Economist's View

Sachs: Where are the Global Leaders?

Jeffrey Sachs urges leaders to recognize that "working with the UN agencies is in fact the only way to solve global problems":

Where are the global leaders?, by Jeffrey Sachs, Commentary, Project Syndicate: The G8 Summit in Japan earlier this month was a painful demonstration of the pitiful state of global cooperation.

The world is in deepening crisis. Food prices are soaring. Oil prices are at historic highs. The leading economies are entering a recession. Climate change negotiations are going around in circles. Aid to the poorest countries is stagnant, despite years of promised increases. And yet in this gathering storm it was hard to find a single real accomplishment by the world's leaders. The world needs global solutions for global problems, but the G8 leaders clearly cannot provide them. Because virtually all of the political leaders that went to the summit are deeply unpopular at home, few offer any global leadership. They are weak individually, and even weaker when they get together and display to the world their inability to mobilize real action.

There are four deep problems.

Reich: McCainomics Versus Obamanomics

Robert Reich characterizes differences in the economic philosophies of Obama and McCain:

A Short Primer on McCainomics Versus Obamanomics: Top-Down or Bottom-Up, by Robert Reich: McCain and Obama represent two fundamentally different economic philosophies. McCain's is top-down economics; Obama's is bottom-up.

Top-down economics holds that:

Preferential Trade Agreements

Douglas Irwin reviews Jagdish Bagwati's new book:

How Free Is Free Trade?: Bhagwati's 'Termites in the Trading System', by Douglas A. Irwin, Book Review, NY Sun: ...In "Termites in the Trading System," [Jagdish Bhagwati] argues that not all trade deserves our equal support, ... and mounts a brisk and spirited attack on preferential, so-called "free trade" agreements...

Why is one of the world's staunchest supporters of free trade protesting so passionately against this method of reducing trade barriers? ... The right way to reduce trade barriers, he explains, is on a multilateral basis and in a nondiscriminatory way. After World War II, America led the world in creating the General Agreement on Tariffs and Trade (GATT), which did just that... In recent years, however, countries have increasingly bypassed this system. Now, it is common for two or more countries to agree to eliminate tariffs and reduce other trade barriers for each other, but not for others... Under Bush, America has concluded ... CAFTA ... and a series of bilateral agreements with countries ranging from Oman to Australia, and — most recently and controversially — Colombia.

The main problem with these bilateral and regional agreements is that they exclude other countries. In Mr. Bhagwati's view, they are more accurately called "preferential" trade agreements because they discriminate against non-participating countries. ...

By introducing discriminatory treatment into the trading system, the movement toward preferential trade agreements sacrifices economic efficiency and, perhaps more troublingly, throws the carefully constructed postwar system into disorder. Instead of having one common multilateral system, ... Mr. Bhagwati ... has referred to this as the "spaghetti bowl" system, in which these agreements create a tangled mess of restrictions and regulations, ultimately disrupting rather than promoting free trade.

Mr. Bhagwati ... instead ... makes a strong case for opening trade much more aggressively at the multilateral level — with all-inclusive and nondiscriminatory agreements. ... There is little doubt that Mr. Bhagwati is right in his preference for multilateral and universal agreements, but he does not resolve the problem faced by those who support free trade ... and who may need to take a position on bilateral agreements...

As the Colombian example suggests, many "free trade" agreements are motivated by foreign policy considerations. ... An alternative hypothesis is that politicians are not seeking to enhance economic efficiency or improve the world trading system, but have other, political objectives in mind.

In the end, Mr. Bhagwati concedes that "halting the formation of [preferential trade agreements] is no longer a possibility." He pins his hopes on mitigating their adverse effects on trade by reducing overall trade barriers to such an extent that preferences and discrimination do not matter all that much. That in turn depends upon future unilateral efforts at trade liberalization and further progress at the WTO. ...

For more, see this recent post, or see Richard Baldwin's "Multilateralising Regionalism: The WTO’s Next Challenge." He argues, correctly I think, that the WTO must take an active role in turning bilateral and regional agreements into multilateral, all-inclusive, nondiscriminatory arrangements.

"Republican Economics is Not the Solution to our Problem"

Harold Meyerson argues that, due to his adherence to the Republican view that government is always the problem, never the solution, and the Bush administrations realization it had no choice but to embrace government intervention to stabilize the financial sector and the economy, John McCain has little to offer in response to the current economic crisis:

What McCain Economic Policy?, by Harold Meyerson, Commentary, Washington Post: "Government is not the solution to our problem," Ronald Reagan told his fellow Americans in his first inaugural address. "Government is the problem."

For modern American conservatism, Reagan's words may as well have been inscribed on the tablets handed down at Mount Sinai. The market was god and Reagan was its Moses, and Republicans have sworn fealty to both for the past quarter-century. One invariable feature of the 2007-08 Republican primary debates was the effort of each candidate to cast himself as Reagan's one true heir. John McCain proudly recounted how he enlisted as a foot soldier in Reagan's revolution. How was he to know that government was about to become a solution again?

Over the past few months, George W. Bush's administration, which consciously modeled itself after Reagan's, has repeatedly been compelled to bail out private or semi-private financial institutions, re-regulate markets, and rescue beleaguered homeowners. Government, it turns out, is indeed a solution -- at times, the only solution -- for large-scale market failure, a problem not foreseen in the gospel according to Reagan.

Unfortunately for McCain and his fellow Republicans, it's the only gospel they've got. At the very moment when the economy looms larger in Americans' consciousness than it has in decades, McCain comes before the electorate doctrinally adrift. ...

How to explain the McCain campaign's glaring contradictions on economic policy? ... One problem is that McCain himself has no real ideas about how to fix the economy... An even deeper problem is that standard-issue Republican economic policy has run out of plausible mantras. The ritual extolling of markets and denigration of government make no sense at a moment when a conservative Republican administration is rushing to save the markets through governmental intervention.

Or, to use Reagan's construction: Republican economics is not the solution to our problem; Republican economics is the problem -- for our nation, surely, and also for candidate McCain.

"Drain America First"

Jeff Frankel says Republican proposals to increase oil extraction within our borders are at odds with both environmental and energy security goals:

Offshoring is a More Dubious Policy, When the Question is Oil Drilling, by Jeff Frankel: President Bush yesterday removed a long-standing executive moratorium on off-shore oil drilling..., a move also supported by presidential candidate John McCain. ... No doubt ... that it is a political stunt. A Congressional ban on offshore drilling has been in effect since 1981, so the President’s action is moot. ...

[B]oth parties are responding (unsurprisingly) to the American public’s great sensitivity to short-term prices for gasoline (in the summer) and home heating oil (in the winter). No doubt high prices are causing a lot of hardship. ...But market prices are high today for a reason. What is the market failure that would call for government intervention in the oil market?

What Liberal Bias in the Federal Courts?

By way of The Rogues in Robes to Digby to Discourse.net to here, a graphic showing Republican dominance in appointees to the federal courts. This shows that, if anything, the courts suffer from a conservative bias, not a liberal bias as you here so often from the right:

Discourse.net adds "And just imagine how monotone this will become if McCain is elected!"

What are McCain's Plans for Social Security?

Mark Kleiman notes the implications of the McCain campaign's recent statements about taxes and Social Security:

McCain says: "Slash Social Security benefits", by Mark Kleiman: No, that's not a headline you can expect to read. But it's the truth.

Carly Fiorina says that McCain might raise taxes on rich folks as part of a Social Security deal.

Grover Norquist, speaking as the Grand Inquisitioner of the anti-taxers, more or less replies: "Bullsh*t! I wear McCain's b*lls on my keyring!"

Then comes the punchline:

A McCain campaign spokesman told ABC News Monday that McCain continues to oppose any tax increase as part of Social Security reform, notwithstanding Fiorina's comments.

"The lesson of history is that too many specifics at this point polarize the debate, that is the argument Carly was trying to make," Taylor Griffin said. "However, John McCain does believe that we can fix Social Security without raising taxes. As president, John McCain will call on Congress to develop a bi-partisan solution to Social Security — and if they won't, he will."

