Kevin Drum - September 2011

Europe Fiddles While Greece Crumbles

| Wed Sep. 21, 2011 9:47 AM EDT

Martin Wolf writes today about the crisis in the eurozone. I'm not sure he'd put things quite this way, but here's my shortened version:

  1. Greece cannot pay its debts. Period. It has no choice but to default.
  2. Once it defaults, it will be unable to borrow and it will be forced to cut spending even more than it has already. This will damage its economy further, which in turn will reduce tax revenues, which will require further spending cuts, which will damage its economy further, et cetera without end.
  3. This is obviously unacceptable. The only answer for Greece would be to exit the euro and devalue its currency. As painful as this would be, it would almost certainly be regarded as preferable to years or decades of economic collapse.
  4. But Greek exit from the euro would cause staggering damage to the rest of Europe and its banking system — far, far more damage than they'd suffer from merely increasing their bailout of Greece. See Wolf's column for more on this. It must be avoided at all costs.
  5. Thus, the only option left is for Europe to prop up Greece for years. For all practical purposes, this doesn't mean loaning Greece money, it means giving Greece money. Lots of it.

Europe has not yet truly faced up to the fact that #5 is really their only option. It's infuriating, the public hates it, and Europe's political leaders want no part of it. But as Wolf says, "The eurozone then cannot stay where it is, cannot undo what it has done and finds it traumatic to go forward. But the very notion of exit is destabilising. They made it; and they must now make it work." Like Wolf, I don't think they have any choice. The only question is how far past the 11th hour they'll go before finally accepting this.

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Endless War Becomes Ever More Endless

| Wed Sep. 21, 2011 9:04 AM EDT

The Obama administration plans to step up its attacks against the Taliban in Pakistan whether Pakistan likes it or not:

In what amounts to an ultimatum, administration officials have indicated that the United States will act unilaterally if Pakistan does not comply. White House officials and Defense Secretary Leon E. Panetta are said to be adamant in their determination to change the approach, according to officials who spoke on the condition of anonymity about internal administration deliberations.


In related news, the Obama administration is stepping up its drone attacks in Yemen and Somalia:



I guess this must be part of Obama's policy of appeasement in Africa and the Middle East that I've heard so much about recently.

GOP to Country: Drop Dead

| Wed Sep. 21, 2011 12:25 AM EDT


First up is a letter from the Republican leadership to Ben Bernanke that ominously warns him to "resist further extraordinary intervention in the U.S. economy." This comes on the same day that the IMF slashed its estimate of economic growth for 2011 and 2012 to an almost recession-like 1.5% — precisely the time that the Fed probably should carry out a few extraordinary interventions in the economy.

The Fed, of course, is traditionally supposed to be left free of political influence. But there's an election coming up and, as Stan puts it, the GOP sees economic hardship "as the path to election glory this November":


....My question: If Rick Perry — one of the wanna-be GOP candidates for president — says that Bernanke's actions to date have been treasonous, what do you call today's Republican demand that the federal agency with the legal responsibility and the potential power to help GDP grow and unemployment to fall not do anything to help the American economy?

What do you call this? Well, as of yesterday, you can call it politics as usual.

Next up is a legislative norm arcane enough that I'd never heard of it. Apparently the Republican leadership is planning to hold off on approving a budget even though the spending levels for FY2012 have already been agreed to. Instead they're going to pass only a short-term continuing resolution. Why? There's really no good reason. They just want another chance to hold the White House hostage:



Them's the breaks, suckers. It was a nice tradition while it lasted. And keep in mind that the week is young. There's no reason that Boehner and company should be satisfied with exploding only two norms this week. There might be more yet to come.

Lies, Damn Lies, and Average Tax Rates

| Tue Sep. 20, 2011 9:59 PM EDT

President Obama has proposed that we enact some version of the "Buffett Rule," which would ensure that millionaires pay at least the same tax rate as middle class workers. But do millionaires really pay lower rates than truck drivers in the first place? The AP fact checks Obama's claim and finds it wanting:

On average, the wealthiest people in America pay a lot more taxes than the middle class or the poor, according to private and government data....This year, households making more than $1 million will pay an average of 29.1 percent of their income in federal taxes....In 2009, taxpayers who made $1 million or more paid on average 24.4 percent of their income in federal income taxes, according to the IRS.

Hmmm. There's an awful lot of averages there. But you need to be pretty careful with that stuff. The average household income in Redmond, Washington, is $66,000, but that doesn't mean Bill Gates is pinching pennies to save up a down payment for his next car.



