Last month Robert Wright wrote a few posts trying to draw attention to the Obama administration's Iran strategy. In a nutshell, Wright lays out some persuasive evidence that Obama isn't seriously negotiating with Iran at all. In fact, he's deliberately making proposals he knows will be refused and declining to offer Iran anything at all in return for an agreement to halt production of 20% uranium.

Why? Wright believes it's mostly political cowardice: Obama isn't willing to stray from the AIPAC-Israeli party line even slightly with an election just a few months away. In a followup post, however, he suggests there might be something more substantial at work: Obama is buying time because his goal now is regime change in Iran, not just a halt to its nuclear program. Today, after reading a New York Times piece about the apparent success of the new EU oil embargo (Iran is now pumping its excess crude into tankers and sailing them in circles around the Persian Gulf while it desperately tries to find buyers at "bargain-basement prices"), Dan Drezner places one wary foot on the regime change bandwagon:

I'm somewhat dubious about whether any sanctions against Iran will work in the sense of "change Iran's mind about its nuclear program." Even though there is room for a deal, the expectations of future conflict between the current Iranian regime and the West are so high that getting to that deal is going to involve significant amounts of labor.

These sanctions are sufficiently punishing, however, that they suggest a new status quo, which is to keep them in place as a containment shell while the Iranian economy slowly implodes. Unless the global economy experiences a significant rebound — hah! — there is no reason why all non-Iranian parties can't continue with the status quo for quite some time. Even if the Iranian regime persists, its power and influence in the region will continue to wane.

So is that what's going on? Are negotiations now just for show? Has Obama decided that the Iranian economy is weak enough that serious sanctions can bring it to its knees without a shot being fired? Possibly. Stay tuned.

I've now read about a hundred blog posts claiming that the question of whether the individual mandate is a tax or a penalty is "just a question of semantics." But it's not.

I know this seems obvious, but it is, in fact, also a legal question. And there's all sorts of past precedent that judges can use to guide them on this question. In last week's Obamacare decision, Chief Justice John Roberts basically said that it doesn't matter what Congress calls the mandate; what matters is how it operates. His conclusion, based on a variety of precedent, is that the mandate is a tax because (a) it raises revenue, (b) it's administered through the tax code, and (c) it's fairly modest, meant to nudge rather than punish. And, as Roberts says, "taxes that seek to influence conduct are nothing new."

In the dissent, Scalia1 says this is horseshit. The law itself repeatedly calls it a penalty, it's not primarily designed to raise revenue, and it is plainly designed to punish people who decline to buy insurance. "We cannot rewrite the statute to be what it is not," Scalia says. "We have never held—never—that a penalty imposed for violation of the law was so trivial as to be in effect a tax. We have never held that any exaction imposed for violation of the law is an exercise of Congress’ taxing power—even when the statute calls it a tax, much less when (as here) the statute repeatedly calls it a penalty."

I don't have any big point to make here, and I don't have a strong opinion on the merits of this argument, which is based on legal precedent I'm unfamiliar with. (Though I'm sympathetic to Roberts's view that the court should always bend over backwards to adopt legal readings that allow Congress to work its will if there's any reasonable way to do it.) I just want to point out that there actually is a legal argument about this that was carried out in the pages of the Obamacare decision. This isn't purely a matter of dictionary games.

1Technically, we don't know who wrote the dissent. But the tax section sure sounds like Scalia, doesn't it?

Blind in Beijing

Chinese declinism is one of the hot memes going around today. FP's "5 Signs of the Chinese Economic Apocalypse" is typical of the genre, and you probably already know most of the high points: a big property bubble, social unrest, looming demographic apocalypse, competition from even lower-wage countries, etc. Today, though, brings a brand new entry: Chinese kids are studying so damn hard they're going blind:

By the time they complete high school, as many as 90% of urban Chinese youth are afflicted by the condition known as myopia, in which close objects can be seen clearly but things just a few feet or inches away start to blur.

That's about three times the rate among U.S. children. Even more troubling is the severity of the Chinese cases. Between 10% and 20% of nearsighted Chinese children are expected to develop "high myopia," which is largely untreatable and may lead to blindness.

Some of this may be due to genetics, but Ian Morgan, a visiting professor at the Zhongshan Ophthalmic Center at Sun Yat-sen University, doesn't think so:

Myopia has steadily increased in concert with China's urbanization and intensified academic competition. It's not uncommon for children in China to study four hours a day at home on top of a full day of school as well as attend several hours of tutoring on weekends.

"Parents want their kids to get into the best primary school so they can have a better chance at the best high school that can help them get into Beida, Tsinghua and Fudan," Morgan said, referring to China's three elite universities....Despite a 2007 order by Chinese authorities to boost physical education in schools to combat obesity and deteriorating eyesight, many educators — and parents — have resisted.

...."If your prescription at the end of the day is making Chinese care less about education, then it's not going to happen," said Nathan Congdon, a professor at the Zhongshan Ophthalmic Center. "That's like telling Americans to like basketball or football less."

The silver lining is that China is now one of the world's fastest growing markets for glasses and contact lenses and laser surgery. So it's not all bad.

On Tuesday I questioned the Republican strategy of celebrating the Supreme Court's decision that the individual mandate is a tax. It seemed kind of pointless, since people hate the mandate no matter what it is. Basically, GOP leaders were putting their own presidential candidate in a tight position for no real reason.

