Worst. Talking Point. Ever.

If this is the best the Democrats can come up with, they are in deep, deep trouble:

Republicans argue that an unemployment rate higher than it has been in more than a quarter of a century is evidence that the Democratic agenda isn't putting Americans back to work. They say the situation will be made worse if Congress and President Obama enact a health care overhaul that will require $1 trillion in tax hikes and entitlement cuts to expand insurance coverage.

"Ten-point-two now makes it hard for the majority to sell their agenda," said Rep. Dave Camp of Michigan, the top Republican on the tax-writing Ways and Means Committee.

"All I know is that Speaker Pelosi is trying to force her members to vote for a bill that the American people have soundly rejected," added House Minority Leader John Boehner (R-Ohio).

Democrats counter that their agenda has kick-started a recovery on Wall Street, even if it hasn't trickled down to the job market yet, and that Republicans are putting what they've begun at risk.

Whoever said that achieved the spectacular feat of making Michael Steele look like a master political strategist.

The Evil That Men Do

Kevin Drum has a powerful letter from someone who witnessed the carnage at Fort Hood:

This was premeditated.  This wasn't VBC again.  That guy snapped, not this one.  He was so damn calm when he was shooting.  Methodical.  And he was moving tactically.  The Army really is diverse and we really do love all our own.  We signed up to be shot at but not at home.  Not unarmed.  No one should ever see what the inside of that medical SRP building looked like.  I suppose that's what VA Tech looked like.  Except they didn't have soldiers coming from everywhere to tourniquet and compress and talk to the wounded while rounds are still coming out.

No one touched him...the shooter that is...other than to treat him.  Though I told the medic (and I'm not proud of this) that was giving him plasma that there better not be anyone else who needed it because he should be the last one to be treated.  But I had just finished holding a soldier who was critical (I counted three entry wounds) and talking to him about his children....  If the shooter had a grievance he should have taken it out on those responsible; he wasn't shooting people he knew (media reports to the contrary).  He was just shooting anybody who happened to be present for SRP medical processing, mainly lower enlisted.

But please, no one use this politically!   The Army is not "broken", PTSD doesn't turn people into killers, most Muslims aren't evil, and whether we should stay or go in Afghanistan has nothing to do with this.  I'm babbling...sorry.

This guy was some form of lunatic or psychopath, and it seems pretty clear to me at this point that he was inspired by terrorists.  But there's no evidence that he was a terrorist--that is, that he was hooked into some organized network.  Lots of people do terrible things in the name of their religion--just ask George Tiller.  Their acts are, as the Catholic Church says, "sins that cry out to heaven for vengeance".  But they are no more indictments of a community than the acts of that Korean kid who went crazy at Virginia Tech.

There is absolutely no political lesson to be learned from this.  Gun control would not have stopped a commissioned officer from obtaining guns.  Barack Obama had no power to stop this.   Infectious PTSD is a lousy theory.  And nations certainly do not--and should not--shape their foreign policy around the possibility that a random psychopath will start shooting up a crowd.  Evil people do evil things.  That's all.

Update  whatever else you think of them, CAIR has issued an admirably forthright condemnation:

(WASHINGTON, D.C., 11/5/09) - A prominent national Muslim civil rights and advocacy group tonight condemned an attack on Fort Hood military base in Texas that left at least 12 people dead.

In a statement, the Washington-based Council on American-Islamic Relations (CAIR) said:

"We condemn this cowardly attack in the strongest terms possible and ask that the perpetrators be punished to the full extent of the law. No religious or political ideology could ever justify or excuse such wanton and indiscriminate violence. The attack was particularly heinous in that it targeted the all-volunteer army that protects our nation. American Muslims stand with our fellow citizens in offering both prayers for the victims and sincere condolences to the families of those killed or injured."

Along with innumerable condemnations of terror, CAIR has in the past launched an online anti-terror petition drive called "Not in the Name of Islam," initiated a television public service announcement (PSA) campaign against religious extremism and coordinated a "fatwa," or Islamic religious ruling, against terrorism and extremism.

America and the Terrible, Horrible, No Good, Very Bad Jobs Numbers

So headline unemployment now stands at 10.2%, higher than forecast.  Another 10 million or so workers are working "part time for economic reasons", meaning they want to work more hours, but can't get them.  And 2.4 million are "marginally attached to the labor force"--they have looked for work in the past 12 months, and say they want a job, but have stopped looking too hard because there doesn't seem to be anything out there.

This figure is likely to get worse before it gets better.  Corporations tend to want some evidence of sustainable recovery before they start hiring workers who will have expensive startup costs and will be traumatic to fire if there's another downturn.  They're much more likely to add work and hours on for existing employees, so I wouldn't expect to see any substantial improvement in headline unemployment until that "part time for economic reasons" figure has dropped substantially.  Right now, the best you can say is that it held steady last month.

To me, unemployment is a far more important indicator than GDP.  Given how rich America is, the misery from losing a job far outweighs a few percentage points of variation in incomes.  The NBER may decide that the recession ends next quarter.  But the mental recession will be going on for quite some time.

Counterintuitive prediction I heard last night:  "If the jobs number is bad, stand by for Barney Frank to start dismantling some big banks."

Alternative predictions:  this is good for the health care bill, because Democrats want an achievement to take voters' minds off of the employment figures; this is bad for the health care bill, because Democrats know they are already going to be in big trouble next November.

My prediction:  Democrats are going to be looking very hard for a way to pump some more money into the economy right now.  That is going to be very hard to do, between the bailouts, the tax credits, and the health care bill.  Also, the 2010 is not going to be about health care, one way or another.  It's going to be about the jobs number.

