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Stimulus plan — rebate or bonus?

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The president and Congress are falling all over each other to hand money out to Americans in some vague hope that we will spend it and thus avert a recession. Economists tell us that the only people who actually spend these “rebates” are people who are poor enough that a few hundred dollars makes a big difference to them. Unsurprisingly, the Bush administration is not interested in giving money away to poor people. The only way Bush can stomach the notion of giving people money is to call it a “tax rebate,” so, as in 2001, tax rebates are what we are going to get.

An op-ed by a behavioral psychologist in today’s Times reports his research demonstrating that when you give people money and call it a “rebate” they don’t spend it. When we hear “rebate” we think we’re getting back money we already spent, and we’re most likley to sock it away. On the other hand, if you call it a “bonus,” our wallets open — it feels like found money and can fuel a splurge.

It would indeed make sense to call the sort of bales-of-bills-out-of-helicopters stimulus that Congress and the president support a “bonus.” But then Bush and his party couldn’t clothe their handout in the protective coloration of a “tax cut.” “Bonus” sounds too close to what’s really going on — the government handing some cash to its citizens — and such forthrightness has certainly not been a Washington priority during the past seven years.

This is politics, not economics, and it matters far more to the Bush administration than the minor issue of whether or not the measure actually achieves its goal of boosting consumer spending.

“Bonus” also carries echoes of a distant time when Army veterans thronged the capital demanding that the government make good on its promises while banks collapsed and markets panicked.

And nobody in either party wants to think about that. They are fortunate, in any case, that the Depression is receding from living memory, and few Americans have studied its history.
[tags]recession, economics, tax rebate, stimulus plan[/tags]

China and the U.S. economy: Fallows follows the money

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I know I linked to it yesterday, but that just wasn’t enough.

If you want to understand the world economy today, and what has happened during the last decade between the U.S. and China, amd how the Chinese have ended up holding $1.4 trillion, you need to sit down and read James Fallows’ piece in the new Atlantic. (In the time between the piece’s research and its publication that number jumped to $1.53 trillion, Fallows reports on his blog — another reason you should read the piece!)

This is a topic of sufficient complexity that most of us have very little hope of understanding it, yet Fallows lays it out with care and clarity. Here are a handful of key passages, offered primarily to get you to click on the link to the full piece, because that’s what you should do:

Through the quarter-century in which China has been opening to world trade, Chinese leaders have deliberately held down living standards for their own people and propped them up in the United States. This is the real meaning of the vast trade surplus — $1.4 trillion and counting, going up by about $1 billion per day — that the Chinese government has mostly parked in U.S. Treasury notes. In effect, every person in the (rich) United States has over the past 10 years or so borrowed about $4,000 from someone in the (poor) People’s Republic of China. Like so many imbalances in economics, this one can’t go on indefinitely, and therefore won’t. But the way it ends — suddenly versus gradually, for predictable reasons versus during a panic — will make an enormous difference to the U.S. and Chinese economies over the next few years, to say nothing of bystanders in Europe and elsewhere…

Neither government likes to draw attention to this arrangement, because it has been so convenient on both sides. For China, it has helped the regime guide development in the way it would like — and keep the domestic economy’s growth rate from crossing the thin line that separates “unbelievably fast” from “uncontrollably inflationary.” For America, it has meant cheaper iPods, lower interest rates, reduced mortgage payments, a lighter tax burden. But because of political tensions in both countries, and because of the huge and growing size of the imbalance, the arrangement now shows signs of cracking apart…

So why is China shipping its money to America? An economist would describe the oddity by saying that China has by far the highest national savings in the world. This sounds admirable, but when taken to an extreme — as in China — it indicates an economy out of sync with the rest of the world, and one that is deliberately keeping its own people’s living standards lower than they could be…

This is the bargain China has made — rather, the one its leaders have imposed on its people. They’ll keep creating new factory jobs, and thus reduce China’s own social tensions and create opportunities for its rural poor. The Chinese will live better year by year, though not as well as they could. And they’ll be protected from the risk of potentially catastrophic hyperinflation, which might undo what the nation’s decades of growth have built. In exchange, the government will hold much of the nation’s wealth in paper assets in the United States, thereby preventing a run on the dollar, shoring up relations between China and America, and sluicing enough cash back into Americans’ hands to let the spending go on.

