Should We Calm Down or Panic?, Two Sides to Generational Theft, Defining Sexism in the Modern World

Is This a Bump on the Road or a Road to Recession?

The latest jobs reports from the Bureau of Labor Statistics was a bit of a cold shower for those hoping that the economy was finally spinning fast enough to produce real growth.  After a brutal recession, we have had a painfully slow jobs recovery and are, in fact, still 3 million jobs below peak employment, which all the way back in January 2008 (if you are a conservatie, insert favorite barb about President Obama here.)

While the unemployment rate edged down to 7.6% from 7.7%, the entire drop was due to more people dropping out of the workforce, with workforce participation reaching its lowest level since the Carter administration.  Only 88,000 jobs were created, far below the 200,000 that economists had been expecting just a few days before the report was released.

Some view this as evidence that the economy is slipping back into recession, while others view it as merely a statistical anomaly, and point to the much more robust job growth in February, when 268,000 jobs were created as evidence.

I view things somewhere in between.  There is no evidence to me that the economy is headed back into recession.  There has been no shock to our financial system, real estate is slowly on the mend and, every one of the past 29 months have seen positive job growth, with that number increasing to 36 months if you exclude the outlier of large hiring for temporary census workers in 2010 that led to large job reductions when those temporary jobs expired.  Over that time period 5.9 million jobs have been created.

The counterbalance to those optimistic sounding statistics is that 8.7 million jobs were lost during the recession, so we aren't close to back to "normal" yet.  Growth in both GDP and jobs has lagged substantially in this recovery versus prior recessions.  The 1990-1991 recession saw a mere 1.6 million jobs lost and jobs were back at parity in less than 2 years.

Even the brutal 81-81 recession saw only 2.8 million jobs lost and those were recovered within a year of job growth resuming.

So, what we are stuck with is an economy that still has a huge hole that is being filled painfully slowly. Economists say it is likely that this month's slowing numbers do not yet include much impact from sequester spending cuts, since those impacts are largely not felt until April and beyond.  It does include the headwinds from the tax increases that took effect at the first of the year.

If I had to guess, I would say that we have neither achieved "escape velocity" or fallen back into recession - we are just continuing to muddle along painfully slowly.

What Is Generational Theft?

An increasingly popular notion among conservatives is that we are stealing from future generations with today's deficit spending.  The thinking is fairly straightforward - we are spending more money than we have and borrowing the rest, leaving future generations to pay the tab.

Liberal economist Paul Krugman has written a strong rebuke to this point of view.  Krugman states that the conservative thinking misunderstands fundamentally what deficits are - that we are loaning money to ourselves and therefore not stealing from anyone.

Sorry, Paul, but your logic falls short.  Much of today's deficit is financed with debt either sold to other countries (money we will surely have to pay back in the future) or with bond-buying from the Federal Reserve's latest Quantitative Easing program which is unsustainable if (or more like when) inflation begins to resurge.

We have to deal with the deficit and can't continue to assume that we can outspend our tax collections and borrow money at near-zero interest rates to cover the difference.  The greatest risk of our debt is a crisis of confidence in the government's ability to service the debt, which would suddenly and without much warning drive up borrowing costs and set off a major recession.  

Where Krugman is correct is that investment in high return government programs is warranted.  Investments in infrastructure, education and science pay back in many multiples over future generations and should be continued.  But these are a very small percentage of federal expenditures.  The vast majority of federal money is spend on Defense and Entitlements.  These are the areas that we need to reign in.

Have We Gone PC Mad or Was President Obama Out of Line?

President Obama, in a speech last week, called California Attorney General Kamala Harris "by far the best-looking Attorney General", a statement that provoked anger from portions of the left as well as the right (a somewhat ironic juxtaposition of the usual conservative orthodoxy about political correctness.)

So was he out of line?  And if so, why?  What is appropriate in the modern world and what is sexist?

I've often wondered the same thing in my own professional life.  A couple of years ago, a colleague of mine who had, just a few months prior, had triplets, mentioned to me that she had just celebrated her 40th birthday.  Amazed, as this woman didn't look a day over 32 and was in impeccable physical condition, I said, without thinking much about the professional implications, "you are 40 and just had 3 babies?  You look amazing - you'd look great for 35 and no kids!"  Perhaps sensing that I might be stepping near a line somewhere, I quickly added, "I really hope that wasn't inappropriate to say."

She turned to me and smiled, saying, "I'm pretty sure it is never inappropriate to tell a woman she looks amazing.  Thanks."

So, aside from being factually incorrect (Pam Bondi of Florida is clearly the best-looking Attorney General in my opinion), was there anything wrong with what President Obama said?

It's very close to a very gray line, in my opinion.  I don't agree with my friend that it is never inappropriate to talk about how good a woman looks, but that doesn't necessarily make President Obama wrong either.

My conversation, detailed above, was a private one, with words exchanged among two people who had a friendly relationship if not a friendship.

Had I instead said: "it's really nice to see someone with big boobs join this department" in a department meeting, I would CLEARLY be out of line.

What President Obama did was somewhere in between the two.  By all accounts, he is friends with Kamala Harris.  But the setting was public and the Attorney General was in a professional setting.  It was probably best left unsaid or said in a private conversation.  But it isn't far over the line.

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The Q4 GDP: Conservative Economics in Action, On To The Budget Battles

A Very Economically Conservative Quarter
The headline was scary - the US Gross Domestic Product contracted by 0.1% in the fourth quarter of 2012.  While this is just ever so slightly below the zero line, we are technically halfway to a new recession (traditionally defined as two consecutive quarters of contraction, although, in modern times, more complex definitions have been used) after what has been a less than stellar recovery from the last deep recession.

The recession more or less started in the first quarter of 2008 and lasted for 18 months.  During that time period, the size of our economy contracted by 4.6%.  This may not sound like a ton, but bear in mind that under "normal" circumstances, the economy needs to grow by 1% just to keep up with population growth and that contraction of the economy disproportionately impacts working class workers in industries like manufacturing, construction and retail and entertainment services, as belts tighten.

During the 18 month recession, unemployment skyrocketed from 5.0% to 9.5% (it would eventually peak after the end of the recession, in October 2009 at 10.0% - it is normal for unemployment to peak slightly after the recession ends, as companies don't start hiring until several months after business picks up) and 7.5 million jobs were lost, meaning that that the actual percentage of people working dropped even more than the official unemployment rate would tell.

Since then, the recovery has been painfully slow, against the norm for recessions (although, many would argue, not for recessions born of deep financial crises) and against the predictions of many, including myself, who expected a more "V-shaped" recovery.  Average growth in the 3+ years since the recession ended has only been 2.3%, which would be okay if the starting point was a healthy economy, but nowhere near sufficient to relieve the pain caused by the recession.  Unemployment has fallen to 7.9%, lower than the peak certainly, but way above pre-recession levels.  There are STILL 3.2 million less jobs now than when the recession started 5 years ago.  And it wasn't until the fourth quarter of last year that the GDP surpassed its pre-recession level.

This gap would make the fourth quarter GDP contraction very troubling.  But, looking at the internals, things aren't as bad as they appear on the surface.  This quarter is actually a positive argument for economic conservatism and austerity, if you look under the covers.

You see, while the overall GDP contracted by 0.1%, private sector GDP rose by 2.6%, while government expenditures at all levels fell by 2.7%.  In other words, the private sector is in recovery, as evidenced by rising corporate earnings and corresponding rising stock prices.  It is government that is shrinking.  Most of the reduction is coming at the state and local level, as governments are forced to balance their budgets and (with California as a big exception) are largely turning to reducing government spending as opposed to raising taxes to make ends meet.  There has also been some reduction of federal expenditures and some modest cuts from prior budget deals take effect and we lap the tail end of the stimulus spending.

So why is this a good thing?  Employment in the quarter is actually the strongest it has been in a long time.  You see, while the overall economy contracted, just over 600,000 net jobs were added in the quarter, even more than that in the private sector.  In other words, at least for this quarter, the reduction in government spending did not have a dampening effect on the thing that matters most to the average person - available jobs.  Private sector hiring more than made up for public sector austerity.

This model seems destined to play out to some degree on the federal level as well.  Sequestration cuts take effect automatically on March 1st and the Republicans have been pretty clear that while they would like to replace the defense cuts, they have no interest in punting on the amount of the overall cuts.  Good for them - I hope they stick to their guns.  We have to solve the budget deficit one way or another and while we can argue the balance between tax hikes and spending cuts, doing something is better than doing nothing.

Also in play is the federal budget - the current continuing resolution lapses March 27th, which means that if Congress does not pass some sort of budgetary measure to fund the government, the government will shut down on that date.  Republicans, having had to give ground on the tax cut debate, since tax rates were slated to go up automatically, are not in a giving mood on the budget.  They, after all, hold the cards this time around - no budget can pass without the consent of the Republican-majority House.

With the debt-ceiling discussion wisely out of the way (sanity did prevail, as I'd hoped, on that topic, with the GOP agreeing to suspend the debt ceiling at least until mid-May, long after the budget battles), federal spending will be front-and-center in Washington.

These debates will play out over the next 1 to 2 months.

Rebuilding a Second-Term Cabinet
President Obama has some work to do.  Much of his first-term cabinet has left or is leaving.  Let's review the status of the key cabinet-level department head positions:

State Department
Hillary Clinton, as we all know, has moved on.  This is one that the President doesn't have to worry about as former Senator John Kerry has already taken the top job at state, confirmed easily by a 94-3 vote in the Senate.  He took office February 1st.

Treasury
Tim Geithner has already departed, officially resigning January 25th.  President Obama has nominated Jack Lew as his replacement.  Lew have his hearing in the Senate, but is widely expected to be confirmed, although he has generated some controversy.

Defense
Leon Panetta, President Obama's second Defense Secretary (his first, Robert Gates, was a keeper from the Bush Administration) is still in office but has asked to leave as soon as a successor can be confirmed.  Chuck Hagel just had his grilling this week before the Senate.  The majority of Republicans are expected to vote no for their dovish fellow Republican, but most expected that all 55 Democrats and Independents will vote for Hagel and that few enough Republicans will want a filibuster fight that he will ultimately be confirmed.

