Kevin Drum - January 2012

Mitt Romney Caves on His Taxes

| Tue Jan. 17, 2012 2:59 PM EST

Mitt Romney has decided to cave in on his taxes:

Bowing to pressure from his Republican rivals as well as the Democrats, Mitt Romney told reporters here Tuesday that he plans to release his federal income tax returns this spring and estimated his rate at about 15 percent.

“What’s the effective rate I’ve been paying? It’s probably closer to the 15 percent rate than anything,” Romney, a GOP presidential candidate, said. “My last 10 years, I’ve — my income comes overwhelmingly from investments made in the past rather than ordinary income or rather than earned annual income. I got a little bit of income from my book, but I gave that all away. And then I get speaker’s fees from time to time, but not very much.”

Did Romney really make up his mind on this literally overnight? Because in last night's debate he sure didn't sound very certain that he was going to do this. This is, perhaps, the only time that Romney has panicked during the campaign. If he'd made up his mind a little earlier and a little more deliberately, he could have had a much smoother answer last night. "I do plan to release my tax return for the previous year, as other presidential candidates have done, and my accountants tell me it will be ready to file in late March or April. As soon as it's complete, I'll make copies available to the press."

Instead we got last night's Palinesque gobbledygook. Very weird. Greg Sargent takes a crack here at figuring out what this all means for Romney's chances in November.

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Barack Obama Is Not That Hard to Understand

| Tue Jan. 17, 2012 2:30 PM EST

Andrew Sullivan has a longish cover story in Newsweek arguing that both conservatives and liberals attack Barack Obama in dumb ways. Conservatives are convinced he's a fire-breathing socialist out to destroy capitalism and appease our foreign enemies at every turn. This is little short of deranged, and Sullivan does a nice job of taking it apart.

Likewise, the progressive base convinced itself early on that Obama was a committed leftist and has since excoriated him for selling out now that he's in office. But I agree with Sullivan: Obama simply never sold himself that way. He was, from Day One, a pragmatic, cautious, mainstream Democrat, and anyone watching the 2008 campaign with both eyes open should have understood that. He may be less liberal than a lot of us would like, but anyone who's disappointed because he turned out not to be the second coming of FDR was just deluding themselves from the start.

But Sullivan loses me here:

By misunderstanding Obama’s strategy and temperament and persistence, by grandstanding on one issue after another, by projecting unrealistic fantasies onto a candidate who never pledged a liberal revolution, [liberals] have failed to notice that from the very beginning, Obama was playing a long game. He did this with his own party over health-care reform. He has done it with the Republicans over the debt. He has done it with the Israeli government over stopping the settlements on the West Bank—and with the Iranian regime, by not playing into their hands during the Green Revolution, even as they gunned innocents down in the streets. Nothing in his first term—including the complicated multiyear rollout of universal health care—can be understood if you do not realize that Obama was always planning for eight years, not four.

This is sort of a watered-down version of the 11-dimensional chess hosannas that deservedly got a lot of mockery back in the day. But it wasn't true of Obama then (both his campaign and governing strategies have been fairly straightforward) and it's not necessary to explain anything now.

Why was Obama so conciliatory toward the Republican Party early on? It has nothing to do with long-term strategy. It's because he needed at least two or three Republican votes in the Senate to pass anything, and if he'd been a fire-breathing partisan from the start he wouldn't have gotten them. He went down this road partly out of native temperament and partly because he didn't really have any choice.

Why did health care reform take so long? Not because of any clever strategy on Obama's part. It was because, right or wrong, he made a rational calculation not to repeat Bill Clinton's mistakes. So instead of pushing a plan of his own, he let Congress take the lead. And Congress decided to move very, very slowly.

Why was Obama's reponse to the financial crisis basically pretty centrist? Again, not because of any long game. More likely, it's because Obama himself is genuinely fairly centrist and business oriented when it comes to financial policy.

