Friday, November 06, 2009  Walking the Walk on Bottom-Up Conservatism As regular readers, I'm a huge fan of Tim Lee and his concept of a bottom-up approach to understanding and improving society. And so I was struck by the final paragraph of Republican consultant Alex Castellanos's New York Times op-ed on the Republican revival.
Mr. McDonnell offered suburban voters, working women and independents a better way to increase jobs and expand the economy, from the bottom up. It was a stark contrast to what Americans are seeing in Washington, where elitist Democratic politicians, in bed with the Wall Street establishment, are taking Americans’ tax dollars away to invest in arrogant, top-down public-sector schemes. This helped Mr. McDonnell forge a powerful coalition involving not just independents but also young voters; he won the under-30 vote by 10 percent. Thanks for the opportunity, President Obama. On Tuesday, Nov. 4, in Virginia a New Republican Party was born. See you in 2010.
My concern is that Republicans haven't yet lived up to Castellanos's description. There is still an urgent need to make our financial sector more resilient and to end the string of bailouts that began in the mid-1980s and that gets bigger and more toxic every time. Yet congressional Republicans seem strongly inclined to defend the interests of the too-big-to-fail financial institutions rather than the interests of the entrepreneurs who depend on a financial system that works. I'm oversimplifying matters here, I realize, but I think that Castellanos is right to suggest that the alliance of the Democrats and Wall Street needs to be opposed — and right now, the Republican establishment isn't doing the opposing.
In a similar vein, we need a bottom-up approach to health reform that facilitates business model innovation. This could be something along the lines of the Ryan-Coburn proposal, that precious few congressional Republicans actually backed, or, better still, something like Martin Feldstein's call for universal catastrophic coverage. We've only seen tentative movement on this front, and health reform might be where Republicans are furthest along.
Bernard Avishai has an outstanding piece in Inc. on the economic ecosystem that is emerging around electric automobiles. I hope to write more about it. Avishai ends on an interesting note. After noting that the Obama administration has invested in R & D and pilot projects and direct grants to firms, he writes:
The point is, there are far too many living things in the emerging ecosystem to be anticipated by any government or major OEM. It will take an implicit partnership of hundreds, perhaps thousands, of suppliers to fill out the technology. The key is to bring them into alignment. "If governments act to consolidate standards," Posawatz says, "they can really make a difference in catalyzing competition among suppliers." He would not want to impose standards prematurely and cut off promising avenues for innovation. (Presumably, OnStar's ambitions are also on his mind.) But when the catalyzers of the new auto industry are so entrepreneurial and distributed, technical standards hardened by government become virtual roads and bridges. They are more vital to electric cars than actual ones. The faster we get to standards, the better.
This principle, of catalyzing competition, is an endless subject I cannot do justice to here. To build out the grid Posawatz envisions, the government must help reduce other obvious barriers to entrepreneurial teams converging on a problem. The administration might look at an outdated patent office, which has been swamped by software developers in recent years — filings mainly from big companies, whose fat patent portfolios needlessly block or intimidate entrepreneurs. It might look at facilitating the exchange, categorization, and monetizing of intellectual property, which cannot flow unless governments engender mutual trust.
I'm more skeptical than Avishai about the need for direct government spending on firms. I do think, however, that you need pro-market government activism designed to reduce those "obvious barriers to entrepreneurial teams converging on a problem." This is easier said than done. But this project would be at the heart of a bottom-up conservatism. 11/06 11:10 PM  Share
Upscale vs. Downscale and the 2009 Election Ramesh has written the definitive take on the implication of this week's election for the Republican future for Time.
What these races suggest is that Republicans' principal problem in recent elections has not been that they are too far right, or — as a lot of conservatives like to think — not far right enough. After all, voters turned on both moderate and conservative Republicans in the late Bush years. The problem has instead been that voters have not thought Republicans of any stripe had answers to their most pressing concerns. Addressing those concerns, rather than repositioning itself along the ideological spectrum, is the party's main challenge.
Patrick Ruffini has followed up with a post on how conservative candidates should frame public policy solutions.
Because very few independents care about ideological name-checks, they won't be swayed by scare tactics trying to persuade them that Candidate X is the ideological second-coming of Attila the Hun. We saw this with the thesis attacks. Candidates have wide latitude to run as who they actually are, so long as they can persuade voters they'll deal with the bread and butter issues (which was McDonnell's calling card).
In a purple state like Virginia, you can win by running as a liberal and a problem-solver (Kaine), as a moderate and a problem-solver (Warner), and as a strong conservative and a problem-solver (McDonnell).
The goal is not to bang on about the liberalism of your opponent, but rather to construct a narrative that connects your policy agenda to concrete outcomes.
Republicans can be specific, detailed, and confident in putting forward solutions relevant to the middle class, while also being more conservative than we have been in recent years (especially with the Bush era spending binge). There's not an either/or tradeoff between conservatism and a policy focus, something the McDonnell campaign proved in Virginia this year.
Earlier this year, Ramesh and I wrote an article for NR on the notion, championed by a number of conservatives, that the GOP needs to move upscale, to increase its appeal among affluent, college-educated voters by moving to the left on social issues. We argued that many of these affluent voters who've turned to the Democrats are just as left-of-center on economic issues as they are on social issues, and that a shrewder strategy involved shifting towards a problem-solving mode.
An alternative strategy would largely maintain the Republican party’s social conservatism while moving to the center on economic issues. That shift on economic issues need not take the form of supporting higher taxes. It would, rather, mean placing less emphasis on tax cuts for high earners and more on tax cuts for people in the middle of the income spectrum. It would mean working harder to get the public to associate Republicans with free-market policies to make health care more affordable and secure for the middle class.
This strategy, in turn, would help Republicans shed some of the cultural baggage accumulated during the Bush years.
A Republican party that advanced downscale cultural conservatives’ economic interests, meanwhile, would not need to lean so heavily on their cultural resentments to win their votes. Republicans’ caricaturing of Democrats as effete and unpatriotic latte-sippers has reinforced the GOP’s own reputation as anti-intellectual and philistine, and this reputation has harmed it in upscale precincts. An economic agenda more attractive to the country would reduce the party’s reliance on cultural polarization.
My sense is that Republicans are moving in this direction. Rather than chase after social liberals who are allergic to the conservative base for a variety of reasons, including but not limited to aesthetic distaste, a growing number of candidates are running "common-sense" campaigns premised on the need for sustainable fiscal policies and the central importance of private sector job growth. This appeals to middle and working class voters who are keenly aware of the danger of their tax dollars being wasted, and who have grown increasingly skeptical of massive government undertakings. Incidentally, my guess is that this doesn't just apply to big new domestic programs: the public also has far less appetite for expensive military interventions, which complicates matters for those of us who believe the U.S. should maintain or even increase its commitment to a stable Afghanistan.
Democrats focus on the Tea Party movement because it represents a kind of wish fulfillment. Conservatives delighted in the ideological exuberance of Howard Dean's progressive youth, and they were unprepared for Barack Obama's slickly post-ideological campaign that drew on the left's energy while running a disciplined centrist campaign. We'll see if history repeats itself. Like a lot of people, my gut tells me that Sarah Palin or perhaps Mike Huckabee will be the Howard Dean of 2012. Of course, that would suggest that the Republican nominee in 2012 will be the right's answer to John Kerry, which is a prospect too disturbing to contemplate for very long. 11/06 10:52 PM Share
Wednesday, November 04, 2009 More Wisdom from Katherine Swartz Also from the TNR interview:
I also think the other lesson that has come out, chiefly from Massachusetts and from Vermont… thinking through what is a minimal benefits package everybody should have. We’re trying to balance out the fact that if you add more required services to it, it's going to cost a lot more. What is it that we are really trying to insure? I think we are working our way towards coverage against catastrophe, where catastrophe is defined relative to somebody's disposable income, along with some cost-effective primary care services basically.
This sounds a lot like Martin Feldstein's concept for health reform. It does not sound like the reform plan that will likely come to pass. So unfortunately, I don't think we are working our way towards this goal; rather, I think we're moving headlong in the opposite direction. 11/04 10:58 AM Share
Mankiw's Column on Implicit Marginal Tax Rates This might be one of the best newspaper columns I've ever read — I hope high school social studies teachers are assigning it to their students. 11/04 10:52 AM Share
Klein on Brooks, and How We Think About Policy Ezra Klein takes David Brooks to task for arguing that new technologies have helped change the romantic landscape for young people.
Columns like Brooks's irk me because they demean not only my lived experiences, but those of everyone I know. To offer a slightly more modern rebuttal, Sunday was my one-year anniversary with my girlfriend. A bit more than a year ago, we first met, the sort of short encounter that could easily have slipped by without follow-up. A year and a week ago, she sent me a friend request on Facebook, which makes it easy to reach out after chance meetings. A year and five days ago, we were sending tentative jokes back-and-forth. A year and four days ago, I was steeling myself to step things up to instant messages. A year and three days ago, we were both watching the “Iron Chef” offal episode, and IMing offal puns back-and-forth, which led to our first date. A year ago today, I was anxiously waiting to leave the office for our second date.
It is not for David Brooks to tell me those IMs lack poetry, or romance. I treasure them. Electronic mediums may look limited to him, but that is only because he has never seen his life change within them. Texting, he says, is naturally corrosive to imagination. But the failure of imagination here is on Brooks's part.
I wonder if the Pauline Kael problem is at work here. One could write a similarly compelling narrative about how a slightly higher income greatly contributed to one's happiness and well-being, and allowed one to spend money on a beloved grandmother or a worth cause. Yet a hike in the marginal tax rate ruined everything. And so a person with high-earning potential could feel very irked by writers and thinkers who advocate higher taxes, as they are demeaning her lived experience and the lived experience of everyone she knows, i.e., other high-earners who went to the same schools, etc. For progressives, the case for higher marginal taxes isn't ultimately about demeaning these people — rather, it is about financing a high level of public provision, and perhaps about "rescuing" the affluent for bidding wars over positional goods.
There is no doubt that the new romantic landscape has been very beneficial for some. I tend to agree with Klein: it has been a boon to my social life and that of my friends. But the real argument is whether or not these new technologies have been of net benefit.
Isn't it possible that these new technologies have had an uneven impact on the romantic marketplace, and that this is worthy of some consideration? I'm not sure about the impact. I'm more sanguine than Brooks, if only because I think the olden days were actually not that great. All the same, I'm certainly not irked by efforts to understand how technology shapes our lives in good and bad ways.
One small example: in the past, it was relatively easy to lose touch with former flames. Now, by virtue of the pervasive use of social technologies, it is perhaps a little harder. Defriending an ex-girlfriend on Facebook is a big step. But not doing so means she remains "present," and thus potentially harder to get over. This obviously doesn't mean we should ban Facebook. It does suggest that good things and bad things sometimes go together.
I'm struck by the way different people approach public policy questions. Paul Krugman will sometimes argue that Casey Mulligan is wrong because his conclusions sound funny, i.e., when Mulligan talks about the power of work disincentives to raise unemployment, Krugman will say that Mulligan thinks the unemployed are "taking a vacation." But in fact Mulligan is well aware that people's stated motivations don't always map onto their actual motivations.
In a similar vein, many political arguments are made on the basis of gut-level convictions regarding what it means to be a decent person, e.g., decent people want everyone to have health insurance coverage. Indecent people only care about themselves, etc. Or critics of my generation's sensibilities are critics of my personal life, etc. But of course some people are concerned about invisible impacts. I'd say that people who fret about the corrosion of competitive markets fall into that category. Yes, we can highlight the plight of people who don't receive a transfer payment. We have a far harder time highlighting the plight of people who can't find work because an economy is burdened by heavy regulation. And it's possible that people who criticize, say, the rise of single-parent families do so because they really care about the hardships faced by single-parent families.
Rant over! 11/04 10:45 AM Share
Peter Feaver on the Obama Foreign Policy Feaver, one of my favorite foreign and defense policy analysts, offers a prediction at his Shadow Government blog:
It could be that the decision to continue the bulk of President Bush's war council (and thus its policies) reflected a decision to delay taking ownership responsibilities for the war. To my reading, that is the connective thread that stitches together various problematic aspects of Obama's foreign policy thus far: peddling stale campaign rhetoric long after its sell-by date; repudiating his own comprehensive Afghan Strategy Review and launching a new one; developing a tin ear for civil-military relations and wartime alliance relations; spending so little time explaining his national security policies to the American people; giving his political team such a prominent role in national security; etc.
I think it is highly unlikely that the national security team that is in place today will be in place one year from now. I would not want to bet which principal will leave, but the betting money is someone will leave. Personnel transitions tend to be associated with friction and other mischief, and the causal arrow can go in both ways: intra-team friction leads to early departures and new arrivals disrupt established modus vivendi. So my prediction is that the "no drama Obama" mantra will have proven unsustainable by November 2010. This is not something to celebrate nor is it something to dread. Every administration has to deal with shake-ups and I wouldn't be surprised if President Obama proves he can deal with it better than most.
My guess is that the national security team that emerges from this transition will be more attuned to the exigencies of the political calendar. 11/04 10:27 AM Share
Understanding High Risk Pools In "The Insurance Fix," in the latest National Review, Thomas Miller and James Capretta offer a roadmap for health reform that addresses the anxieties of the insured and uninsured without sharply increasing regulation and centralization. They call for the creation of larger, better-funded high risk pools.
A better alternative, and one much less disruptive to current policyholders, would be to provide adequate and sustainable funding of high-risk pools. Today, most—but not all—states have subsidized high-risk pools that are intended to reduce premiums in the individual marketplace for people with expensive preexisting conditions. They are the most common way for states to comply with HIPAA's requirement that workers leaving group plans have access to the individual market.
