review of the case helped secure her swift release Monday, another of her lawyers said, in an appellate court ruling that surprised Iran watchers and removed a stumbling block in the effort to improve U.S.-Iranian relations.

Iranian intelligence and security officials had argued fiercely for her imprisonment up to the last moment of her lengthy appeals court hearing Sunday, the second attorney said.

Iranian politics is opaque enough that it's probably hopeless to figure out for sure what happened here.  Wheels within wheels.  Still, Ahmadinejad must have had some reason for intervening.  Was it related in some convoluted way to the political jockeying in preparation for next month's election?  It's hard to see how.  Was it meant as a modest olive branch for Barack Obama?  Maybe.  Was it just because Ahmadinejad likes the spotlight and likes to present himself to the world as a compassionate man?  Did it, in fact, have nothing at all to do with Ahmadinejad?  More than likely, your guess is as good as anybody's.

Does Modern Medicine Work?

| Tue May 12, 2009 11:28 AM EDT

Well, does it?  I, for one, would like to know.  Conservatives, though, apparently don't.  Go figure.  This is yet another reason not to be a conservative these days.

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Unchecking the Box

| Tue May 12, 2009 1:57 AM EDT

Matt Yglesias writes about the way a Clinton-era initiative to streamline and update tax rules (commonly called "check the box" for reasons that aren't very interesting) ended up becoming a gigantic loophole that allows American corporations to avoid paying taxes on profits earned overseas:

What happened is that the Clinton administration promulgated a rule that was designed to simplify the classification of different kinds of subsidiaries. Within months of the rule coming out, the career civil servants in the Treasury Department noted that there was potentially a huge tax loophole here.

....As soon as it was noted, an effort was put in place to change it. But a ferocious lobbying battle opened up, with the apologists for tax havens arguing that, basically, it was [other countries'] ox that was getting gored here so Americans shouldn’t care. Over the years, however, that turns out to be wrong. The availability of this loophole is a significant incentive for companies to invest in their overseas subsidiaries and take advantage of the tax shell game. It’s a loophole that nobody ever intended to create, and that should be done away with forthwith.

Whether this is really a big incentive to invest overseas is probably debatable, but it's nonetheless true that it was only an unanticipated side effect of check-the-box that allowed companies to use it to avoid taxes on overseas earnings.  So good for Obama for trying to partially get rid of it.

Except for one thing.  It really is true that America is virtually the last country in the world that tries to tax overseas profits earned by multinational companies in the first place. Everyone else, including all those fine social democrats in western Europe, have long since moved to a seemingly more sensible system in which each country simply taxes its own domestic profits regardless of where parent companies are headquartered.  This avoids all sorts of complications related to double taxation and allocation of expenses and seems to be genuinely more efficient as well.  You can find a pretty good discussion of the basic issues here.

So what's the deal?  Should liberals be in favor of closing this loophole, since it is, after all, a loophole?  Or should we be in favor of not just leaving it alone, but going further and changing our corporate tax law to eliminate taxation of overseas profits entirely?  Or perhaps changing the law, but only as part of a package that makes our corporate tax code more sensible overall?  What's the party line here?

Taxing Carbon - Part 5

| Mon May 11, 2009 7:51 PM EDT

I promise this is the last post in this series.  (For a while, anyway.)

But there's one general point about the debate between carbon taxes and cap-and-trade that I want to make directly.  Namely this: it's an unfair fight.

Here's the thing.  Cap-and-trade is a real-world program for reducing pollutants.  We used it successfully with sulfur emissions in the 90s.  Europe is already doing it with carbon.  The northeastern states are doing it with RGGI.  The Waxman-Markey bill is a real piece of legislation that's hundreds of pages long and festooned with a hundred different compromises that will (we hope) allow it to survive the legislative sausage grinder.

And all of these variations of cap-and-trade are complicated.  When you read about them, you're immediately bombarded with jargon: auctions vs. allocations; caps, floors, offsets, and banking; upstream vs. downstream; how the exchange should be set up; how often permits should be sold; etc. etc.  Those are all real-life questions, and in any real-life plan they have to be addressed.  And they're confusing.  And yes, they all provide potential toeholds for special interests to game the system — something we should fight like banshees to keep to a minimum.

Tax advocates have no such worries.  They propose that we simply tax various fuels based on their carbon content, and voila!  We're done.  Simple and easy.