Three points here:

1. "Too many specifics at this point polarize the debate" translates into English as "If we told the retirees how completely we plan to shaft them, they might not vote for us."

2. The McCain camp seems to have invented a new idea: unilateral bipartisanship. If Congress doesn't come up with a bi-partisan plan, McCain will single-handedly come up with his own bi-partisan plan.

3. Since McCain has now committed to "fixing" the Social Security "problem" without raising taxes, and since the only two ways of getting projected revenues to match projected benefits is to increase revenues or reduce benefits, it follows that McCain is committed to cutting Social Security benefits. And that's before he has to reduce them again to accommodate the diversion of new money into private accounts.

So not only does McCain think that Social Security is "an absolute disgrace," he knows what he wants to do about it: he'll reduce pensions but not increase taxes on the wealthy.

This seems to me like Christmas in July.

First, I don't want to leave the impression that Social Security is a big problem - it's not. Some tweaks may be needed to bring revenue and benefits into alignment, but it's nothing that can't be handled relatively easily according to current projections.

But McCain believes there is a problem despite the projections (otherwise why would he be talking about fixing it?), and his plan for dealing with it appears to be to cut benefits (I count increasing the retirement age as a cut in benefits and, since you work and pay taxes for more years than before, an increase in taxes as well, so is he ruling this out?). Whether the problem is real or not, his choice of how to deal with it is telling.

Then here's the question. Why hasn't the Obama campaign opened their Christmas gifts and made use of them? Why haven't they gone after McCain's "disgrace" remark regarding Social Security? Have they said anything at all about that? Why haven't they hammered away at some of his statements and the inconsistencies surrounding them about carve-out privatization plans? Will they do anything with the implication identified above that McCain must be planning to cut benefits? Why so much silence from the Obama campaign on the Social Security issue?

Obama: It’s Time to End this War

Barack Obama says "on my first day in office, I would give the military a new mission: ending this war." He believes that we can "safely redeploy our combat brigades at a pace that would remove them in 16 months. That would be the summer of 2010":

My Plan for Iraq, by Barack Obama, Commentary, NY Times: The call by Prime Minister Nuri Kamal al-Maliki for a timetable for the removal of American troops from Iraq presents an enormous opportunity. We should seize this moment to begin the phased redeployment of combat troops...

Unlike Senator John McCain, I opposed the war in Iraq before it began, and would end it as president. ...

"What If the Candidates Pandered to Economists?"

Greg Mankiw:

What if the Candidates Pandered to Economists?, by N. Gregory Mankiw, Economic View, NY Times: In the months to come, John McCain and Barack Obama will be vying for the support of various voting blocs. It is safe to say, however, that one group won’t get much attention: economists.

The American Economic Association represents only a small fraction of 1 percent of the electorate. In every election season, we economists expect to be largely ignored, and, unlike many of our other forecasts, that one often turns out to be right.

But suppose it were otherwise. ... What would it take to put the nation’s economists solidly behind a candidate?

On many issues, from universal health insurance to increased taxes on the rich, economists do not speak with a single voice. But on some issues we do. Here is an eight-plank platform designed to attract a majority of economists. It is based on discussions I have had with my colleagues — call them focus groups, if you’d like — and polls of my profession:

SUPPORT FREE TRADE...

OPPOSE FARM SUBSIDIES...

LEAVE OIL COMPANIES AND SPECULATORS ALONE...

TAX THE USE OF ENERGY...

RAISE THE RETIREMENT AGE...

INVITE MORE SKILLED IMMIGRANTS...

LIBERALIZE DRUG POLICY...

RAISE FUNDS FOR ECONOMIC RESEARCH...

You might view this policy as nothing more than a way to buy a few votes. Perhaps you view economists as mere mortals, as tempted as anyone else by special interests. Maybe you would regard more funding for economic research as not very different from the billions thrown every year at farmers.

If you are that cynical, I won’t try to dissuade you.

Ignoring the details that follow each proposal, there's one I'm not sure about, so seven out of eight for me (see here).

A Bunch of Whiners?

Amity Shlaes says Phil Gramm is right, people really are whiners. This annoys me. Comments below:

Phil Gramm Is Right, by Amity Shlaes, Commentary, Washington Post: ..Phil Gramm ... is McCain's most senior economic adviser.. Now, however, Gramm faces political exile because he made the mistake of telling the truth.

What prompted the abrupt demotion? The short answer is what might be called Campaign Econ. Campaign Econ says the American economy is a certain way because Americans think it is. Campaign Econ competes with real economics and often wins -- with damage that extends way beyond, say, the political career of either Phil Gramm or John McCain.

So people are irrational in their beliefs? Must be how we got Bush as president. Anyway:

Consider what happened this week. While speaking with the Washington Times, Gramm said that the country was not in a true recession but a "mental recession." He also said, "We have sort of become a nation of whiners" and "You just hear this constant whining..."

Gramm was right about the recession and stood by his recession comments on Thursday. A recession is two consecutive quarters in which the economy shrinks, and last quarter it grew. But no matter. Voters feel they are in a recession, and so they are, at least according to Campaign Econ. ad_icon

She doesn't know what she is talking about, or she is being intentionally misleading. That's not how a recession is defined. But you don't have to believe me, here's the NBER - the people who formally date recessions:

Q: The financial press often states the definition of a recession as two consecutive quarters of decline in real GDP. How does that relate to the NBER's recession dating procedure?

A: Most of the recessions identified by our procedures do consist of two or more quarters of declining real GDP, but not all of them. ... Our procedure differs from the two-quarter rule in a number of ways. First, we consider the depth as well as the duration of the decline in economic activity. Recall that our definition includes the phrase, "a significant decline in economic activity." Second, we use a broader array of indicators than just real GDP. One reason for this is that the GDP data are subject to considerable revision. Third, we use monthly indicators to arrive at a monthly chronology.

Q: Could you give an example illustrating this point?

A: On July 31, 2002, the Bureau of Economic Analysis released revised figures for gross domestic product that showed three quarters of negative growth in 2001-quarters 1, 2 and 3-where previously the data had shown only quarter 3 as negative. This revision shows why the committee does not rely on a simple rule of thumb such as two consecutive quarters of negative growth, nor relies on GDP data alone, in making its determinations, but rather looks at a broader array of statistics. In November 2001, the ... two-quarter-decline rule of thumb would not have allowed the declaration of the recession... It was not until eight months later that revisions in the GDP data showed declining real GDP for the first, second, and third quarters of 2001.

Back to the article which, I hope you can see, is based upon a false premise due to her apparent lack of understanding of how recessions are dated. (I would have thought she'd know this claim isn't right, it's been written about so much most people who write about these issues know the NBER procedure by now, so there's a chance this is an intentional deception. If it's not intentional, if she doesn't know how recessions are dated, then she has no business writing about it.) Her claim is that because there hasn't been two consecutive declines in GNP, the economy can't be having problems. Therefore, people are nothing but whiners.

She says you can't tell people the truth, that they really are nothing but whiners, because it hurts their feelings:

Gramm's second sin was political. Calling voters whiners is to shame them. ... Campaign Econ is unabashedly populist, and to seek to elicit shame is regarded as unpardonably elitist. ...

Calling someone who has just been laid off a whiner doesn't shame them, it makes them mad. And it should.

Now she's going to tell us about the problems that don't exist:

Campaign Econ is certainly understandable. Gas prices are ruining vacation plans and killing businesses. Many Americans have lost or are about to lose their homes... inflation plagues the country. The weak dollar is altering our everyday calculations. For many, this is not a happy summer.

But don't talk about that unhappiness - you'll be called a whiner!:

Still, to liken the current moment to the Great Depression, or even the early 1980s, as Campaign Economists have, is to whine, just as Gramm said. ... The country approached double-digit unemployment in the early 1980s. This week, even as McCain was trying to talk his campaign past Gramm's comments, joblessness stood at a historically modest 5.5 percent.

If you look at the NBER definition, you will see that they look at employment and personal income as part of the dating procedure. How have those been doing? How's the employment to population ratio looking these days? Cherry picking a single statistic - unemployment - to make a case is unconvincing, especially when other labor market indicators tell a very different story.

