The Know Nothings Repeat Policy Errors of the Past

The Third Depression

By PAUL KRUGMAN

Recessions are common; depressions are rare. As far as I can tell, there were only two eras in economic history that were widely described as “depressions” at the time: the years of deflation and instability that followed the Panic of 1873 and the years of mass unemployment that followed the financial crisis of 1929-31.

Neither the Long Depression of the 19th century nor the Great Depression of the 20th was an era of nonstop decline — on the contrary, both included periods when the economy grew. But these episodes of improvement were never enough to undo the damage from the initial slump, and were followed by relapses.

We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.

And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.

In 2008 and 2009, it seemed as if we might have learned from history. Unlike their predecessors, who raised interest rates in the face of financial crisis, the current leaders of the Federal Reserve and the European Central Bank slashed rates and moved to support credit markets. Unlike governments of the past, which tried to balance budgets in the face of a plunging economy, today’s governments allowed deficits to rise. And better policies helped the world avoid complete collapse: the recession brought on by the financial crisis arguably ended last summer.

But future historians will tell us that this wasn’t the end of the third depression, just as the business upturn that began in 1933 wasn’t the end of the Great Depression. After all, unemployment — especially long-term unemployment — remains at levels that would have been considered catastrophic not long ago, and shows no sign of coming down rapidly. And both the United States and Europe are well on their way toward Japan-style deflationary traps.

In the face of this grim picture, you might have expected policy makers to realize that they haven’t yet done enough to promote recovery. But no: over the last few months there has been a stunning resurgence of hard-money and balanced-budget orthodoxy.

As far as rhetoric is concerned, the revival of the old-time religion is most evident in Europe, where officials seem to be getting their talking points from the collected speeches of Herbert Hoover, up to and including the claim that raising taxes and cutting spending will actually expand the economy, by improving business confidence. As a practical matter, however, America isn’t doing much better. The Fed seems aware of the deflationary risks — but what it proposes to do about these risks is, well, nothing. The Obama administration understands the dangers of premature fiscal austerity — but because Republicans and conservative Democrats in Congress won’t authorize additional aid to state governments, that austerity is coming anyway, in the form of budget cuts at the state and local levels.

Why the wrong turn in policy? The hard-liners often invoke the troubles facing Greece and other nations around the edges of Europe to justify their actions. And it’s true that bond investors have turned on governments with intractable deficits. But there is no evidence that short-run fiscal austerity in the face of a depressed economy reassures investors. On the contrary: Greece has agreed to harsh austerity, only to find its risk spreads growing ever wider; Ireland has imposed savage cuts in public spending, only to be treated by the markets as a worse risk than Spain, which has been far more reluctant to take the hard-liners’ medicine.

It’s almost as if the financial markets understand what policy makers seemingly don’t: that while long-term fiscal responsibility is important, slashing spending in the midst of a depression, which deepens that depression and paves the way for deflation, is actually self-defeating.

So I don’t think this is really about Greece, or indeed about any realistic appreciation of the tradeoffs between deficits and jobs. It is, instead, the victory of an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show leadership in tough times.

And who will pay the price for this triumph of orthodoxy? The answer is, tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again.

Poor, picked on conservatives

Let see, we have MSNBC who is "viciously critical of conservatives," and that is somehow unfair, but hundreds of networks and syndicated ratio talk shows all over the country viciously critical of liberals is just peachy. Incidentally MSNBC's morning host is a former Republican Congressmen.

Again, Bush at the Core of a Disaster

Bush administration reversed Clinton requirement to model deepwater spills

by Jed Lewison

Thu Jun 24, 2010 at 07:00:48 AM PDT

If you were developing a plan for responding to an oil spill caused by deepwater offshore drilling, it seems like you should be required to include a model in which you assume that the spill takes place below the surface in deepwater conditions, right?

Well, according to the Wall Street Journal, despite the seemingly obvious nature of that proposition, Federal regulators in the Bush administration eliminated that requirement. Instead of modeling deepwater spills in deepwater conditions, the Minerals Management Service -- the agency charged with regulating offshore drilling -- limited its models to surface spills, allowing the oil industry to develop response plans based on faulty data.

BP PLC and other big oil companies based their plans for responding to a big oil spill in the Gulf of Mexico on U.S. government projections that gave very low odds of oil hitting shore, even in the case of a spill much larger than the current one.

The government models, which oil companies are required to use but have not been updated since 2004, assumed that most of the oil would rapidly evaporate or get broken up by waves or weather. In the weeks since the Deepwater Horizon caught fire and sank, real life has proven these models, prepared by the Interior Department's Mineral Management Service, wrong.

