Inequality: A Double-Edged Sword

James Pethokoukis is trumpeting a study that purports to show that income inequality has not increased (at least according to Pethokoukis's interpretation).  Personally, I have some doubts about what the study cited by Pethokoukis really shows.  But let's put those doubts aside for a moment and turn to another issue.

By the standard that shows growing income inequality since 1980 (the standard of economist Emmanuel Saez and others, which looks at income), Obama's administration has been worse for income inequality than Bush's, as Matt Stoller notes:

Yup, under Bush, the 1% captured a disproportionate share of the income gains from the Bush boom of 2002-2007.  They got 65 cents of every dollar created in that boom, up 20 cents from when Clinton was President.  Under Obama, the 1% got 93 cents of every dollar created in that boom.  That’s not only more than under Bush, up 28 cents.  In the transition from Bush to Obama, inequality got worse, faster, than under the transition from Clinton to Bush.  Obama accelerated the growth of inequality.

Over at Breitbart, Ben Shapiro grasped this dynamic a few days ago:

In other words, the Obama “recovery” hasn’t leveled the playing field – it’s tilted it more. That makes sense, since most of Obama’s measures have been aimed not at providing jobs for working class people, but at subsidizing friends, allies, and union bosses. The rich continue to get richer – and much faster – under Obama, even as he claims the mantle of class warrior.

Republicans don't need to run from the inequality fight.  Obama's big-government approach seems to have only exacerbated inequality, as a wealthy few have the ability and influence to manipulate government to benefit themselves.  There's a reason why GE's corporate tax bill is smaller than the sales tax on a Big Mac in New York City.

Some on the left seem to be waking up to the fact that, for all his talking points, Obama's administration might not be the biggest friend of the little guy.  The stagnation of the Obama economy has been felt the most by the working (or at least would-be working) and middle classes.  Republicans can argue for both economic dynamism and egalitarianism.

Accepting Reality

David Frum has an incisive (and controversial) essay up about his struggles with Tea Party-style Republican orthodoxies. There's much that's on target here, though some I disagree with. This paragraph has considerable merit:

Some call this the closing of the conservative mind. Alas, the conservative mind has proved itself only too open, these past years, to all manner of intellectual pollen. Call it instead the drying up of conservative creativity. It’s clearly true that the country faces daunting economic troubles. It’s also true that the wrong answers to those problems will push the United States toward a future of too much government, too many taxes, and too much regulation. It’s the job of conservatives in this crisis to show a better way. But it’s one thing to point out (accurately) that President Obama’s stimulus plan was mostly a compilation of antique Democratic wish lists, and quite another to argue that the correct response to the worst collapse since the thirties is to wait for the economy to get better on its own. It’s one thing to worry (wisely) about the long-term trend in government spending, and another to demand big, immediate cuts when 25 million are out of full-time work and the government can borrow for ten years at 2 percent. It’s a duty to scrutinize the actions and decisions of the incumbent administration, but an abuse to use the filibuster as a routine tool of legislation or to prevent dozens of presidential appointments from even coming to a vote. It’s fine to be unconcerned that the rich are getting richer, but blind to deny that ­middle-class wages have stagnated or worse over the past dozen years. In the aftershock of 2008, large numbers of Americans feel exploited and abused. Rather than workable solutions, my party is offering low taxes for the currently rich and high spending for the currently old, to be followed by who-knows-what and who-the-hell-cares. This isn’t conservatism; it’s a going-out-of-business sale for the baby-boom generation.

Robert Stacy McCain thinks that some of the problems Republicans have run into have resulted from a conflation of Republican politics and conservative principles, so that many non-conservative Bush-era policies were identified with conservatism. I think one thing Frum is trying to get at is that many so-called "conservative" policies function in highly non-conservative ways.

I think there's a tension to this part of McCain's response, though:

Frum is a wonk very much concerned with the question of what legislative and policy initiatives can be feasibly enacted (and politically defended) by Republican elected officials. That’s a very different thing than declaring, broadly, what the ultimate objectives of the conservative movement should be.

For example, were it in my power to accomplish one thing in Washington, D.C., the federal Department of Education would be abolished and its employees summarily dismissed from public service. Except for funding necessary research and providing educational benefits for military veterans, we would get the federal government entirely out of the education business.

This is not how wonks talk or think, however, because nobody in Wonk World has that kind of profound loathing for federal bureaucracy. When you suggest a genuinely bold proposal like zeroing out the Department of Education, a Republican wonk immediately imagines the hue and outcry from the Democrats, the teachers unions, and the New York Times. They can’t imagine Republicans withstanding such angry criticism and, they’ll point out, Reagan never followed through on his promise to abolish the Department of Education.

