Tax Reform? Not So Fast

As talk grows in Washington about the prospects of a rewriting of the US tax code next year, Ezra throws a bit of cold water on the likelihood of success.

With Republicans and Democrats on board, and the relevant players in the House, Senate, and White House interested, this should be easy, right?
 
I doubt it. If you could agree on what the words "revenue neutral" meant, you really could redesign the tax code to feature lower rates, simpler forms and less economic drag. But given the coming expiration of the Bush tax cuts, you can't agree on what revenue-neutral means, as Democrats will say it means revenue after the cuts expire, and Republicans will say it means revenue if the cuts were extended. Until that question is resolved, every tax reform conversation will break down when Republicans realize Democrats are trying to lock in the expiration of the Bush tax cuts and Democrats realize Republicans will only reform the tax code if it means the Bush cuts live forever and ever, amen.

But the bigger problem is that no one's first love is tax simplification. Politicians don't want to modernize the tax code so much as they want to change the tax code in ways that fit their long-term goals.

Conservatives want lower taxes, particularly on the rich. They want a larger percentage of Americans to pay federal income taxes, as they believe that paying federal income taxes makes you less likely to support federal spending (Question: Is there any evidence for this view?). They want major cuts in existing government programs and a high bar to creating new programs, which means total revenues have to remain below current spending and far below projected spending.

Liberals have their own concerns: They want more revenues, as they know that their programs can't survive forever unless taxes rise to meet spending. They want the tax code to be more progressive, and they want to see inequality fall. They want taxes on wealth-income brought into line with taxes on work-income. They want the social spending that runs through the tax code, like the Earned Income Tax Credit or the breaks for clean energy development, to survive, and even be expanded.

And then there are the parts of the tax code that scare politicians: The mortgage-interest tax deduction, the exclusion for employer-based health insurance, the hundreds of smaller tax breaks that the public doesn't know about but that this or that business group will fight to the death to retain.

A Washington Six Pack

Ezra lists 6 points that define Washington politics now.

1) No one really cares about the deficit. No sooner had Alan Simpson and Erskine Bowles completed their work on the deficit reduction package than Democrats and Republicans reached a bipartisan accord to add $900 billion to the debt. Republicans wanted their unpaid-for tax cuts for the rich, Democrats wanted their unpaid-for stimulus measures and both sides wanted the unpaid-for tax cuts for income under $250,000. I think it's appropriate to spend while the economy is weak and then repay when it's strong, but then, I didn't just get elected to Congress by promising to rein in spending.

2) Obama is better at the inside game than the outside game. Sarah Palin likes to ask the president "how that hopey-changey stuff" is going. The answer, it seems, is that the changey stuff is going well, but the hopey stuff is proving more troublesome. Obama might have campaigned in 2008 as the inspirational newcomer who had no patience for the broken ways of Washington, but he has governed like a Washington veteran with little patience for inspired outsiders. In health-care reform, in the stimulus, in financial regulation and in the tax-cut deal, Obama has been a tough negotiator able to move his agenda through a gridlocked Congress - but he has not been able to enthuse Democrats or inspire popular support for his initiatives. He has been prickly when questioned about it.

3) And he's not over health-care reform. Among the president's most passionate moments during the post-deal news conference was his long, impromptu scolding of dissatisfied progressives who're making this into "the public option debate all over again." Obama went on to complain that liberals were so focused on the public option that they lost sight of the rest of the health-care bill - which was much larger. And he's right about that. But it's also time for him to get over it.

4) Republicans really, really, really care about tax cuts for rich people. Many Democrats had been operating under the theory that Republicans would simply obstruct everything Democrats attempted, as that was the best way to make Obama a one-termer. At least when it comes to tax cuts for very wealthy Americans, that's not true. Republicans agreed to far more in unemployment insurance and stimulus proposals than anyone expected, and sources who were involved in the negotiations agree that the mistake Democrats made going in was underestimating how much Republicans wanted the tax cuts for the rich extended.

5) It's still Ronald Reagan's world, at least when it comes to taxes. The Sturm und Drang over the tax cuts for the rich obscured the Democrats' massive capitulation on the tax cuts for everyone else. Even the party's liberals had accepted Obama's argument that the tax cuts for income of less than $250,000 - which includes the bulk of the Bush tax cuts - should be permanently extended. Another way of saying that is Democrats had agreed that the Clinton-era tax rates were too high. If you put it to most Democrats that way, they'd protest vigorously. The economy boomed under Clinton, and the Democratic Party is proud of the efforts it made to balance the budget. But Democrats are so terrified of being accused of raising taxes that they've conceded to the Bush tax rates for 98 percent of Americans.

6) We need tax reform, now more than ever. The end result of this deal is going to be an even weirder tax code than we have now - and the one we have now is pretty weird. We're extending old tax cuts and credits and adding new ones. Some of those may be extended further. Businesses won't want to see deductions for investments expire, and workers won't want to see the payroll-tax cut expire, and the super-rich won't want to see the tax exemption for estates up to $5 million expire. There are so many constituencies fighting for so many breaks that the only hope we're going to have when we actually do need to reduce the deficit - which isn't yet, but will be soon - is to start from square one on the tax code.

The Tax Deal

Sully on the Obama tax deal.

And notice that Obama has secured - with Republican backing - a big new stimulus that will almost certainly goose growth and lower unemployment as he moves toward re-election. If growth accelerates, none of the current political jockeying and Halperin-style hyper-ventilation will matter. Obama will benefit - thanks, in part, to Republican dogma. So here's something the liberal base can chew on if they need some grist: how cool is it that Mitch McConnell just made Barack Obama's re-election more likely? Bet you didn't see that one coming, did you?

The mix of policies is also shrewd from a strategic point of view.

At some point, I suspect, the Congress will have to decide between extending the payroll tax holiday or keeping the Bush tax cuts for millionaires - the double-track of the current Keynesian deal. I think Obama wins on that one, and has set up the kind of future choice the GOP really doesn't want to make. What he has done, in other words, is avoid an all-out fight over short-term taxes and spending now in the wake of a big GOP victory in order to set up the real debate about long-term taxes and spending over the next two years, leading into a pivotal 2012 election that could set the fiscal and political direction of this country for decades, an election in which he may well have much more of an advantage than he does now.

This is the difference between tactics and strategy. The GOP has won again on tactics, but keeps losing on strategy. More broadly, as this sinks in, Obama's ownership of this deal will help restore the sense that he is in command of events, and has shifted to the center (even though he is steadily advancing center-left goals). It's already being touted as "triangulation" by some on the right even as it contains major liberal faves - unemployment insurance for another 13 months, EITC expansion, college tax credits, and a pay-roll tax cut.

My view is that if this deal is a harbinger for the negotiation Obama will continue with the GOP for the next two years, he will come into his own.

The more his liberal base attacks him, the more the center will take a second look. And look how instantly the GOP's position has shifted. They have suddenly gone from pure oppositionism to dealing with the dreaded commie Muslim alien, thereby proving he is not what they have made him out to be. The more often we get the GOP to make actual tangible decisions on policy alongside Obama, the less able they will be able to portray him as somehow alien to the country, and the more they will legitimize him. Their House victory means they can no longer sit out there, portraying the country as somehow taken over by radical, alien forces - which they can simply oppose with ever ascending levels of hysteria and rhetoric. And the more practical and detailed and concrete the compromises, the less oxygen blowhards like Palin and Limbaugh will have to breathe.

Now for the short-term benefits of resolving this tax-and-spend dilemma so swiftly. The president urgently needs to get the new START and DADT through the Senate. DADT would be a major boost for his base - and the country's military. Getting START through is critical to his foreign policy cred. If he can pull all this off by Christmas - and the Senate should indeed stay open for an extra week - the last Congress will indeed be viewed by historians as one of the most substantive (and liberal) in recent history. And Obama will have orchestrated it - while ending up firmly planted and rebranded in the center.

It's Not Really So Bad

Sully takes exception with the liberal angst about the Obama presidency.

This strikes me as grotesquely unfair. I sure know what maters to the president, and a brief survey of his first two years would reveal it rather baldly. "Non-argumentative reasonableness" so far has prevented a second great depression, rescued Detroit, bailed out the banks, pitlessly isolated Tehran's regime, exposed Netanyahu, decimated al Qaeda's mid-level leadership in Pakistan and Afghanistan, withdrawn troops fron Iraq on schedule, gotten two Justices on the Supreme Court, cut a point or two off the unemployment rate with the stimulus, seen real wages for those employed grow, presided over a stock market boom and record corporate profits, and maneuvered a GOP still intoxicated with failed ideology to become more and more wedded to white, old evangelicals led by Sarah Palin. And did I mention universal health insurance - the holy grail for Democrats for decades?