Next, the standard blame the government for any problems that might occur. The press and politicians convince people of problems that aren't really there (they just decide one day, out of the blue, to start saying the economy is in trouble), then the evil government responds:

And Campaign Econ has costs. The first is that talk of a downturn -- or "mental recession," as Gramm put -- can itself generate a downturn. Keynesian economists say this is so because consumer spending slows when people are afraid. But there's also a non-Keynesian dynamic. Grumbling leads to costly government rescues that scare markets and slow growth.

Yes, it's wrong for government to step in and try to help all the whiners that lose their jobs in a downturn. They and their families should suffer through whatever problems they might encounter since conservatives think that helping them might slow economic growth (even though there's no evidence that slower economic grwoth is a problem we should worry about).

Oh, I forgot, there is no downturn, only the possibility of one due to evil government's support of Fannie and Freddie:

[A]s evidenced by the plummeting prices of Fannie Mae and Freddie Mac shares, serious trouble may be closer than we think. The plunging stock of the government-sponsored mortgage companies reminds us that those entities urgently require restructuring. Wall Street figures and the Senate Finance Committee ... are already talking about how to structure a bailout. But this task is about stopping recession, not luxuriating in it.

I guess it's okay to whine about the possibility of a recession if you can somehow cast it as a problem with government.

The next part is no surprise. She can't write a column without taking a swipe at Social Security and Medicare.

Social Security and Medicare also need rewriting -- and Gramm put forth one of the better proposals on Social Security in the 1990s.

How does Gramm's proposal in the 1990s relate to people whining about the non-existent problems she just identified?

So here's here solution:

In short, to fix it all, we need a frank conversation about the economy. McCain, in fact, inaugurated one back in 2006 when he gave a speech that was downright Gramm-like at the Economic Club of New York.

To "fix it all"? But I thought people were whining about nothing? Oh, I see, to fix it all we need to fix entitlements:

In that speech, McCain said that on entitlements, hard choices were necessary. He concluded: "Any politician who tells you otherwise, Democrat or Republican, is lying."

This was McCain at his best. Many voters knew it, too.

Yeah, the voters knew that was McCain at his best - and they realized if that was his best there wasn't much substance there - and they either moved on to support other candidates, or held their nose and supported McCain (some even write columns).

More on the solution:

The way to strengthen the economy right now is to elect leaders who dare to talk about problems in precise and even technical terms -- and then act on them. McCain has that capacity, but only if he can transcend Campaign Econ.

Precise, technical terms like knowing the definition of a recession? First-rate analysis of the economics of a gas tax holiday? Honest presentations about deficit reduction plans? Things like that would be nice, but as we saw from the whiner comment - a very technical and precise term - I'm afraid we won't get that from McCain's team.

You see, it's okay to whine about Social Security based upon deceptive presentations of its financial state or to whine about social programs generally, it's okay to whine about anything the government does to try to help people having troubles due to the state of the economy, it's also okay to whine about the liberal press misleading people, and it's okay to whine incessantly if anyone so much as thinks about making taxes more progressive.

But if you have lost your health insurance, had your wages stagnate, your retirement program at work eliminated or scaled back, if you are worried about job security or have been forced to look for a new job as the economy retools for the global age, if you are worried about how gas prices, food costs, and other price increases might impact your budget and have seen the value of your house plunge as those around you get into trouble, if you so much as dare to speak up about any of these or other problems, then you are nothing but a whiner.

Buck up, common folks, the rich people in the Republican party are doing just fine, thank you very much, and they really don't want to hear whining from the masses.

Update: Via Brad DeLong:

McCain Throws Phil Gramm Off the Train/Under the Bus/Over the Side:

Think Progress: Holtz-Eakin: Phil Gramm Is No Longer ‘Giving Advice To Senator McCain’» Since Thursday, Sen. John McCain’s (R-AZ) presidential campaign has been in damage control mode, attempting to distance itself from top economic adviser Phil Gramm’s belief that America is “a nation of whiners” that is only going through a “mental recession.” “Sen. Graham and I, as I said, we have a total disagreement on whether Americans are whiners or not,” McCain told reporters yesterday.

Appearing on PBS’s Nightly Business Report last night, McCain’s senior policy adviser, Douglas Holtz-Eakin, claimed that because of the comments, Gramm would no longer be giving McCain advice:

GERSH: Is Senator Gramm still giving advice to Senator McCain?

HOLTZ-EAKIN: No.

GERSH: No.

HOLTZ-EAKIN: At — I haven’t spoken to Senator Gramm since the comments took place, and I’m not expecting to...

"I am Not Paid Enough to Deal with This Lying Bullshit"

Brad DeLong gets Bush-whackoed:

Every Time I Try to Crawl Out, They Pull Me Back in!, by Brad DeLong:

You know something?

I hate yelling shows.

No, that is not right:

I HATE YELLING SHOWS!

No, that is still not right:

I HATE YELLING SHOWS!!

Maybe this will do it:

I HATE YELLING SHOWS!!!!

Called on forty minutes' notice, I trot over to the J-School studio to be a talking head on BBC/Newsnight about Fannie and Freddie. I have my talking points ready:

...[extensive list of points]...

In short, I trot over to the J-School TV studio as part of the sober, sensible, bipartisan consensus, intending to carry water for Ben Bernanke and Hank Paulson.

And what do I find also on BBC/Newsnight when I get there?

I FIND THAT I AM ON WITH GROVER-FRACKING-NORQUIST!! I FIND THAT I AM ON WITH GROVER-FRACKING-NORQUIST!!! WHO HAS THREE POINTS HE WANTS TO MAKE:

• Barack Obama wants to take your money by raising your taxes and pay it to the Communist Chinese.
• Oil prices are high today and the economy is in a near recession because of Nancy Pelosi: before Nancy Pelosi became speaker economic growth was fine--and she is responsible for high oil prices too.
• Economic growth is stalling because congress has not extended the Bush tax cuts. Congress needs to extend the Bush tax cuts, and if it does then that will fix the economy, and if it doesn't then the economy cannot recover.

I am not paid enough to deal with this lying bullshit. I am not paid enough to deal with Grover Norquist and his willful stream of defecation into the global information pool.

It is as Paul Krugman says somewhere: Grover Norquist's M.O.--George W. Bush's M.O.--the entire Republican Party's M.O. these days is (a) find a problem (i.e., financial crisis and threatening recession), (b) find something you want to do for other reasons unrelated to the problem (i.e., extend the Bush tax cuts), (c) claim without explanation that (b) will solve (a), and so (d) profit--because Peter Cardwell of BBC/Newsnight is too busy being the objective journalist referee of the yelling match to do his proper job and say:

Come, come, Mr. Norquist, are you serious? Your claim to believe that Nancy Pelosi's actions are responsible for the rise in oil prices is risible!

OK. Calm down. Adjust my meds...

Mr. Paulson? Ben? Are you there?

I have been carrying water for the two of you for a year now, as you have tried to do your jobs and contain the ongoing slow-motion financial crisis. Lots of us have been carrying water for you. Now you owe us a favor.

Will you please call John McCain Saturday morning. Call him jointly. Tell him that there is serious public business that needs to be done, and that pseudo-ideologues like Grover Norquist are not helping.

Tell him that unless he can control the swine like Grover Norquist and his ilk who work for him, that both of you are going to, Monday morning:

• announce your support for Barack Obama for president
• announce your change of affiliation from the Republican to the Democratic Party

You owe it. You owe it to me after that TV appearance. You owe it to all of us in the sober, sensible, bipartisan consensus. You owe it to your country. You owe it to the world.

"What Kind of Economist is Phil Gramm?"

Jamie Galbraith reviews Phil Gramm's Ph.D. dissertation:

Phil Gramm is ... John McCain’s ... closest economic adviser, and according to many reports practically the designated Secretary of the Treasury in a McCain administration. ... So it is perhaps worthwhile to ask, what kind of economist is Phil Gramm? ...

Back in 1995, when Phil Gramm was politically invincible in Texas, various so-called friends suggested that I should be the sacrificial lamb to run against him. I ducked, as any sensible person would have. But (at their request) I did supply the Dallas Morning News with a referee report on Gramm’s dissertation, along with a few notes on that of his wife. Needless to say, hers was much better.

