Kevin Drum

Houston, the Tax Cuts Have Landed

| Mon Dec. 6, 2010 7:35 PM EST

Apparently President Obama has reached a tax cut deal with Republican negotiators. It will extend all the Bush tax cuts for two years and do a few more things besides:

The deal includes reducing the 6.2 percent Social Security payroll tax on employees by two percentage points for a year....It also includes continuation of a college-tuition tax credit for some families, an expansion of the earned income tax credit and a provision to allow businesses to write off the cost of certain equipment purchases.

The deal, which is not yet finalized, would include a 13-month extension of jobless aid for the long-term unemployed. Benefits have already started to run out for some people, and as many as 7 million people would potentially lose assistance within the next year, administration officials said.

....The White House was also said to have agreed to Republican demands on the estate tax that would result in an exemption of $5 million per person and a maximum rate of 35 percent.

This is....not too bad. I continue to think that it's stupid to extend the tax cuts for two years instead of three, and caving in to Republican demands for an estate tax cut for the absolute wealthiest sliver of the population is grating as hell. On the positive side, the payroll tax holiday (semi-holiday, anyway) is a good idea, the extension of various tax credits is a good idea, and the 13-month extension of unemployment insurance is much better than expected. This isn't anyone's idea of dream legislation, but it could be a lot worse.

But how stimulative is it? Answer: not much in a positive way, but it does prevent the elimination of current programs that would have been contractionary. And the payroll tax cut will be fully paid for out of the general fund, so it won't affect Social Security's long-term solvency. The big question, of course, is whether it will be possible to allow the payroll tax cut to expire in a year without a big fight from Republicans accusing Democrats (yet again) of wanting to raise taxes. I don't think that's going to be a big problem. Partly this is because 2011 isn't an election year, which makes posturing less effective, but mainly because Republicans don't care much about taxes on the middle class. Take a look at this interview with Grover Norquist: he's pleased about the main tax cut and "especially pleased" about the estate tax cut, but he doesn't even mention the payroll tax cut. He just doesn't care.

Politically, this is probably a win for Obama. The liberal base won't like the deal much, but they won't hate it either. And the vast middle of the country will like it just fine. I continue to think that running on repeal of the high-end tax cuts in 2012 will be a problem, but apparently Obama disagrees. We'll see.

POSTSCRIPT: I hate to move the spotlight away from jobs and onto "boutique social issues," but I sure hope that Obama has gotten a side deal from three or four Republicans to support repeal of DADT now that taxes are out of the way. It would be a serious dereliction not to nail this down during the lame duck session.

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Chart of the Day: Who Votes, Who Counts

| Mon Dec. 6, 2010 7:13 PM EST

Via Ezra Klein (and simplified by me), this chart largely explains why sky-high unemployment hasn't produced any real sense of urgency in our political class. It's because unemployment is high among people who don't vote and low among people who do. If the stock market were crashing or corporate profits were down, that would be one thing. But unemployment? It's just not that big a deal.

Economics and Crankery

| Mon Dec. 6, 2010 3:45 PM EST

Noah Millman writes a long post today about people — conservatives mostly — who claim to maintain a radical skepticism toward conventional economic remedies for our lousy economy. He ends with this:

What professed skepticism frequently amounts to is a vulnerability to crank theories. The people I know who tend “not to trust” doctors would, of course, go to a doctor if they broke their legs. But they believe that cancer is best treated with herbal remedies — or that vaccinations cause autism — or that mental disorders like depression have no chemical basis — and so forth. That is to say: where scientific knowledge is limited, they prefer the advice of those opposed to the establishment. That’s their heuristic.

And I see the same sort of thing with respect to economics. None of the people I know who profess to believe that “fiat money” is a fraud and that therefore we’re all doomed — and I know, many, many such people, including professional investors — actually behave in their private or professional life in the way that they would if they really believed such a thing. But professing such a believe does make them vulnerable to specific truth claims from specific fellow-adherents in areas where scientific knowledge is limited (such as debates about what the optimal monetary policy might be). Again: the heuristic is: when we are in the gray areas, I listen to the cranks. In neither case does this strike me as a particularly defensible heuristic when exposed to the light of day.

That might be it. But there's also the simple fact that conventional economics suggests that government should take actions that conservatives dislike for ideological reasons. For a lot of them, that's reason enough to oppose conventional economics, with radical skepticism merely playing a role as their chosen justification.

Fighting WikiLeaks

| Mon Dec. 6, 2010 1:49 PM EST

Clay Shirky is conflicted about WikiLeaks: he acknowledges that over the long haul human organizations of all kinds require a certain amount of backroom negotiation, but he also thinks that the appearance of a guy like Julian Assange working to subvert a bureaucracy overly addicted to secrecy is occasionally a good thing. "The periodic appearance of such unconstrained actors in the short haul is essential to increased democratization, not just of politics but of thought."

But he's not conflicted about how the United States ought to respond. If we pass a law criminalizing what WikiLeaks does, that's one thing — even if he doesn't like the law. But ignoring the law is quite another:

When a government can’t get what it wants by working within the law, the right answer is not to work outside the law. The right answer is to accept that it can’t get what it wants. The United States is — or should be — subject to the rule of law, which makes the extra-judicial pursuit of Wikileaks especially nauseating.

