Matt Yglesias

The High Price of Tea

My guess is that conservatives won’t spend a ton of time second-guessing themselves after a big electoral win last night, but the fact of the matter is that by putting forward a lot of hard-right nominees Republicans appear to have left a few Senate seats on the table. In some cases, such as Florida and Kentucky, they got their hard-right nominee and also won the seat. But then there’s Delaware and Nevada and West Virginia. And there’s your Senate majority.

It’s interesting that Republicans seem to have fared so much better in the House. I’ve heard it hypothesized that since these were lower profile races, it was easier for challengers to fly under the radar screen and not attract the kind of scrutiny that undid Sharon Angle. It’s easier for a House candidate to be a kind of generic “alternative” to the incumbent.

Final Results

Obviously you can see the numbers elsewhere. But what happened is that Republicans did substantially better-than-expected in the House. The Douglas Hibbs projection forecast about a 45 seat pickup, the generic ballot polling forecast about a 55 seat pickup, and in reality they got a 65 seat pickup which I believe will create the largest House Republican caucus since the Great Depression. Given the vagaries of Southern politics, I’m pretty confident we’ve seen bigger conservative majorities in the past but the point is it’s a big win.

Conversely in the Senate the GOP has underperformed. Harry Reid survived in Nevada. Michael Bennet looks like he’ll probably hang on in Colorado. A likely Republican win in Delaware was turned into an easy win for Chris Coons.

Realistically, I think the House margin matters much more. If the GOP had pulled off a very small majority, the White House could hope to attempt to govern via negotiations with a small block of relatively moderate representatives. With a big majority, legislative negotiations need to run through John Boehner. And any Obama-Boehner deal that could pass a Senate with 53 Democrats could also pass a Senate with 51 Democrats or even 48 Democrats. For a bill to become a law under this configuration you’d need a really substantial level of cross-party agreement that’s a bit hard to imagine at the moment. But that means that the days of the 111th Congress when things would come down to intense negotiations with individual Senators are probably over. Deals will be big picture or else more likely the deals won’t be done.

The Great Reversion

The mainstream press has a vested interested in overreading every election result as do, naturally, the proponents of the winning party. So the pro-overreading faction also wins the argument and one doesn’t want to be a “protest too much” type on the other side. But I do think it’s worth emphasizing that the state to we’ll be entering next year—divided government—is entirely typical in the past thirty years of American political history.

The only episodes of unified partisan control we’ve seen were 1993-94 and 2009-10 for the Democrats and 2003-2006 for the Republicans. You could posit that the existence of a strong “Boll Weevil” faction of conservative Democrats gave Reagan an effective governing majority in 1981-82 but then by the same token this same phenomenon denied Bill Clinton an effective governing majority in 1993-94. Either way, the point is that this is normally how elections turn out. And when elections turn out in a more lopsided way, they tend to revert to division quite quickly. I think it would be a mistake to infer from this that “Americans prefer divided government” since if you add the Democratic partisans to the Republican partisans you get a clear majority of partisans. But the dynamics of the overall system tend to settle into this kind of equilibrium.

And as far as episodes of divided government go, Barack Obama will, in virtue of Democratic control of the Senate, have a stronger hand legislatively than Ronald Reagan and George HW Bush had in 1983-1992, than Bill Clinton had in 1995-2000 or then George W Bush had in 2007-2008. So this could plausibly be the beginning of the end for Democratic political power (as it was for Bush) or merely the end of the beginning (as it was for Reagan and Clinton).

In any event, knowledge of all this is part of what drives my frustration with supermajority rule in the US Senate. People spent much of the past two years acting as if the 60 vote requirement was the only thing standing between the United States and some kind of plebiscitary democracy. The reality is that most of the time legislation requires bipartisan compromise because most of the time the electorate doesn’t deliver the House, the Senate, and the Presidency to one party simultaneously. But it seems to me that when unified government is the outcome, that the winner ought to get the chance to govern. As we saw last night, if the people don’t like the results they both can and will vote the other guys back in.