To inject a note of academic sobriety into this election campaign, my review follows.

The review is here. A taste:

... His method is essentially, a critical review of literature.

For a Ph.D. dissertation, especially one which is not mathematical (and it isn’t), this one at 79 pages is short. It contains no advanced mathematics, no data or analysis of data, no archival or otherwise original research. It is based solely on published sources available in any well-equipped library at the time, and there is only one reference to anything written after 1960, which for a thesis submitted in 1967 is astonishing. The writing style is for the most part graceless and involute, marred here and there by misused words like “fecundities.” It is belabored and repetitive, with chapters that overlap each other. It is basically an extended discussion of a single idea. ...

Paul Krugman: Kennedy's Big Day

Advocates of universal health care should be encouraged by "the first major health care victory that Democrats have won in a long time":

Kennedy’s Big Day, by Paul Krugman, Commentary, NY Times: ...On Wednesday, Senate Democrats ... won a huge victory on Medicare. ... Ted Kennedy, who is fighting a brain tumor, made a dramatic appearance on the Senate floor, casting the decisive vote amid cheers from his colleagues. (Only one senator was absent: John McCain.) ...

It was the first major health care victory that Democrats have won in a long time. And it was enormously encouraging for advocates of universal health care. ...

Wednesday’s vote was about restoring cuts in Medicare payments to doctors. What it was really about, however, was the fight against creeping privatization. Democrats finally took a stand...

The story really begins in 2003, when the Bush administration rammed the Medicare Modernization Act through Congress... That bill established ... Medicare Advantage plans ... in which Medicare funds are funneled through private insurance companies...

Since then, enrollment in these plans has been growing rapidly. This has had a destructive effect on Medicare’s finances: the fastest-growing type of Medicare Advantage plan ... costs taxpayers 17 percent more per beneficiary than Medicare without the middleman. It also threatens to undermine Medicare’s universality, turning it into a system in which insurance companies cherry-pick healthier and more affluent older Americans, leaving the sicker and poorer behind.

What does this have to do with cuts in doctors’ fees? Well, legislation passed a decade ago makes ... cuts automatic... This year, the automatic cuts would have reduced doctors’ payments by more than 10 percent, a pay reduction so deep that many physicians would probably have stopped taking Medicare patients.

In previous years, payments to doctors were maintained through bipartisan fudging ... to waive the rules. ...

This year, the Democratic leadership decided, instead, to link the “doctor fix” to ... reining in those expensive private fee-for-service plans. Last month, the Senate took up this bill — but Democrats failed by one vote to override a Republican filibuster. And that seemed to be that...

But then Democratic leaders decided to play brinkmanship. They let the doctors’ cuts stand for the Fourth of July holiday, daring Republicans to threaten the basic medical care of millions of Americans rather than give up subsidies to insurance companies. Over the recess period, there was an intense lobbying war between insurance companies and doctors.

And when the Senate came back in session,... the bill passed with a veto-proof majority.

If the Democrats can win victories like this now, they should be able to put a definitive end to the privatization of Medicare next year, when they’re virtually certain to have a larger Congressional majority and will probably hold the White House.

More than that, however, advocates of universal health care ... have to be very encouraged by this week’s events.

Here’s how it will play out, if all goes well: early next year, President Obama will send his health care plan to Congress. The plan will face vociferous opposition from the insurance industry — but the Medicare vote suggests that this time, unlike in 1993, Democrats will hold together.

Unless Democrats win even bigger than expected, however, they won’t have the 60 Senate votes needed to override a filibuster. What the Medicare fight shows is that the Democrats could nonetheless prevail by taking their case to the public, daring their opponents to stand in the way of health care security — so that in the end they get some Republicans to switch sides, and get the legislation through.

A lot can still go wrong with this vision. But the odds of achieving universal health care, soon, look a lot higher than they did just a couple of weeks ago.

A Disgrace?

Dean Baker:

For folks not familiar with Social Security, it is the country's biggest social program. It costs over $600 billion a year (20 percent of the federal budget) and has 50 million beneficiaries.

At a forum on Monday, after wrongly claiming that Social Security won't be there when young workers retire, McCain went on to say:

"Americans have got to understand that we are paying present-day retirees with the taxes paid by young workers in America today. And that's a disgrace. It's an absolute disgrace, and it's got to be fixed." [Transcript available from Congressional Quarterly]

Of course present-day retirees have always been paid their benefits from the taxes paid by current workers. That has been true from Social Security's inception.

Some folks might have thought Senator McCain's description of Social Security as a "disgrace" was worth a mention somewhere in the media, but the NYT, Washington Post, WSJ, and USA Today don't seem to have noticed. It's not like he said "bitter."

hilzoy:

I was watching CSPAN yesterday, while I was eating dinner, and who should I see but John McCain. And he said the most extraordinary thing. It's the second paragraph of the excerpt that follows; I've included the rest so that you can see that there was no context that made it seem more reasonable...

Let me repeat the astonishing bit: "Americans have got to understand that we are paying present-day retirees with the taxes paid by young workers in America today. And that's a disgrace. It's an absolute disgrace, and it's got to be fixed."

The fact that we are paying present-day retirees with the taxes paid by workers, young or otherwise, is not a disgrace, or a scandal, or a new development. Social Security has been funded this way since its inception.  ... This is not a disgrace; it's the way the system operates. And it's certainly not a sign that we've mortgaged our children's futures, or that something has to be fixed.

One interpretation of this statement would be that McCain is being deceptive: trying to make a straightforward feature of Social Security seem like a scary new problem, in order to gin up support for his nonexistent plans to fix it. I tend to think that he just doesn't know how Social Security works. (This would explain why he doesn't see the problem with privatizing the system: the need to pay a generation's worth of transition costs.) However, it doesn't really matter which explanation is right: either one ought to be close to disqualifying. ...

More hilzoy:

Just one day after releasing an economic plan (pdf) that said that "John McCain supports supplementing the current Social Security system with personal accounts" (p. 5), McCain repeated his earlier claim that "I want young workers to be able to, if they choose, to take part of their own money, which is their taxes, and put it in an account which has their name on it."

Supplementing Social Security with private accounts is one thing. Allowing workers to divert their FICA taxes into private accounts is another. The first just gives workers more options; the second guts Social Security's funding. These are very, very different proposals. Unfortunately, McCain doesn't seem to understand the difference, perhaps because he doesn't understand how Social Security works.

And there's this:

Now, before you think, "Wow, that must be a slip of the tongue, he can't possibly mean that," please note that McCain said essentially the same thing to John Roberts on CNN this morning. ...

This is not the first time that McCain has hinted that he will follow in Bush's Social-Security-dismantling footsteps. In a Wall Street Journal interview published in March, he made his intentions explicit:

"I'm totally in favor of personal savings accounts," [McCain] says. When reminded that his Web site says something different, he says he will change the Web site. (As of Sunday night, he hadn't.) "As part of Social Security reform, I believe that private savings accounts are a part of it—along the lines that President Bush proposed.

(Months later, McCain still hasn't changed his website.)

Does McCain really think he can get away with having two different Social Security plans? Well, as ThinkProgress has pointed out, McCain was denying his history of supporting private accounts just last month. It seems he just can't make up his mind. But perhaps having two different positions makes political sense—especially if one of them has already failed.

It's becoming clear that McCain simply reads what's on the cards (and not very well), but he really doesn't get the finer details of policy and is thus susceptible to confusion, misdiagnosis, and to bad suggestions from those around him. Haven't we had enough of that over the last seven and a half years?

Update: Paul Krugman on McCain's knowledge of policy, doomsaying about Social Security as a badge of seriousness in Washington, and taking bad advice:

A disgrace, all right

Dean Baker points us to John McCain...

I’d guess that there are three things going on here.

First, McCain has no idea how Social Security works. That may sound hard to believe, but not to anyone who has spent any time in or around the federal government. Politicians, by and large, get where they are mainly by looking and sounding good; this may or may not go along with any actual understanding of governing.

