Ezra Klein

After coming out against the Affordable Care Act in the final stage of the debate, the health insurance industry backed more Republicans than Democrats this election cycle, betting they'd be better off under a GOP-led Congress. One conundrum is that health insurers strongly support the individual mandate to purchase insurance -- the provision that's become Public Enemy No. 1 for most conservatives who oppose "Obamacare." The industry has also declined to support the GOP's demand to repeal the law. But insurers are guessing -- rightly -- that repeal is exceedingly unlikely, and that it will be up to the courts, not Congress, to decide the fate of the individual mandate anyway. In the meantime, there are other ways the industry would like to gut the law, and they're trying to persuade Republicans -- and some moderate Democrats -- to join them. Politico's Pulse reports:

Insurance industry sources tell PULSE they are waiting for the post-election dust to settle before diving into two main issues: dialing back cuts to Medicare Advantage plans and attacking the $6.7 billion yearly premium tax set to take effect in 2014. The issues resonate with constituent groups that Democrats have arguably had the toughest time getting on board with reform: seniors and small business.

"I think when it becomes very clear to small business owners that they're going to have to pay more for their premiums that becomes a very serious issue," one insurance industry source tells PULSE of soon-to-come efforts to push back against the health premium tax, expected to hit small group plans the hardest.

If you're looking for quick and simple argument for the defeat of Proposition 19, California's ballot measure to legalize marijuana, probably the quickest and simplest one you'll find is that it was an initiative and most initiatives fail.

People tend to have a bias toward the status quo, meaning that initiative opponents tend to be more motivated to spend time and money than the supporters. What's more, voters in states that make frequent use of ballot initiatives — a friend of mine calls them "extreme democracy" states — tend to be cynical about supporters' motives. Perhaps the best illustration of this phenomenon is in Washington state (another "extreme democracy" state), where I-1098, which would help close the budget gap by raising taxes on income earned in excess of $200,000 per year, and I-1105, which would have cut the state's liquor tax and privatized sales, both failed on the same day.

The composition of the electorate matters as well. As Matt Yglesias observes, Prop 19 failed to lift youth turnout, but might have passed in an election year. But the basic fact of the matter is that "more of the same" is good enough for voters more often than not

(cc photo by Flickr user Troy Holden) 

Nicholas Beaudrot is the joint author of Donkeylicious, along with Neil Sinhababu.

Wiki Commons

A number of economists are concerned that the Federal Reserve can't on its own stimulate demand. I am skeptical here, but with unemployment holding steady at 10 percent I am more than willing to consider alternate strategies.

The most straightforward would be what economists nicknamed the Helicopter Drop. At its core this means that Federal Reserve would print money and the IRS would mail that money to people as checks. It would be as if we dropped money on the nation from helicopters.

In practice, this would likely function through a payroll tax cut funded by issuing long-term bonds that are then bought up by the Federal Reserve.

Most people pushing back against this idea seem to be worried about the long-term solvency of Social Security and that cutting payroll taxes would gouge the Trust Funds assets. At its heart this is an accounting issue that I don't think anyone should be concerned about, but if you are, there is a simple solution: the payroll tax credit.

Under this plan you continue to pay your payroll taxes, yet you receive a tax credit exactly equal to your payroll tax contribution. As with the making-work-pay tax credit we'll reduce withholdings so that workers will see the benefits each week in their paychecks.

I'd be in favor of crediting both the worker portion and the business portion of the payroll tax because it would relieve strain on small businesses and simply pump more money into the economy. Yes, some of that money will wind up on the balance sheets of already cash-heavy corporations. However, a broad simple cut for all workers and businesses means that everyone who cash short gets relief and the government does not have to get into gory details of picking some businesses over others.

Larry Summers famously favored stimulus that was targeted temporary and timely. I favor that which is simple, bold and clear.

Karl Smith is an assistant professor of economics and government at the University of North Carolina and a blogger at ModeledBehavior.com.

Felix Salmon suggests that QE2 is a give away to big banks.

