Two years ago Michael Kinsley wrote a piece in the Atlantic explaining that he was worried about inflation:

For this, I was widely ridiculed, and I’d like to take this opportunity to claim vindication. That is, I’d like to —  but I can’t. Inflation (CPI) has been creeping up the past couple of years —  from less than 2 percent to more than 3 percent  —  but that’s still pretty low. Nevertheless, I double down: Barring a miracle, there will be a fierce storm of inflation sometime in the next few years and it will wipe out a big chunk of the national debt, along with the debts of individual citizens, and the savings of others. 

One reason I say this is that the arguments on the other side have shifted. It used to be, “It’s not gonna happen — so don’t worry about it.” Now it’s, “You know, a moderate dose of inflation would be no bad thing. So don’t worry about it.”

The last time around I sort of semi-defended Kinsley. This time around I'm just perplexed. His original piece appeared in March 2010. Here is Paul Krugman a month earlier praising a suggestion from IMF chief economist Olivier Blanchard that the world could use a bit of additional inflation:

I’m not that surprised that Olivier should think that; I am, however, somewhat surprised that the IMF is letting him say that under its auspices. In any case, I very much agree.

I would add, however, that there’s another case for a higher inflation rate....[blah blah blah]....So yes, let’s have modestly higher inflation. Alas, Ben Bernanke — at least when speaking publicly — doesn’t agree. And I can only imagine what Trichet would say.

And here is Ryan Avent at the same time, not only agreeing but pointing out that Kenneth Rogoff, Greg Mankiw, Scott Sumner, and Brad DeLong all agree too. So this time I can't even semi-defend Kinsley. Plenty of economists were making the case for higher inflation well before he wrote his original article. The arguments haven't shifted, he just never noticed them before.

Mitt Romney (center) poses with colleagues from the private equity firm Bain Capital.

Mitt Romney, as all the world knows, made his fortune heading up a private equity firm called Bain Capital. As a result, he pays low, low income tax rates. "Probably closer to 15 percent than anything," he told reporters on Tuesday. That's a pretty sweet deal, but it's all perfectly legal. Most of Romney's income comes in the form of capital gains and carried interest, which have been taxed at 15 percent ever since the Bush tax cuts went into effect a decade ago.

So it's a good time to get a little wonky and ask why capital gains and carried interest are taxed at only 15 percent, while ordinary labor income is taxed at rates as high as 35 percent. If you're the cynical sort, you think the answer is simple: Rich people make lots of their money via capital gains and carried interest, and the Republican Party is dedicated to making the lives of rich people easy and prosperous. So they've made sure those tax rates are low.

Maybe so. But there's an official, noncynical answer too: Capital gains are profits from investments, and a high level of investment is good for the economy. Low tax rates on capital gains encourage investment and therefore benefit the entire economy.

But is this true? If it were, you'd expect to see some kind of long-term correlation between capital gains rates and the total amount of capital gains income. The lower the rates, the more the income. Let's roll the tape:

Do you see a correlation? I don't. What you see are two things. First, when people know rates are about to go up, they sell their assets quickly to beat the tax man and take advantage of the current rates. You can see that in 1968 and 1986. Second, capital gains skyrocket during investment booms. You can see that during the dot-com bubble of the late '90s and the housing bubble of the aughts. When you remove those artifacts, there's pretty much nothing left. No matter what the tax rate is, the level of capital gains pokes along at about the same rate. The same thing is true if you lag the results by five years, and you can see a similar result here, in a chart that compares capital gains rates to total investment levels in the US economy. There's simply no correlation. All taxes have deadweight costs, and it's likely that capital gains taxes have some impact on the economy, but all the evidence, both in the US and internationally, suggests that it's pretty modest. As the Congressional Research Service concluded in a study a couple of years ago, capital gains tax cuts "are unlikely to have much effect on the long-term level of output or the path to the long-run level of output (i.e., economic growth)."

So what about carried interest? What's that all about? Carried interest is a feature of the way partnerships are taxed, and private equity funds are essentially partnerships. In a partnership, it's frequently the case that one person puts up the money and another person manages the business. Both partners get equity in the enterprise: The former gets ordinary, garden variety equity and the latter gets "sweat equity." When the enterprise is sold off (hopefully at a profit), both are taxed at capital gains rates.

