Tag Archives: Clive Crook

We Have A Letter From Ireland Here

Niamh Hardiman:

Ireland’s fiscal crisis is largely caused by the collapse of the house price bubble and over-reliance on revenues from construction-related activities. This is bad enough, but by itself it would be difficult but manageable. The millstone around the neck of the Irish people is the vast scale of the crisis in the banking sector. Ireland’s banking crisis is not primarily about complicated and risky financial products: it is a common-or-garden result of reckless lending for property development and an inadequate regulatory regime. Between 2004 and 2007, the banks had escalated the scale of their lending to construction and property development enormously. When financial meltdown was imminent in September 2008, the government undertook to guarantee all of the banks’ losses, bondholders as well as depositors. In what is now widely regarded as a terrible mistake, the government in effect socialized the enormous private debt of the banks.

The true picture of what is entailed has been slow to emerge. The government’s attempts to shore up the banks have not involved outright nationalization, but the creation of a National Asset Management Agency (NAMA) to transfer the bulk of the banks’ non-performing property-backed loans into a special purchase vehicle, at a discounted rate. This amounts to indirect recapitalization of the banks. The total cost of Nama-type loan loss is now estimated at €66 billion. This is, in effect, half of GNP (the best measure of the taxable resource base of the Irish economy), which in 2009 amounted to €131.2bn. Mortgage and personal loan losses have not yet come fully into focus, but may amount to an additional €25 billion.

The present government, a coalition between the dominant centre-right Fianna Fáil and the Green Party, must go to the polls soon, and they will certainly be trounced. But unpopular though it is, the government was adamant until almost the last moment that it did not need or ask for the rescue package. Borrowing needs were fully met until mid-2011, and government had no need to go back to the bond markets. ECB as well as European Commission representatives had been on an extended visit to the Department of Finance, inspecting plans for the budget due on 7 December, in line with the strengthened fiscal oversight practices in the Eurozone. EU Commissioner for Economic and Monetary Affairs Olli Rehn had declared himself happy with the plans he had seen.  Austerity measures were projected to take some €4bn out of the economy as part of the planned fiscal consolidation strategy. This was intended to ensure conformity with the Stability and Growth Pact requirements of 3% deficit by 2014.

Yet Ireland is now committed to an IMF-EU rescue package worth €85bn over the coming years, to fund both government spending and to support the costs of sorting out the crisis in the banks. It all happened very quickly, and indeed one government minister said they were bounced into it. The terms are set out in the government’s new four-year fiscal plan. The interest rate involved is not low, at an average of 5.87%. The total fiscal contraction will come to €15bn, though the deadline is now extended until 2015. The December budget alone will take out €6bn in a mix of spending cuts and tax increases. This is tougher than anything that had been envisaged so far. In addition, the National Pension Reserve Fund, a rainy-day measure set against future public pension liabilities, is to be used as part of the bail-out package. Most controversially from the point of view of Irish taxpayers, while these public assets are to be committed to the front line of bank recapitalization, the banks’ bondholders are not to be required to bear any losses. The most equitable adjustment measure, from the point of view of the Irish taxpayers, would have required some element of writing down outstanding debt through an orderly restructuring, that is, burning the bondholders. But this could damage government’s capacity to raise future funds through borrowing; government ministers stress that they really had no option in this. Yet there is palpable anger in Ireland at the outcome which ensures that the banks will be bailed out while the cost is to be borne in full by the taxpayers.

Paul Krugman:

Kevin O’Rourke has put out a beautifully written, heartfelt piece on Ireland’s woes. Read it and weep.

Update: Gah — we seem to have overwhelmed the hamsters at Eurointelligence. I’m going to put O’Rourke’s text under the fold for the time being.

Letter from Dublin

It is one thing to know that someone you love is terminally ill; their death still comes as a shock.

I certainly don’t want to compare the arrival of the EU-IMF team in Dublin last week to a bereavement. But I was surprised at how upsetting I found it, given that it came as no surprise. It had been clear for a long time that the blanket guarantee given to the liabilities of Ireland’s rotten banks, in September 2008, had saddled the State with a debt that was too big for it to handle. Ten successive quarters of declining real GNP, and one attempt too many to draw a line under the losses of our banks, made our exclusion from international capital markets inevitable. But to know something is one thing; to see it actually happen is something entirely different.

I am not alone in feeling this way, it seems. The economics editor of the Irish Times, Dan O’Brien, wrote that

nothing quite symbolised this State’s loss of sovereignty than the press conference at which the ECB man spoke along with two IMF men and a European Commission official. It was held in the Government press centre beneath the Taoiseach’s office. I am a xenophile and cosmopolitan by nature, but to see foreign technocrats take over the very heart of the apparatus of this State to tell the media how the State will be run into the foreseeable future caused a sickening feeling in the pit of my stomach.

This is not to say that we would be happy to have our country’s affairs managed by the current, disgraced, government. I yield to no-one in my loathing of the men and women who have done this to my country. What has been the intellectual low-point of the last couple of years? Was it the cash-for-clunkers stimulus package (Ireland does not produce any cars)? Or the statement by our Finance Minister that Ireland need not fear a bank run, since Ireland is an island? Or the biggest Irish joke of them all, which underpinned the bank guarantee in the first place: that if we wanted investors to retain confidence in the creditworthiness of the Irish State, we needed to make sure that nobody who invested in our (private sector) banks ever lost a penny?

The latter decision is the one that sank the country. It was the last great act of hubris of the Celtic Bubble, and was immediately denounced by one of the heroes of the crisis, my old UCD colleague Morgan Kelly. On the night the guarantee was announced, Kelly pointed out that while it was the right policy if the Irish banks were facing a liquidity crisis, it was a terrible policy if they were insolvent, which was in fact the case. As they always do when confronted with someone smarter than them, the Dublin establishment circled the wagons, and Kelly was dismissed as an irresponsible young troublemaker of no consequence. He has been proved right, of course, but the establishment is still at it, making the
same fundamental mistake of thinking that a solvency crisis is just a liquidity crisis. Now, however, the establishment is European as well as Irish, and it is the State rather than the banking sector which is insolvent.

Clive Crook:

David Gardner draws my attention to this Letter from Dublin by Kevin O’Rourke, one of Ireland’s most distinguished economists. It might be the best single thing I’ve read on the Irish crisis. Analytically astute, and moving too. Just how profound a blow this has been comes through. It is not just an economic and political crisis, but a full-blown constitutional crisis. And the European Union has made it all so much worse than it needed to be.

Brad DeLong

Barry Eichengreen:

The Irish “rescue package” finalized over the weekend is a disaster. You can say one thing for the European Commission, the ECB and the German government: they never miss an opportunity to make things worse.

It pains me to say this. I’m probably the most pro-euro economist on my side of the Atlantic. Not because I think the euro area is the perfect monetary union, but because I have always thought that a Europe of scores of national currencies would be even less stable. I’m also a believer in the larger European project. But given this abject failure of European and German leadership, I am going to have to rethink my position.

The Irish “program” solves exactly nothing – it simply kicks the can down the road. A public debt that will now top out at around 130 per cent of GDP has not been reduced by a single cent. The interest payments that the Irish sovereign will have to make have not been reduced by a single cent, given the rate of 5.8% on the international loan. After a couple of years, not just interest but also principal is supposed to begin to be repaid. Ireland will be transferring nearly 10 per cent of its national income as reparations to the bondholders, year after painful year.

This is not politically sustainable, as anyone who remembers Germany’s own experience with World War I reparations should know. A populist backlash is inevitable. The Commission, the ECB and the German Government have set the stage for a situation where Ireland’s new government, once formed early next year, rejects the budget negotiated by its predecessor. Do Mr. Trichet and Mrs. Merkel have a contingency plan for this?

Kevin Drum:

As a resident of California, I have some advice for the EU: something good is really unlikely to turn up. Kicking the can down the road just makes the can mad. Like it or not, you’re better off dealing with this stuff sooner rather than later.

Megan McArdle:

There’s no question that it is morally outrageous for taxpayers who had nothing to do with the overlending to be saddled with the costs, while bondholders who should have watched where they put their money, walk away scot free.  Moreover, I cannot but believe that this is creating considerable moral hazard; investing in bank debt starts to look something like investing in the sovereign debt of the country where the bank is.

And yet it seems to me that the practical question remains: is Ireland actually better off if it does this?  Are the taxpayers?  Couldn’t the contagion get worse?  We’re talking about a country that has been the net recipient of a lot of foreign capital over the years (which is why, in part, the Irish are so outraged.)  The government is running a sizeable primary deficit, and as far as I can tell, expects to for at least a couple of years.  If telling the bondholders to take a haircut triggered capital flight, wouldn’t that mean dramatic austerity right now, as the government was suddenly forced to balance its books?  What about the contraction of household credit?
I’m asking the question, not answering it: I genuinely don’t know.  The EU could have backstopped Ireland’s government spending without a guarantee for the bondholders, of course.  Probably, they should have.  But was that very likely to happen?  These are countries where the banks are “too big to save”–where the bank liabilities are twice GDP, or even higher.  They’re very wary of anything that makes their financial sector even slightly less sound.
Have there been any really successful situations where the bank bondholders were not made whole? Again, I’m asking, not answering; I would feel a lot better about saying Ireland should take this course if I knew of instances where it had been successfully pulled off in the past.  As far as I can tell, even famously “tough” solutions like the Swedish nationalization ultimately made the bondholders whole, as the FDIC does in our own country.  The logic is simple: a run on bank bonds looks like a slow-motion run on the banks.
To be clear, I am not arguing that bailing out the bondholders at taxpayer expense is right or fair; it is not right, and it is monstrously unfair.  I am only arguing that doing the fair and right thing, and making the bondholders eat the losses instead of the taxpayer, might end up costing taxpayers even more.  For example, I’d argue that whatever it might have cost taxpayers to prop up all the banks in 1929, that burden would have been infinitely preferable to the Great Depression.

I guess we can find some small comfort in the fact that another country is doing it even more wrong.

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Helicopter Ben Now In Holding Pattern, Neutral In Tone

The Fed, with Ben Bernanke’s speech:

The annual meeting at Jackson Hole always provides a valuable opportunity to reflect on the economic and financial developments of the preceding year, and recently we have had a great deal on which to reflect. A year ago, in my remarks to this conference, I reviewed the response of the global policy community to the financial crisis.1 On the whole, when the eruption of the Panic of 2008 threatened the very foundations of the global economy, the world rose to the challenge, with a remarkable degree of international cooperation, despite very difficult conditions and compressed time frames. And when last we gathered here, there were strong indications that the sharp contraction of the global economy of late 2008 and early 2009 had ended. Most economies were growing again, and international trade was once again expanding.

Notwithstanding some important steps forward, however, as we return once again to Jackson Hole I think we would all agree that, for much of the world, the task of economic recovery and repair remains far from complete. In many countries, including the United States and most other advanced industrial nations, growth during the past year has been too slow and joblessness remains too high. Financial conditions are generally much improved, but bank credit remains tight; moreover, much of the work of implementing financial reform lies ahead of us. Managing fiscal deficits and debt is a daunting challenge for many countries, and imbalances in global trade and current accounts remain a persistent problem.

This list of concerns makes clear that a return to strong and stable economic growth will require appropriate and effective responses from economic policymakers across a wide spectrum, as well as from leaders in the private sector. Central bankers alone cannot solve the world’s economic problems. That said, monetary policy continues to play a prominent role in promoting the economic recovery and will be the focus of my remarks today. I will begin with an update on the economic outlook in the United States and then review the measures that the Federal Open Market Committee (FOMC) has taken to support the economic recovery and maintain price stability. I will conclude by discussing and evaluating some policy options that the FOMC has at its disposal, should further action become necessary.

The Economic Outlook
As I noted at the outset, when we last gathered here, the deep economic contraction had ended, and we were seeing broad stabilization in global economic activity and the beginnings of a recovery. Concerted government efforts to restore confidence in the financial system, including the aggressive provision of liquidity by central banks, were essential in achieving that outcome. Monetary policies in many countries had been eased aggressively. Fiscal policy–including stimulus packages, expansions of the social safety net, and the countercyclical spending and tax policies known collectively as automatic stabilizers–also helped to arrest the global decline. Once demand began to stabilize, firms gained sufficient confidence to increase production and slow the rapid liquidation of inventories that they had begun during the contraction. Expansionary fiscal policies and a powerful inventory cycle, helped by a recovery in international trade and improved financial conditions, fueled a significant pickup in growth.

At best, though, fiscal impetus and the inventory cycle can drive recovery only temporarily. For a sustained expansion to take hold, growth in private final demand–notably, consumer spending and business fixed investment–must ultimately take the lead. On the whole, in the United States, that critical handoff appears to be under way.

However, although private final demand, output, and employment have indeed been growing for more than a year, the pace of that growth recently appears somewhat less vigorous than we expected. Notably, since stabilizing in mid-2009, real household spending in the United States has grown in the range of 1 to 2 percent at annual rates, a relatively modest pace. Households’ caution is understandable. Importantly, the painfully slow recovery in the labor market has restrained growth in labor income, raised uncertainty about job security and prospects, and damped confidence. Also, although consumer credit shows some signs of thawing, responses to our Senior Loan Officer Opinion Survey on Bank Lending Practices suggest that lending standards to households generally remain tight.2

The prospects for household spending depend to a significant extent on how the jobs situation evolves. But the pace of spending will also depend on the progress that households make in repairing their financial positions. Among the most notable results to emerge from the recent revision of the U.S. national income data is that, in recent quarters, household saving has been higher than we thought–averaging near 6 percent of disposable income rather than 4 percent, as the earlier data showed.3 On the one hand, this finding suggests that households, collectively, are even more cautious about the economic outlook and their own prospects than we previously believed. But on the other hand, the upward revision to the saving rate also implies greater progress in the repair of household balance sheets. Stronger balance sheets should in turn allow households to increase their spending more rapidly as credit conditions ease and the overall economy improves.

