Kevin Drum - December 2010

Ask Not For Whom the Door Revolves

| Fri Dec. 10, 2010 2:49 PM EST

From DealBook:

A decade ago, a former Treasury secretary, Robert E. Rubin, left the Clinton administration to become a senior adviser and board member at Citigroup — collecting a $10 million a year paycheck with no management responsibility. On Thursday, Peter R. Orszag, President Obama’s first budget director and a protégé of Mr. Rubin, followed in his mentor’s footsteps and joined Citi’s investment banking group as a vice chairman.

....Inside Citigroup, the guessing games have already begun about how many zeros will appear on his paycheck — as well as the requisite jokes about whether his package would pass muster with the federal pay czar. Such a job typically pays at least $2 million to $3 million, according to bankers.

This is excellent news. I'm sure Orszag will use his position to rein in Citi's behavior and try to make them a more public spirited enterprise. Right?

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Tax Revolt Still Alive and Well at Age 32

| Fri Dec. 10, 2010 2:01 PM EST

Just a quick note. A few years ago it was all the rage to suggest that the era of the tax revolt was over. Mark Schmitt's argument shortly after the 2006 election was typical: "Just as the tax revolt era had a beginning," he wrote, "so will it have an end. And there are indications that the end might be approaching." After all, several Democratic governors had raised taxes recently and lived to tell the tale. And our fiscal future was so grim that before long even Republicans were going to have to admit that taxes had to go up. Right?

Well, as it turns out, the tax situation has developed not necessarily to the Democrats' advantage. So what's next? Here was Mark's advice back in 2007:

The first step will be to establish an acute sense of fiscal and economic crisis. That won’t be difficult, since it’s true. The difficulty is in expressing it the right way. “The deficit” is an abstraction. As long as we accept that balanced budgets every year are not a realistic goal, the difference between a deficit of $150 billion and $600 billion is meaningless. Instead, Democrats should emphasize tangible consequences — such as a choice between cuts to vital services and a devastating economic shock versus manageable tax increases.

....A giant showdown with all revenues and spending on the table would certainly call the bluff of Republican conservatives who say they want to cut spending but have never been willing to take the political consequences of doing so. At the same time, it might allow Democrats to put on the table some of the tangible benefits of additional revenues, such as funding for expanded health coverage or for real economic security programs to help workers manage the risks of the economy.

....The risk here is of putting too little on the table rather than too much. If the fight is just about extension of a particular tax provision, it will be hard to win. And if politicians aren’t willing to talk honestly about the magnitude of the changes necessary, the default will be excruciating: In a few years, we will enter a period of chronic crisis, scraping by each year with a painful series of budget gimmicks, fee increases, and disguised tax hikes — just enough to get by for the year before the dreary cycle begins again. After a few years, the public impression would be of a government that is constantly raising taxes, constantly cutting services, yet never solving either the fiscal crisis or other problems. And the grinding obsession with that abstraction called “the deficit” would continue to make it impossible to reconnect taxes with the benefits and security people expect from government.

Well, the acute sense of fiscal crisis is here. And a giant showdown is certainly plausible in the near future. And Mark was certainly correct that a limited fight over extensions of particular tax provisions would be hard to win. Obviously we need to make a broader, more tangible case about taxes and funding of popular government programs.

But for whatever reason, liberals have utterly failed to make that case to the public. The only positive news on the tax front is that polls show most Americans favor higher taxes on the rich, and even there public sentiment is quite plainly too shallow to actually affect congressional action. Like it or not, over the past four years we've made exactly zero progress on the tax front.

So here's a note to every liberal activist raging against Obama's tax deal: this is all going to happen again in two years. We all know it, and that's one of the big reasons so many lefties are opposed to the deal. But public opinion counts, and right now public opinion is still pretty firmly on the side of low taxes. Whatever it is we've been doing for the past four years hasn't worked.

So what are we going to do differently between now and 2012? We know exactly when and where the next battle is going to take place. We know our old strategy has been a dismal failure. So what's our new one?

Bring 'Em On?

| Fri Dec. 10, 2010 1:22 PM EST

Should Democrats have negotiated an increase in the debt ceiling as part of Obama's tax cut package? You'd think so, but apparently Harry Reid is actually eager to have a debt ceiling fight:

The theory goes something like this: Republicans will demand sharp spending cuts in return for lifting the debt ceiling. Let them. "Boehner et al have had the luxury of proposing all sorts of ideas that bear no relation to reality," says Jim Manley, Reid's spokesman. "Next year, they’ll have to lay it all out. No more magic asterisks, no more 'we’ll get back to you.’ "

In this telling, the debt ceiling vote represents a trap for Republicans more than an opportunity for Democrats. If Republicans want to cut spending, now's their chance. But that means passing a package of spending cuts, which they may find less enjoyable than simply saying that Democrats should stop spending so much. And if the American people aren't supportive of the Republicans’ spending cuts, the GOP will be caught defending an unpopular package as part of a political gambit that could lead to the bankruptcy of the United State of America.