Department of Awful Statistics

Incidentally, while reading the Longman article, I came across this passage:

Worse, even when strong scientific consensus emerges about appropriate protocols and treatments, the health-care industry is extremely slow to implement them. For example, there is little controversy over the best way to treat diabetes; it starts with keeping close track of a patient's blood sugar levels. Yet if you have diabetes, your chances are only one-out-four that your health care system will actually monitor your blood sugar levels or teach you how to do it. According to a recent RAND Corp. study, this oversight causes an estimated 2,600 diabetics to go blind every year, and anther 29,000 to experience kidney failure.

Now, this seems like a rather extraordinary assertion:  3/4 of all diabetics are not instructed in monitoring their blood sugar?  That's certainly a problem in the health care system, but can it really be true that the majority of the nation's primary care physicians regularly commit malpractice?

No, in fact, the Rand study he cites doesn't seem to quite say what he says.  As far as I can tell, this is the study he references, and here's what it actually says:

People with diabetes received only 45 percent of the care they needed. For example, fewer than one-quarter of diabetics had their average blood sugar levels measured regularly. Poor control of blood sugar can lead to kidney failure, blindness, and amputation of limbs.

There's no indication whether that's an access problem, a management problem, or a compliance problem.  But compliance will be at the very least a big part of it, as compliance is a major problem with all chronic diseases, and diabetes is one of the nastiest diseases to control, between diet, exercise, and drawing blood.  I very much doubt that the problem is a failure to "teach" diabetics how to monitor their blood sugar; I'm pretty sure it's going to be a combination of access barriers and low compliance rates.

Does this matter?  It doesn't much undercut the general thrust of the piece, but yes, a health system that barely bothers to teach people to control their blood sugar is very different from a health system that cannot produce regular records of blood sugar levels.  The latter is not ideal.  But it's a lot better than the former.

Knowing what it's like to go through editing on a technical piece, I know how easy it can be for something to get snarled, so I don't necessarily think Longman garbled the stat, but still:  awful statistic.

Revisiting the Achievements of the Veterans Health Administration

Back in 2005, Phillip Longman wrote an article in the Washington Monthly, touting the strides the Veterans Administration had made in improving quality.  Since then, it has become the model for a fair number of reformers, who frequently cite its ability to control costs and coordinate care as proof that we should move towards such a system nationwide.

I was thus interested to learn that the Congressional Budget Office had issued a report on the VA's quality initiatives.  I've been meaning to get around to reading it for weeks, but I've been sidetracked by other things.  (To judge by an internet search, I'm not alone; few people seem to have blogged or linked to it.)  But I finally have, and I think I can say two things definitively:  the report suggests that the VA really has made outstanding improvements in the quality of care they deliver.  And the report also suggests that the VA does not represent any sort of workable model for the US health care system.

The advocates of a VA-style system usually have three core arguments:

1. The VHA provides better care because it has centralized records (VistA) to coordinate treatment and reduce errors
2. The VHA provides better care because it will care for a patient their entire life, and therefore has incentives to manage diseases rather than mindlessly do procedures
3. The VHA can reduce costs through administrative efficiency, central procurement, integrated care, and salaried doctors

For example, Longman says:

So what's left? Consider why, ultimately, the veterans health system is such an outlier in its commitment to quality. Partly it's because of timely, charismatic leadership. A quasi-military culture may also facilitate acceptance of new technologies and protocols. But there are also other important, underlying factors.

First, unlike virtually all other health-care systems in the United States, VHA has a near lifetime relationship with its patients. Its customers don't jump from one health plan to the next every few years. They start a relationship with the VHA as early as their teens, and it endures. That means that the VHA actually has an incentive to invest in prevention and more effective disease management. When it does so, it isn't just saving money for somebody else. It's maximizing its own resources.

The system's doctors are salaried, which also makes a difference. Most could make more money doing something else, so their commitment to their profession most often derives from a higher-than-usual dose of idealism. Moreover, because they are not profit maximizers, they have no need to be fearful of new technologies or new protocols that keep people well. Nor do they have an incentive to clamor for high-tech devices that don't improve the system's quality or effectiveness of care.

And, because it is a well-defined system, the VHA can act like one. It can systematically attack patient safety issues. It can systematically manage information using standard platforms and interfaces. It can systematically develop and implement evidence-based standards of care. It can systematically discover where its care needs improvement and take corrective measures. In short, it can do what the rest of the health-care sector can't seem to, which is to pursue quality systematically without threatening its own financial viability.

The analysis is theoretically appealing, but there are a couple of problems for it.  First, on the theory side:  it's not clear what incentives the VA has to become more cost efficient. Finding ways to save money in a government bureaucracy is not generally rewarded.  Finding ways to save money usually means you get your budget cut, while cost growth can provide an argument for a bigger appropriation. And when the VA runs out of money, it can reallocate services between priority levels, cutting some of its customers off in order to cover higher priority patients.

Which brings me to the empirics:  the VA does not, in fact, provide lifetime care for its patients practically from kribbe to grav.  The VHA works on Priority Groups, which categorizes who is eligible for what treatments.  Some of the categories are rather fun:

Veterans in priority group 6 served in World War I or the Mexican Border War, are seeking care solely for disorders associated with exposure in the line of duty to chemical, nuclear, or biological agents (including, for example, Agent Orange), have compensable SCDs [Service Connected Disabilities] rated zero percent disabling¹, or are within a five-year period of special eligibility for recent combat veterans.

