Category Archives: domestic policy

Rolling Back the Twentieth Century Watch: Abolish the FDIC

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Rortybomb, like most of blue America, originated in red America and maintains ties there that give him an occasional finger on the pulse. He reports on how many fathoms the fever swamp (Konczal, Mike, “Things I’m Reading, 12/22,” Rortybomb, 22 December 2009):

Visiting home for the holidays, it’s amazing to me how certain groups of friends, who I mostly considered in the generic Republicans/conservatives camp, have been wading deeper into the Ron Paul territory. “Abolish the Fed” is one thing, but what surprised me the most was when I was at a Christmas party several people mentioned, fairly out of nowhere, how bad FDIC is for the economy. I think they thought that regular depositors could have done a better job vetting financial institutions than major sophisticated shareholders. When I tried to point out how if there wasn’t FDIC and millions of savings accounts were getting wiped out in ordinary bank runs we’d almost certainly have a wave of turn-of-the-last-century style violence that is hard for us to even imagine now — think bomb throwing anarchist violence — they seemed to be ok with that.

Cap and Trade and Rightward Drift

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It is, as always, both amazing and dispiriting to see how well orchestrated the right wing noise machine is, this time with regard to what to a man pundits and politicians on the right now refer to as “cap and tax.” One of the amazing things on display here is the amount of rightward drift the country’s political class has experienced over even the last twenty years.

Cap and trade got its start as a market-oriented Republican counterproposal to Democrats’ more standard-issue regulatory approach to controlling pollution. When cap and trade was introduced to the mainstream political discourse as part of the 1990 Clean Air Act as a means to control SO2 emissions and the resultant acid rain, and then first discussed as a means to control greenhouse gasses as well, the reaction among Democrats and the left was revulsion and rejection. If pollution is so bad, then we should just outlaw or limit it, rather than allow corporations to purchase pollution vouchers.

Republicans countered with the usual critique of the regulatory approach: that broad mandates of bureaucrats lacking the expertise of managers on sight will result in the variable plants of the country having to adopt means from a relatively small menu, which in many instances would not be the best one for that plant or corporation’s circumstance. On the affirmative, they argued that a market-based solution would allow managers and experts close to the problem to determine what the most cost-effective means of adaptation to a lower overall emissions economy would be. Plants or corporations with a substantial retooling burden would be able to purchase time to alter their consumption pattern. High-pollution, but high-value activities would have a kind of exemption in the market means of greater expense. Where the burden of both the new cost structure and adaptation was too great, the creative destruction of the market would naturally select the best alternatives.

(I am generally very amenable to this sort of systems-type solution to problems.)

It’s no surprise that there is not a universal embrace among Republicans of a Bush, Sr. administration policy proposal. The right was never all on-board with cap and trade in the early 1990s. The sector of the polity opposed to action on climate change spans a variety of factions and epistemologies. And the right has always been skeptical of George H.W. Bush, Sr. The “Read my lips: No new taxes” pledge and the selection of Dan Quayle as a running mate were maneuvers meant to claim the mantle of Ronald Reagan by the politician who in the 1980 primaries had coined the term “voodoo economics.” But that the contemporary right now disavows George H.W. Bush, Sr. — along with Dwight Eisenhower, Richard Nixon, Gerald Ford and increasingly George W. Bush, Jr. — as not true conservatives, or Republicans In Name Only, while a proposal of the Bush, Sr. administration, roundly rejected by Democrats at the time, has become the policy preference of the Democrats today, should be telling as to the direction of party drift.

As Clinton said early on in his presidency (Woodward, Bob, The Agenda [New York: Simon & Schuster, 1994] p. 161),

I hope you’re all aware we’re all Eisenhower Republicans. We’re Eisenhower Republicans here, and we are fighting the Reagan Republicans.

This is a very astute observation and testimony to the enduring power of the Reagan revolution in U.S. politics. Today there is only one president that Republicans admire. Meanwhile, that old tradition of Republicanism represented by the rest of the Republican presidents has been taken over by the Democratic party — no longer the party of Franklin Roosevelt or Lyndon Johnson, now the party of Eisenhower and George H.W. Bush, Sr.

