Matthew Yglesias's Blog, page 2353

The Debt Free Nation

NPR's Planet Money team has a report out about the brief moment in 1835 when Andrew Jackson proudly announced that the national debt had been paid off. As they explain, it didn't last.

It's pretty important to realize that there's no reason the debt should be reduced to zero. Jackson was a crank who disliked both the idea of a country having outstanding debt and also the idea of paper money. But a modest national debt is an excellent thing to have. The future will be richer than the present, sovereign states are much more long-lived than people or firms, and states can increase their income by fiat in a pinch. Having a decent pool of creditworthy sovereign debt outstanding greases the wheels of private sector commerce in helpful ways and also gives people a useful low-risk savings vehicle. That's not to say that a giant debt load is unproblematic or that it's healthy to have a huge share of GDP going to interest payments. But there's nothing wrong, as such, with a country having debt any more than it's a moral failing for a business to avail itself of a line of credit.

The David Brooks Lunch Date Plan For Solving America's Hard-Fought Fiscal Policy Dilemmas

If you asked me why the country can't come together over a long-term fiscal fix, I would say it has to do with the fact that Paul Ryan is an Ayn Rand devotée who wants to minimize taxes on the rich and it's not possible to do this without completely abrogating the federal government's existing social policy commitments. That's why Ryan wrote down a plan that would, in fact, complete abrogate the federal government's existing social policy commitments. But both Paul Ryan and Barack Obama spend some time courting New York Times columnist David Brooks, and apparently Ryan whined to him that he's never even been invited to lunch!

President Obama and Paul Ryan are two of the smartest, most admirable and most genial men in Washington. It is sad, although not strange, that in today's Washington they have never had a serious private conversation. The president has never invited Ryan over even for lunch.

Apparently a presidential lunch invitation is all it would take to persuade Rep Ryan to drop his fanatical adherence to a lower taxes for rich people agenda! Millions of poor Americans may lose their Medicaid coverage over this faux pas. Medicare will be eliminated over the absence of a lunch date! Under the circumstances, shouldn't Brooks himself just invite these two over for lunch? He could even do it wacky sitcom style and not tell either of them that the other guy's coming. I'll pay the tab, whatever.

Austery's Failure In The United Kingdom Should Inform The American Policy Debate

Under Prime Minister David Cameron and Chancellor George Osborne, the Tory-Liberal coalition in the United Kingdom has taken advantage of that country's majoritarian political institutions to run an experiment in the theory of of expansionary fiscal contraction. It's not working. Retail sales are plummeting and reports on regional gaps are about gaps in the rate of the decline ("sales have fallen 6 per cent in the north, but only 3 per cent in London") rather than differential trajectories.

Landon Thomas reporting from some combination of London and alternate reality for The New York Times has a news analysis in which he suggests that these facts will help inform the political debate in the United States. The reality is that nobody in a position of power in Washington seems to particularly care about the evidence, and we're debating whether to cut short-term spending a little or else cut short-term spending a lot, even though we should be doing the reverse. But the article is nonetheless informative. For example, note the views of a pro-austerity politician in a country where austerity advocates are at least made to give some kind of explanation of what they're doing instead of skating by with metaphors about belts:

All of which has challenged the view of Britain's top economic official, George Osborne, that during a time of high deficits and economic weakness, the best approach is to aggressively attack the deficit first, through rapid-fire cuts aimed at the heart of Britain's welfare state. Doing so, says Mr. Osborne, the chancellor of the Exchequer, secures the trust of the financial markets, and thereby ensures the low interest rates necessary for long-term economic growth.

That's the issue. Is the pain of cutbacks worth the gains in lower interest rates. Osborne said yes, the facts seem to say no. But here in the United States interest rates are already low. How low are they supposed to go? And to what end? Creditworthy firms and households can get loans on very favorable terms. If you're a young person with a good job and no student loans, this is a great time to buy a house. But there are relatively few people in that position. The American middle class is overburdened with debt, and unemployed people are not good loan candidates. On the business side, some firms are expanding. But with unemployment high, wages flat, households paying off old debts, and government cutting back firms know that it will be difficult to sell more in the future. Consequently, even very profitable firms aren't doing much in the way of expanding operations. What's needed is for government—both Congress and the Federal Reserve—to step into the breach.