Your Kids Will Meditate in School

I think a nice counterpoint to some of the pat conventional wisdom about “anti-establishment” or “anti-politician” sentiment in the current election is simply to look at how successful retreat candidates have been. Once and future Senator Dan Coates (R-Indiana) isn’t exactly a breath of fresh air. Nor is former Rep Rob Portman or former Rep John Kasich (both R-Ohio). The trend is a much more literal swing of the pendulum against the folks currently in charge (mostly Democrats) and in favor of the other guys.

The ultimate of all of this is happening in California where Democrat Jerry Brown will once again be governor:

In high school I liked the Dead Kennedys “California Uber Alles” a lot, but had to look up what it was a reference to. The idea that over a decade after my graduation Brown would be governor of California again never occurred to me.

Endgame

Don’t ever look back:

— In lieu of watching election returns, I’ll be at the Wizards home opener.

— Wizards’ season is likely to make Blanche Lincoln’s performance look good.

— Third Way looking forward to a GOP majority.

—Pundit outsourcing.

— Liquidity traps and rational expectations.

— Pocket guide to vaginal euphemisms.

Listen to Wendy’s rendition of “Teenage Dream” and tell me Max Martin isn’t a genius.

Zombie Economics

Over the weekend I finished John Quiggin’s entertaining and accessible Zombie Economics: How Dead Ideas Still Walk among Us. To switch undead metaphors a bit, the conceit of the book is that the Panic of 2008 ought to be the stake through the heart of what Quiggin calls the “market liberal” paradigm that’s prevailed since stagflation killed the postwar Keynesian consensus.

To me the most interesting thing about the book is that even though the rhetoric, tone, and ideological self-positioning are 180 degrees away from Amar Bhidé’s book the proposals on bank regulation are literally identical. The same in every way. So hopefully people who enjoy valorizing businessmen and talking about how capitalism is awesome will read Bhidé’s book while people who enjoy afflicting the comfortable and talking about the need to tame markets will read Quiggin’s book. I’ll cross my fingers and hope that Dodd-Frank and Basle III will be all we need to prevent a new financial panic, but realistically I think more far-reaching reforms will be needed and these books point the way.

On the other side of the spectrum, the most provocative argument Quiggin offers is that the contemporary world massively overrates the case for privatization of “natural monopolies” and underrates the case for new public investments. I wish this chapter had been a whole book of its own, since it’s extremely thought-provoking but I have a lot of questions about the argument. For example, instead of a case for a small number of state-owned enterprises coexisting alongside private ones, is this possibly a case for sovereign wealth funds and the state acting as a passive investor in a wide range of firms?

Big picture, when the crisis first hit I know a lot of people on the left were excited about the prospect of it discrediting the right. Now heading into the midterms, the momentum has shifted to the idea that somehow the recession may discredit the welfare state. I think if you look back to the prolonged crisis of the seventies you see that this kind of interpretative pendulum can swing around quite a bit, and Quiggin’s argument is an important intervention in recapturing the narrative.

The Geography of Overexposure

The most-covered candidate of 2010 turns out to have been Christine O’Donnell, who definitely won’t be taking office as a United States Senator. By contrast, we’ve heard very little about the guy who’ll probably beat Russ Feingold or the dude who has at least an outside chance of winning of Washington.

Ezra Klein’s theory is that O’Donnell “just made for good copy.”

That’s true, but I think there’s more in play, namely logistics. The Alaska Senate race should be excellent copy. Joe Miller is nuts, Scott McAdams is fascinatingly amateurish, the Palin-Murkowski feud is interesting, everyone likes to talk about Sarah Palin, etc. But Alaska is also cold and remote. Sending a reporter there would be expensive and annoying. The time zones are inconvenient. By contrast, Wilmington is a 2 hour drive or 90 minute train ride from both Washington, DC and New York City. So if you want to get some “real reporting” done it’s convenient. And logistics count in life.

HSR Opponents Make the Case for High-Speed Rail

I’ve been kind of assuming that building a true nationwide high-speed rail network would be unrealistically expensive. According to HSR opponent Tad DeHaven, however, I’m way off base and it’d actually be kind of a bargain. Or as he puts it:

Federal taxpayers can’t afford high-speed rail in California or anywhere else. A Cato essay on high-speed rail points out that the cost of California’s HSR could be $81 billion and a national system could cost $1 trillion. Samuelson is right: the Obama administration’s HSR dreams “represent shortsighted, thoughtless government at its worst.”

