So what is Italy's problem, anyway? Daniel Gros looks at the numbers and says their capital investment is fine, their structural indicators are fine, and investment in R&D is fine. In other words, all the usual measures that economists think are important seem fine. By process of elimination, then, their problem must be lousy governance:

There is only one set of indicators on which the performance of Italy has clearly [declined]: the governance of the country. This can be measured by the Worldwide Governance Indicators (WGI) from the World Bank. The three most important indicators for the economy are:

the rule of law;
government effectiveness in general; and
control of corruption.

Italy’s performance on all three indicators has deteriorated dramatically over the last decade. Moreover, by all these measures Italy now ranks lower than any other Eurozone country (including Greece!). The difference between Italy and the Eurozone core is now over two standard deviations below the core Eurozone average.

I don't know if I buy this or not. Is governance really the only metric on which Italy has declined? Their demographics are pretty bad, after all. And they've been famous for dysfunctional government pretty much forever.

But demographics don't explain a flattening in GDP per hour worked. Not obviously, anyway. And on that measure, it looks as if Italy (the thick red line on the bottom chart) started pulling away from other nearby countries right around 1996, exactly the same time that all their governance metrics started going to hell too. So maybe that really is what's going on. Technocracy may not be getting much good press these days, but maybe a strong dose of technocracy is just what Italy needs for a while.

Then again, it might be just the opposite. In the 1990s, Italian voters rebelled against the influence of the Mafia in government, but guess what? It's possible that things ran better when the Mafia was in charge. After all, it's at least plausible that small-scale Mafia thuggery is less malignant than the industrial-scale business thuggery of a guy like Silvio Berlusconi. Something to think about.

Harold Meyerson on yesterday's elections:

The common thread in yesterday’s unbroken string of Democratic and progressive victories was the popular rejection of right-wing overreach. From Ohio, where voters overturned by a margin of 61 percent to 39 percent Republican Governor John Kasich’s law stripping public employees of collective-bargaining rights; to Maine, where voters overturned by a margin of 60 percent to 40 percent Republican Governor Paul LePage’s law abolishing Election Day voter registration; to Arizona, where voters recalled Republican state Senate Leader Russell Pearce, the most vehemently anti-immigrant state legislator in the nation; to, will-wonders-never-cease, Mississippi, where voters rejected an initiative declaring a fertilized egg a person from the moment of conception, effectively outlawing abortion and just maybe birth control as well, by a decisive margin of 57 percent to 43 percent, voters shouted a resounding STOP to the rightward gallop of public policy at the hands of the radicalized Republican Party.

I would very much like to believe this. But I need to cogitate a bit more first. Something about this doesn't quite ring true for some reason, but I'm not sure what. Maybe I need to see Republicans stop the insanity first and send Herman Cain into the dustbin of history where he belongs. Then I'll be a believer.

Here's an interesting, if unsurprising, survey experiment. Brandon Bartels and Jake Haselswerdt polled a group of people to find out if they approved of a government program that would help people afford to own homes. It was presented in two different ways:

Option 1: We’re going to ask you your opinion on a government program intended to help Americans afford to own homes. Under this program, individuals who take out a mortgage to buy a home are eligible to deduct the monthly mortgage interest from their taxable income, thereby reducing their tax burden. The total savings for individuals under this program are estimated to be $94 billion for fiscal year 2011.

Option 2: We’re going to ask you your opinion on a government program intended to help Americans afford to own homes. Under this program, individuals who take out a mortgage to buy a home are eligible for a grant from the federal government to help them afford the monthly payment. The total government expenditures to individuals under this program are estimated to be $94 billion for fiscal year 2011.

A lot more people supported the tax deduction than the grant. That's not too surprising. What's a little more interesting, though, is that camouflaging this program as a tax deduction mostly affected conservatives. Liberals and conservatives both supported the tax deduction version at the same rate (an average of about 4.5 on a scale of 1-7), but when it was described as a grant, conservative approval plummeted while liberal approval dropped only a bit.

I suppose this isn't all that surprising either. After all, in the modern era tax expenditures have mostly been a dodge to win conservative approval for government spending programs. Apparently it's a pretty good dodge.

Grover Norquist explains to Politico how he keeps everyone in the Republican Party toeing the anti-tax line:

Sometimes, he said, he has to yank a wandering leader back into line, as he said he did with Senate Minority Whip Jon Kyl (R-Ariz.) in May. Kyl publicly ruled out raising tax rates to bring in revenue, which was interpreted by some observers as leaving the door open to a variety of tax increases that wouldn’t involve rate changes.

“So, I call Kyl. ‘What did you say? What did you mean? How can we work together on this?’” Norquist said, adopting the tone of a teacher scolding a second grader as he recalled the conversation. “Yes, I said rates,” Kyl said, as Norquist recalled.

“And then,” Norquist said, “he went down on the floor, and he gave a colloquy about how we’re against any tax increases of any sort. Boom!”

