Was Newt Gingrich's comment about Barack Obama being a "food stamp president" a racist dog whistle? For chrissake. Of course it was. But I'm a little curious about why he's only now getting so much attention for it. Back in October 2010 Gingrich said that Democrats are "earning the title of the party of food stamps." In May 2011 he called Obama "the most successful food stamp president in American history" (and David Gregory called him out for using "coded racially-tinged language.") I don't know if it goes back even farther than that, but this has certainly been a well-honed applause line of his for at least the past year or so. It was no off-the-cuff zinger.

The World Bank is pessimistic. They've reduced their 2012 growth forecast for Europe by 2.1 percentage points and for other rich countries by about a point. But this is only their mildly pessimistic scenario, and it assumes that the crisis in the eurozone is reasonably well contained. But what happens if it isn't? Here you go:

In a second scenario (box table 4.2) the freezing up of credit is assumed to spread to two larger Euro Area economies (equal to around 30 percent of Euro Area GDP), generating similar declines in the GDP and imports of those economies. Repercussions to the Euro Area, global financial systems and precautionary savings are much larger because the shock is 6 times larger. Euro Area GDP falls by 6.0 percent relative to the baseline in 2013. GDP impacts for other high-income countries (-3.6 percent of GDP) and developing countries (-4.2 percent ) are less severe but still enough to push them into a deep recession. Overall, global trade falls by 2.6 percent (7.5 percent relative to baseline) and oil prices by 24 percent (5 percent for food).

So there you have it. If the eurozone crisis turns out to be worse than we think, growth in the EU will be nearly 6 points below their last forecast and growth in other rich countries — including us — would be more than 3 points below their last forecast. That's enough to send us skittering back into a recession regardless of whether our economic fundamentals are in good shape or not.

How likely is this? That's more a political question than an economic one, which makes it more than usually difficult to forecast. Against all odds, I still think that European leaders understand the stakes and will avoid the worst once they run out of all other choices. But I'm not sure what odds I'd put on that.

Yesterday I wrote that Saudi Arabia has very little spare oil production capacity, which means it also has very little ability to affect world oil prices. On Twitter, Ed Crooks of the Financial Times took issue with that, suggesting that Saudi Arabia has spare capacity of 2 million barrels per day, about what the Saudi oil minister says. (He actually claims 2.2 million barrels of immediate spare capacity and another 700,000 barrels that could be brought online in a few months.) Unfortunately, there's no way to resolve this definitively since the Saudis simply don't share enough information publicly to judge whether they're telling the truth. My own guess, not to put too fine a point on it, is that the Saudis are lying. They may have a million barrels a day of spare capacity right now (mostly in heavy crude), but I'd be surprised if it were much more than that.

I might be wrong about that, of course. Regardless, though, Stuart Staniford points out that Saudi Arabia still has pricing power, it's just that they don't have much power to move prices down. They do have the power to move prices up:

If you are betting on oil prices falling at the moment (for example if you judge that a European recession and a Chinese slowdown will put a crimp in demand), then you've got to be very aware that during the last recession Saudi Arabia (with a few key OPEC allies) cut production sharply at the end of 2008. After falling as low as $40 in the aftermath of the financial crisis, the Saudi production cuts brought them back to around $70 give or take — fairly consistent with the $75 that King Abdullah had said was a fair price in November 2008.

So, now, in betting against oil prices you'd have to worry that the one power Saudi Arabia does have is to make sure that oil prices don't go far under $100 for very long. Since Brent is about $110 as of this writing, that leaves a lot more room for it to increase than to decrease.

The point of the original Brad Plumer post that I linked to was that the Saudis (and some other OPEC countries) are now addicted to high prices and probably have an incentive to keep them up. And that's true. Even if they're mostly pumping flat out, they still have the ability to cut production if they think prices are falling too low. Given the leakiness of OPEC production "quotas" in recent years, it's not clear how long they could keep this up, but they could probably keep it up for a while. So if Saudi Arabia says it doesn't want oil prices to fall below $100, that might be meaningful after all. In my haste to pour scorn on the Saudi oil minister last night, I lost track of that.

