Using the Debt Deal to Split the GOP

Republicans have done a great job over the past two years of tearing the Democratic Party apart. Their posture of relentless obstruction has pushed President Obama to compromise even more than he wanted to,1 and the logic of politics says that any bill that passes, regardless of how it turns out, should be embraced as a legislative triumph. The resulting combination of compromise and the glorification of compromise has seriously alienated the progressive wing of the party2 and provoked open warfare within the liberal base. Good job, Republicans!

So what would be the best strategic response of liberals to the debt ceiling deal? It's really pretty obvious: we should be singing its praises; we should be gleefully pointing out that its spending cuts are heavily backloaded and might never happen — and that lots of them are sort of imaginary anyway; we should be dancing in the streets over the heavy focus on defense cuts; and we should be crowing about how this deal makes expiration of the Bush tax cuts all but inevitable. In short, we should be applauding the way the tea party got rolled yet again by its own leaders.

Is this stuff all true? Not really. Or not entirely, anyway, though all of these items have a germ of truth to them. But focusing on these points would help to incite open warfare in the Republican Party, which is pretty close to it already. This would be great for liberals and well deserved by conservatives.

But we won't do it. Hell, I haven't done it. It might be a terrific strategy, but we're not really constitutionally cut out to do this kind of thing. That's kinda too bad. It would fun once in a while to give conservatives a dose of their own medicine.

1I'll get questions about this, so let's get concrete about it. If Obama had had more votes available to him, I believe he would have supported a stronger healthcare bill that included a public option; he would have supported a second stimulus; and he would have supported passage of a cap-and-trade bill. He wouldn't have supported a stronger financial regulation bill and he wouldn't have changed his national security/civil liberties posture (though I do think he would have shut down Guantanamo if he could have). If this is how things had gone down, he'd still have critics on the left, but in general liberals would be far, far more united behind him.

2And, yes, Obama has made it even worse by his obvious eagerness to disown his own base. But I think the nearly unanimous Republican obstruction to his agenda has been a much bigger factor.

Patenting the Internet

A few minutes ago I promised myself that I'd link to the very next blog post in my RSS feed that had nothing to do with the debt ceiling. The winner is Will Wilkinson, who highly recommends a recent Planet Money program, "When Patents Attack," about how our patent system is strangling innovation in the tech sector:

Planet Money's programme explains everything better than I can, but the thrust of it is that it is next to impossible to offer a new technology or software-driven service without getting sued for patent infringement. For example, Spotify, an innovative, highly-praised music streaming and subscription service, became available in America just a couple weeks ago. It took until last week for [it to get sued for patent infringement by a company called PacketVideo].

....This is apparently a patent on streaming music over the internet. Naturally, you are familiar with PacketVideo's popular music streaming service. Oh, you're not? I guess that's because they don't offer one. So, Spotify is trying to make money offering a service that will make consumer's happy. (I'm using it right now. I think it's terrific.) PacketVideo is trying to make money doing what? Shaking down Spotify?

Actually, PacketVideo makes Twonky, so they really do have a product of their own. They also make money by licensing their technology to big industry players like Verizon and Nokia.

But how about their patent claim? Is it really a patent on the mere idea of streaming music over the internet? It's easy to say that when you're working up a righteous head of steam on a blog post, but I figured there had to be more to it. So I looked at the patent. And — well, take a look for yourself. Here's their "invention":

That really does seem to be about it. There are no specific algorithms involved and no specific implementations proposed. Basically, it appears to be a claim that covers any system in which music is compressed and encrypted by a server, shipped out over a network, and then decrypted and decompressed at a client. The patent claims seem to include pretty much any kind of server, any kind of storage device, any kind of compression, an extremely broad set of communications protocols, and pretty much any kind of remote device. If you're streaming music this way — and honestly, there's really no other way to do it — then PacketVideo says you're infringing their patent.

At least, that's how it reads to me. Neither the news stories nor the legal filing go into much detail about the precise nature of the infringement PacketVideo is claiming, and they don't appear to have sued all the other streaming music vendors in the world, so it's possible their claim is more specific. But my amateur reading suggests they really are claiming patent rights to the whole idea of streaming music from a server. And the fact that they waited to file suit until Spotify had entered the U.S. market suggests that their claim isn't valid anywhere else. Only in the U.S. do we allow a patent claim this broad.

