Kevin Drum

Defending the Defenders

| Tue May 5, 2009 2:00 PM EDT

From the Washington Post:

Ex-Bush Officials Launch Bid to Soften Interrogation Report

Former Bush administration officials are lobbying behind the scenes to push Justice Department leaders to water down an ethics report criticizing lawyers who blessed harsh detainee interrogation tactics, according to two sources familiar with the efforts.

In recent days, attorneys for the subjects of the ethics probe have encouraged senior Bush administration appointees to write and phone Justice Department officials, said the sources, who spoke on condition of anonymity because the process is not complete.

Can't say as I blame them, I guess.  But surely they realized that someone at DOJ would rat them out, didn't they?

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Civic Order

| Tue May 5, 2009 1:11 PM EDT

David Brooks says that if Republicans had learned the right lessons from watching Westerns, they'd be a little less interested in rugged individualism and a little more interested in community and civic order:

They would begin every day by reminding themselves of the concrete ways people build orderly neighborhoods, and how those neighborhoods bind a nation. They would ask: What threatens Americans’ efforts to build orderly places to raise their kids? The answers would produce an agenda: the disruption caused by a boom and bust economy; the fragility of the American family; the explosion of public and private debt; the wild swings in energy costs; the fraying of the health care system; the segmentation of society and the way the ladders of social mobility seem to be dissolving.

But the Republican Party has mis-learned that history. The party sometimes seems cut off from the concrete relationships of neighborhood life. Republicans are so much the party of individualism and freedom these days that they are no longer the party of community and order. This puts them out of touch with the young, who are exceptionally community-oriented. It gives them nothing to say to the lower middle class, who fear that capitalism has gone haywire. It gives them little to say to the upper middle class, who are interested in the environment and other common concerns.

I think this column suffers from Brooks' usual weakness for extending metaphors beyond their useful life, but his central point is a pretty good one.  The American public is obviously in the mood for a little less cowboy capitalism and a little more stability, and there are both liberal and conservative ways of getting there.  Democrats obviously support the liberal path, and to compete the GOP needs to stop offering up its usual menu of non-answers and instead figure out a conservative way to tell the business community to behave itself, a conservative way to produce more clean energy, and a conservative way to genuinely address everyday healthcare concerns.  It's not impossible, but the true-believer rump of the party wants nothing to do with it — and they're suffering the consequences.  They could do a lot worse than to spend a little less time listening to Rush Limbaugh and a little more time listening to Brooks.

Obama and the Business Community

| Tue May 5, 2009 11:26 AM EDT

I nominate this for the least surprising news of the year:

President Obama's plan to crack down on what he called abuse of overseas tax loopholes was met Monday with quick and unusually sharp opposition from big business, threatening to produce the administration's first major confrontation with a broad segment of corporate America.

The fiercely negative reaction to the plan, much of which requires congressional approval, contrasted strongly with the business community's muted criticism, at most, of the president's sweeping government intervention in the banking and automobile industries.

Imagine!  The business community was OK with the government shoveling hundreds of billions of dollars into the business community, but is unhappy when the government wants to take away their PO boxes in the Cayman Islands.  Who could have guessed?

Credit Report

| Tue May 5, 2009 1:52 AM EDT

The latest on credit conditions:

Although credit conditions remain strained, an April survey of loan officers by the Federal Reserve found a smaller number of banks were tightening loan standards compared with a few months ago.

Glimmers of improvement were most notable in commercial lending. The Fed said 40% of the 53 domestic banks it surveyed between March 31 and April 14 said they tightened standards on commercial and industrial loans, a smaller percentage than the 65% that said in January that they tightened standards.

Other metrics apparently show the same thing: banks are still cutting back on lending, but they aren't cutting back quite as much as before.  In other words, the economy is still getting worse, but not quite as fast as it was earlier this year.  These days, that counts as good news.

Quote of the Day - 5.4.09

| Mon May 4, 2009 7:34 PM EDT

From Paul Krugman, ruminating over the recent leaks about the results of the Treasury's stress tests:

Even Brad DeLong, who has been relatively sympathetic to the administration here, is disturbed by the idea that regulators are negotiating with the banks about the test results. Now it seems as if the report's contents may also be dictated by what, based on the response to leaks, the informed public is willing to swallow. ("Would you believe it if we say Citi is fine? OK, what if we say they need $5 billion? Not enough? How about 10?")

