2012 - %3, October

Who's Afraid of the Fiscal Cliff?

| Wed Oct. 3, 2012 5:35 PM EDT

Sarah Binder writes today that she doesn't expect this year's lame duck session of Congress to conclude a deal that will avert the "fiscal cliff" our legi-lemmings are set to march over on December 31. She has three reasons, and the first two boil down to the fact that Republicans aren't likely to suddenly stop being crazy just because we had an election, even if Obama wins.1 I can buy that. But here's reason #3:

Third, I’m somewhat skeptical that Democrats would have the political fortitude to go over the cliff. Democrats could have stuck to their guns in the lame duck of 2010, forcing Republicans (still in the minority) to swallow an increase in upper income tax rates as the price for extending the middle class tax cuts. That’s not the strategy Democrats chose then, and it strikes me as equally unlikely in 2012 with a GOP House majority. Going over the cliff requires Democrats to take ownership of raising taxes on the middle class at Christmas. That might be the strategically wise move for bolstering Democrats’ leverage come January. But it also strikes me as an electorally doubtful holiday gift to voters.

I'm not so sure about that. In this case, I think I'm with the folks who like to refer to this event as a fiscal slope rather than a fiscal cliff. Their general point is that we don't all suddenly pay thousands of dollars in taxes and cut billions of dollars in spending at the stroke of midnight on January 1st. This stuff all phases in over time.

That's true, and I doubt very much that there would be any serious consequences to doing a deal in February or March instead of December. In the particular case of taxes, the only thing that happens on January 1st is that withholding rates would go up slightly — and maybe not even that. The IRS has a fair amount of latitude to leave withholding rates alone for a few months if it wants to. Either way, this means that Democrats don't really have to worry about "owning" the expiration of the Bush tax cuts for quite a while. (The payroll tax holiday also expires on December 31, but that was always unlikely to be extended anyway. It doesn't have much to do with the fiscal cliff.)

For a few months, then, taxpayers won't see much impact. Maybe none at all. As a result, I think Democrats could pretty safely stick to their guns and extend negotiations into 2013 without much risk. At that point, with the Bush tax cuts gone and rates back up to their Clinton-era levels, they'll still have to convince Republicans to introduce a bill that cuts only the middle-income rates, not the top marginal rates, and that won't be easy. But Republicans will be under as much pressure as Democrats by that point, and they might very well be willing to do a deal.

In short, as long as the composition of Congress doesn't change dramatically, I don't think the calculus is much different before and after January 1st. The cliff doesn't really start to get scary until later in the year.

1This entire post is predicated on the likelihood that Obama will win reelection and the House will remain fairly solidly in Republican hands. If either of those doesn't happen, the legislative calculus changes completely.

Advertise on MotherJones.com

Mitt Romney Casually Tosses Out Yet Another Tax Plan

| Wed Oct. 3, 2012 3:36 PM EDT

This is a bit of a placeholder post. Yesterday Mitt Romney told a Denver TV station that he had some new ideas about his plan to reduce tax deductions in order to make up for the 20% across-the-board rate cuts he's promised:

As an option you could say everybody's going to get up to a $17,000 deduction; and you could use your charitable deduction, your home mortgage deduction, or others — your healthcare deduction. And you can fill that bucket, if you will, that $17,000 bucket that way. And higher income people might have a lower number.

I haven't commented on this yet for several reasons. First, it was casually tossed out. It's not clear if Romney is serious about this. Second, it's a little unclear exactly what he meant: a $17,000 max on deductions from your gross income, or a $17,000 max on how much your tax bill can be reduced? Third, it's still missing crucial details. When Romney says "healthcare deduction," is he talking about the exclusion of healthcare benefits from your taxable income? Is that $17,000 cap for single filers or couples? Does it include the personal exemption and dependent exemptions? Etc. Fourth, he didn't provide a number for higher income people, just a hint that it might be lower than $17,000. Fifth, there's no telling how the math works out on this.

The first four of these things require more detail from Romney. The fifth requires an analysis from the Tax Policy Center or some similar outfit. In the meantime, there's not a lot of point in commenting on something with so many missing pieces.

So for now I'll limit myself to saying that it's highly unlikely that the math works out here. Josh Barro thinks that virtually everyone making under $200,000 would see either a net tax decrease or no change at all under this proposal. And we already know that even if every single deduction for those making over $200,000 were completely eliminated, they'd see a net tax decrease too. So no matter how Romney fills in the blanks, this would amount to a net tax decrease. There's just no way that it becomes revenue neutral, as Romney has promised, without a massive sprinkling of dynamic scoring fairy dust.