Once again, I invite experts to weigh in. Maybe I'm misreading this. But the patent claim is short and not too hard to understand, and it sure looks preposterous to me. Anyone out there care to defend this?

It's Public Opinion, Stupid

Jared Bernstein praises the president with faint damns:

If your conclusion is that Democrats got rolled because the President is a lousy negotiator, I disagree. Not on his negotiating skills…as someone said in comments, I wouldn’t want him in the auto showroom with me when I’m bargaining for a better price. I disagree that better negotiating skills would have made a big difference. The problem goes much deeper.

....If too many Americans don’t believe in or understand what government does to help them, to offset recessions, to protect their security in retirement and in hard times, to maintain the infrastructure, to provide educational opportunities and health care decent enough to offset the disadvantages so many are born with…if those functions are unknown, underfunded, and/or carried out poorly, why should they care about how much this deal or the next one cuts?

Those of us who do care about the above will not defeat those who strive to get rid of it all by becoming better tacticians. We will only find success when a majority of Americans agrees with us that government is something worth fighting for.

I think this is roughly correct. Public opinion is everything. Ronald Reagan was successful because public opinion supported him: he wanted to cut taxes and raise defense spending and so did big chunks of the public. He was leading in a direction that they already wanted to go.

But no matter how many times we try to kid ourselves with one poll result or another, liberals just don't have that advantage. The public is mostly in favor of raising taxes on the rich — though I suspect its support is pretty soft — but on the bigger issues they mostly aren't on our side. They think deficits are bad, they don't trust Keynesian economics, they don't want a higher IRS bill (who does, after all?), and they believe the federal government is spending too much on stuff they don't really understand. Conservatives have just flat out won this debate in recent decades, and until that changes we're not going to be able to make much progress.

This is why I blame the broad liberal community for our failures, not just President Obama. My biggest beef with Obama is the same one I had three years ago, namely that he's never really even tried to move public opinion in a specifically progressive direction. But that hardly even matters unless all the rest of us have laid the groundwork. And we haven't. Wonks, hacks, activists, all of us. We just haven't persuaded the public to support our vision of government. Until we do, the tea party tendency will always be more powerful than we are.

Did the Debt Deal Help Obama?

Matt Yglesias points to a poll suggesting that President Obama won the debt ceiling debate in the public's eye, but isn't sure it matters:

As longtime readers know, I’m pretty much an economic determinist about election outcomes, and think public perception of Barack Obama’s negotiating strategy during the summer of 2011 are largely irrelevant to his political future. But it’s important to emphasize that approximately zero percent of elected officials and approximately zero percent of professional political operatives agree with this. In practice, politicians and their staff act as if every public relations battle has dramatic electoral consequences. Under the circumstances, I think President Obama is largely driven by a desire to be perceived by the public as the more reasonable party and that he is succeeding in that effort.

I think this is one of those areas where you need to take political scienc-ey claims about elections with a grain of salt. Everyone agrees that the state of the economy has a big effect on presidential elections, but there are (at least) two big caveats. First, most models suggest that the economy accounts for perhaps two-thirds of the outcome. Obviously that's a lot, but most elections are fairly close and the remaining third can pretty easily be decisive.1 Second, these models implicitly assume that both sides are spending lots of money and maneuvering for advantage and doing all the other things that presidential campaigns do. The net effect is small, but only because both sides are doing it. If you take a fatalistic approach and skip all this stuff, you'll get eaten alive.

So this kind of maneuvering is probably more important than simple economic models suggest. Certainly Obama believes that. Every time I write about this stuff, Greg Sargent emails to remind me that we don't really have to guess why Obama has acted the way he has. We already know. Here's an Anne Kornblut piece from May in which Obama's advisers say that, yes, the economy has to improve, but:

The advisers are deeply concerned about winning back political independents, who supported Obama two years ago by an eight-point margin but backed Republicans for the House this year by 19 points. To do so, they think he must forge partnerships with Republicans on key issues and make noticeable progress on his oft-repeated campaign pledge to change the ways of Washington.

Right or wrong, that's what they believe. Like all Democratic presidents, who can depend on only a small progressive base, Obama believes he'll win only if he attracts lots of support from independents. And the only way to do that is with deals like the one he just cut. It's the kind of deal that appeals to independents and makes John Boehner and the Republican Party look extreme.

