Monday, December 29, 2008

A Look at the Outgoing Senate, The Fillibuster

The 2007/2008 session of congress is still winding down (it won't be officially done until January), but I thought we'd take a look at some statistics from the Senate this post. The Senate is often said to be 100 different independent parties operating within one body and that is evident when you look at the statistics. Thanks to the National Journal for the voting record information. In our scoring +100 Liberal is a perfect liberal voting record, +100 Conservative is a perfect Conservative

Here are our awards for the session:
(1) Liberal Stalwarts
No, it isn't Barack Obama and Hillary Clinton, sorry conservatives.
Here is the top 10:
1. Sen. Kennedy (D) -- MA -- +90% Liberal
2. Sen. Boxer (D) -- CA -- +90% Liberal
3. Sen. Reed (D) -- RI -- +87% Liberal (the OTHER Reed)
4. Sen. Durbin (D) -- IL -- +82% Liberal
5. Sen. Harkin (D) -- IA -- +81% Liberal
6. Sen. Leahy (D) -- VT -- +78% Liberal
7. Sen. Sanders (Socialist) -- VT -- +76% Liberal (yes, the Socialist is the SECOND most liberal member of the Vermont delegation)
8. Sen. Mikulski (D) -- MD -- +75% Liberal
9. Sen. Lautenberg (D) -- NJ -- +74% Liberal
10. Sen. John Kerry (D) -- MA -- +72% Liberal

Note: Obama is +70% liberal, which would rank him 13th most liberal in the Senate. Hillary Clinton is +50% liberal, which would rank her 29th most liberal in the Senate. Independent Joe Lieberman ranks a +33% liberal, 37th most liberal in the Senate.

(2) Conservative Stalwarts
1. Sen. Sessions (R) -- AL -- +81% Conservative
2. Sen. Bunning (R) -- KY -- +81% Conservative
3. Sen. Isakson (R) -- GA -- +78% Conservative
4. Sen. Allard (R) -- CO -- +77% Conservative (leaving Senate in Jan)
5. Sen. Chambliss (R) -- GA -- +75% Conservative
6. Sen. Inhofe (R) -- OK -- +73% Conservative
7. Sen. Cornyn (R) -- TX -- +72% Conservative
8. Sen. Coburn (R) -- OK -- +71% Conservative
9. Sen. DeMint (R) -- SC -- +71% Conservative
10. Sen. Kyl (R) -- AZ -- +71% Conservative

Interesting that almost no one in leadership made the top 10 list here. It goes to show that most of the congressional leaders are by necessity, pragmatists.

(3) Most Moderate Senators
1. Sen. Smith (R) -- OR -- +4% Conservative (leaving Senate in Jan)
2. Sen. Nelson (D) -- NE -- +5% Conservative
3. Sen. Specter (R) -- PA -- +6% Liberal
4. Sen. Collins (R) -- MA -- +6% Liberal
5. Sen. Lugar (R) -- IN -- +7% Conservative
6. Sen. Snowe (R) -- MA -- +8% Liberal
7. Sen. Voinovich (R) -- OH -- +14% Conservative
8. Sen. Landrieu (D) -- LA -- +16% Liberal
9. Sen. Warner (R) -- VA -- +16% Conservative (leaving Senate in Jan)
10. Sen. McCain (R) -- AZ -- +16% Conservative

Interesting to note, McCain makes the Top 10 moderate list. We really did have a liberal running against a moderate in November and the liberal won.

(4) Various Distinctions
Most Liberal Republican: Sen. Olympia Snowe of Maine -- +8% Liberal
Most Conservative Democrat: Sen. Ben Nelson of Nebraska -- +5% Conservative
Most Liberal Delegation: Massachussetts -- Senators Kennedy and Kerry average a +81% liberal
Most Conservative Delegation: Georgia -- Isakson and Chambliss average +77% conservative rating
Most Moderate Delegation: Maine -- Both seats held by old school Republican moderates Susan Collins and Olympia Snowe, #4 and #6 on our moderate list
Most Polarized Delegation: Iowa -- Sen. Harkin (D) ranks a +81% liberal, Sen. Grassley (R) a +53% conservative
Overall Leaning of the Outgoing Congress -- +3% Liberal
Prediction for the New Congress -- more liberal than that!

So, what can we glean from all of this?
First of all, that party label still doesn't mean everything in the US Senate, like it does in countries with parlimentary systems. Geography and individual views have at least as much influence on governing philosophy as does party. There are still a few true moderates left, although their ranks keep getting smaller with Sen. Gordon Smith (R) losing in Oregon this go around and Sen. Arlen Specter (R) of PA likely to retire. But at least Maine maintains a moderate Republican delegation.

One thing is clear -- party lines do tend to get draw. Democrats and Independents hold all the top liberal spots, Republicans all the top conservative spots. In fact, there is only 1 instance where there is a Democrat more liberal than a Republican -- Sen. Ben Nelson (D) of Nebraska ranks more conservative than Senators Smith (R), Specter (R), Snowe (R) and Collins (R), but not by much.

Another interesting note is Obama's choices for leadership roles:
Sen. Barack Obama (D) -- IL -- +70% liberal
Sen. Joe Biden (D) -- DE -- +58% liberal
Sen. Hillary Clinton (D) -- NY -- +50% liberal
Sen. Ken Salazar (D) -- CO -- +28% liberal

Obama picked Democrats out of the Senate, but all more conservative than his own record. He passed on the liberal John Kerry in favor of more moderate Hillary Clinton.

