Brad DeLong says it might be correct that the only way for Democrats "to tie the Republicans' hands and keep them from launching another wealth-polarizing offensive is to widen the deficit enough that even they are scared of it." If so, then there's a line that Democrats cannot cross:
The Democrats' line in the Sand, by J. Bradford DeLong, Project Syndicate: ...[I]f an economy as a whole is under-saving and under-investing, the government ought to help to correct this problem by running surpluses, not make it worse by running deficits that drain the pool of private savings available to fund investment. This is why most economists are deficit hawks.
Of course, governments need to run deficits in depressions in order to stimulate demand and stem rising unemployment. Moreover, a lot of emergency government spending on current items is really best seen as national savings and investment. ...
But the rule is that governments should run surpluses and not deficits, so various American presidents' economic advisers have been advocates of aiming for budget surpluses except in times of slack demand and threatening depression. This was certainly true of Eisenhower's, Nixon's, and Ford's economic advisors, and of George H.W. Bush's and Bill Clinton's economic advisers.
It was true of Reagan's economic advisers as well. Some of Reagan's advisers sincerely did not believe that the tax cuts of the early 1980's would generate the large deficits that they did (Beryl Sprinkel and Lawrence Kudlow come to mind). Others, like Martin Feldstein and Murray Weidenbaum, understood the consequences of the Reagan tax cuts and were bitter bureaucratic opponents, even if they did not speak out publicly.
In fact, since WWII, only George W. Bush's economic advisers have broken with this consensus. A few have done so because they are making careers as party-line Republicans, so their priority is to tell Republican politicians what they want to hear (Josh Bolton and Mitch Daniels come to mind here). As for the rest, their reasons for supporting the Bush administration's savings-draining policies remain mysterious. It is not as though they were angling for lifetime White House cafeteria privileges, or that having said "yes" to George W. Bush will open any doors for them in the future.
But their failings do pose a dilemma for Democratic deficit-hawk economists trying to determine ... economic policies ... should Barack Obama become president. Those of us who served in the Clinton administration and worked hard to ... turn deficits into surpluses are keenly aware that, after eight years of the George W. Bush administration, things look worse than when we started back in 1993. All of our work was undone by our successors in their quest to win the class war by making America's income distribution more unequal.
A chain is only as strong as its weakest link, and it seems pointless to work to strengthen the Democratic links of the chain of fiscal advice when the Republican links are not just weak but absent. Political advisers to future Democratic administrations may argue that the only way to tie the Republicans' hands and keep them from launching another wealth-polarizing offensive is to widen the deficit enough that even they are scared of it.
They might be right. The surplus-creating fiscal policies established by Robert Rubin and company in the Clinton administration would have been very good for America had the Clinton administration been followed by a normal successor. But what is the right fiscal policy for a future Democratic administration to follow when there is no guarantee that any Republican successors will ever be "normal" again? That's a hard question, and I don't know the answer.
There is, however, one fiscal principle that must be respected. Fiscal deficits so large that they put the debt-to-GDP ratio on an explosive upward trend do not merely act as a drag on long-term economic growth; they also create the possibility that at any moment the economy might face an immediate macroeconomic and financial disaster. A more hawkish fiscal stance may no longer be possible in future Democratic administrations, and might not be good policy if it were, given the likely complexion of successor administrations. Stabilizing the debt-to-GDP ratio is thus the line in the sand that must not be crossed.
Speaking of the George W. Bush administration ... quest to win the class war by making America's income distribution more unequal," Justin Fox finds out what happens if you say the inequality in the U.S. has been increasing. I've been down this road:
The strange fantasy world of the income-inequality denialists, by Justin Fox: One of the more interesting developments in the U.S. economy over the past few decades has been the dramatic rise in incomes at the very top of the scale. There's all sorts of anecdotal evidence for this... But the most exhaustive empirical evidence for this income explosion at the top has come from the work of economists Thomas Piketty and Emanuel Saez...
Certain elements among the right-wing economic chattering classes ... have honed an interesting response to this rise in income inequality: They deny that it exists. My economic policy cover story of a while back, which cited Piketty and Saez, seems to be drawing these denialists out of the woodwork. Gary North is one, and now David Gitlitz joins in at National Review Online:
On income inequality, Fox accepts as fact the findings of economists Thomas Piketty and Emanuel Saez that "75% of all income gains from 2002 to '06 went to the top 1% — households making more than $382,600 a year." But as Piketty and Saez have acknowledged, these results are significantly skewed by the fact that their data only includes income reported on individual tax returns.
Following cuts in individual tax rates in 1986 (under Ronald Reagan) and 2003 (under George W. Bush), many of the businesses that had been reporting income under the corporate tax switched to the lower individual rate. In 1986, business income accounted for only 11 percent of the income reported by the top 1 percent of earners. By 2005 that share jumped to more than 29 percent. Clearly, much of the reported gain of the top 1 percent is accounted for in this bookkeeping shift.