Household finances and attitudes also bear heavily on the housing market, which has generally remained depressed. In particular, home sales dropped sharply following the recent expiration of the homebuyers’ tax credit. Going forward, improved affordability–the result of lower house prices and record-low mortgage rates–should boost the demand for housing. However, the overhang of foreclosed-upon and vacant housing and the difficulties of many households in obtaining mortgage financing are likely to continue to weigh on the pace of residential investment for some time yet.

In the business sector, real investment in equipment and software rose at an annual rate of more than 20 percent over the first half of the year. Some of these gains no doubt reflected spending that had been deferred during the crisis, including investments to replace or update existing equipment. Consequently, investment in equipment and software will almost certainly increase more slowly over the remainder of this year, though it should continue to advance at a solid pace. In contrast, outside of a few areas such as drilling and mining, business investment in structures has continued to contract, although the rate of contraction appears to be slowing.

Although most firms faced problems obtaining credit during the depths of the crisis, over the past year or so a divide has opened between large firms that are able to tap public securities markets and small firms that largely depend on banks. Generally speaking, large firms in good financial condition can obtain credit easily and on favorable terms; moreover, many large firms are holding exceptionally large amounts of cash on their balance sheets. For these firms, willingness to expand–and, in particular, to add permanent employees–depends primarily on expected increases in demand for their products, not on financing costs. Bank-dependent smaller firms, by contrast, have faced significantly greater problems obtaining credit, according to surveys and anecdotes. The Federal Reserve, together with other regulators, has been engaged in significant efforts to improve the credit environment for small businesses. For example, through the provision of specific guidance and extensive examiner training, we are working to help banks strike a good balance between appropriate prudence and reasonable willingness to make loans to creditworthy borrowers. We have also engaged in extensive outreach efforts to banks and small businesses. There is some hopeful news on this front: For the most part, bank lending terms and conditions appear to be stabilizing and are even beginning to ease in some cases, and banks reportedly have become more proactive in seeking out creditworthy borrowers.

Incoming data on the labor market have remained disappointing. Private-sector employment has grown only sluggishly, the small decline in the unemployment rate is attributable more to reduced labor force participation than to job creation, and initial claims for unemployment insurance remain high. Firms are reluctant to add permanent employees, citing slow growth of sales and elevated economic and regulatory uncertainty. In lieu of adding permanent workers, some firms have increased labor input by increasing workweeks, offering full-time work to part-time workers, and making extensive use of temporary workers.

Pete Davis:

After a detailed review of recent subpar U.S. economic performance, he discussed the pros and cons of more quantitative easing.   Rarely have other Fed chairs offered such insight into their thinking, but, based upon his extensive study of the Depression, Mr. Bernanke strongly believes that Fed transparency is essential to reviving markets.   So the Federal Open Market Committee stands ready to provide more quantitative easing at its September 21 meeting, if not before, if the economy continues to falter.   We are fortunate to have Mr. Bernanke’s leadership in this crisis.

Gavyn Davies at Financial Times:

The much awaited speech by Ben Bernanke at Jackson Hole was largely a holding operation. He did not deviate much, if at all, from the tone of the statement issued after the August meeting of the FOMC, which is understandable given that his policy committee contains several members who do not want the Fed chairman to offer any strong hints about further policy easing at this stage. More evidence of a weakening US economy, and much more discussion within the committee, will be needed before this can happen.

Mr Bernanke’s description of the current and future prospects for the economy was a little more up-beat than the current consensus of opinion among market economists, and more optimistic than my own assessment. Picking over the details of what he said, he suggested that GDP growth would be moderate in the remainder of 2010, and would rise next year, with unemployment and capacity utilisation falling slightly in 2011. This implies that he expects GDP growth in 2011 to be somewhere around 2.5 per cent, just fractionally above the long term trend; and that in turn might imply a growth rate of around 1.5 to 2 per cent in the second half of 2010. This would be roughly the same as the GDP growth rate in Q2, which has just been revised downwards to 1.6 per cent.

Importantly, there was no hint that the Fed expects a double dip in the economy, and there was an explicit statement to the effect that the risks of falling into deflation are very low. However, the chairman said that the inflation rate was already a little below the rate which the Fed considers optimal, and he gave a fairly clear commitment that the FOMC would “certainly use its tools as needed to maintain price stability – avoiding excessive inflation or further disinflation.” The last two words might be read as slightly dovish, since he clearly wants to avoid any further drop in core inflation from its current 1 per cent rate, and therefore will not wait until there is a serious threat of outright deflation (falling prices) before taking further action.

Clive Crook:

I would have been astonished if he had outright promised more QE or other steps: this was not the occasion. Even so, the neutral tone was a bit more neutral — a bit less friendly to renewed action — than I had expected. He said that the current risk of falling into deflation is not “significant”, partly because the public trusts him and the Fed to get it right. That seems just a little complacent. Of course, he says he is attentive and ready to change his mind, but still…

Justin Fox at Ezra Klein’s place:

The Fed chairman’s basic message was the same thing he’s been saying for more than a year: There are downside risks, but we have the tools to combat them. And we know that at some point we’ll have vacuum up most of this money we’ve printed. But that point is still far (recedingly far) in the distance.

One passage of the speech that did get my attention was this, as Bernanke explained the Federal Open Market Committee’s recent decision to reinvest the proceeds of maturing mortgage securities (they’re maturing faster than expected because so many people have been refinancing their mortgages to take advantage of ultra-low rates):

We decided to reinvest in Treasury securities rather than agency securities because the Federal Reserve already owns a very large share of available agency securities, suggesting that reinvestment in Treasury securities might be more effective in reducing longer-term interest rates and improving financial conditions with less chance of adverse effects on market functioning.

In other words, we already own everybody’s mortgages, so no point in buying more. Our nation’s mortgage-finance industry is for the time being a wholly owned subsidiary of the Federal Reserve System. Now that’s what I call really existing socialism.

Paul Krugman:

Bernanke more or less admitted that the economic situation has developed not necessarily to America’s advantage, nothing like the growth he was predicting six months ago. But he argued that 2011 will be better, because … well, it was hard to see exactly why. He offered no major drivers of growth, just a general argument that businesses will invest more despite huge excess capacity, and consumers spend more despite still-huge debts and home prices that are likely to resume their decline.

Oh, and sure enough, he declared that inflation expectations are well-anchored, although the market says otherwise.

So: I guess this speech marked a small step toward QE2 and all that. But mainly the message was that just around the corner, there’s a rainbow in the sky.

So I’m going to have another cup of coffee, but skip the pie (in the sky).

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All Things Must Pass

Atul Gawande at the New Yorker:

For all but our most recent history, dying was typically a brief process. Whether the cause was childhood infection, difficult childbirth, heart attack, or pneumonia, the interval between recognizing that you had a life-threatening ailment and death was often just a matter of days or weeks. Consider how our Presidents died before the modern era. George Washington developed a throat infection at home on December 13, 1799, that killed him by the next evening. John Quincy Adams, Millard Fillmore, and Andrew Johnson all succumbed to strokes, and died within two days. Rutherford Hayes had a heart attack and died three days later. Some deadly illnesses took a longer course: James Monroe and Andrew Jackson died from the months-long consumptive process of what appears to have been tuberculosis; Ulysses Grant’s oral cancer took a year to kill him; and James Madison was bedridden for two years before dying of “old age.” But, as the end-of-life researcher Joanne Lynn has observed, people usually experienced life-threatening illness the way they experienced bad weather—as something that struck with little warning—and you either got through it or you didn’t.

Dying used to be accompanied by a prescribed set of customs. Guides to ars moriendi, the art of dying, were extraordinarily popular; a 1415 medieval Latin text was reprinted in more than a hundred editions across Europe. Reaffirming one’s faith, repenting one’s sins, and letting go of one’s worldly possessions and desires were crucial, and the guides provided families with prayers and questions for the dying in order to put them in the right frame of mind during their final hours. Last words came to hold a particular place of reverence.

These days, swift catastrophic illness is the exception; for most people, death comes only after long medical struggle with an incurable condition—advanced cancer, progressive organ failure (usually the heart, kidney, or liver), or the multiple debilities of very old age. In all such cases, death is certain, but the timing isn’t. So everyone struggles with this uncertainty—with how, and when, to accept that the battle is lost. As for last words, they hardly seem to exist anymore. Technology sustains our organs until we are well past the point of awareness and coherence. Besides, how do you attend to the thoughts and concerns of the dying when medicine has made it almost impossible to be sure who the dying even are? Is someone with terminal cancer, dementia, incurable congestive heart failure dying, exactly?

I once cared for a woman in her sixties who had severe chest and abdominal pain from a bowel obstruction that had ruptured her colon, caused her to have a heart attack, and put her into septic shock and renal failure. I performed an emergency operation to remove the damaged length of colon and give her a colostomy. A cardiologist stented her coronary arteries. We put her on dialysis, a ventilator, and intravenous feeding, and stabilized her. After a couple of weeks, though, it was clear that she was not going to get much better. The septic shock had left her with heart and respiratory failure as well as dry gangrene of her foot, which would have to be amputated. She had a large, open abdominal wound with leaking bowel contents, which would require twice-a-day cleaning and dressing for weeks in order to heal. She would not be able to eat. She would need a tracheotomy. Her kidneys were gone, and she would have to spend three days a week on a dialysis machine for the rest of her life.

She was unmarried and without children. So I sat with her sisters in the I.C.U. family room to talk about whether we should proceed with the amputation and the tracheotomy. “Is she dying?” one of the sisters asked me. I didn’t know how to answer the question. I wasn’t even sure what the word “dying” meant anymore. In the past few decades, medical science has rendered obsolete centuries of experience, tradition, and language about our mortality, and created a new difficulty for mankind: how to die.


The difference between standard medical care and hospice is not the difference between treating and doing nothing, she explained. The difference was in your priorities. In ordinary medicine, the goal is to extend life. We’ll sacrifice the quality of your existence now—by performing surgery, providing chemotherapy, putting you in intensive care—for the chance of gaining time later. Hospice deploys nurses, doctors, and social workers to help people with a fatal illness have the fullest possible lives right now. That means focussing on objectives like freedom from pain and discomfort, or maintaining mental awareness for as long as possible, or getting out with family once in a while. Hospice and palliative-care specialists aren’t much concerned about whether that makes people’s lives longer or shorter.

Like many people, I had believed that hospice care hastens death, because patients forgo hospital treatments and are allowed high-dose narcotics to combat pain. But studies suggest otherwise. In one, researchers followed 4,493 Medicare patients with either terminal cancer or congestive heart failure. They found no difference in survival time between hospice and non-hospice patients with breast cancer, prostate cancer, and colon cancer. Curiously, hospice care seemed to extend survival for some patients; those with pancreatic cancer gained an average of three weeks, those with lung cancer gained six weeks, and those with congestive heart failure gained three months. The lesson seems almost Zen: you live longer only when you stop trying to live longer. When Cox was transferred to hospice care, her doctors thought that she wouldn’t live much longer than a few weeks. With the supportive hospice therapy she received, she had already lived for a year.

Creed enters people’s lives at a strange moment—when they have understood that they have a fatal illness but have not necessarily acknowledged that they are dying. “I’d say only about a quarter have accepted their fate when they come into hospice,” she said. When she first encounters her patients, many feel that they have simply been abandoned by their doctors. “Ninety-nine per cent understand they’re dying, but one hundred per cent hope they’re not,” she says. “They still want to beat their disease.” The initial visit is always tricky, but she has found ways to smooth things over. “A nurse has five seconds to make a patient like you and trust you. It’s in the whole way you present yourself. I do not come in saying, ‘I’m so sorry.’ Instead, it’s: ‘I’m the hospice nurse, and here’s what I have to offer you to make your life better. And I know we don’t have a lot of time to waste.’ ”

Mollie Wilson O’Reilly at dot Commonweal:

The article looks at how hospice care is “helping to negotiate an ars moriendi for our age. But doing so represents a struggle—not only against suffering but also against the seemingly unstoppable momentum of medical treatment.” Gawande points to a study that showed that doctors are actually far more likely to overestimate a terminally ill patient’s survival time than to underestimate — and that’s when they’re willing to make a guess at all, which they are understandably reluctant to do. No one wants to talk about death, and patients are liable to feel betrayed by a doctor who tries to get them focused on quality over quantity with the time they have left. Gawande knows this from experience as well as from statistics.

The article is long and often grim, but very much worth reading and pondering. I was struck by Gawande’s reference to Stephen Jay Gould, who argued in his 1985 essay “The Median Isn’t the Message” that “it has become, in my view, a bit too trendy to regard the acceptance of death as something tantamount to intrinsic dignity.” Gould preferred to rage against the dying of the light, and that worked for him — he survived a grim cancer diagnosis. But, Gawande says, “The trouble is that we’ve built our medical system and culture around the long tail” — that is, around the thin possibility of survival. “Hope is not a plan,” Gawande writes, “but hope is our plan.”

