Kevin Drum - October 2011

Chart of the Day: The Cost of the Perry Tax Plan

| Mon Oct. 31, 2011 5:27 PM PDT

The Tax Policy Center has now done a more detailed analysis of Rick Perry's flat-tax proposal, and guess what? It's really great for rich people! Since Perry's gimmick is that everyone can choose to stick with the current tax system if they want, nobody would end up paying higher federal tax rates under his proposal. So the only question is how much everyone's rates go down, and the chart below tells the tale. If you're smack in the middle of the middle class, your rate goes down about 2 percentage points. If you're a millionaire, your tax rate goes down 20 percentage points.1 Ka-ching!

On a side note, this is how you one-up Herman Cain. Perry's plan offers lower rates than Cain's 9-9-9 plan to every single income class. The poor pay less, the middle class pays less, and the rich pay less. Of course, this also means that Perry's plan produces way less revenue than Cain's plan: TPC estimates that it would produce $1 trillion less than current law in 2015. But TPC is using fusty, old-fashioned static analysis, while all the cool wingers use dynamic scoring, which assumes that Perry's tax plan supercharges the economy and therefore pays for itself. Just like Reagan's tax cuts and Bush's tax cuts. Caveat emptor.

1All of this is based on the assumption that the Bush tax cuts expire as scheduled. The "current rate" numbers are a little different if you assume that the Bush cuts are extended. But why would anyone bother to extend them if they're going to pass Perry's shiny new plan that just replaces the current code anyway?

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(Michelle) Obama Derangement Syndrome

| Mon Oct. 31, 2011 2:47 PM PDT

One of the key things that's long convinced me that Obama Derangement Syndrome is way stronger than Bush Derangement Syndrome ever was is the disparate treatment of their wives. I occasionally saw some snotty comments about Laura Bush in various precincts of the blogosphere and the partisan media, but nothing either serious or sustained. But Michelle Obama? Holy cow. There are times when you'd think she was the antichrist. The poor woman decides to make childhood obesity one of her focuses — about as First-Ladyish a subject as you can possibly imagine — and gets hammered by the wingnut brigade for supposedly being the vanguard of Stalinesque Big Government rules decreeing exactly what all of us will and won't be allowed to eat in the future. And that's just for promoting the idea of better nutrition and more exercise for kids!

Simon Maloy has more, treating us today to a dissection of a new column from Joe Curl that's headlined — in unwitting Dr. Seuss style — "The very angry first lady Michelle Obama." The First Lady, says Curl, is back, "and she's madder than ever," "ready to spew her bilious disgust with America on the campaign trail," blah blah blah.

I mean, it's comical in a way, but weirdly revealing in another. The level of blind, lick-spittled rage it takes to produce this stuff is pretty remarkable. And presumably there's a ready audience for it. You could almost understand where this came from in the case of Hillary Clinton: a feminist child of the counterculture who was deeply involved in policy creation was always bound to get under the skin of a certain type of social conservative. But Michelle Obama? Sure, she's a liberal and she supports her husband's initiatives, but her own work has centered on military families, childhood obesity, national service, arts education, and cultivating her organic garden. How traditional do you have to be to get the right-wing crazies to calm down?

Yes Indeed, Income Inequality Really is Growing

| Mon Oct. 31, 2011 1:38 PM PDT

James Pethokoukis is on a mission to show that rising income inequality isn't really a big deal. The big gun in his arsenal is a 2009 paper by Robert Gordon, which says:

This paper shows that the rise in American inequality has been exaggerated in at least three senses. First, the conventional measure showing a large gap between growth of median real household income and of productivity greatly overstates the increase compared to a conceptually consistent alternative gap concept, which increases at only one-tenth the rate of the conventional gap between 1979 and 2007....Second, the increase of inequality is not a steady ongoing process; after widening most rapidly between 1981 and 1993, the growth of inequality reversed itself and became negative during 2000-2007.

Pethokoukis, responding to a CJR piece by Ryan Chittum, says: "Chittum, nor other liberal economic pundits such as Ezra Klein, Jonathan Chait, Kevin Drum, Ryan Avent, have made an effort to dispute Gordon, hardly a conservative economist. Liberals don’t even like quoting that above bit."