The people selling Treasury bonds to the Fed, then, are big banks, who are told in advance exactly how many Treasury bonds the Fed wants to buy. As a result, they’re likely to buy Treasuries ahead of the auction, with the intent of selling them to the Fed at a profit. This is pretty much what [Gawker’s John Cook] said would be going on, only they buy the bonds before the auction, rather than afterwards. Once the banks have made that profit, it’ll get paid out in bonuses to the people on the bank’s Treasury desk, with the rest going to their shareholders. We’re not exactly helping the unemployed here.

This isn’t exactly right. The winners – and there are specific winners from this type of policy – are the folks who were holding Treasury Bonds before the anyone realized that the Fed would do quantitative easing.

Felix is exactly right that big banks will go out and try to buy bonds ahead of time. This is why the interest rate on U.S. Treasury bonds started to fall even as rumors of QE2 started to circulate. However, just as banks have to compete to see who sells bonds to the Fed, they have to compete to see who buys them from their current owners.

This means that, as soon as anyone even thinks that there might be a round of quantitative easing, dealers from the big banks start placing orders for more bonds. Just like the stock market, this causes prices to start to rise, and anyone who has bought bonds in the past can now sell them at the higher price.

Thus contrary to Shahien Nasiripour's assertion, if you were a judicious saver and were buying Treasury bonds all along, then QE2 is good for you. The message behind it can be summed up as: Thanks for placing your savings with the U.S. government, now here’s a bonus if you will kindly stop. That is, savers make money from QE2 by selling their Treasury Bonds and either buying something nice for themselves or investing them in a more dynamic part of the economy.

This works because, as I mentioned before, a key feature of the crisis is not that people are afraid to lend money to the allegedly wild, out-of-control U.S. government, but that too many people are trying to lend money to the U.S. government.

Karl Smith is an assistant professor of economics and government at the University of North Carolina and a blogger at ModeledBehavior.com.

With President Obama and Secretary of Education Arne Duncan hinting that school reform could be the big bipartisan focus of 2011, it’s an exciting time to be an education writer. At Time, Andy Rotherham outlines why it could be difficult for Democrats and Republicans to work together on education nevertheless; in short, the standards and accountability movement that rose to prominence in the 1990s and coalesced around No Child Left Behind is under attack from both the conservative wing of the GOP and (to a lesser extent) the liberal wing of the Democratic Party, both of which are skeptical of standardized testing and top-down education mandates.

But that doesn’t mean there won’t be movement. For reasons I explain over at my blog, if an education policy compromise does emerge between the Obama administration and the John Boehner-led Republicans, it will probably be around merit pay for teachers. So it’s worth explaining what the trends are in merit pay and what the best social science research tells about the efficacy of the policy for raising student achievement.

What’s happening on merit pay for teachers? The Obama administration has offered states billions of federal stimulus dollars if they agree to change the way teachers are paid, evaluated and trained. Performance pay is a big part of that push, and states including Colorado, Louisiana and New York have responded by passing laws promising to tie teacher evaluation and pay to how well students perform academically.

Meanwhile, Washington’s outgoing schools chancellor, the (in)famous Michelle Rhee, last year instituted the nation’s most aggressive merit pay program to date, which uses private philanthropic funding to offer public school teachers achievement bonuses of up to $10,000 in exchange for weaker tenure protections. The teachers’ unions in Seattle, Pittsburgh, Denver and a number of other cities have also agreed to contracts that include some form of performance pay, a major break from the traditional lock-step salary ladder for teachers, based on degrees attained and years on the job.

How is teacher performance measured in these plans? This is undoubtedly the most controversial aspect of merit pay. Most of the new performance pay laws and union contracts measure “effectiveness,” at least in part, by looking at how well a teacher “grows” his or her students’ test scores from one year to the next. The best and fairest way to measure this growth is through a statistical tool called “value-added measurement,” which is championed by economists who study the teacher labor force. Value-added equations attempt to control for factors such as class size, years on the job, and students’ race and poverty while measuring how much of an impact teachers have on kids. (Click here to see a sample New York City value-added report.)

