Kevin Drum - July 2010

The GOP's Economic Nihilism

| Sun Jul. 25, 2010 11:56 PM EDT

Martin Wolf on the future of fiscal policy in America:


You should read the whole post. It's mostly a recap of the past 30 years of Republican economic nihilism, but it's a very clear, crisp recap. Wolf's conclusion is sobering:


Our best hope, I think, is that Republicans nominate a Palin/Ryan ticket in 2012 and then go down to such an epic defeat that they finally get some sense knocked into them. On the other hand, the last time that happened we got Richard Nixon out of the deal. So maybe we're just doomed no matter what.

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Liberalism and Big Business

| Sun Jul. 25, 2010 2:03 PM EDT

As part of my therapy regime to reduce the pain in my neck and shoulders, I've been trying to blog less on weekends. In fact, I've been trying to stay away from the keyboard entirely on weekends. That should be pretty easy for the rest of the day, which will be dedicated to setting up my mother's new computer, which might be bad for my sanity but probably good for my shoulders.

In the meantime, though, I see that his trip to Vegas has prompted Matt Yglesias to double down on his argument against corporate regulation. Here's the original version:

Regulate business to prevent negative environmental externalities, sure. Basic safety, okay. But the idea that what we need is for a bunch of people to get together and say that it would be better to ban this and that and the other capitalist act between consenting adults just strikes me as the wrong way of going about things. Purely economic regulation of this sort doesn’t have a compelling track record, runs into all kinds of Hayek-esque knowledge problems, and is basically an open invitation down the road for regulatory capture and the use of rules to prevent the emergence of competition. Count me out. For me, it’s all about higher taxes to finance more and better public services. That’s my brand of liberal economics — take the rich people’s money and use it to pay for stuff, don’t tell them what to do with the companies they run.

And here he is on Saturday, responding to my post about the increasingly popular practice of checking job applicants' credit scores before hiring them. At first, he says, this sounds good:

But at the same time I try to adhere to the principle I outlined here and resist the urge to call for regulating the business practices of private firms when the issue isn’t pollution or some other case where the externalities are clear. After all, it seems like either this credit check business is a sound business practice (in which case allowing it is making the economy more efficient and ultimately building a more prosperous tomorrow) or else it’s an unsound business practice (in which case competition should drive it out).

The more I think about this, the more it bothers me. Which is odd, in a way, since I'm not really a ravenous supporter of micro-regulating the business community. For example, I'd like to see labor unions spend more time negotiating pay and benefits and a lot less time negotiating the kind of stultifying work rules that drive managers crazy. I agree with conservatives that Sarbanes-Oxley went too far and probably ought to be scaled back. And I agree with Matt that local zoning regs often become little more than hammers for NIMBYism and soft corruption.

So I get where this is coming from. Still, there are some fundamental questions here about how we expect businesses to treat both employees and consumers, and not all of those questions can be reduced to dollars and cents and higher marginal tax rates. Partly this is because, practically speaking, the rich and powerful are — well, they're rich and powerful and will never allow marginal rates to get too high. Short of another major depression, this just isn't likely to change dramatically.

It's also because we've gotten beyond the point where higher tax rates are even feasible as a leveling mechanism. According to Piketty and Saez, the income of the top 1% in the U.S. has more than doubled in the past three decades and the income of the top 0.1% has quadrupled. This during a time when per capita GDP has increased about 50%. In order to tax these incomes down to anywhere near the trend rate of growth for the whole economy would require top marginal rates of 70-80% or higher. Not only is that politically infeasible, but rates like this would almost certainly hurt economic growth as well.

But this isn't my biggest concern. It's true that income inequality can be partly addressed by progressive taxation, though I'd much prefer to see it addressed at the source since a healthy economy is one in which everyone benefits, not one in which a small plutocracy hoards the wealth and then doles it out to the working class if and when it can be persuaded to do so. More important is the fact that we liberals shouldn't view the relationship between businesses and individuals as solely economic transactions. There are core questions here of human dignity and basic fairness that exist quite aside from money.

Here's an example. Back in 1968, Congress passed the Truth in Lending Act. Among other things, it made credit card companies liable for charges on stolen credit cards over $50. In a purely economic sense, there's really no excuse for this. Why should a card company be responsible for your carelessness? If you're dumb enough to let someone steal your card and run up thousands of dollars in charges, it ought to be your responsibility. It's ridiculous to make a bank — and by extension, its customers — subsidize the losses of individuals who can't take care of their own finances.

Today, this argument would almost certainly carry the day. Even most liberals wouldn't fight it. It's as if we've been brainwashed against arguing that we should do something purely because it represents the way we think people deserve to be treated. We need graphs and charts and dueling models of economic distribution instead. 

But as recently as 40 years ago we didn't allow ourselves to be defined purely as pseudo-economic actors. Yes, there's an element of moral hazard in the $50 rule: people won't be as careful with their cards if they know someone else pays the bill if they get stolen. But we also recognized that, in fact, ordinary people are careful with their wallets and their credit cards regardless. And being responsible for thousands of dollars in charges could ruin an ordinary person. In fact, merely the fear of being responsible for losses like that from an everyday transaction can be debilitating. Businesses, on the other hand, can handle it. They can spread the losses among their customers, they have the resources to work on ways to reduce credit card fraud (which they did), and they can treat this responsibility as an ordinary cost of business, not a nightmare waiting to happen.

