Toward A Foundation-Up Economics

Perhaps the greatest single threat to both conservatism in American life and the nation's economic vitality is not Ivy League professors or Hollywood elites or a sinister "progressive" conspiracy but the economic decline of the middle class. Take away hope in the churning of the free market, and you push many citizens considerably closer to the state as a provider. The turmoil of the markets in 2008 was merely the cataclysmic icing on top of the cake of a decade of lost ground for the bottom 90% of workers. Take that away, and an Obama victory would have been much less of a sure thing (and even such a victory would have been considerably moderated). If insurance premiums and coverage rates had been closer to those of 1993, Obamacare, the bette noire of conservative activists, would not have passed. The economic wasteland of the past few years has pushed more than a few public and private pension plans closer to the edge of insolvency.

The recent Congressional Budget Office report on incomes from 1979 to 2007 has depressing news for believers in egalitarian free-market capitalism. Since 1979, the after-taxes income of the bottom 80% of Americans as a share of the total national after-taxes income has dropped from 57% to 47%; every one of the first four quintiles has seen a drop in its share of the national income. Yet even the gains in economic strength for the top quintile have been unevenly shared. The 81st-99th-income-percentile range has seen its share of the national income stay the same. Meanwhile, the top 1% of earners have seen their share of the nation's after-taxes income climb from 8% in 1979 to 17% in 2007. These numbers suggest that the profits of the national economy (broadly considered) have increasingly flowed to the top.

There are broader policy reasons that explain this change. For much of the past decade and beyond, the prevailing Republican (and, frankly, bipartisan elite) orthodoxy has been as follows: lower wages, lower prices, and an empowerment of capital over labor. The CBO numbers reflect this dynamic, as they show the share of income due to labor declining since 1979, while the share of income due to the combination of capital and business income increasing. The claim made continually on behalf of statist globalization over the past twenty years has been that lower prices on various goods through cheaper labor would reward the American consumer, and that the increase in spending power on tchotchkes would exceed the decline in wages due to outsourcing. Similar claims have been made on behalf of massive amounts of illegal immigration: poor workers in the shadows enrich Americans as a whole through providing a plentiful peon class to act as babysitters, home-builders, fast food workers, and other assorted "service" positions.

This decline in labor cost provides a de facto empowerment of capital: if you earn money from investing rather than collecting a paycheck, having cheaper resources of labor allows your dollar to go much further. The "ownership society" sought by President Bush attempted to leverage this dynamic. By making as many Americans investors as possible (especially through investing in the housing market), the Bush administration tried to place hundreds of millions of Americans in the position of the victorious investor class in order to compensate for the decline of the labor class.

However, there are noticeable shortcomings to this model. First of all, not all Americans can join the investor class, so a substantial number of Americans lose out in an investor-centric model. Moreover, housing, the investment vehicle favored by the Bush administration, is a dangerous institution on which to base an investor-centered economy: an individual house is nowhere near as fluid an investment vehicle as a stock portfolio, and the fact that most people need somewhere to live complicates the role of a house as an investment commodity. Since most people need to take on a mortgage in order to buy a house, using the house as the doorway to the investor market requires Americans to take on considerable amounts of debt, and the debt needed to keep the housing-investing game going will balloon (as the 2000s proved).

And the decrease in prices due to cheaper labor is not spread equally across all sectors of the economy. Those sectors least undermined by outsourcing and domestic and international low-skilled workers, such as health-care, have seen some of the biggest price increases over the past decade. Jeans at Walmart may be less, but your health insurance premiums have doubled. With wages stagnating or declining, health-care bills and others like them eat more and more into a worker's paycheck. So the decline in wages is not fully compensated for by cheaper goods and services.

A final limit for the low wages=low prices model is that the consumer often does not feel the full price benefits of the decline in worker wages. Instead, the "savings" that many companies find through shipping work abroad or otherwise cutting labor costs are translated into bigger compensation packages for elite management and the investor class. While current "globalization" has witnessed the decline in wages for the middle and working classes, it has also seen the the pay of upper management (those who control large amounts of capital) increase. The recent history of American business is saturated with stories of companies that close down their American factories while giving upper management colossal paydays. So many of the presumed benefits of declining wages are accruing to an increasingly narrow band of the population.

With wages shrinking and the spigot of easy credit turned off, it's no wonder that public demand has withered.

What might be slightly more interesting, though, is a movement among some factions on the right and left toward a policy reversal: using higher wages and not lower wages as a stimulant for economic growth. Under this model, rising incomes for working- and middle-class workers would increase consumer demand. Rather than the cost of jeans production going down, workers would have more money to spend on jeans---and housing and cars and medical care and foreign trips. Economic growth for the bottom 90% of wage-earners would in turn provide new opportunities for the top 10%. Things weren't exactly bad for top-tax-bracketers during the egalitarian 1950s and 1960s or during the later part of the 1990s, when the income of a broader range of Americans increased in real terms (though income inequality increased in the 90s, as well). Rather than trickle-down economics, we would instead have foundation-up economics.

Nurturing this foundation in part depends upon increasing the skill level of the American workforce, so that workers can make the most of cutting-edge technologies. Education as driving future economic growth has perhaps acquired the somewhat dusty ring of tired dogma, but, like many things that may seem trite to the jaded, it has some truth to it. Reforming our immigration system, making new investments in fundamental research, and pushing back against social dysfunction (among other policies) would go a long way in the direction of improving the skills of America's workforce and would likely improve the wages of many workers.

But mere training is no panacea. With all due respect to current education "reform" movements, people are not mere containers for educational inputs; they exist in vibrant, heterogeneous communities, where all do not all have the same aptitudes. America will not and probably cannot be a nation populated solely by Facebook founders and investment bankers and political pundits. It will have maids and clerks and factory technicians and farmers and truckers, too. We can and we should have an economic system that offers advancement to all productive enterprises of worth and merit.

(And make no mistake: the People's Republic of China is witnessing great economic growth not because some of its students are doing well on international standardized math and science tests but because it has pursued an aggressive policy of protecting and developing Chinese industry. The decline of the US economy has less to do with the notion that it is graduating "insufficient" numbers of math and science majors and more to do with the fact that whole sectors of the economy have withered.)

Part of foundation-up economics also thus depends on protecting the livelihoods of so-called "lower-skill" workers (though, in reality, it does take considerable skill to build a house or run complex machinery or sundry other tasks). It may be true that the current statist flavor of globalization may increase inequality somewhat, but the extent of this inequality is in part due to other domestic policies. Our immigration and trade policies in particular have allowed those on the higher end of the ladder to leverage worker against worker in the pursuit of maximizing profits. Moreover, many of the gains for the wealthiest have been due not to the fair functioning of a free market but to the manipulations of state power.

It is possible to realize an economy that combines the exuberance of the market with a sense of popular prosperity. However they may differ in their methods of reaching this goal, many Republican and Democratic presidents have aimed for it. For a number of years now, we have empowered capital through cheapening labor; now may be the time to increase the value of labor in order to find new opportunities for capital.

From a conservative perspective, an egalitarian economy, where all may have ready hope of living a comfortable life and of advancing economically, is far better than either an economy where the vast majority of workers need government checks to survive or an economy where the super-wealthy plunder the resources of the public and leave the populace as a whole to malinger. Some extremists of the left and of the right would push the economy in one direction or the other. Neither extreme is sustainable. A happy, prosperous workforce is not only the best environment for defending the free market; it is also one of the greatest promises of the free market.

(Crossposted at FrumForum)

Perry's Immigration Attacks May Backfire

In the short term at least, it seems hard to deny that yesterday's debate was good to Rick Perry. The leading un-Romney contender, Herman Cain, sank underneath withering attacks on his 9-9-9 plan; his inability to defend the details of this plan with anything other than assertions that his opponents are wrong reinforced impressions that he still has a lot of policy areas to brush up on.

And Perry's deeply personal attacks on Mitt Romney helped bring the focus of the debate back on himself. These attacks may help keep Perry as the media takeaway from the event seems to be focusing on how much he's hurt Romney---not on the Texas governor's verbal slips or policy haziness.