Ross Douthat

Clive Crook:

The money wasted on ill-advised end-of-life-care — colossal though the sums may be — ought not to be the main focus of discussion. It will have to be talked about, of course, but that framing of the issue is disturbing and divisive. Before we get to that, we should be talking about the patients’ interests, as those interests would be judged by patients themselves, given all the facts.This is not about death panels. It is about patients’ rights.

Megan McArdle:

I’m probably going to have a lot of thoughts about this Atul Gawande piece on hospice care, but here’s a slightly off the wall question:  how much better off are patients now that doctors don’t lie to them?  My understanding is that in the late nineteenth and earlier twentieth centuries, and possibly right up through the fifties and sixties, doctors routinely lied to terminal patients.  That’s changed, partly due to changing cultural views about this sort of paternalism, and partly, I suspect, because we can somewhat extend peoples’ lives by doing many unpleasant things to them.  Since no one would put up with this unless they knew they were dying, we have to tell them they’re dying.

Gawande’s piece, however, makes a pretty credible argument that a lot of the things we do are next to useless, prolonging neither quality nor quantity of life.  If that’s the case, couldn’t one possibly argue that we’d be better off if more doctors lied, made us comfortable, and let us enjoy our final days without constantly entertaining thoughts of impending death?

I don’t like public paternalism, and I’m not much fonder of the private version.  But I’m genuinely curious as to what sorts of benefits people think we gain by knowing for certain that death is coming.  We romanticize the good death, but from what I understand, death has almost always been nasty and brutish, whether long or short.  How is it improved by knowing it’s coming?  I haven’t had a lot of relatives die, so I’m sure I’m missing quite a lot.  I’m hoping my readers can fill me in.

Heather Horn at The Atlantic with a round-up

Ezra Klein:

I want to talk about death panels here, and the difficulty we had in even assuring that doctors are paid for having a conversation with patients about end-of-life options, but I don’t want to recast this as a political argument. The problem is, as with many things in medicine, a question that is terrifying intimate also has enormous public policy implications, as the last year of life is incredibly expensive, and it’s paid for by Medicare, which means it’s paid for by taxpayers. This is a difficult enough conversation to have without tossing politics and economics into the mix, but they’re present whether we want them there or not. And so we’ve responded by ignoring the question, shouting it down when it comes up, and paying whatever’s necessary to avoid a discussion we don’t know how to have. That’s not just a bad solution for taxpayers, of course. As Gawande says, it’s a bad solution for patients, their families and their doctors.

Update: I think it’d be useful to offer people a refresher on what the ‘death panels’ actually were.

Kevin Drum:

Toward the end of his piece he mentions a study Aetna did with hospice care. In one study, Aetna allowed people to sign up for home hospice services without giving up any of their other treatments. Result: lots of people signed up for hospice care and ended up consuming less traditional care. In the second study, more traditional rules applied: if you signed up for home hospice care you had to give up on traditional curative treatments. Result: pretty much the same.

What was going on here? The program’s leaders had the impression that they had simply given patients someone experienced and knowledgeable to talk to about their daily needs. And somehow that was enough — just talking.

The explanation strains credibility, but evidence for it has grown in recent years.

I guess maybe I’m just weird, but this explanation doesn’t seem to strain credibility in the least. It’s exactly what I’d expect. Obviously there are lots of different people in the world and they have lots of different dispositions, but I’d guess that there’s a huge chunk of them who are basically just scared when the end comes and mostly want to understand what’s happening. Having someone take the time to explain — to really explain, so that they really understand — probably goes a hell of a long way toward making them feel better. And once they understand that what they’re feeling is, under the circumstances, fairly normal, a trip to the ICU doesn’t really look so inviting anymore. What’s so hard to believe about that?

Rod Dreher:

I should say that the thing that struck me at once about the Gawande essay was how close the case he writes about in the beginning is to the situation my sister Ruthie faces. It’s almost eerie: Gawande’s patient was a young woman who never smoked, who had the same kind of lung cancer my sister does. One big difference, at least at this point: Ruthie’s cancer is responding well to chemotherapy.

Yet the moral questions Gawande’s essay raises are very much part of what my sister and the rest of us in our family are facing. As I’ve written before, Ruthie made a decision at the outset not to know what her chances of survival were, or too many details about her illness. She said she couldn’t do anything about it anyway, and all that would do was sap her will to resist. She put herself into the hands of her doctors, and said, “Just tell me what to do.”

But absent a cure, that strategy can only work for so long, and anyway, it puts enormous pressure on the doctor. My worry all along in this is that Ruthie will be so focused on beating this cancer (as the woman in the story was) that she will fail to make preparations for what should happen in the event that the tide of the battle turns. I cannot imagine what I would do in a similar situation. I know what I’d hope to do, but I really don’t know what I would do. When do you decide enough is enough, and it’s time to turn to hospice? (And let me be clear: my sister is not at that point; she’s doing pretty well, thank God). How do patients and their families muster the courage to say, “That’s it, there’s no point in this. Let me enjoy the time I have left”? The tricky thing is, we all hope and pray that this decision won’t be put to Ruthie, that she will beat the odds; we all have an emotional investment in her fighting

UPDATE: Avik Roy here and here at National Review

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Culture Wars Episode IV: A New Chapter

Arthur Brooks has a book out, The Battle. Website here

Arthur Brooks at WSJ:

There is a major cultural schism developing in America. But it’s not over abortion, same-sex marriage or home schooling, as important as these issues are. The new divide centers on free enterprise — the principle at the core of American culture.

Despite President Barack Obama’s early personal popularity, we can see the beginnings of this schism in the “tea parties” that have sprung up around the country. In these grass-roots protests, hundreds of thousands of ordinary Americans have joined together to make public their opposition to government deficits, unaccountable bureaucratic power, and a sense that the government is too willing to prop up those who engaged in corporate malfeasance and mortgage fraud.

The data support the protesters’ concerns. In a publication with the ironic title, “A New Era of Responsibility,” the president’s budget office reveals average deficits of 4.7% in the five years after this recession is over. The Congressional Budget Office predicts $9.3 trillion in new debt over the coming decade.

And what investments justify our leaving this gargantuan bill for our children and grandchildren to pay? Absurdities, in the view of many — from bailing out General Motors and the United Auto Workers to building an environmentally friendly Frisbee golf course in Austin, Texas. On behalf of corporate welfare, political largess and powerful special interests, government spending will grow continuously in the coming years as a percentage of the economy — as will tax collections.

Still, the tea parties are not based on the cold wonkery of budget data. They are based on an “ethical populism.” The protesters are homeowners who didn’t walk away from their mortgages, small business owners who don’t want corporate welfare and bankers who kept their heads during the frenzy and don’t need bailouts. They were the people who were doing the important things right — and who are now watching elected politicians reward those who did the important things wrong.

Voices in the media, academia, and the government will dismiss this ethical populism as a fringe movement — maybe even dangerous extremism. In truth, free markets, limited government, and entrepreneurship are still a majoritarian taste. In March 2009, the Pew Research Center asked people if we are better off “in a free market economy even though there may be severe ups and downs from time to time.” Fully 70% agreed, versus 20% who disagreed.

Kathryn Jean Lopez interviews Brooks at The American Enterprise Institute:

KATHRYN JEAN LOPEZ: Culture war? Didn’t we evolve beyond such talk somewhere around a Pat Buchanan speech at a Republican convention?

ARTHUR C. BROOKS: For many, that 1992 convention speech defined the term “culture war.” But what I’m talking about is a new culture struggle–one fought not over guns, gays, and abortion but over the core characteristic of America: free enterprise. In my book I don’t just demonstrate that free enterprise is the most efficient way of organizing an economy (which it is). I also show that it’s an expression of American values, and, thus, that a fight for free enterprise is very much a fight for our culture.

LOPEZ: Has President Obama made Americans less happy? Is it even fair or reasonable or constructive to ask such a question?

BROOKS: Happiness is important to discuss. The opponents of free enterprise always claim they will make America a happier nation, and we always lamely respond with arguments about economic efficiency. Yet in truth, the better prescription for happiness is on our side, not theirs.

Nonpartisan social-survey data clearly show that the big driver of happiness is earned success: a person’s belief that he has created value in his life or the life of others.

Redistributionists always make the argument that relative income is a huge driver of unhappiness–that poorer people are unhappier than richer people simply because they have less money through no fault of their own–and thus we can get a happier, fairer society by equalizing incomes. This is based on a colossal misreading of data and a whole lot of ideology. The truth is that relative income is not directly related to happiness. Nonpartisan social-survey data clearly show that the big driver of happiness is earned success: a person’s belief that he has created value in his life or the life of others. Of course, in a capitalist system, earned success is often rewarded financially, so people who have earned a lot of success tend to have more money than others. But it’s the success, not the money, that does the trick. (We show this by comparing the happiness of people who have the same level of income but have different perceived success levels.)

The system that enables the most people to earn the most success is free enterprise, by matching up people’s skills, interests, and abilities. In contrast, redistribution simply spreads money around. Even worse, it attenuates the ability to earn success by perverting economic incentives. Free enterprise is essentially a formula not just for wealth creation, but for life satisfaction.

LOPEZ: Are free enterprise and big government natural enemies?

BROOKS: There are some things that government does well. When the U.S. government was fighting Nazi Germany and Imperial Japan, it was the champion of freedom in the world. It took a big government to win World War II. But it takes a smart one to realize it is only the entrepreneurialism of individuals that can deliver thriving economies and human flourishing. Government has a role, of course, such as enforcing the rule of law. But when it takes resources out of the hands of innovators and risk-takers, when it regulates small businesses out of existence, when it favors crony corporations instead of entrepreneurs, when it taxes corporations so much they move abroad–then, yes, big government becomes the enemy of free enterprise.

LOPEZ: We’re always told that free enterprise is merciless. Isn’t it the source of misery for everyone but the guys at the very top? (And of course they are guys, because everyone knows women are oppressed in the American economy.)

BROOKS: Absolutely not. The data show that a poor man who earns his success and believes he has a chance to get ahead through his own efforts–that man is happier than a “guy at the very top” who does not feel he has earned his success (or that anyone really can). And it’s as true for women as it is for men. Free enterprise does not bow to gender, class, race, or ethnicity. It rewards hard work, dedication, initiative, talent, and street smarts. It’s truly a force for liberation, not oppression.

Bryan Caplan:

The values that Brooks expresses in The Battle are eerily similar to my own.  I really wish this book were right from cover to cover.  But I’m afraid that Brooks’ analysis of public opinion is deeply mistaken.  While the median American is almost certainly more pro-market than the median European, he’s still a social democrat.  And while recent policies are probably a little more statist than the median American prefers, the statist quo is very popular.

Brooks’ whole book revolves around his 70/30 claim: 70% of Americans are pro-market, and just 30% are anti-market.  His data work seems OK as far as it goes, but he ignores three key problems.

First, Americans only seem staunchly pro-market at the most abstract and symbolic level.  On most specific policy issues, the pattern reverses.  Americans favor as much or more government spending on almost everything.  Only 41% of Americans are against or strongly against “control of prices by legislation.”  (GSS variable identifier SETPRICE)   Only  21.3% are against or strongly against “supporting declining industries to protect jobs.”  (GSS variable identifier SAVEJOBS)  Just 15.7% disagree or strongly disagree with the view that “America should limit the import of foreign products in order to protect its national economy.” (GSS variable identifier IMPORTS)  All things considered, the best you can say about the American public is that it pays lip service to free enterprise.

Second, even lip service to free enterprise is partly an illusion created by binary response options.  If Americans have to choose between free markets or socialism, 70% or so prefer free markets.  But if you offer them intermediate choices, the picture changes.  Brooks mentions that Americans are most supportive of capitalism when you call it “free enterprise”; I’d guess that “private enterprise” is an equally lovable label.   But when the GSS presents the statement, “Private enterprise is the best way to solve America’s economic problems,” the breakdown is 16.3% strongly agree, 37.1% agree, 32.4% neither agree nor disagree, 12.5% disagree, and 1.8% strongly disagree.  (GSS variable identifier PRIVENT)   For a less favorable label like “capitalism” or “free markets,” the median American would almost certainly be neutral.  On a balanced question, I’d guess a lip service breakdown more like 35% pro-market, 40% neutral, and 25% anti-market.

Third, even self-styled pro-market Americans are normally only relatively pro-market.  What fraction of “pro-market” Americans want to substantially cut – much less abolish –  Social Security and Medicare?  They’re the nation’s largest social programs, their moral and market failure rationales are flimsy at best, but almost everyone loves them.

Once you take a more realistic view of American public opinion, there’s not much of a split between the policies voters want and the policies voters get.  Even the 2008 bailout looks fairly popular if you include an intermediate response option.  I wish it weren’t so, but if the American public wanted free-market policies, they’d have them.  The point of free-market philosophy is not to defend public opinion, but to change it.

Clive Crook:

On the essential virtues of limited government, reliance on entrepreneurship, and rewards determined by market forces, I am with him. These are vital principles, too much neglected. But his framing of the broader issue is excessively Manichean. Those competing visions of private enterprise and statism are not irreconcilable, as Brooks insists. They have in fact been reconciled. The result is the mixed economy, which is what we all have. It is not a question of preferring one pure model or the other, but of choosing a point on a continuous scale. To put it another way, the US is not nearly as exceptional as Brooks says.

His account of what is at stake reminded me that I rebuked George Will a little while ago for saying Obama was putting the Founders’ vision of limited government at risk. Please. The constitution survives as a legal text, which is a kind of miracle, I grant you, and a tribute to its amazing flexibility. But its flexibility is the point. The Founders’ intent, so far as the limits of federal power are concerned, has been wholly subverted: it had to be, because the political consensus that supports the constitution has changed out of recognition too.