But, OK, say you want to get rid of the Department of Education, and say you that desire doesn't change the fact that it very likely will not be abolished? If it is going to exist, how can you make it run in the most effective and conservative way possible? That's not an incidental question (nor do I mean to suggest that McCain thinks it is). And it is precisely that kind of question that Republicans and conservatives need to think the hardest about.

Kristol: 1980 Is Long Gone

Bill Kristol suggests that conservatives should not be held hostage by the nostalgia for 1980:

For every American conservative, not once but whenever he wants it, it’s always the evening of November 4, 1980, the instant when we knew Ronald Reagan, the man who gave the speech in the lost cause of 1964, leader of the movement since 1966, derided by liberal elites and despised by the Republican establishment, the moment when we knew—he’d won, we’d won, the impossible dream was possible, the desperate gamble of modern conservatism might pay off, conservatism had a chance, America had a chance. And then, a decade later—the Cold War won, the economy revived, America led out of the abyss, we’d come so far with so much at stake—conservatism vindicated, America restored, a desperate and unbelievable victory for the cast made so many years ago against such odds.

But that was then, and this is now. Now is 2012, and it seems clear that 2012 isn’t going to be another 1980. The reality seems to be that we’re not going to have a chance to replay that election, with (at least in the hazy glow of retrospect) a compelling conservative leader of long standing but ever youthful, a man who stood tall and spoke for us and for America, riding gracefully to victory over the GOP establishment in the primaries and over decadent liberalism in the general election. Assuming the presidential field stays as it is, 2012 won’t be a repeat of 1980.

As Kristol goes on to note, the fact that the 2012 dynamic seems like it will be different from that of 1980 might not be the worst thing in the world: there are other models for successful presidential campaigns than Reagan's.

Bill Jacobson thinks that we should blame conservative "technocrats" for this difference. Instead, I tend to think that, in order for conservatism and Republicanism to grow, it cannot be held hostage to a single electoral model. Yes, Reagan did a lot of good things as president. But some of what Reagan ran on in 1980 is no longer applicable (I don't think diplomatic relations with the Soviet Union are exactly a pressing issue anymore). And there are plenty of issues where Reagan's talk didn't exactly align with his actions; the Department of Education, which he ran on abolishing, only grew during his tenure. Furthermore, there are other points where self-styled "conservative" purists would excoriate Reagan for his governance. Of the current top-tier presidential candidates, the one whose stance on Social Security is closest to Reagan's is probably Mitt Romney, a man derided by many purists as a technocrat.

History changes, leading to new issues and new policy alignments. A political coalition unable to create narratives to cope with these changes is one that is fated to wither. In an interesting post earlier this week, Ace at Ace of Spades HQ argued that the hunt for the "Great Conservative Candidate" can sometimes substitute wishful thinking for realistic reflection. Conservatives cannot afford to let nostalgia displace critical thinking. As much as he admired Calvin Coolidge, Reagan did not try to put in place a Coolidge economic program. He adapted certain small-government principles into new policies. Conservatives would be wise to follow in the spirit of this example.

Picking a Battleground

With the national debt skyrocketing, a faction on the right is hoping to turn the 2012 election into a debate on entitlement reform. No doubt, many Democrats are hoping the very same thing. Democrats would view that development as a chance to gain politically, while some Republicans would see it as a chance to demonstrate their purity.

Charging forth under the motto of William F. Buckley, standing "athwart history, yelling Stop," many conservatives have an affection for martyrdom. And it is not a uniquely conservative mistake to believe that, if something is hard, it is also worthwhile.

Running on entitlement reform would be very hard. Social Security, the centerpiece of American social insurance, is far more popular than tax cuts for the wealthiest Americans or other beloved positions of supposed fiscal hawks. Though many Americans recognize that Medicare is on an unsustainable course, they also want to ensure that the elderly can have sufficient medical care. And bromides about "self-reliance" apart from "socialistic" government intervention can be grating when they come from millionaires who have collected many years' worth of government paychecks. Moreover, it's hard to run a presidential campaign, a genre of the broad brush, with the mechanical pencil of policy minutia.

Yet the difficulty of running on entitlements should not obscure the fact that running on entitlements and focusing excessive energy on curbing entitlements will not solve what truly ails the economic health of the nation and drives our immediate and medium-term deficits: the poor employment picture. Hundreds of billions would be shaved off of the federal deficit with a revitalized economy, and a rotten economy is accelerating our entitlements crisis.