The footnote goes on to explain that this covers a handful of vets receiving payments for tuberculosis, "special monthly compensation under 38 U.S.C. 1114(k)" or other disabilities.  And here is 38 USC. 1114(k):

if the veteran, as the result of service-connected disability, has suffered the anatomical loss or loss of use of one or more creative organs, or one foot, or one hand, or both buttocks, or blindness of one eye, having only light perception, has suffered complete organic aphonia with constant inability to communicate by speech, or deafness of both ears, having absence of air and bone conduction, or, in the case of a woman veteran, has suffered the anatomical loss of 25 percent or more of tissue from a single breast or both breasts in combination (including loss by mastectomy or partial mastectomy) or has received radiation treatment of breast tissue, the rate of compensation therefor shall be $89 per month for each such loss or loss of use independent of any other compensation provided in subsections (a) through (j) or subsection (s) of this section but in no event to exceed $3,075 per month; and in the event the veteran has suffered one or more of the disabilities heretofore specified in this subsection, in addition to the requirement for any of the rates specified in subsections (l) through (n) of this section, the rate of compensation shall be increased by $89 per month for each such loss or loss of use, but in no event to exceed $4,313 per month;

Pardon me for a moment while I meditate on the notion that we must have more government involvement in our health care in order to bring some rational, efficient order to our broken system.

But I digress.  The reason I bring all this up is that none of these groups, according to the CBO, gets as much as 50% of its healthcare through the VA:

This makes any sort of statements about its relative quality deeply problematic.  If your patients are only coming to you for the things that you happen to be better at than their alternative sources of healthcare (private insurance, Medicare, Medicaid, etc), then your results will be deeply skewed.  Comparisons were already made difficult enough by the fact that veterans are probably substantially different from the population at large--no matter how relaxed the recruiting standards were in the 1970s, the very fact of making it into the military rules out a number of serious underlying health problems.  And their prospective patient population got a great deal more educated and healthy since then.

So the problem you have to contend with is that if your patient population is different from the general population, and your patients almost all use a mix of your services and other providers, most measurements of your quality may well be picking up the quality of the other helath care they have access to.  Or the quality of the patients themselves.

In fact the CBO specifically says that this is a problem with Longman's analysis:

Advocates have claimed that because VHA is free from concerns about generating profits from medical services and faces at least part of the long-term costs associated with chronic diseases, the agency has an incentive to invest in preventive care, coordination of services, and quality improvement²⁶.  However, data on the way in which veterans use the system make it clear that most enrollees also rely on other sources of care for a significant portion of their health care needs.

Footnote 26 goes to Longman's book, which was based on the 2005 article.

This is also a problem with analysis of cost control.  The VHA controls its costs in a number of ways, but one of them is managing its priority lists--making it harder for those who are lower priority to get care.  For example, thanks to the influx of war veterans, the VA in 2003 closed its lists to many higher-income people who didn't have service-connected disabilities--AKA Priority Group 8, which as you can see, isn't getting much of its health care from the VHA.   

So in some sense, you are trivially controlling cost per enrollee, but you're not necessarily doing it by delivering better care at a better price; you may just be providing less care for some enrollees.  But that doesnt mean that total national healthcare spending on those people goes down.  By contrast, most people with private insurance do most of that spending through their insurance.

Furthermore, the changing mix of the priority groups can dramatically effect how much you need to spend.  Much has been made of the VA's ability to control costs, but according to the CBO:

Some proponents of the veterans' health system have suggested that VistA has helped the Veterans Health Administration hold down cost growth when compared with other federal health programs, such as Medicare.  But such comparisons are difficult to make.  The substantial changes in the VHA's structure and in eligibility for care make it particularly difficult to interpret usch metrics as cost per enrollee when enrollment was rising dramatically from 1999 through 2002.  In this assessment, the Congressional Budget Office (CBO) adjusted enrollment data to account for changes in the mix of enrollees adn found that VHA's spending per enrollee was relatively flat from 1999 through 2002, but since that date it has risen about as rapidly as spending per enrollee in the Medicare program.

This cuts both ways, of course--I imagine the influx of new vets is quite expensive.  The point is, you can't compare a system that manages its costs by allocating a set budget among a shifting group of people, few of whom actually depend on the VA for all their healthcare, with any other system.  

We can't do anything like what the VA does on a national scale--not to manage our costs, not to deliver our services.  A system in which people got 20-50% of their care from the government, and the rest from some other provider, would not be a good system--especially because while applauding VistA, the CBO also points out that it can make data sharing between systems very difficult.  

That's not to say there are not lessons we can learn from the VHA.  Just for starters, the conversion to electronic medical records is long overdue, and we ought to be using the Medicare payment system to herd doctors and hospitals faster towards adopting systems that are interoperable and meet certain broad standards.  But whatever the merits of the system, it simply doesn't tell us much about how to design some sort of comprehensive government health care system.

New York, Borough By Borough

Matt Yglesias puts up this graphic about the relative populations of New York boroughs

 
Matt forgot why he was making the graph, but to me the interesting thing it shows is how central the New York City subway system is.  Its effects dominate everything else, even the 1970s urban crash.  Arguably, by making urban living in many ways more convenient for urban workers than commuting, it's the reason the 1970s crash was relative mild.  And if Robert Moses hadn't killed off plans for a Staten Island subway line, the population would probably rival that of the other boroughs.

Paging Mark Twain

Brazilian man shows up at his own funeral.

The Best in the World

What is best in life?

To crush your enemies, to see them driven before you, and to hear the lamentations of their women.

Ben Bernanke Looks Past the Crisis

Ben Bernanke has a bit of a dilemma.  On the one hand, he wants to be a credible inflation hawk, to keep expectations of inflation from doing bad things to the economy.  On the other hand, he wants to reassure everyone that he's going to keep the liquidity in as long as necessary, to keep expectations of deflation from doing bad things to the economy. 