So what’s the problem? There are several. One is that the U.S. has set up a tough situation for itself if it finds itself in conflict with China some time in the future.

Whatever the provocation, China would consider its levers and weapons and find one stronger than all the rest — one no other country in the world can wield. Without China’s billion dollars a day, the United States could not keep its economy stable or spare the dollar from collapse.

Would the Chinese use that weapon? The reasonable answer is no, because they would wound themselves grievously, too. Their years of national savings are held in the same dollars that would be ruined; in a panic, they’d get only a small share out before the value fell. Besides, their factories depend on customers with dollars to spend.

But that “reassuring” answer is actually frightening. Lawrence Summers calls today’s arrangement “the balance of financial terror,” and says that it is flawed in the same way that the “mutually assured destruction” of the Cold War era was.

I think you’d better just go read the rest now.
[tags]china, world economy, u.s. trade deficit, james fallows[/tags]

Around the economic world in four headlines

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Many years ago, thanks to some mutual friends, I had the privilege of meeting the late George W.S. Trow, and of sitting in on a class he was giving as part of a journalism workshop at Bard College. Each morning Trow would sit down with the day’s New York Times front page and begin to find links between the stories — not hypertext (this was way pre-Web), but causal connections, cross-currents and submerged conflicts, relationships that the newspaper couldn’t or wouldn’t overtly illuminate but that you could make out if you just let the stories rub against one another in your mind.

The author of In the Context of No Context (which I wrote about in Salon a decade ago) was giving us a lesson in how to place the loose atoms of conventional news reporting into molecular structures of context. Once the lesson took, the methodology was impossible to shake.

I got those old Trowvian vibrations again this morning as I scanned the front-page of the Wall Street Journal — crammed as it is these days with four or five headlines where there used to be three, an immediate result of the new Murdoch regime.

The lead story, “Trader Made Billions on Subprime,” tells of hedge fund operator John Paulson, who has made $3 to $4 billion, personally, by “betting against the housing and mortgage markets.” Since those markets, you may have heard, have been going through a rough patch, Paulson’s “bets” paid off.

Paulson himself sounds almost contrite about his success: he’s “reluctant to celebrate while housing causes others pain,” intends to increase his charitable giving, and thinks that “a lot of homeowners have been victimized.”

This stands in contrast to Los Angeles real estate investor Jeff Greene, the subject of the Journal’s second lead, a friend of Paulson’s. Paulson invited Greene into his housing-crash fund, but Greene went off and implemented the investment strategy on his own. Paulson is irked, but Greene protests, “He never told me, ‘Don’t do it.’ ”

The “bet” paid off for Greene, too. He now has three jets. (What does one do with three jets?) He believes that he is “pretty conservative in the way I spend money”; after all, his newest jet is an “older model” Gulfstream that he got for only $2 million — a steal!

We understand that the financial engineers of Wall Street have always been handsomely rewarded. Lots of people and institutions in the financial industry lost the gambles that Paulson and company won. But I can’t help thinking there is something broken with a system in which Olympian financiers place their bets on incomprehensible financial instruments and risk winning or losing bonuses and jets — while these same transactions bear real consequences that are very comprehensible and tangible for the people whose lives they affect. When the roulette wheel of the derivatives market stops, some people get to buy jet number three; other people lose their homes.

Which leads us to headline number three: “States to Tighten Belts as Weakness of Economy Cuts Into Tax Receipts.” Here we move down from the rarefied air of Wall Street back into the thicker atmosphere of everyday reality, where, it seems, the mistakes made in the mortgage market — all the stuff that Paulson “bet” against — are now dragging down the economy, dampening consumer spending, slowing economic growth, reducing employment and cutting into government coffers. Which means less money for schools and police and children’s healthcare and other stuff that people without three jets — or even two jets! — might care about.

Finally, if your eyes scan down the page, you hit headline number four, “Toxic Factories Take Toll on China’s Labor Force” — an account of the cadmium battery industry. Making the batteries requires toxic chemicals, and when the U.S. started regulating their manufacture, the industry simply moved to a lower-cost, no-hassle home in China, and took its poisonous impact with it.

