Matthew Yglesias's Blog, page 2476

Which Payroll Tax to Cut

Greg Mankiw says a temporary reduction in the employer side of the payroll tax may have been the better policy:

An alternative would have been to reduce the employer's share of the payroll tax, at least to some degree. Given a sticky wage, this policy would have reduced the cost of hiring and, to the extent labor demand curves slope downward, increased employment. It would also have increased business cash-flow and, to the extent that firms are cash-constrained, increased business investment.

Maybe I'm missing something, but I don't really see this. In terms of a hypothetical future job, the relevant issue here is the real incidence of the payroll tax, which I believe is the same for the employer-side and employee-side taxes. In either case, a given quantity of salary budget now buys you more labor.

The legal incidence, however, is relevant for existing jobs. An employer-side tax cut would increase the profitability of existing firms. An employee-side tax cut, conversely, will increase the real disposable income of currently employed workers. Currently, though, profits are quite high. Firms, however, are shying away from investing their profits in expanded operations between demand is so low. Increasing disposable income of the currently employed should raise demand and give firms some additional incentives to seek expansion opportunities.

It seems to me that the case for an employer-side cut would have been stronger 30 months ago. Heading into the recession some kind of deal that offered employer-side payroll tax cuts to firms that avoided layoffs would have had an important job-preserving impact. It would, in effect, have offered an appealing alternative to layoffs as a means of temporarily reducing labor costs. That would be in many ways similar to the kurzarbeit scheme that seems to have worked well in Germany. Today, though, we're more or less past the point where mass layoffs are our concern. Instead the issue is that there's not enough demand to inspire firms to start soaking up the huge excess in labor supply. An employee-side cut seems to me to be the right way to do that.

The Wages of Bitterness

John McCain used to be for ambitious immigration reform legislation. Naturally, that meant he was also for the DREAM Act, a much more modest measure aimed at protecting the interests of hard-working people who violated immigration laws as children due to actions taken by the parents. Elise Foley fills us in on McCain's current thinking:

A few days before the Senate left for the Thanksgiving break, Pacheco met the new McCain when she tried to lobby him on the DREAM Act, the bill he'd once championed. When Pacheco approached McCain, she said, he dismissed her and threatened to call the Capitol Police on her if she continued to follow him.

As he entered an elevator, the DREAM Act supporters told the senator that all they want is to serve their country.

"Go serve them then," McCain told them, according to Pacheco.

I don't really even understand what McCain's trying to say here, but it reminds me of something I said at USC when I was out there last week. Namely that one of the odd conceits of Capitol Hill is that when something like the DREAM Act fails that's a "defeat for Democrats" or a "defeat for Barack Obama." By this logic if McCain is bitter at Barack Obama because Obama said mean things about him in the 2008 campaign and won, it makes sense for him to lash out at Obama by taking stances on legislation that lead to defeats for Barack Obama.

The fact of the matter, however, is that Barack Obama is going to be fine. At worst, a president fails to get re-elected. But in the scheme of things, Jimmy Carter and George HW Bush have great lives. These high-level politicians are basically untouchable. All that's at steak for them personally is questions of ego. The people who really lose in a serious way if DREAM doesn't pass are undocumented teenagers. These people didn't do anything to John McCain. He has no reason to be bitter at them. But they, not Barack Obama, not "the Democrats" are the ones who actually have something really big on the line.

Triangle

Incidentally, like this tax deal or don't like this tax deal, I think this counts as a good example of the "triangles are two dimensional" principle. The President struck a deal that the left doesn't like and that the right doesn't like, but that also isn't simply equidistant between the leftwing option (hold firm and let all tax cuts expire unless the GOP caves on tax cuts for the rich) or the rightwing option (hold firm and blame Obama for the expiration of all tax cuts). Instead, reversing a lot of his recent rhetoric, Obama has positioned himself as the guy maximally devoted to securing as much short-term fiscal expansion as is politically feasible.

Now of course some people don't like it and it's possible that future legislative standoffs will end disastrously. But unlike the pay freeze gambit this is how triangulation is actually supposed to work. Lifting us off a binary debate over more income tax cuts or less income tax cuts and onto a package that includes lots of other stimulative measures.

Senate Malaportionment

Nick Beaudrot reminds us that the unfair political bargain that gave us the United States Senate has gotten more unfair over time:

I don't see any real reason to think this trend will turn around, either.

What's Wrong With the SPD?

This is a theme I've visited before, but for all the complaining you hear from American liberals about the alleged political ineptitude of the Democratic Party, the evidence actually suggests to me that it's one of the most electorally successful left-of-center political parties in the democratic world. Sweden's Social Democrats have them clearly beat, and perhaps the Canadian Liberal Party, but beyond that the center-left's electoral record is pretty poor.

Consider, for example, Germany. From 1949 to 1969 they had a solid 20 years of Christian Democrat Chancellors. Then there was a 13-year run of Social Democrat chancellors, followed by 16 (!) years of Helmut Kohl leading rightwing coalitions, 7 more years of SPD under Gerhard Schroder, and we're now on year five of the Angela Merkel Era. That's a terrible record. Is it all messaging problems? Do they have a lot to learn from America's Democrats?