Attorney General
Eric Holder is staying, at least for now.

Interior
Ken Salazar has announced his desire to leave office in March.  President Obama has yet to nominate a successor.

Agriculture
Tom Vilsack has not announced his second term plans, but appears to be staying, at least for the time-being.

Commerce
This has been the most difficult cabinet position for President Obama.  Gary Locke, Obama's third nominee in his first term, finally took office in March of 2009, but stayed only 2 and a half years, basically competing the census and then departing.  Obama's second Commerce Secretary, John Bryson, lasted a mere 8 months, resigning after a bizarre incident involving a hit-and-run car accident and a stroke.  For the past 8 months, Rebecca Blank has been acting Commerce Secretary, awaiting an appointment and confirmation.  President Obama has yet to nominate a new Commerce Secretary.

Labor
Hilda Solis has already left office on January 22nd, leaving the post open.  President Obama has yet to name a replacement and most of his top picks from the world of labor are sure to generate controversy from Republicans.

Health and Human Services
Kathleen Sebelius appears to be staying, at least for now.

Housing and Urban Development
Shaun Donovan appears to be staying, at least for now.

Transportation
Ray Lahood is still in office but has announced his intention to leave when a successor can be confirmed.  President Obama has yet to name a successor.

Energy
Stephen Chu just announced this week that he will also be stepping down.  President Obama has yet to name a successor.

Education
Arne Duncan appears to be staying, at least for now.

Veterans Affairs
Eric Shinseki appears to be staying, at least for now.

Homeland Security
Janet Napolitano appears to be staying, at least for now.

So, to wrap it all up, of the 15 federal departments (I'm excluding "cabinet-level" positions that do not run a federal department) here is where President Obama stands:

Staying on from First Term: 7 (Justice, Agriculture, Health & Human Services, Housing & Urban Development, Education, Veterans Affairs and Homeland Security)
Nominee Already Confirmed: 1 (State)
Nomination Made But Not Yet Confirmed: 2 (Defense, Treasury)
Nominee Yet-To-Be-Named: 5 (Interior, Commerce, Labor, Transportation, Energy)

Clearly, the President has some work to do to rebuild his team.  This is doubly important given the significant budgetary changes to these departments likely to come down the pike with both sequestration and the continuing resolution battle in March.  Having interim leaders is not the best way to go ever, but is particularly bad when there are big changes coming.

Expect a flurry of nominations in the next few weeks as well as a lot of hearings and votes on nominees.  The President has named his most critical team (generally State, Defense, Treasury and Attorney General are considered the most critical positions in the cabinet), but there is much work left to do on the rest of the team.

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The 100 Day Sprint - Olympic Edition, How is Romney Not 10 Points Ahead?

Who Will Take the Gold?
Days Until the Election: 100
Projected Popular Vote Total: Obama +0.3% (unchanged from last week)
Projected Electoral Vote Total: Obama 332, Romney 206 (unchanged from last week)

For all that those of us who like politics like to make out of supposed gaffes, whether it is Mitt Romney making his first political visit to the UK and insulting their readiness to hose the Olympics or President Obama making remarks which, without proper context, make it sound like he was saying that the government built private businesses, it is obvious from the polling that these are having very little effect on the Presidential race to date.  Nor is the massive amount of money already being spent on both sides to try to sway voters.

The electoral map has been remarkably stable.  The last time my map looked any different in terms of the electoral total was five weeks ago, when Ohio was narrowly in Mitt Romney's column.  As a matter of fact, 47 of the states have been in the same column on every single map this year.  Only Florida, Ohio and Virginia have swung back and forth and as you can see, they are still among the closest of the states.

Looking at the Intrade Odds, which tend to reflect both swings in political fortunes and the stability of the race, the odds of President Obama being re-elected have stayed in a range between 52% and 61% all year (they are very close to the center of that range right now, at 57.4%.)

So we have the odd phenomenon of a very close race that has seen very little change over a long period of time.

If the election were held today, I have no doubt that the President would win re-election.  But, to paraphrase a great political thinker, if the election were held today, we'd all be a bit confused, because it was supposed to happen in November.  100 days is still a lot of runway for Mitt Romney to overcome what is, after all, a very modest lead for the President.

The world and the United States will be paying little attention to politics for the next 16 days as the summer Olympics take place in London.  Sure, there are wall-to-wall RNC ads during the Olympics, but no one is paying attention while they are busy rooting on America's best athletes.

Mitt Romney has clearly made the choice to make a late announcement of his VP pick, as he is almost guaranteed not to make an announcement during the Olympics, meaning the EARLIEST he could announce now is August 13th, which is exactly two weeks before the Republican Convention.

Obama Ahead - How is this Even Possible?
By all historical data, this should be a Republican year.  As has been discussed many times, economic conditions are a huge indicator of Presidential election prospects and the numbers are still dismal for the President.

Since World War II, the following sitting Presidents have run for re-election.

Harry Truman in 1948
Dwight Eisenhower in 1956
Lyndon Johnson in 1964*
Richard Nixon in 1972
Gerald Ford in 1976*
Jimmy Carter in 1980
Ronald Reagan in 1984
George H.W. Bush in 1992
Bill Clinton in 1996
George W. Bush in 2004

* Johnson and Ford where not elected President in their first, partial term.  Johnson became President when John F. Kennedy was killed and Ford became President when Nixon resigned following the Watergate scandal.  Still, they were incumbents running for re-election.

The election year unemployment rates (January through October as the election takes place in early November), the CHANGE in unemployment rates from the same period the prior year and the ultimate percentage of the two-party popular vote are below (I use the two-party popular vote because the presence of major independent candidates, such as John Anderson in 1980 and H. Ross Perot in 1992 and 1996 can distort the results.)
Year - UE, Change, 2-Party Vote %
1948 - 3.7%, -1.7%, 52%
1956 - 4.1%, -0.3%, 58%
1964 - 5.2%, -0.5%, 61%
1972 - 5.7%, -0.2%, 62%
1976 - 7.7%, -0.8%, 49%
1980 - 7.1%, +1.3%, 45%
1984 - 7.6%, -2.2%, 59%
1992 - 7.5%, +0.7%, 47%
1996 - 5.4%, -0.2%, 55%
2004 - 5.6%, -0.4%, 51%

Looking at these data, of the 7 re-election candidates who have received more than 50% of the popular vote, only 1, Ronald Reagan in 1984, was re-elected with an unemployment rate over 6%.  In Reagan's case, the unemployment rate was still high put was coming down quickly, having dropped 2.2% in 12 months.  Of the 3 candidates who did NOT received 50% of the vote, all 3 had unemployment rates over 7%.

Putting these two causal factors, absolute unemployment rate and annual change in unemployment rate into a linear regression model, I was able to develop the following equation for Presidents seeking re-election:
Popular Vote = 59.38% - 1.1 * unemployment rate - 2.5 * change in unemployment rate

With this, we can see who has beat and who has under performed versus the natural course of the election based on the unemployment rate:

Year - Candidate, Predicted Outcome, Actual Outcome, Difference
1948 - Harry Truman, 60%, 52%, 8% Under Perform
1956 - Dwight Eisenhower, 56%, 58%, 2% Outperform
1964 - Lyndon Johnson, 55%, 61%, 5% Outperform
1972 - Richard Nixon, 54%, 62%, 8% Outperform
1976 - Gerald Ford, 53%, 49%, 4% Under Perform
1980 - Jimmy Carter, 48%, 45%, 3% Under Perform
1984 - Ronald Reagan, 57%, 59%, 2% Outperform
1992 - George H.W. Bush, 49%, 47%, 2% Under Perform
1996 - Bill Clinton, 54%, 55%, 1% Outperform
2004 - George W. Bush, 54%, 51%, 3% Under Perform

In every race except 1948, 1964, 1972 and 1976, the sitting President performed within 3% of the results that would be predicted by the unemployment rate and change in unemployment rate.

Harry Truman, who is a surprising biggest loser versus expectations, given that he won, is actually a natural candidate to under perform in 1948, given the vicious divisions in the Democratic party over civil rights that led to a splinter candidacy by Strom Thurmond, who actually won most of the deep south as an Independent.

Lyndon Johnson's poor performance in 1964 followed a similar theme as Johnson put his legacy on the line in order to get the Civil Rights Act passed and faced a stiff primary challenge from George Wallace in the wake of Kennedy's assassination.

Richard Nixon's brilliant performance in 1972 was a result of a very weak candidate in George McGovern and his awful initial choice of Tom Eagleton as VP, a man who had a history of mental problems.

Gerald Ford's under performance in 1976 can be soundly attributed to fallout from the Watergate scandal and Ford's decision to pardon Richard Nixon, an act that has been praised by many historians but was bitterly unpopular at the time.

It is worth noting that while there are some variations int he popular vote, in terms of outcome, the ONLY candidate predicted to win by this equation who actually lost was Gerald Ford and no candidate predicted to lose has won.  And 1976 was truly unique, with the backdrop of Watergate and the odd situation of Ford running for re-election despite never having won a national election (he was appointed VP by Nixon after Spiro Agnew resigned amidst a bribery scandal.)

So what would this equation predict for the 2012 race?

The data set is incomplete, but through 6 months, the unemployment rate this year has averaged 8.2%, a 0.8% decline from  a year prior.

Plugging those numbers into the equation would predict 52% of the two-party vote for President Obama.  One would argue that this is exactly where the race stands or that perhaps Romney is even over performing a bit at this stage (my national numbers has Obama at +0.3%, he should be at +4% with a 52% total.)

So, to all those who say Romney is the worst candidate in generations and is spoiling what should be a huge Republican lead given the poor economy, they are wrong.  The trajectory of the economy is actually far more critical than its absolute state, as shown by Ronald Reagan in 1984, whose resounding victory came despite high unemployment and aligned closely to the model.

The stage is set for a close race.  What happens between now and November with the economy is critical.  And the other circumstances matter a lot when the model predicts a race this close.

