The Rise and Fall of Lobbyists

| Tue Nov. 25, 2008 1:47 AM EST

THE RISE AND FALL OF LOBBYISTS....On K Street, the free market is hard at work:

An assistant department secretary leaving the Bush administration three years ago, with Republicans in control of the House, Senate and White House, might fetch as much $600,000 to $1 million a year in the influence business, recruiters and lobbyists said. But the same person might now expect less than half as much.

....But for Democrats, the bidding is fierce. Three years ago, a Democratic staff director for an important House or Senate committee might have earned about $130,000 a year on Capitol Hill, and jumped to K Street for an annual salary of about $250,000. Now, the same person might command as much as $500,000 to $800,000 a year, several recruiters said.

OK, but it still sounds like Republicans work at a higher pay scale than Democrats. How come? The answer, perhaps, comes from Republican John Feehery, a former MPAA lobbyist who lost his job after Democrats took over in 2006:

A spokesman for the association declined to comment on the departure. So did Mr. Feehery, who now runs his own lobbying shop. But he said Republican lobbyists would always be in demand because Democrats lack the stomach to push for industry goals that go against their party, like rolling back environmental regulations.

"At the end of the day," Mr. Feehery said, "Democrats don't like to ask for the order" — the client's objective.

So there you have it. Democrats just aren't willing to screw their own party and violate their own principles quite enough. It's a pretty sad state of affairs.

Advertise on

Taxes and Christina Romer

| Mon Nov. 24, 2008 9:23 PM EST

TAXES AND CHRISTINA ROMER....Brad DeLong says of fellow Berkeley economics professor Christina Romer — who has just been appointed by Barack Obama as head of the CEA — that she is "very good at explaining economics." That's good, because I have a question.

Last year Christina and David Romer wrote a paper that attempted to quantify the effect of tax changes on economic growth. I read it at the time and didn't understand it. I read it again a few minutes ago and I still don't understand it. So my question is: Can you please explain your paper titled "The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks"?

Here's my understanding of what the paper says. Basically, the Romers looked at every tax measure enacted since 1945 and classified them into two groups. The first group they call endogenous. These are tax changes made in response to current or future economic conditions, including responses to spending changes or recessions. Since the effect of these tax changes is difficult to separate from the effects of the events being responded to, they are discarded.

The second group they call exogenous. These are tax changes designed either to reduce a deficit or to raise long-term growth. Since they aren't motivated by current or future economic conditions, their effect on the economy is untainted by external factors.

The Romers use this second group to calculate the effect of tax changes on economic growth without confounding factors, and their conclusion is that a tax increase of 1% of GDP reduces output three years later by nearly 3%.

Aside from the difficulties inherent with this kind of classification, I've got a few problems with this. First, their methodology eliminates a whole bunch of tax changes simply because their effect is hard to calculate. This might make practical sense, but doesn't it also introduce a whole new kind of bias?

Second, it assumes that if politicians say a tax increase is designed to spur economic growth or reduce the deficit, then that's what it's for. But ever since 1980, conservative politicians have said this about practically every tax cut whether it's true or not. For this reason, the Romers tag nearly every tax change since 1980 as exogenous. Doesn't this make their post-1980 analysis a little slippery since it essentially includes all tax changes while the pre-1980 analysis doesn't?

Third, it doesn't take into account different kinds of tax changes. If, say, exogenous changes tend to be capital gains cuts while endogenous changes tend to be payroll tax increases, wouldn't you need to take that into account?

Fourth, there have been tax changes practically every year for the past 50 years. How do you separate the effects of one tax change from another?

Fifth, can it really be true that a 1% tax increase produces a 3% GDP reduction over the long term? European countries tend to have total tax rates that are upwards of 15% higher than ours, which should mean their GDPs are 45% lower. For the most part, however, GDP per hour worked in Europe is only modestly lower than ours.

Anyway, those are my questions. I've found very little discussion of the paper on web (see here and here for a couple of exceptions) and I'm curious to know what the economics profession in general thinks of it. Can anyone point me in the right direction?

POSTSCRIPT: One of the Romers' conclusions, by the way, is that tax increases designed to reduce an inherited deficit have a positive impact on economic growth. So if Obama ever does raise taxes, expect this to be the reason he gives for it. Luckily for him, it will probably be true.

