Wednesday, November 3, 2010

The only reason I still care about politics: thoughts on the 2010 midterms

A couple thoughts on the midterm elections.

1. The system works just the way the founders wanted it to: the volatile House switches parties to reflect the fickle passions of the masses, while the Senate holds those passions in check. For the last two years, we Democrats have complained about the dysfunctional Senate and its progress-killing filibuster rule - and yet in the end, the Senate's built-in conservatism turns out to be the liberals' levy against a tide of un-reason. Or as James Madison put it, a buffer against the tendency of a more democratic body to "yield to the impulse of sudden and violent passions, and to be seduced by factious leaders into intemperate and pernicious resolutions." While I can't understand how the electorate can change its mind so quickly on who to vote for, the Founders anticipated this and built in safeguards against the will of the people. And in November 2010, at least, the Senate did its job.

2. But there's one problem beyond the founders' foresight, and that problem is global climate disruption. In general, I'm fine with the government staying out of things and letting people go about their business; the Founders did a great thing by setting up government to check itself. That was especially true when the chief problem they were trying to solve was that of tyranny.

But they largely solved that problem; tyranny, though a major problem in the 18th century, just isn't something we need to worry about anymore. When free health care is the worst thing the government can do to you, you know things are pretty good. The chief problem of THIS century, global climate disruption, is not one of too little freedom, but one of too much license to live irresponsibly. It's the one problem that's both big enough--truly big enough--to matter, and requires government to solve it. And for members of government to sell out God's earth to protect money-making (or ignorance) is an abomination of Biblical import.

Honestly, if it weren't for this issue, I probably wouldn't care about politics. Because the truth is, Republican or Democrat, life goes on. The economy will eventually get back on track. People will still fall in love. Babies will still be born, and kids will still play football. And all the while, asphyxiating carbon dioxide will still build up in the atmosphere, with potentially unimaginable consequences. And that's why I still care.

3. Apparently the only part of the American economy that's generating jobs is the CNN political newsroom. The funniest moment of the night (for me) was the first time I saw CNN's camera pan away from one panel of 8 political "experts" onto a second table of about 6 different "experts." Maybe if you get enough people who have no idea what they're talking about all shouting at the same time, you can confuse the audience into not fast-forwarding their DVR through the commercials.

4. The second funniest moment: on a break to commercial, the voice says "'Election Night in America' brought to you by Exxon Mobil." Seems to explain everything...

Monday, October 11, 2010

Build S***

You know what the trouble is? We used to make s*** in this country, build s***. Now we just put our hand in the next guy’s pocket.
- Frank Sobotka

Not much is more blue-collar and un-disagreeable-with than infrastructure. Roads, bridges, rail, water pipes, ports, smart grid – real stuff built by real Americans. It’s both the foundation on which the private economy rests, and the oil that allows it to run smoothly—and with most of it decades to centuries old, it’s time to upgrade. Ezra Klein has a great post on why it’s more important now than ever to invest in infrastructure:

The Council of Economic Advisers has a report (pdf) out today making the case for more infrastructure investment…

Lots of stimulus programs can create jobs. But infrastructure investment creates the right jobs, for the right people, doing the right things -- and at the right time. Or, to say it more clearly, infrastructure investment creates middle-class jobs for workers in a sector with high unemployment and it puts them to work doing something that we actually need done at a moment when doing it is cheaper than it ever will be again.


And then there are all the other arguments you've heard me make. Raw materials are cheap. Labor -- due to the high unemployment rate -- is cheap. Borrowing money is cheaper than at any time since the 1950s. And this is one sector where the normal deficit objections simply don't apply. "You run a deficit both when you borrow money and when you defer maintenance that needs to be done," Larry Summers told me. "Either way, you're imposing a cost on future generations." Not spending a dollar on infrastructure repairs today means we'll have to spend it tomorrow -- and by that time, it will cost more than a dollar. More so than anything else I can think of in the economy, infrastructure investment is win-win-win-win, and I'm not certain I've tacked enough "wins" on there.

That last point is especially important, because it neutralizes the typical “deficits bad” argument: we HAVE to repair our crumbling infrastructure at some point, so why not get it out of the way now when interest rates are low and borrowing is cheap? In fact, this is exactly what the private sector is doing, with companies like Microsoft issuing billions of dollars of debt at low interest rates even though they haven’t figured out what to spend it on yet besides share buybacks. That’s why deficit hawks would make terrible businessmen: because they’d never be willing to issue debt to finance investments.