All this may provide a boost for Perry and keep him in the race. But his attack on Romney about immigration may eventually raise even more problems for Perry. Via Byron York, here's the substance of the exchange:

And Perry, for the first time in any GOP debate, rattled former Massachusetts Gov. Mitt Romney. He did it by bringing up a 2007 charge that Romney hired illegal immigrants to do lawn work at his Massachusetts home. Jobs are the magnet for illegal immigrants, Perry said. "And Mitt, you lose all of your standing, from my perspective, because you hired illegals in your home and you knew about it for a year. And the idea that you stand here before us and talk about that you're strong on immigration is on its face the height of hypocrisy."

Romney tried to laugh it off and to deny the story. "I don't think I've ever hired an illegal in my life," he said. Romney tried to explain, but Perry kept pushing, leaving Romney protesting that Perry was ignoring the rules -- just as Perry had planned.

"Rick, again, Rick, I'm speaking," Romney said. "I'm speaking, I'm speaking, I'm speaking. You get 30 seconds. This is the way the rules work here…Anderson?"

By the time Romney appealed to CNN moderator Anderson Cooper for help, Romney seemed flustered, almost frantic. "Would you please wait?" he said to Perry. "Are you just going to keep talking?"

When Perry finally told Romney to "have at it," Romney explained that he had hired a company to do lawn work and had no idea the company hired illegals until it was reported in the paper.

Perry has become known for his verbal imprecision in presidential debates, and his attack depends upon an indifference to the details of verbal meanings.

Romney "hired" illegal aliens, according to Perry, by paying a company that employed them to do a service. Under this definition of "employment," anyone who goes to a restaurant that employs an illegal alien is also "employing" an illegal alien. A woman purchasing a candy bar from a supermarket with an illegal alien working at the deli counter is also "hiring" an illegal alien. By Perry's definition of employment, he has probably "hired" countless illegal immigrants---at restaurants, stores, and so forth.

The point of Perry's charge of hypocrisy was not to clarify the distinction between proclaimed position and actual practice but to shut down debate by casting an impossibly wide net of guilt. This appeal to hypocrisy to avoid a debate of policy principles is all too common in politics, especially at the federal level, so it's perhaps no surprise to see Perry engaging in it here.

The point that primarily concerns American voters is not whether some individual candidate's money ended up indirectly in the pocket of some illegal immigrant. The point that ought to concern us is whether a candidate thinks it is good to have the workforce be flooded with millions and millions of illegal workers. Romney's record as governor and his rhetoric as president demonstrate that he thinks that might be a problem for this country. Rick Perry's rhetoric and record---from his opposition to E-Verify to his support for major taxpayer subsidies for illegal aliens---suggest that he doesn't think that's such a big problem, if a problem at all. Both positions are understandable, but they are quite different, and we should not blur those important policy distinctions.

Ironically, Perry's attack on Romney may leave Perry open to accusations of being a flip-flopper. Supposedly Romney hiring a company that (unknown to him, so he says) employs illegal aliens is to be a thing of outrage. But someone is also "heartless" if he doesn't support giving tens of thousands of dollars of taxpayer subsidies to illegal aliens. It's hard to square that circle. And such a Texas two-step seems more motivated by political opportunism than anything else.

One of Perry's distinguishing characteristics has been his reputation as a straight-shooter. If Perry tarnishes that reputation by contradictory attacks on his political opponents, he may find his standing further erode in the polls.

(Crossposted at FrumForum)

$ Primary between Brown, Warren Heats Up

The third quarter results are in for fundraising for Elizabeth Warren and Scott Brown:

Warren pulled in $3.15 million in total for the third quarter, with more than 11,000 people in Massachusetts pitching in, her campaign announced Monday. Brown raised $1.55 million in the third quarter — almost exactly half of Warren’s total. But Brown, who wielded a hefty war chest heading into his reelection campaign, now has more than $10 million in the bank.

Fear Stalks

Two bits of performance art last night suggest how panicked Democrats, progressives, and socialists (see item #2) are becoming.

One is Harry Reid's decision to muscle his caucus together and weaken the minority's ability to offer amendments to a measure after cloture has been invoked. Philip Klein has a helpful summary:

Tonight, McConnell made what's called a "motion to suspend the rules," to allow a vote on the amendments. Such motions are almost always defeated, because they require a two-thirds majority to pass. But they're another way for the minority party to force uncomfortable votes. Even though the minority party doesn't get a direct vote on the amendment, how somebody votes on the motion becomes a sort of proxy for such a vote. In this case, for instance, if Democrats had voted down a motion for a vote on Obama's jobs bill, it would have put them in an awkward spot.

Though it's been the standing practice of the Senate to allow such motions by the minority, tonight Reid broke with precedent and ruled McConnell's motion out of order, and was ultimately backed up by Democrats.

So, the end result is that by a simple majority vote, Reid was able to effectively rewrite Senate rules making it even harder than it already is for the minority party to force votes on any amendments.

And what caused Harry Reid to rewrite rules in this way? A desire to keep the Senate from having a vote on Obama's jobs bill. Is the president's plan that toxic (or that much of a pipe-dream) that his own party doesn't want to vote on it in the Senate?

Democrats seem to fear that they're on the verge of losing control of the public narrative. This attempt to shut out minority voices is a flailing attempt to provide uniformity to that narrative, to shut out any competing principles or politically embarrassing facts.

This brings us to the second piece of performance art: Lawrence O'Donnell's interview with Herman Cain. Cain is often most effective in these talking-head encounters, and the vitriol of O'Donnell's questions helped the Republican presidential contender portray himself in a good light. The interview is worth watching in full, but a few points bear particular mention.

Perhaps one of the most striking features of this interview is O'Donnell's apparent desire to jump in the timewarp machine and approach the campaign of 2012 like it's 1968.

In a time when millions suffer in long-term unemployment, the national debt is skyrocketing, and the globe's political-diplomatic order is on the verge of disintegrating, O'Donnell seems much more concerned about whether Herman Cain was sufficiently activist about Civil Rights in the 1960s: why didn't he join in the Freedom Rides? Where was he during the protest marches? It seems rather bizarre to think that Cain's viability as a presidential candidate should depend upon if he went to marches fifty years ago. The premise of O'Donnell's questions seem to suggest that there was only one route for a virtuous "black" man in 1960s America: engaged on the frontlines of political activism. While I think that the fight for Civil Rights was a virtuous activity, it was not the only one. And the totalizing narrative on race that O'Donnell was edging toward seems less than desireable.

Vietnam was another fixation of O'Donnell here. As he's done in the past, O'Donnell seemed unable to resist indulging in a little militarism (and more than a little opportunism) when he claimed he was "offended" that Cain had the temerity to run to be Commander-in-Chief without having volunteered to serve in Vietnam. Apparently working on ballistics with the Department of Defense during the war (which Cain did) does not count as a sufficient contribution to the war effort. Based on O'Donnell's premise that it's "offensive" to dare to be president without having volunteered to go on the battlefield, I presume he spits upon the picture of Franklin D. Roosevelt (that "chickenhawk" who took a cushy job in military administration instead of volunteering to fight during World War I) and looks upon the administration of Bill Clinton (no Vietnam volunteer he) as an offensive abomination in American history.

O'Donnell's rabid attempt to caricature Cain as a cowardly lackey of The Man shows a deep anxiety about the failure of Barack Obama's "progressive" dreams. And it's unfortunate that this anxiety is manifesting (and will no doubt increasingly be manifesting) in vitriol, personal enmity, and snide rhetorical questions. There are some shortcomings to Cain's economic plans, and O'Donnell was stronger when interrogating Cain about actual policy options that could affect the future of the USA---and not when playing the grand inquisitor of the 1960s.

Our nation is in great trouble, and the best route out of this danger is the well-intentioned interrogation of all possible options. Instead of the rhetoric of exclusion, the tactics of totalization, and the drug of demagoguery, the spirit of charity and rationality would much better serve our purpose.

A Path to Victory for Brown

The recent UMass Lowell/Boston Herald poll of the 2012 Massachusetts Senate race has some sobering news for Scott Brown: among registered voters, he has a slim three-point (41-38) lead over Democratic frontrunner Elizabeth Warren. Other polls have also suggested that this could be a close race.

However, there is plenty of good news for Brown here. 54% of voters think that Brown met or exceeded their expectations. His favorability/unfavorability ratings remain a healthy 52%/29%, respectively. Massachusetts voters don't hate Brown, and they're willing to give him a chance. Moreover, this race is still very fluid. Over 20% of voters are undecided, giving both Warren and Brown plenty of room to grow.

