Here's the latest on George Bush's Medicare prescription drug program:

Even as health costs continue to rise, Medicare beneficiaries will see the average price of a Part D drug plan decline slightly next year, the Obama administration announced Thursday....Popular with beneficiaries, the program has also proven far less costly than budget analysts originally expected, in part because of competition among private plans and the growing use of less expensive generic drugs.

....Though celebrated by the Obama administration, the widely acknowledged success of the Part D program is also fueling calls from conservatives to expand privatization of the Medicare program. Many House Republicans pointed to the drug program in pushing their plan to replace Medicare with a system of vouchers that seniors would use to purchase private health coverage.

These two paragraphs encapsulate perhaps my biggest frustration with public policy these days. On the one hand, I feel like I should acknowledge that I was wrong about the architecture of Part D. I believed that routing the benefit through hundreds of private insurers would prove both confusing and costly. But in the end, the confusion proved manageable once the kinks were worked out of the initial rollout, and competition among insurers has kept the price of the program significantly lower than expected. (Competition isn't the only reason it's come in under budget, but it's clearly a factor.)

So I'd like to take that as a public policy lesson, something we can all learn from. But where's the similar kind of acknowledgement on the other side? Nowhere. We already know what an architecture like Part D does for Medicare as a whole: it's basically Medicare Advantage, which has been a huge boondoggle. After more than a decade, the federal government still has to heavily subsidize Medicare Advantage providers, and the evidence is overwhelming that it fails to provide benefits anywhere close to its additional costs. It just doesn't work.

So that's a public policy lesson too. But there are no takers on the conservative side of the aisle. They simply ignore it, and instead insist on using the success of Part D to continue pressing for their ideological hobbyhorses.

This is pretty much the reason I'm no longer a neoliberal, but a recovering neoliberal. The neos believed that liberals should devote a lot of energy to getting public policy right, even if it meant gutting a few sacred cows along the way. The idea was that the public would never support an activist government unless they were convinced that it was being run as leanly and efficiently as possible. The problem is that this only works if the other side plays ball. After all, what's the point of agreeing to abolish a poorly working program if conservatives refuse to meet halfway and try to build a better program in its place? For most liberals, even a poorly working program is better than no program at all.

Politically, then, technocratic neoliberalism just doesn't work given the true-believer obduracy of the contemporary Republican Party. So we're left with trench warfare instead and no one's happy. Conservatives are unhappy because liberals keep defending programs that have poor track records, while those of us who suffer from the neoliberal temperament are unhappy because we're too busy fending off knife attacks to have a real chance of reforming the delivery of government services. Welcome to the modern world.

Good Obama, Bad Obama

A couple of days ago I said that Barack Obama had done more for the liberal agenda in two years than George Bush did for conservatives in eight. Today, Bruce Bartlett says that in practice Obama has "governed as a moderate conservative." So who's right?

Well, we both are. Let's review the Obama record:

He passed a big stimulus bill.....but was too timid to make it as big as it needed to be.

He continued the pullout from Iraq.....but sent 50,000 more troops to Afghanistan, amped up the drone attacks in Pakistan, and committed the United States to yet another foreign war in Libya.

He ended torture.....but kept up the NSA surveillance program and military tribunals for Guantanamo detainees.

He passed a historic healthcare law.....but based it on conservative principles and failed to fight for a public option.

He ended DADT.....but continues to merely "evolve" on the subject of gay marriage.

He pressed hard for financial reform.....but proposed legislation that was too weak to make a serious difference

He called out bankers as fat cats.....but caved to banking interests on foreclosure cramdown.

He beefed up the NLRB.....but declined to fight hard for EFCA.

He got agreement on a second stimulus in 2010.....but agreed to construct it nearly entirely of tax cuts.

He supported cap-and-trade legislation.....but handled it so lamely that even Republican supporters finally turned on him.

I could go on like this forever, and I'm sure my readers can add a thousand bullet items like this in comments. The plain fact is that Obama has presided over a historic amount of liberal reform, but it's also a plain fact that he's routinely acceded to conservative dogma and conservative demands — sometimes as part of a compromise to get half a loaf, sometimes because he genuinely seems to sympathize with those demands.

