Jon Chait points out that Bill Kristol has progressed from predicting Republican victory in 2012 to simply assuming that Obama is toast:

In 2013, we’ll need action on the order of 1933 or 1981. Hoover, Carter, and Obama will go down in the history books as failed one-term presidents. Will Obama’s Republican successor be remembered as acting on the scale of FDR and Reagan?

Actually, that's the least of Kristol's piece. You really should read the whole thing: it's a masterpiece of purple prose and florid historic hyperbole. On the other hand, there's a nontrivial chance that Kristol is right about this. Here's my nightmare scenario:

  1. Republicans run the country for eight years and produce a historic financial collapse that, per Rogoff and Reinhart, will take four or five years to fix even if we attack it vigorously.
  2. Obama is elected president in 2008.
  3. Republicans do everything in their power to prevent any kind of vigorous action,1 thus ensuring that recovery takes more like five or six years.
  4. Because of this, the economy sucks in 2012 and a Republican candidate wins.
  5. Right on schedule, the economy starts to recover around 2014 or so. By 2015 it's morning in America!

This is, sadly, not too far-fetched. And if it happens, Republicans will indeed get the credit. After all, Ronald Reagan widely gets the credit for the original morning in America, even though our recovery in 1983 was due much less to lower taxes than it was to falling oil prices, conventional Keynesian stimulus, and Paul Volcker's decision to ease up on the high interest rates that kicked off the 1981 recession in the first place.

But that's too complicated. In popular myth, (1) Reagan is elected, (2) he lowers taxes, and (3) the economy recovers. What more do you need to know?

1Yes, yes, Obama and his economic team should have done more too. But keep your eyes on the prize, people. Obama's timidity is but a single gnat compared to the locust swarm of Republican obstructionism over the past three years.

Jon Fasman joins the throngs of people wondering just what it is that older white conservatives are really nostalgic for:

Nostalgia for mid-century America and racism are not synonymous. But what exactly do these voters want? Do older white conservatives miss the high taxes and powerful unions of mid-century America? Dismissing Soviet power is easy today; then it was not....It's true that America today is in some ways profoundly different from the one into which John Boehner was born in 1949. And I am willing to concede that life may well have been better for Mr Boehner, and for many other white, Christian heterosexual Americans back then (although I wonder what chance a 60-year-old Catholic son of a bartender from Reading, Ohio would have had at becoming Speaker of the House in 1949). Quotas kept immigration from Asia, Latin America and Africa low, and of course blacks, Jews, Catholics, women and gays knew their place. Is that what older white conservatives miss? And if not, what, exactly, do they want their politicians to "champion"?

There's something about this conversation that irks me. You want to know what older white conservatives miss about the America of half a century ago? It's just not that hard. They look back nostalgically on an era when TV was universally wholesome and family friendly. When everyone went to church. When the police kept order without having to worry about the ACLU and Miranda rights. When no one had to wear seat belts or bike helmets. When you could put up a shed in your backyard without worrying about building permits or EPA regulations. When the Big Three were really the Big Three. When universities were places that taught you to be part of the establishment. When kids said prayers every day in school. When women raised the children and didn't expect men to help around the house. When there was no such thing as a crack epidemic. When you didn't have to worry about global warming or recycling or energy conservation. When you could tell an ethnic joke without looking around nervously first. When children went outside and played stickball instead of huddling glassy-eyed around a computer monitor playing lurid video games. When immigrants didn't march on the street demanding their "rights." When pornography was carefully hidden away in brown paper wrappers. When shiny new middle-class suburbs were springing up every day, filled with affordable houses financed via GI loans. When Europe was still grateful to us for winning World War II. When you weren't faced on a weekly basis with yet another electronic gadget that you had to try to figure out. When you weren't surrounded by gays and lesbians who insisted on carrying on in public. When you didn't have to worry about the government taking away your guns.


None of this is really my cup of tea, and as you'll note, lots of it is indeed bound up with racial, ethnic, and gender fears. But then again, lots of it isn't. And why not? The world is a complicated place and there's no reason answers have to be simple. There's nothing beyond the pale in suggesting that a certain amount of tea party sentiment is driven by (usually) unvoiced race/gender/ethnic grievances. There's plenty of research to back this up, and plenty of common sense too. At the same time, there are lots of other things that drive tea party sentiment that have nothing at all to do with this stuff.

Again: the world is a complicated place. People have lots of motivations for the things they do, some of them shabby, some of them honorable, some of them merely personal preferences or products of self-interest. Focusing only on the shabby motivations is as unfair as pretending that they're mere inventions of your opponents' febrile imaginations. It's all there, it's all always been there, and it's all open for discussion.