During the Clinton administration, the federal government had announced plans to require spill models for deepwater drilling to be based on deepwater conditions, but under Bush, that decision was reversed, and models for deepwater drilling were developed using the same assumptions as surface spills.

Researchers have spent the past decade trying to improve modeling of oil spills. The biggest challenge: to update the models to reflect the new reality of deep-water oil drilling. Spills thousands of feet below the surface behave very differently than spills on the surface. Underwater currents, for example, can grab plumes of oil and transport them far from the scene of the initial spill, scientists say. Deep-water releases tend to break into smaller oil slicks, further complicating efforts to forecast where they'll go.

MMS said in early 2000, in a notice to lessees, that it planned to require oil companies operating in deep-water to use new oil-spill predictions specifically designed for deep water.

That regulation never came into effect. Oil companies today still base their contingency plans on the government's models, designed only for surface spills.

In 2001, the then-head of the MMS environmental division wrote a paper that warned "the oil spill trajectory models currently used by the oil industry for the preparation of oil spill response plans may not be adequate for deep water."

When that 2001 paper was written supporting the Clinton decision, the head of MMS was a Clinton-era holdover, Dr. Thomas Kitsos. By early 2002, the Bush administration had tapped a new head of MMS, a former GOP state legislator from Dick Cheney's home state of Wyoming named Rejane "Johnnie" Burton. Burton, you'll be shocked to learn, was in the energy industry and in her announcement touted the fact that she "began her career in the oil and gas industry." It was under her leadership that MMS began to rapidly deteriorate, failing to address even the most basic safety issues for new offshore drilling.

If the Bush administration hadn't reversed the Clinton decision requiring accurate models, companies involved in deepwater drilling would have been forced to develop a mitigation plan for undersea deepwater spills. Instead, thanks to the Bush administration, federal regulators allowed deepwater operators to base their plans on surface spills, which are far less complex than deepwater undersea spills and don't take into account things like undersea plumes, undersea application of dispersant, and (last but not least) what to do about a months-long blowout gushing tens of thousands of barrels per day.

So while it's fair to be tough on President Obama, let's not forget this key difference between his administration and the last: when President Obama falls short, at least he's trying to do the right thing. The previous administration wasn't. They represented the oil industry, not the public. And we're still paying the price.

Joe Barton isn't the issue

Eric Cantor is right: Joe Barton isn't the issue

by Jed Lewison

Thu Jun 24, 2010 at 08:40:03 AM PDTEric Cantor spent five minutes on MSNBC this morning explaining that in his view, Joe Barton isn't the issue. Cantor was right, but not in the way that he thinks.

The real issue isn't Joe Barton. It's the entire Republican Party, and the fact that in their view, the only thing Joe Barton did wrong was say out loud what they all believe in private: that President Obama acted like a "Chicago-style" thug in his "shakedown" of BP. I put those words in quotes because they come from a statement issued by the Republican Study Committee, a caucus of 100 congressional conservatives in which Eric Cantor is a leading member. The statement:

However, in an administration that appears not to respect fundamental American principles, it is important to note that there is no legal authority for the President to compel a private company to set up or contribute to an escrow account.

BP’s reported willingness to go along with the White House’s new fund suggests that the Obama Administration is hard at work exerting its brand of Chicago-style shakedown politics. These actions are emblematic of a politicization of our economy that has been borne out of this Administration’s drive for greater power and control.

The substance of that statement is exactly the same as what Joe Barton said, except for the theatrics of the apology. And that statement went out on Republican Study Committee letterhead, representing Eric Cantor and most other Republicans in Congress.

So Eric Cantor is right. Joe Barton isn't the issue. The issue is that Eric Cantor, along with most other Republicans in Congress, agree with what Joe Barton said. They think Barton was addressing "fundamental American principles." They pay lip service to the idea of holding BP accountable, but when push comes to shove, they think government should get out of the way and let BP do whatever it wants.

That's what they stand for, and that's the issue.

Gov't by Corporations, of Corporations, for Corporations

Consider what corporations with very deep pockets can do. They are able to keep the injured parties tied up in court for many many years. They pay their lawyers, but they don't pay the people they have hurt. No one got a penny in damages from a cigarette company for 50 years until the Clinton administration. The cigarette companies just kept the litigation going until people died. In Bopal India, Union Carbide has never paid up for the thousands they killed and maimed with the poison gas leak decades ago. It is not just the poor that haven't been able to get justice. The corporation has been able to stall the government of an entire nation with court battles all these years. No matter what Rush Limpdick says, Prince William Sound is not prestine. The oil from the Exxon Valdez is still there. The place is still an ecological disaster. The court cases against Exxon/Mobile are still going on 20 yers later. Our President got $20B out of BP up front to pay people whose livelyhoods are gone forever. They may have been able to get this justice out fo the courts in 20 years or so. Bravo Obama.