(At the same time, when the Saudis say they can make up for any reductions in Iranian oil supply, I'd be very skeptical. Maybe they can, but I think the bulk of the evidence suggests that they simply don't have the production capacity they say they have. Hopefully we won't have to find out anytime soon.)

Is President Obama playing a "long game," as Andrew Sullivan says, or mostly just reacting to political realities, as I think? A Democratic staffer emails to take issue with me on one particular topic:

The big place where I think Sullivan is right and you’re wrong is on deficits/ jobs/ confrontationalism. After the 2010 elections, I think any spending whatsoever, on jobs or anything else, paid for or not, would have been literally laughed out of town and had Senate Democrats racing to the microphone to denounce it. Obama therefore dove into the deficit fight. It was virtually certain, regardless, that there were going to be long-term deficit cuts, and for that matter that House Republicans were not going to give in on revenue without major concessions. So Obama began a process that inch by inch, day by day, painted Republicans into a hated obstructionist corner, and in the end Obama basically gave up what he was going to have to give up all along.

The end result was that spending cuts happened, which I actually think in the long term there’s a sound progressive policy rationale for; they were backloaded so they wouldn’t hurt the economy in short term; the deficit debate was largely taken off the table; a half-trillion dollar stimulus package became a potent weapon rather than a laughable liability; and after years of Republicans obstruction without consequence they are suddenly paying a price for it every time and it has becoming a defining tenet of the Republican brand. As a result, Obama can bash the crap out of them while not sacrificing the mantle of being a guy who means what he says rather than being a cheap partisan.

Obama actually pivoted to talking about deficits a year earlier than this, during the 2010 State of the Union address, which was likely a mistake even if you buy this staffer's argument. I'm not entirely convinced myself, but he makes some good points that I thought were worth passing along.

Brad Plumer reports that Saudi Arabian officials used to say they wanted oil prices to be around $75, but now they say they prefer $100. What's up with that?

In a word, spending. Over the past few years, the Saudi government has taken advantage of sky-high crude prices to spend lavishly on public works and social programs to stave off the unrest that’s capsizing parts of the Middle East. As a result, the country now needs prices of at least $80 per barrel to balance its budgets....It’s not just the Saudis, either. A 2011 report from the International Monetary Fund found that the “break-even” point for the world’s major oil producers has been rising at a shocking rate. Russia now needs crude prices at roughly $110 per barrel to shore up its finances. Iraq, Bahrain, Algeria, Iran and the United Arab Emirates all need prices between $80 and $100 per barrel.

This is a bit of a pet peeve of mine, so I'd like to offer an alternative explanation. Here it is: Neither the Saudis, nor anyone else, control the price of oil anymore. Saudi Arabia has very little spare capacity to speak of, and couldn't open the taps to bring the price of oil down even if it wanted to. So no matter what the price of oil is, that's approximately the price the Saudis say is fair. That way they don't have to admit that they no longer have the ability to seriously affect oil price movements.

This, by the way, is the same dynamic at work in OPEC meetings. They meet, they talk, and then they release a statement saying that they aren't going to increase production quotas because the current price is fair and "customers aren't asking for more oil." Well, of course they aren't. By definition, customers aren't asking for more oil as long as oil is selling at the market-clearing price. Which it is. Because if it's not, then the price goes up, and guess what? Markets clear and customers aren't asking for more oil. Nonetheless, this charade regularly gets played out anyway, because OPEC doesn't want to admit that their production quotas are mostly meaningless these days. With occasional exceptions (when the 2008-09 recession temporarily cratered oil demand, for example) OPEC countries are all pumping flat out and couldn't deliver much more oil if they tried.

Bottom line: be suspicious of any explanation that suggests OPEC or Saudi Arabia or anyone else "wants" oil prices to be at a particular level. There was a time when they really did, and when their opinions mattered. But that time is long gone.

Karl Smith doesn't care if Mitt Romney is a liar, a cad, or a prick. He just wants to know what concrete things would be different under a Romney presidency compared to an Obama Presidency. My list is so conventional that I'm afraid it's pretty boring, but here goes. All of this is based on the assumption that if the electorate is pro-Republican enough to elect Romney, it will also be pro-Republican enough to give Republicans control of the Senate.

