Wednesday, May 21, 2008

Berkeley Holds on to Obama Economic Advisors

As I've noted earlier, Berkeley husband-and-wife economist team David and Christina Romer are both advisors to the Obama campaign. This article explains how Harvard offered a job to David but not Christina, after the Harvard President vetoed the economics department's decision to offer Christina a job. This seems really bizarre, because I think if anything Christina is a more prominent economist than David (although this is just my subjective take.)

Monday, May 19, 2008

Is McCain Eligible to Be President? Part II

Short answer: it's not clear, but no one other than another candidate would have standing to bring a legal challenge to McCain's candidacy.

This article at Politifact gives the full scoop, with a far better discussion than the completely incorrect discussion from that I discussed in an earlier post. (This confirms my earlier conclusion that Politifact is well-researched, while is unreliable.)

Politifact points out that none of the other Republican candidates are going to sue to challenge McCain's eligibility, and Obama won't either. But there are lots of other minor party candidates who could also potentially sue him. Let's imagine McCain wins in November. Wouldn't, say, former Rep. Bob Barr, who will probably be the Libertarian Party candidate, have standing to sue? I've never understood how standing is determined, but it seems that Barr would have a case that he'd have a decent chance if McCain weren't in the race. Wouldn't that be enough to give him standing?

Here's an interesting tidbit: McCain's Canal Zone birth only makes him a citizen because of special legislation giving citizenship to those born in the Canal Zone with two American parents. For the rest of us born "in the United States," we are Constitutionally guaranteed citizenship by the 14th Amendment. (My father, born abroad to an American mother and a non-American father, is a citizen because of other legislation.)

Just to be clear: I think McCain should be eligible. This is mostly just idle chit-chat, paired with the hope that sloppy language in the Constitution doesn't cause us any problems.

Obama's VP Pick

It will probably be someone no one's thinking of right now, but it doesn't hurt to speculate. Although I love the idea of Gore taking up residence in the Naval Observatory again, I don't think he would want the job. Jim Webb looks very good on paper: former Republican, war hero and fierce Iraq war critic, Reagan Navy Secretary, excellent orator. People say he's bit of a hothead, though, which could make him unpredictable on the campaign trail.

Sunday, May 18, 2008

McCain the Funny Guy

In his Saturday Night Live appearance, McCain gave a mock speech in which he said, "A future free from debt: as your president, I will guarantee it." I guess that was the joke.

McCain's two other jokes were 1) I'm old, and 2) If I am elected I'll slash earmark spending, and the quality of public services like highways and water systems will plummet.

Ha-ha. Pretty funny.

Gene Sperling and Obama

This NY Times article about Obama's books notes that Gene Sperling, Clinton's economic advisor, was among a small group invited to review drafts of Obama's Audacity of Hope in the summer of 2006. This suggests to me that Gene is close enough to Obama that once Hillary folds, he'll probably be connected to Obama's campaign and have some role in his administration, which is a good thing. Gene is a master at translating good economic policy ideas into language that people can understand--a skill very few possess.

Friday, May 16, 2008

Obama and Keynesianism

In my periodic Googlings for "Obama economics" I've come across this odd post "Obama's Excremental Economics." You might think the title would give it away as a hysterical screed, but it seems to have picked up attention on conservative blogs, and the language doesn't sound completely insane, so I thought it would be worth pointing out what's wrong with it. Here are the main parts of the text:

As prolongation of the 1930s Depression and stagflation in the 1970s demonstrated, Senator Obama’s announced policies are a prescription for economic disaster. Keynesian economic doctrine, not under that name, but in substance, is back in the news in a truly menacing way. Senator Obama proposes to repeat the policies of Franklin Roosevelt’s New Deal that turned an ordinary two-year recession into an eight-year disaster, with unemployment rates continuously in the high teens.

The key elements of Senator Obama’s proposed economic policies, as in the New Deal and the stagflation of the 1970s, are much higher taxes, along with a pervasive increase of business regulations and price controls in healthcare and energy (which sharply depress business activity and employment rates), full-frontal embrace of labor unions (which will push up wages and benefits to levels deterring profitable expansion of industrial production), and massive new government deficit spending (which will accelerate the already dangerously high rate of inflation and devaluation of the dollar). Carried out as he proposes, Senator Obama’s polices will lead us again into the swamp of stagflation.
So, to sum up the key points: 1) Keynesianism is a bunch of bad stuff. 2) Keynesianism (or the New Deal) caused the Great Depression. 3) Keynesianism caused the stagflation of the 1970s. 4) Obama is proposing to reintroduce Keynesianism/bad stuff.