The world is a complicated place.

Losers Are Easy to Spot

A new NBER paper suggests that you can make a lot of money by following the crowd:

We study the predictive power of approximately 2.5 million stock picks submitted by individual users to the "CAPS" website run by the Motley Fool company ( These picks prove to be surprisingly informative about future stock prices. Indeed, a strategy of shorting stocks with a disproportionate number of negative picks on the site and buying stocks with a disproportionate number of positive picks produces a return of over nine percent per annum over the sample period.

But wait. Negative and positive recommendations are asymmetrical:

These results are mostly driven by the fact that negative picks on the site strongly predict future stock price declines; positive picks on the site produce returns that are statistically indistinguishable from the market. A Fama French decomposition suggests that these results are largely due to stock-picking rather than style factors or market timing.

Take this for what it's worth. Which is to say, probably nothing now that it's been written up. Still, it's interesting stuff: apparently amateur stock pickers aren't that great at picking winners, but they sure know a loser when they see one.

(Via Matthew Kahn.)

Obama's Missed Chance

There's a decent case to be made that President Obama has done about as well as he realistically could have on the economy. Sure, he underestimated the depth of the Great Recession, but it didn't matter that much. Congress was never going to pass a much larger stimulus than it did, it was never going to pass cramdown, bailing out the banks was ugly but necessary, etc. etc. Given the political realities, what more of any significance could he have done?

Today Brad DeLong produces about the best answer I've seen yet:

  1. Use Reconciliation to get a second stimulus through Congress in the fall of 2009.
  2. Expand the PPIP to do $3 trillion of quantitative easing through the Treasury Department.
  3. Have a real HAMP to refinance mortgages.
  4. Use Fannie and Freddie to (temporarily) nationalize mortgage finance, refinance mortgages, and rebalance the housing market.
  5. Announce that a weaker dollar is in America's interest.
  6. Nominate a Fed Chair who takes the Fed's dual mandate seriously and pursues policies to stabilize the growth of nominal GDP.
  7. Appoint Fed governors who take the Fed's dual mandate seriously and support policies to stabilize the growth of nominal GDP.
  8. Take equity in the banks in January-March of 2009 and keep them from lobbying against financial reform.
  9. Use Reconciliation to pass an infrastructure bank.
  10. Use TARP money as a mezzanine tranche to fund large-scale additional aid to states and localities to reduce their fiscal contractions.

My own guess is that #6 and #7, though desirable, probably wouldn't have made too much difference. And #1 and #9 both would have required reconciliation instructions to be written by April 2009. That was only a couple of months after the stimulus bill had passed, and at the time the House and Senate were willing to include reconciliation instructions in the budget resolution only for healthcare and education funding. Perhaps Obama should have pushed harder for open-ended instructions, but at the time the administration and Congress both thought the 2009 stimulus would be enough. Obviously that was a mistake, but broadly speaking, that was the mistake, not all the subsequent details that resulted from that original misjudgment.

Still, even if my understanding of the reconciliation process is right — and I'll accept correction from anyone who's an expert — that leaves six strong ideas plus two more that would have been worthwhile even if their effect would have been modest. Not bad.

Thoreau found himself trapped this weekend with a friend who kept regaling him with the wonderfulness of smart phone apps that he didn't want:

The funniest part, though, was when he told me of this awesome new app to help you find your phone: You send a text from somebody else’s phone, and your phone starts ringing. I informed him that there’s an even simpler app, one installed on landlines as well as mobiles, called “the phone.” And when you use it to call your phone, it rings. 

Yes, but the kids these days don't like using phones to talk to each other. By now, a lot of them have probably forgotten that phones even have a calling function. So the text thing is probably really handy.

After Barack Obama won the 2008 election, conservatives started up a drumbeat of conspiracy theorizing about a secret liberal plan to reinstate the Fairness Doctrine. The idea, apparently, was that this would put Rush Limbaugh and other conservative talkers out of business and thus ensure both the perpetual domination of the Democratic Party in Congress as well as Obama's plan to become president-for-life. Don't believe me? The cartoon on the right is typical of the time. Click here for further pictorial proof.

This particular paranoid fantasy didn't get a lot of attention because there were so many other better ones flying around, but I had a loyal reader who kept emailing me about this, so I wrote a few posts about it. Today, I'm happy to report, Obama's FCC, responding to an Obama executive order, has finally nailed the coffin shut on the Fairness Doctrine:

The FCC gave the coup de grace to the fairness doctrine Monday as the commission axed more than 80 media industry rules.