That's worth a lot. How much in dollars, I couldn't say. But there are rules and regulations we should put in place purely because they represent the way we think people should be treated. Potential employers shouldn't have access to my credit record because that's something I think we should treat as private. Banks shouldn't be able to retroactively raise interest rates on credit card balances because that's something I think is fundamentally unfair. Pharmaceutical companies shouldn't be allowed to sell drugs that don't work (even if they're safe) because I don't think sick people should be treated that way. Restaurants shouldn't be allowed to run filthy kitchens on the theory that an occasional outbreak of food poisoning isn't worth the cost of prevention. Farmers shouldn't be allowed to pay migrant workers two dollars an hour in scrip because I think adult human beings deserve better than that even if (or maybe especially if) they're desperate. I can't necessarily justify any of these things on purely economic grounds, and even if I could I'm not sure I'd want to. Because that's not truly why I believe them.

Even on the left, I feel like we've allowed ourselves to buy far too heavily into the homo economicus model of human interaction. But if I can be allowed to put on my old school lefty hat for a moment, that model just doesn't work when the power relations are too far out of whack. And to a large extent, businesses simply have the whip hand on too many things today. When you sign a form from your doctor agreeing to send all complaints to arbitration instead of to the civil court system, this isn't really an agreement between consenting adults. Once the AMA has convinced enough doctors to require this of all their patients, you no longer have a choice. You either give up your legal rights or else you go without medical services.

The alternative, of course, is political, not economic: pass a law that says access to courts is a basic right that can't be taken away even if your doctor or your credit card company or your employer forces you to sign a piece of paper to the contrary. Pass a law that prohibits employers from checking credit scores — even if that's economically efficient in some technical sense — simply because individuals ought to have a certain zone of privacy in their personal affairs. Pass a law that outlaws no-doc liar loans because they're bad for the country regardless of whether individuals can make money from them.

I'm rambling. Sorry. I wish I knew how to write this kind of thing better. But I just wanted to get it off my chest anyway. Corporations aren't people, and they can perpetuate unsound and unfair business practices for a lot longer than you'd think — leaving plenty of misery and personal havoc in their wake. We're perfectly justified in requiring them to treat people decently even if we don't have an economic justification for it. We used to understand that better than we do today.

Quote of the Day: Mayberry Machiavellianism in Vegas

| Sat Jul. 24, 2010 2:26 PM EDT

From Jon Henke, tweeting from Right Online 2010, the conservative answer to Netroots Nation:

Everybody at #RO10 talks about limited government, but there is a frustrating lack of discussion of plausible policies to accomplish it.

I feel your pain, Jon. We on the left have noticed this too.

Friday Cat Blogging - 23 July 2010

| Fri Jul. 23, 2010 3:02 PM EDT








The Catch-22 of Credit Scores

| Fri Jul. 23, 2010 2:35 PM EDT





As they say, read the whole thing.


Race and Class

| Fri Jul. 23, 2010 1:31 PM EDT









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Quote of the Day: The Republican Agenda

| Fri Jul. 23, 2010 11:57 AM EDT




Obama and Climate Change

| Fri Jul. 23, 2010 11:18 AM EDT

Tim Dickinson has a long piece in Rolling Stone that largely blames the Obama administration for the collapse of climate legislation. The basic story is that the House passed a bill last year, but Obama decided to put his energy into healthcare reform instead, lost his 60-vote Senate majority a few months later, and then screwed the pooch by playing an insider game and blowing it:

Once again, however, the administration applied the same backroom approach it took to health care reform. Instead of waging a public debate to pit the American people against the corporate polluters, Obama gave the polluters a seat at the negotiating table....At first, climate advocates were resigned to the backroom deals, figuring they were necessary to achieve a greater good. "It looked like the only way to pass a bill," says a Senate staffer familiar with the negotiations, "was to make all of these horrendous compromises." But then the strategy backfired. "What that bill did was essentially write nuclear and coal into U.S. energy production for the next 10 to 20 years, instead of phasing them out," says Erich Pica, president of Friends of the Earth. "And it didn't pick up any Republicans whatsoever."

....The disaster in the Gulf should have been a critical turning point for global warming....But the Obama administration let the opportunity slip away. On June 15th, the president — a communicator whom even top Republican operatives rank above Reagan — sat at his desk to deliver his first address to the nation from the Oval Office. It was a terrible, teachable moment, one in which he could have connected the dots between the oil spewing into the Gulf and the planet-killing CO2 we spew every day into the atmosphere. But Obama never even mentioned the words "carbon" or "emissions" or "greenhouse" — not even the word "pollution."

