FUDGY MATH

From the print edition of the Washington Post:

CORRECTION

On June 19 we wrote that wage increases had kept pace with inflation in the year to May, and criticized Sen. John F. Kerry for suggesting that wages had fallen behind. We were wrong and Mr. Kerry was right: Hourly wages for non-supervisory workers rose 2.2 percent, while the consumer price index rose 3.1 percent.

THE REAGAN LEGATEES

From the letters section of the current Tax Notes (sorry, sub only), after extolling the 1986 tax reform and Reagan's contribution:

. . . One of Reagan's most important roles was in trying to control the crazy wing of his party. One of the leaders of the crazy-wing revolt against the Tax Reform Act of 1986 was a Republican congressman and chairman of the Republican policy committee who left Reagan "angered and perplexed."2 Trent Lott, Bob Michel, and Jack Kemp were in favor of the bill, but this congressman "just dug himself in, absolutely opposed to both the rule and the bill." Both Donald Regan and Treasury Secretary James Baker had meetings, described as "tense," trying to bring this renegade back into line. But the congressman, Richard Cheney of Wyoming, called the Tax Reform Act of 1986 "an abominable piece of legislation" and said, "the best we can do is to kill it. People don't give a damn about tax reform."

Calvin H. Johnson
Austin, Texas
June 14, 2004

JUSTICE TALKING

My NPR privatization debate with Adrian Moore is up. I was told it airs today. As far as pictures go, I think Adrian wins the goofy contest. My mug shot looks like it should have the caption, "You ignorant slut," but I'm really not like that. Not that much anyway. Maybe a little.

"I GOT MORE SQUARE FOOTAGE!":
PROFESSOR BAINBRIDGE DOES
SOCIAL DEMOCRACY

A key concept for the grasp of economics is that money isn't everything. The learned Professor Stephen Bainbridge of UCLA disdains this notion in a post that endeavors to illuminate "The Consequences of Social Democracy."

The shortcomings of social-democracy are held to be revealed by unfavorable comparisons of Gross Domestic Product per capita. At the most basic level, this is tantamount to criticizing the Boston Philharmonic because it can't make foul shots. We suggest the object of economic activity is not the maximization of GDP, but of well-being or happiness. What's the difference?

If my preference is to work 30 hours a week for $45,000, rather than 40 hours for $60,000, and I am compelled to work the longer week, GDP is higher and I am worse off.

If I get worse health care paying $5,000 a year for a private sector health insurance policy than the same amount in taxes for a public system, GDP is the same but I am worse off.

If Consolidated Crappola, Inc. dumps toxic material into the air that worsens my emphysema, in contrast to a regulatory regime that reduced emissions and my adverse symptoms, GDP might be lower while I am better off.

So short of a treatise, GDP glosses over differences in the value of public and private consumption, discounts the value of public amenities, and implicitly assigns a negative value to leisure time. Now demonstrating that in each of these dimensions social-democracy is worse than the U.S. might be possible, but no trace of such an effort may be found in the Professor's post.

Then there is this bit, quoted from the study SB cites:

But what about equality? Well, the percentage of Americans living below the poverty line has dropped to 12% from 22% since 1959. In 1999, 25% of American households were considered "low income," meaning they had an annual income of less than $25,000. If Sweden -- the very model of a modern welfare state -- were judged by the same standard, about 40% of its households would be considered low income.

In other words poverty is relative, and in the U.S. a large 45.9% of the "poor" own their homes, 72.8% have a car and almost 77% have air conditioning, which remains a luxury in most of Western Europe. . . .

SB seems to want to compare poverty levels, but if he did, he would find the U.S. clearly inferior to social-democracy. Instead, he segues into percentage below the arbitrary annual income level of $25K, where the U.S. looks better, as above, and from there to the baffling statement that "poverty is relative." If so, the correct comparison across countries -- ignoring the considerations above -- would be based on comparing income or consumption distributions.

For example, a common measure of inequality is the ratio of incomes at the 90th and 10th percentile, within a country. If country A's ratio is higher than B's, we could say A is more unequal.