I Know There Must be an Iron Fist Somewhere in All Obama’s Velvet

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Upon a second watching, the thing that’s so striking about President Obama’s speech tonight is just how magnanimous and in-touch it was. Listen to the whole arc about the Kennedy letter: it’s almost all high principle and his concessions to capitalism and the notion that government action and the realm of individual freedom trade off is fairly surprising. But I think that he is right about where the American electorate is right now, whether they know it or not (i.e. have been intentionally misinformed).

But if the Obama administration is right about where the average American voter is ideologically, then this is a terrible indictment of their political strategy. That they are losing the P.R. war on what should be a popular policy is a powerful demonstration of the ineptness of the Democratic party.

In the afterglow of a well-delivered speech like this it’s entirely too easy to get carried away by the rhetoric. But the imperturbability of President Obama’s insistence on a reasonable tone in Washington, D.C. is remarkable. It seems as if the President is sincere about his desire to transcend partisanship. If Barack Obama manages to pull it out yet again on the base of steady-handed, even-keeled reason, my political cynicism will have been dealt a heavy blow.

On the other hand, this bipartisan talk is really tactical. Tomorrow it’s going to be balls to the wall. There’s going to be a full court press against the blue dogs and Olympia Snow. Healthcare reform passed along straight partisan lines through the budget reconciliation process will be in the mix as a negative inducement and as a real possibility (to Congressional fence-riders what the public option will be to the insurance companies). The speech was potentially the last of the nicie-nice.

Or a third possibility, with so many plans now in play (the House committees, the Senate HELP plan, the Republican plan, the Max Baucus plan, and now the administration plan), perhaps this was merely the opening move of an intensified, second round of horse trading. Perhaps President Obama is a nervy bastard playing the long political game.

More Enthusiasm for Expensive Gas

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And hey, sales of compact and subcompact cars are at an all-time high, with one in five cars sold in April now from this category, up from one in eight at the height of the SUV craze. And four cylinder engines are now more popular than six cylinder. Sales of SUVs and trucks are down between 25 and 35 percent (Vlasic, Bill, “As Gas Costs Soar, Buyers Flock to Small Cars,” The New York Times, 2 May 2008).

In my own observation, I have noticed that the slug lines in D.C. — namely the one on 14th between F and G — have grown quite competitive as of late.

Regarding taxes, many critics of the holiday proposal have answered that it would simply benefit the oil companies, not consumers. But on consumers is where the burden of paying the taxes falls, right? Not exactly. Empirical studies show that consumers and oil companies roughly split the cost of gas tax increases. For example, this study excerpted by Matthew Yglesias suggests the following:

Using the estimated coefficients, we can determine the incidence of federal and state specific taxes. An increase in the federal tax by 1¢ raises the retail price by 0.47¢ and decreases the wholesale price by 0.56¢. Thus, consumers and wholesalers each pay roughly half of the federal specific tax.

(Chouinard, Hayley and Jeffrey M. Perloff, “Incidence of Federal and State Gasoline Taxes,” Economics Letters, vol. 83, no. 1, April 2004, pp 55-60; Yglesias, Matthew, “Gas Tax Incidence,” TheAtlantic.com, 2 May 2008)

These stories aren’t unrelated. Gas was hitherto imagined as one of those products for which demand was highly inelastic because it was largely a function of house purchasing and employment decisions — both factors not amenable to rapid readjustment. Consumers would only be able to adjust to increased fuel prices on the timescales in which they make house buying and employment decisions — that is, not very fast.

It turns out that consumer demand for gas isn’t as inelastic as it was previously thought. Many have pointed out that companies don’t pay taxes, they collect them. In other words, if the government taxes a corporation — they’re evil, they deserve it! — they will just pass the tax through to the consumer by building it into the price of their products. It turns out that the catch-phrase version of this story is too simple. The power of a company to pass a price along to consumers is dependent on elasticity of demand for their products. Where it’s highly inelastic, they can unproblematically pass it all on. Where consumers are more responsive, producers have less liberty and must to price with caution.

