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January 4, 2008

Economist's View - 5 new articles

"It's How You Play the Game" vs. "Winning is the Only Thing"

I have a question. What's the best way to stand up to the inevitable swift boat tactics that are sure to come from the other side? As Brad DeLong says:

...our long national nightmare is not over. Remember John McCain's line about Chelsea Clinton--that she "is so ugly because her father is Janet Reno." Didn't do McCain any harm in the Republican Party. Didn't do McCain any harm with America's establishment press corps. It was bad enough watching the Freak Show in the press and the Republican Party go after the sleazy hick from Arkansas with the zipper problem and his cold castrating l------ b---- of a wife. Are we now ready for the to go after the Muslim terrorist n----- from Chicago?

When I was a kid, I can remember my father teaching me about what constituted a fair fight, and what was against the rules. One rule was you didn't hit first, but if a fight had to happen, so long as the other person followed the same code of honor, things were considered fair. But if they didn't, if they were willing to hit below the belt or adopt other "unfair" tactics, then following the rules was a prescription to get your head handed to you. You had a right to defend yourself when the other side didn't play be the rules.

The conflict between the "it's not whether you win or lose, it's how you play the game" crowd and the other view, the "all is fair in love and war", "winning is the only thing", "just win baby" attitude carries over into the political arena. The latter view places few restrictions on how to fight. The idea is to win, nothing else matters.

I'm never sure what is best. When the inevitable below the belt political tactics come, and they will, one way to respond is to adopt the high road. Hold your head above it all, continue to play by the rules, and hope that carries the day as people recognize your superior character. If it doesn't work, then at least you've retained your honor. You didn't stoop to the tactics of the opposition.

The other way to respond is to meet fire with fire. To fight just as hard, just as dirty, just as long, to go beyond the other side's tactics if necessary and win. Just win. Period. If you aren't in power, then you can do nothing, so the ends really do justify the means.

One thing that bothers me about the second argument - the meet fire with fire argument - is when I take it more generally. If the other side in a war tortures, should I do so too? Some tactics must be met forcefully. But I don't think you have to give up your honor in doing so. I want to see Democrats fight harder - to stand up to the charges from Republicans and rebut them forcefully and in no uncertain terms. But I don't want my side to stoop to meet the other side and lose honor in respect in doing so. We can fight harder, we have to fight harder, and one of the reasons I started this blog just after the last presidential election was frustration with seeing false claims, misleading presentations, etc., be made, go unrebutted, and then be adopted by the press and public as though they are true (or at least open to question). Just in the economic arena alone there was so much false information being put out there intentionally and it was really frustrating not to have a way to say get the truth out to people.

I haven't yet settled on a presidential candidate because none of them, at least from what I've seen, has shown the toughness I want to see - the willingness and the ability to stand there toe to toe and just keep battling it out long as needed to win. Centrist positions don't bother me. On some (but not all) issues centrism is the right approach and compromise is needed to get anything done. But centrism in one's position does not have to come along with a milquetoast approach to fighting for your side's policies. And there will be times when compromise is not appropriate, when a more extreme position is needed to protect your party's interests, and nothing short of an all out political brawl will move policy in your favor.

I haven't fully worked all this out - I get uncomfortable taking on the nonsense at the NRO, etc., for example, it's hard for me to call people idiots even when they deserve it and I find it somewhat hard to match the ferocity of the attacks from the other side on a continuing basis. It's not how I want to be. But with the election approaching, and remembering the frustrations from the last time we had a presidential election, I wonder if a tougher, shriller stance is in order. If you are too shrill, people turn off and stop listening - they assume it's nothing but a continual bash fest even if the bashing is well deserved - but less forceful approaches are less effective. So the trick, I guess, is to find that point where you can be as effective as possible at meeting and rebutting the nonsense without crossing the line and turning people away. My own view is that Democrats generally, myself included, could move quite bit toward more forceful positions.

Discouraging Employment Report

The employment report, outsourced to PGL:

December Employment Report: Even Worse that the Lead Paragraph Suggests, by pgl: The BLS opens its report for December 2007 employment with:

The unemployment rate rose to 5.0 percent in December, while nonfarm payroll employment was essentially unchanged (+18,000)

So the payroll survey showed a very low increase in employment but I'm sure the White House will emphasize that reported employment still rose – even if not my much. But how come the unemployment rate rose from 4.7 percent as of November to 5.0 percent? If you were thinking this might be due to a surge in the labor force participation rate – think again. This rate fell from 66.1 percent as of November to only 66 percent as of December 2007. The labor force participation rate was 66.4 percent as of December 2006. The household survey indicated a 436,000 drop in employment – something I bet Lawrence Kudlow is not talking about right now even if had declared this to be a more reliable indicator.