So he did something rather clever.  While leaving rates low, he specified under which conditions he'd raise them.  The markets apparently didn't like it, because the stock market wants a central banker who never takes away the punchbowl.  But it's exactly the sort of tenative quasi-step back towards tightening that we want in these delicate times.

If only Obama would do the same thing, I'd be much comforted.

Mental Health Break

I'm mostly vegetarian, and would be a vegan if not for my complicated relationship with soy . . . but this still makes me smile every time I see it.

Farmers and Welfare

A number of my commenters had much hilarity with my statement that farmers hate welfare.  This isn't a normative statement, but a positive one: they hate welfare.  Is it hypocritical of them to support farm subsidies?  In one sense, no: qualifying for most farm subsidies involve quite a lot of hard, dirty labor.  In another sense, absolutely, and there's a reason I don't discuss the virtues of milk-price supports with my relatives.

The core of the farmer aversion to welfare programs specifically is that old farmer maxim: "If you don't work, you don't eat."  But there's a flip side to that: farmers never starve.  They have lots and lots of other problems, and my grandparents' generation was very poor.  But with land, they eat and keep roofs over their heads. 

So there's a certain emotional resistance to the notion that it is necessary to provide food and shelter for able-bodied adults.  And also a deep emotional resistance to going on assistance.  They're much more sympathetic to disability, social security, and other transfers to the less able-bodied.

There's also the fact that one of the things that can make it very hard for a farmer to keep a roof over his head--aside from the debt he is prone to acquire during his more exuberant harvest seasons--is property taxes.  They make near-subsistence farming nearly impossible.

None of this is any particular attempt to justify the rural worldview, or farm subsidies.  It just is.  You can rail against it, but it's no more stupid, incoherent or self-interested than the worldview of any other coherent demographic group I can identify.

North and South in the Republican Party

One of my commenters has some thoughts on NY-23:

I have a lot of relatives in NY-23. They are all Republicans, and that affiliation has been passed down through the generations (along with Catholic church membership and a tendency to dress like the pictures in the LL Bean catalog).

And few things get them angrier than how the Republican party has been taken over by "the Texans." This is shorthand for the southern-oriented, Protestant-oriented religious right. They hate that crowd more than any Democrat could. Betrayal by your own side always hurts the worst.

Some of them have even started voting for Democrats as a protest. I don't think they like doing it, but it's the only thing they can think of to smack their party back to its senses. And to its historical roots.

So the question for me is, can the Republicans accomodate a northern wing that is middling conservative, but very different in outlook from its southern wing? Or will they abandon that part of the political spectrum to conservative Democrats? Of course, one could ask the same about the Democrats and their conservative wing as well.

This resonates with me, because my mom's from Western New York.  I remember once noting that until I was in college, I hadn't known any Republicans, to which my mother blinked, and replied "You knew your grandparents."

"But I didn't know they were Republicans."

She blinked again.  "Well, we didn't try to hide it from you."

My grandparents were hard core Republicans.  My grandmother still won't let you say mean things about (either) George Bush in her presence.  They lived in a hard core Republican district--I think Wayne County is the reddest in New York State.  But it's not Republican the way that, say, the Florida panhandle is Republican.  If my family had lived in one of the redder areas of the South, I doubt I could have missed it. 

Social conservatism just isn't the main issue there.  Abortion will be legal no matter what happens on the federal level, and a lot of local Republicans are perfectly fine with that.  Evolution will be taught in the schools.  What animates Republicans in the upstate is a deep economic conservatism.  Their social issues are confined to frowning at drug use, excess drinking, and people who won't work to take care of their families.  (And in rural Western New York, there's no question about who can't work, and who won't . . . it is not an anonymous sort of place.)

Rural areas have a farmer's contempt for welfare, and the entire upstate region knows too well that the taxes and regulations imposed by the rich downstate voters are crippling their economy.  No, this is not libertarian cant; it's obvious to basically anyone who spends any time there.  New York has onerous business taxes, a deeply problematic workman's comp system, and various rules about public sector unions that are slowly destroying the budgets of the local cities.  Combine this with a whole lot of cold weather, and there's no way they can attract new businesses to replace the big industrial plants they've lost. 

I mean, it's quite possible that the economy wouldn't regenerate anyway--but it's 100% sure that it won't as long as the state's tax and regulation levels are so bloated.  But the finance industry throws off enough money that the downstate can afford a costly and often inefficient welfare state (1 in 3 New Yorkers are on Medicaid!).  And New York's major industries, which tend to be information based, are less harmed by corporate regulation. Downstate voters are the majority in the state.  So nothing changes, and the upstate slowly strangles.

As long as social issues dominate the Republican Party, they will continue losing their north--I had a lot of relatives who at least considered voting for Obama.  Ironically, I wonder if the tea parties won't help bring the two wings of the Republican party together:  guns and lower government spending are the two things all members can agree on.  But if the south wants to keep its northern Republicans--and the congressional seats that come with them--it's going to have to back off trying to make the northern party look like a miniature version of itself. 

Not least because northern Republicans share one more feature with their southern brethren--they hate people from some distant city telling them what to do. If you find that hard to understand, just picture how y'all feel when the ACLU starts its annual Nativity Scene Hunt through the town squares of Alabama and Mississippi.

Punditwatch: Who Got Hurt More Last Night?

A quick survey of the print and web punditospheres reveals Democrats chin-pulling about the mixed message of last night's events, or wanly saying that this wasn't a referendum on Obama.  Meanwhile conservatives are mostly crowing--even, somewhat delusionally, about pushing Scozzafava out in NY-23.  From which I mote that progressives took the worst body blow--though if conservatives continue perkily believing that intraparty warfare is the surest route to success . . . well, welcome to Barack Obama's second term.

