Do Obama's Tax and Spending Proposals Add Up?

The short answer is maybe, but we don't know, because the Tax Policy Center hasn't published a full analysis yet.

Here is what Obama said about paying for his spending proposals in Thursday night's speech:

Now, many of these plans will cost money, which is why I've laid out how I'll pay for every dime - by closing corporate loopholes and tax havens that don't help America grow. But I will also go through the federal budget, line by line, eliminating programs that no longer work and making the ones we do need work better and cost less - because we cannot meet twenty-first century challenges with a twentieth century bureaucracy.

Howard Gleckman, a former Business Week reporter, writes of the speech,

... heard all at once, this catalogue is breathtaking: universal health care, higher education for every child, more money for early childhood education, rebuilding the military, $150 billion for alternative energy research, and tax cuts for small business and for "95 percent of all working families."

Last night, he insisted he would pay for it all. But how? All he told us was that he'd end the war in Iraq, close corporate tax loopholes, and eliminate wasteful and obsolete government programs.

This is, of course, impossible.

On the word "impossible," he links to the Tax Policy Center's analysis of McCain and Obama's tax proposals. A naive blog reader might expect that Gleckman means to imply that the TPC analysis backs up his conclusion. But in fact TPC has only looked at the tax side. There has been no similar analysis of the candidates' spending proposals.

I haven't tried to sum up the costs and saving of the various proposals, because it's a complicated task, and no one would trust our accounting to be objective anyway. But just ending the Iraq War sooner rather than later would save a bundle: conservative estimates place the costs of the war at $120 billion a year, and some estimates--which take into account the long-term costs, chiefly care for veterans--are much, much higher.

TPC has estimated the costs of Obama's health care proposal in isolation--at $86 billion a year initially, and then increasing as takeup and premium costs increase. So at least initially, ending the Iraq war would more than "pay for" the health care program.

As Gleckman points out later in his post, Obama is also proposing to auction off carbon permits, which would potentially raise a great deal of revenue, depending on how the auction is set up, whether part of the revenue is returned as a dividend, etc. Throw this in with eliminating some wasteful programs, and it's at least plausible that Obama's proposals could be paid for, relative to the current policy baseline. Certainly, it's not impossible.

At the Tax Policy Center's duel on tax policy between the candidates' advisors last month, Len Burman announced that they would be back for a discussion of the spending side. I assume TPC is working on a spending analysis to serve as the focal point for that discussion. Until we have that kind of analysis to work from, there's no basis for asserting that Obama's claim is without merit.

Jillary Hutchinson

McCain leaped on the choice of Biden by doing a "passed over"ad about Hillary.
I've been racking my brain, trying to come up with an Obama equivalent.

First, apparently the McCain favorite, Joe Lieberman. Why didn't Johnny go for Joe? He's PRO-CHOICE and has the WRONG PLUMBING. Same for Tom Ridge. Hard to see a passed over ad about them that would bring back either women or persuade the evangelicals to stay at home.

What about Huckabee? Got the most votes apart from Johnny. He and Booby Jindal seems the most promising for Obama to focus on in the group that has the WRONG PLUMBING.

Perhaps the better thing would be accept the fact that the plumbing has to be just so. Susan Collins, Olympia Snowe, Kay Bailey Hutchinson anyone?

Or finally, the best thing to do would be to have all of them, list their qualifications and ask if McCain has the right stuff. Do we want another President who has a

"history of making fast, instinctive and sometimes risky decisions. “I make them as quickly as I can, quicker than the other fellow, if I can,” Mr. McCain wrote, with his top adviser Mark Salter, in his 2002 book, “Worth the Fighting For.” “Often my haste is a mistake, but I live with the consequences without complaint.” " ?

Executive Experience: Harvard Law Review vs Wasilla

UPDATED: with some improved numbers
UPDATE 2: According to Josh Marshall, conservative blogs are making a big deal out of Palin's experience as Mayor of Wasilla, so this may be of more relevance than I thought.

When Barack Obama was President of the Harvard Law Review he likely had at least as much executive experience as Sarah Palin did as Mayor of Wasilla by at least one measure.

I count a staff of 90 individuals who currently are managed by the President of the Harvard Law Review. (I verified from a former HLR alum that the Prez actually does have managerial responsibiliy over the Board of editors).

Contrast that with City of Wasilla which from this website, I can verify have: a Mayor, Deputy Mayor, 6 City Council members, City Clerk and deputy, two members on the Finance staff, 6 members of the sports utility facility, 5 members in the Public Works Dept and likely several dozen other staff in other departments that are not specifically listed on the website. So while I don't have a hard number --maybe a reporter can dig deeper on this-- Obama running the HLR alone when he was in law school may have involved greater managerial activity.

[Note: Palin herself upon taking office says being mayor is not "rocket science" and refers to a budget of $6 million and 53 employees ]

Of course, when Obama was a state senator in Illinois, the population of his district which is currently at about 780,000 is more than 100 times larger than the population of Wasilla (about 6700).

"...at the feet of the master"

We learned from McCain's campaign manager Charles Black that apparently Sarah Palin will:

" learn national security at the foot of the master for the next four years, and most doctors think that he'll be around at least that long"

I guess that means that Sarah Palin will learn:

to confuse the sunnis and shiites

that Iraq borders Pakistan

to mispronounce the name of the President of Georgia

that Czechoslovakia still exists

that Vladimir Putin is the President of Germany

that Somalia is the same as Sudan

to "misunderestimate" the number of US troops in Iraq

to not know the timing of the surge relative to the Anbar awakening

that McCain's "cap and trade" policy doesn't have a cap (even though it does)

that iraq (not afghanistan) was the first major war after 9/11

that iran supports al qaeda

to wish the death of foreign leaders (Castro)

to insult an important ally in Afghanistan by (France) by comparing her to an aging actress

to sing song songs about bombing other countries

to joke about killing people in other countries through cigarette exports

Ron Paul's Rally and the Divided GOP

I shouldn't be surprised, but I have seen no reporting of Ron Paul's "Rally for the Republic" -an event that is being held at the same time as the GOP convention in Minneapolis. Interestingly the rally has sold nearly 10,000 tickets. Contrast that with the media's incessant discussion of divisions among Democrats last week and the coverage of the 50 or so "PUMAs" (Party Unity My Ass) who supported Hillary and refused to vote for Obama.

During the primaries it was clear that it was the GOP that was fundamentally divided between the neocons, the religious right and the economic conservatives. While Romney fared the best among the economic conservatives, Ron Paul did extremely well in many of the contests and has a loyal group of followers.

While its true that there was something of a gender split among white democrats in the democratic primaries --really an Appalachian vs non-Appalachian split-- there was no fundamental difference on the issues between Obama and Clinton (I'm discounting Krugman's hair splitting).

Its clear that one piece of the media narrative will always be "democrats in disarray" (e.g. 90% of NYT's Adam Nagourney columns over the last 10 years) and simply will ignore similar strains in the GOP.

The Palin pick might start to expose some of these rifts as she has clearly fired up the religious right but I doubt that the necons are too happy about McCain picking a foreign policy neophyte given his views on "the transcendental issue of our time" (see David Frum).

Obama Needs to Be Ready to Explain Revenue Effects of Capital Gains Tax Cuts

The following is from an email from Richard Serlin:

In a primary debate last April Charles Gibson implied that capital gains tax cuts are essentially costless, or even make money for the government. Quoting Gibson,

"...in each instance, when the rate dropped, revenues from the tax increased; the government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down. So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?"

Obama was not prepared for this question. He just said it depends on the stock market, but the real answer is that the question was deeply misleading because investors decide when to take capital gains, and when the tax rate drops they all rush to take them then, so in the short run capital gains tax revenues may go up, but in the long run, and overall, they will go down. In addition, wealthy executives will tend to have earnings shifted to capital gains, raising capital gains tax revenue, but decreasing income tax revenue by more. I have a brief article on this at: http://works.bepress.com/richard_serlin/16/ .
Berkeley economist Brad DeLong has also written on it at:
http://www.j-bradford-delong.net/oped/acapitalgainstaxcutoped.html .