I’ll add one more point of my own – this is the stuff that is unquestionably the role of government. No matter what you think about OTHER government interventions in the economy, even the most hard-nosed libertarian would never argue that natural monopolies like roads or utility lines should be wholly privatized.

So the arguments typically leveled against OTHER government spending, whether “government power bad” or “deficits bad,” simply do not apply to infrastructure spending. Like energy efficiency, it’s not just a win-win—it’s a win-win-win-win.

I’m sure extremists will still dream up ways to argue that the government should not spend money building roads and bridges, but for most of us, it’s the sort of no-brainer that everyone should be for.


Deficit hawks would make terrible businessmen

Yes, government creates jobs

Monday, October 4, 2010

Free Market Firemen Watch as Home Burns to Ground

Taxes sure suck… until your house catches on fire and you need taxpayer-funded firemen to put it out.

That’s the lesson an Obion County, TN family learned last week—whose house burned down as firefighters stood watching because the family hadn’t paid their $75 fire department fee:

Imagine your home catches fire but the local fire department won’t respond, then watches it burn. That’s exactly what happened to a local family tonight. A local neighborhood is furious after firefighters watched as an Obion County, Tennessee, home burned to the ground.

The homeowner, Gene Cranick, said he offered to pay whatever it would take for firefighters to put out the flames, but was told it was too late. They wouldn’t do anything to stop his house from burning. Each year, Obion County residents must pay $75 if they want fire protection from the city of South Fulton. But the Cranicks did not pay. The mayor said if homeowners don’t pay, they’re out of luck. This fire went on for hours because garden hoses just wouldn't put it out.

It wasn't until that fire spread to a neighbor's property, that anyone would respond. Turns out, the neighbor had paid the fee.

"I thought they'd come out and put it out, even if you hadn't paid your $75, but I was wrong," said Gene Cranick. [...]

We asked the mayor of South Fulton if the chief could have made an exception. “Anybody that’s not in the city of South Fulton, it’s a service we offer, either they accept it or they don’t,” Mayor David Crocker said.

And you know what? I almost agree with the mayor. The Cranicks took an irresponsible gamble that they could free ride off other people’s fire department fees… and they lost. If you don’t want to pay your taxes, don’t blame me when you get burned.

Almost. The only problem with this way of thinking is that fires don’t exactly stay put, and they don’t just harm the irresponsible people who don’t pay for fire protection. Check out the bold text above. The next door neighbor was responsible, paid his $75 fee so he’d be protected from fire… and yet saw his house catch fire anyway because his neighbors exercised their “freedom” to not pay a fire protection fee.

It’s a lesson on the limits of rugged individualism: you’re free to do whatever you want on your property, until the effects of whatever you’re doing spread onto my property (or into a commons like the atmosphere or ocean). And in today’s interconnected world, where we find ourselves increasingly at the mercy of actions taken by people we’ve never met, we’ve all got a bit more say in the risks others take, whether with fires, finance, or fossil fuels.

It’s why bailouts were necessary—not because we want to save an irresponsible few from the consequences of their actions, but because the actions of those few could have brought down the entire system. You wouldn’t let a boat sink to punish the captain for hitting an iceberg. Likewise, innocent businesses shouldn’t suffer to punish a few irresponsible financiers.

There’s also a global warming lesson here for Joe Romm. Because like fires, pollution doesn’t stay put—and like a fire spreading from your house to mine, as soon as the pollution leaves your property, I have every right to tell you to stop.

If my neighbor’s house catches fire, it could spread to mine—meaning I have a right to make that neighbor to pay for fire protection. If an Arkansas farmer dumps his farm waste into the Mississippi River, it travels down to the Gulf where it fertilizes algae and starves fish of oxygen—meaning that those fishermen have a say in what the farmer does with his waste (or else they must be compensated). And if a utility decides to burn coal to save money, the CO2 gets into the atmosphere and wreaks havoc on the climate other people depend on—meaning that we have a say in the utility’s choice of fuel.

I’m basically a libertarian: do what you want, as long as you only hurt yourself. I would be fine with other people’s right to burn coal and drive Hummers if they were the only ones who had to live with the consequences of global warming. But that’s not the world we live in. No matter how energy conscious I am, no matter whether I live close to work and don’t drive, my responsible choices can’t protect me or my children from the pollution-intensive lifestyles of others.