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Why Romney Will Win the Nomination and Why It May Not Matter

Mitt Romney is surging.  With a decisive, although completely expected, win in the Nevada caucuses, Romney has 2 in a row.  Rick Santorum has clearly faded from serious contention, finishing a distant 4th in the race with a projected 11% of the vote (all votes were not in and counted as of this writing, so it could shift still.)  Ron Paul, as he always does, continues to outperform in caucus states, taking 18% of the vote in Nevada, but there is no conceivable map to him securing the nomination, although he will continue to make noise and try to pick off delegates where he can to support his cause of libertarian freedom.

And then there is Newt.  Defiant to the last, Newt held a press conference last night in lieu of a rally and continued to talk smack about Romney, essentially saying that there is no real choice in November if Romney is the nominee.  He has pledged to stay in the race until the end, regardless of the outcome.

The rest of the calendar for the month is somewhat quiet until the end.  We will see caucuses in Colorado and Minnesota on Tuesday, as well as a primary in Missouri which doesn't count (delegates are awarded in a March caucus - I'm not even sure all the candidates are on the ballot.)  Then Maine next week, then over a two week break until the bigger paydays of Arizona and Michigan.

After a Washington Caucus March 3rd, then, the real big prize, Super Tuesday, takes place on March 6th, with Alaska, Georgia, Idaho, Massachusetts, North Dakota, Ohio, Oklahoma, Tennessee, Vermont and Virginia all holding events on the same day. 

The conventional wisdom is that Newt Gingrich will try to survive until Super Tuesday, since he seems very unlikely, given the demographics, to win any of the races in between.  But even on Super Tuesday, while he seems sure to take Georgia and will have a good shot in Oklahoma, Tennessee and Virginia, it seems extremely hard for him to construct a map that gives him a lead coming out of Super Tuesday.

But the nature of delegate awards works to Gingrich's advantage to stay around and make hay, even if he ultimately loses. 

You see, it takes 1,144 delegates to win a majority of the 2,286 that will attend the Republican convention in Tampa including 168 party leaders and 2,118 that are awarded in the 50 primaries and caucuses over the winding primary season.

To date, because of a series of penalties to almost all of the early states except Iowa for violating party rules around the timing of their contests, only 140 have been awarded - and of those 140, Mitt Romney has only won 72 (this number will probably increase by a few when the final count is in from Nevada.)

Between now and Super Tuesday, the intervening contests will award another 202.  Then, on Super Tuesday, an additional 437 will be awarded. 

So, while the next few weeks will award more delegates than the first 5 contests to dates and Super Tuesday will award more delegates than all contests prior to it, at the end of the night on March 6th, there will still have only been 779 awarded, a mere 37% of the ones to be awarded in primaries and caucuses and far fewer than needed to lock up a nomination.

So Mitt Romney will have to solider on...and hopefully develop some better talking points than not being concerned about the poor.

If the Economy Soars, It's 1996 All Over Again
Since his first two years in office, the question on the table of political pundits has been which other Presidency the Presidency of Barack Obama will resemble at re-election: Jimmy Carter or Bill Clinton.

Both Carter and Clinton were swept into office as outsiders at a time when the economy was sputtering and people were looking for change.  Both made significant policy changes versus their Republican predecessors.  And both faced public backlash for changing too much too fast, losing many seats in the mid-term elections - in 1978 for Carter and in 1994 for Clinton.

Obviously, despite the parallels in their first two years, Carter and Clinton's arc diverged widely by re-election night.  In 1980, Carter was destroyed, receiving less than 45% of the two-party vote and only 41% of the vote overall (Independent John Anderson explains the difference) and lost 44 states.

In 1996, Bill Clinton was resoundingly re-elected, with the least competitive Republican showing since Barry Goldwater, garnering almost 55% of the two-party vote (50% of the vote overall, due to Ross Perot's second independent run) and winning 379 electoral votes in 30 states.

The difference between Carter and Clinton was the arc of the economy headed into the election.  The Carter era economy was still stagnant, with inflation still destroying savings and a high degree of national pessimism.  The economy was booming under Clinton, with the effects of the 1990/91 recession, caused by the savings & loan busts, long gone, the budget on its way to balance and unemployment falling fast.

Obama will not be at either extreme.  The economy will not be as bad as in 1980, nor as good as in 1996.  But how the economy does between now and November will have a profound impact on the President's re-election chances.

And on that front there is good news.  On Friday, the Bureau of Labor Statistics reported far better jobs news than expected, with official unemployment falling to 8.3%, it's lowest level in over 2 years and job creation was a net positive 243,000, the best result in 3 years and made even better by the fact that private sector job growth was actually 257,000, with a 14,000 reduction in government employment offsetting this to produce the total number.

It's one month, but it's a data point that confirms a trend - the economy is healing.  Job growth has been positive for almost two years now and has been accelerating.  Unemployment peaked at 10.0% in October of 2009 and has been falling since.

Lots of macroeconomic events could reverse the trend - the European debt crisis could torpedo the world economy.  Political conflict in the Middle East could cause a big spike in oil and therefore other commodities.  So an improved economy in November is not a lock, but now appears highly likely.

In addition to the economy always being the most important issue in a Presidential election, it is doubly true this time as the GOP really has precious little else to run against Obama on.

Foreign policy?  Would you want to make this the issue against the guy who got Bin Laden, killed a dozen top Al Qaeda leaders, got Qaddafi, exited an unpopular war in Iraq with dignity and is drawing down from an unpopular war in Afghanistan?  Good luck.

Social policy?  Obama is to the right of the American people on many social issues.  A narrow majority of Americans now favor legalizing gay marriage and legalizing marijuana (views to the left of the President) and a large majority continues to favor legal abortion.  Social issues may play well in a Republican primary, but running to the right of a President is a loser in a general election.

Health care?  If someone other than Mitt Romney were the nominee, this might play, as a majority still opposes Obamacare.  But Romney doesn't have a leg to stand on in this debate as he continues to do the tap-dance that his plan in Massachusetts, which, despite the protestations from Ann Coulter, obviously is nearly identical to Obamacare (and the model for it in many ways), was great for Massachusetts, but horrible for the rest of the country, he is just engaged in a debate he can't win.

That leaves the economy.  If it continues to improve, Obama is a lock for a second term.  If it falters, it might give Mitt an opening.

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A Fascinating Decade in Politics, An Awful Labor Day, 9/11 Remembered

The Most Interesting Political Stories of the Decade
The period of time surrounding Labor Day is historically a slow period for political news and this year has been no different.  With Congress in recess and most of the American public tuned out, we are largely taking a break from budget battles and election campaigns that are sure to heat back up in the coming weeks.  So, I thought I'd take a step back and recall what I consider to be the most interesting political stories of the past decade.  For consideration, my time window is from election day 2000 to election day 2010, as historical a period in American politics as I can recall.  In reverse order, here are my favorite stories:

(5) TARP is Signed Into Law, October 3, 2008
This story is fascinating on many levels.  The economics of sub-prime mortgages and the subsequent financial crisis are well documented.  But what amazes me is the political juxtaposition that all of this caused.  A Republican President calling for massive government intervention in the economy.  A Democratic Congress delivering a a corporate welfare bill with mostly Democratic votes.  Key Republican votes bought-off with earmarks and set-asides.  They say sausage-making is ugly, and this necessary (and ultimately not very costly) intervention in the economy had all kinds of twists and turns that caused it almost not to happen.  Passing unpopular legislation in any time is tough.  Passing it heading into a Presidential election is almost unheard of.  That it did is nothing short of a bi-partisan miracle.

(4) Iraq War Resolution Enacted, October 16, 2003
The Iraq war would become issue number one by liberal critics for President George W. Bush's foreign policy.  It seems in retrospect, somewhat absurd to get attacked by terrorists in Afghanistan and attack an unrelated dictator in Iraq, where Al Qaeda didn't even have a presence prior to our invasion.  But let's face it, Hussein was a known enemy with no shortage of reasons not to like.  Perhaps it is for this reason, or perhaps the fact that a congressional election was a few weeks away and nobody wanted to run as a dove, but the fact that the likes of Hillary Clinton and John Kerry voted for the war resolution, a position that they would forever try to explain away, speaks volumes of the political climate of the time.

(3) Lisa Murkowski Elected to the Senate as a Write-In, November 2, 2010
Does an Alaskan Senate election really warrant being halfway up this Top 5 list?  You bet it does.  Look, I realize that this was more a story for political junkies than it was a national news item, but as a purely political story (remember, these are the top 5 political stories), it doesn't get any better than this.  After losing a close primary to Tea Party darling Joe Miller, incumbent Senator Lisa Murkowski decided to run for re-election as a write-in candidate.  Ultimately, she won by over 4% with her 39% trumping Miller's 35% and Democrat Scott McAdams 23%.  Including Murkowski, there have been exactly two successful write-in candidates in Senate history; the only other time this has happened was in 1954 when South Carolina elected Strom Thurmond by write-in.  And in Thurmond's case, he had the support of the local party (the popular incumbent had died shortly before the election, wheeas Murkowski was strictly an independent operator.  And it was a bold signal that even in conservative Alaska, moderates could still beat Tea Party candidates.

(2) Barack Obama Elected President, November 4, 2008
Forget what you think of his Presidency for a second (and a majority of you disapprove, if I'm reading the polls correctly) and focus on how incredible the moment was.  I'm a close political follower, but if you'd asked me in 2003 who Barack Obama was, I wouldn't have known.  I do remember seeing then Senate Candidate Barack Obama's speech before the 2004 DNC and being awed.  But if you had told me then that a man who's highest political office at the time was the Illinois State Senate, a man who was black, a man who had a Muslim name and a man who had attended a radical black church in Chicago (or at least been a member, who knows how often he really went, but I digress) would not only be elected President but win Virginia, North Carolina and Indiana in doing so, I'd have dismissed you as a real hack.  But one incredible night in 2008, it all happened.  The arc of American politics and civil rights will never be the same, regardless of what happens in 2012.