Gordon is a good economist, and I haven't made an effort to dispute him because I don't really dispute most of what he says. I just think it's largely irrelevant. Let's take the various claims in his paper one at a time:

  • Comparing income growth to productivity growth is a bad way of demonstrating the sluggishness of middle-class wages. Fine. I rarely do this, because I happen to agree that it's problematic. But this has nothing to do with the existence of income inequality itself. For that, all you need to do is compare the incomes of the poor and the rich over time.
  • Income inequality didn't grow between 2000-2007. Yes, but those dates are egregiously cherry-picked. The dotcom bubble reached its height in 2000 (see chart at right), which meant that the income of the very rich also peaked that year. It fell during the dotcom bust and then started increasing again around 2003. It fell again during the financial crisis of 2008, and then started rising again within a year. If you look at a graph of the top 1%, you see peaks and valleys because their income is fairly volatile. But you also see a secular rise over the past three decades that shows no real signs of stopping.
  • Income inequality is mostly a phenomenon of the top 1%. This is absolutely true. The top 10% have done well over the past 30 years and the top 20% have done OK. Nothing spectacular though. The real action has been elsewhere: an enormous movement of income from the bottom 80% to the top 1% (see table at right). I'm not sure why Pethokoukis thinks this is evidence against the growth of income inequality, though. In fact, it's evidence that it's even worse than you think.
  • Inflation has been lower for the poor than the rich. I'm not qualified to judge this, but who cares anyway? If it's true, it might be good news for the poor, though it depends a lot on just why inflation rates for the poor are lower. If it's because cheap goods have gotten better and cheaper, that's great. But if it's because the poor have been forced to switch to ever crappier goods over time, that's not so great. In any case, this is mostly useful if you're interested in evaluating the lived experience of the poor. That's a fine topic, and one that deserves study. But if you're interested in income inequality, it's irrelevant. In that case, you just want to know how the private economy is allocating income to various classes of people, and the answer is pretty simple: over the past 30 years, less and less is going to the poor and middle class and more and more is going to the well-off and the rich.

Jon Chait has a somewhat more epic response here. The nickel version, though, is that Gordon's paper does say that income inequality has increased dramatically over the past three decades.1 He just has some caveats to the data. But while those caveats are interesting, none of them change the fact that the rich have hoovered up a vastly disproportionate and increasing amount of America's income growth since the mid-70s. There's just no getting away from that simple raw reality.

UPDATE: Matt O'Brien tweets: "I talked to Robert Gordon here. He was flabbergasted his work was being used to argue inequality is a myth." Here's more:

Consider the research and writing of Robert Gordon, a professor of social sciences at Northwestern University. He has done pioneering work questioning the extent of the aforementioned gap between productivity and median wages—work that Pethokoukis misappropriates to claim that income gains have been shared “fairly equally.” Gordon found that the productivity gap may be about a tenth the size as what is commonly thought, but, as he told me, that doesn’t negate the story about runaway wealth at the top of the income distribution. “The evidence on the long-term increase of inequality within the bottom 99 percent is ambiguous and complex, but what stands out like a searchlight is the unprecedented and increasing inequality between the bottom 99 percent and the top 1 percent,” Gordon told me.

There's more at the link on Pethokoukis's other claims.

1Here's the direct quote: "The evidence is incontrovertible that American income inequality has increased in the United States since the 1970s."

Chart of the Day: Our Weak, Uncertain, Fragile Economy

| Mon Oct. 31, 2011 11:50 AM PDT

Felix Salmon directs us today to the Kauffman Foundation's fourth-quarter survey of prominent economics bloggers. Asked to assess the U.S. economy in one word, here's how they responded:

Take it for what it's worth, but econbloggers seem to be a pretty gloomy lot. The Kauffman group also leans right a bit, which makes this chart interesting too:

They're very bullish on the world economy, but they also think inflation will be higher, poverty will be higher, interest rates will be higher, and the budget deficit will be higher. Even more interestingly, they unanimously think that tax rates on the rich will go up. That can't be due to economic fundamentals, so presumably it means they have (a) a very high regard for the Democratic Party's ability to hold firm on allowing the Bush tax cuts on the rich to expire next year, and (b) a very low regard for the likelihood that a Republican will become president in 2012 and put them right back in place. I wonder why?

Voter Suppression Goes Mainstream

| Mon Oct. 31, 2011 10:44 AM PDT

Earlier this year I wrote about "Defunding 2.0," a modern trio of Republican efforts to defund the left and impede people from voting for Democrats. By far the most important part of this effort is voter ID laws designed to make it harder for left-leaning constituencies (students, minorities, the poor) to vote. We're finally starting to see the mainstream media pay some attention to this lately, and today David Savage puts it front and center in the LA Times. His poster child is a recently passed law in Florida:

Early voting was reduced from two weeks to one week. Voting on the Sunday before election day was eliminated. College students face new hurdles if they want to vote away from home. And those who register new voters face the threat of fines for procedural errors, prompting the nonpartisan League of Women Voters to suspend voter registration drives and accuse the Legislature of "reverting to Jim Crow-like tactics."

What is happening in Florida is part of a national trend, as election law has become a fierce partisan battleground. In states where Republicans have taken majority control, they have tightened rules for registering new voters, reduced the time for casting ballots and required voters to show photo identification at the polls. The new restrictions were usually adopted on party-line votes and signed by Republican governors.