....I think the current laws, which criminalize the leaking of secrets but not the publishing of leaks, strike the right balance. However, as a citizen of a democracy, I’m willing to be voted down, and I’m willing to see other democratically proposed restrictions on Wikileaks put in place....The key, though, is that democracies have a process for creating such restrictions, and as a citizen it sickens me to see the US trying to take shortcuts. The leaders of Myanmar and Belarus, or Thailand and Russia, can now rightly say to us “You went after Wikileaks’ domain name, their hosting provider, and even denied your citizens the ability to register protest through donations, all without a warrant and all targeting overseas entities, simply because you decided you don’t like the site. If that’s the way governments get to behave, we can live with that.”

I'd add one other thing: if you're going to declare war, you should only do it if the war is winnable. This one sure doesn't seem to be, and our ragtag offensive against WikiLeaks is doing little except making us look helpless against a pipsqueak. It's a lot like the counterinsurgencies we keep failing at in meatspace, except squared or cubed. After all, even a "war against terror" might be unwinnable but still manage to minimize terrorist attacks. But as near as I can tell, we could literally kill every person associated with WikiLeaks, impound every cent of their money, and take down all their servers, and it would have virtually no impact. All the existing documents would still be available, and other groups would pop up almost instantly to take WikiLeaks' place. I guess I might be underestimating our capabilities in this area, but I doubt it. I just don't see how you can win a war like this in the long run. I don't even see how you can degrade this kind of activity significantly short of running a Stalinesque security state.

So which is worse: losing a battle, or fighting a long, grinding war and then losing anyway? The latter, right?

Living in Fox's World

| Mon Dec. 6, 2010 1:24 PM EST

A friend from Virginia emails about Obama's deal with Republicans on extending the tax cuts:

I hate to say this but I do have my ear to the ground with a lot of "regular" folks and the way this impending "deal" is being described by most of them is that Republicans are pushing to keep the tax cuts which create jobs and the Democrats are pushing to extend unemployment benefits so lazy people can sit on their asses a while longer and live off those of us who work hard.

Is this because (a) this is just how America rolls, (b) Democrats don't know how to communicate with the American public, (c) Fox News now controls our country completely, (d) something else, or (e) all of the above?

The Problem With Clickthroughs

| Mon Dec. 6, 2010 1:04 PM EST

Ezra Klein writes about the famously low clickthrough rates for online advertising, and the famously low rate cards that go along with them:

At the beginning of Ken Auletta's "Googled," Auletta talks with Mel Karmazin, then the CEO of Viacom. Karmazin is aghast at Google's campaign to measure the effectiveness of advertising by tallying clicks. "I want a sales person in the process, taking that buyer out for drinks, getting an order they shouldn't have gotten," he frets. And if that's too subtle, Karmazin continued: "You don't want to have people know what works. When you know what works or not, you tend to charge less money than when you have this aura and you're selling mystique."

It's more evidence that the greatest advertising campaign of all time was for...advertising. Another way to phrase Karmazin's comment is, "the thing you need to know about the advertising business is that the people we're selling advertisements to are basically idiots and we routinely fleece them." And he said it to a reporter, knowing it would go into a book. It's straight gangster. The brand is so strong that the people behind it can freely admit the con at its heart.

I wonder what's really going on here? Karmazin's trash talk aside, it's not like it was ever a big secret that mass-market advertising has always been a very hit or miss game. And outside of late night TV, very little of that advertising has ever been based on the idea that people see your ads and instantly get into their cars and go buy your product. It's been about brand positioning, customer education, long-term loyalty, and so forth.

So why is internet advertising so different? Why don't advertisers accept that its benefits are largely immeasurable too? Are they blinded by the supposed precision of clickthrough rates? Or have they measured online advertising campaigns the same way they measure other kinds of advertising campaigns (measurements that are imperfect but still widely known and used) and found it wanting?

In other words, is online advertising genuinely less effective? Or does it just seem less effective because of the most common metric used to evaluate it? I imagine this is something that's been studied in some depth, but if it has been, it's odd that I almost never see anything about this in the non-trade press. What's the deal?

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Ranking the Presidents

| Mon Dec. 6, 2010 12:56 PM EST

The Gallup poll below is being touted as a "ranking" of modern presidents, and it puts John F. Kennedy at the top. (I guess Eisenhower doesn't count as "modern.") This is obviously crazy, but when I clicked the link I discovered that it wasn't really a ranking of who was the best president, it was a ranking of retrospective job approval ratings:

That's not quite so crazy. It's probably still wrong, but not crazy. Kennedy did some popular things, handled the White House with style, and was assassinated before his administration had time to become widely loathed, which it likely would have been had he stayed in office for a full eight years. He never really had a chance to outlast his honeymoon, and LBJ ended up taking the hit for Vietnam and 60s unrest more generally.