Still, the more I mull the "this wasn't a referendum on Obama" message, the more I wonder why Democrats are celebrating this.  It's kind of a problem that this election wasn't a referendum on Obama, or more importantly, on Bush.  Obama's coattails are supposed to give them the spine they need to enact sweeping change.  The bad news of last night wasn't that they lost the New Jersey governorship.  It's that the era of running against George Bush, or for Barack Obama, is over.  They just lost the two best campaign planks they've had in decades.

Update:  Senior Congressional Democrats told ABC News today that there would likely be no health care bill in 2009.  I think that might answer the question.

Knowledge is Power

Why baseball players chew tobacco.

Lessons Learned from Last Night

What to say about last night's results?  As one commentator in my twitter feed noted, there's enough here for everyone to spin.  Or as Orin Kerr put it:

I think there are four obvious lessons to draw from tonight's election returns:

1. For Conservative Republicans: The America people reject Barack Obama and obviously want true conservative leadership. The Governorships of two states have switched to the "R" category, showing a grassroots conservative movement that is alive and well.

2. For Moderate Republicans: The American people obviously want old-fashioned economic conservatives who are moderate on social issues. McDonnell in Virginia and Christie in New Jersey won by downplaying social issues; Hoffman in New York-23 lost because he was too extreme.

3. For Moderate Democrats: The party out of power usually does well in off-year elections like this, and this year was no exception. But obviously there is no sign of any substantial shift in public opinion from the election of 2008.

4. For Liberal Democrats: NY-23 was the race to watch this year, given that right-wing extremists like Palin and Beck threw all their support behind Hoffman. But the district voters rejected the right-wing candidate, sending a Democrat to Congress for the first time in one hundred years. Obviously this shows that the American people reject right-wing extremism.

Obviously.

The lessons for me?  Gay marriage is tough to pass in most states, and both parties should rethink the primary challenges, which don't seem to be working out for anyone.  Robocalling polls seem to be disturbingly effective.  Even Mike Bloomberg can get spanked (lightly) by anti-incumbent fever.

Link Farm: Special Election Edition

• New Jersey results in interactive map format
• Best place to follow the Maine outcome
• Outstanding liveblog from Pollster.com (takes a minute to load)
  
• Ambinder's twitter feed

Will put up a link on NY-23 if I find a good one.

The Focus of the Race

Andrew argues that the races today are not about Obama.  Who said they were?  They're about Democrats and Republicans.  They're about whose base is more energized. 

If Hoffman wins in NY-23, I assume that makes the squishier Republicans swallow hard and wonder if they might not be vulnerable to a challenge from their party's right wing--not to mention a bunch of Blue Dogs who will be looking at the Republicans and independents in their own districts.  If two states with Democratic governors lose them, that signals that the Republicans can move motivated bodies to the polls . . . and while voters may be saying they like Obama as much as ever, they're also saying that they think their taxes are too high and government spending is out of control, issues that polled way higher than "Obama issues" like health care.

All of this makes it tempting to tack right.  Because here's the thing:  2010 won't be about Obama either.  Oh, his performance over the next year will matter--but he's not going to get that surge of voters out to the polls for house and senate races.  The Blue Dogs who are up for election in 2010 aren't worried about Obama, or his voters.  They're worried about their own political fates.

Crazy Rumor of the Day: Does Google Want to Merge With the New York Times?

Did someone CNBC really suggest that the New York Times might be a takeover target for Google?  That seems entirely crazy.  Forget whether such a merger would make sense; the New York Times cannot be sold without the approval of the Sulzberger family, which seems unlikely to emerge unless things get quite a bit more dire.

Should I Learn to Stop Worrying and Love the Deficit?

For a while now, I (and practically everyone else) has been saying that the deficit is making us nervous.  Not the current deficit, but the future ones.  I don't think that we should run any deficits outside of national emergencies, and while I think the current economic mess qualifies, I don't think 2019 does.

Economically speaking, I think an economy growing as fast as ours can sustain a budget deficit in the neighborhood of 3% of GDP almost indefinitely.  To be clear, I don't think we should sustain such a budget deficit--if we want programs, we should pay for them ourselves, not ask our kids to.  But it is possible to run such a deficit without fiscal crisis or economic stagnation.

But three percent is around the ceiling of sustainable deficits.  Six percent is well above that ceiling.  At six percent, your debt service burden starts growing much faster than your tax revenues.

On the other hand, the markets don't seem to care, as Paul Krugman points out:

And right now, deficit-phobia has quickly congealed into the latest CW. You can see it in editorials (not from the Times, I'm happy to say, but almost everywhere else), in what the talking heads say, even in supposedly objective news reporting. Not a day goes by without my reading some assertion that "markets are anxious/jittery/worried about the deficit" -- an assertion based on no evidence whatsoever. (Long-term interest rates on US debt are near historic lows; CDS spreads show no concern about default.)

Matt Yglesias adds:

It's really maddening that at the same time preposterous idea like strong forms of the Efficient Markets Hypothesis continue to be respectable that people seem unwilling to trust financial markets to accurately convey the beliefs of participants in financial markets. I would add to Krugman's observations the fact that we have Cato's Chris Edwards blaming anticipating inflation for the lack of private investment when the TIPS spread shows that markets aren't anticipating inflation.

Right now economic conditions are bad. And the budget deficit is high. So I find it understandable if the man on the street chooses to conclude that the budget deficit is causing or contributing to the bad economic situation. But people writing about these matters ought to know better--interest rates are low and markets are assessing both default risk and inflation risk as low. So what about the deficit is supposed to be causing the problem?