The BLS has reported its October job numbers this morning.

The good news:

• Private firms are hiring faster than expected. This month 159,000 new private-sector jobs were added. Early this week economists were estimating an increase of only 20,000 private sector jobs. A Wednesday report from paycheck and payroll services firm, Automatic Data Processing, estimated an increase of only 43,000. This beats all those numbers.
• Retail firms added 24,000 workers even after adjusting for the usual winter shopper increase. This is sign that they expect consumer spending to be relatively strong.
• August was revised up from a loss of 57,000 jobs to flat. September was revised up from a loss of 95,000 jobs to a loss of only 41,000.

The bad news

• Manufacturing registered a slight loss of 7,000 jobs and has been essentially flat for months
• The unemployment rate held steady at 9.6 percent. This might strike you as a neutral finding, but the longer unemployment is elevated, the harder it will be to bring down.

Imagine having a fever so bad that it permanently raised your body temperature. Now think of the current unemployment crisis, with new numbers being announced today of a steady 9.6 percent unemployment rate, functioning at the same way.

Thinking in terms of "natural" is very, well, natural to us. Some think we are hard-wired for it.   And it is a useful concept in many ways. Our body has a natural body temperature. We get shocked by disease and sickness. This raises our body temperature, but eventually we'll heal and our temperature will go back to the "natural" rate.

This type of thinking piggybacks onto our thinking about unemployment. It is standard that economists now believe there is a "natural" rate of unemployment. Our economy takes a shock from a financial crisis, a shift in demand, etc., and the unemployment rate rises. But eventually we'll heal and our unemployment will go back to the "natural" rate.

But what if it doesn't? What if periods of high unemployment scar the economy in such a way that it raises the permanent unemployment rate? What if periods of high unemployment lead to reduced wages and higher unemployment years down the line? This is what is known as hysteresis. (Ezra has written about hysteresis here.)

Let's discuss two different policy designs for how to fight the worst parts of the ongoing foreclosure crisis, one successful and one not. We'll then discuss a great new report from the National Community Reinvestment Coalition that details many of the best local and state policy responses to the foreclosure crisis.

Los Angeles

The first comes from Los Angeles. Foreclosures are lose-lose-lose situations. They hurt lenders, borrowers and communities. The community losses are devastating; there are the well-documented spillover effects, where foreclosures drive down value of neighboring properties, forcing more properties deeper underwater, depressing economic activity. They also destroy municipality budgets. As an Urban Institute study, "The Impacts of Foreclosures on Families and Communities: A Primer" (May 2009), found, the costs can be high:

At $20,000 a pop, three vacant, unsecured and abandoned properties is the same as a teacher's salary. And that's even before we get to crime and the "broken-window" style disorder that waves of abandoned properties generate in a community. (If you haven't read it again recently or seen it at all, it may be a good time to re-read Alex Kotlowitz's New York Times magazine feature "All Boarded Up," a look at these foreclosure problems for Cleveland written in March of 2009. It could only have gotten worse.)

Given the high economic and social costs, the Los Angeles City Council, led by community activists including Alliance of Californians for
Community Empowerment and others, as well as city workers who are members of SEIU Local 721 and L.A. Council member Richard Alarcon, did the sensible economic thing: They proposed a tax on abandoned and unkempt properties.

Mitch McConnell says health-care reform repeal is impossible this Congress. (Reuters)

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Markets rallied in response to the Fed's plan to boost the economy, report Neil Irwin and Lori Montgomery: "The Dow Jones industrial average was up nearly 2 percent, erasing the last of the breathtaking losses that followed the failure of the investment bank Lehman Brothers. ...The Fed's action in effect grants Congress carte blanche to cut taxes or raise spending significantly without worrying about the impact of higher budget deficits on the economy. Deficit spending requires the government to borrow heavily, which in turn puts pressure on a broad range of interest rates. The central bank's bond purchases are designed specifically to lower interest rates, giving lawmakers the leeway they would need for fiscal stimulus."

