Kevin Drum - November 2012

The Federal Deficit Is Shrinking Already, But That's Not Really a Good Thing

| Wed Nov. 21, 2012 1:31 PM PST

So how's the federal deficit doing? Last month the Treasury Department figured that the FY2012 deficit would clock in at about $1.1 trillion, or 7 percent of GDP. That's down considerably from three years ago, when the deficit peaked at a hair over 10 percent of GDP.

Jed Graham, using the three-year change as a benchmark, says this is the biggest peacetime drop in 75 years:

Believe it or not, the federal deficit has fallen faster over the past three years than it has in any such stretch since demobilization from World War II....If U.S. history offers any guide, we are already testing the speed limits of a fiscal consolidation that doesn't risk backfiring. That's why the best way to address the fiscal cliff likely is to postpone it.

....Other occasions when the federal deficit contracted by much more than 1 percentage point a year have coincided with recession. Some examples include 1937, 1960 and 1969.

This three-year window feels a little like cherry-picking to me. I'm not sure it has any special value aside from the fact that it happens to give us a comparison with the peak deficit year of 2009, therefore making this year's decline look especially steep. Still, there's no question that no matter what window you look at, the deficit is shrinking at a pretty rapid pace, as the chart on the right shows. And Graham is right: this means that the government "already has its foot on the brakes" at a time when our recovery from the Great Recession is still pretty fragile. Braking even harder isn't a great idea right now.

There's nothing wrong with negotiating over long-term deficit reduction, but that's all we should be negotiating over: long-term reduction. Over the next year or two, there's really no reason we should be shrinking the deficit at all.

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Obamacare Still a Bargaining Chip in Fiscal Cliff Talks

| Wed Nov. 21, 2012 11:17 AM PST

In an op-ed today, House Speaker John Boehner said that Obamacare needs to be on the table during negotiations over the fiscal cliff:

The president’s health care law adds a massive, expensive, unworkable government program at a time when our national debt already exceeds the size of our country’s entire economy. We can’t afford it, and we can’t afford to leave it intact. That’s why I’ve been clear that the law has to stay on the table as both parties discuss ways to solve our nation’s massive debt challenge.

Democrats aren't very happy about this, but honestly, it's the same thing Boehner has been saying for the past couple of weeks. Here he is two days after the election:

It’s pretty clear that the President was re-elected, Obamacare is the law of the land. I think there are parts of the health care law that are going to be very difficult to implement and very expensive and at a time when we’re trying to find a way to create a path toward a balanced budget, everything has to be on the table....There are certainly maybe parts of it that we believe need to be changed — we may do that, no decisions at this point.

So what's the point of all this? Greg Sargent suggests that Boehner knows he's going to have to compromise on taxes sometime soon, and this is a way of building up some much-needed cred with the conservative base before that grim day comes to pass:

In that context, this latest could be another sop to the Tea Party — reassurance to the Tea Partyers who are soon going to be asked to accept some very uncomfortable compromises on the fiscal cliff that, don’t worry, really, seriously, the GOP leadership still has Obamacare in the crosshairs! But Dems see a serious side to this. One Dem I spoke to worried that the mere fact that Boehner still has to throw sops like this to the Tea Party wing means he feels more beholden to them than Dems had hoped — which wouldn’t bode well for the talks.

I guess I'd take this as fairly ordinary jockeying for position during a difficult negotiation. Boehner knows he doesn't have a lot of leverage, and threatening Obamacare—which Democrats care about a lot—is a good pressure point. It's just one more bargaining chip he can use to limit the damage on the tax side of things. Keeping it on the front burner is probably just smart politics.

A World Without Software Patents Would Be a Perfectly Good World

| Wed Nov. 21, 2012 10:35 AM PST

The head of the patent office had some advice for critics of software patents yesterday: "Give it a rest already." Basically, he made a case that software patents are a positive force because they spur innovation. Tim Lee is unimpressed:

This argument ducks the central question in the software patent debate: do patents, in fact, provide a net incentive for innovation in the software industry? Many entrepreneurs say that just the opposite is true: that the disincentive to innovation created by the threat of patent litigation dwarfs any positive incentive effects created by the ability for a firm to get patents of its own.

Empirical evidence backs this up. For example, in a 2008 book, the researchers James Bessen and Michael Meurer found that for nonchemical patents, the costs of patent litigation began to exceed the benefits of holding patents in the 1990s. Software and business patents were particularly prone to litigation.

