• Low Interest Rates, High Inflation, and NGDP Targeting


    NGDP stands for nominal GDP, and it’s the level of GDP without adjusting for inflation. It’s become much talked about lately because of proposals that this is what the Federal Reserve should target. Not interest rates, not inflation, and not unemployment. Just make sure that NGDP rises steadily (say, 5% per year) and the economy will prosper. In some years, that might mean 4% real growth and 1% inflation, and in others it might mean 1% real growth and 4% inflation. Doesn’t matter. It’s all good.

    Matt Yglesias explains how this works using an example of a company trying to decide whether to expand production:

    You look to your left and you see a stack of dollars. You look to your right and you see a bunch of machines. Do you want to trade the dollars for the machines? It’s a close call.

    Now a little birdie from the Bureau of Labor Statistics shows up and tells you that the price level is going to surge over the next three years. Suddenly your decision is made for you. That stack of dollars isn’t as valuable as you thought it was. Buy the machines!

    But no, a second little birdie arrives this time from the Bureau of Economic Analysis and it’s here to tell you that the level of real output is going to surge over the next three years. Suddenly your decision is made for you. That pile of machines is more valuable than you thought it was. So go buy them!

    The point is that any information pointing toward higher NGDP at the margin points in the direction of marginally more investment.

    It’s worth adding a piece that got left out here. If this explanation were literally true, then all we’d need to spur economic growth is high inflation all the time. Weimar Germany would be an economic miracle instead of a millstone that continues to hang around Angela Merkel’s neck a century after the fact.

    But the missing piece is interest rates. Interest rates generally vary with inflation, so in the first example our befuddled CEO will stay befuddled. Sure, he figures, inflation will be up, but so will the returns his CFO can make by investing the corporate cash hoard. The knife edge between keeping money in the bank and spending it on increased production is still a knife edge.

    The way this calculus changes is if the Federal Reserve keeps interest rates low and promises to keep them low for a good long time. This is the “expectations channel.” If the Fed does this, and if you believe that they’re dead serious no matter what, then you might as well buy the machines. Cash sitting in the bank is going to lose value, and if the decision was a close call in the first place, this will be enough to make plant expansion look like a better deal.1

    Note that if it’s not a close call, none of this matters. But the whole point of policies like this isn’t to get everyone in the country to change their preferences. It’s to change things on the margin. If 10% of the companies in America are on the fence about increasing production, and the promise/threat of low interest rates is enough to push them over the edge into increasing production by 10%, then that’s 1% more overall production. And that’s great for the economy.

    The key here is credibility. Investors have to believe that the Fed is absolutely committed to its NGDP goal and won’t back down even if inflation rises. And this, of course, is the problem with NGDP targeting: investors aren’t idiots, and they know perfectly well that there’s plenty of opposition to any policy that tolerates higher inflation. This makes it nearly impossible for a central bank to convince the markets that there’s absolutely no chance that it will change its mind. Given the real-world political constraints here, I don’t really see how this is likely to change in the near future.

    1Put in different terms, the hurdle rate for the investment has gone down. For all practical purposes, the cost of money is negative, and this makes the financial case for spending money on plant expansion more favorable. It’s really negative real interest rates that are doing most of the heavy lifting here.

  • Citizens United is Now the Right’s Go-To Excuse for Labor Bashing


    Here in the great state of California, corporate interests have been trying for years to pass a “paycheck protection” initiative that would prohibit unions from making payroll deductions for political purposes. They’ve failed every time, not because my fellow citizens are deliriously in love with public sector unions, but just because of the manifest unfairness of these things. Even people who aren’t crazy about unions have a hard time swallowing an initiative that deliberately cuts off labor at the knees but does nothing to stop corporate spending.

    But they never stop trying, and their latest effort is Proposition 32, which is on the ballot this November. The LA Times reports that it’s way behind, mostly likely due to a brilliant ad that’s been running around the clock on local stations in these parts. You can read the whole piece if you’re interested, but I was especially charmed by this bit at the very end:

    Although the measure would block the direct flow of money from corporations and unions to candidates, experts said businesses would be free to spend unlimited amounts on independent committees to boost or challenge candidates and ballot measures. Labor would be free to do likewise, but its fundraising mechanism would have been cut off.

    “You can’t keep big money out of politics,” said Gary Jacobson, a political scientist at UC San Diego. “But you can make it harder for your opponent to raise money.”

