Kevin Drum - October 2011

Obama's Two-Edged Attack on Romney

| Fri Oct. 14, 2011 11:28 AM EDT

Andrew Sullivan links to some anti-Mormon nutbaggery over at WorldNetDaily:

"While he attempts to portray Mormonism as just another Christian religion, Mitt Romney counts on his skills to shift our attention away from what he truly believes," says Tricia Erickson, author of "Can Mitt Romney Serve Two Masters? The Mormon Church Versus the Office of the Presidency of the United States of America." "If the American people knew what he truly believed, they would surely not place him in the highest office in the land."

Et cetera. I was listening to Chris Matthews the other day, and he was wondering if the Obama team could successfully tar Mitt Romney as both a flip-flopper and a fire-breathing conservative. I think they probably can. They'll never admit this (and I might be wrong about it), but the flip-flopper message seems most likely to be aimed at evangelicals who are leery of putting a Mormon in the White House and are looking for an excuse — any excuse — to stay home. The flip-flopping charge won't be enough to get them to vote for Obama, but it might be enough to get them to bag the whole thing and just skip the election entirely. Plus it has the virtue of being true.

The fire-breathing conservative charge, conversely, is aimed directly at moderates and independents. They're going to vote for somebody, and if Obama can successfully link Romney to the excesses of the Tea Party before he's free to move to the center for the general election, he'll win some votes there. Obviously Obama wants to make it as hard as possible for Romney to execute his shift to the center when the primaries are over — something that I think he's still in pretty good shape to do — and getting in their licks early is one way to do that.

So: two messages for two different audiences. Can they pull it off? I don't see why not. They don't really conflict all that much, after all. To the extent that this kind of positioning stuff works at all, I don't see why this can't work pretty well.

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Ronald Reagan's Real Legacy

| Fri Oct. 14, 2011 5:55 AM EDT
President Ronald Reagan

In the course of clearing her throat for an attack on Rick Perry Tuesday night, Michele Bachmann tossed out this now-standard bit of conservative boilerplate:

In the 1980s, Ronald Reagan produced an economic miracle…

It's probably hopeless to take on the Reagan economic myth at this late date, but honestly, it's long past time to put it to rest. The truth about the '80s is far more prosaic: In 1979, Jimmy Carter appointed Paul Volcker chairman of the Federal Reserve. Inflation was running at about 12 percent when he took office, and Volcker immediately slammed on the monetary brakes in order to bring it down. Whether he was targeting interest rates or monetary aggregates remains a bit murky, but it hardly matters. In the end, he engineered one minor recession in 1980, and when that didn't do the trick, he tightened Fed policy even more and threw the economy into a second recession—this one extraordinarily deep and painful—which he maintained until 1982. When he let up, the economy recovered. Reagan had very little to do with it.

But that's not all. If you're looking for other reasons that the 1980s were boom years, No. 2 would be oil prices. The American economy is highly sensitive to oil prices, and after peaking at around $100 per barrel during the Iranian revolution (in inflation adjusted terms), oil prices steadily dropped, falling below $30 in 1986 (again, in inflation adjusted terms). This was largely due to (a) reduced demand thanks to the recession; (b) reduced demand thanks to CAFE standards and other conservation/efficiency improvements that followed the oil shocks of the '70s; (c) increased oil supply from Prudhoe Bay, which peaked in the early '80s; and (d) increased oil supply thanks to a Jimmy Carter executive order ending price controls on oil. Again, Ronald Reagan had very little to do with it.

What else? Well there was enormous deficit spending in the early '80s that wasn't offset by Fed action, and that probably stimulated the economy a bit. That was Reagan's doing, though it's not something his fans like to boast about today. And there was the Plaza Accord of 1985, which devalued the dollar and helped spur exports. That was also Reagan's doing, but again, it's not something his admirers say much about today, since modern tea party orthodoxy insists that this amounts to "debasing" the dollar. And finally, there are the 1981 tax cuts, which probably had a positive economic effect, but a fairly modest one.

