Rep. Dave Camp (R-MI), Chairman of the House Ways and Means Committee, has proposed a major overhaul of the tax treatment of derivatives. According to Camp, per Richard Rubin of Bloomberg News, “the lack of consistent and comprehensive tax policy has contributed to some corporate scandals and the recent financial crisis that devastated our economy and threatened our standing in the global community.” As Rubinexplains, the heart of the Camp proposal is that firms holding derivatives will be required to mark their holdings to market:
[Taxpayers] would recognize gains and losses each year and pay taxes at ordinary income rates, regardless of whether they dispose of the asset or close out the position.
Camp’s plan would reduce taxpayers’ opportunities to take advantage of the disparate treatment in today’s tax code of economically similar derivatives, said Steve Rosenthal, a visiting fellow at the nonpartisan Tax Policy Center in Washington.
“Most politicians have shied away from tackling financial products because of their wariness of the complexity” of the issue, said Rosenthal, a former corporate tax lawyer who specializes in taxation of financial transactions. “It’s a pretty bold step and I think this idea is sensible. We’ll just have to see how it plays out.”
This is a very significant step, as the current tax treatment of derivatives is realization-based. In December of 2011, Rubin reported on the downsides of the current tax treatment of derivatives:
Several features of the U.S. revenue system make it difficult to tax financial products. Those include the ability to defer taxation using some financial instruments and the preferential 15 percent rate for long-term capital gains, said Viva Hammer, a former Treasury Department official who was responsible for tax policy related to financial institutions and products.
“The ability to toggle in and out of capital treatment allows tremendous flexibility in planning your taxes,” she said.
Congress should require mark-to-market taxation of derivatives at ordinary income tax rates, Hammer said.
“Everyone knows what the right answer is, but no one has the courage to impose it,” she said.
Mark-to-market accounting is intended to require companies to assign fair value to financial instruments and to limit the benefits of deferring realization of gains. [Emphasis added]
In the same article, Rubin referenced the testimony of Alex Raskolnikov of Columbia Law School before a joint hearing of the House Ways and Means Committee and the Senate Finance Committee. Raskolnikov explained how mark-to-market taxation would work as an alternative to the current realization-based tax regime:
In a mark-to-market system, all gains and losses are taxed as if each position is terminated (or sold) at the end of each taxable year and re-entered (re-acquired) at the beginning of the next year. Thus, this system would base tax liability on annual fluctuations in value, whether or not any given asset is sold or retained by a taxpayer. Losses from derivatives would be deductible only against gains from derivatives. Excess losses would be either immediately refundable or available to reduce gains from derivatives in other tax years — either in the future or with a limited carryback. Importantly, the rate applying to gains and losses would be flat. If one believes that most derivatives users are either high net worth individuals or large corporations, one would setthat rate at the top marginal rate, individual or corporate, as appropriate. A more precise approach would set the rate at the top individual or corporate rate applying to any given taxpayer in any particular tax year.As in many versions of the anticipa- tory and retroactive tax regimes, business hedges would be excluded from mark-to-market rules and subject to a special treatment.
The main objections to mark-to-market taxation are valuation and liquidity concerns. The former highlights informational demands of obtaining valuations of all derivatives as well as administra- tion and enforcement concerns with verifying these valuations. The latter reflects unease with forcing taxpayers to pay tax on ‘‘paper gains’’ before they receive any cash related to these gains.
One of the advantages of a mark-to-market system is that it will discourage the use of derivatives as a tax arbitrage strategy and it will intend to increase transparency, which will tend to benefit the consumers of financial services as opposed to the firms that package and sell financial services.
Rather oddly, Ryan Grim and Zach Carter of Huffington Post have an article on the Camp proposal with an alarming title — “Dave Camp Bank Tax Bill Would Punish Obama-Friendly CEOs” — that obscures the reality of the bill, which they describe pretty faithfully in the text:
House Ways and Means Committee Chairman Dave Camp (R-Mich.) is considering legislation that would significantly increase taxes for the nation’s largest banks while providing tax breaks to struggling homeowners.
The draft legislation, which may get significant revision before it’s presented to a congressional committee, would be vehemently opposed by Wall Street and other major corporations that trade heavily in derivative securities.
Yet the focus of the article is the notion that Camp is punishing the Business Roundtable because some of its members were part of the bipartisan Fix the Debt coalition, which has pressed for tax increases as well as spending cuts as part of a grand bargain on deficit reduction. The problem with this thesis is that (a) there is good reason to believe that non-financial firms would benefit from Camp’s approach and (b) it would impact many business enterprises that had nothing to do with the Fix the Debt coalition.
Regardless, the Camp bill looks like encouraging news.
Having discussed Rohit Aggarwalla’s call for abolishing the federal gasoline tax and surface-transportation program, thoughts turn to how state governments might pick up the slack. David Levinson of the University of Minnesota raises a number of arguments for and against devolution, and in doing so he points to his argument that state-level Departments of Transportation ought to be restructured as regulated public utilities:
The United States should follow Australia and New Zealand’s lead, and transform its state Departments of Transportation (or the highways divisions thereof) into separate, publicly regulated, self-financing corporate entities. Full-cost accounting—as already performed by Arizona’s Department of Transportation—constitutes a necessary first step in this direction. In making the transition, policymakers should strive to impose regulation only where absolutely necessary, to minimize the anti-competitive effects of any such regulation, and to leave social objectives to the government, thereby freeing road enterprises to focus on economic ones. Accordingly, road enterprises should be permitted to pursue cost-effective contracting and public private-partnerships as they see fit.
The new road enterprises should also be given latitude to make greater use of user fees—as opposed to general revenue—for funding their activities. Such charges are not just more efficient and equitable than traditional funding sources; if properly designed and implemented, they are also better suited to reducing congestion through effective pricing. Vehicle-miles-traveled charges, weight-distance charges and electronic tolling are all options that road enterprises should be free to pursue.
Levinson observes that the New Zealand Transport Agency, which adheres to the regulated public utility model, has delivered large efficiency gains, as have state-based Australian road enterprises. If the U.S. did devolve primary responsibility for surface transportation to state governments, one assumes that some states would embrace the regulated public utility model while others would stick with a more traditional approach.
And among states that establish state-based transportation enterprises, some would make greater use of direct user fees, including congestion charges and HOT lanes, etc., than others. Over time, the most successful approaches would “go viral,” spreading the benefits of transportation innovation. The result would be a kind of bottom-up federalism, in which states converge around a set of best practices while diverging in other domains to better meet local preferences, as opposed to top-down federalism, in which the federal government imposes or heavy-handedly incentivizes adherence to a set of federal guidelines.
Back in 2008, Thomas Sugrue, a prominent historian of the U.S. civil rights movement, celebrated the radicalism of Martin Luther King Jr.:
The representation of King as mainstream left observers unable to make sense out of King’s opposition to the Vietnam War, his call for an interracial Poor People’s Movement, and his increasingly vocal denuciations of class inequality in America. King, they contended, had been radicalized or, perhaps, was more calculating in his leftward move, changing his rhetoric to remain a legitimate leader in the eyes of younger, angrier blacks. But as [Thomas] Jackson shows, King was anything but a milquetoast racial liberal or a radical-come-lately. Through a close reading of King’s work, Jackson finds deep currents of anti-imperialism running through King’s thought, going all the way back to his days as a student. He finds a consistent thread of anticapitalism in King’s speeches. And he finds that King was building alliances with the left-wing of the labor movement and allying himself with activists who called for structural change in the economy. King, in other words, was a radical well before he offered his prophetic denunciation of the Vietnam War in 1967 or joined the Memphis sanitation workers on strike in 1968.
Before Martin Luther King Jr. Day was established as a federal holiday, some conservatives argued that we should instead celebrate a “Civil Rights Day” on the grounds that King, for all his virtues, had been an anticapitalist radical very much outside of the mainstream. Radicalism shouldn’t disqualify such an important historical figure from praise — far from it — but our evolving understanding of King is emblematic of a broader phenomenon. When Sen. Jesse Helms condemned the proposal to establish a federal holiday in honor of King on the grounds that the civil rights leader was an “action-oriented Marxist,” the reply was not, “Yes, he was an action-oriented Marxist, and we ought to celebrate him as such.” Rather, it was to deny that he could legitimately be understood as an ideological figure. A more forthright approach would necessarily have been more contentious and perhaps less likely to succeed, but it would have had the virtue of reflecting King’s complexity.