Digging into the demographic data for this poll suggests in many ways that Warren may be more identified with the status quo than Brown is. Interestingly, having a layoff in your household makes you more likely to support Brown: he leads Warren 42-36 among those experiencing a layoff in the household, while he only leads her 40-39 among households that haven't experienced a layoff. Voters who have felt the pain of the Obama economy are more willing to back the Republican. About half the Massachusetts population thinks the economy is getting worse, and Brown has his strongest lead with them. Among those who think the nation is on the wrong track, Brown has a commanding lead over Warren (though a less commanding lead than he had over Coakley in 2010).

These trends suggest that the less happy Massachusetts voters are with the status quo, the more likely they are to support Brown. But if Massachusetts voters aren't thrilled with the Obama economy, they are even less enthusiastic about having the national "conversation" that some conservative activists want to make the 2012 election about. An overwhelming majority of Massachusetts voters want Social Security and Medicare to be untouched. Bay State voters also believe 52-40 that government should "do more to solve problems." Brown can't run on wanting to privatize Social Security or Medicare, and a Republican presidential candidate who made such a policy the centerpiece of his campaign could very well sink Brown. He has a slim lead over Warren in all age groups, but a defense of the mission of social insurance could help him win more votes from the middle-aged and elderly.

Brown has long recognized the banner of independence as crucial for his political survival as senator. By crafting his own identity apart from the Republican policy monolith (however frustrating that may be to some Tea Partiers), Brown can find space for electoral maneuvering.

The middle class is also crucial for Brown. Elizabeth Warren beats Brown among the poor (those with household incomes below $30,000) and wealthier (those with household incomes above $100,000). In fact, top income earners are the demographic most likely to support Warren (she gets 46% of their votes). Apparently, the rich of Massachusetts haven't gotten the memo that Obama and Warren are socialists who want to confiscate all their wealth or something. They don't seem too worried about taxes going up on upper-income earners, so Brown would be smart not to make tax cuts for the top 2% the core of his economic message. The rich have been the least affected by the recent recession, so they seem quite happy to let the Obama times roll.

Instead, Brown should focus on the rich electoral territory of the middle and working classes---the people whose jobs have been downsized, hours cut, and wages slashed. The great hollowing out of the middle class in the 2000s has made voters willing to listen to voices that challenge partisan orthodoxies of the right and left. Those with household incomes between $30,000 and $100,000 are the most likely to support Brown, so he should do what he can to maximize his margins here.

If Brown can offer a message that convincingly offers a rebuilding of the middle class, he might in turn increase the hopes of (and support for himself among) poorer Massachusetts residents. A convincing economic plan might also pull wealthier Warren supporters, especially those in the upper-middle class, in Brown's direction. Furthermore, a narrative of economic progress could boost Brown's numbers among the young, the demographic group hit so hard by the nation's poor employment picture.

Brown won in 2010 as a fair-minded outsider, and this poll suggests that Massachusetts voters are still willing to view Brown in that role. Though Brown looks more vulnerable now than he did six months ago, he still has a better shot of being elected to a full Senate term than any Republican has had in a long time. If the GOP wants to stay a national party with majorities capable of enacting large-scale reforms, it's going to need a diversity of Republicans. There's a case to be made in Massachusetts for independent-minded and efficient smaller-government policies, and Scott Brown seems the candidate to make this case.

Eight Steps to Renew America's Economic Architecture

America is now coping with the debt binge of the past decade and stagnating incomes across the board. Trying to provide some cushion for those left economically behind may be a good short-term strategy. But policy makers also need to work toward a restructuring of America's economic architecture. Unless America's economic vitality is restored, all plans to reduce the weight of the national debt are moot. A perpetually failed American economy will lead to skyrocketing debt levels, an ever-diminished standard of living, and a weakening of the ability of the United States to project power across the globe.

To borrow a phrase from Governor Huntsman, America's "core" needs to be renewed. The economic renewal of this core would require the increase of America's skill level, the defense of American jobs, and the development of a regulatory structure that incentivizes production and innovation instead of gambling and borrowing.

In light of this project of renewal, here are some thoughts about big-picture goals to keep in mind for the restoration of America's economic architecture.

Regulate the financial system. Perhaps because it was bailed out with untold billions of dollars, Wall Street has been least hurt by the current recession. But deep structural problems remain. In the decade or so before the crash of 2008, many regulations that had been crucial to the nation's financial system had been repealed. Meanwhile, various government departments gave special privileges to numerous connected banking institutions. Our financial regulations give bankers and traders the capacity to be more reckless, and the history of bailouts and insider loans gives the appearance of a safety net, at least to the chosen few. So our financial system grows increasingly less stable. Regulations must be put in place so that, for individual banks, individual failure will not lead to the collapse of the whole banking system; too big to fail must go by the wayside. Bankers used to be renowned for their prudence and circumspection. It would be helpful to put in regulations encouraging that tradition.

Let energy multiply. Since the Industrial Revolution, cheap energy has been a bedrock of economic growth. Unlike President Obama, I do not believe that the government should aim to make energy prices skyrocket. One of the major accomplishments of probably the greatest Democratic president of the twentieth century---Franklin Delano Roosevelt---was to spread electricity across America, to the poor and rural classes, in order to improve the living standards of the nation as a whole. If Democrats want to surrender that legacy, Republicans should pick up the banner of cheap, egalitarian energy and run with it. Investment in energy infrastructure could be one of the greatest improvements in the American economic architecture---and that investment would include oil, nuclear, and alternative energies. Current proven US oil reserves will not be sufficient to meet all national demand for the long term, but the Congressional Research Service estimates that there could be over a hundred billion barrels more worth of oil that further exploration could reveal. Further exploration and innovation could discover even more resources. But drilling for more oil will not alone solve America's energy problems. Nuclear is most sustainable and massively scalable non-fossil fuel energy source we yet have in place in an expansive way, so investment in nuclear power plants would be an easy route to expand America's energy prospects. Solar, wind, and other energy sources are also worth investing in; some of these technologies are in the experimental stage, but the the normal of today was once the experimental of yesterday. Gains in efficiency are good, but the sweet spot of economic growth is found when improved efficiency meets cheaper energy.

Get a twenty-first-century trade policy. This isn't the 1990s anymore, when we could trust in a technological leap to compensate for other countries using neomercantilist strategies against us. "Tradeable jobs," often the most value-adding, have been pummeled in the US over the past decade or so. Unilateral trade disarmament in the face of other countries' neomercantilist tactics (currency manipulation, tariffs, regulations that de facto prohibit American-made products, and so forth) is not free trade. The past couple decades have shown the effects of this neomercantilism for the American workforce.

Get a twenty-first-century immigration policy. The current immigration paradigm was put in place almost fifty years ago, after a great lull in immigration and in a time of great prosperity and economic growth. This paradigm may need to be revised. Current immigration policy often rewards law-breaking and family connections. A revision of immigration policy could focus on increasing the skill level of the American workforce and improving the conditions of the the workers currently in the United States. We should work to make the US immigration system resemble Habsburgian dynastic politics less and instead push it in an egalitarian, skills-oriented direction. While prioritizing the minor children and spouses of immigrants, a revised system could move towards a basket of skills, refugees, and extended family members (with increased emphasis upon the "skills" portion).

Invest in the future. Despite propaganda to the contrary, government investment in science, technology, and distant innovations can actually work out. The nuclear age was greatly accelerated by government spending during World War II, advances in telecommunications are in part due to NASA, and early pioneers of the internet---one of the great drivers in growth over the past two decades---included government agencies and institutions backed by substantial government funding. In a time of economic turmoil, many large businesses are unlikely to invest in long-range projects that may never pay off; government investment can help redress that lack of funding for first-principles research. We cannot look for large institutions to provide all advances (much has been accomplished by a few lonely and talented individuals working on their own), but history has shown that some of that long-range spending can have dividends for decades in the future.