To get specific, the Cato essay in question is from car-subsidy shill Randal O’Toole and clarifies that for this bargain basement price we’d be getting real HSR and not the Obama’s kinda sorta fast trains:

Thus, the costs of a true high-speed rail system would be far higher than the costs of a medium-speed system on existing tracks, as envisioned by the Obama administration. To build a 12,800-mile system of high-speed trains would cost close to $1 trillion, based on the costs estimates of the California system. It is unlikely that the nation could afford such a vast expense, particularly since our state and federal governments are already in huge fiscal trouble.

Taking California construction costs and projecting them nationwide seems methodologically unsound to me since California is an above-average cost jurisdiction. And keep in mind that this is a policy brief from a guy who’s entire job is to talk smack about federal investments in rail. So what he’ll have done to produce the $1 trillion number is at every step of the way shade things in a high cost direction. But let’s stick with the trillion.

Currently, the government needs to pay 4.1% interest on a thirty year bond. And according to the handy dandy amortization-calc.com to amortize a 30 year loan of $1 trillion at an interest rate of 4.1% per year would cost $57.99 billion a year for thirty years. Note that’s in fixed, nominal terms, so while it’s a fair amount of money in the short term by the 2030s it’ll be a joke relative to our Nominal GDP. Contrast that to the $708 billion FY 2011 budget request the Obama administration submitted. It seems to me that an 8.1 percent reduction in defense expenditures in order to create a transformative nationwide new infrastructure program would be a no-brainer.

Of course the larger moral of the story here is that with government borrowing costs currently very low and large quantities of workers and other resources idle, it makes a ton of sense to borrow large sums of money to invest in useful projects. A trillion dollars is a lot of money. And at a higher interest rate, the return on investment you’d need to justify borrowing it might be quite large. But at today’s rates and with plenty of genuinely idle resources around the situation is quite different. With high unemployment and a frontloaded pace of construction, the $57.99 billion in annual debt-finance costs would be partially offset in the short-term by increased income and FICA revenue, decreased Unemployment Insurance outlays, and spillover benefits to retailers and other service professionals who would benefit from the increased pace of economic activity.

Let’s do it!

Liberal Overreach at the Margin

It’s inevitable that “liberal overreach” will be blamed for Democratic losses if they’re large tonight and also blamed if they’re small. But what I think overreach analysis always requires is more of a marginal approach.

For example, granting ad arguendum that the 111th Congress engaged in liberal overreach, which Senators who win today would have lost had the Affordable Care Act included a public option linked to Medicare? The answer seems to me to be nobody. Which Senators who win today would have lost had the 111th Congress passed a cap-and-trade plan through reconciliation? Here, it looks like Patty Murray. Would a “scaled back” health care plan have saved Blance Lincoln? Clearly not.

There’s No Such Thing as a Realignment

The worst thing that happens after most US elections is that people begin to debate whether or not the election in question is/was a “realignment” election.

So when I saw that Stan Collender had a post titled Beware of Those Who Call This Election a Realigment” I was excited. But instead of his argument being the correct one that this is a bogus concept, he’s saying “It may well be a realignment, but anyone who uses that word tonight, tomorrow, or in the next few months to characterize the 2010 election will either be guessing or spinning.”

What you really need to do with realignment-mongering pundits is suggest they read David Mayhew’s Electoral Realignments: A Critique of an American Genre in which he persuasively argues that there’s no meaningful “realignment” phenomenon. There’s a good short summary here if you’re interested. To give my own summary, Mayhew’s point is that there’s no dichotomy between two “kinds” of elections. There’s just a lot of elections. Some are more important than others, especially in retrospect. Sometimes a party wins a bunch of elections in a row. Sometimes a voting bloc switches partisan loyalties on an enduring basis. But there’s no “pattern” in which these things all go together. Stuff just happens. Partisan majorities are usually fleeting.

People gaze at the stars and see constellations, but that just goes to show that human intelligence plus random occurrences equals pattern-detection not that there’s some deep underlying structure to the heavens that’s painting pretty pictures for us.

