Matt Zeitlin

Well, Greece isn’t so much the problem, the problem is that European banks are overexposed to the possibility of a Greek default, which is already weakening their position and making it harder for American municipalities to finance their debt:

From a skating rink in Everett, Wash., to New York City’s schools to Chicago’s O’Hare International Airport, interest rates on some bonds have soared since late May and could rise even further because money-market investors are less willing to buy some of the $17 billion in municipal bond deals backed by Dexia SA, a Belgian-French bank shaken by its exposure to government debts in Greece.

The Greek debt crisis is hitting dozens of U.S. cities and towns even though they are thousands of miles away and don’t own any of the country’s bonds.

“We are far from Wall Street or Greece, but the impact is being absorbed to the core in small-town America,” said Kate Reardon, a spokeswoman for Everett, Wash., a city of 104,000 people, where interest costs are rising on a local rink and concert arena.

In the Perris Union High School District in Perris, Calif., which already was furloughing workers and considering pay cuts, borrowing costs have risen by $30,000 a month, or about two-thirds of the cost of a first-year teacher, who earns about $46,700.

When times were good, Dexia gave governments across the U.S. easy access to the same cheap financing tapped by homeowners and companies by agreeing to backstop their municipal bonds. In turn, the interest rates on more than 100 municipal bonds fluctuate through daily or weekly sales called remarketings, in which big investors can either roll over their holdings at market rates or opt out.

Few public officials knew about the lender’s vulnerability to Greece; Dexia has €4.3 billion ($6.11 billion) in direct exposure to the country’s debt, according to ratings firm Standard & Poor’s Corp.

This article doesn’t exactly trod new ground. We know from what happened in 2008 that the interconnectedness of the world financial system can be exposed in times of great stress and, before you know it, an investment bank fails and corporations have problems financing their day to day operations. Or, to go back a bit further, the housing market takes a dip and it turns out that one of the world’s largest insurance companies was selling credit default swaps for securities that contained all sorts of crappy mortgages whose value was somewhere between zero and unknown and thus the insurance company requires some $85 billion in emergency government assistance.

What the Journal’s article shows well is that the problem is with Dexia, that it loaned money to an irresponsible corrupt government and there is now a substantial risk that it will be caught holding the bag. To blame the Greeks for the fact Perris, CA’s borrowing costs have gone up $360,000 a year at current rates wouldn’t make much sense. Now, it could be the Perris government’s fault for not doing their due diligence on Dexia, but then again, Dexia is supposed to have all the smart people and know what the risks of lending money to the Greek government is.

As a committed defender of TARP and bailing out financial institutions in order to avoid mass misery, I could see myself being OK with some sort of bailout or deal that ended up rescuing Dexia from the full consequences of its bad judgement, but at the same time, I would be very clear that the banks are at fault and it’s the banks exposure to Greece that makes one not-so-large country’s fiscal madness an international concern.

Roughly speaking, there seems to be two ways that poverty is thought about in our political discourse. The basic liberal way of thinking about poverty is that there is an opportunity deficit. For whatever reason, a segment of the population simply does not access to the goods that could enable a decent, middle-class life. This could mean that there’s a gap, that because of where they live they do not have access to good schools that will give them skills to get well-paying jobs. It could also mean that, for whatever reason, they are more likely to be exposed to environmental contaminants that inhibit full mental function. It could also mean that they live in economically depressed areas and because they’re poor, it’s hard to move to more prosperous areas or that crime is really high which makes the investments for prosperity more difficult.

There are two ways to deal with the opportunity problem. One is to revitalize the areas that have high concentrations of poor people so that they are safer, more prosperous and have better schools. The other is to break up areas with high concentrations of poverty so that poor people can take advantage of the greater opportunities in relatively more wealthy communities. Insomuch as Democrats think about poverty policy, they tend to adopt one of these approaches or a mixture of the two.

Conservatives, on the other hand, tend to see poverty as a cultural problem that is due to poor people not having the bourgeois values of thrift, prudence and advance planning that are the real roots of prosperity. If this is why people are poor, you make sure they don’t die in the streets, but it means that government policy is not likely to accomplish much and might even backfire. And so conservatives are not very interested in anti-poverty policy. If they are, it’s in things like “no excuses” charter schools whose explicit purpose is to inculcate these values. But then again, the charter school movement is nearly entirely run, staffed and funded by liberals and Democrats.

