GDP Growth Slowing

Zero Hedge analyzes today's release of GDP data:

US Q2 GDP printed at an annualized rate of 1.5%, just slightly above expectations of 1.4%, and a 25% drop from the Q1 rate of 2.0%, with personal consumption plunging as a key contributor from 1.72% to just 1.05%, and government once again being less and less a detractor from "economic growth." Inventories "added" 0.32% to GDP, a number which in Q3 GDP will subtract from economic "growth." Now whether this headline number is bad enough for the Fed to decide on more QE, is up to Hilsenrath to decide. But in a Bizarro world in which only horrible data boosts the market, today's modest beat will likely not make the market happy, nor sellers of newsletters in which the only strategy is hope and prayer. And just as important, today the BEA revised historical GDP data retroactively. Of note 2010 GDP was revised from 3.0% to 2.4%, while Q3 2011 GDP was revised from 3.0% to 4.1%, indicating that the slowdown we are experiencing is in fact far worse than previously expected.

AEI has some more thoughts on the current economy.

Medical Expenses and Doctor Compensation

In the Weekly Standard, Eli Lehrer looks at doctor compensation:

In discussions of America’s high health care costs, surprisingly little attention is paid to salaries and wages. Yet the fact that medical jobs simply pay more than those in other sectors is beyond dispute. A physician practicing in a primary care setting, according to the Bureau of Labor Statistics, earned an average of just over $200,000 in 2010, while specialists averaged over $355,000 (the highest of any professional category tracked). By comparison, lawyers average just over $110,000, airline pilots about $92,000, and chartered actuaries (who calculate risk for insurance companies and must pass complex exams longer and arguably more difficult than the medical boards) about $150,000.

The wage disparities, however, don’t stop with physicians, who do, after all, need to complete an academic curriculum that’s beyond most people’s abilities. Registered nurses and dental hygienists, who need only associate’s degrees, earn about $70,000 a year. This is about as much as degreed computer programmers. And it’s significantly more than high school teachers and forensic scientists, who need master’s degrees but earn a little less than $60,000 on average. And wage disparities exist at all levels of the health care industry: Even nonmedical professionals like janitors tend to earn more in health care settings than those working elsewhere....

And nothing about the training costs of the people who provide medical care explains their high wages, either. Because medical school takes four years of full-time study—as compared with three years for law school and two for business school (tuition is comparable)—doctors do, indeed, graduate with more debt than people pursuing other professional training. But the wages they earn afterward more than make up for this: An average year in medical school costs about $25,000 at most public schools, while doctors make, on average, $80,000 more than lawyers but spend only one year more in school. And while many students capable of doing the work can’t find an accredited medical school willing to admit them, that’s not true for all medical professions. Anyone with a high school degree can train to become a nurse, lab tech, or other health care worker.
Malpractice insurance can also be very expensive, but this isn’t so everywhere—internists in states that cap malpractice awards can get it for only a few thousand dollars a year—and, in any case, the overwhelming majority of health care professionals don’t need malpractice insurance. Even in states like Florida where insurance costs over $50,000, doctors still take home very comfortable six-figure incomes in almost all cases.
If this happy confluence of factors for medical professionals—high wages, excellent job security, below-world-average workloads, and extremely high returns on educational efforts—resulted from a free market, it could rightly be considered a triumph of capitalism. But it does not. Government provides a little less than half of the total medical spending in the United States (about 46 percent by most estimates; more if tax expenditures are included), oversees the licensing of almost everyone who comes near patients, and limits where and when hospitals get built. The system that produces these high wages is shot through with government subsidies and regulations.

New MA Senate Poll: Still Close

A new poll by MassInc suggests that it's still a very close race between Brown and Warren:

The race for Massachusetts Senate remains close according to the MassPulse Quarterly Poll, released today. Among registered voters, 40 percent support Elizabeth Warren, and 38 percent support Senator Scott Brown, the latest in a series of polls which have shown the two candidates essentially neck and neck. 