Euro Indigestion

Kevin Drum picks up on an interview with author Barry Eichengreen, who has written on the possible demise of the Euro.

What’s your view now?
Rarely does an academic have the privilege of a real-time test of his hypothesis. With the benefit of that test, I would now say that I was both right and wrong. I was right in that, yes, if the Greek government were to announce tomorrow that it had decided to reintroduce the drachma, it would precipitate the mother of all financial crises. Everyone would know that its intention was to depreciate the new drachma, so in the first minute everyone would rush to get their money out of the country, out of its banks, and out of its bond market. The result would be the biggest bank run and financial crisis the world has ever seen. This danger is a formidable deterrent to even contemplating going down this road. So I think the argument I made in 2007, that attempting to exit the euro area would be the equivalent of burning down your own house in order to find a way out, was exactly right. 

In what way were you wrong?
I was wrong in that, as Paul Krugman observed earlier this year, if the house is burning down anyway, then the normal advice not to play with matches loses much of its force. If there’s a run on your banking system anyway, then the deterrent to action no longer applies. If there’s a run on your banking system and you have to close down your banks and financial markets anyway, you may want to take that opportunity to reintroduce your own currency. I still don’t think that things will be allowed to get to this point, but I no longer attach a zero probability to a country’s exiting the euro — just a close to zero probability. Never say never, but I still believe that the euro is an example of a path-dependent historical process that is unlikely to be reversed.

I think he's probably right. But I'm also not entirely sure of that. So far there's been no sign of a serious run on any euro-area banking system, but there have been signs of a "bank walk," for lack of a better term. And that could lead to a run on one bank which, in turn, could lead to a run on so many banks that the European monetary authorities can't stop it. Megan McArdle's warning that pundits "have started seeing Creditanstalt everywhere" is a good one, but this is still a scary process we're going through. I'm not sure exactly what nonzero probability Eichengreen would attach to a euro breakup, but even five or ten percent is pretty serious. Buckle up.

Starve the Beast?

Kevin Drum quotes Bruce Bartlett as he exposes the Republican tax cutting obsession for the fraud it is.

A prime reason why we have a budget deficit problem in this country is because Republicans almost universally believe in a nonsensical idea called starve the beast (STB). By this theory, the one and only thing they need to do to be fiscally responsible is to cut taxes. They need not lift a finger to cut spending because it will magically come down, just as a child will reduce her spending if her allowance is cut — the precise analogy used by Ronald Reagan to defend this doctrine in a Feb. 5, 1981, address to the nation.

Bruce goes on to look at the empirical evidence — namely that spending went down after the Clinton tax increases and up after the Bush tax cuts — and concludes that STB is a "crackpot theory." True! But what makes it even more crackpotty is that basic economic principles, of the kind that Republicans are endlessly lecturing the rest of us about, predict the same thing. If you raise taxes to pay for government programs, you're essentially making them expensive. Conversely, if you cut taxes, you're making government spending cheaper. So what does Econ 101 say happens when you reduce the price of something? Answer: demand for it goes up.
 
Cutting taxes makes government spending less expensive for taxpayers, which makes them want more of it. And politicians, obliging creatures that they are, are eager to give the people what they want.

Result: lots of spending and lots of deficits.

If you want to reduce spending, the best way to do it is to raise taxes so that registered voters actually have to pay for the services they get. I don't have a cute name for this theory, but it's true nonetheless. For a while, anyway. Until it's not.

The Folly of Simpson and Bowles

Kevin Drum points out the glaring flaw in the Simpson-Bowles chairman's mark proposal by the Deficit Commission....that it ignores healthcare costs.

Here's the problem: most plans to reduce the long-term deficit consist of three things: shiny baubles, smoke and mirrors, and actual deficit reduction measures. You want to minimize the former and emphasize the latter, and on that score I don't think Simpson-Bowles does very well.

 

Their discretionary cuts are a combination of baubles and smoke and mirrors. The baubles are the trivia, like cutting printing costs and eliminating earmarks. The smoke and mirrors comes from vague non-choices like cutting the federal workforce 10% or pretending that a spending cap will actually accomplish anything. Discretionary spending isn't really a long-term problem in the first place, but if you're going to address it anyway, then address it by proposing actual program cuts. You think manned space exploration is a boondoggle and you want to cut NASA's budget in half? Fine. You think ethanol subsidies are outrageous and you want to eliminate them? Great. You think our nation would be safe with nine supercarrier groups instead of a dozen? Preach it. But that's what it takes to cut the discretionary budget: cuts to real programs, not handwaving about caps and generic rollbacks.

Next up are their tax reform proposals, which are almost entirely smoke and mirrors. You can make any deficit reduction plan easier by proposing a tax system that (you claim) will boost growth rates by 1% per year. Run that out over 50 years and economic growth will take care of half your problem. Hooray! But the evidence that this will actually happen is close to zero. Our current tax system just isn't that inefficient. Pretending that a better tax regime will supercharge economic growth isn't as bad as relying on the infamous troika of waste, fraud, and abuse, but it's close.

Their Social Security proposal is.....actually not bad. With one change I could probably accept it as is. Still, even though I favor taking action on Social Security now, this is basically a bauble. It's reponsible for only a small part of the long-term deficit, and it's not something that rises forever. It's a one-time increase associated with the retirement of the baby boomer generation.

 

And then you get to healthcare. This is the big one. This is 90% of our long-term deficit problem. I don't have any real problem with tackling inefficient discretionary programs or sprucing up the tax code or fixing Social Security. But burbling on at length about this stuff mainly serves to allow us to avoid talking about our real problem. Because, as Derek says, it's too hard. But that's like an alcoholic nattering on about putting a taxi service on speed dial or remembering to take his vitamins every day.  

Those are great ideas, but they're basically distractions that prevent you from facing up to the fact that you need to stop getting hammered every night.

The whole point of a deficit reduction commission is that they can address the hard truths that a bunch of politicians can't. If Simpson-Bowles were really dedicated to hard truths, their report would have said two things in no uncertain terms. First, we're not going to waste too much time on discretionary spending or Social Security. They're shiny baubles that distract us. So here are links to half a dozen good plans for reining in both of them. Go ahead and read them at your leisure.

Second, healthcare costs are going up. We're getting older, medical technology is advancing, and the spending curve on healthcare heads to infinity if we don't do something about it. So we've decided that essentially our entire report is going to be about healthcare because we want to rub your faces in the fact that you have to deal with it whether you like it or not. This means, at a minimum, two things: (1) distilling the best ideas around for reining in rising healthcare costs, and (2) acknowledging that costs are going to go up anyway and we're going to have to raise taxes to deal with it.

But as hard truths go, I guess that's a little too hard. Tax increases! Paying doctors less! Telling the American public that they can't have every procedure they want just because they want it! Besides, we just spent over a year passing healthcare reform, and we're all exhausted. PPACA made only modest progress on cost controls, and that was hard enough. Better to just do some handwaving about a cap on growth rates and call it a day.

Lying for Fun and Political Profit

Sully on the role of the Big Lie in modern American politics.

It seems to me that the last year or so in America's political culture has represented the triumph of untruth. And the untruth was propagated by a deliberate, simple and systemic campaign to kill Obama's presidency in its crib. Emergency measures in a near-unprecedented economic collapse - the bank bailout, the auto-bailout, the stimulus - were described by the right as ideological moves of choice, when they were, in fact, pragmatic moves of necessity. The increasingly effective isolation of Iran's regime - and destruction of its legitimacy from within - was portrayed as a function of Obama's weakness, rather than his strength. The health insurance reform - almost identical to Romney's, to the right of the Clintons in 1993, costed to reduce the deficit, without a public option, and with millions more customers for the insurance and drug companies - was turned into a socialist government take-over.
 
Every one of these moves could be criticized in many ways. What cannot be done honestly, in my view, is to create a narrative from all of them to describe Obama as an anti-American hyper-leftist, spending the US into oblivion. But since this seems to be the only shred of thinking left on the right (exacerbated by the justified flight of the educated classes from a party that is now openly contemptuous of learning), it became a familiar refrain - pummeled into our heads day and night by talk radio and Fox. If you think I'm exaggerating, try the following thought experiment.

