Betting on Bradley?

The sophisticated average of polls fivethirtyeight.com shows Obama ahead by almost 6 percentage points in the popular vote and on track to win about 350 electoral votes – almost twice McCain’s total (accessed October 31, 2008). There is sampling error in polls, so fivethirtyeight.com also simulates the sampling error 10,000 times and tells us in over 97% of those simulations Obama wins most of the electoral votes.

These predictions tells us the likely outcome if the main source of error in polls is sampling error and if votes do not change much in the next few days.

In contrast, the betting site intrade.com puts McCain’s winning chances at around 17%.

One interpretation of the dramatically higher betting odds on McCain than in the simulated voting is that the polling data is unbiased measures on the day taken, but bettors believe votes change a lot in the last few days. That interpretation seems dubious, as the polls’s estimated vote share tends to change by about 1 percentage point a week. It would take an extraordinarily large amount of news to move the polls 6 points in 4 days.

A second interpretation of these odds is that polls are biased in an unknown direction. For example, polls rely on models of who is likely to vote that are typically based on historical patterns. In addition, most polls miss voters who use only a cell phone. The systematic noise in polls, while surely there, is probably not a good explanation for why bettors favor McCain more than polls. For example, blacks are likely to vote more than historic norms, and cell phone users probably favor Obama as well. Thus, these factors – while surely present – would not explain a high betting line on McCain.

The third interpretation is that many bettors believe a “Bradley effect” exists; that is, that many voters will say they are voting Democratic or are undecided, but in the privacy of the polling place will not vote for an African-American to be president. The evidence for a Bradley effect in recent elections is weak, but it is extremely difficult to prove it does not exist. As best I read the evidence, it appears some people are betting this form of discrimination remains strong in America.

(updated by lerxst to correct misspelling of Bradley)

Obama Econ Adviser Jason Furman on Bloomberg TV

The Economist Magazine Endorses Obama

It's here. Among other things, the editorial says

Mr McCain has never been particularly interested in economics, but, unlike Mr Obama, he has made little effort to catch up or to bring in good advisers (Doug Holtz-Eakin being the impressive exception).

This is a strange sentence. The "but" implies there is some contradiction between McCain's lack of interest in economics and the fact that his slate of economic advisers is made up of Phil "Deregulator" Gramm, Kevin "Dow 36,0000" Hassett, Carly "Golden Parachutes" Fiorina, Nancy "Petro-flack" Pfotenhauer, Donald "I Am Wrong About Everything" Luskin, and Arthur "Forget Evidence" Laffer.

Wouldn't it seem, however, that his lack of interest in the subject is the reason he picked these clowns?

As for the sad case of Doug Holtz-Eakin, he may have been a good adviser when he was brought in to the McCain campaign, but he has now been thoroughly hackified. Here's the latest evidence.

NYT on Obama and McCain Tax Plans

The NY Times today has a good article examining the incidence of Obama's tax plan. It is accompanied by this quick summary of the Obama and McCain tax proposals.

McCain Endorses Obama's Signature Retirement Policy Proposal

I'm pretty sure I'm in the 99th percentile of the population in terms of knowledge of the Obama and McCain economic policy proposals, so I was very surprised to read this post on the Tax Policy Center blog saying that McCain supports the automatic IRA. I have read through the McCain economic policy in detail, listened to McCain economic adviser Doug Holtz-Eakin speak about said policy in person on two occasions, and heard him talk in innumerable radio interviews and debates, and I've never heard any mention of the IRA proposal. I put my Googler skills to work and discovered that this endorsement came in the form of the McCain campaign's answers to this recent questionnaire from the American Society of Pension Professionals and Actuaries. The Retirement Security Project, which promotes the idea, put out a press release yesterday to herald the news.

This is remarkable because the automatic IRA is a major Obama policy proposal which has been repeatedly trumpeted by the candidate and by economic adviser Austan Goolsbee. I wrote about it way back in January when comparing the Obama and Clinton retirement proposals. Here's how the campaign described the proposal:

• Create Automatic Workplace Pensions: Obama's retirement security plan will automatically enroll workers in a workplace pension plan. Under his plan, employers who do not currently offer a retirement plan, will be required to enroll their employees in a direct-deposit IRA account that is compatible to existing direct-deposit payroll systems. Employees may opt-out if they choose. Experts estimate that this program will increase the savings participation rate for low and middle-income workers from its current 15 percent level to around 80 percent.

I wrote in January that the proposal is

a political no-brainer and is supported by both progressive economists and the right-wing Heritage Foundation. This is because it's smart, nearly cost-free policy. As such, it does fit better with Obama's "bring us together" rhetoric and gives lie to the claim that the only way forward on every issue is hard-core political warfare. Making IRAs "automatic," i.e. the default option, for workers without 401(k)s, would make millions of Americans better-prepared for retirement with a policy that Democrats and Republicans can readily agree on.

