Matt Yglesias

The Incredible Fatuousness of Michael Steele

By Brian Beutler

When Ronald Reagan said “government is not a solution to our problem, government is the problem,” it was a pretty bold statement. And for its boldness it helped form the basis of a generation of Republican political dominance. Perhaps that’s why, faced with the end of that dominance, some are wondering if maybe, possibly, Reagan didn’t go far enough:

Steele couldn’t praise them enough, and at times, he was at a loss for words. “You and I know that in the history of mankind and womankind, government—federal, state or local—has never created one job,” he said. “It’s destroyed a lot of them.”

I guess that means that when he was the Lieutenant Governor of Maryland, he was unemployed. As were his staff members. As are, say, the 1.5 million or so active personnel in the Unite States armed forces. And so on and so on. All just as unemployed as the people who used to work for that great engine of job creation Lehman Brothers.

We all know whose interests most conservatives have in mind when they criticize the public sector. Sometimes it’s even defensible. As Matt notes below, there are functions that should be left to markets and functions that should be left to the government and functions where the choice isn’t all that clear yet, and when that’s the case we should experiment or debate or what have you. But you’d think that subtlety wouldn’t be lost on the new chairman of the Republican party, who, for some reason, thought it would be a good idea, on his first day out, to publicly insult the huge number of people who work for the largest employer in America.

The Case for Ever-Bigger Government

By Matthew Yglesias

Nobody on the left ever really talks about the issue of exactly how big we can envision big government getting down the road. So I’m glad Kevin Drum took this important subject on even though I don’t really agree with his answer:

I am, oddly enough, not really in favor of vastly increased funding for other social programs. Some increased funding is OK, but it should be kept under pretty strict scrutiny — and not just on the generic grounds that all spending ought to be monitored carefully to make sure it’s effective and pruned away when it’s not.

Here’s why. I’m obviously more open to high government spending than most conservatives, but even liberals think there’s a limit to how much of the economy ought to be under government control. Speaking for myself, I’d put that limit at 40-45% of GDP. Somewhere in the low 40s, anyway. Currently, total government spending (state/local/federal) is in the low 30s, which means we can afford to increase spending by about 10% of GDP. I figure that changes to Social Security will eat up about 2% of GDP and funding a true national healthcare plan will eat up around 7-8%. That doesn’t leave room for very much more, and even reductions in defense spending only give us another point or so to work with. So we should be pretty careful with other long-term spending commitments.

The way I think about this goes back to a root dispute I would have with the right about the nature of public sector work. A lot of people on the right point to things being done not-so-efficiently in the public sector and say—aha! government is inefficient, we need to let the market in. I look at it the other way around. Where markets work well—primarily in the field of producing consumer goods—they create incredibly efficiencies. But there are lots of fields of endeavor in which markets don’t work well. Since well-functioning markets are the best method we know of creating efficiency, this is a problem. It tends to leave those fields of endeavor plagued by certain kinds of inefficiencies. But since some of these things are very important, they wind up getting taken over by the public sector. Which is, yes, less efficient than the private sector. But not because the public sector “doesn’t work” and its responsibilities need to be turned over to the market but because the things that belong in the public sector are precisely those things for which turning it over to the market isn’t a realistic option.

Meanwhile, one needs to understand that, somewhat counterinuitively, when you have a very efficient economic sector what happens is that it tends to go away. Consider agriculture. Our modern-day agricultural technology is way better than what was available 200 years ago. But agricultural progress hasn’t meant that everyone goes to work in the super-charged high-tech agriculture of the future. It’s meant that more food than ever is grown with fewer person-hours of labor than ever. We should expect this to continue apace. For all the talk of trade’s impact on American manufacturing, the bigger issue has been automation and robots. But either way, even though people will continue to consume manufactured goods—just as we still eat—manufacturing will be a less-and-less important part of the economy. Not because manufacturing “isn’t important” but because it’ll get more efficient. And that’s how the whole private sector part of the economy will go. Markets, doing their work, will make those sectors more and more efficient leading them to shrink as a share of the overall economic pie.

What will be left is big government. Or, rather, bigger and bigger government. Teaching kids. Taking care of the elderly. Patrolling the streets. Making the SUPERTRAINS run on time. And it’s going to be fine.

Which isn’t to say we should crank spending up to 93 percent of GDP next year. But it does mean I don’t think we should set an arbitrary limit. And it also does mean that it’s always important to find ways to make the public sector more efficient and more effective. It can be done. Public agencies are better-and-worse managed and offer better-and-worse performance. But it’s difficult to do and it doesn’t happen automatically the way it does in a well-functioning market. And it also means, as I’ve been taking to saying lately, that we need to think about garnering more revenue in ways that have non-revenue benefits. For example, market-rate prices for street parking not only raise revenue, but allow for more efficient allocation of parking spaces. Similarly with congestion pricing on crowded roads. Auctioning carbon permits will keep the planet habitable and raise some money. Taxes on alcohol and sweeteners would have public health benefits. And on and on down the road.

