Category Archives: American Society

Annals of the Great Recession VII.

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All business decisions are bets on an unknowable future.[1] Faced with uncertainty about the future and the risk that some bets will go bad, businessmen have long sought to build in certainty through contracts and off-set possible losses through hedging. Commodities futures—promises to deliver a set amount and a set price at some future point—have been contracted for and traded for a long time. Commodities futures guarantee sellers a buyer and an income, while guaranteeing purchasers a product at a fixed price.

If uncertainty is one fixture of business, so is innovation. In the 1990s lenders developed a new form of betting on the future. Housing prices had risen steadily in the United States since the 1970s. Believing that housing prices were on a long-term or even permanent upward track, some lenders perceived mortgages issued today as a promise of secure returns tomorrow. Large numbers of newly-issued mortgages were bundled together into securities which were then sold to investors seeking the promise of above-market rates of return. In all lending there is the danger that the borrower cannot or will not repay the loan. The theory appears to have been that a few bad mortgages in any one bundle would not impair the value of all the other sound mortgages in the security.

Democrats wanted to bring these new financial instruments and markets under federal regulation in the same way that the Securities and Exchange Commission over-sees the stock market. Republicans defeated this effort. Indeed, Senator Phil Gramm pushed through a law which exempted such “financial derivatives” from federal regulation. Potentially, the derivative market had become the Wild West. On the other hand, it was a pretty small market in the later 1990s. What’s the worst that could happen?

The “dot.com boom” was one of the hall-marks of the late 1990s.[2] It turned out to be a bubble and the bubble popped in 2001. Then the 9/11 attacks administered a second shock to the system. Rather than put the United States through a financial crisis and recession, the Federal Reserve Bank pumped a lot of money into the economy and cut the short-term interest rate from 6.5 percent to 1 percent. Banks borrowed money cheaply, then re-lent it to others at a somewhat higher rate of interest. Pretty soon all the reasonable loans had been made, but there was still a lot of money to lend. What to do?

Make unreasonable loans, that’s what. Mathematical risk models for these loans, based on an extremely shallow historical record, predicted only a few defaults and constantly rising house prices. The usual standards for making a loan to someone were diluted. This allowed banks to lend to people and for purposes that normally would not have been acceptable. Some of it went to home loans that were labeled “sub-prime”; some of it went for auto loans, credit card debt, student loans, and commercial mortgages. In short, it financed a lot of consumption by ordinary Americans that otherwise would not have been possible.

So, the banks and non-bank financial institutions (mortgage originators) made all these loans. What to do with them? One answer would be “sit on them and collect the interest and principle until the loan is repaid, then make another loan.” Another answer would be “sell the loans (i.e. the right to be repaid by the original borrower) to investors looking for a steady income stream.” Mostly the banks chose the latter course. Selling the loans brought in cash immediately and earned fees for the banks. It transferred the assets to the “investors.”

[1] “Wall Street’s hidden time bombs,” The Week, 10 October 2008, p. 11.

[2] “The ‘toxic debt’ tsunami,” The Week, 20 March 2009, p. 13.

Recent American Public Opinion.

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Iran. In March 2015, 68 percent of Americans approved of negotiating with Iran over its nuclear program. Broadly, we can see the effects of the Iraq war on the public mind. Most people favored negotiations over the risk of war. What is remarkable is the degree to which the words and actions of leaders have had a disruptive effect in spite of this broad consensus.

First, Americans seem to have arrived at an “a plague on both your houses” attitude to the Obama-Netanyahu conflict. In March 2015, only 38 percent had a favorable view of Netanyahu, while 27 had an unfavorable view of the Israeli prime minister. In April 2015, only 37 percent approved of the Prime Minister’s handling of relations with the United States. However, only 38 percent approved of President Obama’s handling of relations with Israel.[1] In many eyes, it has begun to look like a personal dispute, rather than an affair of state.