If a black Republican president had come in, helped turn around the banking and auto industries (at a small profit!), insured millions through the private sector while cutting Medicare, overseen a sharp decline in illegal immigration, ramped up the war in Afghanistan, reinstituted pay-as-you go in the Congress, set up a debt commission to offer hard choices for future debt reduction, and seen private sector job growth outstrip the public sector's in a slow but dogged recovery, somehow I don't think that Republican would be regarded as a socialist.

This is the era of the Big Lie, in other words, and it translates into a lot of little lies - "death panels," "out-of-control" spending, "apologies for America" etc. - designed to concoct a false narrative so simple and so familiar it actually succeeded in getting into people's minds in the midst of a brutal recession. And integral to this process have been conservative "intellectuals" who should and do know better, but have long since sacrificed intellectual honesty for the cheap thrills of enabling power-grabs.

The Truth About Social Security

Kevin Drum posts the chart that shows clearly that the projected shortfall in Social Security is manageable.

This is apropos of nothing in particular, but I guess that Social Security is going to be back in the news when the president's deficit commission reports back, so I want to take this chance to post the single most important chart you'll ever see about the finances of Social Security. Here it is:

This is from page 15 of the latest trustees report. What's important is that, unlike Medicare, Social Security costs don't go upward to infinity. They go up through about 2030, as the baby boomers retire, and then level out forever. And the long-term difference between income and outgo is only about 1.5% of GDP.
 
This is why I keep saying that Social Security is a very manageable problem. It doesn't need root-and-branch reform. The trust fund makes up Social Security's income gap for the next 30 years, so all it needs is some modest, phased-in tweaks that cut payouts by a fraction of a point of GDP and increase income a fraction of a point. Here's a proposal from Jed Graham that's designed to cut benefits a bit for high earners and encourage them to retire later, and maybe it's great. I haven't looked at it in detail. But the point is that the changes he recommends are fairly small. Any plan for fixing Social Security requires only tiny benefit cuts and tiny revenue increases. It's just not that big a deal.

GDP & the Election

Ezra looks at the election through the prism of GDP.

Today's GDP numbers are a good way to understand Tuesday's election. Start with who Barack Obama isn't: Franklin Delano Roosevelt. You hear people say that if Obama could only sell his vision, his agenda or his commitments the way FDR could, he'd be safe right now. And the comparison is understandable: Like FDR, Obama took office shortly after a financial crisis. But unlike FDR, who took office after three years in which GDP shrank by an average of 9.6 percent each year, Obama -- and his predecessor -- responded effectively enough and quickly enough to stop the economy from collapsing. Our worst year was 2009, when GDP shrank by 2.6 percent. And that was the only year in which we actually lost ground.

FDR, for his part, took office after the worst of the Great Depression was over, and -- in part because of his efforts -- when the real recovery was beginning. In 1934, the year of his first midterm election, GDP grew by more than 10 percentage points. Obama took office in 2009, which was our worst year. And this year, the year of his first midterm, we're on track to grow by 2.5 percent. That is to say, it isn't a vision thing. If Obama could get FDR's numbers, and if he could've dodged the worst years of the crisis, he could go mute and still win the election.

Obama is also not Bill Clinton. Clinton lost 54 seats in 1994, but the economy wasn't doing particularly badly. It was the third straight year of growth, and when all was said and done, we'd expanded by 4.1 percent. Democrats hold almost exactly as many House seats in 2010 as they did in 2004, and if Nate Silver is right and they lose 53 of them, they will, given the economy, have outperformed Clinton's Democrats quite substantially. Maybe passing health-care reform actually helped?

The best comparison, it turns out, is between Obama and Ronald Reagan. The 1982 midterm election also came amid a weak economy. We'd shrunk by 1.9 percent, although we'd grown -- slowly -- the year before. The two presidents were also posting similar approval numbers: According to Gallup, Reagan had 43 percent at this point in his presidency, and Obama has 44 percent.
There is, however, a difference: Reagan's party was in the minority in the House. They had 192 seats and lost 26 of them. That's a 15.6 percent loss. If Democrats lost the same percentage of their 256 seats, they'd lose 40 seats this year. But because having a large majority means, by definition, holding many more vulnerable seats, the likelihood is that Republicans would have lost much more than 15.6 percent of their seats if they'd had another 54 seats to defend, and if unified government had left all the blame on their shoulders.
 
So Obama can't show the progress that either Bill Clinton or FDR could in the months before their first midterm elections. He's got more growth than Ronald Reagan did, but also more seats and unified control of government. He's got, in other words, a pretty bad situation. Reagan did too (though the cause of his recession was the Federal Reserve, and so recovery was easier to attain after the election), but Clinton really didn't. It's his losses that really stand out.

It's Not Spending....It's Spending by Democrats

Kevin Drum nails the dishonesty in the complaints by Republicans about all that spending.

Now, it's true that a divided government is almost certain to spend less than one controlled by a single party. Beyond that, though, there's little evidence that extreme conservatives are any more concerned about spending now than they've ever been, and over the past 30 years they've never been concerned about spending. They didn't cut it under Reagan, they didn't cut it under Bush Sr., and when they finally controlled the government completely under Bush Jr., they didn't cut it then either. Hell, Social Security privatization never got anywhere even within the Republican caucus despite the fact that it was sold relentlessly and dishonestly as a free lunch. Actual cuts in spending were never on the radar.

The tea partiers are angry not over spending, but because a Democrat is in the White House. Rick Santelli's rant, which kicked off the whole movement, occurred one month after Obama took office. That was before the auto bailout, before health care reform, before financial reform, before the Iraq drawdown, before cap-and-trade, and before extension of the Bush tax cuts was even on the horizon. The only thing that had happened at that point was the stimulus bill, but even as big as that was, everyone knew it was a one-time shot, not a permanent change in spending levels.

Really, there's just no evidence at all to suggest that tea partiers are any more upset about the level of spending and deficits than they ever have been. Rather, they're upset because the spending is currently being done by a Democrat. As soon as Republicans are doing it, they won't really care anymore.

Foreclosure Follies

Barry Ritholtz has the perfect summary of the state of play in how the major banks handle the foreclosure process,

I am not sure why so many people are so confused over the concerns of the legal status of robo-signers.
 
I’ll let Thomas A. Cox, a retired lawyer, describe GMAC’s foreclosure process and the work of its limited signing officer, Jeffrey Stephan in a court filing:

“When Stephan says in an affidavit that he has personal knowledge of the facts stated in his affidavits, he doesn’t. When he says that he has custody and control of the loan documents, he doesn’t. When he says that he is attaching ‘a true and accurate’ copy of a note or a mortgage, he has no idea if that is so, because he does not look at the exhibits. When he makes any other statement of fact, he has no idea if it is true. When the notary says that Stephan appeared before him or her, he didn’t.”

Gee, how could anything go wrong in that situation?

It's the Legislature, Stupid

Ezra counters a Tom Friedman column calling for a third party Presidential candidate as the solution to government gridlock.

That might actually be the easiest thing you can say in American politics. John McCain ran as the enemy of special interests. Barack Obama did, too. His compromises and disappointments, as Friedman admits, had nothing to do with a paucity of anti-special interest applause lines. They had to do with the limits of Congress. "Obama probably did the best he could do," says Friedman, "and that’s the point. The best our current two parties can produce today -- in the wake of the worst existential crisis in our economy and environment in a century -- is suboptimal, even when one party had a huge majority."

And the answer to that is ... a tiny third party running a presidential candidate? No. If the legislative system is broken -- if the best we can do is not good enough -- you need to change the legislative system. Friedman laments Obama's "limited stimulus" and decision to "abandon an energy-climate bill altogether," but he doesn't mention the one thing that would've allowed for a larger stimulus and a fighting chance on an energy and climate bill: eliminating the filibuster.
 
The worst illusion pundits foist on the populace is the idea that if we just elect the right guy (or gal) to be president, everything will be fine. It won't be. If you don't like how our laws are being made, you have to change how our laws are being made. And that doesn't mean changing the president, who's not even in the branch of government that makes our laws. Elect Ralph Nader, or some other hard-charging third-party candidate with a penchant for applause lines, and everything will just be filibustered to death. 

"He probably did the best he could do," some pundit will say, "and that’s the point. The best our current three parties can produce today is suboptimal."

Center to the Right?

Ezra Klein on the question of whether the US is a center-right nation.