  • Obamacare gets repealed via reconciliation. And even if that turns out not to be possible, it will be gutted enough to make it all but dead in practice.
  • The judicial system gets packed with a lot more conservative, business-friendly judges.
  • The Bush tax cuts are made permanent.
  • Corporate tax rates are cut substantially. There's a slim chance that this would be done via a 1986-style tax reform bill that's a net positive, but since Republicans wouldn't need any Democratic help to pass it, probably not.
  • The estate tax might very well be eliminated.
  • Overall, for reasons of basic arithmetic, spending cuts will be much smaller than Romney and the GOP are promising, and the deficit will be substantially higher than it would be under Obama.
  • We might stay in Afghanistan significantly longer than we would otherwise — though I'm not sure about this.
  • Tightening of environmental regs would come to a halt. (Though it's unclear how much of the existing regulatory infrastructure would get rolled back. Probably not that much.)
  • If another financial crisis hits, Romney would be very constrained in how he could deal with it. (So would Obama, but probably somewhat less so.)
  • Although congressional Republicans will be less successful than they'd like at slashing social welfare programs, they'll still make some cuts. Life will get tougher for the poor.
  • The NLRB would become toothless once again.

For the record, there are also several things I think won't happen. Norman Ornstein and Thomas Mann argue in the Washington Monthly that Republicans would eliminate the filibuster, but I doubt it. (And I'd count it as a long-term benefit in any case.) Romney has talked tough on China, but that's just campaign bushwa. He'd quickly find out that his options are extremely limited on this score. On foreign policy more generally, Obama is actually fairly tenacious, despite Romney's bluster to the contrary, and I doubt that Romney would be able to move much further to his right. Dodd-Frank is a question mark. I suspect some would get repealed (or effectively repealed) but not all of it. This couldn't be done by reconciliation, after all. Social Security privatization is a nonstarter no matter who's president. Substantial cuts to Medicare are probably unlikely too. Ditto for comprehensive immigration reform. And Romney's appointments to the Fed probably wouldn't be a lot different that Obama's.

Among big ticket items, what have I missed?

Dana Goldstein grabs my attention with this sentence about a new study showing that teachers with high "value-added" ratings have a genuine impact on the life outcomes of their students:

In a rare instance of edu-wonk consensus, both friends and skeptics of standardized tests are praising the study as reliable and groundbreaking.

The cynic in me wants to say that it's precisely when everyone agrees on something in the education arena that we should be double-plus skeptical, but I'll restrain my worst instincts and go along with this. After all, common sense suggests that good teachers are better than bad teachers, and I don't have a hard time believing that success on standardized tests provides at least some indication of who's better and who's worse. Still, there are reasons to be cautious. Dana points out one of them:

The policy implications of the Chetty, Friedman, and Rockoff paper are, however, far from clear. As the researchers note in their conclusion, their study was conducted in a low-stakes setting, one in which student test scores were used neither to evaluate nor pay teachers. In a little-noticed footnote (#64) on page 50, the economists write: "even in the low-stakes regime we study, some teachers in the upper tail of the VA [value-added] distribution have test score impacts consistent with test manipulation. If such behavior becomes more prevalent when VA is actually used to evaluate teachers, the predictive content of VA as a measure of true teacher quality could be compromised." [Emphasis added.] The importance of this caveat cannot be overstated.

I'd offer a broader reason to be cautious, though. The usual policy response to this kind of study is to support pay-for-performance, where high-ranking teachers get paid more. But does that really improve the quality of teaching in public schools? That's a little tricky. Here's the best case for what happens:

  1. In the short term, good teachers get paid more and that's it. The pool of teachers stays the same but overall costs go up.
  2. In the medium term, if we get comfortable with the validity and reliability of value-added scores, we might start using them to fire the very worst teachers. This would increase the average quality of the teaching force.
  3. In the long term, higher salaries for top teachers would (a) attract better students into the teaching profession, and (b) put the fear of God into the lousy teachers and motivate them to improve their performance.