(1) The Florida Recount, November-December, 2000
There will never be a political story of this magnitude in our lifetime.  This had ALL the elements.  A stunningly close deciding vote tally in Florida (537 votes for Bush by the official results, 154 votes for Bush by the unofficial tally when the recount was halted and somewhere between a Bush win by 493 votes and a Gore win by 170 votes depending on the standard and the counties looked at, according to post-election studies), a national popular vote win for Gore, a drama set up by Gore losing his home state of Tennessee after never campaigning in it, the third-party candidacy of Ralph Nader gumming up the works, the butterfly ballot causing thousands of votes to incorrectly be case for Pat Buchanan, a Supreme Court case decided on party lines.  This was Tilden-Hayes without the backdrop of the Civil War.  And whether the "correct" guy won is still a matter of debate among the political class and the American public.  The truth of the matter?  We proved that the margin of error in vote tabulation is greater than 0.009%, the margin of Bush's official win, meaning that it is simply impossible to know who won with any certainty, except by looking at who was sworn into office.  It's a shame that real voting reform hasn't followed.

I promised 5, but I need to do 1 honorable mention, which isn't terribly significant politically, but is fascinating none the less:
John Ashcroft Losses to a Dead Man, November 7, 2000
Before he was the Attorney General that famously signed off on all the controversial homeland security policies of the Bush administration, John Ashcroft was a United States Senator from Missouri.  In 2000, Ashcroft was running for re-election against incumbent Governor Mel Carnahan.  In October, Carnahan was killed in a plane crash, too late to be removed from the ballot and replaced with another Democrat.  Roger Wilson, Carnahan's Lieutenant Governor and now-Governor of Missouri pledged to appoint Carnahan's widow to the seat if Carnahan won (if a dead man wins election to the Senate, the seat is considered vacant and the Governor can make a temporary appointment.)  The vote totals on election night where 51% for Carnahan, 49% for Ashcroft.  Thus, Mel Carnahan became the only dead man in United States history to win a Senate election.  Jean Carnahan went on to the Senate for 2 years and John Ashcroft went on to the AG's office.


Have other great political stories of the past 10 years that I've missed?  Send me your favorites.


A Miserable Labor Day
It's hard to think of a more depressingly ironic piece of news for Labor Day, a day built to celebrate America's blue collar workers to be celebrated with the backdrop of a Bureau of Labor Statistics report Friday that the U.S. economy created zero new jobs in August, the economies worst performance in nearly a year.  Some would argue that is not quite as bad as it sounds, as the private sector was modestly net positive, offset by cuts in governmental jobs.  But it is awful.  Keep in mind that the economy needs to grow by about 200,000 jobs each and every month just to keep up with population growth.  By this measure, since November 2007 (the month before the recession officially began), we are 15.6 million jobs in the hole, that is, there are 6.8 million less jobs and we need job growth of 8.8 million to keep up with population growth.  So, just to get back to where we were in 2007, we'd need job growth of 400,000 jobs per month for six and a half years.  And we aren't close.  The result?  An "official" 9.1% unemployment rate, but a more daunting decline in participation in the workforce not seen since before working women were the norm.

Remembering 9/11
Do you remember what you were doing on September 11, 2001?  Where you were?  What you felt?  I think we all do.  Next Sunday, it will have been 10 years since those awful attack in New York City, Washington and Pennsylvania.  We have been the right combination of good and lucky to avoid a major attack in the 10 years hence.  We are a more sober, less arrogant America than 10 years ago.  We are more war-weary, more pressed economically and know a whole lot more about radical Islam.  We are more politically divided than ever and our problems are large.  But we are still One America, a feeling that flashed back through our consciousness earlier this year when we learned that Osama Bin Laden, the mastermind behind killing thousands of our innocent countrymen and women had been killed.  A whole generation will be defined by the events of 9/11, which was really the coming of age moment for the Millennials.  Let's never forget the unity and national pride that brought us together that day.

Happy Labor Day, everyone.  Here's hoping that you are off work and that it is because you get today as a holiday, not because you can't find work.

An Awful Deal on Taxes and Spending

It's often been said that you know you have reached a good compromise when you find a deal that nobody likes but everybody is willing to accept. The negotiating process starts with two sides with opposing goals and leaves with both sides feeling that they got some things they didn't like in exchange for some things that they did. The sausage making itself is often pretty ugly, but the sausage itself doesn't taste all that bad at the end of it.

I wish I could say that this is the case with the deal that the President cut with Republicans on the Bush era tax cuts. Sad to say, I think this is a case where the compromise was actually worse than the starting point for either side. It isn't often that I oppose virtually every provision of a bi-partisan bill (I'm usually the one advocating for them), but just about everything about this deal is wrong.

Let's start with the tax cuts. $900 billion in reduced revenue over the course of the next two years and no permanent solve around our tax structure. In other words, we are pissing away $900 billion and are going to find ourselves in precisely the same place come 2012. Do any of you have ANY hope that cool heads will reach a reasonable compromise in a Presidential election year?

But don't tax rates need to be maintained to protect the fragile economy? This popular line is proven nonsense. President Clinton passed a large tax increase on the heels of the 90/91 recession and it didn't sink the economy...in fact, we had one of the strongest periods of economic growth in our history. Ronald Reagan signed a significant tax increase package in 1985. It would be hard to argue with the success of the second half of the 80s. Taxes don't spur recessions, unless they are very extreme. Asset bubbles and monetary crises do. If you give me the choice between lower taxes and a smaller deficit, I make the same choice every time, and it isn't for the tax cuts.

And look at the package...tax cuts for the rich...and not just the living rich either, huge breaks in the estate tax, basically a giveaway to the dead rich. Explain to me how encouraging people not to spend money while they are alive helps stimulate the economy again?

Now, on to the spending hikes. And make no mistake about it, extending unemployment benefits BEYOND 99 weeks is a spending increase. After nearly a full two years, if you are taking government money, it is no longer unemployment insurance, it is welfare. And we have no money to fund it.

But don't we need extended unemployment insurance because of the lack of jobs out there? Beyond the ordinary 26 weeks, absolutely. But beyond 99 weeks? It isn't like there are NO jobs out there...minimum wage jobs abound. Sure, there may not be a job in your town in your field at the income you want. But after two years, it's time to take a dose of reality and move, change fields or accept lower pay. A far better path would be an expanded Earned Income Tax Credit. Then we would be subsidizing the people who DO take the minimum wage jobs and helping them provide for their families, rather than paying people not to take said jobs.

This compromise is the height of irresponsibility. Lower taxes AND higher spending when we just saw a deficit reduction commission report on how much we need to CUT spending and RAISE taxes? Where are the deficit hawks? Heck, where are the people who can do basic math?

I voted Republican (for the first time in a long time) during the mid-terms to force the parties to the table to address the deficit. So far, I'm decidedly unimpressed with both the GOP and President Obama.

The Misunderstood Laffer Curve, How Deep a Recession?

How Conservatives Misunderstood Arthur Laffer
The story is one of conservative economic lore. At some unnamed cocktail party, Arthur Laffer drew an inverted parabola on a napkin that became the foundation for modern supply side economics. The concept of the Laffer curve shaped Reaganomics, was the basis for the Bush tax cuts and continues to be the foundation from which Republicans argue against allowing them to expire. The Laffer curve is also completely misunderstood. Laffer himself is on record opposing extensions of the Bush tax cuts and supporting higher taxes generally to reduce the deficit. So how does the Laffer curve work and why is it so misunderstood?

The concept behind the Laffer curve is fairly simple. The horizontal axis represents the effective tax rate in a country. The vertical axis represents that amount of tax revenue that a government receives. The curve basically portrays that revenues rise from zero as you begin to impose taxes, but that the rate of growth in revenue gradually slows as rates get higher and at some point, governments hit an inflection point, where raising taxes actually depresses revenue. By the time you reach 100% taxation, revenues are again at zero.

Intellectually, the notion is actually fairly easy to agree with. It's hard to argue with the fact that government revenue would be zero if we had no taxes. Likewise, it's pretty easy to see if we had 100% taxation on all income, how economic activity would grind to a complete halt and we would once again have zero revenue. It's also inarguable that there are points in between that produce positive revenue. Therefore, some sort of Laffer curve MUST exist.

The devil is in the details, as Laffer himself would later admit. The going assumption that Ronald Reagan and George W. Bush ran with was that we were past the apex, that is, that cutting taxes would actually increase government revenue. This was a heck of an assumption, when, in both cases the total federal tax burden was about a fifth of the economy. George H.W. Bush famously called Reagan's scheme to boost revenue by cutting taxes "Voodoo Economics" -- he later got with the program as Reagan's VP, but clearly was never a true disciple of Reagonomics, as he famously cut a deal to raise taxes and close the deficit with congressional Democrats. Us cynics would call it "free lunch" economics.

Did revenue rise after the tax cuts in the 80s and 00s? Depends on how you measure them. Tease out inflation and revenues went up in the 80s and down in the 00s. The problem is that it is very difficult to know what the baseline of economic activities would have been without the changes in tax policy. But, by far the most compelling proof that we are nowhere near the apex of the curve is the explosion in government revenue and economic growth that took place in the 1990s, after Bill Clinton signed the largest tax increase (on a dollar basis, not on an absolute percentage basis) in U.S. history. Clearly, revenues shouldn't have shot up by double digits year after year if we were truly past the apex.

These days, Arthur Laffer, if you can find him, will tell you that we need to raise taxes to close the deficit. Yet Congressional Republicans are still clinging to the notion that we cannot raise any taxes because of the Laffer curve. I invite them to show me their list of Defense and Entitlement cuts that will get us to a balanced budget without allowing the Bush cuts to expire.

How Bad a Recession?
The second quarter GDP report from the Bureau of Economic Analysis came out Friday and confirmed a couple of things:
1. The recovery has continued -- GDP grew at 2.4% in the second quarter, marking a full year of economic growth, following a deep recession.
2. The recovery is still painfully slow -- 2.4% GDP growth is not going to cause a rapid drop in unemployment...the economic conditions of 2007 aren't coming back anytime soon.

Prior to this recession, the most severe recession that a lot of us had lived through was the 1990-1991 recession that threw George H.W. Bush from office and vaulted Bill Clinton to national prominence. Sure, a lot of us were alive for the nasty double-dip recession of '81-'82, but those of us who were in the workforce then and are still in the workforce now, were just starting out then and probably couldn't appreciate the full impact of what was unfolding. There was also that mini-recession associated with the tech crash in 2000, but it scarcely bares mentioning next to this one, other than for the damage it did to our 401K balances.