Is Norquist exaggerating to make himself look good? Maybe. But this is a two-edged sword. In public, Norquist usually likes to pretend that he plays a modest personal role, and that's served him well. This kind of boasting probably doesn't. Even a bunch of anti-tax Republicans might start to rebel if they start hearing stuff like this from him a little too often.

In a referendum last night, Ohio voters decisively repealed a law that curbed collective-bargaining rights for public-sector workers:

AP has declared Issue 2 (as the law was called on the ballot) dead. As of this writing, with about 75 percent of precincts in, repeal led by a whopping 62 to 38 percent margin.

Gov. John Kasich (R) took office in January vowing to curb unions’ power. But he appears to have overstepped his hand in curtailing the rights of 350,000 public workers — including firefighters and police officers — to negotiate over benefits, equipment and other issues....By including firefighters and police officers in the legislation, Republicans in Ohio set themselves up for a far more difficult fight. Wisconsin’s collective bargaining law made exceptions for both.

This is a real dilemma for conservatives—and frankly, for liberals too. Kasich may have gone too far, but at the same time, there are real problems with public-sector pensions in a lot of states. One way or another, voters are going to have to decide how to handle this, but here's the dilemma: The biggest abuses come from the very public safety professions that voters are most sympathetic toward. Right-wing governors get a lot of mileage from attacking teachers and "chair-warming" bureaucrats, but it's not teachers who get to retire at age 50, it's not teachers who get to retire at upwards of 90 percent of their working-age salaries, and it's not teachers who engage in "spiking" that can raise their retirement pay well above their working-age salaries. That stuff mostly happens in the public safety arena.

Pension reform is already close to impossible because you can't legally change contracts for existing workers without their agreement, and for obvious reasons existing workers aren't likely to give up their lucrative pension deals. But those pension deals are going to cost taxpayers a lot of money over the next few decades, and in some states that cost is going to be impossible to deal with. That's two impossible things colliding, and the third impossible thing is the public's support for the very occupations that are costing them the most.

I'm not sure how this is going to play out over the coming years. But it's going to be tough sledding for everyone: liberals, conservatives, public sector workers, and taxpayers. Ohio was just the warmup.

UPDATE: The first sentence has been changed. Sorry for the confusion. Issue 2 was a ballot measure that asked for approval of Senate Bill 5, an anti-union bill. The "no" vote garnered 61 percent and SB 5 was repealed.

For a while it was sort of interesting watching Victor Davis Hanson's years-in-the-making fall from idiosyncratic conservative to frothing-at-the-mouth loon, but I gave up the entertainment of watching his descent some time ago. Today, though, Adam Serwer directs me to his latest bizarre screed, and I see that Hanson has just continued getting crazier even while I wasn't watching.

Anyway, read Adam's post for the whole story, but I'll just highlight one little piece of Hanson's latest. A couple of nights ago I was explaining to Marian that we liberals are terrified of Herman Cain because he's a strong, conservative black man — an authentic black man, not some deracinated offspring of a Harvard-educated Kenyan — and that's why we have to destroy him. She looked at me funny, and I told her I was just kidding — but that apparently a lot of tea-partyish conservatives are quite convinced of this. Don't believe me? Ladies and gentlemen, I give you Victor Davis Hanson:

Cain also wins greater scrutiny, not exemption, because he is black — or at least a certain sort of black. In addition to his conservatism, his voice, bearing, grammar, and diction, even his showy black cowboy hat, bother liberals in much the same way that Joe Frazier was not Muhammad Ali and Clarence Thomas was not Anita Hill. Black authenticity, as defined by Southern mannerisms and darker complexion, amplified by conservatism or traditionalism, earns liberal unease....The comparison with Obama is volatile: Cain is authentically African-American and of an age to remember the Jim Crow South; Obama, the son of an elite Kenyan and a white graduate student, came of age as a Hawaiian prep-schooler, whose civil-rights credentials are academic.

And now, if you'll excuse me, I need to get back to work destroying Herman Cain. Because I know that he's the only man who could actually beat Barack Obama next year and I'm terrified of him. As Cain explained yesterday, the Democrat Machine is out to get him. But luckily for you, it's no secret. To see our plans unfold in real time, just follow @DemocratMachine on Twitter.

Well, that was quick. When I wrote about Italy's unsustainable bond yields on Monday, rates stood at about 6.8 percent, just below the Oh Shit threshold of 7 percent that's unanimously believed to spell certain doom. Above that point, even higher yields aren't enough to attract buyers, Europe's main clearinghouse will start to require higher collateral for Italian bonds used in repo trades, and traders will start panic selling, which would send rates spiraling even higher. That kind of panic is self-fueling, and once it starts it can destroy its target within days. And now it's started:

Another surge in Italian bond yields to euro-era records has spooked investors…Adding to the angst is the decision on Wednesday by LCH.Clearnet, the clearing house, to raise the initial margin required to trade Italian bonds. Such a move makes it more expensive to hold a position and may encourage investors to quit trades, putting further downward pressure on prices and forcing yields higher.

