A 100-Day Progressive Agenda

1. Eliminate the Senate Filibuster – The Senate is undemocratic enough without the filibuster. A vote to get rid of it could be mildly unpopular, but actual voters don’t much care about procedural issues like this. Increasingly the power of the Democratic senate majority would be the immediate benefit.

A less obvious benefit is that vulnerable Democratic incumbents will be able to desert us on particular tough votes. No need, or example, to corral Mark Pryor into breaking filibusters on issues that might be unpopular in Arkansas, like card check and automaker loans.

2. Card check – Union density in the U.S. is still going down. No progressive majority can survive as long as middle class workers are unorganized.

3. More and better paid federal judges – The federal judiciary is still heavily dominated by Republicans despite Obama’s smashing 7.3 point landslide. Right now, of the 13 federal judicial circuits, only one has a majority of Democratic nominees.

We need more federal judges anyway because of population growth. An immediate increase in federal authorized judgeships thus kills both of these birds with one stone.

Judges also need to be better paid. It is absurd that many lawyers make more money their first year out of law school than senior federal judges.

4. Double the budget for the NIH and NSF – Private sector research has been falling. This would be an immediate boost to the economy with substantial long-term dividends. Right now the percentage of grant proposals that are funded is at an all-time low. This is a great stimulus for our high-tech economy and provide jobs for all those in biotech and other industries who are getting laid off as venture capital funding of high-tech research has collapsed.

5. Increase the One-Time Lump Sum Social Security Death Benefit from $255 to $2000 - If you ever watch TV shows with elderly audiences, such as CNN during the day, you see commercials for small benefit life insurance policies, such as Colonial Penn. These policies have gigantic profit margins and are very bad deals. They pray on seniors’ fears that their families will be saddled with funeral costs. Seniors who sign up for these policies typically will pay many times their expected benefit (to cover all those commercials and other marketing expenses) and will also be placed on marketing lists so other predatory financial firms can try to scam them.

The commercials all focus in on how Social Security’s one-time death benefit is only $255, and therefore to prevent one’s funeral from being a burden on one’s family even poorer seniors ought to get low-value life insurance.

This program will be cheap and save huge numbers of vulnerable seniors from getting scammed by the financial industry. 

6. Impose a nationwide consumer lending interest rate cap – This would effective put the sleazy “payday loan” industry out of business, as many states have already done, most recently Ohio and North Carolina. Here is a lot more information on payday loans from the Center for Responsible Lending.

Actually while we’re at it, enact the entire Center for Responsible Lending agenda.

7. Mandate that utilities have solar feed in tariffs – Solar power is completely clean, creates high tech research and manufacturing jobs, creates constructions jobs, only gets cheaper as demand for it increases, and is an especially effective form of power because it provides the most electricity during periods of peak demand: hot sunny summer days. Germany and Spain have already done this on a national level, and several U.S. states have also joined in.

What a feed-in tariff does is require utilities to compensate small scale solar power producers for energy they generate in excess of what they produce. So a building that needs little power but has big rooftop solar panels could have a negative electricity bill as long as it is producing more electricity than it consumes.

Other benefits of rooftop solar panels is that they reduce the need for long distance electricity transmission lines and they make the buildings that have then invulnerable to blackouts during the day. Already Germany gets about 2.5% of its electricity from solar panels. Since Germany is less sunny than most of the U.S., and because solar panels keep getting cheaper and more efficient, an equivalent investment here would generate much more electricity.

 

Answering Yglesias: Hours Can’t be Cut Where Labor is Not Fungible

Matthew Yglesias asks:

 In principle, the past twenty years worth of increases in productivity could have resulted in flat output but decreased hours worked. … Obviously, that’s not what happened. But isn’t it something that could happen in the future?

This certainly could happen where labor is fungible, such as on an assembly line or at a restaurant. But in high skill occupations, work is extremely specialized. At my law firm there are certain tasks that I can do far better than anyone else. And for them to even try to do a particular task, they’d have to spend at least twice as much time. Likewise I’d have to spend twice the time to do their jobs. So it just is not possible for me to cut my hours, take a proportional cut in pay, and have my employer find someone else to take up the slack.

Relatedly, my productivity depends on the number of hours I spend on a particular case. The first 10-20 hours are not very productive since they involve me learning the facts and important legal issues involved, but not directly producing anything of value for the client. Once I’ve internalized this information, I don’t need to relearn it, though I do need to keep spending time keeping up to date. So the most efficient way to staff a case is to do so “leanly.” That is, to have fewer lawyers doing nonproductive work keeping up with the case, and more actually “producing” (taking depositions, writing motions, etc.)