Unfortunately, these pools haven't worked well, largely because they have invited a mismatch between funding and demand. State and federal subsidies for high-risk pools have been meager relative to the size of the problem they are intended to address, and insurers have been able to steer applicants toward the pools with impunity. Politicians tend to prefer rate restrictions and hidden subsidies to more transparent and straightforward funding for high-risk pools, because the former measures are off-budget and seemingly costless to taxpayers. In truth, that approach backfires, imposing heavy burdens on a very narrow base of private purchasers in the individual market.
There should be substantial new federal funding for these high-risk pools—but also new operating rules.
Note that Miller and Capretta note the inadequacy of existing HRPs, and call for their expansion. Ezra Klein objects to high-risk pools, and he offers a helpful link.
A high-risk pool is where a state creates a special insurance pool for people with preexisting conditions and then subsidizes their coverage. About 200,000 Americans are currently in these pools, the costs are high, the coverage varies wildly in quality and the service is often quite poor, as a couple thousand low-income sick people aren't much of a political constituency. To put it simply, if you eventually developed a preexisting condition — asthma, say — would you rather a world in which insurers couldn't discriminate against you or a world in which you could send in a form to the state of Missouri and ask if they had any room in their Big Pool o' Sick people?
Thought so. For more on high-risk pools, see Harold Pollack's interview with HRP expert Katherine Swartz.
But of course not everyone believes that banning discrimination, i.e., banning underwriting, will actually end adverse selection. If the incentives to engage in adverse selection remain strong, it will continue to happen, albeit in harder-to-detect and possibly more corrosive ways. This is why health policy experts have advocated HRPs and reinsurance, areas that have been neglected in the Democratic reform proposals. There is a small reinsurance component that is not adequate to the task.
I was, however, delighted to see Ezra link to a TNR interview with Katherine Swartz, who wrote the excellent book Reinsuring Health, which I've cited at The Agenda in the past.
Pollack: How about specific lessons of state risk pools?
Swartz: Minnesota and Oregon are the only two that have large enough numbers of people that have been covered, but again, I don't think that the current structure of the risk pools is what we should be looking at if we are going to greatly expand them. They weren't set up for this. They were set up, really, to take very small numbers of people out of the insurance market. They weren't meant to be a substitute for public or private insurance.
Pollack: How about the reinsurance provisions in the various leading bills? I take it you believe that reinsurance would be useful in a state insurance exchange to address the really extreme cases that are going to come up.
Swartz: I think reinsurance is a way of more fairly and widely spreading the burdens of people who have extraordinarily high costs. It’s pretty random who lands in that top one or two percent in the population in terms of healthcare costs in any given year. So, having a broadbased population paying most of their costs makes a lot more sense to me than placing the burden on others who happen to be covered by that person's particular insurer or insurance policy.
Swartz didn't address the question directly — that is, she didn't make note of the paltry reinsurance provisions in the main proposals.
Interestingly, Swartz has in the past advocated a public reinsurance plan aimed at the small-group and individual markets as an effective way of reducing premiums and thus increasing access to affordable insurance coverage. While I'm sure Swartz would be happy with a more comprehensive approach, the virtue of her proposal in Reinsuring Health is that it would cost far less than the reform model championed by the president and his allies. Granted, it would do very little to contain costs, yet that is true of the dominant reform model as well. Swartz's public reinsurance plan does have the added virtue of not stifling business model innovation.
Ultimately, I think we need to create the conditions for integrated fixed-free providers to flourish. The health reform debate we're having is a sideshow that would be funny if it weren't so powerfully counterproductive. Pretty serious misunderstandings and misrepresentations are being deployed to dramatically increase the role of the federal government in the health sector, and this will make the kind of business model innovation we need less likely. 11/04 10:17 AM Share
The Perfect Outcome? At the risk of sounding Pollyannaish, I wonder if last night's result might represent the perfect outcome for conservative reformers who want to revive the Republican Party.
Doug Hoffman's defeat comes as a serious blow to the activists who fought against Scozzafava, a candidate well to the left of Arlen Specter. I was particularly impressed by the words of Scozzafava's husband, Ron McDougall.
"This has been a difficult day for my family. But the needs and concerns of the men and women of the 23rd Congressional District remain paramount," McDougall said. "As such, I wholeheartedly and without reservation endorse the candidacy of Bill Owens."
"As a life-long labor activist, I know that Bill Owens understands the issues important to working people. On the other hand, Doug Hoffman has little regard for the interests of workers."
"Hoffman's opposition to the Employee Free Choice Act, coupled with his support for the failed policies of the Bush Administration make him a poor choice to serve the citizens of the 23rd Congressional District."
I have to assume that when McDougall is referring to the failed policies of the Bush Administration, he's not referring to the lack of spending restraint or the failure to adopt an effective counterinsurgency strategy in Iraq before 2006. Rather, McDougall's believes that congressional Republicans would be best served by embracing the agenda of the hard labor left. This is an interesting view. While Scozzafava shouldn't be held accountable for the views of her husband, one gets the impression that McDougall and Scozzafava are broadly in agreement.
Which makes the insistence on the part of E.J. Dionne and Frank Rich and other left-of-center observers that conservative critics of Scozzafava were attempting to purge a Republican moderate from the party seem more than a little peculiar. You'd almost think that the most politically useful narrative, rather than the most accurate narrative, was being advanced. But that's not fair. In truth, Dionne and Rich and others believe that U.S. political discourse would be best served if conservatives embraced Scozzafava's views, thus giving Democrats the freedom to move further to the left. This is an interesting view.
Hoffman, however, was not a flawless candidate. His lack of interest in key issues facing the 23rd congressional district was a serious liability, and the 2010 Republican nominee, whether it is Hoffman or Matthew Doheny or someone else, will have to have a stronger command of these issues. Had Hoffman won, it might have led to overconfidence and a raft of primary challengers who'd burn money conservatives could use more effectively elsewhere.
Meanwhile, the candidate who was most strikingly successful, Bob McDonnell, was a staunch conservative who focused on creating the right conditions for job growth. That sounds about right to me. 11/04 09:49 AM Share
Tuesday, November 03, 2009 Thinking About Revenue Sources and Conservatism In late September, Michael Boskin and John Cogan of Hoover touted a very smart state tax reform for California that should be a model for reform efforts nationwide.
The commission's majority report recommendations were made public yesterday. They include a sweeping overhaul of the personal income tax code that reduces tax brackets to two from six; eliminates all deductions and credits other than for charity, mortgage interest and property taxes; and cuts the top statutory income tax rate to 6.5% from 9.3%. Most taxpayers would receive a 25%-30% tax cut and all would pay less. The commission also recommends abolition of the state's corporate income tax and the elimination of most of the state sales tax that finances the state's general revenue fund (as opposed to special funds for transportation, etc.). Finally, to replace the lost revenue, the commission recommends a broad-based, low-rate state value-added tax (VAT), collected on business net receipts (revenues less purchases from other businesses, including immediate expensing of capital), that is capped at 4%.
These reforms will reduce the volatility of state revenues by 40% (using commonly accepted measures) mostly by reducing the reliance on personal and corporate income taxes, and moderate the current tax code's extreme progressivity. They also will result in a $7 billion net tax cut per year for Californians without raising taxes on any income group, as some of the new VAT would be borne outside the state and more of Californians' taxes would be deducted against federal taxes.
Boskin and Cogan recognize the danger of creating a new revenue source, and they address it by proposing the abolition of the corporate income tax and also a hard spending cap.
Bruce Bartlett advocates a federal VAT. So do I, only I think it should fund a dramatic decrease in the personal and corporate income taxes. But I worry that Bartlett has stopped engaging center-right thinkers who disagree with him. Rather, he is increasingly harsh in taking on supply-siders. In a recent blog post, Bartlett wrote:
The other day the Wall Street Journal editorial page ran an article by Ernest S. Christian and Gary A. Robbins attacking the idea of a value-added tax for the United States. This is the second anti-VAT op-ed the Journal has run this year on top of two highly negative editorials. Only one piece has appeared favorable to the VAT and that was written by former Clinton administration Treasury official Roger Altman. Apparently, it's okay for Democrats to get space in the Journal to promote the VAT because it allows the editorial page to maintain the fiction that only liberals favor such a tax as part of their nefarious plan to eventually tax 100% of everything. When I've queried the Journal about an article on why conservatives ought to support a VAT I did not get a reply.
This post appeared two weeks after the comment by Boskin and Cogan.
I understand where Bartlett is coming from. As you can guess, I don't agree with every "Review & Outlook." Because I think we need to cut spending (by a lot) and raise taxes (by not a lot) if we're going to avoid fiscal disaster, plenty of conservatives — including many readers, I'm guessing — are inclined to think I'm not a real conservative. That's frustrating. It doesn't mean, however, that I want the conversation to end. On the central issue — whether the U.S. will once again become an entrepreneurial and dynamic economy that can lift families out of poverty and increase the standard of living for the middle class — I'm with the supply-siders, though I disagree on important details. My hope is that I can win some supply-siders over by arguing that tax cuts aren't always the surest route to the kind of economy we all want; rather, we want the lowest sustainable tax levels to provide revenue and also the stability that entrepreneurs depend on. Of course, I'm also open to persuasion.
Now I sound kind of smug. I'll add that I'm also totally crazy. 11/03 04:47 PM Share
On Trita Parsi and 'Iran's AIPAC' Daniel Larison, one of the most astute observers of the American political scene, has returned from a too-long hiatus. Citing a post by Andrew Sullivan, he attacks Jeffrey Goldberg for characterizing Trita Parsi, an expert on Iranian affairs who champions an engagement policy while condemning the Iranian regime's human rights abuses, as an objective ally of the regime.
The attack to which he is responding is fundamentally dishonest. Parsi has argued against additional sanctions on Iran on the reasonable grounds that additional sanctions would not force Tehran to make any concessions, would not undermine the regime and would not advance the cause of reformers. I don’t believe Parsi has argued for an end to all sanctions currently imposed on Iran, but even if he were to make that argument he would have legitimate reasons for thinking that sanctions have helped to weaken Iranian opposition forces and consolidate the regime’s hold on the country. If Goldberg had any interest in being fair to Parsi, he would have to acknowledge that Parsi has also argued for a pause in pursuing any engagement with Tehran in the wake of the June crackdown. That means that Parsi has changed his position on engaging Tehran to take a somewhat harder line than he once held. Whether or not this is the right move, this put him among those opposed to engaging the Iranian government under its current leadership at the present time. As far as I know, this remains Parsi’s position today. Obviously, he is nothing like “the AIPAC of Iran,” and referring to him as a lobbyist for Tehran is false and reprehensible.
Reprehensible strikes me as a wildly inappropriate characterization. In fairness to Goldberg, who has thought deeply and carefully about these issues, serving as "the AIPAC of Iran" is more complex than AIPAC critics think. I'm sorry to see that Goldberg retreated from this characterization.
Obviously, as I told Mother Jones, I wasn't meaning to imply that Trita Parsi is a paid agent of the Iranian regime, or somesuch. I was implying that he has made himself the AIPAC of Iran in Washington. My bad. On the larger question of whether Trita Parsi functions as a lobbyist for the Iranian regime, based on what I know, I'd have to say yes: He has argued consistently against any sanctions against Iran, and an end to sanctions is obviously what the Iranian regime wants. So he is working on behalf of a stated interest of the Iranian government. Yes, he also criticizes Iran's human rights abuses, but it's been suggested recently that it is possible to lobby for a country while criticizing it at the same time.
Goldberg's last link is to J Street, an avowedly pro-Israel group that has been strongly critical of settlement-building in the West Bank and Israel's controversial efforts to contain the violence in Gaza. But he could just as easily have cited AIPAC itself, which aggressively lobbied the Israeli government in the 1980s to change its policies towards apartheid-era South Africa. At the time, the Israeli defense establishment maintained ties with the South Africans, a relationship criticized by elements within the Israeli foreign ministry as well as pro-Israel activists in Jewish communities throughout the West. This questioning of Israeli policy didn't mean that AIPAC ceased to be a pro-Israel lobby.
And while Parsi is undoubtedly a believer in democratic liberalism who wants to see Iran radically reform its institutions, he objectively serves Iranian interests insofar as he discourages Western efforts to exert pressure on the regime. This doesn't make Parsi a bad person. Plenty of Iranian dissidents believe that a democratic Iran should have a nuclear deterrent. Plenty want a denuclearized Iran, yet believe that Western pressure amounts to a kind of imperialism that should be actively resisted. This isn't that complicated.
Iran doesn't have an actual AIPAC. Instead, there is a loose network of policy scholars, activists, think tanks, civil servants, etc., who strongly oppose a forward-leaning U.S. policy in the Persian Gulf for a wide, sometimes overlapping variety of reasons. Some of these people have a real financial interest in a better relationship between Washington and Qom, but most don't. On some issues, members of this loose network get important things right. A lot of realists have raised important questions about the efficacy of sanctions, and they are right to do so. But it's also true that these voices help today's Iran. The Iranians among them have added credibility. 11/03 04:21 PM Share
The Theory of Natural Buyers Marginal Revolution points me to Mark Whitehouse's excellent Wall Street Journal article on Yale economist John Geanakoplos. Apart from Whitehouse's problematic oversimplification of rational expectations, it is well worth your time.
In a 2000 academic paper, Mr. Geanakoplos offered a theory. He said that when banks set margins very low, lending more against a given amount of collateral, they have a powerful effect on a specific group of investors. These are buyers, whether hedge funds or aspiring homeowners, who for various reasons place a higher value on a given type of collateral. He called them "natural buyers."
Using large amounts of borrowed money, or leverage, these buyers push up prices to extreme levels. Because those prices are far above what would make sense for investors using less borrowed money, they violate the idea of efficient markets. But if a jolt of bad news makes lenders uncertain about the immediate future, they raise margins, forcing the leveraged optimists to sell. That triggers a downward spiral as falling prices and rising margins reinforce one another. Banks can stifle the economy as they become wary of lending under any circumstances.