First, all revenues from the existing federal gasoline tax would be devoted to repair, maintain, rehabilitate, reconstruct, and enhance existing roads and bridges on the National Highway System. Second, funding for states to build new and expand existing roads would come from a newly created Federal Highway Bank, which would require benefit-cost analysis to demonstrate the efficacy of a new build. Third, new and expanded transportation infrastructure that meets or exceeds projected benefits would receive an interest rate subsidy from a Highway Performance Fund to be financed by net revenues from the Federal Highway Bank.
But now Rohit Aggarwala of Bloomberg Philanthropies has called for a more radical approach, which might garner bipartisan support while forcing believers in competitive federalism to “put up or shut up.” The proposal closely resembles an idea floated by Christopher Papagianis, my erstwhile Economics 21 colleague. Aggarwalla calls for abolition of the federal gasonline tax and the devolution of responsibility over surface transportation to state governments:
Getting rid of the tax would force a serious discussion in each state about how, and how much, to fund roads and transit. States could choose to reimpose the same tax, or they could set a different rate based on their desired level of transportation spending. They could choose to raise other kinds of revenue to pay for roads and transit — such as sales taxes, property taxes, local taxes or tolls. Or they could simply reduce their transportation spending.
Intriguingly, Aggarwalla argues that his approach has the potential to yield significant environmental benefits on the grounds that: (a) the federal gasoline tax is too low to have a significant impact on driving habits, but it is politically extremely difficult to raise it to a level high enough to make a difference; (b) voters in the most automobile-dependent states are, for obvious reasons, particularly likely to oppose increases in the federal gasoline tax, yet these voters derive disproportionately large benefits from federal surface-transportation spending as it is currently structured. So abolishing both the federal gasoline tax and (most) federal surface transportation spending would force a reckoning: state governments in automobile-dependent regions would have fewer dollars devoted to surface transportation in their states, which would either yield large increases in the efficiency of infrastructure spending or support for increased transportation spending and the revenue to pay for it, which would other come from new taxes or from other programs.
State-level conservative elected officials in particular should be eager to run with Aggarwalla’s plan, as it will allow them to demonstrate whether or not they can do a better job with scarce transportation dollars. The idea also resonates with Michael Greve’s critique of intergovernmentalism.
I think I’m into this idea, though of course it leaves many questions unanswered.
Proponents of carbon pricing and other tax and regulatory measures designed to curb carbon emissions and mitigate the impact of climate change tend to focus on those who question whether the rising atmospheric concentration of carbon will have a measurable impact on the global climate system. Cass Sunstein instead wisely chooses to address what he calls the “Sophisticated Objection,” i.e., that unilateral climate change policy is likely to prove expensive while at the same time being unlikely to meaningfully contribute to reducing or even stabilizing the atmospheric concentration of carbon, as the carbon-intensity of emerging economies will continue to rise regardless of actions taken in the U.S. (Indeed, carbon regulation might actually exacerbate the atmospheric concentration of carbon if carbon-intensive economic activities shifted to countries in which the cost of carbon remained low.)
One thing that surprised me about Sunstein’s column, on a tangential note, is that he didn’t make reference to the essay he co-authored with Eric Posner on “Climate Change Justice” back in 2007. In it, the authors conclude, congenially, that:
Arguments from distributive and corrective justice fail to provide strong justifications for imposing special obligations for greenhouse gas reductions on the United States.
Posner and Sunstein made a strong case, and my sense is that the arguments in the paper would appeal to partisans of the Sophisticated Objection.
Sunstein’s first reply to the Sophisticated Objection is that if we are going to have a “international action” on climate change, the U.S. must lead the way. This may or may not be true. It is more likely to be true if Sunstein has in mind a binding international agreement, but I question whether the moral authority of the U.S. is enough to persuade, for example, India or China to take a step that will prove economically damaging in the short-term, and perhaps in the long-term as well. One could imagine a scenario in which a disruptive low- or zero-carbon technology emerges in a non-U.S. country and that it diffuses rapidly, but this is not a binding international agreement. Basically, this reply is weak, as it is grounded in an America-centric view that is misplaced.
His second reply is that domestic carbon regulation will spur innovation in low- or zero-carbon energy technology. This is possible. But much depends on the nature of domestic carbon regulation. Recent experience suggests that legislators will turn to unite around “green industrial policy” efforts that are likely to channel resources to less-than-promising technologies, like corn ethanol and loan guarantee programs for politically attractive initiatives.
Sunstein’s strongest reply is his third, i.e., that unilateral action to mitigate domestic carbon emissions will have broader benefits for the U.S. public. He goes too far, in my view, by suggesting that recent regulations “have easily passed” the test of producing “significant emissions reductions at justifiable expense.” Yet I think that there is a nontrivial reason to believe that the health benefits of reducing carbon emissions, e.g., the impact on infant brain health, might be large enough to justify some kind of carbon price even if we disregard the climate change question entirely, as MIT economist Christopher Knittel has suggested.
Given the breadth of the subject Sunstein is addressing, he doesn’t offer much in the way of discussion of the kind of unilateral strategy we might pursue, apart from referencing rules concerning the fuel efficiency of motor vehicles and other small-bore measures that, frankly, don’t strike me as good bets.
One promising — if decidedly unconventional — strategy was recently floated by Matt Frost, and it has the added advantage of having global implications for the price of one of the most readily-available carbon-intensive forms of energy:
The U.S. government should borrow {$x} from citizens of the year 2120 and use the funds to buy up mining rights to the country’s abundant coal resources, beginning with the most economically viable reserves and continuing down the supply curve until the spot price for coal meets that of natural gas. The purchased reserves would be placed off-limits to extraction in perpetuity. Since the U.S. contains the largest share of the world’s coal reserves.pdf), and is projected to export 124 million tons in 2012, domestic market shifts could cause natural gas and renewable energy sources to become more competitive with coal on a global basis without the need for internationally binding agreements. Finally, because coal deposits are so widely distributed, this policy is one that could be reproduced and extended by other coal-producing nations where policy elites endorse carbon mitigation.
Replacing coal-fired electric generation with natural gas builds on an existing trend: thanks to the shale gas boom and recent regulations restricting coal, the shift from coal to natural gas is already underway in the U.S. Additional regulations, like treating power plant ash as a hazardous waste, or the monitoring and control of mercury emissions, are likely to nudge the relative price of coal higher still. Since natural gas has about half the carbon content of coal per unit of energy, the switch to gas reduces the country’s carbon intensity, allowing us to generate the same amount of economic output for fewer tons of CO2. A government-induced shock to coal prices could accelerate this domestic shift, perhaps permanently.
Matt hasn’t formally written up this proposal, so it ought to be treated as a sketch. It’s central virtue, however, is that it does not rely on unrealistic assessments of the likelihood of global cooperation or the potential success of technocratic efforts to spur technological innovation, nor does it “create artificial markets in ephemeral government-enforced carbon credits.” I hope Matt continues to pursue this concept.
Now that the House majority has successfully pressured Senate Democrats to pass a budget resolution, we are starting to see movement on tax reform. Keith Hennessey offers a number of different scenarios for how a tax reform effort might proceed, depending on whether Democrats intend to pass a party-line bill or if they aim to secure Republican support:
The way to tell which they’re going to do is to look at what the upcoming Democratic budget resolution requires tax reform do on total tax levels. If, as Senator Schumer suggests, the budget resolution requires that tax reform increase total taxes by hundreds of billions of dollars (or even a trillion+!) over the next decade, then reconciliation isn’t just an option, it’s their chosen path. Senate tax reform that massively raises taxes will be a partisan positioning exercise that will not lead to a law, and Senate Democrats will need to use reconciliation to block a Republican filibuster. If the President and Senate Democrats want to try to enact bipartisan tax reform, they’ll have to make it revenue-neutral or nearly so.