We know that self-described conservatives outnumber self-described liberals, and appear to have done so for as long as we've been polling the question. But we also know that self-described Democrats outnumber self-described Republicans -- even when conservative pollsters are asking the question -- and that's been true for decades, too. So we're a conservative country ... that leans towards the Democrats? Huh.

We know, for instance, that Americans are less bothered by inequality than Europeans. But we also know that, when given a choice (pdf), Americans say they'd like their level of wealth inequality to look less like America's and more like Sweden's.

America's center-rightness is supposedly proven by the fact that we don't have a government-run health-care system. But we love our Medicare. We prefer it, in fact, to our private insurance. And we're less satisfied with our system than Europeans are with theirs. So we're a country that opposes government-run health care -- except when we have it, and then we far prefer it to the private market, and we're more likely than people in other countries to demand that our health-care system gets rebuilt.

I want to be clear what I'm arguing here: It's not that Americans don't have measurably different opinions than Europeans. It's that our opinions and the outcomes of our political system are not closely correlated. Rather, I think that the exceptionalism of the American political system comes from its structure, which is conservative with a small-c.

Because it's harder for the government to do things, the government does fewer things. At least seven presidents have run for office with some sort of universal health-care plan. In another system, one of them would've succeeded, and we would have had national health care by the mid-20th century, and one of the central policy differences between America and Europe wouldn't exist. As it happens, our system makes legislative change difficult, and so they all failed. But in the cases when they succeeded -- Social Security and Medicare -- their successes are wildly popular, and efforts to roll the programs back have been catastrophic failures. The American political system isn't so much biased against the left or the right as against change in general, and though there are occasional moments when events and majorities align to allow a political party to achieve a lot of the items on its agenda, they're quite rare, and almost never durable.

The Amorality of Economics

Paul Krugman blogs on the fundamental absence of morality in economic theory.

I understand from the Times that whenever I mention in my column that WWII ended the Great Depression, the paper gets a lot of mail accusing me of being a warmonger. Amazing.

But maybe this is an opportunity to reiterate a point I try to make now and then: economics is not a morality play. It’s not a happy story in which virtue is rewarded and vice punished. The market economy is a system for organizing activity — a pretty good system most of the time, though not always — with no special moral significance. The rich don’t necessarily deserve their wealth, and the poor certainly don’t deserve their poverty; nonetheless, we accept a system with considerable inequality because systems without any inequality don’t work. And before the trolls jump in to say aha, Krugman concedes the truth of supply-side economics, that’s not an argument against progressive taxation and the welfare state; it’s just an argument that says that there are limits. Cuba doesn’t work; Sweden works pretty well.

And when we’re experiencing depression economics, by which I mean a situation in which it’s hard to create sufficient demand to achieve full employment — mainly because short-term interest rates are up against the zero lower bound — the essentially amoral nature of economics becomes even more acute. As I’ve said repeatedly, this is a situation in which virtue becomes vice and prudence is folly; what we need above all is for someone to spend more, even if the spending isn’t particularly wise.

The trouble in practice is that conventional modes of thought tend to prevail even when they shouldn’t; in particular, public spending on the scale needed never seems to happen. That’s why Keynes facetiously proposed burying bottles full of cash in coal mines, so people could dig them up again: since any proposal to spend money on things we need got shot down on grounds of prudence and efficiency, he proposed completely pointless spending instead.

And what actually ended up doing the trick was spending that was beyond pointless, it was actually destructive – a sort of cruel joke on the part of the gods of economics.

The Democrat's Tax Strategy

Jonathan Zasloff explains the political logic behind the decision to defer a vote on the expiring tax cuts until after the elections (h/t Kevin Drum).

Josh Marshall and Jonathan Chait are fighting back aneurysms upon hearing the news that Capitol Hill Democrats will not put forth a bill maintaining middle-class tax cuts.

But Nancy Pelosi and Harry Reid aren’t stupid.  They did what they had to do.  This was the best of a bad series of choices.

Here were their options:
 
1)  Bring up the middle-class tax cut bill free-standing in the House.  The Republicans would offer a “Motion to Recommit” to the Ways and Means Committee with instructions to include the tax cuts for the rich.  With Blue Dog support, it would have won.  No go.

2)  Bring up the middle-class tax cut bill freestanding in the Senate.  The Republicans would offer an amendment to include the tax cuts for the rich.  It could have won:  41 Republicans plus Lieberman, Lincoln, Pryor, Landrieu, Ben Nelson, Bayh, Hagan, Dorgan, Baucus, Conrad, and then maybe Bill Nelson, Webb, or Warner.  Then where would you be?
 
3)  Bring up the middle-class tax cut bill free-standing in the House under a “Suspension of the Rules,” which requires a two-thirds vote and is not subject to the Motion to Recommit.  My favorite option, because theoretically, the Republicans would be in a bind.  Either they would vote no, in which case they would have voted no on a tax cut, or they would have voted yes, in which case the Dems win and they tick off their base.  BUT — they probably would have split, meaning that the Dems would not have not gotten a win AND the partisan difference would have been muddied.
In other words, there was no way to get an actual win under these circumstances.  You could only get a loss that would muddy the partisan split.

Under these circumstances, Pelosi and Reid decided not to have the vote.  Why?  Because you can still make the issue about it being the “Republicans holding the bill hostage.”  You can still say that the Republicans won’t vote for a middle-class tax cut unless they borrow $700 billion dollars to give to millionaires and billionaires.  President Obama still has the biggest megaphone in the country, and to his great credit, he is using it.  Just an hour or so after the decision was announced, he was blaming the Republicans for holding middle-class tax cuts hostage.

In other words, you can go to the country with a clear message, and without the picture of Democrats reprising the circular-firing squad.  It’s not perfect, but it’s the best of all possible situations given the unprecedented plutocratic obstructionism of the GOP.

Ironically, though, critics like Marshall and Chait could undermine the strategy if the meme becomes “Democrats cave.”  If instead the meme becomes, “Democrats refuse to borrow $700 billion to pay off billi0naires,” then it looks like they are stronger, not weaker.  Marshall and Chait are calling it like they see it, and I take their points, but they are creating some bad spin here: let’s not let the complaints become a self-fulfilling prophecy.

The Liberal Disadvantage Looms Large

Kevin Drum looks at the political ideology polling and concludes that it is much harder for the Left to craft political strategy that appeals to its base than it is for the Right.

I'll repeat a point I made a few weeks ago: this is baked into the cake of modern American politics. Every local race has its own dynamics, but it's still worth taking a look at the Gallup chart above to get a sense of the broad national hole that liberals are in. About 40% of the electorate self-identifies as conservative and getting their votes is critical for any conservative politician. If you piss off a few moderates in the process, that's life. After all, if you win the conservative base convincingly, then on average you only need to hold on to the most conservative 10% of moderates to win an election.

 

But only 20% of the electorate self-IDs as liberal. So the math is exactly the opposite: you need to win nearly all the moderates in order to win an election. If you piss off centrists by playing too hard to the base, you'll lose.

This is a bummer, but it's reality, and lefties really need to suck it up and get less annoyed by the fact that politicians react to the world as it is, not as we wish it were. Like it or not, most pols just can't afford to give the liberal base too much rhetorical lip service until and unless it gets a lot bigger than it is today.

Still, there's a mystery here. Not why Obama feels the need to market himself the way he does, but why he lately seems so clumsy at it. As Krugman implies, dog whistling can be subtle but still clear. So where's the subtlety in the Obama White House these days?

Taxing Politics

Jonathan Chait on how the Democrats should handle the upcoming tax debate.

Wall Street Journal opinion columnist Kimberly Strassel has a column entitled "Why Democrats Can't Win On Taxes," purporting to show that the awesome power of (massively unpopular) tax cuts for the rich has put the Democrats into a political bind. Oddly, in the course of running down the party's alternatives in an attempt to prove her point, she winds up with this final option:

The Democrats' best shot is procedural, to somehow allow only one vote—on extending rates for just the "middle class"—and dare Republicans to vote against it. Democrats might then peel off GOP support and provide themselves cover this fall. If the majority senses fear—like what emanated from Minority Leader John Boehner this past weekend when he suggested he wouldn't take that dare—it'll take this shot.