Ironically, though, the only reason they can get away with this is because of the very fact that a tax is a political nonstarter, which means there are no real-world taxes on the table.  But if there were, they'd have all the same questions as a cap-and-trade plan, plus a whole bunch of new ones.  Should it be levied upstream or downstream?  Can it be tax sheltered offshore?  Are you allowed to apply a tax-loss carryforward to your carbon tax levy?  How do you harmonize the tax with other countries?  Can I get a tax credit for reducing carbon emissions?  How are the revenues going to be distributed?  Should midwestern states that rely more on coal-fired plants get treated differently than, say, California?  What would it take to make a carbon tax on foreign oil compatible with WTO rules?

Rhetorically, tax advocates can pretend that none of these questions exist.  They're able to contrast the genuine messiness of a real-world cap-and-trade plan with a Platonic, whiteboard version of a tax plan.

But that's not how it would work.  If cap-and-trade goes down, we're not going to get a tax instead.  And if we do eventually get a tax instead, it's not going to be a clean and simple tax.  It's going to be a thousand-page monster with every paragraph the subject of a slugfest between a dozen different special interests lobbying half a dozen different congressional committees.  That's reality.

If you're going to compare cap-and-trade to a tax, honest advocates need to compare apples to apples.  We need to hear what a real-life carbon tax bill would be like.  And we should have a few dozen tax experts in the room to laugh at us while all this is going on.  The fact is, cap-and-trade isn't as complicated as it seems, and a tax isn't as simple as it seems.  In the end, though, despite the admitted complexities of cap-and-trade, at least it wouldn't be embedded within an existing 100,000-page corporate tax code.  A tax would be.  I'd keep that firmly in mind whenever you hear about how simple and clean a carbon tax would be.

POSTSCRIPT: Rasmussen reported today that only 24% of voters have any idea what "cap-and-trade" even means.  That doesn't surprise me.  When I set out to write my cap-and-trade piece for the magazine a few months ago, I originally planned to write about the debate between cap-and-trade and carbon taxes.  Very quickly, though, I realized that even among plugged-in people, very few of them really knew what cap-and-trade was or how it worked.  So I switched gears and decided to write a straight ahead cap-and-trade primer instead.  If you're part of the still-confused 76%, my piece is here.

Chart of the Day - 5.11.2009

| Mon May 11, 2009 6:59 PM EDT

The basic argument in favor of financial engineering is that it allocates risk more effectively and thereby increases capital formation.  Which is good.  Or would be, anyway, if that's what happened.  Via Ezra, however, Adam Posen and Marc Hinterschweiger take a look at the growth of credit derivatives over the past decade and conclude that it didn't:

Clearly, growth in new financial products has outpaced fixed capital formation both globally and in the United States by a large margin. This has been especially true since 2006, when investment stagnated, but derivatives continued to grow at a rapid rate. There only seems to be a weak link, if any, between the growth of the newest complex — and now proven dangerous if not toxic — financial products and real corporate investment.

I would just add one other observation to this: the latest and greatest conservative argument for repealing the estate tax is that it would promote capital formation.  Without an estate tax, rich people will be motivated to earn more money instead of frivolously spending it, and heirs will get nice big chunks of capital to invest in America.  As usual with right-wing economic theorizing, it's sort of vaguely plausible sounding, and the conservatives pushing it have some nice charts along with a bunch of equations filled with Greek letters to back them up.  But then, so did the Wall Street rocket scientists, didn't they?  In the event, though, that turned out to be a self-serving argument.  Even trillions of dollars in derivatives didn't have a noticeable effect.

So then, what are the odds that a change in the estate tax amounting to a few billion dollars will have a serious effect on capital formation either?  Slim.  And what are the odds that this is just another self-serving argument?  That's an exercise for the reader.

Shakeup in Afghanistan

| Mon May 11, 2009 2:45 PM EDT

Robert Gates announced today that he is firing General David McKiernan, our top commander in Afghanistan:

The abruptness of the move was an indication of the gravity of the decision. General McKiernan had served in his current command for only 11 months, while such tours are usually two years or more.

Defense officials said that General McKiernan was being replaced because of what they described as a conventional approach to what has become one of the most complicated military challenges in American history. He is to be replaced by Lt. Gen. Stanley A. McChrystal, a former commander of the Joint Special Operations Command who recently ran all special operations in Iraq.

Presumably, David Petraeus was behind this decision.  Right?  Coincidentally, BruceR, recently back from Afghanistan himself, has a few thoughts about what we're doing right and what we're doing wrong there, and it sounds like he endorses the general idea that we need a more nonconventional approach.  More later on this, I'm sure.

UPDATE: More here from James Joyner.