Arguably yes. But of course another way of looking at it is that despite the Social Democrats' relative lack of electoral wins, they've been pretty successful at pushing Germany in the direction of leftwing economic policy ideas. Certainly they had a universal health care system before we did. And I think you see a similar story in France, the Netherlands, etc. Generous welfare states paired with electorally triumphant center-right parties. Could it be that the Democrats' relative ideological plasticity is good for winning elections, but ultimately counterproductive for winning policy battles? Or maybe that's the wrong issue. Maybe the real point is that continental parties of the center-right have been much more compromising than the GOP in a way that's made them electorally dominant but pushed the status quo to the left. Or maybe the whole premise that the German policy status quo is "to the left" of America's is a mistake—we're more welcoming to immigrants, more multicultural, more feminist, etc.

I don't have a strong thesis to push here beyond the idea that frustrated progressives, both in the US and Europe, should perhaps spend more time looking at our counterparts in other countries to try to better identify what it is exactly that's frustrating us.

The Real Tax Sellout, Part 2

Another way of looking at the real tax cut sellout is this: Who thinks John McCain would be president today had Barack Obama campaigned on a platform of full rollback of the Bush tax cuts?

I certainly don't.

There's plenty of reason to think full rollback would have polled poorly and been an unpopular position, but Obama would have won anyway. And that would have set up a dynamic in which a threat to veto full repeal could have been credible and a compromise around "middle class" extension might have been a viable legislative outcome. But by committing himself to the view that extension of the "middle class" component was vital, we set in motion the current chain of events.

Endgame

Ganz nackisch:

— Victoria's Secret saves dark-skinned models for "wild things" segment.

— Michael Gerson on the DREAM Act.

— Voice.

— Germans celebrate good PISA result.

— The Elizabeth Edwards legacy.

I don't know many German songs, but this is Stereo Total "Ich Bin Nackt".

The Next Hostage Fight

Watching Barack Obama's press conference all I could think about was this scene from Speed:

Harry Temple: All right, pop quiz. Airport, gunman with one hostage. He's using her for cover; he's almost to a plane. You're a hundred feet away… Jack?

Jack: Shoot the hostage.

Which is a roundabout way of saying that I found the logic the President espoused to defend the deal was more troubling than the deal itself. Ask yourself which is better policy: temporary extension of all Bush tax cuts + implementation of various stimulus measures or immediate expiration of all Bush tax cuts and implementation of no stimulus measures. I think the answer is pretty clear—the deal is better policy.

But ask yourself about a theory of change in which Republican intransigence is rewarded with lectures to liberals about the evils of intransigence.

I mean, what happens if this deal goes through and now the time comes when congress needs to raise the debt ceiling and Speaker Boehner decides he wants to hold some hostages. Sure he'll deliver the votes, but only if Obama delivers draconian spending cuts.

I'm not sure what'll happen. It'll be a standoff. Someone will get criticized in the press. Someone will get nervous. Someone will need to back down. Does this deal make it more likely, per se, that it's Obama who'll back down? Not really, no. But the thought process he outlined at the press conference suggests that he will. That in response liberals will complain, and in response to that Obama will deliver the impassioned dressing-down that he doesn't deliver to the right-wing hostage takers.

No Substitute for Quality

There's a lot of research to indicate that high-quality preschool does a lot to improve outcomes for poor children. I think this is important and I don't think there's anything surprising about it. There's also a lot of research to indicate that for all the importance of socioeconomic background in determining educational outcomes, that the best K-12 schools make a huge difference in this regard. What's odd, as Kevin Carey points out, is that some folks who like to dwell on the difficulties of providing high-quality K-12 schools to poor kids seem to breezily dance past this quality issue when talking about preschool:

In other words, there are small localized pre-K programs with robust long-term effects (and which were, thus, unavoidably, implemented a long time ago) and large federal programs that have not been nearly as consistently successful, and some mid-range programs that have worked pretty well and others that haven't. According to a RAND study of early childhood programs in California, 16 percent of early childhood classrooms fall below "adequate" standards of quality, meaning they may be actively harming child development. Only 22 percent were classified as "good," and disadvantaged children were less likely than others to be in the best classrooms.

The point being, you can't just assert high quality in making these policy arguments. You need an actual, plausible plan to ensure quality. Otherwise, it would be like saying "All we need to fix American education is to enroll every child in a high-quality charter school, high-quality meaning 'as good as the best charter school ever.' " That would be laughed down by anti-charter people and rightly so.

To me, that's not a knock on preschool. It underscores how important preschool is. But providing high-quality preschool on a mass scale isn't some kind of easy to implement alternative to the tricky task of providing high-quality elementary school on a mass scale. The situations are actually quite similar—the best stuff works great and we need more of it but it's not 100 percent obvious how to get it.

Free Speech is Bigger than WikiLeaks

I have a lot of disagreements with things Richard Cohen says in his column on WikiLeaks, but in this case that's actually what makes his defense of the core principles of a free press so important:

The WikiLeaks brouhaha will pass. Diplomats will once again be indiscreet at cocktail parties and rat out one another in the same way some people marry repeatedly, each time forever. The only thing worse than indiscretion is efforts to punish the miscreants by eroding the core constitutional right to publish all but the most obvious and blatant national security secrets. The government has to get better at keeping secrets. Muzzle the leakers – but not the press.

There's the rub. I have mixed feelings about a lot of different aspects of this, but there are two key points. One is that the leaker here (presumably Bradley Manning, but that's not yet been proven in a court of law) has broken the law and needs to be punished. The other is that the ability to republish leaked secrets is integral to the operation of a free press. Creating a new standard of harassing not leakers, but the publishers of leaks, is a very dangerous precedent whose implications go far beyond whatever you may think of the particular circumstances.