....Republican lawmakers say Democrats and minority groups are overreacting. "We're going to have a very tight election here next year, and we need to protect the integrity of the election," said Rep. Dennis Baxley, a Republican from Ocala. "When we looked around, we saw a need for some tightening."

I think we all know exactly what "integrity of the election" means to Rep. Baxley. After all, Florida has only suffered from two types of serious voter fraud in the past decade. The first is absentee ballot fraud, which Florida's bill does nothing to address because absentee voters tend to be upscale and Republican. The second is widespread database errors in 2000 that prevented people from voting. The Florida bill also does nothing about that, because those problems mainly affected Democratic-leaning voters.

So: Florida's bill addresses a problem that's essentially nonexistent, and does so in a way that will likely suppress left-leaning votes. "It could easily decide the outcome," says election law expert Rick Hasen. Conversely, it does nothing to tighten up on areas that actually have caused problems in the past, but that mostly favored right-leaning candidates.

I report, you decide. What do you think the real purpose of Florida's shiny new voter ID law is?

Happy 13th Birthday! Now Get Out.

| Mon Oct. 31, 2011 9:35 AM PDT

Karl Smith, a man who obviously has too much time on his hands, performs a massive core dump today of stuff he's been thinking about but hasn't had time to blog seriously about. One of them is the question of whether children should be allowed to vote:

Though this seems like a silly issue to a lot of people it's part and parcel of the whole: “are there a such thing as human rights” question.

People often appeal to the immature nature of children. But clearly there are mature children and immature adults. If you draw the dividing line at age then this is a line of convenience.

You can count me among the vast throng that thinks, in general, that this is a silly question. Kids can't vote for the same reason they can't do lots of things: because millions of years of human history informs us that children aren't capable of looking out for themselves. They need adult supervision. We make the same judgment toward others who are deemed unable to look after themselves — the mentally ill, elderly people suffering from dementia, etc. — so this is hardly something unique to children.

Still, at least Karl poses this question in a more interesting way. Using age as a dividing line for adulthood is indeed clean and simple, and for that reason it's convenient. But should kids be able to "test out" of childhood if they want? Maybe allow anyone over the age of 12 to apply for full citizenship and get it if they — what? Pass a test? Demonstrate maturity in some way? Rescue a dog from a burning house? And what about parents? Should they retain responsibility for kids who have been declared adults? Or could they kick their 14-year-old out of the house if they felt like it?

Or is this solely a voting question? That hardly seems worth the trouble, frankly. Maybe the whole 18-year-old thing really is convenient enough that we should just keep it.

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Axelrod: Are Republicans Deliberately Tanking the Economy?

| Mon Oct. 31, 2011 8:37 AM PDT

Via Greg Sargent, here is Obama messaging guru David Axelrod on CNN yesterday talking about Republican unwillingness to do anything that might help the economy:

I think this is something — something different going on right now. When you have the leader — the Republican leader of the Senate say, our number one goal — in the midst of this economy, our number one goal is to defeat the president, and they’re acting like it.

They don’t want to cooperate. They don’t want to help. Even on measures to help the economy that they traditionally have supported before, like a payroll tax cut, like infrastructure, rebuilding our roads and bridges and surface transport. These — so you have to ask a question, are they willing to tear down the economy in order to tear down the president or are they going to cooperate?

So far, various surrogates and Democratic members of Congress have said things like this, but neither Obama nor anyone close to him has gone there. But maybe he should. Here are the famously moderate Norm Ornstein and Thomas Mann:

It was perfectly understandable for Obama to try to deliver on his promise of a post-partisan Washington, even if he was naïve at best, disingenuous at worst. But by doing so he paid a tremendous political price....What sense does it make for Obama embrace an agenda without any support on the other side of the aisle, and make nice to a party whose sole objective is to deny him reelection? One should note the reaction, documented by Politico, of a key Republican Senate leadership staffer to Obama’s endorsement of the Gang of Six deficit-reduction framework in July—if Obama is for it, we have to be against it.

Moreover, if there is any hope of achieving bipartisan policy success, it will come from Republicans believing that blocking the president’s initiatives or offers will cause them political harm. Mitch McConnell admitted as much when he acceded to a deal on the debt limit—not because it would avert economic chaos, not because a conciliatory president offered it to him, but because, in his own words, the failure to do so would damage “the Republican brand.” In other words, Obama’s new approach of turning up the heat—by calling out Republicans for their obstruction and their opposition even to ideas they have previously embraced, like a continuing payroll tax cut—actually has more chance of achieving the policy outcomes Brooks wants than his conciliatory approach.