1) Keynesianism is a bunch of bad stuff. So what is Keynesiasm anyway? Boiled down to its essence, Keynesiansim is an economic theory that says that the government can help get the economy out of a slump. For a more complete explanation, Wikipedia isn't bad. Of the points mentioned in the post--higher taxes, business regulation, price controls, labor unions, deficit spending--none are really "Keynesian," except for deficit spending, and that only in time of an economic downturn. In boom times, the Keynesian view is that the government should run a surplus.

2) Keynesianism (or the New Deal) prolonged the Great Depression.This is a fringe view, and I'd never even heard of the idea until I read this post. Here is part of a discussion in which Brad Delong defends his statement that "A normal person would not argue that the New Deal prolonged the Great Depression."

3) Keynesianism caused the stagflation of the 1970s. I believe the mainstream view of the stagflation of the 1970s is that it was caused by a combination of the oil price shock and the subsequent unsuccessful effort of central banks to avoid an economic downturn by priming the money supply (a Keynesian response.) But this was really a damned-either-way situation. If the central banks had reined in the money supply, we would have had a bigger recession, albeit without inflation.

4) Obama is proposing to reintroduce Keynesianism/bad stuff. Obama can't be reintroducing Keynesianism, since it's been the guiding force for macroeconomic policy almost as long as John McCain has been alive. In recent months, when the Fed lowered interest rates and Bush signed a fiscal stimulus package, we saw Keynesianism in action. There are differences of opinion as to which Keynesian levers to use, and how hard to pull, but no one seriously argues that when it comes to the recession the government should just sit back and wait for it to end. (OK, OK, there are a few academics, but even the Republicans have had enough sense to keep them far away from actual macroeconomic policy.)

How about higher taxes, increased business regulations, price controls, more support for labor unions, and deficit spending? Yes, Obama is proposing higher taxes on the wealthiest Americans, but wants to lower taxes for the middle class. Yes, he does want to modernize financial regulation, as do both McCain and Bush. Yes, in the energy sector, he wants to introduce cap-and-trade, but so does McCain. Yes, Obama is proposing a greater role for the government in health care. McCain, in contrast, wants to kill the current health care system. Yes, Obama does support labor unions, and, yes, greater union power just might push up wages and benefits a bit, but most people take that as a good thing.

On deficit spending, if that's your issue, you should definitely vote for Obama. As we've noted before, McCain's program would result in massive new deficits which would dwarf what Obama is proposing. Consider this:
Mr. McCain’s plan would appear to result in the biggest jump in the deficit, independent analyses based on Congressional Budget Office figures suggest. A calculation done by the nonpartisan Tax Policy Center in Washington found that his tax and budget plans, if enacted as proposed, would add at least $5.7 trillion to the national debt over the next decade.

Fiscal monitors say it is harder to compute the effect of the Democratic candidates’ measures because they are more intricate. They estimate that ... the impact of either on the deficit would be less than one-third that of the McCain plan.
Although the "excremental" essay is mostly crap, in some sense it gets Obama's vision right. He does hope to build on the successes of the New Deal--things like Social Security, Medicare, unemployment insurance, and federal deposit insurance--that have made our lives better. Fortunately, despite years of Republican propaganda (like the above essay) which has tried to make government out to be the enemy, most Americans understand that the New Deal was a good thing, and few will be scared by the prospect of "menacing" Keynesianism.

Thursday, May 15, 2008

Totally Warped Historical Reference Department

Seeking to one-up Bush, McCain cites Ronnie Raygun:

“I believe that it’s not an accident that our hostages came home from Iran when President Reagan was president of the United States. He didn’t sit down in a negotiation with the religious extremists in Iran, he made it very clear that those hostages were coming home."
The hostages were released six minutes after Reagan was inaugurated.

Pretty awesome, huh, that just his mere being President, for less time than it takes me to eat my Cheerios in the morning, scared the Iranians into freeing the hostages? They must have known right away that he wasn't the kind of guy who would, say, sell them weapons in exchange for getting Hezbollah to release some hostages.

And those allegations that Reagan negotiated in 1980 to delay the release of the hostages until after the election? Just rumors, unless you want to believe what the guy who was president of Iran at the time says.

That McCain Fantasy Speech

Here's an excerpt from John McCain's fantasyland speech earlier today (the one that donpedro discusses below):

By January 2013, America has welcomed home most of the servicemen and women who have sacrificed terribly so that America might be secure in her freedom. The Iraq War has been won. Iraq is a functioning democracy, although still suffering from the lingering effects of decades of tyranny and centuries of sectarian tension. Violence still occurs, but it is spasmodic and much reduced. Civil war has been prevented; militias disbanded; the Iraqi Security Force is professional and competent; al Qaeda in Iraq has been defeated; and the Government of Iraq is capable of imposing its authority in every province of Iraq and defending the integrity of its borders. The United States maintains a military presence there, but a much smaller one, and it does not play a direct combat role.