    The initiative’s backers acknowledge the measure’s limitations, saying they went as far as existing law allows. The U.S. Supreme Court ended limits on political spending through independent organizations in 2010. The court ruled such contributions to be free speech, protected by the Constitution.

    “Anybody who wants to get serious about campaign finance reform runs right into all of the cases under the 1st Amendment,” said Michael Capaldi, a Republican attorney who helped draft Proposition 32.

    Isn’t that great? Corporate interests are now using Citizens United as their go-to excuse for why they have no choice but to be unfair. We’d really like to end corporate spending, honest we would. But the Supreme Court won’t let us. It’s sad. But at least we can go halfway and end union spending, and half a loaf is better than none, right? We’re doing the best we can here, folks.

    You could refloat the Titanic with the crocodile tears on display here. I can’t help but admire their chutzpah.

  • Friday Cat Blogging – 28 September 2012


    After a hard day of being a cat, there’s nothing quite so satisfying as Marian coming home and pulling off her shoes so you can get a nice big snootful of that lovely foot aroma. Am I right or am I right? You know I’m right.

  • Romney Aides “Pretty Resigned” to Losing


    Over at NRO, Denis Boyles passes along an anecdote from Sam Coates of the London Times, who says that everyone in Europe is now assuming that Mitt Romney will lose in November:

    Coates said the assumption of a Romney defeat fit his own view of the Republicans surrounding Mitt, a pessimism he saw back when Romney was in London eating his foot while talking about the Olympics. “His aides were there,” he said, “and they were telling some of our political advisers that, really, they weren’t that optimistic about their guy’s chances. They’re pretty resigned to it not going well, and it’s interesting to see that people are already moving away from his campaign.

    So what’s the answer? You guessed it: Romney’s being too damn moderate. He needs to let his tea party flag fly:

    In fact, what Americans seem to want is more polarization, not less. Those Republicans who try to campaign by galvanizing and leading their base, instead of ignoring and avoiding it, must be feeling now the way Romney’s dour aides have apparently felt all along — “pretty resigned,” minus the pretty.

    We’re going to be hearing a lot more of this as time goes by and Romney’s campaign looks ever more hopeless. Despite the fact that Romney has faithfully adopted virtually every position the tea party has demanded of him, the true believers are already preparing the ground for his increasingly inevitable election-day repudiation. And their story is going to be exactly what you think: Romney was never really one of them and the American public sniffed that out. They wanted a real red-meat conservative, and Romney wasn’t that guy.

    You see, true conservatism can never fail, it can only be failed. Welcome to 2013.

  • Obama is Still Killing It on InTrade


    I don’t really have any big point to make here, I’m just following up on a post I did last week that compared President Obama’s standing among the InTrade punters at two points in time: (a) after Mitt Romney’s flubbed response to the Cairo attacks, and (b) after MoJo’s release of the secret fundraising video. Last week we only had a couple of days of data following the video release, but how we’ve got a full ten days. And it sure looks like the video has had a sustained effect that’s even bigger than the Cairo gaffe.

    I don’t know if InTrade trends are very meaningful, so take this with a grain of salt. But it sure looks like that video has caused Romney a world of hurt.

  • Will Suburban Wingnuts Descend on the Inner City on November 6th?


    Ed Kilgore writes today about True the Vote, a Houston-based tea party group that plans to deploy a million poll watchers to make sure that Democratic thugs don’t try to steal the election this November. Ed is….concerned:

    It’s hard to imagine a more dangerous scenario than that of hundreds of thousands of self-righteous suburban wingnuts showing up in poor and minority neighborhoods to hassle would-be voters, with Fox News cameras on hand to record any random examples of Solid Citizens experiencing resistance from annoyed locals.

    And if we head towards Election Day with Obama still enjoying a clear lead in the polls, you have to figure True the Vote’s shock troops will be loaded for bear, viewing themselves as the last desperate defenders of “their” country against the barbaric hordes of looters and baby-killers who are already plotting to herd them into concentration camps during Obama’s second term, after they close the churches and shut down radio talk shows. At a minimum, we can expect “poll-watchers” to come up with enough “documented” example of “voter fraud” to support a general post-election effort to de-legitimize the results.

    I’ll confess that I’ve excerpted this mainly because of the sheer rolling majesty of Ed’s prose. Enjoy! But I’m going to officially dissent from both of the actual predictions here. First, my gut tells me that all these tea partiers are going to find their little field trips to the inner city a wee bit less exciting than they think. Organizers won’t be able to round up as many volunteers as they think, and the folks who do head into the valley of the shadow of death probably aren’t going to make much trouble. They’ll be too busy being terrified of getting mugged.

