Clive Crook

Why Democrats are...smiling?

Fri,06 Nov 2009 06:53:19 GMT

A lot of the post-election commentary has been entertaining, if not very enlightening. To any disinterested observer, the Republicans had a good day on the whole last Tuesday. Not an unalloyed success, bearing in mind the self-inflicted wound in New York, but looking at New Jersey and Virginia, a pretty good day. So the question was how this good result for the Republicans was going to be turned into a bad result, or a result of no significance either way.

Eric Alterman explains "why Democrats are smiling". Sort of explains.

While the Democratic brand is obviously not what it was when so many of us were brought to tears a year ago by that beautiful scene in Grant Park, Republicans are on the verge of civil war. The sure-to be-a loser side appears to have all the soldiers and the reasonable-sounding side, and the one that can win, appears to have well, not much going on. The Republicans' suicide will be anything but painless if this keeps up--and it will, if only to continue to juice Fox's ratings.

Well, as you can see, the piece is not a model of clarity. I've read that second sentence four or five times and I'm still not sure what it means. (Didn't the reasonable-sounding side that can win, in fact, just do so? Can you win and still have "not much going on"? What else apart from winning do you really need to have going on?) But over the course of the article it does emerge that Alterman sincerely believes the Democrats have cause to celebrate Tuesday's results. Well done!

Gail Collins in the NYT also deserves special mention, I think. She is not alone in believing that the elections were meaningless, but she gets extra credit for regarding their meaninglessness as so self-evident that she does not have to establish the point. She can just celebrate it, by lampooning the view that elections convey any information whatever. Love that title: "Hark! The Voters Speak!" What delicious irony. How we laughed. As though any such thing could happen in an election.

Even Charlie Cook, doyen of poll-gazers and a reliably informative commentator, comes off a little blase in this piece for National Journal. He says Tuesday did not tell us anything we didn't already know. (Maybe he meant anything he didn't already know.) We already knew that independents were turning in droves against the Democratic party. We already knew that Jon Corzine was so unpopular he would lose even to a divided opposition. We already knew that a staunchly conservative Republican could win a purple state by a big margin if he "projects a moderate, mainstream, nonthreatening, tolerant image". Did we really know all those things? If I were a Republican, I'd still be pleased to have them confirmed, and if I were a Democrat I definitely wouldn't be smiling.

What to do about bankers' pay

Fri,06 Nov 2009 05:15:28 GMT

My new column for National Journal agrees with the Fed that bankers' pay needs to be supervised, but warns that by itself this will do little to improve financial safety.

The pay changes that the Fed proposes are worth making, but by themselves are insufficient. Other regulatory reforms in the works would do more to promote safety -- and, indirectly, curb the excesses of Wall Street pay at the same time. Regulators are proposing to increase the capital that banks and other financial firms are required to set aside against the risk of loans or other assets going bad. They are also considering new rules on leverage (the amount of borrowing a firm can do as a multiple of its equity) and liquidity (the amount of easily salable assets it must hold). A financial institution with more capital, less leverage, and more liquidity would be a safer operation -- and a less profitable one.

In thinking about future financial regulation, that is the fundamental trade-off. Taxpayers have learned that Wall Street's profits, and the fabulous pay that went along with them, have come partly at their expense. In effect, the industry has enjoyed a disguised public subsidy, in the form of a promise to underwrite its losses when things go wrong. Heads we win, tails you -- the taxpayer -- lose. In demanding a safer financial industry, as we should, we will be withdrawing that subsidy and thus insisting on a somewhat smaller and less profitable industry as well.

This, in turn, will mean less-outlandish pay. Shareholders in banks and Wall Street firms have given their employees a very generous deal in recent years -- far better than they have had themselves -- handing over about half of their revenues in pay. If finance shrinks, pay in finance will shrink. Reviewing the wreckage of the past two years, both of those things look eminently desirable.

How to mend financial regulation

Wed,04 Nov 2009 01:43:59 GMT

My new column for the FT looks at current proposals for stronger financial regulation and finds them wanting.

More than a year after the US financial emergency went critical and threatened the global economy with its worst reverse since the 1930s, the underlying causes have yet to be addressed. When it comes to improving financial regulation, the crux of the matter, there has been a lot of talk - usually about the wrong things - and next to no action.
Last week, a committee of the House of Representatives, which has been co-operating with the Obama administration on this front, released a draft bill. It has some good ideas, such as creating an early resolution regime for non-bank financial institutions. It has some crazy ideas, such as aiming to keep secret a list of institutions subject to special oversight. Above all, it has plenty of material to get Congress riled up - especially the proposals to enlarge the supervisory role of the Federal Reserve.
Nothing matters to Capitol Hill so much as apportioning responsibilities and the power that goes with them. But who makes the rules is less important than what the rules say. Here the bill mostly opts out, granting discretion to regulators left and right. On issues of substance as opposed to form, it is vague to the point of silence.

