Obamacare Stands

On a 5-4 ruling, the Supreme Court holds that the mandate to have health insurance is upheld as a tax.  As the WSJ notes,

Though the challengers mostly lost on Thursday, the court did affirm one of their basic arguments: that Congress can't use its powers to regulate interstate commerce to require people to buy insurance. Chief Justice Roberts said the government's arguments on this point would fundamentally change "the relation between the citizen and the federal government."
The majority upheld the insurance mandate on other grounds. The chief justice wrote that the penalty's "practical characteristics pass muster as a tax under our narrowest interpretations of the taxing power." He said a person who does not wish to carry health insurance is left with a "lawful choice to do or not do a certain act, so long as he is willing to pay a tax levied on that choice."
Chief Justice Roberts added: "It is well established that if a statute has two possible meanings, one of which violates the Constitution, courts should adopt the meaning that does not do so."

...
The ruling may give more leeway to states that don't want to cooperate with the law by letting them avoid punishment for refusing to expand Medicaid.

Chief Justice Roberts wrote that the Medicaid portion "violates the Constitution by threatening existing Medicaid funding." He said the remedy for the violation was to preclude the federal government from imposing a sanction on states that decline to accept an expansion of Medicaid under the law's provisions. But he said that remedy "does not require striking down other portions" of the law.
Twenty-six states filed suit the day Mr. Obama signed the Patient Protection and Affordable Care Act in March 2010, and a cloud of uncertainty had hung over the law ever since. Lower courts issued conflicting rulings on whether the law's insurance mandate was constitutional.

Ace reminds Republicans that there is another way to undo Obamacare.

Fiat Fraud?

David North looks into some of the possibilities for fraud in President Obama's immigration legalization by fiat:

In any such program the devil is both in the inevitable fraud, and in the governmental definitions, as I learned a quarter of a century ago when the Ford Foundation assigned me the task of evaluating the massive legalization program that came out of the Immigration Reform and Control Act of 1986 (IRCA).
Let's review the threat scenario in the Dream Scheme. In addition to those who genuinely meet the program's generous outline, there will be applicants who will try to beat the system. These are some of the inevitable problems:

• Aliens claiming that they arrived prior to their 16th birthdays when, in fact, they came later.
  
• Aliens claiming to be under 30 when they are older than that.
  
• Aliens who are otherwise eligible, but who have not been here for five years.
  
• Aliens who, in fact, have not graduated from high school, are not in school, and who do not have a GED, but who make such claims.
  
• Aliens, otherwise eligible, who were not in the nation on June 15, 2012.

Another general problem — that an alien would lie about his police record — is less pressing because the government keeps pretty good records on whom it arrests, as opposed to those who entered the nation without inspection (EWI).
My basic worry is that an already overworked DHS staff will not press very hard to uncover fraud on such difficult areas as age at entry and that it will grant short-term legal status to some early fraudulent applicants, who will then tell their peers how easy it is to fool the government on issues such as age at entry and then the peers, in large numbers, will apply for status.
I am concerned about the flood of plausible-looking "documents" purporting to be diplomas, report cards, General Education Development (GED) certificates, and the like that will be submitted to the government; also, overseas birth certificates showing ages under 30.

David Frum on the Obama immigration order:

The decision to grant residency and work rights to young illegal aliens who meet certain conditions is an amnesty in all but name. A conditional amnesty, yes, but amnesty. The trouble with amnesty has always been the incentive effects. It's possible that amnesty may be a necessary final stage in immigration reform, but to put amnesty in place before effective enforcement measures are in place—and before authorities are certain that as many illegals as possible have voluntarily repatriated—is to invite another wave of illegal migration just as soon as business conditions improve.

Frum also argues that the middle class could suffer the most from this:

In a time of very high unemployment, it seems simply reckless to invite future waves of migration—and especially of the low-skill, low-wage migration that America has mostly attracted over the past four decades.
Every serious economic study of immigration has found that the net benefits of present policy are exceedingly small. But that small net is an aggregate of very large effects that cancel each other out. The immigrants get higher wages than they would have earned in their former country. The affluent gain lower prices for in-person services. Lower-skilled native-born Americans face downward wage pressure. In any other policy area, people who consider themselves progressive might be expected to revile a policy whose benefits went to foreigners and the rich, and whose costs were born by the American poor. Immigration policy baffles that expectation.

