Friday, March 19, 2010

Introducing Josh Barro

Earlier this month, I had the pleasure of meeting Josh Barro, a writer and thinker I've admired for some time. As a senior fellow at the Manhattan Institute, he is working on the fiscal challenges facing governments at all levels in the United States. He is also one of the most fair-minded analysts I've come across, who writes with a cant-free clarity I find deeply impressive. I've asked him to join me at The Agenda for the next few weeks, a time in which we have every reason to believe that the Obama administration and its congressional allies will pass health reform legislation that will have a profound impact on the American welfare state, for better or for worse.

One of the many reasons I've enjoyed Josh's writing is that he is very much an independent voice for fiscal sustainability, a term you'll be hearing a lot of from both of us. Judging by most of the coverage of Congress and the state capitals, you'd get the impression that politics is a game. Apocalyptic rhetoric is found on every front: if you oppose our bill, you are indifferent to the death and suffering of others; if this bill passes, the country will go bankrupt, etc. This rhetoric masks the really difficult choices that define public policy. We forget the invisible killers, like slow growth. We forget that the rhetoric of bankruptcy is actually a counsel for inaction, and delaying the difficult but perfectly realistic choices we need to make today to stave off not fiscal doom but fiscal pain that will straiten our horizons. 

As a general rule, we opinion journalists cherry-pick our statistics to present a portrait of the world that comports with our own biases. In a sense, this is inevitable. As a friend of mine recently noted, we leave in a world full of puzzles and ambiguities, and facts that beget contradictory facts. Navigating through this environment is exceedingly difficult, and it takes a great deal of discipline to avoid falling into the trap of ideological thinking rather than empirical thinking. But after reading Josh's work, you'll see very clearly that he has this particular skill on lock. Rather than serve a partisan agenda, Josh always keeps his eye on the long-term economic interests of the United States as best as he can interpret them.

Basically, we're taking The Agenda to a new level. 

03/19 10:04 AM Share

Tuesday, March 16, 2010

Competing with the Status Quo

Greetings from Austin! 

I spent a good chunk of last week at a fascinating conference sponsored by the Social Trends Institute on declining fertility rates in the developed world, and I will write more about that subject in this space. 

I've received some pointed criticism about a short essay I wrote for Time.

Middle-class kids are taught from an early age that they should work hard and finish school. Yet 3 out of 10 students dropped out of high school as recently as 2006, and less than a third of young people have finished college. Many economists attribute the sluggish wage growth in the U.S. to educational stagnation, which is one reason politicians of every stripe call for doubling or tripling the number of college graduates.

But what if the millions of so-called dropouts are onto something? As conventional high schools and colleges prepare the next generation for jobs that won't exist, we're on the cusp of a dropout revolution, one that will spark an era of experimentation in new ways to learn and new ways to live.

It's important to keep in mind that behavior that seems irrational from a middle-class perspective is perfectly rational in the face of straitened circumstances. People who feel obsolete in today's information economy will be joined by millions more in the emerging post-information economy, in which routine professional work and even some high-end services will be more cheaply performed overseas or by machines. This doesn't mean that work will vanish. It does mean, however, that it will take a new and unfamiliar form.

The argument I keep hearing is that high school and college dropouts are doomed to economic obsolescence, and that to suggest otherwise is to trivialize the challenges they face. I disagree. My sense is that high dropout rates persist because our schools haven't proven sufficiently flexible in the face of changing economic and cultural realities, which is the main reason why I support experimentation in this space. Some experiments will fail. But those that succeed need to be given the room and the resources to expand. 

And more broadly, this is my gut instinct about the American future: we will either rediscover our constitutional roots as a highly decentralized federal republic and revive our capacity for community self-help, or we'll continue to evolve into a brittle, highly atomized society that looks to the center for increasingly expensive, intrusive, and unsustainable ways of meeting our wants. 

John Robb, a thinker I greatly admire, has very persuasively made the case for building alternatives to The Way We Live Now.

The idea that something new is possible is spreading.  Most favorably, it is giving rise to a new type: the cultural entrepreneur.  

Rather than dedicating their lives to gaining political power, which they tend to see as a dead end, these cultural entrepreneurs are demonstrating that we can do better than just "reform" broken institutions by bribing powerful players. We can build bottom-up solutions that are self-evidently superior to the status quo — and in doing so we can create change without coercion. 

Instead, this effort is about competition.  It is to build new social and economic systems that can compete with the current political and economic monopolies and if successful, force them to compete in order to stay relevant.   It's about building something new from the ground up, a start-up culture of independence and sanity, that attracts better participants and delivers more results than any other alternative. 

The burning political question is why we allow existing power structures to squelch this kind of competition, and why so many of us buy it when politicians declare war on WellPoint on behalf of Aetna and call it populism.   

This is one reason why the right must emphasize decentralization and the discovery process over offering movement conservative versions of the centralized solutions offered by the left and the center.  

03/16 09:28 PM Share

Thursday, March 11, 2010

A Peculiar CTJ Report

Matt Yglesias considers this report on the Ryan Roadmap from the Center for Tax Justice very useful.

The interesting thing, however, is that when the Center for Tax Justice (PDF) ran the numbers, they discovered that this isn’t the kind of tax cut that makes your taxes lower. On the contrary. Most Americans will pay higher taxes under Ryan’s plan than under Obama’s. Only the very richest will pay less.

There is a small problem, however. Please note the fine print.

Note: Figures do not include impact of replacing exclusion for employer-provided health benefits with credit for health insurance.

Obama baseline excludes temporary extension of the Making Work Pay Credit.

My understanding is that the impact of the current tax exclusion is powerfully regressive. I could be wrong about that. But it seems like a rather significant item to leave out of the analysis.

Matt also believes that replacing the tax exclusion with a refundable tax credit would destroy the private health system.

That said, the plan would also likely destroy the private health insurance system in the United States by eliminating the tax preference for employer-provided health insurance plans. This tax preference is not very good public policy, but it’s a hidden government intervention that’s critical to making our “private” insurance system work, insofar as it works at all. Without it, absolutely everybody is going to wind up on a totally dysfunctional individual market. For rich people, who’ll be getting a giant tax cut, this is fine since just paying out of pocket will be a small price to pay for Ryan’s massive enrich-the-rich tax policy. For everyone else it’s a problem.

This is an interesting idea. My sense is that many scholars believe that a private health insurance system does not require a tax preference for employer-provided health insurance plans, though it could be that "destroy the" is doing a lot of work here. Yes, this would mark a departure from the status quo. And I think I can comfortably say that "the" private health insurance system is pretty problematic, and if getting rid of a regressive tax preference would "destroy" it, well, I'm comfortable destroying it, just as various centrists and liberals are comfortable destroying "the private health insurance system" through various provisions in the Senate health bill.

I'm sorry to say that similar language was deployed against the Wyden-Gregg proposal. The Ryan Roadmap does not offer detailed ideas on reforms for the individual insurance market. It is also true, however, that Ryan has called for the creation of state-based insurance exchanges, and one assumes that he'd be open to a wide range of regulatory approaches to make the individual insurance market work better. 

Getting on a plane, but will be back soon.

03/11 03:28 PM Share

CBPP on the Ryan Roadmap

If Paul Ryan's office is right about the CBPP analysis of the Ryan Roadmap, I'll be very disappointed. CBPP is an institution with a richly-deserved reputation for doing its work with great care.  

The CBPP report does provide a very valuable service in its revenue estimates, which seems more plausible than others I've seen.  

But note that attacks on the Roadmap haven't primarily been about the revenue estimates, etc. Rather, they've centered on the idea that shifting to premium support and the Medicare Advantage model represents a dismantling of the welfare state, as does the use of personal accounts in a public retirement system. This is, in my view, highly misleading, and it's easy to see why Ryan's office might feel unfairly maligned.

In my view, the Roadmap is too optimistic on the revenue side and possibly too politically optimistic on the spending side, i.e., if we shift to a defined contribution model rather than a defined benefit, as I think we must, it is very plausible that upward political pressure on the contribution will be higher than the Roadmap assumes, consonant with health inflation overall. To be sure, the hope is that the shift to a defined contribution model will itself encourage a shift in the ecosystem that will help restrain health inflation, but we don't have any guarantee of that, just as we have guarantee that the projections of how the Senate health bill will "bend the cost curve" in its second decade. 

03/11 12:38 PM Share

Monday, March 08, 2010

Brief Note on the Health Reform High-Wire Act

Though conservatives and Republicans have been very vocal in the health reform debate, it is congressional Democrats who will determine whether or not the bill passes. Jay Cost has done an excellent job of keeping tabs on the House Democrats at the center of the drama. Already the White House seems to be inching away its notional deadline, and efforts to draw on and build outrage over premium hikes represent a new, more concerted strategy to change the political dynamic.

A Kaiser poll conducted in late 2008 found that roughly 25 to 30 percent of Americans worry about losing their health insurance or their job, numbers that may well have increased during the downturn. But in politics, the salient question is how these voters are distributed across political space, i.e., how many are in swing districts, how many are swing voters, etc. Tax cuts have tended to be a low priority for the electorate overall, yet some tax cut proposals, like efforts to curb or eliminate the estate tax, resonate with tax-sensitive voters in competitive regions.

03/08 07:23 PM Share

Note on the Federal Workforce

Via Alex Tabarrok, USA Today has published a provocative, decidedly imperfect survey comparing federal salaries vs. private sector salaries for a range of occupations. First, the key findings:

• Federal. The federal pay premium cut across all job categories — white-collar, blue-collar, management, professional, technical and low-skill. In all, 180 jobs paid better average salaries in the federal government; 36 paid better in the private sector.

•Private. The private sector paid more on average in a select group of high-skill occupations, including lawyers, veterinarians and airline pilots. The government's 5,200 computer research scientists made an average of $95,190, about $10,000 less than the average in the corporate world.

•State and local. State government employees had an average salary of $47,231 in 2008, about 5% less than comparable jobs in the private sector. City and county workers earned an average of $43,589, about 2% more than private workers in similar jobs. State and local workers have higher total compensation than private workers when the value of benefits is included.

And then this essential proviso on federal compensation:

These salary figures do not include the value of health, pension and other benefits, which averaged $40,785 per federal employee in 2008 vs. $9,882 per private worker, according to the Bureau of Economic Analysis.

As for state and local government, the role of public pensions is important to note. My understanding is that we're talking about $2 trillion worth of pension liabilities at those levels of government, which suggests a need for belt-tightening for decades to come. 

I operate under the assumption that public employees are by and large hard-working and conscientious, and that they deserve our respect. I also think, however, that we need to ask serious questions what we can and can't afford, just as private employers, particularly private employers working in the most competitive sectors, have had to make hard choices. 

03/08 06:04 PM Share

Wages First

I wrote an impressionistic column on how the health reform challenge is actually a subset of the larger challenge posed by sluggish wage growth. Part of the column addresses a new White House effort to use executive authority to remake the process of awarding $500 billion in federal contracts, and the broader impact this initiative might have on U.S. political economy.

The Obama administration has developed yet another strategy, which Steven Greenhouse recently described in The New York Times. The idea is to use the $500 billion in contracts awarded by the federal government every year to encourage employers to pay high wages. Rather than award contracts to the lowest bidder, the government would explicitly favor firms it deems to be good corporate citizens while excluding others from the bidding process. In effect, firms with more burdensome cost structures thanks to high wages and generous benefits would receive a massive subsidy. This initiative has the potential to transform the private sector economy, as large firms scramble to meet the new federal standards.

The hope is that firms will pursue a "high-road" strategy that seeks to make up for high costs by sharply increasing productivity, perhaps through heavier investment in labor-saving machinery. That, of course, isn't a recipe for a jobs bonanza. Procurement officers will have to micromanage the process to guarantee that the winning bids meet evolving criteria for social impact. If the federal government has to spend more to buy goods and services in light of its new social mission, it will presumably have to tax more to pay for the privilege.

Meanwhile, firms jockeying to be good corporate citizens won't receive the same favorable treatment from other customers, including foreign customers. It's hard to see why firms in Brazil or India will care if American manufacturers pass muster as good corporate citizens. In the worst-case scenario, this very well-intentioned initiative could lead to the Detroitization of American industry, a vicious spiral in which privileging employees in a government-approved sector puts upward pressure on the federal budget and thus federal taxes, which will in turn dampen growth and put pressure on wages. This is a trap that we see in developing economies like South Africa, where workers in the formal sector enjoy expensive protections that workers in the far-larger informal sector can't imagine.

It is possible that I'm being too pessimistic. I certainly hope that it's true. It's worth noting that the FCC, under the leadership of Julius Genachowski, has softened its stance on net neutrality, recognizing that a heavy-handed regulatory approach might discourage large-scale private investment in expanding broadband access. That's encouraging, and it suggests that there are influential pragmatists within the Obama administration.

On the other hand, as Ross has argued, even if the health reform effort stalls, the power of the president to shape the regulatory environment through executive orders, etc., is vast, and while the White House has worked to strengthen various regulatory bodies, we haven't really seen serious muscle-flexing yet. Expect more to come, particularly if congressional Democrats experience serious political reversals.

03/08 05:46 PM Share

Friday, March 05, 2010

The First Step

Among conservatives, it is a commonplace to argue that the president's health reform proposal is a first step towards a more centralized, government-directed health system. This was the source of opposition from many conservatives and centrists to the public option, the effort to include a public insurance plan to individuals and households on the exchanges. There were a number of public option proposals, ranging from a strong public option tied to Medicare rates to a weak public option to various ideas for encouraging co-ops, etc.

My view has always been that the public option wasn't the problem so much as the decision to create a new health entitlement that would prove very expensive over time. Regardless, many saw the public option as a stepping stone to something like a single-payer health system, including the architects and advocates of the proposal, as Mark Schmitt of The American Prospect explained last year. 

One key player was Roger Hickey of the Campaign for America's Future. Hickey took UC Berkley health care expert Jacob Hacker's idea for "a new public insurance pool modeled after Medicare" and went around to the community of single-payer advocates, making the case that this limited "public option" was the best they could hope for. Ideally, it would someday magically turn into single-payer. And then Hickey went to all the presidential candidates, acknowledging that politically, they couldn't support single-payer, but that the "public option" would attract a real progressive constituency.

As Stolberg and Pear report, the "public option" isn't dead.

The president spent the afternoon in back-to-back private sessions with two separate groups of House Democrats: liberals and members of the various minority caucuses, many of whom are uncomfortable with the bill because it lacks a “public option,” or government-backed insurance plan; and leaders of the centrist New Democrat Coalition.

He told the liberals that a public option would never pass the Senate, but said he would be “personally committed” to pursuing it once the current bill became law, said Representative Raúl Grijalva, Democrat of Arizona and co-chairman of the Congressional Progressive Caucus. He asked centrists for support.

Indeed, one can imagine a strong form of the "public option" passing via reconciliation at some point in the future, assuming it clears the parliamentary hurdle. If not, Medicare buy-in for workers who haven't reached retirement age is another distinct possibility that has been touted by progressives. 

In the end, this strikes me as entirely predictable. The administrative complexities involved in implementing the president's proposal are considerable, as Eugene Steurle has explained. As Orszag and DeParle note, cost estimates in the second decade are far more favorable than in the first decade.

To take one recent example, some skeptics have claimed that the $100 billion in deficit reduction the president's plan would achieve over the next decade is mere gimmickry because the legislation would pay for only six years of coverage expansions with 10 years of budgetary offsets.

