Ezra Klein

Recap: Not enough economic growth in Q3; what the GDP numbers tell us about the election; and six things Obama has done wrong.

1) Immigration reform isn't an obvious political winner for Democrats, and that's particularly true amid 10 percent unemployment.

2) Top 10 facts about Social Security.

3) Now you've gone and made Jim Fallows mad.

4) People don't realize this Congress has done more than usual.

5) That's true for Democrats, too.

Recipe of the day: No-sweat Gnocchi.

When people talk about "raising the retirement age," they normally mean raising the "full-retirement age." That means the age where you get what Social Security calls "full benefits." Right now, it's about 66. But most people don't retire at 66. They retire at 62 or 63 -- that is to say, they retire as soon as they're eligible, even if it means getting less in benefits. That reveals an important preference: So much as pundits and elites think it's easy and natural for people to work later into life, most people don't actually agree. They retire as soon as possible.

If you raise the full-retirement age to 70, you'll probably still see people retiring at 62 or 63. They'll just get less in benefits. In that way, raising the retirement age is another way of saying "cutting benefits."

Andrew Biggs has proposed doing something different: He'd raise the "early-retirement age" -- that is, the age at which you can first retire and begin collecting benefits -- from 62 to 65. You couldn't retire at 62 and get less. Benefits would begin only at 65. This will improve the system's finances, he says, and also mean larger annual benefits when people do retire. "The evidence indicates that most Americans could work longer and would benefit from doing so," he writes. "This strikes me as sensible," says Andrew Sullivan.

Though I agree with Sullivan that this is, at least, a serious idea for reducing the deficit, count me out. The words "would benefit from doing so" are doing some heavy lifting here, and in a way even I find worryingly paternalistic. Biggs quotes evidence showing that health has improved among elderly Americans, and jobs have grown less physically demanding, since Social Security was founded. That's true, but it's also true that America is much richer than it once was. Adjusting for inflation, our gross domestic product in 1935 was $865 billion. In 2009, it was more than $12 trillion.

Leisure time at the end of life is something we can buy. The question is whether we want it. Elites don't, and so raising the retirement age is very popular among them. They -- or maybe I should say we -- want to work until 70, and 75, and 85. It's a painless reform for us, and so we've convinced ourselves it's a painless reform for most people. Conversely, we don't want to raise taxes on ourselves, and so you don't hear much about lifting the cap on the payroll tax that funds Social Security. But, funnily enough, when you pose the question to Americans, they see it differently: They don't like taxes, but benefit cuts are much less popular. And notice that that poll question doesn't even note that the relevant tax would mainly hit wealthier Americans.

I spend a lot of time on this blog tussling with some of the less-satisfying critiques of the Obama administration. But it's also worth looking back over the last two years and asking what they could've done better.

A few conditions, however: First, I'm not including things that I'd have liked to see happen, but don't think Congress would've allowed. A public plan paying Medicare rates falls into this category. Second, I'm not including mistakes too dependent on 20/20 hindsight. The administration -- and the CBO, and the private forecasters -- all thought the recession would be milder than what we actually got. That's what led to the disastrous prediction that the stimulus would hold unemployment under 8 percent. But I'm not going to fault the administration for using the best data available at the time. And third, I'm restricting myself to the issue I cover. Glenn Greenwald and Adam Serwer and others have persuaded me that the administration's record on civil liberties and GLBT rights is, at best, checkered. But since I've not really dug into those issues myself, I'll leave them for someone else.

1) The tax cut that failed: The administration likes to brag that the stimulus was comprised substantially of tax cuts. Look how bipartisan! Only the tax cut they included was the Making Work Pay tax cut from the campaign. You don't get bipartisan points for doing the thing you wanted to do anyway, and they didn't. They also designed the tax cut to release slowly and be completely invisible to the people receiving it. This, they hoped, would make people spend more of the money. It's hard to say if it worked (Jared Bernstein convinced me that survey data isn't enough to say it didn't work). But politically, it's left only one out of 10 Americans aware that the Obama administration lowered their taxes.

2) Neglecting the Federal Reserve: Matthew Yglesias has made this critique better than I could've, so I'll outsource it to him. "A party whose leaders realized that economic results were the most important driver of public opinion wouldn't have renominated a conservative Republican to head the Federal Reserve. Even more astoundingly, having given Ben Bernanke a second term in office, the Obama administration didn't get around to nominating anyone to fill the other vacant posts on the Federal Reserve Board until April 2010."