John Yoo addresses some of the Constitutional questions of the Obama immigration order: "President Obama’s claim that he can refuse to deport 800,000 aliens here in the country illegally illustrates the unprecedented stretching of the Constitution and the rule of law."

Is the Supreme Court Watching?

Today, the White House offered a de facto amnesty of an unknown number of illegal immigrants.  The AP has some details:

The policy change, announced Friday by Homeland Security Secretary Janet Napolitano, will affect as many as 800,000 immigrants [though it could be far more---FB] who have lived in fear of deportation. It also bypasses Congress and partially achieves the goals of the so-called DREAM Act, a long-sought but never enacted plan to establish a path toward citizenship for young people who came to the United States illegally but who have attended college or served in the military....

Under the administration plan, illegal immigrants will be immune from deportation if they were brought to the United States before they turned 16 and are younger than 30, have been in the country for at least five continuous years, have no criminal history, graduated from a U.S. high school or earned a GED, or served in the military. They also can apply for a work permit that will be good for two years with no limits on how many times it can be renewed.

The policy will not lead toward citizenship but will remove the threat of deportation and grant the ability to work legally, leaving eligible immigrants able to remain in the United States for extended periods.

 A key point raised by Daniel Horowitz: no law by Congress has been passed enabling this immunity from deportation or the granting of work permits.  Whether one agrees with the result of a selective amnesty that creates a class of permanent non-citizen workers or not (especially in a time of high unemployment), we should pay attention to the implications of process here.

If the president can claim the ability not only to selectively halt the prosecution of various laws but also to create new legislative mechanisms for work permits for immigrants, what limits are there to the president's power?  Could the president just choose to stop enforcing civil rights laws and create new standards for voting instead?  Could the president choose to avoid collecting taxes at the legally specified rate and instead create new tax rates?  Could the president set separate new rates for Republicans or Democrats or women or men?  (After all, the administration's new immigration rule treats one age group differently from another.)

President Obama's move could have radical implications for executive power.  It could also have implications for the pending Supreme Court case about Arizona's recent immigration law.  The federal government's brief there suggests that the executive branch has a broad latitude in deciding what laws to enforce and how to enforce them.  In this move, the Obama administration has taken that principle to a new level, not only choosing not to enforce certain laws but also creating new measures.  If the Supreme Court endorses the administration's position for Arizona outright, some on the court may feel that they are giving the administration a green light to extend its executive reach even further.

Romney Edges away from Bush Legacy in Education

The New York Times reports on the dissatisfaction of some Bush education advisors with Mitt Romney's seeming opposition to a federal top-down approach to education "reform":

One notable skeptic is Margaret Spellings, a former education secretary under Mr. Bush, who this year was an informal adviser to Mr. Romney. She said she withdrew once the candidate rejected strong federal accountability measures.

“I have long supported and defended and believe in a muscular federal role on school accountability,” Ms. Spellings said. “Vouchers and choice as the drivers of accountability — obviously that’s untried and untested.” 

Romney seems to be emphasizing vouchers rather than federal standards.

Romney Challenges Obama's Priorities

Hot Air draws attention to a potentially effective line of attack that Romney's been trotting out: with the economy in turmoil, why did Obama not focus on that instead of pushing through transformational "change"?

What makes this attack bruising, of course, is not only that it ties Obama’s two biggest political liabilities together, it blows a hole in the idea that he’s some centrist pragmatist who’s working around the clock to generate jobs for the unemployed. On the contrary: When faced with the biggest economic crisis in decades, he passed a stimulus and then spent the better part of a year obsessing over the mega-boondoggle atop his Great Society II wishlist. It makes him look grossly negligent on the key issue of the election, in service to a program that a huge chunk of the public hates and which may end up being cashiered by the Supreme Court before the month is out.

CBO: Income Inequality Depresses Social Security Revenue

The long-term budget outlook released by the CBO today has plenty of dire news if the US continues along its present path.  A number of others are chronicling some of the bad news, so I'll just make a quick observation about this report's comments on Social Security.

