Matthew Yglesias's Blog, page 2527

Planning For a World Without a North Korea

Fareed Zakaria has an excellent column asking what happens after North Korea falls: "And at that point, unless there is careful planning among South Korea, China and the United States, all hell will break loose."

Realistically, coping with the problem required careful planning and international coordination. Unfortunately, careful planning and international coordination aren't the kind of thing we're very likely to see emerge. Realistic talk about unification steps on too many political taboos in South Korea, Americans don't care enough, and the Chinese government has no real way to be credible in dialogue with the US or Korea.

So when the time comes, it's going to be a giant mess with terrible advance planning even though the eventual collapse of the DPRK is by no means an unpredictable event.

"Awakened" Sunnis Returning to Insurgency

Timothy Williams and Duraid Adnan suggest that the key security gains of the "surge" period in Iraq are starting to unravel:

Members of United States-allied Awakening Councils have quit or been dismissed from their positions in significant numbers in recent months, prey to an intensive recruitment campaign by the Sunni insurgency, according to government officials, current and former members of the Awakening and insurgents.

Although there are no firm figures, security and political officials say hundreds of the well-disciplined fighters — many of whom have gained extensive knowledge about the American military — appear to have rejoined Al Qaeda in Mesopotamia. Beyond that, officials say that even many of the Awakening fighters still on the Iraqi government payroll, possibly thousands of them, covertly aid the insurgency.

Which is all just to emphasize that nothing in Iraq has really been solved. We were able to stitch together some kind of peace and quiet that's allowing the United States military to withdraw while holding its head high and claiming victory, which is fine as far as it goes. Still, there's no genius "counterinsurgency" method here ready to be successfully deployed around the world.

"Privatizing"

Read Steve Benen on the madness of privatizing the VA health care system and the tea-fueled candidates who want to do it. Then come back over here for some neoliberal claptrap.

Right. So there's a lack of precision in the discourse around "privatization" of this or that that always bugs me. The classic case of privatization has to do with state-owned firms, which we largely never had in the United States. But many European countries had things like a state-owned airline or a state-owned phone company. In this case, "privatization" means you sell the firm. And then the state of play post-privatization is just that you have a private firm selling airplane tickets or telephone lines or whatever.

Oftentimes, though, we're talking about something pretty different. You sometimes hear that Denmark has privatized its fire fighting services. But that doesn't mean that Denmark just sold all the fire stations and has left it up to the free market whether or not fires are extinguished. On the contrary, Danish municipalities provide firefighting services to their residents. But instead of taking revenue and using it to hire firemen and buy fire trucks, they use the revenue to contract with a firm—Falck A/S is the largest—to provide firefighting services. Then the firm hires firemen and trucks and so forth.

If you're standing in England and proposing that the health care system be turned into something like Medicare, I think people would say that you're proposing "privatization" of health care. Instead of doctors and nurses working for the National Health Service they'll work for private firms and the government will contract with them to provide health care. But if you're standing in the United States and proposing that people under the age of 65 receive Medicare, then people would say that you're proposing "socialized medicine." What's happening, of course, is that Medicare represents socialized financing of health care and private provision—just like Danish firefighting.

Tett on Campaign Finance

Gillian Tett on campaign finance is interesting throughout. This is a provocative paragraph:

But more noteworthy than the numbers is the increasingly fierce emotion – and cognitive dissonance – that the issue of campaign finance stirs up. In theory, America is a country that prides itself on the idea that Congress serves "the people", not just the rich. Thus there is moral outrage over the concept of "buying the vote", and laws exist to prevent that: individual donations are capped; most donations need to be disclosed; and (until recently) companies could not give directly to politicians.

However, precisely because these detailed laws exist – and because campaigning is a very costly business, subject to a permanent type of inflation-cum-arms race – in recent decades America has developed myriad practices to enable that cash to flow indirectly. The result is a dense shadowy network of middlemen, rent-seekers and ambiguous institutions that are complex and inefficient; if not, downright odd.

