What has the Democrats most upset at their party? Not social issues…

The Pew Research Center has a new poll out on how self-described Democrats and Republicans view their own parties on abortion, immigration, marriage, and spending. Most are focusing on the top line: namely, that we Republicans are more upset at our party than the Dems – across the board.

However, Pew did a little more digging about why Democrats and Republicans are upset at their parties (those who are). By far, the greatest source of frustration among Republicans is government spending: 48% think the party electeds don’t do enough to cut spending.

Now, here’s the kicker: the Democrats’ biggest source of frustration is the same thing. Thirty percent of Democrats think their elected officials don’t do enough to cut spending either.

In other words, the best shot the GOP has at winning over Democrats isn’t any social issue. It’s cutting government spending, the very thing that would most make upset Republicans happy.

The data speaks loud and clear. Let’s hope the GOP leadership is listening.

Cross-posted to the right-wing liberal

Bob McDonnell was a WHAT?!?!

Reactions to the Bob McDonnell verdict our pouring in, and there’s one in particular (from many of his defenders) that I find completely flabbergasting.

The ex-Governor’s defenders are calling him a “man of integrity.” My jaw hits the table each time I see that.

Folks, Bob McDonnell spent all of 2009 insisting he would not raise taxes. He blasted his opponent (Creigh Deeds) for even considering it, and rode the issue to a landslide win in November of that year.

In the last year of his term (as it happens, last year) he broke that promise in spectacular fashion, ramming through the largest tax increase in at least 40 years.

Even then, he skirted the truth. He insisted the tax hike was for relieving commuter congestion, but in fact his top priority was actually a parallel road to US 460 that wasn’t needed for traffic relief – and which the Army Corps of Engineers said he couldn’t build anyway (Bacon’s Rebellion).

So please, spare me the “man of integrity” nonsense. If you want to complain about the federal decision to prosecute McDonnell (as opposed to other Virginians) or the bizarre nature of the “honest service fraud” statute, that’s one thing.

But Bob McDonnell was no angel.

Cross-posted from the right-wing liberal

Ed Gillespie says GOP “learned a lesson,” then proves it by opposing Ex-Im Bank

Roughly a month after he earned the Republican nomination for U.S. Senate, Ed Gillespie – consummate Establishment man – spoke to Rick Sincere (a.k.a., the Charlottesville Libertarian Examiner) about his campaign going forward. He addressed head on complaints about his former employer, President George W. Bush (emphasis added).

“The difference between Republicans and Democrats,” he told the Charlottesville Libertarian Examiner at Claudius Crozet Park, “is, I think, Republicans have learned a lesson.”

Continuing, he noted that “the fact is, I agree that when Republicans had the House, the Senate, and the White House that we spent too much money.”

That experience from the first decade of the 21st century, he added, “pales in comparison to what the Democrats did when they got control of all three – the House, the Senate, and the White House – but that’s not enough.”

What was far more important, however, was Ed’s first example of a government program that needs to go:

One (program) that I have said already that I believe should not be reauthorized and doesn’t deserve to be continued in funding is the ExIm Bank.

If Gillespie has talked about winding down Ex-Im, I missed it, but that’s my problem, not Ed’s.

The point is this: Ed Gillespie’s willingness to put the “Bank of Boeing” on the chopping block is a sign he really has “learned a lesson” about the Republican Party’s mistakes. For a fellow of his Establishment pedigree to openly oppose the Bank is an excellent sign.

I had my concerns (driven by TARP) about Gillespie before the nomination, but he is the party standard bearer now, and more importantly, his opposition to Ex-Im reveals that he does indeed know the party needs to go in an anti-corporatist direction.

Good for him, good for the Republican Party, and very good for Virginia.

Cross-posted to the right-wing liberal

The Virginia Medicaid battle is suspended, but not over

Based on the Richmond Times-Dispatch report, a budget deal is in sight (via Bull Elephant):

The Senate will convene Thursday to enact a two-year state budget that will have about $700 million less in new spending than when the General Assembly adjourned its regular session March 8 without approving a budget because of a bitter political battle over expanding health insurance coverage.

To hear Medicaid expansion backers tell it, everybody was willing to pass a “clean” budget, and came to that conclusion just last week. Never mind the whole Puckett resignation fracas. Take that as you will.

However, the battle over Medicaid expansion is not over. It will likely continue to be fought in the General Assembly (either in this special session or a new special session), and lest anyone forget, Medicaid expansion still has the support of 22 senators.

In other words, we need to continue to make the argument that Medicaid expansion is bad for the state, bad for taxpayers, and terrible for its would-be beneficiaries.

House Speaker Bill Howell et al have done decent work keeping this nonsense at bay so far. They deserve our thanks, but we also deserve, and expect, that they keep up the fight.

Cross-posted to the right-wing liberal

State Senator Phil Puckett resigns; deck chairs on Titanic to be re-arranged

Richmond is all agog over the resignation of State Senate Phil Puckett (Richmond Times-Dispatch), which grants the Republicans a temporary majority in the State Senate, pending a special election which the Republicans are favored to win. According to the RTD, Puckett’s resignation paves the way for his daughter to be elected to a judgeship, while he himself could land on the Virginia Tobacco Indemnification and Community Revitalization Commission.

All eyes (in Richmond) went immediately to the budget, where according to the Constitution (emphasis added):

No bill which creates or establishes a new office, or which creates, continues, or revives a debt or charge, or which makes, continues, or revives any appropriation of public or trust money or property, or which releases, discharges, or commutes any claim or demand of the Commonwealth, or which imposes, continues, or revives a tax, shall be passed except by the affirmative vote of a majority of all the members elected to each house, the name of each member voting and how he voted to be recorded in the journal.

Normally, that means 21 out of 40. Given that we only have 39 at the moment, 20 should actually work…for the State Senate to pass the budget until the special election. In the grand scheme of things, though, there is a lot less than meets the eye. Here’s why.

First, not every Republican State Senator supported the Republican budget: Walter Stosch (Dave Brat’s patron), John Watkins, and Emmett Hanger all voted with the Democrats to add Medicaid expansion to the budget. In theory, party unity could convince them to change their minds, but there’s no guarantee of that.