Senate Minority Leader Mitch McConnell conceded that health-care reform repeal is impossible this Congress, reports Scott Wong: "'We may not be able to bring about straight repeal in the next two years, and we may not win every vote against targeted provisions, even though we should have bipartisan support for some,' McConnell said during a Thursday speech at the Heritage Foundation. 'But we can compel administration officials to attempt to defend this indefensible health spending bill and other costly, government-driven measures, like the stimulus and financial reform.'"

Obama will host negotiations with congressional Republicans on extending the Bush tax cuts, report Anne Kornblut and Perry Bacon: "The Nov. 18 meeting will focus on economic concerns, particularly the tax cuts passed in 2001 and 2003 that are due to expire at year's end, as well as on nuclear nonproliferation, Obama told reporters at the end of a Cabinet meeting Thursday. ... At the same time, party leaders acknowledged that voters had not handed the GOP a mandate for its ideas Tuesday and that Obama would serve as a check on the Republicans' power. 'By their own admission, leaders of the Republican Revolution of 1994 think their greatest mistake was overlooking the power of the veto,' McConnell said."

Ska cover interlude: M.I.A. and the Specials play "It Takes a Muscle" on "Later with Jools Holland."

Still to come: Emerging economies oppose the Fed's plan; Obama will press forward with regulation to combat climate change; Pelosi is considering a run for House minority leader; and Voldemort and his Death Eaters descend on Grand Central Station.

The historian James Kloppenberg's "Reading Obama" -- an "intellectual biography" chronicling philosophical and legal theories that have influenced Obama -- is near the top of my current reading list, but I was a bit thrown off by Peter Berkowitz's review of it in the Wall Street Journal today. Berkowitz argues Kloppenberg's book fails to shed much light on Obama's current decision-making, which is fair enough. Which legislative initiatives Obama decides to promote probably has much more to do with the party composition of the Senate than with his views on Hilary Putnam. But Berkowitz's complaint is different:

Theorists of deliberative democracy typically denigrate the messy give-and-take among actual flesh-and-blood citizens and dismiss it as the outcome of flawed procedures for conversation. They prefer the conclusions that derive from abstract and sometimes intricate theories. Meanwhile, in the guise of rejecting absolutes, the adherents of philosophical pragmatism absolutize partisan progressive goals and reconceive "moderation" as merely exercising patience and flexibility in the pursuit of progressive ends.

To read Mr. Obama accurately and to grasp fully the connection between his ideas and his politics, one must examine not merely the dreams and hopes that inspire deliberative democracy and philosophical pragmatism but also the intellectual vices that these doctrines foster and the illiberal and antidemocratic tendencies that they spawn. A lot of voters this week, intuitively, did grasp the connection. The problem goes beyond "marketing or P.R." to ideas.

Leaving aside Berkowitz's apparent confusion of philosophical pragmatism with being pragmatic in the normal sense of the term, this is a bizarre reading of Obama's governing method. Obama has hardly shied away from the "messy give-and-take" of politics. He cut a deal with pharmaceutical companies to get health care passed. He negotiated with car companies on emissions standards. Deliberative Democrats want to determine policy by having an open conversation where participants can agree on a solution without pressure from powerful interest groups, which necessarily entails trying to limit or end the influence of those groups. Obama, by contrast, has worked directly with interested parties and crafted policies that take their concerns into account. This is exactly what the community organizer Marshall Ganz attacked Obama for on Wednesday: working within the system rather than trying to transform it.

One can argue over whether Obama's approach was correct, or whether he should have tried to cut interest groups out of the process. I'm inclined to believe that passing health-care reform would have been next to impossible without the pharmaceutical industry's support, and that cutting emissions would be tougher without auto industry cooperation, but your mileage may vary. But Obama has repeatedly engaged in "messy give-and-take" politics, and faulting him for avoiding it is odd, to say the least.