We will look at the house in a later posting, although analyzing 435 voting records is a lot more complex than 100. What you tend to find in the house is greater polarization as you can run as districts tend to be more ideologically polarized than states. This, combined with the impact of the Voting Rights Act (which mandates black-majority districts that tend to be intensely liberal) and state gerrymandering (which tends to create safe, polarized districts) makes the house more ideological and the senate more contemplative.

Saving the Fillibuster
Now that Democrats firmly control both houses of congress, there is a whisper campaign in left-wing circles to do away with the fillibuster, the so-called "nuclear" or "constitutional" option that the Republicans considered earlier this decade. I opposed Republicans eliminating the fillibuster at the time and I oppose Democrats doing so now. The fillibuster is an important tool in American politics to moderate policy shift when one party controls all of congress and the presidency. While it is not written in the constitution, it is enshrined in American political tradition and should be maintianed. Democrats should look for ways to build bridges with moderate Republicans right now, not look to rule by one-party rule. They will control 58 to 59 seats in the new Senate. Is it too much to ask that they seek to get 1 to 2 Republican votes out of 40 to 41 to gain approval for legislation?

Sunday, December 28, 2008

Grading President George W. Bush

Now that the Bush administration is drawing to a close, it would be tempting to simple pile on. Clearly, the nation faces a number of difficult problems: a recessive economy and two wars for starters. A growing number of columnists and blogs have begun to ask the question: Is George W. Bush the worst president ever? If you were born after 1980, it's probably an easy answer. Otherwise, I think you would probably have to ignore a lot of historical perspective in order to rate Bush the worst. Sure, he's had his problems. He's also had some accomplishments.

So, to accurately rate President Bush, let's go through some highlights, lowlights and assign grades in key policy areas. For purposes of these ratings, we'll try to ignore ideology. We'll rate Bush on #1 His success in implementing his policies and #2 The success of those policies in achieving their objectives. For instance -- I may be Pro-Choice, but if outlawing abortion were a policy priority for Bush and he were successful able to outlaw it, he would get a high grade for accomplishing his policy priority.

Highlights of the Bush Administration
(1) Going into Afghanistan
It is easy to re-write history, this many years later, to read that it was always inevitable that we would go into Afghanistan to remove the Taliban from power. It was far from it. It became inevitable because Bush had a clearly articulated vision and skillfully leveraged national sentiment to achieve strong support for going in. With another leader, this might not had happened. Keep in mind that the Taliban had bombed the World Trade Center in the past, had bombed the U.S.S. Cole, etc. and the most we'd ever done is a launch a single cruise missle at a chemical factory.

(2) Medicare Perscription Drug Benefit
It is hard to believe that the single largest entitlement expansion of the last 30 years happened under a Republican president, but it did. Bush got the policy that he wanted and in all honesty, it has worked fairly well.

(3) Killing the Hussein Family
Uday, Qusay and Saddam were evil people. You may agree or disgaree with going into Iraq, but it is hard to argue that the world isn't better off having those 3 dead.

(1) Strategy in Iraq / Donald Rumsfeld
Any objective analysis would say that we did not have a strategy for winning in Iraq when we went in. Remember how we were going to be greeted as liberators? Remember how oil revenue was going to pay for the war? Thousands of casualties and years later, Bush finally wised up and canned Rumsfeld and sent in more troops under the highly effective leadership of Gates and Petreaus. But for 5 years, we languished with a failed policy.

(2) Asleep at the Economic Wheel
Lack of regulation of the banking industry, loose credit policy, "the ownership society", all failed and failed spectularly in the waning days of the Bush administration.

(3) Defecit Spending
He got his tax cuts sure, but as I discussed in a previous blog, spending surged. Partly to finance the wars, but also earmarks, farm subsidies, entitlements, etc. Bush has not only passed on an economy in crisis, but a completely disfunctional federal budget with the highest level of federal debt since the immediate aftermath of World War II.

(4) Absence of Any Significant Domestic Policy Accomplishments
Remember the president's immigration bill? His social security proposal? His blue ribbon commission to rewrite the tax code?


Maybe that's becasue they all went nowhere.

In that light, here are Bush's grades:
Foreign Policy -- D+
Bush gets credit for going into Afghanistan. He gets credit for capturing or killing the whole Hussein family. He gets credit for eventually changing out Rumsfeld and shifting strategy in Iraq. But five years of casualties and failed policy there, coupled with awful diplomacy that lead to falling stature of the US in the world drags this grade down. We also failed to get Osama Bin Laden, a far more important strategic target than the Husseins.

Tax Policy -- B-
Bush got the tax cuts he wanted. He failed to get the more overarching reform that he sought to simplify and rewrite the tax code.

Budget Management -- D-
Huge defecits, exploding debt and no plan in sight.

Immigration Reform -- D+
Bush articulated a very clear and compelling vision. He had support from congressional Democrats and moderate Republicans like John McCain and Olympia Snowe. Still, he failed to get any legislation signed into law.

Homeland Security -- B+
There have been no significant attacks on US soil since September 11th, 2001. Bush got the Patriot Act into law, a far-reaching and socially changing piece of legislation. The TSA has been a bit of a mess, but other than this, Bush has basically done what he set out to do.

Social Security Reform -- D+
Clear vision, Republican congress, yet Bush got nothing passed. As an aside, can you imagine if social security money were in the stock market right now?

The Supreme Court -- B
Harriot Myers was a bit of a fiasco, but Bush basically got what he wanted -- two respected judicial conservatives in Samuel Alito and John Roberts. They will have a blueprint on social policy for decades past when Bush is gone.