Second, there is still the Governor: If one wanted to hand Terry McAuliffe the perfect excuse for a budget veto, coaxing a Senator’s resignation with the promise of appointments for himself and his daughter would be it. I’ll admit, a veto is unlikely, but this deal is excellent ammunition for Election Day 2014, 2015, and 2017.

Speaking of…

Third, even if the GOP wins the budget battle, the fight of Medicaid will go on, and this will make it harder to win: According to Christopher Newport University (poll), the Republicans were actually winning the debate on Medicaid expansion. That might, and probably will, change if T-Mac can now claim perfidy from the opposition. This allows Terry McAuliffe – Terry F–king McAuliffe - to run as Mr. Clean, and the Democrats to present themselves as the Clean Team in 2015 and 2017.

Odds are this will even damage our recent nominee for U.S. Senate – Ed Gillespie, the consummate Virginia Republican insider.

We may even see the Republicans cave on Medicaid expansion just to neutralize the issue in 2015.

Fourth, the State Senate is the poisoned chalice of recent times. Let’s say the GOP does win the special election and holds all 21 seats next year, which I’ll admit is still likely despite the above (or because of the previous sentence). Let’s take a look at the fate of the party controlling the state senate after the last six midterm elections (1991, 1995, 1999, 2003, 2007, 2011). In all six cases, the party lost the ensuing gubernatorial election. In five of them, they lost House seats and a majority of the statewide races. In three, they lost all statewide races, and in two they lost the senate itself.

Now, one could say even that might be worth it if a Republican Senate would mean greater momentum for limited government, but that just isn’t so…

Every Republican-controlled State Senate in the 21st Century has enacted a tax increase: That’s right; there was the referendum of 2002 (defeated by the voters), the Warner tax hike of 2004 (which, at $1.5 billion, was only half what the State Senate originally wanted), HB3202 (largely overturned by the courts), and Plan ’13 From Outer Space. If anything, it has been minority status that forces Republicans to behave.

Given all of the above, I can’t help thinking that this victory is meager, if not pyrrhic.

Cross-posted to the right-wing liberal

Rob Wittman for Re-election

Unlike the painful situation in the 7th District, Republican voters in the 1st (which included me until I moved into the 4th last year) are blessed with two superior choices: incumbent Rob Wittman and challenger Anthony Riedel. They are both near-perfect on the issues (the only major blemishes are Wittman’s farm policy votes and Riedel’s overly doctrinaire non-interventionism). Either would do their constituents proud.

However, I am endorsing Wittman, for one very simple reason: he opposed TARP, not once, but twice.

Readers of this blog know how much importance I give to the bank bailout. I have called TARP a policy mistake practically since its conception, and I am still convinced of that. I am also certain that support for TARP has been a serious problem for Republicans. Given this, when presented with Republican elected officials who were willing to defy their own president, their own candidate for president, and their own party leaders to do the right thing and vote No, I am compelled to stick by them.

Thus, I am sticking by Rob Wittman.

Cross-posted to the right-wing liberal

Irony – Bush 41 Gets JFK Profile In Courage Award For RAISING Taxes

Fmr. President George H.W. Bush (a.k.a. “41”) was honored with the John F. Kennedy Profile In Courage award yesterday for raising taxes as part of the 1990 budget deal. Why they decided to honor him nearly 24 years after the fact is a mystery to me.

What is truly ironic, however, is that one of JFK’s greatest successes in his short presidency was his tax cuts for businesses (1962) and for individuals (1964 shortly after his assassination.) Kennedy’s tax cuts resulted in federal tax receipts increasing by 55% in real terms in the seven years after he came to office in 1961.

A real profile in courage would have been had President Bush stood his ground and forced Congress to get spending under control in order to lower the deficit, not raising their credit card spending limit.

Meanwhile, on Medicaid expansion in Virginia, the Republicans are actually winning

“First, you win the argument, then you win the vote” – Margaret Thatcher

On Medicaid expansion in Virginia, proponents have the newly-elected Governor, all of Virginia’s Democrats, a few dissenting Republicans,the State Senate and various well-heeled interests.

Opponents have the reality of Medicaid’s damage to poor people and (most of) the Republican Party of Virginia – a party that is badly, badly divided, controls only a majority in the House of Delegates, and was just handed it’s first goose-egg in Virginia offices in over twenty years.

Yet, according to Christopher Newport University, the RPV is actually winning the debate:

Virginians have been paying attention to the debate over Medicaid expansion taking place in Richmond, with 58% saying they have been following it either very closely or somewhat closely, and only 20% saying they have not followed it at all. Given the current contours of that debate, Virginians say 53% to 41% that they oppose Medicaid expansion. This is a reversal from the Wason Center survey released February 3 (see below), which showed general support for Medicaid expansion, 56% to 38%.

However, in that February survey, support for Medicaid expansion fell to 41% with 54% opposed, when respondents were asked if they would still support expansion if the federal government did not pay its share and Virginia had to cover the cost. That risk has been a key contention in the Republican argument against expansion. Those February numbers are very close to the 41% to 53% in the current poll, suggesting that Republican skepticism concerning expansion has gotten through to voters.

Simply put, this was hardly what was expected. In fact, I suspect most in the Virginia rightosphere still suspect that the Republicans in the House will cave on this issue…and perhaps they still will.

However, we should give credit where it’s due: not only has the Howell-led HoD held the line so far against Medicaid expansion, they also are winning the argument – the first critical step to winning votes, as Thatcher noted.

Cross-posted to the right-wing liberal

IMF Introduces Ukraine to Faux-sterity

No matter what the situation, no matter how bad the problem, no matter how catastrophic the state of affairs, a nation can always count on the International Monetary Fund to make things worse.

This week, Ukraine is about to learn that painful lesson.

The IMF is sending $18 billion to the new Ukraine government, but like everything else the IMF does, it’s merely a loan, and it comes with crushing conditions that will damage the already-flattened economy there even more.

Among the faux-sterity demands on the IMF….

An income tax hike from 17% to 25%: yet another reminder that “supply-side” is still foreign to the IMF (The Hindu)…

An increase in consumption taxes: showing that at least the IMF is consistent – they don’t understand Keynesian economics either (Wall Street Journal).

A reduction in gas subsidies (which is good), but not a privatization of the Naftogaz gas firm (which is bad): When you manage to make the governor of Yanukovic’s home province (Donetsk) sound like Mr. Clean, you’re doing it wrong (WSJ again).