If you want to destroy the sustainability of Social Security and other social insurance programs, ignoring the economy is a good first step. Of course, economic stagnation also imperils the ability of the United States to project power, diminishes the standard of living, and makes it harder for Americans (and others across the globe) to have a lifestyle of comfort. Economic despair would have profound ripples throughout the American social fabric and the global order. Conversely, if the US can transcend the economic doldrums of the past decade, Social Security would require relatively little reform to become indefinitely sustainable, and even Medicare reform would become much more manageable. Solving the economy will help solve entitlement issues, but curbing the growth of Medicare, etc. will not, alas, solve our economic problems: very few businesses are refusing to hire because they fear the escalating costs of Medicare two decades down the road.

Furthermore, running on the poor economy has the additional advantage that this economy is immediately tangible. There's no need for Republicans to get caught in the weeds of arguments about projections, revenue metrics, and benchmarks for growth when they can instead simply tell voters to check the unemployment rate, to look at their diminishing paychecks, or to see how their neighbors are doing.

Republicans would have much to gain by making the economy the door to a broader critique of the Obama administration: that this economic frustration is representative of a broader failure to channel the energies of a free people; that, rather than focusing on the practical trials of American workers, this administration chose instead to use this crisis to indulge in ideology; that its rapid expansion of regulatory power has served not to level the playing field but instead to provide a vehicle for favoritism and political payback. Many of the excesses and limitations of the Obama administration can be seen in its economic policies, so Republicans can make a broader, principled case against Obama while also being anchored in the economic realities of the moment.

Republicans can say to voters, In 2008, you voted in Barack Obama and scores of Democrats in hopes of a new way forward. Disappointment has been the recompense for all your hopes. We can offer a better path. Growth built not on debt but on innovation and production. An economy based not on hollowing out and corporate raiding, where the profits go to an ever-shrinking minority, but on the productive labor of the broad range of the American workforce, where a true rising tide will lift all boats. We can offer an economy of freedom, where opportunity is not the purview of the few but the promise of the many. The world has changed over the past decade, but the thinking of many in Washington has not kept pace with that change. Well, now is the time to renew the American spirit of freedom, innovation, and prosperity---not for some Americans but for all Americans.

Such an aspirational, forward-looking message has, I think, more in it electorally and intellectually than do hectoring declarations that the Democrat party (or the RINO establishment or the federal government as a whole) is a hive of traitorous socialists who hate the United States and freedom. It also has a lot more zip than endlessly insisting, No, I really don't want to push Granny off a cliff. In fact, based on current actuarial projections, at the rate of current spending, the Social Security trust fund will be depleted by such-and-such a date, unless we start to adjust COLA standards and....

(Crossposted at FrumForum)

Rush to Primary?

First Read offers the following view of possible chaos in the Republican presidential primary calendar:

According to Republicans monitoring this subject, there are two different timeline scenarios. The first is the RNC-sanctioned February start date: Iowa goes Feb. 6, New Hampshire Feb. 14, Nevada, Feb. 18, South Carolina Feb. 28, and Super Tuesday is March 6. The second is the more chaotic January (or even December) start date: States like Arizona and Florida -- risking losing half their delegates and other penalties -- set their primaries early, pushing Iowa, New Hampshire, and other states into January or earlier. Which scenario is more likely? Although this remains a fluid situation, one plugged-in Republican eyeing the calendar process for one of the campaigns says there’s a “99%” chance it begins in early January instead of February. So start making your New Year’s Eve plans in Des Moines now. Or at least buy refundable air tickets.

One can understand the desire of various states to be first and have influence earlier in the primary process, but one might also wonder about the wisdom of such a slew of early primaries---for states themselves and for the Republican party as a whole.

The primary calendar of 2008 saw a rush of states early in the year. For Democrats, the states that perhaps won the most in terms of electoral attention were those that held primaries after the rush. With its primary on April 22, Pennsylvania witnessed a much more intense level of campaigning than did California (which held its primary on Tsunami Tuesday on February 5).

And the odds are greater this cycle than in many cycles in the past that Republicans could witness a drawn-out primary process. RNC primary rules changes have placed a new priority on proportional representation for states early in the primary cycle, making the Republican primary process a little more like that of Democrats. These changes could make it less likely for competitive candidates to be knocked out of the race by losing a single state's primary. Especially if Palin gets in, we could easily see a number of closely split primaries leading to a more extended primary battle.

The extension of the primary calendar could very easily be a good thing for the eventual Republican nominee. The minute a presumptive nominee is crowned, the White House and its allies will have a single target on which to focus their vitriol. But, as long as the primary process is in play, the optics of partisan attack get more complicated, if not harder.

In a drawn-out primary process, states that come later still have an important role to play and can get more attention than those states that simply run with the pack. Moreover, an early selection of a nominee might not be a bad thing, but it is not assuredly a good thing, either. Many in Washington are probably hoping that states do not rush to have primaries in late 2011 or January 2012; many states might find it in their best interests to avoid this rush as well.

