Matthew Yglesias's Blog, page 2388

Endgame

It is you, my desert flower:

— Everybody's moving to Phoenix.

— "It predicted 2,000 deaths and $200 billion in damage from a 7.8 southern California quake on the San Andreas Fault."

— That would be ~30 times less powerful than the quake that hit Japan.

— Meltdown macro.

— The stumbles of Haley Barbour.

— If people thought American debt was getting riskier they wouldn't be buying it.

Going for Devotcha's "The Enemy Guns" in honor of a brief trip to Phoenix.

Still Waiting For The Budget Debate

Something frustrating both Your Humble Blogger and the Obama economic team is that the furious debating over continuing resolutions and the Fiscal Year 2011 appropriation is completely crowding out the actual debate about the federal budget deficit. That's because no matter what congress does or doesn't appropriate for FY 2011, we still need to do something about 2012, 2013, 2014, 2015, etc. The Obama administration addressed all these years in its annual budget proposal and the White House is still awaiting a response from Republicans.

When it came out, their generally tendency was to complain that Obama's proposals featured taxes that were too high and also a budget deficit that's too low. So the natural question to ask is—what's the alternative? And Republicans haven't answered the question. The closest thing we have to an answer came from Paul Ryan's budget roadmap, but his Social Security privatization plan would cause the deficit to go much higher than Obama's proposal in the medium term. And the rest of the caucus hasn't exactly leapt at the opportunity to embrace Ryan's Social Security privatization or his Medicare privatization or the substantial post-privatization Medicare cuts he's envisioning.

So the question is: What do they want? You can't get the deficit lower than Obama's target while extending the Bush tax cuts purely by defunding NPR. So is the plan to gut Medicare? I think the White House believes it has the most politically viable medium-term budget plan out there. But they can't win a debate on the budget unless a debate on the budget happens. This is something the press ought to be pushing congressional Republicans on. Fiscal Year 2011 only lasts for a few more months. What happens next? What happened to the Ryan Roadmap? The focus on short-term shutdowns and debt ceiling votes ignores the real fiscal question.

The Falling Price of Computer Power

This is the progress-making sector of the American economy:

Health insurance premiums, by contrast, are a lot higher than they were five years ago and it doesn't seem like we're getting more useful services in exchange.

Commerce Cabinet Crisis XVI: John T. Connor

Born in November of 1914, John T Connor was a young New York attorney in 1942 when he somehow found himself attached to one of the wartime Office of Scientific Research and Development medical branches working on pharmaceuticals. Specifically, he was involved in the logistics of coordinating penicillin production. After the war he worked for Navy Secretary James V. Forrestal in which capacity he "disassembled the military penicillin program and incorporated it into the private sector". Having done that for two years, Connor became a pioneer in the field of cashing in by signing up with Merck as General Counsel. In 1964, he co-chaired the National Independent Committee for Johnson-Humphrey, which I guess was a kind of front organization designed to showcase support for the ticket from eastern moderate Republicans.

With the election won, Johnson moved to replace JFK holdover cabinet members with his own guys, and thus did Connor become Commerce Secretary, inaugurating the concept of making this department a place to stash an important fundraiser from the business world. Typically for a Commerce Secretary, he didn't play a significant role in the formation of Johnson administration economic policy. These were, however, the years in which the Bretton-Woods system started running into trouble so one important Connor initiative was an effort to corral/cajole American businessmen into taking voluntary action to stem the flow of dollars out of the country.

An early opponent of the war in Vietnam, Connor ended up resigning in 1967 after proving unable to persuade the administration that the war was damaging the country's economy. Upon stepping down, Connor swiftly became CEO of Allied Chemical and then once Richard Nixon was in office he founded an organization called Business Executives Against the Vietnam War.

Means-Testing Social Security

It sounds a bit odd to say that Bill Gates is going to need a check from the government to keep him comfortable when he retires, so some form of "means-testing" is often proposed as a Social Security cure-all. There's something to this idea, but as Kathy Ruffing points out benefits for rich people amounts for a very small slice of overall Social Security spending:

This reflects the fact that not that many people are rich, and Social Security contributions are capped at around the $100k income level. If I had my druthers, I really wouldn't cut Social Security at all. If you're going reduce future tax increases by means-testing something, the thing to do is to impose Jason Furman-style cost sharing on Medicare so that it has a deductible that's defined as a share of income. But still under that plan you'd be meaningfully reducing benefits for middle class people in order to save any meaningful amount of money.