I don't know how the debt ceiling fight is going to go, but the Reid/Manley theory seems all wet to me. Here's the thing: Republicans almost certainly won't demand sharp spending cuts. There might be some posturing along these lines, but nothing serious. Both mainstream conservatives and tea partiers alike have made it crystal clear that when push comes to shove, they don't support actual substantial spending cuts.

But they do support modest spending cuts in areas that Democrats hold dear, and that's more likely where the fight will be. It will be over a bit of healthcare funding, a bit of education funding, and a bit of food stamp funding. Republicans can pretty easily come up with $50-100 billion in spending that their base doesn't care about and that doesn't seem too draconian to the public at large, and that's what they'll fight over.

So we'll see. My guess is that there will be lots of heat, very little light, and in the end both sides will agree to some modest cuts here and there and no more. The activist wing of the party might be itching to shut down the government, but I doubt that Boehner and McConnell are very eager to do that. They know perfectly well that, just as Bill Clinton was simply a more likeable figure than Newt Gingrich, Barack Obama is a more likeable figure than they are. He'll win a fight over a government shutdown and they know it.

Union Bashing in LA

| Fri Dec. 10, 2010 12:23 PM EST

Los Angeles mayor Antonio Villaraigosa, a former teachers union employee and staunch union supporter, decided yesterday he'd finally had enough and delivered a stinging speech calling the LA teachers union, among other things, "one unwavering roadblock to reform." Needless to say, union president A.J. Duffy was unhappy:

Furious union representatives denounced the mayor's comments as those of a turncoat who seemed to ignore the pernicious effects of state budget cuts and had joined in a union-bashing chorus once associated with conservative Republicans. Some seemed bewildered at what they considered a betrayal from Villaraigosa, who defines himself as a "progressive" politician and man of the left.

"Pointing fingers and laying blame does not help improve our schools," UTLA President A.J. Duffy said in a terse statement. "UTLA will continue our partnership with all parties to overcome the devastating effects of the budget cuts on the education program for our students."

I'm not plugged into Los Angeles politics even slightly, but I sometimes wonder if Duffy understands just how widely his union is loathed? Somebody should correct me in comments if I'm wrong, but as near as I can tell from my occasional contact with Angelenos, UTLA almost literally has no support anywhere from anybody that it doesn't directly give money to. Everybody else hates them with a passion. That doesn't mean Villaraigosa can win a big public battle with UTLA, of course, since they give lots of money to lots of people, but he might. If Villaraigosa plays his cards right, he'll have about 90% of the city on his side. Pass the popcorn.

Is the Payroll Tax Holiday a GOP Trojan Horse?

| Fri Dec. 10, 2010 7:00 AM EST

Part of the Obama tax deal is a small, one-year cut in the Social Security tax rate, and a fair number of liberal commenters are afraid that this is nothing more than a Trojan Horse for Republicans. After all, won't they just come back a year from now and start screaming that if the cut is allowed to expire it's a tax increase? Just like they're doing with the Bush tax cuts? And won't Democrats cave? And won't that ruin Social Security's finances, leading to demands for benefit cuts?

It might. But I think this worry is overblown. Here's why:

  • Republicans don't care about middle class taxes. They care about taxes on the rich. I don't doubt for a second that they'll make some noise a year from now about how Democrats are increasing your taxes, but their hearts won't be in it. They'll fight to the death over taxes on millionaires, but when it comes to payroll taxes it will just be pro forma partisan kvetching. (And the payroll tax cut expires in a year and isn't linked to anything else. So it won't be a hostage to upper bracket cuts.)
  • This is explicitly a one-year cut. Republicans all assumed that the 2001 Bush tax cuts would be renewed at some point, but no one is assuming that here. And 12 months isn't long enough for conservative talkers to muddy the water on this score.
  • The public strongly associates payroll taxes with future Social Security benefits. Demagoguing payroll taxes simply doesn't work as well as it does with income taxes.
  • Beltway elites are really, really obsessed with Social Security solvency. For once this will work in our favor. Calls to allow the cuts to continue will be met with almost unanimous establishment condemnation.
  • December 2011 is far enough away from an election that Democrats can withstand the moderate heat Republicans will put on them over this.

Bottom line: a few Republicans here and there will try to work that old-time tax jihad magic, but it won't find much purchase. The tax cuts will expire on time with only modest fuss.