Revise the regulatory state. Many national regulations are economically onerous and often counterproductive. For example, many environmental laws put burdens on local manufacturers, even as our trade and tax policies encourage these very same manufacturers to ship their work out of the country (to nations with far fewer protections); it's hard to call such a result a win for the American economy or for the global environment. (I'm not here arguing against environmental regulations as such, but I am suggesting that we need to think of the broader implications of them and work to correct some of the negative results of these implications.) The 70s witnessed the acceleration of the dismantling of the New Deal regulatory state, but new layers of bureaucracy have taken its place. We must do what we can to ensure that projects (both private and public) of great vision and power can be advanced quickly.

Renew infrastructure. Regulatory reform could also streamline and make more possible broad improvements to the American infrastructure. Much of the backbone of our infrastructure (highways, bridges, etc.) is in disrepair, and much (such as America's rail system) could also take the leap into the twenty-first century. In an era of new experiments with energy sources, updating and rendering more flexible our electricity grid and other energy delivery systems could have considerable gains for the future.

Revitalize health-care. Medicare's long-term trends may eventually break the federal bank, but the cost of health-care inefficiencies are being felt throughout the whole economy today. Americans pay a lot for health-care, far more than do the citizens of other industrialized nations. More needs to be done to increase the supply of medical care and push America's health-care system in the direction of a functioning market. Health-care is perhaps the section of the economy with the most government interference; it is also one of the most inefficient. The British National Health System shows that it is possible to provide some level of national coverage at relatively low cost through socialized medicine. The US could instead go in the direction of unleashing the power of the market to provide cheaper, better health-care; the current faux-market of health-care in the US is not working as well as it might. And unleashing the power of the market means far more than putting senior citizens on Medicare vouchers. It means tackling the lack of transparency in the field of medical spending, updating the insurance-financing system, allowing doctors to focus more on giving care than defending against frivolous lawsuits, taking on health-care oligarchical structures, and opening up the ranks of medical providers.


Obviously, these thoughts are partial and open to debate; they are more posed in an experimental tone than a dogmatic one. But experiment is often the first step on the path to success. If the GOP is to offer a true competing agenda to the policies of Barack Obama, it needs to move beyond a fixation on tax cuts to a broader emphasis on growth, job creation, the defense of the middle class, and structural renewal.

Stumbles, Survivor, and Synthesis

Some thoughts about tonight's debate:

Though there wasn't a massive pile-on as in the last debate, Perry continued to lose ground, and most of his wounds were self-inflicted. The shadow of George W. Bush loomed larger over Rick Perry tonight. Perry's verbal stumbles and with-me-or-you're-a-bigot tone on immigration issues might have reminded activists and conservative politicos a little too much of the former Republican occupant of the White House. If Perry seems like George W. Bush Part II, he won't be able to clinch the GOP nomination, let alone the presidency. Moreover, his attacks on Romney often fell flat or wandered. Perry needs to sharpen his approach if he wants to gain here.

Romney followed his usual strategy of survivor in this debate: he didn't let anything get to him and didn't indulge in political napalm. He just kept insisting on his message. Romney did seem to have a few moments of sputtering, though. They might have added to his sense of authenticity, but they also made him seem less steady on his rhetorical feet. Romney's survivor strategy has paid off in the past couple debates. He's blunted the rise of Rick Perry and kept the Texas governor from running away with the race this early. Time will tell if this will allow him to wrest away the primary polling lead.

Santorum stood out in this debate. He had few striking exchanges (on immigration with Perry and foreign policy with Huntsman). I don't know how much these debate performances will translate into polling benefits for him, but he's definitely keeping his place at the table.

Gingrich is still plowing along. His comity tactics seem to help give his ideas a stage at these debates---and finding that stage may be more of a priority for Gingrich at the moment than the GOP nomination.

Johnson had a good line, perhaps good enough for him to stay in the debates. Cain had some other good points. I think Huntsman still wanders sometimes, but he seems to be keeping his campaign viable. Ron Paul was himself. Bachmann struggled to find her voice again.

Another Victory for the "Free Market"

Perhaps the opening line of this news story says it all:

Under pressure from the Beijing government General Motors has agreed to provide access to its proprietary electric vehicle technology to its lead Chinese partner.

The move is raising numerous concerns, critics contending that China is, for one thing, using unfair pressure to gain access to technologies that will later be used by its own domestic manufacturers to compete with foreign brands like GM.

I guess this kind of coercion is now known as "free trade."

A few more details about the merger:

But critics note that GM has also faced significant pressure from China to accept the partnership, government regulators threatening to withhold sales incentives for the Volt were GM to have rejected the technology sharing agreement.

Such a move might violate international trade agreements, critics argued. But the more serious concern is that GM may now lose control of key intellectual property. Protection of IP rights has become a critical concern with Chinese businesses routinely ignoring trademarks and copyrights on everything from pop music and movies to pharmaceuticals and automotive design.

In the short term, this move may improve GM's access to the Chinese market, thereby increasing sales and probably the income of some upper-level executives.

However, this surrender of IP may in the long term prove more damaging to GM. The partner for this venture, Shanghai Automotive Industrial Corp., is an entity owned by the PRC government and is no doubt eventually looking to expand on its role in the automotive industry. Plenty of free IP along with billions of dollars of investments from Western companies will no doubt help it in this enterprise.

It's also unclear to me how, in the long term, the empowerment of government-run corporations due to government coercion is an effective path for supporting free market capitalism.

Economic Geographies

Via Tyler Cowen, I came across an interesting essay by Noah Smith discussing possible causes for the recent economic stagnation. He adapts a theory of economic geography from Paul Krugman:

The basic idea of the theory is this: It is expensive to move products around. This means that if you have a factory, you want to locate it close to where your customers are, to avoid paying a bunch of shipping costs. Now consider two factories. The workers in the first factory will be the consumers for the second factory, and vice versa. So the two factories want to locate near each other ("agglomeration"). As for the workers/consumers, they want to go where the jobs are, so they move near the factories. Result: a city. The world becomes divided into an industrial "Core" and a much poorer agricultural "Periphery" that produces food, energy, and minerals for the Core....

So this could explain why people in the rich world are getting poorer. In the 50s, America was the only industrial "Core" on the planet. But since the 60s, we have seen successive "growth miracles": Japan and Europe in the 60s/70s, then Taiwan/Korea/Singapore in the 80s, then China since then, and now even India. In a New Economic Geography world, we would expect these successive relocations of manufacturing to hold down income growth in the U.S., even if technology was advancing as usual. And now Japan and Europe are feeling the pinch as well.

Smith further expands upon the situation of the USA:

It may be that American manufacturing strength was due to a historical accident. Here is the story I'm thinking of. First, in the late 19th and early 20th centuries, our proximity to Europe - at that time the only agglomerated Core in the world - allowed us to serve as a low-cost manufacturing base. Then, after World War 2, the U.S. was the only rich capitalist economy not in ruins, so we became the new Core. But as Europe and Japan recovered, our lack of population density made our manufacturing dominance short-lived.

Now, with China finally free of its communist constraints, economic activity is reverting to where it ought to be. More and more, you hear about companies relocating to China not for the cheap labor, but because of the huge domestic market.

There are many good points here, especially the role of sudden shocks to the economy in changing events; the essay is well worth reading in full.

However, I'm somewhat skeptical of this theory of economic geography.

First of all, I think it may overvalue the cost of transporting goods. Shipping costs were a much bigger weight in 1830 than they are today, and producers are less tied to the physical territory of potential consumers now than they were. After all, the past few decades have seen many factories close down in the American market only to relocate thousands of miles away to sell to this very same market. The story of globalization over the past twenty years is in part the story of the diminution of shipping costs (broadly considered), which I think may complicate the narrative of this model.

Moreover, this theory of economic geography seems to suggest in some way that the most densely concentrated areas are likely to be destined to be the richest (I admit that this is a simplification of the model). However, often very densely concentrated countries are very poor, while there are plenty of wealthy less dense countries. I wonder whether density of population is really the most crucial variable for discussing national wealth or national capacity for wealth.

Smith's reading of the US economic path is interesting, but I think it also has some limitations. While our closeness to Europe might have allowed us to serve as a "low-cost manufacturing base" (though the US was much farther from Europe than many poorer nations), the growth of American industry in the nineteenth century was also accompanied by the increase of American living standards over those of many wealthy European nations (such as Great Britain); this combination of high wages with industrial growth differs from current low-wage trends. And the US had a huge manufacturing capacity even before the other great powers destroyed themselves during the two World Wars.