It's hard for me to read this without doing the following imagine-if exercise.

Imagine if John McCain had been asked on March 16, 2003, what Iraq would look like in May 2008, more than five years after the start of the war for which he so eagerly pushed.

My guess is that, five years ago, if you had taken the number "2013" in the graf above and replaced it with "2008", McCain's only real problem with it would have been the view that five years was too pessimistic.

(Oh, and he wouldn't have known what "al Qaeda in Iraq" was, since it didn't exist then.)

McCain's Magic Carpet Ride to 2013

I like to dream yes, yes, right between my sound machine
On a cloud of sound I drift in the night
Any place it goes is right
Goes far, flies near, to the stars away from here

Well, you don't know what we can find
Why don't you come with me little girl
On a magic carpet ride
You don't know what we can see
Why don't you tell your dreams to me

McCain today gave his dream world speech, framed as what he "would hope to have achieved" by 2013. The vision is so absurdly rosy that a reporter told him to his face that it sounded like a "magic carpet ride."

The coverage I've seen thus far has focused on his preposterously sunny vision for Iraq, with American troops coming from an Iraq War that has been "won." But his imagined economic scenario is equally deluded and at points directly at odds with his own program.

For example, in McCain's Magic Carpet Ride 2013, "More small businesses offer their employees health plans." As I explained in an earlier post, however, the entire point of McCain's health proposals is to kill the existing system of employer-provided health care by making employees pay taxes on their health benefits. So McCain's fantasy is not just improbable--it's exactly contrary to what his proposal is designed to achieve.

McCain also fails to mention that the Tax Policy Center's analysis, reviewed by Jonah in a previous post, shows that enacting McCain's tax proposal would slash government revenues by $578 billion in 2013. How huge a figure is this? It's more than the entire domestic discretionary budget of $571 billion projected by the Congressional Budget Office for 2013!

Where would all that money to pay for our Magic Carpet Ride come from? Either from a radical downsizing of Medicare, Social Security, and the military (not, unsurprisingly, part of McCain's fantasy), or an explosion in government debt. If a President McCain tries to take on us on that Magic Carpet Ride, we better enjoy the trip, because our grandkids will be paying for it.

Tuesday, May 13, 2008


Another ivory tower egghead economist who just doesn't care 'bout regular folk. This time its Steve Levitt:

I believe consumers systematically exaggerate the importance of gas prices to their budgets. The typical American just doesn’t spend that much money on gas.


(Actually the column's really about Chrysler's $2.99 gas promotion --which Levitt finds me skeptical having formerly owned a Chrysler).

Behavioral Economics and Obama

Here's a great short interview in the WSJ with Richard Thaler, which lends some real insight into how behavioral economics is behind some of the thinking of the Obama campaign. I pointed out in an earlier post that Thaler's ideas are very compatible with Obama economics advisor Austan Goolsbee's approach. It turns out this is no coincidence. Highlights:

University of Chicago Graduate School of Business economist Richard Thaler has spent his career arguing that people are less-than-rational when they make economic decisions. As a leading figure in behaviorist economics, he’s long argued that policymakers need to guide people where they’re prone to fail.

In his new book, “Nudge,” written with University of Chicago Law School professor Cass Sunstein, he looks at how policymakers might go about doing that. He and Mr. Sunstein make an argument for policies that guide people toward making optimal decisions while not depriving them of their ability to make a choice....

WSJ: You and Cass Sunstein have both advised Barack Obama, and your friend and colleague Austan Goolsbee is Sen. Obama’s chief economic advisor. Do you see ways in which the Obama platform employs nudges?

Thaler: There are several ways in which the Obama campaign employs nudges. For example, the idea of automatic enrollment is used in several domains such as his health-care plan, and of course, his reluctance to have a mandate is in line with our philosophical approach. More generally, Obama has embraced the idea of improving the interface between citizens and the government by employing better choice architecture. Obama refers to these ideas as creating an “Ipod government,” meaning that interacting with the government would be as easy to use as the Ipod. One example is Goolsbee’s idea to offer people with no outside income or itemized deductions a prepared tax return they can simply sign and return. This would save tax payers lots of time and money.

Also, the campaign has adopted some of our ideas on improving the Medicare Prescription Drug program. The designers of that program missed the essential point that simply offering people lots of choices (there are 50 more plans per state to choose from) does not make people better off if they are unable to do a good job of picking among the plans. It would be easy to offer participants suggestions that would save both the beneficiaries and the government lots of money. Finally, the campaign has adopted some of our ideas on making the terms of credit card and mortgages easier to understand and more transparent.