What explains Obama's strategy toward Israel and its West Bank settlements? I'm not even sure what the argument for a long game is here. The more prosaic—and probably correct—explanation is that Obama failed. He tried to press Netanyahu on the settlements because he thought he had the leverage to make him listen. He turned out to be wrong, plain and simple.

Why is Obama now taking a harder, more partisan approach toward his GOP adversaries? Not because he was cleverly playing with them for three years and is now reaping the rewards of an electorate convinced that Republicans are hopelessly obstructionist. In fact, surveys don't suggest that public opinion has moved much in Obama's direction at all. Rather, he's doing it because it's an election year. It's now time for contrast, not compromise. This is Campaigning 101.

There are a few examples where I think Obama has indeed played a deliberately patient game that's paid off. Don't Ask, Don't Tell is one: Doing it his way made repeal far less divisive and far more permanent than if he'd tried to hurry it through. Likewise, his policy toward Iran has been deliberately devised to demonstrate that he's trying his best to be reasonable and is only tightening sanctions as a last resort. This has successfully kept China and Russia from being obstructionist and produced a better, more global sanctions regime than he otherwise would have gotten.

But these are the exceptions, not the rule. For the most part, Obama's actions can be explained without resort to mysterious and ulterior motives. He's done what he's done sometimes out of native temperament, sometimes out of straightforward political calculation, sometimes out of plain misjudgment, and sometimes because he genuinely has more centrist views than his critics want to believe. More than with most presidents, I think that with Obama, what you see is what you get. He's just not that hard a guy to explain.

California's Ridiculous High Speed Rail Plan

| Tue Jan. 17, 2012 1:02 PM EST

Update: On July 7th the California legislature authorized initial funding for the first leg of the California high speed rail system.

As regular readers know, I've been skeptical of California's LA-SF bullet train from the beginning, and my skepticism has only grown as cost estimates have doubled to nearly $100 billion in only a few years. But unrealistic cost projections have never been the only reason to be dubious. There were also unrealistic ridership projections, along with unrealistic estimates of what the alternatives to high-speed rail would cost.

Until today, though, I didn't know just how unrealistic some of those estimates were. Rail supporters say that even if the LA-SF train costs $100 billion, it's still a bargain compared to the $171 billion it would cost to expand road and air infrastructure to handle the increased traffic between LA and San Francisco that we're going to get regardless. But check this out:

The rail authority has relied heavily on New York-based Parsons Brinkerhoff, a contractor that helped fund the political campaign for the $9.9-billion bond measure passed by voters in 2008....In October, Parsons submitted the analysis that came up with the $171 billion, a number that initially appeared in the authority's draft business plan released Nov. 1. In the study, Parsons first estimated how much passenger capacity the system would have at completion in 2033 and then calculated the cost for providing the same airport and highway capacity.

Parsons said the high-speed rail system could carry 116 million passengers a year, based on running trains with 1,000 seats both north and south every five minutes, 19 hours a day and 365 days a year. The study assumes the trains would be 70% full on average.

This is just jaw-droppingly shameless. There's not even a pretense here of providing a reasonable, real-world traffic estimate that could be used to project the cost of alternative infrastructure. A high school sophomore who turned in work like this would get an F.

We are rapidly exiting the realm of rose-colored glasses and entering the realm of pure fantasy here. If liberals keep pushing this project forward in the face of plain evidence that its official justifications are brazenly preposterous, conservatives are going to be able to pound us year after year for wasting taxpayer money while we retreat to ever more ridiculous and self-serving defenses that make us laughingstocks in the public eye. And unless we put this project on hold until we can get some genuinely independent and plausible estimates of costs, ridership, and alternatives, we'll deserve it.

Take 2: What's the Value of a High School Education?

| Tue Jan. 17, 2012 12:06 PM EST

Apropos of my post yesterday about the true market price of a college education, which I pegged at around $75,000 per year, Matt Steinglass makes the point that although this is the value of higher education to society, it's not necessarily the perceived market value to students themselves. Not all of them, anyway. Without federal aid, an awful lot of kids just flatly wouldn't be able to afford this much or wouldn't be willing to take out $300,000 in loans to get a degree. That might be irrational in a pure economic sense, but it's probably true nonetheless. So if higher education were provisioned on a pure free market basis, it would probably result in a net loss of welfare to society at large.