I hope someone can inform Obama on this, so he and the Democrats don't get hurt on this if it's asked again in a debate with McCain.

Dumb and Dumber?

How dumb is the average voter? McCain is betting two groups - arch-conservative evangelicals and women - are dumb and dumber.

We always knew evangelicals were dumb, voting on the basis of gay marriage, abortion laws, intelligent design in schools etc. etc... while the world goes to hell and the economy down an over-priced, Halliburton-supplied toilet.

But Maverick McCain thinks he's found a dumb community that even Karl Rove has missed - women voting with their vajayjays.

Passing over Olympia Snowe, Susan Collins and Kay Bailey Hutchinson, women either too liberal or too smart to join a likely losing ticket, quick-draw Johnny went for a woman he's met only once (as far as I can work out from the press reports). So, in a profoundly cynical move, the man who claims to put "country first" in fact put national security, the economy and pretty much everything else last and picked Sarah Palin. He thinks she checks off two dumb communities in a way Lieberman, Ridge, Romney and the other has-beens who would actually accept the VP job cannot. Of course, to really check off women, they have to ignore the fact that she's rabidly pro-life, thinks global warming is still a questionable hypothesis and has no knowledge of international affairs.

So, everyone's pointing the blindingly obvious: McCain just undercut his experience argument against Obama. But I want raise an issue even David Frum hinted at: who has the better judgement, the guy who picked Biden or the guy who picked Palin? There is a whole narrative to be built up here. McCain wants to start World War III in the Middle East with his neocon cronies, pre-emptively invading Iran and got knows who else, and now he's picked a small-town mayor to be one death away from being commander-in-chief. To pick up a theme from an earlier post of mine, McCain is nuttier than George Bush! He's not a maverick, he's a cynic. A guy willing to sacrifice all his supposed principles and even the safety of the country to get elected to the Presidency.

I've given up on the evangelicals but not on women. And true Conservatives, like Frum, who think Republicans should be conservative must have serious reservations. So, I hope it's McCain who's dumber and women or a conservative backlash save us from a real cowboy-in-chief.

The Counterfactual

We often hear that it doesn't really make that much difference who is President. Tyler Cowen made this kind of argument with respect to the economy back in February. In response, I wrote a post that argued that because of the closeness of the November 2000 election, it serves as a nice natural experiment that completely repudiates that argument:

So imagine that all else was the same but the butterfly ballot was properly designed, Gore won Florida and became President instead of Bush.

Here's the question, do you seriously believe that we would have pursued the same economic policies, that the value of the our national debt would be the same today as it would have been under Gore? Too me it strains credulity to think so. Gore likely would not have slashed tax rates at the top, entered the war in Iraq and signed a joke of a Prescription drug bill. Would Gore have reacted the same way to the prolonged jobless recovery? Certainly not. One might argue that the housing bubble and the credit crunch likely would have ensued under a Gore administration, maybe so, but Gore would not have had the same people in charge of the key banking and regulatory agencies that took pride in being completely hands off.

In fact, once you start to think about it more broadly the US and the world likely may very well have been on a completely different trajectory. Now this is admittedly much more speculative but 9/11 might not have even happened if there was a continuation of the predator program in Afghanistan or if the Gore Administration reacted the same way to the August 6th memo as Clinton did to the threat of a millenium attack.

It was nice to hear Gore address this himself last week:

Eight years ago, some said there was not much difference between the nominees of the two major parties and it didn’t really matter who became president. Our nation was enjoying peace and prosperity. Some assumed we would continue both, no matter the outcome. But here we all are in 2008, and I doubt anyone would argue now that election didn’t matter.

Take it from me, if it had ended differently, we would not be bogged down in Iraq, we would have pursued bin Laden until we captured him. We would not be facing a self-inflicted economic crisis; we would be fighting for middle- income families. We would not be showing contempt for the Constitution; we’d be protecting the rights of every American regardless of race, religion, disability, gender or sexual orientation. And we would not be denying the climate crisis; we’d be solving it.

McCain Whiffed

As the Big Dog put it:

"...in his first presidential decision, the selection of a running mate, he [Obama] hit it out of the park."

I think the appropriate analogy would be that McCain whiffed!

(also check out Gail Collins' op ed who facetiously notes that McCain's pick was perfect for addressing the "transcendental issue of our time".

Business vs. Political Leaders

Lately I've been pondering the relationship between perceptions and expectations of business and political leaders and how those perceptions and expectations are reflected -- or shaped by -- political polling. I haven't performed an exhaustive study of recent polling and media coverage, but for the sake of debate I'm going to assert some generalizations:

1) When assessing what makes a great business leader, general media often focuses on how such leaders are brilliant, daring, and visionary. There is an inherent assumption of keen intellect, knowledge, and expertise; how would the leader otherwise ascended to their position if lacking fundamental skill? Also assumed and unstated is that great leaders have the respect of their employees, and that such respect is based on the leader's competency, skills, and strategic vision. The leader may also be amiable, but usually that is not the basis for employee's respect.

2) We all are familiar with how political leaders have often been assessed, at least in recent years: media and polling firms lead us to believe that the most important factors to voters are that a President "shares my values", "understands people like me" or the infamous "most fun to have a beer with."

Richard Hofstader and many others have observed this dichotomy: highly intelligent business leaders are hailed, while highly intelligent political leaders are derided as "eggheads". Now we have a candidate who combines a great intellect and knowledge of the world with a compelling vision. So, what will it take for pollsters and the general media to stop asking and discussing such infantile and inane topics? Perhaps I'm the only one, but I want a President who knows things that matter, like the difference between shia and sunni; I could care less whether he would be an agreeable drinking companion.

McCain's VP Choice

I will write some reflections on the convention later, but for the moment I want to say, doesn't Sarah Palin look just like Saturday Night Live's Tina Fey?

Final Night of the Democratic Convention

WELCOME NEW VISITORS!! IF YOU WOULD LIKE TO KNOW WHAT YOUR OBAMA TAX CUT WILL BE, CLICK HERE! (DISCLAIMER: YOU'LL BE TAKEN TO A SITE WE DID NOT CREATE.)

I just made it to the floor of Invesco Field and am standing in a sea
of Texas delegates waving American flags and listening to Bill
Richardson's tremendous speech. The atmosphere is just overwhelming.
No wireless connection here, so I can't write much, but I'll shoot
some video and put it up tomorrow.

If you're a newcomer to our blog, please check out the material below,
and the long list of links to the left, including the Obama Tax Cut
Calculator, that will tell you how your taxes will change under
Obama's proposals.

If you have unanswered questions about Obama's economic policy, please
send them to us at econ4obama@gmail.com

Obama Economic Policy Director Interview from Denver

A nice complement to the Goolsbee interview in the previous post:

Obama Advisor on FOX Business

More from Austan Goolsbee's convention media blitz:

A Fact That Will Make You Scratch Your Head

Just listened to forum with MSNBC host Rachel Maddow and CEO Eric Schmidt, who said that 13 hours of video are uploaded to YouTube every minute.

“Obamanomics” in Six-Minute Sound Bites

I wrote earlier about the great NY Times Magazine article on Obama's economic thinking. Here is Economist Mom's thoughtful take.

The Republican Approach to Problem Solving

From Atrios & Attaturk:

This sure seems like something that should get media attention.

John McCain's solution to those who have no health insurance...

John Goodman, president of the National Center for Policy Analysis, a right-leaning Dallas-based think tank. Mr. Goodman, who helped craft Sen. John McCain's health care policy, said anyone with access to an emergency room effectively has insurance, albeit the government acts as the payer of last resort. (Hospital emergency rooms by law cannot turn away a patient in need of immediate care.)