Susan Rice to the UN: A Positive Sign for UN-US Relations

| Mon Nov. 24, 2008 5:52 PM EST

article_image.php.jpg ABC is reporting that Susan Rice, a former member of President Bill Clinton's National Security Council and a former Assistant Secretary of State for African Affairs, is about to be named US Ambassador to the United Nations in the Obama Administration. Why is this of note? Rice is extremely close to Obama, and has been for years. Mark Goldberg, of UN Dispatch, is jazzed about what that means for the future of US-UN relations:

This is great news. The fact that President-elect Obama is entrusting US diplomacy at the United Nations to such a close adviser is a sure sign of the high priority to which the new administration will place US-UN relations. Deeper still, her background as a regional Africa expert will come in handy. About 2/3rds of all discussions at the Security Council are about situations in Africa.
More broadly, Rice is known in foreign policy circles as an innovative, forward thinking foreign policy wonk who pays special attention to the connectivity of today's threats and challenges. As a diplomat, I expect her to be fairly sharp-elbowed, which is not a bad quality for Turtle Bay!

I suspect this is a sign that Obama will be involved in (or his administration will be a full partner in) worldwide efforts to bring stability to places like Darfur and Somalia. That's great news. And just take a moment to consider the difference between the Obama Administration and the Bush one. Bush named to this same post John Bolton, a man who believes force is always the right option and is so hostile toward the United Nations that he once said wiping out 10 floors of UN headquarters wouldn't make a "bit of difference." And now we have someone who has spent years studying how to engage in the world in order to reduce conflict. The democratic transfer of power is a remarkable thing.

Solicitor General Says Uighur Detainees Have An Immigration Problem

| Mon Nov. 24, 2008 5:05 PM EST

The Bush administration is clearly getting desperate: Monday, it sent the Solicitor General of the United States to federal court to try once again to justify its detention of 17 innocent Uighur detainees held for the past six years at Guantanamo Bay. The administration's top litigator, Greg Garre usually spends his time at the Supreme Court, but the administration dispatched its big gun to the DC Circuit courtroom to make its best possible case that no court in the land has the power to tell the Bush administration what to do. It will not go down in history as one of Garre's finest moments.

As Obama Taps Larry Summers, Recalling Summer's Days as a Regulation Foe

| Mon Nov. 24, 2008 4:58 PM EST

On Monday, President-elect Barack Obama announced his economic team, noting that Lawrence Summers would be the director of his National Economic Council. In touting Summers, Obama praised the former treasury secretary for his work during the Clinton years

Larry helped guide us through several major international financial crises – and was a central architect of the policies that led to the longest economic expansion in American history, with record surpluses, rising family incomes and more than 20 million new jobs. He also championed a range of measures – from tax credits to enhanced lending programs to consumer financial protections – that greatly benefited middle income families.
As a thought leader, Larry has urged us to confront the problems of income inequality and the middle class squeeze, consistently arguing that the key to a strong economy is a strong and growing middle class....And as one of the great economic minds of our time, Larry has earned a global reputation for being able to cut to the heart of the most complex and novel policy challenges.

While some of that might be true, Summers has been a controversial figure, and it's likely no accident that he is being handed a position that does require him to be confirmed by the Senate.

But despite Summer's intellect and experience, it's worth remembering that he did blow one of the major calls of the 1990s: what to do about financial derivatives--those esoteric financial products (such as credit default swaps) that helped grease the way to the subprime meltdown. Not only did Summers oppose greater regulation for those financial instruments; he led the opposition against it.

Nobody Knows Anything

| Mon Nov. 24, 2008 4:11 PM EST

NOBODY KNOWS ANYTHING....Via Tyler Cowen, I see that the Intercollegiate Studies Institute has released the results of their annual test on civics and history. The outcomes, as usual, are supposedly abominable: fewer than a third of the 2,500 randomly selected test takers managed to score higher than 60%.

Now, you can decide for yourself how hard the test is and whether a score below 60% is really that bad. (The test is here.) I managed to get all the questions right, but still, there were a fair number that were pretty far from obvious for most people. Is it really that big a deal, for example, that most Americans don't know that Socrates, Plato, Aristotle, and Aquinas would concur that certain permanent moral and political truths are accessible to human reason? Especially when the question and the five possible answers are being read to them over the phone?

Like I said, you can decide for yourself. But I just want to highlight one particular result: the average score by age group. As regular readers know, one of my pet peeves is the endless number of tests given to high school students and then trumpeted as evidence that kids today are abysmally ignorant. The standard headline is something like "80% of high school seniors can't find France on a map," but what I always wonder is: how many adults can find France on a map? Unfortunately, they never tell us that.

But ISI does. And the results are pretty simple: everyone is stupid. ISI themselves spin this as "Baby Boomers Do Best," but speaking ex cathedra for my generation, I really don't think that 52% vs. 47% (an average difference of less than two correct answers) says much about the awesomeness of boomer cultural literacy. Basically, the kids didn't do very well on ISI's test, but neither did the adults or the seniors, even though their average educational level is higher. This may be only a single fairly dubious data point, but it's still worth keeping in mind the next time you see one of those "Kids Are Stupid" headlines.