The partisan balance for registered voters seems fairly reasonable: 11% R / 34% D / 49% unenrolled / 6% unknown.  That percentage is fairly close to the enrollment data released earlier this year.  However, it's worth noting that this poll looks at registered voters, so Brown probably still has the edge for likely voters.

The crosstabs tell an interesting story: for Brown to pull ahead, he needs to solidify his standing with the middle.  He crushes Warren among the poor and among the rich, but he lags with the income groups making between 25K and 125K a year.  He beats Warren handily among those with a high school education or less, but falls increasingly behind her as voters go beyond a high school education: voters with a postgraduate degree choose Warren 54-32.  Brown runs strongest in the outer Boston suburbs and Southeastern Massachusetts; Western Massachusetts is his weakest area.  However, Brown needs to improve his margin in friendly areas if he hopes to win in November.  In 2010, he led Coakley by around 15-20 points in the Southeastern Mass area; MassInc puts him falling 6 points behind Warren there.

The good news for Brown is that he still has a 50% favorability rating.  Even many Democrats are not totally alienated from Brown---he even has a 40% favorability rating among them.  Brown also has a strong lead among independents, a crucial group for any Bay State Republican.  If Brown can pull together a message offering improvement for the middle class (a direction he seems to be going in), he could make gains in crucial demographics and pull off a win in November.

Big Donors Open Up Wallets for Rhode Island Democrats

Sheldon Whitehouse was swept into office in the Democratic "wave" year of 2006, defeating center-left Republican Lincoln Chafee (now Rhode Island's governor).  However, an anti-incumbent sentiment seems to be growing in that state.  RI-01 incumbent David Cicilline (D) is in real danger of losing his seat, either to a primary challenge by a fellow Democrat or to his Republican challenger.  RI-01 seems one of the seats in New England most likely to flip.

Meanwhile, Whitehouse may yet be vulnerable to his Republican challenger, Barry Hinckley.  A poll taken at the end of February (the latest poll I could find) showed Whitehouse getting 50% to 28% for Hinckley.  The size of that margin should not obscure the fact that a sitting senator was barely able to crack 50% against a relative political unknown.  Whitehouse's approval rating in that poll would be fairly grim for any incumbent: 38% approval with 53% disapproval.  Clearly, Rhode Island voters are not entirely happy with the Democratic incumbent.

Whitehouse looks to use a spending advantage to offset the state mood.  According to public campaign finance records, he has currently raised about $4.2 million, about four times the amount that Hinckley has raised (which is about $1 million).  However, much of this money comes from interest groups and large donors.  Nearly 30% of Whitehouse's contributions (about $1.2 million) come from PACs.  These PACs include leadership PACs set up by fellow Democrat office-holders, union-financed PACs, business-sector PACs, and ideological PACs.  Whitehouse has raked in millions in big-donor contributions (contributions over $200).

Where Whitehouse has lagged, however, is in small donors.  Currently, he has only raised about $168,000 in small donations from individual donors, so about 4% of his fundraising has come from small donors.  Whitehouse seems to be trying to make the most of the advantages of incumbency, collecting sums from big-ticket donors and interest groups.  But he hasn't exactly caught fire with the grassroots.

According to a Hinckley spokesman, about 60% of the Hinckley campaign's donations come from small donors.  Campaign finance records suggest that about 1% of Hinckley's total haul comes from PACs.

In 2006, Lincoln Chafee drew heavily from PAC money and other vested interests, while then-challenger Whitehouse took only about 11% of his funds from PACs.  Now that Whitehouse occupies a Senate seat, he's the one trying to insulate himself with PAC money.

For his part, Cicilline is also drawing on big money to try to make it through a rough election.  Nearly 25% of his fundraising comes from PACs, and only 7% comes from small donors.

Rhode Island Democrats seem to hope that they can paper over electoral dark clouds with ample helpings of green.

Should Romney Take on Banking Reform?