'So I have a solution. And it will cost not one thin dime,' Mr. Goodman said. 'The next president of the United States should sign an executive order requiring the Census Bureau to cease and desist from describing any American – even illegal aliens – as uninsured. Instead, the bureau should categorize people according to the likely source of payment should they need care.

So, there you have it. Voila! Problem solved.'



And I thought John Goodman was acting in The Big Lebowski.

(note: may be different John Goodman)

Is Anti-Corporate Populism Good Politics?

This is putting aside the entirely different question as to whether it's good economics. I wondered about this listening to Biden's speech, which had stronger strands of this kind of language than you usually hear from Obama.

I don't know the answer, and this was a topic I thought about a lot during the campaign. There's a good argument that it doesn't work. Here's that argument, from part of a 2003 internal Dean campaign memo I found in my files:

People strongly identify with the companies where they work, and they vote their identities. Corporations create a bounty of goods and services. They also create jobs and many people work for corporations. Most people strongly identify with the companies where they work and the values instilled at work. And most people work for corporations. (More than half of Americans work for companies with more than 500 employees.) According to analysis of the General Social Survey,

• 82 percent of employees express loyalty toward their company.
• 78 percent say they share the values of their company.
• 90 percent say they are proud to be working for their company.
• These percentages do not differ by gender, race, or blue collar vs. white collar occupations.

Attacking corporations is too easily interpreted as an attack on workers. In addition, recent work in cognitive science demonstrates that people vote their identities, not necessarily their self-interest. General attacks on "big corporations", "big business", and "multi-national corporations" are therefore unnecessary and politically damaging. What is needed is a strategy to attack unethical business practices and features of the system that allow abuses to continue, including Bush's policies and the un-American values behind them, while calling for reforms and a return to honest business practices.

Austan Goolsbee on Larry Kudlow

See it here. Goolsbee's good. He sets Kudlow straight, and harps on the ramp up in marginal rates that would happen with the "bracket jump" under McCain's health care plan, which we mentioned in an earlier post.

FT Interview with Obama Economic Advisers in Denver

Here. Key excerpts:

"This is going to be a fight over who is going to be best for the average American and who will get the economy growing again in a way that benefits everyone, and not just a wealthy, well-connected few," said Austan Goolsbee, a senior adviser to Mr Obama....

Starting with Mr Obama's acceptance speech at the Denver convention tomorrow night, which advisers say will address the concerns of blue-collar America "head-on", the campaign plans to focus more closely on the economic anxieties of America's middle classes....

"We will call for change and we will say what that change is," Mr Furman said. "Measuring the success of the economy by what it does for ordinary families. Recognition that the way to promote growth is to invest in ordinary families . . . 'How is the economy doing for you?' is ultimately the most important question for us."

"Both candidates are offering tax cuts," said Mr Goolsbee. "It is a question of who gets the tax cuts. The Obama plan gets tax relief to 95 per cent of working Americans."

Interesting Day

I went the first couple days in Denver without meeting many people other than old friends from the Dean campaign, and I was wondering how to get noticed by reporters. Then today, I was interviewed by a slew of journalists, met many fans of Economists of Obama, shook hands with Virginia's Gov. Jim Moran, and saw Obama Girl up close. (I was going to say "in the flesh," but then I remembered that my girlfriend is reading the blog.)

Obama Campaign Manager on Polling

Interesting post from the guy behind Pollster.com, with David Plouffe's thoughts on polls. I agree whole-heartedly with Plouffe on the Gallup tracking polls: the day-to-day changes in those results (reported as a three-day moving average) are so dominated by sampling error as to be meaningless.

Obama to Highlight Tax Cuts For Middle Class in Speech

That's according to this Wall Street Journal article:

Barack Obama said he plans to focus on the struggles of middle-class Americans, including their tax burden, in his Thursday night speech accepting the Democratic nomination for president.

"The single most important thing I have to make clear is the choice we have in November between the same failed policy of the last eight years for the middle class and the new agenda to boost income for Americans and help families who are struggling," he said in a brief interview with The Wall Street Journal Tuesday. "I will make that contrast very clearly."

"In Missouri, and other battleground states, Republican ads say I would raise taxes… but my plan would provide three times more tax relief to the middle class," he said. "I don't think people realize that, and I hope that message will be absorbed by the electorate."

This means that we can expect a huge spike in traffic to Economists for Obama from people Googling for details on the Obama tax program. In preparation for this, I'm trying to figure out the easiest way to convert the Tax Policy Center's tax distribution tables into easy-to-use online calculator.

UPDATE: I discovered that exactly what I was working on has already been done!
Calculate your Obama Tax Cut here: http://www.obamataxcut.com/

Tax Foundation is NOT a Credible Source

As I explained here, it is a right-wing think tank, part of the billionaire-funded Republican propaganda machine. Here's another post describing some of the misinformation they produce.

Greg Mankiw today links to a brief from the Tax Foundation which tries to claim that tax cuts recover up to 40% of their costs through so-called dynamic effects. Although this is still a long, long way from McCain's deluded claim that tax cuts pay for themselves, it is a much bigger effect than Bush's own Treasury Department estimated (less than 10%). This is an effort to argue that McCain's tax proposal wouldn't create deficits quite as massive as the Tax Policy Center's analysis shows.

Where does the TF figure come from? From yet-to-be-published research, which conveniently makes it impossible to fully critique it. It says it is based on a "large sample of tax returns filed by the same taxpayers between 1998 and 2005 and "examined the change in taxpayers' taxable income as reported on their tax forms and the change in their tax rates, after controlling for a variety of non-tax factors." Immediately, one can see the econometric issues, starting with what is the right lag structure and what is the right set of covariates? The whole analysis sounds pretty fishy. If the data is as juicy as it sounds, why didn't the authors just estimate the direct behavioral effects of the 2001 tax changes, treating them as a natural experiment? The fact that they did not makes me suspect that they massaged the analysis to get the results they wanted. Without seeing the paper, I can only speculate.

My big question is, where on Earth did they get such great data? I have never heard of a publicly available panel data on tax returns, although admittedly, this is not my research area. Will this data be released to other researchers so that they can try to replicate the analysis and examine how fragile the results are? (This has become the research standard for major journals.) I am going to hazard a guess that the researchers will say that the data is confidential, so that we'll just have to trust them. But the Tax Foundation doesn't deserve that kind of trust from anyone, Greg Mankiw included.

UPDATE: (I wrote this in comments on Economist's View):
I want to point out that one of the author's took strong issue with the post in comments on our blog and offered to send me the paper (which I hope to get soon.)

So I may revise my opinion of the paper and even retract my criticisms after further reflection!

But I stand by the fundamental point that outfits like the Tax Foundation don't get the benefit of the doubt when publicizing results based on unpublished research.

Upcoming Interview on Denver NBC TV Webcast

The Denver NBC affiliate will interview me and other bloggers via Skype later this morning for their webcast, which you can watch here.

Brief Reflections on Night Two of the Democratic National Convention

Watching TV makes you stupid. This truth has been reaffirmed for me by the convention experience. Pundits yesterday were afire with talk that Hillary's task for her speech last night was impossible, but all she needed to do was celebrate the successes of her own campaign and make it clear she's 100% behind Obama. She did both with grace and passion.

Apart from Hillary, the highlight of the evening was the speech by Montana Gov. Brian Schweitzer, with whom I literally rubbed shoulders on the convention floor. He has a goofy earnestness which is rare to see in national politics, and he got the crowd fired up! I hope to see more of him in the future.

From the Floor of the Democratic National Convention

Tonight I managed to exploit my connections to get a pass which gave me access to the convention floor. Here's a picture of the pass along with my Big Tent credential:



To give you some flavor of the experience, here's a short video I took from the floor, right after Hillary's speech:

Who Will Be the Next Cheney?