Some (perhaps) reduction in the government bureaucracy: although it’s hard to tell just how many. CNN says 24,000. Russia Today says 80,000, but limited to the “law enforcement” sector only – leaving aside than anything out of RT should be taken with a lotswife of salt. Either way, at least the IMF learned not to try the government-pay-cuts that kept Greece’s government just as large in size and scope while pretending to cut its cost.

Still, overall, this is a painfully unnecessary set of “reforms,” which will badly miss revenue targets and likely put Ukraine in a far deeper economic contraction than the current projection of 3%.

Meanwhile, the Russian creditors get full return, despite propping up the Yanukovic regime that put Ukraine on its back in the first place (Telegraph).

So Ukraine will follow Greece and Spain over the economic cliff…

…while Putin and his cronies laugh all the way to the bank.

Cross-posted to the right-wing liberal

On the Bank Bailout, the Buckley Rule, and Ed Gillespie

There has been increasing talk among Virginia Republicans about “the Buckley Rule,” and how it should impact decision on the nomination for U.S. Senate. There are, however, two problems with the application (usually from Ed Gillespie supporters): the rule isn’t quite what they think it is; and even if it did, Gillespie still wouldn’t qualify.

First of all, the rule itself is repeatedly “both misquoted and misapplied” as Neal Freeman noted in his account of when the rule was first promulgated (National Review). He should know; he was there. Buckley came up with the rule during the 1964 Goldwater-Rockefeller nomination battle. Despite what we may think, Rockefeller had his defenders on the right. He trailed LBJ by less than Goldwater, and his anti-Communism was rock-solid and unquestionable (Goldwater himself noted in his autobiography that before he decided to run himself, he was leaning to Rockefeller). It took months for NR itself to make a decision:

These intramural arguments, as I say, were protracted, begun in the winter and carrying on into the early spring. WFB sat at the head of the table, encouraging others to speak, keeping his own counsel. In early June, after Rockefeller had won the Oregon primary and Goldwater had won California, after all of us had had our say, after rumors had begun to creep out of 35th Street that NR might shift its support to Nelson Rockefeller — the equivalent, today, of word leaking out of 15th Street that the Washington Post might endorse Michele Bachmann — Bill, who rarely proposed, decided that it was time to dispose. With each of us in our assigned seat and with six pairs of eyeballs staring at him unblinkingly, Bill announced that “National Review will support the rightwardmost viable candidate.”

Victory for Team Goldwater! We all knew what “viable” meant in Bill’s lexicon. It meant somebody who saw the world as we did. Somebody who would bring credit to our cause. Somebody who, win or lose, would conservatize the Republican party and the country. It meant somebody like Barry Goldwater.

Indeed, NR did endorse Goldwater. More to the point, one year after this, Buckley himself chose to run for Mayor of New York – despite having no shot at winning – against the Republican establishment’s candidate, John Lindsay….

in the general election.

So clearly, those who use the Buckley rule as an electability argument have it wrong. However, even if they had it right, Ed Gillespie has a problem that sinks his electability: his support for TARP (a.k.a. the Bank Bailout).

Gillespie supporters will, of course, take issue with this. They will tell you (and me) that the key issue in 2014 isn’t the bank bailout, but the failures of the Obama Administration. As it happens, the critique against the Administration has three planks: government has grown massively large and costly; the economic “recovery” is so sluggish as to be hardly felt; and the president’s dangerous habit of assuming the Affordable Care Act is an American Enabling Act giving him legislative powers to change the law on the flyThe problem is that pro-TARP candidates are unable to use any of these arguments.

If Ed Gillespie tries to criticize the president and Mark Warner for reckless spending and government enlargement, Warner can throw the $700 billion bank bailout back in his face, but Mark Warner cannot accuse Shak Hill of supporting hundreds of billions in spending for America’s biggest banks.

Likewise, any attempt by Gillespie to discuss the economy will be trumped by Warner mentioning the 2008 financial crisis – and then remind everyone that Gillespie agreed the crisis was exceptional because of his support for the bank bailout. Only Shak Hill can remind voters that the bank bailout and hysteria ginned up by Washington to get it enacted made things worse, not better.

Finally, there is the fact that after TARP was enacted, Bush’s Treasury Secretary Henry Paulsen rewrote the law at whim. That he had the authority to do so was bad enough, but Warner can play it simple and demand to know why Bush can change the law at whim but not Obama. Only Shak Hill can address this issue with the hypocrisy charge being thrown back in his face.

In short, Shak Hill can deliver the conservative message in 2014 far batter than Ed Gillespie can. As a result, he is a more “viable” candidate than Ed, and in my opinion, a more electable one, too.

Cross-posted to the right-wing liberal

The Republican Party, TARP, and Ed Gillespie (plus some personal news)

For those wondering where I’ve been for the past three weeks, I was recently married (Sunday, the 12th, to be exact). For those interested, meet the new Mrs. Liberal.

Anyhow, while I’ve been on my honeymoon, Ed Gillespie made it official – he is running for the U.S. Senate. Whether he wins the nomination or not is an open question (I’ll admit it may not be wide open at this point); for what it’s worth, I do think he would be a better Senator than Mark Warner. However, as I have discussed before wedding planning dominated my time, Ed has one fatal flaw to the party: his support for TARP (a.k.a., the Bank Bailout).

I should note that I have considered TARP a policy mistake practically since its conception, and I have maintained that view over the years. I have also explained why Republican nominees who support TARP are badly handicapped against their opponents: because they essentially agree with the Democrats’ excuse for the poor economic performance of the Obama Administration (i.e., the “2008 crisis” did it).

There are, however, even greater problems for TARP-backing Republicans when they get into office. Whatever arguments may roil the GOP, there is near universal recognition that spending needs to be reduced in general, and entitlement spending in particular. However, any pro-TARP Republican who talks about entitlement reductions and/or reductions in anti-poverty programs (no matter how inefficient or counter-productive said programs might be), will get slammed as a friend of the rich and a hypocrite for supporting the $700 billion bailout. While many, many Democrats also supported the bailout, they aren’t talking about these cuts. We Republicans are, and thus we suffer the consequences of cynical voters and lack of trust when we say America can’t afford spending X on entitlements or Y on discretionary spending when our spokesmen voted for $700 billion for the nation’s biggest banks.