3) The Fiscal Commission: I've come to see the "National Commission on Fiscal Responsibility and Reform" as a major error on at least a few levels. Remember, first, that it's a powerless executive body created after Republicans filibustered a bill that would've created a similar, but more powerful, commission in Congress. They did that because they didn't want to compromise on taxes. They're not going to compromise in the president's commission, either. So on the simplest level, the commission will fail, but in order to pretend it hasn't failed, it'll probably release some Social Security cuts that we probably shouldn't make anyway.

Worse, creating the Fiscal Commission accepted the argument that the problem is the deficit. It isn't. If the president wanted to change the economic conversation and show himself thinking long-term, we should've had an effort focused on a long-term growth strategy, in which fiscal sustainability would've been one pillar, but not the only pillar. Instead, the Commission's report will be a battle over deficit reduction in general and, most likely, Social Security in particular. Those are battles that Democrats -- and the economy -- will lose even if they win. How much better to have offered some deal this year pairing long-term deficit reduction with immediate stimulus, or to be looking towards a report next year that would be about growth and reform, not just about how best to manage contraction.

4) The American Recovery and Reinvestment Act: I struggle with this one. The stimulus included measures designed to create jobs and help the economy immediately and measures designed to make investments and strengthen the economy over the longer-term. As a matter of policy, I fully support that. As a matter of politics, I think it made the bill look worse to people who didn't understand -- or support -- the dual mandate. Splitting the bills in two would've allowed for a cleaner stimulus, but it might have meant we didn't get the second bill -- and we needed it. Forcing the medical system to move towards electronic medical records was incredibly important. Which is why I'm conflicted on this.

5) The size and sale of the stimulus: By now, this is a familiar critique. Christina Romer thought we needed $1.2 trillion in stimulus. Then the recession turned out to be larger than we'd calculated. Then we got just $787 billion -- and not all of that was stimulus. I'm not here to argue about whether the administration could've gotten more by working Congress harder. I'm not smarter than Rahm Emanuel or Phil Schiliro. But the fact that this was a half-measure should have been communicated to the American people. Instead, we got figures and rhetoric arguing that a stimulus of this size would be sufficient. When it wasn't, the idea itself got discredited.

6) It's the procedure, stupid: Here are four words we've really not heard out of the Obama administration: "Up-or-down vote." Obama has spoken occasionally about the filibuster, but the relentless perversion of the legislative process has not been made into a sufficient issue. The administration complains that they can only do what they can do, and they'd have done more if not for Congress, but there's been little effort and no political capital spent explaining -- much less changing -- the impediments to action. Many Americans think the administration has failed, and they've hardly even been exposed to the argument that they were actually stopped. Republican obstruction has been predictable since, at the least, the stimulus vote, but they never figured out a way to force the issue, or even really make it part of the story.

There are more, of course. But those are the six that spring to mind first.

Photo credit: arry Downing Photo.

Today's GDP numbers are a good way to understand Tuesday's election. Start with who Barack Obama isn't: Franklin Delano Roosevelt. You hear people say that if Obama could only sell his vision, his agenda or his commitments the way FDR could, he'd be safe right now. And the comparison is understandable: Like FDR, Obama took office shortly after a financial crisis. But unlike FDR, who took office after three years in which GDP shrank by an average of 9.6 percent each year, Obama -- and his predecessor -- responded effectively enough and quickly enough to stop the economy from collapsing. Our worst year was 2009, when GDP shrank by 2.6 percent. And that was the only year in which we actually lost ground.

FDR, for his part, took office after the worst of the Great Depression was over, and -- in part because of his efforts -- when the real recovery was beginning. In 1934, the year of his first midterm election, GDP grew by more than 10 percentage points. Obama took office in 2009, which was our worst year. And this year, the year of his first midterm, we're on track to grow by 2.5 percent. That is to say, it isn't a vision thing. If Obama could get FDR's numbers, and if he could've dodged the worst years of the crisis, he could go mute and still win the election.

Obama is also not Bill Clinton. Clinton lost 54 seats in 1994, but the economy wasn't doing particularly badly. It was the third straight year of growth, and when all was said and done, we'd expanded by 4.1 percent. Democrats hold almost exactly as many House seats in 2010 as they did in 2004, and if Nate Silver is right and they lose 53 of them, they will, given the economy, have outperformed Clinton's Democrats quite substantially. Maybe passing health-care reform actually helped?