The Deal with Judd

By Brian Beutler

So it looks like this is really about to happen. Here are my original thoughts on the move, but Dylan Matthews, a native New Hampshirean, insists that his Democratic governor, John Lynch, has deeply ingrained Broderish tendencies, and will appoint a Republican to replace Gregg, keeping the Democratic caucus one member shy of the elusive (and over-hyped) 60-vote majority.

Surely, I thought, there’s no way Obama would’ve made this move this without first seeking an assurance from Lynch that he’d appoint a Democrat to the seat. And perhaps Dylan’s wrong and he did. But there are a couple of other possibilities. One is that this is all a major bluff, and Obama’s buying Gregg’s vote on the stimulus by helping him scare Republicans in to thinking they might lose his seat.

The other is a bit more complicated. The Senate’s taking up the stimulus package on Monday, and a final vote should come shortly thereafter. Right now, 58 of the 99 seated members of the Senate are Democrats. Assuming Democratic unanimity (a big assumption) that means they need two Republicans to defect to get the stimulus past a cloture vote. If Gregg’s seat is vacant, they only need one. If Gregg’s seat is filled by somebody (Democrat or Republican) on strict orders to vote for it, they still only need one. It’s impossible to know exactly what’s going on, but it’s pretty clear that this whole charade is really about a single vote. And that means Obama the Democrats are at least somewhat worried that this thing really might not pass.

Let the Good Times Roll

By Brian Beutler

David Cho reports:

The Obama administration has finished drafting the central elements of its plan to rescue the financial markets and is gathering feedback from regulators and Wall Street executives, sources familiar with the matter said yesterday….In finalizing the plan, officials have made a policy decision that could dismay lawmakers. The administration is likely to refrain from imposing tougher restrictions on executive compensation at most firms receiving government aid but instead retain looser requirements initially included in the Treasury’s $700 billion rescue program, a source familiar with the deliberations said. Officials are concerned that harsh limits could discourage some firms from asking for aid.

Meet the new boss. You’ll recall that the “looser requirements initially included in the Treasury’s $700 billion rescue program” are the same ones that allowed bailed out banks on Wall Street to hand out $18 billion in bonuses to the very people whose combined efforts drove those banks into the ground. It’s worth repeating that $18 billion is a significant percentage of the total funds the government distributed to them, and that if the money had been loaned to other banks–for brief stretches at high interest–it would still be there, keeping them afloat. Instead, it’s gone.

Of course, there could (and should) have been stricter compensation requirements written in to TARP in the first place, to make it something like an opt-in emergency fund. That would have discouraged (at least to some extent) solvent banks from walking away with unnecessary taxpayer money, and had the ancillary benefit of isolating zombie institutions from those in greater health. Instead, Paulson forced all the major banks to take billions and billions of dollars. He sunk the cost. And now Obama officials believe (or say they believe) that imposing pay restrictions will lead executives to run their institutions (further) into the ground.

TARP could have been better in many ways, obviously, but this underscores once again one of the obvious advantages of short-term nationalization–that if the government controls the bankrupt companies, there’s no real need to hash out the terms of compensation restrictions, and, therefore, no cottage industry dedicated to finding loopholes in those provisions. But, in the words of our new Treasury Secretary, “we have a financial system that is run by private shareholders, managed by private institutions”. And that’s true, it seems, even if those institutions’ only value lies in the hope that the government will green light billions of dollars in upward wealth redistribution to their executives and shareholders.

Permanent Income Hypothesis

By Matthew Yglesias

Megan McArdle writes about a potential problem with stimuli:

The real question, I think, is how close the permanent income hypothesis is to being true. The basic idea is that people are forward looking, and they try to smooth their consumption over time. So if you give them a “temporary tax cut”, they save most of it, knowing that eventually they will have to give the money back.

But of course, this should also be true of “temporary government spending”–if people think the money won’t be there next year, they’ll salt as much of the money away as possible. This is a topic very underexplored in the various estimates of the stimulus multiplier, even though consumers are massively overleveraged and will presumably save as much of their new income as they can.

I think common sense tells us that the permanent income hypothesis is very far from being true. You could imagine an alien species whose psychology functioned this way. But that species wouldn’t have heavy smokers dying of cancer, problems with overreating and sedentary lifestyles. Voters belonging to that species would condemn governors who take advantage of boom times to cut taxes and hike spending—there would be massive popular pressure to sock it all away in a rainy day fund.