The story pulls our gaze out from the national to the global scale, reminding us that the U.S. economy now rests, even more completely than in the past, on foreign foundations. James Fallows explains how in painfully clear terms in the new Atlantic:

Through the quarter-century in which China has been opening to world trade, Chinese leaders have deliberately held down living standards for their own people and propped them up in the United States. This is the real meaning of the vast trade surplus—$1.4 trillion and counting, going up by about $1 billion per day—that the Chinese government has mostly parked in U.S. Treasury notes. In effect, every person in the (rich) United States has over the past 10 years or so borrowed about $4,000 from someone in the (poor) People’s Republic of China.

There you have it: the story of the economic world today, from prosperous financial buccaneers to worried middle-class America to the developing-world workforce that can only dream of someday upgrading its problems to the sort we in the United States contend with. It’s all on the Journal’s front page today, but the newspaper won’t connect the dots for you — that work is left to each of us.

“When we try to pick out anything by itself, we find it hitched to everything else in the universe.”
— John Muir

[tags]george trow, wall street journal, subprime crisis[/tags]

Why the primaries don’t matter

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Today’s Iowa caucuses mark the moment when endless months of vapid punditry collide with the cold reality of the preferences of real voters. I welcome that. But I am blissfully indifferent to the outcome of the primaries. The horse-race-handicapping that will fill the headlines in coming weeks feels meaningless this year.

Whoever wins Iowa, New Hampshire, and the super-Tuesday blitzes following, it seems certain that there will be a strong Democratic candidate and a weak Republican nominee. The GOP leadership knows this, which is why it’s so glum. The Republicans will field either Romney, a fake; Giuliani, a joke; Huckabee, yet another Southern former governor with a lot of faith and no understanding of the world (that worked so well last time!); or McCain, a former maverick who has lashed himself tightly to the sunken ship of the current administration’s failed war policies and is detested by the Republican “base.” I do not see how any of them could win the White House in the current climate. (And no, I do not think Ron Paul is going to ride a dark horse to victory, either.) This may prove wishful coastal-state thinking, and a lot can happen in the next 10 months. But that’s how it looks today.

I have minor preferences among the Democratic field — I find Obama’s freshness and Edwards’ populist fervor a little more inspiring than Clinton’s “I’m competent” pitch. But any of them would make a good president, and any of them would put an end to the governmental nightmare of the past eight years, and that’s all that matters this year.

UPDATE: Josh Marshall suggests that the DC press corps’ long love affair with McCain would be a substantial boon in the general election.
[tags]primaries, iowa caucuses, 2008 primaries, 2008 presidential election[/tags]

Bush administration history in 100 words

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I recently found and enjoyed University of Pennsylvania professor Alan Kors’ “60 Second Lecture” summary of human history (thanks, Boing Boing and Mark Hurst). It’s wonderful on its own terms, but the tenth bullet — “No one who teaches you knows what will happen” — kicks it up onto a whole different level.

As longtime readers may have noticed, I’ve cut way back on the political blogging this year. Partly it’s because my personal energies are focused elsewhere. Partly it’s because the political blogosphere is now crammed with people saying much of what I would say. And partly it’s because there has really been so little one could do or say this year other than wait out the final awful twilight of the worst presidency of my lifetime.

But I have to say I’m inspired by the spirit of Kors’s elevator-pitch-style lecture. As a year-end exercise, and to make up for the long silence here, I offer this 60-second, ten-bullet-point, 100-word overview of the achievements of the Bush Administration:

  • Lost popular vote but won in court, claimed mandate.
  • Spent budget surplus on tax cuts for wealthy.
  • Squandered post 9-11 unity on bid for “permanent Republican majority.”
  • Stockpiled terror suspects at Guantanamo with no rights; instituted shameful regime of torture.
  • Led nation falsely into Iraq war, bungled occupation, destabilized Mideast, trashed U.S. military.
  • Diplomacy-free, unilateralist foreign policy eroded American influence worldwide.
  • Attempted to scuttle Social Security via “privatization.”
  • Destroyed Justice Department’s nonpartisan tradition; used prosecutors to punish enemies and throw elections.
  • Undermined Constitution through “signing statements.”
  • Blocked global warming solutions.
  • Will retire to ranch in year; we face lifelong cleanup.

