Quote of the Day, 11.10.08

Today's installment in an occasional series (stolen from Kevin Drum) comes from reader DG at TPM:

"I can't believe Obama is already sitting down with an unpopular, aggressive world leader without preconditions."

Obama visits the White House today.

First some numbers. The size of the US military was cut 30 percent between 1990 and 2005, which led to increased reliance on private companies to provides services previously thought of as "inherently governmental." The wars in Iraq and Afghanistan accelerated the shift. Pentagon contracts have grown 31 percent in the last few years, from $241 billion in fiscal year 2004 to $316 billion in fiscal year 2008, and the Congressional Budget Office reports that, by year's end, the US will have shelled out over $100 billion to contractors in Iraq. One out of every five dollars spent in Iraq now goes to private industry, and there is one contractor for every US soldier in the country. (During the Gulf War, the ratio of soldiers to contractors was 50:1.)

These figures come from a New America Foundation report released Friday, called "Changing the Culture of Pentagon Contracting" (.pdf), which acknowledges the "inevitability of contractors," while making recommendations for integrating them more effectively into the US force structure. Among the report's admonishments:

Obama and FDR

OBAMA AND FDR....Paul Krugman writes today about the New Deal and the American economy:

Now, there's a whole intellectual industry, mainly operating out of right-wing think tanks, devoted to propagating the idea that F.D.R. actually made the Depression worse. So it's important to know that most of what you hear along those lines is based on deliberate misrepresentation of the facts. The New Deal brought real relief to most Americans.

That said, F.D.R. did not, in fact, manage to engineer a full economic recovery during his first two terms. This failure is often cited as evidence against Keynesian economics, which says that increased public spending can get a stalled economy moving. But the definitive study of fiscal policy in the '30s, by the M.I.T. economist E. Cary Brown, reached a very different conclusion: fiscal stimulus was unsuccessful "not because it does not work, but because it was not tried."

....F.D.R. wasn't just reluctant to pursue an all-out fiscal expansion — he was eager to return to conservative budget principles. That eagerness almost destroyed his legacy....What saved the economy, and the New Deal, was the enormous public works project known as World War II, which finally provided a fiscal stimulus adequate to the economy's needs.

I'm curious about something. I've read a number of conservatives recently taking liberals to task for thinking that the New Deal fixed the Great Depression. Some of them are the folks Krugman talks about, who like to pretend that the New Deal made things worse, but others are more moderate, insisting only that liberals stubbornly overestimate the macroeconomic impact of FDR's policies.

But here's the thing. I'm a liberal and I grew up (academically speaking) in the 70s and 80s. I wasn't an economics major or a history major, so everything I learned about FDR and the Great Depression came from a bog standard layman's viewpoint. And the conventional wisdom I learned (apparently based on Cary Brown's 1956 work, though I didn't know that at the time) was that although the New Deal was a fine thing that helped a lot of people etc. etc., it didn't get us out of the Great Depression because, in the end, FDR wasn't a Keynesian and the New Deal just didn't provide enough economic stimulus. What got us out of the Great Depression was World War II.

In other words, exactly what Krugman says. But if that's how I learned this stuff 30 years ago, it's not exactly a big secret, is it? Surely most liberals do, in fact, know this?

I'm also curious about why conservatives are so enamored with this argument in the first place. After all, the conclusion one draws from it is that the New Deal wasn't big enough. Hoover shouldn't have raised taxes, Roosevelt should have spent even more, and deficits should have been even bigger. I can see how they'd like the tax part, but do they really want to convince everyone that the New Deal was too timid? Doesn't that make the argument for an enormous stimulus to address our current mini-depression all the more forceful?

President Obama's First Priorities, Cont'd.

Over the weekend, the Financial Times scored a short on-the-record interview with future Chief of Staff Rahm Emanuel, who pointed to a couple early priorities of the Obama administration that the Washington Post appears to have missed.

In the interview, Emanuel "brushed aside" concerns that Obama needs to start small and move incrementally. He suggested that Obama will act quickly on a stimulus package (if one is not passed in the lame-duck session), including a "$25bn emergency package for Detroit" to help struggling automakers. Emanuel said that the meltdown on Wall Street will not delay action on energy, healthcare and education, which he described as "crises you can no longer afford to postpone [addressing]." (Update: Emanuel mentions S-CHIP as an immediate priority in an interview with the WSJ.)