The Cost of McCain's 100-Years Policy

I've previously blogged on McCain's tax plan and also on his economist supporters' factually challenged claims concerning spending.

In this post, I want to address the economic cost of McCain's suggestion that it would be "fine with me" if U.S. forces stayed in Iraq for 100 years (shortcut for those who don't read the whole post: $10-25 billion a year, which is a LOT). The DNC's ad on this issue has caused quite a fuss concerning whether the ad quotes McCain out of context (that's not the point of this post, and I'm not going to address it here). The key basis of McCain partisans' complaint with the ad is that hthe ad doesn't show him qualifying the fine-with-him part with the phrase "[A]s long as Americans are not being injured or harmed or wounded or killed".

For the purposes of this post, let's aside (1) the question of what McCain's policy will be if Americans are "being injured or harmed or wounded or killed", and (2) how long it will take to get to the pleasant, i.e., harmless-to-Americans part of the 100-year policy.

Instead, let's focus on what a very long-term U.S. presence in Iraq would cost. It turns out that, last fall, Sen. Kent Conrad (D-ND) asked the Congressional Budget Office to estimate this cost. According to the CBO response, the annual costs of a Korea-style presence would be between $10 billion and $25 billion, depending on the extent of combat operations in which U.S. forces would take part (there'd be an addional $4-8 billion in one-time start-up costs, but let's comp McCain that for the sake of discussion).

Lots of shouting has gone on concerning what McCain's 100-years comment actually means, given his reticence on what to do if Americans do keep getting shot at. But there has been virtually no discussion of the dollar costs of the Korea-style presence that McCain has said is fine with him. Here are just a few facts that can serve as a basis of comparison to the $10-25 billion in annual spending for such a fine-with-McCain presence:

  • The McCain campaign's most recent claim (made by McCain chief economic adviser Doug Holtz-Eakin) is that McCain would manage to cut between $16-18 billion annually via his vaunted, constitutionally valid line-item veto-powered attack on earmarks. So, the attack on earmarks lies right in the middle of the annual cost estimates for a 100-year presence.

  • Annual federal spending on the state-federal child health insurance program, S-CHIP, is currently in the $5 billion range; President Bush vetoed legislation to raise it to roughly $12 billion annually over the next 5 years (I think that's nominal dollars, but I haven't found a good source with exact numbers) on the grounds that that was too much money to spend. McCain called the Bush veto the "Right call by the president" and said that the S-CHIP expansion was an "unfunded liability". The $7 billion annual difference (in nominal dollars) is less than the CBO's low-end estimate of the 100-years plan that McCain has said is fine with him but, to my knowledge, not discussed how he would fund.

  • According to Table 2 of this GAO document, estimated 2008 federal Highway Trust Fund receipts, which come partly from the gas tax McCain wants to cut this summer and are used to maintain U.S. highways, will total around $36 billion. So, the CBO estimates work out to roughly one-third to two-thirds of the annual revenues currently received by the HTF.

  • Table 5 of this staff report by the Joint Committee on Taxation provides the total cost in nominal dollars of eliminating the Alternative Minimum Tax for each year between 2008 and 2017. If we assume a 3% rate of inflation over this period, the average annual cost, measured in real 2008 dollars, works out to $77 billion. This is a lot more than either number the CBO provided, but the combat version of the CBO estimate, $25 billion, does amount to 1/3 of arguably the largest fiscal challenge that basically everyone thinks Congress will choose to address.
For more on the CBO estimate and the 100-years policy that's fine with McCain, see this post by Travis Sharp of the Center for Arms Control and Non-Proliferation.

Sunday, May 11, 2008

Obama Hits McCain on His Praise for the Bush Economic Record

Here is the relevant part of the speech as written in his prepared remarks:

John McCain has served his country with honor, and I respect that service. But it was dead wrong when he said recently that he thinks our economy has made “great progress” under George Bush. Is there anyone outside of Washington D.C, who could truly believe that? Do you? Senator McCain is running for President to double down on George Bush’s failed policies. I am running to change them, and that will be the fundamental difference in this election when I am the Democratic nominee for President.
To provide some quantitative backup for Obama's claim, here's a chart I whipped up with the BLS website showing the average hourly wages (production and non-supervisory workers, constant dollar) over the Clinton and Bush II terms:

As you can see, 1996-2001 was a great time for wage growth. In contrast, average wages today are just barely above where they were at the end of 2001. What "great progress" in the economy is McCain talking about? (We'll look at other indicators in future posts.)