Economic Policy -- D-
A crashing economy and seemingly no strategy to fix it. Guess those upper-income tax cuts really didn't solve all our problems.

Social Policy -- B+
Bush got his policy on stem cell research. He put tons of new aid into Africa to combat AIDS. Basically, Bush got what he wanted on social policy, although for the most part, it was not a priority in his administration.

The Transition -- A

Bush has been a star in how he has worked tirelessly to enable to Obama administration to hit the ground running. Few Presidents have done as much for an incoming President of the opposing party.

Overall Grade for His Presidency: C-
Bush is not the worst President ever, not by a long shot. Hoover had worse economic policies. Grant and Nixon were far more corrupt. Lynodn Johnson had a far more destructive foreign policy. Bush was arguably a worse President than Clinton, his father and Reagan, probably equal to Carter and better than Nixon.

So, how will Obama stack up? We'll have to wait at least 4 and as many as 8 years to find out.

Next Up:
Analyzing the US Senate and its ideological factions

Friday, December 26, 2008

Economics Lessons, Part 2

In my last blog, I discussed popular misconceptions about economic policy of Democrats and Republicans -- mainly the fallacy of the popularly held belief that Republicans are anti-tax, anti-spending and that Democrats are pro-tax, pro-spending. To summarize the last post (which you can read in its entirety below), over the past 30 years, while Democrats have certainly been more willing to tax than Republicans, Republicans have actually increased spending at a far greater rate, hence the larger deficits during Republican presidencies.

Now that the history lesson is over, I think it makes sense in light of the economic crisis to examine beliefs about the marketplace. I'll start by discussing a few commonly expressed philosophies and what I find inherently wrong with them.

(1) Socialism
The basic Marxist principle "to each according to his need, from each according to his ability" sounds appealing...everybody does what they can and everyone gets what they need. The problem is, in developed societies, it doesn't work very well.

The fundamental flaw with this theory is the "from each according to his ability" part. People respond to incentive structures. If you are not going to be rewarded more for working hard, you are not going to work that hard, by and large. In socialist economies, where gains are shared equally, my individual effort does not impact my standard of living significantly. Hence, I don't work hard.

The exception to this is when you can build a small community of like-minded people and there is sufficient social pressure to drive individual accountability. Classic examples of this are the Jamestown settlement (yes, they were socialists, pooling their resources) or Monasteries, where monks share in all the work and the gains from the work. These systems work well because there actually is an incentive structure -- you are a social outcast if you do not contribute in these small communities. Such a set of social incentives is near impossible in a society as large as the US.

(2) Laize Fare Capitalism
Preached to a greater or lesser extent for most of the past 50 years by economic conservatives, the premise of this theory is that free markets are extremely efficient relative to government and therefore allowing free markets to work, completely unrestricted, is the best way to secure long-term economic growth.

This premise breaks down in several areas. First of all, the concept of monopolies negates the efficiency of a market. The efficiency of market economics is based on competition. If a company can establish a 100% share and raise barriers to entry so high that no competitor can enter, a free market becomes very inefficient. Say Wal-Mart takes over all retailing and then every time a competitor tries to enter, they cut their prices to next to nothing until that competitor is bankrupt. Wal-Mart is then free, once they've bankrupted their competitors to provide lousy service, raise prices, limit goods, etc. and there is very little recourse.

The second breakdown in this theory is that free markets are only extremely efficient with a very limited focus -- short-term profitability. Free markets have no concern for trying to provide national defense, build infrastructure that would benefit other companies, protect the environment, etc. And the short-term focus of capital markets actively punishes investment for the long-term. No major corporation in the US today invests in basic research. All of the key innovations of the last 100 years -- the micro chip, the television, the microwave, etc. where all derived from government-funded research (primarily military.)

(3) Supply-Side Economics
This is, essentially, a less extreme version of Laize Fare capitalism. Supply side economics, brought to promience by Ronald Reagan in the 1980s, holds the core belief that economic growth comes from investment capital. The theory holds that by cutting taxes on capital gains and high income earners, you provide an economic incentive for investment, which leads to innovation and economic growth which "trickles down" to provide a better lifestyle for everyone.

The problem with this theory is that it only addresses one side of the supply/demand curve. Today's economy is a prime example. There is tons of investment capital out there. The economy is still tanking because there is not sufficient buying power at the lower end to invest. Therefore, the money is going into very safe places like precious metals, government bonds, etc. It is not spurring innovation or growth, it is sitting on the sidelines.

Demand must exist in order for economic growth to take place. And if demand exists, investment will happen. Business don't hire more people if their tax rates are lower, they hire more people if they think there is demand for their products and that hiring more people will earn them more money. They do this regardless of the tax rates applied on those earnings. Anything else would be bad business.

(4) Demand Side Economics
This brand of economics, preached by liberals who are not quite socialists, has the premise that cutting taxes or providing social benefits ot middle and lower income individuals will spur demand that will cause economic growth.

There is some validity to this, but similar to #3, it addresses only 1 side of the supply-demand equation. You can't have growth without capital investment to support the existance of supply and you can't grow productivity (the long-term key to all economic growth) without available investment funds.

Also, oppressively high tax rates (like the US had in the 1950s) can dampen incentives for high-income individuals to produce. If I am being taxes at 90% on every marginal dollar I earn over $200K, I'm pretty much going to stop earning around $200K.

What Works
As with most things, what really works is somewhere in between. The best economic policies pursue social goals through government schemes, but do them in a way that takes advantage of what markets do best.