Now, it's certainly a time-honored Washington budget gimmick to pay for just a few years of costs with many years of savings. But if that were the course being taken, we would expect to see a large hole at the end of the first decade and ever-larger deficits in the second. Instead, the savings in the president's plan grow faster than the costs over time, generating greater deficit reduction with each passing year — roughly $1 trillion, all told, in the second decade.

Yet it should go without saying that estimates concerning the impact of legislation in its second decade aren't necessarily very reliable. Indeed, Orszag and DeParle go on to suggest precisely that later in the op-ed. 

Moreover, since health care is so dynamic, even if we thought we had the answer for containing costs and improving quality today, that would quickly change as health care evolved. With the additions of investments in health information technology, research into what works and what doesn't, and an Independent Payment Advisory Board of doctors and other medical experts making recommendations to improve the Medicare system, the legislation under consideration would create a virtuous circle in which more information becomes available, different delivery system reforms are tested and successful reforms are scaled up quickly as we learn more.

It is also possible, as David Cutler, who served as one of many advisors to the Obama campaign on health reform during the campaign, has suggested that we will actually see administrative expenditures increase as we pursue payment reforms aimed at paying for quality. More broadly, Cutler believes (correctly, in my view) that overall health expenditures will increase as our population grows older and more affluent, and he anticipates that we will have to impose a VAT to meet the new, higher level of public expenditures.But all that we have a decent — I wouldn't call it good — sense of is what is likely to happen in the first ten years. And as Orszag and DeParle acknowledge, the cost estimates during the first ten years are not very helpful. (I won't say misleading.)

One wonders if this op-ed was properly vetted. 

Basically, the health reform will have to be reformed to improve cost containment. But because we'll have created a new health entitlement, efforts to improve cost containment that involve, say, shifting from a defined-benefit to a defined-contribution approach will prove difficult if not impossible. Cost containment efforts involving a strong public option and cost controls, as employed in Maryland, will prove more politically attractive, as they won't involve benefit cuts. 

The goal of this legislation, as a friend explained, was not to address the problem of covering the poor and the sick. Rather, it was to create a universal structure that can be built on in an iterative process. An approach that combined Medicare buy-in, federalizing and expanding access to Medicaid, expanding access to state-based high-risk pools by funding them adequately, and capping the tax exclusion could have gone a long way towards solving the problems facing the poor and the sick. This approach might also have passed via budget reconciliation, thus obviating the need for 60 votes. It would not, however, have created a universal structure. 

To be sure, this could be a paranoid view. But even the president is explicitly telling progressive House Democrats that he doesn't see this legislation as a last step — of course he doesn't — which is why it seems entirely fair for conservatives to raise pointed questions about the likely trajectory of reform. 

03/05 12:16 PM Share

A Tension on Health Reform

The White House continues to insist that the excise tax remains intact and that it is fully capable of encouraging cost containment. In an op-ed, Peter Orszag and Nancy-Ann DeParle, two of the most impressive public officials working today, wrote the following in the Washington Post:

For example, skeptics have pointed to the five-year delay, relative to the Senate-passed bill, that the president has proposed for the excise tax on "Cadillac" health insurance plans — a key bipartisan measure to contain health-care costs over time — as further evidence of the administration's wavering fiscal resolve.

Here, the first thing to observe is that the key cost-containment pressure from the excise tax involves neither its start date nor the initial dollar threshold at which it takes effect, but rather the rate at which the threshold grows. And, just as with the version in the Senate-passed bill, the president's excise-tax proposal would increase that threshold more slowly than the rate of health-care cost growth. As a result, firms would have a gradually increasing incentive to seek higher-quality and lower-cost health plans.

This is not an entirely convincing rebuttal. While it's certainly true that the rate at which the threshold grows is important, surely some of the cost-containment pressure is lost when we raise and delay the initial threshold. But Orszag and DeParle make an excellent point all the same. Yet it's not clear that they've made this point clear to congressional Democrats. Sheryl Gay Stolberg and Robert Pear of the New York Times report that Pelosi has been telling her caucus something very different:

While Ms. Pelosi said 80 percent of the excise tax would be eliminated, some Democrats remain unhappy with it. Representative Dan Maffei, Democrat of New York, warned that the tax “would still hit middle-income people in my district.”

Another New York Democrat, Representative Jerrold Nadler, said Ms. Pelosi told skeptical Democrats, “When you win 80 percent, take your victory.”

Granted, it's possible that one can eliminate "80 percent of the excise tax" (this strikes me as an imprecise characterization) and retain the key cost-containment pressure. Note, however, that the "key" cost-containment pressure doesn't give us a good sense of the numbers involved. Will it be enough to yield the savings promised? 

We've heard a great deal about the use and abuse of the filibuster. I actually don't think that the White House is engaging in a particularly egregious practice here. Though I think the Senate health bill is wrong for the country, it did receive 60 votes. If the House passes this deeply flawed legislation, I don't see why making changes to the funding mechanism through the reconciliation process wouldn't pass parliamentary muster. That said, I think that House members should give serious thought to whether passing this legislation is a wise idea. I imagine they're doing just that. 

Another complicating factor: as Alan Abramowitz's analysis suggests, it seems very likely that 20 House Democrats will lose their seats in the event that the president experiences a massive rebound in popularity. If he does not, the losses could be even greater. Basically, about two dozens members of the House Democratic caucus face almost certain defeat. Should they try to save themselves by appealing to conservative sentiment in their Republican-leaning districts, or should they do what they can to help the president and thus improve the broader environment for Democrats? It's kind of like the prisoner's dilemma, only with more at stake. 

03/05 11:49 AM Share

Wednesday, March 03, 2010

Jared Bernsten vs. Ed Glaeser

Ed Glaeser wrote a post on whether Recovery Act grants were effectively targeted to reduce unemployment. This was a follow-up to a really excellent post on how federalism is changing during the downturn, as states grow increasingly dependent on federal aid. 

I don’t think that states should cut spending now, but I’m not happy with the idea that the federal government is stepping in and eliminating the states’ need to handle their own obligations. In principle, states can create sufficient rainy-day funds and allow for sensible borrowing during economic downturns. Moreover, handling state budget shortfalls with federal bequests creates all manner of oddities. Every one of the five least dense states in the country has been awarded $948 per capita or more in recovery funds (Alaska got $1,600 per capita), while New York has been awarded $567 per capita, and Florida $452 per capita. This situation is particularly absurd since Florida’s unemployment rate is 11.8 percent and the unemployment rate in the sparsely populated Dakotas is below 5 percent.

Unfortunately, more transfers from Washington to the states may be the only politically feasible way to limit cuts in the badly needed functions of state and local governments, like schools and the police, but this seems like a bad long-run solution. Hopefully, as the crisis eases, the country can move toward a system where states keep their own financial houses in order and we set up fiscal institutions that save them from needing to slash spending during a downturn.

This strikes me as an excellent idea — provide an institutional cushion designed to ease the need for pro-cyclical cuts, but limit discretion so that we can constrain rent-seeking. But to return to Glaeser's "Wasted Stimulus" post, he was making a fairly basic point:

There are two reasons that density predicts which states got the stimulus funds.

A technical reason is that transportation spending plays a large role in the stimulus funds and transportation spending is highly skewed toward thenation’s least dense areas.

The deeper reason is that the Senate is designed to empower states with smaller populations. One-tenth of the Senate represents the five states getting the highest Recovery Act grants per capita — Alaska, the Dakotas, Wyoming and Montana — which collectively have 3.7 million people, or 1.2 percent of the American population.

This, incidentally, is a point often made by urban liberals, and it's a fair one. Bernstein's reply struck me as unresponsive. He notes that Glaeser didn't factor in spending on Medicaid and unemployment insurance, to which Glaeser said the following:

Mr. Bernstein correctly points out that there are many programs, like unemployment insurance and food stamps, that are targeted toward the unemployed. My question was whether the public works spending, especially transportation spending, was targeted toward high unemployment areas.

What Glaeser didn't add is that it's not clear that additional federal funds for unemployment insurance and food stamps actually reduce unemployment, which was the question Glaeser set out to answer re: public works spending. The straightforward case is that these measures put cash in the hands of cash-poor individuals, and thus the funds were likely to be spent rather saved, thus helping to maintain demand. On the other hand, there is the impact on labor supply, per Casey Mulligan. One can, of course, make a strong case that Congress was right to make additional federal funds available regardless of the impact on the duration of unemployment. 

03/03 06:57 PM Share

How Useful is GDP?

Will Wilkinson and David Henderson have been raising good questions about GDP. Will offers a provocative argument.

If all government spending on education became equivalent private spending overnight, GDP would stay the same (in the short term, before gains in education quality started to pay off in terms of higher productivity), though people would be better off. However, government spending on education, as inefficient as it may be, is giving people something they want and directly benefit from. Much (most?) military and security spending is not like that. My sense is that, despite the U.S.’s historically relatively modest level of government spending, the composition of U.S. spending is such that U.S. taxpayers get less of value in return for their tax dollars than do taxpayers in many places with higher taxes and higher levels of government spending. Which is to say that when using GDP per capita as a proxy for welfare, the U.S. comes off better than it should relative to, say, Canada or Sweden.

This will raise hackles, I'm sure, but it's an argument worth thinking about. If we keenly felt that we had to pay for our own security, how much would we buy? One could argue that wouldn't buy enough, in light of the public good that is a U.S.-led world order, and Will addresses that argument in turn.

Now, one could argue that U.S. military spending and hegemonic U.S. military power, makes it possible for the Canadian government to spend on health-care, from which the Canadian people derive some benefit (even if the service is not provided as efficiently as it could be), rather than on aircraft carriers, from which the Canadian people would derive basically no benefit (since the Americans have already taken care of it). I think this is almost certainly true, but it’s just another way of making the same point: Canadians are better off and Americans are worse off than their GDP stats suggest.

I'd put a slightly different spin on this. Many writers and thinkers express concern about how the United States does not do as well on various human indicators — life expectancy, educational attainment, etc. — as it does in terms of GDP per capita (PPP). Some see this as an indictment of the Anglo-Saxon market-driven economic model, as compared to the social market economies of northern Europe, etc. I'm struck, in contrast, by how well the U.S. performs in relative terms given that it is easier to converge than to lead, the extraordinary extent of family disruption (e.g., the number of 15-year-olds who live with both biological parents is much lower in the U.S. than in Sweden, France, or Germany), and a history of enslavement, segregation, and a massive influx of less-skilled workers from neighboring countries. We can also add the incredible number of people that we incarcerate to the list. One can argue that this artificially depresses our unemployment rate. But it also ravages the lives of millions, mostly men, overburdens a relative handful of communities, sharply reduces the number of marriageable men, and much else besides. My gut instinct is that the fact we do so well despite these handicaps — really, these crippling pathologies — is actually a reflection of the power of a mostly entrepreneurial economy with flexible labor markets.

On the question of mass incarceration, my sense is that Will is right to see it as a grave problem. Mark Kleiman's excellent When Brute Force Fails describes the many pathologies of our criminal justice system, and how we can reduce crime while also reducing public expenditures. To understand what's driving the extraordinary waste of money and human resources, check out this story from journalist Laura Sullivan.

03/03 06:35 PM Share

Does Wyden-Gregg Go Far Enough?

Howard Gleckman has a characteristically insightful analysis of the revenue-neutral (according to CRS and not the JCT, which hasn't weighed in) Wyden-Gregg proposal. 

How would the Wyden-Gregg plan work? Individuals would face three tax brackets—15 percent, 25 percent and 35 percent. The Alternative Minimum Tax would be repealed. The proposal would encourage more people to take the standard deduction by nearly tripling its size, and filing would easy for those who chose this route.

However, the proposal would retain a number of popular credits and deductions for itemizers. Among those Wyden and Gregg would keep: deductions for mortgage interest and charitable gifts, and the child credit, earned income credit, and dependent care credit.  The plan would enhance and somewhat simplify retirement savings incentives. Investors could exclude 35 percent of their capital gains from tax.

For me, the mortgage interest deduction functions as a brown M&M. The latest issue of Fast Company has a wonderful column by Dan and Chip Heath of Van Halen's managerial insights.

Van Halen did dozens of shows every year, and at each venue, the band would show up with nine 18-wheelers full of gear. Because of the technical complexity, the band's standard contract with venues was thick and convoluted — Roth, in his inimitable way, said in his autobiography that it read "like a version of the Chinese Yellow Pages." A typical "article" in the contract might say, "There will be 15 amperage voltage sockets at 20-foot spaces, evenly, providing 19 amperes."

Van Halen buried a special clause in the middle of the contract. It was called Article 126. It read, "There will be no brown M&Ms in the backstage area, upon pain of forfeiture of the show, with full compensation." So when Roth would arrive at a new venue, he'd walk backstage and glance at the M&M bowl. If he saw a brown M&M, he'd demand a line check of the entire production. "Guaranteed you're going to arrive at a technical error," he wrote. "They didn't read the contract.... Sometimes it would threaten to just destroy the whole show." 

If your tax plan doesn't scrap the mortgage-interest deduction and replace it with a simplified home credit, we can probably do better. Jason Furman, deputy director of President Obama's National Economic Council, made the case against the mortgage-interest deduction in 2005, praising President Bush's tax commission for offering a simpler, more progressive approach.

As Gene Steuerle and his co-authors at the Urban Institute have documented, more than 80 percent of the major tax incentives for housing go to the top 20 percent of Americans (they get an average annual tax break exceeding $2,000) while less than 5 percent go to the bottom 60 percent (who get an average annual tax break of less than $50). Nearly half of all families with mortgages do not get any housing tax benefit at all.

This fact alone should be enough to give progressives pause when they tout the mortgage-interest deduction as a great boon to the average American. But it's worse: Only a small portion of this housing-tax break could conceivably be construed as supporting the goal of helping American families own their own homes. Since the mortgage cutoff is so much higher than the cost of buying a basic home, the bulk of the subsidies end up encouraging families who would have bought a home anyway to buy a larger house and/or to borrow more against it.

Really, almost anything would be better than this. One of the nice things about capping the benefit is that it has the potential to dampen the structural increase in home prices in dense, tightly-regulated housing markets, as Ed Glaeser and Joe Gyourko argue in their felicitously titled book Rethinking Federal Housing Policy.

Granted, Wyden-Gregg might be better than the status quo. But if you're going to pursue tax reform, we need to think about going beyond revenue neutrality to proposals that might be revenue positive. My own bias is in favor of scrapping the state and local tax deduction as part of a larger bargain that would include federalizing Medicaid. There are other ways to get there, including the dreaded VAT. 

03/03 05:16 PM Share

On Extending Unemployment Insurance

The effort to extend unemployment insurance is often portrayed as an unambiguously good idea. The basic premise, as I understand it,  is that unemployment is entirely about demand and supply is of no consequence. There are no jobs, and thus the extension of unemployment insurance is a humanitarian measure and that's it. But it's not clear that this is always true, as Casey Mulligan argues:

"Traditionally, many economists have been leery of prolonged unemployment benefits because they can reduce the incentive to seek work. But that should not be a concern now because jobs remain so scarce, said Lawrence Katz, a labor economist at Harvard." as quoted by the New York Times. (See also here for the same claim)

What is the basis for this claim? I'm not sure, but Professor Shimer kindly pointed me to an article about unemployment duration in Pittsburgh 1980-85. Unemployment rates got quite high in Pittsburgh in those days, reaching 16 percent at one point, and staying over 10 percent for two and a half years. The chart below shows some of the results. It graphs weeks from unemployment benefit exhaustion against the fraction of unemployment people either finding a new job or being recalled to a previous job in that week. "Exhaustion" refers to the time when benefits cease being paid to the unemployed person, regardless of whether they have found a job.