The best comparison, it turns out, is between Obama and Ronald Reagan. The 1982 midterm election also came amid a weak economy. We'd shrunk by 1.9 percent, although we'd grown -- slowly -- the year before. The two presidents were also posting similar approval numbers: According to Gallup, Reagan had 43 percent at this point in his presidency, and Obama has 44 percent.

There is, however, a difference: Reagan's party was in the minority in the House. They had 192 seats and lost 26 of them. That's a 15.6 percent loss. If Democrats lost the same percentage of their 256 seats, they'd lose 40 seats this year. But because having a large majority means, by definition, holding many more vulnerable seats, the likelihood is that Republicans would have lost much more than 15.6 percent of their seats if they'd had another 54 seats to defend, and if unified government had left all the blame on their shoulders.

So Obama can't show the progress that either Bill Clinton or FDR could in the months before their first midterm elections. He's got more growth than Ronald Reagan did, but also more seats and unified control of government. He's got, in other words, a pretty bad situation. Reagan did too (though the cause of his recession was the Federal Reserve, and so recovery was easier to attain after the election), but Clinton really didn't. It's his losses that really stand out.

Graph credit: Gallup.

D.C. chef Barton Seaver wants us to get smart about sustainable seafood:

Jon Cohn reports from an alternative universe in which President Obama skipped health-care reform. I wonder if it's the same alternative universe I visited back in August?

They move around to dodge taxes:

The Stones are famously tax-averse. I broach the subject with Keith [Richards] in Camp X-Ray, as he calls his backstage lair. There is incense in the air and Ronnie Wood drifts in and out -- it is, in other words, a perfect venue for such a discussion. "The whole business thing is predicated a lot on the tax laws," says Keith, Marlboro in one hand, vodka and juice in the other. "It's why we rehearse in Canada and not in the U.S. A lot of our astute moves have been basically keeping up with tax laws, where to go, where not to put it. Whether to sit on it or not. We left England because we'd be paying 98 cents on the dollar. We left, and they lost out. No taxes at all. I don't want to screw anybody out of anything, least of all the governments that I work with. We put 30% in holding until we sort it out." No wonder Keith chooses to live not in London, or even New York City, but in Weston, Conn.

Of course, they don't move around too much. The Stones aren't living in Mexico or Poland*. They're moving from England to the United States, and rehearsing in Canada. When it comes to cities, they're choosing between London and various places near New York. There's a degree to which locations that are fairly comparable can use tax policy to compete with one another, but the importance of other amenities and cultural and technological offerings limits it. Connecticut has attracted a lot of Wall Street wealth by making its tax rates friendly to hedge funders, but that only works because of the presence and proximity of New York -- and even so, New York has kept a lot of that money, and those people.

All of which gets to a bit of a free-rider problem: It's hard to be New York if you can't tax like New York (which is not to say you need to tax exactly like New York, of course). And it's impossible to be New York if you tax like Connecticut. But it's possible to tax like Connecticut and win refugees from New York, so long as New York is still only a short train -- or helicopter -- ride away.

*It's possible Mexico and Poland have very high taxes. You know what I mean, though. Also, hat tip for the link goes to Greg Mankiw.

Kevin Drum weighs in:

What's remarkable about all this is that Obama is, patently, not anti-business. All of the corporate complaints above, when you dig an inch below the surface, amount to lashing out at phantasms. However, although Obama isn't anti-business, it is fair to say that he's not especially business friendly. And after decades of almost literally getting their every heart's desire from Republican presidents and congresses, this has come as something as a shock to the corporate community. When Obama puts a tax break in the stimulus bill, it's aimed mainly at the middle class, not the rich. When he hires a labor secretary, it's someone who actually thinks labor laws should be enforced. When he says he wants to pass a healthcare reform bill, he actually does it. (Its impact on big business is close to zero, but no matter.) There's no evidence at all that Obama wants to punish big business, but at the same time it's quite plain that he cares much more about the middle class than he does about the rich.

And that's pretty hard for them to take. So they're apoplectic.

I'm trying to find an elegant way to say GDP growth sucked in the third quarter. Maybe "GDP growth modestly underperformed hopes that it would be about 250 percent faster?" Or how about, "GDP growth was very naught in the third quarter of 2010/"

At any rate, the economy grew at an annualized rate of two percentage points. That's slow-but-not-catastrophic in normal times. But these aren't normal times. What it means, rather, is that we're not catching up to where we need to be. We'd need a bit of time at 5 percent growth or so to really get back on track. That often happens after normal recessions, but balance-sheet recessions, where banks and consumers have to spend a long time getting their finances back in order before they can start expanding again, tend to take longer.