Second, a sharp partisan division had begun to manifest itself in attitudes toward Netanyahu. In the March 2015 poll, 53 percent of Republicans had a favorable view of Netanyahu, while only 28 percent of Democrats had a favorable view. Doubtless, this division of views reflected the invitation to Netanyahu to address Congress that had been schemed-up by the Republican leadership and the Israeli ambassador, the former-American and former- Republican activist Ron Dermer. That isn’t the same as saying that American attitudes toward Israel itself have shifted dramatically. Yet.

Third, in March 2015, the Republicans pushed their luck by meddling with the negotiations with Iran.[2] Forty-seven Republican Senators sent a letter to the Iranians warning that an agreement that was only an “executive agreement” could be undone by a subsequent administration. Almost half of Americans (49 percent) disapproved of this action. The hyperventilation on the left about “treason” (cue Ricky Perry) was silly. However, a lot of Americans seem to take the same view as did Napoleon: “It was worse than a crime. It was a mistake.”

Energy. In March 2015, Pew Research surveyed Americans on their attitude toward energy and climate issues.[3] At this point, 81 percent favored government-imposed higher fuel-efficiency standards for vehicles and 64 percent favored tighter emissions limits on power plants. However, 59 percent favored building the Keystone XL pipeline. On the other hand, 31 percent opposed building the pipeline and 31 percent opposed tighter controls on emissions from power plants. On the subject of ranking the means to develop America’s energy resources, 60 percent assigned priority to alternative energy sources (wind, solar, hydrogen) and 30 percent assigned priority to exploring for and developing carbon sources (coal, oil, natural gas). At the same time, 56 percent favored more off-shore drilling for gas and oil, while 40 percent opposed it.

There is a lot of incoherence here. How to sort it out?

First, the opponents of the Keystone XL pipeline and the opponents of controls on power plant emissions represent the very large numbers of crazy people in American politics. Together they total 62 percent. Either the middle ground learns how to make deals or we’ve got problems.

Second, more carbon energy means more oil and gas, not more coal. The “war on coal” has already been won. Mitch McConnell just doesn’t know it.

Third, the President is pandering to his base in vetoing the Keystone pipeline.

[1] “Poll Watch,” The Week, 13 March 2015, p. 17; “Poll Watch,” The Week, 10 April 2015, p. 15. In the March poll a lucky 23 percent had never heard of the Israeli leader.

[2] “Poll Watch,” The Week, 27 March 2015, p. 17.

[3] “Voice of the People,” WSJ, 31 March 2015.

Long Term Trends 3.

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In 2010 and 2011, New York Times correspondent David Leonhardt turned to the problem of the long-term deficit.[1] In his analysis, that deficit arises from “the world’s highest health costs (by far), the world’s largest military (by far), a Social Security program built when most people died by 70—and to pay for it all, the lowest tax rates in decades.” By Leonhardt’s estimate, we will need about $500 billion a year in annual deficit reduction for the next decade. The money will have to come out of the three big spending categories and from more revenue.

The Medicare budget is the “linchpin of deficit reduction.”  Leonhardt recommended introducing incentives for people to choose cost-effective health-care. In practice, that will mean taxing employer-provided health-care benefits like the income they really are. The cost has risen massively since 1975. This encourages spending on health-care, rather than using the market to restrain price increases. Also, it is a benefit available only to people with employer-provided health-care. So, Americans get taxed differently for no good reason. This cost the government $264 billion in revenue in 2010. The federal tax subsidy created by sheltering them from taxes benefits drug makers, hospitals, and insurers.[2] He also wanted Medicare to refuse to pay for health care that cannot demonstrate that it makes people healthier.

Test social programs for actual effectiveness. Lots of them just exist, rather than achieving anything. Doubtless, many Republicans would say the same thing about the encrustations of regulations on business and industry that have grown up over the decades without ever being sunsetted.

Last, cut military spending by $100 billion a year to reverse the post-9/11 expansion.

Some leading conservatives—Mitch Daniels, Glen Hubbard, Gregory Mankiw–have endorsed means-testing Social Security and Medicare benefits. That is, shove more of the cost of their own care and retirement off on people who can afford to pay it.