The striking chart suggests that exhaustion of unemployment benefits proved a sharp and effective spur to job-seekers.

Almost no one started working during the 2-3 weeks prior to the exhaustion of their unemployment benefits (weeks "-3" and "-2" in the chart). Miraculously, more than one quarter started work a week later (19% started a new job, 10% returned to a previous job). Economists agree that a huge reason for this behavior is that people are more willing to remain unemployed when unemployment itself generates a paycheck. (The job they take may not be great, but the data show that often there is a job to take).

Mulligan then linked to an earlier post for the NYT on what he calls the "summer jobs surge." 

Suffice it to say, not everyone embraces Mulligan's worldview. He consistently maintains that we've pursued a long series of employment-reducing policies under President Bush and President Obama. By way of explanation, this is how Mulligan characterizes the impact of mortgage modification programs:

So when I say that "mortgage modification discourages people from earning too much" that does not only mean quitting one's job to "game" the mortgage modification formula, but also failing to increase one's income or take an new job when the opportunities arise.

One thing I find interesting is that many of the middle-class professionals I know think in precisely these terms when it comes to freelance work — given taxes, is the gig valuable enough to merit taking time away from family and other priorities? — yet consider it deeply offensive to suggest that people who face straitened economic circumstances see the world in roughly the same way. 

I don't actually have a settled view on the question of extending unemployment insurance. The jobs tax credit proposal seems worse, insofar as most of it will go to employers who already intended to hire. At least in theory, an extended period on unemployment insurance could allow one to upgrade skills and seek more remunerative employment opportunities down the road, as Raj Chetty's research suggests. Tim Harford summarized Chetty's work in Slate late in 2008.

But new research from Raj Chetty, a young Berkeley economist, suggests that moral hazard may not be why more generous benefits seem to lead to more unemployment. Chetty realized that unemployment benefits do not merely pay people to stay out of work; they also protect them from having to rush into an unsuitable job. It is nothing to celebrate if unemployed engineers cannot afford to spend three months finding a job for which they are qualified but are forced to work as real estate agents to put food on the table. A longer gap between jobs is sometimes preferable.

We don't have any randomized experiments to test the hypothesis, Harford notes, but we do have a kind of natural experiment.

Chetty and two colleagues looked at the system in Austria, where severance pay is due to anyone employed for more than three years. By looking at—for example—a factory closure in which lots of staff are fired simultaneously, they could treat severance pay almost as a randomized experiment. Those lucky enough to get severance pay spent more time looking for a new job, despite the fact that severance pay provides no direct incentive to stay out of work.

In The Natural Survival of Work, a wonderful book that I very highly recommend, the authors offer a comparative analysis of unemployment insurance systems. Bruce Bergman of the Bureau of Labor Statistics wrote a useful guide to the book. 

Looking for a job "ensures the reallocation of the labor force toward the most efficient jobs, and thus constitutes an essential source of growth." In practice, however, unemployment insurance and employment services have varying degrees of effectiveness. In 2005, the average duration of unemployment in the United States was 18 weeks, while in France, it was 15 months. In trying to get behind what works well and what does not, the authors describe the history of French trade unions, which were created to facilitate job placement and information sharing. They conclude that a credible system of checking job-search activity is imperative. Citing examples from Switzerland and the Netherlands, the authors assert that public employment services, though, must go beyond simply checking to provide real assistance to jobseekers.

As we extend unemployment insurance, it's worth wondering whether or not we're doing it in a coherent, thoughtful, cost-effective way that will truly aid jobseekers, or if we're doing the politically expedient thing. That said, it's not obvious to me that Senator Bunning's approach is the best way to devise a more coherent unemployment insurance system. But as always, I'd be interested in hearing your thoughts on this.  

03/03 04:35 PM Share

Tuesday, March 02, 2010

Ross and Packer on Mitch Daniels

Ross has written a characteristically excellent column on Mitch Daniels. 

“There’s been some very healthy hell-raising going on in the country,” he said of the Tea Parties. “But to my knowledge, nobody’s gotten up in front of those rallies and explained what’s going to have to happen.” His ideal approach to the deficit would look like Paul Ryan’s fiscal roadmap, all spending restraint and no new taxes. But one way or another, deficit reduction “has to be done” — even if “you have to take the second- or third-best method.”

All this honesty might evaporate on the campaign trail. And if it didn’t, would Daniels have a prayer? He’s admired by elites, but unknown at the grass-roots level. He’s a social conservative, and his gubernatorial campaigns have played the populist card successfully — but he lacks the built-in constituencies of other candidates. And his years’ carrying water for the Bush administration’s budgets would doubtless be used against him in the battle for the Tea Partiers’ affections.

And as Ross notes, Daniels has an admirable tendency to go respond quickly to failure.

His “Healthy Indiana” plan, which offers catastrophic coverage to low-income residents, aspires to eventually cover 130,000 people, about a third of the state’s long-term uninsured. He’s pushed targeted investments in kindergarten programs, the police force and the child welfare office. And he’s been a pragmatic free-marketeer, rather than a strict ideologue. His controversial decision to lease the Indiana toll road reaped $3.8 billion for the state. But when an attempt to outsource welfare enrollment went awry, Daniels yanked the system back into the public sector.

This reminds me of George Packer's blog post on Ross's column. (Ah, the blogosphere!) Packer notes that Daniels gave overly rosy cost estimates of the Iraq War. Given how difficult it is for the CBO to score IMAC, I have to say, rosy cost estimates of the Iraq War strike me as fairly anodyne. My sense is that there were implicit pressures on Daniels to underestimate the potential costs, and that he was following the rosy scenarios offered by defense planners. This does not reflect well on Daniels. What does reflect well on him, however, is that he left government, sensing that he could do more at the state level, with executive authority, than he could as a senior staffer in a White House focused on the war on terror rather than long-term fiscal sustainability. Granted, Daniels could have left office earlier, but in doing so he might have damaged his political viability, which is to say his ability to solve problems in his home state.

I'm struck by the fact that Packer doesn't mention the fact that Daniels fought Indiana Republicans to raise taxes on high earners. In Republican circles, this is a fairly serious ideological departure. He made the case that if programs had to be cut, the most affluent Hoosiers would have to make a sacrifice as well. He lost the debate, but it does give some context for Daniels's political mettle. 

Lastly, I'll note that I wrote one of the first Mitch for President columns in late November of 2008. I think it holds up reasonably well. Interesting that I was obsessed with the auto bailout even then, in those distant, more innocent days.

P.S. On reflection, it's worth noting that Packer actually levels a more serious charge, which I can't fairly evaluate.

And Daniels persisted in his refusal to face reality even after the war began. In the spring and summer of 2003, with Baghdad looted and Iraq’s infrastructure disintegrating and Iraqis losing patience and the insurgency just beginning, around the Republican Palace, where the Americans of the Coalition Provisional Authority were trying to bring some order to Iraq, the name Mitch Daniels was often mentioned, without much love. C.P.A. officials faulted the O.M.B. man back in Washington for nickel-and-diming their every request for money. The Americans started out with just twenty-five thousand dollars to resurrect Iraq’s collapsed ministries, and even this meager sum came not as cash but in the form of grants that required several weeks for approval. American officials were desperate for money before the window of opportunity closed. One of them told me, “In post-conflict reconstruction, you need to have the ability to deliver the resources right away. People in a desperate situation need help. Boy, that’s a blindingly obvious insight. The next thing is that if you’re not giving them help, they’re going to go somewhere else.”

Did the OMB director really have this kind of authority? This really strains credulity, but Packer is a fair reporter, so perhaps there is something to this. 

03/02 10:49 AM Share

Sunday, February 28, 2010

Witold Rybczynski on Shrinking Cities

Over a decade ago, Witold Rybczynski wrote a wonderful essay for The Atlantic on the idea of downsizing cities. It anticipates Mayor Bing's strategy in Detroit, and it offers useful principles for other American cities that are going through a wrenching transition. 

Rybczynski begins his essay by suggesting that one of the favored strategies of liberal urban reformers, annexing affluent suburbs to declining cities to enhance the base of the latter and to enhance cooperation and coordination across the metropolitan area, is not politically plausible in most cases, particularly those in which the central city is in most desperate need of renewal. I'd add that there are real disadvantages to city governments that are too large. Though there is certainly a case for metro-wide cooperation on transportation, policing, and a number of other functions, there are diseconomies of scale as well as economies of scale. Smaller cities can pursue a more diverse array of strategies regarding the mix of amenities and taxes, thus enhancing Tiebout choice within a metropolitan area. And to the extent one is concerned about the distribution of income, this a function better handled at the state or federal level, thus allowing municipalities to pursue their core competencies. The fact that cities often have high concentrations of poor people isn't always a mark of failure: it could mean that poor workers, often immigrants, are drawn to cities in search of economic opportunities. Granted, this is less true in a city like Detroit or Baltimore, where you have very high concentrations of families suffering from intergenerational poverty. 

If the metropolitan strategy isn't available, Rybczynski points in a more promising direction.

Like a mall owner, the administration of a city with a low occupancy rate can try to increase its tax base by refurbishing the downtown area to make it more attractive to business. It can organize riverboat gambling and build aquariums and world trade centers. It can stimulate employment by enlarging the public sector. (It cannot, however, create the sort of manufacturing jobs that were the basis for the earlier prosperity and growth of great cities like New York, Chicago, and Philadelphia.) It can also try to balance its budget by raising revenues through higher property taxes, business taxes, and income taxes, and by curtailing services — although these tactics, like raising rent, will eventually only hasten population decline.

The mall owner who has tried everything and finds that there is simply no demand for space has a final option: make the mall smaller. Consolidate the successful stores, close up an empty wing, pull down some of the vacant space, and run a smaller but still lucrative operation. Many cities, such as New York, Detroit, and Philadelphia, don't stand a chance of annexing surrounding counties. Downsizing has affected private institutions, public agencies, and the military, as well as businesses. Why not cities?

After explaining why depopulated neighborhoods are dangerous and undesirable, and thus expensive to police and maintain, Rybczynski suggests a couple of interesting strategies. The first and less attractive is what he calls "zero-occupancy zoning," or declaring certain neighborhoods dead zones and cutting off services.

The objection may be raised that zero-occupancy zoning would create large tracts of empty land whose presence would disrupt the proper functioning of a city. In fact many cities have grown up around cemeteries, or have enveloped earlier industrial areas such as quarries and railroad yards, and most cities already have large areas of land such as tank farms and container depots that are cut off from everyday use. The only difference between these areas and zero-occupancy zones would be that the latter would be unused, and would not create noise or air pollution.

One of the reasons this strategy is so unattractive is that it would involve inducing the remaining families to move on, which would be difficult and, to put it bluntly, tragic. There is, however, another route to "planned shrinkage."

Cities have another option: divestiture. Contiguous parcels of, say, at least fifty acres could be put up for sale, with one of the conditions of sale being that the land would cease to be part of the city. According to Peter Linneman, the director of the Wharton School's Real Estate Center, large tracts in proximity to cities but without the burden of city taxes and bureaucracy would very likely attract developers who would otherwise shun them. The new developments, whether residential or commercial, would be responsible for their own municipal services, as new developments already are in suburban locations. Assuming that questions of ownership of rights-of-way and underground infrastructure could be worked out, the prospect is attractive. Cities would increase their income (although they would not gain taxpayers), and they would divest themselves of unproductive land. At the same time, people and economic activities would be attracted back into the urban vicinity.

Because almost all politicians are empire-builders, with the possible exception of the remarkable Dave Bing, it's hard to see many mayors going for this approach. It does, however, make a lot of sense. This reminds me of Paul Romer's call for "charter cities," Hong Kongs carved out of developing countries.  

02/28 01:21 AM Share

Dave Bing Gets It

After years of boosterism that has left Detroit's public finances a shambles and its basic infrastructure in dire disrepair, the city finally has a mayor who has a serious, sustainable plan for renewal. My old friend Alex P. Kellogg has written an excellent look at Dave Bing's efforts to save Detroit by embracing its new dimensions for the Wall Street Journal.

The mayor is looking to the diminished tally, down from 951,270 in 2000, as a benchmark in his bid to reshape Detroit's government, finances and perhaps even its geography to reflect its smaller population and tax base. That means, in part, cutting city services and laying off workers.

His approach to the census is a product of not only budget constraints but also a new, more modest view of the city's prospects. "We've got to pick those core communities, those core neighborhoods" to sustain and preserve, he said at a recent public appearance, adding: "That's something that's possible here in Detroit."

Rather than offer a downtown-centered redevelopment plan involving massive subsidies to private firms, Mr. Bing intends to make Detroit more livable and attractive to working families by improving basic services and by addressing the burden of a public sector workforce that is too large for the downsized city.

Soon after being elected to a full term in November, Mr. Bing began cutting back on city services such as buses and laying off hundreds of municipal workers. The mayor is now making plans to shutter or consolidate city departments and tear down 10,000 vacant buildings. And Mr. Bing is supporting efforts to shrink the capacity of the city's school system by half.

Along with the mayor, a number of academics and philanthropic groups are sketching visions of a different Detroit. One such vision has urban farms and park spaces filling the acres of barren patches where people once lived and worked. In a city of roughly 140 square miles, vacant residential and commercial property accounts for an estimated 40 square miles, an area larger than the city of Miami.

"The potential of this open space is enormous," said Dan Pitera, an architect at the University of Detroit who has done land-use studies on the city.

It's worth noting that Mr. Bing, a Democrat, has proven far gutsier in confronting fierce political resistance to build a more sustainable Detroit than any number of self-described conservative Republicans.  

02/28 01:05 AM Share

An Exchange on Singapore's Health System on Bill Maher

02/28 12:27 AM Share

Saturday, February 27, 2010

Ron Replogle on Activism

I've just stumbled across a very interesting blog by Ron Replogle, a self-described "recovering academic political theorist." He can be harsh critic of conservatives (his take on Glenn Beck gives you a sense of his views). He's also a liberal who is good at distancing himself from the political fray. 

Rather self-servingly, I really liked a post he wrotes on the relationship between pundits and political activists.

You might think that a pundit’s just another activist who wields ideas as political weapons instead of money, organizing energy and votes. If so, the pundit's job is to seize control of the political narrative by hook or by crook. That seems to be Kevin’s view. Otherwise he wouldn’t have concluded that the sad intellectual state of movement conservatism defines “the world that [the liberal commentariat has] to deal with.” That also seems to be the view of Matt Yglesias and Jon Chait.

You’ll reach a different answer if you think that political pundits should be in the business of coming to the right answer to politically contested questions. On that assumption, it makes no sense for a pundit to waste scarce time rebutting the crude fictions of activists when he could be matching his views up against the best views the opposition has to offer. That's the assumption, I think, underlying Reihan Salam’s view. 

Wouldn't liberalism be in better intellectual shape if more smart liberal pundits took that view?