Bain Capital acted as a managing partner in most of its transactions, so this was a pretty good deal for them. After all, most of us who work as managers, even if our pay comes in the form of a bonus that's based on the profitability of the company, have to pay ordinary income tax rates. That's because this kind of work is known as "labor." But if you manage a private equity fund, that exact same kind of work is defined as sweat equity and gets taxed at capital gains rates.

This is pretty hard to defend. If it walks like a duck and quacks like a duck, it's a duck. Except in this one case, where it's sweat equity. There's really not much justification for it.

So this is where we end up. Mitt Romney pays low tax rates on his capital gains because this is supposed to encourage him to invest his money. But it turns out that it doesn't. And he pays low tax rates on his carried interest because his job of managing companies that other people own was conveniently redefined as sweat equity and therefore treated as capital gains. It's a nice deal for the rich, who get nearly all of the benefit of these policies, but neither of them is really defensible. It's one thing for Mitt Romney to have gotten wealthy running Bain Capital. Good for him. But he ought to pay the same taxes on his earnings as the rest of us.

Jeez. Mitt Romney still doesn't have a clear, clean answer about which tax returns he's going to release and when he's going to release them? What the hell has Team Romney been up to? I think there's been a glitch in the Romneytron 9000 programming somewhere.

Tyler Cowen isn't so sure that Mitt Romney will repeal Obamacare if he's elected president:

I expect Romney to claim he has repealed ACA, but in fact he will change five aspects of the law and cement the rest of it in place, albeit in a less progressive manner and with lower Medicaid expenditures. (Outright repeal actually would not be easy, not to mention filibuster issues.) He knows he doesn’t have any other “right-wing health care plan” in his back pocket, won’t be willing to restore the status quo ex ante, and he will be willing to take the “Tea Party knock on the chin” very early on in his term, hoping to repair the fence later. Ultimately letting the issue fester doesn’t help him, and he is smart enough to realize that.

I'm not so sure about this. The question isn't so much what Romney truly wants to do, it's what a Republican Congress wants to do and whether Romney would actively oppose them. My guess is that a Republican Congress will be pretty single-minded about repealing as much of Obamacare as they possibly can and that Romney won't stand in their way.

But how much can they repeal? That's a good question, so here's the best case scenario for liberals. Republicans can use the reconciliation process to repeal any part of Obamacare that's budget related, and that means they can repeal a big chunk of Obamacare with only 51 votes. But they can't use reconciliation to repeal pieces of the law that are strictly regulatory in nature. For that they need to use regular order, and that means they'll need 60 votes to overcome a Democratic filibuster, which they probably won't be able to get.

So which parts are purely regulatory? There are several, but the two most important are guaranteed issue and community rating. The first means that insurance companies are required to sell insurance to anyone who wants it, and the second means that they have to charge everyone the same price. (With a few specific exceptions, like designated higher rates based on age.) So what happens if they repeal most of Obamacare but not those two parts? That's a little tricky to answer.

One possibility is that insurance companies go ballistic. If they're required to sell insurance to everyone, even the chronically ill, at the same price, then they'll soon go bankrupt as sick people flood into the system. So they'll demand that things like the individual mandate and the subsidies be restored, and at some point Republicans will cave in and do it. Obamacare will be crippled, but not completely dead.

The other possibility is that insurance companies won't care much. For one thing, the number of people who (a) have expensive preexisting conditions, (b) don't have employer insurance, and (c) can afford individual insurance in the first place, is probably a fairly small group. What's more, with the help of a friendly administration, friendly state regulations, and friendly court rulings, insurance companies can probably find ways to turn down people for coverage despite the law, and they'll also find stealthy ways to squeeze more money out of certain patients via the use of surcharges or rebates or non-cash benefits or somesuch. They'll be annoyed at having to do this, but it won't be that big a deal, and most health insurance companies don't care about the individual market all that much anyway. They'll live through it, they won't pressure Republicans to do much of anything, and Obamacare will be history.