It’s clearly true that in the present situation people are saving more and spending less. But the reason can’t be that they’re perfectly forward-looking—the evidence for high rates of time preference and myopia is too overwhelming.

Greetings

by Ryan Avent

Let me also thank Matt for having me this week. In addition to being a SUPERTRAIN co-conspirator, Matt’s links have been crucial in building the audience for my little personal blog. I don’t know if that makes him my blogfather, but it was a really helpful. And I don’t know how my body reacts to bullets. My working assumption is — badly.

As Matt mentioned, I write about economics, but I also focus on urban planning and environmental issues. To save time, I usually try and cover all three at once. Like Brian, I’m amazed by Matt’s versatility and prolificacy, and I anticipate falling short of his standards on both counts. But hey, he got three of us, and he’ll probably be unable to resist putting up five posts a day of his own.

Anyway, glad to be writing for you. Hope you enjoy it.

Hello

By Brian Beutler

A hearty thanks to Matt for opening his site up to me. In addition to being an all around great and brilliant guy, Matt’s also my “blogfather” (or one of my blogfathers) and certainly one of the people who has most influenced my own approach to the medium. The bad news is that he’s much, much better at this game than I am. So you can expect my posts to be both less frequent and less insightful than his.

A bit about me: I like to write about politics, Congress, climate change and issues, like domestic surveillance and torture, at the nexus of national security and civil liberties. In the interest of shaming Petey, if such a thing is possible, it’s true: I’m not bulletproof. I, like Wolverine, am perfectly penetrable by bullets. Unlike Wolverine, unfortunately, it takes me a bit longer to heal.

Oh well.

At any rate, I’ll be focusing most of my attention on this site this week, but will probably check in at my own site from time to time. I hope some of you follow me there.

Scott McClellan: The White House Press Briefing is Obsolete

By Matthew Yglesias

Asked by TNR to offer some advice to White House Press Secretary Robert Gibbs, former Press Secretary Scott McClellan makes the provocative suggestion that the whole briefing ritual is passe:

My view is that the press-briefing model that is used now is kind of outdated. It ought to be more along the lines of the Pentagon briefing model, where you’re bringing in on a regular basis–maybe even two to three times a week–key officials from the White House or Cabinet secretaries to participate in these briefings and help educate the press and the public.

I agree with that. In terms of the basic briefing material, this could just as easily be emailed out to everyone on the press list. Meanwhile, the Q&A sessions that exist now are useless as a source of actual information. Reporters ask questions that they know perfectly well won’t be answered, and then the press secretary does his best to dodge him. Nine days out of ten, the result is a not-very-amusing spectacle for mid-day C-SPAN viewers. If the world is lucky, the Press Secretary commits some kind of gaffe. But nothing real is ever learned. McClellan’s idea, by contrast, holds some promise. The White House could bring out whoever they wanted. But the expectation would be clear—you brought these people out to talk about something in particular, and they’re really expected to talk about it.

I May Be Gone for Some Time….

By Matthew Yglesias

Gonna be traveling this coming week. So for your amusement and delight, I’ve gotten some guest bloggers to come on board and help fill the blog up with delicious, delicious content. First up, there’s Brian Beutler, bulletproof journalist and superblogger. Second, Kay Steiger, Associate Editor of CampusProgress.org and columnist at RH Reality Check. Last, there’s Ryan Avent, a journalist and economist who’s a regular contributor to The Economist’s Free Exchange blog and to Grist.

Needless to say, since my two hobbies are travel and blogging and I don’t intend to actually stop posting—I’ll just be cutting back a bit.

Glenn Beck’s HLN Replacement Allready Beating Him in the Ratings

It’s almost as if the public’s appetite for right-wing sociopaths has limits:

Jane Velez-Mitchell, the HLN host who replaced Glenn Beck when he jumped ship for Fox News, is already topping Beck’s ratings from when he held the time slot.

In its third full month on the air, “Issues with Jane Velez-Mitchell” posted HLN’s largest 7PM audience since it launched its primetime block in February 2005. For January 2009, “Issues” averaged 531,000 total viewers and 221,000 Adults 25-54, a 50% increase in total viewers and a 46% increase in the demo over Beck’s January 2008 ratings.

I have this crazy idea that if liberals were allowed on television outside of a two-hour block on MSNBC that some people might watch it.