Since there is a cap on the income that is taxable for Social Security, an economic cycle in which most economic gains go to people whose income is already above the cap would seem to harm Social Security collections, causing them to not keep pace with the growing economy.  The CBO seems to agree that this dynamic is taking place:

When earnings inequality increases, as it has in recent decades, the taxable share of earnings declines because a greater share of income is above the taxable maximum.

The CBO projects increasing earnings inequality over the next few decades, which would cause the share of earnings subject to the payroll tax to fall from above 85% to around 83%.

It's also worth noting that, according to the CBO, the Boomer generation and Gen X will on average be paying more in taxes into Social Security than they receive in benefits.  It says that, taken all in all, Americans born between the 1940s and 1980s will pay on average about as much into Social Security as they will receive in benefits.  The long-term imbalances, it says, are in part caused by the benefits collected by Americans who were born prior to 1940.  Reagan's Social Security reforms in the 1980s helped correct the imbalance between benefits and taxes.  (However, the report does begin to suggest a rising imbalance for later generations; taken by itself the generation born in the 1980s will collect a little more in benefits than it pays in taxes, according to the CBO.)

More Breakage

Over at Hot Air, Mike Rathbone further develops the conservative argument that the era Too Big to Fail---made worse in many ways by the Obama administration---should end.  He also suggests the political advantages accruing to Romney if he makes this argument:

If he announces (at the Convention wouldn’t be bad, I’m only afraid Obama would beat him to the punch) that he intends to break up the big banks, he would do a lot to dispel the notion that he is a tool of Wall Street. It’s an issue that would put him to the “left” so to speak of Obama. A lot of liberals, who would never vote for Romney, would further be disgusted with Obama if he fought against this and maybe sit out for November. A lot of tea-party types would be for it because they’re sick of bailouts and too-big to fail. If Obama agreed with Romney, it wouldn’t change the fact that the economy is in rough shape and that Obama had a full term to push for this, but he’s failed to deliver. Either way, Romney comes out on top.

Does Obama Lose Either Way in Wisconsin?

As Wisconsin heads off to vote tomorrow in the recall election of Scott Walker, many pundits are looking at the results of that recall as a bellwether for the general election in 2012: a Walker victory would be good for Romney's presidential chances, while a victory by Tom Barrett, the Democratic challenger, would be good for Obama's presidential chances.  I'm personally rather skeptical of the idea that the fate of conservatism rests in Wisconsin's hands, but there's something interesting about the Wisconsin recall dynamic: whatever the result, Obama might lose face.

A strong Walker win in Wisconsin might signal that Wisconsin is getting closer on the presidential level for November.  (However, numerous Wisconsin polls that have shown Walker leading Barrett have also shown Obama leading Romney, so a Walker win in no way guarantees a Romney win in November.)  Moreover, the failure to recall Walker might depress union enthusiasm for Democrats in Wisconsin and elsewhere; the White House has kept its distance from the Barrett campaign.  If union rights are so important to the White House, why isn't it putting any skin in the game?  And if these rights are not that important, why should union members rally around the president?

That dynamic is only marginally changed if Barrett wins tomorrow.*  Should Barrett beat Walker, he can come into the governor's office knowing that he did it without the president.  Indeed, it would seem as though Barrett would owe his gubernatorial win much more to Bill Clinton, who has actively campaigned for Barrett, than to Barack Obama, who has not.  When Barrett appeared weakened, the White House let him twist in the wind.  Would a Governor Barrett really be that motivated, then, to work devotedly to ensure that Obama wins Wisconsin in November?  A union win in Wisconsin without Obama might also fracture the alliance of the White House with many big unions---if unions can win despite the White House's indifference, maybe they don't need the president as much as he needs them.

The White House likely wanted to keep a distance between itself and the Barrett campaign in order to avoid being embarrassed by a Barrett loss.  But the current dynamic might lead to a White House embarrassment no matter what.

*A Barrett win is a distinct possibility; most of the polls showing a Walker lead depend upon a partisan turnout model that is very favorable to Republicans---even more favorable than the 2010 exit polls, in many cases.  If turnout numbers are closer to 2008 than 2010, there is a real chance that Barrett can win, especially as this race appears to be tightening.  Turnout will be key for this race.