Of course if you are a big corporation this is bad because a new precident has been set to undo your standard stall tactic.

Home run for Obama on BP clean up fund

The 20 billion fund should be viewed as a huge accomplishment for Obama. He had no actual power to compel that aside from moral suasion and the threat of having an unhappy president. Legally, BP could have just waited for the lawsuits and drawn the whole thing out for years. Any lawyer would find it a unique and mind-boggling accomplishment.

The 2nd worst president ever?

Maybe I'm overstating the case, but I don't think America can survive having the worst president ever followed by the next worst president ever. While this man goes along blithely supporting the torture, illegal power grabs, and despicable unconstitutional practices of his predecessor, he is running an un-winnable war in Afghanistan and is about as effective as Mickey Mouse at running the country. God forbid we're ever attacked by somebody while this guy is (not) running the show. He'll appoint a study commission to find out why the country is burning down and bombs are falling on New York and give them six years to bring back their report.

Now we know BP cut corners

Lawmakers accuse BP of 'shortcuts'

By Steven Mufson and Anne E. Kornblut
Washington Post Staff Writers
Tuesday, June 15, 2010; A01

To save time and drilling costs, BP took "shortcuts" that may have led to the oil rig explosion and the spill in the Gulf of Mexico, according to a letter released Monday by two House Democrats leading an investigation of the disaster.

The letter, sent in advance of congressional hearings with senior oil executives this week, paints a damning picture of five decisions the lawmakers said the oil firm took "to speed finishing the well," which was running "significantly behind schedule." Marshaling e-mails, interviews and documents, the lawmakers said: "In effect, it appears that BP repeatedly chose risky procedures in order to reduce costs and save time, and made minimal efforts to contain the added risk."

In one instance, four days before the April 20 explosion, Brett Cocales, one of BP's operations drilling engineers, sent an e-mail to a colleague noting that engineers had not taken all the usual steps to center the steel pipe in the drill hole, a standard procedure designed to ensure that the pipe would be properly cemented in place. "[W]ho cares, it's done, end of story, will probably be fine and we'll get a good cement job," he wrote.

Cocales could not be reached to comment Monday, and Andrew Gowers, a company spokesman, said only that "it would be inappropriate for us to comment ahead of the hearing."

The letter was part of another bad day for BP. The company's stock dropped 9 percent, to $30.67 a share. Investors fretted about a White House meeting Wednesday between top BP directors and President Obama, who will also make the oil spill the centerpiece of his first Oval Office address at 8 p.m. Tuesday. Speaking inside a large shelter at a Coast Guard clean-up staging area in Theodore, Ala., on Monday, Obama vowed that "we're going to continue to hold BP and any other responsible parties accountable for the disaster that they created."

That cost to BP will dwarf whatever amounts its rig workers were worried about. White House officials were working to strike a deal with the oil giant on a multibillion-dollar escrow account to compensate victims, administration advisers said. Led by White House counsel Robert F. Bauer, administration negotiators were hoping to finish an agreement before the meeting Wednesday. Obama called talks "constructive."

One potential area of disagreement loomed: whether the escrow account would be limited or whether it could be replenished, as the administration is demanding. BP is also seeking assurance that money be used only for reasonable or "legitimate" claims through an impartial administrator.

Investment analysts expect that BP might suspend or reduce its dividend to fund an escrow account that some lawmakers have demanded be as large as $20 billion. "Suspending the dividend would significantly reduce the political heat on BP and enhance its financial flexibility," said Fadel Gheit, an oil analyst at Oppenheimer. "BP can raise $20 billion in escrow account within days."

Meanwhile, rival oil companies, worried about new regulations or limits on deepwater drilling off U.S. coasts, began openly criticizing BP.

"What we do know is that when you properly design wells for the range of risk anticipated; follow established procedures; build in layers of redundancy; properly inspect and maintain equipment; train personnel; conduct tests and drills; and focus on safe operations and risk management, tragic incidents like the one in the Gulf of Mexico today should not occur," Kenneth P. Cohen, Exxon Mobil's vice president of public and government affairs, said in a blog.

But Exxon Mobil's criticism paled next to the 14-page letter that Rep. Henry A. Waxman (D-Calif.), chairman of the House Energy and Commerce Committee, and Rep. Bart Stupak (D-Mich.), chairman of the panel's subcommittee on oversight and investigations, sent to BP chief executive Tony Hayward, who will testify before the committee Thursday. After reviewing documents and interviews the committee obtained, the two lawmakers said that "BP appears to have made multiple decisions for economic reasons that increased the danger of a catastrophic well failure."