Earlier this summer FCC Chairman Julius Genachowski agreed to erase the post WWII-era rule, but the action Monday puts the last nail into the coffin for the regulation that sought to ensure discussion over the airwaves of controversial issues did not exclude any particular point of view. A broadcaster that violated the rule risked losing its license.

....Monday’s move is part of the commission’s response to a White House executive order directing a “government-wide review of regulations already on the books” designed to eliminate unnecessary regulations.

Will this persuade anyone? Probably not. They'll just insist that Obama really did plan to bring back the Doctrine, and it was only their relentless opposition that forced him to back down. What's more, this is all just a feint. Obama may have lost a battle, but behind the scenes the war still goes on.

For the rest of us, though, this is the final chapter in the story of the Fairness Doctrine. Adios.

There are tyrants who got their position by inheritance, there are tyrants who got their position by election, and then there are tyrants who got their position by seizing power. With the apparent demise of Muammar Qaddafi, John Quiggin notes that there are damn few of the third kind left:

Now, there’s Mugabe clinging to a share of power in Zimbabwe, a couple of shaky-looking strongmen in the ‘stans, and that’s about it for tyrants in the classical sense (feel free to point out cases I’ve overlooked). There’s Kim jr, Assad jr and Castro minor, the first two of whom are certainly tyrannical in the ordinary modern sense, but all of whom inherited their positions, as of course, did the remaining absolute monarchs. More surprising to me are the number of cases where classic tyrants, having established one-party states, have been succeeded by self-selecting oligarchies — China is the most striking example. Looking at the evidence of the past, I would have predicted that such oligarchies would either collapse in short order or see the emergence of a new tyrant, but there is no sign of that for the moment.

I don’t have a good theory to explain the rise of so many tyrants in the modern period, beginning with Bonaparte (or maybe Cromwell), or the sudden disappearance of this form of government from around the mid-1960s. But it seems that it’s a development worth noting.

Is this true? In comments, Doug M proposes a whole slew of additional tyrants who have seized power and kept it. By country: four out of five of the stans, Cambodia, Zimbabwe, Ethiopia, Eritrea, Chad, Equatorial Guinea, Angola, Uganda, Cameroon, the Central African Republic, Sudan, both Congos, Rwanda, Djibouti, Algeria, Belarus, Fiji, and Burma. "A lot fewer than 40 years ago," he says, "but too many to claim that this form of government is 'disappearing.'"

I can't referee this, but thought I'd throw it out for comment. It's an interesting conjecture and an interesting rebuttal. Even if John miscounted in his original post, you can still say that (a) there are many fewer tyrannies that originated in a seizure of power than there used to be, and (b) outside of Africa there are way fewer. But why?

The Financial Times, speaking ex cathedra, says that the outlines of a stimulus deal are plain: "Cut the payroll tax, extend jobless benefits and subsidise new jobs; then curb entitlement spending by raising the retirement age." Matt Yglesias is unimpressed:

In my view, raising the retirement age is basically the worst possible form that credible longer-term fiscal restraint could take. The way this works is that if you’re rich, the benefit cut in dollars and cents terms is very small since your life expectancy at 65 is already high. But if you’re poor, the benefit cut is much more severe. Except in real psychological terms it’s even more regressive than that, since poor people are more likely to have jobs that are physically taxing and generally unpleasant. So it sounds like a stinker of a deal to me.

I'm perpetually amazed by the parade of pundits and talking heads who continue to insist that the first and best way of attacking entitlement spending is to raise the retirement age. In fact, as Matt says, it's probably the worst possible way of doing it: not only does it produce pretty modest savings, but it's savagely unfair to the poor and the working class. As the chart on the right shows, the life expectancy of upper income earners has gone up a lot over the past few decades, so even if you increase their retirement age they still have a lot more retirement years than they used to. But low earners? Their life expectancy has barely gone up at all. If you raise their retirement age, it entirely wipes out the tiny gains they've made. The bottom line is that high earners get longer retirements while poor people just tread water.

And it's even worse than that. Not only do high earners get long retirements, but they've mostly spent their lives working in cushy jobs that don't wreck their bodies and are often fairly interesting. An extra couple of years of work isn't that big a deal for them. But for truck drivers and coal miners and nursing home workers? That's hard work that's hard on their bodies, and it's absolutely no fun. An extra couple of years of that is something to shudder at.