May Jobs Report: Unemployment Up

The May jobs report notes that the US added only 87,000 jobs in May, falling well below earlier estimates.  CNBC surveys areas of job growth:

The bulk of the employment gains came from the service sector, which added 84,000 jobs, while manufacturing grew 12,000. Government shaved 13,000 jobs, including 5,000 at the federal level. Private payrolls rose 82,000.

The unemployment rate climbs to 8.2% as economic growth appears to be stalling.

A New "American System"

Over the past couple decades, "globalization" in the United States has meant the rise of the Finance, Insurance, and Real Estate (FIRE) sector.  Meanwhile, many other parts of the American economy have been hollowed out.  Manufacturing jobs have been slashed in part due to automation but also due to a global trade system in which various international players are afforded many opportunities to subsidize their industries while the US undermines its own domestic manufacturing sector.  The technology sector has witnessed its own share of outsourcing and offshoring, and job opportunities for US-born workers are also undercut by many companies' use of temporary worker visas (such as the H1B visa).  Further undercutting domestic labor, a flood of illegal workers has placed more pressure on the wages and employment opportunities of low- and semi-skilled workers.  Under these conditions, the US growth rate has substantially declined since 2000; even the high point of the business cycle during the Bush years was well below that of any cycle since World War II, and the economic policies of the Obama administration have proven disappointing by the administration's own standards.  So where to go from here?

In 1791, facing a debt-burdened new nation with relatively little domestic industry, Alexander Hamilton prepared his "Report on Manufactures," which proposed a system of tariffs, subsidies, and domestic investments as a way of ensuring future economic vitality and industrial independence for the United States.  The first Secretary of the Treasury's report provided in many respects the originating germ for the economic policies of the Whig and later Republican parties of the nineteenth century.  Politicians like Henry Clay and Abraham Lincoln and economists like Henry Carey advocated for an "American System" that encouraged the development of a skilled population with economic opportunity and industrial development.  Some variant of the "American System" drove US economic policy throughout much of the nineteenth century until the middle of the twentieth.  During this period, the United States accumulated massive wealth.  This wealth in turn provided the financing for many of the social programs of the twentieth century.

The "American System" has the following insight: the American economy cannot flourish over the long term with merely the financial and resource extraction sectors.  Resource extraction can fuel economic growth, and a sophisticated financial system also seems necessary for a modern economy to work at peak levels.  But the best gasoline and top-notch engine oil will not make a rusty jalopy into a vehicle fit for the Indy 500.  Hamilton and many of his allies were favorable to banking interests but also realized that an economy based solely upon banking would eventually harm those very financial interests.

We might restate this insight and instead note that the greatest form of capital is not simple currency or resources but human capital.  This human capital includes both various social institutions (such as a system of laws, cultural values, etc.) and the accumulated knowledge and talents of individuals.  It depends upon the belief that one's efforts will likely lead to some fruition.

American prosperity was built upon the nurturing of human capital within the "American System."  The evolving system of US laws encouraged prosperity by allowing innovators and producers to reap the rewards of success.  The social safety net of private charity and government institutions helped ensure that a person born into unlucky circumstances could still enrich his or her talents.  Universal education and literacy presented the young with the tools to train their minds and discover the world of learning.  Investment in infrastructure---from roads to canals to railways to highways---allowed for a more efficient transfer of capital, commodities, products, and knowledge.  Tariffs gave an incentive for American residents to try new manufacturing experiments.  The close proximity of manufacturing helped spur on new innovations: working with day-to-day production, Americans were more likely to realize how to do things better, smarter, and faster.  Moreover, the growing cost of labor encouraged further innovation in technology.

It is precisely now that we need a return to the investment in human capital.  As Andy Grove, former head of Intel, has argued in recent years, top innovation often goes hand in hand with direct involvement in production.  Whether the United States can over the long term remain a world leader in innovation after having exported industrial production remains to be seen.  We need to defend forthrightly American interests abroad.  It may no longer be enough to let foreign countries discriminate against American products and violate intellectual property laws even as the US opens itself completely to their products.  (And encomiums about the virtues of "free trade" miss the point that the current trade order is nothing like free trade or the free market.)  Trade policy must move beyond cheap imports uber alles.