Leonhardt also favored higher taxes on the middle and upper classes. The mortgage-interest deduction chiefly benefits people in the higher income brackets. Tax breaks for investors (IRA exclusion, $12.6 billion; lower tax rate for dividends, $31.1 billion; lower tax rate for capital gains, $36.3 billion; not taxing capital gains on items left to people in wills, $39.5 billion; and the 401(k) exclusion, $52.2 billion) total $171.70 billion in ‘lost” revenue.

Social Security and Medicare are essentially about paying for the past. (Often an improvident past.) Spending on education, research, and infrastructure are about paying for the future we desire. Leonhardt argues that we should actually be spending more on the future.

However, it isn’t clear that American democracy has the ability to confront powerful and well-entrenched interest groups. Reforming Medicare would involve taking money away from doctors, insurance companies, hospitals, pharmaceutical companies.  Stabilizing Social Security will involve raising the cap on withholding, so that upper income groups get gored and means-testing benefits at the cost of upper-income groups. Raising the taxes on the upper income groups to sustain benefits for lower income groups invited push-back in the past and will do so again. Cutting defense spending has never been as easy as increasing it, especially in the midst of dangers. The refusal of Democrats to define “fair share” makes rational discussion difficult.

Still, laying out the problems and some possible solutions makes it possible to think about the implications.

[1] David Leonhardt, “The Deficit: Real vs. Imagined,” NYT, 22 June 2011.

[2] David Leonhardt, “Health care’s obstacle: no will to cut,” by NYT, 10 March 2010; David Leonhardt, “The 3 Biggest Tax Breaks—and What They Cost Us,” NYT Magazine, 17 April 2011.

Annals of the Great Recession VI.

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The “Great Recession” led to much head-scratching. How could this disaster have come about? Who or what was responsible? How should we proceed going forward. Many books have poured forth in an attempt to answer these questions. Four of them take a critical look at the the materialism that drives modern life. The books raise more questions than they answer. The questions are worth some thought.

People used to live with scarcity we can’t imagine.  They had to work very hard just to have enough to survive on.  Then industrialization and the agricultural revolution created abundance.  People had to work very hard to have enough, then later to have a lot of stuff.  Now people ask what to do with this abundance.  Consideration of this question can lead people into areas that will be unfamiliar to most people.

The philosopher Michael Sandel argues that people start to think of money as the solution to everything, instead of just as a situationally-appropriate tool.[1]  Moreover, “the more things that money can buy, the more the lack of it hurts.”  Economic inequality leads to experiential inequality.

The writers Robert and Edward Skidelsky identify certain “basic goods”: health, security, respect, “personality,” harmony with nature, and leisure.[2]  How much is “enough”?  Should people continue to produce and consume ever more?  What do people get out of having more stuff or more activities?  Should they make do with less to have more time?  What would they do with more time?   Among their solutions: tax consumption, not income; tax spending on advertising.  What if the prescription for the good life offered by the Skidelskys conflicts with what most people want?

Luigi Zingales argues that Americans used to think that capitalism was a “fair enough” system, even if it wasn’t perfectly fair.[3]  The economist Alan Meltzer argues that Capitalism is the only system that produces freedom and prosperity.[4]  It makes no claim to produce virtue or stability.  This means that freedom and prosperity have an ugly reverse face.  However, “corruption, fraud, and greed” are common in all other systems, and less likely to be corrected than under capitalism.  What concerns Meltzer and Zingales is the government response.

American government tends to provide benefits to selected businesses without thinking about actually helping society as a whole.  For example, the mortgage interest deduction helps the construction industry, but amounts to a tax on renting that makes it less reasonable. Similarly, subsidies for ethanol amount to a tax on regular gasoline.  Zingales thinks that both education and health-care are “protected” industries.  They need to be exposed to competition.