AEI's James Pethokoukis lays out the electoral benefits of Romney taking on banking reform:

But if Romney presented an aggressive, free-market, anti-crony capitalist, financial reform agenda — something beyond the fuzzy “Repeal Dodd-Frank and replace with streamlined, modern regulatory framework” pledge on his website — he could demonstrate he’s neither a creature of Big Money nor a Bush clone. Oh, and he would be putting forward some smart policy ideas, too.
Here’s a possible Romney financial reform agenda:
1) Endorse the Hoenig Plan. Thomas Hoenig, vice chairman of FDIC and former president of the Kansas City Fed, wants to bust up the big banks. He would only allow banks to engage in traditional activities that are well understood and are based on long-term customer relationships so borrowers and lenders are on the same page: Commercial banking, underwriting securities, and asset management services. Banks would be barred from broker-dealer activities, making markets in derivatives or securities, trading securities or derivatives for their own accounts or for customers, and sponsoring hedge funds or private equity funds.
 2. Go after high-frequency trading. Financial markets seem more volatile than ever, and one reason might be super-fast, or “high-frequency,” trading, where computers buy and sell bonds, stocks, and derivatives in milliseconds. As my friend Martin Hutchinson of the Asia Times puts it:

High-frequency trading is objectionable for two reasons. First, its proponents claim it provides liquidity to the market, but that’s not really the case. In periods of turbulence, the liquidity that HFT supplies is quickly withdrawn, as the institutions operating the trading systems shut them off for fear of large and destabilizing losses. Indeed, liquidity that switches off when it is most needed is of no use at all. To the contrary, it destabilizes the market rather than stabilizing it.
The second reason high-frequency trading is bad is that it uses machines to get trade information before competitors. Of course, trading based on extra-fast knowledge of the trading flow should qualify as inside information, and thus be illegal.
Unfortunately, it can’t be made illegal, because market-makers do it all the time. And what’s more is that stock exchanges make huge sums of money by renting space within feet of the exchanges’ computers to high-frequency traders.

Hutchinson recommends a 0.01%-0.02% Pigovian tax on trading stocks and bonds and a 0.05% tax on derivatives to tamp down on such speculation. The revenue could be used to lower the overall corporate tax rate.
3. Endorse the mortgage refinancing plan of his own economic adviser. Economist Glenn Hubbard, along with his colleague Christopher Mayer at Columbia University, has devised a plan where every homeowner with a GSE mortgage could refinance his or her mortgage with a new mortgage at a current fixed rate of 4.20% or less. Nearly $4 trillion of mortgages could be refinanced, helping roughly 30 million borrowers save $75 billion to $80 billion a year. As Hubbard and Mayer see it, it would be like a long-­lasting tax cut for these 25 or 30 million American families. ”The plan would have an immediate fixed cost to the government of $242 billion with half that cost split equally between the government and banks.”

As Pethokoukis notes, these specific proposals might not be ones that are ultimately worth going with, but they do suggest some directions that Romney's team could go in.

Some commenters at AEI have objected that, because Romney has a number of large Wall Street contributors, he will be unlikely to propose putting forward a lot of new regulations on world of finance.

However, I think there's another way of looking at it: rational, market-oriented regulatory reforms could ultimately be in the financial sector's best interest.  With Dodd-Frank doubling down on the era of Too Big to Fail and financial instability, we could be only a few market jolts away from yet another financial crisis.  And no one knows who will be the next Bear Stearns.  A few politically connected individuals gain power in the era of big bailouts, but a crash could tear down almost anyone.  And there is no guarantee of another bailout in the future, which makes the potential for loss that much greater.

Rational reforms would be a hedge against such failure.  Good reform would benefit both the financial sector and the economy as a whole.

Proposing a serious set of reforms could also, as Pethokoukis claims, be beneficial to the Romney campaign: it changes the narrative from one of personality to one of policy.  Barack Obama had his shot at financial reform; he can defend that on the campaign trail if he wants.  By speaking about the importance of real financial reform, Romney could harness popular dissatisfaction with the economic dysfunction of the present moment while also advancing conservative principles.

Outsourcing: A Blast from the Past

Michael Kinsley offers a Clinton-era defense of outsourcing:

Obama decries Romney's practice of outsourcing as if he thinks that all outsourcing is wrong, even if it can't or shouldn't be made illegal. Obama proposes a heavy dinner of grants, subsidies and tax credits to discourage outsourcing and encourage "insourcing" — bringing jobs from abroad back to America — all of which are bad ideas. Among other reasons, one nation's insourcing is another nation's outsourcing, and retaliation can quickly lead to a trade war in which everybody loses.

