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Money for nothin’

The United States’ Treasury Inflation-Protected Securities (TIPS) – bonds that are indexed to inflation – are one of the primary mechanisms for the US to finance its debt. And right now their five, ten and twenty year rates are all negative. The US can borrow money for free – actually, for a profit. Investing in US debt is so attractive, and interests rates are so low, that investors are essentially saying, “We’ll give you $100 now if you give us $99.20 in 10 years.” Investors are paying the United States Government to watch their money. Why is that?

This chart offers an explanation. The US is the safest investment of the major economies right now. The EU economies haven’t grown on aggregate in over a year; Britain might finally be getting out of recession; Japan is slowly sinking. Paul Krugman offers an explanation:

What accounts for the differences? The most obvious culprit is austerity, which has been much more marked in Europe and the UK than in the US. Here’s the IMF’s estimate of the cyclically-adjusted primary balance — what the budget balance excluding interest payments would be if the economy were operating at full employment. Europe and the UK have fully reversed any stimulus introduced during the crisis; America has not.

The US should not be pursuing policies of austerity; we should not be slicing spending. Through borrowing free money, and spending it on infrastructure, education, research and development, or insuring that if workers lose their jobs they won’t lose health coverage – a social safety net is vital for a functioning capitalist economy – we can continue the recovery. Austerity and budget cuts are not the answer right now. Prudent legislation that responsibly curbs spending in the long-term, like in our broken, increasingly expensive health care system, would be a good start.

The Fiscal Cliff

A Cliff


The fiscal cliff is not nearly as imminent a disaster as we have been led to believe. The terminology of it, calling it a “cliff”, is also very misleading. As Matt Yglesias points out, a cliff implies that going over the edge is disastrous, irreversible even. In reality the fiscal cliff is a series of tax cuts that are set to expire combined with some automatic, deep spending cuts. In other words, austerity. Even if this austerity takes place, which is possible depending on the intransigence of either side, that doesn’t mean legislation won’t be enacted to prevent the most drastic effects. Jonathan Chait explains,

Going over the fiscal cliff and then doing nothing for another year would mean a huge tax hike and spending cut. But waiting until January would mean extremely gradual tax increases and spending cuts, ones that would not even begin to take place immediately, because Obama has the ability to delay their implementation. And even after they’re implemented, the effect would be gradual, and could subsequently be canceled out. It’s like saying if you go three weeks without food you’ll die so if dinner isn’t on the table at 6 o’clock sharp terrible consequences will follow.

Ok, so why is this such a big deal? The answer is politics: the White House will have a much stronger bargaining position over Boehner and Congressional Republicans particularly if these tax cuts expire.

If the tax cuts expire, which Democrats would be smart to let happen, they no longer have to push Boehner for increased revenue. They’ll already have it. Democrats can propose a new middle class tax cut package, which would likely include some increases to upper income tax rates. At this point, Republicans are in a tough position politically. If they reject a Democrat-proposed tax package, Obama should and likely would tell the American people every chance he gets that the Republicans are preventing middle class tax cuts in favor of keeping taxes low for the top 1%.

The spending cuts are the more universally agreed upon problem. They’re “big and dumb,” and they cut things that neither side wants. But these, too, are perhaps more asymmetrically damaging to Republicans; they call their bluff on deficit reduction. The Republican rhetoric on deficit reduction is just that: rhetoric. It’s a veil under which they hide their real goal of cutting social programs and government agencies they disagree with. These spending cuts, though, touch things they like, things that somehow create jobs while no other government spending is able to. Most notably, these cuts would take the most out of defense spending.

The fiscal cliff is not really a cliff. If we go over it, life will still continue. The effects of not addressing the tax increases and spending cuts over the long-term would be real, but over the short-, or even medium-term, they present no real threat. They do, however, present an asymmetrical bargaining position for the Democrats over the typically obstructionist Republicans, and the White House should realize this to pass some real comprehensive reform.