It's just not a simple record to characterize, and there's always going to be plenty of ammunition for critics and supporters on both sides. You just have to decide which half of the list above is most important to you and then open fire.

A few months ago I wrote a piece for the magazine arguing that the decline in unionization over the past three decades has been a key factor in the decline of the American left over the same period. But it's a hard case to prove because there are so many moving parts to it. So I was intrigued earlier this week when my colleague Josh Harkinson linked to a new study that attempts to quantify the effects of unionization on income inequality using a rigorous regression analysis of census data.

The study comes from Bruce Western and Jake Rosenfeld and was published this month in the American Sociological Review. The authors use a model that accounts for both individual membership in unions as well as overall unionization rates in specific industries and regions. It also controls for education, age, race, ethnicity, and gender, which allows them to estimate the effect of unionization both between groups (e.g., the evolution of income inequality between high school dropouts and high school grads) and within groups (e.g., the evolution of income inequality within the entire subset of high school grads).

Once their model was in place, Western and Rosenfeld could manipulate their variables to estimate what income inequality would look like if union density had remained at its 1973 level. So what did they find? Answer: Among men, if you account only for the effect of individual membership in unions, it would be about a fifth lower, which agrees pretty well with previous estimates. But if you also account for the effect of unions on surrounding nonunion employers (who often raised wages to compete with union employers and to avert the threat of unionization in their own workplace), the effect is larger: Unionization at 1973 levels would decrease income inequality by a full third. You can see this in the chart below. For intragroup differences (which account for nearly the entire effect of unionization) the top line shows the actual rise of income inequality since 1973, while the red line is a prediction of what it would look like if union density were still at 1973 levels:

The effect of unionization on women is less dramatic because women were never unionized at the same rate as men. For them, increasing returns to education are a bigger factor in rising income inequality than deunionization. For men, however, deunionization has had a huge impact: "The decline of the US labor movement has added as much to men's wage inequality as has the relative increase in pay for college graduates," the authors say.

Western and Rosenfeld's explanation for this is similar to Jacob Hacker and Paul Pierson's in Winner-Take-All Politics, last year's best book on modern political economy. Roughly speaking, there's a direct economic effect of unionization on wages, but there's also an effect of unions on the political system that indirectly affects wages. Western and Rosenfeld put it like this:

[Our] analysis suggests that unions helped shape the allocation of wages not just for their members, but across the labor market. The decline of US labor and the associated increase in wage inequality signaled the deterioration of the labor market as a political institution.…The de-politicization of the US labor market appears self-reinforcing: as organized labor’s political power dissipates, economic interests in the labor market are dispersed and policymakers have fewer incentives to strengthen unions or otherwise equalize economic rewards.

…[Prior to 1973,] unions offered an alternative to an unbridled market logic, and this institutional alternative employed over a third of all male private sector workers. The social experience of organized labor bled into nonunion sectors, contributing to greater equality overall. As unions declined, not only did the logic of the market encroach on what had been the union sector, but the logic of the market deepened in the nonunion sector, too, contributing to the rise in wage inequality.

In other words, deunionization has allowed income inequality to rise partly because unions are negotiating wages for fewer people than they used to, and partly because unions no longer have the power to force the political system to pay attention to the needs of the middle class. But if income inequality has to be reduced in order for middle class wages to grow—and it does—and if robust middle class wages are a key driver of the liberal project—and they are—then we're all in big trouble. Mass unionization is gone, and it's not coming back. This means we still need something to take its place, and we still don't have it. Until we do, the progressive movement will continue to tread water.

Just to make sure that everyone is still clear about this, here's the current trajectory of politics and the American economy stripped down to its bare essentials:

2001-2008: Republicans run economy into ditch.

2008: Obama elected.

2009-2011: Republicans respond by doing everything possible to prevent him from fixing things.

2012: Republicans use lousy economy as campaign cudgel against Obama.

2012: Republican candidate wins presidency (maybe).