    Second, I’ve been hearing a lot about this idea that conservatives are gearing up for a huge effort to “delegitimize” the election if Obama wins. I don’t see it. I think you can explain all their current actions as pretty standard fare for a hard-fought election. Poll watchers are nothing new, allegations of voter fraud are nothing new, smears are nothing new, racially motivated attack ads are nothing new, and even poll denialism isn’t really all that new. If the election is as close as 2000, then sure: Republicans will fight to the death. But they fought to the death in 2000 too. Remember? More than likely, Obama will win by a modest but unchallengeable margin in November, and conservatives will despairingly accept the results and then repair to their dens to figure out what to do next. In other words, pretty much the same thing liberals will do if Romney wins.

  • Apparently Republicans Are Trying to Lose Weight


    Hotline On Call has analyzed the beer drinking habits of American voters and produced the chart below. The first thing that struck me is that in nearly every case, the light version of a particular beer is more Republican than the standard version. (The only exception is Sam Adams, in the upper right.) Joshua Tucker noticed the same thing. Unfortunately, there’s no data for Coors, but given how far right Coors Light is, the relationship probably holds there too. Anybody care to offer up some insultingly pop psych explanations for this?

  • Chart of the Day: The Afghanistan Surge Didn’t Work


    On purely military terms, the 2007 surge in Iraq was pretty successful. But as a lot of people pointed out at the time, that success was due to more than just the surge itself. A lot of it was due to specific local conditions, which I usually added together and called The Four S’s (Surge, Sadr, Sectarian cleansing, and Sunni awakening). Those additional conditions never existed in Afghanistan, which made the surge there a lot more difficult.

    So with the Afghanistan surge now over, how did it work? As Spencer Ackerman reports, by the military’s own metrics, it hasn’t. Insurgent attacks are down slightly compared to last year, but they’re still way up compared to 2009, the year before President Obama doubled our troop presence there:

    The chart [below, with red line added] measures the various attacks the Taliban and associated insurgents launched against NATO forces, month by month. In August 2009, the peak of the fighting season and the height of the internal Obama administration debate over a troop surge, insurgents attacked U.S. and allied troops — using small-arms fire, homemade bombs, mortars and more — approximately 2,700 times. In August 2012, they attacked just shy of 3,000 times.

    In August 2009, insurgents used just under 600 homemade bombs on U.S.-aligned forces. They used just over 600 homemade bombs on U.S.-aligned forces in August 2012.

    The same trend holds for every other month in 2009 compared to every month in 2012 for which there is data: The insurgency launched more attacks this year. In some cases, substantially more: insurgents attacked about 2,000 times in July 2009 and a shade over 3,000 times in July 2012. ISAF registered about 475 attacks from homemade bombs in July 2009; and about 625 in July 2012.

    Perhaps Obama should take a hint from Apple CEO Tim Cook, who said today that he is “extremely sorry” for subjecting his customers to a new, bug-ridden maps app. Obama ought to be sorry too.

  • The Republican Brain: Constructing an Alternate Polling Reality for 2012


    One of the odder little subplots of the 2012 election has been the growth of poll denialism among Republicans. As Mitt Romney’s chances have grown ever dimmer, a cottage industry has sprung up on the right claiming that presidential polls suffer from liberal bias and Romney is really doing better than they say. “When the published poll shows Obama ahead by, say, 48-45,” explains conservative pundit Dick Morris, “he’s really probably losing by 52-48!”

    Now, this is hardly in the same league as climate denialism or evolution denialism. What’s more, it’s perfectly understandable. It’s human nature to cast around for reasons to stay optimistic about a political contest that you feel deeply about. I remember a milder version of the same thing happening in 2004, as liberals dug deep into the October poll numbers trying to convince themselves that John Kerry had a better chance to beat George Bush than the topline numbers suggested. One poll had a small sample size. Another one had a bad likely voter screen. A third one suffered from a known house effect. Etc.

    But it’s what happened next that’s instructive. A couple of years after the 2004 election, a guy named Nate Silver started deconstructing polls in minute detail and explaining exactly what made some polls good and others bad. His approach was unsparingly rigorous and his overarching message was: don’t kid yourself. The numbers are what the numbers are, and they don’t care if you’re a liberal or a conservative. Week after week, Silver dug deep into the minutiae of how polls are put together and how they’re conducted, writing lengthy, table-laden posts that often meandered through several thousand words. Liberals loved it. Before long he was, for all practical purposes, the liberal patron saint of polling.