Policy Solipsism: Broadband Policy Edition

If you ask me, one of the most disturbing trends in American public discourse is the incredibly provincialism and solipsism of a lot of our policy debate. The idea that other countries are doing better than we are in various ways is totally off the radar. Instead, when foreign countries are mentioned at all you get stuff like this:

“We have fundamental philosophical differences. We’re in an era of unfunded liabilities,” said John Culberson , R-Texas. “This stimulus is really a Trojan horse. It’s part of a plan that would turn the United States into France.”

France! A country so impoverished that its citizens are fleeing in droves, washing up on our shores desperate to experience the good life as it’s lived in suburban Houston.

I was reminded of that by this post from Tim Lee pointing out that broadband internet access in the United States is a lot better and cheaper than it was nine years ago so he “can’t get too upset about the possibility that in 2018 Americans might be limping along with 2 gbps broadband connections while the average Japanese family has a 20 gbps connection.” I, for one, am pretty upset about that possibility. The United States isn’t a poor country dealing with some objective shortfall of national resources. And yet across a whole variety of dimensions—from broadband speed to train quality to the cleanliness of streets to life expectancy to the crime rate—we fall far short of standards that are reached elsewhere. What we do have, on the other hand, is the richest multi-millionaires in the world. And an awful lot of people’s first instinct is to try to explain these things away or explain why it would be impossible to bring some of these quality of life features to the United States.

It seems to me people would do better to get more upset.

Reassemblable Modular Robot

And we get one step closer to the T-1000:

We’re going to need some more liquid steel.

Do Critics of Israeli Policy Whine Too Much?

When people criticize Israeli policy, or U.S. policy toward Israel, there’s an organized network of voices in the media and elsewhere who try to smear them as motivated by anti-semitism. The point of these tactics is not just to try to win an argument, but to actually frighten people who might otherwise be inclined to make such criticisms out of offering them. This smear gang used to be extremely effective across the board, but in recent years there’s been a lot of decline in its efficacy as regards the punditsphere, though it still succeeds in generating near-uniformity in the states views of elected officials and politicians.

Recently, Jon Chait’s been on a somewhat weird quest to simultaneously engage in some of this smearing while also saying that people should stop complaining about the smearing because it’s not as effective as it used to be. I haven’t really wanted to wade into the controversy surrounding his writing on this subject even though my name’s been kicked around a lot in the course of the controversy, because honestly I find the whole thing to be painfully “meta.” I’d much rather discuss what policy steps the United States ought to take in the region. But I basically endorse everything Eric Alterman has to say on the subject.

CORRECTION: To accuse Chait of “smearing” anyone here is much too strong. The New Republic publishes a lot of smear-oriented commentary on Israel’s critics, but Chait’s article and his writing on this subject more generally is much more restrained—I just disagree with his point of view and sense of what’s important in this debate.

Bush’s Cheese Tarriffs and the Trouble With “Buy American”

Via Tyler Cowen, a story about a trade war launched in the waning days of the Bush administration. On its own, this isn’t a very important issue to many people, but it illustrates a serious potential problem with including “Buy American” rules in the stimulus bill—a point to which I’ll eventually return. It seems that the European Union banned “U.S. beef containing hormones” (by which I assume they mean hormone additives, I take it that cows naturally have hormones). This, we felt, violated World Trade Organization rules. And thus entitled us to issue retaliatory tariffs on European products.

The way we do this is normally by slapping fees on imported luxury goods, because those normally aren’t inputs in U.S.-based production and don’t cause undue hardship on poor Americans. Thus, on January 13, U.S. Trade Representative Susan Schwab “imposed a 300 percent duty on Roquefort, in effect closing off the U.S. market.” Roquefort happens to be my favorite cheese. And the roquefort is not alone, the list of newly taxed goods “includes, among other things, French truffles, Irish oatmeal, Italian sparkling water and ‘fatty livers of ducks and geese,’ which apparently is how Washington trade bureaucrats say foie gras.” But the hammer’s come down unusually hard on roquefort:

But the cheese producers and sheep farmers around Roquefort do not see it that way. Only Roquefort got hit with such a high duty that it amounts to a ban, they complain. In their view, this unfairly undermines not only the economy of Roquefort, which depends entirely on cheese, but also the well-being of the 4,500 people who herd special ewes on 2,100 farms producing milk for Roquefort in a carefully defined oval grazing area across the Larzac Plain and up and down nearby hills and valleys.

The details of roquefort’s problem, the key issue is that in a “trade war” like this, everyone loses:

1. The Europeans won’t buy our beef. We’re mad.
2. So we refuse to buy their cheese.
3. This doesn’t help our cattle guys. But it does make me sad, since I love roquefort.
4. And it’s terrible for some French dairy farmers.
5. So maybe they’ll have enough political clout to persuade the Europeans to retaliate by refusing to buy a wider set of our goods.
6. At which point everyone is even more worse off.
7. Bad scene.