I will admit that TARP, as a stand-alone issue, doesn’t resonate with voters as it did in 2008. However, its effects still scar the political landscape. Its damage still affects Republican politicians who supported it (such as Romney and Ryan in 2012)…

…which brings us to Gillespie. Whatever else one may say of him, as White House Counsel during 2008, he was at the forefront of defending TARP (see here). He is the epitome of the TARP-stained Republican pol. He will find his ability to maneuver on political issues far more restrained than he or his supporters believe.

In short, I do not think he will defeat Warner. More to the point, whether he does or not, his nomination and (if it happens) election will keep the party stuck in its TARP-supporting past, when it must instead highlight the TARP opponents in the party in order to re-establish trust on spending with the voters.

I have many friends who are fond of Gillespie (and some who aren’t); I don’t know the man personally. I do, however, know his stance on TARP, and that is enough for me to say that if he were nominated, the party – and the country – will lose more than it gains.

Cross-posted to the right-wing liberal

Ed Gillespie – would-be Senate candidate – backed TARP (meaning I can’t support him)

This has been cross-posted from my personal blog, the right-wing liberal. I speak only for myself.

There have been whispers (and much louder) about Ed Gillespie running for United States Senate next year. Given his national connections and the potential vulnerability of Senator Mark Warner, one can understand why there is excitement around Gillespie’s potential candidacy.

That said, Gillespie has one very critical flaw: as White House Counsel in 2008, he was a loud defender of TARP (CNN):

(CNN’s John) KING: You mentioned the economy. One of the last acts was this bailout. And $350 billion of it has been spent on George W. Bush’s watch. The second installment will come on Barack Obama’s. But many Americans, when you travel, they think, where did this money go? Did big banks get it on Wall Street? It is being flushed literally down the toilet? They don’t see the impact on Main Street.

But can you cite specific evidence that the first $350 billion has done anything to begin the turnaround?

GILLESPIE: You can, John. And in fact, if you look at the rates that have narrowed in terms of credit markets, the TED spreads and LIBOR, things, frankly, I didn’t know that much about until about six months ago, they were very — the spreads were high. And that’s not good for the credit markets.

The injection that the Treasury has put into the capital markets has helped ease those. Again, this is a difficult time. But the president said the other night, I believe rightly, that had we not acted boldly and had we not put this money into the financial markets, we would have seen a lot worse of a financial strain on the American people today than what we’re already witnessing.

Now, readers of my blog will know that I’ve been critical of TARP practically since its conception, and I have maintained that it was a terrible mistake. However, there is more to it than that. When Republicans nominate TARP supporters, they are essentially agreeing with the Democrats’ claim that the situation in 2008 was so terrible that President Obama should essentially be given a pass for any economic problems under his watch. It was one of the reasons Mitt Romney’s criticism of the president on the economy was so ineffective. It also damaged his efforts to criticize enlarging government in general.

As for Gillespie’s specific comments, we now know LIBOR was a badly corrupted indicator, one that even at the time should have been eclipsed by SONIA and EONIA (which were based on actual transactions, had already discounted the pre-September concerns about the economy, and thus did not jump in panic when Lehman Brothers sank beneath the waves).

Thus, for policy and political reasons, I cannot support Gillespie for the nomination. Support for TARP is a stain that cannot be removed.

When you crunch the numbers, Ryan-Murray is a bad deal

It’s no secret that the Ryan-Murray budget deal (a.k.a., the Bipartisan Budget Act of 2013) is modest. Many think that was the only way such a deal could be struck, and I am sympathetic to that view. However, I have now had the time to look over the numbers – and more importantly, the assumptions behind them – and as a result, I consider it a bad deal.

The top-line numbers seem beneficial, however minimally: $31 billion in increased defense spending over two years, $22 billion in net deficit reduction, and no explicit tax increases.  However, the numbers simply don’t hold up to scrutiny. To understand why, one has to look at the particulars of the deficit reduction in the deal (CBO).

You’ll save how much? You sure about that?

We’ll start with the increase in the airline security fee. I am something of an agnostic on fee increases (if the government is providing services to individual customers, those customers should cover that cost; anything less subsidizes those customers and crowds out private sector competition where applicable). However, fee increase do have price effects: i.e., if you raise the price of air travel, you’ll have fewer air travelers. As this effect never seems to make it to Congressional score-keeping, the deficit reduction figure cited for this ($12.6 billion) is out of date and overestimated the moment it’s published.

A similar malady affects the $731 million estimated for the repeal of cost reimbursement for American-registered ships (if you know someone who makes Liberian flags, invest in the business) and the $2.1 billion for reduction in fees to lenders who “rehabilitate” (CBO’s word) student loans from default (fewer fees means fewer rehabs). All in all, over $15.4 billion in deficit reduction is ripe for economic erosion.

Hide the spending

Next up, we have cuts that aren’t really cuts, such as the $3.1 billion supposedly saved from ending mandatory payments to non-profit student loan servicers. There is only one problem (CBO):

Although this provision would reduce direct spending by an estimated $3.1 billion over the 2014-2023 period, those loans would still need to be serviced. As a result, CBO estimates that implementing this provision would require additional discretionary appropriations of roughly the same magnitude as the mandatory funding that would be eliminated.

In other words, that $3.1 billion still has to be spent, but since it’s being move to appropriations (which is still under the sequester), the deal’s supporters can pretend they made a cut, when all they really did was make  a dodge.

A plan to revamp health benefits for federal employees ($2.8 billion) has the same chicanery, because spending on retirees would fall, but spending for active employees would rise:

The provision would reduce direct spending because the government contribution for health benefits for federal retirees is classified as direct spending. On the other hand, implementing the provision would increase spending subject to appropriation, assuming appropriation of the necessary funds, because the government contribution for health benefits for active federal employees is classified as discretionary spending.

That’s roughly $5.9 billion in phantom “cuts.” Added to the $15.4 billion from problematic assumptions, and we have $21.3 billion in “deficit reduction” that doesn’t stand up to scrutiny.

Unfortunately, it’s even worse than that.

Don’t forget your discount!

One thing those of us in economics know is that a dollar today is more valuable than a dollar in, say, 2023. If you have to borrow that dollar today, you still have ten years of interest payments. In fact, the interest rate is a decent way to compare today’s dollar with 2023’s discounted version; hence the term discount rate.