The role of the government is to provide a clear, transparent playing field, to set rules that incentivize behavior that we want as a society, to provide a safety net for lower income individuals and to provide focused investments that spur productivity growth.

Key investments for the government to secure productivity growth are education and basic research. In the medium-term, the level of educaiton of populace is directly linked to its productivity. Therefore, funding and raising performance standards for education is critical. College affordability is also key. These are very important roles for governemnt.

Secondly, to raise productivity in the long-term, the government must be making investments in basic research that will spur next generation technology investment. These are investments that businesses will not make, as they have a 30 or 40 year payback, not the 3 or 4 year payback that a business wil typically require. This can be accomplished through the military, NASA and other governmental agencies.

Thirdly, the government needs to regulate industry to guard against monopolies and to guard against policies that could undermine the economy as a whole. The mortage crisis is a classic example. When companies grow so large that they are "too large to fail", meaning an economic collapse will ensue if they go bankrupt, the government must aggressively regulate their activities. This would include, in the case of lending, restrictions on the standards banks can use to set loans, capitalization requirements, accountability for risk management, etc.

Fourthly, is the safety net. Irrespective of market efficiency, most people find it morally reprehensible to have children go hungry or without vaccinations in a wealthy society. The government has a clear role in ensuring that this does not happen.

Finally, the government needs to manage broad societal goals that businesses won't take on because there is not a profit motive. Protecting the environment. Building infrastructure. National security. Police. Etc.

In #4 and #5, solutions that leverage the benefits of the free market are vastly superior to solutions that are strictly government run.

For instance, if we want to reduce carbon emissions, we could, for instance, simply mandate that each company reduce carbon by 50%. This would likely have a devastating effect on the economy. A preferable solution, is a system by which the government sets a target for carbon emissions and then auctions off the rights to those emissions to the highest bidder. This provides a huge economic incentive -- some companies will reduce emissions by 25%, some will reduce by 75%, but the ones that reduce by 75% will have a huge economic advantage. It does not perscribe a solution, but it lets the markets optimize under a new economic paradigm.

Another example is health care. Let's assume for a minute that we agree that health care is something that should be provided for every American. One approach would be a government takeover of health care. This would likely lead to inefficiency and bad decision making as it essentially creates another monopoly. An alternative solution would be to mandate that all Americans have health insurance and provide tax dollars for uninsured individuals to buy insurance with. Then, private providers could develop coverage plans and consumers could choose the ones that best fit their needs with the coverage dollars they have.

So with all this said, what do I believe about things like taxation and government spending? Complicated questions, but I'll give it a shot:
A conservative friend of mine was speaking to me the other day about the benefits of the flat tax. I surprised him by saying that I agree with a flat tax....but, a real flat tax that encompasses all forms of income and covers all forms of taxes.

Let me explain -- there is a popular myth out there that rich pay the highest taxes. Not true. The middle class pay the highest taxes rate now. Sure the rich pay a marginal tax rate of 33% vs. a marginal tax rate for the middle class of 28%. But this excludes the impact of social security taxes, which amount to over 7% on the first $105K of income PLUS an additional 7% coming from your employer, meaning effectively that your check is reduced by 14% on the first $105K of income. This makes the REAL marginal tax rate for the middle class 42% vs. 33% for the wealthy. The poorest 30% pay nothing in income taxes, although they typically do pay the 14% in payroll taxes. Additionally, capital gains are taxes differently the earned income, with long-term capital gains taxes at only 15%.

This means that in effect, a rich person whose primary source of income is investments pays scarecely a third of the income tax that a middle-class working family does. It's not only economically inefficient, it's morally wrong.

Now some will argue that a lower capital gains tax is reasonable given that corporate earnings are taxes before transferrence to the investor. This is nonesense. All taxation occurs multiple times when money changes hands -- sales tax is collected at sale, corporate profits are then taxes and income for the worker is taxes again. It is no different with capital gains.

Also, some will argue that social security is different because you are paying into a system for which you get a benefit. But I could argue the same for any tax. Any notion that the dollars you pay into social security are the same ones that you take out later on is just mis-informed. The government is collecting a tax to pay a benefit, the same as any other tax.

So I do favor an all-encompassing flat tax, provided there is a sufficient standard deduction (say $20K per year) to exempt people below the poverty line. Applying taxes to people who can't afford rent and food is just cruel and it doesn't amount to much money. Secondly, we would need to wipe out ALL other deductions to prevent tax dodges. Yes, that includes charitable contributions. Charitable contribution deductions amount to nothing more than a government subsidy for churches and political groups -- how do you feel about religions you disagree with getting a government subsidy? Seems a little contrary to the constitution to me.

So what rate should be set? My basic answer is enough to cover government spending. The idea that taxes and spending are somehow two separate issues is just silly. We need to pay our bills. My one caveat to that is that during the next 2 years, as we battle a recession, a defecit is probably prudent. But Obama can't let 2 years become 4 years become 8 years. Not paying our bills is irresponsible, and for all you supply siders out there, it is soaking up investment capital that could be funding new innovations.

So is the level of government spending too high too low or just about right?

Ignoring the likely stimulus package (we will likely have to spend huge sums of money to get the economy going again, but that is not a part of core government spending), I'm entirely sure the answer...there are a lot of things I would like to invest more in but also a lot of government expenditures that are utter wastes.