Keith observes that congressional Republicans have demonstrated some flexibility in the recent past, a fact that he finds dismaying but significant all the same. Yet he finds it highly implausible that Republicans, including those most inclined towards a bipartisan deal, would countenance a tax overhaul that raises more substantially tax revenue than the post-cliff code, which is the explicit goal of the Obama administration.
Moreover, Keith argues that conservatives shouldn’t rely on the notion that the “dynamic effects” of a very well-designed tax overhaul will be enough to make up the difference between the position of Republican lawmakers and the the president and his allies regarding what constitutes an appropriate tax level, as dynamic effects would likely yield no more than $100-150 billion over the next decade even in a best-case scenario. If the Democratic Senate majority does pass a significantly revenue-positive tax reform bill on a party-line vote, they will have explicitly targeted some nontrivial number of voters for tax increases yet the bill will almost certainly die in the House.
This is why I am slightly more optimistic than Keith that Senate Democrats might be willing to seek a revenue-neutral bill in order to secure at least some Republican support. This would put considerable pressure on House Republicans to back the bill, pressure that will likely divide the House Republican Conference. And that is something the president seems very keen to do.
The Harper government has announced a new initiative that makes a great deal of sense for the Canadian economy, and that capitalizes on the U.S. failure to modernize our immigration laws to increase skilled immigration, both in absolute terms and as a share of the total authorized influx. Tobi Cohen of PostMedia News reports:
Canada is looking to poach Silicon Valley’s intrepid foreign up-and-comers as it launches a “first of its kind in the world” program that will grant immediate permanent residency to qualifying entrepreneurs starting April 1.
Immigration Minister Jason Kenney said Thursday he will head down to America’s technology heartland once the program is in place to begin recruiting the “thousands of super bright young foreign nationals,” often from Asia, who are working at technology start-ups on temporary visas and may have to go home before they’ve been able to obtain their coveted U.S. Green Card.
“We see the bright, young, international tech developers in the U.S. who are stuck on temporary visas as an immediate market, if you will, for this program,” he said.
The icing on the cake comes a bit later:
A similar start-up visa for entrepreneurs was introduced in the U.S. nearly two years ago but has been stalled in Congress. Kenney said it’s an opportunity for Canada to get ahead of the pack because even countries with similar programs don’t offer the perk of immediate permanent residency – a “risk” he’s prepared to take even though not all entrepreneurs are successful.
“We don’t want to penalize people if they don’t succeed on their first start-up, we want to encourage them to make Canada their new home, to contribute in the long-term their human capital to Canada,” he said.
Note that the various startup visa proposals in the U.S. tend to impose somewhat more involved, difficult-to-enforce requirements.
This is a wise course of action not just for Canada, but for the Conservative Party of Canada (CPC). One of more interesting aspects of Canadian politics is that modern Canadian national identity is often identified, particularly among Canadian intellectuals, with the cosmopolitan, social-democratic ideology associated with Pierre Trudeau, Canada’s charismatic, polarizing, and profoundly influential Liberal premier for much of the period from the late 1960s to the mid-1980s. Canada’s older national identity, rooted in its British and (complicatedly) French heritage, has been given short shrift in part due to the enormous demographic and cultural changes that occurred during the Trudeau years and after. At the heart of this post-Trudeau national narrative is the notion that Canada is deeply different from the U.S., and one of the most potent attacks on Canadian conservatives is that they are Americans in disguise.
And so it seems wise that the CPC burnish its nationalist credentials by, for example, taking a tough stance on Arctic sovereignty and demonstrating a desire to “leapfrog” over a U.S. economy that seems, to at least some foreigners, increasingly overregulated, sclerotic, and dysfunctional. This won’t necessarily be pleasant for U.S. conservatives of a nationalist bent, like myself, but the threat of robust competition can be a powerful driver of reform. The Canadians are, in my view, doing the U.S. a favor.
I’ll add that California’s climate is a real draw, but Canada’s biggest cities have their appeal.
Alan Abramowitz condemns Republican efforts to encourage states to apportion their electors by congressional district, which have been endorsed by Reince Preibus, chairman of the RNC. He acknowledges that the idea isn’t likely to spread, yet he suggests that it could take hold in a small number of battleground states and in doing so have a significant impact on the outcome of future presidential elections.
But Abramowitz writes as a critic of the Electoral College, so he doesn’t make the most obvious case against these efforts: politics is an iterative game, and if a sufficient number of states take it upon themselves to change the allocation of electors in such a way as to give one party a structural advantage, other states, in which the other party holds sway, will presumably pursue a different and opposing course of action, e.g., the National Popular Vote interstate compact, which is designed to work as follows:
Under the U.S. Constitution, the states have exclusive and plenary (complete) power to allocate their electoral votes, and may change their state laws concerning the awarding of their electoral votes at any time. Under the National Popular Vote bill, all of the state’s electoral votes would be awarded to the presidential candidate who receives the most popular votes in all 50 states and the District of Columbia. The bill would take effect only when enacted, in identical form, by states possessing a majority of the electoral votes—that is, enough electoral votes to elect a President (270 of 538).
And though we haven’t seen much coverage of the National Popular Vote interstate compact in the national press, it has actually made far more progress than, for example, the Carrico concept that has become an object of enthusiastic disapprobation:
The National Popular Vote bill would guarantee the Presidency to the candidate who receives the most popular votes in the entire United States.
The bill has been enacted by 9 jurisdictions possessing 132 electoral votes — 49% of the 270 necessary to activate it (VT, MD, WA, IL, NJ, DC, MA, CA, HI).
The bill has passed 31 legislative chambers in 21 jurisdictions (AR, CA, CO, CT, DC, DE, HI, IL, ME, MD, MA, MI, NV, NJ, NM, NY, NC, OR, RI, VT, WA). In the recent 47–13 vote in the Republican-controlled New York Senate, Republicans supported the bill 21–11, and Democrats supported it 26–2. The bill has been endorsed by 2,124 state legislators.
Rather than work to upend the way the Electoral College has worked in the vast majority of states for most of modern American history, we might want to recognize the virtues of our current arrangement as they compare to the National Popular Vote bill, which would obviate the Carrico bill quite neatly.
This Carrico bill is a little like mischievously toilet-papering your neighbor’s house while she stacks dynamite around yours on a hot and dry day.
In the warm glow of President Obama’s Inaugural Address, which Artur Davis described as “the most fulsome presidential defense of liberalism” since 1965, left-liberals have a renewed confidence in their political prospects. Alexander Burns of Politicoreports that Jeremy Bird, one of the architects of the Obama reelection campaign, is launching a new effort to turn Texas, a bulwark of the GOP coalition, into a battleground state. Republicans, meanwhile, are still licking their wounds, anxious about demographic and economic trends that seem to cut against a party built on the support of culturally conservative middle-income white voters, a group that represents a shrinking share of the electorate. To make sense of this landscape, I always turn to Sean Trende, author of The Lost Majorityand senior political analyst at RealClearPolitics. Below you’ll find the transcript of a recent email conversation, in which Sean counsels that Democrats not get too cocky and that Republicans keep a cool head as the president and his allies spoil for a fight:
Republicans are in a dismal mood. If nothing else, President Obama’s Inaugural Address demonstrates that leading Democrats believe that the future belongs to political progressives, and that rather than consolidate recent policy victories, they aim to press ahead with carbon pricing, a one-size-fits-all approach to same-sex marriage, the restriction of gun rights, and much else. But in The Lost Majority, which we’ve previously discussed in this space, you argue that successful political coalitions are fragile almost by definition. Is the Obama coalition more vulnerable than it looks?
Absolutely. A coalition of African Americans, Latinos, (some) blue collar workers, suburbanites, and upscale liberals is always going to have trouble holding together. Look what happened in 2009-10 with that coalition. Liberals were upset that we didn’t get enough deficit spending and enough government controls on health care. Suburbanites were upset about the amount of deficit spending and health care changes that we ended up with. Some Latino lawmakers were upset that he didn’t pursue immigration reform, some African American lawmakers were upset that he didn’t tend enough to their interests, and the White House didn’t because it might antagonize other parts of its coalition. The thing blew up, and Democrats lost about 30-40 more seats than the economy suggested that they should.