The policy upshot dovetails with calls by Nicole Gelinas in her excellent After the Fall for demanding uniform capital requirements.
This idea had big implications for policy makers. For decades, they thought of interest rates as the most important indicator of supply and demand in credit markets, and the only variable they needed to adjust to achieve a desired economic result. Now, Mr. Geanakoplos was saying that something else — lenders' collateral or margin demands — could be even more important. 11/03 03:58 PM Share
Krugman vs. Phelps Edmund Phelps is, along with Robert Fogel, is one of my intellectual heroes. In Rewarding Work and Designing Inclusion, Phelps pioneered an innovative approach to fighting poverty by encouraging greater work effort through the use of graduated employment subsidies. And he's also brilliantly described how the virtues of entrepreneurial or dynamic capitalism as opposed to the state-directed alternatives that scar lives by actually reducing economic inclusion.
So when Paul Krugman writes a derisive blog post about Phelps, one that acknowledges that he stopped reading a characteristically smart and incisive Phelps column in the FT because he didn't like the first few sentences, you can guess what I make of it.
Krugman's rhetorical strategy increasingly relies on bullying. He is a brilliant thinker with a legion of decidedly less-brilliant epigones who has turned a large swathe of the economics blogosphere into a "slagosphere" not unlike the lit blogs that punish and torment fiction writers and essayists who dare to say anything provocative or interesting. Interestingly, Krugman sees himself as a voice of reason braying against a conservative movement he sees as full of racists, reactionaries, and economic Luddites. This from a writer and thinker who proudly writes a lacerating post about a column he refuses to read.
I still think that Krugman has made many valuable contributions not only to economics as a discipline — that is obvious — but also to our public discourse: he brings a valuable, informed perspective to bear on vitally important debates. I welcome that. But his intolerance and his near-constant mischaracterizations of his interlocutors are having a coarsening effect. Moreover, Krugman has enabled the rise of an unthinking, reflexive interventionism that is, in my view, doing real damage to our economy and our democracy by creating unreasonable expectations of what bright, well-intentioned planners can realistically accomplish.
What's even more embarrassing is that the rest of Phelps's column offers a nuanced, troubling account of our medium-term economic future, one that is actually less optimistic about the self-correcting marketplace than Krugman. Rather than attacking the Keynesians, Phelps is making the case for profound uncertainty.
The gravest error of the phony debate between two non-starters is that their superficial and mechanical character – the clockwork of the neoclassical system and the hydraulics of the Keynesian one – operate to distract policymakers from asking basic questions about the dynamism of the US and UK economies. Economics has paid a terrible price for its dalliances with the Keynesian and neoclassical theories. Now policymakers are being misled by the siren call of these same, hopelessly inadequate views.
For all Krugman's insistence that he is the rigorous empiricist and his opponents are rigid ideologues, one doesn't get a lot of epistemic humility in his scathing polemics.
I should add, by the way, that Krugman's caricature of Phelps is worse than it looks: describing Phelps as a crude stimulus opponent, Krugman seems to miss the fact that Phelps has long advocated the aforementioned subsidies designed to increase work effort, and he's championed stimulus efforts in France and Singapore modeled on those lines. 11/03 03:52 PM Share
Greetings from China I'm here as a tourist, so I won't be blogging about my trip. I do, however, plan on sharing some thoughts and observations once I return home. For now, I'll fire off some policy missives. 11/03 03:21 PM Share
Thursday, October 29, 2009 The Case Against the Case Against Microgovernments I recently wrote a post suggesting that some of New Jersey's structural fiscal problems could be solved by Corzine's proposed consolidation plan. I tend to like smaller local governments, however, and I'm very glad to report that Jim Manzi has suggested that consolidation is being oversold.
If one were to make the heroic assumptions that these costs differences are caused entirely by town size, and that every town below about 6,000 people could find a nearby town or towns to merge with to get to about 10,000 people (but not more than 15,000, at which point costs would start to rise), and that therefore all small towns could get to the same per capita local government costs as the lowest-cost towns, then you could get some costs out of the system. How much? Under the unrealistic assumptions provided above, about $0.3 billion per year. In comparison, New Jersey’s 2008 state level budget is about $33.3 billion. This is up about $2.2 billion over 2007. So, this – again, totally unrealistic – benefit could be achieved simply by increasing spending from $31.1 billion last year to $33.0 billion this year instead of increasing it to $33.3 billion. Of course when you add in local spending, total state plus local spending is much higher than this in New Jersey. New Jersey’s 2005 total state and local spending was the eight-highest in America, at about $8,900 per capita. Nearby Connecticut had the tenth-highest level of state and local spending, at about $8,550 per person. Simply spending at Connecticut’s level (which isn’t exactly like saying “become Alabama”) would reduce total state and local spending by about $3 billion per year. Finally, under the same set of assumptions that lead us to think we can get $0.3 billion by forcing the consolidation of hundreds of towns, we would presumably want to break up the large towns into smaller towns of 6,000 – 15,000 people each, since this is the lowest-cost town size. That would, under the same assumptions, save more like $1.5 billion per year. Don’t hold your breath.
One way of looking at this is that Corzine chose to pursue a near-impossible strategy that would yield modest gains at best to reduce the burden of state and local taxes rather than take the more straightforward step of reducing spending to Connecticut levels.
While Jim isn't exactly advocating this idea of consolidation microtowns and breaking up macrotowns, I rather like the idea, particularly the breaking up macrotowns part. This is one reason why I was very disappointed when the San Fernando Valley secession movement failed. 10/29 10:34 PM Share
Wednesday, October 28, 2009 The End of Cap-and-Trade The current issue of NR features an editorial opposing cap-and-trade, and I agree with it. Public support for cap-and-trade is dwindling as voters learn more about the costs involved. I am somewhat more sympathetic to Lindsey Graham than the editors, in part because I think Graham is right to back policies that would encourage the expansion of nuclear power. But it's not clear to me that cap-and-trade legislation larded with subsidies is the right way to achieve this goal.
One of the strongest objections to creating a carbon market is that it would not make a dent in global temperatures thanks to the massive expansion of coal electric facilities in East and South Asia that is already underway. I wonder, however, if there might nevertheless be a case for a very small carbon tax designed to reduce the mercury, particulates, and other conventional pollution emitted by coal plants, which have a negative — and expensive — impact on public health. Keith Johnson of the Wall Street Journal recently discussed a report from the National Research Council on "Hidden Costs of Energy: Unpriced Consequences of Energy Production and Use."
The upshot? America’s current energy mix carries a “hidden cost” of about $120 billion a year, the report found. And that number doesn’t include any tally for the cost of greenhouse-gas emissions or climate change—estimates for climate costs range from $1 to $100 a ton of carbon dioxide emissions, but are so variable the report didn’t quantify them. The figure also doesn’t include other hidden costs, such as the portion of the U.S. military expenditure needed to protect global oil production and transport.
The $120 billion figure boils down to coal and cars. Transport costs the country $56 billion. Coal-fired electricity costs the country $62 billion per year, largely in health impacts from particulate matter. Natural gas for power generation, in contrast, adds about $740 million a year in hidden costs.
Looked at another way, coal’s hidden pricetag adds up to 3.2 cents per kilowatt hour. Compare that to the 2 cents-per-kilowatt hour that wind power gets from the government—that’s less a subsidy than a partial attempt to level the playing field.
This kind of analysis is far from flawless, and it should be obvious that no central planner will be able to determine an "appropriate" price that reflects all of the imaginable externalities, negative and positive. Yet I'm struck by the idea, advanced by Randall Parker among others, that a modest carbon tax could make nuclear power far more competitive with coal electric — so much so that, Parker suggests, we'd immediately stop building coal electric plants.
Again, I believe that climate change is a serious problem, a stance that not all conservatives accept. But if burning coal is also causing serious health problems, that strikes me as a decent argument for slapping the equivalent of a sin tax on its use.
10/28 03:46 PM Share
The Right and Financial Regulation Last week, Nate Silver argued that financial sector reform will be the domestic policy issue that dominates the first half of 2010. After making the case for why this issue will take precedence over cap-and-trade or immigration reform or gay rights, Silver suggests that the debate will be between those advocating structural reform and those advocating incremental reform.
From a 30,000-foot view, the debate will be between the Volckerists and the Summersists, with the Volckerists arguing that large financial institutions need to be broken up — probably through something resembling a modern Glass-Steagall Act — and the Summersists arguing instead for more extensive regulations.
The 'hard', online left will almost certainly take the Volckerist position. In fact, I expect this to be the "public option" of 2010, the badge of pride that "movement progressives" will use to distinguish themselves from "kleptocrats". Like the public option, the Volckerist position ("break up the banks") is easy and intuitive to understand. Also as in the case of the public option, I suspect the Volckerists will ultimately have the preponderance of polling evidence to show in their favor (although no polling has yet been conducted on the issue). In contrast to the public option, opinion among policy wonks is likely to be a little bit more evenly divided — see for example the difference of opinion between Yves Smith and Simon Johnson, neither of whom have any inherent sympathy whatsoever for the banks.
And Silver offers an astute diagnosis of the dilemma facing the right.
How the right will respond is less predictable, but this may become the issue that tests whether the "tea party" movement is ultimately more libertarian or populist in character. While on the one hand, the zeitgeist within the movement is to bemoan any government intervention in the economy, on the other hand, much of the impetus for the movement was the bailout bill and the deference that both the Obama and Bush administrations have shown toward Wall Street. I really don't know how they'll come down on this issue (initially, perhaps, they'll take whatever position that the White House doesn't), but it could be a defining one for the movement.
Ultimately, I think there is more political upside than downside for the White House here, although there is plenty of both. I don't think the Republican Party as a whole can afford to take an anti-regulation stance.
When the House Financial Services Committee voted on a proposal to regulate derivatives trading, only one Republican, Walter Jones of North Carolina, joined with the Democrats. According to the Wall Street Journal,
Republicans on the panel said the agency would amount to a new government bureaucracy intruding on the financial decisions made by Americans. The banking industry has lobbied aggressively to kill or weaken the agency, and Democrats have agreed to curtail some of its powers.
This, however, doesn't seem like an entirely sound characterization of what this regulation is designed to achieve. One could argue that a ban on insider trading involves intruding on the financial decision made by Americans, yet there is a broad consensus that this regulation helps preserve the integrity of financial markets. Similarly, efforts to shift most derivatives trading to exchanges and clearinghouses is designed to encourage transparency and to establish clear, non-discretionary limits on risk-taking.
Nicole Gelinas of the Manhattan Institute has been writing very persuasively on the need for financial regulation to strengthen free markets. She has made a conservative case for going beyond the Obama administration's flawed approach.
The Obama administration has taken some positive steps here, with Treasury Secretary Tim Geithner’s reasonable, if imperfect, proposal to set borrowing limits on currently unregulated derivatives. The plan also urges regulators to “reduce their use of credit ratings in regulations and supervisory practices, wherever possible.”
But the White House has delayed taking action on the most obvious way to limit borrowing—new, consistent capital requirements for financial firms and all their investments—directing the Treasury to issue a report by the end of the year. The creation of a systemic-risk regulator in the absence of clear boundaries on risk-taking at financial firms could encourage yet more hubris and complacency in financial markets. A regulatory council that the government thinks smart enough to manage any and all risk might encourage market participants and their lenders to continue to act recklessly, confident that someone is looking out for them.
Clear and simple regulations that apply to all players will help curb the political favoritism that the American public rightly resents. Gelinas's central view is that we need to revamp our financial system so that even the largest banks can safely fail, thus bringing an end to the cycle of hubris and bailouts that began in the mid-1980s. Ironically, what looks like a laissez-faire approach is actually one that guarantees a steady government takeover of the financial system. I strongly recommend Gelinas's forthcoming book After the Fall to get a sense of why this is so pernicious.
City Journal also published a wonderful essay by Luigi Zingales on why Republicans need to channel populist anger to what he calls a pro-market politics.
A pro-market strategy aims to encourage the best conditions for doing business, for everyone. Large banks, for instance, benefit from trading derivatives (such as credit default swaps) over the counter, rather than in an organized exchange: they can charge wider spreads that way, and they can afford to post less collateral by using their credit ratings. For this reason, they oppose moving such trades to organized exchanges, where transactions would be conducted with greater transparency, liquidity, and collateralization—and so with greater financial stability. This is where a pro-market party needs the courage to take on the financial industry on behalf of everyone else.
A pro-market strategy rejects subsidies not only because they’re a waste of taxpayers’ money but also because they prop up inefficient firms, delaying the entry of new and more efficient competitors. For every “zombie” firm that survives because of government assistance, several innovative start-ups don’t get the chance to be born. Subsidies, then, hurt taxpayers twice. A genuinely pro-market party would have resisted more vigorously the Wall Street bailouts, in line with popular sentiment.
Zingales is one of the good guys. He is one of those Chicago economists that Paul Krugman condemns. And in this case he is directly at odds with congressional Republicans, who are surrendering the playing field to the Democrats on the pretty darn important question of whether or not we're going to be a market economy or a government-dominated economy. This is insane. Politics and principle are pushing in the same direction.
10/28 03:23 PM Share
Monday, October 26, 2009 On Crist I'm not a fan of Charlie Crist, and I'm on record as an admirer of Marco Rubio. One thing that has frustrated me about the coverage of Florida's Republican Senate primary is that observers insist on characterizing Crist as a "moderate." In a column for Forbes.com, I argue that he's more accurately seen as the candidate of free-lunchism. 10/26 03:38 PM Share
Saturday, October 24, 2009 Thinking About 'White Cities' Ta-Nehisi Coates does not like Aaron Renn's New Geography essay on "The White City."