In the case of gas, it turns out that people can and do take steps to adjust their consumption — not enough that we’re going to achieve oil independence, but enough that oil companies have to think twice before passing along a price increase.

And this is all just the steps that are being taken now. I would expect urban density to begin to increase and the suburbs to start to depopulate over the next few years as those longer-term adjustments to fuel consumption come within the purview of people’s decision making.

Three Cheers for Expensive Gas

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Everyone’s all worked up about the price of a barrel of oil these days, with certain pandering candidates proposing a gas tax holiday for the duration of the summer. But look what’s happening with prices being as high as they are. Drivers in the Northwest have reduced fuel consumption eleven percent to 1966 levels and long-haul freight is moving off trucks to rail, a trend driven by the 3-to-1 fuel efficiency advantage of trains over trucks. I would say this is all good news brought to you in whole by astronomical prices at the pump (Barnett, Erica C., “Northwest Gas Consumption at Lowest Level Since 1966,” SLOG, 18 April 2008; Ahrens, Frank, “A Switch on the Tracks: Railroads Roar Ahead,” The Washington Post, 21 April 2008).

Expensive gas isn’t as good as a carbon tax or a cap and trade system, but it’s progress. So let’s not give up while we’re ahead. Instead of a summer gas tax holiday, why don’t we double down? Let’s add a few more cents of gas tax. Every penny in Uncle Sam’s coffer is one less in that of the House of Saud.

And as for those truckers in Pennsylvania, it’s called creative destruction. It’s part of the capitalist system. Time to take that tech school cert in diesel engine maintenance. The rail companies are hiring like gangbusters and those are better jobs anyway. Instead of pandering on fuel prices to an industry that should be paired down to everyone’s advantage anyway, the Democrats should be pushing a grand bargain between capitol and labor: an enhanced social safety net to cushion workers against the currents of globalization in exchange for greater liberalization.

The whole argument of freemarketeers is that prices are signals to consumers and by consumers acting on those signals, optimum or near-optimum resource utilization will be achieved. I’m actually in favor of enhanced signaling. Price leveling schemes by utility companies are a convenient service to their customers who have to plan household budgets, but it is signal-dampening. I think that price leveling should be done away with favor of hyper market in utilities. Power, water and gas prices should fluctuate on a per minute or per hour basis with a price readout in every house and some smart planning tools available to consumers to help them make consumption decisions. People might run certain appliances at night when power generation and distribution systems were underutilized and the electricity at its cheapest or refrain from watering their lawns so much in the summer.

The Future Has a Lot of Factors

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Via Kevin Drum (“Random Debate Thoughts (So Far),” Political Animal, Washington Monthly, 13 December 2007) a new factoid that Barack Obama is brandishing:

Reducing obesity to 1980 levels will save Medicare $1 trillion.

I’m too busy right now to go and fact-check this before passing it along, but when I considers the sheer number potentialities like this out there in the realm of possibility, I am reminded of Paul Krugman’s admonition regarding how to think about the financing of the U.S. welfare state (“Social Security Scares,” The New York Times, 5 March 2004):

By all means, let’s plan ahead. But let’s set some limits. When people issue ominous warnings about the cost of Medicare after 2077, my question is, Why should fiscal decisions today reflect the possible cost of providing generations not yet born with medical treatments not yet invented?

There is the pragmatic reason that the sooner we act, the less we have to do, but I think Mr. Krugman is right to suggest that there are just too may unknown unknowns — to borrow a Rumsfeldism — to seriously plan for 2077.