Right! That's what you do -- hold a vote on the extremely popular proposal to extend tax cuts for income under $250,000. I highly doubt Republicans are going to want to vote that down. If they do, it's the best possible election frame for Democrats. Which is to say, the Democrats can win on taxes. Strassel continues this scenario by observing, "If Mr. Obama has such a winner tax position, it isn't clear why his leaders are ducking tax bills and his members are running for cover." I'll answer that: moderate Democrats really like tax cuts for the rich, because they and their most influential supports are rich. That doesn't mean their hand is weak.
 
Now, you can also hold another, subsequent vote on tax cuts exclusively for income over $250,000 if the Blue Dogs so desire. That's fine. The only way Republicans win is if the two issues are combined.

We Are All in Kansas Now

Kevin Drum summarizes the key points from the new book by Jacob Hacker and Paul Pierson, "Winner-Take-All Politics" which analyzes how political changes led to the increase in income inequality over the past 30 years. Drum zeroes in on the reasons that middle- and lower-income voters opt to vote against their own economic interests, a phenomenon Thomas Frank first addressed in his book "What's the Matter With Kansas?".

1. In the 60s, at the same time that labor unions begin to decline, liberal money and energy starts to flow strongly toward "postmaterialist" issues: civil rights, feminism, environmentalism, gay rights, etc. These are the famous "interest groups" that take over the Democratic Party during the subsequent decades.
2. At about the same time, business interests take stock of the country's anti-corporate mood and begin to pool their resources to push for generic pro-business policies in a way they never had before. Conservative think tanks start to press a business-friendly agenda and organizations like the Chamber of Commerce start to fundraise on an unprecedented scale. This level of persistent, organizational energy is something new.
3. Unions, already in decline, are the particular focus of business animus. As they decline, they leave a vacuum. There's no other nationwide organization dedicated to persistently fighting for middle class economic issues and no other nationwide organization that's able to routinely mobilize working class voters to support or oppose specific federal policies. (In both items #2 and #3, note the focus on persistent organizational pressure. This is key.)
4. With unions in decline and political campaigns becoming ever more expensive, Democrats eventually decide they need to become more business friendly as well. This is a vicious circle: the more unions decline, the more that Democrats turn to corporate funding to survive. There is, in the end, simply no one left who's fighting for middle class economic issues in a sustained and organized way. Conversely, there are lots of extremely well-funded and determined organizations fighting for the interests of corporations and the rich.

The result is exactly what you'd expect. With liberal money and energy focused mostly on non-economic concerns, the country moves steadily leftward on social issues. With conservative money and energy focused mostly on the interests of corporations and the rich—and with no one really fighting back—the country moves steadily rightward on econonomic issues. Thomas Frank's famous working-class Kansans who vote against their own economic interests are easily explained. It's not just that conservatives appeal to them on social grounds, it's that there's no one left to really make the economic case to them in the first place. And even if anyone did, they have little reason to believe that Democrats would actually follow through in concrete ways. So why not vote on abortion and gay rights instead?

More on the Republicans

Sully takes a comment by David Frum and extends it into a stark indictment of the Right.

Without the housing claim, it would have been hard to depict the Bush economic record as very much of a success. Employment was up, the Dow was up, but median incomes still lagged behind 2000 levels. It was the rise in home prices that represented the administration’s main argument that its economic policies had helped the American middle class. No way was the administration going to act to slow – let alone halt – that rise. To the extent that political appointees regulated the lending industry, the political appointees understood what was expected of them and did not interfere.

I don’t raise this point to cast aspersions, but to inspire thought as to how Republicans can deliver better results next time. Republicans talk budgetary policy (that’s why Paul Ryan has become a heart-throb of the party). They need to think about economic policy. The measure of success is not shrinking the deficit – that’s just a means to an end – but raising incomes. We need an open discussion about why our policies failed to deliver that result in the 2000s as a preliminary to doing better after 2012 or 2016.

Which is roughly a paraphrase of the president's critique yesterday. I suspect the answer is pretty bleak: conservatism as it has evolved since the 1980s has no fundamental solution to how to raise the incomes of the lower middle class in a global economy where Chinese and Indians can do what any American can for a fraction of the cost. If that's true for high-tech, how much truer for other sectors? Education is key, and is one of Obama's least-appreciated emphases. In other words, the free lunch is over. America's unique advantages and blessings during the Cold War have been removed. Protectionism won't help. And even higher levels of education won't make much difference. At some point, as David Brooks shrewdly notes today, the culture will have to adjust away from the pursuit of wealth to the pursuit of happiness within far more constrained horizons.
 
What I fear and see is the right's inability or refusal to face this or to innovate genuinely new policies to address these questions (Manzi is an exception who proves the rule). And in its place, they will offer a cultural politics of reaction at home and war abroad. They will intensify the red-blue divide, and blame the "elites" for everything, and turn Islam into the modern equivalent of Communism (unwittingly helping the enemy), and take the world to the brink of chaos. That's what I fear in my bleaker moments. Because it works for a while. And it will make millions for those who want to use America's decline rather than reverse it, and will distract the heart by deadening the mind. And I see no one with the gravitas or decency or responsibility in the GOP to be an Eisenhower.
 
That's why Obama still matters. It's why, in my view, he matters more than ever.

The State of the Republicans and the Right

Sully is back from his vacation with a blistering commentary on the state of the Right as they approach an election they may win.

The other brutal truth is that the opposition has nothing substantive to offer to remedy this. If all they've got is keeping the Bush tax cuts for those earning over $250,000 a year, they really have got nothing. What they do have is cultural symbolism and the exhausted right-left tropes that were trotted out at the mercifully vacuous parade of God and Country on the Mall with Beck and Palin. (A cynical atheist's parody of such vacuousness can be read here.) Maybe in power, by some miracle, the Tea Party Republicans will actually propose the long-term massive cuts in entitlements they claim to believe in. But I don't believe it for a second. I don't believe they are in any way serious about spending restraint and are only serious about their bewilderment at the real America where racial, religious and cultural diversity is a fact, where illegal immigration has been plummeting, where gay marriage is winning, where legal abortion will never go away, and where the new empire the last administration embarked upon has bankrupted us for a generation at least.

And this, in the end, must be what our politics is about: substantive policy responses to profound crises inherited from the past. Obama's call for transportation infrastructure investment is one tiny but real response and no panacea but it's paid for and it's something. His persistent attempt to get a real two-state solution in Israel-Palestine is unlikely to succeed given the forces arrayed against it in Washington and Tehran but it is necessary if we are to win this long war against Jihadism. His endurance in Afghanistan is, in my view, a tragic mistake, but anyone who claims that withdrawal would not have appalling moral consequences and great strategic risks is lying to you. His diplomatic and economic isolation of Iran's coup regime may also fail to prevent the Revolutionary Guards getting a nuclear capacity, but the alternative - a military strike - would initiate a new round of global religious warfare of terrifying gravity, where the Islamists would have the moral high-ground of being attacked first. His success in bringing a modicum of healthcare security to the working poor is also a work in progress but again, the practical alternative on the table is ... what exactly?
 
In the end, these difficult practical decisions will count because they have to count. And Obama's persistent refusal to take the red-blue bait still pushed by Fox News like a cheap bump of ideological meth is to his credit. It is emphatically not about his failure to "take them on". He is taking them on - but on his terms, not theirs'. Take it away, Mr president:

When it comes to just about everything we’ve done to strengthen our middle class, to rebuild our economy, almost every Republican in Congress says no.  Even on things we usually agree on, they say no. If I said the sky was blue, they say no. If I said fish live in the sea, they’d say no. They just think it’s better to score political points before an election than to solve problems.  So they said no to help for small businesses, even when the small businesses said we desperately need this.  This used to be their key constituency, they said.  They said no.  No to middle-class tax cuts.  They say they’re for tax cuts; I say, okay, let’s give tax cuts to the middle class.  No. No to clean energy jobs. No to making college more affordable.  No to reforming Wall Street.  They’re saying right now, no to cutting more taxes for small business owners and helping them get financing. 

You know, I heard -- somebody out here was yelling “Yes we can.” Remember that was our slogan?  Their slogan is “No we can’t.”

Lehman Revisited

In response to former Lehman Bros. CEO Dick Fuld's claim that the Fed chose to let Lehman fail in 2008, Barry Ritholtz reviews once again what actually happened and why.

1. Under-capitalized, over-leveraged: Lehman Brothers was the biggest bankruptcy in US history. To avoid that fate, LEH needed to be sufficiently capitalized, and use only moderate leverage (LEH embraced 40 to 1 leverage). Rather than have a sufficient capital base, the bank chose instead to chase profits: A greater capital cushion meant less underwriting activity, smaller gains, greater risk. The downside of having a de minimus capital structure is when bad investments are made, there is no room for error.