See the possibilities at http://nextcheney.com

Obama Going More Populist on Economics?

I just chatted with George Lakoff, whom I got to know very well during the Dean campaign. He said that he thought the language of Michelle Obama's speech last night signaled to him that Obama has decided to go with a populist economic message. I'll have to look at the text of the speech.

The TaxProf pulled the tax policy pieces from Obama and Biden's speeches on Saturday. Biden's speech, in particular, does have a stronger "fight for the people" tilt than we've seen from Obama previously:

Obama: That's what it's going to take to win the fight for good jobs that let people live their dreams, a tax code that rewards work instead of wealth, and health care that is affordable and accessible for every American family.

Biden: We cannot afford to keep giving tax cuts after tax cuts to big corporations and the wealthiest Americans while the middle class America, middle class families are falling behind and their wages are actually shrinking. ... You can’t change America and give our workers a fighting chance when after 3 million manufacturing jobs disappear, you continue to support tax breaks for companies who ship our jobs overseas.

Mailbag: Progressive Taxation and Inequality

Here's a message we received recently:

Hi. I was hoping you could help me to think through this email I got from a friend...

... I would like to focus on the tax issue ... Use $250,000 as a perfect example of "rich". Say you're an average American whose parents can't pay for college and probably don't know the system that well in terms of scholarships. To get into a top tier school expect to pay $100K in tuition and living expenses ...and let's not forget the expenses related to the MBA, law degree or medical degree that are most likely the prerequisites to pay for the right to earn that salary. If you add all that up, the net result is over $1000 a month in student loans and $250K in debt...or NEGATIVE wealth! You are now sitting in the bullseye of the "rich" when in fact you have NEGATIVE wealth.

Should 50% of my salary go to Uncle Sam because I was able to outmaneuver others through the system? Do I not pay for roads, health care, etc in a disproportionate share already through not only my income tax, but real estate taxes as well?

The message raises three issues:

1. Are people making $250,000 "rich"?
2. Is it fair that people who make over $250,000 but have lots of student loan debt have to pay higher rates?
   
3. Why have progressive taxation, and should it be more progressive than it is now?
   

On the first question, if your family makes over $250K, you're bringing in more than 98% of American families. (This is according to 2007 data from the March CPS.) While I don't have the exact figures on the worldwide income distribution handy, roughly this would mean you're income is higher than that of 99.9% of humanity. You're not among the ultra-rich like the McCains, but you're not hurting.

On the second question, it's hard to understand why having negative wealth per se should mean you pay less in taxes. You can be extremely rich--with high income and high consumption levels and still be in major debt. I think Donald Trump was in this category for a while (and may still be). You could think of lots of different ways to conceive of how taxes should be structured, but I don't see an argument for why having low or negative net wealth should mean lower taxation.

The correspondent's friend presumably means to say that because of his debt, his consumption is lower than income of $250K+ would imply. Fair enough, and indeed many economists would say that ideally a progressive tax structure should be based on consumption rather than income. But we're not talking about huge differences here. For people paying $1000 a month in student loans, their consumption is only lower than their income by $25K, not much if they're making over a quarter million.

Now to the fundamental question: why have progressive taxation at all, and should it be more progressive, as Obama is proposing? The first answer is that in order to pay for the things we value as a society, we have to go where the money is. To pay for roads, tanks, universal health care, schools, and everything the government does, we need money, and given the extreme level of inequality--now at levels higher than that seen since the 1930s--it's at the very top where the money is. We don't want the rich to contribute more because we want to punish them but because those resources are needed to pay for what the country values.

But is it fair to raise taxes on the wealthy? Consider what the Obama tax hikes would mean for a very higher earner, relative to where they would have been ten years ago. The NY Times article in the Sunday Magazine made this comparison:

Obama would raise taxes on this top 0.1 percent by an average of $800,000 a year. It’s hard not to look at that figure and be a little stunned. It would represent a huge tax increase on the wealthy families. But it’s also worth putting the number in some context. The bulk of Obama’s tax increases on the wealthy — about $500,000 of that $800,000 — would simply take away Bush’s tax cuts. The remaining $300,000 wouldn’t nearly reverse their pretax income gains in recent years. Since the mid-1990s, their inflation-adjusted pretax income has roughly doubled.

For those who are not ultra-high earners, the gains since the mid-90s have not been as extreme, but the tax increases under Obama would be lower as well.

By Table A6 of Emmanuel Saez's IRS data, the income group that is the top 5% but excluding the top 1% ($148K-$376K in 2006) saw average real wage growth of $35,505 between 1996 and 2006. How much would taxes go up under Obama for this same group? According to the Tax Policy Center's analysis, that would be $5686 in 2012. In other words, even after the tax hikes on the wealthy, people in this group would be far better off than they would have been at the same point in the distribution in 1996--21% better off to be exact. Incomes grew much more slowly for those not in the top ranks: 7% overall for those in the bottom 90% of the distribution.

The larger point is that lifting tax rates at the high end is in part a response to the huge rise in inequality in the United States. (See Emmanuel's very readable summary documenting the rise in inequality)

Why has inequality risen so dramatically, with the gains being overwhelmingly concentrated at the top end? This is a complicated question that I'll save for another post. But it's clear that inequality rose not because education levels at the top increased or because higher earners started to work harder. Inequality rose because something (or many things) changed about the economy. In his new book, The Predator State, Jamie Galbraith argues that the distribution of income doesn't just "happen"--rather we decide the distribution we want as a society and the economy conforms. I'm not sure I'd subscribe to quite such a bold assertion, but it is evident that society--and the government--do a great deal to shape the institutions that determine how much inequality we have. Those institutions are many, and our control over most of them is highly imperfect. Tax policy is our most direct tool, and we shouldn't be shy about using it to have those who prospered most in recent years to contribute more.

Recommended Blogger Coverage of the Convention

There are lots of sketchy bloggers running around here (I include myself in that group.) I recommend the Huffington Post's Off the Bus group blog, run by my old friend Amanda Michel, who was profiled in the NY Times a few weeks back.

Rather on the Media's Failures

I just heard Dan Rather and then John Nichols (writer for the Nation magazine) speak, and Bob Kuttner (editor of the American Prospect) is up next. Rather gave an impassioned speech on the profound failures of the corporate media--familiar material to progressive blogger-types, but still striking coming from the mouth of a former network news anchor. I considered asking "Didn't Chomsky cover all this twenty years ago?" But I decided not to ask him such a harsh question after, towards the end of his talk, he started sobbing while describing the scene the media has rarely shown --that of soldiers coming back from Iraq in caskets.

After the Obama Health Care Reform

On a panel yesterday, Paul Krugman hammered home his main message: it is vital that President Obama make universal health care a priority. People love Medicare and they will love universal health care once it's in place--after just a year, he said.

I agree 100% that for universal health care to have any chance of passing, Obama will have to put his effort at full throttle, starting before Inauguration Day. The forces of opposition--chiefly, the the health care lobbyists--are already sharpening their knives to kill the proposal. Unlike Krugman, I don't think it will be such easy swimming after the program's in place. Once government has taken a heavier role, people will blame Washington for everything about their health care that they don't like, and the Republicans will keep trying to roll it back for years. This will be a long, tough fight, especially with the imperfect and complex managed-care-for-some program that Obama wants to install. Even if he succeeds, most people will continue to see their health care bills rise (although perhaps not by as much), they'll look for someone to blame, and government will be the scapegoat.

Coming Soon on Economists for Obama

When I saw Arianna Huffington speak yesterday, she highlighted the importance of progressives speaking to people who are not already in the choir. She explained that the Huffington Post covers celebrity news in order to attract people outside the liberal political blogosphere to the site, in the hope that some of them stay. She said their tracking shows that 8% of those readers become regular consumers of the site's political news.