Also, I think Smith may underestimate the role of human agency in his claim that "you hear about companies relocating to China not for the cheap labor, but because of the huge domestic market." The appeal to the giant Chinese domestic market has merit, but we should not forget that the Chinese government often requires companies to invest in factories and other places of employment in the PRC in order for them to have access to the broader Chinese market. Beyond the "natural" appeals of economic geography, state coercion plays a considerable role in this narrative of Chinese expansion.

Though I'm doubtful about many of his policy suggestions, Smith is right in his recommendation that American update its transportation infrastructure. I think there's more to economic destiny than population density, and the "historical accident" of American wealth is in part the result of the deliberate choices of American policymakers in the past (even if some of these policies, such as tariffs, may run afoul of contemporary orthodoxies).

Update: Matt Yglesias has some more observations on the China market here.

Orthodoxy in the Balance

I was listening to the Laura Ingraham show the other day and heard an interesting conversation between Ingraham and her guest, Larry Kudlow. Discussing the prospects of various presidential contenders, Ingraham spoke warmly of Mitt Romney's pledge to be tough on the People's Republic of China for its currency manipulations, theft of intellectual property, and other barriers it puts up to foreign products. I could almost hear Ingraham's voice thrill as she mentioned "tariffs" as a possible tool to be used to compensate for PRC manipulations.

Kudlow did not act as might be expected: rather than denouncing such policies, he seemed positively inclined toward them. Kudlow is a pundit embodiment of Republican economic orthodoxy, so his response may be indicative here of a broader Republican souring on "free trade" myths (namely, that we even live in an era of "free trade").

If the part of correcting trade imbalances in Romney's economic plan is more than talk, this plan would represent a significant attempt to change the Republican position on trade policies since NAFTA: moving past the dogma of cheap imports toward one of a level playing field (with the aim of gaining and preserving high-paying jobs).

NY-09, Medicare, and Social Security

The victory of Bob Turner in heavily Democratic NY-09 is clearly not good news for Democrats. How bad the news is, though, remains to be seen: the badness of the news will in part depend on how much local issues decided this election (e.g., the Weiner scandal) versus the impact of broader trends.

In any case, Mickey Kaus has some good points here:

It’s the possibility that the Democrats favorite issue–Social Security–didn’t work to save them because Obama, too, has embraced cutting Social Security and Medicare in “some undefined ‘everything on the table’ entitlement reform,” as Weigel puts it. Could it be that the differences between Obama’s Medicare cuts and GOP Rep. Paul Ryan’s Medicare cuts–differences that seem so significant to policy analysts in Washington (and to me)–don’t have much salience in the crude argumentation of direct-mail electioneering? Now that’s scary for a Dem. After decades of pledging not to touch the two sacred programs, it’s beginning to look as if Democrats can’t just suddenly agree to pull trillions out of Social Security and Medicare and expect voters to maintain their reflexive loyalties.

However, I think it is a mistake to interpret Kaus here as saying that Mediscaring / Social Security-scaring has been proven ineffective.

If anything, this election suggests that Obamacare cuts to Medicare do provide an opportunity for Republicans to run on this issue, but running against Social Security and Medicare might not be the way to do it. Bob Turner distanced himself from the Ryan budget on Medicare and from Rick Perry (or at least the Perry of Fed Up) on Social Security. The "Issues" page on his website reads (emphasis added):

Social Security and Medicare represent solemn commitments made by the government to people who have been paying into this system their entire lives. I believe that these programs should be preserved as they are for those in or near retirement and that we should work to strengthen and preserve them for our children and future generations. I oppose efforts to privatize or bankrupt either. I would work with members of both parties to reach a solution that will meet our obligations on both of these programs.

Mediscare couldn't work against Turner because he pledged his total support for Medicare. Indeed, he has spoken strongly against the Ryan budget. This election is less a sign of victory for the Ryan budget and more a sign that Republicans can run away from this budget (at least if they haven't voted for it) and win.

Even in the far more GOP-friendly special election in Nevada, Republican victor Mark Amodei at times expressed some reservations about the Ryan budget (even as he praised Ryan for trying to solve the problem). Amodei refused to say whether he would vote for it or not.

Vowing to protect Social Security and Medicare, a Republican was able to win in a strongly Democratic district. If Turner had run on the Ryan budget and declared Social Security unconstitutional, the result might have been quite different. NY-09 is not representative of the nation as a whole (it usually favors Democrats far more), but, if Republicans hope to cast this election as representative, they might do well to note what their man did not run on.

Coasting Stops

The fight between Perry and Romney continues. Perry came into this debate confident in his conservative bona fides and hoped to use the weight of that confidence to steamroll Romney. The former Massachusetts governor, for his part, responded with an array of facts, figures, and arguments.

The Social Security component was interesting. Romney ended up highlighting the distinction that many Perry partisans are trying to obscure: while Romney and many others have suggested that the financing of Social Security may be a problem, Perry in his most recent book has claimed that Social Security seems to be in some way contrary to the Constitution. Romney tried to get an answer out of Perry about whether he still thought Social Security was unconstitutional, but Perry seemed focused on avoiding answering that. If he wants to win the nomination and go on to the presidency, Perry is going to have to clarify his position on Social Security. Does he want to reform it (as he now says) or does he think it's an unconstitutional abomination? Even in a rabidly pro-Perry audience (at least in the beginning), Perry seemed to stumble at certain points in this exchange. The audiences at debates with Obama won't be so congenial.

Santorum and Bachmann have realized an electoral reality: their only path to the nomination is through Rick Perry. Bachmann knew she had a rough debate last week. So she came into this one looking for some moments, and she found them. She went beyond criticizing Perry's Gardasil executive order as an overreach; she suggested it was due to undue corporate influence. That's probably the most personal slam Perry has faced yet in the race posed by a rival. She also didn't let Perry slide on his immigration record.

Bachmann regained her stride in this debate, and Santorum found it. Between hitting Perry, going toe-to-toe with Ron Paul, and offering relatively detailed answers to policy questions, Santorum positioned himself as a solid, competent conservative who is also electable (hence his persistent emphases on his ability to win in Pennsylvania). Some pundits might find Santorum's references to events of the 1990s to be dated, but many voters (left, right, and center) look back on the 90s with fondness. Santorum may be trying to offer a path back to prosperity.

As with the last debate, Gingrich played the conciliator. As with the last debate, Ron Paul couldn't wait to attack Perry as a conservative pretender, hitting him on increasing Texas taxes and spending.

Bachmann and Santorum may have succeeded in putting a few chips in the conservative finish of Rick Perry's reputation. Perry has been greatly helped by the aura of authentic conservatism. If that sense is challenged, he could struggle more as a candidate.

In order to distract from last week's Social Security debate, many Perry supporters went on attack against Romney, accusing him of taking from the Democratic playbook (apparently defending the Constitutionality of Social Security is supposed to be the purview of Democrats now?). If those attacks are doubled down on over the next few days, we might have an indication of how concerned Perry's camp is over this debate.

I'd guess Perry lost ground tonight with the right (over immigration and Gardasil) and the center (over Social Security). Romney held his own. Bachmann and Santorum gained. I think the primary is still very fluid (as it should be). And there might still be room for other candidates to jump in.

Ten Years Later

Like millions of other Americans, I remember September 11, 2001 quite clearly. I remember watching the twin towers collapse on TV. I remember wondering whether a skyscraper near me would be next. I remember the sudden panic and uncertainty, the sense of a nation hanging on the edge of chaos.

The modern liberal society depends upon a sense of order and openness: the terrorists of 9/11, like many other terrorists, sought to detonate those twin pillars. And they did cause great suffering and fear and, for many Americans, many sleepless, tear-stained nights. That terrorist attack has cast a shadow over the past decade, which has been suffused with anger, resentment, paralysis, and a haunting sense of disappointed hopes.

Yet, despite the darkness, there are still sparks. For all the wreckage, the terrorists have not yet been able to break the back of the spirit of this republic. Though the forces of violence, radicalism, and tribalism have risen across the globe, the dream of a better order has not yet fully vanished. Though hopes have been disappointed, hope itself has not been extinguished.