Sure, sure, Obama deserves some blame for not being aggressive enough etc. etc. I get it. But that's a nit within the big picture. The basic story is the one above. It's still kind of hard to believe.

Our hardworking members of Congress have finally agreed to keep the FAA running:

Under a deal Reid made with House Speaker John Boehner (R-Ohio), the Senate will pass the House bill that includes cuts to rural flight service to airports in Nevada, West Virginia and Montana. But Transportation Secretary Ray LaHood will use his authority to waive the airports from the cuts, ending a 13-day impasse.

....The House and Senate passed a 20th short-term extension of FAA funding in May when the chambers both passed versions of the longer-term bills that were drastically different. The House version included provisions that would undo changes to labor rules that were adopted by the National Mediation Board to make it easier for railroad and airline workers to unionize.

So this is now the 21st short-term funding bill, and it will pass only because its actual provisions are meaningless. Yay Congress. A real bill remains held up indefinitely because Republicans are more interested in union busting than in — well, than in almost anything.

There is nothing — absolutely nothing — that Republicans feel more strongly about than union busting. That includes taxes, abortion, welfare spending, overseas wars, gun rights, tort reform, oil drilling in Alaska, and every other alleged conservative hot button. In the world of actual action — as opposed to the world of rhetorical fireworks — the only thing that even comes close is keeping taxes on the rich low.

This should tell you something about the real-world power of organized labor in the broader political economy. It's something conservatives have understood well for a long time.

So what can President Obama do to show that he's not a wimp? Jonathan Bernstein suggests the he ignore the "we're technically not in recess because we're holding pro-forma sessions every few days" ploy and just go ahead and make a few recess appointments anyway:

There’s nothing at all stopping Obama from calling this pro forma non-recess recess a farce, saying that for all practical purposes it’s really a recess (and after all, it certainly is in the sense that the Senate has no intention of working on nominations for the entire month), and appointing someone anyway....In my view, the president should start with a relatively uncontroversial pick — say, his commerce secretary appointee, John Bryson. And he should make it clear: He’ll continue with more, plenty more, if Republicans continue their unprecedented levels of obstruction.

I'm all for this. Not because I care about Obama showing off how big his package is, but because I'm in favor of just about anything that stirs up a fight over the absurd impasse we've reached on presidential appointments. As far as I'm concerned, the constitution requires the Senate to act on presidential nominees in some kind of reasonable time and it requires a simple majority vote for confirmation. It's not an optional thing. So bring it on.

More broadly, though, I think it's worth pointing out that this business of displaying toughness is an asymmetric war. Opposition parties in Congress can do pretty much anything they want and pay no price as long as they keep public opinion under control. Presidents can fight back a bit, but frankly, there's not that much they can do. No matter how mad he gets, Obama just doesn't have a lot of leverage to hurt John Boehner in any serious way.

Unfortunately, the flip side is different because presidents actually want to accomplish stuff, not merely bring the other side to a halt. Think about Obama's first two years in office. With the exception of a few weeks at the end of 2009, he never had 60 votes in the Senate. That meant that to get anything done he always needed at least two or three Republican votes. He didn't get any of those votes for healthcare reform, but he did get them for the stimulus, for Lily Ledbetter, for Dodd-Frank, for DADT repeal, for START, and for several other bills. (Student loan reform got passed via reconciliation and didn't need any Republican votes.)

So what would have happened if Obama had taken a confrontational, take-no-prisoners stand from the very beginning? One possibility is that the public would have swooned, Republicans would have been overwhelmed, and he would have gotten a lot more done. And I guess that's possible. But what's far more likely is that if he had turned into a partisan warrior then even the few moderate Republicans left in the Senate would have toed the party line and refused to support anything with Obama's name on it. That's what happens when you amp up the tribal lines.

How would that have worked out in the end? I guess there's no telling. But if I had to bet, I'd say that Obama would have gotten a whole lot less done. David Corn provides the White House line on all this here, in a piece worth reading. I'd say that Obama has been more accommodating than he should have been, but the truth is that he just doesn't have the luxury of lashing out. He's got a country to run, after all.