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

National Republicans have already little chance a full repeal bill could pass the Senate, much less the president's desk, indicating that the proposal is simply be a symbolic gesture to appease the conservative base that put the GOP back in power. But there are other, more impactful ways in which Republicans can resist the Affordable Care Act -- and the results of Tuesday's midterms could strengthen their ability to do so, at least on the state level.

The federal health law leaves a lot up to state governments, as I've explained before. And the midterms handed Republicans many critical wins on the state level, giving the GOP the majority of governorships (more than 30, up from 22 in 2006) and flipping at least 19 state legislative chambers, among other coups. These GOP victories are likely to shape the way that such states fulfill their responsibilities to implement critical parts of the new law. In Iowa, for instance, Gov.-elect Terry Branstad campaigned on his opposition to the federal health law, protesting the impending Medicaid expansion and individual mandate to buy insurance. While the fate of provisions like the mandate will be left up to the courts, there are more immediate ways that state officials could weaken the law.

This post from Alison Schrager is beautiful in that its opening paragraph is so absolutely and perfectly wrong.

AMERICANS, to a large extent, have only themselves to blame for the state of the economy. They consumed a lot that they did not want to or could not pay for. Cheap capital from abroad and easy mortgages fueled veracious consumption habits. Americans can blame China or Wall Street for offering loose credit in the first place. But in the end they, too, played a role. If anything undermines America’s economic future, it is the belief that its residents are entitled to more than they can afford.

There are few ways to explain this but perhaps this is the most clear and obvious: When people try to buy too much the market responds by raising prices and forcing them to buy less. There are various prices that are relevant in Schrager’s analysis: mortgage rates, the consumer price index, the price of imports and conversely the value of the dollar.

At the peak of this crisis, every single one of those prices was falling. Mortgage rates were falling. Government interest rates were falling. Foreigners were desperate to lend us more money, not less. The dollar was rising and hence our foreign purchasing power was increasing. The consumer price index was declining, not spiraling out of control.

Most importantly, American-made goods were piling up in warehouses and on car lots. We were producing more than people were willing to buy. Could we really be living beyond our means when our factories were pumping out more cars than we were taking home? Were we living beyond our means when our construction workers were building more houses than we were living in?

How can you be over-consuming when people are being laid off because there is so much stuff sitting around that no one is going to consume? In short, over-consuming should mean that we run out of stuff, not that we have too much.

The confusion arises because Shrager is thinking in terms of money. For a household, the amount of money it takes in is a fair proxy for how much it produces, and the amount of money it lays out it is a fair proxy for how much it consumes. Thus a shortage of money means that you have consumed more than you produced.

Countries, however, don’t work this way.

In a country, when one person spends money, another person receives it. In a country, when one person borrows, another person lends. In a country, when one person consumes, another person produces.

The observation that we “ran out” of money is correct. However, for a country, that means that the central bank – in our case the Federal Reserve -- isn’t printing enough. Once we realize that, the circle squares.

Now, it should make sense that inflation would fall, because inflation rises when the Federal Reserve prints a lot of money. It should also make sense that the dollar would rise, because the dollar falls when the Federal Reserve prints a lot of money.

A lack of money was the problem, but for a country, that doesn’t mean overspending, it means underprinting.

Note, I am not suggesting that the Federal Reserve actively caused the crisis. In a later post, hopefully, I can get to how the banking system creates private money and how a collapse of some major banks meant that hundreds of billions of dollars in privately created money was destroyed in a matter of weeks.

Karl Smith is an assistant professor of economics and government at the University of North Carolina and a blogger at ModeledBehavior.com.

Hello, Kleiniacs! I'm an accidental political observer who's still doing penance for not voting in 2000. Since I have a head for numbers, my point of entry into the political arena is usually through polls and results; when I started paying attention in 2003, it seemed more socially useful than baseball. Longtime Ezra readers may remember me as part of his weekend guest-blogging crew in the 2005-07 era. Visual learners may be interested in a series of maps I made during the 2008 presidential primaries. I hope to produce more cartographic wonders, ideally relating to more recent elections, during my time here.