And it might work. Unfortunately, there's one problem with it: Obama won't be running against John Boehner. He won't really be running against the Republican Party either. He'll be running against a particular person. So the question is, has Obama won a PR victory against Mitt Romney? Or Rick Perry? That's a lot harder to figure out.

1That said, if the economy is bad enough then nothing else will matter — and right now it's looking pretty bad. If we continue slumping our way into 2012, Obama is going to have a very tough time being reelected unless Republicans go completely crazy and nominate someone like Michele Bachmann.

Why the Debt Ceiling Deal Sucks

Clockwise from top left: House Speaker John Boehner, President Barack Obama, Senate Majority Leader Harry Reid, and Senate Minority Leader Mitch McConnell.

Marian and I have now been married for 20 years (yay us!), so we went up to LA yesterday to see a show and then stayed over today to have lunch with Mark Kleiman and then watch world No. 84 Ernests Gulbis beat Mardy Fish in the finals of the Farmers Classic at UCLA. Which reminds me—or rather, Mark reminded me: He has a new book out called Drugs and Drug Policy: What Everyone Needs to Know. It's basically a FAQ about drug policy, and it'll only set you back a little over 10 bucks on Amazon. If you're interested in a good primer on the subject, you probably can't do much better.

All of which is a fairly long-winded way of saying that I've been blissfully unaware of the latest idiocy regarding the debt ceiling fight over the past couple of days. But now I'm back, and CNN tells me that we've all agreed on a deal. Hooray. Roughly speaking, it's built around $1 trillion in cuts now and $1.5 trillion in cuts later. The "later" cuts will be negotiated by a super duper congressional committee, and there's a sword of Damocles hanging over their heads to ensure they don't deadlock and end up punting on a deal. It's not yet 100 percent clear what that sword is, but apparently if they don't come to an agreement, or if they do but Congress fails to pass their deal, automatic cuts will take place in the discretionary budget, split 50-50 between domestic cuts and defense cuts. Supposedly, the fact that the automatic cuts affect both domestic and defense spending will be so horrifying to conservatives and liberals alike that they'll support the Super-Duper Congressional Committee's deal. Color me skeptical. There are three possible alternatives here:

  • Compared to the autocuts, the SDCC deal is weighted more heavily toward domestic cuts. In that case, Democrats won't support it. They'll just let the automatic cuts happen instead.
  • The SDCC deal is weighted more heavily toward defense cuts. I wouldn't advise placing any bets on this outcome.
  • The SDCC deal is part cuts and part tax hikes. In that case, Republicans won't support it. They won't trade tax hikes for a bigger Pentagon budget.

Now, sure, maybe they'll cobble something together that looks a little different. But once the dust is cleared away, what other alternatives are there? Compared to the automatic cuts, the SDCC deal will either cut more from domestic spending or else close the deficit partly with cuts and partly with tax increases. That makes it dead on arrival.

It's a shit sandwich no matter how you look at it. And it's a shit sandwich in at least two very specific ways: (1) It means we'll continue to live in a fantasyland that says we don't need any tax increases even though our population is aging and we're plainly going to need higher revenues to support this demographic reality; and (2) we'll continue to live in a fantasyland that says our problems are primarily caused by discretionary spending. This is, of course, exactly the opposite of reality, which means we're going to screw the poor and do nothing serious about the long-term deficit. Nice work, adults.

But hey—this is all very dismal stuff. So here's your reward for reading all the way to the bottom: a fun question to discuss. There are a few liberal pundits out there who believe that a cuts-only deal like this one isn't all that bad. Jon Chait is one of the leading proponents of this theory, and it goes like this: Maybe an all-cuts deal is bad, but by leaving taxes off the table completely it opens the door to letting all the Bush tax cuts expire at the end of next year. Basically, Obama just needs to keep insisting that he'll only sign a bill that extends the middle-class tax cuts1 but allows the tax cuts for the rich to expire. Republicans will flatly refuse to send him such a bill, and as a result all the tax cuts will expire without Obama having to break any promises.

So here's the question: Do you think this is how things will play out? Or alternatively, will Republicans cave in at the 11th hour and send Obama a bill he can sign? Or will Obama cave and end up agreeing to extend all the cuts? My guess is that Obama will stick to his guns on this and Republicans will eventually cave, which means that the middle-class cuts will get extended permanently. Prof. Kleiman, like Chait, thinks Republicans will never, ever agree to throw rich people under the bus and will never send Obama a bill that extends only the middle-class cuts. Thus, the whole Bush package will expire. You can vote in comments on how you think this will play out.2

1Actually, even this set of tax cuts mostly benefits the well-off. But everyone calls them the middle-class cuts, so that's what I'm calling them here.