Who said this — "I don't want the next generation of manufacturing jobs taking root in countries like China or Germany" —Romney or Obama? Early in the Republican primary campaign, China was the one subject Romney seemed genuinely agitated about. Imposing tariffs on Chinese goods was on the long list of things Romney said he was going to do on Day 1 of his presidency. Maybe he still is, but he doesn't play it up the way he used to.

Meanwhile, if Romney is a free trader at heart, faking a bit of protectionism, Obama seems to be a protectionist at heart, faking a belief in free trade. That quote in the previous paragraph is from Obama, and it shows a fundamental misunderstanding of how markets work. Trade is not a zero-sum game. There isn't a certain number of manufacturing jobs that will either go to China or Germany, or come to us. We want China and Germany to have lots of manufacturing jobs. The more they have, the richer they are, the better off we will be as well. Beggar-thy-neighbor policies don't work.

There's an element of truth to what Kinsley says, but he seems to miss an important context: many US trading partners often have a trace of beggar-thy-neighbor policies themselves.  We don't exactly have a "free trade" situation at the moment, with many countries discriminating against US products.

Made in USA

The fact that the uniforms for the USA Olympic Team, sponsored by Ralph Lauren, were all apparently made in the People's Republic of China has been accumulating some outrage in the blogosphere and Capitol Hill.

From the ABC News report that broke this story:

They are the pride of America — Team U.S.A. — and for the opening ceremonies of the Summer Olympics in London, they’ll be proudly wearing red, white and blue, from beret to blazer.

The classic American style — shown in an image above — was crafted by designer Ralph Lauren. But just how American is it?

When ABC News looked at the labels, it found “made in China.”

Every item in the uniforms that the U.S. athletes will be wearing at the opening ceremony in London will carry an overseas label.

Nanette Lepore, one of the top U.S. fashion designers, said she was shocked that none of the uniforms had been made in the states. Further, Lepore said that it was “absolutely” possible that the athletes could have been outfitted in U.S.-made clothing. She said U.S. manufactures could have easily made the uniforms — and for less.

 Is Lepore right?  Probably.

Here's the price list provided by ABC:

Men:
Beret – $55
Tie – $125
Belt – $85
Shirt – $425
Blazer – $795
Trousers – $295
Shoes – $165

 I don't feel up to looking for an American-made beret, but here are some products made in the USA that would replicate the designated uniform style and cost about as much, if not far less:

Brooks Brothers Tie: $79
Allen Edmonds Belt: $88
Brooks Brothers Dress Shirt: $79
Brooks Brothers Double-Breasted Blazer: $695
Anderson-Little Blazer: $175 (for an even better bargain)
J. Press Trousers: $110

Now, American-made shoes are a bit more expensive, but plenty of made-in-America shoes from companies such as Allen Edmonds and Alden can be purchased for around $300 or less.

Even with the extra cost of made-in-America shoes, the Olympic team's uniform (excepting beret) could easily cost $500 less using made-in-America substitutes.

To close with some final thoughts from Lepore:

“Why shouldn’t we have pride not only in the American athletes, but in the American manufacturers and laborers who are the backbone of our country?” Lepore said to ABC News. “Why? What’s wrong? Why was that not a consideration?”

(Note: I have no financial interest in Brooks Brothers, Allen Edmonds, J. Press, or any other company mentioned in this post.  I also have no problem with Ralph Lauren.)

A Republican Senator from Hawaii?

When Hawaii held its first Senate election in 1959, it elected one Republican and one Democrat.  That Republican, Hiram Fong, held on to that seat until 1977, when he retired.  Since then, no Republican has been elected Senator from Hawaii.