I could go into a deep discussion about how even a spent dollar you don’t have to borrow is affected by the discount rate (since you can’t lend or invest it). However, since this is the federal government, we know every new dollar spent is borrowed. Even better, the discount rate standard is Treasury notes, which is exactly what the government would use to borrow the money. Thus the justification for discounting future savings makes perfect sense.

The effect of discounting is profound: the $22 billion in nominal deficit reduction plummets to $14 billion in present-value savings. Meanwhile, the questionable deficit reductions and dodges are barely discounted at all, to $19.7 billion. In other words, this deal is a bad one.

Now, you may wonder why the top-line deficit reduction fell so far when the discounting was applied, but the questionable figures didn’t. The reason is that the overall deficit reduction was mainly in the “out years,” where discounting (interest rate compounded) has the greatest effect. The dodges and question marks, by contrast, are mainly “front-loaded” in more immediate years. In other words, the riskiest and shadiest “deficit reduction” pieces are immediate, while the more certain savings are further off in the future, and thus less valuable. As a result, any real reduction in deficits is unlikely in this deal.

But there’s more defense spending! Yeah, about that

What is more likely to win conservatives and Republicans over on this deal is the increase in defense spending vis a vis the sequester. However, even that is far less than meets the eye. The $31 billion in higher defense spending over two years is less than 3% of the biennial overall defense budget. More importantly, the increase ends in 2016, meaning any new Pentagon projects funded by the $31 billion will have a sustainment tail with no money to back it up. If anything, this short-term blip could merely encourage people to make permanent obligations with temporary money.

So, in the end, I would opine that even the temporary increase in defense spending is less than advertised. It certainly isn’t worth a “deficit reduction” that is based on questionable assumptions, parlor games, and a hope that nobody notices interest payments and their effect on the value of money.

At the end of the day, the numbers in this budget deal just don’t hold up.

Cross-posted to the right-wing liberal

Shut-Down Tide Begins To Turn Against The Dems

“Americans are increasingly pointing the finger at the Oval Office,” according to National Journal. “A recent Bloomberg survey found that 40 percent blame the GOP for what’s wrong in Washington, while 38 percent blame the president and congressional Democrats. Back in February, Obama had a nine-point edge over Republicans and independents were evenly divided over who was responsible. Now, 42 percent of independents fault with Obama and his allies in Congress, while 34 percent blame Republicans on Capitol Hill.

The latest CNN poll found a similar trend, with the percentage who blame congressional Republicans for a government shutdown down five points and the percent who blame Obama up three points.”

In 1995-96, Republicans were blamed by a margin of 23-points for those shut-downs. Now the blame is just about dead-even and independents have shifted in the Republicans favor. What’s the difference?

First, back in the ’90s, Republicans controlled both the House and the Senate. Second, Bill Clinton was willing to negotiate with congressional Republicans.  Third, there was no conservative media as there is today — no FOX News Channel, no blogs, the Drudge Report had yet to gain attention, and the only national conservative talk radio host was Rush Limbaugh.

Today, you have Democrats controlling not only the White House, but the Senate as well. Both Barack Obama and Senate Democrats are repeatedly stating that they will not negotiate while House Republicans continue to send over different bills seeking a compromise (which according to a recent CBS poll is what three-quarters of respondents want the President and Congress to do).  Meanwhile, viewership of the broadcast networks nightly news programs has plummeted, FOX News as arisen, and there are countless outlets on the internet from social media to blogs where conservatives can get the message out.

The longer this goes on and the longer President Obama and Senate Democrats hew to the “we will not negotiate” stance, the worse it will get for them.

House. Republicans. Don’t. Get. It.

The moment I saw the headline of this Corner post (House GOP Strikes Food Stamps Pact), my heart sank. After reading said post, it’s still “underwater.”

Now, to be fair, the “pact” – which is in fact a policy idea that hasn’t yet been run through the entire caucus – isn’t bad. Essentially, it restores the 1990s welfare-reform requirements on food stamps for able-bodied adults without children (work 20 hours a week, or be limited to three months of aid every three years). The numbers folks say it could save about $20 billion (although I think that’s over multiple years).

However, and I can’t say this enough, any attempt to deal with the recent explosion in food stamps without addressing the market-distorting farm policies is merely treating the symptoms while the disease runs unchecked. So long as the government continues with policies that drive up the price of sugar, milk, corn, and everything fed on corn (i.e., meat), more people will need government assistance than would be the case in a true free market for food.

Whatever one thinks of the particular policy change (and, again, I think it has some merit), any farm/food-stamp bill that doesn’t get rid of Pitchfork Corporatism still says the same thing to suburban and urban consumers: Drop Dead.

Cross-posted to the right-wing liberal

Single-payer, the left’s health care nirvana – doesn’t exist

As the nation careens toward the true launching of Robertscare (a.k.a. Obamacare) – and even here, there is a disconnect between the insurance exchanges to launch on October 1 and the subsidies for them, which don’t start until January 1 – there is talk that the entire edifice will crash in a mess of incompetence, fraud, and confusion. This has led many to wonder if and when the left will claim that the only real way to fix health care is to go to a “single-payer”, government monopoly system, one that they claim exists in the United Kingdom and Canada – and that most in the center-right decry as “socialized medicine”.

I should note the theoretical advantages of single-payer: the federal government could, in theory, have monopsonistic power that would enable it to drive down health care prices and costs; health insurance would cease to be a cost for many businesses; and citizens would no longer have the uncertainly of health care cost to impact their future spending and investment decisions. These are not only the defenses that are used by the single-payer backers; they are also cited as the reasons the UK and Canada have “single payer.” Less knowledgeable folks on the left will even assume the rest of continental Europe has single payer – and cite the above as reasons for it.

Of course, each of the reasons has their drawbacks – drawbacks which completely undermine the theoretical advantage. In practical terms, Medicare already gives the feds monopsony power – and they handed that market power to the AMA, thus making that group a monopolist (and revealing the failure of the monopsonist argument in the first place). Firms liberated from the cost of health insurance will end up stuck with the tax bill for the government-run system; a trade that will hardly improve business climate. Finally, as Medicaid recipients are already discovering, insurance from health care cost is not the same thing as access to care.