There's a thorough discussion of this piece claiming to expose the lack of "diversity" (read: Negroes) in progressive cities in the Open Thread. I find the piece to be pretty ill-considered, and insulting to Latinos and Asians, in particular. But more than that it repeats an unfortunate trope among writers tackling race—it treats African-Americans as agency-less automatons, awaiting the right programming from white policy-makers.
After quoting from Renn's piece, Coates continues:
There is so much wrong here. But leaving aside the fact that the author starts out by disqualifying New York, L.A., and Chicago, leaving aside the blinding whiteness of dubbing Atlanta "un-progressive," leaving aside that most of these "progressive" cities have more black people than their surrounding states, I think the implicit argument that these cities should be "doing more" to assure that their black population meets the national average is odious.
This strikes me as a valuable argument. But of course it represents a powerful case against virtually all race-conscious public policy.
Some argue that the fact that African American are less inclined to accumulate housing wealth than other Americans reflects a legitimate preference and should not be cause for alarm. Europeans tend to accumulate less housing wealth than Americans, and we tend not to consider this a disparity that reflects poorly on the European way of life. Indeed, there is a reasonable case to be made that Americans have overinvested in housing relative to other goods. To what extent are different consumption patterns an issue of public concern? Part of the issue with the African American housing wealth disparity, which contributes to a broader wealth disparity, is that it is arguably a reflection of discriminatory patterns that emerged in the distant past.
In When Affirmative Action Was White, political scientist Ira Katznelson argues that a number of New Deal-Fair Deal policies designed to encourage homeownership were implemented in a manner that exacerbated the relative economic disadvantage of African Americans, and this effect has, for obvious reasons of integenerational wealth transmission, compounded over time.
So yes, we could say that legitimate preferences are at work; we could also say that we are dealing with a legacy of injustice.
What does this have to do with patterns of internal migration? Attorney General Eric Holder gave a speech to Justice Department employees in which he argued that Americans are "a nation of cowards" when it comes to race, and he referenced enduring patterns of self-segregation. There has been a marked tendency of native-born non-Hispanic whites to "flee diversity," i.e., to leave so-called immigrant magnet states in favor of states with higher proportions of native-born non-Hispanic whites. There has been a parallel tendency of college-educated African Americans to cluster with other college-educated African Americans, and also to migrate from northern cities to Sunbelt cities with large African American populations. One can imagine many reasons for "fleeing diversity." Parents of young children might want to settle in neighborhoods defined by a high level of cultural consensus. Lower levels of diversity, whether racial or class diversity, might serve as proxies for low levels of crime or high-quality schools. Or the individuals in question might simply dislike living near people who are different from themselves. It's by no means obvious that this is a pressing problem, and it is clearly based on private, voluntary choices. So why highlight the issue at all?
Well, one anxiety is that we're seeing a split between "the beige and the black," to use Michael Lind's phrase — while non-Hispanic whites, Latinos, and East Asians are intermarrying at high and rising rates, the number of marriages between blacks and nonblacks is also increasing but remains very low in absolute number. The cities Renn cites are heavily nonblack and some, like Austin, Texas, are becoming increasingly nonblack. Could this reflect choices that are perfectly symmetrical?
Coates doesn't like the idea that African Americans are "agency-less automatons," which is very fair. But I think we can agree that the relatively poor and the relatively rich face a different context. Both have agency, yet those with more wealth have a far wider set of choices. So when one hears that "smart growth" policies are making housing so expensive that members of aspirational working and middle class are being driven out of some metropolitan areas, I think that ought to be a source of concern — at least as great a source of concern as the environmental impact of low-density living.
Coates writes:
Man listen—Negroes like Atlanta. Negroes like Chicago. Negroes like Houston. Negroes like Raleigh-Durham (another area that doesn't make the cut, for some reason.) Negroes like Oakland. Negroes have the right to like where they live, independent of Massa, for their own particular, native, independent reasons (family? great barbecue? housing stock?) Just like Jewish-Americans have the right to like New York—or not. Just like Japanese-Americans have the right to like Cali—or not.
And while this is no doubt true, some Bangladeshi Americans don't like living in regions defined by high concentrations of crime and poverty. Yet for those who are not affluent, moving to "smart growth" regions is less of an option than moving to "sprawling" regions. For Bangladeshi Americans who arrived in the United States without college educations or considerable savings, options are more constrained than for Bangladeshi Americans who have both. Because there is no sense in which the fate of Bangladeshi Americans, an immigrant community that has mushroomed in size only since the mid-1980s, it is absurd to consider this a matter of historical injustice.
But if it is also absurd — and indeed insulting — to consider the same set of concerns applied to African Americans to be a matter of historical injustice, and that could be right, then I think our entire conversation on race will be very different. Daniel Patrick Moynihan memorably and controversially recommended a policy of "benign neglect" of race, sensing that contentious discussion of the issue in a time of economic and social turmoil was not the most constructive way of promoting the interests of the poorest and most vulnerable citizens, a disproportionately large number of whom were African Americans. If one believes that different patterns of earnings, wealth accumulation, settlement, assortative mating, and incarceration all reflect legitimate differences in preferences, or that even if they don't reflect legitimate differences we won't do much good by talking about them, then perhaps "benign neglect" is the right way to go. I'd argue that some of these patterns are more problematic than others, and that the racial lens is a very useful way of seeing some issues.
I get the impression, however, that some people think it is only appropriate to use the racial lens when this advances left-of-center policy goals, like redistribution, rather than right-of-center policy goals, like deregulation. (I don't think that this is true of Coates, incidentally.)
To be honest, I found Renn's essay most interesting not because it focuses on race but rather because it draws attention to the uneven class impact of "smart growth" policies and "high-road" strategies for economic development. Regions that embrace tough land-use regulations and high taxes are praised for their "progressivism," and they are cited as models for other cities, like Atlanta and Houston. But by noting these racial disparities, Renn is suggesting that there are serious downsides to this model, namely that they stifle economic opportunities for the less well-off. Renn's use of the racial lens is a way of complicating the moralistic language that tends to define this debate. 10/24 02:39 PM Share
Missing the Forest for Some Shrubs Dave Weigel of The Washington Independent suggests that Republicans are undermining the effectiveness of their case against the Obama White House and congressional Democrats by focusing on the controversial views of staffers and left-wing pressure groups rather than massive job losses and lingering outrage over the Wall Street bailouts.
This isn’t to say Republicans have been distracted or unsuccessful in Congress. They’ve certainly scored victories during this period. And by paying attention to these conservative witch hunts, they’ve definitely kept their base revved up. But in the current political context, it seems like they’re missing the forest for some shrubs. It’s as if Democrats tried to press their advantages in 2005 not by going after the Iraq War or the mishandling of Hurricane Katrina, but by spending weeks attacking mid-ranking members of his administration and claiming that President George W. Bush was driving the nation toward fascism. And remember, one of the huge political mistakes of 2005 was the Republican decision to do a full-court press on an issue that had come from conservative activists and pundits: the fate of Terri Schiavo.
Because Weigel is a reporter for The Independent, a left-of-center media outlet, my guess is that many conservatives will be inclined to dismiss Weigel's analysis. That's a shame. It parallels David Brooks's argument that conservative news anchors and radio hosts don't always reflect the concerns of Republicans and right-leaning independents, and it makes a great deal of sense. This isn't to say that Glenn Beck doesn't have the right to speak his mind, or that he doesn't raise very important philosophical questions about the progressive legacy and much else. But it's not obvious that voters are more interested in these questions than job creation. 10/24 01:59 PM Share
Politicians as Civics Teachers In this week's New York Times Magazine, Matt Bai has a very sympathetic profile of Jon Corzine. Bai makes a number of very good points, including the following:
To bring about reform now, politicians need to be not just good campaigners and public stewards but civics teachers too, able communicators who can reassert a connection in the public mind between costs and services, between the policies that Congress and state governments pursue and the money you end up paying your town for garbage collection and the local library. Corzine and Daggett are both trying to do this, in their own ways, though neither is the ideal vehicle; Corzine is a cautious reformer with little talent for explanation, and Daggett’s campaign is too hard up for cash to communicate much of anything. Christie’s campaign, on the other hand, seems lifted from the days before last year’s economic collapse, when it seemed possible to have everything, and all at once. Those fellow governors who sympathize with Corzine are watching his campaign play out, hoping to find out whether the case for painful choices, as they see it, is any easier to make in this era than it was in the last. “If Jon wins, and I believe he deserves to, I think a lot of other governors will say, It’s O.K. to tell people the truth; it’s O.K. to give out some tough medicine,” Ed Rendell, the Democratic governor in neighboring Pennsylvania, told me. “And I think more governors will be inspired to do that. If he loses, I think it will have a chilling effect.”
But I have to say, I find Rendell's remarks extremely self-serving. And I'm struck by the fact that Bai never mentions Mitch Daniels of Indiana, a governor who has done an excellent job of being frank with the public about the tradeoffs involved in tax and spending decisions.
I'll add that Republican gubernatorial candidates, particularly those running in liberal states, often suffer from free-lunchism, i.e., an ideology based on tax cuts and spending hikes in boom years. That certainly seems to be true of Christie. Consider the following from Bai's article:
This history probably explains why Christie has avoided offering details of a plan to bring down property taxes or reform the state’s dire finances, instead running a campaign that is almost a caricature of the modern, tax-slashing conservative pitch. He says he would repeal all the sales taxes, toll hikes and surcharges imposed by Corzine and cut income taxes as well, while at the same time somehow offering more property-tax rebates — a feat that would seem to defy the laws of economics, if not physics. Christie has also said he would decline any federal money that imposed restrictions on the state. To replace all of this revenue, Christie says he will rein in wasteful spending. Only about a fifth of New Jersey’s budget, however, goes to pay for the actual bureaucracy of government; all the rest pays for sacrosanct programs like Medicaid and school aid. As his opponents never tire of pointing out, Christie could fire every single one of the 66,000 employees in state government, and still he wouldn’t make up for the revenue he says he wants to eliminate.
When asked how he intended to pull this off, Christie offered a bizarre reply.
New Jersey has had a string of politicians, Jon Corzine the latest, who made all types of specific promises that they knew they couldn’t keep,” Christie told me. “New Jerseyans want to know what direction are you going to take the state in, what philosophy are you going to pursue. They’re not looking for specific promises that can’t be kept.” Hai-yah! Christie was turning the traditional notion of political accountability on its head: not only was it not unprincipled to make a bunch of vague campaign promises that had almost no chance of becoming reality, but in fact it was also the only truly principled thing to do, because politicians never followed through on the details of their proposals, anyway. When he gets to Trenton, Christie assured me, “We’ll get in there and make it work.”
It is easy to see why conservatives oppose Corzine. Bai offers a persuasive narrative of how New Jersey fell into a death-spiral of excessive government spending, rooted in the extreme fragmentation of local government. I tend to think that there's a real risk of local governments becoming too large, as diseconomies of scale emerge in large, anonymous cities governed by an unresponsive political class. Yet it's clear that many of New Jersey's microgovernments aren't delivering real value or meaningful Tiebout choice; rather, they are entities solely devoted to rent-extraction. To his credit, Corzine has proposed local government consolidation, an idea New Jersey voters have resoundingly rejected. Though Corzine has tried to restrain spending and address the state's revenue shortfall, this failure to solve the structural problem begs the question of why he's running for reelection at all.
Given that Corzine lacks the political acumen to tackle New Jersey's problems and Christie is offering wildly unrealistic promises, does Daggett represent an alternative for conservative voters in the state? I can't say. I do get the impression that his fiscal proposal, essentially to use a wider revenue base for the sales tax to fund property tax relief, is better that what the other candidates are offering. Yet it's not clear that Daggett is willing to make the deep cuts in spending that New Jersey needs. 10/24 01:35 PM Share
Tuesday, October 13, 2009 311 I like Michael Bloomberg. Conservatives in New York and across the country tend not to like Bloomberg because he is, despite his brief stint as a Republican, a liberal. But he is also a liberal who created a large and successful business, and that's framed the way he approaches local government. Phil Koesterer very kindly emailed me a link to a New York Times article by Steve Lohr on a recent meeting that focused on local government innovation. Under Bloomberg, New York city has been a leader.
In 2002, the city began its “311” telephone number for answering questions about government services and to report problems down to missing manhole covers. The service receives 50,000 calls a day, and earlier this year began operating on the Web as well. Complaints, response times and resolved problems are tracked and measured to improve performance.
In 2006, the city began an online service, NYC Business Express, to make it easier and faster to start a business. The average time to obtain a building permit, for example, has been cut to 7 days from 40. Such seemingly mundane improvements can add up to big gains in the efficiency of government service systems, experts say, nurturing productivity and growth in local economies. The process, they say, is similar to “lean manufacturing,” a system first mastered by Toyota in which step-by-step changes on the factory floor, made repeatedly, translate into major advances in quality and productivity.
It actually gets even better: New York is starting to use sophisticated data analysis to improve firefighting efforts, among many other things. And innovations that have taken off in New York city are spreading throughout the country.
I'm a great believer in federalism, which is one reason why I'm comfortable with local governments embracing policies that I'd fight tooth and nail were they to be embraced by the federal government. One big problem in America's biggest cities is that partisan elections give Democrats an effective political monopoly. Because voters rely on partisan affiliation to determine their votes, they tend to vote for Democrats in both national and local elections, despite the fact that the mix of issues at the local level is very different by definition. That's a shame. Cities like New York and Los Angeles would be far better off if you had a coalition of public-sector unions and liberal activists competing against a coalition of led by small business owners and homeowners, with both coalitions consisting primarily of voters who backed Barack Obama in 2008. 10/13 06:04 PM Share
No New Taxes for Under $250K? I'm in a small minority among conservatives in that I think President George H.W. Bush was right to raise taxes when he was in office. It was a tremendously difficult decision, but I think he recognized that the fiscal picture was in danger of deteriorating to such an extent that it would damage America's long-term economic prospects. Yet Bush also pledged not to raise taxes during his 1988 presidential campaign, and many voters, particularly conservative voters, felt betrayed. This contributed directly to President Bush's 1992 defeat.