Read on here, for what I think needs to be done.

The best show in America

Sun,01 Nov 2009 19:21:37 GMT

Last weekend I went to one of Levon Helm's Midnight Rambles. I wrote a gushing, and entirely sincere, review of the event for the FT. I suggested "The best show in America" as the title for the article but my editor, I think, deemed this a little over the top. If she had come along I think she might have agreed with me.

[Incidentally, the second picture was miscaptioned. That's Teresa Williams not Amy Helm--to be fixed shortly on the website. Thanks to Dennis and Mari, and to Michael, Michael, and Stacy for a great weekend.]

Costing the health care bills

Fri,30 Oct 2009 21:18:34 GMT

Michael Cannon at Cato draws my attention to these posts by Donald Marron, a former CBO director, on the confusion surrounding recent estimates of the cost of the health reform bills. (A good place to start in fact is this earlier post by Marron, which sets out the various definitions of "cost".) The president has promised that reform will not cost more than $1 trillion over ten years. The new House bill, on the definition used up to now, breaches that limit: therefore, its proponents adopted a different definition and at least to begin with almost everybody bought it. See also this piece from the NYT's health policy blog.

Lord Turner on the financial crisis

Fri,30 Oct 2009 20:50:02 GMT

Adair Turner of the UK Financial Services Authority gave a very good speech on the causes and implications of the financial crisis yesterday in Washington. The event was hosted by National Journal and the Economic Club of America. Video here for National Journal subscribers. Transcript here.

The speech drew on a new FSA discussion paper, prepared for a conference in London on Monday: well worth reading. I think I have already recommended this earlier discussion paper, which I still think gives one of the best overviews of the entire shambles.

Talking to Ken Feinberg

Tue,27 Oct 2009 22:44:29 GMT

This morning I took part in an event organized by Georgetown Law and the Aspen Institute: a conversation with Ken Feinberg, special master for executive compensation at firms receiving assistance under the TARP, followed by a panel discussion on some of the issues he raised, featuring Mike Oxley, Chris Brummer, John Olson and Nell Minow. Following last week's announcements on pay, the session was very well-timed.

Perhaps it is stating the obvious, but Feinberg is an extremely impressive man, with a remarkable appetite for difficult assignments. This may be his hardest job yet. I thought his comments were interesting. If you have a couple of hours to spare, you can watch video of the entire event here.

Dithering on public borrowing

Tue,27 Oct 2009 22:06:51 GMT

In a new column for National Journal I ask what needs to happen before this problem is taken seriously.

The public debt stands at nearly $8 trillion and within 10 years, according to Congressional Budget Office projections, it will be more than $14 trillion. Getting to that second figure in one piece depends on two things. Some optimistic economic assumptions need to hold, and investors need to be willing to lend the government another $6 trillion. Taking either of these things for granted would be foolish.
Almost everybody in Washington agrees that the fiscal outlook is scary. Almost everybody says that something must be done. But the options for confronting the problem come down to spending cuts or tax increases, and as soon as you mention either, an embarrassed silence descends.
The politicians are not as worried as they say they are. And the same is true of the public. If you believe the polls, voters are more anxious about public borrowing than their politicians are -- but not so worried as to welcome a rise in taxes (their own taxes, I mean) or cuts in Social Security or Medicare. They may be nervous about policies that would add to the fiscal problem -- hence their hesitation over health care reform -- but meaningful subtractions from the problem are a different matter.
Can anything be done? We have been here before. Washington has a time-honored procedure for such cases. Rather than thinking about entitlement reform or tax reform, it thinks about process reform.

And I go on to argue that process reform--despite the risk that it will degenerate into mere displacement activity--is not to be despised. In the past it has been a qualified success. Better that than having to deal with an otherwise unavoidable train wreck. You can read the whole column here.

Dithering on Afghanistan

Tue,27 Oct 2009 22:00:15 GMT

In my column this week for the FT I say that Obama has already taken much too long to make up his mind on Afghanistan.

