Could Federal Spending Get to 20% of GDP by 2016?

I have a new piece up at the American Thinker looking at one of the claims of the Romney economic team:

Some on the left have assailed a Wall Street Journal op-ed by top Romney economic adviser Glenn Hubbard claiming that Mitt Romney's economic plans set the goal of having federal expenditures be 20% of GDP by 2016.  They currently stand at 24% of GDP.  As John Cassidy writes:

Is this credible? As far as the immediate future goes, Romney is promising austerity. Hubbard reiterates that he would aim to reduce federal spending from roughly twenty-four per cent of G.D.P. in fiscal 2012 to twenty per cent by 2016. Romney hasn't spelled out how he would reach this target, but simple arithmetic suggests he would need to impose about five hundred billion dollars in annual spending cuts, which is equivalent to more than three per cent of G.D.P.

I think it's a little more complicated than Cassidy lets on, however.

Read the rest here.

Akin Wins in Missouri

Rep. Todd Akin wins a closely contested primary battle to face incumbent Missouri Senator Claire McCaskill.  Interestingly, Akin serves in Jim Talent's old district.  Talent narrowly won this Senate seat in 2002 only to lose it in 2006 to McCaskill.  Since 1994, this Senate seat has switched hands every time there's been an election.

Pensions, Anyone?

If this Daily Caller story holds up, it could be bad news for the White House:

Emails obtained by The Daily Caller show that the U.S. Treasury Department, led by Timothy Geithner, was the driving force behind terminating the pensions of 20,000 salaried retirees at the Delphi auto parts manufacturing company.
The move, made in 2009 while the Obama administration implemented its auto bailout plan, appears to have been made solely because those retirees were not members of labor unions.
The internal government emails contradict sworn testimony, in federal court and before Congress, given by several Obama administration figures. They also indicate that the administration misled lawmakers and the courts about the sequence of events surrounding the termination of those non-union pensions, and that administration figures violated federal law.
Delphi, a 13-year old company that is independent of General Motors, is one of the world’s largest automotive parts manufacturers. Twenty thousand of its workers lost nearly their entire pensions when the government bailed out GM. At the same time, Delphi employees who were members of the United Auto Workers union saw their pensions topped off and made whole.

This sends a troubling message about the administration's honesty and also raises questions about the administration's treatment of the middle class and notions of economic equity.  We'll have to see how it develops, but, as Ace says, this could be a big deal.

Unemployment by Educational Attainment

The Great Recession continues to depress the employment situation, especially for workers without a college degree.  Courtesy of the BLS, here are the seasonally-adjusted unemployment rates for workers by level of schooling for July 2012:

• No high school diploma or GED: 12.7%
• High school graduate: 8.7%
• Some college: 7.1%
• College degree or higher 4.1%

The Rise of the McGovernites?

Ed Morrissey draws attention to an interview with Martin Peretz, former owner of The New Republic.  Peretz regrets the rise of the McGovernite faction in the Democratic party:

"I bought the New Republic to take back the Democratic Party from the McGovernites,” the legendary editor and publisher Martin Peretz says. Now, he fears, George McGovern’s ideas may be back in vogue within the party. …
“You know, I disagreed with Bill Clinton on some things and I didn’t disagree with him on others,” Mr. Peretz recalls. But Mr. Clinton’s administration “was in the deep tradition of the Roosevelt-Truman idea.” He concludes: “In any case, I think the Democratic Party was restored to a center role. Yes, it took a lot for the Clinton administration to rescue Bosnia. And it took a lot for the Democrats to admit to a mistake in Somalia.” But they eventually did both.
“We’re now in a new era,” Mr. Peretz warns. “I think that Obama is a child, or maybe let’s say a grandchild, of the New Left, with casual moral judgments made about very intricate ethical alternatives.” Later he thunders: “Leading by following—it’s really a sick phrase.”

I think in many respects Peretz is right to trace Obama's political lineage to the New Left and the McGovernite faction of the Democratic party.

However, one factor left unmentioned by both Morrissey and Peretz is that the rise of the McGovernites in many ways was the transition of the progressive left to the politics of the chic.  Many forces backing McGovern were often culturally hostile to the American middle class and the American worker.  This hostility was important for the Reagan Revolution of the 1980s, as union members and other middle-class workers felt increasingly estranged from their usual Democratic allies.

The unemployment rate rises to 8.3%.

Romney: Culture Matters

In the pages of the National Review, Mitt Romney makes the case that culture matters for economic prosperity:

But what exactly accounts for prosperity if not culture? In the case of the United States, it is a particular kind of culture that has made us the greatest economic power in the history of the earth. Many significant features come to mind: our work ethic, our appreciation for education, our willingness to take risks, our commitment to honor and oath, our family orientation, our devotion to a purpose greater than ourselves, our patriotism. But one feature of our culture that propels the American economy stands out above all others: freedom. The American economy is fueled by freedom. Free people and their free enterprises are what drive our economic vitality.
The Founding Fathers wrote that we are endowed by our Creator with the freedom to pursue happiness. In the America they designed, we would have economic freedom, just as we would have political and religious freedom. Here, we would not be limited by the circumstance of birth nor directed by the supposedly informed hand of government. We would be free to pursue happiness as we wish. Economic freedom is the only force that has consistently succeeded in lifting people out of poverty. It is the only principle that has ever created sustained prosperity. It is why our economy rose to rival those of the world’s leading powers — and has long since surpassed them all.