A few caveats:

(a) This is indeed the assumption underlying my view. But I can understand why one might be cynical about my stated view. For example, would I spend all of my time criticizing flaws in proposals advanced by President Mitch Daniels? I like to think that I actually would spend a lot of time doing just that. Would I also spend lots of time engaging liberal critics of Daniels initiatives that I liked, including weak arguments? Again, I like to think that I wouldn't bother with the most obviously weak arguments, or that I'd dispatch with them quickly before moving on to more serious objections that could shape the substance of the proposal. There is no way for my liberal critics to know whether I'd live up to my end of the bargain. Well, I could say the key evidence is that I was harshly critical of the Bush administration across many different domains, but I can see why that might not be good enough.  

(b) I actually don't think Replogle offers an entirely fair characterization of Matt's view. I do think he offers a fair characterization of Paul Krugman's view, and Krugman sets the tone for a number of his friends, admirers, and allies. (I call it "Team Krugman.")

Part of what I appreciate about Replogle's post is that it captures my intentions very well, and it doesn't attempt to divine my deeper motivations — surely I could only do or say X or Y out of careerism, etc. 

On a tangential note, I actually think that the approach that Replogle describes and seems to endorse is actually very hard to fit into the structure of punditry. I appeared on a very lively television program the other night, and the nature of the exchange created an obligation to defend the Republican position on a variety of issues. I think of myself, however, as defending a conservative or libertarian position that often strays from the Republican position. Moreover, it's hard to describe certain views when they run counter to pervasive assumptions, e.g., I'm a firm believer in building coalitions between people on the right and the left — not Bayh-style bipartisanship, but really getting at the shared goals of people who feel excluded from the dominant political discourse, etc. Because this isn't Colin Powell's politics but something unfamiliar (let California to have single-payer and let Utah to embrace the Singapore approach, let's recognize that some issues unite small firms and young parents on public assistance against large firms and public sector unions, etc.) it doesn't translate.

Which as far as "problems" go is entirely, laughably trivial. A much bigger problem is that we haven't come up with a politically feasible plan for delivering low-cost, high-quality medical care in a sustainable way.

02/27 01:39 PM Share

Charlie Crist is Confused

Why would Democrats want Charlie Crist to switch parties? I understand that this would help reinforce the view that there is no home for moderates in the Republican Party, thus strengthening a key Democratic narrative. The problem is that Crist really is one of the worst governors in the United States, if not the absolute worst. This has nothing to do with ideology per se. Crist has backed conservative policies as well as liberal policies. He's even gotten some things right. For example, I think Crist was very wise to support reforming the criminal justice system and I also think that there's a decent case for restoring voting rights to ex-offenders. But on the central issues facing a governor or for that matter a U.S. senator — issues surrounding taxing and spending — Crist is clueless. 

Megan McArdle recently wrote a post that offered measured praise for David Paterson, the governor of New York who has decided against running for reelection. Paterson made a number of bad calls, but as Megan notes, he also did things that Crist did not. 

But when the state had a crushing budget deficit, he made some hard choices.  Unpopular choices, which a better politician wouldn't have made—but which are ultimately the reason that New York is not yet California. 

Or, for that matter, Florida, where Crist's approach threatens the state's long-term fiscal health. Rather than see federal stimulus funds as a one-time injection that could spare the state pro-cyclical cuts while creating room for a long-term plan to reduce the size of state government in line with revenues, he seemed to think that it gave him an opportunity to permanently ratchet up spending while also cutting taxes. No wonder he embraced the president. 

When Marc Caputo and Steve Bousquet of the Miami Herald asked Crist about the virtues of the plan, he said, "I think it's fantastic. Are you kidding me? We don't have to raise taxes." Moreover, Crist continued, "we might be able to cut property taxes some more. We have more money for education, so we can increase per-student spending. We can spend more money on our roads and infrastructure. We can provide health care for our people. I mean, it's remarkable."

I think most Floridians can agree that these would be good things to do. The question is whether the stimulus was designed to exacerbate the long-term fiscal imbalances facing state governments. Criticize ARRA all you want — I've criticized it a lot — I'm pretty sure that its program of aid to the states was not deliberately designed to this end.

And it seems that Crist takes the same approach to issues before Congress. John McCormack points of the Weekly Standard points us to a fascinating post in the Palm Beach Post by Michael C. Bender. 

Gov. Charlie Crist, a Republican U.S. Senate candidate, told The Palm Beach Post editorial board on Friday that, unlike many Republicans in Washington, he didn’t think President Obama should scrap his health care reform proposal:

“There may be parts of it that you don’t have to scrap. There are three parts of it that I would like to see scrapped: It would raise taxes significantly, it would raise rates significantly and it would take half-a-trillion dollars out of Medicare.

“I think the real issue here, as it relates to health care, is that people want it to not cost so much and people want to have access to it. I think there is a consensus of agreement that the health care that is delivered in America is good. But it’s not easy to get it and it’s too expensive when you do get it.”

So would Crist get rid of the excise tax, which is designed to discourage the use of high-cost "Cadillac" plans? And he also wants to get rid of efforts to trim growth in Medicare spending? How does he intend to pay for increased access? 

As for raising rates significantly, it's not clear to me that Crist understands the basics: Marc Ambinder published, to his credit, a lengthy exchange with a Republican Congressional aide on the question of whether or not premiums increase under the Senate health bill. The GOP aide writes:

This is wrong: "For most Americans by far, premiums would either stay the same or go down." You're leaving off an important point: compared to "current law.". In other words, under their bill, CBO said, most premiums would go up (just as they would under status quo) but for some they would go up exactly the same amount, and for some they would go up, but up to three percent less. To simplify using round numbers: If we do nothing, all premiums in "the small group and business markets" will go up by $100 dollars. If we pass the dem bill, those same premiums will still go up—some by $100 dollars, others by $97. But they all go up. Make sense?

If we're going to be fair to the Senate health bill, let's acknowledge that Crist's characterization isn't quite right. It's not "raising rates significantly," unless you're factoring the individual market, where it does raise rates but it does so because it essentially mandates the use of more comprehensive benefit packages. What it does not do is lower rates significantly.

The GOP aide continues:

Getting a subsidy does not equal getting a lower premium. It's a better outcome for you, but it's the result of taxpayers giving you money, not a result of having your premiums lower-Dems have been quite disingenuous about that. A welfare check is not a job any more than a subsidy is a lower premium, right?

ObamaCare will raise many people's premiums and nearly everyone will continue to have higher premiums (again, whether as a result or in spite of the bill). They pitched this bill as lowering premiums for people and "bending the cost curve." It does neither. It does spend a ton of money, cuts a lot of Medicare and taxes a hell of a lot in order to pay a fraction of the population's insurance premiums. But it does not lower premiums and it does not bend the cost curve (not down, anyway).

I actually think that trimming the growth of Medicare spending is a good thing, and I also think that we should increase subsidies to state-based high-risk pools, etc. Republicans haven't been doing enough on these fronts during this debate. That said, the GOP aide makes strong points. Unlike Crist, he understands the broad contours of the Senate health bill. His criticisms — whether you agree with them or not, and many will accuse him of not having due regard for how generous subsidies will impact the affordability question — are reality-based.

Basic point: the opposition to Crist isn't coming out of nowhere. Charlie Crist isn't a brilliant, capable, principled executive who has run afoul of crazed ideological extremists. He is completely clueless, and if David Paterson were to move down to Florida to run against him, I'd have to give serious thought to whether Crist was the least bad choice.  

02/27 01:07 PM Share

Friday, February 26, 2010

Alan Abramowitz's House Forecasting Model

Via Kristen Soltis, check out Alan Abramowitz's House forecasting model. It's February, of course, so rather than spend time on Abramowitz's headline numbers, let's take a look at what he considers the realistic range of results.

The current political environment only appears unfavorable for Democrats compared with the extraordinarily favorable environment that the Party enjoyed in both 2006 and 2008. [Emphasis his.] The two structural variables in the model—previous Republican seats and the midterm dummy variable—predict a Republican gain of 38 seats, half due to the small number of Republican seats prior to the election and half due to the fact that 2010 is a Democratic midterm year. According to this model, the main reasons that Democrats are likely to experience significant losses in 2010 are the normal tendency of voters to turn against the president’s party in midterm elections regardless of the national political environment and the fact that after gaining more than 50 seats in the past two elections, they are defending a large number of seats, many in Republican-leaning districts. [Emphasis mine.]

Based on the latest readings on net presidential approval (approximately +5) and the generic ballot (tied), the national political environment is fairly neutral at the moment. Even under what might be considered a best-case scenario for Democrats, if President Obama’s net approval rating were to improve from a +5 to a +20, and Democrats were to regain a 10 point lead on the generic ballot, Democrats would still be expected to lose about 20 seats in the House.

One wonders if this could actually be a good thing for the Democratic legislative agenda. Say the losses are entirely among Blue Dogs, and the remaining members of the caucus prove to be more reliable votes on a wide variety of measures. The Democrats could offer more robustly progressive legislation without fearing the consequences in marginal seats. The problem with this analysis is that one could easily imagine Democratic members in the seats the new tier of marginal seats growing skittish, so perhaps not. 

On the other hand, under what might be considered a worst case scenario for Democrats, if President Obama’s net approval rating was to fall from a +5 to a -20 and Republicans were to gain a 10 point lead on the generic ballot, Democratic losses would be expected to reach 54 seats in the House. So while the national political environment will clearly have an impact on the outcome of the House elections, under any plausible set of circumstances Democrats are likely to lose a substantial number of seats in November due to structural features that are already set.

This is telling — the worst-case scenario sounds incredibly and implausibly grim, yet it just brings us back to 2006.

02/26 04:12 PM Share

Is Matt Steinglass Describing My Views Fairly?

At Democracy in America, he writes:

The conservative National Review's Reihan Salam went so far as to deny last week that any conservatives actually hold such views.

Which views? I think he's referring to views he attributes to John Cochrane and Brian Riedl, which he describes at considerable length. 

They argue that the ARRA has created no jobs whatsoever, and that, moreover, it is theoretically impossible for the government to reduce unemployment. Deficit spending, they say, simply soaks up capital which would otherwise have been spent by the private sector. They are thinking of deficits created by spending hikes rather than tax cuts, but there is no reason why this should make a difference to their argument: all government deficit spending does, to quote Mr Cochrane, is "take money from one place and give it to another," which cannot create jobs.

I actually don't think that this is a fair characterization of Cochrane's view, but he can speak to that better than I can. So what did I say? Here is the original post. I can think of two statements that might elicit this response.

First:

Leonhardt refers to "hard-core skeptics," and my worry is that this does a lot of the work for him. Critics like Desmond Lachman believe that the stimulus was poorly timed and poorly designed. This suggests that he is not a hard-core skeptic, though of course many if not most skeptics and critics of ARRA fall into this camp. Others are concerned about the impact of heavy deficit spending on long-term growth prospects, i.e., the fiscal stimulus program has a beneficial growth impact in the short term, but exacerbating extreme fiscal policy swings are very difficult to sustain. These critics are also not hard-core skeptics. So is Leonhardt taking issue with people who believe that spending hundreds of billions of dollars in the space of a few month would have zero impact on GDP growth? In that case, I would enthusiastically agree with him.

You know, in reading the back and forth on this post, I didn't even go back and read the original. I assumed that my interlocutors were arguing in good faith, or that they had read my admittedly rambling post. Then there was this:

But again, I don't thing [sic] that anyone doubts that ARRA helped perk up growth. It is very hard to imagine that spending an enormous sum of money would not.

So what did I mean by perk up growth? I meant that I don't think (nice typo, Salam) anyone doubts that spending under ARRA increased GDP relative to where it would have been in its absence. Of course many people believe that borrowing creates a long-term drag and that we are shifting economic activity from one period to another to no discernible long-term end. I used the phrase "perk up growth" advisedly. If the government borrowed hundreds of billions to build an enormous pumpkin pie in Nevada's Area 51, and built high-speed rail to the facility from various pumpkin-producing greenhouses houses built throughout swing congressional districts across the country, I imagine it would increase GDP.

Are there conservatives who believe that ARRA had zero impact in terms of perking up — and remember, the phrase "perking up" is meant to invoke a temporary impact — GDP? It's entirely possible that theres's someone out there. Does Riedl fall in this category, or Cochrane?

I should have used my words more carefully. I don't think that anyone who can describe what ARRA is doubts that it would by nature have some impact on GDP growth. The "creating jobs" question is a separate one, and actually very hard to tease out in terms of net impact. I have my views, others disagree.

I miss the days when W.W. was blogging for The Economist. 

02/26 02:48 PM Share

Copyright Bullying

Bobbie Johnson of the Guardian has written an interesting, and disturbing, piece on the US copyright lobby's efforts to squelch the use of open source technologies in the developing world.

It turns out that the International Intellectual Property Alliance, an umbrella group for organisations including the MPAA and RIAA, has requested with the US Trade Representative to consider countries like Indonesia, Brazil and India for its "Special 301 watchlist" because they use open source software.

What's Special 301? It's a report that examines the "adequacy and effectiveness of intellectual property rights" around the planet - effectively the list of countries that the US government considers enemies of capitalism. It often gets wheeled out as a form of trading pressure - often around pharmaceuticals and counterfeited goods - to try and force governments to change their behaviours.

So why should free market conservatives care?

I know open source has a tendency to be linked to socialist ideals, but I also think it's an example of the free market in action. When companies can't compete with huge, crushing competitors, they route around it and find another way to reduce costs and compete. Most FOSS isn't state-owned: it just takes price elasticity to its logical conclusion and uses free as a stick to beat its competitors with (would you ever accuse Google, which gives its main product away for free, of being anti-capitalist?).

Still, in countries where the government has legislated the adoption of FOSS, the position makes some sense because it hurts businesses like Microsoft. But that's not the end of it.

No, the really interesting thing that Guadamuz found was that governments don't even need to pass legislation. Even a recommendation can be enough.

Basically, a handful of large corporations are trying to use the power of the US government to limit the ability of other firms, large and small, that are built around OSS business models.

To understand how and why OSS resonates with core libertarian principles, I recommend reading Tim Lee and Cord Blomquist. 

02/26 02:02 PM Share

Quick Takes

1. Anders Åslund of the Peterson Institute has written a terrific piece on the state of the Russian economy, and it's alarming if unsurprising. And so, as Åslund writes, the BRIC countries become the BIC countries. (How often do you get to type that particular variation on the letter A?)

Russia's problem is larger than day-to-day constraints. Its public finances are in good shape; its current account is sound. But during Putin's second term as president, from 2004 through 2008, a substantial renationalization of business took place, spearheaded by his confiscation of the Yukos oil company. Much of Russia's economy is now dominated by monopolistic state corporations such as Gazprom, Russian Railways, Russian Technologies, Transneft, Rosneft and a handful of banks. They are run by Putin confidants who are close friends from his days in the KGB.

When the other shoe drops — that is, when China slams into a wall under the weight of its own form of crony capitalism — the case for the Beijing Consensus, for industrial policy, and for other alternatives to economic regimes built on a firm foundation of grassroots indigenous entrepreneurship — will collapse. But I'm obviously biased, so go read Carl Schramm.

2. Nicole Gelinas demonstrates yet again that she is one of the most insightful of the younger political thinkers. She's written a fantastic indictment of eminent domain abuse in New York city that could unite critics on the left and right.

Ratner didn’t want to do the piecemeal work of cajoling private owners into selling their properties, however. Instead, he appealed to the central-planning instincts of New York’s political class. Use the state’s power to seize the private property around the railyards, he told Governor George Pataki, Mayor Michael Bloomberg, and Brooklyn borough president Marty Markowitz. Transfer me the property, and let me buy the railyards themselves below the market price. I’ll build my development, Atlantic Yards, around a world-class basketball arena.