This was in Wonkbook, but I want to emphasize it again:

Profits have surged 62 percent from the start of 2009 to mid-2010, according to the Commerce Department. That is faster than any other year and a half in the Fabulous ’50s, the Go-Go ’60s or the booms under presidents Ronald Reagan and Bill Clinton.

There are a bunch of political points you can make on this. One that I've made before is that it's a pretty pro-business performance from an anti-business president. Doug Holtz-Eakin, continuing his transformation from respect economist to political operative, takes it in the other direction and wonders whether this gives the White House a sad. “Obama sounds a lot like he wants corporations to be less profitable," Holtz-Eakin told Politico.

But the economic point is that this is where recovery will come from. Businesses have money to spend. They just need a reason to spend it. And there is only one reason they will accept: If they spend that money -- if they invest in more workers and more plants and more advertisements -- they will make more money in return.

One way to do that is to increase demand in the economy. A payroll-tax holiday, for instance, would get workers to spend some money, and that would mean the people who produce the stuff they want to buy will have to make more of it. Another way to influence that equation is to increase inflation and decrease the return of safe investments like Treasuries so that it's less profitable to just leave that money sitting around. It would be nice to believe the next Congress is thinking seriously about this, but there's not much evidence of it yet.

According to the New York Times' Sewell Chan, Federal Reserve Chairman Ben Bernanke wants more fiscal stimulus. Which is no surprise, as the case for more stimulus is, if anything, even stronger than the case for more monetary action, and in any case, it's reliant on the same recognition of continuing economic weakness. He thinks the first stimulus largely worked, and that the lagging economy needs more help. He thinks that the Fed's second round of quantitative easing would be more effective if paired with more fiscal stimulus, as that would ensure someone is actually using the low interest rates to create jobs (he's right about that).

The problem is, he's too shy to say so. Arguments over stimulus have become polarizing in the Congress. And though Alan Greenspan stepped into the middle of the debate over the tax cuts, that's not remembered as a happy experience for the Fed. But reticence has its dangers, too: As a Republican appointee who might be the most respected and independent economic policymaker in the country, no one but Bernanke has the credibility to even hope of convincing the next Congress to move in a different direction. But if he doesn't convince them to do it, then the Federal Reserve's quantitative easing might fail to help the economy, and that will harm the institution's credibility, too.

Happy Friday. Welcome to Wonkbook.

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Ben Bernanke wants more fiscal stimulus, reports Sewell Chan: "He believes that without the Obama administration’s $787 billion stimulus program, the nation would have been worse off, and that Congress needs to continue to prop up the economy in the short run. He agrees that fiscal measures to support the recovery would probably make the Fed’s unconventional monetary policy more potent. But Mr. Bernanke has been reluctant to prominently voice those views, which were gleaned from testimony, speeches and interviews with people close to him over the last several months. His predecessor, Alan Greenspan, did not display such hesitation, advocating for the Bush tax cuts of 2001 and 2003."

Why the Fed's quantitative easing might fail if Bernanke is unable or unwilling to convince Congress to move: http://wapo.st/bAyk7B

Peter Orszag argues that a second round of quantitative easing is misguided, and we just need more fiscal stimulus: http://nyti.ms/crwA2Z

Ryan Avent disagrees: http://econ.st/chsaii

Paul Volcker wants to keep his rule broad, while some Democrats want it implemented specifically, reports Deborah Solomon: "Mr. Volcker's concern, according to several people familiar with the matter, is that narrow or prescriptive rules would invite gamesmanship on the part of banks and could allow firms to evade the rule's intent. Already, some banks and their lobbyists are seeking to sway regulators and encourage them to narrowly define certain types of trading activities, according to government officials...On Thursday, a group of 18 Democratic senators sent a letter to the oversight council encouraging regulators to adopt strict and 'meaningful' definitions."

Corporate profits have grown faster than at any 18-month period since the 1920s, reports John Maggs: "Profits have surged 62 percent from the start of 2009 to mid-2010, according to the Commerce Department. That is faster than any other year and a half in the Fabulous ’50s, the Go-Go ’60s or the booms under Presidents Ronald Reagan and Bill Clinton...Noncorporate business has not thrived under Obama: Profits from those mostly smaller businesses are basically flat for the past 18 months, far worse than the gain under Bush and most other presidents just after recessions. Obama economic adviser Larry Summers has pointed to the profits data to argue that Obama isn’t anti-business, as his critics charge."