Taking inspiration from this model, I've asked Jonah to start providing regular updates on Paris Hilton.

Income Gains Only at the Top During the Bush Years

I found this NY Times article on the IRS's income distribution data, "Average U.S. Income Showed First Rise Over 2000," very confusing--and analyzing income distribution statistics is part of what I do for a living! First of all, it's unclear whether the changes over time mentioned in the article are adjusted for inflation or not. Second, the article doesn't explain that these figures are for households (actually tax filers), not individuals. Third, it's all just a jumble of numbers. A graph, a graph, my kingdom for a graph!

For the charts below, I used the user-friendly version of the IRS data from Emmanuel Saez's webpage (specifically, Table A6, which includes capital gains income in the numbers.)

Here are percentage income changes for the bottom 90% and the top groups. I've labeled the bars with the raw changes (in 2006 dollars):


This graph shows just the raw changes:


So, for the bottom 90%, average household incomes were $1410 lower in 2006 than in 2000, while people at the top--especially at the very top--have seen their incomes continue to climb through the Bush years.

Emmanuel's tables don't show a detailed breakdown for the bottom 90%, but I gather from the numbers in the article that incomes have declined on average for household with incomes of less than $75K (61% of households, according to IRS figures). So, the headline for the article could have been "Income Has Fallen from 2006 Level for Lower 60% of Households"

Click here for my on-the-ground coverage from Denver of the Democratic National Convention.

Should the Democrats Bare Their Fangs?

Although everyone at the convention can't stop talking about how moved they were by the speeches by Michelle Obama and Ted and Caroline Kennedy, I saw from a glimpse on CNN that the buzz from David Gergen and James Carville is that the Democrats have blown an opportunity to rag on McCain.

It seems evident to me that the overwhelming task for the Democrats this week is to let them get to know the Obamas and feel comfortable with the idea of them in the White House. For many Americans--including some in my family--Obama is still an unknown, and they've heard the media regurgitate the Republican lies about him and his wife so many times that even if they don't give the lies much credence they wonder if there's some truth in them. I think Michelle's speech was spot-on in letting people see that the Obamas are Americans just like you and me. Attacks on McCain can wait until later.

My key barometer is my grandmother in St. Louis, who was completely won over by Michelle's speech. My own experience with her speech was a bit odd, since I was sitting behind the stage and could read ahead on the teleprompter during her delivery. I just watched the TV re-run and it seemed even better on TV than live.

First Night at the Democratic Convention

I found out that I'm still connected enough to get credentials and managed to get into the hall for the festivities. Caroline Kennedy was superb (just as I'm writing this she walked by with her kids!) and there was not a dry eye in the place during her uncle Teddy's moving speech. As compared with my previous convention perceptions--the national conventions I've watched on TV and the Texas state Dem convention I attended as a delegate--it all seems much more REAL. Sure it's all choreographed, but it's choreographed reality rather than the empty process and glossy infomercial you expect from these events.

First night at the convention

I found out that I'm still connected enough to get credentials and
managed to get into the hall for the festivities. Caroline Kennedy was
superb (just as I'm writing this she walked by with her kids!) and
there was not a dry eye in the place during her uncle Teddy's moving
speech. As compared with my previous convention perceptions--the
national conventions I've watched on TV and the Texas state Dem
convention I attended as a delegate--it all seems much more REAL. Sure
it's all choreographed, but it's choreographed reality rather than the
empty process and glossy infomercial you expect from these events.

McCain on the Economy

I know I should have insights to offer from being just a few hundred yards from where the convention is taking place, but so far I've spent most of my time drinking Fat Tire Ale and eating pizza provided by the kind sponsors of the Big Tent.

To keep you busy, here's a superb new ad from the Obama campaign. It avoids the usual Democratic campaign ad temptation to say too much and instead just focuses on one simple quote from McCain and the classic Huggie Bear photo:

Big Tent Arrival

Just arrived! There's a lot going on. I was worried I was going to
miss the event with the Krugmanator and Ms. Huffington, but they're
way behind schedule, and instead I'm listening to Ted Sorenson share
war stories from the JFK days. On the walk over I saw a "Rise,
Hillary, Rise!" rally. Seeing as all the participants were middle-aged
white guys wearing McCain t-shirts, I suspect this is just an RNC
stunt.

Paging General Franks

Makes you wonder whether Tommy Franks would re-evaluate his assessment of Doug Feith.

Denver, Here I Come!

Tomorrow, I'm headed to Denver for the Democratic National Convention, where I'll be blogging from the Big Tent, which is described in this article in today's NY Times. The calendar of events is very impressive, and I still know a lot of people in the political world from my days with Howard Dean, so I expect to have much to write about. Here's a list of blogs participating at the Big Tent. I would love to meet readers of this blog--if you want to meet up, please drop me an email at econ4obama@gmail.com.

Also, although I applied for one, I didn't receive a ticket for Obama's Thursday night speech at Invesco Field. If you have an extra one please let me know!

Best Political Joke Ever

I've always liked Joe Biden. Back in 88 I was super bummed when that whole Kinnock thing went down. And yes, he's got a BBBBBIIIIIIIIGGGGGGG mouth, and he's said some bad things. But on many policy issues, especially including con law and foreign policy, he's a serious guy with plenty to offer. I'm sure the mouth, and the sometimes horrible things that come out of it, will make me reconsider this statement more than once before November 4, but overall I think Biden's a solid pick.

Now that I've said that, let me paraphrase/quote the best political joke I ever heard, which came out in the wake of Biden's withdrawal from the 88 campaign. I don't remember who said it (5 points to anyone who finds out). And if you didn't live through the 80s in at least a semi-conscious-of-current-events kind of way, you won't appreciate it. But enough. Here it is:

Have you heard about Joe Biden's new autobiography? Iacocca!

Update: Plus, I forgot to note that my mother in law once went on a date with Joe Biden. How bout them apples?

Toying With People

Someone I know well, who has years of experience in Washington journalism circles, likes to say that the folks covering all this stuff are basically a bunch of high school kids, full of cliques, in-groups, who think that everything going on is about them. It's hard to come up with a better example of this mentality than the following post from Noam Scheiber, cleverly titled "What the Hell Is Taking So Long?":

I have no idea, but I'd guess it points to a bigger name rather than a smaller one. (I think Jonathan Cohn made a version of this point earlier in the week, though I can't remember if he did it online or during one of our many rounds of internal speculation.)

You can let the suspense build and build if you've got a Hillary or a Gore socked away somewhere. Possibly a Biden or a Webb (or some unorthodox pick like a general or a Republican). But you'd better not come with Jack Reed or Evan Bayh after toying with people for over a week. [Emphasis added.]

Toying with people. Sheesh. Maybe Scheiber, who in fairness has done plenty of grown-up writing, would benefit from spending less time at the Chi-Cha (or wherever everyone goes these days) and reading what the late Paul Wellstone once said:

In the last analysis, politics is not predictions and politics is not observations. Politics is what we do. Politics is what we do, politics is what we create, by what we work for, by what we hope for and what we dare to imagine.

McCain's Country Club Economics

One More Nobel Prize Winner for Obama

Robert Solow, winner of the 1987 Nobel Memorial Prize in Economic Sciences, indicates that he is an Obama backer. It's time for yet another update of the complete list of Obama economic advisers and prominent economist supporters.

Surges and Timetables

The man of the people has 7 (or more?) houses. And given all those low-info journalists, that's more important than the fact that Iraq and the US have agreed to a timetable for departure. No doubt Mccain will claim it's only because the surge worked. The truth is probably unknowable but the trade-offs are pretty clear.

There are two key groups we want to influence in this game: insurgents and the Iraqi government. The more we bail the Iraqi government out, the less incentive they have to stand on their own feet. There is a classic free-rider problem. A timetable for departure is good for giving the government the incentive to step up while the surge just keeps bailing them out.