GOP Record of Deficit Reductions Illustrates the Point that Conservatives Don’t Care About the Deficit

Megan McArdle says neither party is “particularly credible” on the deficit:

Looking at our small group of post-1980 presidents, we have two GOP presidents who increased the deficit, one GOP president who took major steps to close it, one Democratic president who took steps to close it. The “Dems good, GOP bad” has another problem, of course: Barack Obama., the Democratic president who has set spending records as revenue collapse.

This is unfair to Barack Obama for reasons I hope Ezra Klein will explain.

More to my interests since this is an ideologically driven non-partisan blog, I can take note of the fact that George HW Bush’s excellent record on deficit reduction is a great illustration of the point that conservatives don’t care about the deficit. After all, what do conservatives think about George HW Bush? They hate him! And what specifically do they hate about him? They hate his deficit reduction package! Blind partisanship is a strong force in American life, but in the particular case of Papa Bush and the deficit, it’s something conservatives are able to overlook in favor of their passionate lack of concern about the budget deficit. Anyone who gave any weight whatsoever to the idea that deficit reduction is an important issue would have to think that HW Bush looks like a pretty good president. And anyone who wants to be a member in good standing of the conservative movement needs to think that HW Bush was by far the worst of the post-Carter Republican presidents.

Monetary Policy à La Krugman

Paul Krugman’s preferred monetary policy strategy:

What I’d do if I were really in charge of the Fed, however, is the same thing I advocated for Japan way back when: announce a fairly high inflation target over an extended period, and commit to meeting that target.

What am I talking about? Something like a commitment to achieve 5 percent annual inflation over the next 5 years — or, perhaps better, to hit a price level 28 percent higher at the end of 2015 than the level today. (Compounding) Crucially, this target would have to be non-contingent — not something you’ll call off if the economy recovers. Why? Because the point is to move expectations, and that means locking in the price rise whatever happens.

Sounds good to me. I don’t totally understand this argument, however:

It’s also crucial to understand that a half-hearted version of this policy won’t work. If you say, well, 5 percent sounds like a lot, maybe let’s just shoot for 2.5, you wouldn’t reduce real rates enough to get to full employment even if people believed you — and because you wouldn’t hit full employment, you wouldn’t manage to deliver the inflation, so people won’t believe you.

Right now we’re very far from full employment. But we still have a little inflation. And so it seems to me that if real rates go down a bit, we’ll get a bit closer to full employment, and thus a bit more inflation. The result would be a much slower than necessary recovery, but still better than the current path.

The Iron Law of Growth

(cc photo by Bert K)

Via Ryan Avent, the Economist reviews Roger Pielke, Jr:

The dilemma is that policies to reduce carbon-dioxide emissions have so far been singularly unsuccessful. Mr Pielke expresses the essence of this failure as what he calls the “iron law” of climate politics: “When policies focused on economic growth confront policies focused on emissions reduction, it is economic growth that will win out every time.”

You hear people say things like this as if they’re very profound all the time. But is there any other field of human endeavor in which it would make sense to broadly and lazily theorize that the current policy status quo is optimized for growth and always will be? It seems to me that when policies focused on economic growth confront policies focused on other things people care about the “other things” win all the time. We have national parks, we give seniors Medicare instead of turning them into soylent green, we have insane cotton subsidies, you need a license to become a barber, we underinvest in early childhood education, the tax code is a joke, etc.

Indeed, there are a lot of policies that would boost growth and cut emissions (less regulatory curtailment of dense construction, congestion pricing on roads, etc.) and yet “other things” win out over those options regularly.

Immigration and the Reddish Yellow Menace

If you try to work out Brad DeLong’s midterm questions you’ll see that if China ever does overtake the US in per capita GDP terms, it’ll take a very long time for it to happen. At the same time, China’s much larger population means they can overtake us in total output much faster than that.

For most purposes, of course, the per capita figure matters much more. Aggregation doesn’t change the fact that individual Indian people are incredibly poor. But in terms of the struggle for geopolitical dominance, the aggregate does matter. Which leads me to wonder why national security hawks aren’t out there more aggressively making the case for higher levels of immigration.