Minimalist rock interlude: The Kills play "No Wow" live.

Still to come: Obama will need to restock his economic policy team after the midterms; Halliburton knew its cement in the exploded Gulf oil well had problems; net neutrality will face a tougher road next Congress; and Sweden's youngest Royal Palace guard.

By Dylan Matthews

The Obama administration is gearing up to overhaul the corporate income tax by lowering rates but cracking down on loopholes that allow offshore sheltering of profits. Megan McArdle argues that liberals should want to scrap the tax altogether, and tax the people corporate profits go to, rather than the corporations themselves:

The "employer half" of the payroll tax, for example, is thought by most economists to fall pretty much entirely on the worker; corporations compensate for the extra cost by lowering the wages they offer. Taxes on corporate profits are exactly the same for middle-class families who have some shares in a 401(k), and multimillionaire heiresses.

…

Without the corporate income tax, a lot of the incentive for lobbying would go away. Not all of it, by any means -- I am not trying to paint some halcyon future here. But an enormous amount of effort goes into lobbying for tax laws, and politicians often reward favored constituent businesses with little sweetheart fillips to the tax code.

A few months back, Uwe Reinhardt looked at the evidence about tax incidence for corporate taxes, and is less convinced:

Other economists, including the authors of the surveys cited above (Jane Gravelle, Jennifer Gravelle and Thomas Hungerford), are persuaded by the available empirical evidence on the five factors I note that the burden of the corporate tax ultimately rests mainly on the owners of capital. That also appears to be the operative assumption of the Congressional Budget Office, the Treasury and other agencies when they analyze the distributional impact of various forms of taxation.

…

If the profits of corporations were not taxed, the corporate form of enterprise would become one more major tax shelter through which wealthy people could shield their income from taxation. That probably is the main reason why abolishing the corporate tax has never had any political traction, in the United States or abroad.

McArdle counters that there are already sufficient incentives for the rich to use corporations to shelter money, but that the IRS has sufficient resources to ensure that does not happen. Given that, I would happily support a deal in which the corporate income tax was abolished in exchanged for an increased IRS enforcement budget and a much bigger personal income tax, complete with cuts in deductions favoring the rich (mortgage interest, charitable donation, etc.) and more steeply progressive rates.

Somehow, though, I doubt conservatives backing corporate income tax abolition would be willing to make that deal. Personal income tax hikes are easy to demagogue. You're raising taxes for actual people, not accounting fictions, and I'm sure many Republicans in Congress would rather defend low taxes for rich people than low taxes for rich corporations.

Of course, defending corporate tax cuts, as the Obama administration looks prepared to do, isn't easy either. But it's hard to see Republicans fighting a pure tax cut plan harder than a mix of cuts and hikes, and so Obama's plan probably has better prospects than an abolition deal.

Also, I think McArdle underestimates the degree to which sweetheart deals in the corporate tax code can be translated to sweetheart deals in the personal income tax code. Suppose there's a deduction in the corporate tax code for linen companies. You could insert a deduction or credit in the personal income tax code for income coming from textile industries. If anything, that replacement would have a less progressive incidence, as the deduction would only be claimed by people who itemized their deductions, whereas the savings on the corporate income tax would go to low-income workers too.

-- Dylan Matthews is a student at Harvard and a researcher at The Washington Post.

According to Politico, if the GOP takes the House, the party isn't going to decide committee chairmanship based on seniority:

If Republicans win the House, all but a few of of the two dozen GOP chairmen will be first-timers with the gavel, a strong sign that a new generation of Republican leadership has dawned, ushering in a slate of mostly conservative younger chairmen who will control debate on everything from tax cuts to a farm bill to business regulation.

It’ll be a stark contrast to the 2006 Democratic takeover, when Dave Obey of Wisconsin, George Miller of California and Michigan’s John Dingell and John Conyers reclaimed gavels they lost in the Republican rout of 1994.

In broad terms, the Republican chairmen will be policy conservatives but not bomb-throwing ideologues. ... Major new players in a new Republican Congress include 57-year-old Dave Camp of Michigan atop the tax-writing Ways and Means Committee. Budget wonk Paul Ryan of Wisconsin, a 40-year-old who has become a hero to fiscal conservatives, will most likely rule over the Budget Committee. Oversight and Government Reform will have the fiery Darrell Issa of California dashing off subpoenas to the Obama administration.