I join with Messrs Yglesias and Krugman in a number of points:

1.  The current budget deficit is not causing our economic problems.  There may be other administration policies that are contributing, but this is not one of them.
2. Demand for government bonds is robust
3. There are good and powerful reasons to run a deficit in the current recession
   

Nonetheless, I'm worried about our future budget deficits.  And I think a number of market participants are also worried.  Why?

For one thing, I don't think the TIPS spread tells us much, for reasons I've gone over before:  as long as we have an independent central bank, default risk is greater than inflation risk.  And since the market would treat any significant moves to abrogate the independence of the Fed as equivalent to actually inflating the debt away, the government can't regain control of the Fed without triggering the crisis that inflation is supposed to avoid.

As for the debt itself, America's debt right now has a number of idiosyncratic factors pressing on its price:  dramatically heightened worries about the rest of the world's economies, and lower inflation expectations.  So it's hard to say that the markets aren't pricing in default risk (though equally hard to argue that they are).

If not, why not?  Well, a number of factors make US debt demand pretty sticky.  The Chinese central bank, for example, wants to keep its currency from rising against the dollar, for reasons you've all heard a million times.  That means it wants to buy a lot of US government debt (and quasi US debt, like--oops!--Fannie and Freddie securities).  Regulated entities that need to buy securities which meet strict criteria.  Unsophisticated and stodgy investors who pour their money into government bond funds. 

The economic policy folks at the Bush administration had to spend a bit of time reassuring folks like the Chinese that really, nothing to worry about, we'll keep that deficit under control.  I've no doubt the Obama administration is doing the same.  And in truth, the prospect of a default is so horrendous that there's some reason to believe that of course we'll do something before it gets out of hand.  I'd say, in fact, that this is more likely than not--though I don't know how much more likely.

What worries us doomsayers is that when you have that kind of sticky demand, it deludes you into thinking that everything is fine.  Sticky demand can, and does, come unstuck eventually.  When it does, great big chunks of demand for our debt will flow out of the market all at once.  And when you have a lot of debt that you have to roll over every year, that's a bad thing.

Maybe I'm just a nattering nabob of negativism.  But when I talk to professionals who invest in government bonds, they don't tell me they think everything is fine.  They tell me they're worried about the deficit.

Lies, Damned Lies, and . . .

Statistics are useful things.  But too often, they give a false sense of precision.  "Counting" the jobs "created or saved" by the stimulus is one of our more ludicrous governmental activities of the moment.  For one thing, the administration has made no attempt to net out the jobs that were not created, or destroyed, because the government had diverted the money from other uses.  For another, as Bruce Bartlett points out, your count is only as good as your counters.  And some of them aren't very good:

How did Kentucky shoe store owner Buddy Moore save nine jobs with just $889.60 in federal stimulus money? He didn't, and that's turning into a big headache for him.

Moore's store in Campbellsville, Ky., filed one of 156,614 reports from recipients of stimulus dollars designed to show how money from the $787 billion program is being spent, and how many jobs the funds have created or saved.

Moore's slice of the stimulus came in an $889.60 order from the Army Corps of Engineers for nine pairs of work boots for a stimulus project.

Moore says he's been supplying the Corps with boots for at least two decades. This year, because he provided safety shoes for work funded by the stimulus package, he said he got a call from the Corps telling him he had to fill out a report for Recovery.gov detailing how he'd used the $889.60, and how many jobs it had helped him to create or save. He later got another call, asking him if he'd finished the report.

"The paperwork was unreal," said Moore, who added that he tried to figure out how to file the forms online, then gave up and asked his daughter to help.

Paula Moore-Kirby, 42 years old, had less trouble with the Web site, but couldn't work out how to answer the question about how many jobs her father had created or saved. She couldn't leave it blank, either, she said. After several calls to a helpline for recipients she came away with the impression that she would hear back if there was a problem with her response, and have a chance to correct it. So with 15 minutes to go before the reporting deadline, she sent in her answer: nine jobs, because her father helped nine members of the Corps to work.

To be clear, my assumption is that given the strange behavior of credit markets, especially during the first half of the year, the stimulus probably did create some jobs--I think the government took in money that would otherwise have done nothing.  But its figure is both certainly inflated, and absurdly precise.

Look for the Union Label

As I read this editorial, I couldn't help but look fondly back on this ad from my childhood:

Knowledge is Power

What causes bitter cucumbers.

The Decline and Fall of the GOP

That's what a number of commentators are predicting, mostly based on the fact that a bunch of conservative "outsiders" swooped into NY-23 to support Doug Hoffman, thereby forcing pro-choice, pro-gay-marriage, pro-stimulus, liberal Republican Dede Scozzafava to drop out and throw her endorsement to the Democrat.  The conservatives have thrown the race to the Democrats, they complain.  This, and the Specter primary challenge, will just encourage the few remaining Republicans in the northeast to leave the party entirely.

What's interesting is that most of this wailing comes from Obama voters.

Socially, Scozzafava is certainly closer to my positions than Hoffman.  Fiscally, it's more of a toss up--Scozzafava is too soft on government spending, but what little I've read about Hoffman suggests that his approach to government is at best ham-fisted.  Nonetheless.  I am not a North Country voter, and I am not deluded into thinking that what I want, is what will make the Republican party electorally viable in the future.

Rural Western New York, where my mother is from, is a little different from the northern region of the state, but the politics are similar enough that I can promise you this:  Hoffman is not going to lose the party any votes because he betrays the region's historical affinity for gay marriage, of which there is none.  The region isn't as socially conservative as the south, but that doesn't mean that they like pro-choice, pro-marriage equality candidates.  It means that the issues don't have much electoral salience either way. 