During the 2008 presidential campaign, Barack Obama pledged to not raise taxes on families earning less than $250,000. And now, as Kevin Hassett explains, it seems very likely that he will support a health reform proposal that will do exactly that.
The [Joint Committee on Taxation] report projected that the excise tax would raise about $52 billion in 2019. Of that, about $8.9 billion would come from taxpayers with incomes of less than $50,000; about $19.4 billion from taxpayers with incomes between $50,000 and $100,000; and about $17.4 billion from taxpayers with incomes between $100,000 and $200,000.
Add those up, and you see that about 87 percent of the revenue in the original Baucus proposal to finance Obamacare would come from individuals with incomes of less than $200,000.
Baucus and the Senate committee have since upped the proposed tax to 40 percent, and the trigger thresholds to $9,850 and $26,000, tweaks that shouldn't change the basic thrust of the story. The Democrats' plan is a moving target—and given who will pay the tab, that is probably on purpose.
The remarkable thing is that this revenue comes from low- and middle-income people who already have insurance. Many members of organized labor have these "gold-plated" plans. And they would be worse off, not better, because of Obamacare.
During the campaign, I was convinced that the Democratic candidate would break his pledge rather than abandon his various spending proposals. I also believed, and still believe, that we need to reform the tax code in a way that might raise taxes on some families earning less than $250,000, including families with so-called gold-plated coverage.
So does this mean it's right to let President Obama and the Democrats off the hook? I think the difference — and I'm sure supporters of the health reform proposal would disagree with me — is that the first President Bush raised taxes to improve the long-term fiscal position of the United States government, whereas this health reform proposal, even when you factor in the new revenue, will create new work disincentives while in all likelihood exacerbating cost growth. Note that a more expensive and centralized health reform might not have these deficiencies, just as a more laissez-faire reform, the kind of reform I'd much prefer, might also not have these deficiencies.
Among Democrats and liberals, there is a belief that Republican opposition to the various Democratic proposals represents a kind of "nihilism," and that because Baucuscare resembles proposals offered by liberal and moderate Republicans in the 1990s, today's opposition is obviously unprincipled if not insane. My sense is that we've learned a great deal about health reform over the intervening period, and that, as Christensen, Grossman, and Hwang have argued, it is disruptive competition that promises substantial improvement in the cost and quality of medical services over time. I'm increasingly convinced that the only way to move in this direction is to create a system of universal catastrophic coverage and universal health savings accounts, as proposed by Martin Feldstein and a number of others. The emerging consensus among congressional Democrats moves us in a very different direction, towards a highly centralized, highly regulated system that will give entrepreneurs very little room to dramatically improve care. With that in mind, I don't think opposition is "nihlistic"; rather, I think it's responsible.
10/13 05:18 PM Share
The Innovator's Prescription If you'd like to understand the pathologies of America's health system, you need to read The Innovator's Prescription, a brilliant book by Clayton Christensen, Jerome Grossman, and Jason Hwang. I'll be referencing the book very frequently in future posts. 10/13 04:28 PM Share
What AHIP's Critics Are Missing AHIP, the lobbyist for the biggest private health insurers in the United States, has received withering criticism from many sources, including MIT economist Jonathan Gruber, one of the architects of the Massachusetts health reform, and Harvard's David Cutler, among many other economists who've worked closely with the Obama administration and congressional Democrats. Keith Hennessey, a staunch critic of the Democrats' mandate-driven approach, has also criticized AHIP's methodology, and for good reason.
I have no interest in defending the AHIP report. I do think, however, that some of the critics of the report are overlooking something very important. For example, Ezra Klein writes,
In a long defense of the PWC/AHIP report, Megan McArdle goes to bat for the most indefensible element of the analysis: the decision to avoid estimating the response to the tax on high-cost insurance plans (which is, in fact, the whole point of the tax), and simply pretend that everything will remain unchanged except that a lot of people will pay a large new tax that they don't have to pay. Moreover, she conscripts the Congressional Budget Office to help with the argument: "You might think that everyone is going to structure their benefits to get around this tax," McArdle writes. "But the CBO expects us to collect quite a bit of money from this tax."
Not quite. The Congressional Budget Office projections (which are, in this case, the Joint Committee on Taxation's projections, as the CBO doesn't estimate tax revenues) actually suggest that the bulk of the tax's revenues will come from the response to the tax, not the payment of the tax. As the New York Times reports, the JCT believes that "about $142 billion of the 10-year total of $201 billion to be raised by the [excise tax] would come from increased income and payroll taxes." In other words, the vast majority of the revenues would come because employers would "structure their benefits to get around this tax." Workers would receive more of their compensation in wages and less in health-care benefits, and because wages are taxable and health benefits aren't, tax revenues would go up.
That is an excellent point. Let's pay attention to the dynamic effects of the legislation. The trouble is that the CBO didn't adequately account for the response to the implicit marginal tax created by the sliding scale of subsidies, as Greg Mankiw has noted.
I should note that CBO does not fully incorporate the effects of these higher marginal tax rates in their cost estimates. If taxpayers respond to these new incentives by, say, working less, GDP and tax revenue from income and payroll taxes will decline. By the conventions of budget scoring, CBO ignores these macroeconomic changes. By contrast, households facing increases in marginal tax rates of 20 percentage points will not ignore them. This means that the healthcare reform bill will likely have a more adverse budgetary impact than CBO estimates.
This strikes me as a pretty big oversight. The limitations of the AHIP report reflects very poorly on AHIP. The fact that so many analysts have ignored the oversights of the CBO estimates will prove far more consequential.
10/13 04:15 PM Share
Friday, October 09, 2009 On Obama's Nobel Peace Prize Shirin Ebadi, the Iranian human rights activist who won the Nobel Peace Prize in 2003, was a staunch critic of the Bush White House. Yet she has also spent decades working tirelessly on behalf of women and vulnerable minorities, all while leading a pretty modest life as a working mother. Though I can't say I see eye to eye with the Nobel Peace Prize Committee on much, I do think she was an excellent choice. Now, of course, the Committee has chosen President Barack Obama.
One thing I find extraordinary about this decision is that the president was chosen ahead of two Chinese dissidents, a Congolese doctor who has dedicated his life to aiding victims of sexual assault, an Afghan activist who, like Ebadi, has fought to defend the rights of women, and many other worthy nominees. More remarkably still, the president recently decided against meeting the Dalai Lama in deference to Chinese sensibilities. Then there is the president's outreach to the State Peace and Development Council. Anwar Ibrahim, Malaysia's fearless opposition leader, who has faced down political thuggery of the worst kind from racial chauvinists devoted to his destruction, said the following in an interview with Christopher Rhoads of The Wall Street Journal.
"With constructive engagement...what you find is countries going for construction projects and no engagement," said Malaysian opposition leader Anwar Ibrahim, in an interview in New York on Thursday. Mr. Anwar said "constructive intervention" was required.
Mr. Anwar said the U.S. is still the only country that can stand up to many countries on issues such as the fate of Aung San Suu Kyi, the Myanmar opposition leader and Nobel laureate who has been under house arrest for much of the past two decades.
There is an upside to all of this: perhaps the president will decide that he is obligated to defend the interests of fellow Nobel Peace Laureates, given that they belong to the same club. That will mean defending the rights of Aung San Suu Kyi and the Dalai Lama and Shirin Ebadi.
Seen through that lens, perhaps the president will decide that the Prize is more trouble than it's worth ...
P.S. Roger Bate has identified a very worthy candidate for the Prize. 10/09 05:58 PM Share
Thursday, October 08, 2009 Martin Feldstein's Brilliant Reform Proposal In today's Washington Post, Martin Feldstein offers a way out of the health reform impasse.
Let's scrap the $220 billion annual health insurance tax subsidy, which is often used to buy the wrong kind of insurance, and use those budget dollars to provide insurance that protects American families from health costs that exceed 15 percent of their income.
Remarkably, Feldstein's proposal would dramatically expand access to health insurance, eliminate a distortion in the tax code that exacerbates cost growth, and there would be money to spare.
My calculations, based on the government's Medical Expenditure Panel Survey, indicate that the budget cost of providing these insurance vouchers could be more than fully financed by ending the exclusion of employer health insurance payments from income and payroll taxes. The net budget savings could be used to subsidize critical types of preventive care. And unlike the proposals before Congress, this approach could leave Medicare and Medicaid as they are today.
Feldstein identifies two potential flaws and he identifies solutions for them.
First, how would families find the cash to pay for large medical and hospital bills that fall under the 15 percent limit? While it would be reasonable for a family that earns $50,000 a year to save to be prepared to pay a health bill of, say, $5,000, what if a family without savings is suddenly hit with such a large hospital bill? Second, how would doctors and hospitals be confident that patients with the new high deductibles will pay their bills?
The simplest solution would be for the government to issue a health-care credit card to every family along with the insurance voucher. The credit card would allow the family to charge any medical expenses below the deductible limit, or 15 percent of adjusted gross income. (With its information on card holders, the government is in a good position to be repaid or garnish wages if necessary.) No one would be required to use such a credit card. Individuals could pay cash at the time of care, could use a personal credit card or could arrange credit directly from the provider. But the government-issued credit card would be a back-up to reassure patients and providers that they would always be able to pay.
One potential pitfall of this approach is that household income is volatile. Just as the various Democratic reform proposals recall new enforcement resources for the IRS, this approach will pose a serious challenge to tax collectors. Moreover, the 15 percent threshold creates an implicit marginal tax, though the effect is less egregious than with sliding scale subsidies.
Overall, I like this idea, though there are many questions that remain. Feldstein makes no mention of a mandate or coverage for pre-existing conditions or purchasing pools. What happens if a family doesn't actually purchase health insurance coverage with the voucher? We could imagine a Nudge-like decision to default all households into a high-deductible plan.
And cost control is still an issue. While the deductible would provide some spending discipline, it doesn't have much effect on big-ticket expenditures. I'd like to see Feldstein's approach combined with a publicly-chartered reinsurance program designed to foster delivery-system reform.
I can imagine that some will consider Feldstein's proposal insufficiently generous. But what it does it distribute the $220 billion annual health insurance tax subsidy more equitably. It's certainly true that some families will continue face high costs, but no families will face bankruptcy over medical expenditures.
I'd love it if we could get some actual elected officials behind this. Scrapping the tax subsidy is, I realize, a political non-starter, and the transition would be difficult. But this is the kind of reform we need. 10/08 04:19 PM Share
How Much Will the Baucus Bill Cost? Donald Marron offers a useful reminder:
So let me once again implore everyone commenting on the health debate: There is a difference between the cost of the Baucus bill ($904 billion) and the cost of its provisions to expand coverage ($829 billion). It is understandable that most commentary focuses on the health insurance provisions. But we should not forget the other $75 billion in spending on other initiatives. Dollar-for-dollar they deserve as much scrutiny as the coverage expansions.
This is not a trivial difference. Yet I think the more open question is whether this spending will deliver a better health system overall. Keith Hennessey offers a number of reasons to believe that it won't.
In 2016 a family with a worker worth about $48,000 in total annual compensation would get about $9,000 of subsidies for the purchase of health insurance, if their employer does not offer them coverage. If your employer offers you coverage, you are not eligible for these subsidies. The bills create a firewall intended to prevent employers from “dumping” their employees onto the subsidized system. This firewall creates an enormous inequity.
Imagine two families in the year 2016, each with an identical worker whose total compensation is worth about $48,000. Both families are required to buy health insurance.
Family A is offered health insurance through an employer. A “silver plan” will cost about $14,000 in 2016, squeezing out $14,000 of family A’s income and leaving $34,000 in wages.
Family B is not offered health insurance through an employer, and therefore qualifies for about $9,000 in subsidies to buy health insurance. Family B thus has $48,000 in wages plus $9,000 in subsidies, minus $14,000 in health insurance and roughly $4,000 in higher taxes, leaving about $39,000 in wages after buying the same silver plan.
Family B ends up roughly $5,000 better off than Family A, even though the workers are worth the same in total compensation. The family that does not get health insurance through employment is better off because it gets a big subsidy.
So while the legislation ostensibly "bans" the shifting families from one side of the firewall to the other, the incentives will be very large. Hennessey suggests that Congress will be under intense pressure to extend the subsidies from Family B to Family A, which would dramatically increase costs.
Congressional Republicans have been accused of trying to derail health reform through constant delays, and that is an understandable charge. It's natural for opponents to want to slow down the process. But there are solid, substantive reasons for wanting to slow the process down, namely that there is still a great deal that we don't understand — and further study could give us a better, more accurate picture of the choices we're facing. The breakneck pace is all about the political cycle. 10/08 03:56 PM Share
Anti-Environmental Regulation Brad Plumer of The New Republic has written a shocking report on how federal and state regulations lead to perverse environmental outcomes.
Casten’s original plan was to sell one-third of the recycled power to Cabot’s plant, and the rest to an industrial facility just down the road for around $45 per megawatt-hour—cheaper than the $55/MWh that electricity cost in the area, yet still high enough for the project to be profitable. But, in Louisiana, as in most of the United States, state law forbids anyone from stringing up private wires across a public street. Casten couldn’t market his power directly—he could only sell it to the local electric utility. And, because the utility, due to state rules, chiefly earned a profit from the power plants it built and ran itself, it refused to offer anything more than rock-bottom prices for Casten’s recycled power—prices too stingy for the project to work. After many months of bitter wrangling, Cabot gave up entirely. As a final insult, the utility later won approval from regulators to build a brand new fossil-fuel plant, a pricier way to generate electricity that would also add more carbon to the air.