To give this some more punch, Matt tries to apply the same logic to high school. After correctly deducing how I got my $300,000 estimate (it's the amount that produces the supposed million-dollar value of a college education if it's invested at 3% per year for 40 years), he takes a crack at figuring out how much a high school diploma is worth on the open market:

If I'm doing my math right [], it's about $67,500. So we're talking four years of high-school tuition at almost $17,000 a year. And, again, this is probably significantly low-balling the real value of that degree.

How many American parents can pay $17,000 a year per kid for their kids to go to high school? Say this math overestimates the present value of the degree, and the actual figure is only $10,000. How many parents could afford to pay that? How many can borrow that much on the private market? How many would be willing to, if they could? What percentage of American kids would graduate from high school if they or their parents had to pay the full future value of their education up front? Currently 70% of Americans graduate from high school; imagine that percentage dropped to even 50%. And here's the money question: How much poorer would America be, how much lower would our GDP be, if only 50% of Americans graduated from high school? I think this is the way we need to think about the value of government subsidies for, and/or cost controls on, and/or provision of low-cost Skype-enhanced alternatives to universal college education.

Pretty much everyone agrees that high school ought to be universal. The value to society of having everyone get at least that minimum amount of education is worth the money we put into it. And yet, if it were a pure free market function, high school attendance would plummet. This would almost certainly not be the optimal outcome for society.

It's not quite as obvious to most people, but the same is likely true of higher education. You might or might not believe that everyone should go to college, or even that we should be trying to encourage more kids to go to college. But it would almost certainly be a net negative for society if college graduation rates declined by a third. That's why subsidized higher education is worth it, even if it irks you to shovel taxpayer dough to a bunch of snot-nosed kids so that they can earn higher salaries in the future. Having a big pool of college-educated workers is worth a lot to society, probably more than a free market by itself would provide. This is your tax dollars at work.

Debate Highlights From Myrtle Beach

| Tue Jan. 17, 2012 2:37 AM EST

Here are my personal favorites from tonight's Republican debate:

Ron Paul repeatedly insisting that no one understands his positions. 

Newt Gingrich pulling a Pawlenty and not having the guts to really go after Romney to his face about his record at Bain Capital.

Rick Perry declaring that "South Carolina is at war with this federal government." Maybe not the best imagery to invoke in a debate being held 50 miles down the road from Fort Sumter, my friend.

Newt Gingrich suggesting that Andrew Jackson is a great role model for the use of military force.

Mitt Romney seemingly having no clue that someone might ask him about his income tax returns, leading to this astonishingly weaselly reply:

You know, I looked at what has been done in campaigns in the past with Senator McCain and President George W. Bush and others. They have tended to release tax records in April or tax season. I hadn’t planned on releasing tax records because the law requires us to release all of our assets, all the things we own. That I have already released. It’s a pretty full disclosure. But, you know, if that’s been the tradition and I’m not opposed to doing that, time will tell. But I anticipate that most likely I am going to get asked to do that around the April time period and I’ll keep that open....I think I’ve heard enough from folks saying, look, let’s see your tax records. I have nothing in them that suggests there’s any problem and I’m happy to do so. I sort of feel like we are showing a lot of exposure at this point. And if I become our nominee, and what’s happened in history is people have released them in about April of the coming year and that’s probably what I would do.

Translation: I'm not going to release my tax records in time for any primary voters to see them. However, I might release them after the primaries are over but early enough that they'll be old news long before the general election. Then again, maybe I won't release them at all. In the meantime, I'm going to pretend that this is the first I've ever heard about this peculiar "tradition" you earthlings apparently have.

Full confession: these are my favorite bits because that's about all I heard of the debate. If I'd watched more of it, I'd probably have more favorites.