Not to mention that it very well might be Obama’s coalition. What happens if the next Democratic nominee can’t get African American turnout up to 13% of the electorate, and it falls to the more traditional 10%-11%? That’s a huge drop in almost exclusively Democratic votes. Take Virginia, now considered by many to be a purple-to-blue state. That certainly seems to be fair now with Obama atop the ticket. But in 2009 Democrats were back to 1993, with Bob McDonnell running as well in the state as George Allen had 16 years earlier. In 2010, Republicans won 8 of 11 House seats. In 2011, Republicans picked up the Virginia state senate, gerrymandered by Democrats, and won 57% of the statewide vote for that body. That is good — though certainly not conclusive — evidence that the baseline for Democrats is nowhere near as solid as they might like to believe.
In your writing, and in particular your tweeting, you’ve offered a mordant take on congressional Republicans as the gang that can’t shoot straight. From Plan B to apocalyptic pronouncements regarding the debt limit, at least some Tea Party conservatives have seemed to invite the Obama administration and its allies to characterize them as crazily extreme. You have also suggested that some Republicans are overestimating how safe the House GOP majority is from the prospect of a midterm wave election. What is a plausible nightmare scenario for Republicans in 2014?
The absolute nightmare scenario would be that we go over one of the various “cliffs” — the debt limit would be the worst case scenario, but a shutdown over the CR would be pretty bad as well. They would almost certainly get blamed for any downturn that followed (one we will probably get at some point in the next four years regardless). The problem is that it is very, very difficult to win a showdown with the executive. Democrats learned that with the Department of Homeland Security unionization fight in 2002, and intuited that when they avoided a fight over the Iraq surge and went ahead and funded it. The executive’s microphone is just so much bigger, and he doesn’t have to worry about a wide multiplicity of voices ruining his message. Plus, Republicans have often welcomed a message that they will stop the president as best they can, which makes it harder for them to jump back and point the finger at him.
Also, I don’t think Republicans fully understand the president’s game. It’s not so much to get this agenda passed. The hope is that by fighting for these policies, he can keep enthusiasm up among core Democratic groups and depress the GOP base. At the same time, it gives an angle for conservative Democrats to triangulate against him; Landrieu, Pryor, Baucus and Johnson fighting against and killing, say, gun control gives them some pretty good cred with red state voters. You could see this playing out in a way where Dems gain seats in 2014, or even have a perfect storm and take the House. Not likely, but possible.
Yet the new House debt limit bill seems to suggest a new direction. At least for now, the GOP caucus has united around a longer game. What can congressional Republicans do to shore up their position? Some have argued that the party needs to shift from abstract ideological battles to offering a more concrete agenda for middle-income voters, and in particular for middle-income families with children. What’s the case for and against?
I don’t really see the case against, for either party. Elections are won with the center, with voters that are fairly non-ideological. There’s at least some evidence that Romney won the ideological battle in 2012: Even in this super-Democrat demographic electorate, more voters favored him over Obama on the economy and the deficit. Obama probably won on foreign policy and what political scientists call valence issues: “Who cares about my needs” and such. The GOP doesn’t fix that deficit by pursuing an ideological agenda.
Assuming the Obama coalition isn’t permanent, can you lay out a scenario or two for how it might fragment, and how the GOP might capitalize?
What people need to understand is that the Democratic coalition is every bit as unwieldy as it was in 2009-10. Obama’s current approach is a gamble: That red state Democrats laud their incumbents for opposing his agenda, while liberals stay energized. The opposite could happen: red state Dems could get lumped in with Obama, while liberals, who are feeling their oats, blame Obama if nothing gets done.
And if Democrats did take back the House, it would be a real problem for them. It would likely only be by a few seats, which means conservative Democrats in very red districts would be the deciding vote. With complete control of the government again, Democrats would be expected to accomplish a lot, but those House members could pose some real problems.To capitalize on this, Republicans would be well served to lay low. On gun control, immigration, etc., take the posture that the Senate should go first. Let the red state Democrats take the tough votes, and assuming they can pass something, decide where they want to take the bills, if at all. It’s the opposite of Senate Democrats’ very smart strategy from 2011 — let the House go out on the limb with the Ryan Plan, then dodge any budget fights of their own.
Late last year, Bryan Caplan poured cold water on the hopes and dreams of would-be higher ed revolutionaries when he made the case that “MOOCs,” i.e., massive open online courses, aren’t likely to upend higher education, pointing to, and laughing at, the modest sums of venture capital raised by the most well-regarded MOOC platforms like Udacity and Coursera:
The number of students is indeed impressive. But the dollars of venture capital raised are laughable. Pitiful. The obvious explanation is that venture capitalists see online education as a rival for blogs, Wikipedia, and other online infotainment, not actually-existing higher education. The only lunch online education might eat is the one that existing websites already provide for free to all mankind.
Matt Yglesias offered a more sanguine take, arguing that MOOCs and online education more broadly needn’t bring brick-and-mortar higher education incumbents to their knees to make a valuable contribution to the common good. Yet Caplan added some much-needed cynicism to the “higher education bubble” discussion, noting that brick-and-mortar higher ed will endure because it will continue to serve as an imprimatur or signal to employers. And so far, at least, Udacity and Coursera don’t offer credentials that employers find terribly attractive.
But Kevin Carey has drawn attention to projects like MITx and Western Governors University’s system of competency-based credentialing, which offer more viable alternatives to traditional higher education because the one leverages the prestige of one of America’s most elite research universities while the other leverages the power of its public sector backers. Many students pursue graduate education so that they can “level up” in jobs in public bureaucracies, e.g., teachers pursuing graduate degrees to gain a salary increment in so-called “step and lane” compensation systems. The fact that WGU degrees are widely accepted in this universe gives WGU great heft.
This is why I was very pleased to see, via Nathan Ingraham of The Verge, that a consortium of public universities are offering free MOOCs, with real live credits attached, as a kind of teaser to potential students:
Forty public universities, including Arizona State, Cleveland State, and the University of Arkansas, are planning to offer free online courses that carry full credit in an effort to entice potential students to sign up for a full degree program. The new initiative, know as MOOC2Degree (MOOC stands for massive open online course), is being run in a partnership between the universities and Academic Partnerships, a commercial company that helps universities move their courses online. As part of this initiative, Academic Partnerships will work with the universities to recruit for these courses and will receive a cut of any tuition from students who sign on for further study.
This is the kind of program that could enhance the credibility of MOOCs, thus overcoming the conformity barrier — risk-averse students will tend to shy away from a MOOC-heavy approach out of fear that employers will do the same — Caplan rightly identifies.
My guess is that Republicans in the Senate of Virginia won’t ultimately unite around Sen. Bill Carrico’s call for awarding one elector to the winner of the presidential race in each of the commonwealth’s 11 congressional districts and its remaining two electors to the winner not of the overall popular vote, but rather to the winner of the majority of congressional districts. David Weigel explains why the Carrico plan is problematic, yet he doesn’t leave us with a sense of whether it is likely to make it out of the Senate and the Virginia House of Delegates. Assuming it does not, we ought to congratulate the legislators, including the GOP legislators, who oppose it. But if it does, there is reason to believe that this new Virginia plan could undermine the Electoral College and strengthen the case for abandoning it in favor of national popular vote elections for the presidency, as Josh Barro has suggested.
My latest column for Reuters Opinion is on comprehensive immigration reform. After making the case that immigration is best understand as a core economic policy issue, I try to address the thorny issue of what the U.S. ought to do about America’s large population of unauthorized immigrants. I contrast Sen. Marco Rubio’s call for allowing unauthorized immigrants to regularize their status and to eventually apply to become permanent residents with Peter Skerry’s notion of barring unauthorized immigrants from attaining citizenship while allowing them to become “permanent non-citizen residents.” What I failed to do in the column, however, is draw out the underlying similarities between the proposals, and indeed the differences between the Rubio approach and the traditional “path to citizenship” favored by immigration advocacy groups like America’s Voice and the Obama administration.