More recent research has estimated that litigation by patent trolls costs the economy at least $29 billion per year, and that figure may be as high as $83 billion.

I don't know if these numbers are correct, but I'd add another argument to the mix: We already know what would probably happen if software patents didn't exist. That's because, for the most part, they didn't exist until the early 70s, and thanks to fights between the courts and the patent office, they didn't become common until the late 80s. And yet, the era from the 50s through the 80s was about as dynamic and innovative as you could possibly imagine. Lack of patents simply doesn't seem to have had the slightest effect on the growth of the software industry.

The world is different today, of course. But I see little evidence that software patents are any more necessary now than they were during the adolescence of the computer industry. Rather than spurs to genuine innovation, they've evolved into little more than virtual armaments that big companies use to fight virtual wars with each other. And virtual wars are no better for economic growth than real ones. Honestly, it's long past time for software patents to be put out of their misery and for software companies to focus their attention on inventing new stuff, not wasting countless man-hours of time building defensive patent portfolios with no real-world value aside from providing protection against other companies who are building their own defensive patent portfolios for the same reason. This particular arms race got out of hand a long time ago.

Greek Debt Still Unsustainable; Eurozone Leaders Still Refuse to Admit It

| Wed Nov. 21, 2012 8:41 AM PST

This week brought yet more talks on Greek debt and yet more denying of reality. The Greeks are mad, the Germans are tired, and everyone knows something has to give.  The Guardian summarizes:

Why the talks failed

While finance ministers were arguing last night, Reuters got their hands on a document prepared for the meeting. It showed that Greece's debts can only be cut to a sustainable level if eurozone countries accept losses on their loans to Athens, provide additional financing or force private creditors into selling Greek debt at a discount.

....It said that either member states accept "capital losses or budgetary implications", or push back the target date for Greece's debts to fall to 120% of GDP by two years, to 2022. Eurozone countries are not, yet, prepared to accept the first option, while the second option is unacceptable to the IMF. Thus deadlock.

That's about the state of things. Greece's debt is flatly unsustainable, and the technocrats know it—when they're writing for private consumption, anyway. At some point, eurozone leaders are either going to essentially forgive all of Greece's debt or else Greece will leave the euro.

Writing off Greece's debt is actually doable because Greece is a fairly small country. But everyone is afraid that if they do it, then Spain, Portugal, and Ireland will all want the same treatment. And that's not doable. Thus the impasse.

For now, anyway. In a few days everyone will figure out yet another can-kicking exercise, and the immediate crisis will be averted for another year or so. Unless some other country blows up in the meantime, of course.

Benghazi and the Fox News Effect

| Tue Nov. 20, 2012 11:51 PM PST

Why has the shameful witch hunt against Susan Rice continued to gain traction even though there is literally not a shred of evidence that she did anything wrong? I'd say this Pew poll tells us all we need to know. The only segment of the country that really cares about the sham Benghazi scandal is Republicans, and the reason Republicans are riled up about it is because of Fox News. How far down the rabbit hole have they gone with their 24/7 hysteria? A friend who follows their coverage closely emailed a few days ago to tell me what it's like these days: "Listening to Fox on this is like watching a Fellini movie."

And while we're on the subject: as they've started to lose traction on their more outré conspiracy theories (Obama watched the attack in real time, he ordered military troops not to intervene, he was blackmailing David Petraeus, etc.), Republicans have been reduced to blustering about their outrage that the intelligence community's explanation of what happened in Benghazi has changed over time. There's nothing especially scandalous about this, of course, since that's pretty much what you'd expect to happen as they got more information. It's not really clear why the mainstream media is paying any attention to this unusually lame complaint.

But my friend points out something that really can't be emphasized enough: in fact, their explanations haven't really changed all that much. "They still think protests against the video were part of this in various ways; they still don't think al Qaeda or even meaningfully 'al Qaeda-linked' groups were involved, although perhaps an individual or two; and they still think this wasn't 'pre-planned' to any significant degree. I'd say those initial talking points have held up remarkably well." Given the usual fog surrounding events like this, I think that's right. See Joe Klein for more on this.