We need an education system centered on skills and real learning---not on meaningless test scores.  We need to inspire hope in our youth, creating opportunity for both those with and without college degrees.  Throughout the 1980s and 1990s, many opportunities for workers with only a high school degree declined.  The 2000s have witnessed the closing off of opportunities for many with college degrees.  If young Americans will see no profit from developing certain skills, these skills are less likely to be cultivated.  As a recent Council on Foreign Relations study has shown, almost all the increase in the number of jobs from 1990 to 2008 occurred in non-tradable jobs, which often pay lower wages than tradable jobs.  So one could argue that, in some ways, the current flavor of globalization has made the US economy less competitive, as it encourages the growth of lower-paying, and often lower-skilled, jobs.

We need a sensible policy for infrastructure investment.  Energy policy is a key aspect of this investment.  The easy transfer of goods and people has proven especially valuable in a nation as vast as the United States, and the new ease of transporting information has unleashed the potential for considerable innovation.

I do not here intend to lay out a complete menu of policies that are necessary for the restoration of American economic growth.  Yet it is important to think about the overall contours of a public policy aim.  The precise policy mechanisms of the Hamiltonian "American System" might be outdated, but its basic notion is one with some merit.  We must shift from privileging extraction to rewarding talent, effort, and innovation.  The combination of market rewards and public investment created an economic order of profound vitality, opportunity, and prosperity.  As the American economic engine continues to sputter, it is time to engage in a thoroughgoing renewal---in part, by examining the wisdom of the past.

Pethokoukis: Break Up the Big Banks

James Pethokoukis makes a conservative case for breaking up megabanks:

But America doesn’t need 20 banks with combined assets equal to nearly 90 percent of the U.S. economy, or five mega-banks​—​JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, and Goldman Sachs​—​with combined assets equal to almost 60 percent of national output, three times what they were in the 1990s. That amount of complexity and financial concentration​—​which has grown worse since the passage of Dodd-Frank​—​is a current and continuing threat to the health of the U.S. economy. Now don’t blame market failure or unintended results of deregulation. Banks that big and complex and interconnected are both the unsurprising outcome of Washington’s 30-year expansion of the federal safety net and the cause of its ongoing existence. When you combine a “too big to fail” guarantee from Uncle Sam with the natural human tendency toward irrational exuberance, you have the key elements in place for another unaffordable financial crisis....

So how do you (a) make the financial system more shockproof when the next economic earthquake hits, (b) reduce the likelihood of expensive taxpayer bailouts, and (c) ensure the banks themselves don’t cause the next crisis? Hoenig, for one, would only allow banks to engage in traditional activities that are well understood and are based on long-term customer relationships so borrowers and lenders are on the same page: commercial banking, underwriting securities, and asset management services. Banks would be barred from broker-dealer activities, making markets in derivatives or securities, trading securities or derivatives for their own accounts or for customers, and sponsoring hedge funds or private equity funds. The result would be banks that are smaller, simpler, safer. Not only would they be less likely to spark financial crisis because management would know government might let them fail, the cost of failure to taxpayers would be less.

Of course, some will argue that we need large, complex financial institutions and that their very existence is proof of that. Who are the know-it-all breaker-uppers to say we don’t? But that size and complexity is itself more a result of crony capitalism than of market forces. It’s little wonder, then, that the preponderance of the evidence is that all the supposed benefits from supersized banks and their economies of scale are outweighed by the risks of disaster they generate. Take this 2011 study from the University of Minnesota: “Our calculations indicate that the cost to the economy as a whole due to increased systemic risk is of an order of magnitude larger than the potential benefits due to any economies of scale when banks are allowed to be large. .  .  . This suggests that the link between TBTF banks and financial crises needs to be broken. One way to achieve that is to break the largest banks into much smaller pieces.”

Romney Ahead in Florida

A new Quinnipiac poll of registered Florida voters, which had Romney tied with Obama at the beginning of May, now has Romney ahead by six points: 47-41.  Romney leads with independents 44-36.

This could be troubling news for the president's reelection plans.  Florida is a very incumbent-friendly state.  No president since Calvin Coolidge has won reelection without winning Florida, too.