Alternatively, we could define poverty as relative, at the level of half a country's median income. We would compare countries by noting the percentage in each below that level.

The Professor does none of this. Instead he takes note of the extent of home ownership and air conditioning. Now if I could rent cheaply, I might be better off not owning a home. If I lived in Sweden, I might not opt for air conditioning. Some years ago when I debated Michael Cox, chief economist of the Dallas Fed, Dr. Cox averred as to how much better off we were with the plentiful availability of bottled water. I leave this last riddle for you to solve.

Mercifully, Professor Bainbridge specializes in other matters.

"I KNEW MUSSOLINI;
MUSSOLINI WAS AN ENEMY
OF MINE; YOU'RE . . . "

Here come de judge . . .

BUBBA BUBBA,
TOIL AND TRUBBA

Of course Clinton was a better president than any of his GOP opponents would have been. But was he all he could be? In the realm of economic policy, the unsurprising answer here is no.

My charge is not that Clinton failed to rise to some arbitrary liberal standard. On the left one often hears superficial attacks on politicians for "lacking backbone." This is a universal trait, and there is no reason to think it is distributed more heavily at any particular ideological point in the spectrum. Politicians are as liberal as they are inclined to be, subject to the constraints imposed by their own reelection requirements (fund-raising, voter opinion). The question is how much political risk they will assume to do the right thing.

The Clinton Administration assumed political risk in some areas -- health care, tax increases, free trade, gays in the military, Kosova -- and avoided it like the plague in others -- welfare reform, domestic spending, Kyoto, Iraq, Somalia.

My interest is where Clinton policy was positively impractical or unpragmatic from a partisan standpoint, as well as being wrong-headed on the merits. I would not expect a politician to do the right thing if it meant his or her own political demise. We don't elect many saints to public office. One could wish for more, but it would be silly to spend much time regretting their absence in politics.

I boil down the Clintonoids economic transgressions to the following six deadly sins:

1. Free trade uber alles.
2. "The era of big government is over."
3. The Doctrine of Fed Supremacy.
4. Deficit dementia.
5. Corporatist health care reform.
6. Welfare reform.

1. The Administration was uncritically enthusiastic about free trade. They grossly exaggerated its benefits, grossly distorted its critics' arguments, and purveyed two-faced rhetoric during the campaign and the Seattle demonstrations. To some extent, the Administration's zeal undercut crucial labor support in 1994 and beyond. In this case, the Clintonoids believed their own rhetoric and took risks on behalf of their beliefs, but still felt compelled to lie about it to their own constituents.

2. The anti-big government stance was fraudulent in that public spending grew under Clinton, and hundreds of thousands of Federal civil service positions were eliminated. How could this be? The use of contractors, not necessarily on economic grounds, made up the difference. This sort of anti-government opportunism makes it more difficult for all Democrats to make their case. Here the Clinton Administration knew its rhetoric was bullshit.

3. I discussed the Fed issue yesterday. We could concede that taking on the Fed is politically daunting, but opening the issue for public discussion is feasible. Instead we got slavish propitiation and fostering the myth of the Fed's political independence.

4. Without doubt, the first Clinton budget in 1993 -- passed without a single Republican vote -- accomplished a crucial reversal of the trend in deficits. Upon Republican takeover of Congress in 1994, however, Clinton and Gore's emphasis on deficit and debt reduction evolved from a tactic to block regressive tax cuts to Democratic proselytization of a new civic religion. As in the case of free trade and "small government" (sic), this ideology blocks the blossoming of expansions of Federal social welfare initiatives on the spurious grounds of inaffordability.

Budget surpluses at the end of the 90s presented opportunities to make the case for new programs. Some would disagree by saying such talk would only encourage Republican advocacy for tax-cutting, but it is hard to imagine any scenario in which such advocacy would have been restrained. It should also be noted that to compete with the Republicans, Democrats offered budget proposals that were not lower in orders of deficit magnitude.

5. The Clinton health care campaign, among numerous other shortcomings, was founded on the political notion that compromise with corporate interests (manufacturers, health insurance companies) would carry the day. The price for this calculation was an extremely complicated plan whose workability was in doubt. Worse, the corporate interests failed to come on board. Evidently, their support was not secured before the fact.