Progressives and conservatives alike call the United States a “free-market economy”: both sides have an interest in perpetuating this delusion. The idea is ridiculous – as ridiculous as calling Europe’s economies “socialist”. True, the blend of government and private enterprise is a bit different between the US and the European average, but the models (insofar as it makes sense to talk of a European model) are neighbors not polar opposites.

All this was true, obviously, long before 2009. Obama, I agree, does want to narrow the gap a bit more – but it just was not that wide to begin with. Public spending is lower in the US, but not vastly lower once you remember to add state and local spending to federal outlays; the US healthcare anomaly accounts for a lot of the remaining difference.

In most respects (labor protections are the main exception) the US regulatory state is at least as comprehensive and intrusive as those in Europe. As for the constant tyranny of petty bureaucracy, let me say as somebody who has lived in Britain and now in the US that it seems even worse here. One’s interaction with officials of one sort or another is endless. Admittedly, I am an immigrant living in DC, which demands additional oversight. Who knows what I might get up to? Still, these days, I wince every time I hear, “It’s a free country.” No, it isn’t.

Brink Lindsey at The American Prospect:

Brooks’ narrative works somewhat better with respect to conflicts over the size of government. Here, at least, there is a clear distinction between the United States and Europe. Levels of social welfare spending in Europe are generally much higher than they are in the U.S..

Does America’s smaller welfare state reflect important cultural differences between us and folks on the other side of the Atlantic? Yes, probably, but the main one is hardly worthy of defending. A 2001paper, “Why Doesn’t the United States Have a European-Style Welfare State?” by economists Alberto Alesina, Edward Glaeser, and Bruce Sacerdote, provides powerful evidence that race is at the center of the story. There’s a strong negative relationship between a country’s racial heterogeneity and its levels of social spending, and within the U.S., states with larger black populations spend less on welfare programs. “Americans think of the poor as members of some different group than themselves, while Europeans think of the poor as members of their group,” the paper concludes.

Don’t get me wrong: I’m no fan of the European welfare state. There are sound economic reasons for rejecting it as a model. Most decisively, the aging of the population and the continued development of promising but expensive medical treatments are rendering it unaffordable, and fiscal constraints will sooner or later lead to significant restructuring here as well.

But Brooks doesn’t want to use economic arguments. He counsels against “getting stuck in the old arguments over money.” Instead, he wants to defend America’s track record of more modest social spending on cultural grounds. And that is a really bad idea. Our tragic history of race relations may have inhibited spending, but we should be ashamed of that cultural heritage. We certainly shouldn’t embrace it and brag about it. Brooks apparently doesn’t realize what he’s doing; he thinks he’s touting good old Yankee self-reliance. But his argument is offensive even if he’s oblivious to how offensive he’s being.

In any event, it’s not anti-poverty programs that are threatening to send the U.S. budget spiraling out of control. Rather, it’s the middle-class entitlements, Social Security, and especially Medicare. And you can’t blame those programs on the machinations of the dastardly “30 percent coalition,” because they are overwhelmingly popular across the electorate. According to an April New York Times poll, 76 percent of Americans think “the benefits from government programs such as Social Security and Medicare are worth the costs of those programs.” And amazingly, the percent only drops to 62 when the sample is restricted to the 18 percent of people who say they support the Tea Party movement!

Here again, Brooks’ effort to turn economic policy problems into “us versus them” cultural conflicts collapses in failure. On the vexing question of how to defuse the entitlements fiscal time bomb, there is no “us” and “them.” The politics of us versus them is almost always ugly and illiberal. And on the policy questions that Brooks is concerned with, there’s no need for such deliberate divisiveness. Yes, there are strong disagreements about market regulation and the proper size and scope of social spending, but these disagreements are not based on some irreconcilable differences in values. Vigorous support for continued economic growth is nearly universal across the political spectrum. How else will we put jobless Americans back to work, and how else will we pay for the activities of government, without a strong, dynamic private sector? A similarly broad consensus exists for the following two propositions: On the one hand, a government safety net is needed to protect Americans from various hazards of life; on the other hand, that safety net shouldn’t bankrupt us.

Figuring out how to restore growth and how to construct an effective but affordable safety net, are questions for debate, analysis, and democratic decision-making. My answers to those questions may differ from yours, but dividing up into warring tribes and demonizing each other aren’t the ways to figure out who’s right.

E.D. Kain:

Lindsey’s critique is well worth the read. It’s always messy business to so inelegantly mix economics and culture, and I’m never fond of new wars however abstract they may be. As a devout culture-war pacifist, I don’t want economics turned into the next abortion debate. I’m perfectly fine with it remaining an economics debate. That’s an important debate with no sign of subsiding anytime soon.

Turning a debate over economics into a cultural question only serves to obfuscate. As Lindsey notes, we’re sure to blur “issues of regulation and redistribution” in ways that make the topic almost useless and indecipherable. That’s fine for the purposes of populism, but for the purposes of governance and creating sustainable positive attitudes toward markets, it’s trouble brewing.

Countries with very lavish redistributive welfare programs, such as Denmark and the Netherlands, also embrace extraordinarily free markets with very little government intervention or regulation. Free trade in these nations is widely accepted, but so are high taxes and cradle-to-grave social welfare programs.

If you take a look at the Heritage Foundation’s Index of Economic Freedom, you’ll notice that a number of countries with much more redistributive economies nonetheless make the list and seven rank above the United States, including Ireland, Switzerland and Canada. This despite social-democratic programs such as universal health care! Whether the social programs in these countries are sustainable is another question altogether, but they in no way reflect attitudes toward markets or free trade.

Rather than creating a new culture war – between the ones we have already, the drug war, and the very real wars burning overseas, do we really have time to start another? – we should be focusing on creating a more sustainable fiscal future by reforming middle class entitlement programs like Social Security and Medicare.

UPDATE: James Poulos at Ricochet

Kain responds at The League

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Four Bars, Three Bars, Two Bars, One Bar


Dear iPhone 4 Users,

The iPhone 4 has been the most successful product launch in Apple’s history. It has been judged by reviewers around the world to be the best smartphone ever, and users have told us that they love it. So we were surprised when we read reports of reception problems, and we immediately began investigating them. Here is what we have learned.

To start with, gripping almost any mobile phone in certain ways will reduce its reception by 1 or more bars. This is true of iPhone 4, iPhone 3GS, as well as many Droid, Nokia and RIM phones. But some users have reported that iPhone 4 can drop 4 or 5 bars when tightly held in a way which covers the black strip in the lower left corner of the metal band. This is a far bigger drop than normal, and as a result some have accused the iPhone 4 of having a faulty antenna design.

At the same time, we continue to read articles and receive hundreds of emails from users saying that iPhone 4 reception is better than the iPhone 3GS. They are delighted. This matches our own experience and testing. What can explain all of this?

We have discovered the cause of this dramatic drop in bars, and it is both simple and surprising.

Upon investigation, we were stunned to find that the formula we use to calculate how many bars of signal strength to display is totally wrong. Our formula, in many instances, mistakenly displays 2 more bars than it should for a given signal strength. For example, we sometimes display 4 bars when we should be displaying as few as 2 bars. Users observing a drop of several bars when they grip their iPhone in a certain way are most likely in an area with very weak signal strength, but they don’t know it because we are erroneously displaying 4 or 5 bars. Their big drop in bars is because their high bars were never real in the first place.

To fix this, we are adopting AT&T’s recently recommended formula for calculating how many bars to display for a given signal strength. The real signal strength remains the same, but the iPhone’s bars will report it far more accurately, providing users a much better indication of the reception they will get in a given area. We are also making bars 1, 2 and 3 a bit taller so they will be easier to see.

Clive Crook:

Don’t say I didn’t warn you about the new iPhone. (I just had a hunch.) Interesting to see how Apple switched today from, “it’s not an issue, you’re just holding it wrong,” to, “it’s not a reception issue, it’s just that the signal strength indicator tells you you’ve much better reception than you have–and by the way previous iPhones have the same defect.” So after all that fuss, the answer is really very simple. And you all thought there was a problem!

Richi Jennings at Computerworld:

The upcoming firmware patch will make the bars display differently. Perhaps in a way more consistent with the way other phones do it.

The patch will not fix the actual problem. It should be clear to anyone who has a little understanding of RF, that allowing users to touch an antenna in such a way as to change its impedance will have a significant effect on signal strength and quality — possibly improving it, but usually making it worse.

Yes, holding older iPhones also caused reduced signal, but to nowhere near this extent. The more scientific tests — such as those performed by Brian Klug and Anand Lal Shimpi — show that actual signal strength as measured by the UMTS hardware is reduced by 10 or 20 dB more on an iPhone 4 than on an iPhone 3G.

Don’t forget, this is a logarithmic scale: a 10 dB reduction is a 90% loss of signal. 20 dB is a 99% loss: basically catastrophic, unless you’re really close to the cell tower and not in an environment with too much RF noise.

The iPhone 4 antenna design is certainly innovative, but as I said last week, those of us with a little understanding of RF knew that a bare metal antenna was going to be trouble, as soon as we saw the pre-production unit lost in a bar. The natural assumption was that Apple would cover it with a transparent film; I can only speculate as to why they didn’t.

Still, from early indications, it looks like the Apple fanbois are lapping up the explanation. The famous reality distortion field strikes again: it’s not a design flaw, just a firmware bug.

Jesus Diaz at Gizmodo:

Michael Anderson, who used to work at Motorola’s FCC testing lab, points out that “it’s a fundamental flaw that can only be fixed through a redesign. If that is redone, all the FCC will have to be completed again. This may be a long slow process to fix.”

In his reply to Apple’s letter, Richard Gaywood—PhD on wireless network design from Cardiff University—thinks the signal display fix is a good step to fix user perception, but it won’t fix the antenna interference problem that exists in the iPhone 4:

But if there is no design issue at work here, why did Anandtech and I both show significantly different attenuation when holding an iPhone 4 in a bare hand compared to holding it in a case? And why did Apple themselves recommend “using a case” as a possible solution to the problem?

The antenna interference problem

According to wireless experts consulted by Gizmodo, the iPhone 4 antenna interference problem happens to everyone, and it’s not a matter of signal bars displayed in the phone. However, some people are not noticing it. Why?

Scientific tests conducted by Anandtech, there’s always up to a 19.8dB signal loss when you grab the iPhone naturally with your hand, with your skin touching the deadly spot. That’s losing signal by a factor of almost 100.

This technical measuring has been demonstrated empirically in both voice calls and internet access by thousands of users around the world, independently of their network.

Robin Wauters at TechCrunch:

I trust by now you’ve read Apple’s letter claiming that there’s absolutely nothing wrong with the antennae on the iPhone 4, and that any real reception issues are inexistent and merely a result of faulty displaying on Apple’s part, which it intends to fix in the coming weeks.

Unimpressed by that statement? You’re not alone.

Mason LLP, one of the multiple firms that have filed a class action lawsuit on behalf of customers who recently purchased the iPhone 4 alleging that the antenna on the phone is in fact defective by design, isn’t terribly impressed either.

The firm, which filed the lawsuit seeking an order requiring Apple to ship a protective case for the iPhone 4 to all consumers who purchased one as well as monetary damages, provides us with the following statement after reading and analyzing Apple’s letter:

Our investigation revealed that users lost reception when gripping the phone in a conventional manner. We believe that the problem is not merely how the signal strength is displayed but involves a physical blocking of the antennae which cuts off calls.

In other words, don’t expect those lawsuits to go away now that you’ve written up your version of the truth, Apple.

UPDATE: Farhad Manjoo in Slate

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Are You Compromised Over Hot Dogs?


A lazy neighborhood bar-b-que in the village:

Many people think there’s nothing wrong with this. Everybody’s human, it’s fun for the kids. But do you think this sort of thing makes it easier or more difficult for journalists to maintain their independence?

Mike Brownfield at Heritage:

What does Vice President Joe Biden do on a hot summer day in Washington, DC, while a major environmental disaster has left the Gulf of Mexico in ruin?

Host a beach party for journalists at his house, of course! And go ahead and get the Democratic National Committee to pay for it, too. With squirt guns, watermelon, and the Vice President himself, sliding down a waterslide, how could he go wrong? (Nevermind the oil spill! Let’s get some sun!)

The party held last Friday underscores a troubling trend in the Obama administration – an insensitivity to the world around them and a lack of seriousness devoted to the task at hand.


Despite the coterie of reporters in attendance (CNN’s Wolf Blitzer and Ed Henry, The New York Times’ David Sanger, NBC White House correspondent Savannah Guthrie, and The Atlantic’s Marc Ambinder), news from the “on-the-record” event was relatively limited. What coverage came out of the party? Video of Vice President Biden sliding feet first down a waterslide, video of Chief of Staff Rahm Emanuel – a former member of the Israel Defense Force – wielding a Super Soaker at reporter Ambinder, and photos of the gala, all posted on Twitter.

Marc Ambinder:

Does an afternoon of leisure with senior administration officials violate journalistic ethics? To many, the self-evident answer is: “Absolutely.” I have a different view, although perhaps it’s a way to rationalize my own decision to attend the Bidens’ first beach party for journalists. Later today, I’ll lay out some thoughts about the ethics of all of this, but to whet appetites, here’s a bit of video I recorded. The players include the president’s chief of staff, Rahm Emanuel, David Sanger of the New York Times, and CNN’s Wolf Blitzer. Note the teasing banter between Emanuel and Sanger. (Note, too, that shortly after I shot this video, Emanuel sprayed me in the shirt with his Super Soaker. I have a picture of that, too.)