On Appropriations, there might be a fight between Reps. Jerry Lewis of California and Hal Rogers of Kentucky over the coveted job of controlling the federal government’s purse strings. And on Energy and Commerce, a critical committee for carrying the Republican agenda on health care, energy and business regulation, Joe Barton of Texas is fighting for the gavel despite insider buzz that Michigan’s Fred Upton has the inside track.

By Dylan Matthews

It's somewhat funny that Obama's comments at yesterday's blogger meeting haven't gotten more attention, given that he as much as said that he'll come out in favor of marriage equality at some point in the future. Here's the money graph:

"I also think you’re right that attitudes evolve, including mine. And I think that it is an issue that I wrestle with and think about because I have a whole host of friends who are in gay partnerships. I have staff members who are in committed, monogamous relationships, who are raising children, who are wonderful parents. And I care about them deeply. And so while I’m not prepared to reverse myself here, sitting in the Roosevelt Room at 3:30 in the afternoon, I think it’s fair to say that it’s something that I think a lot about."

The "I'm not prepared to reverse myself here" line is the real kicker. Anyway, I suspect this is flying under the radar because everyone more or less assumes Obama's opposition to same-sex marriage is just for show. He backed it as a state Senate candidate in 1996, and it's hard to believe he was honestly persuaded to oppose it during the same 14 years that the rest of the country came around to the idea.

More broadly, this is as good evidence as any that, just as a matter of self-interest, politicians shouldn't take positions out of political expediency if they are not going to really commit to the lie. If Obama had started making social conservative arguments about the value of traditional marriage, then maybe some same-sex marriage opponents would come around. It'd be unfortunate, but it'd at least work politically. And if he had straightforwardly supported marriage equality from the start, gay activists and base liberals would have been more enthusiastic. But as it was, marriage equality supporters thought he was dishonest and cowardly, opponents thought he was dishonest and radical, and everyone ended up disappointed.

-- Dylan Matthews is a student at Harvard and a researcher at The Washington Post.

By Dylan Matthews

Obama has expressed his frustration with the filibuster before, but he seems to amping up his criticism. He brought it up twice yesterday, first at a meeting with liberal bloggers ("the damage that the filibuster I think has done to the workings of our democracy are at this point pretty profound") and then on "The Daily Show" (skip to 6:30):

This is all to the good, and I hope some progress gets made at the beginning of the next Congress. Regardless of which party holds a majority, it'll be a very slim one, and so I'd imagine Majority Leader Mitch McConnell would be as enthusiastic about chipping away at cloture requirements as Majority Leader Harry Reid or Chuck Schumer.

That being said, while filibuster reform will probably reduce gridlock, there's no way it will leave a party with a real majority. Tom Udall is the only senator who appears open to eliminating the cloture requirement altogether, and even he's not explicit about that. Michael Bennet's proposal only reduces the requirement to 55, and then only in certain circumstances. Tom Harkin's plan has a gradually reduced cloture requirement, which could clog up Congress even more by forcing the majority to wait weeks until the requirement is low enough. And some proposals, like Frank Lautenberg's, don't even change the cloture requirement at all.

Given inevitable opposition from Senate traditionalists in either party, the best reform I can see realistically passing is something like Bennet's. Looking at Nate Silver's latest probability chart (look under "Probable Senate Outcomes"), there seems to be about a 15-16 percent chance of a Democratic majority of 55 or greater, and no chance of a Republican majority of that size. So even in the best-case scenario, we could see Democrats go from scrounging together a couple of Republican votes to get to 60 to scrounging those votes together to get to 55. It's progress, but it won't make the next Congress a whole lot more productive.

Dylan Matthews is a student at Harvard and a researcher at The Washington Post.

I'm a fan of phasing out or paring back both the mortgage-interest deduction and the tax exclusion for employer-based health care, so I've been encouraged by reports that the President's Fiscal Commission is seriously examining both. Economist Robert Shapiro, however, thinks this is the wrong time to be considering changes to either one.

I was pretty excited to read John Gapper's column on President Obama's demonstrated loathing of big business. A lot of the people I know have been asking why Obama hasn't been much more unfriendly to big business -- bailouts, tax breaks, loan guarantees and record profits hardly seem like punishment -- and I figured I'd now have something to say to them.

