Clive Crook

Returning from more than two weeks in China, I find I haven't missed much in Washington. A lot of budget-crisis commentary has flowed under the bridge since my previous post on that dismal subject, but I can't see much need to update it. China's problems include political paralysis of a certain kind--but nothing to compare with Washington's perpetual-crisis machine. A few of the people I met in Shanghai and Beijing asked me to explain what was going on. I tried to, as neutrally and dispassionately as I could, and they seemed to think I was exaggerating for comic effect. ("You mean they might really go over the cliff? And tell me again, what are they arguing about?") Not everybody in China sees the US as a rival whose economy has to be conquered for China to succeed, but those who do must find the news from the nation's capital encouraging.

It's a little over ten years since I was last in China and I wasn't prepared for what I saw. It's a world-historical transformation, unlike anything witnessed before. The most jarring thing is the contrast between the stunning pace of change in almost every realm--especially the economy, of course--and the continuity of the Communist Party's hold on power. That hold isn't much questioned. The space for debate about public policy has widened enormously, but challenging the Party directly remains out of bounds. That part didn't surprise me. What did was that the businessmen and academics I talked to didn't seem bowed or intimidated by the government's carefully calibrated repression--discussions felt free and unconstrained within the barely acknowledged limits. There was little sign of dissatisfaction with this settlement, as you might call it, much less anger.

Of course, if things start to go badly wrong in the economy, that will likely change.

I'll have more to say as my thoughts clear and the jet lag subsides. Meanwhile, I've written columns about US-China relations and prospects for the Chinese economy, if you're interested. In my first week away, I was with a small group of other journalists hosted by an outfit called the Committee of 100 (whose staff I thought did a fantastic job--many thanks). Brian Lehrer of WNYC was among them and he's hosting a blog-conversation, which I'm participating in.

I'll be traveling in China for the next two weeks. See you when I get back.

Here's my suggestion:

The two sides should agree at once to restore the pre-Bush tax rates for couples making more than $1 million a year -- pending a comprehensive tax reform that raises revenue mainly by capping deductions. Under this formula, each side gains something and loses something.

Democrats gain a more progressive tax code, but give ground on higher rates for couples making between $250,000 and $1 million. Republicans limit the scope of higher marginal rates and get the commitment to the base-broadening approach they say they favor, but concede higher rates right now for the very rich.

On public spending, neither side wants sequestration. The immediate fix is simply to lift the threat of it. The forward- looking commitment should abolish the recurring calamity of the debt-ceiling procedure -- and, ideally, set an adjustable cap on federal spending as a share of gross domestic product. What that number should be, how to adjust it according to demographic or other circumstances, and what to do if it's breached would have to be argued -- strenuously, no doubt -- next year.

The issue couldn't, and shouldn't, be settled once and for all. Mere convergence on the principle would be a notable, confidence-boosting achievement. In effect, it would be a promise to limit the scope of the fiscal wars -- a commitment to moderation.

The main thing is to avoid starting down the fiscal slope, and to do this in a way that persuades onlookers that the impasse really has been broken rather than just prolonged into the first part of next year. There's no time for a worked-out grand bargain before December 31 -- but there's time for an exchange of concessions that says a grand bargain is finally on the way. A temporary fix that allows both sides to say they haven't given ground falls short, because that's a commitment to more of the same.

The CRFB has some detailed analysis of the options for capping deductions: how to get more revenue and greater progressivity without raising rates. This should be part of the longer-term solution even if the details can't be settled in time for the short-term fix.

Could Obama agree to something less than restoring tax rates to their 2000 levels for incomes above $250,000, having promised so often not to give way on this again? Most of the country, I think, would be impressed if he did what I'm suggesting and proposed a higher threshold. And that would make it hard for the Republicans to say no. There must be a limit to how unreasonable they are willing to seem.

I'm unsure what the Democratic base would say, though. Some might declare victory; others might be inconsolable -- another humiliating and unnecessary climbdown. If I were Obama, I wouldn't care one way or the other. His days of needing those votes are over. In due course we'll see how much his election victory has weakened the GOP in Congress as compared with 2011-12, but it's not too soon to say this: Obama can disappoint the left of his party now as much as he likes.

Will Obama give way on taxes, or will the House GOP, or will neither? The president's press conference didn't shed much light. He seemed to signal both willingness and unwillingness to bend.

Spirit of compromise:

With respect to the tax rates, I -- I just want to emphasize, I am open to new ideas. If the Republican counterparts, or some Democrats, have a great idea for us to raise revenue, maintain progressivity, make sure the middle class isn't getting hit, reduces our deficit, encourages growth, I'm not going to just slam the door in their face. I want to hear -- I want to hear ideas from everybody. [Emphasis added]

No surrender:

Well, two years ago [when all the Bush tax cuts were extended] the economy was in a different situation...

But what I said at the time is what I mean, which is this was a one-time proposition... [W]e cannot afford to extend the Bush tax cuts for the wealthy. What we can do is make sure that middle-class taxes don't go up...

If we get that in place, we are actually removing half of the fiscal cliff... And what we can then do is shape a process whereby we look at tax reform -- which I'm very eager to do...

So there is a package to be shaped... But what I'm not going to do is to extend Bush tax cuts for the wealthiest 2 percent that we can't afford and, according to economists, will have the least positive impact on our economy. [Emphasis added.]

Not being a mindless austerian, I think the main thing is to avoid going over the cliff. (Even if it's a slope, really, not a cliff, starting down it is still very dumb.) As before, as always, a win for both sides is easily available, if each would settle for less than outright defeat of the other: Cap deductions and increase revenues collected from the rich (in absolute terms and as a share of the total) without raising rates. If pride won't let that happen -- we aren't dealing with rational problem-solvers here -- one side or the other will have to cave. From a macroeconomic point of view, it doesn't matter which. I'd settle for either, as long as we avoid an abrupt EU-style fiscal tightening.

In the worst case -- i.e., the outcome that a significant number of partisans on both sides are spoiling for -- neither side surrenders, the fiscal squeeze begins and the economy turns back down. Politically, the question is then who gets the blame. The Republicans, probably, as the Dems are betting -- but it's not certain.

Obama's right to say that voters elected him knowing that a rise in tax rates for households making $250,000 and above was a central part of his campaign. Actually, that's putting it too modestly: It was his only specific promise. So one can see why he's reluctant to give in. But a lot depends on how Republicans now play their hand. Suppose they agree to tax changes that give the White House significant revenue and shift more of the tax burden up the income distribution, without raising rates. If Obama refused to settle for that, he'd be insisting on an increase in the top marginal rate not to serve a substantive purpose but as an end in itself -- and at the cost of higher unemployment too. Not exactly statesmanlike. The blame in that case might well be shared around.

Obama may be calculating that Republicans lack the wit or self-discipline to make a strong offer of that sort (and he'd probably be right). Going over the cliff therefore inflicts the greater damage on the GOP. Of course, the means of hurting the enemy is to hurt the country, but politics is a tough business.

Naive question: In this scenario, which side is the hostage-taker?