If that happens, Harold Pollack argues that Republicans will come to regret their actions:

Because Obama spent the first year of his presidency enacting health reform, he and his party came to “own” many things Americans don’t much like about our health care system that have little to do with the specifics of the ACA. Right now, if patients dislike restrictive mammography guidelines, they can blame “Obamacare.” If physicians dislike aggressive cost control or their increasing difficulties practicing outside large care systems, they blame “Obamacare.” Governors who don’t like rising Medicaid costs blame “Obamacare.” Employers who don’t like the rising costs of health coverage blame “Obamacare” too. (These patients, physicians, governors, and employers are wrong to blame the new law, but that’s another matter.)

If the Republicans break health reform, they risk owning the results. And there will still be much to dislike in American health care. Little of what people dislike in our health care system will be improved by curtailing or overturning the ACA. Indeed, the one concrete consequence of overturning the ACA would be to consign tens of millions of people to the ranks of the uninsured. Writing in the New England Journal of Medicine, Harvard health policy researcher (and former Obama administration official) David Blumenthal predicts that if Republicans overturn the ACA next year, “by 2020, 20% of Americans may be uninsured, even as 20% of our gross domestic product is devoted to health care.”

Republicans have never shown any concern about the uninsured in the past, so it's not clear to me that this would really cause them any heartburn. And I imagine they could change the subject pretty quickly anyway. But it's a thought.

Bottom line: If Mitt Romney becomes president, Obamacare will either be fully repealed or almost fully repealed. And even if repeal isn't 100% complete in legal terms, there's a pretty good chance that in real-life terms it will be. Republicans might keep a few pieces of Obamacare that are both popular and fairly inconsequential, but that's about it. For all practical purposes, Obamacare will be dead, and it will be another couple of decades before we get another chance to seriously address heathcare reform in America.

From a "senior banker," explaining to the Financial Times why the bailed-out-and-still-taxpayer-owned Royal Bank of Scotland is determined to pay its CEO a huge bonus in the face of official disapproval:

This person defended Mr Hester as a “highly credible banker”. If the chief executive turned down his bonus it would “demoralise” staff members and would send a signal that they now effectively “worked for an arm of the civil service or a utility, rather than for a bank”.

Roger that. Wouldn't want to demoralize all those tellers and branch managers who will probably break out in a North Korean-esque hail of tears if Stephen Hester receives a bonus that's a pence less than £1.5 million. Probably best just to keep shoveling money out the door as always.

Via Keith Humphreys.

Public Policy Polling is out with their 3rd annual TV news trust poll. Among Republicans, as the chart on the right shows, the shape of the river is simple: they don't trust anyone except Fox News, who they adore. These numbers are spreads, with NBC, for example, garnering 17% trust vs. 69% distrust. Fox News, conversely, garners 73% trust vs. 17% distrust.

Well, you say, maybe this just means that trust in the media is really low these days? Nope. Democrats and Independents may not trust Fox, but they do trust everyone else. The percentages vary, with more skepticism toward some outlets than others, but what non-Republicans don't do is simply dismiss television news en masse as a bunch of lying corporate shills. Paul Waldman explains:

While I was in the car yesterday I turned to a conservative talk radio station, which I recommend all liberals do from time to time. The host, whom I didn't recognize, brought up some innocuous piece of news reporting that appeared in the Politico. As you know if you care about these things, the Politico is a complicated media entity. On one hand, they employ a lot of reporters and they sometimes break interesting stories. On the other hand, they're almost a parody of the inside dope-obsessed Washington media, which finds the question of whether Eric Cantor's press secretary and John Boehner's press secretary are feuding far more compelling than, say, the question of what effects cuts in Medicaid would have on struggling Americans. But when this conservative talk show host mentioned the Politico, he found it necessary to refer to it as "the left-wing rag the Politico."

Here in Washington, almost no one in either party is crazy enough to think that the Politico is actually a left-wing rag, an ideologically-motivated news outlet whose purpose is to advance the liberal cause. And whether this talk show host's listeners know or care much about it in particular isn't my point. My point is this: If you are a consumer of conservative media, you get constant reminders — every day, multiple times a day — that you absolutely must not believe anything you hear or read in any news outlet that is not explicitly conservative.