President Obama's First Priorities

When Barack Obama gets in the White House, what are the first things he'll do? Sunday, the Washington Post put forward some ideas.

Transition advisers to President-elect Barack Obama have compiled a list of about 200 Bush administration actions and executive orders that could be swiftly undone...
A team of four dozen advisers, working for months in virtual solitude, set out to identify regulatory and policy changes Obama could implement soon after his inauguration. The team is now consulting with liberal advocacy groups, Capitol Hill staffers and potential agency chiefs to prioritize those they regard as the most onerous or ideologically offensive....

Specific areas include stem cells:

Section 382

SECTION 382....Today, Amit Paley of the Washington Post tells us the riveting story of Section 382 of the tax code, which the Treasury Department suddenly gutted (via a five-sentence notice) a few weeks ago while the rest of us were wrapped up in the drama of the bailout bill:

The change to Section 382 of the tax code — a provision that limited a kind of tax shelter arising in corporate mergers — came after a two-decade effort by conservative economists and Republican administration officials to eliminate or overhaul the law, which is so little-known that even influential tax experts sometimes draw a blank at its mention. Until the financial meltdown, its opponents thought it would be nearly impossible to revamp the section because this would look like a corporate giveaway, according to lobbyists.

The reason it looks like a corporate giveaway, apparently, is that it is a corporate giveaway — and it's going to cost the taxpayers something north of $100 billion. Plus, the notice was probably illegal. But no one wants to complain about it because it might put some big bank mergers in jeopardy:

"It was a shock to most of the tax law community. It was one of those things where it pops up on your screen and your jaw drops," said Candace A. Ridgway, a partner at Jones Day, a law firm that represents banks that could benefit from the notice. "I've been in tax law for 20 years, and I've never seen anything like this."

More than a dozen tax lawyers interviewed for this story — including several representing banks that stand to reap billions from the change — said the Treasury had no authority to issue the notice.

....Several [congressional] aides said they were still torn between their belief that the change is illegal and fear of further destabilizing the economy.

"None of us wants to be blamed for ruining these mergers and creating a new Great Depression," one said.

Some legal experts said these under-the-radar objections mirror the objections to the congressional resolution authorizing the war in Iraq.

"It's just like after September 11. Back then no one wanted to be seen as not patriotic, and now no one wants to be seen as not doing all they can to save the financial system," said Lee A. Sheppard, a tax attorney who is a contributing editor at the trade publication Tax Analysts. "We're left now with congressional Democrats that have spines like overcooked spaghetti. So who is going to stop the Treasury secretary from doing whatever he wants?"

I guess some things never change. On either side.

Ed Secretary Lotto

ED SECRETARY LOTTO....When most of us think about the Department of Education, we think of No Child Left Behind and its effect on K-12 schools. But Steven Teles says that much of DoE's responsibility is actually in higher education, and that means Barack Obama ought to pick a Secretary of Education who knows higher education issues intimately. He's got just the guy:

If the US is to maintain its status as a great power in this century, there is simply no question that we need to get more of our students into math, science and engineering. Despite programs throughout the federal government, fewer students today receive undergraduate degrees in math, science and engineering than they did forty years ago. The Secretary of Education needs to be familiar with the problem and have a high degree of sophistication about strategies for remedying it.

....There may be a number of people who fit these criteria, but at least one person I can think of is Freeman Hrabowski, the president of the University of Maryland-Baltimore County. Hrabowski has been president of the university for fifteen years, in which he dramatically increased the quality and reputation of the school — and turned down offers to be the president of much more prestigious institutions. He's been especially successful in producing African-American students who go on to receive advanced degrees in the sciences, and he has published two books on the subject (separating out the issues by gender). He is a really effective communicator, and he has a great story to tell — he's a black man from Alabama who marched for civil rights as a small child, and got a PhD at the age of 24. His life embodies the slogan of educational reformers, which is that education is the civil rights issue of our time.

Sounds like a name the transition team ought to be thinking about. He wouldn't even have to move very far.