Gay people growing up in either upstate region are even more likely to do what most people do anyway:  leave.  Thanks to the downstate influence, and a hefty dose of yankee farmer practicality, abortion will be legal in New York even if Roe gets struck down.  It's an issue that's on the radar of urban activists who spend a lot of time worrying about what happens in Alabama, and ardent pro-lifers.  Neither group is going to vote in NY-23.

As for the alleged pernicious influence on the party at large, I remember hearing--indeed, I think, saying--such things about the Netroots attempts to drive their party left in the earlier part of the decade.  And as I contemplate the wreckage of the Democratic party, barely holding on to 37 seats . . .

Pardon me, I seem to have become trapped in Karl Rove's fantasy world.  Not my finest hour as a political prognosticator.

It is true that this turned out badly in the cases of Lieberman and Specter.  But they were both popular incumbents, and the senate gives individual legislators quite a bit of power, especially when the numbers hover close to 60.  In general, I don't think that you can credibly say that pushing progressive items like health care and climate change to the forefront of their party's policy agenda has turned out badly for the Democrats.

Now, that's not to say that the Democrats will succeed in passing these things.  Arguably, what they've succeeded in doing is creating more space for ideological purity in the Republican party--the less centrist and reasonable your opponents sound, the less you have to fear becoming the crazy ideologue in the race.  Once they get into office, even the most ideologically committed legislators become keenly alive to the dangers of losing their seat . . . unless they're in a safe district that agrees with them.

But moving their agenda left has not cost them.  And I don't see any empirical reason to believe that it is going to cost the Republicans.  Either Hoffman will lose, in which case the strategy of policing the party will lose some of its appeal, or he will win, in which case Blue Dog democrats and Republicans in squishy states will probably tack right--a critical win during the health care debate.

In the long term, the Republican party still has big problems.  But as devoutly as I would like to believe that their problem is loudmouthed television and radio hosts who just aren't sophisticated about public policy . . . well, I've yet to see any evidence that the American polity is avid for more sophisticated public policy discussion.  Frankly, they seem a lot more interested in plausible enemies and improbable free lunches, which is the level on which both parties are mostly campaigning.

Link Farm

• Wal-Mart gets into the casket business
• Doug Holtz-Eakin about to lose health insurance, still opposes the Democrats' reform plans.
• Louisa May Alcott's private sorrows.
  

The Power of Prices

Ezra Klein is pessimistic about the exchanges today:

it's not clear that they'll be particularly competitive if they're primarily serving a subsidized population.

Imagine that my family makes $45,000 a year. That puts us at about 250 percent of the poverty line. In the Senate finance bill, our premium contribution is capped at $4,349. Surveying our options, I see a plan from Aetna that costs $10,000, a plan from Kaiser that costs $9,000 and a plan from Cigna that costs $11,000. All seem pretty similar, but then, I'm not an expert in these things. Which do I choose?

You might say I should choose the Kaiser plan. But why? It's cheaper, but it's not cheaper to me. After all, my contribution is capped at $4,349. Moreover, it's generally true that things that cost more are better. It stands to reason that Cigna is giving me something for the extra $2,000. Indeed, I'm being subsidized to the tune of $7,000, as opposed to $5,000. It's clearly a better deal.

Maybe there are elements in the plan that somehow protect against this, and I've just missed them. But I don't think so. And though this dynamic isn't terribly important in a world where the exchanges are large and lots of unsubsidized customers are creating competitive pressures, they might be very significant in a world where the exchanges are limited to people who need to be subsidized, and so are facing a different cost calculus.

Interestingly, this seems like a variation of my argument about tipping points in markets when governments start to dominate them.  I was talking about this in the context of pharmaceuticals and medical devices, where I worried about ham-fisted price controls destroying much of the incentive for efficient innovation.

But both cases stem from the same problem:  bad price signals.  Prices really are pretty great, for all that we resent them when they signal variations in the demand for human labor.  When you break the price signal, you get all manner of bad outcomes.  Price signals are already pretty bad in the private insurance market, but at least they're set by negotiations between employees and employers, employers and insurers, insurers and providers . . . rather than by lobbying.

I'm not sure that Ezra's pessimism will play out the way he outlines:  for one thing, there will be a substantial number of currently uninsurable middle class people on the exchanges (though of course, this will skew things in another direction--towards the kind of coverage that people with dangerous conditions want).  For another, the prices may simply converge--in Massachussetts, most people take the cheapest "bronze" option, and I'm not sure how much room there will be for variation in providing the basic package.

Still, I think it's interesting that both Ezra and I want to preserve the price system (hell, even extend it) in substantial parts of the system.

Separate, and Unequal, Pension Treatment at GM

The ostensible defense of making the creditors take a deeper haircut than the workers in the auto bankruptcies was that the workers were needed for continuing operations, and besides, it would be bad for the economy if they lost their pensions, etc.

I'm curious to see whether the people advancing that argument can justify this:

The Pension Benefit Guaranty Corporation, which insures pension plans, caps the amount of benefits it will pay, using a formula based on age and the type of benefits an employee earned. But in a side arrangement, G.M. is agreeing to pay special supplements, called top-ups, so that Delphi's union retirees get everything they were promised.

The automaker is drawing the money from its own pension fund, according to a person familiar with the arrangement. In a sense, the G.M. pension fund is being weakened to help the Delphi union members.

Mr. Gump and others suspect the Treasury Department told G.M. to pay the supplements. The federal government is both the company's largest shareholder and the financier of its restructuring, through the Troubled Asset Relief Program. Obama administration officials confirmed that they brought the parties together to negotiate a resolution of Delphi's pension failure but said they did not dictate the outcome.