Deregulate Marriage

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Stephanie Coontz, perhaps the most successful professor at my alma mater in terms of actual impact on U.S. political debate, editorializes in today’s New York Times on why the state should get out of the business of certifying and legitimating marriages (“Taking Marriage Private,” 26 November 2007):

In the 1950s, using the marriage license as a shorthand way to distribute benefits and legal privileges made some sense because almost all adults were married…

Today, however, possession of a marriage license tells us little about people’s interpersonal responsibilities. Half of all Americans aged 25 to 29 are unmarried, and many of them already have incurred obligations as partners, parents or both. Almost 40 percent of America’s children are born to unmarried parents. Meanwhile, many legally married people are in remarriages where their obligations are spread among several households.

…

Possession of a marriage license is no longer the chief determinant of which obligations a couple must keep, either to their children or to each other. But it still determines which obligations a couple can keep — who gets hospital visitation rights, family leave, health care and survivor’s benefits. This may serve the purpose of some moralists. But it doesn’t serve the public interest of helping individuals meet their care-giving commitments.

A marriage is a hybrid of part administrative expedience, part contract law and part sacred cultural institution. The sacred cultural institution stuff is a part of autonomous culture and the state has little business meddling there. As for the administration and contract law portions, Ms. Coontz makes a perfectly pragmatic case for deregulation. Changing mores have rendered the original expedience obsolete.

So the argument goes in the economic sphere: the Twenty-First Century is a fast changing time for which the bureaucratic and regulatory machinery of the state is ill-suited. Best to leave it to the nimble, distributed private market to adapt to this rapidly evolving environment. So it is today also with culture. So how about extending the same courtesy to individuals as to business?

A Bipartisan Dupe

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One of the reason that I love Paul Krugman so much is that he writes nary a word with which I disagree. Friday’s column (“Played for a Sucker,” The New York Times, 16 November 2007) on Barack Obama’s adoption of Republican “crisis” language regarding Social Security was exactly the sort of rhetoric I would hope for from a vigilant left.

But Mr. Obama’s Social Security mistake was, in fact, exactly what you’d expect from a candidate who promises to transcend partisanship in an age when that’s neither possible nor desirable.

…

I don’t believe Mr. Obama is a closet privatizer. He is, however, someone who keeps insisting that he can transcend the partisanship of our times — and in this case, that turned him into a sucker.

Mr. Obama wanted a way to distinguish himself from Hillary Clinton — and for Mr. Obama, who has said that the reason “we can’t tackle the big problems that demand solutions” is that “politics has become so bitter and partisan,” joining in the attack on Senator Clinton’s Social Security position must have seemed like a golden opportunity to sound forceful yet bipartisan.

But Social Security isn’t a big problem that demands a solution; it’s a small problem, way down the list of major issues facing America, that has nonetheless become an obsession of Beltway insiders. And on Social Security, as on many other issues, what Washington means by bipartisanship is mainly that everyone should come together to give conservatives what they want.

We all wish that American politics weren’t so bitter and partisan. But if you try to find common ground where none exists — which is the case for many issues today — you end up being played for a fool. And that’s what has just happened to Mr. Obama.

The left should absolutely not lay central New Deal programs — programs for which the opportunity to create may never come again — down on the negotiating table in exchange for some amorphous good will on the part of the right. And Mr. Obama or any other candidate should get that message in no uncertain terms.

Seven years ago, during the 2000 campaign, there was a fairly significant sub-debate about how time spent as a Senator did not do a very good job of prepare a politician for the presidency. The Senate is a collegial atmosphere and owing to the long terms of office, the staggered election cycle and the fact that states can’t be gerrymandered, it is a much more moderate environment than the rough-and-tumble ideological circus sideshow that is the House of Representatives — and really the rest of U.S. politics beyond the hallowed halls of the north wing of the Capitol building.

I would like to think that all Mr. Obama’s happy talk about bipartisanship is just political claptrap designed to appeal to moderate voters who don’t understand what all the partisan bickering is about. But it increasingly seems like real naivety. I would say that nothing in his experience to date has prepared Mr. Obama to fight the kind of partisan wars that he will have to fight to become the president and then more of the same to pass a legislative agenda. And for that reason he should be ruled out at the party’s presidential nominee.