New York, in short, would give Ratner an unfair advantage, and he would return some of the profits reaped from that advantage by creating the “economic benefits” favored by the planning classes.

3. Not surprisingly, I really liked Yuval's take on the health summit.

4. Check out Kristen Soltis's essay on how Millennials might shift to the political right.

Well first of all, there’s an ideological issue: the Pew average for 2009 showed 29% of young voters identifying as liberal while only 28% identify as conservative. This is in sharp contrast with the rest of the electorate that is far less liberal and more conservative.

But there are also the underlying reasons for that ideological split: young voters are more likely to be accepting of things that create serious hot-button divides in the GOP, like immigration and same-sex marriage. Young voters are also more likely than their older counterparts to say, “government should do more to solve problems (53 percent)” rather than “government is doing too many things better left to businesses and individuals (42 percent).”

The most critical thing that the Republican Party can do is make a compelling, positive case for its values—limited government as a means to personal freedom, low taxes as a means to individual economic opportunity—and present innovative solutions to earn back the trust of a generation that completely abandoned the party in 2008.

I had the pleasure of taking part in a really smart panel on this subject on Wednesday. My sense is that Millennials consider social issues to be less salient in their voting decisions, but that could change. And I think that the right's increasing identification with older Americans is more of a potential long-term problem than it's limited success with non-white voters. We'll see. 

5. Tyler Cowen asks a good question.

6. Andrew Samwick makes a good point.

If the Federal government could administer a problem this intricate, I doubt we would be in the shape we are in.  We are over two years into these discussions of stimulus and bailouts, and it is disappointing to continue to see these gimmicks being discussed. ...

So what do we need that we typically entrust the government to provide?  Infrastructure — repair of the old and expansion of the new.  We need trillions of dollars of it, more than enough spending to replace the reduction in private sector demand that has occurred during this downturn.  Two years, over a trillion dollars of wasted spending, and counting.

This also accords with a framework in which we think of a recession as an opportunity to stock up on valuable public goods at a steep discount. That said, I still think that Alice Rivlin is right to argue that infrastructure spending should be funded on a sustainable basis. Plan a phase-in of a gas tax increase, for example. 

7. Derek Thompson interviews with Rudolph Penner, and Penner makes the case against runaway tax expenditures.

8. I actually think that Okun's Law is more broken than Louis Uchitelle suggests. But Northwestern University economist Robert Gordon is always worth reading.

“Seeing their compensation collapse with profits and the stock market,” Mr. Gordon wrote, managers “cut costs relentlessly.” In doing so, they rely on rising productivity to sustain production even as they usher workers out the door, now that employers are relatively less constrained by the union power that helped both to protect workers in Mr. Okun’s day, and to make employers’ behavior more predictable.

Okun’s Law plainly needs a rewrite, and Mr. Gordon offers a rough draft. He argues, in effect, that if Okun were living today, the job loss factor in his famous formula would be almost twice as great as it was in the 1960s.

“Labor has always been the prime victim of recessions,” Mr. Gordon said, “but now business firms have succeeded in pushing more of the pain onto workers than ever before.”

Another spin on this could be that these productivity gains place us on a trajectory for more robust long-term growth, which will help improve the employment picture in sustainable fashion. And I have to say, would we want managers to not cut costs relentlessly in this environment? The broader consequences of the required cultural shift wouldn't be pretty, I'm guessing.

9. Ruffini has a smart take on Ron Paul's CPAC victory. My strong suspicion is that a softer version of Ron Paul's politics will continue to gain influence on the right, as evidenced by the extraordinary rise of Glenn Beck and the libertarian populism reflected in the Tea Party movement. Whether this worldview will have much purchase in the broader electorate remains to be seen. This could happen if, as Ralph Benko suggests, there were more of an effort to unite populists on the right and left, and if what some see (fairly or unfairly) as the cultural narrowness of the Tea Party movement started to break down. 

10. Josh Levin on Korea's biggest celebrity.

02/26 01:55 PM Share

Pejman Yousefzadeh interviews Tom Campbell

I've been following Tom Campbell since the late 1990s, when he joined Ron Paul in criticizing the U.S.-led NATO intervention in Kosovo, and he's always struck me as a deeply interesting figure. Yousefzadeh of The New Ledger has just published an interview with the newly-minted U.S. Senate candidate, and it's worth reading. Much of the discussion centers on Campbell's views on Israel, which David Frum addresses at length in this post. 

Here's what I found interesting, and disappointing. 

My proposal for dealing with the deficit is set out in an alternative to the President’s budget. It’s on my website, at campbell.org. I cut the President’s deficit more than half: by almost 700 billion dollars.

After perusing the plan, it occurred to me that it was far more ambitious in some respects than the Ryan Roadmap, and not in an entirely good way. Granted, this is an outline of a vision for the budget, and Campbell deserves some credit for being more specific than most Senate candidates, though that isn't saying very much. 

And:

PY: Do you support any kind of a tax increase on the federal level, either via income taxes, corporate taxes, or the implementation of a VAT?

TC: I do not. I believe the federal government has spent far too much. The growth of the federal government is unsustainable, increasing taxes will only continue that growth.

As Keith Hennessey has argued, it makes more sense to talk about spending discipline rather than fiscal discipline, in large part because it is it is spending and not deficits that creates costs and benefits, and spending will, generally speaking, have to be funded by taxes or benefit cuts, now or at some point in the future. Robert Barro made this case very well.  

So naturally I'm sympathetic to Campbell's position. But I think it rests on unrealistic expectations of spending cuts in the short- to medium-term. Campbell was critical of the 2001 Bush tax cut than Senator Dianne Feinstein backed (Campbell is hoping to run against Senator Barbara Boxer, but this is an interesting historical factoid for Californians). There were many good reasons to question its wisdom: for one thing, it was a temporary measure passed through budget reconciliation that introduced new distortions into the tax code. Does Campbell consider the expiration of the Bush tax cuts — the planned expiration — to be a tax increase? I assume he does. Given that spending won't decrease according to his plan, how does he intend to address the debt problem? As Ramesh argues, it doesn't sense for conservatives to negotiate with themselves on policies like a VAT. Like it or not, though, it's an idea that the right has to take seriously.  

Tax increases are bad. Tax gimmicks are worse. Overspending is worse. I disagree with Bruce Bartlett on many things, but his measured praise of the incremental Wyden-Gregg tax proposal strikes me as convincing. 

02/26 01:16 PM Share

Note on Medicare Cuts and SGR

The Center on Budget and Policy Priorities is a vitally important left-of-center organization that produces high-quality research and analysis. But I'd like to point out some potential wrinkles in a report they issued late last year. Like the CBO, much of what CBPP does in the in the realm of what you might call qualitative analysis, or subjective assessments of likely budgetary outcomes. Suffice it to say, we can agree to disagree on some of these questions. As evidence that the health reform proposals before Congress at the time — they continue to evolve, and that's important to keep in mind — the report cites the following examples of cost containment measures. I've added emphasis and parentheticals below. 

In Medicare, the bills would scale back overpayments to private insurers,

I want to tread lightly here, but one issue is whether or not higher payments to Medicare Advantage plans can fairly be characterized as "overpayments." If the increase in individual premiums in the group market under the CBO analysis of the Senate bill is not fairly characterized as an increase because, as the president noted, the new plans offer richer benefits thanks to new minimum federal standards, it's worth noting that Medicare Advantage plans tend to offer richer benefits.

Now, this could be a needless luxury that shouldn't receive public subsidy. But this also means that Medicare Advantage enrollees are less likely to use supplemental Medicaid coverage, which of course has an impact on federal expenditures. As the president noted during the summit, Medicare Advantage is not offered on a means-tested basis, so that's hardly dispositive, though perhaps it shouldn't be dismissed out of hand. Perhaps more importantly, Medicare Advantage enrollees tend not to use so-called private Medigap plans. Why does that matter? Well, Medigap plans insulate Medicare recipients from various cost-sharing measures, and thus tend to encourage more intensive use and less efficient use of Medicare-funded services. Walton Francis has argued that once we factor this in, Medicare Advantage saves the federal government money, though the program could definitely be improved. 

reduce annual payment updates for hospitals and other providers, and, in the House bill, lower prescription drug costs. To reduce costs across the entire health care system, the bills would promote competition among insurers by creating an insurance exchange, cut insurers’ administrative costs,

It's worth asking whether or not the Coburn-Obama notion that carving waste and inefficiency out of the health system is as easy as it sounds. Like Coburn, I tend to think this will require a decentralized approach. But let's think through this. In David Cutler's Your Money or Your Life, he argues, very persuasively, that paying-for-quality across the health system will likely increase administrative expenditures, as it will require close monitoring and a new infrastructure for measuring quality. As Atul Gawande argued, "paying-for-quality" might be interpreted by medical providers as "docking-for-mediocrity." And as Jerome Groopman has brilliantly argued in the New York Review of Books, it's possible that we expect too much from the deployment of comparative effectiveness data, a subject that UVA political scientist Eric Patashnik is exploring at the moment.  

Tangent: One of my favorite journalists, Roger Loewenstein, wrote "The Quality Cure" for the New York Times Magazine in 2005, an intellectual profile of Cutler's work. It is highly instructive, and outlines an approach that while similar in broad outline to that pursued by congressional Democrats, includes a number of important differences. 

As for eliminating waste, fraud, and abuse, a fixation for politicians of all political stripes, this will also tend to put upward pressure on administrative expenditures. Indeed, this is one reason why private plans tend to have higher administrative expenditures than public plans. 

Right now, politicians of both parties are seeking to achieve a number of contradictory goals. We could, through regulating medical loss rations, simply mandate that administrative expenditures be reduced by fiat. But if we intend to achieve various other goals that demand higher administrative expenditures, at least in the short to medium term, something will have to give. 

invest in preventive care,

Investing in preventive care is an excellent idea that might yield systemwide savings over time. Yet many credible sources, including CMS and CBO, have suggested that preventive care will increase costs. Preventive care expands utilization, yet the hope has been that it would lower the risks and costs associated with chronic illness and acute illness down the road. There's a real debate on this issue, but it's certainly not clear that preventive care will necessarily lower costs. Again, that's not a case against it. It is, however, important to keep in mind. 

penalize hospitals with high readmission rates,

It is entirely possible, as the CBPP suggests, that this will not meet serious political resistance that will weaken the proposal over time. 

and establish pilot projects in various areas to help determine the best approaches to controlling health care costs (while giving federal health officials some new authority to implement some changes in Medicare based on the knowledge gained without having to enact new legislation).

This seems like an excellent idea, and it's one that I'd endorse. Of course, this could be used to offset the cost of increasing physician payments. In describing the poorly-designed SGR, the CBPP report doesn't note, in my reading, that SGR adjustment have been paid for through cuts and trims in the past, e.g., the last time SGR adjustment was funded with cuts to Medicare Advantage. Given the high cost of a lasting solution to the so-called "docfix," it might make sense to apply all of the savings generated by the pilot projects, etc., to funding the docfix. Instead, the plan is to have the docfix increase the deficit while we create a large new entitlement. This could be a good idea for all kinds of reasons. But it does raise questions regarding the relationship between our long-term fiscal imbalances and the contours of health reform. 

In addition, the Senate bill would impose an excise tax on high-cost insurance plans to discourage overuse of health care and would create an independent board with the power to implement cost savings in Medicare.

I agree that delaying the excise tax to 2018 and raising the limits, etc., doesn't mean that it won't happen. And I think IMAC is a good idea.

As always, CBPP does a great job. My only concern is with writers and thinkers who — once they get the quick-hit answer they want — don't look under the hood, so to speak. I've been in this category myself more than once, but I'm trying my best. 

02/26 12:42 PM Share

Soner Cagaptay on Turkey

Soner Cagaptay of the Washington Institute for Near East Policy, an organization that often serves as a resource for conservative foreign policy thinkers, has written a very informative essay on the AK Party and the Fethullah Gülen Movement (FGM) that reflects an emerging consensus on the right.

For some time, Michael Rubin of the American Enterprise Institute has been a sharp critic of the AK Party, arguing that the "deep state" dominated by the secularist military elite is being replaced by a soft Islamist "deep state" built by the AK Party elite and FGM, a religious movement that, notwithstanding Cagaptay's "ultraconservative" label, is often characterized as moderate in its character. But of course this is tricky. FGM promotes religious observance among its members, but it also promotes entrepreneurship and something akin to the Christian "prosperity gospel." Politically, the group is staunchly opposed to Islamist extremism, yet it is also very secretive and it seeks to build cadres of entrepreneurs, professionals, and other leading members of society. Basically, secular Turks, on the left and the right (insofar as those categories are useful in the Turkish context), tend to be suspicious of FGM.

Cagaptay suggests that FGM now controls broad swathes of Turkey's security and intelligence apparatus, which would be an extraordinary development and strong evidence for the idea of a new "deep state." Hence Cagaptay's argument that FGM is essentially targeting its enemies in the military and also in civil society, most prominently by aggressively pursuing the Ergenekon investigation into what the AKP/FGM camp claims was a sprawling conspiracy to overthrow the elected government. 

Of course, coup allegations are serious matters that warrant immediate action. However, these allegations are part of the Ergenekon case — a convoluted investigation that so far has produced nothing in the last three years but a record-setting 5,800-page indictment, hundreds of early-morning house raids, and the detention of many prominent Turks, including university presidents and prominent educators such as Kemal Guruz and Mehmet Haberal. The only quality that ties together all of those arrested is their opposition to the AKP government and the Gülen movement. Zekeriya Oz, the chief prosecutor leading the Ergenekon case, and Ramazan Akyurek, the head of the police's domestic intelligence branch, as well as other powerful people in the police, are thought by some to be Gülen sympathizers.

But Cagaptay's description of a little newspaper called Taraf gave me pause:

On Feb. 22, 49 officers — including active-duty generals, admirals, and former commanders of the Turkish navy and air force — were arrested on allegations of plotting a coup against the government. Specifically, the officers were charged with authoring a 5,000-page memo that was later published in Taraf, a paper whose editorial policy is singularly dedicated to bashing the military.

Suzy Hansen, an independent-minded journalist based in Istanbul, offered a different and nuanced perspective on Taraf.

And indeed, people seem to have a hard time classifying Taraf – the word “leftist” in Turkey has been subjected to a number of contradictory interpretations. To Berktay, who is often described as the first Turkish historian to recognise the Armenian genocide, there is a common thread that unites those who support the EU as a way of assuring support for human rights, who support the rights of the Kurds, the right to wear headscarves, and the right to criticise the army for its political interventions. “The neo-nationalists in this country have created their own gravediggers,” Berktay said. And Taraf, he continued, represents “a new morality.”

Among other things, Taraf tends to favor a neoliberal economic policy. I'm just not sure things are so black and white. To be sure, I don't have Cagaptay's detailed understanding of the Turkish political scene — not by a longshot, as I've never even been to the country — and the article includes a number of persuasive arguments. What we can say is that the enthusiasm that many moderates and conservatives in the West had about the rise of AKP, due to its mix of pro-market policies, its apparent embrace of EU human rights norms, and its embrace of moderate Islam, was overblown. Trust but verify. 

02/26 11:32 AM Share

Wednesday, February 24, 2010

The Affluence Trap

I have an idea for a National Review essay.

