Derek Thompson

Proposals for reform of financial regulation are now everywhere. The most significant have come from the US, where President Barack Obama's administration last week put forward a comprehensive, albeit timid, set of ideas. But will such proposals make the system less crisis-prone? My answer is, no. The reason for my pessimism is that the crisis has exacerbated the sector's weaknesses. It is unlikely that envisaged reforms will offset this danger.

At the heart of the financial industry are highly leveraged businesses. Their central activity is creating and trading assets of uncertain value, while their liabilities are, as we have been reminded, guaranteed by the state. This is a licence to gamble with taxpayers' money. The mystery is that crises erupt so rarely.

I'm reading William Saletan unpack the latest antismoking bill, and although I don't have a great framework for evaluating drug regulation, it seems to make a lot of sense. Rather than take steps to outlaw cigarettes, the law is a practical response to the question: How can we make this safer? It allows the FDA to alter the harmful chemistry of cigarettes and expands approval of nicotine gum and patches, among other things. And it makes me wonder: Why can't other drug policies be practical responses the same question?

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I tend to think I'm a decently fair observer of politics. But one thing I've never had patience for is Republicans who don the cloak of fiscal conservatism and then threaten to light themselves on fire when military spending increases by too little -- much less go down. Maybe that's why I really appreciate this rhetorical MOAB from the voluble Rep. Barney Frank on paying for the F-22:

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So it looks like the Waxman-Markey climate change bill will pass in the House this week: The sponsors hammered out an agreement last night with Collin Peterson, the chair of the Agriculture Committee. The main sticking point was over whether the EPA or the Department of Agriculture would administer a carbon offset program intended for farmers. (The offset program will pay farmers to do environmentally friendly things like plant trees.) Peterson got his way: The (more sympathetic) Department of Agriculture will do the work.

I don't have a whole lot to say about the compromise -- the bill now weighs in at a morbidly obese 1,201 pages, and much like every member of Congress I sure haven't read it -- except that I can feel my enthusiasm for the whole project slipping away. In the ideal world we'd want a carbon tax, with the revenue used to fund a payroll tax cut. In the campaign world we were promised a cap and trade bill with 100% of the emission permits auctioned off. In the real world we were offered a cap and trade bill with some portion of the permits auctioned off and some portion of the permits handed out to please various important constituencies who would otherwise scuttle the effort. And in the world of Collin Peterson we will also have a special offset program for agricultural interests.

I know that politics is the art of the possible and we must cling tightly to our copies of Machiavelli and blah blah blah. Whether an imperfect bill is better than no bill at all is a question we will all have fun answering in hindsight. But I don't see any reason not to point out that bill is imperfect, and I don't totally understand why so few people are doing that. A friend mentioned that Barack Obama got exactly zero questions about energy or the environment during yesterday's presser, despite mentioning the bill in his opening comments. Maybe ignoring the bill is better than swallowing it?

Washington DC's terrible Metro accident -- yikes, I used to ride the red line every day -- made we want to go look up information about the city's train system. So I went to the National Transit Database historical tables to see what I could find. Had there been big changes in services? A drop off in funding? Not really. Here are the total operating expenses of the Metro over the past ten years, in millions and billions of dollars:



Of course, this needs to be adjusted for population growth, increased usage and expansion. So here's the growth in total services provided (in billions of miles traveled):



I combined the two to get the dollars spent per mile traveled. That's increased too:

The Daily News of Rhode Island is hurting, like every newspaper, but at least this is thinking outside of the box:

The Daily News will now charge $145 annually to a newspaper subscriber, $245 if a subscriber wants the paper and access to the paper's web site--and, here's the key figure, $345 if the subscriber only wants the web site.

So if you only want the website, the Daily News will pay you $100 to take the newspaper. You don't have to read it. You don't have to look at it. You can toss it, use it for fish wrap, or just blanket yourself in the local business section like a paper Snuggie. Could this possibly work?

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Just how bad were the last ten years for jobs? Horrific. Michael Mandel, the BusinessWeek economist last seen diagnosing America's failure of innovation, has crunched the numbers, and these pictures aren't pretty. The last ten years have been the worst decade for job creation since 1949.