One wonders what might happen if straightforward bribery—the depositing of funds directly into a candidate's personal bank account—were legal. Less rent-seeking, more efficiency. Candidates could choose to "self-finance" their campaigns out of the bribe pool, or else they might just go out and buy a fancy car. Forcing the principals to make these kind of tradeoffs internally might shed some light on how much money really "matters" in campaigns. Enhanced opportunities for personal enrichment via legislative office might attract a different caliber of people into the game—more greed and less egomania and lust for power.

Just a thought.

Alternatively, we could publicly finance campaigns like in a real country and enhance congress' ability to access legitimate staff expertise and analytical capacity rather than relying on lobbyists and trade groups to do the work.

Standing While Working

Coverage of the standing desk revolution in The Washington Post (via Tyler Cowen). I usually sit for about 1-2 hours in the workday, plus whatever comes up in meetings, and stand for the rest. It's pretty great. Back feels better, legs get stronger quickly, you burn somewhat more calories, and research (as detailed in the piece) seems to point toward some other benefits.

But I don't want people to be too put off by sentences like "GeekDesk, a California company that sells $800 desks raised by electric motors, says sales will triple this year." I'm sure GeekDesk's $800 electric motor desks are lovely, and maybe some day in the future I'll have the pleasure of trying one. But I started standing with a laptop perched on a stack of books, and am now using something that looks like a music stand or a little lectern.

Point being: If you want to stand up, I'm sure you can find a way. One good place to start is that many people (though not me) talk on the phone a fair amount at work. You should be able to do your phone calls while standing without any kind of special equipment and then see how you feel about it.

Degrees of Monetary Skepticism

I had a little exchange on Twitter yesterday about "monetary policy skeptics" that make me think it's useful to draw some distinctions.

In particular, I think going forward there's a need for more clarity between people who are "skeptical" in the sense of "skeptical that monetary policymakers will in fact do what's necessary" (this is the view of Atrios, Goldman Sachs' Jan Hatzius, etc.) and "skeptical" in the sense of "skeptical that monetary measures can be made to work" which I believe is the view of Mark Thoma and Dean Baker and others. This is important, among other things, because a lack of clarity on these points sometimes confuses people about what happened in Japan.

I heard from some readers, for example, that the Bank of Japan spent a lot of time trying to create inflation and failed. That's not really what happened. Instead, the Bank of Japan spent a fair amount of time trying to fight deflation and had limited but real success. They always indicated, however, that they wanted "price stability" not inflation and certainly not catchup level targeting of anything. This kind of stop/start policymaking does exactly what it's supposed to do—it prevents collapse without being unduly unorthodox—but it can't really lift the price level or the economy. But that's not to say policymakers don't have the ability to say that unorthodox measures will remain in place until full employment resumes. Thus far, in both Japan and the US, they've simply chosen not to do so.

The Prop 19 Train Wreck

Mark Kleiman has a good post explaining the inevitability of Eric Holder's stance on California's marijuana legalization proposition, and the ambiguities as to what will actually happen if it passes.

I agree with Kevin Drum that in many ways this is the best feature of the proposition, which otherwise suffers from a number of technical flaws typical of the policymaking-by-initiative process. At the end of the day there's a real need to revisit the underlying premise that regulating the availability of a moderately unhealthy recreational substance is something that needs to be done at the federal level. Especially given that this is a country where, in practice, police authority is overwhelmingly exercised at the state and local level I think it would make a lot of sense to decentralize policymaking on this front. But Congress isn't going to just take up the cause for no reason, only an atmosphere of crisis would prompt action.

Taxing the Future to Finance the Present

The answer to John Holbo's riddle is that the tax base should be oriented much more toward natural resources and consumption than it currently is. Taxing investment is in effect a way of taxing the future to pay for the present in a way that doesn't make a ton of sense when you think about compound growth. Taxing pollution and resource-consumption is the reverse. The atmosphere, for example, has a limited capacity to absorb greenhouse gas emissions without creating dangerous consequences for the planet. So people who want to use up some of that capacity should pay for the privilege. Taxation of this sort helps bolster what will be available for future people rather than reducing it. Similarly, the land area of the United States is more or less fixed so taxing the value of land in the present doesn't have any implications for what will be available to future people.

And more generally consumption taxes have the right feature here.