Anti-Abortion Group Launches New Super-PAC

| Wed Oct. 3, 2012 2:15 PM EDT

The anti-abortion PAC Susan B. Anthony List announced on Wednesday that it is launching a new super-PAC, Women Speak Out, to counter the electoral advocacy of pro-choice groups.

The Susan B. Anthony List is a 20-year-old PAC launched to support anti-abortion candidates, which has become strongly aligned with the Republican Party in recent years. While the group has always spent money to elect anti-abortion candidates, the new super-PAC will allow it to raise unlimited funds to deploy in key states and districts. Women Speak Out says it plans to spend $500,000 on ads in swing states.

"We cannot sit back and allow the deep-pocketed abortion lobby led by Planned Parenthood and EMILY's List claim to speak for all women," said Susan B. Anthony List president Marjorie Dannenfelser in an email soliciting donations for the new PAC. The email requests contributions so that the group can air ads criticizing Obama as an "abortion radical" during Wednesday night's presidential debate. The ads would counter new anti-Romney spots bankrolled by Planned Parenthood's 501(c)4 and PAC. A pro-choice Super PAC has also received some major new donations in recent weeks. 

The Women Speak Out ads make a number of inflammatory claims about Obama—including that he supports aborting baby girls, that he supports killing babies who are "born alive" in the course of a "failed abortion," and that the healthcare reform bill is "the biggest ever expansion of tax-subsidized abortion."

One Last Encore for the Great "Statistical Tie" Fallacy

| Wed Oct. 3, 2012 2:11 PM EDT

If Ed Kilgore can steal an old post of mine about the whole "statistical tie" fallacy, well, I can too. I was going to do it anyway because Nicholas Beaudrot told me to, so here it is:

The idea of a "statistical tie" is based on the theory that (a) statistical results are credible only if they are at least 95% certain to be accurate, and (b) any lead less than a poll's margin of error is less than 95% certain.

There are two problems with this: first, 95% is not some kind of magic cutoff point, and second, the idea that the MOE represents 95% certainty is wrong anyway. A poll's MOE does represent a 95% confidence interval for each individual's percentage, but it doesn't represent a 95% confidence for the difference between the two, and that's what we're really interested in.

In fact, what we're really interested in is the probability that the difference is greater than zero — in other words, that one candidate is genuinely ahead of the other. But this probability isn't a cutoff, it's a continuum: the bigger the lead, the more likely that someone is ahead and that the result isn't just a polling fluke. So instead of lazily reporting any result within the MOE as a "tie," which is statistically wrong anyway, it would be more informative to just go ahead and tell us how probable it is that a candidate is really ahead. Here's a table that gives you the answer to within a point or two:

Pretty handy, no? Most national polls have an MOE of about 3%, so you can usually just use that row. NBC, for example, puts Obama ahead of Romney right now by 49-46%. So what are the odds that Obama is really ahead, and this isn't just a statistical fluke? Answer: 84%.

But now for the bad news: As fun as it is to haul this thing out every few years, it's obsolete. If you want to know who's ahead, there are now loads of sites that aggregate multiple polls in various ways to provide estimates with far less margin of error than any single poll. If Pollster or RCP says that Obama is ahead by three points, then the odds are that he really is ahead by three points. There's still plenty of room for various kinds of error in these poll-of-polls averages, but pure sample error isn't really one of them any more.

For the record, as of today Pollster has Obama ahead by 4.3%; RCP has Obama ahead by 4.0%; Sam Wang's meta-margin has Obama ahead by 5.06%; and Nate Silver has Obama ahead by 3.9%. I think it's pretty safe to say that, at this moment in time, Obama is comfortably ahead.

Good News on Climate Change…and Not So Good News

| Wed Oct. 3, 2012 1:10 PM EDT

Chris Mooney has a piece for us today arguing that public opinion is turning around on climate change. What's more, he says, recent studies suggest that climate can even be a winning political issue:

The first of these studies emerged in 2011 from Stanford pollster Jon Krosnick and his colleagues....Both Democrats and independents strongly favored a green candidate over a neutral one, while for Republicans it was basically a wash—neither a pro or anti-climate candidate moved them much. "By taking a green position on climate, candidates of either party can gain votes," Krosnick's team concluded.

....Their findings were reinforced earlier this year by researchers at Yale and George Mason who, in a March 2012 survey, similarly found that taking a stand on climate has the potential to motivate Democratic and independent voters, without causing damage among Republicans.

.... In a survey of 1,204 likely voters in May of 2012, [Andrew] Maxfield found that a "clean energy" candidate fared better than an "all-of-the-above" candidate who supported a variety of energy choices—coal, drilling, and also clean energy. Maxfield then went on to test a variety of climate messages—and the upshot, he says, is that "if you feel strongly about climate change, there is a way to talk about it that voters will understand and appreciate"—especially if candidates focus on recent extreme weather. "I was surprised at the strength of that, and the extent to which voters had begun to recognize the severe weather, and experience it," Maxfield says. 