Italian 10-year yields hit a fresh record of 7.48 per cent shortly after the European open. They are currently up 49 basis points at 7.26. Crucially, the yield curve has inverted as 5-years trade at 7.49 per cent, a condition that speaks of real investor fears about a potential default.

Unless the European Central Bank (ECB) steps in, Italy will be shut out of the bond market very quickly. It will be unable to roll over its debt, and default will follow. This is basically Greece on steroids, since Italy is something like six times bigger than Greece. The eurozone deal announced a couple of weeks ago might have been big enough to handle a Greek collapse—though even that's not a sure thing—but it's not even close to being big enough to handle an Italian collapse.

It's not easy to figure out what happens next. The ECB seems to be dead set against an unconditional backstop of Italy, which is probably what it would take to calm investors. And yet, an Italian collapse is unthinkable to European leaders. The rock and the hard place have truly started their final destructive squeeze.

Forget Herman Cain. This is the biggest story in the world right now.

Here is Herman Cain a few minutes ago, responding to Sharon Bialek's accusation that he once demanded sex from her in return for help getting a job:

I saw Ms Allred and her client yesterday in that news conference for the very first time. As I sat in my hotel room with a couple of my staff members, as they got to the microphone, my first response in my mind and reaction was, I don't even know who this woman is.

Roger that. But here is WIND radio host Amy Jacobson describing a backstage encounter between Cain and Bialek five weeks ago at a tea party convention:

Jacobson described their encounter as ‘intense’, that you could ‘cut it with a knife’, saying that she knew not to interrupt them. Jacobson had wanted to get a photo with Cain and said she was bum-rushed by Bialek who beat her to Cain and then had his ear for 2-3 minutes. She said it was clear Bialek had something she wanted to tell Cain and “by God she was going to tell him what she came there to tell him”....She affirmed she had no idea what they were actually talking about, only that Cain was saying “uh huh” several times throughout their brief encounter.

If Cain wants to claim that nothing ever happened and his accusers are all pathological liars, that's fine. I have a feeling he's not going to win that fight, but whatever. But to claim that he had no idea who Bialek was when she bent his ear for several minutes just a few weeks ago in front of witnesses? That's not going to fly.

On the bright side, denying allegations of sexual harrassment might actually be Cain's strong suit. Here he is talking substance in an interview with ABC's Jonathan Karl:

On foreign policy, asked about Iran having nuclear weapons and how he would respond, Cain says he'd go for ... energy independence. But what if it's your first day in office, asks Karl? I'm not going to wait until my first day in office, responds Cain.

That's so incoherent that it justifies the line: not even wrong. Cain then refuses to answer any further on the grounds that it's a hypothetical question. Duh.

That's from the Guardian's Richard Adams, whose dry British sensibility seems just about perfect for this kind of story.

I know that constantly complaining about newspaper headlines can get old, but seriously, what's up with this?

This is just flatly wrong. If you read down to the fifth paragraph, you'll find this:

However, the tax increases would be offset by permanently extending the George W. Bush-era tax cuts past their 2012 expiration date, a move that would increase deficits by about $4 trillion over the next decade.

In other words, the net effect of the Republican deal would lower tax revenue by $3.7 trillion over the next decade. Even if you assume that only the top-end tax cuts are really on the table, extending them would cost $700 billion, which means the Republican deal nets out to negative $400 billion.

The headline itself is bad enough, suggesting that Republicans have made some kind of serious deficit reduction offer. But the subhead — which is taken directly from the story's lead — is wildly misleading. The Republican deal doesn't increase tax revenue by $300 billion. It just doesn't.

Does the public really believe that Republicans in Congress are deliberately trying to sabotage the economy in order to hurt President Obama? Two polls have suggested that about half the country thinks so, but with considerable disagreement about how widespread this belief is. Obviously liberals and Democrats believe this, but do conservatives and Republicans? A Florida poll last week suggested that a surprising number of them do: about a quarter of Republicans and a third of conservatives. But a Washington Post poll that asked a similar question garnered only 9% agreement from Republicans.

Today we have a tiebreaker, courtesy of a PPP poll commissioned by Daily Kos. This is a nationwide poll and asks the question directly:

Until something better comes along, this strikes me as fairly definitive. The question is straightforward and difficult to misinterpret, and the results aren't limited to a single state. Basically, about half of independents — mostly Dem-leaning independents, I'd guess — believe that Republicans are deliberately sabotaging the economy, and about 15% of Republicans believe this about their own party.

In a way that's a surprisingly high number, but it's probably not high enough to really have a big impact. Obama still has some work ahead of him if he wants to push this number high enough to really make a difference.