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On May 12, the Senate Finance Committee held a hearing on health care reform. There was a long table of 13 experts, and a vast majority agreed that ending the tax exemption on employer-provided health benefits should be part of a reform package.

They gave the reasons that experts -- on right or left -- always give for supporting this idea. The exemption is a giant subsidy to the affluent. It drives up health care costs by encouraging luxurious plans and by separating people from the consequences of their decisions. Furthermore, repealing the exemption could raise hundreds of billions of dollars, which could be used to expand coverage to the uninsured.

Why do we need President Obama's big-bang health-care reform at all? What's the real agenda here? If it's really to cover the truly uninsured, a much cheaper, targeted, small-ball approach would do the trick. But on the other hand, maybe the real goal is a government takeover of the U.S. health system.

In a recent column, Larry Elder points to an ABC News/USA Today/Kaiser Family Foundation survey that shows 89 percent of Americans are satisfied with their health care. That means up to 250 million people could be happy with their plans. So why is it we need Obama's big-bang health-care overhaul in the first place?

Home sales rose in May, by 2.4 percent, for the second straight month. Good news? Not so fast. Year-over-year sales are still lagging, and home prices are 35 percent down from their 2005 high. And this mediocre news is coming on top of much lower home prices and an $8,000 federal tax credit for first-time buyers. As Ian Shepherdson put it shortly: "Direction good. Pace slow." Here are four points to take away from the housing figures.

1. Maybe This Improvement is Just Seasonal.

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Monday was a new moon. You might not have noticed, but the stock market is apparently paying rapt attention. A study published in the Harvard Business Review reviewed 25 worldwide stock exchanges, and the authors found that annualized mean daily returns in G7 countries were higher around new moons than full moons. And not just slightly higher. Returns were two to three times higher during new moons in every single G7 country. Are full moons bad for both sleeping and stocks? Out: Bear Markets. In...Werewolf Markets?

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The Guardian newspaper reports that Goldman Sachs, the investment bank which has only just paid back the $10 billion it loaned from the US government's Troubled Asset Relief Program, is set to hand out gigantic bonuses this year, possibly its biggest ever. Where is this money coming from? In the less crowded field of investment banks, Goldman can act as a crucial intermediary in the bond markets to help governments and companies raise money, and it can charge higher premiums for doing business. So much for reforming Wall Street while we nursed it back to health. Has Goldman Sachs won the recession?

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The sorry state of California faces a $20+ billion deficit, and all the talk is whether the state falls into the category of too big to fail, and Washington should throw it a bone, or two billion. I think we know whose vote the state is not getting: Writing in the New York Times' Room for Debate, former presidential hopeful Ron Paul comes down firmly (and unsurprisingly) in the tough love category. As he puts it: "If you live beyond your means, you'll one day have to live beneath your means." Sage words, Mr. Paul. So what do we do, instead?

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After months of discussions between Treasury officials, federal regulators, members of Congress, the financial industry, consumer stakeholders, academics, and President Barack Obama himself, the administration released a Financial Regulatory Reform plan on Wednesday.

In 87 pages, the proposal covers nearly every aspect of the financial system, making it the most comprehensive regulatory overhaul since Franklin Delano Roosevelt's post-Depression restructuring. But despite its broad strokes, it's not the kind of radical change that many on the left had been hoping for -- not a new New Deal, or even, as its title trumpets, a New Foundation. But every expert I spoke with said that it is a positive step for the country's financial health. The question now is whether Congress, making the proposal law, will improve it or make it worse.

Raised in an individualistic culture, Americans dislike the concept of the "welfare state" and do not use the term. But make no mistake, the United States has a welfare state, and its future is precarious. The true significance of General Motors' bankruptcy lies more with this welfare state than with the battered condition of American capitalism.

Broadly speaking, the U.S. welfare system divides into two parts -- the private, run by firms; and the public, provided by government. Both are besieged: private companies by competitive pressures; government by rising debt and taxes. GM exemplified the large corporation as private welfare state. In contracts with the United Auto Workers, GM promised high wages, lifetime employment, generous pensions and comprehensive health insurance. All this is ancient history: New workers get skimpier benefits.