Basically, I think we're in an affluence trap. We're rich enough to have a lot to lose, but not rich enough to afford the growth-dampening policies we're pursuing. 

This is part of what I was trying to get at in my last Forbes.com column, but there's more to the phenomenon. To requote:

During the sharp recession of the early 1980s Ronald Reagan and Paul Volcker subjected American families to extreme economic pain, and hundreds of thousands of industrial jobs evaporated and never returned. Had Reagan and Volcker decided to do everything in their power to preserve the economy of the late 1970s in amber, the world would look very different today. To put it bluntly, there is good reason to believe that the United States would be an economic backwater, and that the most innovative firms would have taken root elsewhere. Many say that Barack Obama, like Reagan, will suffer a serious political reversal in the midterm elections if high rates of unemployment persist, as seems likely. This comparison belies an important distinction. Reagan and Volcker made the difficult decision to allow painful restructuring. The Obama administration has, in contrast, tried to cash-for-clunker its way over the economic abyss instead of staring into it.

The truth is that America has changed over the intervening years. In the 1980s a large number of Americans still remembered the extreme deprivation that defined the interwar years. Now, in contrast, few American adults have previously seen real economic pain. One can hardly blame the president for this broader cultural shift. He can be blamed, however, for failing to understand how the restructuring of that earlier era really worked.

A lot of this dynamic is psychological. What is your context for understanding economic pain? Friends of mine and colleagues often suggest that people on the right are indifferent to the suffering of jobless Americans. I don't think that's fair. It is true, however, that both right-wing libertarians and left-wing utilitarians like Peter Singer tend to be more mindful of how conditions among the unemployed in the U.S. compare to conditions that prevail in Haiti, Zambia, Laos, and other deeply poor countries with weak states and civil societies. Part of the reason these societies are so poor, or so the argument goes, is that they suffer under predatory elites that deploy many justifications for predation. In Brazil, unionized public sector workers are a small minority that receives very high wages relative to the private sector median, which isn't always unreasonable given the different mix of skills and services. But the case for expansion of the public sector and public sector wage increases is often made in social justice terms, despite the obvious wrinkle that these measures are, in this context, inequality-exacerbating. And so some people like me worry about self-serving predatory elites in the U.S. context emerging and deploying attractive political rhetoric — whether "liberal" or "conservative" to advance their agendas.

My take is that upper-middle-class credentialed professionals face a tough future economic landscape. Not as tough as blue-collar workers, perhaps, but this very influential group actually does have a class interest (to put it crudely) in preventing a broad restructuring of the U.S. economy along more decentralized, competitive lines that would prove growth-enhancing but highly disruptive. Guild privileges start looking more and more absurd in a world shaped by the offshoring of tradable services. The power of the state needs to be deployed to preserve guild privileges, or some semblance of them. 

And as for working and middle class Americans, they face a similar dilemma. A mix of Baumol's cost disease, expansion of the tradable sector, etc., is putting heavy pressure on traditional modes of work. That said, despite what is often described as wage stagnation (Scott Winship has usefully complicated this picture), there has been a robust increase in the quantity and quality of goods thanks to the advent of cheap Chinese manufactured goods, etc. So the bulk of the population also feels very wary of serious departures from the status quo — this undergirded the opposition to both Social Security reform and health reform. 

Allowing real liquidation seems to me like an essential first step to real reconstruction. Unfortunately, it might be politically impossible.

I've used a lot of shorthand — on a train. Hope to elaborate. 

02/24 11:19 AM Share

Tuesday, February 23, 2010

Howard Gleckman is Great

One of my favorite bloggers at the moment is Howard Gleckman of the Tax Policy Center at the Urban Institute. I'm not sure Gleckman considers himself a liberal or a centrist, but he's fantastic, fair-minded, and very, very smart. In a post on the dueling job tax credit proposals, Gleckman concludes that the Obama administration plan is better than the Schumer-Hatch alternative. After finding Schumer-Hatch intriguing, I think he's right that the White House has a better plan — but I'm even more convinced that the jobs tax credit idea, in any politically imaginable form, is a bad one.

Another Gleckman post points me to a Ryan response to critics who've suggested that his revenue projections are too rosy. My respect for Gleckman and Ryan keeps growing. The last section, on the resemblance between the Ryan tax plan and Fred Thompson's plan from his short-lived 2008 presidential campaign, is particularly eye-opening. 

02/23 12:39 AM Share

Sticking Up for the IRS

After a horrible terrorist attack, the daughter of the terrorist defended her father's actions in a moment of grief and panic. Later, after reflecting on her remarks, she retracted her statement. TPMMuckraker reported this story earlier today. I'm sorry to see that they haven't adjusted their headline to reflect the update. I can't imagine how I'd feel if someone I care about very deeply committed a heinous crime, and I can't imagine what I'd say under the circumstances. 

Though I'll be the first to condemn any terrorist attack, an attack on the IRS hits close to home. This might sound a bit sappy, but here goes: My father is an accountant and he taught me to have a tremendous respect for the IRS. As you might know, lots of people try to pressure their accountants into cutting corners on their taxes, and my father can't stand it. He doesn't think that the IRS is perfect, but he's a firm believer in the notion that paying taxes is a central obligation for those of us lucky enough to live under one of the world's freer, more secure countries. I definitely think that taxes should be low. But I also think that the IRS should get the resources it needs to do its job well. I also think that we need to scale back the insane administrative complexity that is imposed on the IRS as well as on taxpayers. Blaming IRS employees for decisions made by Congress is crazy. People tend to hate taxes and love spending. Well, if you love your Joint Strike Fighter or your Interstate Highway System or your Social Security, you should learn to at least begrudgingly appreciate the women and men who do a thankless and often very difficult job at an underresourced agency that is the subject of near-constant political attacks. And I say this as the kind of person who thinks that plenty of other federal agencies need to either shrink or go out of business. 

02/23 12:25 AM Share

Monday, February 22, 2010

Conservatism By Any Other Name

After reading the aforementioned post by Bramwell, I found another on a related theme. 

That the movement became known as “conservative” at all is an historical accident, no less than that the peoples Christopher Columbus encountered in North America became known as “Indians.”  Early movement texts such as God and Man at Yale dubbed their ideology not “conservatism” but “individualism.”  Only after Russell Kirk, who called himself a conservative but was never much troubled by inconsistency, chose to position himself as a movement godfather did “conservative” become the epithet of choice.  Despite its name, the movement has never had any necessary connection to the political philosophy of Edmund Burke.

"Conservatism" is, to put it cynically, a powerful brand, and it's hard to see right-of-center Americans abandoning it as at least some left-of-center activists and thinkers have jettisoned not-so-popular "liberalism" in favor of "progressivism," to connect with another usable past. But what if conservatives did decide to take on another label?

One possibility: we could call left-of-center Americans social democrats and right-of-center Americans liberals, or, to use an old Cato Institute term, "market liberals." The advantage is that it reinforces the idea of a continuous strain of Whiggish thought that extends from the old English liberalism to Tocqueville and Hayek. Perhaps the American right could embrace Buckley's "individualism," though it misses an important aspect of the worldview of the pro-market right. I like Arnold Kling's  "civil societarian," though I don't think it's likely to catch on. 

In a neat post, Kling writes:

The traditional libertarian solution for corrupt government is Constitutional restrictions on government activity. Smaller government means smaller scope for corruption.

I am not sure I believe that the traditional libertarian solution works. I suspect that what really makes for limited government is the opportunity for exit. In the early 1800's, it was possible for an American to pick up and move to a remote area where government had very little impact. That possibility tended to limit the power of the central government.

And so:

I think we need to boost the organizations of civil society that compete with government: private schools, private firms, charities, neighborhood associations, and groups that supply public goods using the "open source" model.

This jibes very nicely with the Cameron vision of a post-bureaucratic age, which we discussed below. The politics of exit doesn't have a good name — think of derisive terms like white flight, sprawl, etc., for the not unblemished but in many respects not-so-bad phenomenon of Americans settling the crabgrass frontier  — but it's what the founding of the United States was all about. (And, to be fair to the anti-exit crowd, the founding of the Confederacy as well.) 

Post-bureaucratism, alas, is rather ungainly. I think of my conservatism as a pragmatic classical liberalism that builds in a basic but not limitless respect for the settled cultural and institutional practices of a basically stable and well-governed society. 

02/22 11:50 PM Share

Austin Bramwell on the Mount Vernon Statement

Bramwell has written a smart critical take on the Mount Vernon Statement.

The unacknowledged though painfully obvious assumption of The Mount Vernon Statement is that the values we all share necessarily translate into the conservative movement’s policy agenda, as if no additional intellectual work were needed.  (You’re not against “true” religious liberty are you?) Alas, however, the “the priceless principle of ordered liberty articulated in the Declaration of Independence and the Constitution” does not imply any particular agenda, at least not in any straightforward way.  That’s why we still have political debate.

Contrast the Sharon Statement, which 50 years ago launched Young Americans for Freedom and to which The Mount Vernon Statement pays conspicuous homage.  Disagree with the Sharon Statement if you will, at least it shows evidence of underlying arguments.  When government, it says, “takes from one man to bestow on another, it diminishes the incentive of the first, the integrity of the second, and the moral autonomy of both.”  This is a wonderfully concise statement of the moral and economic case for the free market, made in the language of both economics and Lockean rights theory.  That case may or may or not be compelling, but at least it is recognizable.  The authors of the Sharon Statement were not content to appeal to some laudable but empty notion as “economic opportunity.”  On the contrary, they felt compelled to define what they believed.

To be honest, I hadn't really considered the MVS from this perspective (is it actually saying anything worth saying, or is it tiresome and tendentious?), and I think that Bramwell makes some excellent points.

02/22 11:41 PM Share

Nick Sarillo's Pizza-Making Philosophy

Bo Burlingham of Inc. Magazine has written a tremendous article on entrepreneur Nick Sarillo, and it reminds me of some of the ideas undergirding the post-bureaucratic age. 

Sarillo has built his company's culture by using a form of management best characterized as "trust and track." It involves educating employees about what it takes for the company to be successful, then trusting them to act accordingly. The alternative is command and control, wherein success is the boss's responsibility and employees do what the boss says. Think of the Navy SEALs versus the National Guard. Both approaches can work, but they produce very different cultures. If done right, moreover, trust and track can allow a company to be nimble, flexible, and productive enough to perform at the highest level through good economies and bad.

And there's a story behind Sarillo's thinking.

Sarillo is the first to admit that he is an unlikely spokesman for the benefits of a strong company culture. When he launched Nick's, he had never heard of company culture. A former construction worker, he got into the business, he says, because he had three young children and there was no restaurant in the area at which families could get together, kids could play, and parents could relax and have fun. He didn't have a management philosophy — at least not one he could articulate. He did believe, however, that he had a choice about how the business would be run. "Everyone I knew who'd had a business told me, 'No one cares like an owner. No one works as hard as an owner,' " Sarillo says. "They said, 'Watch out. People are going to steal.' I set out to prove them wrong. I wanted a place where everyone worked hard and cared a lot; where people enjoyed coming to work, felt good afterward, and weren't motivated to steal. If I couldn't have that kind of business, I didn't want to have a business."

Read this article. It's people like Nick Sarillo who change the world, not Scott Browns or Harry Reids. 

My favorite part of this story is below — but read the whole thing and buy the magazine if you get a chance. 

The system is an important mechanism for creating a trust-and-track culture and for breaking the habits of command and control. "Managers trained in command and control think it's their responsibility to tell people what to do," Sarillo says. "They like having that power. It gives them their sense of self-worth. But when you manage that way, people see it, and they start waiting for you to tell them what to do. You wind up with too much on your plate, and things fall through the cracks. It's not efficient or effective. We want all the team members to feel responsible for the company's success."

Some people would no doubt find such a regime unbearable, but Nick's employees appear to thrive under it, especially the high school students. "Parents tell me, 'I don't know what you did to my kid, but whatever it is, keep doing it,' " says Sarillo.

02/22 07:53 PM Share

Why Utah Is My Favorite State

As a New York native, it pains me to say this, but Utah is pretty awesome. From the four-day, 40-hour workweek to smart health reforms, the state is a trailblazer. And now two Utah state legislators, Michael Waddoups and David Clark, have advanced an extremely exciting new policy idea. 

Let's select a few programs — say, education, transportation and Medicaid — that are managed mostly by Utah's government, but with significant federal dollars and a plethora of onerous federal interventions and regulations.

Let Utah take over these programs entirely. But let us keep in our state the portion of federal taxes Utah residents pay for these programs. The amount would not be difficult to determine. Rather than send this money through the federal bureaucracy, we would retain it and would take full responsibility for education, transportation and Medicaid — minus all federal oversight and regulation.

We recognize that, financially, this is not the best deal for Utah. We would not receive our share of debt revenue used in these programs, and Utah taxpayers would continue to pay our share of the interest on the national debt used for these programs in other states.

Even so, we believe we can operate these programs more efficiently and productively without federal strings and mandates.

I tend to think that we need to federalize Medicaid while downloading education, transportation, and some other transfer programs to the states, but this is another way to align incentives and allow for robust policy experimentation.

Some New Yorkers fear that if we allow for more federalism in social welfare, we'll see a beggar-thy-neighbor dynamic in which more generous states will become "welfare magnets" for poor people from other, less generous states. I haven't seen a lot of good empirical evidence on this front, but my sense is that attracting domestic migrants is pretty much always a good thing. Moreover, I think that poor people tend to move in search of job opportunities rather than benefits. If the U.S. moved in the direction of more competitive federalism, I'm confident that states like New York, New Jersey, and Pennsylvania would flourish — if we did indeed federalize Medicaid, some of these states could sharply reduce spending and become low-tax havens while others will try to offer a mix of high taxes and lavishly-funded, high-quality public services. 

02/22 07:45 PM Share

A Thought on Stimulus

Here is a simple framework: it's impossible to determine a true output gap because the output produced in 2008 might not make sense in 2010, e.g., homes and automobiles that had willing buyers then might not have willing buyers now. The idea of an output gap is a useful abstraction that needs to be taken with a grain of salt. 

One way of thinking about stimulus spending is that some worthwhile activities — building necessary roads, military equipment — are "on sale" during a downturn, and so it makes sense of government to buy in bulk. Of course, this raises difficult questions: how many of these activities are truly worthwhile, etc.? Moreover, new spending programs, including infrastructure spending programs, create new obligations that will endure beyond the downturn. This is why Rivlin and others called for a separate public investment bill that would include long-term revenue enhancers, which could kick in once the economy recovers. 

The Obama administration has noted that it cut taxes in 2009. This is true. It also increased spending. When John Cochrane and Brian Riedl note that this spending will eventually have to be paid for in the form of increased taxes or reduced transfer payments, they're making an important point. Granted, it is possible — let's say it's likely — that this is not a perfectly zero-sum arrangement. But I wonder if we're seeing some wishful thinking on this point, not unlike the wishful thinking advanced by some supply-siders. 

02/22 07:32 PM Share

A Controversial New Theory Regarding Sarah Palin

The blog Galt Gone Wild suggests that Sarah Palin is my girlfriend. The truth is that I can't justify the commute from New York city to Wasilla, an all-day ordeal by airplane, SUV, and, when the roads prove impassable, gas-guzzling snowmobile. The carbon impact would be simply unconscionable. Find me an aerodynamic hang glider that could make the trip in style and we'll talk.