Things to invest more in:
(1) Education and Job Training -- raising primary and secondary schools to world class must be a top priority to maintain or positoin as a world power. Providing access to post-secondary education for all children is also essentially. We don't spend nearly enough money federally to do this. Look at the horrible state of schools in places like Mississippi, Los Angeles, Camden, NJ, Gary, IN, etc. And look at the high percentage of kids who never make it to college.

(2) Basic Research -- we've given up our lead in science. There is not enough science or military spending right now inventing next generation technology. We are still flying Space Shuttles and F-15s, each 1950s and 60s technology. There is no microwave or microchip in the pipeline. This needs to be remedied. Basic Research funding could also do a lot to solve environmental problems.

(3) Health Care -- I do think it is a crime to see so many people without health care in the US. This is not an economic argument (the present system is probably more economically efficient than most) but a moral one. The government needs to design a system that improves health care.

(4) Infrastructure -- a big engine of our economy, it has been heavily neglected. Bridges, roads, rail, sure, but also upgraded air traffic control, an improved electrical grid and other enhancements. These are investments that will pay many-fold in the years to come.

(5) Troop Strength -- we do not have enough troops in the military to handle potential conflicts in the years to come. Again, not an economic need, but a national security need. The war in Iraq has demonstrated how undersized our military is -- can you imagine fighing a ground war against China or Russia if we have to tap reserves for multiple tours in Iraq? There is also a moral component to this, the sacrifices that we have asked of soliders with multiple deployments in combat zones and short breaks is wrong.

Investments that are a total waste of time:
(1) Farm Subsidies -- cut them all. 100% of them. They make our agricultural system economically inefficient and do nothing but line the pockets of big farmers.

(2) Earmarks -- John McCain had this one right. A process that lends itself to building bee hive museums and bridges to nowhere.

So, in total, I'd probably increase the size of government, but not by that much. And we'd have a tax code that made sense to pay for it.

I'm a free trader, bar none. Trade protections do nothing but make the system less economically efficient. If someone is willing to make it for us cheaper than we are willing to make it ourselves we should take it. And don't worry about them subsidizing industries -- if they want to sell to us at a loss, we should let them.

Yes, it will hurt specific industries, but overall it makes us more competitive.

We cannot avoid globalization, we need to capitalize on it.

Next Blog
Rating the Presidency of George W. Bush

Wednesday, December 24, 2008

Turning Everything on Its Head: A Lesson in Politics and Economics, Part 1

The Conventional Wisdom
Here is what conventional wisdom tells us about the last 30 years of politics and economics:
Democrats generally prefer higher levels of government spending to finance expanded social programs. In order to accomplish this, they raise taxes, particularly on upper income individuals.

Republicans, on the other hand, favor more limited government and lower taxes, believing in the power of free markets to produce the highest level of prosperity for all.

When Ronald Reagan came to office in 1981, he aggressively reduced the size of government and cut taxes, yielding an economic boom. By cutting social programs, he angered Democrats, but Republicans praised his economic policies and believed they lifted all Americans.

George Herbert-Walker Bush came to office 1981 and started to carry on the Democratic legacy, but eventually agreed with congressional Democrats to a big tax increase and was voted out of office.

Bill Clinton then came to the White House and raised taxes again. These tax increases, plus the internet boom put the economy in balance.

After 8 years of Clinton, when George Walker Bush was elected and took office in 2001, he aggressively reduced taxes. Unlike Reagan, however, the economy didn't grow due to the September 11th terror attacks. Because of this economic contraction, we now face a global economic crisis.

Does this sound like the narrative that you have heard for a long time? Me too. The interesting thing is -- most of it isn't true.

The Real Story
Part 1, The Reagan Years
When Ronald Reagan took office, he did pursue aggressive reductions in the top marginal tax rates. However, through the Gramm-Rudman deficit reduction act, he also aggressively pursued closing tax loopholes, especially for upper income earners.

The results? When Reagan left office in 1991, federal taxes a percentage of GDP stood at 18.1%, down just slightly from the 18.8% when he took office (a net reduction of 4% in taxes paid as a percentage of the economy's size.)

Now, you could certainly argue (and I would) that Reagan's policies made the tax code more transparent and efficient by setting real marginal tax rates and reducing complicated tax dodges. What you can't really claim is that Reagan was a big tax-cutter.

Reagan also didn't cut spending. Not at all. Government spending as a percentage of GDP was the same 21.5% when he left office as when he came to office. And this doesn't even tell the whole story -- government spending had increased above 23% of GDP a few years into his administration. It was only at the end that he started to reign in the spend.

What was the result of taxes going down slightly and government spending going up? Higher deficits, obviously.

Reagan certainly prioritized spending differently by focusing more heavily on military investments and less on social programs, but he was clearly no small government guy.

Lots of borrow and spend going on.

Part 2, George H.W. Bush
Bush was not a turncoat tax raiser, as conservatives contended. To the contrary, taxes in total remained fairly stable during his administration, actually falling from 18.1% of GDP to 18.0% of GDP or a 1% tax cut. Sure, he agreed to raise top marginal rates at the end of his administration. But his administration also administered many tax cuts and credits, such as the Earned Income Tax Credit, increases in personal and dependent exemptions, etc.

What Bush did do was spend mone, increasing federal spending from 21.5% of GDP to 22.1% when he left office, a 3% increase.

Increased spending with flat tax revenue continued to increase the deficit.

Part 3, Bill Clinton, Not Your Big Spending Liberal
Bill Clinton came to office and promised to reduce the deficit. And he did. Aggressively. He raised taxes, very true. Taxes during Clinton's 8 years went from 18.0% of GDP when he entered office to 20.9% of GDP when he left, a 16% increase.