The Taxpayers' Receipt

Today the White House has unveiled a nifty new web feature where you enter how much tax you're paying and you get a taxpayer's receipt explaining what the money goes to. In an ideal world, this would actually be done automatically by the Internal Revenue Service when you pay your taxes (like a real receipt, you know) but perhaps you'd need new legislation to get that done, so just using the Executive Office of the President budget to do it online is smart.

This is an idea, incidentally, that comes from Ethan Porter's article on the subject in Democracy: A Journal of Ideas the publication that also brought us Elizabeth Warren's notion that we ought to have a Financial Product Safety Commission, now known as the Consumer Finance Protection Bureau. It's a pretty impressive record, and a small sign of the importance of institution-building at all levels. Perhaps I should mention that they recently published my article on the Fed.

Whose Speeches Move Markets?

Interesting chart illustrates which Fed members' public speeches move the markets:

As in previous years, public communications by the more hawkish members of the Committee continued to elicit a measurable market reaction, despite the fact that the FOMC is dominated these days by a center-dove coalition that is aligned with the Chairman. President Hoenig is a case in point: He dissented at every single meeting last year, making it very clear that he was out of the Committee's mainstream. Yet, his communications nevertheless did matter in the eyes of the market, inexplicably in our view, perhaps because they helped the market see both sides of the policy debate.

Possibly just spurious correlations in here? But I think this highlights the fact that monetary policy works largely through expectations and communications and, thus, that there's a witchcraft element to basic macroeconomic stabilization that people find distressing to contemplate.

Endgame

Thought of death:

— Urban reformers wrestling with tactical voting dilemma in DC at-large race.

— Looking at the polls I don't understand why Canadians don't do more tactical voting.

— Kay Steiger denounces "discrimination," argues "Women who discount men because they are short are, well, kind of bigots."

— But is this guy engaged in bigoted discrimination against women just for being guy? Applying the discrimination concept to dating seems like a category error.

— Still waiting for the confidence fairy.

— US State Department "Principal human rights problems were institutional, legal, and societal discrimination against Arab citizens, Palestinian residents of the West Bank and the Gaza Strip… non-Orthodox Jews, and other religious groups."

The Pains of Being Pure At Heart, "Girl of 1,000 Dreams".

Policymakers Refusal To Contemplate Higher Gasoline Taxes Has The Country On a Path To Disaster

Fail:

Congress may have to consider a smaller highway-funding bill than initially planned because of a steep drop in revenue from the federal gasoline tax, Senate Finance Committee Chairman Max Baucus said Thursday. [...] Lawmakers haven't reached a consensus on how to plug the gap. President Barack Obama and leading lawmakers have rejected increasing the 18.4-cent federal tax on a gallon of gas.

I wouldn't even necessarily mind this personally (even though it's dumb regardless) if not for the fact that these "highway bills" aren't really highway bills, they provide the meager funding streams the congress deigns to offer for most alternative transportation as well.

You don't win the future by cutting back on your physical infrastructure out of fear of taxing pollution. Just saying.

Mike Miles Going Big On Testing in Colorado

Alexander Russo has a pretty negative take on my friend Dana Goldstein's new article "The Test Generation", a fairly negative take on the educational agenda being enacted by Harrison County, Colorado superintendent of schools Mike Miles.

I think I agree with Russo on the policy merits, but that's exactly why I disagree with him on the journalism merits. The exposition is very clear and informative, and though it's obvious Goldstein is skeptical (for basically Campbell's Law reasons) that this is going to work out, those of us who are less worried about the Campbell's Law phenomenon see here a very strong portrait of a school district going all-in on measuring and rewarding quality. Michael Petrilli tweeted today his prediction that the piece will turn Miles "into a reform hero" and I agree. To me that's great narrative policy journalism—you learn a lot, and people still disagree. What's more the issue she raises here of the tension between what reformers deem evidence-based approaches for teaching poor kids and the sensibilities of middle class parents really is an important one. Ultimately education policy is going to need more flexibility than the search for The Best Way To Run A School District can allow for.