Obama's re-election is good news. He's a better choice than the markedly inferior alternative, I believe -- but that's about as much enthusiasm as I can muster until he gives us a better idea of what he intends to do with his second term. The confrontational tone he struck in the campaign succeeded -- he won -- though I continue to think he would have won by a bigger margin if he'd governed and campaigned more like the Obama of 2008. In any event, I doubt the harder line is a formula for a successful second term. My main hope is that he reverses what I think was the biggest error of his first four years and starts making the case for a Bowles-Simpson approach to medium-term deficit control. That's an opportunity the Obama of 2008 wouldn't have needed to be offered twice.

I enjoyed Tom Bevan's and Carl Cannon's thorough and persuasive account of the 21 things that decided the election in Obama's favor. A useful document. I'd be interested to read the article listing the 21 things that would have decided the election for Romney, had he won not all that many more votes in just the right places. I'm sure that piece was written and ready to go. Maybe I can prevail on Carl, a friend of mine from his National Journal days, to give me a look. Shame to waste it.

The big question of historical interpretation -- and I'm not sure of the answer -- is how much of a negative, if at all, the economy was for Obama. Democrats will want to believe, and hence will manage to believe, that it was a very big negative, so that what we've just seen is a victory against the odds and an amazing triumph (cyclically adjusted, as it were). From here, on this view, as the economy continues to recover, everything just gets easier for the Democrats and the GOP is done for. Republicans aren't in much of a position to disagree, much as they might want to. They've stressed the economy throughout, and it didn't work. All they've got left is to conclude it was all Romney's fault.

My guess is that the economy wasn't that much of a negative. Enough voters were smart enough to see that Obama inherited an exceptionally severe recession and that the struggles of the past four years weren't his fault. I also think Romney fought a mostly terrible campaign, following an orgiastically self-destructive season of GOP primaries. The party needs to ask itself whether it is now systematically incapable of producing attractive electable candidates. Taking these two things together, I think Obama should have won by a bigger margin. If you're a Democrat, look at it this way. The lower your opinion of the Republican offering this year, and the greater your contempt for the process that made Romney the nominee, the more disturbed you should be by Obama's relatively narrow margin of victory.

And then there's the House. This is something that I find endlessly perplexing about US politics. The country also elected a chamber of representatives yesterday, and unless I've misunderstood, its powers in shaping taxes and spending are at least equal to the president's. This chamber will continue to be run by a GOP majority--and nobody seems to care, or feel this lopsided and apparently irrational outcome is worth examining. I find the imbalance of attention paid in the US to the election of the president and the elections to Congress in presidential years completely mystifying. Nothing personal, but anyone would think the president was an elected monarch, and the House an assembly of courtiers...

In electing its supreme leader, at any rate, America chose well.

In a pair of columns for Bloomberg I've argued, first, that the election shouldn't have been as close a call for Obama as it's turning out to be and, second, that despite his errors of governing and campaigning Obama's still a better bet than Romney. Increasingly, though, I feel that the most important thing about this election, whoever wins, is that the country is going to lose. Ron Brownstein puts it well in this article for National Journal:

For the third time in the past four presidential elections, these divergent [Democratic and Republican] coalitions might prove almost identical in size. That means the outcome will likely alienate almost exactly half of us. (Emotions will spike further if the Electoral College winner loses the popular vote.) Theodore Roosevelt once said that as Americans, "our common interests are as broad as the continent." Yet Election Day may highlight more vividly our mountainous, and increasingly impenetrable, differences. The contrast between [Obama in] Cleveland and [Romney in] Canton last week reminds us how far the winner will need to stretch after this grueling campaign to govern as anything more than the president of half of America.

Obama was so exciting in 2008 because he not only promised to transcend this divide, but actually seemed capable of doing it. He's since given up, and Romney isn't even saying he'll try. It's a disturbing trajectory.

One point of clarification. In the columns I just mentioned, I criticize Obama's failure to seize the center ground of U.S. politics. This was partly a choice, in my view -- reflecting the fact that (unlike Bill Clinton) he's a progressive and not a centrist by instinct. But it was partly also a reaction to the determination of the GOP in Congress to defeat his every initiative. Ezra Klein says the Republicans' give-no-quarter strategy worked; similarly, E.J. Dionne says Democrats were more willing to compromise than the GOP. I agree with both points: When I criticize Obama, it's not because I think the GOP is blameless, but rather for the reverse: Obama failed to exploit the opportunity that the Republicans' intransigence afforded him.

Yes, his opponents were reckless and unreasonable. Yes, they were moving abruptly to the right. Tactically speaking, that was Obama's chance. But to make the most of it, he had to plant his flag in the center the GOP was vacating.

Instead, after Scott Brown, even after the midterms, he let Democrats in Congress get on with it and tacked left -- repeatedly casting his disagreement with the Republicans as a contest between his own (not especially popular) progressive vision and their militantly conservative vision, rather than between the commonsense pragmatism the country longs for and the other side's unreasoning extremism. That was the contrast he could and should have underscored. When I say he blew it, that's what I mean.

Coordinated fiscal contraction in Europe is not only suppressing growth, it's increasing the very debt-to-GDP ratios it's meant to reduce, says Jonathan Portes of Britain's National Institute of Economic and Social Research. In a piece for the Guardian--This is a European suicide pact--he draws attention to a new NIESR study which looks at this issue carefully. He thinks it's the first such effort (a remarkable claim in itself).

Fiscal policy started to achieve the opposite of what was intended in 2011, when deep consolidation measures were introduced in Portugal, Ireland and Greece - the three countries on bail-out programmes. Cumulative measures over the three-year period amount to close to 10% of GDP in Greece and Portugal and 8% in Ireland. Consolidation measures amounting to between 5% and 6% of GDP are planned in France, Italy, Spain and the UK, while only a modest adjustment is likely in Germany and Austria.

Our estimates are that in those normal times, fiscal consolidation would have reduced growth, but not by very much except in the bailout countries: the cumulative impact ranging from almost nothing in Germany to 8% in Greece and Portugal. The desired objective of reducing deficits and debt would have been achieved. But taking account of the current environment changes the picture dramatically: the hit to output in Germany is now 2%. In the UK it is 5%; and in Greece 13%. Still more shocking is the impact on debt-to-GDP ratios - the fiscal consolidation was supposed to improve fiscal sustainability; instead, it makes matters worse. And this isn't true just in extreme cases like Greece - fiscal consolidation across the EU has raised debt-to-GDP ratios in Germany and the UK as well. In both the UK and the euro area as a whole, the result of coordinated fiscal consolidation is a rise in the debt-GDP ratio of approximately five percentage points. For the UK, that means a debt-GDP ratio of close to 75% in 2013 instead of about 70%. We are not running to stand still; we are determinedly heading in the wrong direction.

Here's the full study: Less Austerity, More Growth? by Dawn Holland.