Marginal Tax Rates, Take 2

| Tue Nov. 20, 2012 6:47 PM PST

Yesterday I wrote a post that described the effect of letting the Bush tax cuts on the rich expire. Thanks to the fact that rates would only increase on income over $241,000, it turns out that the effect on anyone earning $1 million or less is pretty modest:

Several commenters pointed out that this table only applies to ordinary income, and that's true. The Bush tax cuts also lowered rates on capital gains and dividends, and Obama would let those go back up on high earners. In addition, Obamacare includes a 3.8 percent surcharge on investment income over $250,000. All of this adds to the tax bill for the wealthy, but it doesn't change the basic issue here: moving up from one bracket to another would still only affect income above that bracket. And tax rates on capital gains, which are mostly utilized by the rich, would still be well under the rates for ordinary income. As usual, TPC has all the details if you want to dig into this further.

Beyond that, there's a fair amount of additional complexity for upper middle-class earners up to about $200,000 or so, thanks to a wide array of tax credits and deductions that phase out at various income levels. Megan McArdle provides the chart below, which shows some of the most common ones. The red lines indicate where the phaseouts are complete:

None of this really affects our discussion of people with incomes over $250,000, but it does illustrate the fact that moving across a phaseout line can sometimes have a significant effect on your taxes:

For example, a married couple filing jointly in 2013 with two kids at home and one in college who go from making $100,000 to $125,000 loses a $2,000 child tax credit and $1800 worth of HOPE credit, an increase of almost 4% in their effective—not marginal—tax rate. The marginal tax rate on their extra earnings is 15.2% just from deduction losses; that comes on top of the 28% they'll be paying the federal government in income taxes, and whatever state income tax they owe.

I don't have any real point to make here. I just wanted to acknowledge that my income tax chart only showed one piece of the picture. It's the most important piece for most people who earn under $1 million (above that, investment taxes tend to become more important), but there are still plenty of little gotchas in the tax code that can have funny effects as they phase in and out.

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Could "Present and Voting" Help Reform the Filibuster?

| Tue Nov. 20, 2012 2:58 PM PST

Senate reformers have been talking lately about new filibuster rules that would require minority senators to keep talking during the entire length of their filibuster. No more nonsense about just announcing a filibuster and then heading out for drinks. Gregory Koger points out a problem with this:

A determined majority could outlast a single obstructionist, or a few senators, but an organized succession of twenty or so senators could occupy the floor one at a time, each demanding the presence of a majority of the Senate. In order to restore attrition filibusters, the Senate needs to balance the rules of the game so that only one pro-bill senator is required to stay in the chamber while an anti-bill senator filibusters.

Right. As long as the minority can tag team, while retaining the right to roust majority senators out of bed at any time by demanding a quorum call, the cost of a filibuster is far smaller for the minority than the majority. But what if we changed just this single aspect of things?

Here's an idea. Senate Rule XXII, which controls the filibuster, originally required two-thirds of all senators present and voting to break a filibuster. In 1975 this was changed to three-fifths of all senators duly chosen and sworn. But what if we went back to the present and voting standard?

In that case, the majority would still have to hang around, so there's a cost to trying to break a filibuster. But the minority has to hang around too. At any point, if too many minority senators have gone home or skipped town, the majority can call a vote and break the filibuster as long as they have three-fifths of all the senators currently on the floor.

Obviously this would require several other rule changes to be effective. And maybe it's not possible to create a set of rules that would effectively make this work. What's more, I think it's a dumb idea anyway. Should the Senate really be run on the basis of which side can muster up the most physical stamina?

Still, if this is the direction that reformers want to go, it's worth a thought. I'd be interested in hearing from some Senate rules guru why it couldn't work.

The Tea Party Strikes Back

| Tue Nov. 20, 2012 12:48 PM PST

For two weeks, the extreme right has been forced to listen to party sages blame the 2012 election loss on them. Todd Akin! Richard Mourdock! Demographic apocalypse! The 47%! Now they're fighting back:

“The moderates have had their candidate in 2008 and they had their candidate in 2012. And they got crushed in both elections. Now they tell us we have to keep moderating. If we do that, will we win?” said Bob Vander Plaats, president of the Family Leader.

....Ted Cruz, a tea party favorite, trounced Texas’s establishment candidate in a primary on his way to becoming the second Hispanic Republican in the Senate, and the battle he waged in the Lone Star State epitomizes the fight between the two sides. Although he is considered a rising star with a personal biography that GOP leaders wish to promote, Cruz falls squarely in the camp that thinks Romney was not conservative enough and did not fully articulate a conservative contrast to President Obama, except during the first presidential debate.

“It was the one time we actually contested ideas, presented two viewpoints and directions for the country,” he said at the Federalist Society’s annual dinner in Washington. “And then, inevitably, there are these mandarins of politics, who give the voice: ‘Don’t show any contrasts. Don’t rock the boat.’ So by the third debate, I’m pretty certain Mitt Romney actually French-kissed Barack Obama.”