It’s a downward spiral of mutual retaliation that makes people on both sides of the Atlantic poorer.

Which brings us to the “buy American” concept. One problem with fiscal stimulus measures is that we don’t have a closed economy. So some of the increase in aggregate demand associated with a fiscal expansion will “leak” outside the borders of the country as the demand is met by imports. Indeed, a small open economy could conceivably reap all the benefits of a global trend toward stimulus without enacting any stimulus measures of its own. In other words, if the United States and Japan and China and Germany and the U.K. and France all enact big stimulus packages, the people of the Netherlands will reap some meaningful benefits even without spending any of their money. Under the circumstances, it’s natural that a big economy like the United States that can’t free ride might enact anti-leakage measure. That, in essence, is the purpose of “buy American” provisions in a stimulus bill. It’s an effort to ensure that the money spent actually goes to help Americans.

On its own terms, this is a perfectly reasonable idea. But European governments wouldn’t take it lying down. As in the case of the beef-cheese trade war, if we act like this they’re going to retaliate with measures aimed at hurting our producers. The we’ll have to think of further measures to hurt their producers. And much the same would apply to Japan and Chinese. This cycle of mutual recriminations will ultimately leave us worse off than we would have been if we’d just let the leakage happen.

What’s needed is a more direct solution to the leakage problem. We need international cooperation to ensure that all the substantial countries are pulling their weight in terms of reviving the global economy. Then we need to accept that, yes, some of our stimulus will leak out, but some foreign stimulus will leak in and it should roughly equal out in the end.

Booze Taxes and Booze Regulations

The other day I wrote a not-very-popular post making the point that a higher tax on alcohol would be a boon to public health and crime control, a way of raising some revenue that would provide a net boost to the economy rather than a drag like an income tax. Thinking more about this, it’s worth observing that our current low-tax environment has hardly created a free market in intoxicating beverages. On the contrary, getting your drink on is—at the retail level—one of the most regulated enterprises in everyday life.

Just about everywhere, you need a special license of some kind to see booze. In many states, you can only buy liquor from state-run monopolies. In Pennsylvania, you can’t buy beer in stores. In New York, you can’t buy beer in liquor stores. Here in DC there’s a tendency for very mediocre drinking establishments to be incredibly crowded simply because there are immense regulatory hurdles to opening a new bar. And read Radley Balko on the evils of beer distributors.

All these rules and regulations add up to alcoholic beverages being more expensive and more inconvenient to obtain than they would be in a less-regulated world. But whereas with a tax on alcohol the government would get its hands on revenue that could be spent on valuable social services, the increased cost associated with these regulations is just an overall loss. As for whether or not it makes sense to try to increase the retail price of booze, that’s neither here nor there. But insofar as we’re doing something in this neighborhood I would much rather act through taxes than through scattershot and arbitrary regulatory schemes.

Waxman: Yes We Can Reform Health Care This Year

To add to what Jonathan Cohn says here, part of the significance of House Energy and Commerce Chairman Henry Waxman vowing to do health care reform this year is that he’s implicitly rejecting the common notion that progressives need to choose between action on health care and action on climate change. Those have clearly been the two big domestic priorities for a hypothetical progressive majority in 2009 for a couple of years now, and there’s kind of been an implicit tug-o-war between them. Waxman has a history as a health care reformer from the pre-1994 days. But he’s also one of the House’s leading environmentalists, and spearheaded a successful challenge to John Dingell for control of the committee specifically in order to move climate legislation.

By making these remarks, Waxman is signaling that he doesn’t see a need to choose. He thinks the House, at least, can take major action on both fronts. The Senate, clearly, is a harder hill to climb. But even keeping that in mind, I think this is the right instinct. There’s not a really a fixed sum of political capital that gets spent down. Instead, there’s an issue of whether or not the public mood and the mood on the Hill are conducive to big reforms. If they are, then you do as many big reforms as you can. If they’re not, then you’re screwed.

John McCain, Dittohead

That Rush Limbaugh is loathesome can, I think, be taken for granted. But as we’ve been having occasion to note recently, to a really striking extent conservative politicians everywhere are taking their marching orders on policy and legislative strategy from a boorish and occasionally drug-addled talk radio host. Even John McCain, who a lot of people thought would go back to his maverick schtick of 2001-2003 vintage after losing the election, is standing firmly behind Rush:

I don’t know why he would do that. Mr. Limbaugh is a voice of a significant portion of our conservative movement in America. He has a very wide viewing audience. He is entitled to his views, and he has a lot of people who listen very carefully to him. I don’t know why that the President would take him on. He’s part of the political landscape, and he plays a role.