The one real bone I'd pick with her characterization of what's happening in Colorado is that I'm not sure how much sense it makes to complain that "high-stakes testing" is being administered too often. If you have someone sit for a test 25 separate times per year then the stakes for any one test can't be all that high. That would seem to me to be part of the point of testing frequently.

Game Makers Want To Charge High Prices For Games, But So What?

I don't want to give anyone any naughty ideas, but it seems to me that the International Game Developers Association has a lot to learn about rent seeking:

The International Game Developers Association in an e-mail to members on Thursday took issue with Amazon for requiring developers to permanently lower their prices on Amazon if they offer a discount, even temporarily, on another outlet.

"Amazon has little incentive not to use a developer's content as a weapon with which to capture marketshare from competing app stores," the IGDA said in its note.

The group also said Amazon's steep discounting of games hurts developers by unnecessarily lowering prices on games that are selling well.

Sucks to be the IGDA, says I. But what's weird about this is they don't seem to have developed any kind of spurious legal theory about why Amazon should be prevented from doing this. They're just writing a letter noting that the dominant strategy for Amazon is to use its large customer base to force game prices down, benefiting shareholders and game buyers alike. You're supposed to call for some kind of new law to ban this, or argue that existing law bans it. Or something. You can't just whine! There's not even a made-up reason here why this would be bad for America beyond the idea that the lower prices are unnecessary. Unnecessary for whom?

The Logic of Bad Bargaining

Jon Chait: "quietly assuming the GOP's willingness to inflict massive harm on the economy, and negotiating on that basis, without making them pay a political price is a shockingly weak play. The real madman here isn't John Boehner."

On a related note, Suzy Khimm observes that the White House is largely bypassing the House Democratic caucus in its legislative strategy:

But in bypassing Democratic leaders, Obama also runs the risk of ceding ground to Republicans in the few legislative deals that must be made before his re-election. House Democratic leaders have already been struggling to keep up with Obama's rope-a-dope, paying lip service to the decidedly centrist Bowles-Simpson deficit plan while distancing themselves from its most controversial elements.

Now the White House is planning to go over the head of Congress yet again by convening a working group to issue recommendations on the deficit, whose work will happen in the midst of the upcoming fight over the debt limit. Pelosi warned that pushing out such concrete proposals right before the vote could embolden Republicans to ask for major concessions in exchange for raising the debt limit. Such a sequence of events may help Obama win over centrist voters in 2012. But it could hurt Hill Democrats who need to pass legislation in 2011.

One way to formalize the tension here is to observe that in the 112th Congress just like in the 111th Congress, the way to get the most progressive legislative outcome is to start with the most left-wing member and work your way right. That would entail Barack Obama making a deal with the median House member and with the Senator who occupies the filibuster pivot point. John Boehner, by contrast, needs to stay at least as right-wing as the median member of the House GOP caucus—someone well to the right of the overall House median. That would be the way to get a clean debt ceiling increase. John Boehner won't vote for it. Nor will Paul Ryan nor Eric Cantor nor Mike Pence. But a minority of House Republicans could join with House Democrats to do it. That would let the House GOP avoid the consequences of failing to lift the debt ceiling while also allowing them to complain about the fact that Obama raised the debt ceiling, just as Obama himself voted "no" on a debt ceiling hike when he was in the minority and Bush was in the White House.

But Obama's not doing that. Instead, by dealing directly with John Boehner he's pushing policy outcomes further to the right than they otherwise would be. I think the most plausible read of why is that per Khimm's piece this squarely positions the President "in the center" rather than standing shoulder-to-shoulder with Nancy Pelosi. But it's frustrating to watch, to say the least.