The difference between the haves and have-nots at Delphi is not between the highly paid and lower-wage earners. As a senior engineer, Mr. Gump simply did not belong to a union. Neither did Delphi's thousands of other engineers, bookkeepers, clerks, quality controllers, purchasing agents and other white-collar employees. They may have earned more in some cases, but they did not have the chance to earn paid overtime as union members did in good years. Records show the average pay for a nonunion worker just shy of 50 years old, with 20 to 24 years' service, was about $96,000.

The average base wage for a UAW worker is supposed to be about $60,000.  So the white collar workers average quite a bit more--but the UAW distribution is fairly flat, while the white collar distribution is not, so a fair number of those white collar workers will be making roughly the same as a union member.  Yet the UAW has had their gold-plated pensions made whole, while the white collar workers . . . well, the Times reports that one woman saw her pension fall from $3,000 a month to just under $400. 

What possible logic is there for this, other than the fact that the UAW generously supports the Democratic party?  If you prick a white collar worker, does he not bleed?  And if their home gets foreclosed on, does it not further destroy Michigan's economy?

*  I say "supposed" because I can't get a good figure including overtime, which for union workers can double their wages in good years.  (Of course, they're not having good years now--but the retirees lived through quite a lot of them.) 

California's Tax Games

California has come up with a novel way to close this year's budget gaps:  it's increasing withholding from the paychecks of its citizens.  No, the government didn't actually increase taxes; it just raised the withholding.  They'll give any extra funds back to taxpayers in April, and presumably fewer people will have to write checks to the government on April 15th.

This is a terrible idea on many levels.  First of all, the government should not be taking forcible loans from its citizens.  Second of all, the fix is extraordinarily short term--people can start filing for refunds in four months.  What are they going to do for an encore?  Maybe, instead of raising taxes, governments can just start ritually raising the withholding regime every year, then mailing a check back at the end of the year, only to withhold even more the next time . . .

Mental Health Break

Jeopardy asks about economists:

The True Cost of the House Health Care Bill

The New York Times health care blog has a post about the games that politicians are playing with the cost of their health care bill--in this case, the new House bill that was initially reported as costing less than $900 billion.  A more accurate assessment would have been $1.05 trillion:

Throughout Thursday, news accounts, including our own, focused on $894 billion, the total cost given out by aides to the House speaker, Nancy Pelosi, before the official cost analysis was released by the Congressional Budget Office.

But a closer look at the budget office report suggests that the number everyone should have reported was $1.055 trillion, which is the gross cost of the insurance coverage provisions in the bill before taking account of certain new revenues, including penalties by individuals and employers who fail to meet new insurance requirements in the bill.

Because Obama set a $900 billion target--probably sensibly, since the politics of a $1 trillion health care bill are tricky--the House wanted to get their proposal under that line.  The problem is, they also want to subsidize lots and lots of people, which is expensive.

I expect that the reaction of many people, maybe even most, is "Who cares whether we use gross or net cost, as long as it's deficit neutral?"  I'm sympathetic, but there really are very good reasons to care:

1.  This bill will not actually deficit neutral; it's just scored deficit neutral.  This is not the fault of the CBO, which is doing its job.  But the bills are loaded down with a bunch of "automatic spending cuts" and similar gimmicks which are very unlikely to happen.  We did the same thing with Medicare in the Balanced Budget Act of 1997, and by 2003--i.e., the first year that the cuts really started to cut--Congress had mostly undone them. 

Doug Elmendorf, the source of that "deficit neutral" score, has made it pretty clear that he does not think the cuts will take place; he's just scoring them because that's what the CBO process requires him to do.  After all, the reason that we need these automatic spending cut mechanisms is that Congress can't make a credible committment to cut costs now.  And the reason they can't be relied upon to cut costs in the future is that doing so is politically costly.

The larger the gross cost, the larger the hole it will rip in the budget if these gimmicks fail.

2.  We have a gigantic existing budget deficit, which will require hundreds of billions of dollars worth of spending cuts or tax increases.  I call your attention to the chart I posted the other week, showing what the budget deficit would look like with and without the Baucus Bill:

In other words, even if everything in this "deficit neutral" bill happens the way that the CBO expects it too, we still end up with a $600 billion deficit.  We need to pay for that, somehow.

But of course, keeping the bill "deficit neutral" also requires some combination of tax increases and spending cuts.  These are very politically difficult, and as is generally true, the current bills use the ones that are politically easiest to cover their costs:  things like tax increases on the rich, cuts to unpopular provider reimbursements, and rejiggering Medicare Advantage.  Yes, these things are not easy--some of them are so hard that they may not happen.  But whatever comes after them must, almost definitionally, politically even more difficult to pass.  In the case of tax increases on the rich, there is simply an economic limit--the Laffer Curve does not apply at current levels of US taxation, but that doesn't mean it doesn't apply at any level of taxation, and we're already headed to marginal income tax rates of more than 50% in some jurisdictions.

So the larger the gross cost, the more of the political "low hanging fruit" it eats up.  That means that closing our existing budget deficit becomes more politically costly, and therefore less likely to happen--or, rather, more likely to happen too late, when the crisis is almost upon us.

3.  Even if you are not particularly worried about shrinking the existing budget deficit, gross costs are, well, costs.  Tax increases reduce the consumption people are able to do, of either goods or leisure.  Benefit cuts mean fewer benefits.  This has to be considered against the benefits.

Link Farm

• The White House takes on . . . Edmunds.com.  I think they're maybe a little too bloggy and new media.
• Goldman Sachs and AIG, again
• Mark Kleiman and his excellent idea
• Dave Weigel belongs on Wikipedia
• New TSA signs