That's most of the story of the Reagan era. The most important economic drivers of recovery, in rough order of importance, were:

  1. Paul Volcker easing up on interest rates/monetary aggregates in 1982
  2. The steep drop in oil prices after 1981
  3. Reagan's devaluation of the dollar
  4. Reagan's deficit spending
  5. Reagan's tax cuts

Other major Reagan policies were probably a wash. The tax reform act of 1986 was certainly a net positive, but sitting back and allowing the S&L crisis to spin out of control was a big net negative. But those are nits. In the end, although Reagan's tax legacy is his most celebrated accomplishment, it was distinctly secondary to Fed policy, the oil glut, deficit spending, and a weak dollar. Lowering top marginal rates may or may not have been a great thing to do, but it was no miracle. The truth was far more mundane.

Passion and Symbolism: Not Really So New After All

| Fri Oct. 14, 2011 1:50 AM EDT

David Brooks writes today about the endless fighting and planning problems that have kept the World Trade Center site from being rebuilt for so long:

Born in grief and passion, the whole enterprise was soon plagued by furious discord. Personalities clashed. Practicalities were ignored. Building budgets didn’t mesh with the deadlines. There were arguments about the memorial and the proper definition of the word “patriot.” There was a lot of planning but not much execution. Symbolism eclipsed reality.

During his brief tenure, Gov. David Paterson hired Chris Ward, formerly Mayor Michael Bloomberg’s environmental protection commissioner, to take over the Port Authority and rescue the shambolic ground zero project....Ward set prosaic priorities — what would be built first, which parts of the project could wait. He cut costs by doing things like putting columns in the design of the transportation hall. He changed the name of Freedom Tower to One World Trade Center. He divided the construction deals into manageable chunks.

....[Ward] rescued the ground zero project by disenchanting it, by seeing it as it is, not through shrouds of symbols — by attending closely to all the practical complexity. American politics in general could use that sort of disenchantment.

Brooks uses this as a metaphor for the way we end up in gridlock whenever concrete issues become subsumed in passion and cultural symbolism. But this is a bad example. Has One World Trade Center taken unusually long to build? Not as much as you'd think. The original building was first proposed in 1961. There were fights between New York and New Jersey that weren't resolved until 1962. Agreement with the city of New York wasn't reached until 1966. Demolition began that year, and contracts were let in 1967. Construction began in 1968, and the second tower was completed in 1971. Elapsed time: ten years.

And what about its replacement? The design competition was held in 2003 and the completion date is now estimated to be 2013. Elapsed time: ten years. You can quibble with these numbers a bit if you want. Maybe the WTC was really finished in nine years since that's when the first tower was completed, and maybe OWTC has really taken eleven since planning began in 2002. Either way, though, it's not a big difference.

Am I picking nits with Brooks? Yes, in a way. But there's an important point here about romanticizing the past. New York wasn't a paragon of efficiency in 1960 and it's not a poster child for dysfunction in 2011. Big buildings just take a long time to put up in the modern era.

Likewise for political gridlock. Do we fight a lot over values today? Sure. But we did in the past too. Abortion has been a values fight for as long as it's been on the national stage. Vietnam was a values fight. McCarthyism was a values fight. Much of the New Deal was a values fight. Prohibition was a values fight. Politics has been about values ever since Aristotle wrote that the ultimate purpose of government is to promote justice and the good life — and then went on to define his idea of both. Hell, it's been about values since Moses brought down the Ten Commandments from Mount Sinai.

Like Brooks, I'm pretty disgusted with politics most of the time. But it's not really conflicts over values that are at fault, it's the fact that our institutions have become unable to deal with them. Partly this is because one of our major parties has dived head first into a rabbit hole and doesn't look ready to come out anytime soon. But mainly it's because our political structure has evolved into a weird hybrid that has the tight party discipline of a parliamentary system contained within the institutional framework of a presidential system that was specifically designed to work best without any party machinery at all. That's a recipe for disaster. I'm not sure what the answer is, but we shouldn't kid ourselves into thinking that the problem is simply one of passion about politics. We've always had that.