In a column for Bloomberg View I argue that, if Obama loses this election, it won't be for what many will say are the obvious reasons -- because the economy is weak and Obama's an African-American. It'll be because he ran as a failed progressive rather than a successful centrist. Almost to the exclusion of everything else, his campaign has emphasized the leftist priority of taxing the rich more heavily, the issue on which he's been constantly beaten back. To most people, I think, that goal seems desirable or inevitable, but it isn't the alpha and omega of public policy. Meanwhile Obama seems embarrassed even to mention his far larger centrist achievements: an effective (for all its faults) fiscal stimulus and universal health-care coverage.

Certainly, the economy is a negative for the incumbent, but much less than generally supposed. Most voters understand all too well that the president inherited the worst recession since the 1930s, and that the recovery was going to be a long, hard haul. To be sure, they're asking whether his policies are helping, and they are far from convinced. They've noticed his silence on where his economic policies go from here. But the mere fact that the economy is weak wasn't fatal to Obama's prospects.

As for race, the fact that Obama is black has been more an asset than a liability and it remains so. There's racism in America, but there's also an immense desire to overcome it. The voters swinging back to Romney aren't racist, or they wouldn't have supported Obama in 2008. Remember the joyous inauguration of 2009. The political center of the country was thrilled and proud to have elected a black president: an exceptionally talented man, and the best possible salve for the nation's unhealed racial wounds.

Every voter who chose Obama in 2008 still wants him to succeed. But not all are convinced he can, and that's partly because he has stopped trying to be the president he said he'd be. The need to fix Washington, the need for a bridge-building, post-partisan presidency was uppermost in centrist voters' minds when they elected Obama, and he'd made that the core of his campaign. Washington is still broken -- more so than before -- and Obama is no longer even trying to mend it.

As I expected, not many people seem to agree with me that Obama's race has been an asset rather than a liability. More than once I've been referred to a paper on this question by Seth Stephens-Davidowitz. (He wrote it up for the New York Times here.) This paper measures racial animus by looking at the geographical distribution of Google searches for "racially charged" terms--that is, the words "nigger" and "niggers". By comparing Obama's performance in 2008 with John Kerry's in 2004, he can measure the national change in support for the Democrat against the change in states with high or low racism. Unsurprisingly, he finds that states scoring high on his racism index voted less for Obama than states scoring low. Overall, he estimates, racism cost Obama 3 to 5 percent of the popular vote in 2008.

The paper recognizes that there might be an offsetting pro-black influence. It puts this at a little over 1 percent, with the effect working mainly through the votes of African-Americans. So the net cost of Obama's race, according to the paper, is a loss of 2 to 4 percent of the vote.

Why do I think this underestimates the offsetting positive effect of Obama's race? Here's what the paper says about white voters:

A variety of evidence suggest that few white voters swung, in the general election, for Obama due to his race. Only one percent of whites said that race made them much more likely to support Obama. In exit polls, 3.4 percent of whites did report both voting for Obama and that race was an important factor in their decision. But the overwhelming majority of these voters were liberal, repeat voters likely to have voted for a comparable white Democratic presidential candidate... Although social scientists strongly suspect that individuals may underreport racial animus, there is little reason to suspect underreporting of pro-black sentiment.

Well, it depends what you mean by "underreporting of pro-black sentiment."

I can easily imagine a white voter who would deny that race made him "much more likely" to support Obama or even that race was "an important factor", but who was nonetheless delighted that an exceptionally talented black man had presented himself as a candidate for the presidency, who felt it was a good thing for the country, and who would want to support him other things equal. I bet most of the people I know fall into this category (and they're not all partisan Democrats). None of them would say they voted for Obama because he's black--a sentiment, of course, that would be insulting to the man. Nonetheless, I think they'd say, it's great that he is.

Call it reverse racism if you must. (That label is one good reason, by the way, to suspect "underreporting of pro-black sentiment". People would rather think of themselves as color-blind than prejudiced in either direction.) Whatever: I think that attitude is entirely justified. It's not being captured in the studies I've seen. And if it's as widespread as I'd guess it to be, it could easily be worth another 2 to 4 percent of the popular vote.

The third presidential debate leaves me with little to say. I was ready to point out that despite the obligatory show of disagreement--American exceptionalism and overwhelming force on Romney's side; partnerships, caution, drone strikes and calculation on Obama's--the two men agree about most aspects of policy once you get down to specifics. So much for that line of analysis. No show of disagreement, rather the reverse. No memorable errors either.

As in the second debate, Obama seemed the more articulate and assured of the two. He certainly had the better lines (horses and bayonets, etc). His comment about the importance of clarity--a bit rich, coming from him--skewered Romney pretty well and cleverly linked the prevailing Romnesia narrative to foreign policy. But neither man had much of substance to say. Obama described his successes to good effect, and Romney mostly chose not to quarrel with him. Both gave heavily padded statements of goals--peace, security, competitiveness, other brave ideas--but never really engaged on how those ambitions can best be realized. (The key, both men agreed, is strong but prudent leadership. No doubt.) I was surprised Romney didn't press harder on Syria. Too risky, he must have calculated. Above all he had to avoid the suspicion that he would take America into another inessential war.

On Romney's behalf you could say Obama came off as a little too hostile, maybe too interested in Romney's flip-flops and not enough in what he, Obama, intends to do. You could say Obama began with a bigger advantage than in the other debates, because foreign policy especially favors the incumbent, and that Romney nonetheless did what he mainly had to do: offer reassurance that he wasn't a bomb-happy war-monger and present himself as a plausible commander-in-chief.

In all, I'd say, a win for Obama, but not a consequential one. It's hard to avoid concluding that if Obama had performed this well in the Denver debate--the one that first gave wavering voters permission to think seriously about Romney--this election would be as good as over. But he didn't.

In his latest column, Paul Krugman draws attention to a quarrel about the pace of the current recovery. We have Carmen Reinhart and Ken Rogoff on one side and John Taylor and Michael Bordo on the other. It's pretty heated, given that it's about so little. Let's start with the points they agree on:

1. Recessions associated with systemic financial crises tend to be unusually prolonged and severe.
2. The US experience since 2008 is an instance of 1.
3. Right now, the US economy could and should be growing faster than it is.

It's a shame they aren't arguing about 3--not about whether the US economy could be made to grow faster (on which point, as I say, they agree) but about how to make it grow faster. Instead they are arguing mainly about the meaning of the word "recovery".

Bordo and Haubrich find that an old rule of thumb generally holds true: The deeper the recession, the stronger the recovery--even if the recession is linked to a financial crisis. The slow pace of this recovery is therefore an anomaly, not explained by the mere fact that a financial crisis was involved. They agree, though, that a financial crisis tends to mean a deeper and more prolonged downturn, so the recovery has more lost ground to make up.

Reinhart and Rogoff say that recovery from a financial-crisis recession is slower than recovery from the usual kind, thus seeming to disagree with Bordo et al--but they mean something different by "recovery". They date recovery not from the trough of output, like Bordo et al, but from the previous peak, asking how long it takes the economy to get back to where it started. The two sides are asking different questions. Bordo and Haubrich aren't challenging Reinhart and Rogoff's finding about the depth and duration of financial-crisis recessions; and Reinhart and Rogoff aren't addressing Bordo and Haubrich's point about the pace of recovery measured from the trough. Both sides could perfectly well be right.