Uh, no it's not. That purported problem, raised by Alan Reynolds, was swatted down pretty convincingly by Piketty and Saez:
Most of the scenarios described by Alan Reynolds, such as a shift from corporate income to individual income or from qualified stock-options to non-qualified stock options, would imply that high incomes used to receive capital gains instead of ordinary income. For example, a closely held C-corporation which does not distribute its profits increases in value and those accumulated profits would appear as realized capital gains on the owner individual tax return when the business is sold. Yet, our top 1% income share series including realized capital gains has also doubled from 10.0% in 1980 to 19.8% in 2004.
A fair description of the current state of knowledge on the income distribution is that members of the economics establishment (from right-wingers to left) more or less unanimously accept the Piketty and Saez data as a more or less accurate representation of reality. There are big debates about what it all means, and why it's happening, but the only major objections that I know of to the Piketty-Saez data itself have been those raised on the op-ed page of the Wall Street Journal by Reynolds, a senior fellow at the libertarian Cato Institute who doesn't appear to have an advanced degree in economics or in anything else.
It's a case where the scientific consensus says one thing, and this one guy says the opposite. I don't have an advanced degree in anything either, and I like to think that on occasion the scientific consensus will turn out to be wrong and the lone outsider right. But I'm pretty sure this isn't one of those cases.
Why not? First, there's all that anecdotal evidence of vast new fortunes being created.
Second, Piketty and Saez have pretty convincing answers to all of Reynolds' objections to their data.
Third, Piketty and Saez come across as data jockeys with no particular axe to grind, while Reynolds is an overt ideologue.
Finally, when Reynolds strays into an area that I actually know something about--the use of stock options in compensation--he is so clearly blowing smoke that it becomes difficult for me to trust anything else he says....
So here's where all that leaves me. I'm going to keep "accept[ing] as fact the findings of economists Thomas Piketty and Emanuel Saez." And anyone who says I shouldn't do so, without raising some major objections beyond the feeble array already trotted out by Reynolds, goes down in my book as something of a joker.
If Obama wins, how much change will he bring about?:
The Obama Agenda, by Paul Krugman, Commentary, NY Times: It's feeling a lot like 1992 right now. It's also feeling a lot like 1980. But which parallel is closer? Is Barack Obama going to be a Ronald Reagan of the left, a president who fundamentally changes the country's direction? Or will he be just another Bill Clinton? ...
Reagan, for better or worse — I'd say for worse... — brought a lot of change. He ran as an unabashed conservative, with a clear ideological agenda. And he had enormous success in getting that agenda implemented. ... America at the end of the Reagan years was not the same country it was when he took office.
Bill Clinton also ran as a candidate of change, but it was much less clear what kind of change he was offering. He portrayed himself as someone who transcended the traditional liberal-conservative divide, proposing "a government that offers more empowerment and less entitlement." The economic plan he announced during the campaign was something of a hodgepodge: higher taxes on the rich, lower taxes for the middle class, public investment in things like high-speed rail, health care reform without specifics.
We all know what happened next. The Clinton administration achieved a number of significant successes... But the big picture is summed up by the title of a new book by the historian Sean Wilentz: "The Age of Reagan: A history, 1974-2008."
So whom does Mr. Obama resemble more? At this point, he's definitely looking Clintonesque.
Like Mr. Clinton, Mr. Obama portrays himself as transcending traditional divides. ... Mr. Obama's economic plan also looks remarkably like the Clinton 1992 plan...
Sometimes the Clinton-Obama echoes are almost scary. During his speech accepting the nomination, Mr. Clinton led the audience in a chant of "We can do it!" Remind you of anything?
Just to be clear, we could — and still might — do a lot worse than a rerun of the Clinton years. But Mr. Obama's most fervent supporters expect much more.
Progressive activists, in particular, overwhelmingly supported Mr. Obama during the Democratic primary even though his policy positions, particularly on health care, were often to the right of his rivals'. In effect, they convinced themselves that he was a transformational figure behind a centrist facade.
They may have had it backward.
Mr. Obama looks even more centrist now than he did before wrapping up the nomination. Most notably, he has outraged many progressives by supporting a wiretapping bill that, among other things, grants immunity to telecom companies for any illegal acts ... undertaken at the Bush administration's behest.
The candidate's defenders argue that he's just being pragmatic — that he needs to do whatever it takes to win, and win big, so that he has the power to effect major change. But critics argue that by engaging in the same "triangulation and poll-driven politics" he denounced during the primary, Mr. Obama actually hurts his election prospects, because voters prefer candidates who take firm stands.
In any case, what about after the election? The Reagan-Clinton comparison suggests that a candidate who runs on a clear agenda is more likely to achieve fundamental change than a candidate who runs on the promise of change but isn't too clear about what that change would involve.
Of course, there's always the possibility that Mr. Obama really is a centrist...
One thing is clear: for Democrats, winning this election should be the easy part. Everything is going their way: sky-high gas prices, a weak economy and a deeply unpopular president. The real question is whether they will take advantage of this once-in-a-generation chance to change the country's direction. And that's mainly up to Mr. Obama.