How likely is this to happen? I'm not optimistic. #2 will be very difficult to implement for reasons both good (are value-added scores really reliable enough to wreck people's careers over?) and bad (there's always savage pushback against firing people). And #3 just seems dubious to me. Will a one-in-ten prospect of making, say, $80,000 instead of $60,000 really attract more bright kids into teaching? That doesn't seem very likely. And on the opposite end of the spectrum, my experience, at least, is that truly terrible employees rarely improve much no matter what motivation they have. They might improve just barely enough to avoid the axe, but that's about it. (Does that sound harsh? Sorry. But I doubt that anyone with very much management experience will seriously disagree. Feel free to school me in comments about this if you disagree.)

So in the end, I suspect that pay-for-performance will do little to attract better students into the teaching profession, will do little to motivate bad teachers to get better, and will therefore succeed only to the extent that it forces bad teachers out of the system entirely. Maybe it will do that, and maybe that's worthwhile all by itself. But I'd need to be convinced.

If we really believe that good teachers make a substantial difference, then our policy response needs to be something that either (a) attracts better students into the teaching profession on a mass scale or (b) improves the performance of the existing teaching force on a mass scale. (Or both.) Unfortunately, I'm not sure there's any way to accomplish (a) except to increase starting salaries significantly and then wait 40 years for the teaching force to turn over, and I'm not sure there's any definitive way to accomplish (b) at all. It's just a very gnarly problem.

Mitt Romney has decided to cave in on his taxes:

Bowing to pressure from his Republican rivals as well as the Democrats, Mitt Romney told reporters here Tuesday that he plans to release his federal income tax returns this spring and estimated his rate at about 15 percent.

“What’s the effective rate I’ve been paying? It’s probably closer to the 15 percent rate than anything,” Romney, a GOP presidential candidate, said. “My last 10 years, I’ve — my income comes overwhelmingly from investments made in the past rather than ordinary income or rather than earned annual income. I got a little bit of income from my book, but I gave that all away. And then I get speaker’s fees from time to time, but not very much.”

Did Romney really make up his mind on this literally overnight? Because in last night's debate he sure didn't sound very certain that he was going to do this. This is, perhaps, the only time that Romney has panicked during the campaign. If he'd made up his mind a little earlier and a little more deliberately, he could have had a much smoother answer last night. "I do plan to release my tax return for the previous year, as other presidential candidates have done, and my accountants tell me it will be ready to file in late March or April. As soon as it's complete, I'll make copies available to the press."

Instead we got last night's Palinesque gobbledygook. Very weird. Greg Sargent takes a crack here at figuring out what this all means for Romney's chances in November.

Andrew Sullivan has a longish cover story in Newsweek arguing that both conservatives and liberals attack Barack Obama in dumb ways. Conservatives are convinced he's a fire-breathing socialist out to destroy capitalism and appease our foreign enemies at every turn. This is little short of deranged, and Sullivan does a nice job of taking it apart.

Likewise, the progressive base convinced itself early on that Obama was a committed leftist and has since excoriated him for selling out now that he's in office. But I agree with Sullivan: Obama simply never sold himself that way. He was, from Day One, a pragmatic, cautious, mainstream Democrat, and anyone watching the 2008 campaign with both eyes open should have understood that. He may be less liberal than a lot of us would like, but anyone who's disappointed because he turned out not to be the second coming of FDR was just deluding themselves from the start.

But Sullivan loses me here:

By misunderstanding Obama’s strategy and temperament and persistence, by grandstanding on one issue after another, by projecting unrealistic fantasies onto a candidate who never pledged a liberal revolution, [liberals] have failed to notice that from the very beginning, Obama was playing a long game. He did this with his own party over health-care reform. He has done it with the Republicans over the debt. He has done it with the Israeli government over stopping the settlements on the West Bank—and with the Iranian regime, by not playing into their hands during the Green Revolution, even as they gunned innocents down in the streets. Nothing in his first term—including the complicated multiyear rollout of universal health care—can be understood if you do not realize that Obama was always planning for eight years, not four.

This is sort of a watered-down version of the 11-dimensional chess hosannas that deservedly got a lot of mockery back in the day. But it wasn't true of Obama then (both his campaign and governing strategies have been fairly straightforward) and it's not necessary to explain anything now.