I'll need some convincing that Bordo and Haubrich are right, because it's easy to think of reasons why a financial-crisis recession would be followed by a slower than normal recovery (measured from the trough). However, the strength of recoveries (measured from the trough) does happen to be the issue Bordo and Haubrich directly investigate, unlike Reinhart and Rogoff, who are concerned with the properties of the recession and recovery viewed as a single episode. Reinhart and Rogoff have good reasons for looking at it that way--namely that it's difficult to date the trough, and the delay before you get back to the previous peak is arguably all that matters anyway. The fact remains, the two sides are talking past each other.

In contrast, the disagreement about how to accelerate the recovery is worth having. Rogoff, for instance, has said he thinks a bit more inflation would improve the recovery by reducing debt. Bordo, who's endorsed Romney, is presumably more interested in lowering taxes, cutting public spending, regulatory reform and the other items in the statement he signed to that effect. This would be a more fruitful discussion.

I don't know about you, but when confusion arises in disputes of this kind, I always turn to Krugman for dispassionate adjudication. His column attacks what he calls crisis denialism, and regrets the way politics is twisting economic analysis. In a blogpost on the same subject a few days ago he put it this way:

Call this another example of how politicization is hurting economics. The proposition that financial crises change macroeconomic outcomes is surely one of the big things we've learned in recent years. Yet here we have well-known economists refusing to listen and throwing out misleading studies, which just happen to be convenient politically.

That's so true. Thank heavens we have Krugman to lean against the trend, and go where the evidence takes him without partisan preference.

And I'm so pleased that, on Krugman's recommendation, we can welcome Reinhart and Rogoff back into the fold of competent professionals deserving of respect. Not long ago, he was drawing attention to the "best takedown yet" of Reinhart-Rogoff's work linking high levels of public debt lead to slower growth.

I think we can say that this paper has been completely discredited. I'm actually sort of shocked that R-R apparently failed even to notice that all of their high-debt observations for the US -- and remember, it was their own choice to highlight US data -- come from the years immediately after World War II, and to think about what that means.

Back then they fell into the category of people whose work wasn't just incorrect but so bad it was kind of shocking. (Something more sinister than ordinary incompetence was probably going on.) But now they've raised their game to the point where they can again be regarded as exemplary scholars establishing indisputable facts. Oddly enough, this is on the basis of a single body of work. The part of their research that argues for fiscal conservatism is suspiciously shoddy--driven by politics, in all likelihood--whereas the part that excuses slow growth under the Obama administration is entirely free of prejudice and upholds the highest standards of scholarship. I'd mistakenly taken them to be outstanding scholars all through. Without Krugman's remorselessly objective insight, this weird inconsistency is something I might have missed.

"President Obama is prepared to veto legislation to block year-end tax hikes and spending cuts, collectively known as the 'fiscal cliff,' unless Republicans bow to his demand to raise tax rates for the wealthy, administration officials said." So reported the Washington Post on Thursday. The article assumes, plausibly, that nothing will actually happen until after the election, and points out that whoever wins, the tactical calculations will then look different. True. In the meantime, though, this veto talk gives Romney an opening. The Democrats are making a big mistake.

The Obama campaign wants to spin the moronic stand-off over the fiscal cliff as follows: The Republicans are so keen to protect the rich from higher taxes that they are willing to raise everybody's taxes rather than yield. But Romney can spin it just as easily his way: The Democrats are so keen raise taxes on the rich that they're willing raise everybody's taxes in order to do it. Democrats apparently think Obama's position is more appealing to centrist voters than Romney's. They're wrong.

First, let's be clear that the veto gives the president the last word. If Congress sends him a measure that fails his test and leaves tax rates on the rich unchanged, his veto is the act that raises everybody's taxes.

Second, think about the underlying arguments. The Republicans can say they're risking fiscal doomsday to defend the principle that nobody's taxes should rise. The Democrats have to say they're risking fiscal doomsday to defend the principle that the rich should pay more tax. Which of those positions looks more reasonable under present circumstances? Romney can say he's prioritizing growth--that that's his overriding goal. The only way to read the Democrats' reply is that redistribution matters more. Their position looks all the more unreasonable if you agree with Democrats (as you should) about the economic dangers of an abrupt fiscal contraction. As good anti-austerity Keynesians, they should be more willing than Republicans, not less, to delay tax increases while the economy's so weak. Their zeal to raise taxes on the rich outweighs every other consideration: That's the message.

Democrats say opinion polls show that higher taxes on the rich would be popular. That's true. Voters understand taxes will have to rise and most of them would prefer the increase to fall most heavily on the rich. But Democrats are misreading this. For centrist voters, taxing the rich more heavily isn't an end in itself. It's a way to lighten the load on the non-rich. The polls aren't saying that voters will pay any price and bear any burden to punish the rich: "Sure, raise taxes on my middling income if you must. It'll be worth it to see the rich pay a higher top rate." It's absurd, but that's how Obama's veto threat understands public opinion.

Obama should propose another temporary extension of all the Bush tax cuts. He should do it at once, to lift the uncertainty that's impeding the recovery. He should say he'll push for a comprehensive tax reform early in his next term--one that raises significantly more revenue much more more efficiently, and that collects a bigger share from the rich. But right now he needs to say that sustaining the recovery comes first, and dare Republicans to disagree.

Here's an interesting question: Why hasn't he done this already? Because if he did, the Democratic base would go ape. Its view is that raising taxes on the rich really does outweigh every other consideration. The Democratic base would prefer 1 percent growth and a higher top rate next year to 3 percent growth and no increase in the top rate. (Perhaps that's unfair. A few would need to think about it.) When Obama did the right thing before and agreed under pressure to leave the Bush tax rates in place, the left of the party attacked him furiously. His big mistake all along, in their view, has been to compromise too much. His campaign must dread the outcry--at best, the collapse in activists' enthusiasm--if he "surrenders" again before the election.

Hence the veto talk. It's understandable--but if Obama isn't careful, the base-pleasing hard line on the fiscal cliff could send Romney to the White House. Courtesy of progressives.

I'll go with the flow and score the second presidential debate a comfortable win for Obama. His margin of victory wasn't as crushing as his margin of defeat in Denver, but it was a win nonetheless. Unlike last time, he was engaged and comfortable and energetic. He'd mastered the material. He was way better than before on Romney's tax proposals, partly because he was more precise. This was right on target:

Gov. Romney was a very successful investor. If somebody came to you, governor, with a plan that said, "Here, I want to spend $7 or $8 trillion and we're going to pay for it but we can't tell you until maybe after the election how we're going to do it," you wouldn't have taken such a sketchy deal...