McCain's Economist Supporters vs. Facts

Over at MarginalRevolution, Tyler Cowen has posted the text of an email he received recently. It seems a number of prominent, right-leaning economists have endorsed John McCain's stated economic proposals. The list includes many of the usuals (e.g., Becker, Hassett, McCain chief economic adviser Doug Holtz-Eakin, Taylor, Harvey Rosen, Meltzer, etc.); the list is chock full of prominent economists who have earned their academic reputations. Here's the text that Cowen excerpted in his main post (the rest of the letter is posted in his comments section):

We enthusiastically support John McCain's economic plan. It is a comprehensive, pro-growth, reform agenda. The reform focuses on the real economic problems Americans face today and will face in the future. And it builds on the core economic principles that have made America great.

His plan would control government spending by vetoing every bill with earmarks, implementing a constitutionally valid line-item veto, pausing non-military discretionary government spending programs for one year to stop their explosive growth and place accountability on federal government agencies.

I've previously discussed the enormous increase in deficits that would be caused by McCain's tax proposals, as scored by Len Burman and Greg Leiserson of the Tax Policy Center. So let me focus on the second paragraph above, which is uniformly contradicted by both facts and experience:

  1. His plan would control government spending by vetoing every bill with earmarks, Well, this one has already been repudiated by....John McCain's chief economic adviser, Doug Holtz-Eakin. I've already posted on this issue:
    • McCain has already had to change his "definition" of those nasty earmarks he'll eliminate (somehow, without a line-item veto). According to this story by the Politico's Ben Smith, Holtz-Eakin initially claimed that there were $100 billion in earmarks in the current budget, the idea presumably being that eliminating all of these earmarks would give McCain $100 billion to work with in paying for his tax cuts. After a former senior Democratic staffer, Scott Lilly, pointed out that many of these earmarks included stuff McCain supports, like money for Israel, Egypt and U.S. military construction, Holtz-Eakin stated that in fact the real amount of money associated with earmarks McCain would not fund (again, magically preventing them without a line-item veto) was only $16-18 billion.
  2. implementing a constitutionally valid line-item veto... Clearly, this one is there to allow them to respond to criticisms, like the parenthetical reference in my earlier post, based on the fact that under current law, the President has no capacity to pick and choose which items to fund. President McCain will have to sign or veto actual statutes, not their components. Back in the first Clinton Administration, Congress enacted and President Clinton signed the Line Item Veto Act (LIVA) to change all this. Lawsuits ensued, and after some standing-oriented skirmishing, the case made its way up to the Supreme Court. In Clinton v. City of New York, the Court struck down LIVA as a violation of the Constitution's Presentment clause. For all you "judicial activism" buffs, the vote was 6-3, with Justice O'Connor in the minority but Chief Justice Rehnquist in the majority. So, even if you assume that both Justice Alito and Chief Justice Roberts would side with President McCain and his economists, the vote would still be 5-4 in the event of a redo. I am not a constitutional lawyer, but given my understanding of the Court's language in Justice Stevens's opinion for the Court, I find it very difficult to imagine that McCain and his lawyers (much less his economists) will be capable of "implementing a constitutionally valid line-item veto".

  3. pausing non-military discretionary government spending programs for one year to stop their explosive growth... Gee, I hardly know where to begin on this one. First off, a one-year pause would do nothing to stop "explosive growth". It would reduce the level of spending, to be sure, but then that "explosive growth" would go right on happening. This is a mathematical principle of which each of the economist-letter's signatories no doubt is aware.

    That said, this post over at CBPP is worth a look [Update: I see that Mark Thoma posted much of the CBPP post, which I should have noted was written by Richard Kogan, back in March]. It shows the following:

    1. Domestic discretionary spending fell from 18.4% of all non-interest federal spending in 2001 to (an estimated) 14.7% in 2008. By comparison, defense and security spending (in which the CBPP includes DHS and Veterans' spending) rose from 21.7% to 29.2%.
    2. The real, i.e., inflation-adjusted, growth rate of domestic discretionary spending over this period was 1.3%. That's hardly an "explosive growth" path; by comparison, defense/security increased 9.1%, while SS/Medicare/Medicaid increased 3.8%.
    3. As a share of GDP, domestic discretionary spending actually fell, from 3.1% to 2.8%. That means that this category of spending has been becoming less, not more, burdensome. Defense/security rose from 3.6% to 5.6% of GDP over this period, while SS/M/M rose from 7.7% to 8.4%.

    I am frankly baffled as to what my colleagues on the right are talking about when they discuss "explosive growth" in "nonmilitary discretionary government spending". The real money on the spending side is in the military and entitlement categories. Some of the increase in entitlements is demographically driven. But over the seven years of the Bush Administration, Republicans, with some substantial Democratic help, have voted for ginormous increases in military spending: the Iraq war needs no introduction. In terms of projected future spending, as opposed to spending that has already occurred, the biggest policy-based expansion of which I am aware was the Medicare Part D drug plan, which McCain did vote against (indeed, even tried to filibuster) and to which he has proposed some cuts via income-testing.