[tags]60-second lectures, bush administration, 100 words[/tags]

A government of men, not laws

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Thoughts occasioned by the confirmation hearings for Michael Mukasey to become the next U.S. attorney general:

Apparently there have been some interesting changes in the whole notion of the constitutional balance of powers since I studied such matters. As most of us learned at some point in our schooling, there are three branches of government established in the U.S. constitution. Congress passes the laws, as defined by Article I. the president executes the laws and handles a bunch of other stuff as defined by Article II. And the supreme court interprets the laws, as defined by Article III. Yes, I’m aware that the whole judicial review thing evolved over time and wasn’t grounded that explicitly in the constitution’s language. On the other hand, it’s served us pretty well for over 200 years, and it has been a keystone of the checks-and-balances system that has proven so resilient over those centuries.

Under the Bush administration we have seen two fundamental assaults on this system. One, embodied in the idea of “signing statements” that the president makes when he signs congressional legislation, proposes that the president is himself equal to the supreme court in his power to review the constitutionality of legislation. According to this notion, the chief executive has the unilateral authority to say, “I don’t think this or that part of this law is constitutional, so I will reserve the right not to enforce or obey it.” He’s not saying, “I think this is an unconstitutional law, so I’m going to challenge it before the supreme court.” He’s saying, “I think this is an unconstitutional law, so I’m going to ignore it.”

The second assault centers on the notion of the “unitary executive.” This theory proposes that the entire executive branch is a sort of “off limits” zone for congress. To the extent that a congressional law or rule constrains the president’s authority over the executive branch in some way, he is free to ignore it, because it’s unconstitutional — and, right, he gets to ignore laws he believes are unconstitutional.

Put these two notions together and you have, I think it’s fair to say, a whole new game in the federal government town. Forget checks and balances, or “government by laws and not men.” Say hello to a new world in which the unitary executive claims supremacy over both the congress (whose laws he can ignore at will and whose powers cannot reach into the executive branch) and the supreme court (whose role as reviewer of the constitutionality of legislation the president is now quite able to assume himself).

Now, it’s true that, as we say here on the Internets, I am not a lawyer. But I’m a citizen. And I have to report that these new ideas about the constitution make me a little concerned for the future of our political system.

I know that we have a vice president who got, let’s just say, peeved that the congress reined in a criminal president back when he was a young man, and who has spent the rest of his life itching to redress that old grievance. But this isn’t a partisan matter. An autocratic view of the chief executive — which is what Bush’s lawyers have propounded, and Munkasey, for all his superior forthrightness compared with the henchman who preceded him, endorsed in his testimony today — is a time-bomb for both parties. Once precedents for unchecked authority are set, who is to say that a Democratic president might not avail himself (or herself) of them?

“Checks and balances” is a big fat cliche, but it’s also a foundation that has supported two centuries and more of American political stability. Long after the pathetic corruptions and petty inhumanities of the Bush administration have receded from view, we’re still going to be trying to patch together a constitution that the Bush/Cheney legal establishment has shredded.
[tags]u.s. constitution, unitary executive, judicial review, michael mukasey[/tags]

What to expect when you’re retreating

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The Washington Post finally broaches a subject that’s been a worry of mine for some time now (I raised it at the start of this year). Once we finally decide, as is inevitable, that it’s time to leave Iraq, our problem becomes: how, exactly?

Amid political arguments in Washington over troop departures, U.S. military commanders on the ground stress the importance of developing a careful and thorough withdrawal plan. Whatever the politicians decide, “it needs to be well-thought-out and it cannot be a strategy that is based on ‘Well, we need to leave,’ ” Army Maj. Gen. Benjamin Mixon, a top U.S. commander in Iraq, said Friday from his base near Tikrit.

The Post story reminds us that “history is replete with bad withdrawal outcomes.” “Withdrawal” is a mealy-mouthed synonym for a much less palatable word: retreat. Retreat is the most difficult maneuver for an army to manage. Retreats — even by troops with good morale and superior arms — have a way of turning into routs. We’ve got 150,000 troops and a huge amount of equipment in Iraq. It took ages to deploy them there and they’re not going to be able to leave all at once even if our leaders wanted them to.