The Absurdity of Energy Independence

John Boehner, talking to Larry Kudlow last night, said the need for "energy independence" is a good reason to build nuclear reactors:

JOHN BOEHNER: –listen, I think we need– we need to take a step back– understand what happened, understand what changes have been made, and really understand what– what– what are the risk here. As we all know– Japan– sits– in– volcanic area– prone to earthquakes. You know, they have some 1,500 earthquakes a year. We've got parts of the United States– that have some inclination toward earthquakes. But, we have other parts of the country where there are– there's no threat. But, we need to learn those lessons. But, I don't think it should deter us– from trying to do everything we can– to move America toward energy independence.

Like almost all invocations of energy independence, this makes no dense. There are two things you'd like to see from energy. On the one hand, you'd like it to be plentiful and cheap. On the other hand, you'd like it be to clean and safe. Independence has nothing to do with it. If anything, various energy-related disasters—oil spills, reactor meltdowns, mine collapses—should emphasize the fact that producing energy isn't really a great line of work to be in. The good thing about a nuclear reactor is that it gets you electricity. The bad thing about a nuclear reactor is that there's a potential for disaster. Under the circumstances, there's nothing wrong with obtaining dirty, dangerous energy from a foreign country. In Denmark, their grid is networked with the Norwegian and Swedish power grids which allows them to draw on Swedish nuclear power and Norwegian hydro without there actually being nuclear plants or giant dams in Denmark. The foreignness of those energy sources is a benefit, not a cost.

Meanwhile, unless I'm mistaken our nuclear plants use plenty of imported uranium so the whole idea of obtaining nuclear autarky is off base anyway.

More Stimulus Needed

Brad DeLong points us to Jamie Chisholm of the FT: "Amid the panic, there is one asset class in demand: US government bond yields are tumbling as a safe harbour is sought. The yield on the 10-year benchmark, which at one point touched its lowest level since the start of December, is down 7 basis points to 3.30 per cent."

If America where anywhere within sight of full employment you'd just say "hey, good news, the government can finance its debt more cheaply." But with output and employment still well below potential this is the world's way of telling us that the US government should increase its borrowing and increase employment with new temporary spending or transfer payments. A lump-sum transfer to avert state layoffs (or even to allow maniacal rightwing governors to keep laying people off while cutting taxes) would seem to me to be just the thing.

The Cultural Cognition of Risk

Human beings are famously bad at doing probability calculations, so it's not surprising to learn that people often have ideas about risk that don't necessarily stand up to scrutiny. But according to the Mechanisms of Cultural Cognition Project from National Science Foundation and the Oscar M. Ruebhausen Fund at Yale Law School, there's a systematic valence to how we disagree about risk:

Individuals of diverse cultural outlooks–hierarchical and egalitarian, individualistic and communitarian–hold sharply opposed beliefs about a range of societal risks, including those associated with climate change, gun ownership, public health, and national security. Differences in these basic values exert substantially more influence over risk perceptions than does any other individual characteristic, including gender, race, socioeconomic status, education, and political ideology and party affiliation.

This is part of what makes politics so difficult. A hierarchical versus an egalitarian outlook have plenty of obvious political implications. Then layer different risk perceptions on top of that and it's extremely difficult to get agreement on anything. There's a ton of interesting stuff up on the website, including "Culture and Identity-Protective Cognition: Explaining the White Male Effect".

To Be Obvious For a Moment…

… it's worth stating, clearly, that there's nothing outrageous per se about canning PJ Crowley over his remarks on Bradley Manning. A spokesman is supposed to offer the party line. The party line in this case is just indefensible. But that's the problem.

Bahrain

I wish folks urging the United States to start a war in Libya would think a bit more about the situation in Bahrain: "The king of Bahrain declared a three-month state of emergency on Tuesday as more than 10,000 protesters marched on the Saudi Arabian embassy here to denounce a military intervention by Persian Gulf countries the day before."

I don't think the US military should attack Bahrain's forces or Saudi Arabia's any more than I think we should attack Libyas. But it seems overwhelmingly likely to me that if the Secretary of Defense were to call the relevant royal families and say that the United States does not intend to sell weapons in the future to countries that use them to crack down on peaceful democratic protestors, that this would be an important spur to political change. It'd be radically cheaper than a war with Libya and more effective than a war with Libya. If the answer is "well, America likes its client states just fine and doesn't actually care about human rights in Arab countries" then maybe that's all there is to say about it, but for people to run around the op-ed pages talking about no-fly zones in North Africa seems to me like it's dodging the real question here. My view is that despotism can hardly be expected to last in the Gulf forever so getting on the right side of inevitable change will serve any meaningful conception of interests just as well as trying to prolong the inevitable will.