The US population is already growing at a faster rate than China’s. And the extent to which this continues to be the case has major implications for China’s ability to overtake us in total economic output. And thanks to the immigration channel, this is something we have the ability to control rather easily. According to Gallup, there are 165 million people around the world who say they’d like to move here, and Canada is the second most-popular hypothetical location. Not being much of a nationalist, I don’t see this as being close to the top of the list of good reasons to make the country more open to immigration. But insofar as many people do have nationalist convictions, it’s worth noting that there’s a tradeoff between the nationalist impulse to seal the borders and the nationalist impulse to prolong the period of American hegemony.

Official Election Predictions Post

When all the votes are counted, I think there’ll be 232 House Republicans. They’ll be joined by 49 Senate Republicans, which is going to set off an interesting frenzy of efforts to entice Senators Nelson, Lieberman, Landrieu, and Pryor to switch parties but I forecast that coordination problems—only works if two jump—will frustrate Republicans. Meanwhile, egomaniacal senate moderates will be frustrated to discover that the legislative process now consists primarily of negotiations between Barack Obama and the House GOP.

This reversion to a balance of political power that leaves Democrats in a stronger position than they were as recently as the 2005-2008 period will be treated by the press as a world-historical shift in favor of the right. Most press figures will probably explicitly note that election results are invariably over-interpreted and then proceed to over-interpret again, arguing that this time it’s different.

Interestingly, changes in state legislature turn out to be highly correlated with House outcomes so the GOP will get a big upper hand in the redistricting process.

Endgame

You are never there:

— I bought a LivingSocial deal for Indique and will benefit if I can persuade you to click the link and do the same.

— You’ll have to await tomorrow for my Official Election Predictions.

— Ben Bernanke could fix the economy pretty quickly.

— All about FreedomWorks.

— Height, health, and IQ.

— Pundit bingo.

— Have presidential administrations gotten too unwieldy?

La Sera, “Never Come Around”

Congress and Subprime Lending

Hot off the presses is the first effort I’ve seen at a systematic examination of the political economy of subprime lending:

At the peak of the recent housing boom, subprime mortgage companies were loaning $600 billion per year to homebuyers with poor credit histories. In The Political Economy of the Subprime Mortgage Credit Expansion (NBER Working Paper No.16107), co-authors Atif Mian, Amir Sufi, and Francesco Trebbi explore the links between the rapid growth of the subprime industry and Congressional politics and policy. Focusing on the period between 2002 and 2007, they document a sharp increase in campaign contributions and lobbying activity by the mortgage industry. Using data from the Center for Responsive Politics, the researchers find that the industry’s campaign contributions increased somewhat between 1998 and 2002. But they began to accelerate rapidly in 2002, and rose by 80 percent between 2002 and 2006. Moreover, the study finds that these contributions were targeted to members of Congress whose districts included a large fraction of subprime borrowers.

The researchers study legislators’ votes on more than 700 bills that related to housing — specifically, bills tagged by the Congressional Research Service as related to “affordable housing,” “home ownership,” and “subprime.” They find that over time, campaign contributions became a stronger predictor of representatives’ voting. Similarly, the fraction of a legislator’s district that consisted of subprime borrowers – as measured by consumer credit scores from Equifax – also became a more powerful explanation of voting patterns over time. The correlation between the concentration of subprime borrowers and voting patterns was greater in 2004, when subprime credit was beginning to flow, than in 1996, when subprime mortgages were still a small share of the overall mortgage market.

A lot of commentary I’ve read on the crisis seems to me to overlook this kind of issue. Tough regulatory action against an asset bubble is always going to be extremely difficult politically because the bubble has very concrete stakeholders. Imagine how legislators of both parties from Nevada and Florida would have screamed if the Bush administration had tried to crack down in a serious way.

The Conservative Establishment’s Addiction to Tactics

Mike Allen and Jim Vandehei have a piece about the conservative elite’s massive anxiety over Sarah Palin:

Many of these establishment figures argue in not-for-attribution comments that Palin’s nomination would ensure President Barack Obama’s reelection, as the deficiencies that marked her 2008 debut as a vice presidential nominee — an intensely polarizing political style and often halting and superficial answers when pressed on policy — have shown little sign of abating in the past two years.