Once it’s understood that an army is moving out, all sorts of new risks arise. The smartest military organizations do everything they can to foresee those risks and plan around them.

When I bring up these concerns, I sometimes get an “Are you crazy?” look. What can happen? We’re the United States! The sole hyperpower! Which is of course the logic that mired us in Iraq in the first place.

“We’ve got to be very modest about our predictive capabilities,” a “senior Administration official” tells the Post. Such modesty would have paid infinitely greater dividends before the invasion.

The Post article suggests that the U.S. is spending lots of time wargaming what happens in Iraq after we’re gone. Maybe the Pentagon is also preparing a variety of operational options for getting American forces safely out of Iraq. Let’s cross our fingers. The Bush administration has an almost perfect record of failing to plan for the worst cases.

I’m sure the geniuses in Dick Cheney’s office are thinking, “We’d better not make detailed plans for speedy withdrawal — the worse the plans are, the less chance anyone will use them.” Then, in the awful event that we do face a messy, bloody retreat, you know exactly what the administration line will be, echoing down seven years’ worth of responsibility-shirking: the cry of “no one expected it.”

Josh Marshall writes:

To me this is an argument not to remain in denial for so long that we literally have no choice but to get out quickly. We still have time to manage a phased withdrawal which is integrated with a political plan. Not clear whether that will be the case in a year when we will no longer be able to sustain our current deployment.

[tags]iraq withdrawal, military planning, iraq war[/tags]

Lessig contra corruption

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Lawrence Lessig recently announced that he is changing the focus of his work from the copyright and intellectual-property realm, in which he has made such a mark over the past decade, to a new area: corruption. Having directly encountered the dysfunctionality of our system of government in his battles with the copyright lobby, the law professor and activist has decided to tackle the problem at the root:

I don’t mean corruption in the simple sense of bribery. I mean “corruption” in the sense that the system is so queered by the influence of money that it can’t even get an issue as simple and clear as term extension right. Politicians are starved for the resources concentrated interests can provide. In the US, listening to money is the only way to secure reelection. And so an economy of influence bends public policy away from sense, always to dollars.

I will certainly look forward to seeing how Lessig — who has both a sharp legal mind and a stirring, impassioned presentation style — takes on “corruption”: what does he take aim at? What can he accomplish?

But corruption per se has been around forever (go read Suetonius!). It’s hard to see what headway any individual effort can make against the tide of human greed.

On the other hand, there is, it seems to me, one very specific aspect of the corruption of our politics that is both massive in its impact and tractable to reform efforts.

The money that drives American politics today isn’t, for the most part, money that ends up in pockets as crude bribes. The sums involved even in less obvious payoffs in the form of revolving-door regulators and the like are similarly not that huge. The vast bulk of the money that U.S. politicians ceaselessly seek is raised for one single purpose: to purchase TV ads.

There is an iron triangle of cash at the heart of our political system. Candidates scramble for dollars from contributors so they can hand them to TV stations. Sickeningly, our political candidates have become a valuable source of revenue for the broadcast and cable networks whose job is to cover their candidacies. The pols beg us for our money, and it goes straight to media corporations’ bottom lines.

Anything we do to break this chain will provide immediate relief to our political system. We could try to regulate the total volume of political TV advertising (difficult for First Amendment reasons). Or we could simply reduce the centrality of television itself so the ads cease to be a useful way for politicians to broadcast messages.

One way or another, the answer to cleaning up politics lies in reducing the cost of a successful candidacy by cutting TV as far out of the equation as possible. Accomplish that, and a lot of other things will take care of themselves.
[tags]lawrence lessig, political corruption, television, campaign ads[/tags]

Dick Cheney, constitutional Transformer

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By now you’ve no doubt heard this amusing tidbit from the Bush administration bunker: Vice president Cheney is now arguing that his office is, has been, and should be exempt from normal executive-branch oversight of its handling of classified documents because…the vice president is not part of the executive branch!

This latest in a long line of Bush administration legal doctrines of nullification and exceptionalism is based on a hair-slender reed of constitutional fact: the vice president gets to preside over the Senate and break ties there, so he does have an odd presence in the legislative branch. But saying that the entire office is simply not part of the executive is desperate madness.