So, I thought I'd take one more look at the severity of both recessions in terms of GDP and job losses.

In terms of loss of economic output, this recession has been 3 times as severe as the 1990-1991 recession, with a peak-to-trough economic contraction of 4.2% versus 1.4%. In the 1990-1991 recession, the economy was back to its starting point in terms of size 16 months after the start of the contraction. We are now 33 months in and the economy is still 1.1% smaller than when we started.



In terms of job losses, the effect is even more profound. Peak-to-trough job losses in 1990-1991 were 1.6 million jobs. In this recession, we lost 8.4 million jobs. In 1990-1991 it took 32 months from the start of the job losses to when employment was back to the starting point. We are 30 months in and still 7.5 million jobs in the hole, not to mention the added jobs that would be needed just to make up for population growth.

It's a long, sobering road back. I drastically underestimated how long and how painful this recession would be. It may not yet be morning in America, however the sun IS starting to peak out.

Next up...back to the 2010 races.

RIP Robert Byrd, Michael Steele Said What?, Obama the Divider, Will the Economy Recover?

Remembering a Complex, Brilliant and Not Always So Good Man
The passing of a significant political figure affords those of us who have observed his public life to reflect on its meaning, to reflect on his accomplishments and to draw lessons from his life.

Senator Robert Byrd of West Virginia was a complicated man. In a Senate career that spanned over five decades, he saw wars, the civil rights movements and Presidents as diverse as John F. Kennedy, Ronald Reagan, Richard Nixon and Barack Obama.

First, the things that I will always remember favorably about Robert Byrd. Byrd had an incredible understanding of history, probably the best of any politician in the last hundred years. He schooled others on the rules and traditions of the Senate, both the arcane and the constitutionally important. He understood the importance of the balance of power between the legislative and the executive branches and fought unapologetically against politicians of both parties who would sway power away from the legislature. He was a brilliant orator, delivering the kind of verbally rich speeches from the floor of the Senate that were powerful, colorful and never, ever, spoke down to the listener. Byrd loved his home state of West Virginia and fought as hard as any man alive to ensure that the poor people in the rural mountains were taken care of by the federal government.

But Byrd was not all good. He was a former KKK member. He was one of the strongest opponents in the Senate of the Civil Rights Act of 1964. He later repented, but continued to appear completely insensitive to race, supporting such organizations as the United Daughters of the Confederacy for special treatment by the government. Simply put, on probably the most important issue of his lifetime, Byrd got it completely wrong when it mattered the most. And for that, I struggle to forgive him.

The "help" that Byrd sought for the state of West Virginia also unapologetically seemed to involve government spending so lavish that near-empty West Virginia highways now often have more lanes than clogged city interstates. West Virginia's gain was too often America's loss.

I respect the intellect of Robert Byrd. I commend his service. But I struggle to respect the sum of his record.

Michael Steele Is Crazy
Okay, I'm late to the party, but let me join the now very-large bandwagon....Michael Steele needs to be fired as the head of the Republican Party. I defended him when he took on Rush Limbaugh (and still contend he was right.) I supported him when he took on Harry Reid for Reid's fundamentally racist remarks (he is still right about the double-standard.) I rolled my eyes when he talked about making the GOP more hip-hop, but it didn't seem like a fatal offense. I started to worry when it became clear that the RNC had misappropriated donor funds on a field trip to a lesbian bondage club and Steele was AWOL on accountability. But his latest scandal reveals a fundamental lack of basic knowledge about such a well-known issue that he cannot effectively serve the Republican party.

His quote, for anyone who has not been paying attention the past week is as follows:
“The [General] McChrystal incident, to me, was very comical. I think it’s a reflection of the frustration that a lot of our military leaders has with this Administration and their prosecution of the war in Afghanistan. Keep in mind again, federal candidates, this was a war of Obama’s choosing. This was not something that the United States had actively prosecuted or wanted to engage in. It was one of those areas of the total board of foreign policy that was at least that we would be in the background sort of shaping the changes that were necessary in Afghanistan as opposed to directly engaging troops. But it was the President who was trying to be cute by half by flipping a script demonizing Iraq, while saying the battle really should in Afghanistan. Well, if he is such a student of history, has he not understood that you know that’s the one thing you don’t do, is engage in a land war in Afghanistan? Alright, because everyone who has tried over a thousand years of history has failed, and there are reasons for that."

Wow. Where to start.

A. This was a war of Obama's choosing?
Does Michael Steele honestly think that it was Barack Obama that put us into Afghanistan? Was he asleep for the almost 7 years prior to Obama even taking office that we were engaged in this war? Obama was early in his State Senate career (yes, State Senate, not US Senate) when this war started.

Is he not aware that the US Congress approved the war with a near unanimous vote (1 Democrat voted "no") in 2001?

B. Stanley McChrystal mocked Obama because we are in Afghanistan? And this is funny to you?
Yeah, it's always humorous when a military commander becomes insubordinate to civilian command. And I'm sure that whole incident had a lot to do with Obama's "choosing" to "go into" Afghanistan while he was in the Illinois State Senate.

C. We should be engaged in a land war in Afghanistan?
This sounds like a Bernie Sanders talking point, not something that should come from a member of the GOP. Are there ANY Republicans besides Steele and Ron Paul that really don't think we should have gone to Afghanistan at all after 9/11? Was Steele out there trying to impeach Bush...oh wait, he wouldn't have done that because apparently we didn't go in until Obama took office.

To their credit, key Republican foreign policy leaders, including Senators Lindsay Graham (SC) and John McCain (AZ) have, for the second time in the past few weeks, gotten it right and condemned Steele's remarks.

Is Michael Steele ignorant, stupid, crazy or just not really a Republican?

Your guess is as good as mine. But he needs to go. He is a cancer on the GOP.

Obama the Divider
When you can't even get an unemployment benefits extension through Congress and you are resorting to fiery anti-GOP rhetoric on the campaign trail to sell your policies, it's a sure sign that you have failed miserably at your pledge to work in a bipartisan fashion and change the way Washington works.

Reagan worked with a Democratic congress for 8 years (well, 8 in the House, 6 in the Senate.) George H-W. Bush had all sorts of bipartisan deals. Clinton famously struck a deal on welfare reform. Heck, even George W. Bush worked with the late Sen. Ted Kennedy on No Child Left Behind.

Obama has not a single piece of major legislation in his first two years that could truly be called bipartisan. Sure, the GOP shares the blame. But Obama was the one that gave the famous Red State / Blue State speech. That speech, which catapulted him to the national scene in 2004, is increasingly looking like a fraud.

Jobs Down, Doom and Gloom, But Don't Despair
If you have read this blog for the past two years, you are probably starting to think I am either uninformed about the economy or just an overly optimistic person who can't see the storm clouds moving in.

Sure, the jobs numbers looked bad last month. But losing 125,000 jobs when 200,000 temporary census jobs go away is a heck of a lot better than when we were bleeding 600,000 jobs a year.

The economy is still recovering. As I've analyzed before, the recovery will be agonizingly slow for those still unemployed (you can refer to some of my earlier posts to see projects that it may be until 2012 or 2013 that we see a "normal" rate of unemployment again.) But productivity has boomed in this recession, innovation is still strong in the United States and big companies are making money and on solid financial footing again (AIG, Fannie Mae and Freddie Mac being obvious exceptions.)

The U.S. economy is not headed down the drain, it is headed for a decade of growth. It's just tough to see that forrest through the trees of an unemployment line.

Happy belated 4th of July, everyone. The United States of America, 234 years young and now, as much as or more than ever, the greatest nation on the planet.

Next time...back to my favorite subject...the latest political polls.

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On The Economy: 162,000 Reasons to Celebrate, Millions More Reasons to Stay Concerned, Looking Ahead to the Rest of the 111th Congress

We Are Generating Jobs...But We Have a Long Way to Go
Throughout the first part of 2010, each month when the Bureau of Labor Statistics has released employment statistics, I've found reasons to be optimistic, but also perspective on how far we have to go to get to a more tolerable level of unemployment. This month's release very much follows that vein.

As we've discussed in the past, the monthly release is actually two releases, one that surveys employers to look at job creation and one that targets workers to understand unemployment rate and participation rates in the workforce. The second survey, in my opinion, is the most critical, as it hits all workers, whereas the employer or "establishment" survey tends to miss small business hiring and firing, but both give clues to where the employment market is headed.

In the employer survey for March, there was a lot of good news. Total payrolls grew by 162,000. Of this, 48,000 where hires by the Census Bureau to facilitate execution of the 2010 census. That is a form of unintentional government stimulus, but it does still help get people back to work. But even excluding this number, private payrolls grew by 114,000, this first substantial gain since December 2007 and included gains in manufacturing, health care and temporary services. Construction employment was stable for the first time the recession began and the only major area to lose jobs was financial services. The average workweek, an indicator of future hiring and firing, was also positive, posting a 0.3% gain in the month. In short, this month was a real turning point in the establishment survey data.

In the more critical unemployment survey, the unemployment rate held steady at 9.7%, holding on to the modest gains that have brought the rate down from its peak of 10.1%. That would be modestly good news by itself, but there are more data just below the surface that provide reasons to be hopeful. The population of "underemployed", those working part time but seeking full time work increased from 8.8 million to 9.0 million but this was actually good news, because the "marginally attached" those not counted in the unemployed rate because they have stopped actively trying to find a job was down, from 2.5 million to 2.3 million, meaning that you likely had people who were previously discouraged who are now working, albeit part time, with the entire change coming from discouraged workers, who fell from 1.2 million to 0.9 million, an almost 25% decrease.

So, looking at the extended data, the "underemployment rate" was steady at 16.8%, but more of those 16.8% had jobs.

Now, for the bad news. Using 5% unemployment and 8% "underemployment" as a benchmark for a "normal" rate of unemployment, at the rate of job creation in March, it would take almost 7 years to get back to these "normal" rates. This is clearly unacceptable and if it happens, Obama and the Democrats would find themselves on the sidelines both in 2010 and 2012. But the momentum is positive and there is good reason to believe that the job gains will continue to accelerate in the coming months.