Why was Obama so conciliatory toward the Republican Party early on? It has nothing to do with long-term strategy. It's because he needed at least two or three Republican votes in the Senate to pass anything, and if he'd been a fire-breathing partisan from the start he wouldn't have gotten them. He went down this road partly out of native temperament and partly because he didn't really have any choice.

Why did health care reform take so long? Not because of any clever strategy on Obama's part. It was because, right or wrong, he made a rational calculation not to repeat Bill Clinton's mistakes. So instead of pushing a plan of his own, he let Congress take the lead. And Congress decided to move very, very slowly.

Why was Obama's reponse to the financial crisis basically pretty centrist? Again, not because of any long game. More likely, it's because Obama himself is genuinely fairly centrist and business oriented when it comes to financial policy.

What explains Obama's strategy toward Israel and its West Bank settlements? I'm not even sure what the argument for a long game is here. The more prosaic—and probably correct—explanation is that Obama failed. He tried to press Netanyahu on the settlements because he thought he had the leverage to make him listen. He turned out to be wrong, plain and simple.

Why is Obama now taking a harder, more partisan approach toward his GOP adversaries? Not because he was cleverly playing with them for three years and is now reaping the rewards of an electorate convinced that Republicans are hopelessly obstructionist. In fact, surveys don't suggest that public opinion has moved much in Obama's direction at all. Rather, he's doing it because it's an election year. It's now time for contrast, not compromise. This is Campaigning 101.

There are a few examples where I think Obama has indeed played a deliberately patient game that's paid off. Don't Ask, Don't Tell is one: Doing it his way made repeal far less divisive and far more permanent than if he'd tried to hurry it through. Likewise, his policy toward Iran has been deliberately devised to demonstrate that he's trying his best to be reasonable and is only tightening sanctions as a last resort. This has successfully kept China and Russia from being obstructionist and produced a better, more global sanctions regime than he otherwise would have gotten.

But these are the exceptions, not the rule. For the most part, Obama's actions can be explained without resort to mysterious and ulterior motives. He's done what he's done sometimes out of native temperament, sometimes out of straightforward political calculation, sometimes out of plain misjudgment, and sometimes because he genuinely has more centrist views than his critics want to believe. More than with most presidents, I think that with Obama, what you see is what you get. He's just not that hard a guy to explain.

Update: On July 7th the California legislature authorized initial funding for the first leg of the California high speed rail system.

As regular readers know, I've been skeptical of California's LA-SF bullet train from the beginning, and my skepticism has only grown as cost estimates have doubled to nearly $100 billion in only a few years. But unrealistic cost projections have never been the only reason to be dubious. There were also unrealistic ridership projections, along with unrealistic estimates of what the alternatives to high-speed rail would cost.

Until today, though, I didn't know just how unrealistic some of those estimates were. Rail supporters say that even if the LA-SF train costs $100 billion, it's still a bargain compared to the $171 billion it would cost to expand road and air infrastructure to handle the increased traffic between LA and San Francisco that we're going to get regardless. But check this out:

The rail authority has relied heavily on New York-based Parsons Brinkerhoff, a contractor that helped fund the political campaign for the $9.9-billion bond measure passed by voters in 2008....In October, Parsons submitted the analysis that came up with the $171 billion, a number that initially appeared in the authority's draft business plan released Nov. 1. In the study, Parsons first estimated how much passenger capacity the system would have at completion in 2033 and then calculated the cost for providing the same airport and highway capacity.

Parsons said the high-speed rail system could carry 116 million passengers a year, based on running trains with 1,000 seats both north and south every five minutes, 19 hours a day and 365 days a year. The study assumes the trains would be 70% full on average.

This is just jaw-droppingly shameless. There's not even a pretense here of providing a reasonable, real-world traffic estimate that could be used to project the cost of alternative infrastructure. A high school sophomore who turned in work like this would get an F.

We are rapidly exiting the realm of rose-colored glasses and entering the realm of pure fantasy here. If liberals keep pushing this project forward in the face of plain evidence that its official justifications are brazenly preposterous, conservatives are going to be able to pound us year after year for wasting taxpayer money while we retreat to ever more ridiculous and self-serving defenses that make us laughingstocks in the public eye. And unless we put this project on hold until we can get some genuinely independent and plausible estimates of costs, ridership, and alternatives, we'll deserve it.