Democrats in Congress sound like they’re ready to call Cheney on his bluff. Atrios posts an email reporting Rahm Emanuel’s response:

“The Vice President has a choice to make. If he believes his legal case, his office has no business being funded as part of the executive branch. However, if he demands executive branch funding he cannot ignore executive branch rules…”

That’s got some teeth. But beyond this immediate parry-and-riposte, surely we are at a jump-the-shark moment for the Bush administration’s tortuous legal arguments defending secrecy, deception and torture.

The GOP spent many years mocking Bush’s predecessor for his lawyerly tactics during the Lewinsky affair. But a U.S. vice president claiming that he is not part of the executive branch? That makes quarrels over “what the meaning of ‘is’ is” look like the soul of reason. Does the vice-presidency exist in its own special branch? Does the office mutate by the moment from “executive” to “legislative” depending on who Cheney is fighting? Ahh — the Bush administration’s very own Transformer from Cybertron!

All his life, from his Vietnam era draft avoidance (“I had other priorities”) to this latest shenanigans, Cheney has held himself at an imperious remove from the demands our society and legal system place on mere mortals. It is past time to call him out on such behavior. De-fund the clown!
[tags]dick cheney, vice presidency, constitution[/tags]

McCain in techland

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I’m down at the Wall Street Journal D conference this week.

Tuesday night, Sen. John McCain, following up on his appearance at Google 3 weeks ago, courted the tech industry’s money and talent here. Quizzed by conference hosts Walt Mossberg, Kara Swisher and members of the audience for nearly an hour, McCain didn’t always tell the crowd what it seemed to want to hear — particularly about the Iraq war. But after a subdued opening, McCain found his voice, and a measure of positive response, by promising an administration that would tap the nation’s best minds, JFK-style.

In filling the federal bureaucracy’s leadership positions, like the Federal Communications Commission, McCain said, “Don’t pick the person who’s contributed the most or shown the most loyalty. Bring in experienced people that know the field and ask them to serve.”

“I know who the smart people in America are,” he said. He could easily have added, They’re right here! He proceeded to drop names like Federal Express founder Fred Smith (who could whip the “screwed up” defense acquisition system into shape), Cisco CEO John Chambers and Microsoft CEO Steve Ballmer. The latter two men, as it happened, were in the room.

“I’m curious,” Swisher interjected. “Steve Ballmer as secretary of state?” (In the tech industry, Ballmer is known for his pugnacity.)

“Ambassador to China,” McCain quipped back.

McCain seemed most relaxed in these “pick your dream cabinet” exchanges, and least at ease in attempting to square his ardent free-market principles with complex questions about Net neutrality and the failure of the U.S. broadband market to match the speeds and services available in other countries. At times the senator trotted out stump-rhetoric set pieces that felt oddly stiff in this relatively intimate venue. After sketching the dangerous scenario of a nuclear-armed Iran passing a bomb to terrorists, for instance, he realized he was sounding too gloomy for a successful presidential candidate, so he hastily added, “We’re the strongest nation in the world and the best nation in every way, and we will prevail again.”

On Iraq, he restated the position he shares with President Bush: “setting a date for withdrawal is setting a date for surrender.” He recalled his record criticizing the conduct of the war, including his relatively early break with former defense secretary Donald Rumsfeld. But today, he said, “We are where we are. If we leave, there will be chaos in the region…and they will follow us home. Now, we have got a new general and a new strategy. It is working.”

“You really believe that?” Mossberg looked dubiously at McCain. McCain started reeling off the names of experts who, he said, share his view that withdrawal would be a disaster: Scowcroft, Zinni, Kissinger. Mossberg pointed out Kissinger’s iffy record of managing the wind-down of the Vietnam war, and McCain started to work up a heated response about that era’s history — which he knows a bit about — but then thought better of it.

The same issue came up again when Brian Dear, founder of Eventful, held up a copy of the 2000 reissue of the late David Halberstam’s The Best and the Brightest, and reminded the senator that he’d written a preface that urged leaders to read the book twice before entering any war. “Did you urge the Bush Administration to read this book? Doesn’t seem like they did.”

“It’s a lot of pages,” Swisher pointed out.

There’s more coverage of McCain over at AllThingsD, Mossberg and Swisher’s new blog site.
[tags]d conference, john mccain[/tags]