The reason I admire the Skerry approach is that it acknowledges the moral concerns of voters exercised by the prospect that unauthorized immigrants will be given a path to citizenship, despite having violated U.S. immigration laws. Allowing unauthorized immigrants to become permanent non-citizen residents recognizes that there is no consensus around a hard attrition strategy, in which all unauthorized immigrants, including those who have been residing in the U.S. for a long enough period of time as to have established themselves in the economic and social lives of their communities, will be strongly encouraged to self-deport due to a progressive tightening of immigration enforcement. Frankly, I am not unsympathetic to the case for a hard attrition strategy. Though I am a strong believer in the value of legal immigration, and particularly skilled immigration, I have long been of the view that it is not unreasonable for the U.S. to enforce its immigration laws, despite the fact that doing so will necessarily involve uprooting families that are firmly rooted in the U.S. As Skerry observes, however, this view is not universally shared. Rather, my view seems to be the view of a vocal minority of diminishing influence.
Given that a large number of U.S. voters find a hard attrition strategy unpalatable, the question is how we going about regularizing the status of unauthorized immigrants so as not to encourage the influx of unauthorized immigrants in the future. Apart from Skerry’s normative insight, i.e., permanent non-citizenship reflects the gravity of breaking U.S. immigration laws, he makes the convincing case that immigration enforcement is immensely difficult, particularly in light of the diversity and geographical dispersion of the unauthorized immigrant population.
Rubio starts from the same place as Skerry. That is, he both accepts that a hard attrition strategy is unviable given the scale and rootedness of the unauthorized immigrant population — which numbers over 11 million, nearly two-thirds of whom have resided in the U.S. for over ten years and nearly half of whom are the parents of minor children — and that allowing unauthorized immigrants to have an edge over aspiring lawful immigrants in securing permanent resident status would be unfair.
The key difference is perhaps more trivial than I suggest in my column. Right now, those who violate U.S. immigration laws are barred from applying to permanent resident status for ten years, but not for life. Skerry’s approach would regularize the status of unauthorized immigrants yet would bar them from becoming law permanent residents eligible for citizenship. Rubio seeks to regularize the status of unauthorized immigrants who come forward, pay back taxes and an appropriate fine, etc. After ten years, these individuals will be allowed to apply for permanent resident status, which might in turn lead to citizenship down the line. Note that these individuals will be allowed to apply for permanent resident status. If U.S. immigration law changes to prioritize skills, English language proficiency, and assets, as I think it should, the immigrants who will be granted permanent resident status will be those who have demonstrated a capacity for economic self-reliance.
Though I continue to think that Skerry’s approach has its virtues, it is fair to say that Rubio’s approach does capture the gravity of the violation of U.S. immigration laws. Moreover, it might be more politically realistic. Immigration advocates who want a quite easy path to citizenship have gained considerable momentum, and the Rubio proposal potentially represents a more politically viable middle ground than the Skerry approach, which could be described as excessively punitive. Indeed, one could argue that the Skerry approach would have made more sense in 2007, when the Bush administration sought to secure the support of conservative Republicans in the House for its ill-fated comprehensive immigration reform proposal. Had the Bush White House proposed permanent non-citizen resident status for unauthorized immigrants, it might have defanged at least some of the opposition from advocates of immigration restriction, thus squaring a difficult circle. But opponents of comprehensive immigration reform no longer have the upper hand, and the Rubio approach allows for a long lead time that would encourage cultural assimilation.
I continue to believe that a temporary guest worker program is a mistake, and I want to be sure that Rubio’s ultimate bill moves us to a Canadian- or Australian-style skills-centered immigration policy in exchange for the regularization of the status of unauthorized immigrants. But there is no question that Sen. Rubio has moved the ball forward, and that his approach reflects core conservatives priorities.
Congressional Republicans have semi-gotten their act together by embracing something very close to the Keith Hennessey strategy on the debt limit. Hennessey explains how the latest move from the House GOP might shape the broader fiscal policy debate:
By forcing/encouraging/persuading Senate Democrats to do a budget resolution, this debt limit bill levels the playing field for future fiscal policy debates. House Republicans who have had to defend their proposed spending cuts will now be able to contrast those at-times painful policy choices with whatever alternatives Senate Democrats propose. This will clarify the fiscal policy choices and make the debate one that is simultaneously both more honest and less unfair to spending cutters.
What I’ve found interesting is that the most vociferous critics of House Republicans on the debt limit have generally failed to praise this strategic shift, despite the fact that, as Hennessey explains, it will help move us towards reestablishing the normal budget process.
Donald Marron has provided more detail on the core provisions of the House debt limit bill and how it is likely to work.
In Redirect, Timothy Wilson, a psychologist at the University of Virginia, identifies “story editing” as one of the main ways people make sense of their lives and overcome challenging circumstances. The following is drawn from a Scientific Americaninterview of Wilson:
We all have personal stories about who we are and what the world is like. These stories aren’t necessarily conscious, but they are the narratives by which we live our lives. Many of us have healthy, optimistic stories that serve us well. But sometimes, people develop pessimistic stories and get caught in self-defeating thinking cycles, whereby they assume the worst and, as a result, cope poorly. The question then becomes how to help people revise their negative stories.
One approach is psychotherapy. Cognitive behavioral therapy (CBT), for example, which is designed to identify and change people’s negative thinking patterns about themselves and the social world. CBT is an effective way of helping people, especially those with serious problems such as depression or anxiety disorders. But social psychologists have discovered another approach that is simpler and can help people with less serious problems. I call this “story editing,” because people are encouraged to edit their personal stories in beneficial ways. [Emphasis added]
Wilson’s book came to mind in light of Ramesh Ponnuru’s latest Bloomberg Viewcolumn on sensible measures designed to reduce the number of mass shootings and to deal with their consequences. One of the proposals Ramesh references, however, is in tension with one of Wilson’s core arguments:
Noah Pozner’s family also proposes that the government fund school-security reviews and upgrades, and augment emergency grief counseling. (From the memo: “After Noah’s death, family members underwent an initial extended and horrible period without any mental health assistance.”)
Redirect opens with a discussion of Critical Incident Stress Debriefing (CISD) sessions:
The premise of CISD is that when people have experienced a traumatic event they should air their feelings as soon as possible, so that they don’t bottle up these feelings and develop post-traumatic stress disorder. In a typical CISD session, which lasts three to four hours, participants are asked to describe the traumatic event from their own perspective, express their thoughts and feelings about the event, and relate any physical or psychological symptoms they are experiencing. A facilitator emphasizes that it is normal to have stressful reactions to traumatic events, gives stress management advice, answers questions, and assesses whether participants need any additional services. Numerous fire and police departments have made CISD the treatment of choice for officers who, like Gary Felice, witness horrific events—indeed, some departments require it. It is also widely used with civilians who undergo traumatic experiences. Following the September 11, 2001, terrorist attacks, more than nine thousand counselors rushed to New York City to help survivors deal with the trauma and prevent post-traumatic stress disorder, and many of these counselors employed psychological debriefing techniques.
Wilson contrasts CISD with another approach, closely related to the idea of story editing:
Instead of asking Officer Felice to relive the trauma of Tommy Schuppel’s death, suppose we let a few weeks go by and see if he is still traumatized by the tragic event. If so, we could ask him to complete, on four consecutive nights, a simple exercise in which he writes down his deepest thoughts and emotions about the experience and how it relates to the rest of his life. That’s it—no meetings with trained facilitators, no stress management advice—just a writing exercise that Felice does on his own four nights in a row.