After eight years of government by gut instinct, most Americans welcomed the arrival of a deliberative president. Yes, get the experts in. Reflect, weigh their advice. What a good idea.
And so it is if you are attempting, say, to reform the healthcare system. (A shame it was not tried.) There is even more to be said for taking your time if you are contemplating going to war. But when you are already fighting one, it has drawbacks. The US has been at war in Afghanistan for eight years - and it is losing. On this issue, Barack Obama is giving deliberation a bad name. He needs to make his mind up.

You can read the rest of it here.

The public option lives

Fri,23 Oct 2009 04:19:45 GMT

The idea of a public option in healthcare reform is not dead yet. A lot of Democrats believe you need it to hold down costs. A lot also see it as a first stride towards Medicare-for-all, which is where they want the system to end up. Obama has signalled he is ready to drop the idea, but has given no strong steer one way or the other. The party, especially in the House, is not willing to give up on it just yet.

One of the things keeping the notion afloat is the belief that voters, too, are pretty keen. I've blogged before about this (here and here), noting that the polling results are actually all over the place. The answer depends on the way the question is framed. The variation also suggests confusion--which is warranted, given the complexity of these proposals, with or without the option.

The excellent Jay Cost at Real Clear Politics has taken a much more careful look at the question. Framing is everything, he finds, and questions which draw attention to possible consequences of the option elicit less support.

Cost draws attention to some Rasmussen polling. When asked,

"Would you favor or oppose the creation of a government-sponsored non-profit health insurance option that people could choose instead of a private health insurance plan?"

the answer is strong approval. Then comes a follow-up question.

"Suppose that the creation of a government-sponsored non-profit health insurance option encouraged companies to drop private health insurance coverage for their workers. Workers would then be covered by the government option. Would you favor or oppose the creation of a government-sponsored non-profit health insurance option if it encouraged companies to drop private health insurance coverage for their workers?"

A clear majority is now opposed.

So, does this mean that the public is actually against the public option? I'd say no. Instead, I would suggest that the public lacks sufficient information about that specific item to deliver a firm opinion. Accordingly, its opinion varies depending upon question wording, priming effects, the ebbs and flows of the news cycle, and so on.

Sounds right to me.

Passing a health reform bill is just a start

Wed,21 Oct 2009 01:31:58 GMT

My new column for the FT asks: suppose a plan like the Senate finance committee's bill passes, then what?

One thing this bill or any other would not do, though, is end the controversy over US healthcare. The battle would move to new ground. The argument over access to health insurance would subside - this would be Mr Obama's lasting success - but the argument over paying for it would become even more intense. The committee's bill conforms to Mr Obama's demand that it be "deficit-neutral", but for the most part only pretends to deal with the costs...

[T]he bill, if it passes, is unfinished business with a vengeance. The implication is clear: here is one more reason why US taxes will have to rise. If Medicare recipients resist cuts in their services, as they will, higher taxes will be needed to pay for the subsidies. Reducing the subsidies is not the answer, because this will worsen the insurers' risk pool, raise health-cost inflation, and roll back gains in coverage.

In the end it should come as no surprise that providing wider access to health insurance is going to cost taxpayers money, but the advocates of this change - to repeat, a desirable and long overdue reform - are doing nothing to prepare the country for this unavoidable result.

This column by Ross Douthat is on the same page so far as financial consequences are concerned. He advocates a more limited form of universal access--to coverage with a very high, income-related deductible, or so-called catastrophic insurance. As he says, this has been proposed by Martin Feldstein and Brad DeLong, conservative and liberal respectively, so the idea has cross-party appeal.

There's certainly a lot to be said for this approach. Feldstein and DeLong differ in important ways (DeLong wants to shut down private health insurance altogether) but they agree that the taxpayer should pay for healthcare expenses above a high threshold, and that the tax deduction for employer-provided insurance (which costs more than $200 billion a year) should be abolished to pay for it. Either of their plans would strengthen the individual incentives to economise up to the threshold. I only wonder if a deductible as high as they envisage (15% of gross income; DeLong favors an income-tax increase of 5 percentage points on top of that) could be made to stick.

More on the Nobel

Fri,16 Oct 2009 20:01:44 GMT

Charles Krauthammer and Bill Schneider offer contrasting takes. Krauthammer as always makes some powerful points. His catalogue of Obama's failures to date is correct, isn't it? In particular, Russia's lack of response to the administration's multi-track overtures has received too little attention.

And what's come from Obama's single most dramatic foreign policy stroke -- the sudden abrogation of missile defense arrangements with Poland and the Czech Republic that Russia had virulently opposed? For the East Europeans it was a crushing blow, a gratuitous restoration of Russian influence over a region that thought it had regained independence under American protection.