By contrast, a forthright single-payer proposal would have had the virtue of simplicity and a fighting chance of reducing costs, incidentally serving the Administration's mania for deficit reduction in the long run. While risky, an aggressive campaign along these lines could have significantly transformed U.S. politics. In hindsight, we can't doubt that the result would have been any worse.

6. Clinton signed a bill in 1996 that almost all of his Administration -- even the Rubinoids -- did not support. In doing so he betrayed key constituencies and supporters (some of whom betrayed their own constituents by rolling over). He had a long track record of supporting reform. He did not need to sign that bill to get reelected over the pathetic Bob Dole.

So my claim is that in each of these areas, positions were taken that suffered the dual handicaps of being bad policy and bad politics. The political damage continues, as the Democratic Party labors under weight of ideological fetters forged in the 90s. Clintonism says we should not contemplate expansion of the welfare state, we should not criticize free trade or the Federal Reserve, and we should steer clear of proposals to junk the corporate health care system.

Only vigorous action by its constituencies can sway the Democratic Party apparat from this course. The DP would be deader than the dodo without the vigorous support of trade unions and civil rights groups. These groups have to raise the price for their support. We observe Democrats, even liberals, run to the left in the primaries, then return like homing pigeons to bankrupt centrist principles for the general election, as well as afterwards.

As far as economic policy goes, this is why I did not vote Democrat in the presidential elections after 1992. If there was a viable third party out there (there isn't), I would vote for it this year, because otherwise this shit will go on forever.

IT AIN'T EASY
BEIN' GREEN

How pro-environment are the Democrats? Here's a negative assessment.

TONY DOWNS,
CALL YOUR OFFICE

More expertise in the Post:

"A banner headline sets the fever-pitch tone: "Want a BELTWAY in Your Backyard?" The "paper," published by Save Our Communities, revives a shop-worn assumption that the building of any new highway automatically generates traffic that did not exist before."

I happen to support the connector, but our intrepid guides to public policy might want to bone up on this topic. Downs has been one proponent of the notion that more roads invite more traffic. Whether in the end congestion is worse or better is another matter.

What kills me about this, as for the Chait chatter yesterday, is not my disagreement with them. It is the breathless confidence with which such writers opine on topics in which they lack credentials and where conclusions are contested by actual experts.

OUR SO-CALLED
MONETARY POLICY

The unemployment rate is 5.6. We know it can be 4.0. The difference is a couple o' million jobs, more if you consider those who left the labor force but might be inclined to return.

The Federal Reserve is poised to raise short-term interest rates, in a move to squelch inflation. How much inflation? The latest numbers show a rate of 3.3 over the past three months, as compared to 1.7 over the past year, excluding food and energy. The latter tend not to move in concert with the rest of the index or be susceptible to monetary policy interventions. Our view is that 3.3 v. 1.7 inflation is not the end of Judeo-Christian civilization.

A better Democratic candidate would take some notice of this, but for the past two decades or more, Democrats are governed by what I call a Doctrine of Fed Supremacy. This is founded on the fiction that the Fed is above politics (forget about Greenspan hunkering down with Cheney and O'Neill over a giant bowl of Cheetos) and is inclined to follow its nominal mandate, which is to foster full employment at stable prices.

The actual mandate of the Fed is to pepper the posterior of the financial markets with kisses by focusing on inflation, rather than full employment.

In a democratic system, the Chairman of the Federal Reserve Board of Governors would not be permitted to weasel his way out of a question about the Fed's commitment towards full employment.

From this point forward, Greenspan is on the hook for unsatisfactory employment growth no less than the president.

RUBINTISM

Jonathan Chait of The New Republic flaunts his weak grasp of fiscal policy. Underscores reflect emphases added:

"What you can blame Kerry for is his choice of emphasis in the campaign. Kerry's best chance of passing a significant economic program would be to focus relentlessly on Bush's misplaced priorities and thus win a mandate to reverse them. Instead he has focused unremittingly on two things -- job losses and high gasoline prices -- that aren't really Bush's fault. The result has been an economic debate that bears almost no relation either to the damage that Bush has wrought or to the issues that the next president will face.