Glenn Greenwald:

I have no doubt that Ambinder — who promised that “later today, I’ll lay out some thoughts about the ethics of all of this” — is shortly going to explain to us how getting squirted in the face by Rahm (aside from being fun and deeply pleasurable for him) assists his intrepid journalistic endeavors by building relationships and cementing access (he also reported:  “Note, too, that shortly after I shot this video, Emanuel sprayed me in the shirt with his Super Soaker. I have a picture of that, too”).  All anyone has to do is to look at the relationship between the Washington press corps and the Washington political power structure (the former is an integral part of the latter) to know what an absurd and false rationalization that is (over the weekend, Ed Henry bravely took time out from his socializing with the Bidens to vehemently condemn the powerless Helen Thomas with language he would never, ever use for powerful political officials).  The face of the Washington press corps and the role it plays is perfectly embodied by David Gregory’s dancing to Karl Rove’s tune (both literally and in every other way), and it only gets worse by the day


Accepting a few hours worth of hospitality from the Bidens may be just that — a chance for families to get together and enjoy each other’s company. The main attraction, aside from the Vice President and his family, were the rides for kids, the face painting, and the moon bounce. The adults chit-chatted on the upper part of the lawn while the kids — journalists’ kids, Biden’s family, the children of White House officials — chased each other around with water guns. It was a nice way to spend a hot Saturday afternoon.

But these aren’t ordinary afternoons, and the very idea that a journalist would accept a slice of watermelon from the Vice President strikes many a critical activist as criminally insane — an example of the cozy relationships that exist between journalists and their sources, an example of how the oppositional role of the press has been compromised by people in power.
Well, yes. The relationships can be cordial, occasionally cozy, and they can simultaneously be professional and skeptical. Indeed, has there ever been a time when journalists and the political establishment have been MORE skeptical about each other?
I take this argument to heart: journalists worthy of the name ought to be on duty 24 hours a day, and in an ideal world, any opportunity to interact with administration officials should be an opportunity to grill those officials on any range of subjects.
Journalists, if they’re good for anything, should use whatever access they have to consistently and relentless pressure powerful interests. We’re at war; the government is detaining people indefinitely; there’s a huge oil spill in the gulf; there are better things to do.
But a bunch of really good, hardened, news-breaking, interest-accountable holding reporters are in fact able to share more comfortable moments with people they cover. For the record, the event was paid for by the Democratic National Committee, not by taxpayers.  There was no additional Secret Service presence needed, so I don’t think the afternoon produced any hidden costs to the government.
Am I fatally compromised?

Greenwald updates his original post:

Ambinder has posted his explanation/justification here, and, as it speaks (loudly and clearly) for itself, I’m content to let everyone read it and decide for themselves what they think.  To be clear:  the issue isn’t Ambinder, who does some good reporting and deserves credit for candidly writing about these events even knowing he’ll be criticized (that’s better than concealing them).  The issue is the relationship between the press corps and political power which these events reveal (here’s an example of the type of event the Bush White House would hold and the controversy created).

Clive Crook:

Greenwald has a point. Ed Henry’s schoolgirl tweets as Rahm Emanuel chased him round the garden made me wince. Dignity of the profession aside, though, the rules of engagement Greenwald seems to advocate would make a lot of good journalism impossible.

The problem is where to draw the line. With an Internet connection, much useful reporting and commentary can be done from your desk, using public material: no commingling required. But to uncover private information, you need sources. Socializing at events like Biden’s is an opportunity to develop some.

When somebody gives you private information, there is always a danger you will be misled (because your source has an agenda). Or you might be compromised by a sense of obligation or a desire to keep the channel open so you can go back for more. Socializing with sources, off-the-record interviews, on-the-record interviews, privileged access to press briefings all create this tension to some degree. To meet Greenwald’s standard of rigor, you would never put yourself in this position.

Getting too friendly with government officials is a particular danger — as any good journalist is aware. But the issue also comes up with non-government sources. They too have agendas. The same risks of obligation, dependence, and distorted judgment arise. The difference between a good journalist and a bad one is not whether you expose yourself to that danger but whether you are aware of it and check yourself for bias. Journalists should be skeptics. So should readers. They must decide for themselves whether a writer is thinking independently, ventilating prejudices, or channeling somebody else’s talking-points. I get a better sense of that from reading the copy than from knowing whether the writer attended a party.

Greenwald demands skepticism toward those in power — which any good journalist must have — but then confuses this with implacable hostility. They are not the same. The job of a reporter is to question, understand, and inform. You need a vigorous skepticism to do this. But unreasoning hostility is as inimical to understanding as blind deference.

Ta-Nehisi Coates:

Marc, like most of his colleagues, argues that he has not lost a whit of skepticism toward the White House. But the better question is whether White House media has lost (or ever even had) any skepticism toward itself. Marc goes on to note several stories he’s working that the administration doesn’t like. But likely the peril is much smaller and less knowable. Likely it originates in the kind of twisted loyalties that sprout up when your sources become your friends.
Consumers of news should ask themselves a very simple question when they see these sorts of events: What is the White House’s agenda? What is their interest in inviting a gaggle of journalists and their families over for a party? What are they trying to achieve?
By the logic of the  press corps, these White House social events have no real effect on the news narrative. I find that interesting. There are some very smart people in the the White House. It would seem that by now they would know their soirée press strategy has been a miserable failure. And yet they press on. I wonder why?

James Joyner:

Recall that the journalists of the 1930s and 1940s conspired to hide from the American public the fact that Franklin Roosevelt was confined to a wheelchair.  And their 1960s successors didn’t think John Kennedy’s extra-marital affairs counted among all the news that was fit to print.

Do modern day journalists and politicians have a symbiotic relationship?   Of course.  Do reporters love to rub elbows with the Washington glitterati?  You betcha.  But it was always thus.

It’s hard to see how it could be otherwise.  Effective political reporters require constant access to policymakers.   They will naturally develop warm personal relationships with some of their sources and hold others in some contempt, with shades of gray in between.  That’s just the nature of human interaction.

Further, as Ambinder notes, reporters — himself included — are probably more cynical than at any point in history.  So, too, is the American public.

That’s not surprising.   The combination of 24/7 coverage and competition from a vast variety of outlets makes keeping a lid on sordid details next to impossible.   Every lie and indiscretion committed by a politician of any significant visibility will inevitably be made public.

Come to think of it, the same is true of slipshod reporting.  With an army of bloggers out here dissecting every bit of news coverage, mistakes, sloppiness, deception, and whatnot that would previously have gone unnoticed — or, worse, garnering prestigious prizes — now get exposed almost immediately.

So, no, we don’t need more crabby reporters with chips on their shoulder or a moratorium on water gun fights with Rahm Emanuel.

Matthew Yglesias:

At any rate, journalistic ethics is just the standards of conduct that journalists do in practice hold themselves to and it’s clear that attending parties hosted by the powerful officials they’re nominally covering is more-or-less par for the course.

The only non-obvious thing I would add to this is that not only do reporters get captured by their sources, but important officials come to be unduly concerned about the press coverage they get. It’s in the two-way nature of the dysfunctional dynamic that the tempests in teapots that plague the Beltway are born. Reporters spend too much time writing up gossipy items, and public officials spend too much time reading them and courting the press. Everyone would be better off trying to think harder about what’s really important and/or socializing with their actual friends.

Michael Triplett at Mediaite:

Maybe Yglesias’ bosses at Obama’s favorite think tank and farm team for the administration–the Center for American Progress–can mention that next time they are invited to a State Dinner.

It is a perennial question that arises every year during press dinner season–capped by the White House Correspondents Dinner–where people wonder whether reporters should be yukking it up with the president and members of Congress in the evening after being adversaries during the day. The New York Times–whose staff was at the Biden beach party–does not participate in nerd prom.

(Full disclosure.  During the Bush administration, I attended four “nerd proms” and took mid-level members of the administration at least twice.  I met Justice Antonin Scalia once and learned that my guest had a weakness for the Food Network. Alas, I’ve never been to the White House or the Vice President’s House, except on a tour.)

So who wins between Ambinder and Greenwald?  Arguably, it’s a draw.

Greenwald is rightly concerned that these kinds of cozy events look bad for people who think journalists shouldn’t be so friendly with the people they cover.  It does give the appearance of bias and impropriety and appearances are as big a worry as actual bias and impropriety.  In addition, Greenwald is right to be concerned that journalists can become so enamored by the attention from D.C.’s ruling class that they may fail to ask the tough questions for fear of not getting an invite to the next hoedown.

On the other hand, the idea that Ambinder or any reporter is suddenly going to say nice things about Emanuel and Biden just because they noshed hot dogs together on a hot, June Saturday doesn’t really understand how journalism or Washington works. Just as attorneys can be civil with opposing counsel, journalists can be civil with the people they cover without it meaning they won’t ask hard questions the next day.

Of course, relationships can become too close and journalists can be too friendly with the people they cover.  But a single beach party with the kids or an evening in tuxedos and evening dresses with administration officials isn’t likely going to compromise the adversarial relationship between journalists and the people they cover.

Would journalists be better off if they never had friendly interactions with the people they cover? If Ambinder runs into Emanuel at Ben’s Chili Bowl, is he supposed to turn on his heels lest it be viewed as too friendly an interaction? Where exactly is the line?

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Filed under Mainstream, New Media

BP: British Petroleum, Beyond Petroleum, British Pissed

James Kirkup at The Telegraph:

The oil firm has seen almost £50 billion wiped off its value since oil began leaking from one of its pipelines following an explosion on a gas platform in the Gulf of Mexico.

Investors say the hardline approach taken by Mr Obama – who has promised to “kick ass” over the incident – has contributed to the share price declines. The US administration last night threatened to block BP paying a dividend in order to ensure victims of the spill off the coast of Louisiana got sufficient compensation.

The pension funds of millions of Britons have been hard hit – as exposure to BP, Britain’s biggest company, is high.

Boris Johnson, the Mayor of London, this morning became the most senior UK politician to defend BP, saying “anti-British rhetoric” levelled at the company was a matter of “national concern” and that the oil giant was paying “a very, very heavy price” for what had been an accident.

“I would like to see a bit of cool heads rather than endlessly buck-passing and name-calling,” he said. “When you consider the huge exposure of British pension funds to BP it starts to become a matter of national concern if a great British company is being continually beaten up on the airwaves.”

Speaking to reporters in Afghanistan, Mr Cameron refused to follow suit, instead offering his backing to Washington.

He said: “I completely understand the US government’s frustration because it’s catastrophic for the environment.

He added: “BP needs to do everything it can to clear up the situation.

“The most important thing is to mitigate the effects and get to the root of the problem.

“Of course it’s something I’ll discuss with the American president when we next speak.”

Rosa Prince, Fiona Govan and James Kirkup at The Telegraph:

Carl-Henric Svanberg, the chairman of BP, who has been summoned to the White House next week, met George Osborne, the Chancellor, at Downing Street to discuss what more could be done to find a solution to the crisis.

David Cameron spoke on the phone to Mr Svanberg, stressing that it was in “everyone’s interests that BP continues to be a financially strong company”. Tony Hayward, BP’s chief executive, yesterday warned its biggest shareholders that the firm was “likely” to suspend its forthcoming dividend payment, of $10 billion (£6.86 billion), for up to six months.

Business leaders have criticised the Prime Minister’s failure to demand that Mr Obama tone down his antagonistic statements. The president has described the company as “British Petroleum,” a name it has not used for years.

Asked about Mr Obama’s suggestion that he would like to be able to sack Mr Hayward, Mr Clegg said: “I don’t frankly think we will reach a solution to stopping release of oil into the ocean any quicker by allowing this to spiral into a tit for tat political diplomatic spat.

“I’m not going to start intervening in a debate which clearly risks descending into megaphone diplomacy.” His words, during an official visit to Madrid, highlighted the continuing reticence of Mr Cameron over what has come to be seen as the first test of the “special relationship” of the Coalition.

The Prime Minister has faced calls to be more robust in his defence of British interests, particularly given BP’s key relationship to the pension pots of millions.

BP is responsible for one in every six pounds paid in dividends into pension funds in the UK, and the company is now likely to bow to pressure from the Americans not to pay the planned $10 billion next month.

Mr Cameron and Mr Obama are due to speak by video-conference this afternoon and will discuss the issue, hours before England and the US play each other in the World Cup. No 10 initially suggested that BP would be raised only “briefly,” with the main focus of the conversation expected to be on Afghanistan.

Delia Lloyd at Politics Daily:

Of particular concern are the pension funds of millions of Britons, where BP’s position at the top of the London Stock Exchange has made it a bedrock investment for almost every pension fund in the country. The firm’s dividend payments, which amount to more than £7 billion ($10.2 billion) a year, account for £1 in every £6 paid out in dividends to British pension plans. Were BP to go belly up, this would directly impact the lives of millions of British workers.

But the real ire toward the United States over BP is political. Part of it is generated by President Obama’s seemingly calculated insistence on referring to BP as “British Petroleum” (a moniker the company dropped years ago in favor of the initials BP). John Napier, the chairman of the British insurer RSA, accused the Obama of being anti-British and “prejudicial and personal” in his dealings with BP. The mayor of London, Boris Johnson, went a step further, decrying the “beating up” of a “great British company on the airwaves” as a “matter of national concern.” As one columnist in the Daily Telegraph summed up the sentiment over here: “Much of the rhetoric from other American politicians is plainly jingoistic claptrap with a beady eye on their own chances in the U.S. midterm elections.”