This diagram shows the "average economic and social ideology of adults within each state ... scaled so that negative numbers are liberal and positive are conservative...""
...In the graph below, each state is shown twice: the avg social and economic ideologies of Democrats in the state are shown in blue, the avgs for Republicans in red.
...the big thing we see from the graph immediately above is that Democrats are much more liberal than Republicans on the economic dimension: Democrats in the most conservative states are still much more liberal than Republicans in even the most liberal states. On social issues there is more overlap (although in any given state, the average Republican is more conservative than the average Democrat). ...
The graph is from Andrew Gelman and David Park. More graphs here.
Justin Wolfers and Cass Sunstein say members of the Supreme Court "misread the evidence" on the deterrent effect of the death penalty:
A Death Penalty Puzzle The Murky Evidence for and Against Deterrence, by Cass R. Sunstein and Justin Wolfers, Commentary, Washington Post: ...Last month, capital punishment resumed after a seven-month moratorium. Rapid scheduling of executions followed the Supreme Court's ruling in Baze v. Rees, reaffirming the constitutionality of the death penalty in general and lethal injection in particular.
To support their competing conclusions on the legal issue, different members of the court invoked work by each of us on the deterrent effects of the death penalty. Unfortunately, they misread the evidence.
Justice John Paul Stevens cited recent research by Wolfers (with co-author John Donohue) to justify the claim that "there remains no reliable statistical evidence that capital punishment in fact deters potential offenders." Justice Antonin Scalia cited a suggestion by Sunstein (with co-author Adrian Vermeule) that "a significant body of recent evidence" shows "that capital punishment may well have a deterrent effect, possibly a quite powerful one."
What does the evidence actually say? ...
In short, the best reading of the accumulated data is that they do not establish a deterrent effect of the death penalty.
Why is the Supreme Court debating deterrence? A prominent line of reasoning, endorsed by several justices, holds that if capital punishment fails to deter crime, it serves no useful purpose and hence is cruel and unusual, violating the Eighth Amendment. This reasoning tracks public debate as well. While some favor the death penalty on retributive grounds, many others (including President Bush) argue that the only sound reason for capital punishment is to deter murder. ...
But what if the evidence is inconclusive? We are not sure how to answer that question. But as executions resume, the debates over the death penalty should not be distorted by a misunderstanding of what the evidence actually shows.
Don Pedro has a question:
Why is McCain Going to Colombia?, Economists for Obama: I just learned that McCain is going to Mexico and Colombia next week. Mexico, OK, but Colombia? Presumably, the idea is for him to highlight his support for the stalled U.S.-Colombia trade agreement. But do his advisers realize that Colombia is embroiled in a political crisis?
Colombia's president, Alvaro Uribe--the torch bearer for the trade agreement--was only able to run for the second term he's now serving because the Colombian legislature amended the constitution to permit re-election. The constitutional amendment passed by just one vote. Last week, the Colombian Supreme Court sentenced a former congresswoman for accepting favors in exchange for her vote. With that ruling, the Court questioned the legitimacy of Uribe's re-election, and asked the separate Constitutional Court to determine the validity of the amendment.
Uribe's response was to call for the 2006 election to be held again and to ask a congressional committee to investigate the Supreme Court. The idea of a new election might be reasonable if the 2006 election results were in question, but it's not. What's at issue is whether Uribe should have been a candidate at all in 2006. Uribe knows that he would easily win a new vote, because his popularity has skyrocketed due to his government's successes in the fight against the FARC guerrilla group.
Uribe's reaction is what you would expect from a populist dictator,--someone like Uribe's nemesis, Venezuelan president Hugo Chavez--and there have been calls for him to resign. In light of his popularity, Uribe will undoubtedly stay, but Colombia's political institutions will be increasingly frayed, and Uribe's image abroad will suffer. In particular, I think there's now little chance the U.S. Congress will approve the trade accord while Uribe is in office, regardless of whether McCain or Obama wins, since Uribe's authoritarian moves have given opponents of the agreement a whole new argument against it.
Which is all to say that McCain's visit is ill-advised. I'm sure he'll be asked repeatedly for his take on the crisis, and there's no right answer to that question. If he says he supports Uribe, he's backing an emerging dictator. And if he criticizes Uribe, he'll have to explain why he still supports signing the trade accord, despite Uribe's anti-democratic behavior. All of this makes me think the McCain people who scheduled this trip aren't the brightest crayons in the box. Recall that these are largely the people who weren't good enough to get jobs in the Bush administration.
Meanwhile, Obama's chief adviser for Latin America, Dan Restrepo (who is Colombian American) recently gave an interview (in Spanish) with Colombia's leading newsweekly. When asked if Obama would accept Uribe's invitation to visit Colombia during the campaign, he replied that Obama has said he's thought about visiting Latin America during the campaign, but that it's not easy. I think it is extremely unlikely that before the election Obama would follow McCain's lead and walk into the political minefield of a visit to Colombia.