Since the secular economic trend is for more jobs to become like mine (requiring specialized skills) demand is increasing for more hours from fewer workers. As Matt recognizes, the marginal utility of wealth goes down as people earn more. This trend makes people with jobs like me less happy. We don’t want more money if it means even more hours.

 But since the marginal return to additional hours goes up for employers of specialized skill employees, the rational response of employers is to figure out ways to make employees work more. Minimum billable hour requirements, bonuses that grow very quickly, and better work assignments are some of the ways that law firms do so.

One other thing to think about is the fixed cost per employee. This includes training, benefits, office space, non-shared equipment, and in the case of law firms fixed per-lawyer costs such as annual bar dues and Lexis-Nexis subscriptions. In a competitive market for legal services and a competitive market for legal labor, law firms will be forced to make their lawyers work longer and longer hours, to the point that their low morale and physical exhaustion reduce their productivity below that of hiring new people.

All of this points to a difficult public policy question. A free labor market increasingly seeks to work smaller numbers of people more and more. This is the most efficient outcome economically, but leads to an undesirable degree of unemployment, economic inequality, and extremely overworked high-skilled workers. Once again, the market acts to maximize GDP but not utility.

Strict overtime laws are a very blunt way to offset this problematic result of unregulated labor markets. I think a better way is to reduce the fixed costs of labor. One very good way is to reduce the fixed costs of each employee, such as by moving away from employer-sponsored health insurance.

Actually, you can make AAA bonds out of subprime mortgages

I am getting tired of statements like these from Steve Eisman:

But he couldn’t figure out exactly how the rating agencies justified turning BBB loans into AAA-rated bonds. “I didn’t understand how they were turning all this garbage into gold,” he says.

Wrong wrong wrong. The problem is not that it isn’t possible to turn “BBB” subprime loans, in part, into risk-free ”AAA” securities. The problem is that it was not done correctly. If you take a pool of $100 million in subprime loans, you could easily make the most senior 20% into AAA securities that don’t take a penny of losses until the other 80% of the bonds take a complete loss. Even the worst subprime pool, generally California Countrywide and WaMu loans from 2006, where defaults will probably reach 70 or 75%, if the bonds had been written like this the AAA tranches would still be completely safe.

The problem was that too much of subprime pools were cut up into tranches rated AAA. Instead securitizing the 20 or 30% of the pool into AAA bonds, instead the amount was more like 75-85%.

I’m all for attacking the corrupt, greedy, fraud-ridden mortgage finance industry. But doing so does not require overstatement. AAA-rated bonds backed by subprime mortgages can be safe investments. The problem was that those who actually created these bonds (investment banks and the rating agencies) were extremely reckless and/or dishonest when they were making assumptions about future loan losses.

30 reasons why Depression 2 is coming

This article by Paul Farrell of Marketwatch should be especially relevant for left writers who are skeptical of the GM bailout. Really, please read it. It’s a tour de force of the strong factual case for extreme gloom.

Just about every economic indicator is headed south at rates not seen since the Great Depression. Or in some cases, already exceeding Great Depression levels. The failure of an entire sector of our economy, one that employees millions and is responsible for the health care and pensions of millions more, is absolutely not something we can let happen right now.

This also is not some issue of nationalism and protectionism. GM in particular has extensive foreign operations that will likely never be able from the shock of a bankruptcy in a deep recession. These foreign assets are actually the best parts of the company, and compete in markets where gas has long cost more than $5 a gallon making fuel efficient vehicles, and where they have no “home field” advantage.

GM’s stockholders, the people who control the company and elected its management, have already been wiped out. GM stock is down more than 92% since late last year. The desire to “punish” the company further for its obnoxious promotion of massive SUVs, opposition to CAFE regulations, and general anti-regulatory lobbying is something the market has already done.

The responsible measure is a direct equity investment of at least $50 billion in GM and proportionately smaller amounts in Ford and Chrysler. But for now a $25 loan will do, to keep the company afloat until response people are once again in control of government in January.

Problems with Mark Kleiman’s proposal to wipe out GM bondholders absent bankruptcy

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Mark Kleiman asks:

Shouldn’t [GM] bondholders be paid off at the current (extremely depressed) prices of the bonds, and the the stockholders mostly wiped out, as AIG’s were?