Second, McCain lives in the Washington bubble; and as I wrote a while back,

Inside the Beltway, doomsaying about Social Security — declaring that the program as we know it can’t survive the onslaught of retiring baby boomers — is regarded as a sort of badge of seriousness, a way of showing how statesmanlike and tough-minded you are.

Finally, McCain has surrounded himself with people who hate Social Security. They probably tell him that it’s a doomed Ponzi scheme, and he believes them.

Kevin Drum notes McCain also spouted the usual tax cuts are self-financing nonsense. If he doesn't know this claim is false by now, he's not qualified to set economic policy. And if he does know it, and he must, what does it say about his character that he is willing to say it anyway?:

John McCain ... sure seems to think [Social Security's] funding mechanism is a disgrace, and last night he repeated himself... This is nuts. McCain is talking as if he just figured out that this is how Social Security works and he's scandalized by it. ...

But you want something even scarier? In the very same interview, McCain serves up the supply-side full monty to CNN's John Roberts: "You can't get over the fact that historically when you raise people's taxes, revenue goes down," he said. "Every time we cut capital gains taxes, there has been an increase in revenues." The second half of this statement is flat out wrong, and the first half is so wrong that we need a new name for it. This is Jonestown levels of Koolaid drinking.

But maybe we're being unfair. After all, 300 economists signed a letter enthusiastically supporting McCain's economic plan. Or did they? Kevin Drum again:

This is amusing. A couple of Politico reporters called some of the 300 economists who "enthusiastically support" John McCain's "Jobs for America" plan and found that their support was somewhat less enthusiastic than advertised:

In interviews with more than a dozen of the signatories, Politico found that, far from embracing McCain's economic plan, many were unfamiliar with — or downright opposed to — key details. While most of those contacted by Politico had warm feelings about McCain, many did not want to associate themselves too closely with his campaign and its policy prescriptions.

....Constantine Alexandrakis, a professor at the University of Massachusetts-Dartmouth, expressed second thoughts about signing. "I would describe myself as an Obama supporter," he explained. "Maybe I shouldn't have rushed into signing the letter."

Maybe he shouldn't have! As for the others, it turns out that they merely signed on to a brief statement of intent (low taxes, low spending, free trade, etc.), not the 15-page number-free plan that McCain released on Monday. So there's no telling how much of his plan they actually support. ...

Somebody who's not me ought to start dialing up the other 280+ signatories and find out just how much of McCain's plan they really support. Do they think the current Social Security funding mechanism is a disgrace? Are they in favor of a gas tax holiday? Do they think his multi-trillion tax cut will increase revenues? Inquiring minds want to know.

"Luck and Unemployment Rates"

I'll let Richard Baldwin introduce this one. From Free exchange:

Luck and unemployment rates, by Richard Baldwin: Remember when unemployment rates over 10% were normal in Europe? Now the average for the EU is under 7%, with only two members in double-digit range (Spain and Slovakia). Sixteen of the 27 have rates at 6% or less, nine with 5% or less and three have rates that would make America jealous (Cyprus, the Netherlands and Denmark). The full list is here.

What happened? Liberal market economists would love to argue that their persistent clamour for more flexible labour market policies is finally bearing fruit. But on Vox today, Patrick Minford and his co-authors make a more subtle argument that I find rings true.

Mr Minford and his colleagues start from the assumption that distortionary big government policies are the source of the sort of equilibrium unemployment Europe has now. The trick then is to explain why these distortionary policies fluctuate according to very long waves that let us think of the 1970s and 1980s as high unemployment decades and the current decade as one of low unemployment.

Good and bad luck magnified by special interest group policies is their argument.

Prolonged high and low unemployment periods are supported by supply-side changes driven indirectly by shocks to the economy. Negative shocks generate political economy pressure which yields reinforcing distortionary supply-side responses such as increased political demands for social protection. These distortions produce a high unemployment equilibrium underpinned by distortionary policies that enjoy political support due to the high unemployment rate.

Similarly, a string of good shocks produces a more liberal supply-side policy as voters and pressure groups are less concerned about unemployment. A self-reinforcing political process favours supply-side reform that keeps the economy in a virtuous circle of low-unemployment, high-output and pro-market policies.

The result? The economy has two stable equilibria. One like the 1980s. One like the current decade.

Here's the full article:

Vicious and Virtuous cycles – the political economy of unemployment in interwar UK and US, by Kent Matthews, Patrick Minford, and  Ruthira Naraidoo

"The GOP's December Surprise"

Jamie Galbraith on political business cycles - the manipulation of the economy for political purposes causing cyclical regularities in the data - and the prospects for the economy after the election:

The GOP's December Surprise, by James K. Galbraith, Mother Jones: Is the worst over? Are we on the road to recovery? ... Early this year, the optimists ... argued that the slowdown was short-term and that a "stimulus" package should be "targeted and temporary." This with rare haste the Democratic Congress enacted. As a result, most taxpayers got one-time $600 checks in May...

The rebate isn't the only little Dutch boy thrown headlong at the dike this election year. Government spending, especially for defense, will be up... Dick Cheney was secretary of defense for Bush 41; just before the 1992 election he engineered a big run-up in outlays, as the military restocked following the first Gulf War. ... Is the Pentagon up to that trick again? I'd be astonished if it were not.

Under intense pressure from panicky bankers, Ben Bernanke cut interest rates relentlessly from August 2007 through the spring of 2008. I don't accuse Bernanke of playing politics. But it's worth noting that this is what usually happens. In presidential election years when Republicans are in office, the Fed ... pursues a more expansionary policy than when Democrats rule—after controlling for differences in the rates of inflation and unemployment. (I made these calculations myself; see the chart.) ...

But much of the ordinary effect of interest cuts on new lending—like a rebound in construction and automobile sales—didn't happen this time. ... Lower interest rates did cut the value of the dollar, however, and that promotes exports and foreign investment. ...

Possibly all this stimulus will ward off the two-quarter decline that has historically defined a recession. Don't be surprised: Republicans haven't had an election-year slump since 1960. .. Even if they can't stop a recession, they may be able to make it short and shallow enough, this year, to put John McCain in the White House. But all this brings up an important question—what of next year?

McCain's Continuous Flip-Flopping

At first, John McCain said he'd balance the budget by the end of his first term. But when pressed last April, he changed his stance:

Sen. McCain has backed off his earlier promise to eliminate the budget deficit by the end of his first term and now says it may take two terms.

Today his stance changed again:

Mr. McCain is now pledging once again to balance the budget by the end of his first term in 2013, his advisers said Monday. In doing so, they were reverting to an earlier pledge that Mr. McCain had abandoned in April, when he proposed a series of costly tax cuts and said, citing the ailing economy, that it might take two terms to balance the budget.

Funny thing is, he's flip-flopping between promises to balance the budget that, given his other pledges, are not credible. Brad DeLong:

To John McCain's promises to (a) wage more wars abroad and (b) cut taxes for the rich while (c) limiting domestic spending cuts to waste, fraud, and abuse he has now added a promise to balance the budget by 2013--a promise that his substantive policy advisors had been trying to keep him from making all winter and spring. Their view was that George H.W. Bush's promise in 1988 not to raise taxes had brought him little short run political gain and had done so at the price of making his presidency a failure (cf Richard Ben Cramer, What It Takes).

Why might McCain do this?:

Mr. McCain’s tax cut proposals have won over some of his erstwhile supply-side critics. Last year the Club for Growth, a prominent group that advocates tax cuts, issued a paper headlined “John McCain is No Supply-Sider”... Now Pat Toomey, the president of the group, said that Mr. McCain’s recent tax cut proposals indicate that supply-siders are getting the upper hand.

“Is John McCain a supply-sider in his bones?” Mr. Toomey asked. “I’m not sure he is. But I do support the positions he has been taking.”

And,

Mr. McCain, who has been dogged by his own past statements that he does not understand the economy as well as he should, has not always spoken fluently about economic policy during the campaign.

When he was asked at a town hall-style meeting in Connecticut in April whether he wanted to “raise taxes, cut entitlement spending, cut defense spending, or have a deficit,” Mr. McCain spoke generally about emulating President Ronald Reagan, not mentioning that the deficit nearly tripled during the Reagan presidency.