That could possibly change in 2012.  According to a recent poll, former Hawaii governor Linda Lingle, a Republican, is within the margin of error of two of her likely Democratic opponents.  The Weekly Standard reports:

Lingle, a two-term Republican governor, leads Democratic congresswoman Mazie Hirono 45 percent to 40 percent and trails former Democratic congressman Ed Case by just 1 point, 41 percent to 40 percent.

As the Standard notes, this race still leans Democratic, but those numbers are a lot closer than Senate races have been in the past.

Restoration and Renewal: A Theme for Romney?

I have a piece up today in the American Thinker that explores the idea of "Restoration and Renewal" as an organizing theme for the Romney campaign:

The technocratically-tending Romney has often defined himself less as a figure of rigid ideology and more as a data-driven competent-in-chief.  While a willingness to experiment may prove helpful in facing the nation's challenges, an organizing message may be helpful, too.  The former Massachusetts governor has a personal reputation (fostered by his experiences at Bain and the Olympic Games) as a turnaround artist, but the theme of restoration and renewal goes deeper than that.  Since at least 2000, a growing number of Americans have felt that there is something increasingly off about recent evolutions in the body politic -- a number that spiked after the economic cataclysm of 2008.  Both the Tea Party and, yes, Occupy Wall Street are responses to this feeling of unease.  The calculated amorphousness of Barack Obama's slogan of "hope and change" was meant to be an antidote to this unease; however, due to missteps and ideological choices, the Obama administration has exacerbated, not ameliorated, American dissatisfaction.  The purported great uniter has become the great polarizer, and 2012 looks to be a year in which the president aims to use this polarization as a tactic for his reelection campaign.  President Obama's campaign has struggled to articulate what exactly would be the animating end of a second Obama term.  The choice of "forward" as the campaign's new keyword is telling in its ambiguity -- forward, exactly, into what?  Further stagnation?  Further polarization?

Read the rest here.

New CBO Report on Tax Liabilities and Income

The CBO has released a new report on the tax liabilities of various income groups.  The headline the CBO runs with is the following:

The recent recession has had a substantial impact on income, the amount of taxes owed, and average tax rates. Average before-tax income for all households fell 12 percent from 2007 to 2009 in real (inflation-adjusted) terms, and the overall average federal tax rate of 17.4 percent in 2009 was the lowest in the 1979–2009 period. The changes in average income and tax rates differed markedly across the income distribution. 

 Interestingly, this data suggests that income inequality declined slightly between 2007 and 2009.  In 2007, the top 1% controlled 18.7% of the nation's before-tax income; by 2009, it controlled only 13.4% of the national income.  However, this income measure does not take into account increasing asset prices.  So, if someone's stock holdings increase $30,000 in value over a year, that increase in value is not counted as income unless that stock is sold.

Moreover, the shares of income calculations include federal transfers---including Medicaid, SNAP, unemployment payments, and other federal benefits.

Celebrating the Fourth

As I wrote last year,

...the Founders chose engagement rather than alienation and laid the foundations for a great civilization.

It would have been easier for them, perhaps, to have turned on each other. Rather than doing the hard work of drafting the Constitution, they might have rested content with blaming internal political adversaries for all political problems. Instead of negotiation and compromise, they might have drunk deep of vitriol. And, even as the ship of state sunk, a few lucky partisans could have rejoiced at having the last swallow of air.

But they didn’t do so. The Founders chose toil and struggle and deliberation over the cheap narcotic of blame. Wrath over taxation may have started the Revolution, but reason, temperance, and conciliation won the republic. The Founders did not regard government as the enemy; they instead sought to recast government to fulfill a broader vision for civilization.

The legacy of their achievements has come down to us, distilled into the annual festival of the Fourth of July. Why do we celebrate this Fourth? Is it merely a time to rest upon our laurels? To clap ourselves on the back once a year with the comforting pablum that ours is the greatest nation in the history of the world? If so, it is a day of mere self-indulgence. The Founders of this nation did not spend all their time proclaiming the greatness of their land. They did great things to make this a great republic.
In part, we celebrate the Fourth to commemorate the work of our predecessors. There were many sacrifices, failures, and triumphs. We, of course, honor those who have given through military service, and we also remember the labors of great statesmen---such as the Founders, Clay, Webster, Lincoln, Roosevelt, Eisenhower, and others. We think of those who worked to change the course of this nation’s politics, such as Douglass and Anthony and King, as well as those whose enterprises have added to the vigor of our nation---from Emerson to Faulkner, Edison to Salk. Yet we celebrate more than gilt-edged names; we rejoice, too, in the millions of dreams, labors, victories, and struggles of countless private citizens. Those who came to these shores, from the Pilgrims to the present day, who reached from the Atlantic to the Pacific to settle this land, who raised families and factories and houses, who sacrificed and strove and searched---they too have woven the fabric of this nation.