He also cut spending in a way that neither Reagan or Bush ever attempted. Federal spending fell from 22.1% of GDP to 18.5% of GDP when he left office, a 16% decrease.

The result was record federal surpluses leading to massive reduction in federal debt. Clinton achieved this in almost equal parts tax increase and spending reduction.

Part 4, George W. Bush, Borrow and Spend Mania
George W. Bush was definitely a tax-cutter's tax-cutter. He reversed almost all of the Clinton tax increases, bringing taxes down from 20.9% of GDP to 18.8% of GDP in the most recent numbers available, a 10% tax cut.

W. also loved to spend money, on prescription drug benefits, the war in Iraq and the TSA. Government spending rose from 18.5% of GDP to 19.9% of GDP, an 8% increase.

The result? Back in the red.

The last 4 presidents had very different styles when it came to taxes and spending.
President Change in Taxes Change in Spending Change in Deficit
Reagan 4% reduction No change 41% increase
First Bush 1% reduction 3% increase 21% increase
Clinton 16% increase 16% reduction >100% decrease
Second Bush 10% decrease 8% increase >100% increase

So, if we measure "conservative" by how much the government spends, Bill Clinton would be the most conservative President of the last 30 years, George W. Bush the most liberal.

If we measure "conservative" by how well they contain the deficit, then Clinton is still the most conservative, W. the most liberal.

It is only by tax policy that you get to the traditional view of Clinton as the more liberal and W. as more conservative.

But is borrowing massive amounts of money to finance tax cuts really conservatism?

Other Quick Takes
Minnesota still isn't decided. Al Franken now leads by 46 votes in the unofficial tally after completion of the recount. But he hasn't won yet. Not by a long shot.

There are still several issues to resolve:
(1) The 1,600 absentee ballots that were improperly rejected on election day. The state supreme court has ruled those ballots should be counted and that the two campaigns should agree to a process for awarding those ballots so the counting can be completed by December 31st. As of yet, no agreement.
(2) The Coleman camp claims some 130 ballots were potentially double-counted during the recount. State law allows for photocopies to be taken of ballots that are damaged and cannot be read by counting machines. In the recount, ballots with duplicates were supposed to be paired with the duplicates to ensure that no ballots were doubled counted. 130 or so ballots were not able to be paired. This could mean ballots were double counted, duplicates were lost or that ballots were incorrectly recorded to have a duplicate. Nobody knows. The State Supreme Court dealt a blow to the Coleman campaign today, ruling that the canvassing board shouldn't attempt to resolve the issue. But it didn't close the door on contesting these ballots -- it said a later court hearing after the election was possible. Which means that Minnesota might certify a winner and we might still have a protracted legal battle.
(3) There are still some discrepancies to resolve in the awarding of withdrawn challenges.

Frankly, #1 is probably the most important. 1,600 votes is a lot with less than a 50 vote margin. But we still have a mighty mess.

It looks like the seat might be vacant when congress convenes January 6th. It does not appear, according to Governor Pawlenty's office that he believes he has the power to name an interim senator. And Harry Reid has made it clear that he doesn't believe such a right exists constitutionally and congress might not seat a replacement pick.

This makes Florida in 2000 look like a day at the park.

Upcoming Blogs
Economics Lessons, Part 2 -- I share my beliefs on taxes, spending and capitalism
Rating George W. Bush -- assessing the successes and failures of the Bush administration

Happy Holidays, everyone!

Thursday, December 18, 2008

Quick Takes: The Cabinet, Kudos to Bush, Rick Warren, The Auto Industry, Harry Reid, MN & NY Senate

The Centrist, Diverse Obama Cabinet

I was initially a little hesitant when the names of potential Obama cabinet members started circulating what seems like a lifetime ago and also concerned with the selection of the highly partisan Rahm Emanuel as his Chief of Staff. My concern was misplaced. It is hard not to be impressed with the true diversity of his cabinet by any measure: race, gender, party affiliation, political philosophy, etc. Here are some statistics.

Ethnic Diversity: African-American = 1, Hispanic = 3, Asian-American = 2, White = 9

Gender Diversity: Women = 3, Men = 12

Party Affiliation: Republicans = 2, Independents = 1, Democrats = 12

Note: I am counting Eric Shinseki as an Independent having served as Army Cheif of Staff under both Clinton and Bush, although I am not sure of his leanings. I am counting Robert Gates as a Republican as he has supported Republicans in the past although he is a registered independent. I am counting Timothy Geithner as a Democrat as he served as an undersecretary in the Clinton administration, although his party affiliation is undeclared.

Beltway Affiliation: Insiders = 10, Outsiders = 5

Note: For purposes of this definition an insider has worked in either congress or the federal executive branch, an outsider has not.

A truly impressive and qualified crowd. Of his 15 cabinet members, only 1, Eric Holder, will face any significant opposition in congress.

The far left (Daily Kos, etc.) is mad at Obama for not naming a more liberal cabinet. Conservatives are largely praising his choice or staying quiet, except for Holder. Even Fred Barnes said he was happy with his picks.

Bravo, Mr. President Elect.

The one chink in the armor for some -- no openly gay cabinet members. There is some buzz about openly gay undersecretaries and non-cabinet level secretaries, but the gay community appears to feel somewhat slighted. And Rick Warren didn't help him here either -- see below.