It also tries to control the flaws.  Very often these efforts at “reform” miscarry.  For example, government seeks to correct for inequality of result by means of paying benefits funded by debt (the obligation of future generations to pay for benefits enjoyed by the present generation) or by regulatory systems that favor present established interests over newcomers.

Similarly, people who behave immorally need to be publically shamed even when they cannot be prosecuted. Bankers have taken their share of this, but someone needs to go after the “jingle-mail” borrowers.  They decided “enough is enough” and abandoned their obligations and assets. Probably not the answer the Skidelskys and Sandel had in mind.

[1] Michael Sandel, What Money Can’t Buy: The Moral Limits of Markets (2012).

[2] Robert Skidelsky and Edward Skidelsky, How Much Is Enough?  Money and the Good Life (2012).

[3] Luigi Zingales, A Capitalism for the People: Recapturing the Lost Genius of American Prosperity (2012).

[4] Alan Meltzer, Why Capitalism?  (2012). A

Which Sides Are You On?

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Americans are ambivalent about public unions.  In early industrial capitalism, all the power lay with employers. There were always more people seeking work than there were jobs, while state and local governments were there for the buying. As a result, wages were low, hours were long, working conditions were abominable, and job security was non-existent. Only unions offered any chance at improving the lives of workers. Union-organizing, however, proved to be hard and dangerous work. Employers resisted with every means possible and often did not stop at the edge of legality. Moreover, the very idea of a union clashed with the individualistic values upheld by most Americans. Only with the Depression and the New Deal did mass unionization sweep over heavy industry.

Public-sector unionization did not amount to much for a very long time. For one thing, the large American state is a fairly recent creation. More importantly, most people distinguished between public and private unions. On the one hand, public employment seemed far more secure than did private sector work and often seemed subject to various kinds of patronage. On the other hand, government provided services for which there was no alternative. While breaking a police strike in Boston, Calvin Coolidge declared that “there is no right to strike against the public safety.” Most people agreed with the sentiment for half a century. However, in 1962 President John Kennedy issued an executive order allowing many federal employees to unionize. The movement then spread to the state and local levels. Membership in public-sector unions now outnumbers membership in private-sector unions. Because the courts have upheld the right of unions to collect dues from all members, unions have deep pockets for political action.[1]

Amity Shlaes argues that there is an important emotional component to public attitudes toward unions. People have a positive view of Franklin D. Roosevelt and Roosevelt’s New Deal promoted mass unionization. Most people wouldn’t run into a burning building, or pull over a car on a dark night, or try to wrangle a room full of 14 year-olds, so they admire those who will do those things. So, public sector unions are approved on an emotional level. [2]

While the national media are interested in labor’s role in national politics, the unions actually focus most of their efforts lower down the food-chain. Local government elections often run in the “off” years between national elections. Turn-out is about a third lower in the local elections. When unions can turn out voters and supply campaign funds, they can have a disproportionate impact on the governments with which unions will then negotiate contracts.

Since they depend on union support in elections, Democrats tend to fold up under pressure. Since Americans don’t want to pay more taxes, local governments find their way out of the immediate dilemma by granting generous pension benefits that someone else in the years ahead with have to figure out how to pay. We can see the consequences in the balance sheets of some American cities. Dallas, a non-union town if ever I saw one, pays $74 a ton for garbage collection and disposal. Chicago, the union-city par excellence now that Detroit has cratered, pays $231 a ton. Speaking of Detroit, in 2013 the city sank under more than $18 billion in long-term debt. Half of that debt was for pension and health-care benefits for employees that could not be supported from the shrinking tax base.

Exasperated Republicans just want to cut government services to get rid of the burden of the unions. It’s difficult to see this as anything except a different kind of “strike against the public safety.” As with many things in contemporary America, some fresh thinking is needed.

[1] Daniel DiSalvo, Government Against Itself: Public Union Power and Its Consequences (2015).

[2] Her own sentimental attachments lie elsewhere. See: Amity Schlaes, Coolidge (2013).

Inequality 4.