If we weren't in the final days of the campaign, I might hope a journalist would ask McCain why he decided at this late date to take time off from calling Obama a socialist and endorse his key retirement policy proposal.

My guess is that Holtz-Eakin was tasked with filling out this questionnaire and said to himself, what the hell, why not back the automatic IRA?

For the Economist Who Has Everything: Econ4Obama Gear

I am now ready for election day with my Economists for Obama t-shirt, bumper sticker, and coffee mug. You can get yours at this site.

As I explained in an earlier post, we did not set up the site ourselves, and the site's organizer assures us that everything is sold at cost.

Buying Milk

I was unexpectedly moved at times when watching the Obama commercial (below). Digby writes today about a former Edwards speech writer who is disappointed that Obama doesn't talk about poverty. But when you watch the mom in the commercial who feels the suffocating pain about whether she can afford to buy a gallon of milk or the mom whose kids have to make their snacks last a whole week --if that is not talking about poverty then I don't what is. Apparently in today's GOP, you're a dirty freaking socialist if you talk about providing refundable tax credits based on the payroll tax. Can you imagine the outcry from the right if Obama actually talked about poverty.

Below is the commercial. Also check out Robert Frank, an economist at Cornell who points out that the The National Council on Economic Education’s curriculum standards say that "Most government policies also redistribute income." (h/t to Yglesias)

Obama Responds to "Socialist" Charge (with Humor)

What about wage insurance...isn't that redistribution?

Atrios notes that McCain is reduced to spouting gibberish when trying to reconcile his support of social safety nets with his new political tactic of the week --criticizing any use of the word redistribution in a sentence by Obama.

I know this whole argument is laughable, especially given Palin's support of collectivism and redistribution of natural resource wealth in Alaska, but it also seems that everyone has forgotten about McCain's call for wage insurance in his convention speech:

For workers in industries -- for workers in industries that have been hard-hit, we'll help make up part of the difference in wages between their old job and a temporary, lower paid one, while they receive re-training that will help them find secure new employment at a decent wage.

I wonder what Tito the builder and Joe the plumber would think about that?

Wage insurance is actually something I've supported in the past but I am skeptical that McCain views it as anything other than a way of helping to dismantle the unemployment insurance system. And although I am supportive of wage insurance it would come with a hefty price tag that could crowd out other priorities like health care reform which is probably a big reason why Obama deferred on it. Meanwhile McCain who supposedly wants a "spending freeze" supports wage insurance but provides no price tag for its cost or any explanation of how it would be implemented. Indeed, I doubt that there is a single article in the mainstream press that has called McCain on it. Its seems clear that the press knew it was a gimmick without even bothering to report that to the public.

FAQ on Taxes

Here are responses to questions we've received repeatedly. Please use these as you're talking to family, friends, co-workers, and neighbors over the next few days in a last push to get them out to vote for Obama. If you have other questions, please put them in comments below, and we'll update this post with responses.

Will Obama raise my taxes?
Your taxes would be reduced under Obama's proposals, if you are single and making less than $200,000 or married and making less than $250,000 jointly. See the tax calculator and assorted links at left. For a detailed description of his tax plan, see this article.

Won't raising taxes on corporations and the wealthiest hurt the economy?
No. Obama would return tax rates to at or below where they were during the 1990s, an era during which the economy thrived, median income grew by $6000, and 22.3 million jobs were created. In contrast, McCain would extend the Bush tax policies, which have brought us 30% lower economic growth, anemic job growth, and a decline in income and wages for the typical American. See details in the slides included in this post.

Won't marginal tax rates increase under Obama, taking away incentives for people to work?
No. Analysis by the fully objective, non-partisan Tax Policy Center shows that Obama's plan would actually reduce marginal rates for most (61%) taxpayers. Marginal rates would increase for only 15%. See discussion and links in this post.

Why is Obama going to cut taxes for the 38% of people who don't pay taxes?
It's true that many people don't pay income taxes. But anyone working pays payroll taxes, along with other taxes, and Obama's tax cuts are overwhelmingly geared towards working Americans. Virtually everyone who receives a tax cut under Obama's plan pays some tax. See this post for details.

Obama would reduce taxes through tax credits. Isn't this welfare rather than a tax cut?
If you receive a tax credit, the size of the check you write to the government decreases. As most people understand it, this is a tax cut. McCain himself proposes a large refundable tax credit for health care. Bush pushed for and signed a child tax credit. The largest existing credit, the EITC, was introduced by Republican President Ford, and increased under Reagan, Bush I, and Bush II.