Like it or not, we’re all in this together. As the Cranick family found out, we now live in such close connection to others that one person’s rugged individualism can set his neighbor’s house on fire, mortgage loans in California can bring down banks in New York, and Hummer-driving soccer moms in Kansas can affect monsoon seasons in Bangladesh. And as soon as the CO2 exits someone else’s tailpipe and enters my atmosphere, it absolutely becomes my business.

Monday, September 20, 2010

Deficit hawks would make terrible businessmen: a simple explanation of how the stimulus package works to boost the economy

For anyone running a business, living within your means is overrated. Sometimes you have to spend money to make money—even when the money’s not there. The metaphor of a family balancing its budget around the kitchen table simply doesn’t apply to a business, because businesses (1) can borrow money at low cost, and (2) can use that borrowed money to make more money.

Think about it this way. If a family borrows money to buy a flat screen TV or granite countertops, it will eventually have to curtail consumption elsewhere to pay back the loan (as long as its income remains constant). After all, the money has to come from somewhere. There are a few exceptions—for example, borrowing money to pay for education, or borrowing money to insulate your house and cut your utility bills, both will provide a future cash flow with which to pay back the loan. But those are investments, not costs. And unless you’re using borrowed money to make more money, you’ll eventually have to cut back. (This is why home equity loans are a scam, as mortgage industry veterans I’ve spoken with readily admit—unless you sell your house, you won’t actually have the cash to pay back the loan.)

Unlike a family at the kitchen table, businesses—especially large ones—do not operate under these constraints, because businesses have access to credit. When a business wants to expand, it can borrow money from a bank or issue debt on the capital markets (e.g. sell bonds). Unlike granite countertops, business debt generates future cash flows (either by increasing revenues or reducing costs) out of which to pay off the debt—and hopefully leave some leftover for the business. For example, a business might issue bonds to finance new plant equipment that will produce more products, or to buy automation software that will reduce its operating costs. Even though the business's debt increases, both investments generate cash that can be used to pay back the debt. A CEO who looked out at his market and said, “well, there are a ton of customers out there waiting to buy our product, but I can’t hire salespeople to reach them because I don’t have the money” would be justly fired for failing to take advantage of his credit access (assuming he did indeed have access to credit).

In other words, if everyone lived within their means, the economy would never grow.

The federal government is more like a business than a family around the kitchen table, because the federal government can borrow money at exceptionally low interest rates, and use it to make investments that grow the economy—or at least prevent it from shrinking—and pay back the loans out of the increased tax revenue.

That’s the logic behind stimulus. In the days following Lehman, the economy was in danger of entering a self-fulfilling death spiral. Banks stopped lending, meaning that businesses couldn’t borrow cash to pay their workers or keep the lights on. Laid off workers—or workers in fear of future layoffs—stopped spending money, reducing businesses’ revenues and forcing them to lay off more workers, further reducing business’ revenues: a positive feedback loop. As incomes fell, the federal government would have taken in less in tax revenue, increasing the deficit. And if the recession turned into a multi-year depression, trillions of dollars in expected government revenues would have simply vanished—meaning that as high as the deficit is now, it would have been even bigger without stimulus.

So like any good businessman, Presidents Bush and Obama borrowed money to stop the economy from collapsing. They injected capital into banks to ensure lending could continue and companies could meet payroll. They bought products from companies who would have otherwise had to lay off workers. They sent unemployment checks to workers so they could continue buying food and basic necessities. And in doing so, they preserved government revenues which otherwise would not have been available to pay off debt. In other words, stimulus is not government spending—it is government investment.

Don’t believe me? Ask the market: 10-year Treasury bond yields are down below 2.75%, which means that the market believes there is a very low risk that the federal government will not pay them back. So free marketers are left in a very tight double bind: either government stimulus works, or the Market is wrong. Either way, the orthodoxy dies.