Needless to say, it’s precisely because Limbaugh is a part of the political landscape that people feel compelled to take him on. Meanwhile, Obama’s point wasn’t that Limbaugh isn’t entitled to his views. His point was that if Republicans want to be constructive partners in dealing with the economic crisis, they need to go beyond their current posture of slavish adherence to Rushism. After all, this is a guy who’s said he’s actively hoping for the administration to fail.

What “Belongs” In the Stimulus?

I saw Senator Ben Nelson (”D”-Nebraska) on teevee earlier today objecting to the fact that the economic recovery plan contains money for things like Pell Grants and other programs Democrats like that, he said, were worthy in their own terms but didn’t “belong in the stimulus plan.” David Brooks offers similar concerns in today’s New York Times column, complaining about “big increases for Pell Grants, alternative energy subsidies and health and entitlement spending” and arguing:

The best course is to return to the original Summers parameters — temporary, targeted and timely — thus making the stimulus cleaner and faster.

Strip out the permanent government programs. Many of them are worthy, but we can have that debate another day.

A few points in response to the Brooks/Nelson objections. One is that this sort of thing really does need to be kept in perspective. The stimulus bill is huge. It’s huge because the macroeconomic situation requires a huge stimulus. The stimulus bill is also multi-faceted. And it needs to be multifaceted because it’s so huge. Targeted tax cuts can be good stimulus, but you can’t do $850 billion of well-targeted tax cuts. Infrastructure can be good stimulus, but you can’t do $850 billion of good infrastructure projects. Long story short, the grab-bag character of the stimulus is a feature rather than a bug. Now, boring down into the bag you can find some specific spending provisions that probably are mistakes. Elsewhere in the piece Brooks singles out Head Start expansion as not such a hot idea. And my understanding is that he’s basically right—it would be better to target early childhood spending on Community Development Block Grants to allow child care services to keep running, and on construction of new facilities for early childhood programs. The existence of these kind of problems are good reason to hope that the Senate version of the bill is improved on these fronts. It’s also a good reason to push the future conference committee to fix these problems. But this is a pretty piece of the overall puzzle. The existence of a handful of sub-optimal provisions in an enormous program does not justify the kind of irresponsibility shown by the House members who voted against the overall package. The House version of the stimulus isn’t perfect, but it’s way better than doing nothing and way better than Jim DeMint’s Dr. Evil stimulus.

Second, with a lot of this stuff whether or not it really “belongs in the stimulus” seems irrelevant to me. If you have a program that actually is worthy, then funding it will make the country better, whether or not it truly “belongs” in the stimulus. If you have a program that’s worthy, and that doesn’t really belong in the stimulus, and you have a Republican who doesn’t think the program is worthy, and he’d be willing to vote for the stimulus if you stripped that program from the bill, then it seems to me that you have a decent case for dropping a worthy program. But if you’re Ben Nelson and you think the program is worthy, then why not just support the worthy program? It’s true that doing so doesn’t fit a perfectly pristine notion of how the legislative process should work, but anytime the process is working in favor of worthy programs rather than crappy ones, that’s a lot better than the normal functioning of the legislative process.

Meanwhile, as Matt Corley observes, there’s a decent case to be made that some of the stuff Nelson objects to—including higher NIH funding and money for Pell Grants—actually are a good use of stimulus funds.

Dennis Ross is So Very Special

A few Dennis Ross items. One — Greg Sargent reports that his appointment to some kind of Iran envoy gig is still on track despite the fact that the announcement keeps getting delayed. Two — Mike Crowley reports that “the holdup has nothing to do with Ross — but rather the fact that the administration hasn’t quite decided on its early public positioning and rhetoric towards Iran.” Three — Ross was initially rumored to be in line for a post with broader responsibilities than just Iran, but then it got whittled down, but Greg says it’s been whittled back up. Three — The Washington Post reminds us that Ross doesn’t actually favor sending an envoy to Iran:

“Keeping it completely private would protect each side from premature exposure and would not require either side to publicly explain such a move before it was ready,” Ross wrote in a lengthy paper, titled “Diplomatic Strategies for Dealing With Iran,” published by the Center for a New American Security in September. “It would strike the Iranians as more significant and dramatic than either working through the Europeans or non-officials — something that is quite familiar.”

Ross said the United States should ask the Iranian representative during the private talks to explain how his government sees U.S. goals toward Iran and how Iran thinks the United States perceives Iranian goals. The purpose of this dialogue, he wrote, is to “find a way to show the Iranians that we are prepared to listen and to try to understand Iranian concerns and respond to them, but ultimately no progress can be made if our concerns cannot also be understood and addressed.”