With the theoretical arguments thus debunked, one might ask why any nation would have “single payer.” The answer is simple: in the democratic world, no one actually has single payer.

In continental Europe, for example, all nations use some sort of public-private mixture for health care, just as we do. Most believe Europe’s health systems are more government-controlled (I’m not so sure, given what I now know about Medicare’s power), but none of them claim to have the government-monopoly system credited to London or Ottawa.

This leaves those two capitals, which supposedly fund and directly control health care in their respective countries. The trouble with that assumption is that it is not true. Contrary to political myth, Canada’s provinces decide health care allocation. Ottawa subsidizes the provinces, but does not make spending decisions for them. Thus, health care in Canada can vary from province to province. I would argue that the most dramatic example is Ontario, which charges its residents a health insurance premium, meaning that in Canada’s largest province, “single payer” health care isn’t even “free.”

Unknown to nearly all Americans, the British health care system is also provincially directed as a result of the 1990s devolution. There is not one “payer” in the UK, but rather four. The only province with health care under federal control is in England – and that’s only because England has no provincial assembly of its own.

So what does this mean for the United States? One of two things: If the (Un-)Affordable Care(-less) Act fails, and the left gets what it wants, the American health care system will be more radical and government-directed than that of any democracy on Earth. If instead, the (U)ACA “succeeds” – or, as more likely, wheezes through – our system will become somewhat more government-directed than it is now.

Either way, so long as the corporatist relationship between the federal government and the AMA remains intact, things in health care will get worse, and worse, long before they get better.

Cross-posted to the right-wing liberal

Republicans to urban and suburban consumers: Drop Dead

I’ve been a bit busy on Facebook regarding the 2013 Farm Bill, but I was lax about posting on it. Time to fix that – and thanks to Veronique De Rugy for bringing this up again in The Corner:

A few weeks ago, I suggested that splitting the farm bill into two pieces would have the benefits of breaking the alliance between the pro-farm and food-stamp spending lobbies in the hopes that it would help get rid of farm subsidies.

I thought that splitting the bill into two parts would finally put farm subsidies on the path to elimination where they belong. Boy, was I wrong. As it turns out, Republicans are as eager as ever to continue to support a “ag-only bill” that includes indefensible subsidies to farmers, such as sugar-producer programs, and creates new income-entitlement programs, such as the shallow-loss program.

You and me both, Veronique.

As one can see here in the vote on the matter, House Republicans rammed this nonsense through all by themselves. Not a single Democrat supported it. To be fair, had the food stamps been included in the bill at funding levels the Democrats preferred, they would have voted aye, but that doesn’t excuse the Republicans…at all.

Rugy, citing Taxpayers for Common Sense, explains why:

It gets worse, as Taxpayers For Commonsense explains:

“Leadership argued this was the same portions of the amended bill that failed last month. Except it wasn’t. Yes, they repealed archaic and wasteful permanent law that dated back to 1949. Good. But under the cover of darkness, they had conveniently deleted nearly all the lines that would ‘sunset’ these new changes in 2018. So they not only created new income guarantee entitlements, revived Moscow-on-the-Potomac government-set target prices, loaded up with new special interest carve-outs, and expanded already overly generous crop insurance subsidies, they made these market distorting subsidies the new ‘permanent law.’ Really, really bad. House Agriculture Committee Chairman Frank Lucas (R-OK) wanted to lock in record farm income and these extravagant subsidies in perpetuity without any trigger to regularly review them. It’s waste on auto-pilot.”


I would argue that with the “Moscow-on-the-Potomac government-set target prices,” things are even worse than they seem. Stuff like this – which usually includes paying folks not to farm, the aforementioned price floors, and the sickening ethanol subsidies – actually make food prices higher for hundreds of millions of Americans. We still don’t know how much our food-stamp program addresses genuine need, as opposed to artificial hardship created by government-driven food inflation. If the House Republicans have their way, we’ll never know.

What we can be sure of is this (from Rugy again, emphasis added)…

To add insult to injury, this move just feeds into the portrait Democrats like to paint of Republican lawmakers: They will support any policies that favor the rich – even if they mean more government spending – and like to oppose policies that would benefit  lower-income Americans. In this case, there is some truth to that. Republicans are showing that, while some of them weren’t willing to vote for the farm bill as long as it included food stamps, they will support the outrageous redistribution of income to higher-income Americans when it benefits wealthy farmers.

What kind of message does this send to voters in suburban and urban areas?

Answer: Complete, unadulterated, and utter contempt.

This is Pitchfork Corporatism at its unrepentant worst – and it’s a sign that the Republicans in Congress simply don’t get it. They have essentially told non-farm voters, “Drop Dead.”

The Senate immigration bill predicts one future; microeconomics predicts another

For various reasons, I’ve been on the sidelines regarding S. 744 (otherwise known as the “Gang of Eight” immigration bill), which the Senate passed last week. The biggest reason, frankly, was that Plan ’13 From Outer Space largely occupied my time on the policy front.

However, I have seen the Congressional Budget Office’s reports on the bill (on the government budget effect and on the economic effect), and I must say I am highly unimpressed. Based on the flaws in these reports alone, the bill should never get out of the House of Representatives alive.

I’ll start with the budget report, which was trumpeted by the bill’s advocates as showing an overall deficit reduction over ten years. However, most of the government’s fiscal improvement is off-budget, due largely to increases in the payroll tax (which is supposed to cover Social Security and Medicare). The on-budget deficit would actually increase over the next years, albeit by an insignificant $1.4B per year on average (that would be less than 1%). Even if one combines off-budget and on-budget, the result is less than $20B a year in deficit reduction over ten-years (which would be about 3% of the projected 2013 deficit). More to the point, the CBO bases this figure on assumptions that fly in the face of microeconomics.

Usually, the CBO doesn’t take into account economic effects of a policy, preferring to keep the economy “static” (hence the term “static scoring”). This time, however, they bent their own rules. Now, to be fair, I think static scoring is ridiculous, but the assumption to which the CBO leapt was just as bad, if not worse…

Relative to CBO’s projections under current law, enacting S. 744 would increase the size of the labor force by about 6
million (about 3.5 percent) in 2023 and by about 9 million (about 5 percent) in 2033, CBO and JCT estimate. Employment would increase as the labor force expanded, because the larger population would boost demand for goods and services and, in turn, the demand for labor.