There were two interesting pieces I read at the end of last week which I think really capture the importance of this election. Ezra Klein thinks that this cycle’s most important issue is Obamacare, and I agree. He writes,

Any given presidential election is usually less consequential than the competing campaigns suggest…This election isn’t like that. The most important fact of the 2012 election is that the Affordable Care Act was passed in 2010; it just hasn’t been fully implemented yet. If President Obama is reelected, the bulk of it will roll out on schedule in 2014.

This legislation already has had a real effect on many Americans — myself included. By 2014 when most facets of the law come into effect, if the ACA is allowed to exist, it will be the largest change to the American social safety net since Social Security, to the benefit of millions of Americans. This is all pretty incontrovertible, whether you agree with the legislation or not.

If Obama is defeated next month, Romney will be able to repeal large swaths of the legislation, if not all of it. This may backfire politically once people who have been receiving these benefits realize they no longer have them (polls show most voters, including Republicans, support provisions of the legislation, as long as they don’t know that it’s part of Obamacare), but the effect will be real. Politically, this will be seen as a referendum on healthcare reform, and it may be decades before another attempt is made at a universal coverage system.

If Obama wins, he will cement his legacy in the “pantheon of transformative presidents” and likely create huge new, lasting constituencies for the Democratic Party.

Tea Party protesters at Taxpayer March on Washington

E.J. Dionne makes the compelling argument that, whatever the outcome November 6, the Right Wing has already lost. The debates showed us that Romney’s grand political strategy all along was to placate conservatives through the primaries and through the summer when only those who really pay attention to politics were, well, paying attention. But in the end, he knew all along he would run to the center and frame himself as the moderate former governor of Massachusetts — not the “severely conservative” governor he sold himself as in the primaries.

As Dionne states, this strategy is a manifestation of the “recognition that the grand ideological experiment heralded by the rise of the tea party has gained no traction.” If Romney wins, he’ll likely have to be the October-era moderate, especially if he has to work with a Democratic Senate. Paul Ryan’s conservatism will be muted as he will be the Vice President and not the ideological Ayn Rand disciple he played in the House. He will certainly not have the power he might have had as potential Speaker.

If Romney loses, well, the Republican party is in trouble. It’s facing almost impossible demographics; the Tea Party has become a vehicle for billionaires to increase their wealth; and the economy will continue to recover under an Obama presidency.

This election has already been a referendum on an ideology; Mitt Romney would not be leading Obama nationally if he wasn’t running as a moderate. This referendum will be exacerbated by a Romney loss and, as it now looks, Democrats keeping a solid hold over the Senate. If healthcare reform continues under an Obama second term, along with the now-inevitable economic recovery, Republicans will be in serious danger of losing not just in 2014, but in many cycles to come.

The Electoral College

October 25th, 2012 | Posted by Josh McCrain in Uncategorized - (0 Comments)

First, a big thanks to Joshua Tucker at The Monkey Cage for allowing me to make a guest post on such a terrific blog.  You can find that post here.

In that post, I attempted to make an argument in partial defense of the Electoral College.  As Josh Tucker points out, there is a non-trivial chance that reforming, completely doing away with, or otherwise dismantling the current system of electing the president will become a highly debated topic in a couple weeks – and I think this is a worthy discussion.  However, one doesn’t typically hear in these discussions what the Electoral College produces, besides the occasional president-without-a-mandate.

The progress so far of the National Popular Vote initiative. Source: http://www.nationalpopularvote.com/map.php

One of the commenters on The Monkey Cage makes a valid point:  what the Electoral College prevents is not an inherently sufficient reason to hold on to a system that was designed over 200 years ago in order to keep as much power out of the hands of the masses as possible.  I agree.  Just because a system produces one set of outcomes, which may or may not be preferable to an alternative set of outcomes, doesn’t preclude changing it for the better.  In my view though the changes that are most likely occur, mostly due to the specificity in the Constitution on how we must elect our president, are not likely to produce a better set of outcomes.  These are also the changes that are closest to fruition because of the strength of the National Popular Vote initiative, briefly discussed in the post.

My point wasn’t to say the Electoral College is a perfect system.  We should have a discussion about it, and right now that seems to be marginalized at the national level (the two parties have a lot to lose with a different system).  But we should at least be aware of linkages between the current system and the outcomes it produces.  Otherwise we may not like what replaces it.