Unfortunately, I remain skeptical. In a vacuum, supporting green policies has always been a popular position. And it's always been true that there are good ways to talk about climate change and bad ways. I'm not sure anything big has changed here.

The problem is that you don't always get to talk about political issues the way you want to. Your opponents get to talk about them too. And they won't be shy about labeling virtually any serious green policy as a price hike for consumers and a regulatory burden for business. What's more, conservatives have an unusual advantage when they say this: it's actually true. Things like carbon taxes and cap-and-trade policies really will increase the price of energy for consumers. That's the whole point. Conversely, if you limit yourself to generally popular issues like CAFE standards and building more solar plants in the desert, voters will support it, but only because the price hike is small enough (and hidden enough) that it has only a modest impact on climate change in the first place.

What really matters, then, is what happens when potential voters are presented with messaging from both sides. To get an idea of how effective this is, take a look at the Gallup polls below. The first poll asks people if the threat of global warming is generally exaggerated or not, and it hits bottom in 2006, at about the time of the release of Al Gore's An Inconvenient Truth. Then it starts to rise as conservatives fight back, reaching a peak in 2010, shortly after the release of the "Climategate" emails. It's gone down since then, which is good news, but it's still way higher than it was even five years ago. Likewise, the bottom chart shows that even Democrats and Independents are far more likely to think that news of global warming is exaggerated than they were back in 2006.

So there's a long way to go before public opinion is anywhere near where it needs to be. We need to get to a point where even if people know that it means an increase in gasoline and electricity prices — even if their noses are rubbed in it — they still support serious green policies. This is the work ahead of us.

Income Inequality and the Great Crash of 2008

| Wed Oct. 3, 2012 12:13 PM EDT

I've mentioned before my rough-and-ready theory of the 2008 financial crisis:

  1. Income inequality goes up.
  2. As a result, earnings of the middle class become sluggish....
  3. And earnings of the rich skyrocket, a trend reinforced by lower tax rates on both labor and capital income.
  4. Rich people eventually run out of sensible things to invest all this money in (because consumer demand is sluggish, see #2), so they get stupid.
  5. Stupid money finances stupid loans to middle-class borrowers who can't afford them (because their incomes are sluggish, see #2).
  6. This all works great until it doesn't. When it doesn't, the economy goes kablooey.

In the aughts, #5 took the form of increasing corruption in the mortgage loan market and increasingly baroque Wall Street financial concoctions to package up all those corrupt loans. It worked great for about five or six years, followed by a Wile E. Coyote moment where the economy was suspended in limbo for a year or so, followed by an epic crash that we still haven't dug our way out of.

I'm just a blogger, though, so there's no special reason you should take me seriously. However, a reader alerted me to a recent National Journal piece by Jonathan Rauch that suggests this theory is gaining ground among serious economists:

Once in a while, a new economic narrative gives renewed strength to an old political ideology. Two generations ago, supply-side economics transformed conservatism’s case against big government from a merely ideological claim to an economic one....Something potentially analogous is stirring among the Left. An emerging view holds that inequality has reached levels that are damaging not only to liberals’ sense of justice but to the economy’s stability and growth. If this narrative catches on, it could give the egalitarian Left new purchase in the national economic debate.

....As Christopher Brown, an economist at Arkansas State University, put it in a pioneering 2004 paper, “Income inequality can exert a significant drag on effective demand.” Looking back on the two decades before 1986, Brown found that if the gap between rich and poor hadn’t grown wider, consumption spending would have been almost 12 percent higher than it actually was.

....So inequality might suppress growth. It might also cause instability. In a democracy, politicians and the public are unlikely to accept depressed spending power if they can help it....They might, for example, create policies allowing banks to write flimsy home mortgages and encouraging consumers to seek them....That is not a bad description of what happened in the 1920s and again during these past few years. “When—as appears to have happened in the long run-up to both crises—the rich lend a large part of their added income to the poor and middle class, and when income inequality grows for several decades,” the IMF’s Michael Kumhof and Romain Rancière wrote, “debt-to-income ratios increase sufficiently to raise the risk of a major crisis.”

But wait. Which is it? Does inequality depress demand? Or does it inflate credit bubbles that maintain demand? Unfortunately, the answer can be both. If inequality is severe enough, there could be enough of it to cause the country to inflate a dangerous credit bubble and still not offset the reduction in demand.