With introductions out of the way, let's start with a quick discussion of the regional differences in voter preference that we saw in the midterm elections. One of the more striking aspects of Democratic House losses Tuesday was the number of Midwestern seats that changed hands. Republicans picked up at least 16 seats in the South, plus several more in Appalachian districts in such areas as Ohio, West Virginia and central Pennsylvania, where Barack Obama has never been popular. Those losses are almost expected. Democratic congressmen such as Gene Taylor (Miss.) and Bart Gordon (Tenn.) were able to survive Obama's candidacy, but not the reality of his presidency. Indeed, several of them saw the writing on the wall and retired. House members in Dixie and Appalachia were victims of what you might call "Barry Goldwater's Revenge".

While everyone is busy arguing over whether Republicans won bigger in the House because of health-care reform, arguably the most consequential race in the country for health issues has finally been called. John Kitzhaber (D), who was governor of Oregon from 1994 to 2002, has been elected to a third term in that office.

Kitzhaber, a former ER doctor, was best known during his previous terms as governor and during his time in the state senate for helping create the Oregon Health Plan (OHP), which was among the first state attempts to experiment with federal Medicaid money to provide broader care. Rather than set up a traditional Medicaid program, OHP aimed to provide fewer, higher-value services to more residents. The system worked well at first, cutting the uninsurance rate from 18 percent in 1992 to 11 percent in 1996, but then started to unravel when an expanded version was passed in Kitzhaber's last year in office.

Kitzhaber then spent the next few years touting this model, saying that national health reform shouldn't focus on insurance reforms but on providing a core package of benefits to as many people as possible. He was supportive of health-care reform in 2009 but has been clear this cycle that he doesn't think it goes far enough.

All of which is to say that I'd bet on Kitzhaber applying for a Waiver for State Innovation under health-care reform. He clearly thinks he can do better than the federal model, and the Affordable Care Act gives him the opportunity to take billions in federal money and craft the system he wants with it. Interestingly, the provision allowing state waivers was written by Oregon Sen. Ron Wyden (D), who might have had exactly this situation in mind.

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

Before the election, Paul Krugman suggested that a GOP victory would spell disaster for the economy.

But we won’t get those policies if Republicans control the House. In fact, if they get their way, we’ll get the worst of both worlds: They’ll refuse to do anything to boost the economy now, claiming to be worried about the deficit, while simultaneously increasing long-run deficits with irresponsible tax cuts -- cuts they have already announced won’t have to be offset with spending cuts.

So if the elections go as expected next week, here’s my advice: Be afraid. Be very afraid.

Paul is correct that the GOP is unlikely to go ahead with anything labeled spending. However, this need not imply that our economic destiny is bleak.

The primary cure for what ails the economy – what economists sometimes call the first-best – doesn’t come from Congress or the president. It comes from the Federal Reserve. The key to getting out of our current funk is for the Fed to promise higher inflation.

For a variety of reasons, I’ve argued that the Fed move to a permanently higher inflation target, something in the range of 4 percent -- a smidge above the inflation rate we had during the Clinton administration. There are many reasons for this. It would serve as a buffer against future economic crises, and because of the relationship between inflation and mortgage rates, it would mean that homeowners would naturally grow into their monthly payments and the inflation-adjusted principle on home loans would decline over time.

A few weeks ago, a friend returned to New York City from a visit to her family in suburban Ohio with the following query: “Why do people hate Nancy Pelosi so much?”

It’s a good question. By any measure, Pelosi has been one of the most effective House speakers in American history, especially given her relatively short tenure. At Salon, Steve Kornacki offers a helpful recollection of her many accomplishments, from health care to student loan reform to the credit card bill of rights to cap and trade. Pelosi consistently delivered legislation that became law, as well as legislation that the Senate then stalled on and failed to pass. As Kornacki writes, Pelosi is unpopular less because of what the House has done or failed to do — most Americans have little idea of those particulars — but because the economy is bad and voters wanted someone to blame.