2. Bad Modeling Assumptions: LEH made numerous false assumptions in their econometric models: a) Residential RE never goes down; b) The derivatives market is always liquid, with ready buyers available; c). We can always borrow short and lend long with no liquidity concerns;  There was substantial evidence and warnings that ALL of these assumptions were false, but they were ignored by management as a risk to profits.

3. Excess RE Exposure: Lehman was the biggest securitizer of mortgages on Wall Street. They underwrote more mortgages than any other bank on Wall Street. By 2004, LEH was originating $40B per year in mortgages to feed their own CDO machine (which as Roger Lowenstein has pointed out, was more lucrative than the stock and bond business).

4. Reliance on Ratings: Lehman’s entire business model was predicated on the ratings of Moody’s and S&P being reliable. However, LEHMAN was one of the prime purveyors of credit rating payola — they were paying the NRSROs a fee to slap a Triple AAA rating on junk paper. If they did not know the credit ratings were utterly worthless, they sure should have.

5. CDO Ownership: Lehman kept the senior-most layers of CDOs they created for themselves, but bought credit default swaps on them “for safety.” Consider that they were not confident enough of the models which forecast the solvency of those tranches, yet they used the same models to determine AIG was a credit worthy counter party to insure them.
 
That’s why LEH collapsed, and it was apparent (at least to us) back in June 2008 they were in trouble.  Why did the Fed not save them? There were several reasons:

1. One off: The Bear Stearns bailout was supposed to be a “one of a kind,” not the start of a series of rescues. The Fed hoped to hold the line at only one such taxpayer backed rescue. The fear was if they did a 2nd, they could not say no to the rest of the Street. Lehman was in effect the Fed’s Maginot Line (it also was out flanked and rendered strategically useless).

2. Fed Overreach:  Bernanke was widely criticized for the Bear rescue as a huge overstep of authority. Even former Fed Chair Paul Volcker overcame the inherent reluctance of formerFOMC chairs to to criticize sitting Fed heads to express his concern about the over reach and power grab.

3. No to Private Rescue: Dick Fuld turned down a private rescue just months earlier. Warren Buffett offered Fuld billions, plus the equivalent of the Berkshire Hathaway Good corporate Housekeeping seal of approval. FULD TURNED BUFFET DOWN. How could the Fed, in good conscience, bail out a firm that refused to accept a Buffett rescue? Indeed, his terms for LEH were far more generous than what BRK ultimately offered Goldman Sachs and GE.

4. Insolvent: Lehman books are why a loan never happened. LEH was essentially insolvent, with liabilities that vastly outweighed what few assets there were. This insufficiency is why a loan was simply not possible — it was  considered a guaranteed loss.

5. Moral Hazard: How much of a clusterfuck must any financial firm be before a rescue is deemed an outrageous moral hazard? For the 3rd and 4th reasons above, Lehman was believed to be “Beyond rescuing.” And it was due to the specific choices Lehman’s management made.

The Tea Movement

On the day of Beckapalooza, Steve Benen tries to figure out what it is exactly that the Teabaggers are for.

This is about "freedom."

Well, I'm certainly pro-freedom, and as far as I can tell, the anti-freedom crowd struggles to win votes on Election Day. But can they be a little more specific? How about the freedom for same-sex couples to get married? No, we're told, not that kind of freedom.

 

This is about a fight for American "liberties."

That sounds great, too. Who's against American "liberties"? But I'm still looking for some details. Might this include law-abiding American Muslims exercising their liberties and converting a closed-down clothing store into a community center? No, we're told, not those kinds of liberties.

This is about giving Americans who work hard and play by the rules more opportunities.

I'm all for that, too. But would these opportunities include the chance for hard-working Americans to bring their kids to the doctor if they get sick, even if the family can't afford insurance? No, we're told, not those kinds of opportunities.

This is about the values of the Founding Fathers.

I'm a big fan of the framers' generation, who created an extraordinary nation. But if we're honoring their values, would this include their steadfast commitment to the separation of church and state? No, we're told, not those values.

This is about patriotic Americans willing to make sacrifices for the good of their country.

That sounds reasonable; sacrifices can be honorable. But if we're talking about patriots willing to sacrifice, does that mean millionaires and billionaires can go back to paying '90s-era tax rates (you know, when the economy was strong)? No, we're told, not those kinds of sacrifices.

This is about a public that, at long last, wants to hear the truth from those who speak in their name.

What a great idea. Maybe that means we can hear the truth about global warming? About the fact that health care reform wasn't a socialized government takeover? About Social Security not going bankrupt? About how every court ruling conservatives don't like doesn't necessarily constitute "liberal judicial activism"? No, we're told, not those truths.

Movements -- real movements that make a difference and stand the test of time -- are about more than buzz words, television personalities, and self-aggrandizement. Change -- transformational change that sets nations on new courses -- is more than vague, shallow promises about "freedom."

The Captured Government

Mike Lux at Open Left has an interesting analysis of how frustration with government because of the dominance of narrow special interests is manifesting itself in the political debate.

This is going to sound counter-intuitive at first but I have become convinced in the course of discussions with both conservative and progressive people in recent months that at its core, the surge in anti-government sentiment and the progressive angst in the Obama era so far both come from the same root issue. The heart of the problem is that our government has become captured by a small number of very big and very powerful corporate interests, and that has made the federal government increasingly dysfunctional.
 
This dysfunction feeds the right-wing plenty of fuel for its anti-government-all-the-time narrative, helping them build their movement. Unfortunately, though, it has also created a crisis point for progressives. Progressives have always understood that government not only has an important role to play in promoting the public good in areas the market doesn't work well, but is sometimes the only entity that can be strong enough to take on monopolistic  or oligarchic private corporations who can become too powerful in a free market economy. When government gets captured by these powerful interests and becomes dysfunctional as a result, it puts progressives in a bad spot: defending the role of government when it keeps screwing up doesn't play very well with voters.

Because the progressive movement got used to the federal government playing a mostly positive role in economics, civil rights, the environment, and other issues during the New Deal era and the decades after, and because we don't worship the free market in all things and at all times the way conservatives do, there has been a tendency on our side in these last three decades of brutal attack on all things government to be reflexively defensive about it. As one example, I have had friends argue that progressives should avoid using the term "government waste" because it just feeds a bad frame about government. I have also heard many people talk about how important it is for us to be spending a lot of time explaining to people the positive role of government.

As someone who wrote about the historic political debate between the conservative and progressive movements, I don't agree with these arguments. The role and size of government in our society has changed dramatically over the course of American history, as has the role and size of private corporations, but the bedrock values and goals of the progressive movement have not changed. We stand for more democracy, more equality, and a better economic situation for poor and middle-income people, and we oppose trickle-down economics and the concentration of wealth and power for economic elites. To get better results in terms of those goals, we have frequently turned to government. But government is only a means to those ends, not the ends themselves- and it is not the only means to those ends, either. I want wages to go up for poor and working class people, and that can happen because the minimum wage increases (government) or through workers organizing a union and negotiating (collective action). I want to lessen the concentration of wealth and power of big corporations, and that can happen through regulation and anti-trust and progressive taxation (government), or through class action lawsuits, consumer boycotts, and shareholder resolutions (collective action). Of course it is always better for our purposes to have government on the right side, but we are not limited to government action to improve people's lives, and we also shouldn't be stuck defending government when it is on the wrong side.

How Voters Choose

Ezra discusses what drives voters decisions.

First, campaigns don't matter as much as we think. I take that as a good thing: Democracy shouldn't be overly reliant on whose political consultants are better at spinning the truth into advertisements and attack mailers. 

 

Second, "elections writ large depend more on performance than on policy -- that is, they depend more on how things are going (for which the incumbent party is on the hook) than on specific policies, bills, legislation, etc." That's a bit unfair to incumbents, who aren't totally responsible for conditions, but it's nevertheless a fairly decent way for voters to make decisions.

Third is that voters don't approach elections with strong views on policy issues. Instead, they look to the political leaders they already trust to tell them what their views should be. If President Romney had proposed ObamaCare before a mostly Republican Congress, it would've gotten an easy majority of Republicans -- both in Congress and in the country -- and almost zero Democrats. Party affiliation drives policy opinions, and not the other way around.