The employment to population ratio therefore declined from 63 percent as of November to only 62.7 percent as of December 2007. It was 63.4 percent as of December 2006. Let's just hope this dismal news gets the Federal Reserve to lower interest rates. Whether that will be enough to avoid a recession, however, remains to be seen.

Update: The WSJ reports comments by Dean Baker:

The rise in unemployment hit blacks and Hispanic workers especially hard, with both groups seeing a rise of 0.6 pp in their unemployment rates to 9.0 percent and 6.3 percent, respectively. There continues to be an unusual age pattern to employment trends. Employment for workers over age 55 rose modestly, while reportedly falling by 436,000 for workers under age 55. While this December decline is probably an anomaly, employment for workers under age 55 has fallen by 625,000 over the last year.

Felix Salmon says:

Payrolls: Still Best Ignored: The day after the Iowa caucus, with the media full of horse-race coverage of presidential politics, is a good [day] to miss the news of the monthly jobs report. ... The non-farm payroll report, which comes out on the first Friday of every month, is increasingly irrelevant, and anything which takes attention away from it is a good thing. ...

While Greg Ip at the WSJ says:

Household Employment Signaling Greater Weakness The Bureau of Labor Statistics' survey of households has for the last year shown far weaker job growth than its larger and more closely followed survey of payrolls, even when the two define jobs the same way.

In December, nonfarm payrolls rose 18,000 while household employment plunged 436,000. But such monthly changes are hard to compare because the two surveys define employment differently. For example, the household survey counts the self-employed, while the payroll survey doesn't. The payroll survey counts someone with two jobs twice, while the household survey counts him once. Moreover, the household sample is far smaller and thus more volatile. By design, its raw data is never revised, which imparts a false sense of reliability.

Still, once those adjustments are made, the picture remains the same. Household employment has risen just 100,000 since December 2006 and when the definition of employment is changed to match that of the payroll survey, the increase is just 375,000, according to the BLS. The increase in nonfarm payrolls was 1,270,000 in the same period. Some of that latter increase will be trimmed during the BLS' annual benchmark revisions to be released next month. ...

Update: Finally, Bloomberg reports:

Edward Lazear, chairman of the White House Council of Economic Advisers, said the Bush administration will consider measures to stoke the economy.

U.S. Economy: Job Growth at Weakest Pace Since 2003: ''We have pushed economic growth policies throughout this administration and we're not going to stop doing that now,'' Lazear said in a Bloomberg Television interview in Washington. ''If there are necessary steps that need to be taken, the president will be considering those over the next few weeks.''

Unfortunately, it's stabilization policy, not growth policy, that's needed to combat a recession, and Lazear ought to know the difference. The two are not necessarily the same.

The administration has pulled this trick before - using stabilization arguments to justify permanent reductions in tax rates - here's Paul Krugman:

The Tax-Cut Con: ...During the 2000 campaign and the initial selling of the 2001 tax cut, the Bush team insisted that the federal government was running an excessive budget surplus, which should be returned to taxpayers. By the summer of 2001, as it became clear that the projected budget surpluses would not materialize, the administration shifted to touting the tax cuts as a form of demand-side economic stimulus: by putting more money in consumers' pockets, the tax cuts would stimulate spending and help pull the economy out of recession. By 2003, the rationale had changed again: the administration argued that reducing taxes on dividend income, the core of its plan, would improve incentives and hence long-run growth -- that is, it had turned to a supply-side argument.

These shifting rationales had one thing in common: none of them were credible. It was obvious to independent observers even in 2001 that the budget projections used to justify that year's tax cut exaggerated future revenues and understated future costs. It was similarly obvious that the 2001 tax cut was poorly designed as a demand stimulus. And we have already seen that the supply-side rationale for the 2003 tax cut was tested and found wanting by the Congressional Budget Office.

So what were the Bush tax cuts really about? The best answer seems to be that they were about securing a key part of the Republican base. Wealthy campaign contributors have a lot to gain from lower taxes, and since they aren't very likely to depend on Medicare, Social Security or Medicaid, they won't suffer if the beast gets starved. Equally important was the support of the party's intelligentsia, nurtured by policy centers like Heritage and professionally committed to the tax-cut crusade. The original Bush tax-cut proposal was devised in late 1999 not to win votes in the national election but to fend off a primary challenge from the supply-sider Steve Forbes, the presumptive favorite of that part of the base.

