Common Sense Conservatism

"It's Even Worse Than It Looks"

Michael DeLong (corrected) on "It's Even Worse Than It Looks" - the book by two centrist political analysts who have not been invited to a single major Sunday talk show to discuss their new work, presumably because they depart from the "wisdom of centrism" and state the plain fact that the GOP has become little more than a party of obstruction and right-wing ideology:

Thomas Mann and Norman Ornstein’s It's Even Worse Than It Looks convinced me that having a political system where corporations can spend unlimited amounts of money for or against politicians is a recipe for favoritism and corruption. We need to reduce the influence of money in politics.

But there's much more to the book than that. Here are some of my thoughts:
Both Mann and Orntein have written about Congress for many years. Both are well-respected centrist scholars. They know what they are talking about. And both Mann and Ornstein agree that politics today is far worse than usual: that our political process right now is unusually broken...

Both Democrats and Republicans now view each other as adversaries. Republicans, however, are far more unified and obstructionist--and also have become more conservative in part because of primary challenges.

Obstruction has been taken to ridiculous levels, with Republicans now using holds and filibusters to block nominees and legislation. Obama nominated economist Peter Diamond to the Federal Reserve. Senator Richard Shelby placed a hold on his nomination, claiming he was too inexperienced for the job. While being delayed, Diamond was awarded the Nobel Prize in Economics. Shelby kept blocking his nomination. After a year of waiting, Diamond withdrew. Other nominees, such as Donald Berwick (to head the Center for Medicare and Medicaid Services) and Richard Cordray (to head the Consumer Financial Protection Bureau) were also blocked. Every one of Obama's bills has had to get 60 votes or more to pass, due to the threat of the filibuster.

Republican obstruction is not entirely new. In a 1993 memorandum, William Kristol urged Senator Bob Dole and other Republicans to oppose Bill Clinton's health care plan “sight unseen”, no matter what the substance of the policy he proposed. Passage of any health care reform at all, he argued, would harm the Republican Party.

It is good to see two respected centrist observers of Congress recognizing that Republican obstruction of Obama's proposals is largely driven by a desire to hurt him politically, no matter what its effect on the country.

So are there any solutions to our current state of affairs?

"Small Business Owners’ Views on Implementing the Affordable Care Act" (aka What the Chamber of Commerce and NFIB won't tell you)

From research by The Small Business Majority, independent small business advocates:

The Supreme Court is expected to hand down its decision any day in the case against the Affordable Care Act, filed by the National Federation of Independent Business (NFIB) and state attorneys general.

The polling of 800 small business owners in eight states (Florida, Illinois, Louisiana, Michigan, Missouri, New York, Texas and Virginia) found 50% of small business owners want the healthcare reform law upheld—either as is or with minor changes—while only one-third want the Supreme Court to overturn it. Once small business owners learn more about the law, their support for keeping it intact—either as is or with minor changes—rises to 56 percent, while opposition falls to just 28 percent...A 55% majority say they want it upheld because we need to make sure everyone has health coverage.

Via Kay at Balloon Juice.

Dean Baker explains the world to a remarkably incoherent and confused David Brooks

Dean Baker at CEPR Beat The Press: "David Brooks Says That...Republicans Are Not Very Good At Arithmetic"

That probably was not his intention, but that is the only conclusion that numerate readers can take away from his column. He tells readers that:

"But many Republicans have now come to the conclusion that the welfare-state model is in its death throes."

He points to the crises in Greece, Spain, and Italy and then adds:

"In the decades after World War II, the U.S. economy grew by well over 3 percent a year, on average. But, since then, it has failed to keep pace with changing realities. The average growth was a paltry 1.7 percent annually between 2000 and 2009. It averaged 0.6 percent growth between 2009 and 2011. Wages have failed to keep up with productivity. Family net worth is back at the same level it was at 20 years ago."

There are a number of problems with this story. First Greece, Spain, and Italy have among the least developed welfare states in Europe. If someone wants to make an argument that there is some inherent problem with the welfare state model then we should look for crises in Sweden, Denmark and Germany, all states with far more generous welfare states than these Mediterranean countries. In fact, the welfare states of northern Europe are doing relatively well through the crisis, it is difficult to understand how anyone can look at the pattern of the crisis across Europe and conclude that it implies that the welfare state model has reached its end.

Brooks account of U.S. growth is just bizarre. Did he somehow miss the collapse of the housing bubble? If he excluded the period since the crisis then there is not much of a case for a weakening economy. The economy definitely did better in the three decades immediately following World War II, when the top marginal tax rate was between 70-90 percent than it did in the post-Reagan years, but there was a substantial uptick in productivity growth in the mid-90s. The second half of that decade saw the strongest sustained growth since the early 70s, with workers up and down the income latter sharing in the gains of productivity growth.