As Wilson explains, the most common intuition is that early intervention and the help of a trained professional is vastly preferable to a simple unsupervised writing exercise that happens after the fact. It turns out, however, that CISD seems to “freeze” memories of the traumatic event in question, impeding the “story editing” that is an essential part of recovery from trauma:
In 2003, after reviewing all tests of the effectiveness of psychological debriefing techniques, Harvard psychologist Richard McNally and his colleagues recommended that “for scientific and ethical reasons, professionals should cease compulsory debriefing of trauma-exposed people.” Unfortunately, this message has not been widely disseminated or heeded. In 2007, after a disturbed student at Virginia Tech University killed thirty-two students and faculty, students and emergency workers underwent stress-debriefing techniques similar to CISD.
The writing exercise appears to yield superior results:
This technique, pioneered by social psychologist James Pennebaker, has been tested in dozens of experiments in which people were randomly assigned to write about personal traumas or mundane topics such as what they did that day. In the short run, people typically find it painful to express their feelings about traumatic experiences. But as time goes by, those who do so are better off in a number of respects. They show improvements in immune-system functioning, are less likely to visit physicians, get better grades in college, and miss fewer days of work.
My concern is that “emergency grief counseling” is very attractive as a political proposal, as it aligns with our commonsense intuitions and it aligns with the interests of professional counselors, for whom legislation that enshrines the importance of emergency grief counseling and provides funding for it would be a major victory, despite the fact that there is good reason to believe it will prove ineffective relative to a low-cost alternative. This example is of particular interest to those of us who favor a leaner, more efficient public sector.
In a similar vein, voters enthusiastically backed “three strikes laws” backed by correctional unions with a direct material stake in their passage on the grounds that more punitive policies certainly seem like a good way to fight crime. But we have good reason to believe that these laws have actually exacerbated crime relative to the alternative of increasing the police presence in high-crime neighborhoods by, among other things, reducing the stigma associated with incarceration.
The goal of stationing uniformed police officers in K-12 schools is to deter or prevent violence. One wonders, however, if the presence of armed police in the schools might lead to the exacerbation of disciplinary problems, as turning to the police will increasingly become an option of first rather than last resort among school administrators faced with disobedient students. School discipline is an extremely difficult issue that is not accorded the attention it deserves, and I’m far from an expert. But Jamelle Bouie of The American Prospect gives us reason to worry about the “school-to-prison” pipeline.
My only word of caution is that while there are real concerns about the fairness and the efficacy of school discipline policies, there are K-12 schools in which the threat of violence is real and, in a few instances, pervasive. Bouie is absolutely right to be concerned about the unintended consequences of excessively punitive strategies. But I hope that policymakers give more thought to less punitive strategies that might be more effective at reducing the threat of violence, e.g., applying some of Mark Kleiman’s insights to improving classroom discipline.
David Weigel describes how Rob Liefeld, America’s most polarizing comic book entrepreneur, has gained “strange new respect” from fans for having surrendered creative control over several of his more half-baked characters to a group of avant-garde writers and artists. Liefeld’s shrewd move is an example of how owners of valuable intellectual property can preserve their relevance and vitality in a remix culture.
Last week, I had the pleasure of watching a discussion of software patents sponsored by America’s Future Foundation. The panelist I found most convincing was Christina Mulligan, a fellow at the Information Society Project at Yale Law School. Back in April, she wrote a short piece calling for the abolition of software patents:
About 40,000 new software patents are issued in a typical year. They regularly cover trivial or commonplace activities, such as paying for something online with a credit card. The patent on raising a pop-up window when you try to leave a Web page can be infringed in as little as three lines of computer code, while computer programs often exceed millions of lines. Any program has the potential to infringe hundreds, if not thousands, of patents.
It doesn’t have to be this way. Eliminating software patents would still leave code protected by copyright, which can be infringed only by actual copying, not by accidentally writing something similar to an existing piece of code.
Recognizing the pernicious nature of software patents, Twitter is committing in its new Innovator’s Patent Agreement to primarily use patents it acquires from employees defensively — not to sue, only to countersue. More companies should follow Twitter’s lead. But it would be even better if they didn’t need to waste money acquiring patents defensively at all. Then those billions of dollars could go toward what people are really interested in — new and better software.
Suffice it to say, the patent attorneys disagreed with Mulligan, though they did so earnestly, out of a genuine belief that one can separate out patents covering trivial or commonplace activities from other software patents in a coherent, justiciable way. What I found most striking is that none of the patent attorneys present defended the status quo. Rather, they agreed that the scope of software patents should be radically narrowed. That seems like a good baseline for discussion.
One of the ironies of President Obama’s Inaugural Address, according to Artur Davis, is that it represented a “fulsome presidential defense of liberalism,” yet it will precede a second Obama term that is unlikely to produce much in the way of tangible legislative accomplishments:
Given the alignment in the House, and the number of red state Democratic senators on the ballot in 2014, there is no viable chance Obama can actually enact a single item on the liberal wish list. Not one–from an assault weapons ban to an overhaul of corporate deductions, to cap and trade, to comprehensive immigration reform, to a government financed infrastructure plan, to a recalibrated war on poverty, to campaign finance reform.
So, Obama Part 2 is more about the tactical work of isolating conservatives than classic presidential legacy building: in other words, not so different from the stalemate of the second half of Obama’s first term. Of course, for liberals, the president’s middling results have had the perverse consequence of providing a rallying cry without a record of accomplishments that are susceptible to backfire (the backlash at Obamacare is a window into how vulnerable Obama might have been if he had managed to pass legislation on immigration or climate change).
My only disagreement with Davis is that the president might be able to secure some limited cooperation from congressional Republicans on immigration reform, particularly if the GOP has significant buy-in, and perhaps on infrastructure. But his broader point is well taken. That is, had the 111th Congress achieved all of the objectives set out by the president and his left-liberal allies, e.g., had congressional Democrats succeeded in creating a real carbon pricing, one can imagine that the current political playing field would be far more favorable to Republicans. The GOP would have been able to make a popular case against a deeply unpopular measure without leaving its ideological comfort zone. Instead, the center-right coalition finds itself in a far more difficult environment, as Davis explains:
This entirely unpredictable element–that gridlock has spared Democrats the consequences of their policies floundering–coupled with the shifting demographics that Republicans have struggled to adjust to, have left an altered political landscape. If not quite the liberal dawn that some Democrats are prematurely celebrating (as they did four years ago), the terrain is changed enough that major stretches of Obama’s speech already seem more boilerplate than visionary.
And in that shifting space, Republicans have lost ground. For example, there will still be a robust immigration debate, but the goal of deporting large-scale numbers of undocumented immigrants is a political non-starter. The Affordable Care Act will remain controversial, as premiums rise and its taxes and mandates touch real lives and businesses, but the baseline of the fight will be an acceptance that universal healthcare is a contemporary social value. Republicans will contest the inevitable new taxes Democrats propose, but with the burden of having conceded that not all tax increases kill job growth.
Many conservatives will resist Davis’s conclusion, but it is important to specify what the new baseline does not mean: it does not mean that conservatives will have to salvage and defend the four-tranche system created by the ACA. Rather, it means that the center-right will have to offer a more ambitious health system overhaul, which will ideally move us towards a system that is more sustainable, more market-oriented, and more likely to spur business-model innovation than the pre-ACA status quo.
Ultimately, as Avik Roy has suggested, this could mean shifting Medicare and Medicaid in the direction of private providers competing to offer a defined benefit at a cost taxpayers are willing to bear. President Obama’s reelection represents a significant setback for the right. But the fragility of the ACA, and the delays and cost overruns that will likely emerge in the years to come, will tend to overcome the risk-aversion of the electorate regarding health system reform, as lived experience of the ACA will make serious reform efforts seem more palatable. To be sure, this will be true of serious reform efforts from the left, including single-payer, as well as from the right. Center-left thinkers have already started thinking through the second round of cost-control-oriented health system reforms post-ACA, but center-right thinkers are just getting started.
Earlier this month, Josh Chafetz of Cornell Law School, author of Democracy’s Privileged Few and the forthcoming Congress’s Constitution, released a short article on “The Phenomenology of Gridlock” that sheds a lot of light on the Obama years. Josh kindly agreed to answer a few questions via email. I’ve trimmed it a bit to save money on pixels.