Kudos to Bush

I haven't said that often, but I have to say, Bush has gone out of his way to provide an orderly transition and support Obama as he has started his Presidency. He has made himself available to the President-Elect, he has refrained from criticism, he has had his cabinet prepare contingency plans for disasters shortly after Obama takes office and he has praised Obama's historic candidacy. This is nothing like the childish behavior of the Clinton administration in its last days or the cold hand-off from Bush's father to Clinton.

I've said it before and I'll say it again -- Bush has not been a great President, far from it. But he deserves credit for the service he is doing this nation by enabling Obama to hit the ground running.

The Rick Warren Situation

There has been a firestorm from the left and the gay community since it was announced that Rick Warren would give the invocation at Barack Obama's inauguration.

For any who don't know, Rick Warren is a prominent pastor who has staunchly conservative views on social issues, most notably gay rights. He is a staunch opponent of gay marriage and social unions and gay adoption. Warren's Saddleback Church hosted joint interviews with both John McCain and Barack Obama early in the campaign.

Let me state my nuanced view to this very touchy topic.

If I were Barack Obama, I would not have Rick Warren in my circle of friends. I believe gay rights is the crowning civil rights issue of our time. Gay Americans are the only group that still face legal and socially accepted discrimination. I find his sermons on the topic disturbing.

But this is exactly what Obama promised. Lest we forget, Obama is opposed to gay marriage as well. Obama went to Rick Warren's church at Saddleback to be interviewed. He has stated repeatedly the need to reach out to the evangelical community. Rick Warren is not being put in government, he is simply giving an invocation.

So while I disagree with Warren and Obama on gay marriage, I find it hard to criticize Obama for doing what he said he would do.

Who would've thought at this point that conservatives would be praising Obama and liberals criticizing him? Maybe he is a different kind of politician.

The Auto Industry

Now that the bailout package has failed, the ball is in the Bush Administrations court. Bush cannot simply kick the can down the road as almost certainly GM and possibly Chrysler would already be in bankruptcy by the time Obama takes office (Ford has a much stronger balance sheet and may well survive without bankruptcy or financial assistance.)

Bush had initially hinted that he would provide loans out of the remaining TARP funds. He is now indicating that an "orderly bankruptcy" may be the way to go. What exactly this means is not 100% clear yet, but I will restate my position that I think that the Big 3 are unworthy of a taxpayer bailout without bankruptcy and the sort of strict restrictions on executive compensation and financial restructuring that were not (but should have been) part of the financial industry bailout.

I am sick and tired of practicing capitalism with corporate gains and socialism with corporate losses. This is a preverse reverse socialism where the rich make out when times are good and the rich are still protected when times are bad.

I recognize the economic criticality of the auto industry and nobody favors the companies shutting down, but I cannot fathom why investors should get a return on a company that has been incompetently managed.

The Incompetent Harry Reid

While I did not support the bailout package, its failure to pass is another strike against Harry Reid. Seriously, can this guy get anything done? Since Democrats have taken the majority, can you think of one piece of major legislation he has pushed through?

Democrats and Bush reached an agreement on immigration reform. Didn't pass.

Democrats and Bush reached an agreement on the first bailout bill. Didn't pass.

Congress controlled the purse strings on Iraq. Bush got his way.

Democrats and Bush reached an agreement on the auto industry. Didn't pass.

What an abject failure. Democrats need to give Reid the boot. The country deserves better. And Democrats better wise up if they hope to hold their new found seats in 2010.

The Long Road in Minnesota, the "Election of One" in New York

The election that seems to never end in Minnesota is getting closer to over and shockingly, after seeing Norm Coleman lead throughout the recount, he could actually lose this one. It is still far from decided given the narrowness of the margins. Norm Coleman officially leads by 5 votes (no that is not a typo), but the challenges are not yet all sorted through, so those numbers will shift again, we just don't know in which direction.

Also, the state supreme court ruled today that about 1,600 improperly rejected absentee ballots should be counted, meaning another round of counts, another round of challenges and another round of resolving the challenges.

This is all supposed to be over by December 31st according to the ruling. Don't count on it being resolved any sooner.

In New York, Caroline Kennedy is running a campaign of sorts to get Governor David Patterson to appoint her to Hillary Clinton's seat. While I have nothing against Kennedy, who seems to be a pleasant, kind and decent person, I detest legacy blue blood politics. Kennedy has done nothing to earn a Senate seat other than have a famous name. Governor Patterson should appoint the person he thinks is best qualified, and he would have trouble convincing me that that is Kennedy. If Kennedy wants the seat, let her run for it in 2010. Heck, she'd probably win -- New Yorkers love both celebrities and the Kennedy family. But if she ran and won, she would be definition in a democracy, earn the seat. As it is, it feels like just another backdoor deal if she gets it by appointment.

Sunday, December 7, 2008

First Glimpse: 2012

Okay, I know Obama hasn't even taken office yet, but since it is a relatively slow news period (if you don't count the economic bad news every day and confirmation of Obama appointments that we already knew about), I thought we'd look at the 2012 breakdown.
State of the States
The first map above shows a breakdown of the states by projected battleground status in 2012. Let me explain what I did. Since Obama won the national popular vote by over 7%, it is necessary to normalize for what the map might look like in a closer election. Therefore, we have designated as follows: Dark Red States
(States that were 20% or more pro-GOP than the nation)
Idaho, Oklahoma, Wyoming, Utah, Alaska, Alabama, Arkansas, Louisiana, Nebraska, Kentucky, Kansas, Tennessee, Mississippi and West Virginia

These states will go Democratic in 2012 -- if -- well, if hell freezes over.