The economy did turn down with the collapse of the stock bubble in 2000-2002, but it is hard to see how Republicans tie the collapse of this bubble to the death throes of the welfare state, just as it is difficult to see how the more recent collapse of the housing bubble implies the death throes of the welfare state. In principle the Los Angeles Kings victory in the Stanley Cup could also signal the death throes of the welfare state, but it is not easy to see the connection. The more obvious take away from this story is that a corrupt financial sector can wreck the economy.

In terms of the link between wages and productivity growth, Brooks Republican friends seem to be in an inverted world. If this is the concern, then the welfare states in Europe would seem to be the answer, not the problem.

End This Depression Now! - Aid to the States Edition

Ben Polak and Peter K. Schott explain at NYT's Economix why unemployment is far greater for much longer into the "recovery" phase of the private sector in this extended recession:

Why is the recovery from this recession different from recoveries from past recessions? In the previous two recessions, it took 32 months for nonfarm employment to reattain its June 1990 peak, and 48 months for it to reattain its January 2001 peak. Assuming the economy keeps adding nonfarm employment at the current rate, it will have taken 88 months to reattain its January 2008 peak. The explanation most often heard is that “financial crises are different”: after a debt crisis, shaken consumers are reluctant to spend and shaken firms are reluctant to hire, slowing private-sector job growth even after the recession has bottomed out.

There is some truth in this, but it is not the whole story. In fact, while the latest recession was particularly deep, the recovery in private-sector employment, once it finally started, has not been particularly slow by recent historical standards. In the 27 months since the start of the current employment recovery, the private sector has added 4.3 million jobs, fewer than the 5.0 million it added in the 27 months after February 1992 but not many fewer than the 4.5 million it added in the equivalent period after August 2003.

Source: Bureau of Labor Statistics

But there is something historically different about this recession and its aftermath: in the past, local government employment has been almost recession-proof. This time it’s not.

End This Depression Now! - Infrastructure Edition

Ezra Klein, filling in for Dr. Maddow,  proposes the most immediate
and essential investment in jobs we can make - and at rock bottom prices!
Repair our crumbling infrastructure.

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Chris Hayes asks a rude question: "Is Ben Benanke trying to get Mitt Romney elected President?"

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An appeal to the Fed - take aggressive action to help recovery

At NYTs, Former Council of Economic Advisors Chair Christina Romer:

THE next meeting of Federal Reserve policy makers, on June 19 and 20, will probably be contentious. The latest employment report, showing anemic job growth for a third consecutive month and an uptick in unemployment, will surely make some Fed members want to take additional expansionary action. Others, however, appear steadfastly opposed.

The argument for additional monetary action is straightforward. By law, the Fed is supposed to aim for maximum employment and stable prices. But the unemployment rate is 8.2 percent — a good two percentage points above what even the most pessimistic members say is its sustainable level. Moreover, the spate of disappointing data and the deepening crisis in Europe make continued weakness all too likely...

Some Fed members contend that monetary policy has already done its share. Other policy makers, they say, need to step up. Both the Fed’s chairman and its vice chairwoman have talked about the need for additional near-term fiscal stimulus as part of a gradual deficit-reduction plan. And many Fed committee members have called for a more aggressive housing policy. Indeed, the Fed raised some hackles in January when it sent an unbidden white paper to Congress, outlining possible administrative and legislative initiatives to deal with problems like foreclosures and underwater homeowners. 

I agree that we need more effective fiscal and housing policies. But neither is likely to happen, at least not before the presidential election. As a result, the Fed is the only plausible source of immediate help for the American economy. It was set up as an independent body precisely so that somebody can do what’s right when politicians can’t or won’t. 

The Very Serious, Very Crazy People

Martin Wolf at Financial Times, via The Professor:

Austerians - Brit PM Cameron and German Chancellor Merkel

Before now, I had never really understood how the 1930s could happen. Now I do. All one needs are fragile economies, a rigid monetary regime, intense debate over what must be done, widespread belief that suffering is good, myopic politicians, an inability to co-operate and failure to stay ahead of events.

Compared to Reagan, Obama is shrinking government spending

From Krugman, Reagan vs. Obama - increases in government spending:

 

Reagan, of course, is the blue - with huge increases in government spending per capita, and Obama is the red - with smaller increases, and significant decreases in state and local spending due to deep recession.  Mind you, these low rates of spending in an ongoing high-unemployment, reduced-consumer-demand depression are not a good thing - but the facts accentuate the hypocrisy and lies of the GOP and "Tea Party" crazies. 

Two tax systems - one for the super-rich, one for wage-earners

David Cay Johnston:

Six American families paid no federal income taxes in 2009 while making something on the order of $200 million each. This is one of many stunning revelations in new IRS data that deserves a thorough airing in this year's election campaign.