POSTSCRIPT: Am I underestimating just how craven and spineless Democratic pols can be? That's always a possibility! But I don't think so. In this case, luckily, most of the political incentives line up in the right direction.

Front page image: Frits Ahlefeldt-Laurvig/Flickr

More on the Tax Deal

| Thu Dec. 9, 2010 10:37 PM EST

This is going to be unbearably wonky, so I apologize in advance. But I was thinking some more about Paul Krugman's contention that Obama's tax compromise plan might hurt his reelection chances rather than help them. He bases this on two things. First, Mark Zandi's economic forecast suggests that the tax plan will improve GDP growth in 2011 but reduce it in 2012 (compared to a baseline forecast). Second, Larry Bartels has shown that voters are myopic: they pay far more attention to growth in election years than in other years. So other things being equal, a plan that lowers 2012 growth is bad for Obama even if it delivers higher immediate growth in 2011.

But this all depends on what the actual numbers are, so I went back to Bartels' model to see what it said. The table on the right (from Unequal Democracy) shows his findings. Every percentage point of income growth in a president's third year increases his vote margin by 1.96 points. Every percentage point of income growth in an election year increases his vote margin by 3.49 points.

So how does that work out? Zandi figures that the tax plan increases GDP by 1.1 points in 2011 and reduces it by 0.8 points in 2012. So:

(1.1 * 1.96) – (0.8 * 3.49) = -0.6

In other words, the tax plan reduces Obama's vote margin by 0.6 percentage points compared to Zandi's baseline forecast. However, there are some caveats:

  • Bartels' model is based on income growth, but Zandi only provides numbers for GDP growth. So those are the numbers I plugged in. However, Zandi also forecasts that unemployment would be lower than the baseline in both 2011 and 2012 if the tax plan passes. Since employment is strongly linked to income, this suggests that the delta in income growth will probably be less than the delta in GDP growth, and this in turn suggests that if we plugged proper income numbers into Bartels' model it would look more favorable for the tax plan.
  • The tax plan acts as kind of an insurance policy against falling back into recession. This is worth quite a bit.
  • I think the payroll tax cut will be allowed to expire at the end of 2011, as planned. But it might be extended, and if it is then the tax plan will look considerably better in 2012.
  • Zandi's baseline forecast assumes that some of the Bush tax cuts are extended but not all of them. But there's no real reason to think that deal is on the table. The real baseline is that all the tax cuts expire, and Obama's tax deal is obviously far better than that in both 2011 and 2012.
  • The error bars on Bartels' model are quite large since he only has about a dozen data points to work with.

In other words, Krugman has a point. However, my guess is that when you look at the whole picture, along with the fuzziness of the models, it's most likely that the tax plan basically has an effect size of zero compared to Zandi's baseline plan and a highly positive effect compared to letting the Bush tax cuts expire completely.

Politically, then, it's a good idea to pass the plan compared to doing nothing, and substantively it's a good idea to pass the plan because it will have an immediate effect on economic growth and unemployment. I'd rather do something now with the option of doing more later if we need to, rather than nothing now and kicking ourselves later because it's too late and the economy is in a ditch.

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The Way Forward on DADT

| Thu Dec. 9, 2010 9:11 PM EST

So what's the state of play on DADT repeal? It's still a little murky, but here's how it looks to me:

  • Today's vote, in which DADT repeal was appended to the overall defense appropriations bill, failed.
  • Both Lisa Murkowski (R–Alaska) and Scott Brown (R–Mass.) say they would have voted for it, but are sticking to the Republican caucus position that they'll block all other legislative action until the tax compromise bill passes.
  • If House and Senate Democrats will stop acting like babies, they could probably pass the tax bill quickly. They need to suck it up and do so. The tax bill before them isn't the greatest thing since sliced bread, but it's not that bad either — and it's what the leader of their party negotiated for them. For once, it's time to stick together and let their leader lead.
  • With that out of the way, a standalone DADT bill has the votes for passage. Murkowski and Brown will presumably vote for it, Blanche Lincoln (D–Ark.) says she'll vote for it, and so will Susan Collins (R–Maine). Her objection to the combined bill was related to the amount of debate time Harry Reid was willing to allow, but this shouldn't be a deal killer for a standalone bill which obviously is far less complex than a big appropriations bill.
  • So the votes are there. All that's left is to pass the tax bill and then bring the standalone DADT repeal bill to the floor. Republicans will obstruct endlessly, but the answer to that is to stay in session every single day if necessary before the clock runs out. Don't like it? Tough.

This still might fail. Maybe the reactionary caucus in the Republican Party can run out the clock. But if it does, it better be clear that Democrats did everything in their power to pass it anyway. That means voting for the tax bill and it means sticking around in Washington for as long as it takes to send DADT into the dustbin of history. Right now, it's the only thing they should be focused on.