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By and large, in recent years the upper income groups have collected most of the profits from economic growth while everyone else has lived with stagnant incomes. How much effect in monetary terms has that monopolization of growth had? According to one calculation, if the top one-percent still received the same share of income that they received in 1979, then every other family could have received a cheque for $7,105.[1]

However, compare this with another form of inequality. If incomes have stagnated for most people, so has educational attainment.          In 1900, about 11 percent of Americans aged 14 to 17 attended high school. By 1950, 75 percent of that age group attended high school. That was about double the European rate. The G.I. Bill (1944) carried the American lead forward into college education by financing college education for veterans (among other things). Then something started to go wrong in the 1970s. Male graduation rates for four-year colleges began to decline. Essentially, women have taken up the slack in educational attainment. Unfortunately, this coincided with the decline in heavy industry that paid good wages for people without a college education.

The educational differential both is and isn’t generational. Of Americans born between 1950 and 1959, 42 percent have a college degree. Of Americans born between 1980 and 1989, 44 percent have a college degree. However, only 30 percent of Americans reach a higher level of education than did their parents. Among 25-34 year-olds, 20 percent of men and 27 percent of women have made the big jump from parents who didn’t finish high school to having a college degree.

The differential is linked to social class. From the mid-1970s and the mid-1990s, college graduation rates for those in the top 25 percent of income groups rose from 36 percent to 54 percent; rates for those in the bottom 25 percent rose only from 5 percent to 9 percent. Between the early 1980s and the early 2000s, college attendance rates for people from the top 25 percent of income groups rose to be 15 to 25 percent higher than for those in the bottom 25 percent.

Why do these figures matter? They matter because, on average, Americans with a college degree are paid 74 percent more than those with only a high school degree. Between 1979 and 2012, the difference between the incomes of families headed by college graduates and families headed by high-school graduates grew by $30,000.

Education isn’t working as a vehicle for social mobility. It is starting to do the opposite.

The causes of this stagnation are complex. For one thing, middle class students go to much better schools than do lower class students. The middle class students come out less unprepared for college than do lower class students, usually markedly less unprepared. For another thing, college costs more in the United States than it does most places, and cuts in already inadequate support for public colleges have thrown even more of a burden on families.

If you think that a BA or more makes for a highly skilled work force, then expanding the percentage of Americans who are college graduates is vital for improving the quality of the American work force. If you think that international competitiveness in a globalized economy is vital for American prosperity, then improving the quality of the American labor force is essential.

Which of these two forms of inequality is worse for the country? This isn’t an attempt to divert attention from one form of inequality on behalf of the “one-percent.” It is an effort to get people to pay attention to complex fundamental problems.

[1] Eduardo Porter, “”Equation Is Simple: Education = Income,” NYT, 11 September 2014.

Our Kids.

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A new book by the Harvard political scientist Robert D. Putnam has instantly attracted attention (and criticism from the left), so it will be much in the news for a while.[1] Combining research in the scholarly literature with many interviews, Putnam explores the disintegration of America into polarized communities of rich and poor that threaten to become hereditary castes.

Broadly, “rich” kids have parents who finished college; grow up in two-parent families; get a lot more attention from their parents while young; get better quality day-care when their mothers get fed up and go back to work; get dragged to church on Sunday[2]; attend better schools and have more access to developmental extra-curricular activities; eat dinner as a family; are much more likely than are “poor” kids to graduate from college (and to attend better colleges at that).

Broadly, “poor” kids have parents who went no farther than high school; “are increasingly entering the world as an unplanned surprise”; grow up in increasing numbers in broken homes; get about a third less time from their parent; get lower quality day care when their stressed-out mothers have to go back to work; skip church in favor of watching cartoons; don’t eat dinner as a family; are much less likely to attend college (and to attend lesser colleges when they go).