On the other hand, as we increase our presence strongly, the insurgents back off as it's too costly to carry on beng aggressive (see my Chicken entry in McGame Theory post). A timetable may encourage them to hang around.

So McCain is focussed on the insurgents side and Obama on the Iraqi government. Which approach really depends on the underlying strength of the incentives facing the insurgents and Iraqi government. But that's unknowable basically. But I do think the Obama camp can do a btter job explaining that a timetable is a tough strategy too - tough love the Iraqi government. It's not about leaving in defeat but ensuring victory by motivating this important player.

There is apper on this issue here near the bottom of the page.

How Many Servants Does McCain Have?

By my calculations, based on data from the Survey of Consumer Finances, the average number of homes owned per household in the U.S. is 0.8. In contrast, McCain owns so many that he can't remember the exact number. Yglesias argues for seven, but I'll go with eight, as per the Politico's analysis. I've put together the simple graph at right showing the comparison. For lots more on this, here's one of many stories and don't miss the Google Earth tour of the McCain residences.

The Politico says their budget for household help was $273,000 in 2007, which seems paltry to staff eight houses. I'm curious as to how many servants--chefs, maids, butlers, etc.--the McCains have. Maybe an enterprising journalist could ask!

I Own One House*

*Oh, and a one-week timeshare (I like Vegas, ok?).

If there's a better way to underscore how out of touch John McCain is with the basic economic circumstances of most people, I don't know what it is.

Incidentally, this response by McCain spokesman Brian Rogers is a flat lie:

“The reality is that Barack Obama’s plans to raise taxes and opposition to producing more energy here at home as gas prices skyrocket show he’s completely out of touch with the concerns of average Americans.”

As I've detailed extensively below, Obama's tax plan involves a tax cut for the vast majority of households. And the claim that Obama opposes producing more energy in the U.S. is also false, given Obama's commitment to alternative energy technologies. What he is opposed to is McCain's gimmick-plan to allow drilling offshore.....starting in 10 years. Which McCain was against before he was for.

So many lies, so little time.....

Another Prominent Economist for Obama

Dan McFadden, 2000 Nobel Prize Winner in Economics (and a very nice guy) says:

“I’m an Obama supporter, because I view him as a centrist,” in line with former president Bill Clinton. “Despite his personal failings, Clinton ran a pretty good government and a policy of fiscal restraint.”

I will update the complete list of Obama economic advisers and prominent economist supporters.

Actually ,McCain Was Out of Touch

UPDATED BELOW

The New York Times in its typical "pox on both houses" fashion criticizes Obama's new ad depicting McCain as out of touch on the economy. One argument they make is that the ad used old quotes from months ago (January and April of 2008) and that it was only since then that weakness in the economy became evident.





They also claim that the ad doesn't show McCain's more nuanced take on the economy and that he was taken out of context (in a political ad...shocking!). I'll take on the first point for now. For observers of the economy --who were paying attention-- the weakness in the economy has been evident since last Fall. Recall, that the Fed started cutting interest rates in August 2007 and that we now know that the GDP fell in the 4th quarter of 2007 --before McCain's quotes in January and April of this year.

Anyway here are some charts (click on them to make them bigger) showing the timing of McCain's quotes relative to four economic indicators: change in private employment, real average hourly earnings growth, real consumption growth and initial claims for unemployment insurance. I think these charts speak for themselves.





UPDATE: In the comments Jonah makes the great point that the calls for a fiscal stimulus package preceded McCain's quotes and really destroys the NYT's argument that the economy soured later. For example, see this account from OMB Watch written on 1/23/08:

Amid slumping capital markets and real estate values, a jump in unemployment, and a growing chorus of economists forecasting a recession in the U.S., a consensus has rapidly developed in Washington during the first few weeks of the year that a fiscal stimulus package is in order. The watchword in Washington has been "bipartisanship," and President Bush and the congressional Democratic leadership have already made concessions. Some questions remain regarding the optimal structure and size of the package, but indications point to its enactment in a matter of weeks.

Discussion of a fiscal response to the economic slowdown began in earnest when former Treasury Secretary Lawrence Summers wrote in a Financial Times op-ed in November 2007, "Three months ago it was reasonable to expect that the sub-prime credit crisis would be a financially significant event but not one that would threaten the overall pattern of economic growth. This is still a possible outcome but no longer the preponderant probability … the odds now favor a US recession."

Summers' pessimism — or prescience — was confirmed on Jan. 4 when December 2007 employment figures showed a jump in the jobless rate from 4.7 to 5 percent and net private sector job losses. On Jan. 6, Summers wrote a follow-up op-ed, "Why America must have a fiscal stimulus": "Six weeks ago my judgment in this newspaper that recession was likely seemed extreme; it is now conventional opinion and many fear that there will be a serious recession ….

Obama's Big Picture on the Economy

David Leonhardt has a long NY Times Magazine piece on Obamanomics, which we'll be mining for material over the next few days. Favorite bits:

James Heckman, a Nobel laureate who critiqued the campaign’s education plan at Goolsbee’s request, said, “I’ve never worked with a campaign that was more interested in what the research shows.”
....
Dating back to Reagan, Republicans have packaged tax cuts on high earners with more modest middle-class tax cuts and then maneuvered the Democrats into an unwinnable choice: are you for tax cuts or against them? Obama, however, argues that this is the moment when the politics of taxes can be changed.

To do this, he is proposing tax cuts for most families that are significantly larger than those McCain is offering, along with major tax increases for families making more than $250,000 a year. “That’s essentially a major part of our economic plan,” Obama said. “But it’s also a political message.” Economically, he is trying to use the tax code to spread the bounty from the market-based American economy to a far wider group of families. Politically, he is trying to drive a wedge through the great Reagan tax gambit.

Can McCain Have His Cake and Jail Them, Too?

Why aren't pro-choice folks publicizing John McCain's anti-choice record?

And why aren't they -- and reporters -- demanding to know more about John McCain's position on jailing abortion providers and women who get abortions?

Sure, you can reduce abortion access by threatening to jail only doctors who perform abortions and not the women who receive them, as McCain suggested would be likely back on January 31, 2000.

[Why such a policy would be remotely sensible is beyond me: if abortion is a crime, even murder, then surely the woman getting one is at least as culpable as the doctor performing it. But, just to choose one example, what about a woman who by herself uses, say, a coathanger? Such a woman is acting as her own doctor (if an unqualified and dangerous one), so should she go to jail? If not, why not? More generally, how can abortion be a criminal act without any criminal liability attaching to its central conspirator? Is there any law today anywhere in the U.S that criminalizes an act for only some participants in that act? Is it even constitutional to do so? (Statutory/constitutional enlightenment welcome on this issue, honestly.)]

I ask these questions because any economist will tell you that people break laws when they perceive the benefits to outweigh the costs. But as our country knows from years of painful experience before Roe and the 1970 state laws liberalizing abortion rights, simply declaring abortion illegal will not by itself eliminate abortions.

So it's entirely reasonable for people -- advocates on all sides, not to mention reporters -- to ask McCain whether and for how long he supports jailing abortion doctors and women getting abortions. And if he doesn't support jailing the women who get abortions, why not? And, what assurances would there be that states wouldn't jail these women? And, isn't it the case that a state ban that jails only doctors would eliminate abortion rights only for women, since others could travel to other states and even other countries (hey, we still have an embargo against Cuba)? Would McCain support a federal law banning such travel (both Shapiro v. Thompson and Saenz v. Roe would seem to imply that no state could constitutionally ban such travely by a non-minor)? If not, why not? If abortion is murder, or otherwise criminal, why wouldn't McCain support such laws? Surely he is opposed to legalizing travel in furtherance of criminal activity.