DADT Repeal Dies

| Thu Dec. 9, 2010 5:20 PM EST

DADT repeal has just been voted down in the Senate, 57-40. One Democrat (Manchin) voted against, and one Republican (Collins) voted for. Very sad day. The tax-cut deal no longer looks quite as attractive to me.

Where are the Republican Scientists?

| Thu Dec. 9, 2010 3:39 PM EST

Daniel Sarewitz writes in Slate today about a Pew poll showing that only 6% of scientists identify as Republicans (55% are Democrats and 32% are independents), a state of affairs he finds alarming. Matt Steinglass, though perhaps less alarmed, wishes Sarewitz had spent more time trying to figure out why so few scientists are Republicans. He proposes three possibilities:

The first is that scientists are hostile towards Republicans, which scares young Republicans away from careers in science. The second is that Republicans are hostile towards science, and don't want to go into careers in science. The third is that young people who go into the sciences tend to end up becoming Democrats, due to factors inherent in the practice of science or to peer-group identification with other scientists.

I'd add a twist to #2: not that young Republicans are hostile toward science, but that they're more attracted to the business world and its opportunities for vast wealth than to the grind of the laboratory and its upper middle class limits. So that's where they go. Still, here's my take on Matt's three guesses:

  1. This seems uninteresting to me. Of course scientists are hostile toward Republicans. As far as they're concerned, Republicans are troglodytes who don't believe in evolution, don't believe in climate change, want to ban stem cell research, and don't want to fund the NSF. They'd be crazy not to be hostile toward Republicans.
  2. This one seems quite testable and potentially interesting. Surely there are surveys of children, teenagers, college students, and 30-somethings that correlate political views with intended career choices? (If not, there should be!) I'm not sure what it would tell us, but I'd be curious to see what the trends over time look like.
  3. This also seems uninteresting to me. After all, it's almost certainly true, both for generic reasons of basic group dynamics as well as for the specific reasons outlined in #1.

Roughly speaking, though, this doesn't seem like such a hard question to me. The more time you spend practicing science, the more time you're going to spend discovering that conservatives hold scientific views that you find preposterous. Sure, liberals have PETA and the odd vaccination fetishist, but really, it's no contest. In the Democratic Party those are just fringe views. Even the anti-GM food folks don't amount to much. The modern Republican Party, by contrast, panders endlessly to the scientific yahooism of its base. What would be amazing is if much more than 6% of the scientific community identified with the Republican Party.

POSTSCRIPT: One thing I'd be curious about is the breakdown of scientists in Pew's sample. Is it mostly members of the hard sciences, or also members of the social sciences? Also, I'll bet you'd get quite different results if you polled engineers, who are probably much more heavily Republican than scientists are.

POSTSCRIPT 2: And one more thing! I wonder how this plays out in other advanced countries, where the conservative parties are, perhaps, still fiscal tightwads but don't pander to anti-science yahooism so much. Quick, somebody do a study!

China's Weakness

| Thu Dec. 9, 2010 2:43 PM EST

Keith Richburg of the Washington Post writes about the Chinese reaction toward the Nobel Peace Prize awarded to Liu Xiaobo, currently in prison for "inciting subversion of state power":

Restaurant and bar owners in China have been summoned to local police stations and warned against allowing large gatherings on Friday. Some lawyers, writers and academics have been stopped at airports from boarding their flights; others have been forcibly taken to the countryside. Known activists are under house arrest. And today, several foreign media Web sites and television stations were blocked.

....China's Communist government has lashed out ferociously since the award was announced, each day ratcheting up the rhetoric. Foreign embassies in Norway have been warned not to attend the Nobel ceremony or risk unspoken "consequences."

....For all the fury directed outwardly, the fiercest reaction has been internal. Scores of activists, lawyers, professors — even the family members and aging parents of jailed dissidents — have been prohibited from leaving the country in recent days, or placed under house arrest, with their telephone and Internet lines cut. As the date of the Nobel ceremony drew closer, some were also told not to speak to reporters.

I'm trying to decide if this is a sign of strength or weakness. My first instinct is weakness: no country with any real confidence in itself or its future would overreact this insanely. But then I think back to other rising powers and I'm not so sure. This kind of furious jingoism is actually pretty common among countries feeling their oats, isn't it? (Though perhaps, in recent times anyway, without the whole police state aspect of it.)

So....I'm not sure. Overall, I think the Chinese have been playing their hand badly over the past few years, and it's going to bite them pretty hard the first time their economy starts to slow down a bit, which is almost inevitable sometime over the next decade or two. I'd be curious to hear what others have to say about this, though.