But the Brit’s aren’t just angry with the Yanks for beating up on BP and its mother country. They are also angry with their own prime minister — David Cameron — for not sufficiently defending the United Kingdom from attacks by its former colony. Cameron’s statement that he “completely understood the U.S. government’s frustration” with the fallout from the oil spill was widely perceived as “dithering,” if not out and out deferential toward the United States. (The two men are scheduled to speak by phone on Sunday.)

The subtext underlying all of this, of course, is just how much the United Kingdom will continue to be America’s “poodle” in the future, a reference to Tony Blair’s perceived submissive relationship with George W. Bush during Blair’s tenure as prime minister. With a relatively new president in America and a brand-new prime minister in the United Kingdom, the two countries are entering into a new phase in their relationship. And one of the big questions on the table is just how much Cameron will be willing to distance himself from Washington.

How the British leader responds to this current crisis may tell us a lot about where Anglo-American relations are headed. At a minimum, the prime minister needs to convey that the Brits object to all this “ass kicking” by President Obama.

And, by the way, that’s “arse” to you, sir.

Heather Horn at The Atlantic

Fraser Nelson at The Spectator:

Barack Obama knows language and innuendo: he will know what he’s doing by deploying what Boris Johnson rightly calls “anti-British rhetoric” in the BP disaster. BP has not – for many years – stood for British Petroleum’ – you won’t find the two words anywhere in its annual report. But you hear them plenty tripping off the presidential tongue, as if to point the finger on the other side of the Atlantic. It makes you wonder how highly he values UK-US relations: Bush was genuinely grateful for the fact that Britain was America’s most dependable ally in Iraq and Afghanistan. It’s hard to imagine Bush using the rhetoric that Obama has so quickly resorted to. It does make you wonder: is there still a “special relationship” or is America just not that into us?

When Piper Alpha exploded in 1988 and killed 162 in the North Sea, no one in Britain spoke suggestively about an American company. Where the parent company is domiciled does not matter: you get British companies whose share capital can be owned by various people.  BP is 40% owned by British shareholders and 39 perccent owned by American ones: its board has six Americans and six Brits. This disaster happened on an American-owned, Korean-built rig leased by BP’s American subsidiary. But to listen to Obama, it is as if a few blokes from Stoke-on-Trent sailed over, and drilled a wildcat well – then buggered off and left Uncle Sam to suffer all the damage.

Transocean, the owner of the destroyed Deepwater Horizon rig, relocated for tax reasons first to the Cayman Islands and then to Switzerland. But blaming the Swiss would not quite have the same political effect in America. Halliburton, the controversial Texan firm once chaired by Cheney, had a hand in the ‘cementing’ processes that failed to protect the rig against explosion.

There is fault everywhere in this disaster. Doubtless it deflects anger from Obama and other senior American politicians to ramp up anti-British sentiment – when you consider the appalling performance of BP’s chief executive, and Fergie on Oprah, there is reason to believe that Britain’s reputation in America stands at its lowest ebb since 1776. This has a tangible effect. As Allister Heath argues in City AM today, British companies are reporting that it’s harder to do business over there. Obama is talking about stopping BP dividends – £1 in every £6 paid in dividends in Britain comes from BP. To damage BP’s dividend payment scheme is to damage British pensioners: you can’t just hit a ‘company’ without hitting either its customers, or its investors (in this case, several million British pension savers).

Simon Jenkins at Huffington Post:

The reputation of the American president has taken a terrible tumble in Britain. Barack Obama’s stock may be falling in America, but his response to the Gulf of Mexico oil disaster has seen it collapse on this side of the Atlantic, where until recently it was stratospheric.The reason is his daily litany of abuse of BP for what is regarded as a tragic accident, of the sort that periodically afflicts America’s once-favorite industry, oil. In the British press the accident is universally attributed to the actions of the American rig-contractor, Halliburton, if not the rig owner, Transocean. It apparently suits Obama never to mention this. His xenophobic blaming of BP as ultimate owner of the oil has left his fans shocked and deflated. The blame lies with America’s thirst for oil and eagerness to find it wherever it can off its coast.

This was an accident. Surely everyone should gather round to rescue the situation, not stand on the beach shouting insults. No one seems to accuse BP of having failed to do something specific. Everything has been tried at vast expense, and at last appears to be working. The rig was legal and being operated at the time of the accident by Halliburton under American regulation and inspection. If the president has some secret salvation plan up his sleeve, he should surely tell the company.

Is the president seeking to play god? An oil blow-out may be nasty, indeed very nasty, but what is it to do with the president? He is not an oil engineer. If he can do nothing constructive to rectify the disaster, why pretend otherwise and merely parade his impotence?

David Frum at FrumForum:

BP has for years been “BP” plain and simple. Yet Britons are noticing that President Obama keeps referring to the company as “British Petroleum.” They sense an attempt to mobilize American nationalism against Britain in order to evade political blame for the disaster. Every British pension fund is deeply invested in BP. One out of seven dividend pounds paid in Britain is paid by BP.

And in the wake of Obama’s BP-bashing, other smaller incidents are acquiring more serious significance: the banishing of the Epstein Churchill bust from the Oval Office – the off-hand treatment of Gordon Brown – the ungracious acknowledgement of Britain’s role in Afghanistan.

Nor is it only Britain. In the past months, I’ve heard still more wounded complaints about Obama’s disregard from diplomatic representatives of other NATO allies. George W. Bush may have damaged relationships through inadvertence and high-handedness. With Obama, it’s beginning to look more like deliberate policy.

Bagehot at The Economist:

COMPARE and contrast: the front page of today’s FT says “Cameron steps into fray to defend BP”; the Telegraph splashes with “Cameron fails to back BP in fight with Obama”.

The truth is, the little that the prime minister and his colleagues have said in public about President Obama’s attitude to BP is open to either interpretation. When they were anticipating the likely foreign-policy crises of their tenure (and the diplomatic issues that might strain the coalition), a row with Britain’s closest ally over an oil leak in the Gulf of Mexico wasn’t very high up the list. They are struggling to work out how to deal with what is an unexpected and delicate foreign-policy problem.

But then, Mr Obama’s remarks and behaviour are open to interpretation too. Some in Britain are keen, perhaps too keen, to view them as part of a pattern of anti-British prejudice on his part. This argument tends to dredge up his removal of the Churchill bust from the Oval office and the accusations made against the British in “Dreams from my Father”.

Or rather, allegedly made: Mr Obama doesn’t really make many, as anyone who has taken the trouble actually to read the book will discover. It makes one oblique reference to his Kenyan grandfather’s alleged mistreatment by the colonial administration, but that’s it. I think the Americans’ stubborn position on the Falklands, going along with the view that Britain and Argentina ought to negotiate, while knowing that London has no intention to, is a much more serious affront.

But in general there seems to me to be too great a willingness to find deep, antagonistic motives in Mr Obama’s behaviour. It’s fun to get all patriotic and offended, but there is another and more plausible explanation. Mr Obama is a politician in a desperate fix, and has reached for the easiest, almost the only, possible target on which to deflect some of the heat.


This really is the silly story of the week.

The fact that BP is being “beaten up” isn’t what’s causing the share price to crash – it’s the bloody catastrophe that’s doing that, and it really doesn’t need much help. If British pensioners are losing money that’s because their fund managers over-invested in BP and didn’t properly account for the risk of a disaster like this one.

What does Obama’s “anti-British rhetoric” amount to anyway? Unless you’ve seen something I haven’t, it amounts to this: referring to BP as “British Petroleum”. The swine. (Apparently they changed their name a few years ago to BP to avoid being seen to have anything to do with Britain or petroleum – exactly the kind of absurd PR fiddling that under other circumstances, these same critics would be fiercely deriding, and not exactly “patriotic”).

Here’s the thing: if Obama calling it “British” is such a problem, why are we proudly defending this “great UK company”?

It’s not the crass opportunism that gets me down about this stuff, or the (faux-)stupidity, it’s the chippiness. It makes us seem so insecure, always seeking out “slights” from abroad to get upset about. Whatever happened to those great British traits of effortless confidence and sang-froid (excuse my French)?

So the British, including leading politicians, are steamed at American anger at BP, seeing in it anti-British prejudice. Huh? I don’t see this. They’re cheesed off that Obama has referred to “British Petroleum,” pointing out that the company changed its name to “BP” years ago (therefore, Obama can only be using the name “British Petroleum” in his public remarks to stoke anti-British prejudice). Nonsense. I had no idea until very recently that “British Petroleum” was no longer in use, and I think very few Americans outside the oil industry did either.

More importantly, this emerging British narrative depends on the belief that if not for anti-British prejudice, Americans would be tolerant and patient with BP’s behavior. I’m sorry, but that’s demented. Since this crisis began, we have learned that BP never had a plan to deal with this sort of thing, despite telling the government that it did. We have learned that BP has a terrible safety record, and ignored clear warnings leading up to the Deepwater Horizon explosion, warnings that something was going very wrong on the rig. We have learned that BP lies. We have seen BP try to keep journalists from telling the full story of what the company’s negligence has done to the Gulf and the people who depend on it. And we have seen entire regions, communities, local economies and ecosystems put in serious peril of extinction.

Do the British seriously believe that if BP were Exxon, or any other American company, that the American people would be less angry at them over what their corporate recklessness (aided and abetted by American regulatory laxity) has done? Absurd. Gobsmackingly so.

UPDATE: Clive Crook


Filed under Energy, Environment, Foreign Affairs, Political Figures

Gordon Gone, Dave In Downing, Nick’s New Friend

Andrew Sparrow at The Guardian:

8.05pm: You can watch a video of Brown’s resignation statement here.

8.06pm: David Cameron is in the car on his way to the Palace now. But he seems to have to got stuck in traffic. He’ll have to take it up with Boris.

8.11pm: David Cameron just arrived at Buckingham Palace with his wife Samantha. They’ve gone in to the building.

8.17pm: When Tony Blair became prime minister, he gave a speech announcing his victory as dawn broke over London. Cameron seems to have had equal luck with the elements. Apparently there is a rainbow over Buckingham Palace.


8.29pm: David Cameron is prime minister, Sky tells us. In the old days these things used to appear in the London Gazette. Nowdays it’s a newsflash on Sky.

Simon Lewis, Brown’s press spokesman, is leaving Downing Street, Sky reports. He will be replaced by a career civil servant from the Treasury.


8.47pm: Cameron says he believes Britain’s best days lie ahead and that he believes in public service. He will take difficult decisions, so that together “we can reach better times ahead”.

He wants to restore trust in politics, and ensure that politicians are always the servants of the people, not their masters. But real change will only take place when people accept responsibility. He wants to try to build a more responsible society.

8.45pm: He says he and Nick Clegg are forming a joint government. They are both leaders who want to put aside party interest and work in the national interest.

8.44pm: Cameron is arriving in Downing Street, with his wife Samantha.

He says the Queen has asked him to form a government and he has accepted.


1.00am: That’s it. Britain has got its first coalition government for more than 60 years. And Nick Clegg will be sitting in cabinet alongside Liam Fox and William Hague. Will it work? Who knows. But it is a bold project, and it will be certainly be interesting. We’ll get our first good look at it tomorrow (rather, later today) when the Cameron cabinet is expected to meet for the first time. And we’ve also got a new (interim) Labour leader. And the Labour leadership contest will soon begin in earnest.

Clive Crook:

I was surprised and impressed that Brown did not have to be stretchered out of Number 10 under heavy sedation–that he was willing to sacrifice what was left of his career, his reputation beyond redemption, to keep Labour in power. I had thought him less principled than that.

An interesting question is whether a Lib-Lab pact might have been put together if only Brown had declared his intention to resign immediately last Friday. Once the Tories did so well in the popular vote, and the Lib Dems so poorly (relative to expectations) it was always going to be difficult for Clegg to get behind Brown as PM. The electorate would have been disgusted. But this “coalition of losers” issue would have been very much attenuated if Brown had put himself out of the picture at once. And, as I say, a Lib-Lab policy program is easy to draw up. Perhaps, privately, he told Clegg he would go. But if he was negotiating over the weekend to keep himself in office, that would have subtracted a lot from the deal, and made Clegg more receptive to Tory overtures.

Then again, a Lib-Lab alliance would still have been short of votes. And another awkward issue would have come swiftly to the fore: the gross over-representation at Westminster of an implacably Labour-supporting Scotland. In case you’d forgotten, Scotland has its own parliament, as well as having a big say in who rules down south. One of the wonderful ironies of British politics is that the Tories, who have the biggest interest in paring Scotland’s power in Westminster, are the ones most dedicated to the union. Expect this issue to assume large importance in the coming era of unstable coalition government.

Meanwhile, might have beens don’t count. A Lib-Con “coalition” it is–details to come. Just what the country needs as it contemplates a public-debt crisis and embarks on a draconian program of fiscal restraint.

Barry Legg at The Guardian:

Whatever sort of Prime Minister David Cameron makes, we already know one thing for sure: he must already be the world’s worst poker player. Never in British political history has a negotiator playing for such stakes so comprehensively thrown away his hand before the game even began. Purely because Cameron was desperate to get himself into Number 10, and thus shield himself, with the Downing Street patronage machine, from the entirely justified anger of his party for failing to win a majority against Gordon Brown last Thursday, he has given into more Lib Dem demands than even Labour were willing to stomach. From whipping Tory MPs through in support of a referendum on AV, the number and nature of cabinet places he’s going to give to the Liberals, to surrendering the bedrock of the Westminster system – by giving way on fixed parliaments – Cameron gains office but not power.