But the past couple of days have produced a glimmer of an explanation. Take a look at the tea party email bomb on the right. Ignore the fact that your retirement account can't, in fact be seized and liquidated by the IRS for failing to pay the mandate penalty/tax. That's just the usual puffery. Mostly this is a signpost, suggesting that the emerging conservative strategy is to convince Americans that everyone now has to pay a new Obamacare tax. Democrats can fight back, but only by explaining that the mandate tax will only be paid by about 4 million people, not everyone, and then explaining that the other taxes in Obamacare mostly fall on high earners and corporations. This is, needless to say, a losing strategy. If you're explaining, you're losing; and if you're explaining about taxes, you're digging yourself a big fat grave.

In other words, maybe the tax angle makes more sense than I thought.

Happy 4th of July from the fine folks who run the Woodbridge Village Association! This is my association dues at work.

Today's news from the front lines:

The U.S. and Pakistan resolved a bitter seven-month standoff when Washington apologized for killing two dozen Pakistani soldiers in errant airstrikes and, in return, Islamabad agreed to reopen crucial supply routes for American and coalition military forces in Afghanistan.

....Secretary of State Hillary Rodham Clinton phoned Pakistan's foreign minister, Hina Rabbani Khar, and said she was sorry for the deaths caused when U.S. combat helicopters and fighter jets mistakenly attacked two Pakistani border posts Nov. 26.

I'm not knocking Clinton for doing this. It was a sensible resolution to a damaging standoff. But I suppose it means we now need to brace ourselves for several more weeks of "apology tour" nonsense from the Fox News set. Sigh.

Looking for some reading to keep you busy before it's time to fire up the grill today? Well, we've got your "no taxation without representation" package right here.

Happy Fourth of July!

When I wrote a post a couple of days ago about the size of Obamacare's tax increase, I thought I was bending over backward to be fair. I could have estimated the average size of the increase over ten years — which would have included all the early low-tax years — but even though that's fairly standard for budgetary purposes I thought it would be cherry picking. Likewise, I didn't use Jerry Tempalski's estimate of the four-year cost of the bill — a very modest 0.18% of GDP — even though that's the standard he used for all the other tax increases he analyzed. Technically, this would have been an apples-to-apples comparison and it would have made Obamacare's taxes look very small, but again, it seemed like cherry picking.

So instead I used the figure that PolitiFact calculated for the end of the initial ten-year period, the largest possible figure you could reasonably use, and compared it to Tempalski's four-year estimates for the other bills. Even at that, Obamacare still came in as only the tenth largest tax increase since 1950.

But it turns out this isn't good enough for Sen. Jim DeMint. He insists on a different standard, based on a single sentence in a CBO long-term budget outlook from 2010:

Under the extended-baseline scenario, the impact of the legislation on the revenue share of GDP would rise over time, CBO estimates, boosting revenues by about 1.2 percent of GDP in 2035.....

That would be a pretty sizeable tax increase, but are you wondering why DeMint used a CBO estimate from 2010? That's because CBO's 2012 estimate clocks in at only 0.8 percent of GDP, something I imagine DeMint knows perfectly well.

That's pretty hackish, but the larger problem here, which DeMint also knows, is that he's inventing a brand new standard for comparing tax legislation out of thin air. Nobody knows how a tax law is going to play out over 25 years.1 Nobody knows what the economy is going to look like a quarter of a century from now. Nobody can estimate the cumulative size of incentive effects between now and 2035. There's nothing wrong with CBO taking its best shot at a long-term estimate, but for all these reasons and more, a 25-year time horizon has never been a standard for comparing tax bills. DeMint knows this, just like he knows that CBO's most recent estimate is a lot lower than the outdated 2010 estimate he tried to put over on us.

Crikey.

1That's especially true in this case, since CBO's revenue estimate is based largely on the effect of Obamacare's Cadillac tax on healthcare plans. This tax is extremely sensitive to assumptions about the rise of healthcare costs and to the response of both corporations and consumers to the tax.

Mike Konczal reads a new IMF report and insists that we pay attention to what it says. We're not having a long recession because it came in the wake of a financial crisis. We're having a long recession because households were overleveraged. The financial crisis was just a symptom:

There's a common wisdom among many elites that prolonged recessions are just what happens in the aftermath of a financial crisis. Most people who argue this derive it from Kenneth Rogoff and Carmen Reinhart's This Time It's Different. These arguments have always been a bit difficult to justify. Usually people who invoke them call for inaction, as if there isn't anything to be done but let the recession run its course.

The IMF report looks at OECD data on housing busts over the past 30 years and compares housing busts with large household leverage ratios with those with low ratios. Busts with large household leverage ratios have much bigger drops in consumptions years out, just like what we see in our recession. What is important is that this holds with or without financial crises.

They don't discuss it, but this implies that the causation runs the other way; countries that have giant drops in housing values and/or increases in debt-to-income ratios probably create financial crises. But this means that having a financial crisis, like we did, doesn't change the game; it just amplifies the case for normal demand-side stimulus.

In other words:

It's not: Financial crisis ---> recession

It is: Recession + leverage ---> financial crisis

According to NBER, the Great Recession started in December 2007. This is what caused the music to stop and sparked a financial crisis. But even without a financial crisis, households still would have been massively overleveraged, the music still would have stopped, and the housing bust still would have destroyed trillions of dollars of wealth.

Better policy during the aughts could have reduced the size of the recession. Failing that, better policy now could still reduce its length. And although Mike is right that there are people who nonetheless "call for inaction," he's wrong to identify them merely as generic "people." They're Republicans with a vested political interest in delaying recovery. Precision is important here.