Jason DeParle concludes that Putnam’s “research is prodigious. His spirit is generous. His judgments are thoughtful and fair.”[3] Nevertheless, Putnam’s approach frustrates DeParle. “What [Putnam] omits… is a discussion of the political and economic forces driving the changes he laments.” Doing what Putnam left undone, DeParle argues that income inequality has grown “radically”; that the wealthy exert great influence in politics in defense of their interests; that inequality “gives those at the top [the power] to pull up the ladder”; and that Putnam “overlooks the extent to which it’s … a story about interests and power.” How can it be that, “though Putnam is a political scientist, his account is politics-free”? Doesn’t Putnam read the Times, where all of these things are high-lighted?

What DeParle fails to acknowledge is that some element of success or failure is volitional or behavioral. People drop out of high-school or out of community college; people don’t use contraceptives[4]; and people reject the life structures pursued by the successful. How is more progressive taxation or broader government programs going to counter these behaviors?

Tellingly (but perhaps without having thought through the implications), DeParle remarks that “for most [of the poor kids] the troubles seem to date back generations.” That is, long before economic inequality became a grave issue. Probably the same is true for most of the rich kids: the advantages date back generations.

Perhaps we need to ask follow-on questions. What changed to make long-standing individual failings and family dysfunction into a social disaster? What changed to make conventional bourgeois behavior into such a life advantage? Here we might look for answers in the long-term evolution of the American economy away from heavy industry and toward an economy that disproportionately rewards education. We might also look at the white flight from cities in response to both disorder and integration. Or we can stick with conspiracy theories.

[1] Robert D. Putnam, Our Kids: The American Dream in Crisis (New York: Simon and Schuster, 2015).

[2] Or to synagogue on Saturday, or to the mosque on Friday. Faith doesn’t matter. Apparently what matters is making your kids endure difficulty.

[3] Jason DeParle, “No Way Up,” NYT Book Review, 8 March 2015.

[4] $19.99 for a pack of 20 Durex at Walgreen, so don’t start with the cost of birth-control pills.

Koch Brothers.

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In 1967, Charles (b. 1935) and David (b. 1940) Koch took over the small-time, Kansas-based oil refinery company built from nothing by their father.[1] Since then they have massively expanded the company into a petroleum and related products industrial conglomerate. Each man is now estimated to be worth $42 billion. This gives them a lot of money to play with. Like a lot of other successful Americans, they decided to “give back” by donating to good causes.

What has caused controversy is that their idea of “good causes” isn’t the same as that of Bill and Melinda Gates.[2] The Koch brothers are libertarians who favor a smaller, less intrusive government. They favor legalizing gay marriage (where President Obama’s opinion has evolved to match their own long-standing position) and of marijuana (where President Obama’s position has not yet evolved). They also oppose a minimum wage law, food stamps, the Affordable Care Act (ACA), and environmental legislation. If they had a potato farm in Vermont and sent out a monthly Xeroxed newsletter, that would be OK. However, they are fabulously wealthy and have a range of contacts with other fabulously wealthy people who think in the same fashion. So they can raise a ton of money for campaign contributions and political advocacy. Their various funds supported “Tea Party” candidates in 2010, then spent $400 million on the 2012 election, about $300 million on the 2014 elections, and are hoping to spend about $889 million in 2016.

Nominally, Democrats are outraged because of the flaws that it reveals in American electoral law. Supreme Court decisions have gravely weakened efforts at campaign finance reform introduced back in the 1970s. The “Citizens United” case is a particular “bête noir.” The chief funding arm of the Koch brothers is “Freedom Partners.” Because it is classified as a social welfare organization engaged chiefly in education on public issues, the donors to “Freedom Partners” are allowed to remain anonymous.[3]

Is it permissible to wonder if the source of the Democrats rage—and the complacency of Republicans—is that the Koch brothers’ money is going to Republican candidates? Democrats don’t vocally complain about the money from George Soros or Tom Steyer that flows into the coffers of Democratic candidates or liberal causes. For example, Steyer donated $74 million to Democratic candidates who supported his environmental policies in the 2014 elections.