But the Fourth of July is not merely a retrospective holiday. We should also use this moment to reflect on the challenges facing the current republic.

Read the rest here.

Mountains and Molehills

National Journal runs with the following headline: "Romney Campaign Declares Cease Fire on Health-Care."  The central paragraph in that story suggests a key topic that's been gaining some circulation in the blogosphere:

His senior adviser, Eric Fehrnstrom, went on MSNBC Monday and ended up agreeing with the Obama campaign's spin that, even though the Supreme Court declared the individual mandate a tax, it really still is a penalty. Significantly, his campaign appears to want to take the most potent argument against the president on the health care subject off the table, likely out of fear the Romney himself is vulnerable when it comes to his health care record. He, after all, supported a mandate as governor of Massachusetts, and doesn't want that to be considered a tax, either.

First of all, it's interesting to note that many rightie critics of the Roberts decision on health-care (such as Jeff Goldstein) have faulted the Court for finding that the mandate was a tax---yet now Romney's camp, for also denying that the mandate is a tax, is being interpreted as capitulating to the left.

But there's another salient point beyond the semantics of "mandate" and "tax": there are plenty of other areas to criticize Obamacare about beyond just the mandate.  The mandate was the focus of conservatives' arguments that Obama was unconstitutional; there are plenty of reasons why it's a problematic law.  As Ann Coulter put it,

If Obamacare were a one-page bill that did nothing but mandate that every American buy health insurance, it would still be unconstitutional, but it wouldn't be the godawful train wreck that it is. It wouldn't even be the godawful train wreck that high-speed rail is.

It would not be a 2,000-page, trillion-dollar federal program micromanaging every aspect of health care in America with enormous, unresponsive federal bureaucracies manned by no-show public-sector union members enforcing a mountain of regulations that will bankrupt the country and destroy medical care, as liberals scratch their heads and wonder why Obamacare is costing 20 times more than they expected and doctors are leaving the profession in droves for more lucrative careers, such as video store clerk. 

Nor is the fact that Romney is not screaming about health-care 24/7 in any way a sign that the campaign has given up talking about it.  Certainly, many Republicans and conservatives are hammering Obama on health-care, and these attacks are being felt in the media dynamic.  As a matter of electoral politics, Romney probably can't match the venom of some of these comments.  He has criticized Obamacare and has pledged to work to repeal it.  There's no need for Romney to fall into the media spin cycle and chase after headlines.  Rather than trying to react to Obama, Romney can focus on asserting his own vision.

UPDATE: Ace has some related points:

But here's the thing: If ObamaTax is in fact a tax, then doesn't that mean... Justice Roberts got it right?
There's a lot of games-playing going on with politics, obviously. We're in campaign season, after all. The candidates do it, we do it.
I think a little too much is being pushed on to this point. On one hand, we're trying to recover some win from Roberts' disastrous decision by saying, "Well, at least he said it was a tax; that's politically useful."
On the other hand, we're insisting he got it wrong.
Well, if it got it wrong, it's not a tax. (Or I suppose there is a way to thread this needle: It's a tax, but an illegal tax, because it is not imposed for purposes of general revenues, but to force people into compliance with a federal law in an area the federal government has no authority... which actually winds up being a penalty, not a tax, so I guess that doesn't work.)
There's a lot of having-it-both-ways going on from all corners. Including from activists and pundits. I'm not sure how you can, in a single breath, declare Roberts' opinion in great error, and then castigate Romney for not embracing the erroneous opinion.