All of this is especially relevant at the moment because there's been a lot of talk this week about John McCain's supposed flirtation with choosing a pro-choice running mate (most notably, Tom Ridge or -- please please please let it happen -- Joe Lieberman). I think the best interpretation of this talk is that (a) McCain is going to pick an anti-abortion rights running mate, and (b) McCain is hoping to benefit from further obfuscation of his actual position on abortion rights.

On point (a), I'll be very surprised if McCain risks alienating the large share of the Republican base that's composed of religious rightwingers. Of course, I'm not one of them, so I may be full of it on this part.

On point (b), McCain has benefited hugely from the overall misperception of him as a maverick. It's true that he's bucked his party now and again. But on policy issues, my sense is that the maverick thing was always over-sold, being largely the result of a few high-profile issues, on most or all of which he has now pulled a Shawn Johnson-quality reverse (and even some double-reverses).

But the abortion rights issue is an especially good example of the obscuring of McCain's actual position by his supposed maverickness. To my knowledge, the only evidence of any moderation on the position is this quote from August 24, 1999:

I’d love to see a point where Roe vs. Wade is irrelevant, and could be repealed because abortion is no longer necessary. But certainly in the short term, or even the long term, I would not support repeal of Roe vs. Wade, which would then force women in America to [undergo] illegal and dangerous operations.

But McCain's people walked that back immediately, and McCain has since advocated overturning Roe. In this campaign, he's been quite clear on the matter, and to my knowledge (corrections welcome) his voting record since has been largely hostile to abortion rights.

For more, see this post from Reproductive Rights Prof Blog (I found this with a google search; no doubt there are more recent such discussions, but this is one example).

The "Fix the Economy" TV Ad

To my eye, the top ad below is too oblique. The point that McCain is out of touch is a valid one to be sure, but you have to watch closely to understand that that's the ad's message. The bottom ad below seems more effective.

McCain's "Radical" Tax Proposals

The Tax Policy Center’s TaxVox argues that instead of getting confused about baselines, we should look at what revenue each candidate's tax plan will generate, compared to the CBO's projected expenditures of 19.7 percent of GDP.

Good idea. But instead of what McCain adviser Doug Holtz-Eakin says that he wants his boss to advocate, let’s use the proposals that McCain himself has articulated again and again in his stump speech. According to the Tax Policy Center’s own analysis,

By 2018, tax revenues would be 16.3 percent of GDP, a level not seen since the early 1950s, before enactment of Medicaid, Medicare, or the national highway system. It seems clear that the promises Senator McCain makes (or implies) in his speeches could not be sustained without a radical and unprecedented downsizing of government.

McGame Theory

Warning: Article contains some low-brow game theory

McCain's has one and only one claim to the Presidency: he claims he is a foreign policy expert who's going to be a safe pair of hands to guide the country through the dangerous times that lie ahead.

But as Jonah's post below points out, he really has a totally simplistic view of the world which in many ways is much worse than Bush II's. The pre-9/11 W. was a `"I just want to stay at home and eat hot dogs" kind of guy. Ballpark franks were much better than genuine frankfurters and the suspicious foreigners who made them. It was 9/11 that made him and his gang of neocons into rampaging pre-emptors and intervenors.

But McCain it turns out was a rabid pre-emptor to begin with - it didn't take 9/11 to turn him into a raging hawk from a wussy Scowcroft-realist. This Matt Welch article mentions that McCain wanted a ground war over Kosovo in 1999. This excellent NY Times story and this wonderful article by John Judis point out that McCain was into "rogue-state rollback" also in 1999. Rogue states were autocracies like Iraq, North Korea and Serbia. September 11 just added more names to this list like Syria and Iran.

Basically, McGame Theory sees the non-democracy world in terms of one giant game of Chicken. This is how nerdy game theorists conceptualize the high school game where two people drive towards each other at high speed. Let's call the strategy of driving straight at high speed Hawk. In a conflict interpretation of the game, Hawk might be invading another country or demanding a huge amount in some international negotiation. If both players do this, you have an impasse and even war. (In the high school game, cars would crash!). To think through the game, we have to attach payoffs to combinations of strategies. So, for the case of example, lets say if both players play Hawk, the payoff to each player is -1. But a player might play Dove and swerve off the road or give in to the opponent's demand or acquiesce to his invasion. In that case, at least you avoid a war or a crash so let's say the player who swerves gets zero and the player who plays Hawk gets 2. Finally, if both back off and play Dove, no-one really wins but no really loses so let's say the payoff for both players is 1.
Let's call the two players Rowena and Colin with two strategies Dove and Hawk. Then, Rowena's payoffs from the four possible strategies are:
Colin's strategies
_____Dove Hawk
Dove__1____ 0 __Rowena's strategies and payoffs
Hawk__2____-1

So, if Colin wants Rowena to play Dove, he should play Hawk. Then, Rowena gets -1 if she plays Hawk herself and zero if she plays Dove - so she should play Dove. If instead we play Dove, we'll get exploited as Rowena gets a payoff of 2 from screwing us while she gets only 1 by being a nice Dove.

So this simple game represents the logic behind deterrence - if we're tough and our opponent sees the game as Chicken, they'll back off. The idea is that the costs of all out conflict are so high that giving in is better. Seems simple and even simplistic but then so is McCain. After 9/11, McCain was constantly on TV and according to NYT said:

' In the spotlight, he pushed rogue state rollback one step further, arguing that the United States should go on the offensive as a warning to any other country that might condone such an attack. “These networks are well-embedded in some of these countries,” Mr. McCain said on Sept. 12, listing Iraq, Iran and Syria as potential targets of United States pressure. “We’re going to have to prove to them that we are very serious, and the price that they will pay will not only be for punishment but also deterrence.” '

This is fine if the world is always Chicken. Maybe the game is not Chicken but this so-called coordination game (in game theory this is usually called the Stag Hunt game). If both play Dove, Rowena gets a payoff of 2. If she plays Hawk while Colin plays Dove, she only gets a payoff of 0.5. The cost of war is too high so Rowena prefers to play Dove if Colin plays Dove. But if Colin plays Hawk and Rowena plays Dove, she gets a payoff of -1 as she's exploited. If she instead plays Hawk along with Colin she gets a payoff of 1. This information is summarized here:

Colin's strategies
_____Dove Hawk
Dove_ 2 ___-1__ Rowena's strategies and payoffs
Hawk _0.5__ 1


The logic of this game is that Rowena wants to be peaceful and play Dove when Colin plays Dove but turns aggressive and plays Hawk when Colin plays Hawk. She in fact prefers the (Dove,Dove) scenario to the (Hawk,Hawk) scenario. In this game, the cost of being passive in the face of aggression is so high that it's better to be aggressive. maybe the leader or the country loses a lot if they are dovish in the face of hawkish behavior. So, it might be better to meet aggression with aggression. Moreover, in the absence of aggression, the gains to aggression are more than outweighed by the costs so it is better to stay at peace. So, in this game, two countries can live at peace and both play (Dove,Dove) but if one plays Hawk so will the other. This coordination game captures the idea of escalation while Chicken captures the idea of deterrence.

If the world is like this, Colin's strategy of being hawkish to create deterrence backfires and leads to escalation. Georgia may have made this mistake (among many others, such as expecting the US to help out), if it thought Putin would back off . But he instead escalated the conflict and proved Georgia was the chicken.

And of course the Iraq war and the Bush doctrine of pre-emption persuaded North Korea and Iran to speed up their nuclear programs. Basically, strategies well-suited to a game of Chicken just totally backfire if the game is really a coordination. This is not rocket science and has been known to political scientists for decades (see for example Jervis's classic Cooperation under the Security Dilemma). And even though it's pretty simple, it requires a level of sophistication that McCain just simply lacks. Swanning around the world and collecting passport stamps doesn't necessarily give you real insights. And if you were just a bully to begin with, it makes you even more dangerous than Bush II. McCain's foreign policy is going to be even worse than Bush's. The sooner the media gets over their love affair with his affability and humor and starts reporting his true beliefs and philosophy, the better it will be for voters.