Democrats' true objection to Bush's policies is that, rather than confine himself to short-term measures keyed to recovery, the president insisted on permanent tax cuts that will cause revenues to hemorrhage long after the recession has ended. They may be right, but that hasn't had much effect on employment. In all likelihood, if Al Gore had become president, he would have been the first president since Hoover to preside over a loss of jobs. Not only is the jobs critique unfair, it has almost nothing to do with Bush and Kerry's policy differences going forward. The recession, after all, seems to have ended, and jobs are rebounding. If Kerry wins the White House, restoring jobs will almost certainly fade from his agenda."

This column seems to have undergone the same editorial scrutiny as blogging. First JC says there is no remotely plausible theory, then he notes that there is indeed a theory, one that he dismisses without support as "hair-splitting." The fact that tax cuts and military spending provided some stimulus is secondary to the question of whether they provided enough. Fiscal policy is supposed to alleviate downturns in employment. By historical standards, in the realm of employment this recovery has been among the worst. The fact that eventually you get out of the downturn has no bearing on whether the best policy has been followed.

Nor does JC seem to understand that tax cuts causing anticipated deficit increases in the future can affect long-term interest rates that can affect investment right now. It's not only a question of solvency. The extent of this effect is open to debate, but the poor performance of investment since the end of the recession in 2001 is not.

JC is right about one thing here. Kerry's economic advisers -- Robert Rubin, Gene Sperling, and Roger Altman -- think like JC, so it is not obvious that Kerry would do better on fiscal policy than Bush.

COS IS RIGHT

Personal behavior, including raising children, is not everything, but it's not trivial either. The author of this piece has been teaching school and writing about it brilliantly in the Post for decades.

At the same time, factors outside of schools are crucial as well.

Chew gum. Start walking.

NO OIL HERE

If the U.S. invaded Iraq out of humanitarian motives, why doesn't it do likewise for the Sudan?

IN OUR NAME

The U.S. has adopted Israeli standards of precision:

BAGHDAD, June 19 -- In a bloody surprise attack, the U.S. military launched precision weapons into a poor residential neighborhood of Fallujah on Saturday to destroy what officers described as a safe house used by fighters loyal to Abu Musab Zarqawi and perhaps, at times, by the fugitive terrorist leader himself.

Residents said about 20 people were killed, including women and children, despite a cease-fire with U.S. occupation forces that has brought relative peace for the last six weeks to the rebellious city 35 miles west of Baghdad. Images from the site of the blast showed two collapsed houses, with people in white robes picking through the rubble looking for buried victims and lost property.

Some will say Saddam killed people too. Would have killed more. This is obviously a low standard of morality. Saddam is out of the picture.

How long do we have to keep murdering innocent people?

I AM
THE GREATEST DAD
IN THE WORLD

I have documentary proof. The decision of the judge was unanimous.

My condolences to all those who finished in second place.

POST TOASTED

A Post reader writes:

My condolences to the staff and management of The Post. I had no idea you felt so deeply about Ronald Reagan. I was a reporter and editor at The Post during the launch of Reagan's "revolution," and we had a somewhat different take on his presidency then.

Reagan nurtured the strong and punished the weak. He fostered the great regressive shift in economic rewards that continues to this day, while ignoring a visible deterioration in the middle class and manufacturing.

His economic theory was cockeyed and did not add up (both parties spent 20 years cleaning up Reagan's deficit mess). But Reaganomics did deliver the boodle to the appropriate interests, the same ones who financed his rise in politics.

A disturbing meanness lurked at the core of Reagan's political agenda and was quite tangible at the time, though evidently forgotten now. We wrote tough stories about that and other contentious questions; I remain proud of the coverage. I would rank Reagan's place in history right up there with Warren G. Harding's. You want to put him in the company of FDR, maybe even Lincoln. Future historians will decide who's right. Meanwhile, I read your funeral coverage as a lengthy, lugubrious correction.