The other good news is that there is still plenty of umph left in the economic stimulus program, which was really a 3-year economic plan. The latest expenditures to date are as follows:

Tax Cuts: $99.1 billion out of $288 billion paid (34.4% spent)
Spending: $208.8 billion out of $499 billion paid (42.8% spent)
Total: $307.9 billion out of $787 billion paid (39.1% spent)

So, over three fifths of the impact of the stimulus is yet to come and to a large extent it is the portion of the expenditure that is likely to be most job-creating. A lot of the earlier spending did things like stabilize state governments to prevent layoffs of state workers and provide emergency entitlements to those in economic distress. Those things were necessary, but didn't create many new jobs. Now that we are into the phase of the bill, which essentially runs through 2011, which involves construction and infrastructure projects, we are likely to see a pick-up in the job-creating impact. The pace of spending has picked up as the cries over unemployment have become louder (note that the spending is now far outpacing the tax cuts, which was not the case earlier), but I would still argue that the money has gone out too slowly.

In other economic news, the government is continuing to retract the broad-reaching intervention in the economy that began with the financial crisis. As of now (April 1st), the Federal Reserve program of buying up mortgage-backed securities has ended. This program was artificially keeping mortgage rates low to stabilize home prices. Rates will now be allowed to drift to their natural market price, which will likely be higher. The Fed has also recently hiked its emergency lending rates to banks, which were essentially acting as a subsidy to provide liquidity to distressed banks.

The government still owns large stakes in 3 Fortune 500 corporations. It has substantial stakes in Citigroup and AIG and is the majority owner of General Motors, all three are products of conversion of debt the companies incurred on TARP money into equity positions.

On Citigroup, it appears the government is going to sell off its stake this year, and appears poised to make a good profit on its investment, as Citigroup shares have recovered a great deal as the economic criss has waned. With GM, the government is looking to make an Initial Public Offering of some of its shares as early as the end of the year, and there is optimism that the government will at least break even on this position. AIG is the most thorny and the most likely that the government will take a loss as well as the least clear as to how the government would exit, as unlike Citigroup and GM, AIG has not yet re-established a profitable business model.

But, AIG aside, the socialization of major institutions appears to be winding down and the economy largely returning to the way ti was.

What Happens When Congress Gets Back April 12th
Congress is on Easter break right now, but returns to business a week from Monday. The 111th Congress is set to adjourn October 8th and unlike last year, they will do everything that they can to stick to that date, being that it is an election year and incumbents will want to be back in their districts campaigning for re-election. So, with a little under 6 months to do work, what can we expect?

(1) The Fiscal 2011 Budgets
The appropriations process can be long and cumbersome, especially with sky-high deficits still persisting. Expect the bulk of the debate to focus on this essential function for the rest of the year.

(2) Financial Reform
Aside from the budgets, this is the only major piece of legislation that is likely to see floor votes in both houses of congress. There is chatter about willingness to work in a bi-partisan fashion on this bill, but don't count on a lot of GOP support, even if the Democrats incorporate a lot of their suggestions and ideas. The best-case scenario for the White House is probably to get a bill through with broad Democratic support and a few moderate GOP members, again targeting Olympia Snowe, Susan Collins and Scott Brown to try to establish a 60th vote against a GOP filibuster attempt (when does the GOP not filibuster at this point?)

But even building a liberal/moderate coalition will be tough as the liberals want a bill that goes much farther than the proposal that Sen. Chris Dodd (D-CT) took out of committee and the moderates still believe it went to far. Finding that "just right" compromise to keep all parties on board will be difficult and will likely lead to a pretty modest reform bill.

(3) Immigration
Don't even worry about it...won't make it to a vote this year.

(4) Cap and Trade
There is still a House-passed bill, but this won't make it through the Senate. Erstwhile bipartisan Sen. Lindsay Graham (R-SC) has sounded increasingly partisan since the health care vote and the DEMs really need him on board to push a bill through the Senate. This one will have to wait until 2011, or never, depending on how many seats the GOP gains.

(5) Don't Ask, Don't Tell
In an election year? Ha! Forget it.

(6) Jobs Bills
Probably some more little bills with hiring incentives and tax credits, but nothing that will have a major impact. The stimulus package will continue to be the economic program of 2010 and 2011.

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2010 Federal Round-Up, Assessing the Latest Employment Picture, Health Care Clock Ticking

2010 Round-Up
Let's take a look at the latest.

First, the Senate:
We have 10 races with fresh polls and of these, 3 move in rating category. The net of these changes are marginally favorable to the GOP, with 2 moving to the right and 1 moving left.

First, the moves:
Pennsylvania -- moves from Lean GOP Pick-Up to Toss-up - Arlen Specter leads Pat Toomey by 7 points in a new Quinnipiac Poll. Toomey had been leading by single digits in polls in recent weeks, so this could be a fluke or be overly generous, so I'm not ready to move this back into Specter's column until I see more data.

Colorado -- moves from Toss-Up to Lean GOP Pick-Up - both Buck and Norton lead incumbent Democrat Bennett in three new polls with spreads of 5 to 9%.

North Carolina -- moves from Lean GOP Hold to Likely GOP Hold incumbent Republican Burr is up by 16% in the latest Rasmussen Poll and has led every poll from every firm so far in 2010.

Now the other 7 races with fresh polling data that reconfirm existing race ratings:
Arkansas -- latest Rasmussen poll shows 3 potential GOP opponents leading incumbent Dem Lincoln by 2 to 9 points. The race remains a Lean GOP PIck-up.

Nevada -- the latest polls have the 2 potential GOPers leading Majority Leader Reid by 9 to 13 points. This one is close to moving back a notch right, but for now it remains a Lean GOP Pick-Up.

Indiana -- a bevy of polls have come out since Bayh's announced retirement and the spread has been anywhere from even to +10% GOP. We'll leave this a Lean GOP Pick-Up, although it clearly could move in either direction, depending on the candidates.

Connecticut -- Blumenthal is still up by a very comfortable spread of 26 to 29 points in the latest polls. This race remains a Safe Democratic Hold.

New York (Gillebrand) -- Gillebrand is up by 2 points against Pataki in a new poll. This race stays a Toss-Up.

Illinois -- A new Research 2000 Poll has Dem Giannoulis at +7%, an earlier Feb Rasmussen Poll had GOPer Kirk at +6%. This race stays a Toss-Up for now.

Ohio -- Republican Portman leads by small, but consistent spreads of 3 to 5 points in 3 different polls. This race stays a Lean GOP Hold.

Missouri -- Republican Blunt still +7% in latest Rasmussen poll. Remains a Lean GOP Hold.

So, this leaves us with:
Safe Democratic Holds (4)
Maryland, Connecticut, New York (Schumer), Vermont

Likely Democratic Holds (3)
Washington, Hawaii, Oregon

Lean Democratic Holds (2)
California, Wisconsin

Toss-Up - DEM Controlled (3)
Pennsylvania, New York (Gillebrand), Illinois

Lean GOP Pick-Up (5)
Arkansas, Nevada, Delaware, Indiana, Colorado

Lean GOP Hold (5)
New Hampshire, Kentucky, Ohio, Missouri, Arizona

Likely GOP Hold (5)
North Carolina, Georgia, Alaska, Kansas, Florida

Safe GOP Pick-Up (1)
North Dakota

Safe GOP Hold (8)
Louisiana, Iowa, South Dakota, Alabama, Idaho, Oklahoma, South Carolina, Utah

Net Projection: GOP +6 to 9 Seats (10 needed to control Senate)
Best Case GOP (all leaners) - GOP +11 Seats
Best Case DEM (all leaners) - DEM +4 Seats

Still in the same place we have been for all of 2010, with the GOP poised to make big inroads in the Senate, but shy of enough to win control.

In the House:
The generic polling has actually tightened somewhat, with the average of averages in our poll of polls showing the GOP at +0.7%.

This implies: GOP +31 Seats

So, again, the GOP stands to make substantial gains, but is shy of the number (39 to 40, depending on how you count it) needed to gain an outright majority.

The Latest Employment Report
For the month of February, the unemployment rate remained at 9.7%, retaining the gains that were made in January. The unemployment rate is off from its high of 10.1% but is still hovering at a level that is among the highest of the past 30 years.

Those "underemployed" -- working part time for economic reasons increased from 8.3 million to 8.8 million. The number of those "marginally attached", that is those that are not officially counted as unemployed because they have either given up and stopped looking or are not looking for other reasons, remained constant at 2.5 million.

So, in total, the "underemployment rate" increased form 16.7% to 17.1%.

Not good news in total, but some bright spots.

First, the official unemployment rate held on to gains for the month, which few (other than myself) predicted. Secondly, the entire increase is due to "underemployment", that is, people are working, just not getting as many hours as they would like...the discouraged number didn't increase nor did those that were outright unemployed.

So, in total, we still have a long slog to get back something that resembles more normal unemployment rates, but things continue to stabilize.

There has been a lot of speculating on the winter weather adversely impacting the report, and the BLS acknowledge that it surely did have a negative impact, but they are not able to precisely quantify the effect. If true, that SHOULD mean a more favorable report in March, all else being equal. We'll stay tuned.

Stimulus funds continue to slowly trickle out. Spending against President Obama's signature economic program so far is as follows:
Tax Cuts -- $92.8 billion out of $288 billion spent (32.2%)
Spending -- $194.9 billion out of $499 billion spent (39.1%)
Total Bill -- $287.7 billion out of $787 billion spent (36.6%)

Health Care Clock Ticking
There have been a lot of "deadlines" in the health care debate -- remember Labor Day 2009? How about the end of 2009? The latest theory in the political class is that if Congress doesn't act by Easter, the bill won't happen. While timelines can help to clarify the debate, they are all artificial. The only real deadline for reform this year is the adjournment of Congress. After that, bills that have already been passed expire, Representatives and Senators head to the campaign trail and, eventually a new congress comes in, one likely to be a lot less favorable to doing anything on the scale that President Obama is looking for.

Having said that, President Obama has been turning up the heat over the past week with a fire that many would've liked him to show a year ago. Nancy Pelosi is searching for a way to satisfy enough Blue Dogs and abortion opponents in her caucus to get to passage.