As is evident from even a cursory examination of the three parties’ positions, the Lib Dems and Labour are closer to one another in virtually every regard than either is to the Tory Party. Yet now we are to have a coalition government between us and the Liberals. And it’s a coalition the Lib Dems are delighted to be in, and why shouldn’t they be? From European policy to electoral reform Cameron has, even before the government begins, given away so much that the least Tory party on the constitution and the most pro-EU party is content to make him Prime Minister.

Given that Labour, in refusing to meet Lib Dem demands, explicitly cited excessive Liberal spending plans, it’s enormously depressing from a Tory point of view to consider what’s going to give way. Either, no serious effort is going to be made to address the deficit, or, in order to finance Lib Dem policy goals, Tory ambitions, most noticeably as regards defence, will have to bear the brunt of even beginning to try and make the sums add up. Now is not the time I fear to have shares in Aircraft Carriers.

Daniel Finkelstein at The Times:

Emerging from the cinema a few years back, having watched Kevin Costner’s Dances with Wolves, my friend remarked that he thought it the greatest film ever made. I looked sceptical. “Well,” he said. “Something has to be.”

So in the same spirit, let me write something I have always fancied writing without appearing ridiculous. And now I can. This is a defining moment in British political history. Something has to be.

Like Robert Peel’s decision to repeal the Corn Laws, and split the Conservative Party for a generation, or Stanley Baldwin’s gentle manoeuvring to install the first Labour Government in 1924 and thus dish the Liberals, David Cameron’s generous offer to the Liberal Democrats has changed British politics for ever. Whether it succeeds or not.


If the Conservatives had won a small majority, it isn’t hard to imagine them being swept out in five years’ time by an alliance — either explicit or implied — of Labour and Liberal Democrats. Something like that happened in 1997 and produced the Blair landslide. Now a combination of the new maths of the Commons and Cameron’s boldness has disrupted this.

And in doing so, changed politics for years. The Liberal Democrats have been picked up and put down in a different place, partly by Nick Clegg of course, but largely by a Cameron offer of partnership that they weren’t expecting. The anti-Conservative majority is, in an extraordinary political coup, no longer an anti-Conservative majority. Things are much more complicated now.

The second part of the opportunity relates to Cameron’s own party. Five years of work — admittedly not as consistent as it should have been — to rebrand the party did not change perceptions as much as the Cameron team hoped. But now this. Cameron has the potential to lift himself and the party above normal partisan politics. He can become a national leader, his party seen as broader, more generous, more capable of listening and of compromise.

The very fact of working with a coalition partner might force Conservatives to sound more moderate and less strident. And Cameron will be Prime Minister, leader of the Conservatives, of course, but more than that. And the Tories will be able to share the political price of the difficult decisions ahead with another political force. Cuts won’t be “Tory cuts”, the Chancellor might be working with Vince Cable, rather than being attacked by Vince Cable.

So Cameron’s extraordinary response to the election has brought him much as well as the keys to No 10. But he has made a huge gamble. Could this move split his party, not now but in the years to come? Might the Liberal Democrats prove not merely prickly partners, but impossible ones? Could the unfamiliar disputes and debates of coalition partners be perceived as weakness and chaos?

Unknown, unknowable. But this can be said with certainty. Politics has changed for ever.

Andrew Sullivan:

“I can’t believe how much they’ve offered us. The Tories have basically rubbed out their manifesto and inserted ours. We’ll have to cope for four or five years with our flesh creeping, but still,” – a left-leaning Lib-Dem member of parliament to Michael Crick.

We’ll find out soon enough. I should say I am not opposed to the referendum on AV or instant run-off voting. My concern is that Britain continues to have a one-member-one-constituency system, to ensure direct representation and avoid too much power going to party elites. Under AV, the Liberals would do much better – but Britain would also have a chance to retain strong, clear, one-party governments.

In some ways, too, this outcome allows Cameron to ditch the Tory right. I suspect there will be grumbling among the ranks, and that William Hague, the chief negotiator for Cameron, will once again be delegated to bring them on board.

David Kurtz at Talking Points Memo:

The big news from Britain, according to Fox News, is that Queen Elizabeth herself has agreed to become prime minister:

Queen Elizabeth accepted the invitation of Conservative Party leader David Cameron to become Britain’s new prime minister Tuesday night after Gordon Brown resigned following his failure to form a coalition government with another liberal party.That was awful nice of Cameron to extend the invitation.

Alex Massie:

HMQ: Good luck laddie, you’re going to need it…

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Mare-Scallus Summers

Alexis Simendinger at National Journal:

Hardly a soul in official Washington doesn’t know that National Economic Council Director Lawrence Summers can be very high maintenance. Brilliant, bullying, and packing an ego the size of the national debt. Even President Obama has been frustrated with Summers a time or three. All of the exhaustion of Obama’s first year, coupled with the toxicity of wrestling with Summers, may soon send some staff members out the door or into new posts, informed sources report. Summers’ legendary self-regard worsened last August, when the president reappointed Federal Reserve Board Chairman Ben Bernanke to a second term. Many Fed-watchers — Summers chief among them — thought that Obama might turn to his economic adviser instead of retaining the Republican academic whom President George W. Bush appointed and who presided over the Great Recession.

So peeved was Summers that he buttonholed Chief of Staff Rahm Emanuel for some personal perks he wanted to add to his position in the West Wing. First, according to informed sources, Summers asked to play golf with the president, which he did four weeks later on September 27. The economic adviser also huffed that he desired Cabinet status, an upgrade that Emanuel granted. Summers got walk-in privileges to Cabinet and other high-level meetings, for example, and he strode among the Cabinet officers who witnessed Obama’s State of the Union address. In addition, the former Harvard University president sought a personal car and driver, which happens to be a privilege that the head of the nation’s central bank enjoys. The chief of staff initially said yes, only to discover that that perk simply does not exist in the White House.


This is inevitable. Elites like Summers have a terrible time grappling with the fact that lesser men than they are making huge sums of money while they toil for far less doing a more important job. When he gets dissed, he needs to be soothed somehow, and persuaded once again that he really is superior to all these other bozos in the room. Hence the demand for perks.

Marc Ambinder:

On March 26, Fox Business News’s Charlie Gasparino reported that Larry Summers, the chairman of the National Economic Council, had begun talking to anonymous associates about retiring after the November election. Circuits pinged everywhere in Washington. Later that week, the big rumor was that Rahm Emanuel himself was making a secret list of people who might be potential replacements for Summers. Or that Rahm had begun to ask people for names of suggested replacements. Then came a report in National Journal about Summers’s “ego massage,” suggesting that the former Harvard president had been complaining about his status ever since President Obama decided to renew Ben Bernanke’s Fed presidency for a second term and demanding frivolous perks. So is he leaving? Is he being pushed out?

What’s the truth? It’s not all that complicated, but it’s not easy to convey in a way that makes a TV news producer very happy.

Point one: Summers, like every member of Obama’s cabinet, serves at the pleasure of the president. Summers said as much this weekend, although he hastened to add that he was most happy with his current assignment. He has a busy job, even though most of the major economic projects are not subject to his direct oversight. The administration is creating economic policy, almost daily. There are jobs to be found. Summers rides herd over the administration’s huge infrastructure renewal program. There’s an enormous international component to his job that is rarely remarked upon; on everything related to China except for Iran sanctions, he’s the lead, and he’s in the Iran meetings, too. No one else in the administration is on a first name basis with as many Asian leaders.

But there’s a two-year turnover for these types of jobs, Summers has a Harvard University professorship waiting for him, a family that did not move to D.C., and it would not be surprising, nor terribly controversial, if, in some precincts of his own mind, he had begun to think about his post-White House life. He has, in fact, had discussions about his future with some of his associates.

Nor is it really a news story that the chief of staff would be thinking the same thing — not just for Summers, but for a host of senior officials, including Treasury Secretary Tim Geithner and OMB director Peter Orszag. In eight months, some top Obama aides might be pushed out. Some of them might move to different jobs. Some of them might want to step down. Some of them might want to transition to the presidential re-election campaign. All of them will be forced to make some decision or another within the next seven or eight months.

Josh Green in The Atlantic:

One angle in my recent profile of Tim Geithner concerned his relationship with Larry Summers, his former mentor and the director of the National Economic Council. I contend that Geithner, not Summers, has emerged as Obama’s key adviser on financial matters, and that Summers isn’t happy about it. (Not everybody was convinced.) Since my piece appeared, the buzz that Summers is looking to leave–or is being pushed out–has picked up. Earlier today, my colleague Marc Ambinder wrote about this, defending Summers against his critics while leaving open the possibility that he may, indeed, leave. My own view is a bit less sanguine. I think Summers is going to leave sooner rather than later, possibly before the mid-term elections, and if not then, soon afterward.

Why? Because Summers is frustrated by his role, and his colleagues are clearly frustrated with him. Alexis Simendinger had a devastating item in last week’s National Journal suggesting that Summers’s “legendary self-regard” and “ego the size of the national debt” had gotten out of control. Some of Summers’s frustration no doubt stems from his wanting to be Treasury secretary. When that plum went to Geithner, Summers cast his eye on the Fed chairmanship and agreed to bide his time until Ben Bernanke’s term ended at the NEC–a staff position well below his old job as Clinton’s Treasury secretary. Most administration officials tactfully avoid pointing this out, because Summers has a fragile ego. But that’s why Joe Biden is so great. “How many former Secretaries of the Treasury would come in not as Secretary of the Treasury?” Biden blurted out to the New Yorker’s Ryan Lizza last fall.

Bruce Bartlett:

Green speculates that OMB Director Orszag might replace him, but I don’t see that at all. OMB is a vastly more powerful organization. I can more easily see Peter becoming HHS secretary whenever Kathleen Sebelius leaves.

I continue to believe that the NEC is an organization without a clear reason for existence. It was created by Bill Clinton to be the economic counterpart to the NSC. But the comparison is invalid. The NSC exists because there is inherent conflict in the nature of the State Department and Defense Department that requires continuous oversight. Also, the NSC’s issues tend to be very time sensitive and often involve classified material. But there are no inherent institutional conflicts among the economic agencies, their problems are seldom time sensitive, and even less seldom based on classified information. When I worked at Treasury and had access to some of the material from its intelligence office I found that what I read in the Financial Times was much better quality and more up to date.

In the short run, Larry will probably just go back to being a professor at Harvard after the election. President Obama should use the opportunity to rethink the NEC’s role.

Clive Crook

Felix Salmon:

My feeling is that Harvard is likely, but the FT column is less so: it always seemed to me like a long-form job application aimed at whomever was going to win the Democratic nomination.

And “Wall Street consulting” is probably a polite way of saying “a return to DE Shaw”, which happily paid Larry $5 million for one year of one-day-a-week work, and would surely cough up much more if he gave them the opportunity and a greater time commitment. But there will be other bidders, too: John Paulson, fresh off of signing up Alan Greenspan, would surely be happy to pay millions to sit him down opposite Summers and see the two debate.

The Summers exit could well be the most lucrative use of the revolving door yet seen in the short history of the Obama administration: if he was willing to work full time, Summers could command significantly more than the $10 million a year Citigroup paid Bob Rubin when Rubin left Treasury.

As a result, Obama and his chief of staff are going to have to be very careful about exactly how they manage any Summers exit. If the announcement is made before the midterms, as Green suggests it should be, then they’re going to have to make sure than any subsequent announcements about where Summers is going are delayed until after them. Otherwise it’s going to be the easiest thing in the world for the Republicans to paint the Obama administration as the party of Wall Street fat cats.

Brad DeLong:

Joshua Green is old enough to know that whether the Secretary of the Treasury is “above” or “below” the Assistant to the President for Economic Policy really depends on the people and on the President. Does anybody think that Secretary of State William Rogers was “above” Assistant to the President for National Security Henry Kissinger? Does anybody think that Counselor to the President Daniel Patrick Moynihan was “below” Secretary of Health, Education, and Welfare Robert Finch? But does anybody believe that Treasury Secretarys George Shultz or William Simon were “below” John Ehrlichman? Does anybody think that Bush’s first two Treasury Secretaries–Paul O’Neill and John Snow–were “above” anybody? And Hank Paulson, similarly, was a very weak Treasury Secretary (“Secretary of the U.S.-China Relationship and of the Nature Conservancy,” was the saying) until the coming of the financial crisis and the paralysis of the Bush White House.

The rule is that with a President who is weak–or uninterested in economic policy–or when the Chairs of House Banking, Senate Banking, Senate Finance, and House Ways-and-Means are strong, then the Treasury Secretary is the more powerful position. But with a President who is strong and interested in economic policy, the Assistant to the President is the higher-ranking job.

This is an old, old story.

In the Dark Ages, there was a guy who was the king’s “mare-scallus”–his “horse-slave,” responsible for mucking out the stables and bringing the horse out when the king wanted to ride. But by the time of Richard de Clare, 2nd Earl of Pembroke (1st creation), his title as Marshal of England meant not that he mucked out the king’s stable but rather that he arranged and regularized rights and duties in the feudal hierarchy, with power to “order, judge, and determine all matters touching arms, ensigns of nobility, honor, and chivalry…” Over the generations, face-time with the king is what matters for power.

Or consider the job held by Thomas Woolsey, Thomas More, Thomas Cromwell, and Richard Rich under Henry VII Tudor: Chancellor of England. Originally the chancellor was the cancellarius–the usher in the law court who sits at the lattice screen separating the judge and the advocates from the audience, and determines who can go in and who must stay outside watching. But by the Tudor dynasty the office of Chancellor was much more than just that of an usher who called out and told the people concerned with the next case that it was time for them to appear before the king. Once again, over the generations it is face-time with the king that is what matters for power.