September 11 has become a day of mourning: for the dead, for the orphans and widows and widowers, for the injured and lost, and perhaps for what might have been had not this been a decade of terror. We remember the suffering and the dead and those serving in foreign lands. But we should also remember the heroism of that day and later days. Professionals and average citizens rose to the challenge to save lives on that September day. The passengers on United 93 broke through the frenzy of panic to save countless other lives by their own willing sacrifice. Nihilists are willing to die to kill; true heroes are willing to die to save.

Many years ago in a different age of crisis, Franklin Roosevelt told us that we have nothing to fear but fear itself. Let us not forget the place of fear, nor let it usurp the thrones due to reason, hope, and charity. The promise of this republic---the promise of life, liberty, and the pursuit of happiness---has not yet expired. Terrorists with their bigotries and fears cannot kill it. Only we can, if we surrender to an angry despair.

Now is not the time to surrender or to forget. Now is the time to continue and to dare and to try and try and try.

Debating Social Security

Outside the Beltway has a few good posts up about Social Security today. Doug Mataconis has a survey of opinions here.

Meanwhile, Steven L. Taylor raises some doubts about calling Social Security a "failure":

What creates problems, however, is tossing out terms like “Ponzi Scheme” because even if one does not like SS (or welfare policies in general), likening one of the most popular programs in US history to a fraudulent, illegal venture is problematic. Beyond, there are the empirics of the situation. Perry has called SS a “failure.”

The basic problem is: that is empirically untrue. One may not like SS. One may think it is inefficient. One may have a preferred alternative. One may even think that is non sustainable in the long haul. However, to call it a failure ignores over half a century of operation. It also denies the reality of millions who currently receive monthly checks (who will be stunned, no doubt, to hear what a failure the program has been).

Immigration and Wages

David Frum has some interesting points here about the role of immigration for Romney and Perry:

Perry’s views on immigration are not a “liberal” deviation from his views on the minimum wage, on Social Security, on healthcare coverage, etc. His high-immigration views are of a piece with his general preference for a low-cost, low-wage economy.

By contrast, Mitt Romney has begun to articulate a call for a high-wage economy. To get average wages rising again after a dozen years first of stagnation, then of outright decline, will not be easy. The most important step is to control healthcare costs. The rising cost of healthcare benefits devours workers’ cash pay.

But a rethink of immigration policies is also necessary. In the September 7 debate, Romney articulated something almost never said in a Republican primary: much, much, much more important than a fence or “boots on the ground” is tighter enforcement of labor laws inside the country. I’d go further: if the labor laws were effectively enforced, a border fence would be a costly redundance.

Perry v. Romney: No Knockout

Some thoughts about tonight's debate:

Romney is not going to give up. Romney did not Pawlenty out in this debate: when struck at, he struck back---hard. The jobs exchange with Perry early in the debate showed some fight in Romney. Romney needs to fight Perry on this in order to defend his own claims on the economy.

Social Security and immigration are still issues. Romney's response to questions about immigration and amnesty subtly attacked Perry's support of in-state tuition for illegal immigrants and Perry's opposition to a border fence. After hitting Perry from the right, Romney also hammered Perry's claim that Social Security is a failure. Rather than abolishing it, Romney says he wants to save it. He's implicitly aligning himself with a long line of Republicans (such as Reagan and Cheney). Romney wants to challenge Perry's claim to be Super Mr. Republican.

Perry is not Obama. One of the dynamics of the 2008 Democratic race was that many Democratic candidates were willing to have Obama be the nominee if they couldn't. So they were quite willing to tear down Clinton in order to assist Obama. Going into this debate, there was a chance that other GOPers would view Perry as the preferred candidate. This debate showed that other candidates are quite willing to go after Perry. Many candidates jumped on the chance to pile on Perry regarding his executive order to mandate Gardasil vaccinations for Texas girls, for example. Perry does not seem to be getting the pass from Republicans that many non-Clinton Democrats gave to Obama during the 2008 race.

Newt plays the statesman. Newt Gingrich hit upon an interesting tactic in this debate: rather than feeding into intramural conflict among Republicans, he called out Obama and lashed out at the media. Both rhetorical tactics are sure to increase grassroots affection for Gingrich. By taking the battle to the president, he seems to rise above the fray while still seeming passionate. Gingrich had some strong moments tonight.

Ron hates Rick. While other candidates weren't afraid to knock on Perry, Ron Paul seemed to relish any chance to attack Rick Perry as a showman and pretender to conservative purity. Those attacks might not cripple Perry, but they could have an effect.

Bachmann struggled. Perry's entry to the race hurt Bachmann's momentum in Iowa and other states. Unlike earlier debates, Bachmann did not find a real moment to stick in viewers' minds. She's lost a lot of "Tea Party" ground to Rick Perry. If she wants to get that territory back, she'll need to shift the debate.

There were great expectations for Perry going into this debate, which seemed like it would focus on testing him. Though Perry handled himself fairly well, I don't think he landed a knockout blow. If anything, this debate perhaps strengthened Romney, as he was able to hit Perry from both the center (on Social Security) and the right (immigration). Tonight suggests that Perry is not invulnerable in the primary. Moreover, this debate also shows that other candidates are not willing to let this race become a two-man battle.

Update: Ace seems to agree with much of this analysis here.

Foundations of Government

Matthew Continetti has an interesting essay up at the Weekly Standard about the evolution of the American state after the New Deal. While I think there are some pieces missing in his narrative, he has a good point here:

Only later would we come to understand that the house FDR built sits on a wobbly base. Steady economic growth is necessary to pay for all of the government’s promises. The bureaucracy functions only if experts have the confidence of the people. And government and citizenry must agree on a limiting principle that prevents national bankruptcy, a bloated state, and an irresponsible public.

Growth, confidence, and a recognition of limitation---those do seem the foundational pillars of the modern state. Those were the very things that leading Republican presidents of the post-New Deal era (such as Eisenhower and Reagan) sought to build open. I'm more optimistic about the future of many American political and social insurance institutions than Continetti, but his diagnosis of the basis of New Deal government has some merit.

A Reach Too Far

With the ascent of Rick Perry in the GOP race, allies of "comprehensive immigration reform" are lining up behind the tough-talking Texas governor who has not exactly been a vociferous opponent of illegal immigration. Meanwhile, candidates like Romney and (probably) Bachmann, who want to challenge Perry's bona fides with the base, are turning their eyes to Perry's perceive softness on illegal immigration. Like the Texas governor preceding him (George W. Bush), Perry has spoken strongly against a border fence. He has also signed a bill giving in-state tuition to illegal immigrants.

This political dynamic has prompted Jennifer Rubin to observe the following:

Perhaps Perry’s stance is a bridge too far for the base of the Republican Party. It may be that not only Romney, but Rep. Michele Bachmann (R-Minn.) who can capi­tal­ize on this issue. But should Perry secure the nomination, there will be a significant opportunity for Republicans to reset their stance on illegal immigration. It took Richard Nixon to go to China; maybe it will take Rick Perry to pass comprehensive immigration reform.

I wonder really here how big of a "reset" Perry would be as a Republican candidate. Ronald Reagan passed an amnesty, George W. Bush fought very hard to pass a mass legalization, and John McCain, the nominee in 2008, was a very persistent proponent of mass legalizations throughout most of the last decade. Republican presidential candidates and presidents have often been much more anti-enforcement than the base. The Republican leadership class (to which Perry, the longest-serving Republican governor in the nation, undoubtedly belongs) is filled with individuals who range from indifferent to hostile to immigration enforcement efforts.

Nixon going to China might not be an apposite comparison. Richard Nixon had a reputation as an implacable foe against international communism, so his willingness to normalize diplomatic relations with the PRC was a very big step. Rick Perry has no such reputation in regard to illegal immigration. Indeed, his background (long-term Texas governor with close connections to business interests) would suggest that he would be most likely to support "comprehensive immigration reform." Now, a guy like Tom Tancredo supporting "comprehensive" reform would very much be a Nixon to China moment.

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.

FYI: For the next week or so, blogging will be close to non-existent. In the meantime, here are a few good ones (in my opinion) from the past:

How to Build a Better GOP
On Demagoguery
The Trials of the Middle Class

S&P: Dysfunctional Politics and their Price

S&P has now downgraded the US government from AAA to AA+, a historic downgrade. The effects of this downgrade will no doubt echo throughout the US and global economy.