But wait! It's even worse than that! If raising the retirement age were the only way to address entitlement spending, maybe we'd have to bite the bullet and do it. But it's not. There are dozens and dozens of better ways to do it. Social Security is quite easy to fix without touching the retirement age: there's a nice list of options here from the CBO, and you'll note that raising the retirement age is barely even a blip compared to all the other options. Medicare is more complicated, but it's still the case that raising the retirement age (a) doesn't save very much money, since healthcare costs go up rapidly the older you get, and (b) doesn't change the rate of growth of Medicare, which is our key problem. Like it or not, the answer has to be found elsewhere.

So why does this zombie idea continually resurface with such clocklike predictability? Two reasons, I'd guess. First, it's a perfect sound bite. "Raise the retirement age" is a whole lot easier to understand than "Change the AIME bend points, reduce the top two PIA factors, and raise the taxable maximum to cover 90% of earnings." So that's what we get.

Second, all the loudest voices come from highly educated, white-collar folks who write and talk for a living. They belong to, and speak for, a class that has interesting jobs that don't tax their bodies, probably aren't planning to retire at 65 anyway, and in any case, get paid well enough that they can retire early on their investments if they want to, regardless of Uncle Sam's official retirement age. So it just slips their mind that a higher retirement age would be a way bigger deal to other people than it is to them. Basically, they need to get out more.

Raising the retirement age is an idea that really needs to be buried once and for all. Social Security's retirement age is already scheduled to rise to 67, and for medical care, age 65 is old enough already. There are plenty of other ways of tackling entitlements, ways that are both fairer and more effective. Anybody who really cares about this stuff needs to understand that.

Can We Fix the Economy?

I don't really have anywhere to go with this post, but I've been musing for the past few days over all the theories floating around that imply — or are used by others to imply — that we really can't do much of anything to help the economy recover, so there's not much point in pursuing either monetary or fiscal stimulus. Here's a brief list:

  • The basic Rogoff/Reinhart observation that financial collapses due to asset bubbles just take a long time to work through. Given the size of the 2008 collapse, historical evidence suggests that it's going to take five or six years to recover, and that's that.
  • The Tyler Cowen "Great Stagnation" hypothesis. We've picked through all the low-hanging economic fruit over the past century, and like it or not, we're now entering an extended period of low productivity growth because we're not inventing lots of cool new stuff.
  • The related (I think) investment drought hypothesis. Ben Bernanke famously ascribed the housing bubble partly to a "savings glut" from overseas, and the flip side of that is an investment drought. The reason financial assets became so popular is that, even with all that money sloshing around the system, there simply weren't very many high-quality investment opportunities available in firms that make real-world goods and services, and that hasn't changed.
  • The peak oil theory. Production of oil has pretty much maxed out, which means that every time the economy gets moving it will create a spike in oil prices, which will send the global economy back into recession. We're now in a continual oil-fueled boom/bust cycle that limits our long-term growth rate.
  • The Michael Mandel contention that increased consumption simply leaks out of the economy to China and other countries. Stimulating consumption in the U.S. just won't do much for the American economy if all those extra dollars mostly get spent on overseas goods and services.
  • Various structural explanations that suggest the United States has an increasing number of workers who flatly don't have the skills to do anything useful in the modern economy — a problem that was temporarily masked by the housing bubble and was only fully exposed when the economy collapsed. This takes various forms, both weak (workers can be retrained but it will take a while) and strong (forget it, they're simply useless).
  • The self-serving group of partisan hack theories: regulatory uncertainty is the real problem, taxes are too high, the EPA is strangling America, hyperinflation is just around the corner, markets are cowering in fear of future deficits, etc. etc.

Please note that I don't mean to suggest that Reinhart, Rogoff, Cowen, or Mandel are themselves arguing that fiscal and monetary policy are pointless. I'm just using their names for some of these ideas because they're the ones most associated with them.

Anyway, as I said, I'm not really going anywhere with this right now. I'm just collecting theories. Any others to add to the list?

From Rick Perry, on August 14th:

Have you read my book, "Fed Up!" Get a copy and read it.

From Rick Perry's communications director, Ray Sullivan, on August 18th:

The book, Mr. Sullivan said, “is a look back, not a path forward.” It was written “as a review and critique of 50 years of federal excesses, not in any way as a 2012 campaign blueprint or manifesto,” Mr. Sullivan said.

This has been making all the usual rounds today, and why not? It's unusually dumb. Given the amount of — well, let's call it inconvenient bluster in the book — I guess Sullivan has to give this a try, but does he really think Perry can disown a book that he released nine months ago? That's not very swaggering and tea partyish. Sounds like Mr. Perry is all hat and no cattle.

Which of course makes this the perfect time for Sarah Palin to enter the race. We could use a common sense conservative who doesn't kowtow to the lamestream media. There's a real shortage of that in the Republican contest right now.