The money that BP allegedly saved seems trivial in light of the blowout that killed 11 Deepwater Horizon rig workers and led to the oil spill that has polluted large swaths of the gulf. But given the daily costs of $1 million to $2 million to run a drilling rig, they appear to have been a big factor in the decision-making.

"I know the planning has been lagging behind the operations, and I have to turn that around," Gregory Walz, a drilling engineering team leader, said in an e-mail to his superior, the well team leader John Guide.

One decision that looks questionable was the one to use only six devices for centering the drill pipe in the well hole instead of 21, as initially planned and recommended by Halliburton, the service company hired to put cement between the pipe and wall of the hole.

Halliburton warned that without the full complement of centralizers, the danger of cracks in the cement surrounding the pipe increased. The American Petroleum Institute's recommended practices say that if the pipe, or casing, is not centered, "it is difficult, if not impossible," for the cement to displace the drilling mud on the narrow side of the opening. That could create channels for gas to travel up the well.

But the equipment needed to center the well in all 21 places was not on the rig. A BP rig worker located some pieces in Houston and made arrangements to fly them to the rig, but more senior officials decided against doing so. In an e-mail April 16, BP's well team leader Guide said that "it will take 10 hours to install them. . . . I do not like this," according to the lawmakers' letter.

That sentiment reflected a pattern of time- and money-saving measures, Waxman and Stupak wrote. They said their investigation is "raising serious questions" about decisions made in the days and hours before the explosion on the drilling rig that sank. According to the committee's investigation, other decisions also "posed a tradeoff between cost and safety," including:

-- BP saved $7 million to $10 million by using a more risky option for the well casing, or steel tubing. The safer method, known as the liner-tieback option, would have provided more barriers to prevent the flow of natural gas up the space between the steel tubes and the well wall.

-- BP decided against a nine- to 12-hour procedure known as a "cement bond log" that would have tested the integrity of the cement. Although the company had a team from Schlumberger, a leading oil services firm, onboard the rig, BP sent the team home, saying its services were not needed.

-- BP did not fully circulate drilling mud, which would have taken as long as 12 hours. That would have helped detect any pockets of gas, which later shot up the well and exploded on the deck of the drilling rig.

-- BP did not secure the connections, or casing hangers, between pipes of different diameters.

The letter says that many of those decisions contradict the advice in other BP internal documents, which warned against the dangers of using certain types of pipe. And it reveals that even before the accident, BP engineers were struggling with unusual difficulties. On April 14, BP drilling engineer Brian Morel e-mailed a colleague, Richard Miller, saying: "This has been [a] nightmare well which has everyone all over the place."

Since then, the nightmare has spilled out across the gulf. BP has said it will bring in additional vessels to boost its ability to handle as much as 53,000 barrels a day, though it warned that the site was so crowded with vessels that safety is a concern.

"Several hundred people are working in a confined space with live hydrocarbons on up to 4 vessels. This is significantly beyond both BP and industry practice," BP chief operating officer Doug Suttles wrote in a letter to Coast Guard Rear Adm. James A. Watson.

Obama, struggling to appear in command in the face of the continuing spill, made a swing though Mississippi, Alabama and Florida on Monday. The trip was aimed largely at audiences in those three states rather than at the national viewing public. The president softened his tone measurably from the week before, when he said he was figuring out "whose ass to kick." On Monday, he acknowledged that there are problems complicating the quick payment of damage claims to those affected by the spill -- a relatively muted complaint and one that other senior officials had already made publicly.

"There are still problems" with the claims process, Obama said after a briefing in Gulfport, Miss., with several governors, Coast Guard officials and others involved in the response. Flanked by Mississippi Gov. Haley Barbour (R) and Coast Guard Admiral Thad W. Allen, the incident commander, Obama said the discussion included how best to coordinate skimmers and other boats already on the gulf to prevent the slick from coming ashore.

"We also talked about claims so that people in Mississippi and throughout the region are adequately compensated for the damages done," Obama said.

The White House on Monday announced Obama's choices for the bipartisan commission tasked with issuing a report within six months about the spill and how to prevent and mitigate future oil spills.

The appointees would be National Resources Defense Council President Frances Beinecke; Donald Boesch, president of the University of Maryland Center for Environmental Science; Terry D. Garcia, executive vice president for the National Geographic Society overseeing programs in scientific field research, conservation and exploration; Cherry A. Murray, dean of the Harvard School of Engineering and Applied Sciences; and Fran Ulmer, chancellor of the University of Alaska at Anchorage.

The five will work with the co-chairmen, former senator Bob Graham (D-Fla.) and former Environmental Protection Agency administrator William K. Reilly.