John McCain's Hysteria (and Joe Elliott's)

I don't usually just recycle others' posts, but this one is (a) so spot-on and (b) so important a point that I'm going to make an exception. Here's the full text of Matt Yglesias's post titled The Hysteria-Based Foreign Policy:

Matt Welch has an excellent little reason article putting John McCain’s heated Georgia rhetoric in the context of McCain’s larger record of overreacting to every international event. He wasn’t just worried by North Korea’s nuclear program in 1994, he called it “the most dangerous and immediate expression” of “the greatest challenge to U.S. security and world stability today.” He didn’t just favor military action over Kosovo, he wanted “infantry and armored divisions for a possible ground war” thrown into the mix as part of “an immediate and manifold increase in the violence against Serbia proper and Serbian forces in Kosovo.” But he also thinks that Islamic radicalism is “the transcendent issue of our time” and also that the standoff with Russia is the first “serious crisis internationally” since the end of the Cold War, since Russia is aiming “to restore the old Russian Empire.”

In short, not only is Russia on the march beyond Tbilisi to Ukraine, Finland, and substantial swathes of Poland but that’s not even the transcendent issue of our time. And North Korea’s nuclear program is “the greatest challenge to U.S. security and world stability today” but that’s not the transcendent issue of our time. And Islamism is the transcendent issue of our time, but not a serious international crisis or an especially great challenge to U.S. security and world stability. Now of course there’s no way to make sense of that, because it’s not supposed to make any kind of sense. McCain just thinks that overreacting is the right reaction to everything. It’s a hysteria-based foreign policy.

As a bonus side note, it's remarkable how apt the lyrics to Def Leppard's "Hysteria" are when applied to John McCain's weak-in-the-knees media cheerleaders:

Hysteria

Out of touch, out of reach yeah
You could try to get closer to me
I'm in luck, I'm in deep, yeah
Hypnotized, I'm shakin' to my knees

I gotta know tonight
If you're alone tonight
Can't stop this feeling
Can't stop this fire

Oh, I get hysterical, hysteria
Oh can you feel it, do you believe it?
It's such a magical mysteria
When you get that feelin', better start believin'
'Cos it's a miracle, oh say you will, ooh babe
Hysteria when you're near
Out of me, into you yeah
You could hide it's just a one way street
Oh, I believe I'm in you, yeah
Open wide, that's right, dream me off my feet
Oh, believe in me

I gotta know tonight
If you're alone tonight
Can't stop this feeling
Can't stop this fire

[Repeat Bridge]

[Repeat Chorus]

Oh, I get hysterical, hysteria
Oh can you feel it, do you believe it?
It's such a magical mysteria
When you get that feelin', better start believin'
'Cos it's a miracle, oh say you will

Ooh babe
Hysteria when you're near

Come on

Peddling Anti-Obamaism

We've largely ignored Paul Krugman's not so subtle and gratuitous anti-Obama jabs that seem to make their way into nearly every column. Speaking for myself, I've cut Krugman a lot of slack largely because he was one of the few voices of reason in the early Bush years. I've also chalked up some of his bizarre and counterproductive commentary to his admission that his current cynical take on Obama stems from some prior disappointment with the politics of idealism in 1968.

Today's column, however, just seemed to lay bare some of his prejudices. About a recent Obama speech he writes:

Worse yet, he seemed to go out of his way to avoid scoring political points. “Back in the 1990s,” he declared, “your incomes grew by $6,000, and over the last several years, they’ve actually fallen by nearly $1,000.” Um, not quite: real median household income didn’t rise $6,000 during “the 1990s,” it did so during the Clinton years, after falling under the first Bush administration. Income hasn’t fallen $1,000 in “recent years,” it’s fallen under George Bush, with all of the decline taking place before 2005.

Obama surrogates have shown a similar inclination to go for the capillaries rather than the jugular. A recent Wall Street Journal op-ed by two Obama advisers offered another blizzard of statistics almost burying the key point — that most Americans would pay lower taxes under the Obama tax plan than under the McCain plan.

I find this attack interesting because the opening of the Furman-Goolsbee piece is basically a defense of the Clinton years and a fairly forceful and clear argument that Obama is in favor of low taxes:

Even as Barack Obama proposes fiscally responsible tax reform to strengthen our economy and restore the balance that has been lost in recent years, we hear the familiar protests and distortions from the guardians of the broken status quo.

Many of these very same critics made many of these same overheated predictions in previous elections. They said President Clinton's 1993 deficit-reduction plan would wreck the economy. Eight years and 23 million new jobs later, the economy proved them wrong. Now they are making the same claims about Sen. Obama's tax plan, which has even lower taxes than prevailed in the 1990s -- including lower taxes on middle-class families, lower taxes for capital gains, and lower taxes for dividends.

(emphasis mine)

Did I read the same piece that Krugman did?

The irony is that today's Krugman is oddly reminiscent of the 1993 Krugman who basically threw a tantrum after being passed over by Bill Clinton in favor of Laura Tyson, to head the CEA. As Nicholas Confessore wrote in the Washington Monthly:

Krugman didn't take the rejection well, and lashed out at Clinton's appointees. To Washingtonians, the key division on the Clinton economic team lay between the stimulators, such as Reich and Tyson, and the deficit hawks, notably Treasury Secretary Lloyd Bentsen and budget director Leon Panetta. But for Krugman, the key division was between real economists qualified to set national policy and policy entrepreneurs, who were not. In a Times article that January, he was quoted as saying Tyson lacked "analytical skills"--just a few weeks after giving a speech at the annual meeting of the American Economic Association lambasting Reich and Ira Magaziner as "pop internationalists" who "repeat silly clichés but imagine themselves to be sophisticated."

Reich, Tyson, and a handful of other alleged policy entrepreneurs came in for further attack in Krugman's next book, Peddling Prosperity (1994). It wasn't just that they were wrong, Krugman declared. It was that they were all dangerous hacks, snake-oil salesman selling foolish remedies to credulous politicians (like Clinton).

Maybe we can look forward to Krugman praising the Obama years in 2016!

Only 2% of Americans Agree with McCain's Definition of "Rich"

Back when I worked for Howard Dean, I once took a phone call from a woman who called up HQ and said she and her husband had decided that they would vote for the candidate who would give them the biggest tax cut. Dean was advocating rolling back all the Bush tax cuts, while Kerry and Edwards favored eliminating them only for those making $200K and up. So I asked the woman how much she and her husband earned. When she told me "just over $200K," I told her that she and her husband would be paying exactly the same under all the candidates' proposals. I also mentioned that her joint earnings with her husband put them among the top 2% in the country. She responded angrily that that couldn't possibly be so, insisting that they had a mortgage, that they struggled, and how dare I insinuate that they were well off.

From their own perspective, to be sure, they may well have been having to watch their budget if had say, a $5,000/month mortgage and a couple kids in a private college. But for most Americans--not to mention the overwhelming mass of the world's billions--$200K per year seems like more money than they would know what to do with.

I thought of this incident after seeing the brouhaha over McCain's declaration that the definition of being "rich" is an income level of $5 million. Obama poked fun at his response today, saying that by McCain's standards, making $3 million must make you middle class.

A Gallup poll in 2003 asked people for their definitions of "rich," in terms of both assets and income. The median answers were $1 million in assets or an income of $122,000, with lower figures for those making less. According to the poll, only 2% of Americans agree with McCain that you need an income of $5 million to be "rich."

McCain may have been half-joking, but after three nearly three decades of living off his wife's hundreds of millions of dollars, and flying around on her private jet between with their eight houses, he probably can't imagine living on just a few million.

More from Ezra on this here.