This all adds up to Spencer Ackerman’s question of what the heck is an “Iran envoy” for anyway? The difference between Richard Holbrooke, special envoy, and our ambassadors to Pakistan and Afghanistan is that his ambit covers both countries. Similarly, George Mitchell’s not just an ambassador to Israel, he’s an envoy charged with facilitating diplomacy between Israel and its neighbors. But if our envoy to Iran only goes to Iran, then why isn’t he just an ambassador? And if he’s not even going to go to Iran, then what’s he doing at all? And if talks are going to be done in secret, then why publicly appoint someone to be in charge of secret talks? And to reiterate my earlier concerns, it seems to me that the official charged with negotiating with Iran over its nuclear program should have expertise in either Iran or else in disarmament negotiations.

I’m going to suggest that this whole Ross-Iran idea doesn’t really make sense—the job Ross is well-suited to is Mitchell’s job. But Obama, wisely, decided to go with Mitchell rather than retreading with Ross. The Iran issue is, however, important in its own right. And it should be given to the right man. Not given to Ross to use as a platform from which to not negotiate with Iran, while meddling in vaguely defined ways throughout the region.

Former Cole Commander: Damn the Human Rights — Full Speed Ahead

The former commander of the U.S.S. Cole is none too happy with Barack Obama’s efforts to return the United States to the rule of law and the international community:

The former commander of the USS Cole, the American war ship that was struck by a suicide boat in Yemeni waters more than eight years ago, on Thursday slammed President Barack Obama’s orders to close the Guantanamo detention center and reassess the prisoners being held there.

”We shouldn’t make policy decisions based on human rights and legal advocacy groups,” retired U.S. Navy Cmdr. Kurt Lippold said in a telephone interview. “We should consider what is best for the American people, which is not to jeopardize those who are fighting the war on terror — or even more adversely impact the families who have already suffered loses as a result of the war.”

With respect, this is just wrong. I am one who believes that international relations should be largely understood through the lens of interests. But there’s still such a thing as right and wrong. And we should, in fact, make adequate respect for the law and for human rights an important priority when making our policy decisions. Over the long run, Americans will much prefer to live in a world governed by law and human rights than one of chaos and brutality. And other countries will be better-disposed to our national power and leading global role insofar as they see us upholding humane values and basic decency. Besides which, it’s the right thing to do.

Yglesias on Maddow

I was on the Rachel Maddow show last night talking about the stimulus:

I think the House Republicans made clear that several concessions were made to them both in advance and during the debate over the bill, still none of them voted for it. You can see that as a party as an institution, the Republicans and the conservative movement aren’t really interested in cooperating.

We go on to talk about what may happen going forward. Watch the whole thing:

Hopefully won’t be the last time.

Health Reform is Budget Reform

My colleague Igor Volsky tells me that at a health policy forum for bloggers this morning Ron Pollack from Families USA was questioning policymakers’ commitment to health care reform. They might, he thought, want to focus on other things like bringing the budget deficit under control. This is essentially what Alice Rivlin was saying policymakers should do yesterday. I don’t think this really makes sense. You can’t separate the dysfunction in the health care system from the country’s long-term structural deficit. A poorly performing health care sector is both retarding economic growth (exacerbating budgetary problems) and imposing huge direct costs on the public sector. Let me nab a couple of bullet points from a recent Congressional Budget Office inquiry into the situation:

• The rising costs of health care and health insurance pose a serious threat to the future fiscal condition of the United States. Under current policies, CBO projects that federal spending on Medicare and Medicaid will rise from about 4 percent of gross domestic product (GDP) in 2009 to nearly 6 percent in 2019 and 12 percent by 2050.
• Most of that increase will result from rising per capita costs, rather than from the aging of the population.
• Those problems cannot be solved without making major changes in the financing or provision of health insurance and health care. In considering such changes, policymakers face difficult trade-offs between the objectives of expanding insurance coverage and controlling both federal spending and total costs for health care.
• In many cases, the current health care system does not give doctors, hospitals, and other providers of health care incentives to control costs. Significantly reducing the level or slowing the growth of health care spending would require substantial changes in those incentives.

There’s a genuine tension between giving health care services to more people and controlling costs. But in a broader sense, getting the budget under control and expanding coverage both depend on creating a more efficient health care sector. The looking budget crisis isn’t a reason to delay action on health care, it’s a reason to avoid delay.