Did Obama Get Rolled?

| Tue Sep. 20, 2011 7:31 PM EDT

Was Barack Obama a naive waif who came to Washington untested and unready, and then struggled to control his White House staff? That's the portrait Ron Suskind paints, and to a certain extent I imagine it's true. In fact, I imagine it's true of every president. There's just no training position for the presidency, and no one walks into the job fully prepared.

But that said, how does Obama compare to other presidents? After all, every White House features plenty of chaos, plenty of policy dysfunctionality, and lots of interpersonal feuds (remember all the stories about Condi Rice vs. the alpha male Cheney/Rumsfeld/Libby/Addington pack?). Jonathan Alter suggests that Suskind's portrayal is a wee bit overblown:

I have a whole chapter in my book where I talked to all the former Clinton people who now work for Obama. I asked them all, compare Clinton and Obama....They thought Clinton was more creative and his policymaking, but they prefer to a person Obama in a crisis, which was what they were in. He was decisive and making as many decisions in a week as Bill Clinton made in a year, and making the decisions crisply. The idea that somehow all the former Clinton officials working for Obama were longing for Bill Clinton because they had this inexperienced president who didn't know what he was doing is not what they were saying at the time. I was talking to not just a few, but pretty much all of the former Clinton people in the White House at high and mid-levels. 

I don't doubt for a second that Obama struggled with the demands of managing an enormous crisis from the first day he stepped into the Oval Office. At the same time, I suspect that a lot of what people are interpreting as indecisiveness or inexperience is really something different: it's the fact that Obama agreed with the "wrong" advisors. They're reading about all the internal debates, noting that Obama eventually came down on a side they consider preposterous, and concluding that he got steamrolled. But as Karl Smith says, the more likely explanation is simply that Obama doesn't agree with them:


Indeed, if I observe a person who cannot communicate — my baby for example — trying to avoid a situation, I am likely to conclude “Charlie does not want to do that.” I think this is generally sound reasoning.

There are, of course, political considerations always at work. On additional stimulus, for example, it's clear that Obama thought it was politically impossible and therefore not really worth debating at length on a policy level. More broadly, though, he just came down more often on the side of Geithner and Orszag than of Romer and Summers. That may have been a mistake, but it doesn't mean he got steamrolled. It just means that he was genuinely persuaded that the deficit is a problem that needs to be seriously addressed.

Zombie Lies: Taxes and Small Businesses

| Tue Sep. 20, 2011 4:55 PM EDT

A loyal reader had the misfortune of hearing Rep. Phil Gingrey (R–Ga.) blather on the radio this morning about the woeful effect that a tax hike on the rich would have on "the small business owners and job creators." He asks, "Can you please do a post providing us with an evidence-based response to this? I have little doubt that most small business owners are pulling in less than 250K and that most people making over 250K aren’t small business owners, but my hunch doesn’t have much credibility."

But his hunch is exactly right! In fact, this is a zombie lie, and as you might expect with a zombie lie, I've written about it before. So here's a reprint of what I wrote 14 months ago, suitably updated with shiny new quotes making the same old complaints:


Good times. Today, though, we're getting a rerun. The subject at hand is President Obama's proposal to tax the rich at slightly higher rates, and the question is who exactly this will hurt. The obvious answer is, "the rich," but it turns out that, just as there are small farmers begging for our sympathy, there are small rich too: namely an alleged army of hardworking, salt-of-the-earth small business owners who would also end up paying higher tax rates. "Don't forget the fact that most small businesses file taxes as individuals," Rep. Paul Ryan declared earnestly on Fox News this weekend. "So when you are raising these top tax rates, you're raising taxes on these job creators."

My correspondent wants an evidence-based response to this, so let's give him one. Step 1: The biggest part of Obama's plan is to let the Bush tax cuts for the rich expire. The Brookings Tax Policy Center took a look at this last year and estimated that only 1.9% of small businesses are in the two top brackets that would be affected by repeal of the Bush tax cuts. That's a little better than the dozen small farms affected by the estate tax, but not by much.




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Why Did Ron Suskind Misquote Anita Dunn?

| Tue Sep. 20, 2011 4:30 PM EDT

Hmmm. Speaking of whether the Obama White House had the atmosphere of a boys club, Peter Wallsten and Anne Kornblut wrote more about this in the Washington Post yesterday. There really do seem to be legitimate complaints on this score, but on one of the most dramatic quotes about this, there's a striking mismatch between what Ron Suskind heard and what he reported in his book. Here's what he said he was told by former White House communications director Anita Dunn:


But here's the full quote:


This doesn't necessarily change the substance of the charge about the White House atmosphere — though it might, depending on what Dunn meant — but it definitely changes what it suggests about Obama himself. Why on earth did Suskind leave that bit out? It's only eight words, and it's not as if he was short on space.