In a technical sense, I just don't buy this. I thought Obama's Gulf speech was lousy too, but there's no way it was ever going to be some kind of "turning point" in the fight for climate legislation. This has been a pure vote whipping exercise from the start, and the votes were never there. Aside from common sense, there are two big pieces of evidence for this. First, the House climate bill, even after massive compromises, passed by only 219-212. That is, it won by one vote in a chamber where Democrats hold a 35-vote majority. Second, when Lisa Murkowski's bill to prohibit the EPA from regulating greenhouse gases came before the Senate, the vote against it was only 53-47. As Dickinson notes, six Democrats voted for it: Evan Bayh, Mary Landrieu, Blanche Lincoln, Mark Pryor, Ben Nelson, and Jay Rockefeller.

Aside from Lindsey Graham, there were never going to be any Republican votes for a climate bill. If we in the liberal community still haven't figured that out, we have rocks in our skulls. And it's almost certain that three or four of those six Democrats were simply unpersuadable too. Even a watered-down climate bill never had more than about 55 votes in the Senate, and even that's probably optimistic.

Still, Dickinson is right that Obama should have done more. Even if the bill lost anyway, he should have done more. It's his job, after all, to rally public opinion. But his unwillingness to do this is a mistake that goes back more than two years, not just a few months. Here's me back in 2008:

Make no mistake. Barack Obama's cap-and-trade plan to reduce carbon emissions may be technically one of the best we've ever seen, but it will raise energy prices. That's the whole point. So once the public understands that there's more to Obama's plan than green-collar jobs and serried ranks of windmills on the Great Plains, they're going to have second thoughts. And those congressional majorities, who face election in another couple of years, are going to have second thoughts too.

The right way to address this won't be found in any of Obama's white papers. There's a story there, if you dig deep enough, but it's long and complicated and relies on things like increased efficiency, consumer rebates, and R&D funding that pays off in another decade or so. In the short term someone is going to have to tell the public that, yes, there's some sacrifice required here, but it's worth it. Someone needs to come up with a garden-hose analogy to convince a financially stressed public that doing something for the common good is worth a small price.

That someone, of course, is Barack Obama, but it's not clear yet if he gets this. His speeches soar, but they rarely seem designed to move the nation in a specific direction. Is he pushing the public to support cap and trade even though it might cost them a few dollars? Or merely to vote for "change"? It's sometimes hard to tell.

The bully pulpit may be overrated, but even if it's not, it's a long game. FDR built up support for American intervention in Europe over years and years, and even at that it took the Japanese attack at Pearl Harbor to finally rally the country behind him. Obama's in the same situation. His problem isn't that he worked an inside game on Capitol Hill or gave a weak speech after the Gulf spill, the problem is that he's barely talked about climate change for years. Even if he had, the spark that it takes to get something done might still not have come. But without it, it will never come.

Lame Duck Hysteria

| Fri Jul. 23, 2010 1:48 AM EDT

Charles Krauthammer writes today about the latest fever dream making the rounds among conservatives: the possibility that even after taking a drubbing in the midterm elections, Democrats will use their existing majority for one last hurrah in a lame duck session during December:

Assuming the elections go as currently projected, Obama's follow-on reforms are dead. Except for the fact that a lame-duck session, freezing in place the lopsided Democratic majorities of November 2008, would be populated by dozens of Democratic members who had lost reelection (in addition to those retiring). They could then vote for anything — including measures they today shun as the midterms approach and their seats are threatened — because they would have nothing to lose. They would be unemployed. And playing along with Obama might even brighten the prospects for, say, an ambassadorship to a sunny Caribbean isle.

....Card check, which effectively abolishes the secret ballot in the workplace, is the fondest wish of a union movement to which Obama is highly beholden. Major tax hikes, possibly including a value-added tax, will undoubtedly be included in the recommendations of the president's debt commission, which conveniently reports by Dec. 1. And carbon taxes would be the newest version of the cap-and-trade legislation that has repeatedly failed to pass the current Congress — but enough dead men walking in a lame-duck session might switch and vote to put it over the top.

I'm just stonkered here. Don't get me wrong: I'd be cheering from the sidelines if I thought Democrats could do any of this stuff. But the last time I looked, legislation still has to be passed by both the House and the Senate. And the Senate has only 59 Democrats, many of whom aren't reliable votes in any kind of session, lame duck or otherwise. So as long as Republicans stick together — and they will — and continue to filibuster everything — and they will — nothing of any consequence will pass.

This could be different if Democrats had passed a budget resolution this year and included reconciliation instructions in it. In theory, they'd then be able to pass spending-related measures with only 51 votes. But they didn't do that, so they can't. They need 60. And they don't have it.

So here's my question: who's crazy here? All the conservatives yammering on about this? Or me? Am I missing something here? Are last year's reconciliation instructions still valid until the end of the congressional session? Help me out, Stan Collender. What's going on?

Week in Review, Boring Stuff Edition

| Thu Jul. 22, 2010 8:27 PM EDT

Although the political world has been consumed with Shirley Sherrod, JournoList, the Ground Zero mosque, and the New Black Panthers, it turns out a few other things happened this week too:

Just thought I'd mention it in case anyone is still paying attention.