Some statements from the McCain campaign appear to be more than just confusion. Jared Bernstein:

They're Lying: The debate over the economy swung into high gear today as both presidential candidates gave speeches on the topic. That's as it should be: let this critical debate begin.

What's not okay is that one candidate -- John McCain -- and his team are making up damaging stuff that directly contradicts policies Obama has been crystal clear about. ...

McCain and Obama have very different economic plans, particularly regarding tax policy... They have every right to go forth and build support for their plans and attack the other guy's. But this is not the way to do it. If McCain and his staff persist in twisting the truth like this, there can be no decent debate. It's a terrible disservice to the electorate and an abrogation of anything resembling straight talk.

Giving in to the "tax cuts pay for themselves" crowd, not understanding economic principles enough to see the consequences of the economic policies he supports, and the tactics he is using are all worrisome. McCain doesn't get economics, he's willing to take positions of convenience rather than principle, and he's willing to use distortions of the truth to sell his policies. That's a bad combination.

Updates: Robert Reich:

George W. Bush took the largest budget surplus in history and transformed it into a giant deficit. McCain's economic plan, announced today, will do even worse. McCain says he’s going to balance the budget by the end of his first term (actually, he didn’t literally say that – he just “demanded” it – implying that a Democratically-controlled Congress would be ultimately responsible if it didn't happen). And then McCain came up with numbers that will blow the deficit into the stratosphere. ...

The big question is how he proposes to fill the giant budget hole he’s dug for himself, over and above the $443 billion already there. Answer: He doesn’t say. He calls for $160 billion in unspecified spending cuts, and unspecified “reform” of entitlements. Whaaaa?

Supply-side economics is one of those unfortunate half-brained theories actually to have been tried in practice, and failed miserably. Now we have a candidate for president of the United States who says to the American people, in effect: I know you know supply-side economics is a crock. Well, I’m going to do the biggest supply-side tax cut in history, mostly for corporations and the well-to-do. And I’m going to tell you I’ll balance the budget. If you believe this, you’ll believe anything.

Brad DeLong:

Cr--! Robert Pear of the New York Times called, looking for a soundbite on McCain's budget policy. I blathered on, while the perfect soundbite was waiting in my email inbox, unread.

It was:

Underpants Gnomes.

You all remember the plan of the Underpants Gnomes from South Park:

1. Collect underpants.
2. ?
3. Profit!

That's the perfect analogy for John McCain's budget policy:

1. Cut taxes and spend more on the military.
2. ?
3. Balanced budget!!

Memo to self: read email from persons known to be witty before talking to reporters, not after...

Economist Mom:

...[I]t doesn’t take long to go through the document... A few initial reactions... The most annoying passage is found in the so-called “Bi-partisan Fiscal Discipline” section on page 5...:

Bi-partisan Fiscal Discipline: A McCain Administration will provide the leadership to achieve bipartisan spending restraint equivalent to that in the 1997 Balanced Budget Agreement between a GOP Congress and a Democratic President.

• In 1997, President Clinton and the GOP Congress agreed to balance the budget by restraining the growth in spending and cutting taxes over a ten-year period.
• With the same bipartisan effort today ... we could keep taxes low and still balance the budget by holding overall spending growth to 2.4 percent. Unlike Congress and the Executive branch in recent years, a McCain Administration will enforce the spending restraint to balance the budget and keep it balanced.
• A McCain Administration would perform a comprehensive review of all programs, projects and activities of the federal government, and then propose a plan to modernize, streamline, consolidate, reprioritize and, where needed, terminate individual programs. ...
• A McCain Administration will review all special spending provisions to end subsidies to high-income individuals and corporations.

First, the Clinton Administration did not achieve fiscal discipline by restraining spending and “cutting taxes.” The Clinton Administration made the tough choices (and earlier than 1997) to restrain spending and raise taxes in order to achieve meaningful deficit reduction through both the spending and revenues side of the budget.

Second, how is it “bipartisan” to continue to take the hard line that all the fiscal restraint has to come from the spending side of the budget? ...

Third, ... the tax proposals don’t provide for revenue-neutral, efficiency-enhancing tax changes (the types of changes characteristic of fundamental tax reforms), only revenue-losing, deficit-increasing ones–i.e., a continuation of Bush Administration tax policy.

Yet curiously, nowhere in their economic document does the McCain campaign specifically mention”permanent extension of the Bush tax cuts”–which we know to be a key part of their economic platform, at least as constantly explained to their “base,” if not spelled out to the general public here (wink wink). Could it be that they don’t want to call attention to the fact that the “meat” of the McCain economic plan,when you get past the fluff (distractions?) of the waste, fraud, and abuse-type spending cuts (that don’t amount to “beans”),is really just continuing the Bush tax cuts?

There’s now a list of economistswho endorse the McCain economic plan up on the Jobs for America website–including at least a couple whom I greatly respect. I would love for any of them to explain to me how they believe this plan realistically, and wisely,would eliminate the budget deficit in four years, and how any of them who might be less than thrilled with theBush Administration’s record onfiscal policy can read between the lines (and fluff) of this McCain plan and see anything substantially different.

Paul Krugman: Behind the Bush Bust

How much responsibility for the lousy economy falls on Mr. "Clueless to the end" Bush?:

Behind the Bush Bust, by Paul Krugman, Commentary, NY Times: By huge margins, Americans think the economy is in lousy shape — and they blame President Bush. This fact, more than anything else, makes it hard to see how the Democrats can lose this election.

But is the public right to be so disgusted with Mr. Bush’s economic leadership? Not exactly. ... On the other hand, there’s a certain rough justice in the public’s attitude. Other politicians besides Mr. Bush share the blame for the mess we’re in — but most of them are Republicans.

First things first: pay no attention to apologists who try to defend the Bush economic record. ... Over all, Mr. Bush will be lucky to leave office with a net gain of five million jobs, far short of ... population growth. ...Bill Clinton presided over an economy that added 22 million jobs.

And what does Mr. Bush have to say about this dismal record? “I think when people take a look back at this moment in our economic history, they’ll recognize tax cuts work.” Clueless to the end. ...

Tax cuts didn’t work, but they didn’t create the Bush bust. So what did?

At the top of my list of causes for the lousy economy are three factors: the housing bubble..., rising health care costs, and soaring raw materials prices. I’ve written a lot about housing, so today let’s talk about the others.

Most public discussion of health care focuses on the problems of the uninsured and underinsured. But insurance premiums are also a major business expense...

One of the underemphasized keys to the Clinton boom, I’d argue, was the way the cost disease of health care went into remission between 1993 and 2000. For a while, the spread of managed care put a lid on premiums, encouraging companies to expand their work forces.

But premiums surged again after 2000, imposing huge new burdens on business. It’s a good bet that this played an important role in weak job creation.

What about raw materials prices? During the Clinton years basic commodities stayed cheap by historical standards. Since then, however, food and energy prices have exploded, directly lopping about 5 percent off the typical American family’s real income, and raising business costs...

Much of this pain could have been avoided.

If Bill Clinton’s attempt to reform health care had succeeded, the U.S. economy would be in much better shape today. But the attempt failed — and ... it was Republicans in Congress who blocked reform...

As for high food and fuel prices, they’re mainly the result of growing demand from China and other emerging economies. But oil prices wouldn’t be as high..., and the United States would have been much less vulnerable to the current price spike, if we had taken steps in the past to limit our oil consumption.

Mr. Bush certainly deserves some blame here... Still, in energy as in health care the biggest missed opportunities came 15 or more years ago, when Mr. Gingrich and other conservative Republicans in Congress, aided by Democrats with ties to energy-intensive industries, blocked conservation measures.

So here’s the bottom line: Mr. Bush deserves some blame for the poor performance of the economy on his watch, but much of the blame lies with other, earlier political figures, who squandered chances for reform. As it happens, however, most though not all of the politicians responsible for our current economic difficulties were Republicans.

And bear in mind that John McCain has gone to great lengths to affirm his support for Republican economic orthodoxy. So he’ll have no reason to complain if, as seems likely, the economy costs him the election.