There is a widely held view, commonly though not exclusively encountered on the political left, that congressional “gridlock” is a serious problem, as it means that Congress is failing to take action to address various pressing policy challenges. Your article suggests that this diagnosis is at best imprecise. What are the critics of gridlock missing?
Observers — right, left, and center — have a tendency to look at Congress, see that it is not passing laws to deal with pressing issues, declare this to be evidence of institutional dysfunction, and then begin hunting for the causes. But inaction doesn’t have causes; action does. Lawmaking is inertial — the legal status quo ante endures unless something happens to change it. So, instead of asking about what causes inaction, we need to ask what conditions are sufficient to motivate legislative action. If these conditions are met and we still don’t get legislation, then we have dysfunction, but the absence of legislation is not, itself, evidence of dysfunction.
So then the question becomes: what conditions are sufficient to motivate legislative action? In a democracy, this question has to be answered in reference to the views and interests of the public. And here’s another place where I think political observers have a tendency to slip up: we tend to assume that our own views are more widely shared than they in fact are. Psychologists call this “false consensus bias.” People who are absolutely convinced that X is a serious problem and that Y is the best solution to that problem tend to assume that X is widely understood to be a problem and that nearly everyone agrees that Y is the way to deal with it. If Congress doesn’t enact Y, then, there must be dysfunction.
In fact, though, we frequently disagree about whether and to what degree X really is a problem. And, importantly, even if we do all agree that X is a problem, “X is a problem” is not a legislative proposal. Unless we can also come to consensus around some particular Y, we still shouldn’t expect to see legislation. The opposite of gridlock is not no-gridlock; it is some particular legislative action–some Y. And unless we get sufficient public consensus around Y, we should not expect to see action out of a representative legislature.
Basically, then, I want to persuade people to start asking a different question. Instead of, “How do we deal with gridlock?”, I want them to ask whether sufficient public consensus exists to motivate specific legislative action. And only if the answer is yes and we still don’t see action do I want them to then begin asking about how to deal with this dysfunction.
I’m glad that I read President Obama’s Inaugural Address in lieu of listening to it live. Back in 2004, after his keynote address to the Democratic National Convention, I wrote an op-ed for the New York Sun arguing that Barack Obama was more left-wing than was commonly understood at the time. Specifically, I made the case that he saw the public sector as the prime vehicle for the values of solidarity and community in American life. And in this most recent speech, the president collapsed the distinction between collective action and government action again and again, very much in keeping with social-democratic thinking.
As Noam Scheiber explains, the president has come to understand — rather late in the game — that his understanding of what solidarity ought to look like is not universally shared. Earlier in his career, Obama believed that there was an underlying public consensus beneath the spectacle of rancorous ideological combat:
Put simply: We basically agree on the need for good jobs, reliable health care, quality education, and a dignified retirement, and for a role for government in all of the above. The only reason it’s not happening is that people sometimes get distracted by the bloodsport that is politics. Just end the bloodsport, and the problems would very nearly solve themselves. Or as Obama put it in his first inaugural: “[W]e come to proclaim an end to the petty grievances and false promises, the recriminations and worn-out dogmas that for far too long have strangled our politics.”
What Obama has learned over the past four years is that we don’t actually agree on that much. A lot of people—a huge chunk of the country, in fact—emphatically disagree him. It turns out that the bloodsport aspect of politics isn’t so much a cause of our dysfunction. It’s largely an effect—an extension of the fact that people have really strong feelings on both sides of these questions. And if you want to win some of them over, it’s not enough to raise the level of political discourse and treat one another with more civility. You’ve got to change how people feel about the underlying questions of policy and values. You’ve got to explain to them why too much income inequality is counterproductive and why the safety net is indispensable.
The problem is that the president fails to understand the nature of the underlying disagreement, as do most of his allies. Noam writes:
Pre-2011, Obama would suggest that the need for “a basic measure of security and dignity” was a matter of consensus and then fulminate against the procedural hurtles to realizing it. Since then, he’s been much more aware of the fact that tens of millions of people disagree with what he regards as a commonsense role for government, and he’s been much more focused on defending it. Today he explained that “no matter how responsibly we live our lives, any one of us, at any time, may face a job loss, or a sudden illness, or a home swept away in a terrible storm.” He added that Medicare, Medicaid, and Social Security don’t “sap our initiative,” as Mitt Romney and Paul Ryan would have it. “They free us to take the risks that make this country great.” Those are simple enough points, but they’re powerful and can’t be made enough. [Emphasis added]
Yet Romney and Ryan were both defenders of the safety net, albeit a different and more restrained vision of the safety net. Left-of-center observers tend to see support for Medicare among Republicans as self-serving hypocrisy. What they fail to appreciate is that most conservatives believe that there is a place for the safety net, but that this safety net ought to be made fiscally sustainable and that the expansion of the safety net really can “sap our initiative” if, for example, it punishes work. It is a commonplace among policy scholars that the “implicit marginal tax rates” created by means-tested anti-poverty programs can have perverse effects.
There is no question that some of President Obama’s critics would prefer to eliminate rather than modernize old-age social insurance programs like Medicare and Social Security, at least as a first best option. This is a big and diverse country. But Romney and Ryan certainly didn’t take that view, and I doubt that you’d find many House Republicans who’d take it either.
It is true, however, that Republicans have failed to craft a compelling domestic policy agenda that reflects the ideological conservatism and operational centrism of the American electorate. Conservatives need to find a way to reconcile support for a sustainable safety net with their convictions about limited government and the central importance of civil society, and that is exactly what people like Ryan are trying to do. But until that happens, we can expect more inaugural addresses like this one.
And there is another thing to keep in mind, which is that President Obama’s reelection means that the American state will henceforth operate from a new baseline. The principle of universal, or rather near-universal, medical coverage has been established, and conservatives will either have to make a robust case for why and how we ought to move away from this principle or find an alternative strategy for achieving the goal of universal coverage. Part of me thinks that this is the most consequential aspect of the Obama presidency. Another part of me thinks that the the pre-ACA status quo represented an unstable equilibrium, and that we’d either wind up with an ACA-style four-tranche system of universal coverage (also unstable) or a more conservative-friendly alternative built around universal catastrophic coverage (possibly more stable) regardless. But I guess the question is now moot.
Charles Kenny of the Center for Global Development, home of Michael Clemens, one of the leading intellectual advocates of liberalizing global labor migration, has written a new Bloomberg Businessweekcolumn on why the U.S. immigration system should move from quotas to tariffs:
Back in the 1960s and ’70s, one of the early and hugely important steps taken by GATT—the predecessor to the World Trade Organization—was to move the world from a reliance on trade quotas to a system based on tariffs. As a rule, quotas are less efficient than tariffs. If the market changes, and there’s more demand for an import, quotas mean that none of that extra demand is met. And someone has to chose who gets the imports that are let in. That process is, at best, bureaucratic, and at worst, rife with corruption and favoritism.
Tariffs, on the other hand, are applied equally to all imports, are flexible in the face of changing demand, and don’t favor the connected few. And governments get the benefit of tariff revenue to pay down the national debt or fund anything from flood relief to research on gun crime.
The same logic that applies to importing goods applies to importing people. The current immigration system involves a bunch of different quotas: for skilled workers from particular countries, for family members, for lottery winners—the list goes on. The process of deciding who gets in under the quota is expensive and chronically inefficient. And the government doesn’t even make any money from it.
And so Kenny proposes a $50,000 tariff:
So, how much could—or should—we charge for the right to live and work in the U.S.? Becker suggested the U.S. should let in anyone who can pay $50,000 to Uncle Sam and pass a criminal background check. That may seem like a lot of money, but Miao Chi and Scott Drewianka of the University of Wisconsin estimate (PDF) that, allowing for factors including age and education, the average recent Mexican immigrant with a green card (permanent resident status) earns roughly $20,000 a year more than the average Mexican immigrant without one (on a more limited visa or undocumented). So, allowing for education, the average immigrant from south of the border would recoup that $50,000 in less than three years.