Deductions v. Credits

Ramesh Ponnuru warns Mitt Romney's campaign to offer a tax credit for buying health-care rather than a tax deduction:

In 2007, George W. Bush’s administration proposed to start treating individually purchased and employer-provided coverage the same. People who got insurance either way would get a “standard deduction” of $15,000 off their taxable income -- and they would get the same deduction whether they bought cheap or expensive insurance, restoring the incentive to economize. Romney is considering reviving Bush’s idea...

Like today’s tax break for employer coverage, the standard deduction would be most valuable to people in the highest tax brackets. The uninsured typically aren’t in those brackets. As a result, Bush’s proposal would have done little to increase rates of insurance coverage. At the high end of estimates, 9 million additional people would have gotten coverage. (About 50 million Americans lack insurance.)
That’s why other Republican health proposals have offered a tax credit instead of a deduction. A credit is worth the same amount of money in all tax brackets. When Senator John McCain ran for president, he proposed a $5,000 tax-credit plan for families. Representative Paul Ryan and Senator Tom Coburn have also introduced tax-credit plans. Compared with a deduction, a credit would increase the number of people with insurance much more for the same amount of money.

New Opportunity

Yuval Levin has a new piece worth a read in the Weekly Standard.  Levin hits a point I've been hammering for a while:

There are many ways to describe what appears to be worrying these voters, but if we were to sum up the danger in one word it would be stagnation. After decades of galloping growth, America now faces the prospect of a harsh and sustained deceleration, and therefore of falling behind in the world economy.
In the 60 years following World War II, the American economy grew at an average rate of 3.4 percent per year—a truly astounding persistent pace of expansion. This growth brought with it sustained improvements in income and standards of living—improvements that we have come to regard not as miraculous advances but as the normal course of American life. Our sense of the nation’s overall standard of living takes such growth for granted, so that a period of significantly slower growth feels like a real step down.
We have been living through such a period lately. Annual economic growth averaged 3.5 percent between 1960 and 1999, but only 1.7 percent between 2000 and 2009. In the Obama years, we have averaged 0.6 percent growth. 

I don't agree with all of Levin's diagnosis, and I'm not sure about some of his policy recommendations (for example, it's not clear to me how getting rid of "our 19th-century system of school districts and local boards of education" is really going to lead to renewed economic growth).  But he does raise some interesting points.

China Rising?

Some interesting thoughts by Reihan Salam in the National Review:

Last year, the economists Barry Eichengreen, Donghyun Park, and Kwanho Shin published a fascinating survey of growth slowdowns. They found that fast-growing emerging economies tend to see a downshift in average annual growth rates around the time they reach a GDP per capita of $17,000, which China is expected to reach by 2015, and when 23 percent of the work force is in the manufacturing sector, a level China should reach around the same time. Other factors that are correlated with growth slowdowns are higher ratios of retirees to those of working age (a ratio that in China is expected to go from 11.6 percent in 2010 to 38.8 percent in 2050 — higher than the 37 percent the U.S. is expected to reach that same year), undervalued currencies (check), and volatile inflation rates (another problem looming on the horizon). Though Eichengreen, Park, and Shin are careful to note that there is nothing inevitable about growth slowdowns, experience strongly suggests that China is due for one in the very near future. Given that the Chinese Communist Party depends on high growth rates for its legitimacy, this is a profound challenge.
Even in the unlikely event that China does the right thing — if it addresses capital misallocation by placing more of the economy in private hands, if it allows Chinese households to retain more of the wealth they create — the country will still struggle with the bad debts it has accumulated over the last 20 years. Pettis anticipates that China will grow at an average annual rate of 3.5 percent, yet he argues that if China does not address the systematic misallocation of capital, growth could come to a halt. The real threat from China is not that it will grow so economically strong that it will bestride the world like a colossus. Rather, it is that it will become so weak and vulnerable as to collapse, or to lash out at its neighbors.

Rasmussen: Romney leads Obama by 7 points (50-43).  This is Romney's strongest showing in Rasmussen.

Not All Sunny in Wisconsin

Some are celebrating the announcement on behalf of Wisconsin Governor Scott Walker, who is facing Democrat Tom Barrett in a recall election, that Wisconsin will post a budget surplus over the next two years of $154 million:

Gov. Scott Walker's administration released improved budget projections Thursday that would leave the state with a $154.5 million surplus a year from now.
Coming less than four weeks before Walker's June 5 recall election, the projections take the state from a previously estimated $143 million budget deficit in its main account through June 2013 to the surplus.
A large chunk of the surplus is realized by delaying payments that will ultimately cost taxpayers more in interest.
The budget numbers released Thursday do not account for a sizable shortfall in the state's health programs for the poor that Walker's administration says it will deal with through increased efficiencies and spending cuts.