Other ISI findings, by the way, include these: the more education you have, the better you do; it doesn't matter much what kind of university you went to, whether you go to church, or what your politics are; watching lots of TV is bad for your score; and reading lots of history is good for your score. So there you have it.

Advertise on

An Immediate Obama Effect in African-American Communities?

| Mon Nov. 24, 2008 3:48 PM EST

Spotted over at Ben Smith's space, an attempt by the Washington DC police department to stop gun violence by invoking the President-elect.


A quick look at the crime map application hosted by the DC police department shows that 1,726 crimes have been committed in the District of Columbia since Obama's election on November 4, an 11 percent drop from the same period last year. Unfortunately, homicides are up 100 percent, suggesting the need for this initiative and many others.

New Report Shows What The Economic Bailout Is Really Costing Us

| Mon Nov. 24, 2008 3:27 PM EST

Today, as Obama introduced his economic team, the Institute for Policy Studies (IPS) released a new report (.pdf) adding some context to the sheer sums of money being thrown at the financial-industry bailout. The top-line finding? The US and Europe have committed about $4.1 trillion so far, or about 40 times as much as they've spent on combating climate change and global poverty this year. The report, called "Skewed Priorities," speculates that Western governments will use the economic crisis as an excuse to pull back from their commitments to climate and development programs.

According to IPS Director John Cavanagh, "The financial crisis is only one of multiple crises that will affect every nation — rich or poor. Skyrocketing poverty and unemployment in the developing world will mean even more brutal global competition for jobs. Climate change imperils the very future of the planet. And yet thus far, the richest nations in the world appear fixated almost entirely on responding to the financial crisis, and specifically, on propping up their own financial firms."

Yes, the bailout seems necessary (at least that's what they tell us... and, as any of my childhood math teachers would attest, I am not one to make a judgment on that issue), but the IPS report does at least let us know what we're sacrificing in the name of righting our financial ship. From a press release announcing the report's publication:

Obama's Economic Stimulus Package: Whose Pump Will It Prime?

| Mon Nov. 24, 2008 3:18 PM EST

"I'm not going to discuss numbers right now," Barack Obama said this morning at his press conference, where he introduced his economic team but held off on providing details of their plans to respond to the deepening recession. In fact, the devil will be in those details. They will be a test of the president-elect's willingness to take bold action, as well as of his basic ideological approach to economics and social justice.

While various experts have projected a stimulus package costing anywhere from $600 billion to $1 trillion, Obama would only say that "we need a big stimulus package." At the same time, he declared, "95 percent of workers will receive a net tax cut," with those earning over $250,000 a year eventually paying "a little bit more." He has also indicated that he may take no immediate action to roll back Bush's tax cuts to the rich, but simply let them expire in 2010. So how will the Obama administration pay for a big stimulus program? For the most part through Keynesian style pump-priming—government spending that increases the huge deficit over the short term, in hopes of reducing it later under a recovered economy. It's the approach taken, most famously, by FDR—the man to whom the Obama is now being compared on a daily basis.

In fact, deficit spending has long been undertaken not only by New Deal Democrats, but by Republicans from Ronald Reagan to George W. Bush. These so-called fiscal conservatives have been only too happy to run up the national debt when it suits their ideological goals, whether they be military buildups or corporate handouts. Obama and his team will need to decide which larger goals their deficit spending will serve—what pumps they want to prime, and how. In particular, will their program to stimulate the economy reject the discredited "trickle down" approach, and address the extremes of wealth and poverty created over the last 30 years?

All-Expenses-Paid India Vacation, Courtesy of Your Health Insurer

| Mon Nov. 24, 2008 3:09 PM EST

tajmahal.jpgYou know your healthcare system has a problem when your insurance company starts offering to fly you halfway across the world for medical care.

Indiana-based health insurer WellPoint, Inc. has begun testing a program that allows patients to undergo elective surgeries in India instead of the US.

The program is currently available only to employees of a Wisconsin-based printing company whose employees WellPoint insures. And even though flights cost roughly $2,000 per person, round trip (according to Orbitz), it's still more cost-effective for WellPoint to send patients to India than it is to airlift them down to Milwaukee. Want your knee fixed up? Knee surgery typically costs $70,000-80,000 in the US; in India, it's a tenth that price.

Even more incredible is the fact that, at least according to the insurers, patients are actually more likely to receive high-quality, transparent care in India than they are here. An insurance-company medical officer quoted in the article says there's "a lot more willingness to share data about complication rates, the total number of procedures and the outcomes."

Now, I'm all for people receiving the best possible care at the lowest possible cost. But the fact that sending a patient to the other side of the world and back is less expensive than putting him up at a local hospital should send a strong signal to our policymakers (President-elect Obama, are you listening?) that our current system is beyond repair.

Photo used under a Creative Commons license from betta design.