Why Republicans are Flummoxed by 9-9-9

| Thu Oct. 13, 2011 8:42 PM EDT

It's really not worth spending too many pixels on Herman Cain's 9-9-9 plan, but Dave Weigel made an interesting point about it yesterday. Cain's plan has the kind of spiffy branding and sloganeering you might expect from a former fast food CEO, but at its core it's nothing new: it's just another entry in the flat-tax derby that's been rambling along in conservative circles for the past couple of decades.

The problem, of course, is that even by Republican flat-tax standards the 9-9-9 plan is ridiculous. It would raise taxes enormously on the middle class and lower them considerably on the rich. Conservatives aren't against that in principle, but even for them there's a limit. A plan that nearly doubles federal taxes on an average family is just not something they can swallow. And yet, all Cain has really done is taken conservative orthodoxy and kicked it up a notch, something that's perfectly in tune with the Tea Party zeitgeist that's lately taken over the conservative movement. As Weigel says, "The Republican voters who love 9-9-9 believe the same things that the old Forbes [flat tax] devotees believed. They believe that other Americans are paying no net income taxes, and they don’t think it’s fair." So how do you fight that?

Cain’s rivals have to engage in a little bit of deprogramming. They must convince voters who think that the tax code is stacked against them of the truth: That complicated code is wasting some time while saving a lot of money....So how has Cain gotten so far on this idea?

“It’s a rejection of redistributionist tax policy,” says Grover Norquist, the president of Americans for Tax Reform, who is doing his gentle best to point out that 9-9-9’s a bad idea. “No one has done the calculations, so people are reacting viscerally to the idea. A single rate flat tax is a very attractive thing.”

It’s attractive because it tells conservative voters what they already believe: Tax the free-loaders, simplify the forms, and the rest of the problems take care of themselves. To take Cain down, Republicans have to blow up the anti-tax arguments of 30 years.

In a sense, conservatives have finally been hoist by their own petard. Liberals have been making jokes for the past year about the otherworldy "Can You Top This?" game being played by Republican presidential candidates, each one offering up a more buffoonish idea than the next in a vain attempt to prove that they're the purist conservative in the pack. Well, now Herman Cain has trumped them all: his 9-9-9 plan is too goofy even for the modern party to embrace, but it obeys conservative orthodoxy to a tee. So how do you convince all those people you've been selling conservative orthodoxy to that this, finally, is something that goes too far? Isn't that the kind of thing a liberal would say?

DOE's Bipartisan Love for Big Business

| Thu Oct. 13, 2011 7:33 PM EDT

I don't have as big an aversion to government loan guarantees as Megan McArdle, but after running the numbers on the loan guarantees that went through the Department of Energy over the past couple of years, she makes a good point:

I have highlighted what jumped out at me: most of the money has gone to enormous companies that should have no trouble accessing capital. Established utilities, large multinational auto manufacturers, a global warehouse owner. The bulk of these funds are not going to rectify some gap in the capital markets. They're straight subsidies to huge corporations. Even some of the smaller firms/deals are owned by large corporations like Total SA.

There were three DOE loan guarantee programs. Program #1 was funding for alternative vehicles. 81% of its $9.1 billion went to Ford and Nissan. Program #2 is the 1703 loan program. 97% of its $10.3 billion dollars went to two big nuclear power companies. Program #3 was the 1705 loan program. It's a little harder to parse, but it looks as if a fair chunk of its $16.1 billion also went to big, established corporations.

The manufactured outrage over the Solyndra bankruptcy has mostly been pretty fatuous. But if there's a reasonable criticism to be made of these programs, this is probably it: if you're going to shovel federal money into risky new technologies that private funders won't touch, shouldn't you shovel your money into risky new technologies that private funders won't touch? Why bother with subsidies to Ford and Georgia Power and NextEra? They've got plenty of access to bank capital if their projects make sense.