Traditionally the "left" position has been that taxing income is good because it's progressive and that regressive consumption taxes are bad. But there's really not much of a logistical barrier to levying a progressive tax on a consumption base. And compound economic growth is good from both a "left" and "right" perspective anyway, while for the truly vulnerable the most important thing is simply that the revenue base needs to be adequate to finance public services.

Helping Homeowners By Printing Money

Kevin Drum hits the nail on the head when it comes to the politics of averting foreclosures, something I think a remarkable number of progressive bloggers overlook:

The only other thing I can think of that the administration screwed up seriously is mortgage reform. Again, though, that would have been politically difficult even if they had played all their cards perfectly. Like it or not, the American public hates the idea of seeing their neighbors get bailed out from stupid mortgages. It makes them feel like saps: we scrimped and saved and bought a house we could afford and we're getting nothing. Joe and Betty down the street lived the high life, took out a NINJA loan they knew was way more than they could afford, and now they're getting a taxpayer-funded bailout and living easy. That's not a vote getter.

It's probably even worse than that. Across the board principal modification would have undone some optimistic accounting lurking on bank balance sheets and required additional government capital injections (read: bailouts) of large financial firms. I'm resolutely pro-bailout, of households and banks alike, but the public feels differently.

All that said, this is one of a number of reasons why I hope next time the world's large economies find themselves mired in recession with nominal interest rates near zero that we'll try to rely much more on the idea of money-financed fiscal policy to solve our problems. Specifically, take the "helicopter drop" scenario out of the thought-experiment world and put it into practice. Have the Fed print up a bunch of money, stuff it in envelops, and mail it out to the American people. It winds up working as a kind of universal bailout. People who happen to need help paying their mortgages can use the cash for that purpose. Similarly for folks behind on their credit card bills. And having folks pay their loans on time works as a "backdoor bailout" for troubled banks. Senior citizens and the really poor will just go out and spend the money on some kind of goods and services they need. The unemployed will get the benefits of an Unemployment Insurance extension, but without any disincentive to work hard at finding a new job. And non-poor, non-old, non-indebted people will either have the chance to splurge on some consumer goods they've been eying (stimulus!) or else if they just have a preference for thriftiness they can thriftily save the money and continue to feel self-righteous without needing to express that self-righteousness in terms of opposition to the idea of helping out people who need help.

I don't think helicopter drops can solve all our problems. There's still an urgent need to construct some automatic stabilizers that discourage pro-cyclical state and local budgetary practices. But I think watching the past two years' worth of politics and policy needs to make everyone pretty skeptical that congress is ever going to do a good job of adequately crafting fiscal stabilization policies on the fly.

Neo-Ricardian Notions

Tyler Cowen offers a "Ricardian thought in process":

In Ricardo's basic model there are diminishing rather than linear returns. Surplus accrues to the fixed factor, which is land. Labor earns some version of subsistence and the going rate of profit is piled on top of that. The productive difference between a piece of land, and the least valuable piece of land, accrues to each specific landlord as rent.

What if ideas rather than land are the fixed factor? Wages and profits stagnate. Some "idea landlords" receive enormous pecuniary returns, while others do not. The rate of invention is slowing down and indeed "patents per researcher" has been falling for a long time.

I like this first and foremost because it's an opportunity to link to Martin Wolf's article asking "Why Were Resources Expunged From Neo-Classical Economics?" making the case that it was a mistake of contemporary economics to abandon this Ricardian point about land in the first place. And, indeed, I would note that if you follow Wolf in expanding the concept of "land" to include "resources" more broadly you find that real estate and energy are well-represented on the Forbes 400 and five of the world's ten largest corporations are in the oil business.

But on the "ideas" front, this I think highlights some of the problems with our trend toward ever-stronger definitions of intellectual property rights. It's difficult to look at the growth in high-end income inequality in the United States and reach the conclusion that people lack adequate financial incentive to develop and exploit commercializable new ideas. But strong IP is not only an incentive to innovate, it also raises the cost of innovation. And I think there's a much more plausible case to be made that innovation is currently too hard to do than there is a case that innovation is insufficiently rewarded.