A Social Security Crisis?

In bewailing the "entitlements crisis," many have made much of the fact that the percentage of GDP expended on Social Security, Medicare, and Medicaid is growing at a fairly ferocious pace. In 2007, those three programs totaled 8.4% of the GDP. By 2050, the CBO estimates they could be 18.6% of GDP. By 2080, they could be nearing 25% of GDP. The current federal budget as a whole is 25% of GDP, and that recently spiked (it was under or around 20% for most of the past 15 years). So, if current trends do not change (a colossal if), federal spending on just three programs would be as big as a proportion of the economy as the whole federal budget is now. Those numbers would probably not be sustainable.

However, grouping those three programs together hides a significant fact: the driving force behind the inflation of those "entitlement" programs is the increase in medical spending. Social Security spending is far more sustainable than the current Medicare and Medicaid regimes.

Currently, Social Security spending is about 4.8% of the GDP. This spending is estimated to rise to about 6.1% of the GDP by 2035 and will linger around 6% for the next fifty years after that. This is about a 27% increase in Social Security spending as a percentage of GDP. That's not a small number, but it is a manageable one, especially when one considers that that period will witness the retirement of the Baby Boomers. If it gets its economic house in order, the US could conceivably afford to spend 6% of its GDP on Social Security for a very long time.

Moreover, due to reforms during the Reagan era, Social Security is more sustainable now than it used to be. According to the Congressional Research Service, the worker earning an average income who retired at 65 in 1980 drew out more in benefits than he had put in through taxes and accumulated interest in less than three years. An average 65-year-old retiring in 2002 would have to collect for almost 17 years for that to happen; the retirees of 2020 would have to collect for nearly 21 years to reach that point. (And, yes, I realize that those figures could also be used to argue for a kind of privatization, but let's focus on fiscal sustainability for the moment. I also realize that the federal government has borrowed against the Social Security "surplus" of past decades, and that a time will come, if it has not already come, when the federal government must pay back the billions and billions and billions it owes to the Social Security system.)

If there is an eventual crisis for Social Security (the status of SS crises depend upon assumptions about rates of economic growth, employment, and other factors, leading to various projections), the solutions to make Social Security more sustainable seem relatively clear cut. Raising the cap on incomes taxed for Social Security (the current max is around $106,000) and slightly changing the retirement age---to suggest two obvious choices---could extend Social Security's sustainability for a long time.

It may be Pollyannaish to suggest that a few minor changes could indefinitely protect Social Security, but it is realistic to say that those changes are minor compared to the ones needed for Medicare and Medicaid. That's where the real growth in spending is. Health-care spending has long exceeded the rate of inflation, and, with an aging population, that spending is only increasing at a faster rate.

For Medicare and Medicaid, the options are a lot harder. Because Social Security works on a fixed-benefit model, the costs are easier to project and, if needed, easier to curb. Federal health expenditures have long operated upon a blank check model, and there seems to be considerable waste in federal health-care spending. But finding strategies to identify that waste and cut it is a much more challenging proposition. I think effective savings can be found, but achieving them will acquire bureaucratic know-how and determination.

Some Republicans may find themselves in a hard place in terms of dealing with Medicare/Medicaid spending. Barack Obama's proposals to cut the rate of growth of Medicare spending were met with cries of "death panels." Over the past few years, many Republicans allied themselves with protecting Medicare funding. Yet now Republicans want to talk about seriously cutting the deficit, and photo-op cuts to the "discretionary" side would offer marginally cosmetic changes to the budget at best. (None of this is to suggest that I find the supposed "savings" of Obamacare particularly persuasive.)

There may be something to be said for various Social Security reforms. But Social Security does not seem to be ground zero for the government's fiscal crisis; the fiscal necessities for reform there are far less pressing than those for other parts of the federal budget.

Two points in closing:

The first is electoral. Social Security is one of the most popular government programs. According to a recent Wall Street Journal poll, 77% of Americans find cutting Social Security to be unacceptable. Kicking grandma off of Social Security while also advocating for ever-expanding tax cuts for the wealthiest Americans (who have been the real economic winners of the past decade) is the electoral equivalent of running into machine-gun fire.

The second is more principled. From a small-government perspective (or at least from my perspective), Social Security is far from the most invasive program or the force that most undermines the sustainability of our nation as a free-market economy. If conservatives do want to advance the cause of a smaller government, there are, I think, much bigger and more pressing fish to fry. Reckless financialization, the hollowing out of the middle class, government distortions of the market through cronyish favoritism, the decay of the family---all these things are much more dangerous to the future of individual liberty vis-a-vis the government than Social Security.


(Crossposted at Frum Forum)