Money generated from immigrant tariffs could be used to support low-income native workers through initiatives like the Earned Income Tax Credit—reducing political opposition to migration among those who see themselves most at risk. A $50,000 tariff applied to 1 million migrants (about one-third of 1 percent of the U.S. population) would be enough to almost double the size of the EITC program.
The problem with Kenny’s proposal, in my view, is that if we are going to set a tariff, $50,000 is almost certainly not the “correct” price. Kenny’s concern is that the price might be too high, yet the findings of Miao Chi and Scott Drewianka suggest otherwise. Moreover, his thought experiment stipulates that a $50,000 tariff would lead to an influx of 1 million, but of course we don’t know what the market-clearing price would be. In the first year of the new system, in light of pent-up demand, the $50,000 tariff might lead to far more than 1 million immigrants, which in turn might lead to a backlash against immigration tariffs.
This is why Derek Khanna’s proposal for H-1B visa auctions is closer to the mark:
In the current H-1B visa system, the price of the visas does not rise or fall in response to market conditions. The entirely predictable consequence is that companies scramble for visas and often fail to get enough of them. A company whose need for the visas is strong receives the same treatment as do companies whose need for them is weak. It’s a failed market model.
We should greatly increase the number of H-1B visas and put them up for competitive bidding. There are many models for this. One is the spectrum auction, whereby telecommunications companies bid on government licenses to transmit signals over specific bands of the electromagnetic spectrum.
Competitive bidding would enable the companies that value visas the most to pay for them. And it would help small and medium-sized businesses, which often have the most difficulty filing their paperwork on time and often lose out to big businesses in the competition for the few available visas. Competitive bidding for visas would mean a rational market governed by supply and demand.
Khanna’s proposal is an incremental reform that would apply only to H-1B visas, presumably on the grounds that Congress would find extended the logic of competitive bidding to all immigration would be distasteful. It is worth observing, however, that if we moved from allowing extended family reunification, etc., to competitive bidding for virtually all visas, including spousal visas, U.S.-based families could still bring relatives to live with them. One difference, however, is that families would be able to choose which relatives, and indeed which friends, matter most. Most proposed reforms of family reunification call for restricting eligibility to spouses and minor children, but of course it is easy to imagine a U.S. citizen who really wants to bring over her second cousin. Competitive bidding makes room for her to do just that, provided she is willing to pay for the privilege.
Family reunification also requires sponsorship, in which the sponsoring family demonstrates that it has the resources to support the newly arriving family member at 125 percent of the poverty line. My sense is that this requirement is only loosely enforced. But competitive bidding would mean that families would have to think seriously about whether they could afford to take on the potential burden of supporting a family member. Generally speaking, competitive bidding would tend to skew the immigrant influx towards those most able and willing to pay, which will greatly reduce the likelihood that these new arrivals will represent a net fiscal burden.
Patrick Brennan recounts a recent conversation between Joseph Stiglitz, the left-of-center Columbia economist and public intellectual, and Paul Krugman, the left-of-center Princeton economist and public intellectual, both of whom are recipients of the Clark Medal and the Nobel Memorial Prize, as their admirers will happily remind you. Though Stiglitz and Krugman are both advocates of fiscal expansion, and in particular of a larger role for state-sponsored social insurance programs and an increase in public investment, they disagree over the impact of household income dispersion in shaping the current economic climate. The discussion has been illuminating in all kinds of ways. It confirmed some of my prejudices about Stiglitz and it disconfirmed some of my prejudices about Krugman. Patrick has done an able job of drawing out the most interesting threads.
On a tangential note, I attended a dinner in honor of Stiglitz over a year ago, and he discussed, inter alia, the flaws in GDP accounting, e.g., that we include public expenditures in GDP only as inputs, ignoring their beneficial economics effects. What struck me about Stiglitz’s remarks is that he never acknowledged the possibility that public expenditures might make various inputs less valuable than they’d be otherwise. As Stephen Smith and Alon Levy often remind us, some governments are much better, which is to say more efficient, at building infrastructure than others, and these relative differences in efficiency ought to inform the lessons we draw from comparative analysis.
Earlier this week, Andrew Valentine of Verizon, one of America’s largest telecom enterprises, wrote an insanely amusing blog post recounting how a U.S.-based software developer in his mid-40s (“Bob”) had outsourced his work to a Chinese consulting firm based in Shenyang at a cost of $50,000 per year, less than a fifth of his salary. One of the more striking aspects of Valentine’s account is that Bob had received stellar performance evaluations from his supervisors, which is to say that his company was quite happy to pay him five times as much as his Chinese counterpart.
Valentine’s blog post has resonated mostly because readers have been both delighted and appalled by Bob’s cleverness. Yet one wonders about Bob’s Chinese counterpart, toiling away in Shenyang. What kind of good might this very able Chinese software developer — let’s call him “Li” — do in the United States? Bob’s story reminds us that the wage gap between U.S.-based software developers and software developers based in the developing world is substantial. Some have thus concluded that Bob’s employers were saps, as they could have saved a great deal of money by going the outsourcing route themselves. The more complicated truth is that U.S.-based companies really do benefit from having skilled workers on-site, Bob’s chicanery notwithstanding. If they didn’t, one assumes that enthusiastic outsourcers would have long since driven companies like Bob’s out of business. And Matt Yglesias has drawn on Michael Clemens’ latest work to show that the same Indian software developer will be substantially more productive if she is based in the U.S. than if she remains in India. Highly-productive workers become more productive when they’re surrounded by other highly-productive workers, as Michael Kremer argued in his celebrated article on “The O-Ring Theory of Economic Development.” Another way of putting this is that if we’re impressed with what Li can do in Shenyang, we’d be really, really impressed with what he could do in San Francisco or Austin.
Meanwhile, Bob could engage in geographical arbitrage of his own: if he wants to spend his days reading Reddit and watching cat videos, he’d do well to move to a low-cost jurisdiction or country, where he could live a life of leisure for much less than it would cost him in a highly productive U.S. city.
The Bipartisan Policy Center offers a primer on what life might look like after the U.S. federal government crosses the “X date,” the day the debt limit is breached.
Given the rancor of negotiations over long-term deficit reduction, budget hawks are restraining their ambitions. Ron Haskins of Brookings, for example, has ruefully offers a new goalpost:
So forget going big or even medium on deficit reduction. Now we need to go tiny. And what is tiny? Following William Galston of Brookings, I define tiny as holding the line on the accumulated debt of the federal government as a percent of GDP over the next ten years. The debt-to-GDP ratio is now 73 percent. If our goal is to treat this 73 percent as our deficit line in the sand, how much will we need to slow spending growth or increase revenue to arrive at New Year’s Eve in 2023 with a federal debt at or below 73 percent of GDP?
This is in keeping with the Obama administration, which has called for $1.5 trillion in additional deficit reduction to stabilize the debt-to-GDP ratio. But the Committee for a Responsible Federal Budget argues that a stable debt-to-GDP ratio is not the right goal as it allows no room for error. If growth proves slower than the CBO’s projections, we could aim for stability and wind up with a much higher debt-to-GDP ratio:
To demonstrate why a $1.4 trillion plan is unlikely to be sufficient, we put an illustrative plan into our long-term budget model. Specifically, we took CBPP’s $1.191 trillion of primary savings ($185 billion in 2022) and $177 billion of interest savings ($51 billion in 2022) and assumed the primary savings is split equally between revenue and spending (CBPP’s “Scenario B”). For illustrative purposes, we assume all of the health and other mandatory savings from the President’s budget, with additional spending reductions coming from discretionary spending.
As the graph below demonstrates, this deficit reduction would be sufficient to keep the debt stable only through 2023 after which it would begin to rise again — reaching 94 percent of GDP in 2035 based on CRFB’s Realistic Baseline. Although the savings grow over time, particularly the interest savings, they do not grow fast enough to combat the effects of health care cost growth and population aging. In other words, we should enact more savings in order to get out in front of these effects.
CRFB concludes by addressing the underlying question of why we should care about shrinking the debt-to-GDP ratio, emphasizing that a lower level of public debt would give the federal government more “running room” to increase spending in the event of an economic or national security crisis. Here’s hoping kinetic computing rides to the rescue.
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