That comes from the budget report, but the economic report has a similar paragraph (almost word for word). The problem is this: the CBO bases the economic effect on a retrograde Keynesian assumption about the modern economy, an assumption which is already being challenged by economists across the globe.

One of the biggest flaws in the Keynesian outlook is that it pays almost no attention to the cost of doing business (hiring labor, buying capital, etc.). Thus it forgets critical effects that microeconomists do not. The biggest one is this: if you tax something, you will get less of it.

I noticed the same flaw when Europe demanded that Greece crack down on tax evasion – a major change from the previous policy of enforcement neglect. The result was to dramatically increase the effective tax rate (i.e., what’s actually paid), and the damage to the Greek economy was as painful as it was predictable.

In this case, the CBO reveals it falls for the same reign of error thusly….

In addition, JCT expects that the bill would result in increased reporting of employment income by people who, under current law, are not legally present or allowed to work. Moreover, JCT expects that wages for those workers would increase relative to their wages under current law as a result of their attaining legal status under the bill. That increase in reported wages would yield increases in receipts from both individual income taxes and payroll taxes (most of the additional payroll tax receipts would be from Social Security taxes and thus would be categorized as off-budget).

The CBO apparently failed to notice that increased reporting and higher wages mean higher taxes on businesses, who will likely respond by reducing labor cost to compensate – or, in plain English, cut wages or fire people.

So we can expend at least some downward pressure on wages and employment, especially among legal immigrants (keep in mind, the CBO projects that the inflow of illegal immigrants will only be reduced by 25% – although given the nature of this post, I can’t and won’t ask you to take that at face value either). This matters because the economic “benefits” of this are on the razor’s edge….

Compared with GDP, gross national product (GNP) per capita accounts for the effect on incomes of international capital flows and adjusts for the number of people in the country.
Relative to what would occur under current law, S. 744 would lower per capita GNP by 0.7 percent in 2023 and raise it by 0.2 percent in 2033, according to CBO’s central estimates. Per capita GNP would be less than 1 percent lower than under current law through 2031 because the increase in the population would be greater, proportionately, than the increase in output; after 2031, however, the opposite would be true.
CBO’s central estimates also show that average wages for the entire labor force would be 0.1 percent lower in 2023 and 0.5 percent higher in 2033 under the legislation than under current law. Average wages would be slightly lower than under current law through 2024, primarily because the amount of capital available to workers would not increase as rapidly as the number of workers and because the new workers would be less skilled and have lower wages, on average, than the labor force under current law. However, the rate of return on capital would be higher under the legislation than under current law throughout the next two decades.

In other words, under the Pollyannaish economic assumptions of the CBO, we still have GNP per capital falling in ten years, and rising less than a quarter of one percent in twenty years. In a similar vein, wages would be lower in ten years, and less than one percent higher in twenty.

More likely, the economic and budgetary assumptions (and remember, the latter is dependent upon the former) are already overoptimistic. What we do know is that economic growth won’t keep up with the population by 2023, and neither will wages.

Whatever one thinks of illegal immigration, legal immigration, and assimilation, it should be clear that S. 744, whatever its intentions (and I don’t rule out that some of them could be noble), is illogical in assumption, impractical in implication, and likely to be more damaging than beneficial.

Cross-posted to the right-wing liberal

Why I support Susan Stimpson for Lieutenant Governor

Much like Riley in his post endorsing Scott Lingamfelter, I do not claim to speak for Virginia Virtucon as a whole. I only speak for myself.

As the race for the Republican nomination for Lieutenant Governor of Virginia careens toward the finish line, convention delegates are faced with a smorgasboard of candidates: some with experience, others with outsider credibility; some touting their records, others running away from them; some looking to lift the campaign up, others tearing it down (and themselves in the process). It can all be a bit confusing.

That said, this could be the most important nomination contest the party has faced in a long time. I say that not due to the importance of the office, but rather the nature of the candidates, the campaign, and the political environment swirling around them. This decision will be made as the party reels from internal arguments, the self-inflicted wound known as Plan ’13 From Outer Space, and as always, the growing shadow of Washington, DC. In times like these, while outsiders can be useful and appealing, what is really needed is someone who has both political experience in office and the willingness to take on entrenched interests on behalf of the taxpayer.

Five candidates have experience in elected office. Four of them have buckled under and chosen to raise taxes on Virginians. Only Susan Stimpson has refused to stain her tenure of office with a tax increase.

This is not to say that the other four have bad records, but their records do have bad votes – votes which have cost you more money. Steve Martin, Scott Lingamfelter, and JMDD all voted for the Rube Goldberg scheme known as HB3202. Martin and Lingamfelter also voted for the sales tax “acceleration” in 2009 (as part of that years budget amendements; Martin opposed it as a stand-alone bill) and the manufacturers’ tax increase of 2010 (as part of that year’s budget). Mrs. Devolites-Davis voted for the Warner tax hike of 2004.

By contrast, Stimpson has ensured taxes have gone down, not up, in Stafford County (in contrast to Prince William, where Corey Stewart has indeed raised property taxes during his time there). I know from personal experience how difficult it is to tell local elites “no” on spending and tax matters. Susan has done that, every time.

Additionally, she has stood up for her constituents at the state level, where she can, by calling for more thrift, openness, and accountability at the Virginia Railway Express (funded by taxes paid on gas by residents from Great Falls to Glenora), and publicly opposing Plan ’13 From Outer Space – crossing her former patron (Speaker Bill Howell) in the process.

The Republican Party of Virginia will have a difficult 2013. If they wish to show voters that Plan ’13 will not be repeated, and that taxpayers will be respected from here on out, they need a nominee for Lieutenant Governor who can do more than say he will stand with them. They need a candidate who has stood with them.

Susan Stimpson is that candidate.

Sanford wins special election to Congress

I am surprised at how the blogosphere seems to have missed the pertinent lesson of Mark Sanford’s return to Congress last night.

Yes, it’s a highly Republican district (SC-1). Yes, Sanford has had some personal issues. Yes, he ran about 8 points behind Tim Scott (although, this being a special election, weird things can happen).

What seems to have slipped past…well, everyone…is that Sanford also had a political record, one of the strongest in the country on spending and taxation. With his election, he is now the first member of Congress to to sign the Reject the Debt pledge from the Coalition to Reduce Spending, a great leap forward for accountability on the spending side of the budget.