Then, of course, there is my respect for the sanctity of marriage, and my fear of death. Despite my modest size and citified bearing, I like to think that I could hold my own in a fair fight. But could I take on an enraged Todd Palin and a pair of hypnotized grizzlies with a taste for human flesh? I'm not so sure.

My perhaps irrational fear of grizzlies, which I share with Stephen Colbert, is the central reason why I'm such a firm defender of the right to keep and bear arms. I'm also a staunch defender of the right to bare arms and many other lesser-known constitutional rights, like the right to party.

02/22 07:18 PM Share

The Case for Liquidation

This week, my Forbes.com column picks up on some of the themes I've raised here at The Agenda. 

During the sharp recession of the early 1980s Ronald Reagan and Paul Volcker subjected American families to extreme economic pain, and hundreds of thousands of industrial jobs evaporated and never returned. Had Reagan and Volcker decided to do everything in their power to preserve the economy of the late 1970s in amber, the world would look very different today. To put it bluntly, there is good reason to believe that the United States would be an economic backwater, and that the world's most innovative firms would have taken root elsewhere. Many say that Barack Obama, like Reagan, will suffer a serious political reversal in the midterm elections if high rates of unemployment persist, as seems likely. This comparison belies an important distinction. Reagan and Volcker made the difficult decision to allow painful restructuring. The Obama administration has, in contrast, tried to cash-for-clunker its way over the economic abyss instead of staring into it.

The truth is that America has changed over the intervening years. In the 1980s a large number of Americans still remembered the extreme deprivation that defined the interwar years. Now, in contrast, few American adults have previously seen real economic pain. One can hardly blame the president for this broader cultural shift. He can be blamed, however, for failing to understand how the restructuring of that earlier era really worked.

I then go on to describe President Obama's interpretation of the "change in corporate culture" in the 1980s, and how it informs his efforts to transform the U.S. economy. 

02/22 07:02 PM Share

Hennessey on GOP Medicare Strategy

Smart, subtle, interesting take from Hennessey:

Last year Congressional Republicans discovered that policy weaknesses in ObamaCare created political vulnerabilities.  One of their criticisms was #2 above, that the pending legislation would slow the growth of Medicare spending but also create a new entitlement program.

Most Congressional Republicans were careful in their language.  They said they opposed “cutting Medicare to pay for a new entitlement.”  Even in being responsible, they were using the intentionally inflammatory word “cut.”  They were turning the seniors card back against Democrats.  This was savvy politics but damaging to efforts to slow the growth of Medicare spending for deficit reduction.  As a policy matter it helped kill a bill that was both fiscally irresponsible and terrible health policy, but at the cost of validating the word “cut” and the senior scare tactic.

Other Congressional Republicans short-handed their criticism to “I oppose this bill, which cuts Medicare by $500 billion.”  This is much harder to justify, unless you go with an ends-justify-the-means argument. [Emphasis added.]

Read the whole thing. My sense is that this tactic will prove very damaging over the long-term, yet I also think that the hydraulic nature of politics — arguments that are going to resonate with a broad, winnable swathe of the public will be used by political entrepreneurs in a competitive electoral system — provides useful context. 

02/22 05:51 PM Share

Frist on Health Reform

Bill Frist calls for sweeping Medicare reform:

Medicare and private insurance companies should reimburse providers not for each discrete service they provide but for managing a patient’s condition over an entire episode of care. In my own field, transplantation, for example, a payer should not separately reimburse 56 different nurses, doctors, pharmacies, imaging centers and hospitals. Instead, it should pay a heart transplant team a fixed sum (adjusted for risk) based on the diagnosis of “heart failure requiring transplantation.” The disbursement of that payment would then be made at the local level, where value can be most accurately determined, and waste most likely eliminated.

Ezra Klein suggests that "bundling" is in the bill, and he's right, in a sense. The bill does try to nudge the health system in this direction through the use of various pilot programs. 

Bill Frist wants Medicare to "reimburse providers not for each discrete service they provide but for managing a patient’s condition over an entire episode of care." This is called "bundling," and it's one of the central Medicare reforms in the bill.

But as Ezra knows, the bill does not actually do away with Medicare FFS wholesale. Frist is advocating something more far-reaching. 

One thing I find a bit vague is the following: "The disbursement of that payment would then be made at the local level, where value can be most accurately determined, and waste most likely eliminated."

Would this entail the creation of new local bureaucracies? Roger Feldman outlines another approach — the medical indemnity approach — in How to Fix Medicare: Let's Pay Patients, Not Physicians.

Under Feldman's "medical indemnity" proposal, Medicare would pay each patient a fixed amount of money, reserving larger subsidies for sicker people. Patients, in turn, would select their own medical services from providers who would set their own competitive rates. A medical indemnity system would do away with the distortion in patients' incentives wrought by conventional Medicare coverage. Given a fixed amount of money to spend on medical care, patients would have strong incentives to shop for the combination of services, providers, and prices that most closely meet their needs.

I can't speak to how well this approach would work in practice, but it's intriguing.

02/22 05:36 PM Share

GOP = AARP?

There is a real danger that the GOP will become "the party of AARP."

This means that while the energy of activists may be pushing the Republicans to the right on size-of-government issues, the concerns of their central constituency could end up pulling them inexorably leftward on entitlements. (There’s a reason that even South Carolina’s Jim DeMint, in the midst of a CPAC stemwinder, paused to allow that one of the things government “has” to do is “keep our promises to our seniors.”)

This wouldn’t be a terrible things if Social Security and (especially) Medicare accounted for, say, ten percent of the federal budget. But where the size of government — and if we ever want to cut the deficit, the burden of taxation — is concerned, they’ll be the whole ballgame soon enough. And if the Republican Party depends too heavily on over-65 voters for its political viability, we could easily end up with a straightforwardly big-government party in the Democrats, and a G.O.P. that wins election by being “small government” on the small stuff (earmarks, etc.) while refusing to even consider entitlement reform. That’s a recipe for one of two things: Either the highest taxes in American history and a federal government that climbs inexorably toward 30 percent of G.D.P., or a Greece or California-style disaster.

This is the main reason why I've argued that a premature Republican comeback might actually be a bad thing for conservatives — if the party wins a war of inches by outpromising Democrats on Medicare, it'll prove a Pyrrhic victory. 

One irony is that Republicans are in a sense doing what Ross and I recommended in Grand New Party: we wanted the party to pursue policies that reflected the economic interests of their working and middle class base. Rather than a program centered on reforms designed to make the welfare state transparent and sustainable, this has meant something very different in practice.

02/22 05:24 PM Share

I'm a Thielian

I don't agree with everything Peter Thiel has to say. But I think he gets a lot of the big things right. Thanks to Gary Wolf of Wired for conducting the interview, which you should read in its entirety. I've added emphasis and comments below.

Wired: You say that we have big problems in the US economy and that investors have unrealistic expectations. We’ve certainly been through a major crisis, but over the long term the stock market seems to grow fairly reliably.

Thiel: People take it for granted that their retirement funds can earn 8.5 percent a year. That’s what their financial planners tell them. And sure, you look back over the past 100 years, the stock market has generally gone up 6 to 8 percent a year. But in a larger historical perspective, that kind of growth is exceptional. If you had done the equivalent of investing in the stock market from, say, 1000 to 1100 AD, you would not have made 8 percent a year. During the fall of the Roman Empire, you’d have been lucky to get zero. We’ve been living in a unique period of accelerating technological progress. We’ve gone from horses to cars to planes to rockets to computers to the Internet in a very short time. It’s not automatic that that continues.

On the question of whether we're living through an innovation slowdown — I think the answer is probably yes — check out Brad Plumer's fascinating essay on whether we need technological breakthroughs to address large-scale environmental challenges.

In 2005, Jonathan Huebner, a physicist working at Pentagon's Naval Air Warfare Center in China Lake, California, published a controversial paper looking at the rate of U.S. patents awarded over time. He argued that the rate of technological innovation has actually been slowing since around 1873—the age of Edison—and that the world could be entering a new Dark Age of innovation by the 2020s. 

Back to the interview.

Wired: What happens if we don’t get the growth everyone expects?

Thiel: If it doesn’t happen, people will go bankrupt in retirement. There are systemic consequences, too. If we don’t have enough growth, we will see a powerful shift away from capitalism. There are good things and bad things about capitalism, but inequality becomes completely intolerable to society when everything’s static.

One could argue that this is already happening. This is part of the reason I agree with Jeffrey Sachs and Carmen Reinhart and Kenneth Rogoff on the dangers posed by extremely large budget deficits and mounting public debt: over the long-term, a heavy debt burden will stymie growth, thus exacerbating the serious social problems that derive from joblessness.

Wired: You’re worried about economic stagnation, but you’re optimistic about artificial intelligence and space?

Thiel: I think we have to make those things happen. We should be looking at technologies that might lead to really big breakthroughs. As a starting point, let’s just go back to the science fiction novels of the 1950s and ’60s and try to run the past 40 years again. 

This sounds right to me. 

02/22 05:14 PM Share

Smaller State, Bigger Citizens

The Economist has a wonderful dispatch on how the Conservative Party intends to foster a post-bureaucratic transformation of the state. 

In a speech broadcast to the rarefied TED conference in California on February 10th (a kind of Bilderberg summit for the worlds of technology, entertainment and design), he announced that all government contracts worth more than £25,000 ($39,200) would be published online. Businesses could pore over them item-by-item in an effort to undercut established contractors. A watchful public could prompt ministers and civil servants to drive a harder bargain with firms.

The idea is that the public, and not the state, will create various tools for monitoring this activity. It's worth noting that competing providers will keep a particularly watchful eye on government contracts.

Then, on February 15th, came the elucidation of Mr Cameron’s three-year-old plan for public-sector organisations to be run as co-operatives. Nurses could manage their clinics, job advisers take over their employment offices and teachers run their schools. The state would fund them and ensure compliance with basic standards. But the freedom to innovate and set management structures would belong to the workers, as would any surplus income they generated.

The co-op concept has the potential to dramatically expand the scope of private provision of public services. We'll see.

The Cameron Conservatives have flipped the idea that they care only about slashing the state — they argue that they want a small state and bigger citizens, which is to say a larger, richer, denser network of voluntary associations that can meet social needs at a more local and human scale. It sounds warm and fuzzy. But it also resonates with core principles of classical liberalism and the best kind of conservatism.  

02/22 04:59 PM Share

The Bottom-Up Route to Free Culture

I'm a supporter of net neutrality. But I also think that federal net neutrality regulations are a bad idea. Tim Lee persuaded me that consumers can do a better job of enforcing the net neutrality norm than regulators. (In my ideal world, Tim Lee would have a column in a major newspaper or magazine. No one is better at explaining complex issues in a cant-free manner.) 

So there are two general ways that civil society can help to preserve network neutrality. One is user education. Educated users are much harder to coerce than ignorant ones. Users who don’t understand the value of open networks are more likely to allow themselves to be herded into walled gardens. Educated users are likely to be much more resistant to such efforts.

Second, we can promote the development of open, decentralized software platforms. Monolithic, homogenous online services are relatively easy to filter or block. In contrast, open platforms—and especially free software—supports the development of a “long tail” of software and websites that’s much harder for a network owner to understand and control.

The great thing about these trends is that they’re likely to happen with or without an organized, top-down effort. Open software platforms have been gaining market share for decades simply because they work better.

This week, Stephan Shakespeare of the Network for a Post-Bureaucratic Age is kicking off a series of events designed to apply the lessons of open, decentralized software platforms to other aspects of public policy. 

02/22 04:57 PM Share

Shrinking the Presidency, or Ezra's First Column

At least a decade ago, I read an essay in TNR by Michael Lind attacking the imperial presidency, and calling for a restoration of the framers' vision of the president as a nonpartisan chief magistrate. I found it very convincing. One of the reasons we don't directly elect the president by popular vote in our constitutional system is that it would give disturb the delicate balance between the branches. As we've moved in the direction of a more plebiscitary democracy, that balance has steadily come undone. 

This came to mind as I read Ezra Klein's excellent first column for Newsweek. Unlike most columns, Ezra actually introduces new information and a new way of thinking about gridlock. He suggests that presidents should do their best to stay out of the legislative fray.

According to data gathered by the political scientist Frances Lee, when the president—not this president in particular but any president—decides to take a position on an issue, the chances of a party-line vote skyrocket. If we're talking about health, labor, defense, or immigration policy, the chances that Democrats and Republicans will stay in their separate corners increase by 20 to 30 percent. On foreign aid and international affairs, the likelihood of a party-line vote increases by more than 65 percent.

Ezra then advances a cynical but not implausible interpretation of why this might be true.

The president is the leader of his party, and the other party can't win unless the public sours on the president. That's not going to happen if the opposition routinely hands him accomplishments. To get an idea of the cost of cooperation, imagine that the guy in the cubicle next to you is not only competing with you for a promotion but might also lose his job if the boss likes your work. Think he's going to sing your praises at the next staff meeting?

With this dynamic in mind, Ezra correctly suggests that the bipartisan health summit will most likely prove a dud. (Keith Hennessey has written a very smart post gaming the political possibilities for the president and for congressional Republicans.)

The more that health-care reform is associated with the president, the less likely it is that any Republican will support it. Doing so would be tantamount to throwing the next election.

It's at this point that Ezra says something I don't entirely agree with:

This leaves us with two choices going forward: either we're going to have to insist that the polarizing president retreats to a more modest role in the legislative process—unlikely, given our evident preference for presidential leadership and our distaste for Congress—or we're going to have to change the process so that the majority can govern successfully even when it's not in the minority's interest to let them do so.

Shouldn't we think seriously about rethinking our preference for presidential leadership in domestic policy? I understand the case for a strong executive in foreign policy. In domestic policy, I wonder if we'd be better served by a president who plays a more hands-off role.

02/22 04:36 PM Share

Two Perspectives on Carbon Pricing

Robert Frank wrote a column for the NYT this weekend on climate change that states the following:

According to estimates by the Intergovernmental Panel on Climate Change, a tax of $80 a metric ton on carbon dioxide — or a cap-and-trade system with similar charges — would stabilize temperatures by midcentury.

This figure was determined, however, before the arrival of more pessimistic estimates on the pace of global warming. So let’s assume a tax of $300 a ton, just to be safe.

After thinking through the implications of such a tax, he writes:

In short, the cost of preventing catastrophic climate change is astonishingly small, and it involves just a few simple changes in behavior.

Let's assume that Frank is correct in every aspect of his analysis. Brad Plumer of TNR, a strong advocate of pricing carbon, offers the following characterization of the House cap-and-trade bill:

The House climate bill, after all, was written by Democrats, since most Republicans are too busy cackling about how global warming is all a hoax. And a lot of Democrats represent coal interests, while a lot of Republicans represent oil interests. Plus the American Petroleum Institute has been working overtime to thwart any and all climate legislation, while the Edison Electric Institute (which represents utilities) has decided to help craft a bill. So the House cap-and-trade program ended up being designed in a way that gave more leeway to coal-fired power plants. And, since there's still an overall cap on emissions, someone else has to pick up the slack—namely, oil producers and refiners. ...

And you could even make an argument that it makes more sense to crack down harder on coal, instead—coal emissions are a larger threat to the climate, and it could prove easier in the short term to revamp our electricity system than our transportation system.

Leaving aside the question of whether we'd be better off if Republican legislators backed cap-and-trade in an effort to secure more rents (or should I say even more rents for oil producers and refiners), let's just observe that the House cap-and-trade bill bears no resemblance to the clean carbon tax or auction-based cap-and-trade system that Frank presumably has in mind. Rather, it privileges the owners and operators of coal-fired plants and the clean coal lobby at the expense of oil producers and refiners.