Yes, government creates jobs

Friday, September 17, 2010

Mike Huckabee inadvertently makes the case for health care reform

Mike Huckabee makes the case that health care reform is bad because covering people with pre-existing conditions is expensive for insurance companies:

"And a lot of this, it sounds so good, and it's such a warm message to say we're not gonna deny anyone from a preexisting condition. Look, I think that sounds terrific, but I want to ask you something from a common sense perspective. Suppose we applied that principle that you can just come along with whatever condition you have and we're gonna cover you at the same cost we're covering everybody else 'cause we wanna be fair. Okay, fine. Then let's do that with our property insurance. And you can call your insurance agent and say, 'I'd like to buy some insurance for my house.' He'd say, 'Tell me about your house.' 'Well sir, it burned down yesterday, but I'd like to insure it today.' And he'll say 'I'm sorry, but we can't insure it after it's already burned.' Well, no preexisting conditions.

"How would you like to be able to call your insurance agent for your car and say 'I want you to insure my car.' 'Well tell me about your car.' 'Well it was a pretty nice vehicle until my sixteen year-old boy wrecked it yesterday. [He] totaled the thing out but I'd like to get it insurance so we can get it replaced.' Now how much would a policy cost if it covered everything? About as much as it's gonna cost for health care in this country."

Actually, these analogies prove the case FOR health care reform. In the first place, this is exactly the reason the health reform bill contains the unpopular “individual mandate,” which requires every American to buy health insurance: if people are allowed to wait until after they get sick to buy insurance, of course everyone will do so, and the insurance industry will collapse. In other words, the health care reform bill already solves exactly the problem that Huckabee brings up.

But more fundamentally, Huckabee’s examples show why private insurance is not necessarily the best way to pay for health care in the first place. Just like home insurances companies don’t want to insure hurricane-prone houses in Florida because they are likely money losers, health insurance companies don’t like to insure people who are likely to need health care—because the insurer will have to pay for it. And do you really want to trust your health care to someone who has a profit motive to not give it to you?


Are Sarah Palin and Martin Feldstein closet universal health care supporters?

There's no money in selling insurance to sick people: more reasons free markets don't work in health care

WSJ inadvertently supports case for health care reform: do you want to trust your health to profit and loss?

The Catch-22 for Opponents of Health Care Reform

The Takeover: What opponents of health care reform don't get

Thursday, September 16, 2010

Mike Castle's loss: When what's good for the Democrats is bad for the country

By now you’ve heard that Mike Castle, the moderate Republican running in his party’s Senate primary in Delaware, was shockingly defeated by Tea Party radical Christine O’Donnell. The consensus in the Beltway is that this is great news for Democrats, as they now get to face off against a tax-evading lunatic instead of a two-time governor. Even Karl Rove was disappointed.

As a Democrat, you’d think I’d be thrilled. But I’m not. Because in this case, what’s good for Democrats is bad for the country. What this country needs isn’t more liberal Democrats—we need more moderate Republicans.

The problem is that as a smaller Republican Party becomes dominated by an increasing percentage of right-wing zealots, those zealots gain increasing power to pressure the few remaining moderates to toe the line on orthodoxy. Just look at John McCain, who as recently as 2008 supported cap-and-trade in his official campaign platform, and now calls it “cap-and-tax.” No Republican can work with Democrats in this climate, even on issues they AGREE on, because they’re afraid of being singled out for extermination.

As the Republican leadership pulls further rightward, it pulls rank-and-file voters with it, as voters change their views on the issues to align with the dominant views of the party they want to vote for. Decades of political science research shows that party identification is by far the number one driver of voting behavior — not issue positions or even liberal-conservative ideology. So as the party becomes more radical, some voters do indeed abandon ship, but the vast majority find themselves voting for more radical candidates, hence radicalizing their own views ex post facto to align with the choices they’ve found themselves making. (Which, incidentally, is why it’s absurd for politicians to change their views willy-nilly to match whatever they think voters want).

The media is no watchdog either, because it too views politics through the lens of party horserace and not ideology. If Republicans don’t support the President’s policies, the media automatically interprets this as a lack of bipartisanship on his part instead of his opponents’ radicalism. So when the Republican leadership opposes bread and butter measures like improvements to roads and bridges, these become “controversial government spending” instead of “common sense investments.” Heck, in this climate, if the President proposed giving little American flags to war widows, it would quickly become controversial.

But if just a few more moderate Republicans could slip in the door, they could form a critical mass that would give others the political cover to work with Democrats on common sense measures to move the country forward. If ten Republicans got together on cap-and-trade, it would no longer be a Democratic proposal—it would be a bipartisan one. But that’s just not possible with so few lonely moderates left.

Who knows, if the chance arose, I might vote for a moderate Republican over a liberal Democrat… if DC residents had a vote, that is.