Zero Hedge posts the full text of the S&P statement. Contrary to what you might read in some quarters of the media, the statement regarding the downgrade does not merely focus on the inadequacy of the recent debt deal to reduce the long-term debt. Instead, it offers a broader critique of the structure of American fiscal politics.

The statement hammers away at what it views as political gridlock. The battle over the debt-ceiling has exacted a considerable toll, in S&P's eyes:

We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process. We also believe that the fiscal consolidation plan that Congress and the Administration agreed to this week falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade....

The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. Despite this year's wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting agreement fell well short of the comprehensive fiscal consolidation program that some proponents had envisaged until quite recently. Republicans and Democrats have only been able to agree to relatively modest savings on discretionary spending while delegating to the Select Committee decisions on more comprehensive measures. It appears that for now, new revenues have dropped down on the menu of policy options. In addition, the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability

Many wanted a "battle" over the debt-ceiling and hoped for more "battles" in the future; S&P suggests that this might not be a good idea for the long-term fiscal situation of the United States.

Though the report does vaguely ask for reforms to various entitlements, it mentions Republican intransigence on raising taxes multiple times. Unlike earlier reports, this new one, with its projections for an accelerating amount of federal debt, assumes the extension of all Bush tax cuts "because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act." This report emphasizes tax hikes at the end, as well:

As our upside scenario highlights, if the recommendations of the Congressional Joint Select Committee on Deficit Reduction--independently or coupled with other initiatives, such as the lapsing of the 2001 and 2003 tax cuts for high earners---lead to fiscal consolidation measures beyond the minimum mandated, and we believe they are likely to slow the deterioration of the government's debt dynamics the long-term rating could stabilize at 'AA+'.

The report notes that other sovereign nations will have greater debts as a percentage of GDP for years into the future, but it still insists on downgrading the US:

When comparing the U.S. to sovereigns with 'AAA' long-term ratings that we view as relevant peers--Canada, France, Germany, and the U.K.--we also observe, based on our base case scenarios for each, that the trajectory of the U.S.'s net public debt is diverging from the others. Including the U.S., we estimate that these five sovereigns will have net general government debt to GDP ratios this year ranging from 34% (Canada) to 80% (the U.K.), with the U.S. debt burden at 74%. By 2015, we project that their net public debt to GDP ratios will range between 30% (lowest, Canada) and 83% (highest, France), with the U.S. debt burden at 79%. However, in contrast with the U.S., we project that the net public debt burdens of these other sovereigns will begin to decline, either before or by 2015.

So part of this analysis is based on long-term trends, an analytic assumption that may or may not be warranted.

Part of S&P's justification for the downgrade is premised on the fact that the economy is much weaker than was earlier thought. Ironically perhaps for some, this report may further damage the national economy by leading to an increase in various interest rates and heightening a sense of uncertainty in the nation's finances.

S&P makes the following recommendations for the United States: increase revenue, improve the economy, and ensure that government can fulfill its routine fiscal responsibilities. Those aren't exactly bad points. High-wire political knife-fights may make for riveting blogging and TV, but they do not always reflect the utmost of fiscal prudence. Perhaps the US government should not dance to the tune of (far from infallible) ratings agencies, but S&P does have a worthy point in this: in order for our government to work in the long term, it must have some kind of governable consensus. We must also have an economics anchored in reality and not in ideology, and a fiscal politics of compromise and empiricism instead of flamboyance and wrath.

PA in Play?

Quinnipiac has released a new poll of Pennsylvania voters showing Obama losing ground to his potential Republican challengers. Mitt Romney now has a slight lead in that state, and other GOP candidates have also gained:

A majority of Keystone State voters now disapproves of the job Obama is doing as president. Just 43 percent of voters approve of his job performance, while 54 percent disapprove. That marks a significant decline from mid-June, when voters were split evenly on Obama.

Romney holds a 44-42 percent lead over Obama, reversing a seven-point edge for the president in June. Santorum now trails Obama, 45 percent to 43 percent; in June, he trailed by 11 points...

Obama also leads Rep. Michele Bachmann, R-Minn., 47 percent and 39 percent, and he also leads Texas Gov. Rick Perry, 45 percent to 39 percent.

In 2008, Obama won Pennsylvania by over 10 points, a margin greater than any shown in this poll.

Turnaround Techniques

David Frum puts forward some ideas on how to turn around the employment picture:

1) Cheap money, a low dollar, and moderate inflation.

2) Tax relief aimed at stimulating private consumption, such as a big payroll tax holiday.

3) Income support for people in need.

4) Modest and temporary subsidies to state building projects.

5) An immigration moratorium.

6) Agreement now on a plan to balance federal budget to begin only after such time as unemployment declines below 8% or the 10-year US Treasury bond goes north of 5%.

Deal

A deal may almost be brokered. AP has the details:

The plan calls for spending cuts and increased borrowing authority for the Treasury in two stages.

In the first, passage of the legislation would trigger more than $900 billion in spending cuts over a decade as well as a $900 billion increase in the government's borrowing authority.

The spending cuts would come from hundreds of federal programs across the face of government - accounts that Obama said would be left with the lowest levels of spending as a percentage of the overall economy in more than a half-century.

The increased borrowing authority includes $400 billion that would take effect immediately, and $500 billion that would be permitted after Congress had a chance to block it.

In the second stage, a newly created joint committee of Congress would be charged with recommending $1.5 trillion in deficit reductions by the end of November that would be put to a vote in Congress by year's end. The cuts could come from benefit programs such as Medicare, Social Security and Medicaid as well as from an overhaul of the tax code.

The committee proposals could trigger a debt limit increase of as much as $1.5 trillion, if approved by Congress. But if they do not materialize, automatic spending cuts would be applied across government to trim spending by $1.2 trillion.

Yuval Levin has some worthwhile reflections on the "trigger" for the committee

Compromise on the Horizon?

Boehner and McConnell are talking optimistically about a compromise. Ed Morrissey suggests one possible shakeout:

My prediction is that we will see a deal structured in two installments of the debt-ceiling hike using the McConnell mechanism, which combined will hit the amount Reid wanted, and with the cuts and assumptions built into the Boehner proposal (with possibly a few changes, which should be checked), with a commitment for a balanced-budget amendment vote in the Senate included.

Reid's Proposal---A Move Against Bush Tax Cuts?

Sen. Jeff Session (R-AL) lays out the case (via an interesting story on Reid's proposal in The Daily Caller):

Second, Reid’s amendment would “deem” a budget resolution for fiscal years 2012 and 2013 (through the next election). Contrary to the requirements of law, the Senate has refused to adopt a budget for 821 days. Reid’s amendment would give the Democrat majority in the Senate an excuse to not pass a budget for another two years, or 626 days. Without any hearings or debate, section 102 of Senator Reid’s amendment would deem budget allocations for all Senate committees. For most committees, the budget allocation would be set at the CBO baseline. This means none of the authorizing committees would be encouraged to look at the automatic spending increases in their areas and root out inefficiencies and ensure value for the taxpayer dollar. On the revenue side, the deemed budget resolutions would assume the tax increases associated with the expiration of the tax cuts in current law. That means that legislation to extend any of the tax cuts would be harder to enact because it would face a point of order under section 311 of the Budget Act for reducing revenues.

What Kind of Compromise?

The Boehner bill has failed in the Senate. The Reid bill will fail in the House. Right now, Republicans and Democrats are negotiating to forge some kind of consensus for a bill that could pass the Senate and the House.

These, it seems to me, are the big points of contention:

• How big a raise in the debt ceiling? How many steps? Boehner's committed to a two-step process, in which an immediate increase in the debt ceiling would be followed by another vote in 6 or so months that would require the passage of a Balanced Budget Amendment. Reid's bill would offer enough of an increase to carry the debt past 2012.




• Role of a Balanced Budget Amendment? Boehner requires Congressional passage of one before a "second tranche"; Reid doesn't.




• Where are the cuts? How frontloaded are they? This is perhaps the most flexible and opaque part of discussion (as projected saving/spending often is).




• Power of appointed committee? Both proposals would have expedited review, but Boehner's proposal demands a certain threshold of savings before the passage of the "second tranche."