The political science take on elections is sometimes accused of being nihilistic, as if doubting the importance of campaigns is like quoting Nietzsche and dressing in black. In fact, it's fairly optimistic: Elections are driven by the real state of the country, not the money candidates spend to advertise to voters. You could say that it would be better if people made their judgments based on the policy Congress was passing to change conditions rather than the conditions themselves, but when you really look into how people decide which policies they support, it's actually not clear that a more policy-centric process would be an improvement. Conditions are what voters know best, and so it's good that they rely on them.

The Bill Will Come Due Before They Know It

Steve Benen on the political trade-off behind the Republicans embrace of changing the 14th Amendment.

When Republican leaders embraced partial repeal of the 14th Amendment, knowing full well that this isn't going to happen, it seemed pretty obvious that we were seeing a cynical, nativist, election-year scheme at work. The message wasn't even subtle -- the GOP is prepared to be just as reactionary as its base when it comes to immigration, even if that means going through the motions on giving the Constitution a little touch-up.
 
The goal is to win some votes in the short term. Harold Meyerson reminds us that the ploy -- and the larger effort behind it -- will very likely cost far more votes in the long term.

By proposing to revoke the citizenship of the estimated 4 million U.S.-born children of undocumented immigrants -- and, presumably, the children's children and so on down the line -- Republicans are calling for more than the creation of a permanent noncitizen caste. They are endeavoring to solve what is probably their most crippling long-term political dilemma: the racial diversification of the electorate. Not to put too fine a point on it, they are trying to preserve their political prospects as a white folks' party in an increasingly multicolored land.

Absent a constitutional change -- to a lesser degree, even with it -- those prospects look mighty bleak. The demographic base of the Republican Party, as Ruy Teixeira demonstrates in a paper released by the Center for American Progress this summer, is shrinking as a share of the nation and the electorate. As the nation grows more racially and religiously diverse, Teixeira shows, its percentage of white Christians will decline to just 35 percent of the population by 2040.

The group that's growing fastest, of course, is Latinos. "Their numbers will triple to 133 million by 2050 from 47 million today," Teixeira writes, "while the number of non-Hispanic whites will remain essentially flat." Moreover, Latinos increasingly trend Democratic -- in a Gallup poll this year, 53 percent self-identified as Democrats; just 21 percent called themselves Republican.

I got the sense that the Bush/Cheney team was very cognizant of this. The Bush team proposed a fair and reasonable approach to comprehensive immigration reform; made an effort to promote ethnic diversity in the administration; and made sure the former president spent plenty of time doing outreach (and pretending to speak Spanish). The result was a very competitive contest for the Latino vote in 2004.

Those efforts appear to have been tossed aside entirely, replaced not only with cynicism and divisiveness, but sacrificing the Republican Party's future for immediate gain. It's less of a gamble and more of last-gasp strategy -- let's just get all the angry white votes we can get right now, the argument goes, even if it means driving a fast-growing minority away for a generation.

It's a dessert topping, it's a floor wax, it's both!!

Ezra examines the many and varied ways that the Republicans tout the Bush tax cuts.

Republicans have taken something of an infomercial approach to extending the Bush tax cuts. It's not just that they lower tax rates. They also stimulate the economy, increase revenue, shrink government, encourage small businesses, keep the feds from buying private companies, and allow corporations to plan for the future. No word, as of yet, on whether they will blend.
 
But there's a reason I don't use a blender to listen to the radio or a cloth to cover my house. And there's a reason you don't want to use a raft of tax cuts meant to lower marginal rates as a way to reduce the deficit, which they wouldn't do, or stimulate the economy and encourage small businesses, which they would do poorly.

If you want to help small businesses, cutting taxes for rich individuals -- some of whom file as small businesses -- is an awful way to do it. The average business income on a 1040 is $40,000. Extending the tax cuts for filers making more than $250,000 isn't going to do much for small businesses. But you know what would do a lot for small businesses? The small-business bill, which spends tens of billions of dollars opening lines of credit to small businesses that want to expand. And you know why we don't have a small-business bill? Because Republicans are filibustering it.

Similarly, a bill to reduce the deficit would do a good job of reducing the deficit. The Bush tax cuts, by contrast, will add about $4 trillion to the deficit over the next 10 years. A bill designed to stimulate the economy could do quite a bit to stimulate the economy. But the Bush tax cuts weren't designed to stimulate the economy, and so they're not good at it: You only get about 32 cents of stimulus for every dollar you spend, as opposed to a payroll tax cut or job-creation tax credit, both of which give you about $1.25.

The issue isn't that the Bush tax cuts do nothing but lower marginal tax rates. It's that they do the other things poorly, as those weren't things they were designed to do. Republicans, faced with the expiration date that they passed into law, are now grabbing every argument in the area to support an extension. But the tax cuts don't slice, dice and juice. If Congress wants to, say, help small businesses, it should pass the legislation it's considering to do exactly that. If it wants to reduce the deficit, or stimulate the economy, it should design a bill suited to that purpose. It shouldn't extend the tax cuts as some sort of fourth-best alternative.

The Amendments Are Coming....The Amendments Are Coming

Think Progress has an excellent compendium of all the Constitutional Amendments that the Republicans and their Tea Party allies have proposed in their goal of perfecting our governmental system (h/t Joan on DailyKos)..

REPEALING CITIZENSHIP: Numerous GOP lawmakers, including their Senate leader and the most-recent Republican candidate for president, are lining up behind a “review” of the 14th Amendment’s grant of citizenship to virtually all persons born within the United States. Such a proposal literally revives the vision of citizenship articulated by the Supreme Court’s infamous pro-slavery decision in Dred Scott v. Sanford. It has no place in the twenty-first century.

REPEALING CONGRESS’ POWER TO REGULATE THE ECONOMY: The Constitution’s “Commerce Clause” gives national leaders broad authority to regulate the national economy, but much of the GOP has embraced “tentherism,” the belief that this power is small enough to be drowned in a bathtub. The most famous example of tentherism is the ubiquitous frivolous lawsuits claiming that health reform is unconstitutional, but these lawsuits are part of a much greater effort.  In his brief challenging health reform, Virginia Attorney General Ken Cuccinelli claims that Congress is allowed to regulate “commerce on one hand” but not “manufacturing or agriculture.” Cuccinelli’s discredited vision of the Constitution was actually implemented in the late 19th and early 20th century, and it would strike down everything from child labor laws to the federal ban on whites-only lunch counters.

REPEALING CONGRESS’ POWER TO SPEND MONEY: The Constitution also gives Congress power to “provide for the common defense and general welfare,” a broad grant of authority to create federal spending programs such as Social Security. Sen. Tom Coburn (R-OK), however, recently called upon the Supreme Court to rewrite the Constitution’s clear language and repeal parts of the budget he doesn’t like. A Texas GOP official even went so far as to claim that the federal highway system is unconstitutional. Should this GOP vision of the Constitution ever be adopted, it could eliminate not just Social Security, but also Medicare, Medicaid, federal education spending and countless other cherished programs.

REPEALING CONGRESS’ POWER TO RAISE MONEY: The Constitution also gives Congress broad authority to decide how to distribute the tax burden. Thus, for example, Congress is allowed to create a tax incentive for people to buy houses by giving a tax break to people with mortgages, and it is allowed to create a similar incentive for people to buy health insurance by taxing people who have health insurance slightly less than people who do not.  Nevertheless, the frivolous assaults on health reform would eliminate this Constitutional power. Many Tea Party Republicans go even further, calling for a full repeal of the 16th Amendment, the amendment which enables the income tax. Paying taxes is never popular, but it would be impossible to function as a nation if America lacked the power to raise the money it needs to pay our armed forces, among other things.

REPEALING EQUALITY: The Constitution entitles all persons to “equal protection of the laws,” a provision that formed the basis of Judge Vaughn Walker’s decision yesterday that California cannot treat gay couples as if they are somehow inferior. Immediately after this decision was announced, former House Speaker Newt Gingrich (R-GA) called upon Congress to “act immediately” to overturn it — something that it could only do through a constitutional amendment.  Of course, Newt’s proposal does nothing more than revive President Bush’s call for a constitutional amendment repealing the parts of the Constitution that protect marriage equality.

REPEALING FUNDAMENTAL RIGHTS: As Judge Walker also held, marriage is a fundamental right protected by the Constitution’s Due Process Clause. The GOP’s anti-gay amendment would repeal this constitutional protection as well.