He used Romney's 47 percent gaffe to good effect as well, saving it till the end so Romney couldn't respond. And this time it was Romney who missed the sitting ducks--notably, fumbling his attack on Obama over the Benghazi story by attaching great significance to an unimportant fact (whether Obama had referred to an "act of terror" in comments immediately after the killings) and getting it wrong. On the larger point, Romney was correct -- the administration's early account of what happened was false -- but he messed it up.

Obama defended his domestic record much better than before. Romney didn't perform badly, but again he was vague on the main points of policy, and with Obama on form, that wasn't good enough. He kept falling back on what he'd call the big picture: It's all about jobs, and he knows how to create them because he was a successful businessman. Obama said even less about his ambitions for the next four years than Romney -- but he was so much more confident and forceful than last time that I bet most viewers weren't bothered. The debate confirmed one thing, if it needed confirming: Both men would rather assault each other than explain their policies. I'd like to think voters object, but the sad thing is, from a tactical point of view, Obama and Romney might be right to accentuate the negative. It's certainly what their respective supporters most want to hear.

We'll see whether the bounce Romney got from the first debate will be reversed. I'd expect the debate to stall his recent momentum. But I doubt he'll fall all the way back to where he was pre-Denver -- partly because Obama's margin of victory was smaller, and partly because the first debate seemed to shock quite a few voters (and quite a few pundits) into thinking that Romney deserved to be taken seriously after all. If that's true, the second debate won't be enough to undo it.

A clear win for Biden, say Democrats, no question about it. A clear win for Ryan, say Republicans, that's obvious. As for this low-information undecided non-voter, I give it to Biden, but not by much. He was better than I expected. Forceful and impassioned, but controlled. Disciplined without seeming inhibited or any less Biden-like. Through energy and animation, he commanded the conversation--and didn't spoil it by saying anything stupid. Yes, the constant incredulous smiling was a mistake, as if to imply that Ryan was incapable of saying anything that merited a serious response. Most of what Ryan said did merit a serious response (at least, undecided voters presumably thought so); laughing at him was therefore not just rude but also tactically inept. On the other hand, if Biden's main job was to restore morale in the Democratic base, laughing condescension served a purpose. Anyway, Biden's engagement, such a contrast with Obama's dismal performance last week, was impressive, and I thought it made Ryan look by comparison a little cold and smug.

Biden also had the best line of the debate, when he asked listeners whether they trusted Romney and Ryan with Medicare. I think that's a very good question, even though (as it happens) I also think there's a lot to be said for vouchers done right. Ryan's earlier and now-superseded plans, which would have held down the vouchers' value far too aggressively, are relevant to the question of trust. I was most impressed that Biden didn't cheat on this: When he criticized Ryan's first plan, he didn't pretend he was attacking the current one. The first plan matters because it tells you about Ryan's intentions--about what he would do if he could. And Ryan had no answer. He squirmed under this line of attack. (Contrast this with Obama's assault on Romney's supposed $5 trillion tax cut. That was a distortion, because the tax package isn't in the aggregate a $5 trillion cut. Romney therefore deflected the attack easily--without having to explain how his tax-rate reductions would be financed, which was the real point of vulnerability. Now and then in politics, honesty pays and spin can be self-defeating.)

I give it to Biden but Ryan did well too. His demeanor, I suppose, is a matter of taste. (Spot poll: I like it, my wife detests it.) He didn't look small or inconsequential, despite being so much the younger of the two. He did nothing to call into question Romney's judgement in choosing him for the ticket. He was in command of his material. He was respectful of his opponent--gracious at the end, a very nice touch--and above all respectful of voters. He looked like a politician going places, and deserving to.

By the way, I don't share the view that the moderator, Martha Raddatz, did a better job than Jim Lehrer. I've seen much worse, but she wasn't as good as Lehrer. A debate should be a debate, not a double-headed interview. She was in the way too much. She was too interested in her own ideas about what was important. Her questions were too complicated and confining. (The one at the end on "human strengths" made me cringe. Classic what-an-interesting-moderator-I-am nonsense.) In a presidential or vice-presidential debate, the moderator's goal should be to disappear.

A narrow win, at most, for Biden. Net effect on the election: zero.

I've been interested to follow the reaction in the US and Europe to Hugo Chavez's election victory in Venezuela. Chavez has his admirers, of course. They praise what he's done to help the poor and the democratic process that made it possible. His critics, much in the majority, point to the broader economic and political damage he's caused--but rather than blaming democracy, they say the Venezuelan version isn't the real thing. They're reluctant to accept that a genuine democracy can produce (as they see it) such terrible results.

Illiberal democracy, the third way (you might say) between liberal democracy and outright autocracy, seems to be catching on. Venezuela is the classic case, and it's a study in the dangers of elected dictatorship. As the US Constitution ought to remind us, a healthy polity needs a lot more than the vote--a lot more, that is, than mere democracy, vital as that is.

In the US, dispersal of power is securely underwritten in the law, and, even better, the importance of checks and balances is universally understood. Still, one lesson the US could draw from Venezuela is the danger that polarization poses to a constitutional order. Chavez has very deliberately used polarization to delegitimize his opponents and concentrate power in his own hands. The point is, an opposition that is illegitimate, rather than wrong in good faith, seems undeserving of constitutional protection. Once that idea gets a grip, majority opinion can be guided to suppress political competition and entrench executive control. Venezuela is a worked example of the use of anger and intolerance to concentrate power--democratically.

As I say, America's constitutional protections could hardly be stronger. Even so, I wince whenever I hear a Republican call a Democrat (or vice versa) a "shameless liar" rather than a fool, say, or a spinner of the facts, unless the charge is indisputably correct. You can be wrong or stupid, and you can aim to mislead, without putting yourself outside legitimate politics, but shameless liars are beyond the pale. You can't do business with them. That's what the term is meant to convey, and it's corrosive. Add resource dependence and authentic political genius, you can end up with Venezuela.

Last week my Atlantic colleague Bob Wright said he was expecting an imminent swerve in the narrative about Romney's prospects, not because of any actual developments but because the media couldn't tolerate an unchanging story. I got a preview of his post last week when visiting Princeton, where Bob lives. According to tradition, he said, this deviation would need three elements. As I recall he had only two when we spoke but his post the next day went one better and offered four: Romney's previously undiscovered sense of humor (check); foreign-policy switcheroo (in progress); Obama loses his mojo (check); and Romney's surprising talent as a debater (check).

Obama was genuinely awful in the debate, even measured against Bob's unusually rigorous pre-debate assessment -- "not a deft off-the-cuff speaker ... about average as recent presidents go ... not a great debater." In other words, there was an actual development. Nonetheless, I'd say Bob made a pretty good prediction.

I bring this up because, searching for the required third point to justify the swerve, I suggested this: "Romney's tactical brilliance in running such a pitiful campaign until barely a month before the election." I meant it as a joke ... but now I'm wondering. Part of Matt Miller's (very good) post-debate column on "The Audacity of Romney" jumped out at me.

If he wins, of course, Romney and his advisers will be hailed as geniuses for their timing, for bonding the party faithful to the ticket with the choice of Paul Ryan and a conservative-themed convention, and then dashing to the center for the home stretch.