Campaign Finance

Robert Frank says voters have the power to take campaign finance reform into their own hands and eliminate the influence of large donors, all that is required is full disclosure of the contributions to each campaign and a preference for politicians who refuse to take large donations:

Untying a Knot in Campaign Finance, by Robert H. Frank, Economic View, NY Times: When Barack Obama announced his decision to reject public financing for his presidential campaign, he caught heavy flak from all sides. Critics, including some of his most ardent supporters, complained that he was willing to abandon the cause of good government to gain a financial edge.

What the critics have ignored is that truly effective campaign finance reform has been precluded by First Amendment concerns. Given that constraint, the Obama campaign’s approach may offer the only realistic possibility of limiting the corrupting influence of money in politics. ...

Gorbachev: Will the US Become an Empire or a Democracy?

Mikhail Gorbachev says the candidates need to talk about the "increasing tendency to militarize policymaking and thinking," and to state clearly whether they plan to continue in this direction. I'm pretty sure I know the answer in one case. For McCain, it's a solid yes. I also think I know the answer in the other case, it's no for Obama, but can I be sure?:

Questions for the candidates, by Mikhail Gorbachev, Commentary, IHT: There has been unusual interest throughout the world in the U.S. presidential race. ... Major policy problems today cannot be solved without America - and America cannot solve them alone.

Even the domestic problems of the United States are no longer purely internal. I am referring first of all to the economy. ... [A]s I talk to ordinary Americans, ... I sense their anxiety about the state of the economy. The irony, they have said to me, is that the middle class felt little benefit from economic growth when the official indicators were pointing upward, but once the downturn started, it hit them immediately, and it hit them hard.

No one can offer a simple fix for America's economic problems, but it is hard not to see their connection to U.S. foreign policies. Over the past eight years the rapid rise in military spending has been the main factor in increasing the federal budget deficit. The United States spends more money on the military today than at the height of the Cold War.

Yet no candidate has made that clear. "Defense spending" is a subject that seems to be surrounded by a wall of silence. But that wall will have to fall one day.

We can expect a serious debate about foreign policy issues, including the role of the United States in the world; America's claim to global leadership; fighting terrorism; nonproliferation of weapons of mass destruction; ... the problems caused by the invasion of Iraq..., the size of America's defense budget and the militarization of its foreign policy. I am afraid these two questions will not be asked by the moderators. But sooner or later they will have to be answered.

The present administration, particularly during ... Bush's first presidential term, was bent on trying to solve many foreign policy issues primarily by military means, through threats and pressure. The big question today is whether the presidential nominees will propose a different approach to the world's most urgent problems.

Paul Krugman: Rove’s Third Term

Will the Rovian tactics that the McCain campaign has started to employ such as willful misinterpretation and distortion of remarks so as to impugn the patriotism of Democrats work again in this election?:

Rove’s Third Term, by Paul Krugman, Commentary, NY Times: Al Gore never claimed that he invented the Internet. Howard Dean didn’t scream. Hillary Clinton didn’t say she was staying in the race because Barack Obama might be assassinated. And Wesley Clark didn’t impugn John McCain’s military service. ...

Again and again we’ve had media firestorms over supposedly revealing incidents that never actually took place. The latest fake scandal fit the usual pattern as an awkwardly phrased remark, lifted out of context and willfully misinterpreted, exploded across the airwaves.

What General Clark actually said was ... not at all outrageous...  Yet the Clark affair did reveal something important — what a McCain administration would represent: namely, a third term for Karl Rove. ...

Mr. McCain’s run for the White House has always been based on persona rather than policy: he doesn’t have ideas that voters agree with, but he does have an inspiring life story — which, contrary to the myth of the modest maverick, he talks about all the time. The suggestion that this life story isn’t relevant to his quest for office was bound to provoke a violent reaction.

But the McCain campaign went beyond condemning General Clark’s remarks; it went out of its way to distort them. “This backhanded slap against John as not being a worthy warrior because he just got shot down is one of the more surprising insults in my military history,” said retired Col. Bud Day ... in a conference call organized by the campaign. In fact, General Clark had said no such thing.

The irony, not lost on Democrats, is that Col. Day himself has done what he falsely accused Wesley Clark of doing: he appeared in the 2004 Swift boat ads that impugned John Kerry’s wartime service.

The willingness of the McCain campaign to engage in these tactics, employing such tainted spokesmen, tells us that the campaign has decided to go negative — specifically, to apply the strategy Karl Rove used so effectively..., portraying Democrats as unpatriotic. ...

Will Rovian tactics work this year? ...Republicans were so successful ... thanks to a combination of compliant media and cowering Democrats. At first, the Clark affair suggested that nothing has changed. News organizations reported as fact the false assertion that General Clark criticized Mr. McCain’s military service, and the Obama campaign rushed to “reject” his remarks. ...

Since then, however, both the press and the Obama campaign seem to have recovered some of their balance. Opinion pieces have started ... pointing out that General Clark didn’t say what he’s accused of saying. Mr. Obama ... declared that General Clark doesn’t owe Mr. McCain an apology for his “inartful” remarks and denies that his own condemnation ... of those who “devalue” military service was aimed at the general.

In the end, the Clark affair may have strengthened the Obama campaign. Last week, with his cave-in on wiretapping, Mr. Obama was showing disturbing signs of falling into the usual Democratic cringe on national security. This may have been the week he rediscovered the virtues of standing tall.

Furthermore, my sense, though it’s hard to prove, is that the press is feeling a bit ashamed about the way it piled on General Clark. If so, news organizations may think twice before buying into the next fake scandal.

If so, the campaign has just taken a major turn in Mr. Obama’s favor. After all, if this campaign isn’t dominated by faux outrage over fake scandals, it will have to be about things that really did happen, like a failed economic policy and a disastrous war — both of which Mr. McCain promises will continue if he wins.

"Revolution of Urban Rebels"

Edward Glaeser argues urbanization is a catalyst for democracy:

Revolution of urban rebels, by Edward L. Glaeser, Commentary, Boston Globe: The Fourth of July is an opportunity to reflect on the long, difficult path to liberty. The organized uprisings, like the American Revolution, that toppled tyrants were often urban affairs that started with surreptitious meetings in crowded pubs and guildhalls. They were led by creatures of the city: merchants, lawyers, weavers, butchers, and brewers. As we celebrate our freedom at spacious suburban barbecues, we should remember that the road to freedom started on far more crowded city streets.

In the fight for freedom between dictatorship and democracy, dictatorship starts with a big edge.

Dictatorships have a small number of insiders who have strong incentives to fight for their regime. Because the benefits of democracy are so widely shared, no one has particularly strong incentives to fight to create or preserve representative government.

Democracies have a massive free-rider problem where all of us have a natural tendency to let someone else die for our liberty. Solving this free rider problem requires coordination and this is what urban density has done for millennia. Urban density connects citizens and enables them to meet and plan and talk. With enough talking, groups like the Sons of Liberty may even convince themselves that it is worth dying for a common cause. Monarchies flourished in our agricultural past, because effective democratic opposition was far more difficult to organize in a dispersed rural setting. ...

Our revolution had its origins in the urban connections between John Hancock, the two Adams cousins, and assorted other enemies of British colonial policy. Brought together by Boston, a merchant-prince could help finance riots led by a brewer. The lawyers could argue cases and the writers could push pamphlets. David Hackett Fischer's account of Paul Revere taught us that this silversmith was not a lone rider, but part of a dense, urban network that collectively fought for independence. The most important urban interactions of all may have occurred in the Second Continental Congress in the days before July 4, 1776. By connecting in a city, the founding fathers hung together instead of hanging separately.

Across countries today, there is a robust correlation between urbanization and democracy. This correlation reflects many things, such as the tendency of more urban places to be richer and better educated, but it also surely reflects the role that cities play in supporting the coordinated action that creates and defends democracies. So enjoy your Fourth of July with as much greenery as you like, but also remember that city air made you free.