The data, posted on the IRS website last week, brings into sharp focus the debate over whether the rich need more tax cuts (Mitt Romney and congressional Republicans) or should pay higher rates (President Obama and most Democrats).

The annual report (link.reuters.com/vec68s), which the IRS typically releases with a two-year delay, covers the 400 tax returns reporting the highest incomes in 2009. These families reported an average income of $202.4 million, down for the second year as the Great Recession slashed their capital gains.

In addition to the six who paid no tax, another 110 families paid 15 percent or less in federal income taxes. That's the same federal tax rate as a single worker who made $61,500 in 2009.

Overall, the top 400 paid an average income tax rate of 19.9 percent, the same rate paid by a single worker who made $110,000 in 2009. The top 400 earned five times that much every day.

Just 82 of the top 400 were taxed in accord with the Buffett rule, which proposes a minimum tax of 30 percent on annual incomes greater than $1 million.

Let's return for a moment to the single worker who made $61,500 in 2009 and paid 15 percent of his salary in federal income taxes. The top 400 made more every three hours than he did in a year, and yet many of them paid the same or a lower tax rate, according to the data in the report.

On top of his $9,225 federal income tax, he also paid $9,409 in payroll taxes, which include Social Security and Medicare taxes. Half of the payroll tax was deducted from his check. His employer paid the other half, which was really hidden wages taxed at a 100 percent tax rate.

His total federal tax burden was 30.3 percent, exactly 50 percent more than the 20.2 percent tax burden, measured the same way, on the 400 at the top.

TWO TAX SYSTEMS

Maestro

The Professor notes more out of sorrow than anger:

"(L)ook at the man who insisted that credit default swaps had made the financial system stable, that there was no housing bubble, that the housing market was poised for recovery in 2006, telling us that with interest rates at their lowest levels ever, what we need to worry about most is … the threat of rising interest rates."

Tax Cuts Uber Alles

There's a simple formula for job creation - cut taxes!  Here's the rock-solid, faith-based, empirical, wishin' & hopin' evidence from St. Reagan's reign as Holy Patron of the Job Creators:

Oh, wait a minute...

Chart from Mark Thoma, Economist's View

Jersey Shore

Professor Krugman:

For some time now (Jersey Guv Chris) Christie has been touting what he calls the “Jersey comeback.” Even before his latest outburst, it was hard to see what he was talking about: yes, there have been some job gains in the McMansion State since Mr. Christie took office, but they have lagged gains both in the nation as a whole and in New York and Connecticut, the obvious points of comparison.

Yet Mr. Christie has been adamant that New Jersey is on the way back, and that this makes room for, you guessed it, tax cuts that would disproportionately benefit the wealthy.

Last week reality hit: David Rosen, the state’s independent, nonpartisan budget analyst, told legislators that the state faces a $1.3 billion shortfall. How did the governor respond? 

First, by attacking the messenger. According to Mr. Christie, Mr. Rosen — a veteran public servant whose office usually makes more accurate budget forecasts than the state’s governor — is “the Dr. Kevorkian of the numbers.” Civility! 

Keynes and fiscal irresponsibility

Econospeak corrects some confusion over Keynes and long-term debt that's pushed by the "Reagan taught us deficits don't matter" BizarroWorld "Keynesianism" that rears it's head on the Right when it's "more tax cuts" time and magically disappears when the agenda morphs into "cut entitlements":

Keynes was not in favor of the type of long-term fiscal irresponsibility that we have witnessed say in the United States during the Administrations of Ronald Reagan and George W. Bush. Yes I know proponents of the 1981 and 2001 tax cuts could argue that we were not at full employment when these tax cuts were passed. However, the 1981 tax cut was not needed to get us back to full employment. Volcker’s [contractionary] monetary policy – for better or worse (worse in my view) – was the main driving factor for the U.S. economy. And we know George W. Bush pursued a host of fiscal policies that were more long-term in nature and all fiscally irresponsible. If [anyone] thinks Lord Keynes would have approved these episodes of fiscal stimulus – I submit he’s very ignorant of the brand of economics that Lord Keynes and economists like Paul Krugman strive to describe.

More Keynesian Blather From Paul Krugman...

 You can't shut Paul Krugman up:

(I)f you take a trillion dollars for instance, out of the first year of the federal budget, that would shrink GDP over 5%. That is by definition throwing us into recession or depression.

Oh, wait a minute.  That was Mitt Romney doing that Beltway "gaffe" thing, where blurting out the truth is seen as a "mistake," especially when it runs counter to every crank proposal Romney has endorsed that has been forthcoming from the Ryan Austerity Megaphone of the GOP - the dominant party "intelligentsia," who are either economically illiterate or WANT to plunge the country into even deeper extended depression.