William Greider
Washington

The writer was The Post's assistant managing editor for national news, 1979-82, and is now national affairs correspondent for The Nation.

Bill elaborates here.

MaxSpeak word power: Lu-gu-bri-ous:

Mournful, dismal, or gloomy, especially to an exaggerated or ludicrous degree.
--------------------------------------------------------------------------------
[From Latin lgubris, from lgre, to mourn.]

FISH STORY

There has been entirely too much attention to trivialities in the treacle corporate tax cut working its way through Congress, such as $35 million in tax relief for manufacturers of fishing tackle boxes. Leading manufacturers of these boxes happen to be located in or near the districts of Rep. Denny Hastert and Rep. Jerry Weller (Plano Molding, in Plano, IL, home town of Hastert; and Tackle Logic, in Sandwich, IL). We would further like to dispel any impression that Plano Molding's donations to the National Republican Congressional Committee had anything to do with this legislation. Also in the bill are tax cuts for sonar fish-finders and archery equipment.

Glucggg, president of the United Bass of North America, floated a statement denouncing the impending tax breaks. "The clear intent of this legislation is to put we bass at increased risk of bow-and-arrow attack by dull-witted fishermen who lack the skills and patience to catch us the honest, old-fashioned way, with hook, line, and sinker."

A spokesperson for People for the Ethical Treatment of Animals chimed in, characterizing the bill as "worse than Hitler."

THAT'S RICH

From a thread over at Yglesias, Jane Galt kept yakking about the Gov taking 55 percent of your inheritance. She was alluding to the top marginal rate of the Estate and Gift Tax, which happens to be 49 percent, not 55. In light of the exemption below which no tax is due, currently a cool two million for a couple, and scheduled to rise to seven million by 2009, you can appreciate that the average tax rate can be quite a bit lower.

The chart below shows how much lower. You can see that the average rate does not get close to the top marginal rate until you're up past ten million bucks. This assumes, by the way, that the decedents undertake absolutely no other tax planning, except to be sure that the first one to go has left enough outside the couple to soak up the exemption (half of the two million). Numerous other legal devices make it possible to reduce the tax burden much further, so for the deceased taxpayer's top marginal rate to equal the average rate, said decedent would have to be very rich and very stupid.

The chart below applies to current law. With an effective exemption of $7 million for a couple, the point where the average rate approximated the top rate would obviously be higher.

CAMPAIGN ADVERTISEMENT

Found while I was digging my way out of my office.

ANNALS OF
FISCAL CONSERVATISM

Herbert Stein, WSJ, editorial page, October 2, 1989:

"But there is this peculiar and little noticed fact. In the last seven years of the Reagan Administration, the government enacted, with Mr. Reagan's signature, tax legislation that raised the revenue in fiscal 1989 by almost $120 billion, according to estimates in the last Reagan budget. This consisted of the following legislation, with the amount of the resulting revenue increases:

Mr. Reagan retained his title as the world's champion enemy of taxes, despite all the tax increases enacted with his concurrence during his regime. He was able to pass this title on to his heir, George Bush. The lesson for politicians seems to be that you can get away with raising taxes if you talk as if you didn't do it. . . "

READ YOUR #$@%^&$
FRONT PAGE!

The so-called liberal WaPo editorialist huffs:

"IN A PAIR of interim staff reports, the Sept. 11 commission yesterday gave the fullest and most detailed report on the planning of the attacks that the American public has received to date. Yet showing a peculiar instinct for the capillaries rather than the jugular, part of the public debate immediately focused on a single passing point that is no kind of revelation at all: "We have no credible evidence that Iraq and al Qaeda cooperated on attacks against the United States." Administration foes seized on this sentence to claim that Vice President Cheney has been lying, as recently as this week, about a purported relationship between Saddam Hussein and al Qaeda."

Meanwhile, on the front page of the print edition, above the fold and just under the lead story, we have:

The Iraq Connection
Al Qaeda-Hussein Link Is Dismissed

There seems to be WSJ-style news/editorial mind-unmeld developing here, and not in a good way.