Of course, it is worth noting that it wasn't long ago that Indiana and Virginia would've fit this definition and on the flip side, it was just back in 1996 that Bill Clinton was carrying states like Arkansas, Louisiana and West Virginia. Funny how things change.
Red States
(States that were 10% or more pro-GOP than the nation)
Texas, South Carolina, North Dakota, South Dakota, Arizona, Georgia

These states would go Democratic only in a landslide.

Of course, I (incorrectly) picked North Dakota for Obama this time around and Arizona might have been closer where McCain not from there.
Light Red States
(States won by McCain that don't fit the other two categories)
Montana, Missouri

These states could go Democratic in a decisive win, but probably would not be deciders in a close election. Missouri was obviously extremely close this year and Montana wasn't far off either.

(States won by Obama but by less than he won nationally)
North Carolina, Indiana, Florida, Ohio, Virginia

Expect these states to all be hotly contested in 2012. They could well swing the outcome.

Light Blue States (States won by Obama by more than he won nationally but by 10% or less)
Colorado, New Hampshire, Iowa, Minnesota

Expect these to be fought over in 2012. A Republican challenger would need to pick up some EV's here in order to win.
Blue States
(States won by Obama by >10% and <20%) style="color: rgb(0, 0, 153);">Deep Blue States
Delaware, Connecticut, Maryland, California, Illinois, New York, Massachussetts, Rhode Island, Vermont, Hawaii, District of Columbia

Not going GOP anytime soon. Would need a Reagan or Nixon-style blowout to pick these up.

Census 2010 A major event that will influence the 2012 elections is the impact of the 2010 census. Population changes will impact congressional apportionment, which in turn will impact the number of electoral votes each state has. While we can't be sure until the census is taken, Census Bureau estimates give us a reasonable idea as to the changes that are likely. The second map shows the impacts.
Losing 2 Electoral Votes
New York and Ohio

The northeast and the rust belt take a hit.

Losing 1 Electoral Vote
Massachussetts, Pennsylvania, Illinois, Missouri, Iowa, Nebraska

The northeast and rust belt hit as is the midwest.
Gaining 1 Electoral Vote
California, Nevada, Utah, Arizona, Georgia

The west continues its strong growth and Atlanta-metro continues to sprawl
Gaining 2 Electoral Votes

Hurricanes don't scare away the growth in Miami and Tampa.
Gaining 3 Electoral Votes

You don't mess with Texas, which has been picking up EV's like crazy the last two censuses. Dallas/Ft.Worth, Houston booming.

In total -- Deep Blue states lose 3 electoral votes, Blue states stay even, Light Blue states lose 1 ev, Toss-ups are even, Light Red states lose 1 ev, Red states pick-up 5 ev's and Deep Red states stay even.

So it's -4 for blue states of all shades and +4 for red states of all shades. Edge GOP.
What It All Means
Post 2010 census, the EV's breakdown this way:
Deep Blue -- 150 EV's
Blue -- 95 EV's
Light Blue -- 29 EV's
Toss-ups -- 86 EV's
Light Red -- 13 EV's
Red -- 78 EV's
Deep Red -- 87 EV's

So the Dem's will come in to 2012 with 245 EV's pretty solidly in their corner, the GOP 165. To win, the Dem's must just hold the light blue states, which would give them 274 EV's in an even national election. The GOP get to only 178 EV's with the light red states and would need all the tossups plus 5 EV's from the light blue column.

Structurally, the advantage is Democratic going in. But not by a lot -- if the proportions from 2008 held, a 2% popular vote win would swing Colorado and New Hampshire and give the GOP 278 EV's.
2012 Candidates
So, who's in the queue for a 2012 run?

Barack Obama -- pretty easy no brainer here
If Obama is alive and interested, it is incredibly unlikely that he would face a serious primary challenge. It is rare for a sitting President to have a serious challenge (Ted Kennedy taking on Jimmy Carter is the most recent one I can recall unless you count Pat Buchannan's run against the first Bush) and no Democrat wants to be the person who tried to take down the first black President.

If Obama for some reason is unavailable (death, illness or non-interest) than Hillary Clinton is the instant front-runner. Other rising stars include Sen. Jim Webb and Gov. Tom Kaine in Virginia and key members of Obama's cabinet such as Bill Richardson and Janet Napolitano. I guess you have to consider VP Joe Biden as well, but I can't see him holding up topping the ticket -- they practically had to shove him in a box for all his gaffes running for VP.

Sarah Palin -- say what you will, but the Alaska Gov is the most interesting thing going in the GOP.
Newt Gingrich -- I don't know how seriously to take him, but he's trying to make a comeback and is the one guy left associated with a successful Republican brand and fresh Republican ideas.
Tim Pawlenty -- Minnesota Gov a true rising GOP star -- but will anybody know who he is?
Mitt Romney -- the most articulate guy in the GOP, many feel would've but a stronger fight up that McCain. If a black guy can win, certainly a mormon can contend, right?
Mike Huckabee -- the surprise rock star of 2008 may make a return appearence. Probably too radical on social issues to get the nod, but you never know.

It is unlikely the GOP has a Barack Obama lurking in the wings. The GOP has a much stronger tradition of nominating the "next guy in line" than the DEMs -- think George H.W. Bush, Bob Dole, John McCain. Of course George W. Bush bucked that trend, but you could hardly say he came out of nowhere, holding the most known Republican name in national politics.

The next guy in line theory would give the advantage to Romney, who has certainly paid his dues. But it's still a long way off -- maybe the next "guy" is really VP rock star candidate Palin. Don't underestimate her, she will be prepped and articulate when she returns to the national stage.