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Volcker And Elmendorf Get In The VAT

Douthat already has many of these posts in his own post.

Charles Krauthammer at Townhall:

That’s where the value-added tax comes in. For the politician, it has the virtue of expediency: People are used to sales taxes, and this one produces a river of revenue. Every 1 percent of VAT would yield up to $1 trillion a decade (depending on what you exclude — if you exempt food, for example, the yield would be more like $900 billion).

It’s the ultimate cash cow. Obama will need it. By introducing universal health care, he has pulled off the largest expansion of the welfare state in four decades. And the most expensive. Which is why all of the European Union has the VAT. Huge VATs. Germany: 19 percent. France and Italy: 20 percent. Most of Scandinavia: 25 percent.

American liberals have long complained that ours is the only advanced industrial country without universal health care. Well, now we shall have it. And as we approach European levels of entitlements, we will need European levels of taxation.

Obama set out to be a consequential president, on the order of Ronald Reagan. With the VAT, Obama’s triumph will be complete. He will have succeeded in reversing Reaganism. Liberals have long complained that Reagan’s strategy was to starve the (governmental) beast in order to shrink it: First, cut taxes — then ultimately you have to reduce government spending.

Obama’s strategy is exactly the opposite: Expand the beast, and then feed it. Spend first — which then forces taxation. Now that, with the institution of universal health care, we are becoming the full entitlement state, the beast will have to be fed.

And the VAT is the only trough in creation large enough.

As a substitute for the income tax, the VAT would be a splendid idea. Taxing consumption makes infinitely more sense than taxing work. But to feed the liberal social-democratic project, the VAT must be added on top of the income tax

Conn Carroll at The Heritage Foundation:

A VAT can be (and has been) structured in many different ways. But the real world results are always the same: higher taxes, more government spending, lower growth, fewer jobs and more special interest power.

Higher Taxes: Don’t believe for a second that a VAT will help offset other taxes. International evidence clearly shows that a VAT is likely to increase the aggregate burden of govern­ment. Europeans used to only have a slightly higher tax burden than the United States. But beginning in the late 1960s, European countries began to implement VATs. Since then, the overall tax burden in Europe has climbed rapidly. And once a VAT is in place, the evidence shows that the tax rate rises over time.

Higher Government Spending: Not surprisingly, with more revenues, European governments turn around and spend much more than the United States does. According to a study by the U.S. Chamber of Commerce, government spending grew 45 percent faster in VAT nations than in non-VAT countries.

Slower Growth: According to the academic literature, there is a strong negative relationship between govern­ment spending and economic performance. In other words, more government spending means less economic growth and fewer jobs. Economic growth is driven by individuals and entrepreneurs operating in free markets, not by Washington spending and regulations.

More Power to Washington: There is one economy that would greatly benefit from a VAT: Washington, DC. No VAT could ever be levied evenly on all goods and services. Due to political considerations, a VAT in addition to current taxes would likely exempt politically sensitive items like food, clothing, health care and housing. Industries would lobby heavily for exemptions from the VAT for the economic benefits described above. This would give Congress an even larger role in picking winners and losers in the marketplace. Success would depend less on ingenuity and hard work and more on the ability to gain political favor.

Tyler Cowen:

I outlined it yesterday, to a small group at GMU.  My tale went as follows:

1. The United States is on an unsustainable fiscal path.

2. For whatever reason, long-term interest rates don’t reflect this problem.  There will either be a sudden collapse of demand for government securities, or the current market already is figuring we will get a VAT.  Either way it is more revenue for the government or a Greece-like scenario writ large.

3. I would prefer spending cuts, but voters seem too irrational to be willing to cut spending; here the libertarian argument comes back to bite us on the bum.  They might be willing to cut spending once a financial crisis arrives (though maybe not), but then there will be days or only hours for decisive action.

4. We could, for now, wait and postpone fiscal reform.  That means encountering a sudden collapse some number of years from now.  We will then clean up the budget in some way, but under a TARP sort of mood rather than what we might do today.

5. We’ll get a better deal, and make wiser decisions, if we do it today rather than in a panic.  Plus another financial crisis would prove deadly to both the budget and to the quality of economic thinking.

6. There exists a credible bipartisan deal which involves at least half the VAT revenue for deficit reduction, combined with cuts, or slower increases, in marginal tax rates on income and perhaps an elimination of the corporate income tax.  Spend some of the rest on health care for the poor, if that is the deal on the Democratic side.

I am by no means convinced this argument is correct but I would like to hear the strongest arguments against it.  No one I talked to succeeded in defeating it, other than mentioning they don’t like the idea of more revenue for the government.  You will notice I structured the argument to be as neutral on the “left vs. right” question as possible.

Greg Mankiw in NYT:

YET despite its efficiency compared with other taxes, a VAT does not offer a free lunch. It would raise consumer prices, lower real wages, discourage work and depress economic growth. It would also break President Obama’s pledge not to raises taxes on the middle class.

But unless the president revises his spending plans substantially, he will have no choice but to find some major source of government revenue. Ms. Pelosi’s suggestion of a VAT may be the best of a bunch of bad alternatives. Unfortunately, in this new era of responsibility, the president is not ready to face up to the long-term fiscal challeng

James Pethokoukis:

Yet there is a reasonable scenario where America would accept a VAT. In fact, it is the only scenario under which we should accept a VAT.

First, Washington would have to demonstrate it could manage the public purse by reforming entitlements in a Ryan-esque manner. A tall order, but a necessary prerequisite or else voters would fear that entire six-point budget gap would be closed by tax hikes via a VAT. So, in the end, government spending needs to be dramatically cut. (Preferably, we would never need to get past this step.;)

Second, a VAT would have to completely overwrite the current complex and inefficient tax code. If not, voters would fear getting hit by both VAT and income tax hikes. A VAT can’t be an add on.

Third, every sales receipt in America would have to indicate the VAT penalty. But politicians love the hidden aspect of a VAT as way of duping voters. To them opaqueness is a feature, not a bug.

Fourth, the intended tax burden should be kept level at first. A pro-growth VAT — one that does away with corporate and investment taxes — might produce more revenue merely by expanding the economic pie.

Still a tough sell. Better skip the part about the French.

Allah Pundit:

The One’s perverse insight was that a giant federal expansion of health-care benefits had to be passed before any major entitlement reform could happen. Had he tackled the latter problem first, declaring that America had reached a moment of fiscal emergency and demanding that both parties address the crisis, he would have done his country a world of good but in the process created two problems for himself. First, the political fallout to his party from cutting entitlements likely would have been devastating, which would have wrecked any chance at passing health-care reform aside from a modest GOP bill. And second, even if the Democrats survived the electoral backlash, they’d have a hard time trying to sell the idea of a brand new entitlement after the country had sacrificed so much to get its fiscal house in order. No, the only way to get O-Care done was to add it to the entitlement basket first and then wait for dependency to work its magic so that, when the crisis finally hits full force, it’s already a fact of life. That was a fantastically reckless thing to do but he wanted his agenda passed at all costs. And I do mean “all costs.”

Ross Douthat:

But I wonder if many of these conservative commentaries, alarmist and conciliatory alike, aren’t overstating the political feasibility of passing a V.A.T.

Cowen, for instance, writes that he “would prefer spending cuts” to a consumption tax, “but voters seem too irrational to be willing to cut spending.” Krauthammer suggests that we’ll probably get a V.A.T. because Americans aren’t yet willing to accept health care rationing. Now I certainly agree that neither spending cuts nor rationing (which, where Medicare is concerned, may amount to the same thing) are likely to be particularly popular with the American public. But do you know what else isn’t popular? Sweeping middle-class tax increases.

Maybe Americans would swallow a broad-based tax hike faster than they’d swallow extensive spending cuts. But I doubt it. In fact, I think that taken on its own terms, a V.A.T. could actually be a harder sell than Paul Ryan’s proposal to means-test and voucherize Medicare, which everyone agrees is politically unimaginable at the moment.

Incremental tax increases on the wealthy are one thing: They’re relatively popular, we’ve seen some of them from Democrats already in the health care bill, and if the Democrats hold on to power we’ll probably see more. But a broad-based consumption tax is something else entirely. At the very least, any politician tempted to support a V.A.T. would quickly find himself pondering the example of Canada’s Progressive Conservative Party, which midwifed Canada’s Goods and Services Tax into existence in 1990, and lived to regret it. (Though “lived” is a strong word: The G.S.T. is still with us today; the Progressive Conservatives, however, are not.) And that was in Canada! In the United States — well, let’s just say there’s a reason that no American presidential candidate has campaigned on a middle-class tax increase since the days of Walter Mondale.

Again, this doesn’t mean that a V.A.T. won’t need to be part of whatever deal our elected representatives (God willing) eventually hammer out, dire political consequences notwithstanding. But there’s something strange about a right-of-center conversation in which a middle class tax increase is being framed as the politically realistic alternative to spending cuts. You don’t usually see conservatives and libertarians underestimating the tax sensitivity of the American public, but in this case I’m pretty sure they are.We’ll probably need both middle-class tax hikes and entitlement cuts before all of this is over. But I wouldn’t bet on the middle-class tax hikes happening first.


Volcker: Taxes likely to rise eventually to tame deficit

(Reuters) – The United States should consider raising taxes to help bring deficits under control and may need to consider a European-style value-added tax, White House adviser Paul Volcker said on Tuesday.

Volcker, answering a question from the audience at a New York Historical Society event, said the value-added tax “was not as toxic an idea” as it has been in the past and also said a carbon or other energy-related tax may become necessary.

Bruce Bartlett:

Volcker’s views are no surprise to me for two reasons. First, he is a smart guy who knows how to read a budget projection and draw the obvious conclusion that it is impossible, practically, to bring the budget deficit down to a manageable level without raising taxes significantly.

Second, I had some correspondence with Volcker a few years ago after I wrote about the need for a VAT in my Impostor book. I can’t share his response, but I don’t see why I can’t share my letter to him since I still believe everything I wrote and have said more or less the same thing publicly on many occasions.
April 1, 2006
Dear Mr. Volcker,
Thanks for the note about my book. I hope by the time you get this letter you will have finished it, especially the chapters dealing with the inevitable tax increase and the need for a VAT. These are the chapters that have caused me the most trouble with my conservative friends.
Despite my best efforts to explain that I am merely predicting a large tax increase not advocating one, that is how I am regularly portrayed. For this reason, my discussion of the VAT has also been widely misinterpreted. I would only advocate a VAT if my assumptions about the path of future spending—and therefore taxes—are correct. If they are, then a VAT is the only way we can hope to raise the additional revenue that will be necessary without destroying the economy—on the order of $1 trillion per year in today’s economy. I tried to explain myself a little better in the attached posts I made on my New York Times blog a few days ago. (The blog is only a temporary thing.)
There is at least one senior member of Congress who agrees with me and with whom I am working. But the political climate is such that he and others like him are going to need a lot of cover before they can even start to talk openly about legislation. I believe that one of these days the political climate will change when financial markets force action on the deficit. I don’t know when or how this will happen, but I feel certain that eventually there is going to be some sort of market break that will suddenly focus everyone’s attention on the deficit once again.
One of my fears is that when that day comes, the political class will deal with it as a one-time event. But with spending growing as rapidly as it is, I think it is likely that Congress will be forced into serial budget deals, as it was in the 1980s. If it deals with each of these as a discrete event, at the end of the day we are going to end up with a collection of individual policy actions that no one in their right mind would advocate if they knew the ultimate outcome.
For example, on the tax side, I see our revenue system as already being unable to function. If we try and get significantly more money out of it, the results could be disastrous. That’s why it makes sense to me to bite the bullet on the VAT now and raise it a little at a time to pay for the spending that is in the pipeline. If the ground is well prepared by people like us, maybe when the next financial crisis hits, Congress will use it as an opportunity to institute a VAT, which would certainly be politically impossible under any other circumstances.
As you know, in crisis there is opportunity. And if one is well prepared in advance before the crisis hits, amazing things can be accomplished. If I am wrong and there is no crisis and we continue to just coast along, that’s fine. I don’t want to pay higher taxes any more than anyone else. But everything I know about politics and economics tells me we are in a temporary lull and that eventually we will return to trend and things like the deficit will once again matter to people. I think those with the foresight to see this have a responsibility to prepare for that eventuality.

Mary Katherine Ham at The Weekly Standard:

White House advisor Paul Volcker made news this week by calling a value-added tax (VAT) “not as toxic an idea” as it’s been in the past for tackling the nation’s deficit problem. Today, Congressional Budget Office Director Douglas Elmendorf confirmed he’s been getting “a lot of questions” about the VAT tax from Congress.

“Many people in Congress are interested in it,” he said of the VAT, a national sales tax that adds between 10 and 20 percent to purchases in European countries where it’s been implemented. “We’ve had conversations with a number of members and their staffs.”

Elmendorf declined to specify which members and said he has yet to field an official request to study a VAT tax. The CBO is in the process of figuring out how best to study a VAT tax’s impact, sorting through various structures employed by other countries. Elmendorf also declined to estimate what a VAT tax level would need to be to cover the 2020 debt, which the CBO predicted will be 90 percent of GDP.

Daniel Foster at NRO

UPDATE: Curtis Dubay at Heritage

Jules Crittenden

UPDATE #2: Clive Crook


Filed under Economics