Sadly, no: Gapper's single example of Obama's mistrust of big business is that "one of his favourite jabs at Republicans is that they seek tax breaks for corporations 'to ship jobs overseas.' " That's it? That's what you need to be anti-big business these days? George W. Bush complained about outsourcing. Bill Clinton complained about outsourcing. Every president complains about outsourcing because the American people don't like outsourcing. But it's enough to get Gapper going on Obama's "Manichean world in which small business is worthy and big business suspicious." Yeesh.

The administration has been caught between a rock and a hard place when it comes to corporate rhetoric. The country would love some anti-corporate populism, particularly when it comes to Wall Street. But the administration can't let things get out of hand, because when things get out of hand, the financial markets and the corporate titans get scared, and that makes the economy worse. On the other hand, if the administration simply ignores the public's anger, it both destroys itself and creates room for demagogues. We saw this during the AIG bonus fight, when the White House's relative absence created room for a bill regulating Wall Street bonuses to race through the House of Representatives.

So the White House has tried to walk the line between saying the bare minimum in populist applause lines and simultaneously pursuing an extremely pro-business policy agenda. That's why Gapper's column has a banal line on outsourcing and nothing in the way of anti-business policy. But corporations, like other actors in American life, tend to consider the policy wins they get as the bare minimum of what they're due, and to be happy they need to feel respected, honored and admired by the guy in the White House.

This is the most encouraging economic news I've heard in a while.

By Dylan Matthews

Thanks to Ezra for having me. It's good to be back posting, and yes, I will graph things if you ask nicely. 

Brian Palmer has a useful explainer over at Slate looking at academic studies evaluating the effectiveness of campaign spending. The studies he cites seem to suggest that spending has pretty low bang-for-bunk, with studies putting the cost of a vote anywhere from $50 to $175. Combined with the fact that 95 percent of House races since 2004 have been won by the bigger spender, this seems to suggest that campaigns spend a lot because donors perceive them as winners and give more, not that spending more makes campaigns win.

That win percentage figure is especially unpersuasive when you consider that 94 percent of House incumbents won reelection in 2006 and 2008. A lot of those races were uncontested, in which case the incumbent would obviously raise more, and even in closely fought ones, the incumbent is presumably a more experienced and connected fundraiser than the challenger.

Given as there's a large political science literature showing that incumbency advantage is real (see this paper by Andrew Gelman for a recent example), whereas there's substantial dispute about the effectiveness of campaign spending, I'm inclined to believe that the reelection rate of big spenders is more an effect of incumbency advantage than anything else.

But this does raise the question of why donors give to campaigns that are going to win anyway. The obvious answer with big donors is that they want to influence policy, but if their money is not helping win campaigns, and many of the incumbents being subsidized are safe anyway, then it seems odd that politicians would feel a need to satisfy them. If donor money is irrelevant, why cater to donors?

The simple answer would be that politicians and donors believe donor money is important, even if there is no proof for that. This is distressing insofar as it suggests that wealthy interests are only influential due to a misperception, but it also suggests that correcting that misperception could reduce those interests' power. Obviously, getting politicians to read studies on campaign spending isn't going to make campaign money unimportant, but spreading some doubt couldn't hurt.

Dylan Matthews is a student at Harvard and a researcher at The Washington Post.

Josh Kraushaar makes the case that health-care reform is a primary, not secondary, cause of Democratic distress in this election cycle. He marshals some persuasive evidence (though today's Politico disagrees that Democrats who opposed health-care reform are in good shape), though it's of course difficult to know how it stands up to a counterfactual in which health-care reform failed, or was never tried and was replaced by a push on cap-and-trade. As matters stand, President Obama and the Democrats are not popular and health-care reform is their most visible achievement. It makes sense that some campaigns would use it as a symbol of their failures.

I should say that I anticipated health-care reform would become more popular after passage. That was true for a couple of months, when the plan gained a couple of points, but now health-care reform's popularity is exactly where it was at passage. As the bill hasn't changed during that period, my sense is that has more to do with the deterioration in the economy (and thus in the Democrats' popularity, and the popularity of everything they've touched), but that's only a guess. The reality is that my political prediction on this didn't work out.

But since I'm interested in the counterfactual, let me offer it: How many seats do the Democrats lose in a world where everything is the same -- that is to say, health-care reform passed, and it was an ugly process -- but unemployment is 5.5 percent? How about in a world where unemployment is the same, but health-care reform was never attempted, and the Obama administration instead sought a price on carbon?