This actually has important implications for straw-mannery. Because there is an actual House cap-and-trade bill, I think it makes sense to criticize it. It could become legislation. I could spend my time criticizing Frank's ideal proposal, and I have criticized things like it. But I'd actually object far less strenuously to a clean carbon tax than to something like the House cap-and-trade bill. 

Wait a second! Don't I want people to engage with the best, most serious arguments of the other side! Actually, I want people to engage with actual legislative proposals that have a chance of passing. So when Jim DeMint's tax plan starts getting near 60 votes, I will write a thumbsucker blog post criticizing it. Until then, I'll focus on bills that might actually pass. 

02/22 04:14 PM Share

Oy Vey, More on Straw Men

From Wikipedia:

A straw man argument is an informal fallacy based on misrepresentation of an opponent's position.^[1] To "attack a straw man" is to create the illusion of having refuted a proposition by substituting a superficially similar proposition (the "straw man"), and refuting it, without ever having actually refuted the original position.

The Leonhardt column began by talking about Scott Brown. It then pivoted to ...

The case against the stimulus revolves around the idea that the economy would be no worse off without it. As a Wall Street Journal opinion piece put it last year, “The resilience of the private sector following the fall 2008 panic — not the fiscal stimulus program — deserves the lion’s share of the credit for the impressive growth improvement.” In a touch of unintended irony, two of article’s three authors were listed as working at a research institution named for Herbert Hoover.

Had Leonhardt explained that he intended to narrowly challenge the GOP talking points that Chait cites (e.g., "The case congressional Republicans make against the stimulus ..."), he'd have a strong point. Instead, he suggests that the stimulus, minor caveats aside, should be understood as a big success. I argue that there are many reasons it should not be seen as a big success, and that two of the scholars he cited, Carmen Reinhart and Kenneth Rogoff, have offered a good reason to be very skeptical of whether the stimulus was well-designed.

Jonathan Chait writes the following:

I also think it would be extremely useful if those conservatives who understand how ridiculous these ideas are would use their position of influence within the movement to refute these ridiculous ideas rather than deny their existence. I understand the difficulty of Reihan's position and why he has very good reasons not to do so. But we should be clear that it's not David Leonhardt or me that's allowing his writing to be driven by partisan loyalties.

I think that Chait misunderstands my objectives. When Republicans are in power, I criticize Republicans. When Democrats are in power, I criticize Democrats. Had Chait excerpted different parts of my post, that point would come across (I stated this explicitly), but we approach these arguments in a different way, and I respect that. It's not at all clear to me that Chait understands the difficulty of my position: I don't think my position is very difficult at all. Criticizing John Boehner is, in my view, frankly less important than criticizing Nancy Pelosi when Nancy Pelosi commands a large congressional majority. That said, I've also written several columns for The Daily Beast recommending that the White House and congressional Democrats pursue a more partisan legislative strategy. The DSCC issued a press release citing a Forbes.com column I wrote on Charlie Crist. I've praised Greg Anrig's call for federalizing Medicaid. I've favorably cited arguments made by Jane Hamsher and Chris Hayes. I've criticized Republicans for not backing the excise tax. I've advocated a VAT to help balance the budget. I've ... you get the picture. 

Chait very generously characterizes me as smart, which is why he doesn't understand why I can't grasp his argument. If being smart means understanding that running a 10 percent deficit is the best of various bad options or that Alice Rivlin is wrongheaded for believing that the stimulus package was poorly designed or that the case against the stimulus bill and the case advanced by congressional Republicans against the stimulus bill are identical, I obviously don't deserve to be called smart. And I'm okay with that! I almost flunked out of high school, and as far as I'm concerned there are more important things in life than being smart, like being judicious, open-minded, and independent. 

02/22 03:59 PM Share

Mother Jones on the Oath Keepers

Justine Sharrock has written a slightly puzzling profile of a movement of civil libertarian law enforcement officers who've pledged to uphold the Constitution and resist illegal and unconstitutional orders from their superiors:

He laid out 10 orders an Oath Keeper should not obey, including conducting warrantless searches, holding American citizens as enemy combatants or subjecting them to military tribunals (a true Oath Keeper would have refused to hold José Padilla in a military brig), imposing martial law, blockading US cities, forcing citizens into detention camps ("tyrannical governments eventually and invariably put people in camps"), and cooperating with foreign troops should the government ask them to intervene on US soil. In Rhodes' view, each individual Oath Keeper must determine where to draw the line.

David Barstow of the New York Times has written about the Oath Keepers in similarly alarmed fashion (the articles are so similar that one wonders if Mother Jones felt the need to rush the piece onto the web after Barstow's report appeared last week), and he cited the vision of one of the group's backers:

Mr. Mack shared his vision of the ideal sheriff. The setting was Montgomery, Ala., on the day Rosa Parks refused to give up her bus seat for a white passenger. Imagine the local sheriff, he said, rather than arresting Ms. Parks, escorting her home, stopping to buy her a meal at an all-white diner.

Granted, some members of the Oath Keepers might strike Sharrock and Barstow as eccentric. But either I'm missing something or the Oath Keepers are an indication that a pretty large minority of Americans really care a lot about their constitutional liberties, and are cognizant of the fact that some elected officials on the right and the left aren't driven by the same constitutional zeal. 

Sharrock describes the political vision of another founder:

Rhodes' vision is simple—"It's the Constitution, stupid." He views the founding blueprint the way fundamentalist Christians view the Bible. In Rhodes' America, sovereign states—"like little labs of freedom"—would have their own militias and zero gun restrictions. He would limit federal power to what's stated explicitly in the Constitution and Bill of Rights; any new federal law affecting the states would require a constitutional amendment. "If your state goes retarded," he says, "you can move to another state and vote with your feet." The president would be stripped of emergency powers that allow him to seize property, restrict travel, institute martial law, and otherwise (as the Congressional Research Service has put it) "control the lives of United States citizens." The Constitution, Rhodes explains, "was created to check us in times of emergency when we are freaking out."

Note that Sharrock could also have written, "He views the founding blueprint the way radical lovers of The Smiths view The Queen is Dead," but the association of the Oath Keeper worldview with a belief in Biblical inerrancy helps set the mood. While I don't agree with every tenet of Rhodes' vision, I consider it compelling in some important respects. Among other things, I think that curbing the powers of the presidency and a more robust form of competitive federalism are preferable to the current constitutional consensus. 

Then again, I also favor an All-Volunteer Force and would probably have defended left-of-center draft resisters during the Vietnam era as people who didn't deserve to be called terrorists or traitors, so I'm comfortably outside the mainstream. 

P.S. A reader asks:

If they would not hold American citizens as enemy combatants, what on earth would they have done with prisoners of war in the American Civil War?

This is a good question. 

02/22 12:28 PM Share

Krugman and Wells

Larissa MacFarquhar has written a brilliant, insightful profile of Paul Krugman and Robin Wells, his wife and intellectual partner. 

Recently, he gave her a draft of an article he’d done for Rolling Stone. He had written, “As Obama tries to deal with the crisis, he will get no help from Republican leaders,” and after this she inserted the sentence “Worse yet, he’ll get obstruction and lies.” Where he had written that the stimulus bill would at best “mitigate the slump, not cure it,” she crossed out that phrase and substituted “somewhat soften the economic hardship that we face for the next few years.” Here and there, she suggested things for him to add. “This would be a good place to flesh out the vehement objections from the G.O.P. and bankers to nationalization,” she wrote on page 9. “Show us all their huffing and puffing before you dismiss it as nonsense in the following graf.”

To get a sense of how Wells thinks about politics, the following biographical note is instructive.

Unlike Wells, who was so upset when Reagan was elected that she moved to England, Krugman found Reagan comical rather than evil.

Read the whole thing. MacFarquhar demonstrates why The New Yorker is still a national treasure. What (I'll never understand is why a magazine that excels at this kind of reportage feels a need to publish fairly banal opinion journalism.) The beauty of MacFarquhar's profile is that it lets you draw your own conclusions.  

I've often written that Paul Krugman has become the most effective left-of-center polemicist in the United States, as effective in his own way as Rush Limbaugh. I know feel as though I've done Robin Wells a disservice by not acknowledging her centrally important role, and I wonder if it is entirely fair that she doesn't share a byline on Krugman's columns.

02/22 12:09 PM Share

Saturday, February 20, 2010

A Note on Straw Men

As I suggested below, there are elected officials who believe or at least say a number of things I don't consider very realistic, e.g., spending over $800 billion in a compressed period of time will have no impact on the economy, emissions of greenhouse gases and soot particles will have no impact on the human environment, economic growth in the developing world will impoverish people in the developed world, etc. 

Here's a hot tip: Powerful people like engaging these arguments because doing so allows them to avoid more difficult questions — was the ARRA cost-effective, and was Alice Rivlin right to suggest that it was too hastily drawn up and that it ought to have separated a narrow recession-fighting package focused on aid to states and extension of unemployment benefits from a sustainable infrastructure package designed to meet long-term economic priorities? Is a cap-and-trade system that includes large subsidies and credits for abatements going to work terribly well, or will it enrich a handful of corporate constituencies while making more effective alternatives less likely? And are there ways to reform our welfare state that can better address the economic anxiety experienced by the large number of workers in tradeable sectors, a category that, as Alan Blinder has argued, has expanded over the last few decades and will continue to expand in the decades to come? 

The beauty of engaging over-the-top, hyperbolic arguments is that it allows you to advance half-baked ideas. Were you to engage serious, nuanced arguments, you might discover that the policies you've been advancing don't meet their stated goals very well. 

Rooting for a professional sports team is a gas. But rooting for a team of professional politicians is, for the pundit class, even more fun — in a sense, you can participate in the fun by maligning your political "enemies." Imagine if it were socially acceptable for fans of the New Orleans Saints to throw Nerf balls at Peyton Manning during the Super Bowl. Sure, it's not going to stop the guy. But it would prove very distracting. And for the Nerf ball throwers, it would also feel very, very empowering. What a way to unleash lots of pent-up energy!

Here's the thing: I don't think that rooting for a team of professional politicians is very edifying or very worthwhile. What I do think is important is holding powerful people accountable, whether they're in the Bush White House or in the Obama White House or in corporate boardrooms or NEA headquarters.

So when I suggest that David Leonhardt — a tremendously smart guy — is wasting his time taking on straw man arguments, the fact that John Boehner is serving up anti-stimulus zingers is not much of a gotcha.

I'm sensitive to this in part because I remember when pro-war conservatives spent huge amounts of time taking on the notion that President Bush wanted to invade Iraq to seize its oil wealth, to expand America's empire, or to serve Israeli interests. It was a lot of fun to tackle these arguments because they made critics of the Iraq War look like kooky conspiracy theorists. And some of them — very large numbers of them, perhaps — were kooky conspiracy theorists! But I wish that we in the pro-war camp had spent more time thinking about and not dismissing arguments about the opportunity costs of a prolonged military occupation of Iraq or the dangers posed by Iraq's ethno-sectarian divides.

This isn't to say that John Boehner is making the equivalent of a "blood-for-oil" argument. I don't know if there are any meaningful equivalents when you're talking about a federal stimulus bill that, unlike a war, is not as vividly a matter of life and death. What I'm saying is that those of us on the right did ourselves a disservice by not tackling the toughest, most challenging arguments. Instead, we chose to focus on scoring political points. And to what end?

Right now, many on the technocratic center-left are in the same mood as pro-war conservatives. We're the serious ones. Our enemies (and it's all about enemies) are a menace and need to be shut down before we can make any real progress, etc.

I make arguments in a spirit of helpfulness (as lame as that sounds), mostly because I want the country to get back on track and the Obama administration is the only administration we have right now. 

Are Republican legislators who constantly criticize the White House helping matters? I don't think they actually can help matters, even if they wanted to, as evidenced by the faux bipartisanship we've seen from both parties over the years. Rest assured, a Republican administration in these economic circumstances would probably propose all kinds of wasteful and ineffective spending to meet the needs of the political cycle. Rooting for the right team doesn't solve the basic problem that powerful people need to watched and challenged. 

The only people who can help are working in the Office of Management and Budget or the Treasury Department or the National Economic Council and other key bureaucracies. Key Democratic legislators and their staffs can also help. Everything else is noise. During the Iraq War, the best congressional Democrats could do was offer firm opposition. If someone was going to make serious anti-war arguments, it was going to be experienced national security voices within and close to the Bush administration, and one gets the impression that there wasn't enough of that. 

02/20 04:55 PM Share

Thursday, February 18, 2010

Links

I'm in London, with my friend and co-author Ross Douthat, to meet with right-of-center thinkers and activists and friends, and I'm hoping to share thoughts and impressions once I get back on Sunday.

For now, though, I'll just say that I'm sympathetic to Tyler Cowen's VAT remarks;

Greg Mankiw suggests killing the estate tax and capping the top individual and corporate tax rate at 25 percent in exchange for a VAT (shades of the Graetz plan, though Graetz is a fan of the estate tax);

Stephen Goldsmith has written an excellent column for e21 on swelling state budgets and what to do about them (a column that made me regret the fact that Goldsmith won't make another run for statewide office in Indiana);

Ed Glaeser has offered a smart stimulus strategy that will never be adopted because it makes too much sense,

My own preferred intervention is the temporary reduction of taxes that hit younger and lower wage workers, like the payroll tax.   Temporarily reducing the taxes for Social Security and Medicare, which are paid by both employers and employees, should increase both employment and earnings.    This reduction could even be made budget-neutral if it was offered primarily to younger people in exchange for accepting delayed eligibility for these programs’ benefits.

Rebecca Smith has a terrific report in the Wall Street Journal on the brightening prospects for small nuclear reactors;

I want to write a much longer post on Sunil Khilnani's call for an Indian social democracy.

And the worst possible news I've seen today is the news that the excise tax, one of relatively few good things to come out of the Obama administration's health reform push, is not long for this world.

02/18 11:34 AM Share

Wednesday, February 17, 2010

Scott Brown on the Stimulus

David Leonhardt takes Scott Brown to task for hyperbole:

Even if the conventional wisdom is understandable, however, it has consequences. Because the economy is still a long way from being healthy, members of Congress are now debating another, smaller stimulus bill. (They’re calling it a “jobs bill,” seeing stimulus as a dirty word.) The logical thing to do would be to examine what worked and what didn’t in last year’s bill.

But that’s not what is happening. Instead, the debate is largely disconnected from the huge stimulus experiment we just ran. Why? As Senator Scott Brown of Massachusetts, the newest member of Congress, said, in a nice summary of the misperceptions, the stimulus might have saved some jobs, but it “didn’t create one new job.”

Ah, if only this blog served to counter hyperbolic statements by progressive legislators ... One imagines that ARRA has created more than one new job, which means that Brown's statement is obviously false. There is, however, another way of looking at the statement. Has it created one "new" job, i.e., have we climbed out of the sharp decline in employment and started generating more jobs than we had relative to the end of 2008? This was the metric that many critics used to great effect in 2004 when criticizing the Bush administration, for the good reason that it was a politically effective talking point that spoke to real and legitimate anxieties that stemmed from the "jobless recovery." I made this criticism myself, and I called for a program of wage subsidies designed to stimulate employment growth. 

02/17 12:21 AM Share