In any case, the innate good sense of the American public is shown by George W. Bush's low ranking. I just hope that as time goes by, people remember what a bad president he was. He's not a president who deserves to benefit from the rosiness of faded memories.

Learning the Ropes

| Mon Dec. 6, 2010 12:00 PM EST

Dan Eggan writes in the Washington Post today about how tea party favorites like Francisco "Quico" Canseco are spending their first few days in Washington DC:

After winning election with an anti-Washington battle cry, Canseco and other incoming Republican freshmen have rapidly embraced the capital's culture of big-money fundraisers, according to new campaign-finance reports and other records.

....The aggressive fundraising efforts underscore the financial pressures facing new members of Congress even before they take their seats. The contributions also represent a symbolic challenge for the Republican class of 2010, many of whom gained office by running against the ways of official Washington and monied interests.

I'm not exactly scandalized by this, but it's still a warning sign to tea partiers everywhere: guys like Canseco will support your hot button issues for precisely as long as they align with the interests of the guys who are bankrolling him. As soon as those interests diverge, you'll be left in a ditch. Don't say you haven't been warned.

Progress Report: Democrats Still Idiots

| Mon Dec. 6, 2010 1:13 AM EST

The New York Times reports that a deal on tax cuts is imminent:

Rather than extending the tax rates only on income described by Democrats as middle class — up to $250,000 a year for couples and $200,000 for individuals — the deal would also keep the rates for higher earners, probably for two years.

....Administration officials said the negotiations were focused on the question of extending the tax rates for one or two years, with a three-year extension highly unlikely, even though that time frame would probably eliminate the tax fight as an urgent issue in the 2012 elections....Democrats say they would not mind the issue coming up during Mr. Obama’s re-election bid, because they see it as politically helpful to them in painting Republicans as defenders of the rich. The debate, of course, could cut the other way, with Republicans again portraying Democrats as seeking to raise taxes.

You know, I'm in a foul mood lately. And that means maybe I overreact to stuff a wee bit sometimes, though I try to keep the blog on a more or less even keel.

But it's getting harder every day. I mean, WTF? What in God's name are the morons who pass for leaders of the Democratic Party thinking? If they've finally backed themselves into a corner where they're forced to extend all the Bush tax cuts, then OK. I'm resigned to it. But they're seriously planning to extend the tax cuts for two years, even though that means restarting the fight during the 2012 campaign season, "because they see it as politically helpful to them in painting Republicans as defenders of the rich"?

And they think this why? Because they all stuck together so well this time around? Because they wowed the American public in 2010 with their argument that Republicans were defenders of the rich? Because two years from now centrists and Blue Dogs will suddenly decide to grow a spine in the face of tea party competition? Because they think Republicans will cower in fear and Fox News will suddenly embrace sweet reason the next time Democrats try this tack? Because they think that vilifying the rich only failed this year because it was so soon after an epic financial meltdown caused by the rich? Because they're not as smart as a pair of New York Times reporters, who immediately understood that, yes, perhaps Republicans would have some modest success "again portraying Democrats as seeking to raise taxes"?

I dunno. Someone help me out. Am I missing something? Is there some reason to think that Dems are going to wage this battle any more effectively in 2012 than they did this year? Or is this every bit as addlebrained as I think it is?

POSTSCRIPT: I almost forgot the constructive criticism part of this post. Sorry about that. Here it is: if you're going to extend the tax cuts, extend them for three years. Let's have this conversation next in 2013, OK?

POSTSCRIPT 2: The only non-moronic spin I can think of for this strategy is that 2012 is a presidential election year, not a midterm. And somehow, Barack Obama's silver tongue will carry the day in a way it couldn't when he himself wasn't campaigning. That is, perhaps, just barely plausible. But I sure wouldn't bet the ranch on it.

Israel's Future

| Sun Dec. 5, 2010 12:39 PM EST

Bernard Avishai writes about the steady deterioration of Israel's infrastructure despite respectable economic growth:

In case after case, rightist coalitions have insisted the money was simply not there, and so Western standards for "quality of life" remained out of reach; the country's most responsible citizens have shrugged, more or less, and returned to work, knowing that rates of participation in Israel's workforce is actually among the lowest in OECD nations, around 57%, because of the amount of money supporting ultra-orthodox "learning."

The Carmel brush fires have suddenly given all of this frustration a powerful symbol — a kind of Katrina event. Just who have the governments been serving?

Perhaps the signal moment came on Channel Two Friday evening, when the fires were at their worst, and the newscast's most forceful commentator, Amnon Abramovich, let loose with what a great many in the audience was thinking. "If you are not a settler or a Haredi lobby," he said (I am paraphrasing),"you might as well forget getting anything from the Israeli government in recent years."

I don't know Israel well enough to weigh in on this, but it certainly squares with an awful lot that I've read in recent years. The steady rise of ultra-orthodox influence in Israel seems to be every bit as dangerous to its future as anything happening in the West Bank or Gaza — though the two are so tightly related that I imagine it's hardly possible to speak of them as separate phenomena in the first place.

I'd be interested in comments on this. But for obvious reasons, please be extra careful to keep them civil.