Whoever Wins in November Will Be an Economic Genius

| Mon Jan. 16, 2012 6:51 PM EST

Eventually the American economy will recover no matter how badly we screw things up. Ezra Klein explains what this could mean:

Because a recovery is likely within five years, whichever party wins the White House in 2012 is likely to get the credit, and so too will its policy agenda. You can see how this will work. If Romney wins the presidency and the economy begins to rebound, Republicans will argue, and America’s experience will seem to show, that they were right all along: The stimulus was useless and the regulatory uncertainty the Obama administration created with its health-care plan and its talk of cap-and-trade and all the rest kept businesses from investing.

This has been my particular political nightmare for the past year. Ronald Reagan didn't really do much to fix the economy in the early 80s, after all, but in popular lore that doesn't matter. He won the 1980 election, lowered taxes, radiated his famously sunny disposition throughout the land, and voila! It was morning in America. We've been living with the consequences ever since.

Mitt Romney is no Ronald Reagan, but it could happen again. Sadly, popular opinion has very little to do with actual boring facts.

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Voter Fraud in the Lone Star State

| Mon Jan. 16, 2012 6:13 PM EST

Republicans have been complaining about voter fraud for years despite the voluminous evidence suggesting that such fraud is close to nonexistent in the United States. But it's not totally nonexistent, especially among committed partisans accustomed to running hardball campaigns, and evangelical conservatives now say they have the goods on a genuine case of voter fraud. It happened at....a meeting of evangelical conservatives this weekend:

In back-and-forth emails, Protestant fundamentalist leaders who attended — most of them backing former House Speaker Newt Gingrich to be the anti-Romney candidate — are accusing Catholic participants of conniving to rig the vote. They said they were conned into leaving after the second ballot on Saturday. They said pro-Santorum participants held a third ballot which Mr. Santorum won with more than 70 percent of the vote — far higher than the nine-vote margin he won on the first ballot.

....Now, a prominent evangelical political organizer is saying to others confidentially he has evidence that in a least one instance a participant was seen writing Mr. Santorum’s name on four separate ballots and putting them in the ballot box.

Of course, what's really weird here is that there's not much reason for Catholics to rig this vote since Newt Gingrich is also Catholic. But I guess once you get in the habit of yelling about voter fraud, it's hard to stop.

Romney Finally Breaks 40%

| Mon Jan. 16, 2012 3:35 PM EST

The campaignerati like to say that states are the only things that matters, so you should ignore national polling. That's a little bit right but mostly wrong. As the nation moves, so do the states, which means that national polls mean a lot even when the individual contests are fought at the state level.

That said, the latest polls show Romney finally making a serious surge at the national level. As the RCP summary below shows, the three national polls taken after the New Hampshire primary show Romney with 34%, 37%, and 40% of the vote. That means he's finally cracked that 25% barrier that seemed to be his ceiling for so long. For good or ill, he'll be the GOP nominee unless he somehow contrives to completely crash and burn in South Carolina. It's all over but the shouting.

UPDATE: You want an alternative story just to keep things interesting? Fine. Perry is already toast and Ron Paul doesn't really matter. If Santorum does really well in South Carolina and Gingrich decides to drop out, leaving it a clear two-person race, I could see just a sliver of hope for Santorum. But this is the best case I can think of, and even at that it's just a sliver. At this point, Romney would have to screw up pretty spectacularly to lose.

Why Greece Doesn't Tell the Germans to Piss Off

| Mon Jan. 16, 2012 2:00 PM EST

Atrios writes:

Mysteries

I still really just have no idea why Greece doesn't tell them all to piss off, and give the opportunity to French and German leaders to explain to their people why they're going to shovel taxpayer money into the maws of the banksters.

Since Atrios has said this so many times, it's worth pointing out that there actually is an answer: Greece is broke. They're spending way more than they're taking in, and if they default on their bonds then no one will loan them more money for a very long time. This would instantly force more austerity on Greece than even the Germans are currently demanding from them.