When surrogates and politicos trade charges, it's just grist for he-said-she-said gossip journalism. It doesn't get serious until and unless the president says it. Then it suddenly becomes the topic du jour: the subject of 24/7 cable net coverage, lengthy "analysis" pieces trying to determine if Republicans really do want to wreck the economy, and endless ink on the op-ed page. The result, of course, is that Republicans will have to spend several weeks denying that they want to tank the economy.

I think that would be fun. I would be very happy to see Republicans forced to spend the next several weeks denying that. They're already feeling the heat on this. Maybe it's time for Obama to bring them into the kitchen.

One Point and 150 Grand

| Sun Oct. 30, 2011 2:07 PM PDT

Michael O'Hare polled one of his undergraduate policy design classes at Berkeley to see what they thought about the future of Social Security. The results:

  • 16%: Social Security is in very serious financial trouble and probably won’t be there for my parents
  • 66%:  Social Security is in financial trouble and probably won’t be there for me
  • 16%: Social Security is basically OK and just needs some minor adjustments.

From this we can conclude a couple of things: (a) there are probably 18 students in Mike's class, and (b) the conservative campaign to convince everyone that Social Security is doomed has been wildly successful, even among extremely bright kids who are actively interested in policy issues.

The success of this propaganda campaign is especially impressive because the truth of option 3 (Social Security only needs minor tweaks) is hardly arguable if you have even the barest understanding of Social Security's finances. I struggle constantly trying to figure out a way to convince people of this in a simple way, so here's another crack at it:

If we gradually raise the payroll tax from 6.2% to 7.2% and gradually raise the earnings cap from $100,000 to $250,0001 between 2030 and 2050, Social Security will be solvent forever.

That's it. How much simpler can it be? Certainly this is as easy to understand as raising the retirement age to 67 or changing the COLA formula or whatnot. I don't have any objection to considering some of that other stuff if and when we ever get around to cutting a deal on Social Security, but we don't have to if we don't want to. If you want a simple slogan for the masses, "1 point and 150 grand" does the job just fine. Add one point to Social Security taxes and increase the earnings cap by $150,000 over the course of 20 years. Done.

1Indexed for inflation, of course.

Quote of the Day: Rick Perry's Maple Syrup Moment

| Sun Oct. 30, 2011 10:19 AM PDT

From my colleague Tim Murphy, commenting on a speech Rick Perry gave in New Hampshire on Friday:

Have you ever seen anyone so happy to receive a jug of maple syrup?

That comes toward the end, and Tim is right. Perry looks as if this is the first time in his life he's encountered the stuff. The rest of Perry's delivery is — um, a bit quirky too. Like this:

This is such a cool state. I mean, come on, "Live free or die"? You gotta love that, right? I come from a state where they had this little place called the Alamo, and they declared "Victory or death." You know, we're kinda into those slogans, man, it's like "Live free or die," "Victory or death," bring it!

Okey dokey. I guess that's what it takes when the local polls have you tied for sixth with Michele Bachmann at 3.3%.

Europe's Non-Final Final Resolution

| Sun Oct. 30, 2011 9:50 AM PDT

Guess what? Last week's resolution of the eurozone crisis is turning out to be about as successful as all the past resolutions were:

Initial relief over Europe's latest attempt to end its debt crisis faded on Friday as investors fretted about the plan's lack of detail and grew more skeptical about Italy's turnaround effort....On Friday, attention focused on Italy. The nation is saddled with €1.9 trillion in debt, with more than €200 billion of it coming due next year. Some investors worry that unless Italy lowers its borrowing costs, it could become the center of a renewed flare-up in the crisis. In Friday's bond auction, Italy was forced to pay more than 6% interest on its new 10-year debt, approaching levels that some analysts said the country can't afford for long.

...."The truth of the matter is that the issues are not entirely resolved," said Steven Walsh, chief investment officer at bond manager Western Asset Management, which oversees $433 billion...."The firepower of this fund…is not enough to calm fears," said Silvio Peruzzo, an economist at RBS Global Banking & Markets in London.

Nobody should be surprised that this is such a hard problem, of course. Fundamentally, someone is going to lose absolutely gigantic sums of money, and figuring out who that someone is going to be was always going to be a fraught affair. As near as I can tell, though, each rescue effort seems to advance asymptotically toward honesty about the scale of the losses, realism about the need to allocate those losses among the non-broke members of the EU, and acceptance among the broke members that they're going to be required to suffer fairly harshly in return for being bailed out. We obviously haven't gotten to the really truly final resolution yet — that won't happen until the European public truly accepts that they're screwed and they can't do much about it — but I suspect that last week's deal is one more step along the path of recognizing the grim reality of the situation.

Either that or Europe is going to implode. In the end, though, I don't think either the ECB or Angela Merkel will allow that to happen.