That's true: If Romney wins, that's exactly what we'll say. But what I find myself wondering is whether, in that still unlikely event, the "geniuses for their timing" narrative might actually be correct. My grasp of American vernacular still isn't all it might be, but I think you call this "rope-a-dope" -- with Obama as the dope.

Me too, for that matter, let me hasten to add. These past months I've criticized Romney for failing to pivot to the center as soon as he got the nomination -- as Miller says, that's how this is supposed to work. I've called Romney's etch-a-sketch principles a necessary strength in the context of US politics, not a weakness, because he had to appeal to two such vastly different constituencies: the GOP base and swing voters. So why wasn't he exploiting that talent--subtly erasing his positions in the primaries, and rediscovering his inner governor of Massachusetts? For months, up to and including the convention, he came on as the severe conservative he'd pretended to be (or so I assumed) while contesting the nomination. He was turning into that man. Choosing Paul Ryan, the right's great hero in Congress, seemed to commit him to fight the general election as an ideological hardliner. That played entirely into the Obama campaign's hands: Romney the extremist, Romney the heartless capitalist, Romney the tool of an unreasoning and unpopular GOP-in-Congress, and all that. What on earth were Romney and his people thinking?

At the event that took me to Princeton, I went so far as to say that the Ryan pick was doubly idiotic: First you team up with an outspoken conservative, a conviction politician with ideas unappealing to the middle of the electorate, shackled to a detailed hardline program (the House budget); then you sideline him in the campaign, distance yourself from his program, and drift who knows where on policy. First repel the center, then disappoint the right. Brilliant, I said. Is it any wonder that Romney's losing the election?

It's possible I misspoke, though I won't be sure till next month.

If Romney wins, we'll tell the story a different way, just as Miller says. Not, "First repel the center, then disappoint the right," but, "First bond with the right, then appeal to the center." And we'll say the timing of the switch was indeed perfect. The prospect of a second Obama term has come into sufficiently sharp focus to terrify conservatives. They've come to the point -- finally! -- where they just want their guy to win, whatever it takes. If he thrashes Obama in a debate, they won't mind if he does it by reclaiming ownership of his Massachusetts health reform -- the same Obamacare they despise. They won't mind if he does it by promising not to cut taxes collected from the rich, or by insisting that we need regulation to make the economy work. Not long ago, they would have minded. Now, they don't.

I'd say this puts conservatives cheering Romney's big debate win squarely among the dopes. They've been played by their own candidate, according to this narrative. Maybe they haven't realized, or maybe they have and just don't care, so long as Obama goes down to defeat.

It also helps that Obama would be the biggest dope. His entire campaign, with Romney's unstinting help until this week, has arranged itself around Romney the evil capitalist, Romney the scourge of entitlements, Romney let's-make-the-rich-richer. When Romney the pragmatic moderate turns up instead, it's not very powerful (even though it's true) to reply, "But that's not what you've been saying up to now." A bit juvenile, somehow, to say, "Can't take it back. Can't take it back," which was Obama's first post-debate line of defense. Less than effective to counterpunch with, "We're just going to keep on attacking the man we thought you were, otherwise it's not fair." Also, the severe Romney has encouraged Obama to speak mainly to his own base, calculating that GOP extremism would deliver centrist votes to the president. The Obama campaign hasn't locked in the center's support, as it otherwise might have.

If he loses, of course, Romney will be an idiot again, not a genius, and I can go back to, "First repel the center..." What's harder to know, as we wait for hindsight to settle the point, is whether there's any truth to the other story -- and whether there was any truth to it before the debate. I mean, this can't have been the plan all along. Before it's too late, please tell me this wasn't the plan all along.

Well. So much for "a Biden-class knack for sounding stupid," as I remarked about Romney a few hours ago. He won the first debate going away. You have to wonder, if Romney's such a weak candidate, as I have long maintained, what does that make Obama?

No attempted zingers, contrary to forecasts, which was wise on the challenger's part. (Or perhaps there were some, only so lame they escaped detection. Trickle-down government. Maybe that was a zinger.) His joke about having five sons and being accustomed to hearing endless repetition of the same bogus claim was funny (don't you think?) and if it was rehearsed didn't seem so. Who knew that Romney was capable of gentle wit? He seemed, despite everything, relaxed, confident, and above all in charge. He gave the impression of having the facts at his command. Often enough that was a false impression, but Obama never came close to showing it. The president was stammering and hesitant, and frequently looked out of his depth. Romney's performance wasn't brilliant, just good, but that made it brilliant relative to expectations. The greater shock, amplifying Romney's success, was that Obama was so bad.

Maybe this is what four years of being surrounded by sycophants does for you.

Again and again, he missed open goals. He let Romney say that he, Romney, would take better care of entitlements than Obama would. Incredible. He watched as his attack on Romney's tax proposal kept bouncing off, until he looked feeble for repeating it. Why on earth didn't he force Romney to say which deductions would be removed to pay for the lower rates? He let Romney boast about his Massachusetts health care plan and in the same breath denounce Obamacare (to all intents and purposes, the same policy). Romney's argument about letting states be laboratories is tactically clever, and there's something to it, but surely Obama could have asked why Romney doesn't at least advocate Romneycare to the rest of the country. The president remembered to criticize insurance companies but (unless I missed it) forgot to mention that Obamacare is mainly about covering 50 million people who, you know, don't have health insurance. He let Romney attack him for failing to cut deals with the GOP, as though Republicans would have compromised if only they'd been talked to politely. In response, Obama meekly referred to Republican intransigence, but threw the comment away. That was a chance to lay the blame for paralysis in Washington on Romney's party, where it mostly belongs. And what about the 47 percent--about moochers, dependents, people whom Romney won't ever convince to be responsible, this nation of parasites? Hardly worth mentioning, I suppose.

I see some people are criticizing Jim Lehrer for failing to moderate. Nonsense. He was great. Give that man a MacArthur genius award or a Pulitzer or something. All debates should be moderated this way. Step back and let the candidates argue with each other. It's revealing, much as Obama on this occasion may regret it. There was far more substantive engagement on issues -- or the opportunity for it, at any rate -- than the usual preening-moderator formats allow. Surely Democrats don't think the president needed the protection of a moderator to get his points across. He had all the time in the world. CNN says he was at the microphone for longer than Romney. It's just that he made such poor use of it.

Hard to say whether it will matter. Certainly, for at least a few days it will perturb the air of inevitability that had begun to surround Obama's second term. That was likely due for a rethink anyway: With weeks still to go, the prevailing narrative needed a twist. But nobody who saw the debate is going to buy the idea that Romney was declared the winner because the media were getting bored. He won, and it wasn't close. It ought to be a tonic for both sides. This thing isn't over after all.

Carl Cannon's piece for RealClearPolitics expresses frustration at the quality of the presidential campaigns, and I agree with nearly everything he says. The country should be having a Great Debate, but it isn't -- despite both candidates' claims to the contrary. Big things are at stake, all right, but the campaigns couldn't be smaller if they tried.