The Louisiana utility wasn’t doing anything evil—it was just responding rationally to the rules laid down—but the end result was perverse. "It’s like we’re forcing citizens to pay extra to heat the planet," Casten bristles. And similar roadblocks stand in the way of recycling across the country, with jaw-dropping consequences: One study for the EPA found that harnessing industrial waste energy had the potential to meet 19 percent of the country’s electricity needs—equal to 95 nuclear plants—while slashing fossil-fuel use in the power sector by one-quarter.
Plumer offers a number of recommendations, including the elimination of barriers to local generation. One wonders how far we could get in promoting energy efficiency and curbing carbon emissions by simply eliminating counterproductive regulations rather than creating new regulations. 10/08 03:43 PM Share
Why the Danes Love High Taxes Matt Yglesias has been blogging from northern Europe, and he's written a post that captures the differences between the social democratic left and the free market right unusually well. After describing Denmark's high-quality public services and extremely heavy tax burden, he writes the following:
There’s no way to have a progressive renaissance in the United States unless progressives find some politically feasible way of directly making the case that higher taxes for better services can be a good trade. And it’s worth trying to be honest about this. The other American journalists I’m traveling with, all lefty environmentalist types, can’t stop complaining about how expensive basic consumer goods are here. And it’s true, stuff’s expensive! But college and preschool and doctors and hospitals are all free, and the carbon emissions are low. This is, I think, a good trade but it really is a trade. Low taxes plus cheap dirty energy and large numbers of poor people will give you cheaper restaurants.
My sense is that Matt is overestimating the average material standard of living in Denmark. Moreover, the differences in poverty between northern Europe and the United States can be traced in no small part to family structure. It is true, however, that tax-and-transfer policies make an enormous difference. Via Will Wilkinson, this chart shows that pre-tax inequality in Denmark is not that far from pre-tax inequality in the United States — but the Danes do far more to redistribute wealth. One has to assume that regional diversity of the United States contributes to our decision to redistribute less, e.g., the cost of living varies dramatically from New York city to Houston to Marfa, whereas the band is far narrower in Denmark.
I'd say that my main objection to what you might call the Danish settlement is that the sacrifices made in terms of disposable income are also sacrifices in terms of choice: the Danes live in what Keith Joseph, one of the architects of the Thatcher Revolution, called a "pocket-money society," in which the state makes the big decisions — about housing and education and health — while individuals were left with "pocket-money" from their wages. And as citizens cede control over these larger life decisions, there is the twin danger of dependence and a stultifying lack of innovation.
It helps, however, that center-right governments in Denmark and Sweden have helped revive the Scandinavian social model by introducing market competition into education and other public services, as well as notional accounts in public pensions and a variety of other ideas that many U.S. Democrats would consider dangerously right-wing. 10/08 03:25 PM Share
Tastes Great and Less Filling? Ezra Klein writes:
This morning, I was on MSNBC with Sen. John Barrasso (R-Wyo.), who argued against the public plan by asserting that Medicare was too expensive and bankrupting the country. When I pointed out that CBO projected $110 billion in savings for a public plan attached to Medicare rates, he didn't miss a beat: That's because Medicare underpays, he explained, and is subsidized by private insurance.
Only one of those two arguments can be true. As compared with private insurance, Medicare can either be unaffordably expensive, or it can be underpaying for services and saving money. It can't be both.
I'm not so sure it can't be both. For example, if Medicare were designed to encourage the creation of efficient provider networks, it would facilitate rather than undermine efforts on the part of private insurers to move away from highly inefficient fee-for-service medicine. Because Medicare represents so large a share of overall medical spending, it's reliance on fee-for-service shapes the entire landscape. 10/08 03:08 PM Share
Taxing the Poor At The New Atlantis, James Capretta has identified a crucial flaw in the Baucus bill.
A family with an income at twice the poverty line, or $48,000 in 2016, would get $9,072 in federal assistance for coverage — still a substantial sum. But it’s $7,400 less than the family would get if they earned half as much. The Baucus plan thus imposes an implicit marginal tax rate of about 30 percent ($7,400/$24,000) on wages earned by families in this income range.
And that would come on top of the high implicit taxes already built into current law. Low-wage families with children also get the Earned Income Tax Credit (EITC). The EITC boosts incomes for those with the very lowest wages, but it is also phased-out as incomes rise. Past a certain threshold (about $21,400 in 2016), the EITC is reduced by $0.21 for every additional $1 earned. Throw in the individual income tax rate (15 percent) and payroll taxes (7.65 percent), and the effective, implicit tax rate for workers between 100 and 200 percent of the federal poverty line would quickly approach 70 percent — not even counting food stamps and housing vouchers.
Greg Mankiw followed up, suggesting that Capretta was underestimating the implicit marginal tax rate.
Indeed, Jim seems to understate matters, as he includes only the employee half of the payroll tax. Including both the employee and employer halves, as economic theory says is appropriate, appears to give a marginal tax rate closer to 80 percent. And, of course, many states impose income and sales taxes as well, and these would further raise the overall marginal tax rate.
If we pursued Mankiw's proposed stimulus and halved the payroll tax and paid for it with an increase in the gas tax, we'd ease the burden on less affluent workers, who are far less likely to commute by automobile. 10/08 03:04 PM Share
Dan Drezner on Why America Needs Crossfire Dan Drezner has written a persuasive post on why Jon Stewart was wrong to condemn Crossfire, the late and mostly unlamented TV debate series.
As inane as the crosstalk shows might have been, one of their strengths was that they had people with different ideological and political perspectives talking to (and sometimes past) each other. You could argue that the level of discourse was pretty simplistic and crude — but at least it was an attempt at cross-ideological debate. People from different ideological stripes watched the same show and heard the same arguments. Nowadays, if you're looking for that kind of exchange, you either have to fast all week until the Sunday morning talk shows, or go visit bloggingheads.
Instead of Crossfire-style shows on cable news, you now have content like Hannity, Glenn Beck, Countdown with Keith Olbermann, etc. These programs have no cross-ideological debate. Instead, you have hosts on both the left and the right outbidding each other to see who can be the most batsh**t insane ideologically pure. These shows attract audiences sympathetic to the host's political beliefs, and the content of these shows help viewers to fortify their own ideological bunkers to the point where no amount of truth is going to penetrate their worldviews.
At the time, I was mainly bothered by Jon Stewart's self-righteousness. While the writers and producers of The Daily Show are clearly tremendously talented, it has long been clear that Stewart's gift mainly lies in connecting with the prejudices of his audience. (Stephen Colbert, in contrast, strikes me as a brilliant performer, as evidenced by the manic intensity of The Colbert Report and his supporting role in Strangers with Candy, not a series I'd describe as family-friendly.) To that end, he veers between lecturing the public and, when it suits, retreating into the role of a jokester who is immune to criticism. The irony of his "hurting America" remarks is that, as Drezner suggests, Stewart helped accelerate the death of cross-ideological debate and the rise of contempt-driven mono-ideological programming.
That said, I have faith in the marketplace. 10/08 02:49 PM Share
Wednesday, October 07, 2009 Jeff Anderson's Small Bill At the Weekly Standard, Jeffrey Anderson calls for a "small-bill" alternative to Baucuscare.
But Republicans cannot lead merely by stating abstract principles. They must advance specific proposals—ones that are easily understandable and can be expressed in plain language to the American people. The Republican bill should be as short and simple as possible. It should be targeted to address Americans' specific and pressing concerns. And it should make health insurance more accessible, affordable, and portable—without breaking the bank, threatening the quality of care, or jeopardizing the preexisting insurance of millions. It should look something like this.
I don't think Anderson's proposal goes far enough, but it includes a number of smart ideas. 10/07 03:28 PM Share
A Tax Credit for Job Creation Who said bipartisanship is dead? Catherine Rampell reports that Republicans and Democrats are getting behind a solid — not perfect, but solid — proposal for fighting unemployment.
The idea of a tax credit for companies that create new jobs, something the federal government has not tried since the 1970s, is gaining support among economists and Washington officials grappling with the highest unemployment in a generation.
There are, of course, a variety of ways to structure the credit, some better than others.
An American Economic Review study has suggested that the 1970s policy was responsible for adding about 700,000 of the 2.1 million jobs that were awarded the credit. This may sound modest, but if accurate, economists say it would make this proposal a successful and relatively cheap way of creating jobs.
Advocates argue that such incentives would be more effective this time around not only because of design, but also because of timing. In 1977, hiring was already on the upswing, whereas economists expect today’s job market to decline a bit more and then stagnate for months.
“Now is a better time than ’77 was because we’re closer to the bottom of a recession,” said Daniel S. Hamermesh, an economics professor at the University of Texas, Austin, who helped create the 1970s plan. “This could help an uptick proceed more rapidly.”
There is legitimate concern that employers might game the system, and this approach won't be cheap. But it seems vastly superior to the way the White House has approached the question of economic stimulus so far.
P.S. Greg Mankiw has written a more critical take on the idea, and he endorses a more straightforward proposal.
I would institute an immediate and permanent reduction in the payroll tax, financed by a gradual, permanent, and substantial increase in the gasoline tax. I would make the two tax changes equal in present value, so while the package results in a short-run budget deficit, there is no long-term budget impact. Call it the create-jobs, save-the-environment, reduce-traffic-congestion, budget-neutral tax shift.
I recognize that some state governments are now struggling in light of the macroeconomic crisis. For the next two years, I would let each state governor have the authority to divert a portion of the payroll tax cut in his or her state and take the funds instead as state aid. This provision would essentially be giving governors the temporary authority to impose a payroll tax on his or her citizens, collected via the federal tax system. Those governors who think they have valuable infrastructure projects ready to go would take the money. When designing a fiscal stimulus, there is no compelling reason for one size fits all. Let each governor make a choice and answer to his or her state voters. It is called federalism.
This is an extremely appealing idea. My guess, however, is that the job creation tax credit might be the best we can get. 10/07 03:17 PM Share
Let's Debate One of the great pleasures of writing this blog has been receiving emails from readers, many of which offer trenchant criticisms of my sense of where conservative policymakers should be going on a wide variety of issues. In a recent Slate dialogue with Sam Tanenhaus, I laid out my broad view.
The historical reality I have in mind is that we're living in straitened economic circumstances, that we face an unemployment crisis that might last a decade or more, and that American workers don't have the skills they need to flourish. Over the past decade, spending by state governments has increased at a rate of 6 percent a year, far outstripping economic growth. This is not sustainable. What I want most from the political right is a commitment to truth-telling: In the next few years, we will have to cut spending and raise taxes across all levels of government. In normal times, this isn't a winning political formula, but it might be in a crisis. And a crisis is exactly where the retreat from responsibility, which I see as a phenomenon of the right but also of the left and center, is leading us.
I imagine a lot of you disagree with this, and I'd love to discuss this and other issues at greater length. So please join me today at noon Eastern Standard Time at the Washington Post. Hostile and friendly questions are equally welcome. 10/07 10:28 AM Share
Monday, October 05, 2009 The Swap This summer, I wrote a post on the case for federalizing Medicaid, one that drew on Ronald Reagan's proposal for a swap between state and federal governments. Ezra Klein offers another argument for doing so:
Medicaid is a counter-cyclical program. When the economy gets bad, the program gets more expensive. That's obvious enough: People lose their jobs and suddenly need help affording health-care coverage. Medicaid exists to help them. The problem is, that's the exact moment when state revenues go down, because people who lose their jobs pay less in taxes. And 49 of 50 states are required to balance their budgets, so they can't deficit spend.
The precise moment when Medicaid costs more and is most needed, in other words, is also the precise moment when states are least capable of increasing their contribution. The federal government, conversely, is able to deficit-spend during recessions, and often does. The federal spending pattern makes sense for Medicaid. The state spending pattern doesn't. Give it to the feds.
Now, Reagan's idea for a swap posited that income-maintenance programs would be shifted to the states, and these are counter-cyclical programs as well. I think we need to do a far broader rethinking of state and federal responsibilities.
10/05 06:10 PM Share
Michael Heller and Economic Gridlock Last year, I had the great pleasure of reading Michael Heller's excellent and very accessible The Gridlock Economy, and Tim Lee has a very useful post summarizing Heller's recent Mercatus debate with Richard Epstein, a libertarian law professor I'm guessing many of you have read. I'm a fan of Heller and Epstein, so this was a particularly interesting exchange for me. 10/05 05:50 PM Share
Ron Brownstein on 2010 vs. 2012 Will 2010 be a false dawn for Republicans? Brownstein makes a strong case:
In midterm elections, the electorate tends to be whiter and older than in presidential elections. ABC polling director Gary Langer has calculated that since 1992 seniors have cast 19 percent of the vote in midterm elections, compared with just 15 percent in presidential years. That difference contributed to the 1994 landslide that swept the GOP into control of both the House and Senate. Seniors had cast just 13 percent of the vote in Bill Clinton's 1992 victory, but that figure spiked to nearly 19 percent two years later, with voting by the young people who had bolstered Clinton falling off sharply.
If 2010 is the year of the "angry white senior," as The Cook Political Report has argued, it's easy to see a strong anti-Obama backlash leading to significant Republican gains in the House. But the composition of the electorate will change in 2012.
But that dynamic also means that Republicans could do very well in 2010 without solving their fundamental demographic challenges. In the 2012 presidential election, the young and minority voters central to Obama's coalition are likely to return in large numbers. The risk to the GOP is that a strong 2010 showing based on a conservative appeal to apprehensive older whites will discourage it from reconsidering whether its message is too narrow to attract those rapidly growing groups. "It can't be the same formula in 2012," Ayres warns.