The source of the stress test leaks is mysterious, but it's the numbers themselves that baffle me more.  Most of the leaks, for example, suggest that Citigroup will be told it needs additional capital of $10 billion, a figure so low it would barely be worth bothering with.  Conversely, most of the numbers I've seen thrown around from independent analysts come to ten times that amount or more.  If it turns out that Citi really is short by only $10 billion, it means we can all breathe a sigh of relief and declare an end to the banking crisis.  I woldn't count on that, though.

Lovely, Lovely Pears

| Mon May 4, 2009 6:44 PM EDT

Taylor's Gold pears are back in my local supermarket!  Hooray!

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The Bloated Financial Industry

| Mon May 4, 2009 6:27 PM EDT

James Surowiecki writes that the reason the financial sector has grown so spectacularly over the past couple of decades is because, compared to the boring 50s and 60s, the demand of modern businesses for capital has also grown spectacularly:

The financial sector’s most important job is channelling money from investors to businesses that need capital for worthwhile investment. But in the postwar era there wasn’t much need for this....Thomas Philippon, an economist at N.Y.U., has shown that most of the increase in the size of the financial sector [during the period 1980-1999] can be accounted for by companies’ need for new capital....Philippon suggests that, given the demands of businesses for capital, a normal financial sector would be about the size it was in 1996.

But this is only part of the story.  The need for capital may well have gone up considerably, but the combination of globalization, automation, and greater competition should also have made the finance industry far more efficient at providing it.  As Felix Salmon says:

One would hope and expect that between sell-side productivity gains and a rise in the sophistication of the buy side, any increase in America's financing needs would be met without any rise in the percentage of the economy taken up by the financial sector. That it wasn't is an indication, on its face, that the financial sector in aggregate signally failed to improve at doing its job over the post-war decades — a failure which was then underlined by the excesses of the current decade and the subsequent global economic meltdown.

Most information technology sectors — and finance is decidedly one of them — have become far more efficient over the past few decades.  They may be bigger in absolute terms, but the price per unit of whatever they're selling — MIPS, bandwidth, gigabytes, etc. — is far lower.  In the case of finance, the units they're selling are dollars of capital.  But has the per-unit cost of providing capital gone down substantially since, say, 1980?  If not, why not?

Bankers and Congress

| Mon May 4, 2009 3:02 PM EDT

The power of the financial lobby, even in the wake of an epic economic collapse fueled largely by its own excesses, never ceases to amaze.  The current front, of course, is a Senate proposal to curb credit card abuses.  Mike Lillis of the Washington Independent reports:

The proposal, sponsored by Senate Banking Committee Chairman Chris Dodd (D-Conn.), would prohibit rate hikes on existing balances, give cardholders longer notice to pay their bills, and prevent card companies from charging fees when customers pay their bills on time.

....A similar credit card reform proposal, sponsored by Rep. Carolyn Maloney (D-N.Y.), passed the House easily last week, but the Senate bill goes even further to protect card users from unexplained fees and surprise rate hikes. The question now on the minds of many anxious consumer and lending advocates is this: How strong can Senate Democrats keep those consumer protections and still have the bill pass the upper chamber?

....For consumers, there’s a great deal hinging on what credit card reform provisions the Senate can pass. The Maloney bill in the House, for example, allows card companies to hike rates on existing balances when the borrower is more than 30 days late on a payment. The Dodd bill, by contrast, prevents retroactive rate increases in all cases. An analysis conducted by The National Consumer Law Center found that roughly 10 million Americans would still be vulnerable to those retroactive hikes if Maloney’s version of the provision were adopted instead of Dodd’s.

Really, this is beyond belief.  Retroactive rate hikes on existing balances are indefensible under any circumstances.  A third grader on a playground would understand why.  Despite this, every single effort to ban the practice has failed.  Over and over and over, they've failed.  And now, even with the finance industry on its knees, hated and despised for its lavish compensation packages financed by trillions in taxpayer bailout cash, there's still some question about whether Congress can pass this no-brainer of a bill.  Instead, we might end up merely banning retroactive rate hikes for 30 days.

This practice (which goes by the charming name of "universal default") should have been banned the first time it ever reared its ugly head.  The fact that there's even a chance of it continuing to survive in any form at all after the events of the past couple of years should dispel any questions about the death grip the finance industry has on American politics.  It's the smoking gun that bankers own the country.

Healthcare in Holland

| Mon May 4, 2009 1:28 PM EDT

So what does Russell Shorto think of Dutch healthcare after spending 18 months in Amsterdam?

