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?