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.

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.

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.

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.

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.

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.

A recent paper that was posted online for the first time last week concludes that we just can't stand each other these days. "Using data from a variety of sources," say the authors, "we demonstrate that both Republicans and Democrats increasingly dislike, even loathe, their opponents." And apparently this has little to do with policy positions. It's more about the relentless tsunami of negative attack ads and partisan media that have consumed American politics over the past couple of decades. 

Sadly, the full paper is gated. However, Claude Fischer offers up a few tidbits:

From the late 1970s through the late 2000s, Americans rated their own political party pretty consistently, at about an average of 70 on the scale. However, Americans rated the other party increasingly coolly, from about a 47 average four decades ago down to about a 35 average these days. This trend portrays a growing animosity toward the other side. Notably, the gulf in party temperatures is now wider than that between whites and blacks and that between Catholics and Protestants.

A pair of surveys asked Americans a more concrete question: in 1960, whether they would be “displeased” if their child married someone outside their political party, and, in 2010, would be “upset” if their child married someone of the other party. In 1960, about 5 percent of Americans expressed a negative reaction to party intermarriage; in 2010, about 40 percent did (Republicans about 50 percent, Democrats about 30 percent).

Wow. I'm a pretty partisan hack, but I really can't imagine not wanting my daughter to marry a Republican. But who knows? If I actually had a daughter, maybe I'd feel differently.

Still, it's pretty disturbing. I'd call this the Fox Newsification of America, or perhaps the Limbaugh-ization of America, and increasingly liberals are playing the same game. MSNBC may not be quite the partisan hatefest that Fox is, but it's certainly moving in that direction. If America were a parliamentary democracy, this might be more tolerable, but in our presidential system it basically just leads to uncompromising gridlock. Not a good sign for the future.

Via Balloon Juice.

Tyler Cowen links today to a new paper that, at first glance, comes to an unsurprising conclusion: the longer you've been out of work, the less likely you are to get a job interview. Employers generally figure there's a reason that someone has been out of work for a long time, so resumes and job applications with long jobless spells usually get tossed aside. This is, obviously, especially bad news during a recession, when lots of people have long periods of unemployment through no fault of their own.

But if you look a little closer, the study (here) has a bit of a silver lining. It turns out that when the economy is in good shape, employers do indeed discriminate against job applicants who have been out of work for a while. That's the blue line in the chart below, which shows that applicants initially get callbacks about 10% of the time, dropping sharply to only 4% of the time after they've been unemployed for eight months.

But take a look at the red line. That's the callback rate when the economy is bad. The overall callback rate is lower, as you'd expect, but it also doesn't go down as sharply. It starts out a bit above 5% and then declines to a bit below 4%. That's still a drop, but not a huge drop. Apparently, when the economy is bad employers really do cut some slack for people who have been out of work for a while. I'm actually a little surprised by this, but it certainly makes sense.

On the other hand, if you've been out of work for a year, the state of the economy hardly matters anymore. It's just really hard to get anyone to give you a chance.

Felix Salmon passes along a new Fed study that contains the chart on the right, tracking labor's share of national income since World War II. He comments:

This chart comes from Margaret Jacobson and Filippo Occhino at the Cleveland Fed, and it’s reasonably terrifying — yet another one of those charts where the trend is down and to the right, and where it’s only gotten worse since the end of the recession.

I don't want to argue too much with this, but maybe I'll argue just a little bit. If you take a closer look at the data, there's a lot of noise but by the year 2000 we're at about the same place we were at in 1947. This is clearest in the NIPA data, which barely shows any secular downward trend at all through 2000, but it's also true of the BLS data, if less dramatically. (The BLS data shows a brief rebound to 1947 levels in the late 90s, but also appears to reach a permanent lower level in the mid-80s.)

In other words, it's not that things have "gotten worse" since the end of the recession, but that things were basically pretty steady all along until the early aughts. Starting around 2000, though, there's been a sharp and massive drop in the labor share of income. Something seems to have happened right around then to change the long-term trend. But what?

As an aside, I'll agree completely with another of Felix's comments:

The more powerful, if less obvious, story, is just how entrenched capital income has become in the US economy. As recently as 2000, it was at levels more or less in line with the historical average. And then, something big happened. During the Great Moderation — when yields fell on all capital asset classes — capital income went up sharply. Then the crisis happened, a classic case of a dog not barking: you’d expect capital income to have fallen enormously, at least for a year or two, but it didn’t, it just stopped rising. Most recently, in the wake of the financial crisis, capital income has been soaring again.

Felix uses this as an argument for taxing capital income at higher rates. After all, if capital income is increasingly where the income is, then we don't have any choice. If you don't tax it, your tax revenues are going to fall sharply.

That's true, but I'd put a different interpretation on this. The usual reason for taxing capital lightly is that this encourages investment, and investment is what drives economic growth. But that presupposes that more capital is always and everywhere a good thing. I think this assumption deserves a closer look. The experience of the 90s, reinforced in spades by the experience of the aughts, suggests that, in fact, you can have too much capital. By taxing it so lightly, we may have encouraged too much capital formation. Without a thriving real-world economy to go along with it, this produced a housing bubble and a global economic crash. A higher capital gains tax might have helped reduce this imbalance and produced a stronger economy in the long run.

Or, if that's too strong for you, the weaker version of this argument is that even if low capital gains taxes didn't actively hurt the economy, they sure didn't do it any good. Theory is one thing, but practice certainly doesn't suggest that low investment taxes have done our economy any favors lately.

So, um, football. By chance, I tuned into last night's Packers-Seahawks game with six seconds left to play. And that turned out to be plenty! One Hail Mary later it was the blown call heard round the world, leading to an improbable Seahawks victory and a million outraged tweets about the incompetence of the replacement refs and the greediness of the NFL.

All of which I agree with.1 But I do have a question here. The call on the field2 didn't seem wildly outrageous to me. The two refs were far enough away from the scrum that they couldn't see who caught the ball first, and by the time they ran over it probably looked like simultaneous possession to them and therefore a Seattle reception. That's a mistake, but frankly, it's hardly the worst on-field mistake I've ever seen. These things happen.

But in replay, it was obvious that it was a Green Bay interception. So the real problem here is with the replay official who didn't overturn the ruling on the field. But the replay officials aren't replacement refs. They're the same folks as always.

As it happens, I don't care much about pro football, and I definitely don't care much about the Seahawks and the Packers. So maybe I'm viewing this whole thing with more equanimity than it deserves. But I'm curious: who really blew it here? Seems to me it's more the replay official than the replacement refs. What am I missing?

UPDATE: OK, I see my problem. In college ball, there's a separate replay official who reviews calls. That's what I'm used to. In pro ball, the replay official merely signals the referee on the field, and it's the referee who reviews the play. So it was replacement refs who blew the initial call, and a replacement ref who blew the replay call. Sorry about the confusion.

1Seriously, I do. This is just a question about the blown call at the end of last night's game.

2I'm talking only about the question of who caught the ball here. For the time being, I'm ignoring the missed offensive interference call.