    So far at least, the conservative approach has been….different. Their patron saint going into the last few weeks of the 2012 campaign is Dean Chambers, a blogger who runs a site called UnSkewed Polls. Chambers does not dig deep into the numbers. He doesn’t explain sample sizes and cell phone biases. He does just one thing: he reweights all the polls so they have the same proportion of Democrats and Republicans estimated by Rasmussen Reports, a pollster with a longstanding Republican house effect. Then he announces what the numbers are after his reweighting is done. Romney is a big winner every time.

    Chambers doesn’t even pretend that his approach has any rigor. He adopted it, he told BuzzFeed, after seeing a poll that “just didn’t look right.” After a closer look, he decided that none of the others looked right either. And what does he think accounts for this widespread blundering among the nation’s pollsters? Not simple incompetence, Chambers says. It’s all quite deliberate. “Any poll that says NBC, CBS, or ABC is going to be skewed and invested in trying to get this President re-elected,” he explained.

    This is, to put it bluntly, nuts. And it suggests a fundamental difference between left and right, one that Chris Mooney wrote about earlier this year in The Republican Brain. Neither side has a monopoly on sloppy number crunching or wishful thinking, but liberals, faced with a reality they didn’t like, ended up accepting reality and deciding to learn more about it. That’s the Nate Silver approach. Conservatives, faced with a reality they didn’t like, invented a conspiracy theory to explain it and then produced an alternate reality more to their liking. It’s a crude and transparently glib reality, but that’s apparently what the true believers want.

  • The Backstory Behind QE3


    I suppose this is a sign that I’ve been well and truly pulled down the rabbit hole, but I’m sort of excited that today brings a behind-the-scenes tick-tock from Jon Hilsenrath about the September 13th Fed meeting. These kinds of pieces are three-a-penny for decisions made in the White House or on Capitol Hill, but not so common for decisions made in the inner sanctums of the Eccles Building. But as you’ll recall, September’s meeting is the one where the Fed finally decided to implement QE3, and Hilsenrath has the skinny about how it happened:

    For weeks, Mr. Bernanke made dozens of private calls on days, nights and weekends, trying to build broad support for an unusual bond-buying program he wanted approved during the Fed’s September meeting, according to people familiar with the matter.

    ….Interviews with more than a dozen people involved in the Fed decision, both supporters and opponents, show how Mr. Bernanke won over skeptics to advance his policy—a distinction in a Washington era marked by rancor and gridlock. These people also gave a rare view of the low-key persistence of the former economics professor.

    Mr. Bernanke didn’t see inflation as a threat but viewed unemployment as a deeper problem than he had realized. The central bank, in his view, needed to act. The Fed chairman listened to colleagues’ concerns during the calls, people familiar with the matter said, drawing out their reservations and probing for common ground. He eventually seized on a compromise that came from a little-known Fed governor.

    ….Drawing broad support for the plan was important to Mr. Bernanke in part because the policies he was formulating could outlast him. His term as Fed chairman ends in January 2014. Seeing a return to U.S. full employment as a distant goal, Mr. Bernanke needed the support of officials who might remain at the Fed after he left.

    That last bit is an important point. Part of the September 13th announcement included an effort to persuade the market that Fed policies will remain relaxed for many years, even after the economy has started to pick up steam, and to do that Bernanke knew that he needed near unanimity. If the FOMC were bitterly split, after all, who would believe that Bernanke’s policies would genuinely last through 2015 and beyond? So he spent weeks working on his colleagues and fashioning a compromise.

    And that, I think, is the key takeaway from Hilsenrath’s piece. Bernanke may not be managing monetary policy as aggressively as a lot of us would like, but he’s really not the roadblock here. His colleagues on the FOMC are.

    BY THE WAY: The “little-known” Fed governor who produced the winning compromise turns out to be Elizabeth Duke, a Bush nominee. Go figure.

  • Silicon Valley Is Still Slightly Less Powerful Than the Federal Reserve


    One of the knocks on the digital ecosphere is that it doesn’t really employ very many people. Facebook might be cool, but it doesn’t do much for the real economy. Ezra Klein grabs my attention today with a suggestion that this might be about to change:

    Square, a company led by Twitter co-founder Jack Dorsey, has the potential to be a gamechanger. It wants to do nothing less than change how we pay for everything. In doing so, it has the potential to vastly lower transaction costs for businesses that accept credit, and to significantly increase the number of transactions that happen, period. If it works, that could be a transformative advance.