One wonders how many young voters will return. It's possible that 2008 saw an unusually high level of youth turnout that won't be replicated any time soon. If unemployment surpasses 10 percent and stays there for a prolonged period, youth unemployment will presumably be somewhat higher. These voters might not be inclined to actively and energetically support the party in power at that point. To be sure, it's not clear that Republicans will be able to win them over. A jobs-focused agenda would help. John Harwood suggests that Republicans will emphasize jobs on the campaign trail.
Moreover, even Mr. Obama’s economic team now concedes that unemployment, which they once hoped to keep from exceeding 8 percent, will get worse through the end of the year. One outside economist, Mark Zandi, predicts the economy will shed 750,000 more jobs over the next six months, with unemployment peaking at 10.5 percent in June.
Republicans say the trends will only magnify voters’ doubts about the effectiveness of the administration’s anti-recession policies. “For a lot of people, the ‘whether it’s working or not’ is filtered through jobs,” said a Republican pollster, Bill McInturff.
But what exactly will the G.O.P. do to revitalize the economy? 10/05 05:39 PM Share
Caldwell on The Phantom Fix This is one of the best takes on health reform I've read come across.
Health reform is beginning to look like a run-of-the-mill "fix" of the sort Washington applies whenever a big-spending program spins out of control. When people get attached to benefits they haven't paid for, the solution is seldom to cut the benefits. It is to rope in a set of dupes (in this case, young, healthy people) to pay for benefits they won't receive. Far from breaking with the me-first ethos that brought us to the brink of economic ruin, the individual mandate fits squarely within the time-honored Capitol Hill tradition of identifying resources that can be dislodged from future generations, and transferring them to the generation in power.
As Charles Murray has eloquently observed, we've lost a number remarkable conservative thinkers over the last decade. Fortunately, we have Caldwell, as well as some of my distinguished colleagues at National Review, to at least start filling the vacuum. 10/05 05:11 PM Share
The Olympics Imbroglio I'm a little late on this one, but I'd like to point you to Annie Lowrey's report on London's struggles with the 2012 Olympics as a sign that Chicago should be grateful for losing to Rio.
The budget for the games has quadrupledto a truly Olympic size: £9.3 billion ($15 billion), and rising. Jack Lemley, the ousted chair of the Olympic Delivery Authority, forecast the games might at the end of the day cost Britain as much as the 2008 Beijing games cost China, in the region of $40 billion — more than Britain's stimulus package, a mayday measure designed to save the country from economic ruin last November.
That was a cost China — an expanding economy with very low labor costs and the need for infrastructure anyway — could bear. It's less clear that Britain can. For one, London hardly needs the facilities it's building, and they are of questionable legacy value. More importantly, such exorbitant costs are coming at the same time that the British economy is struggling beneath the weight of the credit crunch and recession.
The sad truth is that the hosting the Olympics should be the province of developing countries with something to prove. Conservatives have been accused of gloating over Chicago's loss, and that may or may not be true. This accusation does strike me as an effective way to deflect legitimate criticism of the president for going to Copenhagen when he evidently didn't have enough time to regularly consult with and reassure an increasingly erratic Hamid Karzai before Afghanistan's rigged national elections. The job of any president is almost impossibly hard, and it's important to recognize that. But if President Bush had fought hard for Dallas or Houston to win the games, I promise that there'd be howling from the opposition.
On a lighter note, Brad Flora wrote the definitive take on the cultural politics surrounding Chicago's bid for the Olympics for Slate.
Why the grumbling? The bid's most visible opponents have spent years howling that the Olympics will breed graft and political corruption and bleed an already cash-strapped city dry. Chicago 2016's supporters, by contrast, have argued that the Olympics will improve the city's standing, create jobs, and boost local morale. The debate here wasn't best understood as an honest disagreement over what's best for Chicago. Rather, the rhetoric was indicative of a more fundamental clash: the eternal battle of jocks vs. nerds.
In Flora's view, Obama was well-placed to bridge the jock vs. nerd divide.
Who in America has the power and the bona fides to end this perpetual jock-nerd standoff? If anyone can do it, it's President Obama. With his professed fondness for comic books and his prowess on the basketball court, he speaks both nerd and jock. And having agreed at the last minute to fly to Copenhagen to stump for the Games, he put himself at the center of the dysfunctional local shouting match.
Alas, it didn't quite work out. The jock vs. nerd concept might even shed light on infighting among conservatives these days, but that's a whole other story. 10/05 05:05 PM Share
Manchester The Conservative Party is having its annual conference in Manchester this year, a departure from past years when party conferences would take place in England's various seaside resorts. Fraser Nelson, the new editor of The Spectator, explains the shift:
Why a Monday start? And why Manchester? The seaside resorts were chosen when party conferences were rallies of the grassroot members, and venues were chosen for their supply of cheap (usually B&B) accommodation. Now, most people who attend are the new breed of political professionals who are not paying their own hotel bills. Lobbyists, quangocrats, NGO advisers, journalists, the whole lot. ... There are fewer and fewer grassroot activists who do it for love. The reason for starting conference in a weekend was to let those activists get back to work. For the political pros now stuffing the conferences, this is work - don’t blame the Tories for starting on a Monday in Manchester – but it is a sign of the steady professionalisation of politics. And I don’t mean that in a good way.
Many NR readers find David Cameron's transformation of the Conservatives dispiriting. His efforts to "modernize" the party are often interpreted as a leftward lurch. I take a somewhat more favorable view. My sense is that Cameron has been far too accommodating on Britain's National Health Service. Indeed, his stance on the NHS is arguably to the left of Labour, which is a scandal. Yet it is a fairly predictable political decision given the landscape, one that resembles the recent tendency of Republican lawmakers to defend Medicare in the same apocalyptic tones once used by Democrats. And it's also true that Cameron hasn't been as forthright as he should be regarding the spending cuts that Britain will have to endure over the coming years. He acknowledges that cuts have to be made and that Britain faces a fiscal emergency (see this report on the country's public finances from The Economist), which is more than can be said of some politicians, but I wish he'd hammer the point more aggressively. The danger, again, is that he'll be demagogued by Labour.
Labour's attack on the Conservatives has been contradictory: he's a dangerous right-wing ideologue and he's an opportunist with no convictions. But now the consensus is that the Labour party has settled on the dangerous right-wing ideologue narrative, and to that end they maintain that Conservatives are gleeful about slashing public spending. Having emphasized their "compassionate" credentials, this kind of attack has lost its force. The Conservatives have instead focused on introducing choice, competition, and accountability into public programs. This had been part of Blair's agenda, yet it was undermined by intense resistance within the Labour Party. Michael Gove, one of the bright lights of Cameron's shadow cabinet, has done a brilliant job of selling the party's ambitious plan to embrace Swedish-style school choice, which allows parents and charities and for-profit firms to establish schools that would then compete with state schools. And they're also pushing an ambitious welfare reform agenda spearheaded by David Freud, who recently defected from Labour, and the slightly disappointing Theresa May.
So far, the Conservatives have been cautious about offering tax cuts. They've proposed tweaks here and there, but they've also accepted some of Labour's more egregious tax hikes in response to the looming debt crisis. At the same time, the party seems increasingly receptive to tax cuts designed to spur job creation. My hope is that they will, like the Canadian Liberals, create a very transparent, open process for sharply reducing government spending once in office, and that they will then pursue an agenda of tax-cutting and tax-simplification. After spending time with a lot of sharp Conservative thinkers, I sense that this is their intention: to gain credibility on spending before they make promises they can't keep.
For a sense of Cameron's rhetoric, check out his recent comment in The Daily Telegraph. 10/05 04:49 PM Share
Wednesday, September 30, 2009 The Air Capture Approach Via FuturePundit I found a really fascinating short article in Science by University of Calgary climate scientist David W. Keith, in which he argues that we should sharply increase investment in air capture, "an industrial process that captures CO2 from ambient air, producing a pure CO2 stream for use or disposal."
Technologies for decarbonizing the energy system, from solar power to the capture of CO2 from the flue gases of coal-fired power plants, can cut emissions but they cannot reduce the climate risk posed by the carbon we have already added to the air. It may be possible to increase the Earth's reflectivity, engineering a cooling that counteracts the CO2-driven warming. Although climate engineering may be important for managing climate risk, it cannot eliminate long-term climate and geochemical risks posed by elevated CO2. It is therefore in our interest to have a means to reduce CO2 concentrations in order to manage the long-run risks of climate change.
Like most climate scientists, Keith believes that we should focus on reducing emissions, and to that end he favors the creation of a carbon market. While I think reducing emissions is a worthy goal, I've been convinced by Jim Manzi that most of the proposals for decarbonizing the energy system, which focus on some combination of a carbon market and large transfers to incumbent energy firms, are too costly relative to the likely benefits, which is why I prefer large-scale public investment, financed out of general revenue, in technologies like air capture: whether you believe, as I do, that the IPCC is most likely underestimating the dangers from climate change or that it is overestimating them, this is a smart hedging strategy.
So why not back a carbon market? I'd be more inclined to support one if we could somehow create a global carbon market. Brad Plumer recently cited a report from Climate Group on what a multinational carbon market might look like.
More specifically, the Climate Group estimated that, by 2020, carbon prices in Europe would hover around $65/ton if the E.U. was still going it alone. But, if both the E.U. and the United States had interlinked cap-and-trade programs, the price would go down to $28/ton. And if all developed countries and China somehow hooked up under one big cap-and-trade system, the price of carbon could be as low as $4/ton. In other words, the cost of reducing carbon would be nearly negligible.
Basically, the Chinese use a number of obscenely inefficient coal plants. There is a lot of low-hanging fruit in the developing world. Reducing emissions in the United States and Europe, in contrast, is more expensive, as our economies are already less carbon intensive.
What if air capture became so efficient that we could unilaterally scrub the atmosphere? I'm sure that David Keith considers this a far-fetched scenario. But this research agenda certainly seems worth more than the $3 million of public and private research money we're spending at the moment. The benefits of a breakthrough would be massive.
09/30 07:35 PM Share
Steve Coll on Afghanistan Steve Coll, my boss at New America, has written two excellent posts on what we can learn from the Soviet experience in Afghanistan. In "Ink Spots," he describes the state of Afghanistan between 1986 and 1992 and how it might prefigure a successful U.S.-led counterinsurgency strategy: realistically, the best we can achieve short of occupying Afghanistan with a 500,000 man army is an archipelago of secure cities linked by air or by heavily-defended roads cutting through Taliban-controlled territory. He ends on a sobering note.
The uncertainties point, like so many other factors in this conflict, to the central importance of politics in Kabul and Islamabad. The Soviets failed in Afghanistan for many reasons, beginning with the brutality of their military campaigns and the implausibility of their political strategy. Nonetheless, by the end of the 1980s, they had constructed a durable ink spot strategy, albeit one based on a more defensive and internally ruthless political-military strategy from the one McChrystal is proposing. The Soviets were unable, however, to convert that partial territorial achievement into a broader and more durable strategic success. Partly they just ran out of time, as often happens in expeditionary wars. Their other problems included their inability to control the insurgents’ sanctuary in Pakistan; their inability to stop infiltration across the Pakistan-Afghan border; their inability to build Afghan political unity, even at the local level; their inability to develop a successful reconciliation strategy to divide the Islamist insurgents they faced; and their inability to create successful international diplomacy to reinforce a stable Afghanistan and region. Does that list of headaches sound familiar?
In "Gorbachev Was Right," Coll suggests that the United States should have cooperated with the Soviets in the late 1980s, after the U.S-backed insurgency had successfully sapped the strength of the Soviet-backed Afghan state. Rather than just prop up President Najibullah, Gorbachev sought a UN-sponsored process that would isolate Islamist extremists, who were both anti-Soviet and anti-American, and create a broad-based government. Note that Ahmad Shah Massoud, who went on to become the greatest thorn in the Taliban's side, was on the verge of casting his lot with the Soviets before Afghanistan's complete collapse.
The U.N. attempted, with ambivalent U.S. involvement, to pursue this vision of regional diplomacy and stabilization, through negotiations between 1988 and 1992 that included Najibullah and other Afghan leaders. It failed, however, in part because the United States, until the end of 1991, continued to fund and support a “military solution” for the mujaheddin favored by Pakistan’s army and intelligence service. The C.I.A. argued in favor of the military solution. It then concluded, as one assault after another on Najibullah-defended cities failed, that the U.S. had no further interests in the country and should pack up its financing and diplomacy and go home. A few years later, the Taliban took Kabul. One of the American policymakers responsible for this sequence of policy decisions—who was deeply skeptical of Gorbachev during the late nineteen-eighties and who was present at the decision to abandon the difficult work of regional diplomacy in 1991-1992 that Gorbachev favored—was Robert Gates, who is now Secretary of Defense.
One hopes that Gates is not on the verge of making a similarly serious mistake by short-changing the counter-insurgency effort in Afghanistan.
09/30 06:58 PM Share
The Party of No Many have argued that congressional Republicans have played a uniquely counterproductive role in debates over the fiscal stimulus and health reform. Some writers and thinkers have gone so far as to describe House Republicans as "nihilistic." In a lead editorial, The New Republic doesn't go quite that far, but the editors do suggest that Republicans are operating outside the bounds of reasonable disagreement:
The Republican reception of Baucus's bill doesn't so much represent a crisis for health care reform as it does a crisis for our system. The GOP is no longer representing interest groups; rather, it has become an interest group itself—and an implacable one. So that a compromise piece of legislation that achieves a rough consensus among the various factions in the debate fails to get even one vote from one of the two major parties.