My best guess is that Democrats lose 25 fewer seats in the first world and five more seats in the second world (as cap-and-trade would provoke the same outrage on the right, and also harm some traditionally Democratic districts where they mine coal). But that's just my best guess. What's yours?

I've got some travel today, so my blogging is unfortunately dependent on WiFi and layovers. Dylan Matthews, however, will be pitching in. Ask him to graph stuff!

What's amazing -- and, for the Democrats, terrifying -- isn't just that 57 percent of Americans are "somewhat" or "very" concerned about making their next mortgage payment. It's that two years ago, when the macroeconomy was in worse shape, that number was a comparatively modest 37 percent. Most Americans, in other words, have gotten more insecure over that period, at least on this metric.

There are all sorts of ways to explain this, of course. Unemployment drives foreclosures, and it's a lagging indicator. The financial crisis was driven by the expectation of this housing insecurity, not just the foreclosures that had happened in late-2007. Financial crises always take a long time to work through, and if you're a Reinhart and Reinhart fan, you know that housing crises and credit bubbles take years, not months, to work through.

But that's all cold comfort to the 57 percent of Americans who walk around with a knot in their stomach. They're hurting now. And they're about to vote.

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With outside groups included, this election cycle's cost could hit $4 billion, reports Dan Eggen: "There are three general tides of money swamping this year's elections, according to CRP's data: House and Senate candidates, who have reported raising $1.7 billion; the political parties, with about $1.1 billion; and outside interest groups, which have raised at least $400 million. That adds up to $3.2 billion, but the numbers are incomplete amid the frenzy of ad buys and other activity in the week before the election...Donations from Wall Street, medical and insurance firms, energy conglomerates and other corporations have shifted decisively toward Republicans over the past year because of policy disputes with Democrats and anticipation of a possible GOP takeover in Congress."

Democrats are amping up their secret campaign spending: http://wapo.st/bAq5ju

Most Americans say they worry about making mortgage or rent payments, report Ariana Eunjung Cha and Jon Cohen: "In all, 53 percent said they are 'very concerned' or 'somewhat concerned' about having the money to make their monthly payment. Worries are the most intense among those with lower incomes and among African Americans... there's now even more unease about making next month's rent or mortgage payment than there was two years ago. Back then, 37 percent of respondents said they were somewhat or very concerned about their monthly housing costs. Since that time, the economy has modestly improved."

To triangulate or not to triangulate, that is the White House's question, report Laura Meckler and Peter Wallsten: "Strategists in both parties see two options for President Barack Obama. He could seek deals on issues including trade, taxes and spending, following the model of President Bill Clinton, who after losing Congress in 1994, compromised with the GOP to overhaul welfare...Mr. Obama could also follow the model of Harry Truman, who dug in and successfully portrayed an opposition Congress as obstructionist. That would lay the foundation for a 2012 reelection campaign where the president could draw contrasts with his opponents... White House Chief of Staff Pete Rouse, in investigating the various options, is consulting with people who worked for Mr. Clinton in the mid-1990s."

Special guest interlude: Belle & Sebastian and Jenny Lewis play "Lazy Line Painter Jane".

Still to come: Sen. Kent Conrad is sticking up for TARP and the stimulus; Matthew Yglesias thinks Obama's biggest economic mistakes came in neglecting the Fed; Milton Friedman would support quantitative easing; and There Will Be Blood as a Super Nintendo game.

Recap: A great graphic matching deficits to economic growth; introducing the "climate hawks"; and some insight into the type of Speaker John Boehner will -- or at least wants -- to be.

Elsewhere:

1) Nate Silver on his House projections.

2) Really, really glad I didn't go to law school.

3) "Cutgo," huh?

4) Everything you ever wanted to know about the Consumer Financial Protection Bureau.

I'd assumed the slight deterioration in health-care reform's poll numbers since June was part and parcel of the deterioration in the Democrats' position since June, and the deterioration in perceptions that the economy is recovering. But Greg Sargent catches a New York Times story suggesting that there might be more to it than that:

Opponents of the legislation, including independent groups, have spent $108 million since March to advertise against it, according to Evan L. Tracey, president of the Campaign Media Analysis Group, which tracks advertising.

That is six times more than supporters have spent, including $5.1 million by the Department of Health and Human Services to promote the new law, Mr. Tracey said.

To keep things in perspective, though, the bill is almost exactly as popular -- and unpopular -- as the day it was signed into law. What's happened is that the bill got slightly more popular between March and June, and then slightly less popular again.