But there’s another factor that makes Pelosi that much easier to scapegoat: She is a woman — the highest-ranked woman ever to hold elective office in the United States. In January 2007, Pelosi gaveled in her first legislative session as speaker while cradling her newborn grandson (one of seven grandchildren) and surrounded by other legislators’ offspring, whom she had invited to the dais to celebrate. She spoke about her own journey from “kitchen to Congress” and promised that the Democratic Party would govern on behalf of children, and their mothers, too — a vow she fulfilled by collecting the votes to pass the State Children’s Health Insurance Program, which insures 11 million kids, and the Lily Ledbetter Act, which made it easier for victims of gender- and race-based pay discrimination to file civil rights complaints and collect back pay.

Ben Bernanke's Federal Reserve will inject $600 billion into the economy. (Getty Images)

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The Fed will buy $600 billion worth of new assets to speed up the economic recovery, reports Neil Irwin: "Fed officials concluded that growth is too slow to bring down the 9.6 percent unemployment rate and is at risk of staying that way for some time absent new action. They were also concerned that inflation has been running too low and were looking for a way to encourage modest price increases, which would give consumers and businesses more reason to spend money before its value declined and help energize the economy. ... The Fed plans to create money, essentially out of thin air, and then pump it into the economy by buying Treasury bonds on the open market. These purchases are to be finished by the end of June, the Fed said."

President Obama and Majority Leader Harry Reid expressed willingness to compromise with congressional Republicans on extending the Bush tax cuts, reports Lori Montgomery: "Lobbyists and other congressional analysts expect lawmakers to approve a quick-fix measure that would extend the most critical provisions -- including all the Bush-administration tax breaks for individuals -- at least through next year. ... Senate Majority Leader Harry M. Reid (D-Nev.) said he supports Obama's plan to let taxes rise for the wealthiest 2 percent of taxpayers, but 'I'm not bullheaded.' Republicans, for their part, say they have no incentive to compromise on the tax cuts, citing a mandate from voters to keep taxes low."

Obama's post-election speech offered clues as to how he'll seek to cut the deficit, reports Damian Paletta: "He said, though, that he wouldn’t allow reductions in the deficit to mean 'cutting into education, that is going to help define whether or not we can compete around the world.' He also signaled that he would protect spending as it related to research and development. 'In these budget discussions the key is to be able to distinguish between stuff that isn’t adding to our growth, isn’t an investment in our future, and those things that are absolutely necessary for us to be able to increase job growth in the future, as well.'"

D.C. indie interlude: Ted Leo/Pharmacists play "Biomusicology" live.

Still to come: The new House financial services chair is already lobbying regulators; cap and trade supporters took a beating Tuesday; state insurance commissioner elections could affect health-care reform's implementation; and every time Don Draper has ever asked, "What?"

I'm off for a bit. The timing is a tad inconvenient, with the election just finished and the Federal Reserve announcing $600 billion in quantitative easing, but I've got two good reasons: First, a reservation at El Bulli. You go when they say you can go. Second, Annie Lowrey has kindly agreed to marry me, and that seems worth taking a few days off to celebrate, lest she rethink her decision.

While I'm gone, you'll be in the capable hands of The Washington Post's Dylan Matthews, Mother Jones' Suzy Khimm, the Roosevelt Institute's Mike Konczal, Columbia's Dana Goldstein, Modeled Behavior's Karl Smith, and electoral-map genius and blogger Nick Beaudrot. I'll also be blogging from abroad, though probably not until early next week.

By the way, anyone got restaurant recommendations in Barcelona?

Kevin Drum suggests that Democrats performed even worse than the 45-seat loss the Hibbs model would have forecast on the basis of structural factors alone.

But the model I wrote about, which comes from Douglas Hibbs, only predicted a 45-seat loss, and it looks like Dems are likely to lose at least 60 seats. That means Democrats underperformed the Hibbs model by 15 seats or so, which is a record for them. ... They've underperformed by ten seats a couple of times in the postwar era, but never by more than that. So at the same time that it's correct to blame most of their losses on structural factors, it's also correct that this was something of a historically bad result.