2This assumes, of course, that Obama wins reelection. If a Republican wins, and Obama lets the Bush tax cuts expire in the final hours of his administration, I assume that the new president will simply pass new tax cuts via reconciliation sometime after inauguration day.

The Economy in 50 Words or Less

Every quarter, the Kauffman Foundation surveys a set of economics bloggers about the state of the economy. The full report for the third quarter is here. The summary is below. It seems about right to me.

Friday Cat Blogging - 29 July 2011

We got Inkblot a new area rug to tear to shreds this week, this time in bright olive green. Sets him off well, don't you think.1 (Naturally we do all our interior decorating with cat complementing in mind.) On the right we have — what? Let's call it experimental catblogging. Domino has a sound she makes that means, "Get down on the floor and play with me." She made it this morning, so I got down on the floor and played with her. This time, however, I had my camera, so I stretched out my arms and took some pictures of her playing with my head. This is one of her favorite activities. Pretty lucky for me, no?

1And very presidential too. He's thinking of using this color for the Oval Office carpet after he wins election next year.

Advice for John Boehner

Chad Orzel talks to his daughter about the process of creating art:

She went on to explain that the car had been inside the marker, but then she took the top off the marker, and put it on the paper, and the car came out. Which is pretty impressive. She's just about to turn three, and she's already got the Artist-as-conduit-for-something-external line of patter down. I look forward to the next time we get out the Play-Doh, when she'll explain how she looks at a blob of it and then takes away all the bits that aren't an elephant.

Perhaps she could give John Boehner some pointers on how to write a debt ceiling bill. I envision two alternatives:

  • "The debt ceiling bill is inside your pen. Just take off the top and put it on the paper and the debt ceiling increase will come out."
  • "Get a big pile of words and then take away all the words that aren't a debt ceiling increase. Done!"

Either one of those would be better — and more family friendly — than my advice.

Inflating Away the Debt

Tyler Cowen points today to John Hussman saying something that's been in the back of my mind for a long time but never quite made it onto the blog:

Here in the U.S., [debt held by the public] amounts to about 60% of GDP and rising, due to recent budget deficits of about 10% of GDP annually. This is presently manageable since so much of that debt is of short-maturity and is being financed at very low interest rates.

....Still, it's precisely that short average maturity that makes the debt problematic from a long-run perspective, because it can't be inflated away easily. In the event of sustained inflation, the debt would have to be constantly refinanced at higher and higher yields. Contrary to the assertion that the U.S. can easily inflate its debts away, it is clear that sustained inflation would create enormous risks to our long-run fiscal condition by driving interest costs to an intolerable share of revenues. At that point, any shortfall in GDP growth or government revenues would result in a rapid spike in debt-to-GDP (as Greece and other peripheral European nations are experiencing now). Prior to embarking on an inflationary course, the first thing a government would want to do is dramatically lengthen the maturity of its debts.

This is true, isn't it? I keep hearing repeatedly, from tea partiers and assorted tea party leaners, that the real danger we're running isn't that the United States will literally default on its debt in the future, but that it will try to inflate away its debt. Sort of a soft default, if you will.

But that's not even possible, is it? The vast bulk of U.S. debt matures in three years or less, which means that a bout of inflation would simply raise the cost of borrowing. Virtually all debt holders would roll over their holdings long before inflation had any serious effect on them and the government would gain nothing. On an inflation-adjusted basis, the new debt issued would be about as expensive as the old debt.

So where does this whole "inflating away the debt" meme come from? Is it just the gold bugs, or is it coming from somewhere else too? What's the deal?

Economy Update: Still Sucking

GDP grew last quarter at a rate of 1.3%. That's pretty sluggish. What's worse, as Matt Yglesias points out, GDP for the previous three years was revised substantially downward at the same time. So to summarize:

  • The Great Recession was worse than we thought.
  • The recovery was slower than we thought.
  • And the economy continues to sputter badly.

To address this, our current plan is to shut down the government and produce economic chaos for no reason whatsoever. Thanks, tea party!