Part of the reason, of course, is that subsidies to big corporations are bipartisan winners. John Boehner is a big backer of loan guarantees to allow the United States Enrichment Corporation to build a uranium enrichment facility in Ohio. USEC is a $2 billion corporation. Johnny Isakson and Saxby Chambliss were strong supporters of the loan guarantees to Georgia Power, a subsidiary of Southern Company. Southern Company is a $17 billion corporation. Pretty much everyone in Michigan supported loan guarantees to Ford, a $129 billion corporation.

Now, like I said, this doesn't bother me all that much. The actual cost of the $36 billion in DOE loan guarantees will probably run around $2-4 billion over the next decade or so. That's not all that earth shattering. Still, if we're going to do something like this, I'd be pretty happy to end the loan guarantees to big companies and concentrate our firepower on smaller startups that can't find alternative financing but might be worth some taxpayer risk anyway. The big guys ought to be able to rely on the free market they spend so much time claiming to revere.

"Voluntary" Is Not a Plan

| Thu Oct. 13, 2011 5:52 PM EDT

It's nice that Martin Feldstein recognizes the value of a serious program to address underwater mortgages. Unfortunately, this is the program:

If the bank or other mortgage holder agrees, the value of the mortgage would be reduced to 110 percent of the home value, with the government absorbing half of the cost of the reduction and the bank absorbing the other half. For the millions of underwater mortgages that are held by Fannie Mae and Freddie Mac, the government would just be paying itself. And in exchange for this reduction in principal, the borrower would have to accept that the new mortgage had full recourse — in other words, the government could go after the borrower’s other assets if he defaulted on the home. This would all be voluntary.

In other words, it wouldn't work. But thanks for playing.

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The Struggles of Rick Perry

| Thu Oct. 13, 2011 3:19 PM EDT

“We had a tired puppy,” said a Republican friend of Rick Perry's recently, trying to explain Perry's less than stellar debate performances. Robert Lane Greene sums up what this probably really means:

If your background thus far has been mostly limited to your home state, you're not ready for the onslaught of impertinent, annoying questions about your policy towards Durkadurkastan. In a panic you start to study. But there are so many damned Stans! And then people want to know whether your tax-policy numbers add up, the bastards. And you're expected to know stuff like how the alternative minimum tax works. And where all of America's troops are. And then the snivelling reporter from the Globe and Mail asks a question to tease out whether you know what the prime minister of Canada's name is—you're sure it's something really ordinary, but is it Stephen Parker or Ben Harper or Michel Carter or what? Then you have to study all your rivals and what they're saying and doing, too. You have to study fast, and you're travelling all the time, and still kissing babies and begging for money over the phone. You eat fried garbage at state fairs and diners, and barely sleep. Now you probably get nervous, then tense; swagger won't turn the dynamic around. A few gaffes and you tense up more. You study harder, but there's just so much stuff to learn! And they they start digging through your past; why oh why didn't you anticipate that story getting out? Nobody told you it was going to be like this!

My guess: Perry's political life in Texas has just been too easy. His competition has been weak and his more-Texas-than-thou persona, along with some smart consultants, has been enough. He didn't need to know anything. But on the national stage — even the GOP version of it — you do. And he simply had no idea just how tough it was going to be. As near as I can tell, he still hasn't figured it out.