Last night was a great day for limited government, and a sign that economic matters are once again firmly at the forefront of the political discussion today.

Take note, folks.

Cross-posted to the right-wing liberal

Data issues and errors spread from global warming alarmism to economics…and from left to right

Whenever I mention the statistical chicanery, data manipulation, and errors behind “global warming,” my friends on the left go into high dudgeon. They can’t fathom that such things could occur among the “experts.” Well, this week, a new example of data issues (along with an error) popped up – in my discipline (economics), and from a paper largely used on the American and European right.

James Kirkup (Telegraph) explains the importance of the paper, known in academic-speak as Reinhardt and Rogoff, for the Conservative/Liberal Democratic Coalition in the United Kingdom:

“Rogoff and Reinhart” are Kenneth and Carmen, two economist (sic) whose influence over the Coalition’s economic policy is hard to over-state.

In essence, the economists argue that government above a certain level – 90 per cent of GDP – is catastrophically bad because it exerts a “significant negative effect on economic growth”.

Their argument, backed up with empirical data from lots of countries, played a major part in persuading Mr Osborne and his colleagues that the No 1 priority for the Coalition’s economic policy should be the reduction of the deficit and, ultimately, a check on UK government debt levels.

Mr. Osborne is George Osborne, the Britain’s Conservative Chancellor of the Exchequer, but Paul Ryan has also relied on the R&R paper as evidence to bring the American budget into balance, and it has also been part of the inspiration behind the Mediterranean being driven to Fauxsterity.

So when three economists at the University of Massachusetts (Thomas Herndon, Michael Ash, and Robert Pollin) tried to replicate R&R’s work – and couldn’t – they were naturally concerned. They were, however, able to access Reinhardt and Rogoff’s data…and what they found stunned them.

To wit….

  • Regarding data itself, Herndon et al found “data exclusions with three other countries: Australia (1946-1950), New Zealand (1946-1949), and Canada (1946-1950).” Now while one could argue that post World War II data should be excluded due to unusual circumstances, it does not explain why United States data was not excluded. As a result of the exclusion, Australia and Canada went from five years where the Debt/GDP ratio was above 90% to zero.  Meanwhile, New Zealand’s data went from five years (with an average of +2.8%) to one (with GDP growth at -7.9%). Speaking of the Kiwi data…
  • “RR adopts a non-standard weighting methodology for measuring average real GDP growth within their four public debt/GDP categories. After assigning each country-year to one of four public debt/GDP groups, RR calculates the average real GDP growth for each country within the group, that is, a single average value for the country for all the years it appeared in the category.” Translation: Britain’s 19 years of data at high debt levels were given equal weight with New Zealand’s one year. I don’t think I need further explain the problem with this, especially given New Zealand’s prior data issues. It should be noted that Britain averaged 2.4% growth during the aforementioned 19 years. Belgium had 25 years of relevant data, but in addition to the weighting issue, the Belgian data was felled by…
  •  “A coding error in the RR working spreadsheet (which) entirely excludes five countries, Australia, Austria, Belgium, Canada, and Denmark, from the analysis.” As it happens, the first problem already dropped Australia and Canada, while Austria and Denmark had no relevant data anyway, but Belgium’s 25 years were excluded by the error.

So, when all of the above issues are backed out of the data and model, Herndon et al still find a reduction in economic growth when debt/GDP ratio hits 90%, but it’s a much smaller value than R&R found, and it turns out to be statistically insignificant. In fact, a regression analysis of the data found the inflection point (where things go from good to not-so-good) to be at 30% of GDP, not 90% (and that’s if one chooses to ignore the hideous R-squared statistic of 0.04 – on a scale of zero to one – which means the data explains hardly any of the changes in economic growth).

As it happens, my concern regarding government is more about its scope, size, and cost (in that order) than about how much it borrows. That said, many on the right have used R&R in part as justification for reducing deficits and debt. Based on the above, they may want to look to something else.

More to the point, this shows that climate policy isn’t the only political issue that has – to quote Coldplay – “castles stand…upon pillars of salt and pillars of sand.”

Cross-posted to the right-wing liberal

The Fauxsterity Chronicles: Greece

At first read, the Examiner headline gives the impression that Greece is finally getting the message about what needs to be done – “Greek Workers to be Fired.” Here are the details:

The civil service redundancies, with a target of 15,000 by the end of next year will target “disciplinary cases and cases of demonstrated incapacity, absenteeism, and poor performance, or that result from closure or mergers of government entities”.

The sackings will overturn a Greek constitutional guarantee of jobs for life for civil servants, aimed at protecting public sector workers from unfair dismissal due to their political affiliations.

The special protections and widespread political cronyism or corruption led to the Greek civil service becoming bloated, with 700,000 officials in a country of less than 11 million people.

“It’s still a taboo to dismiss people from the public sector. There have been no forced dismissals of employees whose positions are eliminated or who for some reason do not perform,” said Mr Thomsen.

Note that “Mr. Thomsen” refers to Paul Thomsen, who speaks for the International Monetary Fund on the Greek file – and who, at first, looks like he finally drove the important message home.

Well…not so fast (Boston Globe, emphasis added):

(Greek PM Antonis) Samaras said 15,000 civil servants would be removed by the end of 2014, with 4,000 of them by the end of this year. New young employees will be hired in their place.

. . .

Minister for Administrative Reform Antonis Manitakis said Greece’s creditors had long been pressing for 15,000 public sector workers to be sacked without being replaced, but the agreement to hire new workers in their stead followed the higher-than-anticipated number of retirements — more than 180,000 of which are expected between 2010-2015.

On one level, this is just maddening; on another level, it is revealing. The IMF, European Central Bank, and European Union – by agreeing to this – have made it abundantly clear that this was never about genuine economic reform. Governments in Europe can be just as big, bloated, and burdensome on the private sector as they wish. They just have to make sure the accounting isn’t out of whack.

This is classic big-government-on-the-cheap – or, as I now prefer, Fauxsterity – and the “troika” just endorsed it.

In other words, Europe will never fix itself, because Brussels doesn’t want that. So it will be more tax increases and chicanery like this, until it all comes crashing down…

…after German voters are duped into thinking all is well on Election Day, of course.

Cross-posted to the right-wing liberal