    Wait. Seriously? Is that what people are saying? So I clicked on the Farhad Manjoo piece in Slate that Ezra was referring to:

    If you study Square’s products and its pricing, and if you talk to Dorsey about his plans, you’ll find that the company’s real mission is to alter the psychology of consumption. Dorsey is bent on creating frictionless commerce….Its pay-by-name system is so much of an improvement over the current way we pay that, over time, Square believes it will raise transaction volumes—people will buy more stuff because buying stuff is easier.

    The ability of Silicon Valley entrepreneurs to hold reporters in some kind of satanic thrall as they spin their mesmerizing tales is nothing short of awe-inspiring. Square might very well be a great company. Making it easier to pay for stuff is a terrific idea. But will this actually cause us all to buy more stuff?

    In a word, no. Putting aside changes in fiscal and monetary policy, consumer expenditures are constrained by (a) net income and (b) our desire to save for the future. That’s it. Right now, the personal savings rate is around 4%, which means we collectively spend about 96% of what we earn. Nothing that Square does will change that.1 It might be a great company — maybe even a game changer on a number of levels — but it’s not going to increase consumer spending at a macro level. Even Silicon Valley doesn’t have quite that much clout.

    With that off my chest, however, I recommend clicking on both links above. They have interesting things to say.

    1You can, perhaps, spin a tale about dramatically lower transaction costs putting more money in the hands of consumers and small business owners and less in the hands of Wall Street banks. This would be a good thing, and might even be a net positive for economic growth. But it’s a stretch, and I don’t think it’s the story Dorsey is telling anyway.

  • Quote of the Day: Romney Is Ruining Things For All the Other Rich Guys


    Today’s QOTD comes from Stephen Breitstone, co-head of the taxation and wealth preservation group at Meltzer, Lippe, Goldstein & Breitstone LLP, commenting on one of the tax avoidance schemes that Mitt Romney used in the $100 million trust he set up for his children and grandchildren:

    It’s going to be harder to do tax planning in the future. He’s bringing attention to things that weren’t getting attention.

    This comes from a Bloomberg story about Romney’s use of an “I Dig It” trust, which Breitstone says is so important to the wealthy that ending its tax benefits “would put an end to much of estate planning as we know it.” Here’s how it works:

    The person setting up the trust, like Romney, contributes assets such as an interest in a fund or shares in a company. If he makes that contribution before those assets appreciate — particularly when they are privately held and difficult to value — he can claim the gift tax obligation is low or non-existent since the declared value is low or zero.

    If the trust generates any income — such as by selling stock — the eventual tax bill is the responsibility of Romney, not the trust. By paying the capital gains tax, which was 20 percent in the late 1990s and is now 15 percent, he can avoid depleting the funds in the trust — in essence making an additional donation that’s free of gift taxes….Gains in the trust for Romney’s heirs remain free of gift taxes and potential estate taxes.

    Very cool, no? First, Romney undervalues the assets he puts into the trust so he owes little or no gift tax. Then, later, when the assets appreciate, he pays only the capital gains tax, which is considerably lower than the gift tax. And to make it even better, he pays the capital gains tax out of his own pocket, so the trust owes nothing. It’s like making a second gift to his kids free and clear.

    Bloomberg says Romney did this with some DoubleClick shares he got in 1997, back when he was CEO of Bain Capital, but that’s undoubtedly just the tip of the iceberg. The DoubleClick payday amounted to a piddling $674,000 out of a trust worth over $100 million. Sadly for our nation’s ultra-wealthy, though, the spotlight Romney is shining on stuff like this might spur Congress to close some of these loopholes. Maybe.

  • Why You Should Always Account for Inflation: A Case Study


    Ryan Chittum points out a good example today of how misleading news reports can be when they fail to account for inflation. Here’s a sentence from a recent Wall Street Journal piece on cell phones:

    Americans spent $116 more a year on telephone services in 2011 than they did in 2007, according to the Labor Department, even as total household expenditures increased by just $67.

    And here’s what that sentence would look like if those numbers were adjusted for inflation:

    Even as total household expenditures plummeted by $4,146, spending on phones continued to rise, with Americans shelling out $22 more a year on telephone services in 2011 than they did in 2007, according to the Labor Department.

    So the Journal missed a bet. The gist of their piece is that phone bills are eating up a bigger chunk of middle-class incomes, and for my money, the inflation-adjusted figures make that point a lot better. After all, which is more dramatic? Spending $116 more while incomes are flat, or spending $22 more even as your income falls through the floor? Your mileage may vary, but I’d choose the latter.