One puzzle about this spending is whether it actually has any impact. The electorate is pretty much as divided as it was for many decades before the appearance of the Koch brothers.[4] Over the last thirty years the successful presidential candidate has captured an average of 49.74 percent of the popular vote. The best any candidate has done was George H.W. Bush in 1988, who won 53.37 percent. So, at the presidential level, the Kochs seem to be spending an awful lot of money to move a small number of votes. Economists would question the efficiency of this expenditure. At least four of the last seven presidential elections have been won by Democrats.[5]

It is rare to encounter someone who says that “I was a Democrat until I saw those ads the Koch brothers were running.” People commit to political parties for complex reasons related to life experience, fundamental beliefs, and economic interests. Perhaps the Koch brothers’ money has its greatest impact on the bottom lines of media outlets and political consultancies.

[1] “The Koch brothers’ agenda,” The Week, 13 March 2015, p. 11.

[2] You never hear people getting furious about the Gates Foundation giving too much money to fighting malaria.

[3] Why individual voters should be allowed to remain anonymous behind the curtain of a voting booth, but campaign donors should be compelled to reveal themselves is a question not much addressed.

[4] See: http://en.wikipedia.org/wiki/List_of_United_States_presidential_elections_by_popular_vote_margin

[5] There’s no point in going into the whole Gore v. Bush episode.

Future Election Demographics 2.

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This is tedious, but I wanted to know more about it. Back before the November 2014 “deluge,”[1] Nate Cohn foresaw the Republican avalanche and explained why it would happen.[2] The Democrats have won the majority of the popular vote in five of six presidential elections, so they represent the majority of Americans, right? Well, no.

Essentially, the Democrats have conquered the big cities.[3] The Republicans have conquered the outskirts of cities and the rural areas. Thus, big cities in “red” states vote “blue” and far-suburban and rural areas of “blue” states vote “red.” However, the urban voters also are irregular voters, while rural and exurban voters are regular voters. So there are two rival constituencies, one alternately larger and smaller; the other steady and strong.

Cohn argues that “more than ever, the kind of place where Americans live—metropolitan or rural—dictates their political views.” This is comforting to American liberals, who associate the people living outside the cities with the supporters of William Jennings Bryan in the Scopes “Monkey Trial.” (Awkwardly for this analysis, Bryan was a Democrat.) Obviously, the opposite might just as easily be true: that their political views determine where people live. Maybe, some people are fed up with all the negative factors that they associate with great cities and move elsewhere. Well before President Obama took office, traditionally Democratic voters in places like West Texas and West Virginia abandoned the presidential candidate over “social issues.” It isn’t just him. It’s the party.

The traditional Democratic strategy had been to win more than the cities. The party’s embrace of divisive social causes (gay marriage, abortion, gun control, expanded federal powers in many areas) undermined this strategy. President Obama won election in 2008 and 2012 by wagering on urban core populations. He expanded the Democratic vote in 68 urban areas that had gone for Al Gore in 2004, but didn’t dent the Republican vote anywhere else.[4] In the process of building his “Me-Me-Me” coalition of African-American and hipster voters, the President further alienated part of the old Democratic base.[5] In the future, the party will have to figure out whether it needs to walk back away from some of those positions or to just wait for a majority for voters to catch-up with them. (Growing Republican support for gay marriage and government action on climate change suggest that the latter might be the best approach.)

What works at the level of Presidential races isn’t going to work at the level of House races. At the level of the House of Representatives, two things are true. One is that Democrats have massive majorities in a relatively restricted number of urban Congressional districts. A second is that Republicans generally have narrow-to-solid majorities in a majority of Congressional districts. Thus, many of the votes in Democratic districts are “wasted” votes. In sum, the Republicans have a long-term grip on the majority in the House of Representatives.

Are Democratic policies in cities driving out Republicans to the suburbs and exurbs? Is any struggle within the Republican Party the real story in American politics? Is deadlock between legislature and executive the American fate in an age demanding decisions?

 

[1] See: http://en.wikipedia.org/wiki/Deluge_%28history%29 for the way that my Democratic friends and family think about it.