Economists Kinda Sorta for Obama

If I start writing about this, I'll end up in Shrillblog:

Obama's Vote for Warrantless Wiretapping, Economists for Obama : I'm well-off enough to have been able to contribute ... to Obama's campaign... Obama's failure to oppose the warrantless wiretapping bill ... has given me some pause and made me think perhaps I should send my political contributions elsewhere. The immunity for lawbreaking telecoms is one of the events of the Bush years that has most angered me. The current FISA is perfectly capable of dealing with surveillance, and empowering the president to monitor my phone calls and e-mails is plainly a violation of the 4th Amendment:

The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.

Why, after voting against the Protect American Act and saying he would support any filibuster of immunity for lawbreaking telecoms, is Obama now saying he will vote for the new law? I don't understand.

Political Participation and Genetic Inheritance

How much influence does genetic makeup have on voting behavior?:

Political participation is partially rooted in genetic inheritance, EurekAlert: The decision to vote is partly genetic, according to a new study published in the American Political Science Review. The research, by James H. Fowler and Christopher T. Dawes, of the University of California, San Diego and Laura A. Baker, of the University of Southern California, is the first to show that genes influence participation in elections and in a wide range of political activities. See the full study.

Fowler and Dawes have followed this work with research just published in the July issue of the Journal of Politics in which they identify a link between two specific genes and political participation. They show that individuals with a variant of the MAOA gene are significantly more likely to have voted in the 2000 presidential election. Their research also demonstrates a connection between a variant of the 5HTT gene and voter turnout, which is moderated by religious attendance. These are the first results ever to link specific genes to political behavior. The published study will be online July 1, but a pre-publication PDF is linked here.

The initial research is based on voter turnout records in Los Angeles matched to a registry of identical and non-identical twins. These comparisons show clearly that identical twins, who share 100 per cent of their genes, are significantly more similar in their voting behavior than fraternal twins who share only 50 per cent of their genes on average. The results indicate that 53 per cent of the variation in voter turnout is due to differences in genes. The results also suggest that, contrary to decades of conventional wisdom, family upbringing may have little effect on children's future participatory behavior.

To replicate these findings the researchers went beyond the California voter data to examine patterns nationwide using the National Longitudinal Study of Adolescent Health conducted from 1994 to 2002. This data has been utilized in a wide variety of genetic studies, but this is the first time the data has been used to show that participatory political behavior is heritable. For example, among identical twins, the researchers conclude that 72 per cent of the variance in voter turnout can be attributed to genes. Moreover, genetic-based differences extend to a broad class of acts of political participation, including donating to a campaign, contacting a government official, running for office, and attending a political rally. According to Fowler, "we expected to find that genes played some role in political behavior, but we were quite surprised by the size of the effect and how widely it applies to many kinds of participation." ...

"These findings are extremely important for how we think about political behavior," said Fowler. For example, it is widely known that parents and children exhibit similar voting behavior, but this has always been interpreted as learned behavior rather than inherited behavior. It is also well-known that these particular genes influence social behavior, but it has not been widely appreciated that social behavior plays an important role in voting and other forms of political behavior. In particular, the 5HTT gene appears to play an important role in the well-known association between voting and going to church, suggesting that it is the combination of social activity and genes that helps to shape political behavior. According to Fowler, "We are not robots – the genes just seem to make it more likely that some of us will respond to our social lives by getting involved in politics." Fowler also cautioned that there is no such thing as a 'voter gene': "That idea is just silly. Complex social behaviors are the result of hundreds of genes interacting with hundreds of social factors – these results are really just the tip of the iceberg."

The authors point out that while political scientists have typically not focused on the role of genetic and biological factors in political behavior, the present work points to a significant role for genes and, therefore, a next step in research is to determine why genes matter so much. They conclude, "These studies provide the first step needed to excite the imaginations of a discipline not used to thinking about the role of biology in human behavior."

Brad DeLong: The Democrats' Line in the Sand

Brad DeLong says it might be correct that the only way for Democrats "to tie the Republicans’ hands and keep them from launching another wealth-polarizing offensive is to widen the deficit enough that even they are scared of it." If so, then there's a line that Democrats cannot cross:

The Democrats' line in the Sand, by J. Bradford DeLong, Project Syndicate: ...[I]f an economy as a whole is under-saving and under-investing, the government ought to help to correct this problem by running surpluses, not make it worse by running deficits that drain the pool of private savings available to fund investment. This is why most economists are deficit hawks.

Of course, governments need to run deficits in depressions in order to stimulate demand and stem rising unemployment. Moreover, a lot of emergency government spending on current items is really best seen as national savings and investment. ...

But the rule is that governments should run surpluses and not deficits, so various American presidents’ economic advisers have been advocates of aiming for budget surpluses except in times of slack demand and threatening depression. This was certainly true of Eisenhower’s, Nixon’s, and Ford’s economic advisors, and of George H.W. Bush’s and Bill Clinton’s economic advisers.

It was true of Reagan’s economic advisers as well. Some of Reagan’s advisers sincerely did not believe that the tax cuts of the early 1980’s would generate the large deficits that they did (Beryl Sprinkel and Lawrence Kudlow come to mind). Others, like Martin Feldstein and Murray Weidenbaum, understood the consequences of the Reagan tax cuts and were bitter bureaucratic opponents, even if they did not speak out publicly.

In fact, since WWII, only George W. Bush’s economic advisers have broken with this consensus. A few have done so because they are making careers as party-line Republicans, so their priority is to tell Republican politicians what they want to hear (Josh Bolton and Mitch Daniels come to mind here). As for the rest, their reasons for supporting the Bush administration’s savings-draining policies remain mysterious. It is not as though they were angling for lifetime White House cafeteria privileges, or that having said “yes” to George W. Bush will open any doors for them in the future.

But their failings do pose a dilemma for Democratic deficit-hawk economists trying to determine ... economic policies ... should Barack Obama become president. Those of us who served in the Clinton administration and worked hard to ... turn deficits into surpluses are keenly aware that, after eight years of the George W. Bush administration, things look worse than when we started back in 1993. All of our work was undone by our successors in their quest to win the class war by making America’s income distribution more unequal.

A chain is only as strong as its weakest link, and it seems pointless to work to strengthen the Democratic links of the chain of fiscal advice when the Republican links are not just weak but absent. Political advisers to future Democratic administrations may argue that the only way to tie the Republicans’ hands and keep them from launching another wealth-polarizing offensive is to widen the deficit enough that even they are scared of it.

They might be right. The surplus-creating fiscal policies established by Robert Rubin and company in the Clinton administration would have been very good for America had the Clinton administration been followed by a normal successor. But what is the right fiscal policy for a future Democratic administration to follow when there is no guarantee that any Republican successors will ever be “normal” again? That’s a hard question, and I don’t know the answer.

There is, however, one fiscal principle that must be respected. Fiscal deficits so large that they put the debt-to-GDP ratio on an explosive upward trend do not merely act as a drag on long-term economic growth; they also create the possibility that at any moment the economy might face an immediate macroeconomic and financial disaster. A more hawkish fiscal stance may no longer be possible in future Democratic administrations, and might not be good policy if it were, given the likely complexion of successor administrations. Stabilizing the debt-to-GDP ratio is thus the line in the sand that must not be crossed.

"The Income-Inequality Denialists"

Speaking of "the George W. Bush administration ... quest to win the class war by making America’s income distribution more unequal," Justin Fox finds out what happens if you say the inequality in the U.S. has been increasing. I've been down this road:

The strange fantasy world of the income-inequality denialists, by Justin Fox: One of the more interesting developments in the U.S. economy over the past few decades has been the dramatic rise in incomes at the very top of the scale. There's all sorts of anecdotal evidence for this... But the most exhaustive empirical evidence for this income explosion at the top has come from the work of economists Thomas Piketty and Emanuel Saez...

Certain elements among the right-wing economic chattering classes ... have honed an interesting response to this rise in income inequality: They deny that it exists. My economic policy cover story of a while back, which cited Piketty and Saez, seems to be drawing these denialists out of the woodwork. Gary North is one, and now David Gitlitz joins in at National Review Online:

On income inequality, Fox accepts as fact the findings of economists Thomas Piketty and Emanuel Saez that “75% of all income gains from 2002 to ’06 went to the top 1% — households making more than $382,600 a