 Compared to the deficits faced earlier, that number seems an improvement, despite all the caveats (of loan restructuring and the health-program shortfall).

However, if one looks at the details of Walker's budget projections, one might notice something troubling for FY2013.  Here are the relevant numbers:

Opening balance (in thousands): $229,718
Tax and other revenue (in thousands): $14,280,843
Expenditures (in thousands): $14,356,088

As these numbers show, Walker's team is projecting that Wisconsin will run a budget deficit in FY2013 of about $75 million; any surplus at the end of FY2013 would come from carrying over the surplus from the end of FY2012.  Indeed, this report shows the general fund surplus shrinking considerably from FY2012 to FY2013.

I'm not sure what the methodology is for the FY2013 budget projection; it may overestimate or underestimate revenue.

It would be far from the worst result for a state to toggle between budget deficits and surpluses every other year but always ends up in the black after a two-year cycle.

But one hopes that FY2013 is not a projection of further deficits to come for Wisconsin.  While the state doesn't have the worst unemployment rate (at 6.8%, it's below the national average), job growth was sluggish in 2011: Wisconsin added only 13,500 private-sector jobs that year, its 0.6% private-sector growth rate the 44th in the nation.  And the state lost a few thousand private-sector jobs in March, hinting perhaps at further economic vulnerability.

Review: David Frum's Patriots

David Frum's new political satire, Patriots, is an entertaining and at times dispiriting read.  Taking a look at partisanship and ideology in the current millennium, Patriots draws from Frum's experiences in the Beltway.

Briefly, Patriots is set in an alternate Washington.  9/11 never happened, but the US has been involved in a decade-long military conflict in Mexico.  It is also suffering through a long-term depression/recession.  Rather than Republicans and Democrats, we have Constitutionalists and Nationalists, respectively.  A moderate Constitutionalist, General George Pulaski has recently beaten Nationalist President Monroe Williams, the nation's first African-American president.  Washington is divided, angry, and feverish with partisan intensity (sound familiar?).  Pulaski comes forward with a series of sweeping reforms to help tackle runaway deficit-spending and restore the economy.  However, he plans to do so by appealing to moderates and Nationalists, and he thus enrages the right wing of his own party.  Enter the protagonist, Walter Schotzke, the spoiled heir of a mustard fortune who is sent to work in the office of the last moderate Constitutionalist senator from New England.  Hijinks ensue.

A lot of public attention has focused on the "Where's Waldo" aspect of Patriots, as readers and critics attempt to connect certain aspects of Frum's fictional universe to our real one.  Does Fox News really run like Patriot News?  Wait---is that Rush Limbaugh?  No, Mark Levin?  I think I've seen that---yes, Grover Norquist! I'd like to leave that sight-seeing concern to the side for the moment.  As Patriots is in part meant to be a satire, I doubt its main task is to offer 100%-accurate portraits of Washingtonians.  (It perhaps ought to be said that some of the personality sketches are very harsh indeed.)

Instead, its purpose is to reveal by its comic distortions.  Frum might have some scores to settle in this book, but it seems to me that fundamentally Patriots is not a Washington revenge fantasy.  It instead casts light on some of the grimmest tendencies of contemporary American politics.  Patriots, however, is not a plea for "extremists" to reach across their rigid ideological lines and work together in a spirit of moderate compromise.  The kumbaya imperative is a standard trope in political novels, but Frum's point is more sophisticated that that.  The Washington of Patriots is peopled not by individuals of radically pure principle who never compromise their ideals.  Instead, it is filled with careerist operators who use the language of purist principle as a marketing tactic.  Much of the political intrigue of the book is in part motivated by the fact that one Constitutionalist activist does not get the job he was aiming for in the new Pulaski administration, which causes his ideological allies to rally together to break the new president.  Once this activist does receive his chosen job, however, the ideological dogs are called off.  Overnight, the organs of Constitutionalist thought, which had been attacking Pulaski as a matter of principle, suddenly switch to his defense.  Once Pulaski kisses the ring of the right interest-group power structure, all principled objections disappear.  The sincerity of an ideologue might be refreshing in the Washington of Patriots.