Now, maybe they could not just default, but also exit the euro at the same time and go through a huge currency devaluation. This would eventually repair their economy. But "eventually" might be quite a ways down the road, and in the meantime Greece would suffer from massive capital flight, inflation would rise, pensions would lose half their value overnight, unemployment would skyrocket, and imports would dry up. These are not prospects that any politician is apt to take lightly.

In the end, it's possible that this is the best route for Greece. It worked for Argentina, after all, though it caused massive pain for several years first. But it's hardly a no-brainer.

The better solution for everyone, of course, would be much more expansionary monetary and fiscal policies in the short term and deeper reforms over the long term. But Greece has no control over that. The only question for Greek leaders is: given the actual monetary and fiscal policies that Germany and France have forced on Europe, what is Greece's best option? There's no easy answer to that.

The Cost of College Is Probably Going to Keep Going Up

| Mon Jan. 16, 2012 1:10 PM EST

Via Andrew Sullivan, Kevin Carey uses a parable to explain why college tuition costs have risen so steeply over the past few decades:

Then the government decides that more people should have the opportunity to buy apples and society would benefit from a net increase in apple consumption. So it decides to drop the price of apples to 60 cents. Sometimes it does this by giving you 40 cents for every apple you sell, on the condition that you start selling apples for 60 cents. Sometimes it gives people vouchers worth 40 cents that can only be used to purchase apples from approved vendors.

At first, the policy works splendidly. Apples are effectively less expensive so more people buy them and the nation is suffused with apple goodness. But then you, the apple vendor, look at the situation and say “Hey, the market price of an apple is still $1. Wouldn’t it be great if I could charge $1 for apples, but still get 40 cents from the government for every apple I sell?” Raising the price all the way from 60 cents back to $1 in a single year would be too obvious and jeopardize political support for the apple subsidy program. So you start raising prices by three, four, or five percent above inflation annually.

…But eventually things start to break down. As time passes and price increases accumulate, the public starts to notice that while the taxes they pay to support apple subsidies are staying the same, the price of subsidized apples is creeping closer to the market price. This seems unreasonable.

Actually, I think the situation is much worse than this, and student aid programs are probably only a small part of the story. The real problem is indeed related to the market price of higher education, but it's not just that universities are steadily making up for distortions caused by federal aid. The fact is that we've never been in a situation where universities were charging a market price in the first place. After all, if the lifetime wage premium for a college grad is a million dollars over 40 years, then how much is four years of college worth today? Answer: about $300,000 or so. That's $75,000 per year.

Now, there's some controversy about whether the college wage premium is really that high. For the time being, though, there's certainly a widespread belief that a college degree is worth about a million bucks. And as long as that belief persists, people are going to act as if the market price of a university education averages $75,000 per year. (Higher for elite colleges, of course, and lower for ordinary state universities.) And that's going to put steady upward pressure on tuition costs.

For many decades, universities acted as though they had a public, charitable mission. That was especially true for state universities, but it was true for most private universities too. That's largely changed. In the public sphere, taxpayers have noticed that (a) it's mostly well-off kids who go to college these days, not children of the poor bettering themselves, and (b) this education is worth a helluva lot of money. So why should they be asked to subsidize a route to higher earnings for kids who, for the most part, already have a lot of advantages? The cost of college loans seems more and more like a simple financial transaction to them, not a crushing burden being placed on struggling youngsters.

In the private sector, I'd guess that universities are simply coming to grips with the fact that they can charge a lot more than they ever imagined. They're testing the boundaries of their market price, and they haven't found it yet. Until they do, tuition costs will continue to skyrocket.

Carey has a proposal to address this problem that strikes me as iffy, but it's worth taking a look at. It revolves around the idea of fundamentally transforming higher education away from standard lecture halls and instead taking advantage of technology to improve the productivity of teaching. I have some doubts about whether this will work, but it's not something I'd dismiss entirely. What's more, it requires heavy regulation (which Carey endorses) or else the benefits of higher productivity will mostly just flow to the producers of education anyway, not the consumers.

So the answer remains elusive. But given that universities are most likely still charging a lot less than their market price even after years of stiff tuition increases, my guess is that we're in for yet more pain one way or another.