A couple of days ago I accidentally stumbled onto an odd bit of conservative outrage over the Obama administration's alleged attempt to force farmers to get commercial drivers licenses if they wanted to continue operating their tractors and combines. It wasn't true, but that didn't really matter. The outrage had long since become self-sustaining.

Anyway, as I was googling my way through the woods trying to figure out what this was all about, I kept coming across references to Agenda 21, which was apparently some kind of nefarious UN scheme for world domination or something. But I wanted to stay focused on the whole farm thing, so I didn't look into it beyond a quick peek at Wikipedia, which told me it was a "comprehensive blueprint" for sustainable development adopted in 1992. That's a long time ago, and not much has happened since then, so it didn't really seem like much of a menace.

But I was wrong! By coincidence, Tim Murphy has a piece up today about.....Agenda 21. And Michele Bachmann. And light bulbs. Here's a taste:

To some conservatives, Agenda 21 became something far more nefarious—a gateway to a global government built on a radical doctrine of secular environmentalism.

As these conservatives saw it, the agreement paved the way for the entire planet to be controlled by a central bureaucracy: Humans would be cleared out of vast swaths of settled areas—like the Upper Peninsula of Michigan, for example—and instructed to live in "hobbit homes" in designated "human habitation zones" (two terms embraced by tea party activists). Public transportation would be the only kind of transportation, and governments would force contraception on their citizens to control the population level. A human life would be considered no more significant than, say, that of a manatee. "Sustainability," the idea at the heart of the agreement, became a gateway to dystopia.

I guess this is the new Trilateral Commission. Or the new NAFTA superhighway. Or something. In any case, there's more, so much more at the link. I can't believe that Glenn Beck never picked up on this. Or did he?

As financial sectors grow, they generally get more robust and more efficient at allocating capital. This is a boon for economic development, which is why a vigorous, well-managed banking system is a key component of all modern capitalist economies. But can a financial sector get too big? That is, not just big enough that the returns to scale become small, but big enough that they actually become negative, hurting economic development? A paper published a few months ago by Jean-Louis Arcand, Enrico Berkes, and Ugo Panizza suggests the answer is yes:

Our results show that the marginal effect of financial development on output growth becomes negative when credit to the private sector surpasses 110% of GDP. This result is surprisingly consistent across different types of estimators (simple regressions and semi-parametric estimations) and data (country-level and industry-level). The threshold at which we find that financial development starts having a negative effect on growth is similar to the threshold at which Easterly et al. 2000 find that financial development starts increasing volatility. This finding is consistent with the literature on the relationship between volatility and growth (Ramey and Ramey 1995) and that on the persistence of negative output shocks (Cerra and Saxena 2008).

If their results are right, the financial sector in the United States is about twice as large as it should be. And it's not just us: they say that their findings suggest that "all the advanced economies that are now facing serious problems are located above our 'too much' finance threshold." The chart above shows the full set of countries that are above or, in some cases, way above their threshold.

Food for thought. The full paper is here. (Via Felix Salmon.)

Raise the Gas Tax!

No one in Congress wants to raise the gas tax even though our transportation infrastructure is crumbling and revenue from the tax has been falling. Brad Plumer rounds up some substitute ideas:

One idea is a vehicle-miles traveled tax, which would track driver habits via GPS and charge per mile driven....Another is to charge some sort of congestion fee on overclogged highways....Mica, for his part, has suggested extending the Build America Bonds program....A bipartisan team affiliated with the Carnegie Endowment has proposed an upstream tax on oil combined with a variable gas tax that shrinks when oil prices rise and expands when oil prices plummet.

Uh huh. Or we could, you know, just raise the gas tax. We are ruled by idiots.

From Paul Waldman, after noting Rick Perry's aggressively maintained more-Texas-than-thou persona:

It's true that voters in the Northeast, Midwest, and West may have an irrational, kneejerk reaction against his voice or even just his home state, without actually knowing whether that reaction is justified. But the truth is, in his case, it pretty much is.

For the record, I don't think Perry can win the Republican nomination, and I know that he can't beat Obama in a general election. I'd love to see him try, though.