The Trouble with Government-Subsidized Banks

Alex Tabarrok links to a new paper examining the “political credit cycle” in India, where there are many state-owned banks:

This paper integrates theories of political budget cycles with theories of tactical electoral redistribution to test for political capture in a novel way. Studying banks in India, I find that government-owned bank lending tracks the electoral cycle, with agricultural credit increasing by 5-10 percentage points in an election year. There is significant cross-sectional targeting, with large increases in districts in which the election is particularly close. This targeting does not occur in non-election years, or in private bank lending. I show capture is costly: elections affect loan repayment, and election year credit booms do not measurably affect agricultural output.

Tabarrok asks “Need I explain the relevance?” To me, the relevance does merit some explication. The most immediate relevance is that I think this counts as a legitimate reason to be wary of the prospect of government-owned banks and therefore to make us skeptical about bank nationalization. But it’s important to understand that the reason nationalization is being discussed is that more mainstream debate keeps coming around to the idea of handing private banks a multi-trillion dollar subsidy. The contention isn’t that government-owned banks is a good idea. The contention is that nationalization is a better idea than the “free money for bank owners” plan. And note that this exact same problem of a political credit cycle would arise in a situation wherein banks are privately owned, but dependent on government subsidies to stay in business. Indeed, I would argue that subsidies probably pose a bigger danger.

When the Swedes nationalized their banks, they set up the state-owned entity Securum as a fairly independent agency with a clear mandate to maximize shareholder value. That mission—shareholder value—is precisely what would prevent a political credit cycle. But if privately owned banks are going to be financing their activity with public funds, it’s going to be extremely difficult to make the case that the banks deserve to be insulated from public pressure. Managers of a publicly owned bank who come under criticism for profit-maximizing behavior, can defend their independence by saying that their job is ultimately to earn back as much of the taxpayers’ money as possible. I’m not sure what a privately owned, publicly funded bank could say on its own behalf.

Again, this isn’t to deny that bank nationalization is problematic. It’s very problematic and we ought to act swiftly to reprivatize any nationalized banks. But across a wide swathe of dimensions, it’s less problematic than the main alternative.

The DeMint “Plan” — Fewer Jobs, Slower Growth, More Money for Rich People

The Heritage Foundation’s Michael Franc, who I had the pleasure of debating last weekend on C-SPAN, can barely contain his enthusiasm over Jim DeMint’s plan to save the economy by extending Bush’s policies:

DeMint plans to offer a pro-growth alternative plan, one that generates so many new jobs it practically short-circuited Heritage’s econometric model when we analyzed it. It already boasts the support of two key Senate Republicans — Sens. Mitch McConnell (R., Ky.), the Minority Leader, and Thad Cochran (R., Miss.), the senior Republican appropriator. His plan would drop the top marginal tax rate to 25% on wage earners, mom-and-pop business owners, and other employers, maintain the top rate on investment income at 15%, keep the children’s tax credit at $1,000, and impose a modest 15% tax on estates valued over $5 million.

Once our model cooled down, we learned the DeMint plan would lead to the creation of 1.3 million new jobs in 2010, 7.5 million by 2013, and an astounding 18 million within ten years. Residential and commercial real estate activity would also soar, by almost $300 billion over 5 years.

DeMint says his plan was actually just based on the Heritage stimulus proposal, so it’s not really clear why Franc would be surprised that it did so well on Heritage’s own model. Or, rather, it’s clear that Franc is just screwing around with people and not offering serious commentary. Meanwhile, “1.3 million” sounds like a large number, but it’s actually ridiculously low. Call it the Doctor Evil stimulus:

The trouble is that for job growth to keep pace with population growth, we need to add 1.5–1.6 million new jobs every year. To get a labor market recovery off the ground after well over a year of job losses, we need the pace of job growth to be considerably faster than that. DeMint’s promise of 1.3 million jobs is a promise to keep recessionary conditions going through 2010. Meanwhile, even the Bush administration Treasury Department has conceded that large, unfunded, permanent tax cuts of the sort DeMint is proposing result in slower long-run growth. Because DeMint’s plan is so generous to the richest Americans, they may well wind up better off under his slow-growth scenario than they would be under more balanced policies. But middle class Americans would be much better served by a policy that brings about more rapid recovery—the Romer-Bernstein number for the Obama plan is 3.7 million jobs instead of DeMint’s 1.3 million—and that lays the foundation for long-term growth by avoiding the sort of huge long-run deficits that DeMint’s plan would guarantee.

Samantha Power Tapped for NSC Post

Pulitzer prize winning author and primary-era Obama adviser Samantha Power has been tapped for a job on the National Security Council as senior director for multilateral affairs. NSC job descriptions get a little hazy, but she’ll be joining a very strong emerging team on the NSC staff that includes Denis McDonough, Mara Rudman, and Mark Lippert as well as General Jones at the top of the pyramid. Among other things, Power recommends that you buy and read Heads in the Sand.