Where to go from here? Having failed to win over Republicans, Baucus should now labor to win over Democrats. If that means having Massachusetts appoint an interim replacement for Ted Kennedy's seat—or even passing some of the reform through reconciliation—then so be it. If Max Baucus's months of work achieved nothing else, he has unmasked the true nature of the contemporary GOP and, in the process, revealed just how broken our political system has become.
I've recently been thinking a lot about how structural aspects of our political system have made partisan competition sharper, a subject I intend to write about at greater length. But for now I'll point you to an excellent essay by Michael Barone in The American, which I just came across today, on the respective congressional bases of the Democratic and Republican parties.
Heavily Republican districts are concentrated in the rural and suburban South. But a significant number of these rural South districts elected Democrats—not as many as did before the 1994 election, but more than during the period of House Republican majorities from 1994 to 2006. As a result, they do not produce as large a share of Republican leaders as the gentry liberal and black districts do for the Democrats. Neither do the suburban South districts—many newly created after the 1990 and 2000 censuses because of rapid population growth—whose members tend not to have great seniority. But such districts did produce earlier Republican leaders, including Speaker Newt Gingrich (first elected in 1978 when GA-6 was a rural South district) and Majority Leaders Dick Armey (TX-24) and Tom DeLay (TX-22). The current Republican leadership thus has reason to focus less on the political realities of heavily anti-Obama districts and more on districts that in the 2008 presidential election were more marginal. That tendency is probably increased by awareness of the party’s current minority status, which gives them an incentive to appeal to voters in districts not currently represented by Republicans.
These constituency realities may help to explain why the House Democratic leadership has supported a solidly liberal agenda and has concentrated on whipping enough members from marginal districts to produce majorities on the floor—the large majority on the stimulus package in February or the narrow majority on cap-and-trade in June. It may also help to explain why the Republican minority has not coalesced around any coherent opposition program, and has avoided taking stands that appeal primarily to the party’s current base.
Many have noted the hypocrisy of conservative Republicans defending Medicare. Given that the composition of the midterm electorate is heavily weighted towards over-65 voters and that President Obama's health reform rhetoric initially centered on generating significant cost savings in the Medicare program to finance expanded coverage, this seems like a rational response to a political opportunity. Another way of looking at this is to say that Democrats, who have effectively used the notion that Republicans intend to "slash" Medicare to great political effect, most spectacularly in the late 1990s after the Gingrich Republicans attempted to slow the rate of growth in Medicare spending, in a sense unilaterally disarmed. Republicans, meanwhile, expanded the Medicare program during the Bush years, sensing in part that Medicare represented a serious vulnerability for them. Republicans could have chosen to ignore this unilateral disarmament n the part of the Democrats, just as McDonald's could decide to refuse to sell french fries to the parents of young children. Past experience suggests, however, that if McDonald's were to take such a stance on principle, Burger King would step in.
So does this mean that democracy is in danger? Or are Republicans engaging in fairly familiar scorched-earth politics that reflects their minority status? The New Republic believes that the rejection of Baucuscare is particularly egregious, as it combines various ideas that had once been embraced by liberal and moderate Republicans.
In almost Solomonic fashion, Baucus crafted a bill that gives something to—and takes something away from—each faction. Virtually every industry group—from hospitals to drugmakers to device manufacturers to insurers—that faces new fees or budget cuts in the Baucus bill is rewarded with additional revenue from the legislation. And, when it came to winning over Republicans, Baucus went more than halfway: eliminating the public option, strengthening protections against federal funding of abortions, and lowering the legislation's price tag.
At the same time, the Baucus bill tightly regulates benefit packages, the interstate compact concept does not allow for the robust competition among state regulators that conservatives had hoped to cultivate, the individual and employer mandates mean that the legislation's supposed price tag masks stealth taxes on firms and families.
In 2005, President Bush proposed revamping Social Security. The Bush White House made it clear that it was open to a variety of approaches that had at one point been championed by the center-left thinkers, including progressive price indexing and voluntary individual accounts. You'll recall that this didn't take off among Democratic lawmakers. Unified Democratic opposition to President Bush's Social Security effort proved highly effective. And somehow democracy survived. So at the risk of speaking too soon, I think we can rest easy.
Regular readers will know that I support the goal of universal coverage, and I think that congressional Republicans, with a few rare exceptions, haven't done a very impressive job on this and other domestic issues. I am, however, sensitive to overwrought language, and to the constraints imposed by a competitive political environment. This is one reason why I favor fairly dramatic election reforms, ranging from adding at-large House districts to the most populous states, campaign finance reforms designed to strengthen challengers against incumbents, open and jungle primaries, among other things.
09/30 06:14 PM Share
How Not to Stimulate the Economy Paul Krugman argues that we tend to exaggerate the scale of the debt problem caused by fiscal stimulus in a liquidity trap. To summarize, fiscal expansion leads to smaller output losses than we'd see otherwise, and this in turn leads to a "crowding in" of private investment that will enhance the long-term growth potential of the economy. Higher GDP growth in the short and the long term mean that we'll be better able to carry the debt burden.
Assuming this is true, and I think Krugman makes a reasonable case, the design of the fiscal stimulus remains relevant, i.e., how much bang for the buck are we getting in terms of smaller output losses? Desmond Lachman of AEI suggests that President Obama's fiscal stimulus package didn't move quickly enough.
The degree to which unusually large gaps have been allowed to open up in the US labor market highlights how ill-designed was the Obama fiscal stimulus package. If the purpose of the US$780 billion stimulus was indeed to jump-start the economy, one has to ask why only around one third of that package was concentrated in 2009 when the economy most needed support. One also has to ask how much economic sense it made for the fiscal stimulus to rely so heavily on the sort of temporary tax cuts that were seen not to have worked in 2008 and why the package was allowed to be so laden with pork that was sure to result in very little bang being obtained for the buck.
A particularly unfortunate consequence of the Obama Administration's botched 2009 fiscal stimulus package will be to complicate the prospect for any further fiscal stimulus in 2010. Sadly, the need for a second stimulus is all too likely in the event that the economy indeed experiences a double dip later in the year as consumer demand remains weak.
That is, the slow-working stimulus allowed unemployment to increase sharply. Once the unemployment rate takes off, it is very hard to lower it, not least if the main instrument at hand is fiscal stimulus. The president's allies could argue that conservative Republicans are to blame, as the stimulus was loaded with temporary tax cuts in an effort to win Republican votes. This does not, however, account for the slow-moving spending initiatives that were included in the legislation.
09/30 05:10 PM Share
Tuesday, September 29, 2009 Dean Kamen on Health This Popular Mechanics interview with Dean Kamen is well worth your time. 09/29 04:23 PM Share
Brownlee on The Healing of America T.R. Reid's call for universal coverage in the United States has received considerable praise from Senator Kent Conrad. I wish Senator Conrad had read Shannon Brownlee's review of Reid's book in the Washington Monthly, a favorite magazine of liberal wonks. Having read the book this summer, I'm inclined to agree with Brownlee's basic assessment.
A distinguished and highly accomplished foreign correspondent, Reid appears not to know what he doesn’t know about the scientific and economic complexity of health care. He also gets his medical facts wrong, stating there are "millions of deaths each year" in the developing world from smallpox (smallpox was eradicated from the planet more than thirty years ago), that polio is a "bone-twisting" disease (it destroys nerves and can lead to muscle wasting), and that the U.K.’s National Health Service won’t give him a prostate-specific antigen, or PSA, test, because it’s not cost-effective (the NHS, in fact, does pay for PSA testing, but doctors in the U.K. don’t encourage it, having figured out long before we did that the test hasn’t been shown to reduce mortality, while leading to unnecessary and potentially harmful surgery). Health care reform is going to take a lot more than cutting the insurance industry’s overhead and slashing the prices of medical services. It’s also going to require profound and sustained changes in the way care is delivered. But you wouldn’t know any of that from reading The Healing of America.
The need for delivery system reform is a lesson that health reform proponents haven't fully taken in — they seem convinced that Massachusetts will now "solve" the problem due to rising political pressure in the wake of coverage expansion and spiraling costs, which is a bit like assuming a can opener. 09/29 04:20 PM Share
An Up-Front Wager? Ezra Klein writes:
Liberals don't think that Congress will pass a bill outlawing private insurance. They don't think the Supreme Court will render a decision naming WellPoint "cruel and unusual." Rather, they think the market will, well, work: The public option will provide better service at better prices and people will choose it. Or, conversely, that the competition will better the private insurance industry and that people won't need to choose it.
But that confidence rests on a very simple premise: The public sector does a better job providing health-care coverage than the private sector. If that proves untrue — and I would imagine most every conservative would confidently assume that that's untrue — the plan will fail. The public option will not provide better coverage at better prices, and so it will not be chosen, and it will languish. Indeed, if it languishes, it will lack customers and thus lack bargaining power and economies of scale, and get worse even as the private insurers get better. In that scenario, the public option not only fails, but it discredits single-payer entirely.
Well, it depends on the relative advantages given to the public sector and the private sector, doesn't it? If the public option is allowed to negotiate reimbursement rates that private insurers can't also use and if private insurers are regulated in such a way that they can't define the mix of benefits and providers they offer (to avoid adverse selection), providing better coverage at better prices is fairly straightforward. How is this an up-front wager? If, in contrast, the public option is not allowed to leverage its publicness, and it has to offer the same reimbursement rates as private insurers, the public option is toothless.
The real goal, as I understand it, isn't benchmarking for its own sake. Rather, it is to restrain private insurers in an environment in which private insurers will have the benefit of a captive marketplace — thanks to the individual and employer mandates — and no strong incentives to reduce costs and premiums.
A better approach would, as Harold Luft has argued, allow private and public insurers (i.e., Medicare Advantage plans, state Medicare plans, etc.) to contract with a publicly-chartered Major Risk Pool that would gives healthcare providers a choice of either accepting Medicare rates with no balance-billing or episode-based payments to care delivery teams with balance-billing. This would encourage greater efficiency among providers without imposing new regulations. 09/29 03:59 PM Share
Monday, September 21, 2009 Density and Carbon Emissions Phil McKenna of Technology Review reports on new research from the National Academy of Sciences:
Even if 75 percent of all new and replacement housing in America were built at twice the density of current new developments, and those living in the newly constructed housing drove 25 percent less as a result, CO2 emissions from personal travel would decline nationwide by only 8 to 11 percent by 2050, according to the study. If just 25 percent of housing units were developed at such densities and residents drove only 12 percent less as a result, CO2 emissions would be reduced by less than 2 percent by 2050.
Increasing density is a cause embraced by many environmentalist, including more than a few conservative environmentalists. Yet reducing the weight of personal automobiles might be a more effective strategy.
A supplemental study released by the NAS concludes that an immediate 0.1 percent reduction in the weight of all vehicles nationwide would be 10 times more effective at reducing greenhouse gas emissions than an immediate 0.1 percent increase in housing density nationwide.
In unrelated news, I recently had the great pleasure of reading a report by soil scientist David Laird on the carbon-mitigating potential of biochar. Last week, Brad Plumer of TNR cast some doubt on the transformative potential of biochar, but the idea remains every attractive. 09/21 05:20 PM Share
Baucuscare vs. Wydencare At the moment, it looks as though a gently modified form of Baucuscare will become a reality. Ezra Klein describes the remaining roadblocks (possible revenue-enhancers include a soda tax and curbing itemized deductions) and Nicholas Beaudrot, a data-driven liberal blogger based in Seattle, has been writing a series of posts on how to make Baucus's reform proposal more generous to the less affluent. The debate has focused on reducing the cost of Baucuscare to the federal government, but of course any individual or employer mandate will create costs for families and firms. Without subsidies, the mandate essentially becomes an unacknowledged tax on the middle class, as James Kwak has argued.
Relative to the House bill, then, the Baucus bill costs the government $140 billion less; but it costs middle-income people exactly $140 billion more, since they have to buy health insurance. The difference is that in the House bill, the money comes from taxes on the very rich; in the Baucus bill, it comes out of the pockets of the middle-class people who are getting smaller subsidies. Put another way, the Baucus bill is the House bill, plus a $140 billion tax on people making around $40-80,000 per year. That’ s not only stupid policy; it’s stupid politics.
I get the impression that Kwak is less concerned than I am about the drag created by high levels of government spending, but he makes a compelling point. The advantage of Baucuscare's "modest" price tag is purely psychological: $856 billion sounds less frightening to taxpayers than $1 trillion, yet those same taxpayers will be legally obligated to spend an additional $140 billion as Kwak explains — only it's not a "tax."
I'm increasingly convinced that Senator Ron Wyden's so-called "free choice" proposal is preferable to the Baucus approach.
I believe there is a way to work with the present employer-based system to guarantee that all Americans have choices, and I am proposing it in an amendment to the latest Senate health care bill. My amendment, called Free Choice, would let everyone choose his health insurance plan.
It would impose only one requirement on employers — that they offer their employees a choice of at least two insurance plans, one of them a low-cost, high-value plan. Employers could meet this requirement by offering their own choices. Or they could let their employees choose either the company plan or a voucher that could be used to buy a plan on the exchange. They could also simply insure all of their employees though the exchange, at a discounted rate.
All payments that employers would make, whether in the form of premiums or vouchers, would remain tax-deductible as a business expense. Reinsurance and risk adjustment mechanisms already in the bill would balance the costs of employers who end up with disproportionately sick pools of workers, and this would avoid any disruption to existing employer coverage. Any employers that did not offer either their own choices or insurance through the exchange would be required to pay a “fair share” fee to help support the system.
By increasing competition among private insurers, this approach is somewhat more likely to yield cost savings over time. While I'd much rather we move to a universal catastrophic coverage system based on a well-designed reinsurance program, Wyden's proposal might be the best of the realistic options.
Many Republicans are banking on winning back Congress and the 2012 presidential election in order to repeal the reform legislation that ultimately takes shape. This is much easier said than done.
09/21 05:13 PM Share
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