Jon Chait notes: "Romney says this as if it’s completely obvious that reducing the deficit in the short term would throw the economy back into recession, even though he and his party have been arguing the opposite case with hysterical fervor. Republicans have committed themselves to Austrian economic notions and other hoary doctrines justifying the position that reducing deficits is a helpful way out of a liquidity trap"

I'm not convinced Willard M. Romney is particularly smart, but it's clear that beneath the nauseating facade of sheer cynicism there's still some small grain of common sense.  The fact that he's a practiced liar when glibly espousing the GOP far Right's agenda as his own - albeit subject to the occasional "Beltway gaffe" as in the CNN interview - appears to be the only "redeeming" feature of his candidacy, not a fatal flaw.  Which is pathetic.

(updated)

This Just In! Presidential Aspirant Can Read a Balance Sheet!

Good discussion of Romney and Bain by Martin Bashir and guests, standing in for Lawrence O'Donnell last night - special props to Joy-Ann Reid for devastating take-down of Willard's reference to Bain's Steel Dynamics start-up, which leaned heavily on tax-payer subsidies - including a tax increase - to make a large profit:

 

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Is Greed Good? Professor Krugman Wonks Us Out With the Data

Krugman @ NYT:

From "Mitt Romney Is a Tool" - K. Genius & TBX

As the debate moves – appropriately! – to a discussion of Romney’s career at Bain, one thing I’ve noticed is that everyone on the right, and a fair number of people who should know better, basically believes that Gordon Gekko was right. Before the Gekkos came along, they assert, American business was sluggish, unproductive, and uncompetitive. Then came the LBOs and all that, and our economic energy was unleashed.

As I said, everyone on the right knows that this happened. Needless to say, none of it is at all true.

Let’s look at how trends changed after 1980 or so, when the underlying rules of American business (and politics) shifted. Start with productivity – I use a log scale, so that the slope of the trend represents the rate of growth. See the big acceleration? Neither do I – productivity growth has actually been slower since the rise of Bain-type operators.

The "Austerity Cliff" and the GOP's Military Keynesians

 Brian Beutler at TPM:

A giant austerity bomb is timed to go off at the beginning of next year, and the threat of significantly higher taxes and lower spending has Republicans running around the Capitol sounding more like John Maynard Keynes than John Boehner.

Automatic, across-the-board reductions to domestic and defense spending, combined with the looming expiration of the Bush tax cuts, will dramatically consolidate the budget in the next calendar year, if Congress does nothing. And despite bemoaning deficits throughout the Obama years, the GOP’s suddenly come around to the view that cutting government spending is a job killer.

Just listen to Sen. John Cornyn (R-TX).

“Just when you thought the economic news could not get much worse with slow economic growth, with reduced wages because of higher costs, and with many people simply giving up looking for work with the lowest labor participation rate we’ve had in some time,” Cornyn warned reporters in the Capitol Tuesday, “we have an entirely predictable and preventable jobs crisis approaching in January, where because of the sequestration [automatic spending cuts], my state alone will lose 91,000 private sector jobs — and there are about a million private sector jobs at risk if the sequestration goes into effect on January 2.

This marks the return of the Defense Keynesians — Republicans who admit that government spending supports job growth in a weak economy, if and only if that spending is directed toward the military.

As luck would have it, a new Congressional Budget Office concludes Republicans are right about the economic consequences of defense cuts — but that their other fiscal priorities are just as perilous for economic growth.

If all the fiscal tightening scheduled for the beginning of the year is allowed to take effect, it will take a huge bite out of the projected deficit for the coming fiscal year.

Unfortunately, it’ll take a similarly large bite out of GDP — enough to threaten a new recession. And the resulting job losses would reduce tax revenues and increase spending on jobless benefits enough to undo billions of dollars in direct deficit reduction.

Willard M. Romney's Debt and Deficits Hustle

Romney: "Today America faces a financial crisis of debt and 

spending that threatens what it means to be an American."

Center for American Progress: 

There’s one major problem with Romney’s rhetoric: his economic plan makes the debt worse. Romney’s tax plan gives a 20 percent across-the-board tax cut to all Americans and repeals the Alternative Minimum Tax, costing $10.7 trillion over the next decade and reducing federal revenues to just 15 percent of GDP, according to Center for American Progress Director of Tax and Budget Policy Michael Linden. Romney hasn’t offered a plan to pay for those cuts, instead simply asserting that he will balance the budget.

But balancing the budget under those terms would be next to impossible. Even if Romney limits tax deductions for the richest Americans as he says he would, he would need 6.5 percent economic growth for the next five years to keep his plan from adding to the deficit. To put that in perspective, the best five-year period of growth since World War II was from 1961 to 1966, when the economy grew at 5.8 percent per year.