You'll know this is for real when a vote gets scheduled in the House. So far that has not happened. That means that Pelosi doesn't have the votes, not yet.

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Some Welcome Jobs News, RIP John Murtha, Craig Becker Goes Down

When 9.7% Is Actually a Good Number
The news reports are somewhat confusing, but make no mistake about it - the Bureau of Labor Statistics release that showed that the unemployment rate in the US dropped from 10.0% to 9.7% is extremely good news.

Let me deal with the confusion in the news reports. It arises from the report fact that while the unemployment rate fell in January by it's largest amount in years, jobs actually shrunk by 20,000.

The conclusion that one might jump to if you have been following these statistics, is that the only way that this could happen is if a large number of workers became discouraged and stopped looking for work, as the unemployment rate only counts those who are actively looking. Such a phenomenon happened a couple of months ago when the unemployment rate fell from 10.1% to 10.0% but jobs declined. This would not be good news -- fewer jobs and more people quitting the workforce is bad on both fronts.

But this is NOT what happened in January. The so-called "underemployment" rate, which counts those unemployed, those who have looked for work in the past 12 months but are not employed and not presently looking (sometimes called those "marginally attached to the workforce", includes discouraged job-seekers and those who have forgone employment for other reasons) and those who are working part time because they cannot find fulltime work actually fell as well. Those who were working part time because they could not find fulltime work declined from 9.2 million the 8.3 million. Those "marginally attached" number was constant at 2.5 million. Those officially categorized as "unemployed" fell from 15.3 million to 14.8 million.

All told, the "underemployment rate" declined by even more than the official "unemployment rate", dropping from 17.6% to 16.8%, a huge 0.8% decline.

So how exactly is this possible if we lost 20,000 jobs?

The answer lies in the source of the data. The unemployment numbers come from surveying real people about their employment situation. The job creation (or destruction)number comes from surveying businesses about their hiring. While it is impossible for either survey to be 100% accurate -- they are polls after all, both are extremely extensive and have very low margins of error. But the so-called "establishment survey" that looks at job creation has one flaw that causes it not to pick up a nascent recovery as early as the so-called "household survey" which measures unemployment. The establishment survey cannot and does not adequately survey small businesses. It is far harder to measure employment creation at a single-owner convenience store or a small restaurant than it is at Google or GM. Job recoveries generally begin with small businesses, not the Fortune 500, and the establishment survey therefore lags reality in terms of projecting a recovery. The household survey does not have this flaw as people are randomly surveyed, regardless of what the size of the company that they work for is.

So, make no doubt about it, the January unemployment release is the most encouraging sign for the job market since the start of the recession. We are a long way from declaring prosperity -- almost one in ten people is still officialy unemployed, over one in six still underemployed, worse than at any point from in the 25 year period from 1983 to 2008.

But signs of life in the job market and the surest sign yet that we are in a real recovery. Let's hope the trend continues.

John Murtha, In Memorium
Rep. John Murtha (D-PA) has passed away from surgery complications at the age of 77. While the House does not have the same tradition as the Senate of having "fixtures", John Murtha is certainly the closest thing to a Ted Kennedy in the House. For 36 years, an astonishing 18 terms, he represented Pennsylvania's blue collar 12th district.

Murtha was a tireless advocate for the working class and an unapologetic liberal. A Vietnam vet, Murtha was perhaps best known in recent years for being at the forefront in openly calling for withdrawal from Iraq from very early on.

Murtha was a divisive figure, even within the Democratic party. He unsuccessfully fought for the Majority Leader post when Democrats took the House in 2006, losing out to the more moderate and cerberal Steny Hoyer (D-MD). He was labeled as the "king of pork", unapologetically bringing home more earmarks than any other congressman almost every year. He also made waves in the 2008 Presidential election for calling some of his own constituents racists and stating his belief that they would not vote for a black candidate.

In spite of all of this, Murtha was liked in PA-12, winning with 58% of the vote last November in a district that split evenly between McCain and Obama, implying it is 7% more conservative than the nation as a whole.

This GOP +7% dynamic creates another headache for Democrats. By state law, a special election must be held relatively soon (within 70 days of the vacancy being officially declared.) At this point, it appears likely that the special election will take place May 18th, to align with the Pennsylvania primary, although it is not entirely clear that the vacancy can be "slow-walked" long enough to make that date possible as it would require a vacancy to be declared no earlier than March 9th, a seemingly absurd situation since the former incumbent is no longer living.

Either way, the race is expected to be extremely competitive, and one would have to give the early edge to the GOP, given the GOP +7% dynamic and the overall national mood. Put simply, if President Obama couldn't win this district last November, in a political climate much more favorable to the left, this one seems like a pretty good bet for the right. Of course, candidates matter and who the two parties pick will weigh heavily on the nature of this race.

Craig Becker Fails at Filibuster
President Obama's latest nominee for the 5-member National Labor Relations Board has failed to clear the Senate, with a vote to end a GOP filibuster failing to reach the required 60 votes. The procedural vote was 52-33 in favor of breaking the filibuster, 8 votes short of the 60 required. Moderate Democrats Ben Nelson (NE) and Blanche Lincoln (AR) joined all of the present Republicans in voting no, including newly sworn-in Scott Brown (MA), who was casting only his second vote in the Senate. 15 senators missed the vote including 4 Democrats and Independent Bernie Sanders. Even with their votes, the DEMs were clearly 3 votes short as they had no GOP support and lost 2 Democrats.

Becker was clearly strongly to the left on labor, consistent with the President's own leanings. He has consistently put strongly pro-union appointees into labor positions, starting with Hilda Solis. It is not surprising that Democrats in right-to-work states would have some concern over a very pro-union appointment. It is somewhat surprising that they would join a filibuster, especially considering Nelson's previously stated belief that filibusters should be reserved for extreme cases. I guess everyone has implicitly agreed that you can't do anything in the Senate without 60 votes.

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Biden Out (Beau That Is), Bayh at Risk, Full Steam Ahead on Health Care?, Your Guide to the State of the Union

Beau Isn't Running
Beau Biden has decided not to seek the Senate seat that was vacated by his father assuming the Vice Presidency this past January. This is a major blow to Democrats in the state, who had been counting on the popular Biden brand name to carry the race against very popular At Large Rep. Mike Castle (R). With Biden out of the race and no star candidates in the mix, I'll move this race from a Toss-Up to a Lean GOP Pick-Up, pending polling information.

I guess the move wasn't terribly shocking, as this is shaping up to be a rough year for Democrats in November and Biden would've been fighting a pick 'em race against a popular ex-Governor and rare true moderate. Why should Biden risk his popularity now, when he could wait for an easier shot, in a better year, in heavily Democratic Delaware.

Bayh No Lock
Popular, well, at least, I thought he was popular, moderate Sen. Evan Bayh (D) will not have a walk either in his race either. A just-released Rasmussen poll shows him down 3% against potential opponent Rep. Mark Pence and up only 3% against less well known John Hostettler.

It is not clear yet if Pence will run and this is only one poll. I will move it from a Likely DEM Hold to a Lean DEM Hold pending information on Pence's possibly candidacy and additional polling. This is another one to add to the mix of races that would've seemed like easy defenses a year ago but are now competitive. The same poll found Obama's Approve minus Disapprove in Indiana to be at -13%, in a state that he won by a slim margin in 2008.

Full Speed Ahead with Health Care?
Reports out of Washington are that after President Obama's seeming concession to a smaller-scale health care bill that Pelosi and Reid may push ahead with a two-pronged approach of passing the Senate measure in the House and then using reconciliation to make changes to the bill later on.

The reconciliation process would require only 51 Senate votes but can only be used on the provisions related to taxation and spending. So, for instance, they could be used to alter the provisions pertaining to taxes on high-cost insurance plans, but could not be used to modify the provisions related to pre-existing conditions. It is debatable whether modifying the abortion-funding rules falls within the scope of reconciliation, and that is likely to be a contentious issue with passing the bill in the House. But it is likely if the House passed the bill that Democrats could muster 60 votes for a stand-alone change to explicitly prohibit abortion funding, if it was part of the quid pro quo.

If the reports of this plan are true, this is a dramatically bold plan, in the face of the Massachusetts defeat. But it is also the best possible long-term path for Democrats. To come out of two years with dominant majorities without real reform on their signature issue would be a disaster. And while the GOP likes to point to the unpopularity of the overall bill, almost all of the individual provisions of the bill are popular, indicating to me that the public may like it better as a law than they did as a bill.

Even if Pelosi and Reid push ahead with this plan, it is far from a done deal. They have to convince liberals to accept a more moderate Senate bill and have to convince at least some Blue Dogs that this bill is worth risking their necks in November for. No easy feat given the way the Democratic party has been running scared for the past week. But we'll see.

State of the Union Viewers Guide
President Obama gives his first official State of the Union speech tomorrow night, although his address to a joint session of Congress a year ago was essentially the same forum, and in light of the events of the past couple of weeks, it is highly anticipated for us political watchers. Here are my things to watch:

(1) What does he say about his priorities from last year?
Is it full steam ahead on Health Care, public opinion be damned? Is this a moral or an economic issue? Will we scale back or push for all we can get? Or is this issue headed to the back burner with little mention?

Is Cap and Trade still on the table? Will the President push it or ignore that priority from last year? Will he say anything about Copenhagen?

(2) Jobs, Jobs, Jobs
What will he stay about the stimulus? Call it successful but not enough? Say that it did what was intended? What will he propose going forward? What promises will he make about unemployment, if any?

(3) The Deficit
The rumor is that he is going to propose a 3-year freeze on spending for a large portion of domestic discretionary spending. Was this a trial balloon or will he propose it? Will he talk about sun-setting the Bush tax cuts in 2011? What will he say about the balance of the stimulus? How about the cost of Iraq and Afghanistan? Will he even mention entitlement reform, the elephant in the room? Will he explicitly push Congress to appoint a bi-partisan commission, with a straight up or down vote on their recommendations?

(4) Foreign Policy
Does it get much mention or is it pushed to the back? What will he say about GITMO and his failure to meet one of his first executive orders? Will he talk about winding down Iraq? Any shift in tone on Afghanistan?