    Not that it really matters. The inflation-adjusted figures are the more accurate ones. Whenever possible (and with occasional exceptions for specific reasons), they’re the ones you should always use.

  • 4 Years After Meltdown, Wall Street Still Calling the Shots


    The New York Times reports today that other countries are way ahead of us when it comes to regulation of high-frequency trading. So why are we so far behind? There are “many” reasons, says the Times. Let’s count them up:

    There are many explanations for the slower pace of reform in the United States, including the crush of work the S.E.C. has had to deal with in completing regulations under the Dodd-Frank financial overhaul law. In addition, many of the largest American market participants, including the big banks, have built high-speed trading desks and dark pools and as a result have a vested interest in protecting them against new regulations.

    Hmmm. That’s two reasons. And while I don’t doubt that the SEC is pretty busy these days, I’m going to go with Door #2 here. I think we all know perfectly well why no one is seriously trying to regulate HFT in the United States. Sure, we don’t really understand HFT — just like we never really understood all those synthetic CDOs and naked CDSs — and sure, there might be a big tail risk that could someday do worse than put Knight Capital out of business. But in the meantime, there’s money to be made! And who wants to get in the middle of that?

  • Today’s Economic Rorschach Test


    Good news today! The economy was stronger than we thought in the first quarter:

    In accordance with usual practice, the Bureau of Labor Statistics (BLS) is announcing the preliminary estimate of the upcoming annual benchmark revision to the establishment survey employment series….The preliminary estimate of the benchmark revision indicates an upward adjustment to March 2012 Total nonfarm employment of 386,000 (0.3 percent).

    Also: bad news today! The economy was weaker than we thought in the second quarter:

    The Commerce Department said Thursday that the United States economy grew at an annual pace of just 1.3 percent in the second quarter of the year, showing that the recovery came close to stalling in the spring. The revision was down from the 1.7 percent rate the government reported in August.

    We can now all go about our usual practice of citing whichever statistic either (a) proves we were right all along, or (b) is best for our favored presidential candidate. Alternatively, we can shrug our shoulders and (c) accept that economic data is messy, and not draw any major conclusions from any of this. I don’t expect this to be a popular option.

  • Voucherizing Medicare Turns Out Not to be a Brilliant Political Proposal


    The Washington Post reports — surprise! — that putting a guy on your ticket who proposes to end Medicare as we know it isn’t such a brilliant strategic move after all:

    Voters in three critical swing states broadly oppose the sweeping changes to Medicare proposed by Republican vice presidential candidate Paul Ryan and, by big margins, favor President Obama over Mitt Romney on the issue, according to new state polls by The Washington Post and the Kaiser Family Foundation.

    Among seniors, the issue rivals the economy as a top voting issue, undercutting Romney’s appeal in Florida, Ohio and Virginia. Generally, the more voters focus on Medicare, the more likely they are to support the president’s bid for reelection….Sizable majorities of voters in each of these three states — as well as those across the country — say they prefer to keep Medicare as a defined benefits program, rather than moving to a system of fixed payments to seniors to buy coverage from private insurance or traditional Medicare.

    Really, it’s pretty amazing. Just two years ago, Republicans walloped Democrats in the midterm election, at least partly due to a tsunami of ads accusing them of taking money away from Medicare. And Republicans have been on the receiving end of Medicare attack ads too. So they know perfectly well just how sensitive this issue is and how much damage it can do. And yet, somehow they convinced themselves that Paul Ryan had some kind of magic fairy dust that would make the American public sit up and suddenly say to themselves, “He’s right! We do need to turn Medicare into a voucher!”

    I dunno. The entire Republican Party seems to have fallen into some kind of Svengali-like trance, convinced that Paul Ryan, alone among men, can deliver the bracing tonic that will convince voters to do away with program benefits they’ve loved and supported for decades. The self-delusion here is inexplicable.

  • You Hate Me, Now With a Colorful Chart!


    Earlier today I wrote about a recent study showing that Americans are a lot more agitated than they used to be about the prospect of their daughter marrying someone from the other political party. Normally I wouldn’t revisit this, but a reader sent me a copy of the full study and I found the actual figures pretty fascinating. 

    After wrestling with Excel to figure out how to get a scatterplot to work properly, I created the chart on the right. With only three data points I suppose it’s best not to get too worked up about this, but what struck me is the gigantic recent jump. Between 1960 and 2008, the number of upset partisans went up by 16 points among Democrats and 22 points among Republicans. Then, between 2008 and 2010, the number went up by 13 points among Democrats and 22 points among Republicans. That’s as much in two years as in the previous 48.