How much government involvement in daily life does the Constitution allow for? How much do Americans want? How much they are willing to pay for? These are the cosmic questions everyday Americans are arguing about, along with the associated question of which major political party is best suited to arbitrate these issues.

Instead, U.S. voters have been subjected to a nine-month barrage of witless blather -- often in the form of negative TV ads or ad hominem personal attacks -- about Mitt Romney's taxes and religion, Ann Romney's horse, the Romney family dog, whether young Barack Obama ate dogs, about grown-up Barack Obama's accent, whether Massachusetts Senate candidate Elizabeth Warren is part Cherokee, whether her opponent Scott Brown and other Republicans are waging a "war on women," and whether Democrats are waging a "war on faith."

Yep. Cannon wonders whether voters want or are prepared for an honest discussion about entitlement reform, taxes and other issues. Obviously, the campaigns assume they aren't, and their experts on this subject presumably know what they're talking about. But I'd still like to see that unthinkable course of action -- talking to voters as if they were intelligent adults -- given a try. It might be an electoral disaster, though I doubt it. I think voters would be shocked into admiration. At least it would be an honorable way to lose, if that counts for something. (It doesn't, I know.)

One small point. Carl is fair as always in his analysis of both sides, and I don't want to seem to be defending Romney, whose campaign has been pitiful, but I wondered whether it was right to call his remark on self-deportation "the most frivolous treatment of a serious issue this entire campaign season." That's such a high bar.

Agreed, to talk about illegal immigrants deporting themselves was characteristically clumsy--in that respect, pure Romney. And Carl's right of course that immigration is a key issue on which Romney is advancing no coherent policy (and where pandering to his party's base has made it impossible to get one). But the point that Romney was trying to make wasn't as idiotic as he made it sound. Illegal immigrants come to the US to work. If they can't work because employers are made to check documents rigorously, most of them would go home. If one of my visa renewals had been turned down, leaving me unable to make a living here, I would have self-deported. Though I doubt that's the way I'd have put it.

Romney has a Biden-class knack for sounding stupid, which is a serious drawback in a presidential candidate. But expressing yourself in ways that invite ridicule isn't the same as being frivolous.

As for tonight, the Times tells us:

Mr. Romney's team has concluded that debates are about creating moments and has equipped him with a series of zingers that he has memorized and has been practicing on aides since August.

I read that with a thrill of horror. Scripted zingers, practiced until the candidate has forgotten what the words mean, for delivery in the relaxed confident style we've come to expect. Good plan.

Jonathan Rauch has an interesting piece in National Journal on inequality. He argues that a longstanding consensus among economists may be dissolving -- the idea that inequality is not really a problem in its own right, rather a symptom of other ills that are better confronted directly, like poverty, stagnant middle-class incomes, and excessive rewards for people working in finance. Rauch says that economists are coming round to the idea that inequality itself is a problem, not just in moral terms, but also because it directly leads to lower growth and greater macro instability. The channels he mentions are suppression of aggregate demand (because the rich save more than the poor), the credit cycle (because governments use easy loans as a palliative for middle-class anxieties about falling behind), and financial engineering (to feed the appetite of the rich for new financial products.

This changing view of inequality could be politically transformative, says Rauch:

The era when Washington economists and politicians could dismiss inequality as a second- or third-tier issue may be ending. And progressives, potentially, have a case against inequality that might put accusations of "class warfare" and "politics of envy" behind them.

I'm a bit puzzled by the demand-shortfall argument, because lack of demand (under ordinary circumstances) is something monetary policy can deal with. The link via inequality between a destabilizing credit cycle (driven by pressure from below) and the pathological enlargement of the finance industry (driven by pressure from above) is more persuasive. I'm still skeptical, though, that solving either of those problems is made easier by melding them together. Doing that points you to a one-dimensional solution (much higher taxes on the rich) rather than something more effective but more complicated (better training and education; cuts in implicit subsidies to the finance industry; and somewhat higher taxes on the rich).

As for the politics, I'm pretty sure most progressives don't want to put "class warfare" behind them -- nor should they, in fact, provided they're clear about what they mean by "class." Joe Stiglitz's book, The Price of Inequality, which Rauch mentions, is clear that "class warfare" is an apt metaphor. This column by Stiglitz gives a synopsis of his argument.

It would be one thing if the high incomes of those at the top were the result of greater contributions to society, but the Great Recession showed otherwise: even bankers who had led the global economy, as well as their own firms, to the brink of ruin, received outsize bonuses.

A closer look at those at the top reveals a disproportionate role for rent-seeking: some have obtained their wealth by exercising monopoly power; others are CEOs who have taken advantage of deficiencies in corporate governance to extract for themselves an excessive share of corporate earnings; and still others have used political connections to benefit from government munificence - either excessively high prices for what the government buys (drugs), or excessively low prices for what the government sells (mineral rights).

Likewise, part of the wealth of those in finance comes from exploiting the poor, through predatory lending and abusive credit-card practices. Those at the top, in such cases, are enriched at the direct expense of those at the bottom.

What's that, if not class warfare? And I'm fine with fighting it, as long as the class in the cross-hairs is precisely targeted: abusive monopolists, unchecked corporate chieftains, buyers and sellers of political influence, and assorted other rent-seekers. And as long as we understand that not everybody in the 1 percent, or 0.01 percent, is the enemy.

Conor Friedersdorf's attack on the Obama Administration's drone campaign makes strong points. The Stanford/NYU study he reviewed previously, Living Under Drones, should be widely read. Friedersdorf thinks the policy is outrageous and indefensible.

Obama terrorizes innocent Pakistanis on an almost daily basis. The drone war he is waging in North Waziristan isn't "precise" or "surgical" as he would have Americans believe. It kills hundreds of innocents, including children. And for thousands of more innocents who live in the targeted communities, the drone war makes their lives into a nightmare worthy of dystopian novels. People are always afraid. Women cower in their homes. Children are kept out of school. The stress they endure gives them psychiatric disorders. Men are driven crazy by an inability to sleep as drones buzz overhead 24 hours a day, a deadly strike possible at any moment. At worst, this policy creates more terrorists than it kills; at best, America is ruining the lives of thousands of innocent people and killing hundreds of innocents for a small increase in safety from terrorists.

I can't get to Friedersdorf's level of certainty that the policy is evil, but he's pulled me in his direction.

How to think this through? If drone attacks are counterproductive from a security point of view -- because they kill the wrong people and stir up hostility to the United States -- then we needn't spend much time asking whether they're legal or moral. If they don't work, no dilemma arises. But do they? I don't know and the truth is, neither does Friedersdorf. At best, he says, the increase in safety is small. That might be true but how are we supposed to know? The dangers of blowback are clear, but with little or no public information about the targets, outsiders can't judge whether the campaign is making Americans safer.

The question of legality is complicated because there are so many variables: context (is this an "armed conflict" in the legal sense?); the decision-making process (how were the targets chosen?); necessity (were there alternatives?); proportionality; and so on. Legality matters but it shouldn't be the main concern. Lawyers can't tell us what's just or right. If I thought the drone war was immoral and legal, I'd say let's not do it. If I thought it was moral and illegal, I'd say let's change the law.