    It is inconceivable that McCain will cut military spending substantially, given his simultaneous refusal to consider leaving Iraq until we have "won" and his willingness to stay for 100 years after the advent of said "victory". Moreover, even after we "win" or leave Iraq, one legacy of the wars in Iraq and Afghanistan will be substantial future expenditures to care for wounded and disabled Veterans.

    Perhaps McCain does intend to broadly slash future entitlement spending; the economists' letter refers to "plans to address entitlement programs--especially Social Security, Medicare and other government health care programs". But apart from the Part D income-testing he has proposed, neither McCain nor these economists have said how or how much he will "address" entitlement programs. No one covering this race should grant a pass either to McCain or to his economist fans concerning this issue. There are real challenges facing Social Security, Medicare and Medicaid, but too many Americans depend on these programs to allow the sort of glib avoidance that the press granted George W. Bush on these issues in 2000.

  4. That leaves "place accountability on federal government agencies." Frankly, I have no idea what this means, or how it would save any money at all, much less the hundreds of billions of dollars needed to make up for McCain's extension of the Bush tax cuts.
Politics is tough arena for economists. Few of us, myself included, have ever seen a candidate whose policies all comport with our professional judgments, much less our personal preferences. I certainly won't claim that I agree with absolutely every economic policy proposal that Obama has made, and I dislike gratuitous accusations of either incompetence or dishonesty.

But it is difficult for me to believe that people who promote John McCain's economic policies on the basis of the second paragraph of the letter above can simultaneously be aware of the facts and providing honest assessments. Perhaps I am wrong. I hope so.

Thursday, May 8, 2008

Obama and Ethanol

I liked very much Obama's response when asked about food prices and ethanol last Sunday on Meet the Press:

MR. RUSSERT: Ethanol, very important to your state, very important to, to Iowa. Here's the reports on that. 'Across the country, ethanol plants are swallowing more and more of the nation's corn crop. This year, about a quarter of U.S. corn will go to feeding ethanol plants instead of poultry or livestock. That has helped farmers ... but it's boosted demand--and prices--for corn at the same time global grain demand is growing. ...

'Legislation providing for ethanol subsidies is being criticized for making food more expensive while gasoline prices continue to climb. Rick Perry,' the governor of Texas, 'has asked the EPA to waive half of the `misguided' ethanol requirements because of rising food costs.'

Would you be willing to change ethanol subsidies or suspend some of these requirements so that people are not using corn for ethanol, but using corn for food and lowering food prices.

SEN. OBAMA: Well, look, we, we've got a serious food problem around the world. We, we've got rising food prices here in the United States. In other countries we're seeing riots because of, because of the lack of food supplies. So this is something that we're going to have to deal with. There are a number of factors that go into this. Changes in climate are contributing. The, the fact that in a lot of countries, you know, we've had problems getting food supplies to poor countries because the wealthier countries have reduced their stockpiles in, in serious ways. And so there're a whole host of reasons why we're seeing problems with food supply. There's no doubt that biofuels may be contributing to it. And what I've said is, my top priority is making sure that people are able to get enough to eat. And if it turns out that we've got to make changes in our ethanol policy to help people get something to eat, then that's got to be the step we take.

Rising food prices in the U.S. and around the world are driven by a number of factors--increased demand in India and China, a worldwide bad harvest, the surge in the cost of fertilizer and transport due to the jump in oil prices, and the demand for biofuels. While ethanol is not the sole culprit, it's the one factor we can control with policy, by reducing the massive U.S. subsidies to ethanol. It's nice to see Obama recognizing this, particularly because he's implicitly acknowledging that he made a mistake in voting for the 2005 energy bill which put much of the subsidies in place.

The big question now: will Obama vote for this year's farm bill, which has more of the same?

Wednesday, May 7, 2008

Stephen Colbert on the Gas Tax

It's Going All the Way to the Convention

As I wrote back on March 2, I think Clinton will take the battle all the way to the convention. Until the status of the Florida and Michigan delegations is decided and the superdelegates actually vote--and neither event will happen until the convention--she still holds out some miniscule chance of pulling off the nomination. Since she attaches near infinite value to being president and zero value to harming Obama's chances at winning the presidency, she'll stay in until the bitter end. She may even view reducing Obama's odds as a plus, since (she may believe) it sets her up for a run in 2012. Please prove me wrong, Hillary!