I think that Vander Plaats is selling himself short. Given the fact that conservatives eventually decided that George Bush was nothing more than a big-spending, Latino-pandering RINO, they could argue that moderates lost two elections for them (1992 and 1996), won two elections but destroyed the party brand in the process (2000 and 2004), and then lost two more elections (2008 and 2012). So that's a full 24 years that moderates have been screwing things up.

Will this narrative gain traction? I don't know. But I could definitely see things playing out this way. One possibility is that the extreme right has one last big hurrah, nominating someone like Rick Santorum in 2016, and then gets absolutely blown out of the water due to a combination of a toxic candidate, changing demographics, and an economy finally in pretty good shape. And that will be their Waterloo. Cooler heads will finally prevail and by 2020 we'll have two relatively sane political parties in America.

I have no idea if things will really play out like this. But it's certainly a possibility.

Liberals and the 2-Parent Family

| Tue Nov. 20, 2012 11:13 AM PST

I'm reluctant to weigh in on topics I haven't studied much and don't know a lot about. And yet, the sheer unlikelihood of agreeing with Jonah Goldberg prompts me to say that I think conservatives have a point when they lament the breakdown of the traditional two-parent family, a trend far more noticeable among the poor than the upper middle class:

Although it's certainly true that the kids of some single parents can do very well, particularly if those solo parents have the financial or social resources to carry the load (just look at Obama's own childhood), it is also the case that as a generalization, kids from single-parent homes do worse. In other words, it may be better to have one good parent than two bad parents, but it's indisputably better to have two good parents.

....The decline of marriage among low- and middle-income Americans is a crisis afflicting all ethnicities. But among prosperous whites, marriage is doing pretty well. And the evidence has steadily mounted that marriage is a big source of that prosperity. Fewer than 1 in 10 births to college-educated women happen outside of wedlock, according to the group Child Trends, while for women with high school degrees or less, the number is close to 6 out of 10.

As Richard Ralph Banks demonstrates in "Is Marriage for White People?," the same cannot be said of blacks. Contrary to widespread perceptions, marriage is not all that popular among middle- and upper-class blacks either. Black women, Banks reports, long for traditional family structures, but black men — even college-educated black men — for a variety of complex reasons are more ambivalent about it.

I don't think that conservatives have diagnosed this problem correctly, usually blaming it on welfare-state dependency or some other kind of related liberal folly. Nor do I have much faith that a federal "family policy" is a good idea. I just don't think this problem is likely to respond more than a hair to the kinds of incentives the federal government could plausibly put in place.

At the same time, I'm uncomfortable with the notion that this is no big deal. Paul Krugman summed up this genre of response the other day: "In Sweden, more than half of children are born out of wedlock — but they don’t seem to suffer much as a result, perhaps because the welfare state is so strong. Maybe we’ll go that way too. So?"

Honestly, I just don't know how big a problem this really is, and I don't know what kinds of solutions are feasible. So consider this an open thread for discussion. But I will say that this is a case where I feel like the liberal pundit class—college educated, upper middle class, mostly white—protests too much. For ourselves, we've voted with our feet and we plainly believe that traditional families are a good thing. But we sure spend a lot of time making up reasons why this thing we obviously value so highly isn't really of much value for other people. I'm really not sure I buy it.

Let's All Stop Talking About the Base-Closing Commissions

| Tue Nov. 20, 2012 10:40 AM PST

Peter Diamond thinks we should set up a bunch of expert committees to solve our fiscal problems, with Congress agreeing beforehand to an up-or-down vote on their recommendations. It worked for the base-closing committees, after all. Atrios pushes back:

The base closing commission was a unique thing for a unique situation. Everybody wanted to close some bases, but no politician wanted to be responsible for closing bases in their states. Nothing else is similar to that.

Stop advocating for politicians to find ways to remove democratic accountability. In our system they already have enough ways of doing that.

Yep. The very fact that the base-closing committees are unique should tell you something. Just like the fact that the 1986 tax reform law was unique. When something has only ever worked once, that's not primarily evidence that it's possible, it's primarily evidence that it's really, really hard to pull it off.

Enough with paeans to the base-closing commissions. Let's never mention them again. They were a unique solution to a unique problem, not an all-purpose cure-all for every difficult political disagreement. I'm tired of hearing about them. One way or another, we have to make politics work. There are no magical shortcuts.