This brings us to the next question: how have these cuts been sold?

At this point, one must be blunt: the selling of the tax cuts has depended heavily on chicanery. The administration has used accounting trickery to hide the true budget impact of its proposals, and it has used misleading presentations...

I am not opposed to stabilization policy (though I'd prefer variations in spending over the business cycle to variations in the tax rate to stabilization the economy), but I am opposed to misleading presentations about the policy.

Paul Krugman: Dealing With the Dragon

Paul Krugman says we're having the wrong discussion about foreign policy:

Dealing With the Dragon, by Paul Krugman, Commentary, NY Times: ...Almost all the foreign policy talk in this presidential campaign has been motivated, one way or another, by 9/11 and the war in Iraq. Yet it's a very good bet that the biggest foreign policy issues for the next president will involve the Far East rather than the Middle East. In particular, the crucial questions are likely to involve the consequences of China's economic growth.

Turn to any of several major concerns now facing America, and in each case it's startling how large a role China plays.

Start with the soaring price of oil. Unlike the oil crises that followed the Yom Kippur War and the overthrow of the shah of Iran, this crisis wasn't caused by events in the Middle East that disrupted world oil supply. Instead, it had its roots in Asia.

It's true that the global supply of oil has been growing sluggishly... But the reason oil supply hasn't been able to keep up with demand is surging oil consumption in newly industrializing economies — above all, in China. ... China has been responsible for about a third of the growth in world oil consumption. As a result, oil at $100 a barrel is, in large part, a made-in-China phenomenon.

Speaking of made in China, that brings us to a second issue. There's growing concern in this country about the effects of globalization on wages, largely because imports ... from low-wage countries have surged, doubling as a share of G.D.P. since 1993. And more than half of that rise reflects ... industrial imports from China...

Last, but most important, is the issue of climate change, which will eventually be recognized as the most crucial problem facing America and the world — maybe not today, and maybe not tomorrow, but soon, and for the rest of our lives.

China is already, by some estimates, the world's largest emitter of greenhouse gases. And as with oil demand, China plays a disproportionate role in emissions growth. In fact, between 2000 and 2005 China accounted for more than half the increase in the world's emissions of carbon dioxide.

What this means is that any attempt to mitigate global warming will be woefully inadequate unless it includes China. ...

So what does all this tell us about the presidential race?

On the Republican side, foreign policy talk is all bluster and braggadocio. To listen to the G.O.P. candidates, you'd think it was still February 2003, when the national discourse was dominated by people who thought that American military might was sufficient to shock and awe the rest of the world into doing our bidding.

Memo: China has 50 times the population of Iraq.

The Democrats in general make far more sense. But among at least some of Barack Obama's supporters there seems to be a belief that if their candidate is elected, the world's problems will melt away in the face of his multicultural charisma.

Memo: It won't work on the Chinese.

The truth is that China is too big to be bullied, and the Chinese are too cynical to be charmed. But while they are our competitors in important respects, they're not our enemies, and they can be dealt with.

A lot of Americans, when they think about the next president's foreign-policy qualifications, seem to be looking for a hero — someone who will stand tall against terrorists, or transform the world with his optimism.

But what they should be looking for is something more prosaic — a good negotiator, someone who can bargain effectively with some very tough customers and get the deals we need on energy, currency policy and carbon credits.

"Five Myths about How Americans Vote"

Bryan Caplan reiterates some of the arguments from his book about the rationality of voting behavior:

5 Myths About How Americans Vote, by Bryan Caplan, Commentary, Washington Post: We're barely into the primary season, but millions of Americans are already sick of hearing about the 2008 race. Bad as the torrent of news is, I find the repetition of myths about voters and voting even more galling. Whether you're arguing with friends or watching the news, you hear many claims about how American democracy works that just aren't true.

1. People vote their self-interest. In fact, there is only the tiniest correlation between income and party. The country is not divided into two camps: the poor, who vote Democratic, and the rich, who vote Republican. If you consider your own experiences, this is hardly surprising: Are your rich friends really Republicans and your poor friends Democrats?

Self-interest is also a bad predictor of views about specific issues. Yes, the elderly heavily support Social Security and Medicare, but so does almost everyone else. ... And so on. Pollsters have found a few exceptions where self-interest really matters, such as smoking restrictions... But overall, where voters stand has little to do with where they sit. [...continue...]

Update: Robert Waldmann says Bryan Caplan's rticle is interesting, but he "overstates his case in two ways."

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