But maybe not gratuitous. Surely we got something in return for selling out our friends. Some brilliant secret trade-off to get strong Russian support for stopping Iran from going nuclear before it's too late? Just wait and see, said administration officials, who then gleefully played up an oblique statement by President Dmitry Medvedev a week later as vindication of the missile defense betrayal.

The Russian statement was so equivocal that such a claim seemed a ridiculous stretch at the time. Well, Clinton went to Moscow this week to nail down the deal. What did she get?

"Russia Not Budging On Iran Sanctions: Clinton Unable to Sway Counterpart." Such was The Washington Post headline's succinct summary of the debacle.

You can make a better case than Krauthammer allows for changing the missile-shield policy, but the fact that Russia hasn't budged on Iran is indeed a notable failure.

Krauthammer goes much further, of course, and says that calling Obama's Nobel merely "premature" is absurd. He thinks we can already write off the administration's whole approach. There he loses me. Such certainty, less than a year in, seems as daft as saying it's all going great.

Bankers' pay

Fri,16 Oct 2009 17:49:46 GMT

I think this FT leader is very good. First it says that public money underwrites the bonuses banks are getting ready to hand out. That is a familiar point but one that deserves to be emphasised. Then it puts its finger on something mentioned less often. These huge bonus pools are diverting funds that could be used to build capital, which the industry as a whole urgently needs to do.

The problem is not limited to the bonuses on which political debate has unhelpfully focused. It is widely agreed that variable pay must be designed to discourage risks to the economy. But current plans for regulating pay will not limit the total amount bankers extract from profits, which could instead be added to capital.

In principle, other planned regulation - strong insolvency regimes and risk-sensitive capital requirements - can limit banks' profits from risks underwritten by others. But it will take years before these are credibly enforced.

Yes. At the present rate of progress, in fact, one wonders if they will ever be credibly enforced. In any event, regulation of the overall level of bankers' pay, not just its design with respect to risk-taking, is evidently going to be needed--something I never expected to say.

Frontline on Afghanistan

Wed,14 Oct 2009 16:43:02 GMT

I thought last night's PBS Frontline documentary on Afghanistan was excellent, if depressing. If you didn't see it you can watch it here. The scene where the US marine starts to lose his temper with the people he is trying to protect makes you wince. Talking through a translator who spoke neither the local dialect nor English all that well--"I'm asking you for the fifth time"--the marine's posture is impatient throughout and increasingly exasperated. He eventually resorts to an outright threat. The villagers' not unreasonable response: What do want us to do? You have tanks and planes. If you can't beat the Taliban, how do you expect us to?

This is counter-insurgency? Impossible to say, of course, how representative an encounter it was, but the situation looked all too plausible. You could not help but think that what we are asking of our forces--with little training and no aptitude for this kind of work--is just impossible.

If that isn't enough to make you gloomy, this WashPo piece today might do the trick.

The case for a VAT

Tue,13 Oct 2009 19:04:30 GMT

An excellent column by Henry Aaron and Isabel Sawhill.

So here is what we propose: Congress should enact a value-added tax, the equivalent of a broad-based sales tax on all goods and services. It should take effect only after unemployment has fallen to a predetermined level or in, say, five years, whichever comes first. Congress should link revenue from the new tax and other sources directly to public health-care spending through a newly created health-care trust fund. The trust fund would pay for all federal health-care spending. This framework would mean that Americans would get the health care they are willing to pay for. If spending outpaces projections, Congress will have to choose between raising taxes and finding ways to slow the growth of spending.

By balancing revenue and health-care spending, such a reform would help solve America's long-term fiscal problems. In the near term, it would also support and sustain the economic recovery. Consumers would be encouraged to buy now, before the tax takes effect. And by showing financial markets that Congress is determined to put our fiscal household in order, it would help keep interest rates low and encourage investment. The trust fund mechanism would strengthen incentives to institute reforms that will actually bend the health-care cost curve, because measures to slow the growth of health-care spending would avoid unpopular future tax increases that would otherwise be necessary.

This is a good idea.

Last year, by the way, I praised a book by Zeke Emanuel which makes the same points while laying out a basic blueprint for healthcare reform. Healthcare, Guaranteed is still the best thing I've read on the conjoined issues of tax reform and healthcare reform. The policy in the works is not going to be like this, needless to say, but the country might get there in the end. For the reasons Aaron and Sawhill say, it had better. Unfortunately Emanuel has been silent on the subject since going on to the White House payroll (where he has faced a lot of brainless criticism on the "death panels" issue). I think he would be more valuable educating the public than advising the president.