OWS Now Twice as Popular as the Tea Party

| Thu Oct. 13, 2011 2:17 PM EDT

Here are the results of the latest Time magazine poll in handy chart form. At least for now, the Occupy Wall Street folks are way, way, way more popular than the Tea Party. And why not? In other questions:

  • 86% agree that Wall Street and its lobbyists have too much power in Washington
  • 79% agree that the gap between rich and poor has grown too large in America
  • 71% think the Wall Street executives responsible for the financial meltdown should be prosecuted
  • 68% think the rich should pay more taxes

However, 56% believe the OWS protests will have little impact on any of this. Sadly, they're probably right. As Dana Milbank says after surveying recent congressional priorities, "For all the talk of populist foment — the Tea Party on the right and the new Occupy Wall Street movement on the left — business interests remain firmly in control. Forced to choose between their voters and their donors, lawmakers don’t hesitate before choosing the latter."

No they don't, do they? After all, the tea partiers and the OWSers might have all the energy and get all the media attention, but business interests still have all the mother's milk of politics.

Herman Cain's Plan to Double Your Taxes

| Thu Oct. 13, 2011 1:51 PM EDT

The University of Southern California's Edward Kleinbard performs the thankless task of trying to figure out the actual impact of Herman Cain's 9-9-9 campaign slogan cum tax plan, and he comes up with the following. Warning: It gets a little complicated:

Now let's put the three taxes together. Starting with $100 of pretax firm-level gross income available to pay salaries, the employee receives $91 in wages, and the firm pays $9 in "business flat tax." The employee then pays $8.19 in "individual flat tax" (9 percent of $91.00). Finally, the employee incurs a $7.45 further tax (the sales tax, measured as 9 percent of $82.81 in post-flat tax cash available for consumption), leaving her with $75.36 after all federal taxes to invest or spend. That represents a 24.6 percent all-in tax on the firm's gross income attributable to the employee's added value. Converting the $24.64 in total tax to a payroll tax equivalent, by comparing that tax to the $91 in salary the employee receives, yields a payroll tax equivalent rate of 27 percent ($24.64/$91).

In other words, when you take a look at the actual effect of the three different parts of Cain's plan, they all act similarly to a flat payroll tax. And the three parts add up to 27 percent. This means that if you're an average worker who spends most of your paycheck each month (in other words, virtually all of us), you'll be paying 27 percent of your income in federal taxes under Cain's plan. This compares to a current federal tax burden of about 14 percent for an average family.

Bottom line: If you make, say, $50,000 a year, your current total federal tax burden is about $7,000. Under Herman Cain's plan, it would be about $13,000. Even if you tweak the numbers a bit to make up for different measurement methodologies, that's a big difference.

So here's Herman Cain's new slogan: If you want to double your federal taxes, vote for me! I know I'm not a conservative and can't really pretend to understand what conservatives want, but I'm pretty sure this is not a tea party winner.

Via Ezra Klein, who adds the obvious point that Cain's 9-9-9 plan isn't a real plan anyway; it's just a brief set of bullet points. Which is just another way of saying that it's a joke.

Mitt Romney's Bum of the Month Club

| Thu Oct. 13, 2011 12:27 PM EDT

First we had Romney vs. Trump, then Romney vs. Bachmann, then Romney vs. Perry, and now we have Romney vs. Cain. Remember Joe Louis' Bum of the Month club? That's what the Republican primary campaign looks like this year.

The problem with Herman Cain, of course, is basically the same as the problem with Donald Trump: He knows how to stir the troops, but the whole campaign is basically a joke to him—and even tea partiers aren't going to stick with a guy who treats the presidency like a joke. The zingers are all great, but if you want to be the leader of the free world you can't perform stupid burlesque about not knowing anything about Uzbeki-beki-beki-stan; if you want to run the economy you can't build your whole campaign around a corporate slogan like 9/9/9 that even the marks know is ridiculous; and if you want to be commander-in-chief you can't transparently not care about foreign policy. It's all fun for a while, but it wears thin pretty quickly when it becomes clear you're really campaigning to get a Fox News show, not to sit in the Oval Office.

Anyway, to show this graphically, I've helpfully extended the latest poll of polls from Real Clear Politics. Perry might do a little better than I'm predicting, but not much. As for Cain, he better enjoy his moment as Mitt Romney's latest bum. It won't last much longer.