[2] Nate Cohn, “Why Democrats Can’t Win,” NYT, 7 September 2014.

[3] They have won the young and the racial minorities—African-Americans above all.

[4] For example, in 2012, President Obama won 52 percent of the vote in Pennsylvania, but only 28 percent of the Congressional districts; 52 percent of the vote in Virginia, but only 36 percent of the Congressional districts. .

[5] This isn’t the same as saying that he permanently alienated them from the Democratic Party.

Reponomics.

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To be fair (See: Demonomics), Josh Barro has savaged Republican tax plans in two recent “Upshot” pieces in recent days.[1] Since the Reagan years Republicans have been in thrall to “Supply Side Economics.” The doctrine behind tax cuts for high-income earners is that the untaxed income will flow to investment; investment leads to economic growth; and America needs both investment and growth. Democrats ridicule this as “trickle-down economics.”[2] Now, however, another school of thought has arisen among some Republican dissidents. They favor cutting taxes on the middle class. For example, some pushed for a substantial tax credit–$2,500—for each child long before President Obama discovered “middle class economics.” They also wanted to leave the top tax rate at 35 percent, and not cut the tax on capital gains.

Some Republican leaders have sought to paper over this feud by suggesting that both types of tax cuts be implemented. Not only would middle-class earners get their tax cut, but the taxes on capital gains and on dividend income would be cut to zero. Furthermore, the plan would offer corporations the option of having their profits taxed as if they are wages (at a lower rate than corporate profits).

Barro lashes this as the “Puppies and Rainbows Tax Plan.” He argues that the combined plan would cost at least $2.4 trillion in lost revenue over a decade.[3] If the Republicans can add the White House to their control of the Congress, they will find themselves responsible for controlling the deficit. Hence, they will have to settle for much smaller tax cuts than they currently envision. Moreover, they may have to choose between giving little dribs and drabs to both types of cuts or getting something noticeable for one type of cut. Which will they choose?

Then Barro found himself crossed by a report from the Tax Foundation that concluded that the combined tax cuts would stimulate so much investment that GDP would rise 15 percent and wages 13 percent over a decade. A wide range of economists quickly derided the forecasts. Barro argues that Republicans like economic analyses that predict high benefits from tax cuts. This matters, because the Congressional Budget Office has just adopted “dynamic scoring”[4] in estimating the impact of different budget plans. He is clearly worried that nonsensical assumptions about growth will be deployed to justify big tax cuts.

Barro comes across as a Democratic partisan, but he’s not alone in seeing the flaws in these plans.[5] A House Republican plan to eliminate deficits within a decade would allow an expansion of military spending beyond the levels set by the “sequester” under the guise of emergency war funds. (President Obama plans the same maneuver.) It also cuts a trillion dollars from entitlement programs (Medicare and Medicaid, Social Security) without specifying how—what with 24 Republican Senators up for re-election in 2016. It assumes a trillion dollars in revenues from taxes levied as part of the Affordable Care Act (ACA) even while proposing to repeal the ACA. Puppies and rainbows indeed.

[1] Josh Barro, “Something for Everyone In a Republican Tax Plan,” NYT, 12 March 2015; Josh Barro, “Under This Plan, Tax Cuts Still don’t Pay for Themselves,” NYT, 17 March 2015.

[2] Republican presidential candidate George H.W. Bush ridiculed it as “voodoo economics.” Bush didn’t inspire much enthusiasm among Republicans. He ended up as Reagan’s Vice President and one-term heir as President.

[3] Barro is silent on the cost in revenue from President Obama having fought hard to make 98 percent of the George W. Bush administration tax cuts permanent. On this score, as on many others, it’s like living during the Cheney Administration.

[4] Basically, assuming that tax cuts or increases will affect the growth rate of the economy. D’uh. Obviously they do. However, the essential question becomes how accurate is the model used to predict the effect.

[5] Nick Timiraos and Kristina Peterson, “House GOP Outlines Plan to End Deficits,” WSJ, 18 March 2015.