Then there’s the third theory of poverty, which is both more nuanced but quite simple. Jamie Holmes, in a piece for TNR, suggested that one problem poor people have is over-taxed reserves of willpower. The insight here is from psychologists who have shown that willpower is a depletable resource and that exercising will in one area means that one is less able to do it in other areas. Poor people have to think about things that non-poor people do not. For the poor, “anything more than a muffin,” requires a taxing financial decision, not a relatively non-taxing preference decision. Holmes summarizes the problem:

Many of the tradeoff decisions that the poor have to make every day are onerous and depressing: whether to pay rent or buy food; to buy medicine or winter clothes; to pay for school materials or loan money to a relative. These choices are weighty, and just thinking about them seems to exact a mental cost

Another psychological insight into the persistence of poverty is the “bee-sting problem.” As Drake Bennett explained in a Boston Globe piece from 2008, imagine getting six bee-stings. If you have one bee-sting, you will do something about it, if you have seven, then you might as well not bother. The poor, then, live in a world of constant deprivation, where it simply may not appear worthwhile to make long-term investments in their well-being. The philosopher Charles Karelis puts it like this: when we’re poor “our economic worldview is shaped by deprivation, and we see the world around us not in terms of goods to be consumed but as problems to be alleviated.” If you have so many financial problems — bills, rent child support, etc — such that paying even half of them still leaves an objectively large amount of other problems to deal with, then it may really be rational to not even pay that half. It may make more sense to acquire a drug habit. More simply, as Karelis argues, if your car has ten dents in it, why just fix one? This phenomenon explains why the poor engage in all sorts of behavior that appears self-defeating even when the incentives seem so clearly to mitigate against it:

Compared with the middle class or the wealthy, the poor are disproportionately likely to drop out of school, to have children while in their teens, to abuse drugs, to commit crimes, to not save when extra money comes their way, to not work.

This third theory of poverty does not deal with the “root causes” of poverty the same way the liberal and conservative ones do. As Karlelis puts it, ”The core of the problem has not been self-discipline or a lack of opportunity…the cause of poverty has been poverty.” The solution then is both radical and simple: give the poor money. With more money, they can get out of the trap of “poor economics” that Karelis describes and be freed from having to make the willpower sapping decisions that Holmes describes.

Now, the politics of giving the poor more money are tricky. Democrats are loathe to make it appear like they are just cutting checks to what conservatives see as lazy, undeserving people who are culturally alien to the mainstream of American society. It was this fear that lead to seeing welfare reform’s strict time limits and work requirements as the only way for welfare and the Democratic party to survive politically. In bad economic times especially, cutting checks to the poor is an unpopular idea.

However, perhaps just giving the poor more money can appeal to people’s anti-paternalist feelings, along with antipathy towards public sector unions. If ones social services money weren’t going to employing more dreaded unionized nurses or social workers or teachers, but instead just straight to people’s pockets, then maybe more voters would feel OK about it.

But at the very least, it’s something that liberals, who tend to be the only ones interested in poverty, should be looking into.

(Also, see Matt Yglesias and Jamelle Bouie).

Tim Pawlenty has a plan that will deliver GDP growth of 5% per year for the next ten years. This plan accomplishes something that no recent president, including Reagan or Clinton, has been able to accomplish by implementing the full wish list of conservative economic policy. Drastic cuts in government expenditures, large income tax cuts and reduction to just two brackets and zeroing out taxes on capital.
Let’s enter thought experiment land where Pawlenty’s plan is a serious one that could achieve the goals that he says it can, that it’s not just “a series of Reagan-era applause lines bulked up on steroids and then stitched together for public consumption.” Actually, that’s a little too outlandish. Let’s pretend that Tim Pawlenty thinks that implementing his plan would result in ten consecutive years of 5%+ growth. How does Tim Pawlenty explain Obama not embracing it? It is not like Pawlenty is the first conservative to have this approach to fiscal issues and too have a broadly similar budget wish list. For conservatives, lower taxes on investment income will always result in breakneck growth. Surely Pawlenty thinks that President Obama is a crafty politician who wants to be reelected. Surely Pawlenty knows that if President Obama had started delivering 5% GDP growth in 2010, his reelection would be an afterthought.
Sure, Obama has certain fundamental beliefs that would mitigate against embracing the conservative agenda of tax cuts on capital and spending cuts for the poor.  And it would probably drive his base and supporters crazy. But the connection between a very healthy economy and reelection is not obscure. If non-inflation-driven growth of 5% per year could just be achieved, all presidents would do whatever it took to achieve it. But I doubt Pawlenty really can’t explain to himself why Obama has not embraced his supply side agenda. This is not like health care reform, where even if it worked out as well as its most ardent advocates said it would, it could still alienate much of the public. 5+ percent growth for a decade is the be-all, end-all of policymaking for a president.
Think of the Pawlenty plan, and supply-siderism more generally, as being like the One Ring, except without any of the down sides (after all, tax cuts increase revenues). Pawlenty almost certainly thinks that Obama is a crafty politician who is more concerned with amassing power and winning reelection than anything else. Yet I doubt  Pawlenty ever really wonders why Obama has not just implemented his one plan to bring growth to them all.