And, no, we’re not finished. Inequality may also be destabilizing in another way. “Of every dollar of real income growth that was generated between 1976 and 2007,” Rajan wrote, “58 cents went to the top 1 percent of households.” In other words, for decades, more than half of the increase in the country’s GDP poured into the bank accounts of the richest Americans, who needed liquid investments in which to put their additional wealth. Their appetite for new investment vehicles fueled a surge in what Arkansas State’s Brown calls “financial engineering”—the concoction of exotic financial instruments, which acted on the financial sector like steroids.

The whole thing is worth a read. This model of inequality and financial crises has some powerful proponents, but it's hardly a mainstream consensus at this point. It's worth keeping an eye on, though. There might be some serious explanatory power here.

Advertise on MotherJones.com

Poll: GOP Brand Is Still "Dog Food"

| Wed Oct. 3, 2012 11:43 AM EDT

Mitt Romney's presidential chances haven't looked sunny lately. It doesn't help that he is surfing a larger GOP suck wave. According to a new Washington Post-ABC News poll, the Republican party as a whole is wallowing through a lull in popularity. Fifty-three percent of voters polled have an unfavorable view of the party, while 42 percent think the GOP is still grand.

The image problem is particularly pronounced among the people who matter most: swingables. Sixty percent of moderates view the GOP negatively. Only 11 percent see it in a "strongly favorable" light. Meanwhile, the Democrats' brand polled at 48 percent to 46 percent favorable/unfavorable, with 52 percent of moderates regarding the Democratic party positively.

Yes, We Have Presidential Debate Bingo

| Wed Oct. 3, 2012 11:35 AM EDT

Tonight, the choice in this presidential race will be made clearer than ever ever. Or it won't. There will be zingers! There will be gaffes! But will there be substance? Probably not.

If you're committed to watching the first debate between Mitt Romney and Barack Obama tonight, but you're resigned to hearing nothing especially new, here's a way to cope: Drink heavily, with our help. That's right, it's debate bingo time! We've updated our 2008 bingo card to make it even more challenging this year. Feel free to ignore the directions—you're probably going to need to drink more than these rules allow. 

Click the image for a larger version.

Not Bombing Iran Turns Out to Be Working Pretty Well So Far

| Wed Oct. 3, 2012 10:48 AM EDT

Thanks to the Obama administration's sanctions regime, Iran's currency is collapsing:

While the value of the rial has eroded for the past few years as Iran’s economic isolation has deepened, the severity of the drop worsened with surprising speed in recent days as Iranians rushed to sell rials for dollars. By the end of the day on Monday, it cost about 34,800 rials to buy $1 in Tehran. The rate had been 24,600 rials as of last Monday.

“It’s sort of in a full-blown stampede mode today,” said Cliff Kupchan, a Washington-based analyst at the Eurasia Group, a political risk consulting firm. “There’s very little confidence among many Iranians in the government’s ability to adroitly manage economic policy.”

Dan Drezner comments:

Hey, it turns out that the sanctions against Iran really are crippling — so much so that even Mahmoud Admadinejad is admitting it and Benjamin Netanyahu now has sanctions fever. Based on my own sanctions model, I'd predict that the sanctions are now becoming so costly that Iran will in fact be willing to compromise on its nuclear program — but any concessions will seem tiny compared to how devastating the sanctions have been.

Regardless of what you think about Iran's nuclear program (and the sanctions regime itself), there's a lesson here: foreign policy isn't always — or even often — about who can bluster the hardest. Nor is it about "red lines" and toughness. It's messy. No one just sails from success to success. But Obama has pursued a sensible and persistent course against Iran's nuclear program: first getting the world on his side by demonstrating a genuine willingness to engage with Iran's leaders; pushing relentlessly for sanctions when that didn't work; declining to back down when Iran tried to split the coalition he'd built; consistently turning down policy options that might have turned Iran's people against him; and keeping military threats visible but always in the background.

Will it work? Anyone who claims to know for sure is a fool. It's just too nonlinear. But if the Bolton/Cheney crowd could see beyond the ends of their own eyelashes, they'd realize that although Obama may be quieter than they are, he's stuck to a pretty effective policy for years without blinking. And so far it looks like it's working. For those of us who think that bombing foreign countries is a sign of failure, not a first best option, Obama deserves a pretty solid grade for how he's handled things.

We're Still at War: Photo of the Day for October 3, 2012

Wed Oct. 3, 2012 10:39 AM EDT

Lance Cpl. Sam Enriquez, a military working dog handler with 3rd Law Enforcement Battalion, stationed in Okinawa, Japan, and his K-9 partner Kally, take part in night operations training during the Inter-service Advanced Skills K-9 course, at the U.S. Army's Yuma Proving Ground,
Sept. 24. U.S. Marine Corps photo by Cpl. Aaron Diamant.