This attention to the cultural foundations of wealth is a classically conservative concern.  Culture might not be everything, but the role that culture plays in the economy should not be underestimated.

Cruz Wins

Last night, former Texas Solicitor General (and Tea Party favorite) Ted Cruz beat the Perry-backed Texas Lieutenant Governor David Dewhurst in the GOP Senate primary in Texas.  David Weigel considers some of the reasons why Cruz won; one of David Frum's correspondents offers some reasons for why Dewhurst lost.

GDP Growth Slowing

Zero Hedge analyzes today's release of GDP data:

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

AEI has some more thoughts on the current economy.

Medical Expenses and Doctor Compensation

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

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

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

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

New MA Senate Poll: Still Close

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

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

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

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

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

Big Donors Open Up Wallets for Rhode Island Democrats

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

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

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

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

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

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

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

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

Should Romney Take on Banking Reform?

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

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

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

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

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

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

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

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

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

Outsourcing: A Blast from the Past

Michael Kinsley offers a Clinton-era defense of outsourcing:

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

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

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

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

Made in USA

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

From the ABC News report that broke this story:

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

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

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

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

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

 Is Lepore right?  Probably.

Here's the price list provided by ABC:

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

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

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

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

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

To close with some final thoughts from Lepore:

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

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

A Republican Senator from Hawaii?

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

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

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

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

Restoration and Renewal: A Theme for Romney?

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

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

Read the rest here.

New CBO Report on Tax Liabilities and Income

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

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

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

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

Celebrating the Fourth

As I wrote last year,

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

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

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

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

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

Read the rest here.

Mountains and Molehills

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

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

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

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

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

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

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

UPDATE: Ace has some related points:

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

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.)

Mourdock's No Christine O'Donnell

A few electoral thoughts on the victory of Richard Mourdock over Dick Lugar in the Indiana US Senate primary tonight.  Some people are comparing Mourdock's victory to those of Sharron Angle and Christine O'Donnell in the 2010 primaries.  This comparison seems to me at least to be a mistake.  Mourdock is a very credible candidate.

Mourdock actually has a track record of winning.  He has now won two statewide elections for state treasurer (in 2006 and 2010), the second by a blowout margin.  The voters are open to Mourdock, and he's shown an ability to win them over.   Angle and O'Donnell had never won a general statewide election before their troubled Senate runs.

Likewise, Mourdock does not start from a huge deficit in polling.  The latest poll (taken in early April) for the Indiana general election finds him tied with Democrat Joe Donnelly at 35% each.  But Donnelly faces other hurdles: a majority of Indiana residents disapprove of Obama's job performance, and 81% disapproved of the job Congress is doing (Donnelly currently serves in the House).

It's true that this race would have been a cakewalk for Republicans with Lugar as the nominee, but, with considerable resources and strong support by Lugar himself in the general, Mourdock has a very good chance in November.

Not Forgetting Manufacturing

On a campaign swing through Ohio, Mitt Romney asserts the importance of manufacturing:

"Manufacturing is big part of Ohio, and of course, its history," Romney said. "I happen to believe that going forward over the coming decade, you're going to see a lot of manufacturing come back to America.
"If we finally crack down on China for cheating, if we also take advantage of the extraordinary energy resources we have here, and therefore low-cost energy, we'll be able to compete with people around the world," Romney said. "I think you're going to find Ohio, and particularly states that are right to work states, bringing a lot of manufacturing jobs back."

These comments seem to indicate Romney's openness to the idea that the current globalist regime might not really be "free trade" after all.  It will be interesting to see how hard he will hit Obama on this issue (especially regarding China policy) in the months ahead.

Social Security and Economic Growth

I have a new piece up at The American Thinker exploring how the right can argue that market-oriented growth would strengthen Social Security.  Here's the intro:

The April release of the 2012 Social Security Trustees Report has occasioned considerable media coverage.  Much of this coverage has emphasized the report's finding that the date for Social Security's bankruptcy has been pushed to around 2033 (the 2011 report suggested that bankruptcy would instead occur in 2036).  Yet the implications of this report are not confined solely to the matter of public finances, and policy reforms for Social Security are not the only thing that could improve the outlook for this program.  Like many federal programs, Social Security is dependent upon the health of the broader U.S. economy; the poor economic performance of the past few years (if not the past decade) has taken a considerable toll on the program.  In thinking about managing Social Security, the right should not miss the influence of economic performance upon the sustainability of this federal program.

Read the whole thing here.

Mickey Kaus games out the cons and pros of a DREAM Act deal.

The latest twist in the Elizabeth Warren origins kerfuffle.

Bloomberg looks at the middle class losing ground under Obama.