    That’s….astonishing. I’m not sure whether to write this off as an obvious statistical fluke, or to accept it at face value and try to figure how it’s possible. I mean, sure, we had the tea party and all that after Obama was elected, but the previous half century had the John Birch Society, the 60s counterculture, the Reagan era, the anti-Clinton jihadists, the Gingrich Revolution, and the Iraq war. It’s a little hard to believe that the past couple of years have been that uniquely spleen-inducing. Comments?

    By the way, I noticed that a number of commenters were aghast that I wouldn’t necessarily mind if my (hypothetical) daughter married a Republican. I think this might be the result of watching too much Fox News and assuming that every Republican is like Sean Hannity. Well, I wouldn’t want my daughter to marry Sean Hannity either. But among the rank and file there are lots of different kinds of Republicans, a great many of whom are perfectly decent folks even if I happen to disagree with them about the optimal top marginal tax rate. It’s a big world out there.

  • Todd Akin’s Rehabilitation Project is Now Underway


    For the past few weeks I’ve been keeping half an eye on Todd “legitimate rape” Akin’s Senate race in Missouri. This is mostly for reasons of personal vanity: I want to see if my three-part Akin prediction pans out. Yesterday was the last day he could withdraw from the race, and he didn’t, which means that prediction #1 is now safely in the bank. Prediction #2 is that once Akin is definitively the Republican candidate, Republicans will grudgingly start to offer him their support. So how’s that going? Well, the head of the NSRC has now switched from insisting that Akin will never get a dime to saying that he will “continue to monitor this race closely in the days ahead.” Dave Weigel explains:

    “Monitor this race closely” is Washington-speak for “maybe spend money on it.” Basically, Republicans bluffed and threatened Akin with a total cut-off because they wanted to replace him with a similar but less unpopular candidate. Akin, who owed national Republicans absolutely nothing — even Sarah Palin endorsed somebody else! — called the bluff. Now that the national spotlight has swung away, Republicans are looking for the least embarrassing way to help out Akin again, because it’s tough to lose Missouri and win the Senate. Today’s double-team Akin endorsement from Rick Santorum and Jim DeMint was part of that. So was Newt Gingrich’s campaign swing. The margin between Akin and Claire McCaskill is only as big as a $500,000 Super PAC check from Foster Friess or Sheldon Adelson.

    Prediction #3, of course, is that Akin will eventually eke out a close victory.1 There’s nothing new to report on that front, though, since there haven’t been any recent polls in Missouri. But the RCP average has Akin behind by about five points, which isn’t a lot for a guy fresh off a major gaffe and short of money. Let a little time go by, and give his campaign a cash infusion, and that’s not an insurmountable deficit. Not in Missouri, anyway. We’ll see.

    1I assume this goes without saying, but this is a prediction, not a hope.

  • Our Bipartisan Apathy Toward Civilian Drone Deaths


    On Monday night I read a couple of news articles about a new study of drone warfare in Pakistan, but I couldn’t find the report itself, which was apparently still embargoed at the time. For that reason I held off on blogging about it. However, Glenn Greenwald reminded me about this today, so I went looking again. And here it is. Here are the raw numbers for the total number of strikes and estimated civilian casualties:

    At the time of this writing, the US is believed to have conducted 344 total strikes in Pakistan, 52 between June 17, 2004 and January 2, 2009 (under President Bush), and 292 strikes between January 23, 2009 and September 2, 2012 (under President Obama).

    ….The Long War Journal, a project run by the Foundation for the Defense of Democracies, claims that 138 civilians have been killed between 2006 and the present….New America Foundation’s Year of the Drone project—the most widely cited in the US of the three strike-tracking sources—currently estimates that 152 to 191 civilians have been killed by drones since 2004….TBIJ estimated that between 482 and 849 civilians have been killed by drones in Pakistan since 2004.

    So the number of drone strikes has increased from about 11 per year under Bush to about 80 per year under Obama. The chart below, which I cobbled together from three pages of the report (trying to keep the scale approximately the same for all three years), shows the number of drone strikes and the minimum number of casualties they’ve caused since 2010:

    It appears that drone activity has declined in 2012, although that may be an artifact of the time it takes to gather data. Aside from the raw numbers, though, Glenn draws particular attention to this passage from the report:

    The US practice of striking one area multiple times, and evidence that it has killed rescuers, makes both community members and humanitarian workers afraid or unwilling to assist injured victims. Some community members shy away from gathering in groups, including important tribal dispute-resolution bodies, out of fear that they may attract the attention of drone operators. Some parents choose to keep their children home, and children injured or traumatized by strikes have dropped out of school. Waziris told our researchers that the strikes have undermined cultural and religious practices related to burial, and made family members afraid to attend funerals.