However, this is the wrong way to interpret those results. The model was estimated using all elections until this one. By design, the computer tries to come up with an equation that gives the least possible error in all previous years. The question is: If we rerun the model using the 2010 data, does 2010 still look like an outlier or will the model now simply predict that the economy was a bigger factor than it thought before?

Also, as a note, Hibbs uses real disposable income growth, which doesn't make as much sense to me as change in unemployment.

Karl Smith is an assistant professor of economics and government at the University of North Carolina and a blogger at ModeledBehavior.com.

Brad DeLong wonders if President Obama can discover some message discipline:

The message is PAYGO. Any proposal that does not pay for itself over the next ten years--any proposal projected to increase the debt relative to baseline as of 2020, and not to reduce the debt thereafter--gets vetoed.

Can he get on and stay on message?

I wouldn't run the argument the same way Matt Yglesias does, but I definitely think you'll see a more foreign-policy-focused White House over the next two years. In some ways, the domestic and economic focus that the financial crisis forced on the White House was a bit of a surprise, as Barack Obama's candidacy was powered by his foreign-policy convictions, and that's what he seemed most comfortable and enthusiastic about during the campaign.

So what's the affirmative agenda of the Republican majority in the House? Well, as Mark Schmitt writes, it's hard to say:

There have been three major Republican/conservative takeover elections in recent history: 1980, when Ronald Reagan carried 12 seats and control of the Senate; 1994, when Newt Gingrich's Republicans took both houses; and 2010. The first, while in many ways a reaction to the incompetent presidency of Jimmy Carter (a conservative Democrat whose flaws came to symbolize liberalism) unquestionably carried a mandate for conservatism. The second, 1994, was in many ways a reaction to congressional corruption, combined with a long-postponed rejection of Southern Democrats, but Gingrich and his allies took it very seriously -- perhaps too seriously -- as an ideological mandate.

This year, though, right-wingers barely even pretended to have a comparable program-cutting agenda. Their main talking point about health reform was that it would cut Medicare benefits. They railed about TARP and the auto bailout, but the former originated in the Bush administration, and they will not attempt to repeal it. They talked about creating jobs by reducing the deficit, which is economic nonsense. Moreover, not one of the policy plans the Republicans produced would reduce the deficit by a penny. Tea Partiers ranted about constitutional and economic schemes that they probably won't even introduce, much less pass.

Without enough votes to actually pass anything, the agenda is going to be to run the House in such a way that voters consider President Obama and the Democrats a failure in 2012. Or, as Mitch McConnell put it, "The single most important thing we want to achieve is for President Obama to be a one-term president."

How to have e-voting without fraud:

One of the GOP's pledges was that "we will require that every bill contain a citation of constitutional authority." The idea, I guess, is that the government should run more as the Founders envisioned it. But then you hear John Boehner saying this:

"While our new majority will serve as your voice in the people's House, we must remember it's the president who sets the agenda for our government."

I'd like Boehner to show us where in the Constitution it says that the president sets the agenda for the government.

Stan Collender games out the next few years:

1. Unless the White House is willing to capitulate completely, fiscal policy simply won't be available to deal with the economy.

2. We need to hope (prayers might also be useful) that the monetary policy options available to the Federal Reserve will be far more effective than many think they are going to be.

3. The biggest fights in Washington over the next two years will be over anything having budget implications. These are likely to be epic battles with religious fervor the likes of which haven't been seen in Washington since prohibition.

4. Multiple government shutdowns will be threatened; more than one is likely to occur.

5. It's not at all clear that financial markets have priced in the disruptions and extreme uncertainty that are about to occur.

I think #3 is wrong: I doubt any battles over the next few years will be vastly more bitter than health-care reform, say. As for #4, I think the chances of a government shutdown are a lot lower than they would've been if Republicans had taken the Senate, though obviously not zero. And I think #5 is all sorts of true.