UPDATE: Suskind explains the quote truncation here. As it turns out, his explanation sounds pretty kosher. He says it was Dunn herself who asked for the truncation when he reviewed the material with her prior to publication.

In Which Larry Summers Has His Consciousness Raised

| Tue Sep. 20, 2011 3:34 PM EDT

Is the Obama White House a testosterone-fueled boys club? Probably. As near as I can tell, pretty much all White Houses are. This kind of stuff is hard to change, but one way it does change is when one of the boys suddenly has an epiphany. Here is Ron Suskind describing Larry Summers' epiphany in late 2009 as the Obama economic team was trying to figure out ways to squeeze a bit better performance out of the economy:

[Christina] Romer, in meeting after meeting, came back with new plans, new ways either to locate $100 billion or to pitch it to Congress. Her appeals were passionate. She said they were falling into a "the perfect is the enemy of the good" trap. "It's about doing something, anything."

In November, as Obama's political capital began to wane, he took [Peter] Orszag's position at a briefing, reiterating the OMB chief's view that a small stimulus would be ineffective.

"That is oh so wrong," Romer blurted out, surprising herself, and everyone in the room, with her candor.

"It's not just wrong, it's oh so wrong?" Obama queried before launching into an unchracteristic tirade. "Enough!" he shouted. "I said it before, I'll say it again. It's not going to happen. We can't go back to Congress again. We just can't!"

....A few weeks later the economic team was back to the discussion of stimulus versus deficit reduction....Now Summers stepped up, offering, almost word for word, the position Romer had voiced previously. This time Obama listened respectfully: "I know you've got to make the argument, Larry, but I just don't think we can do it."

As they left the meeting, Romer—who was happy to have Summers speak for a small stimulus rather than leaving it all to her—said, "Larry, I don't think I've ever liked you so much."

"Don't worry," he quipped. "I'm sure the feeling will pass." But then something dawned on Summers, who'd never seemed sympathetic to the women's complaints: "You know, he sure was a lot more generous with me than he was with you."

It was an important moment. "That was the turning point," Romer said later. "After that, [Larry and I] really started to have a decent working relationship."

It's never possible to draw broad conclusions from a single anecdote. Romer, after all, was pressing her case in "meeting after meeting," and sometimes that can get tiresome when you know the boss has already made a decision. Alternately, maybe Obama had just had a bad day arguing with the Pentagon over Afghanistan earlier in the morning and his temper was frayed. Who knows?

But probably Summers was right. He probably did say the exact same thing as Romer, and he probably was treated better. At a guess, I'd say there isn't a woman alive who's attended a corporate meeting that hasn't seen this exact same dynamic play out. But no matter how many times you hear about this, there's nothing like the light bulb coming on over your head and finally feeling it in your bones. Apparently that's what happened to Summers that day.

That said, here's some advice for the men reading this: just STFU once in a while and listen instead, will you? It's surprisingly hard! But if you try, you can do it.

Jon Cohn is a Brooks Sap

| Tue Sep. 20, 2011 1:44 PM EDT

I've written before about David Brooks's strange schizophrenia. He knows that the lunatic fringe has taken over the Republican Party. I know he knows this because he's said so in blunt terms. He did it two months ago, and my response at the time was admittedly churlish: "I'll believe that Brooks has seen the light when he actually keeps this up for a few consecutive weeks."

He couldn't do it, really, but his inner demons didn't give way completely until yesterday, when he penned an anguished cri de coeur slamming President Obama for finally realizing the same thing that he himself realized in July: there's really no compromising with the modern tea party version of the GOP. You need to fight them, and you need to fight them in public. But now that it's actually happened, Brooks is an unhappy camper.

Anyway. Read the Brooks column here. Then read Jon Cohn's response. I wish I had written it.

The Great Regulation Charade

| Tue Sep. 20, 2011 1:05 PM EDT



Granted, these are just raw numbers, and some regulations are more onerous than others. But it sure doesn't sound like Team Obama has been a whirlwind of regulatory activity, does it?

Separately, here's a chart from a new study released today by Small Business Majority, a group that does a lot of research on healthcare and clean energy. "The best way to find out what small business owners want is to ask them," says their website, so that's what they do. And in their latest survey, small business owners said their biggest problem was uncertainty about how the economy is doing. Regulation came in a distant sixth.