    Glenn comments: “In the hierarchy of war crimes, deliberately targeting rescuers and funerals — so that aid workers are petrified to treat the wounded and family members are intimidated out of mourning their loved ones — ranks rather high, to put that mildly. Indeed, the US itself has long maintained that such ‘secondary strikes’ are a prime hallmark of some of the world’s most despised terrorist groups.”

    There’s no question that fighting a counterinsurgency is hard. And it’s fundamentally different from fighting a conventional war because it’s difficult to separate militants from civilians — something that insurgents explicitly count on. But even if you accept drone strikes as a legitimate part of counterinsurgency, and even if you accept that civilian casualties are an inevitable part of that, “double tap” strikes are simply heinous. They’re also far more likely to turn the indigenous population against you, which makes them counterproductive as well as immoral. After all, it’s not as if top al-Qaeda leaders are the ones likely to be conducting rescue operations. At best, you might get a few foot soldiers but nothing more.

    The most depressing part of all this is that you can’t just blame this on one guy, and hope that it might change once he’s out of office. Bush started it, and Obama has ramped it up. What’s more, there’s no partisan pushback at all. To repeat something I said last year, Republicans are in favor of anything that kills more bad guys, regardless of collateral damage, and Democrats are unwilling to make trouble for a president of their own party. Put those two things together, and drones have become stealth weapons both politically and technologically. Everybody is in favor of them.

  • My Baroque Argument for Higher Capital Gains Taxes


    Matt Yglesias tweets about my post this morning on capital gains taxes:

    Arguments for higher capital taxes grow more baroque, as @kdrum says private investment is economically harmful.

    This is just a tweet, and there’s not much room for nuance in 140 characters. Still, I don’t think I’ve ever made my capital gains argument directly before, so maybe it’s worth doing. In a nutshell, here it is.

    The usual rationale for low taxes on capital income is that it encourages capital formation and thus investment. This is self-evidently a good thing, since investment is good for economic growth, and it’s one of the reasons why most countries (including most European countries) tax capital lightly. Capital is good! The more the better!

    I agree with the first sentiment: capital is good. However, I’m not so sure I agree with the second. There really might be a limit to just how much capital is a good thing. Economies are strongest when there’s a sensible balance between capital income and labor income.

    The aughts are instructive here. Back in 2005 Ben Bernanke famously warned of a “savings glut,” a tsunami of money that was flooding into the United States looking for a home. The problem is that there was too much money and not enough productive uses to put it to. As a result, all that money flowed into housing and an increasingly baffling collection of Wall Street investment vehicles, and eventually it all came crashing down.

    The fundamental problem was a mismatch. The flip side of a savings glut is an investment drought, and I’ve always argued that this was the real problem. If all that capital had flowed into real-world production — factory expansions, new startups, etc. — everything would have been great. But real-world production requires customers, and that in turn requires an expansion of labor income. We weren’t getting that in the aughts, though. As capital income increased, labor income necessarily decreased, which reduced the number of good investment opportunities for holders of capital. And it seems to be an iron law that when there’s not enough real-world investment for all the capital sloshing around, it piles up and eventually gets stupid. At some point the imbalance becomes too large and then the whole house of cards collapses.

    So my question is this: would we have been better off in the aughts with higher capital gains taxes? I think you can make a good case. What we got with lower capital gains taxes was an extra boost to a trend that was already entering dangerous territory. Increasing capital gains taxes wouldn’t have prevented the Great Crash, but it might have lightened it a bit.

    In any case, my main point about capital formation is that more is not always better. If you want a non-bubble ecoomy, you need a balance: enough capital to drive economic growth, and enough labor income to give that capital something useful to do. When that balance gets out of whack in either direction, you’re headed for trouble.

    UPDATE: I should add that even if you don’t buy my argument about low tax rates on capital gains being potentially harmful, it’s still the case that the bulk of the empirical research shows no real relationship between capital gains rates and economic growth rates. The best you can say is that within reasonable limits, raising capital gains rates doesn’t seem to hurt much and lowering them doesn’t seem to help much.