America's political scene has changed immensely since the last time a Democratic president tried to reform health care. So has the health care picture: with costs soaring and insurance dwindling, nobody can now say with a straight face that the U.S. health care system is O.K. And if surveys like the New York Times/CBS News poll released last weekend are any indication, voters are ready for major change.

The question now is whether we will nonetheless fail to get that change, because a handful of Democratic senators are still determined to party like it's 1993.

"That was pretty impressive, wasn't it?" President Obama said with a smile after he slapped a fly that was buzzing around him during an interview last week. "I got it. I got the sucker."

If only slapping around the players in the health-care reform debate were so easy. The annoying creatures he has to contend with this summer are the bickering stakeholders in a $2.1 trillion market that makes up 16 percent of the economy.

Let's say health care reform fails this year. Maybe Obama tries again, and he fails again. And future presidents try and fail to reform the system, but every year we just play out the same 1993 scenario, and the government is unable to pass health care reform forever. What would that future look like?

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To the surprise of nobody, Burger King's horrible, creepy advertisement campaign is not working, and the company finds itself falling further behind McDonald's according to just-released figures. This strikes a huge blow to the idea that what Americans want from their fast food joint is a Bobblehead King doll who sneaks into your bed, raps about square butts, and terrorizes you from outside your bedroom window. Yes, those were advertisements for hamburgers.

In other words, thank you America, for compelling our elites to put the strategic back into strategic advertising.

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The prevailing concern among liberals is that health care reform in 2008 will follow in the footsteps of the 1993 debacle. This is a legitimate concern, and health care reformists would be wise to draw lessons from the Clintons' failure, but we don't need to reach back the 1990s for allusions to failed entitlement reform. Beleaguered Republicans could always sink health reform the way beleaguered 2005 Democrats torpedoed Social Security privatization: Paint the other side as radical conspirators against America.

George Will's Sunday column -- entitled We Don't Need Radical Health Care Reform -- accuses the Obama adminstration of coyly presenting a public "option" that will presage a universal public "system," a single-payer health apparatus entirely run the by the government. Obama's policies are far too ambitious given the problem of uninsured Americans, Will says, which could easily be solved with tax credits. In other words, for the most part, we should practically do nothing.

Will is right, for sure, that cutting a check to millions of Americans is a lot more politically feasible than trying dramatically change the landscape of private health care. And if you reach back one presidential term, the idea that a first-year attempt at entitlement reform threatens to change America for the worse sounds quite familiar.  Here's Paul Krugman's 2004 op-ed on the Bush administration's attempts to walk Social Security toward privatization.

Privatizing Social Security - replacing the current system, in whole or in part, with personal investment accounts - won't do anything to strengthen the system's finances. If anything, it will make things worse ... But since the politics of privatization depend on convincing the public that there is a Social Security crisis, the privatizers have done their best to invent one.

[Privatizers] come to bury Social Security, not to save it. They aren't sincerely concerned about the possibility that the system will someday fail; they're disturbed by the system's historic success ... And that's why the right wants to destroy it.

The elements are all there. Krugman then (like Will now) railed against a radical plan to give an entitlement system a facelift and beat the conspiracy drum to alert readers that the government was't being honest about their plans. In both cases, opponents argued that* dramatic entitlement reform wasn't necessary, but it was a microcosm of the perverse ideology that ruled the White House and sought to change the face of America forever.

Of couse, even if history echoes it doesn't exactly repeat itself. Social Security reform in 2005 was always a battle against public opinion. But as this NYT poll demonstrates, the public is far more willing to reform health care in 2009.

*Updated: Over at the Washington Monthly, Steve Benen takes me to task for saying that health care reform is just as unnecessary today as Social Security reform was in 2005. The thing is, I never meant to say that! And when I did, I was paraphrasing George Will. I did mean to say that the arguments against today's health care reform are remarkably similar to the arguments against Social Security reform, for all the reasons I state above. That's not to say the need for reform is equivalent at all -- only that the opposing arguments are similar, with Republicans now playing the role of spoiler. Just to be clear. Thanks Steve.

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