The exact placement of cuts is perhaps where Republicans can demand the most (because they might have to give elsewhere), especially in their insistence that they be more front-loaded and substantive.

I'm doubtful that Republican leadership (especially Boehner and McConnell) really want to see the debt-ceiling battle redux, so both Republicans and Democrats might have something to gain by avoiding a "second tranche" two-step. Both parties could split the difference perhaps by not allowing a second increase in the debt ceiling to take place without a vote on the recommendations of the savings committee; once the vote took place (yea or nay), the ceiling could be raised. Yes, that compromise would be mostly cosmetic.

A solid requirement that a BBA be passed before a second increase in the debt ceiling is likely a non-starter for a whole host of reasons. But demanding a vote on the BBA before a second debt-ceiling hike might be an appeasing gesture.

Negotiators might also find it helpful to demand concessions on issues beyond the budget in order to provide cover to various Republicans. Senate pledges to change Obamacare or light bulb bans or other conservative bette noires might help keep the support of House Republicans. Procedurally, some of those moves could be hard to execute, but they might provide a helpful avenue.

If Republicans want to reinforce the chances that an ultimate debt-ceiling reconciliation will pass, Senate Republicans might be wise to put forward a measure that gets more than the 7 or so Republican votes that would be needed to override a filibuster. A bill that comes out of the Senate as a RINO bill will have a harder time getting through the House (assuming any Senate-approved bill can avoid that stamp). Some Democratic defections in the Senate would likely make it easier for any compromise to be passed; it would increase the perception that the bill was "tough."

Update: The Hill has some specifics on one line of compromise: a two-step borrowing from the McConnell plan.

On to the Senate

By a narrow margin, the Boehner bill has passed the House. Now, it's on to the Senate. The Hill gives a helpful summary of the possible schedule:

According to guidance from Reid's office, the majority leader is looking at the following possible schedule.

The House will vote on House Speaker John Boehner's debt ceiling plan on Friday evening, and it is expected to approve it. [It did approve it---FB]

The Senate is then expected to approve a motion to table the measure, as early as Friday evening. That motion only requires a majority vote for approval.

The tabling motion will allow the Senate to use Boehner's measure as a vehicle for a possible Senate compromise bill that would be worked out by Democrats and Republicans in the upper chamber.

If the two sides can reach such an agreement, Reid will file a cloture motion on the amendment to the Boehner bill on Friday night.

Reid's motion would set up a vote as early as 1 a.m. Sunday to end debate on that amended measure. Sixty votes would be required to end the debate.

If that vote succeeds, it would set up a possible final vote on passage of the new measure at 7:30 a.m. Monday, according to the guidance.

This would give the House two full days to consider that measure before the deadline at the end of the day on Aug. 2 is reached.

Technically, according to a Democrat aide, a compromise amendment could be filed Saturday and still allow a final vote on Aug. 2 but this would cut things very close.

The big question here is what compromise could pass the Senate that could also pass the House?

BBA + Boehner = ?

A few thoughts on the implications of Boehner adding a "Balanced Budget Amendment" to his debt-ceiling bill (which would now require that Congress pass a BBA before a second debt-ceiling increase could take place early in 2012):

Adding the BBA makes the bill very likely to pass the House. This addition appeases Tea Partiers, who had denied Boehner the majority he needs to pass it.

The Boehner bill as it stood on Thursday night might not have been able to pass the Senate; the Boehner bill of today definitely can't. The very thing that makes the bill likely to pass the House---its Tea Party pedigree---will kill it in the Senate.

If Congress is really required to pass a BBA before a second hike in the debt ceiling, prepare for the same gridlock six or so months from now.

In order for the debt ceiling to be increased, Republicans and Democrats will have to compromise. That means especially that Tea Partiers will have to compromise. In a democratic republic, you don't control less than a quarter of the votes and get to dictate policy to everyone. And threatening to bring the house down unless a supermajority of Congress agrees to the passage of a methodologically unconservative Balanced Budget Amendment is not compromising.

Beware the "second tranche." The current battle over the debt ceiling has exacted a considerable price on Congressional Republicans and has risked an economic-fiscal-financial meltdown. Going for another round about this issue, when the players will be the same, seems like it might not be the most effective. I know the existence of a "second tranche" is one of the biggest differences between the Boehner and Reid plans (the latter would raise the debt ceiling until after the next election), but I think Sen. Bob Corker (R-TN) has some wisdom here in doubting the value of a second hike so soon after the first. The debt-ceiling debate has sucked up a lot of air that conservatives could have used to advance other small-government policies.

Perhaps the biggest advantage of adding the BBA to the Boehner bill is that it gives Republicans something more to trade away. The inclusion of the BBA will give Republicans some more negotiating room if there is to be a Boehner-Reid compromise package.

The following is one possible (perhaps, at this hour, the most probable) course of events:

1. House passes Boehner + BBA.
2. Senate passes Reid-like bill.
3. Some compromise measure comes out of conference. (This will very likely not have a strong BBA requirement.)
   

The Senate would likely pass any compromise, and Republicans will have a stronger hand in negotiations over the compromise if the caucus stays united; anything that increases the power of Nancy Pelosi in negotiations will ultimately undermine the position of conservatives, and the more votes Boehner needs from Democrats, the stronger Pelosi will be.

If the economy crashes because of a refusal to raise the debt ceiling, Republicans will be blamed. The failed vote on the Ryan plan may have damaged the ability of Republicans to attack Obamacare for its cuts to Medicare; Republicans should be wary of closing off another line of attack in 2012. Right now, Obama has increasing ownership of the economy, and Republicans have been able to creep away from the disastrous tail end of George W. Bush's economic policies. If the economy tanks and the debt ceiling is not raised, Democrats (and their allies in the media) will be pointing fingers at the "absolutists" in the Tea Party and GOP caucus who would not compromise. Those attacks will very likely work or at least muddy the waters enough to limit the effectiveness of Republican economic critique in 2012. The economy already may be slowing down; refusing to raise the debt ceiling will be a way to take partial ownership of a double-dip recession.

No matter how "virtuous" or "pure" the Tea Partiers are, an Obama victory in 2012 would very likely close the door on the kind of reforms that many conservatives would prefer. Numbers in Congress are against Tea Party-style reforms, and, in a democratic republic, numbers matter a lot. Rather than fuming or threatening or beating one's chest in self-congratulatory self-adulation, far better to engage in the hard work of rational persuasion, sober compromise, and hopeful deliberation. Will any budget "deal" be pretty bad from a conservative perspective? Probably. But we can work to make such a deal as least bad as possible. That's what conservatism---and rational governance---is about.

(Crossposted at FrumForum)

Best Option?

Many in the conservative establishment are starting to rally behind the Boehner plan. Interestingly, lines of defense of this plan often suggest that opposition to this plan helps Obama.

The WSJ stresses that the debt ceiling has to be raised---and that Boehner's plan is the most fiscally conservative viable path to doing so:

But what none of these critics have is an alternative strategy for achieving anything nearly as fiscally or politically beneficial as Mr. Boehner's plan. The idea seems to be that if the House GOP refuses to raise the debt ceiling, a default crisis or gradual government shutdown will ensue, and the public will turn en masse against . . . Barack Obama. The Republican House that failed to raise the debt ceiling would somehow escape all blame. Then Democrats would have no choice but to pass a balanced-budget amendment and reform entitlements, and the tea-party Hobbits could return to Middle Earth having defeated Mordor.

This is the kind of crack political thinking that turned Sharron Angle and Christine O'Donnell into GOP Senate nominees. The reality is that the debt limit will be raised one way or another, and the only issue now is with how much fiscal reform and what political fallout.

Meanwhile, Bill Kristol takes aim at "purist" opponents of the plan:

This isn’t some bad bipartisan establishment deal of the sort conservatives have sometimes opposed in the past. Then conservatives were opposing Democrats as well as Republicans, and could plausibly explain why doing so was in conservative interests. Now, Heritage Action and the Club for Growth are siding with and strengthening Barack Obama and Nancy Pelosi and Harry Reid. They’re working to produce a policy and political defeat for John Boehner and Eric Cantor and Paul Ryan and the Republican majority in the House. This isn’t principled conservatism. This is self-indulgence masquerading as principle, sectarianism masquerading as conservatism.