Everybody — yes, everybody — is subject to confirmation bias. We all get the warm fuzzies when someone tells us something we want to hear, and we resist listening to people who tell us things we don't want to hear. But there's still a difference. As Paul says, "Conservatives and liberals are not equally prone to huddle within their self-reinforcing cocoons." Liberals don't immediately dismiss as a conspiracy everything they hear from the news media that doesn't fit their preconceived notions. They might downplay unwelcome news or even ignore it, but they're still willing to listen to it. Increasingly, conservatives simply aren't. They want to believe the world is a certain way, and they're just flatly not willing to countenance anything that might challenge those beliefs. This is not a healthy development for a modern democracy.

UPDATE: Chart edited to show the correct figure for the Fox News trust/distrust difference (56%, not 73%). Thanks to reader Dan H. for catching the error.

Jonathan Chait:

Mitt Romney’s run of luck during the Republican nominating race is beginning to defy belief. Begin with the fact that Rick Santorum turns out to have won the Iowa caucuses. Finding this out now is approximately 0.001 percent as valuable as having it announced the night of the caucuses. There was an old Fed Ex commercial depicting an aging pool cleaner suddenly discovering a 20-year-old acceptance letter from Harvard he had never received, and imagining the life he could have had. That man is Santorum. He has to wonder if the Iowa vote counters were gay.

What's equally remarkable is that even with Romney's incredible string of good luck, he's still having trouble sealing the deal.

At least, that's the conventional wisdom. But is it really true? Not counting Ron Paul, who will stay in the race to the bitter end because he was never really running for president in the first place, the GOP race is already down to three candidates. In 2008, we still had five major candidates remaining at this point. So Romney is doing at least as well as McCain did. If Gingrich and Santorum drop out by the end of February, things will have unfolded almost identically to 2008.

So maybe Romney isn't quite the pariah that he's been made out to be. But he's still incredibly lucky.

Rick, we hardly knew ye:

Gov. Rick Perry of Texas will end his bid for the Republican presidential nomination on Thursday and endorse Newt Gingrich, two campaign officials confirmed, a decision that could influence the South Carolina primary on Saturday.

....Mr. Perry will not participate in the debate here on Thursday evening, an aide said, and will make the announcement to supporters and contributors in South Carolina at an 11 a.m. news conference. He had been aggressively campaigning across the state, hoping that the first Southern primary would revive his candidacy.

Actually, it turns out we knew ye all too well. I will now use this occasion to take a victory jog for my early and prescient blog post, "Why Rick Perry Won't Win," because, honestly, I don't get the chance all that often. The truth, though, is that Perry turned out to be even more of a moron than I ever suspected. At the very least, I figured he was a canny politician, even if he needed to make the transition from Texas canny to national canny, and he turned out not to be. I'm not sure we've ever quite seen the combination of debate flubs ("oops" etc.) and debate gaffes (Gardasil, immigration) from another candidate that we saw from Perry.

Back to Texas, Rick, though I'm not sure even they want you back at this point.

We got some tentatively good news today:

The number of people seeking new unemployment benefits in the U.S. fell last week to the lowest level since April 2008, a signal that the labor market is continuing the improvement than began late last year. Initial jobless claims fell by 50,000 to a seasonally adjusted 352,000 in the week ended Jan. 14, the Labor Department said Thursday. The decline was the largest in a single week since Sept. 24, 2005.

It's only a single report, but it's consistent with other improving economic news. If Europe can avoid a complete implosion, perhaps soon we will all be Smithians. The chart below, stolen from Steve Benen, shows the long-term trend.

Marianne Gingrich, a woman who has said she could destroy Newt with a single interview, might have decided to do exactly that:

An ABC News executive tells The Associated Press that the network has interviewed Newt Gingrich's second wife and is likely to air the segment Thursday on "Nightline."

This should be good. You can tune in to the Republican debate tomorrow from 8-10 pm on CNN knowing that 90 minutes later you watch Brian Ross talk to Mrs. ex-Gingrich for half an hour in a possibly devastating interview. Everyone on the stage will know it too. That should certainly add a fillip of tension to things, shouldn't it?