REPEALING ELECTION OF SENATORS: Finally, a number of GOP candidates have come out in favor of repealing the 17th Amendment, the provision of the Constitution which requires direct election of senators, although many of these candidates also backed off their “Seventeenther” stand after it proved embarrassing. It is simply baffling how anyone could take one look at the U.S. Senate, and decide that what it really needs is even less democracy.

Tax Cut Follies

Jonathan Chait on the politics surrounding the upcoming debate over the expiring Bush tax cuts.

Now, here's the underlying dynamic. Raising taxes on the middle class is unpopular. But raising taxes on the rich is wildly popular. The truth is that neither party cares very much about the portion of the Bush tax cuts that benefit the middle class. Republicans just threw that in to sell the upper-bracket tax cuts, which is what they care about. Democrats might prefer a more progressive tax code with lower middle-class taxes, but most of them would rather have the revenue instead. But Democrats promised not to raise taxes on people earning less than $250,000 a year -- a promise they felt they had to make in order to win. And they can't break that promise without suffering political consequences.
 
Republicans, on the other hand, don't want to pass an extension of the middle-class Bush tax cuts without the upper-bracket tax cuts. That would leave the federal tax code more progressive than it was under Bill Clinton -- you'd have a combination of Clinton-era tax rates on the rich and Bush-era tax rates on the middle class. Conservatives have been fretting about such a result for more than a year, warning ominously about a country in which half the population pays no income tax. (They'd still pay other taxes, but the central Republican goal is to minimize the progressivity of the tax code.)

So we're down to a game of chicken. Here's why the Democrats hold the whip hand. They can pass an extension of the middle-class Bush tax cuts through the House. If Republicans let the bill pass, then they've lost their leverage to extend the unpopular Bush upper-income tax cuts. If they filibuster it, then Democrats can blame them for raising taxes on middle-class Americans. It would let Democrats out of their pledge. (Hey, they tried to keep the middle-class tax cuts.) Then nothing would pass, and we'd instantly revert to Clinton-era rates across the board.

Afghanistain After the Leaks

Sully on the WikiLeaks Afghanistan document dump.

What do we really learn from the WikiLeaks monster-doc-dump? I think the actual answer is: not much that we didn't already know. But it's extremely depressing - and rivetingly explicit - confirmation of what anyone with eyes and ears could have told you for years. We already know the following:

The notion that a professional military and especially police force can be constructed and trained by the West to advance the interests of a "national government" in Kabul within any time frame short of a few decades of colonialism is a fantasy.

We are fighting a war as much against the intelligence services of Pakistan as we are the Taliban. They are a seamless part of the same whole, and until Pakistan is transformed (about as likely as Afghanistan), we will be fighting with two hands tied behind our backs.

This is the Taliban's country. Fighting them on their own ground, when they can appear in disguise, can terrify residents by night if not by day, and fight and then melt away into the netherworld of mountains and valleys is all but impossible. And as the occupation fails to secure popular support (and after ten years and a deeply corrupt government in Kabul, who can blame the Afghans?), the counter-insurgency model becomes even less plausible than it was before.

The enormous cost in lives and money is in no way proportionate to the eradication of around 500 Qaeda leaders, including bin Laden, who are effectively being protected by a foreign government, Pakistan, we aid with a $1 billion a year.

His conclusion is simple.

When one weighs the extra terror risk from remaining in Afghanistan, the absurdity of our chief alleged ally actually backing the enemy, the impossibility of an effective counter-insurgency when the government itself is corrupt and part of the problem, the brutality of the enemy in intimidating the populace in ways no civilized occupying force can counter, the passage of ten years in which any real chance at success was squandered ... the logic for withdrawal to the more minimalist strategy originally favored by Obama after the election and championed by Biden thereafter seems overwhelming.
 
When will the president have the balls to say so?

The Stimulus Failure

Ezra explains what went wrong with the stimulus.

The original stimulus package should've been bigger. Rep. David Obey, chairman of the House Appropriations Committee, says the Treasury Department originally asked for $1.4 trillion. Sen. Kent Conrad, chairman of the Senate Budget Committee, wanted $1.2 trillion. What we got was a shade under $800 billion, and something more like $700 billion when you took out the AMT patch that was jammed into the package. So we knew it was too small then, and the recession it was designed to fight turned out to be larger than we'd predicted. In the end, we took a soapbox racer to a go-kart track and then realized we were competing against actual cars.

This was a mistake, of course. But the mistake may not just have been the size of the stimulus package. I wonder if it wasn't fed by a belief that there'd be other chances. If all we needed was the $700 billion package, then great. But if unemployment remained high and the recovery had trouble taking hold, surely there would be the votes for further stimulus and relief spending. No one in the political system could possibly look at 10 percent unemployment and walk away from it, right?

Wrong. Ten percent unemployment and a terrible recession ended up discrediting the people trying to do more for the economy, as their previous intervention was deemed a failure. That, in turn, empowered the people attempting to do less for the economy. So rather than a modestly sized stimulus leaving the door open for more stimulus if needed, its modest size was used to discredit the idea of more stimulus when it became needed.

The Lunatics Taking Over the Asylum

Jonathan Chait on the takeover of the GOP by its radical fringe.

One interesting sidelight of the current election cycle is that there are several races in which the Republican establishment has either lost control of the race or lost any sense of its own partisan self-interest. The Nevada Senate race is a prime example. Harry Reid, once a dead man walking, is now sitting on a nice lead because Republicans nominated a lunatic to oppose him. "A total f*** up by the state and national Republicans to allow Angle to get nominated," a source notes to Ben Smith.

But of course there are numerous such fuckups. In Kentucky, Republicans turned a rock-solid safe seat into a toss up by nominating ultra-radical Rand Paul over party hack Trey Grayson. In Pennsylvania, they turned a relatively safe seat in Arlen Specter, who had been almost completely housebroken by the right since 2004, into another toss-up. (More importantly, they drove Specter from the party and made him the 60th Senate seat, allowing the passage of health care reform.) And in Florida, they turned another safe hold into a toss-up by challenging, and driving from the party, Charlie Crist.

Florida is actually the closest thing to a rational move for the right. First, I think Crist's current lead is far from safe, because the Democratic vote is likely to consolidate above its current abysmal level and that will come out of Crist's hide. Second, Crist is a genuine moderate, so there really was a more reasonable risk-reward calculation for conservatives looking to gain a more ideologically reliable Senator at the risk of losing the seat altogether. There's at least a strong chance that the Rubio challenge will burn them.

This is four Senate seats put at serious risk by running right-wing primary challenges, plus one enormous liberal domestic policy accomplishment. In all these instances, conservatives either celebrated the right-wing primary challenge or, at the very least, quietly accepted it. There was very little pushback at the time from the party establishment, other than a feeble effort in Kentucky. I have seen no recriminations whatsoever in hindsight. And yet it seems perfectly clear that the effect of these challenges has been a disaster from the conservative perspective.  You don't have to love Sue Lowden to understand that a 90% chance of Lowden winning is better than a 20% chance of Sharron Angle winning. Nor is there any recognition on the right that conservatives paved the way for health care reform by driving Specter out. In conservative lore, the Pat Toomey primary challenge remains a glorious triumph, when in fact it's a disaster of historic proportions.

Obviously the conservative movement is intoxicated with hubris right now. Part of this hubris is their belief that the American people are truly and deeply on their side and that the last two elections were either a fluke or the product of a GOP that was too centrist. It's a tactical radicalism, a belief that ideological purity carries no electoral cost whatsoever. Right-wing tactical radicalism has an old pedigree, and of course there is an equivalent (though less influential) tactical radicalism on the left-wing of the Democratic Party. Tactical radicalism is not the same thing as ideological radicalism. Tactical radicals are a subset of ideological radicals; some ideological radicals have clear-eyed of the pragmatic steps needed to advance their goals incrementally.

In the past, the Republican Party has always managed to hold in check the tactical radicalism of its base. It's starting to run wild. In past elections, I would have totally discounted the possibility that the party might nominate a figure like Sarah Palin, because the party establishment has always been strong enough to push aside candidates who were not strong electoral vehicles for conservatism. I'm no longer sure they have that power anymore.

It's possible that the GOP wave will be strong enough in 2010 to push most or even all these weak candidates into office. If that doesn't happen, I wonder if we'll start to see some recriminations. If it does, tactical radicals will be even more emboldened, and I don't see what could stop Sarah Palin from taking the 2012 nomination if she wants it.