“There is a determined, focused establishment effort … to find a candidate we can coalesce around who can beat Sarah Palin,” said one prominent and longtime Washington Republican. “We believe she could get the nomination, but Barack Obama would crush her.”

Like Jamelle Bouie, I find these arguments to be not all that convincing. John McCain was a widely admired war hero with a reputation for moderation who had favorable ratings well over 50 percent on Election Day and he lost to a first-term senator with a black nationalist spiritual mentor. Palin isn’t the most formidable candidate out there, and in a very close election her flaws could easily deny the GOP the White House. And very close elections do happen—think how important the 2000 presidential election was in retrospect. But most elections aren’t that close, and if the fundamentals are strongly against Obama—which they may be—Palin will beat him.

I think the dirty secret of conservative Palin skeptics is that they think Sarah Palin would be a bad president. A little while back, Dave Weigel did a good article about conservative reformers whose books about the GOP’s need to moderate are now looking bad in light of the way Republicans are roaring back in the midterms. It made me think that the real issue here, similarly, is that these authors actually think Bush-era policies were bad for America and more moderate ones would be better.

Ever since I read it, I’ve been fascinated by the line in National Review’s endorsement of Mitt Romney which said “Our guiding principle has always been to select the most conservative viable candidate.”

I wouldn’t deny that progressives are prone to a certain amount of tribalism in our internal deliberations, but that kind of explicit ideological maximalism closes off debates on the merits in a weird kind of way. And not only do you see much more ideological maximalism in conservative media, but conservative media is a much more influential force than progressive media. This makes it extremely difficult for arguments on the merits to get off the ground which, in turn, makes it hard to mount persuasive arguments against candidates who you think may be wrong on the merits.

Doing My Part to Boost Voter Apathy

Will Wilkinson says these midterms don’t matter very much, via a broader argument which says that elections in general don’t matter as much as people say. Ross Douthat says he doesn’t agree with all of it but that “it’s still a useful corrective to the vast effort currently underway to persuade you that this election (like the election before it, and the election before that) is a world-historical hinge moment, and that nothing in American life matters more than how many seats the Republicans gain or don’t gain next Tuesday.”

I agree with both of them, but that still leaves open the question of how important is the election compared to other elections. The 2008 elections led, after all, to a very important piece of health care legislation that’s not going to be repealed during the 112th congress. In other words, even after the soon-to-come revival of conservative political fortunes the health policy status quo is going to settle well to the left of where it was before the election. And it seems overwhelmingly likely to me that had Kay Hagan and Al Franken not won their close elections in North Carolina and Minnesota that the Affordable Care Act never would have passed. So as far as elections go, that’s a pretty big deal.

By contrast, looking ahead even if the Democrats defy expectations and eke out a narrow House majority they’re not going to turn around and pass a cap-and-trade bill. And if Republicans defy expectations and pick up 65 House seats instead of 55 House seats, that’s not going to conjure up the votes to scrap the minimum wage. In any remotely plausible range of outcomes, we’ll be looking at an era where either nothing happens or else compromises are reached between the party leaders. The precise numbers matter of course, but they don’t matter nearly as much as they did in the current congress where a couple Democratic “reach” wins in Senate elections transformed the situation.

Is It Hard to Create Inflation Expectations?

Paul Krugman says he “very much agree[s] with the notion that central banks can gain traction, even in a liquidity trap, if they can credibly promise future inflation — that was the whole moral of my 1998 paper.”

That paper is the lynchpin of my understanding of this issue as well, but Krugman seems very skeptical in practice that monetary action will deliver the goods:

But in the 30s, we were mainly talking about ending expectations of deflation, or at most creating expectations of a rise in the price level to where it was before the Depression; remember that even in 1938, prices were well below 1929 levels:

That’s very different from trying to create expectations of inflation looking forward with no actual deflation in our past.

It’s certainly different. But is it “very” different? It doesn’t seem all that different to me. Suppose the official Fed statement after the next meeting involves some QE and gives as the reason for it “the inflation rate is too low, we believe this round of QE will produce extra inflation and if it doesn’t we’re going to do more QE.” That would certainly lead me to expect more inflation.

It seems to me that the problem we face is much more that the median member of the FOMC is unlikely to agree to such a strong statement than that a strong statement wouldn’t work.