In principle (I don't know if Friedersdorf would agree) the drone attacks could be moral, but the net security gains have to be very impressive. If the targeting is as poor as Friedersdorf thinks and the execution as imprecise, then it's hard to see how the policy could be justified. If "signature targeting" as described in the Stanford/NYU report is really going on -- that is, not attacking known terrorists but striking on the basis of "behavior patterns" observed from high altitude -- I'd need a lot of persuading that this wasn't recklessness to an immoral degree (as well as being most likely illegal, by the way).

Needing to be persuaded is really the point. This is a morally questionable policy at the very least, and the burden of justifying it lies with the administration. The White House should be asked hard questions and forced to be a lot more forthcoming with the facts. Friedersdorf is right about that and there really shouldn't be any debate about it.

But the administration proceeds as though the policy requires no justification. Instead of justifying it, the White House calmly boasts about it. Republicans won't hold the administration accountable on this (needless deaths in Waziristan aren't high on their agenda) and, as Friedersdorf says, Democrats won't do it either.

I don't see many Obama supporters feeling as reluctant as the circumstances warrant.

The whole liberal conceit that Obama is a good, enlightened man, while his opponent is a malign, hard-hearted cretin, depends on constructing a reality where the lives of non-Americans -- along with the lives of some American Muslims and whistleblowers -- just aren't valued. Alternatively, the less savory parts of Obama's tenure can just be repeatedly disappeared from the narrative of his first term, as so many left-leaning journalists, uncomfortable confronting the depths of the man's transgressions, have done over and over again.

Well, Democrats have an election to win, and they're just loving the idea that Obama, the progressive constitutional lawyer, healer of global wounds, turned out to be a tough guy after all.

Scott Sumner helps me to see that he and I are (even) closer on monetary policy than I'd thought. He agrees with a point I made here, that it would be difficult to adopt a level target for NGDP all at once and right now.

Crook...points out that level targeting of NGDP might lack credibility in the current environment. I think he's partly right, but I don't see it as a problem, because he's actually considering a hypothetical that is both unlikely to occur, and too expansionary from even my perspective. Recall that in 2009 I favored going back to the old pre-2008 NGDP trend line, but more recently have advocated going just a third of the way back. The problem here is that while NGDPLT is completely automatic when fully implemented, discretion is required when deciding where to set the initial trend line. Last year Christy Romer did a NYT column calling for a return to the old trend line. Because we are roughly 10% below that line, this would entail quite rapid NGDP growth (and inflation) over the next few years. Because a lot of time has gone by, and because many wage contracts now reflect the lower NGDP trend line, I no longer favor going all the way back, but rather looking for a pragmatic compromise. I think Crook's right that 100% level targeting right now (Romer's plan) would currently lack credibility, there simply aren't enough economists inside or outside the Fed that favor that degree of stimulus. [My emphases.]

But I would warn readers not to become overly pessimistic about credibility on the basis of this thought experiment... If we can get the consensus of economists to shift to NGDPLT (and so far we market monetarists have had much more success than I expected) then a future Fed may adopt NGDPLT, and it will be highly credible. If economists as a class think level targeting is the right way to go, then a period of "catch-up" will not seem "irresponsible." Even better, level targeting keeps NGDP from wandering so far from trend in the first place.

I agree with nearly all of that. (I hesitate at "economists as a class". The day when "economists as a class" agree about anything will never come.)

I'd say the points to stress are, first, adopting a level target when the gap between the target and where you are is huge is extremely difficult. You have to move to the new regime by degrees. Second, even after you've arrived, there'll often be doubts about whether the earlier path is still correct in the aftermath of a big disturbance. So the central bank can't ever wholly bind itself. Though Michael Woodford would say (too pessimistically) that retaining discretion defeats the main purpose of NGDP targeting, there's no choice but to retain some, at least: That's a political fact of life. On the other hand, third, the difference between level targeting and NGDP-growth targeting matters far less if you're choosing at a position of full employment. Either approach would then keep NGDP "from wandering so far from trend in the first place," which is the whole point.

Moving on, what to make of Narayana Kocherlakota's conversion--if that's what it was? Kocherlakota, previously seen as an inflation hawk among Fed governors, last week advocated a policy-rate lift-off rule that many commentators thought very dovish: Keep interest rates at zero until unemployment falls to 5.5 percent or inflation rises to 2.25 percent. In this he was echoing Charles Evans (and he drew attention to the fact). Evans suggests a lift-off rule of 7 percent unemployment and 3 percent inflation. Question: Who's the more cautious? I'd just written a column supporting QE3 but regretting the Fed's inability to communicate its intentions more clearly, despite (or because of) Bernanke's supposed commitment to greater transparency. I thought the reaction to Kocherlakota's speech proved my point. Commentators were all over the place in judging what it really amounted to.

The correct answer, I think, is rather subtle. Under present conditions a ceiling on inflation of 2.25 percent looks hawkish. From an NGDP point of view, it might cap growth in demand at much too slow a pace. It's certainly hawkish on Kocherlakota's previous view that structural unemployment has increased during the recession, because this implies that inflation would rise, and hence trigger higher rates, long before unemployment fell to 5.5 percent. But Kocherlakota says he's changed his mind about that. He says new evidence has persuaded him that unemployment can fall to 5.5 percent without pushing inflation up. So he expects his lift-off rule to keep rates at zero for an extended period. (Makes you wonder, by the way, if the paper on the labor market that Edward Lazear and James Spletzer did for the Jackson Hole conference, arguing that US unemployment is cyclical not structural, made a bigger difference to policy than the Woodford paper that attracted all the attention.)

So is Kocherlakota now a dove? It's mostly semantics, once you understand his position--but I'd say no, even though his assessment has switched from "rates will need to rise soon" to "rates won't need to rise soon". Put it this way: He has a hawkish rule and a dovish new forecast. As he himself just proved, however, forecasts are easier to change than rules. At the first sign of rising inflation, Kocherlakota wants rates to go up. He says he doesn't expect that to happen for a long while, but if it does he'll strike. In my book, he's a hawk.

All this underscores what I see as the biggest advantage of the NGDP approach. It invites--indeed it instructs--the central bank to remain agnostic about the real short-term effects of increased aggregate demand. Over the course of the next year, an extra 5 percent of nominal income might be 5 percent inflation and no growth, or 5 percent growth in output and no inflation, or something in between. The central bank can't know or influence how the increase in demand will split between the two. So it shouldn't concern itself with that question. It should simply ask whether demand is increasing at its target rate, a rate consistent with satisfactory growth and low inflation.

That's why I think Kocherlakota--whether you call him a hawk or a dove--is reasoning incorrectly. You don't need to know whether the cyclical component of unemployment is 1 percent, 2 percent, 3 percent or 4 percent to know that demand is currently growing too slowly. And if you know that demand is growing too slowly, you maintain or increase the monetary stimulus.