Walter Schotzke provides an apt narrator for this dysfunctional capital.  Cynical, soft, and inconstant, Walter comes to DC without any fixed political principles or commitment to Constitutionalist thought, so many of the mantras of the think tanks and political operatives he comes across seem bewilderingly foreign.  An official at a top right-wing think tank, for example, poses the following question to Walter: "And do you think that if your family were allowed to keep more of their own money, you might start new businesses and create new jobs?"  Unused to the movement line on "wealth creators," Walter thinks to himself that any extra money he got from a tax cut would not go to investing in a new business but instead to extending his foreign vacation.

Walter seems a sympathetic character, if not an entirely admirable one.  On the downside: he seems more interested in Xbox, fine wines, and self-indulgence than anything else, at least at the beginning of the novel.  On the upside: unlike much of the rest of the Washington elite, he is not self-righteous about his privilege and shows at least a trace of real concern about the economic pain inflicted upon average Americans by failed Washington policies.  Even as the country has grown poorer in Patriots, Washington has flourished (one of the more striking parallels with today).  And rather than focusing on helping the country or standing for high principles, many of Patriots's Washington insiders focus on beating their opponents of the moment and enriching themselves, all the while wrapping themselves in the language of absolute rectitude.  One of the more troubling moments in the novel occurs when an uber-lobbyist pats himself on the back for being a moral crusader by enriching himself through influence peddling even as he actively works to impoverish his fellow American citizens.

Without giving too much away, I'll note that Walter finds himself a bit by the end of Patriots and seems to have exchanged the wastrel life of a playboy for responsibility, duty, and some kind of civil engagement.  Though this is a personal victory for Walter, I can't help shaking the feeling that there's something more broadly depressing at the end of the novel.

By the end of Patriots, the United States of Frum's fictional universe seems to have settled for decline.  Years of a dysfunctional economy has not woken Washington up to reality but instead has solidified some of its worst tendencies.  A watered-down economic package is eventually passed, and it helps the economy recover---but never to full health.  As Walter notes, "Most folks would not see again the kind of prosperity they had enjoyed in years gone by."  Some individuals might be richer---spectacularly richer---but America as a whole is a poorer place.

In some respects, the ending of this novel reminded me of the ending of the individual seasons for the HBO series The Wire: each season ends showing the advancement (or decline) of various characters even as the dysfunctional drug culture of Baltimore goes on, unabated.  So it is with Patriots.  There are individual winners and losers in its Washington power games, but it is the culture of Washington that is the ultimate winner and, perhaps, the American public that is the ultimate loser.  Patriots shows a world where an elite has gained power through manipulating and exacerbating tendencies that make government impossible or at least unstable.

Perhaps that pessimism is misplaced; I hope it is.  Perhaps there's something utopian about that despair in the first place.  Washington, or any other nation's capital, has never been a font of total virtue and prudence.  Even the Founders eventually dissolved into petty sniping.  But I hope it is not too utopian to yearn for a politics slightly better than that of Patriots---a politics where careerist blinders do not override personal sympathy, where principle does not degenerate into propaganda, where personal ambition can be tempered at least a little bit by public virtue.

David Frum's Patriots is not a simple indictment of Republicans or the conservative "movement" or the Tea Party or any other faction of the moment; as Frum has said, he could just have easily written a book focusing on left-wing rather than right-wing politics.  It is a sketch of a political dynamic gone terribly, horribly wrong, of the threat posed by an elite unchecked by any sense of humility or public spiritedness, and of the risk that the great experiment of this American republic might trade the pursuit of happiness for the pursuit of political spoils.

I don't want to believe that Patriots's Washington is a perfect mirror image of our own; the lens of fiction has distorted the contours of reality.  I don't want to believe it's a prophecy, either.  But it does seem a warning.  It is perhaps a sign of the extent of our troubles when even seemingly absurd satire could be so easily confused with reality.

(Full disclosure: A contributor to the now-defunct FrumForum, I have worked with Frum before and maintain some level of personal association with him.)