Tuesday, May 6, 2008

All 3 Candidates Would Increase Energy Taxes

Forget the gas tax--Howard Gleckman at the Tax Policy Center points out that Obama, Clinton, and McCain have all endorsed cap-and-trade, which translates into massive increases in energy taxes. It's never been clear to me whether cap-and-trade would only be used for industrial emissions or would somehow apply to vehicle fuel as well (gasoline, diesel, and jet fuel). I've read papers that say that cap-and-trade would be essentially equivalent to a carbon tax, but that's not the case if a carbon tax would cover fuel but cap-and-trade would not. It would be a strange policy to use cap-and-trade to tax industrial emissions but leave fuel taxes right where they are.

More on point of the current debate: I think the gas tax flareup speaks to the moral leadership (or lack thereof) of the candidates and what we could expect to see from them in office. If McCain and Clinton are arguing for a gimmicky gas tax cut now, how can we possibly believe that they're going to stick to their promises on cap-and-trade later on, once people realize that it means they'll have to pay more for some things?

Monday, May 5, 2008

Nigerian Scammers Got Nothing on These Two



Dear Sir

First we must solicit your confidence in this issue. This is by virtue as being utterly confidential and "top secret".

We are SENATOR HILLARY CLINTON, the wife of the former United States head of state, PRESIDENT BILL CLINTON, and also SENATOR JOHN MCCAIN, friend and associate of current head of state PRESIDENT GEORGE W BUSH. We got your contact through business inquiries as we were searching for contacts of a citizen who can help save our and our family's political careers since our country has been frustrating us.

We are top officials of the United States Senate Government who are interested in importation of oil into our country with funds that are presently trapped in the FEDERAL TRANSPORTATION TRUST FUND dedicated to improving transportation. We wish to send this money to overseas accounts in the MIDDLE EAST but cannot due to restrictions in Congress Transportation Equity Act requiring that this money must be spent to build roads, bridges and high speed trains.

If you accept we will deliver to your a sum of 30 DOLLARS in the summer 2008 in form of a "GAS TAX HOLIDAY". You will then deliver this money to accounts of our friends in Middle East by taking it to your nearby gasoline station where they have information to forward the money. Please supply your bank account, social security number, address and your vote in DEMOCRATIC PRIMARIES AND NOVEMBER GENERAL ELECTION.

But bear in mind that this transaction requires absolute confidentiality. Do not visit WWW.GASTAXSCAM.COM where there is information about dangers of our proposal and a petition to stop us from this diversion of funds.


Awaiting your rapid response

Yours truly


Sunday, May 4, 2008

Call Her Crazy

Update: My hero (see, Krugman, you're wrong on that one, too!) Kara Glennon writes in to the comment section to let me know I had the wrong spelling of her name (it's fixed now), and also to reemphasize her point.

No, I'm not talking about Hillary Rodham Clinton, who has been demagoguing the gas-tax issue for what seems an eternity now. I'm actually talking about a woman, identified by ABC as an Obama supporter named (phonetically) Kara GlennanGlennon, who took the mike at today's "town-hall meeting" in Indiana and told Sen. Clinton that

"I do feel pandered to when you talk about suspending the gas tax," the woman said, adding: "Call me crazy but I actually listen to economists because I think they know what they've studied."
Kudos to this woman for not falling for Sen. Clinton's bash-the-experts-when-they-do-their-job hooey. The woman made her comment after this exchange between Sen. Clinton and former Clinton staffer, subsequent Clinton traitor, and current ABC staffer George Stephanopoulos:


Can you name one economist, a credible economist who supports the suspension?

CLINTON: Well, you know, George, I think we've been for the last seven years seeing a tremendous amount of government power and elite opinion basically behind policies that haven't worked well for the middle class and hard-working Americans. From the moment I started this campaign, I've said that I am absolutely determined that we're going to reverse the trends that have been going on in our government and in our political system, because what I have seen is that the rich have gotten richer. A vast majority -- I think something like 90 percent -- of the wealth gains over the last seven years have gone to the top 10 percent of wage earners in America.

STEPHANOPOULOS: But can you name an economist who thinks this makes sense?

CLINTON: Well, I'll tell you what, I'm not going to put my lot in with economists
There's a lot about the Clinton Administration that I found frustrating. For the most part, though, and certainly by comparison to the dishonesty of the Bush years, I thought one of the things the Clinton folks did right was largely let professional economists do their job. The kind of stuff that has severely damaged the credibility of both the U.S. government and of economists willing to work for it under Republican presidents was largely avoided during the Clinton years. Not that there wasn't some dishonesty, some that bothered me a lot, but for the most part President Clinton let his economic staff tell the truth.

After all that, it's very disheartening to see Sen. Clinton now going with the don't-trust-experts BS that Republicans have used for so many years to fool people with their supposed anti-elitism.

Shame on Sen. Clinton, and good for that woman, Ms. GlennanGlennon.