(5) Small Ball / Triangulation
Will we see some Bill Clinton-style small ball, triangulated initiatives? Remember 100,000 more cops on the street and Family Medical Leave -- are things like this in the offing? WIll the tone be more about the big, bold ideas or the small practical ones?

(6) What is the State of the Union?
I remember Bill Clinton saying "the State of the Union has never been stronger", a triumphant declaration of victory in a time of sub 4% unemployment and the beginnings of the internet boom. Clearly the President can't say this. But what will he say that recognizes the struggle ordinary people are feeling yet conveys confidence in the future? How will he solve the "Stockdale Paradox", named for Admiral Stockdale, who, as a POW in Vietnam, figured out a way to remain confident that he would be rescued without setting a specific date.

It is an almost impossible speech given the current circumstances, but the President needs a home run performance to recharge his administration and his priorities. He needs to walk the line between pragmatic and bold. He needs some quick wins and some big wins. Most of all, he needs to reshape the dialogue.

I'll be watching, as I suspect most of you will too. State of the Unions are always impressive and entertaining, with all the trappings of Congress and the Presidency. And they do matter in terms of setting the agenda, perhaps more than any other speeches. And perhaps no speech given by a President known for giving some famous speeches, will be more important to his Presidency.

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Complete Latest Senate Rundown, The Jobs Deficit and John Edward's 2 Americas, Closing in on 1 Year

2010 -- Plenty of Reasons for the DEMs to Be Getting More Scared
The Pro-GOP or at the very least, anti-Democratic trend appears to continue to build. President Obama's numbers are stable, at least for now, around the +3% to +5% range...this is better than being negative, but puts him in a similar position to where President Clinton was leading into the year that saw Newt Gingrich's revolution that led to a GOP-controlled House and Senate. It isn't that bad yet, so let's take a look at where the races are tracking, with our new updates from this week:

Safe DEM Hold (6)
Maryland, New York (Schumer), Oregon, Vermont, Washington, Connecticut

Likely DEM Hold (5)
California, Indiana, Wisconsin, Hawaii, Massachusetts*

* Special Election January 19th

Lean Democratic Hold (2)
New York (Gillebrand), Illinois

Lean Democratic Pick-Up (1)
Missouri

Toss-up -- DEM Controlled (2)
Pennsylvania, Delaware

Lean GOP Pick-up (4)
Colorado, Nevada, North Dakota, Arkansas

Lean GOP Hold (5)
New Hampshire, Kentucky, Ohio, North Carolina, Arizona

Likely GOP Hold (5)
Georgia, Alaska, Kansas, Louisiana, Florida

Safe GOP Hold (7)
Iowa, South Dakota, Alabama, Idaho, Oklahoma, South Carolina, Utah

Total Projection: GOP Pick-up of 3 to 5 Seats


Best Case GOP (all leaners go to GOP): GOP +8 Seats

Best Case DEM (all leaners go to DEM): DEM +6 Seats

It certainly seems, given the national mood, that the Best Case GOP scenario is a heck of a lot more plausible than the Best Case DEM scenario at this point. This is because of all the states that fall in the "lean" category currently, the GOP is winning all but 3 of them. It does show, however, the vast impact a 5 point swing in the national mood can have on how races shape up.

The other things worth noting are that we do not have particularly recent polling in Missouri and Pennsylvania. One could surmise from the trend in other swing states that there is a reasonable probability that they will tip red when we do get such polling. This would push the GOP closer to their "best case" scenario.

Having said all this, I don't see a path to 51 for the GOP. In addition to picking up Missouri and Pennsylvania, they would have to win Illinois to get to +8, which is certainly possible, but probably no better than 50/50. On TOP of that, they would have to beat Gillebrand in New York (possible only if Pataki runs against her, and no sure thing even then), AND win at least 2 out of 5 in California (where they have a good candidate but are trailing), Indiana (where they don't even have a candidate yet against a well-liked moderate in Evan Bayh), Wisconsin (against Russ Feingold, seems like a no-hope race), Hawaii (when was the last time Hawaii sent a GOPer to the Senate?) and Massachusetts (closing fast at -9%, but still a long shot.)

So, the most realistic scenario to get there for the GOP would be to pull off the upset in Massachusetts, then win all the ones they are leading. Win the two toss-ups -- Delaware with Mike Castle and Pennsylvania with Pat Toomey. Win Missouri with Rep. Roy Blunt, New York's 2nd seat via convincing George Pataki to run. Finally, pull off the big upset with Carly Fiorna in California (hey -- they love tech celebrities there.) And you have 51 seats.

A long, long, shot, for sure. But for the first time I can actually construct a scenario where it could happen. First key, of course, is the Massachusetts special election a week from Tuesday, which I expect them to lose. But if they win that one, all bets are off.

In the House,
Democrats could be in huge trouble. Now, it's hard to tell, because we continue to be plagued by drastically different polls numbers (Rasmussen has it at GOP +9%, Gallup has it at DEM +3%), driven largely not by the fact that pollsters are asking the questions somehow differently, but more by the fact that they are making dramatically different modeling assumptions about who is actually going to vote in the mid-term. And the quagmire is real...after a massive turnout in 2008, clearly we all expect it to fall off for the mid-terms, but will it revert back to the normal for an off-year election? Will any of the newly registered voters in 2008 show up to vote for congress in 2010? We don't really know.

At any rate, my philosophy has always been that by building a larger sample poll, as well as looking at means and medians, we can mitigate the sample or weighting errors of any one given pollster. An our methodology produces a current projection of GOP +3.6%.

This leads to a House projection of: GOP +43 Seats

So, for the second projection in a row, I'm projecting a GOP takeover of the House. The margin is still slim, although it is 2 seats wider than it was last week. It could change obviously, with circumstances. But for now, the House Republicans are looking pretty darn strong. I doubt we'll see anything like Health Care reform moving through that chamber come 2011.

The Jobs Deficit -- John Edwards Was Right
I wrote about this some months ago, but I was struck recently by a personal experience. The company that I work for, which is a Fortune 500 company, was in the process of hiring entry-level engineers for a number of our factories, a process that I was involved in. We were recruiting principally for those who graduate this spring and conducted interviews over November and December, made offers in mid-December to 5 candidates and....were rejected 4 out of 5 times. Every single one of the 5 young engineers we were trying to recruit had multiple offers from multiple great companies. These are kids who are extremely intelligent, but let's face it, haven't actually DONE anything yet. And this punctuated my point -- the economy looks a lot different if you are a high school dropout who has been working at a factory in Michigan than it does if you are an Electrical Engineer from the University of Michigan.

The latest employment report, released yesterday, showed the unemployment rate remained flat at 10.0%, just a tick below the peak of 10.1% from two months ago. But the important numbers were even wore than that, with actually jobs declining by 85,000 and the unemployment rate only holding constant by virtue of people giving up on looking for work and dropping out of the work force, with this number rising to 929,000, it's largest level since 1985. So, with "normal" unemployment being in the 5% range, we have a gap of 7.6 million jobs, 8.5 million adding in the discouraged workers.

How does this relate to my story? Let's look at the unemployment rate by educational attainment one more time:
High School Dropout -- 15.3%
High School Graduate -- 10.5%
Some College or Trade School Graduate -- 9.0%
College Graduate with Bachelor's Degree or Higher -- 5.0%

The economy IS normal if you are a college graduate. Sure it isn't the heady days of the late 90s or the mid-00s when you could name your price, your location and your work hours. But you CAN find work if you have a degree and skills that are in demand. If you are a factory worker, however, your prospects are dim.

Which brings me to my point...we have focused so much on just creating jobs that we have neglected the other half of the equation...how do we raise the skill level of the unemployed to make them more productive and more attractive to potential employers? College tuitions continue to surge and achievement gaps between rich and poor school districts have sustained. How do we give the kid from Compton, rural Tennessee, Detroit or Mississippi a shot at being in the tier of people who are in demand? We have had zero political discussion in the past year about higher education and lifetime learning. And that's a crime.

In terms of what we have been discussing politically, we have the stimulus bill and we have the "jobs" bill creeping it's way through congress. The bill, which has been blasted by the GOP as "Son of Stimulus", would largely do more of the same that the American Recovery and Reinvestment Act did...that is the threefold approach of transfer payments to states to stabilize state governments (to "save" jobs), infrastructure projects (to "create" jobs) and temporary extensions / expansions of various social programs to provide money for the unemployed and needy (to generate consumer demand.)

The approach has its merits as a short-term buffer to an economy still dealing with the aftershocks of a massive financial crisis. My criticism is that the way the original stimulus was laid out, we haven't really had a chance to see how that program, which was designed as a 3-year reshaping of the economy, will really play out.

Here are the latest stats on the first stimulus bill:
Tax Cuts -- $92.8 billion out of $288 billion paid out (32.2%)
Spending -- $164.2 billion out of $499 billion paid out (32.9%)
Total -- $257.0 billion out of $787 billion paid out (32.7%)

With more than two thirds of the first stimulus bill left to spend, why craft another measure?

The answer simply is political reality. Congressional Democrats want people to see they are doing SOMETHING, even if the best course might be to simply let the tools that are already out there work. Liberal economist Paul Krugman, who never believed the first bill was nearly large enough, has been leading the charge for a second stimulus for some time. And it appears likely that SOME sort of jobs bills will pass in the new congress.

But the reality is that we will all have to wait and see whether what they did the first run around will actually work.

Almost 1 Year of Obama
The President of the United States will cross the 1 year in office threshold, 25% of his term, right as voters in Massachusetts are picking a Senator that will potentially represent the 60th vote in the Senate for final passage of health care legislation. It's almost time to break out the red pens and grade the President's year. Given the amazingly high bar he set for himself with his early speech to congress, I suspect when I sit down to write his review, he will have some significant short-comings. The President's inner-circle is fond of talking about him taking the "long view". But you do have to produce results at some point.

So, next up, our 1 year report card on President Obama. We'll look at my assessment of grades against his key initiatives. We'll look at his public opinion polls and the American people's grades of his performance. And we'll tap our old friends at Politifact to look at how well he is keeping his promises. Stay tuned.

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