Infrastructure and Carbon

INFRASTRUCTURE AND CARBON....Robert Reich says the best way to stimulate the economy is through massive spending on infrastructure:

So the crucial questions become (1) how much will the government have to spend to get the economy back on track? and (2) what sort of spending will have the biggest impact on jobs and incomes?

The answer to the first question is "a lot."....The answer to the second question is mostly "infrastructure" — repairing roads and bridges, levees and ports; investing in light rail, electrical grids, new sources of energy, more energy conservation. Even conservative economists like Harvard's Martin Feldstein are calling for government to stimulate the economy through infrastructure spending. Infrastructure projects like these pack a double-whammy: they create lots of jobs, and they make the economy work better in the future.

This is actually something that conservatives should be relatively happy with. Entitlement programs never go away once they're enacted, but infrastructure projects do. Spending a trillion dollars on bridges and electrical grids may be a lot of money, but it's a well-defined lot of money that isn't likely to continue indefinitely. What's more, conservatives aren't actually opposed to bridges and electrical grids on principle, so from their perspective the money is also being pretty well spent. (Or at least, not too badly spent.) All in all, it should get a fair amount of support.

Here's another way to make it even better. One of the problems with running a big deficit is that we want it to be temporary. Infrastructure helps with the spending side of that, since it's not likely to go on forever. But how about on the revenue side?

A pretty good answer might be found in Barack Obama's energy plan, which includes a cap-and-trade proposal to reduce carbon emissions. One of the details of his plan is that it includes full auction of carbon permits, with the revenue from the auction going to the federal government. But that money won't start rolling in immediately. If a cap-and-trade plan were passed in 2009, it would probably take effect in 2012 or so, and the revenue stream would start small the next year and then grow every year after that. That's perfect timing. We don't want to raise taxes right now, but a program that guaranteed a growing revenue stream starting a few years from now would help convince investors that the current budget deficit won't last forever.

That's not the main reason to pass a cap-and-trade bill, of course. The main reason is to start reducing carbon emissions. But an infrastructure program that makes the country more productive in the future but automatically winds down, combined with a revenue program that automatically winds up in the out years, is a pretty fiscally conservative plan. That doesn't mean conservatives will support it, of course, but they should.

The Maldives Swap

THE MALDIVES SWAP....The Maldives — average elevation: 150 cm above sea level — wants to buy some land in another country as an insurance policy against global warming:

[Newly elected president Mohamed Nasheed] said Sri Lanka and India were targets because they had similar cultures, cuisines and climates. Australia was also being considered because of the amount of unoccupied land available.

"We do not want to leave the Maldives, but we also do not want to be climate refugees living in tents for decades," he said.

Instead of setting up a sovereign wealth fund to purchase the land, perhaps Nasheed should just buy a credit default swap that pays off if the Maldives are inundated. Since Republicans don't believe that global warming exists, they should be eager buyers for the other end of the swap.

The Gender Gap

THE GENDER GAP....Ruth Rosen writes today that women "sealed the deal" for Obama:

For the last two years, I've been writing and telling anyone who would listen that American women could elect the next president, if only they voted.

Well, this time they did, and there is no doubt that women were a decisive factor in the election of Barack Obama.

....Just take a serious look at the numbers. As the data in the Week in Review in the New York Times reveals, women constituted 53% of the electorate, while only 47% of men voted. Among those who voted for Obama, 56% were women and 43% were men. Among unmarried women, a whopping 70% voted for Obama.

Is this true? Remember, Obama's overall national swing was 9 percentage points compared to John Kerry in 2004. So women only made an outsize difference if they swung by substantially more than 9 points.

But they didn't. The swing among women was 10 points. That's actually smaller than the swing among men, who switched to Obama by 12 points. There's some slop in these numbers thanks to sampling error and so forth, but it's unlikely that women played an unusually large role in this election. The gender gap this year was pretty much the same as it was four years ago.

On the other hand, it is true that unmarried women swung hard for Obama. Kerry carried this group by 25 points in 2004, while Obama carried them by 41 points this year. That's a swing of 16 points, nearly double the national trend. I don't know exactly what it was about his character or his policies that did it, but there's certainly a story of some kind there.