My nonscientific analysis — culled from my own experience and that of other expats whom I’ve badgered — translates into a clear endorsement. My friend Colin Campbell, an American writer, has been in the Netherlands for four years with his wife and their two children. “Over the course of four years, four human beings end up going to a lot of different doctors,” he said. “The amazing thing is that virtually every experience has been more pleasant than in the U.S. There you have the bureaucracy, the endless forms, the fear of malpractice suits. Here you just go in and see your doctor. It shows that it doesn’t have to be complicated. I wish every single U.S. congressman could come to Amsterdam and live here for a while and see what happens medically.”

Amen to that.  But there's also this:

One downside of a collectivist society, of which the Dutch themselves complain, is that people tend to become slaves to consensus and conformity. I asked a management consultant and a longtime American expat, Buford Alexander, former director of McKinsey & Company in the Netherlands, for his thoughts on this. “If you tell a Dutch person you’re going to raise his taxes by 500 euros and that it will go to help the poor, he’ll say O.K.,” he said. “But if you say he’s going to get a 500-euro tax cut, with the idea that he will give it to the poor, he won’t do it. The Dutch don’t do such things on their own. They believe they should be handled by the system. To an American, that’s a lack of individual initiative.”

I actually ran into that once myself.  Back in my marketing days, I was once in charge of a product launch that, among other things, included a contest for the salesperson who sold the greatest amount of our new gift to the high-tech world.  Pretty standard stuff.  So I went on the road for a couple of weeks presenting the new product to our distributors in the U.S. and Europe, and everything went basically as expected until I got to the Netherlands.  They didn't like the contest.  Why?  Because it singled out a single individual who did especially well, and this was unfair since sales was a team effort.  They wanted a contest that rewarded whichever group sold the most stuff.  And they were pretty serious about this.  They really, really didn't like the idea of a single person being held up as an individual success.

I've always remembered this as a good example of how ingrained our own cultural predilictions are.  At the time this happened I'd been dealing with European distributors and resellers for over a decade, so I was already pretty familiar with the various cultural differences in how sales teams worked.  But this one came out of nowhere.  It never occurred to me for even a second that anyone would object to a sales contest.  Why, it's as American as apple pie!  Which, it turned out, was exactly true.

On the other hand, no one else had a problem with it.  Only the Dutch.  And it still strikes me as an odd attitude.  But they run a pretty nice country over there, so I guess it works pretty well for them.

More here from Steve Aquino.

Religious Freedom

| Mon May 4, 2009 12:47 PM EDT

Should a Baptist minister be required to marry a gay couple?  Of course not.  Should an adoption service run by the Catholic church be required to place children in gay households?  Probably not.  Andrew Sullivan asks the obvious followup:

But how far do you go? Should a Catholic caterer, for example, be able to refuse to provide food for a second marriage? My own view is: yes. But then I'm a libertarian in many ways. I see protecting religious freedom in the civil sphere as a core principle. And by exposing such religious prejudice so baldly, and allowing the market to disadvantage the bigoted, we may even help jump-start the conversations that will eventually persuade people that they're wrong.

God knows, if Andrew is OK with this, I suppose I should be.  And I think there's a strong case to be made that in practice this might not be a big deal.  After all, do same-sex couples really want to hire photographers and caterers who make it clear they loathe them?  Probably not.  But then, you might have asked the same thing 50 years ago: do Southern blacks really want to eat at lunch counters where they obviously aren't welcome?  As it turned out, yes.

This has become the latest front in the gay marriage wars, and I'd be careful about ceding too much ground here.  Laws guaranteeing religious freedom are fine as long as they cover actual religious practice.  But once they start covering bog ordinary commercial establishments that don't have even a tenuous connection to a church and want to discriminate merely because they don't like gays — well, that's a line that gets pretty hard to draw pretty fast.   What's worse, in some places it's a line that would essentially take over entire towns.  If a caterer can refuse to sell me a wedding cake just because I'm gay — despite state law that would normally outlaw such discrimination — can a landlord refuse to rent me and my newly married partner an apartment despite fair housing laws saying he has to?

I haven't thought this through in a lot of detail, but I'm uncomfortable extending these "religious freedom" exemptions beyond actual religious establishments.  I'm all for compromise that turns down the volume on the culture wars, but once these laws are in place they run the risk of cementing bigoted practices in place for years or decades longer than they'd otherwise survive.  Count me as a skeptic that, in the long run, this is workable.