 

When investors bought GM bonds, they entered into a contract with GM that obligated it to treat them as any other senior unsecured lender.

 

Thus wiping out GM debt would require the same treatment for huge numbers of dealers and suppliers, as well as GMAC, which finances dealers inventory and retail customers, and GM’s pension and retiree medical plans. This would happen anyway in bankruptcy.

 

I think what he actually has in mind is that only some GM’s creditors be paid. But this would require a government official go through and decide who are the worthy unsecured creditors, and who aren’t, and only have some of them get wiped out. I don’t think it is prudent to have the government to start doing this.

 

States are specifically prohibited from modifications of contracts such as Mark proposes by the Contract Clause of the Constitution. It would also likely be unconstitutional for the federal government under the Takings Clause, as it seems fairly similar conceptually to the facts in Lucas v. South Carolina Coastal Commission.

 

As a practical matter, GM would need more financing later. Under Mark’s proposal, this would always need to come from the government, since his proposal would cause debt markets stay closed for GM. Also, if the US government decided that it would capriciously void legal loans it citizen companies owe to foreigners, I think you would also permanently stunt the American economy by making private lending less secure, further raising interest rates.

 

Similarly, this action would cause GM to violate the contract law of other countries where it has both bondholders and other operations. GMs’ bondholders then could obtain judgments against GM’s substantial property abroad.

 

Finally, there is no way that we can establish a “market price” for GM bonds. While the value of the bonds are low, they fluctuate wildly from day to day.

 

 

Stockholders, however, can easily be wiped out. The government could simply buy from GM 98% of its stock for $50 billion. As we say in finance, this would be a dilutive equity offering.

 

This would (1) give GM $50 billion to work with and the US gov 98% ownership (and complete control” over the new company, with 98% of the ownership of the profits of its new property (2) cause stockholders have only 2% of the recapitalized company. I have little doubt that GM’s board would not take this offer, which would in theory send GM stock to about 1.63 a share from the current 3.2. When better economic times resume, the federal government recoup its spending by selling GM shares into the open market.

Worthwhile Clinton Retread

President Clinton fought for and signed a plan to help communities across the country move to community policing by funding the hiring and redeployment of 100,000 new police officers over five years. The Clinton-Gore Administration’s COPS initiative, passed as part of the 1994 Crime Bill, has provided more than 11,000 law enforcement agencies funding to hire or redeploy more than 100,000 police officers. In 2000, President Clinton won over $1 billion to help communities take the next step and hire up to 50,000 more police officers by FY 2005. The federal government has also made record investments helping local authorities fight crime — increasing funding for state and local law enforcement by more than 300 percent since 1993. Overall crime rates has dropped every year under President Clinton and Vice President Gore, the longest continuous drop on record and crime is now at a 26-year low.

This is the official Clinton White House version of the policy. Obama should see President Clinton’s 100,000 new police, and raise him with a proposal to fund a COPS initiative to increase police hiring by 150,000 or 200,000.

Maybe you think we don’t need more police on our streets right now. I disagree. If you look at Department of Labor employment statistics, the number of private security guards has increased very rapidly relative to police and sheriff employment. The most recent Bureau of Labor Statistics projection is that the ranks of public police officers will increase by 7,000 a year for the next ten years, while private security guards by 17,800 a year. This indicates the people are feeling insecure in this country.

I’d rather those numbers be, at minimum, reversed. Or even better, private security guard employment go down as more public police officers reduce the need for private security. Public safety is a basic public good that is best provided by the government. Police officers are union employees who are sworn to protect the constitution and the general public where they serve. Private security guards protect whomever those that pay them want to protect.

The politics of this is extremely good for Democrats. More police is broadly popular with the public, and it will be a very popular vote to run on for Congressional Democrats in 2010 and Obama in 2012. On the other hand, it divides Republicans, with the anti-tax/anti-government ideologues on one side, and moderates and populists on the other. Also, as mentioned above, nearly all police and sheriff deputies hired would be union members, strengthening a key part of the Democratic base.

This also would not be an expensive policy. If it costs, on average, $40,000 in federal matching funds for local governments for each new police hire, and we fund 200,000 new positiions, this comes to a mere $8 billion a year.

Much of that money would come right back to the government in income and social security taxes, so on net we may only be looking at $6 billion.