Friday, May 2, 2008

Economists Against the Gas Tax Holiday

Posted at the Politico, a list of 150 economists against the gas tax holiday:

PDF statement

In recent weeks, there have been proposals in Congress and by some presidential candidates to suspend the gas tax for the summer. As economists who study issues of energy policy, taxation, public finance, and budgeting, we write to indicate our opposition to this policy. Put simply, suspending the federal tax on gasoline this summer is a bad idea and we oppose it.

There are several reasons for this opposition. First, research shows that waiving the gas tax would generate major profits for oil companies rather than significantly lowering prices for consumers. Second, it would encourage people to keep buying costly imported oil and do nothing to encourage conservation. Third, a tax holiday would provide very little relief to families feeling squeezed. Fourth, the gas tax suspension would threaten to increase the already record deficit in the coming year and reduce the amount of money going into the highway trust fund that maintains our infrastructure.

Signers of this letter are Democrats, Republicans and Independents. This is not a partisan issue. It is a matter of good public policy.

I skipped the signatures that followed. Among academics, besides the big names like Heckman, Stiglitz, Kahnemann, Stiglitz and Schmalansee and public finance experts like Alan Auerbach and Jeff Liebman, there are some younger applied micro economists on the list whose work I admire like:

Michael Greenstone, MIT
Seema Jayachandran, Stanford
Adriana Lleras-Muney, Princeton
Jesse Rothstein, Princeton

Also, its notable that Becky Blank who used to be on Bill Clinton's CEA is also on the list!

Is McCain a Lafferite?

A few weeks ago, I attended a talk at the Tax Policy Center with McCain's economic advisor, Doug Holtz-Eakin. (See here for an earlier post on the talk.) The audio of the complete talk is on this page.

During the Q&A, one questioner asked "Does Senator McCain believe that tax cuts pay for themselves?" Holtz-Eakin responded "No."

I followed up by asking how he could reconcile this answer with the fact that McCain has on multiple occasions said that he subscribes to the Laffer hypothesis that cutting taxes increases revenues. For example, he told the National Review:

Tax cuts, starting with Kennedy, as we all know, increase revenues. So what’s the argument for increasing taxes? If you get the opposite effect out of tax cuts?
The essence of Holtz-Eakin's response was that if you talk as much as McCain does, "you will occasionally cut corners and say things that are too blunt. That's all that's going on." You can listen to the audio clip here:

There you have it. When McCain says something that is untrue, he's just being "too blunt."

This is the economy policy version of McCain's repeated assertions that Iran is training al-Qaeda. The problem is not just that these claims are demonstrably false--it's that they are false and crucially important to policy. These very falsehoods could be used to justify government-bankrupting tax cuts and a war with Iran, which is exactly what we're likely to get if McCain is elected.

(I didn't have a chance to ask Holtz-Eakin why it is, if he thinks Laffer is full of it, that Laffer is a special adviser to McCain, as Jeff Frankels pointed out.)

Gas Tax Math

From Sam Stein in the Huffington Post:

"We believe the presidency requires leadership," said [Clinton advisor] Wolfson. "There are times that a president will take a position that a broad support of quote-unquote experts agree with. And there are times they will take a position that quote-unquote experts do not agree with."
"The long and the short of it is that people are hurting today, and when you say that it doesn't save much money, our calculation is that for the average driver [the gas tax holiday] would save 70 dollars," said chief [Clinton] strategist Geoff Garin.
If she's decided not to listen to "experts," where did she get the $70 figure? From something she whipped up on the back of napkin at a Burger King in Indianapolis? If so, she should check her math.

Obama has been saying that the gas tax holiday would save the average driver no more than $30 at the very most.

"Expert" Eric Toder at the Tax Policy Center does the algebra and shows that Obama's right on:
If a gas tax holiday drives the price down by the full amount of the tax (18.4 cents), the average driver would save about $28 ($27.67) between June 1 and September 1. But we think the price would fall by only a small fraction of the 18.4 cents tax – so instead of $28, the average driver might save $5 to $10.
See Eric's post for the full calculations.

A Question for McCain on His Health Care Plan

As I explained in this earlier post, the basic objective of the McCain health care plan is to kill the current employer-sponsored health care system. It would do that by forcing workers to pay taxes on employer-sponsored health insurance, with the intent of making such plans unattractive to workers, and thereby ultimately dissuading employers from providing such plans. But if he were elected, McCain wouldn't have to wait for this chain of incentives to kick in--he himself would head up the largest provider of employer-sponsored care in the country: the federal government. Would he end health insurance coverage for federal workers? Maybe some enterprising reporter should ask him.

Follow-up questions:
If the answer is "no," how do you justify the huge tax increase on those workers? ($2400 for a married couple filing jointly with income $63K-128K, as per calculations in the earlier post.)

If the answer is "yes," how are federal workers with pre-existing conditions going to be able to find care?