Is Obama a wealth-spreading socialist?
Here's a good response to that question:

I think you're questioning, questioning the fundamentals of a progressive tax system where people who make more money pay more in taxes than a flat across the board percentage. I think it's to some degree because we feel obviously that wealthy people can afford more... I believe that when you really look at the tax code the very wealthy because they can afford tax lawyers and all kinds of loopholes really don't pay as much as you think they do, when you just kook at the percentages. And I think middle income Americans, working Americans, who when you count in payroll taxes, sales taxes, mortgage -- all of the, all of the taxes that working Americans pay-- I think you would also think that they also deserve very significant relief...

When you reach a certain level of comfort, there's nothing wrong with paying somewhat more...The first people who deserve a tax cut are working Americans...and they're the ones I would support tax cuts for first.

That's John McCain in 2000.

Not Even A Good Hack

The other day, I noted a recent example of McCain domestic policy adviser and (formerly?) respected economist Doug Holtz-Eakin's dishonest and shameful behavior.

One of the few good things about Holtz-Eakin's embarrassing performance in this campaign is that in the process of sullying his reputation, he's managed to repeatedly undermine John McCain's own arguments. 

For example, there was that whole thing with the earmarks, when Holtz-Eakin undermined the silly claim that McCain can cut taxes by hundreds of billions of dollars a year and pay for it by cutting a few billion dollars in unnamed earmarks (for details, see my post or Ben Smith's). 

And who can forget Holtz-Eakin's claim that John McCain invented the Blackberry? (The great part of that Holtz-Eakin stroke of genius is that it was his serious answer to being asked a serious question, "what work John McCain did as chairman of the Senate Commerce Committee that helped him understand the financial markets"; that's all Holtz-Eakin could come up with.)

And yesterday, Holtz-Eakin struck again. The McCain campaign has claimed that its health plan will leave basically everyone better off (see this post and those to which it links for a discussion of that claim). Meanwhile, many economists worry that by eliminating the income-tax subsidy for employer-provided health insurance without providing universal coverage, McCain's plan will induce serious adverse selection problems: if younger and healthier workers opt out of employer plans whose premiums are based on pooling over a relatively representative workforce, then some employer plans will collapse, leaving others in the pool exposed to very high-cost individual plans. Here's how Doug Holtz-Eakin seeks to allay these worries:

Younger, healthier workers likely wouldn't abandon their company-sponsored plans, said Douglas Holtz-Eakin, McCain's senior economic policy adviser.

"Why would they leave?" said Holtz-Eakin. "What they are getting from their employer is way better than what they could get with the credit." [original source here.]

Employer-group plans typically don't (never?) price as a function of age or projected health risks (holding constant family size and leaving aside pre-existing conditions). This means that younger, healthier workers cross-subsidize everyone else in a group plan. So in any such plan, these workers are the ones getting the least benefit from a group insurance plan. Now Holtz-Eakin tells us that such plans are "way better" than what these workers could get with McCain's credit. Logic implies that this claim must therefore be true for all workers. 

So, Holtz-Eakin has just told CNN that the McCain health plan will make workers worse off.

Doug Holtz-Eakin: Not just a hack. Not a good hack, either.

Attacking all vs. some protectionists

Professor Greg Mankiw ran a column from India yesterday pointing out that Senator McCain has been more consistently in favor of free trade than Senator Obama. He then challenges his “economist friends who are working for Obama… to defend his positions on ethanol subsidies, tariffs on Chinese goods, the Byrd amendment, etc.” As most economists agree with Professor Mankiw, not Senator Obama, on these issues, it is a fair challenge.

When he was the Bush administration’s chief economist, Mankiw was a consistent fighter for free trade. At the same time, over the last 8 years President Bush has supported a vast array of protectionist policies. Since Mankiw left what has arguably been the most protectionist presidential administration of either party in recent decades, I have found no critiques of Bush administration protectionism. In contrast, his blog reprinted a Wall St. Journal column from the 2006 Congressional election attacking Democrats as protectionists.

Economists typically argue for lowering any country's trade barriers, without requiring a symmetric lowering by trading partners. That endorsement of asymmetry does not hold within a country - there is no general result in political economy that says you will get freer trade by attacking only the other party's protectionists while giving your own party's protectionists a free pass. I would be surprised if an Obama administration were to be more protectionist than the one Mankiw worked for.

Reader Mailbag: Various Questions

A reader writes in the following:

If you have the time, can you point me to anything that talks about the following:

1. Obama wants to raise taxes on big employers and "spread the wealth around." That leads to higher unemployment - obviously not what America needs right now.

2. Obama wants to give tax credits to people currently not paying income tax - thus creating a disincentive for people to work harder since they lose credits as their income rises. We need to be growing our economy, not shrinking it!

3. I bet most Obama supporters can't name a single tax that Obama is saying he is cutting.

4. “…A complete credit quagmire, thanks to Democratic friends of Fannie Mae and Freddie Mac on the hill (including Obama) trying to appeal to their narrow voting bloc rather than focus on what was right for America.

My quick response:

This is a good article on the two tax plans, by Obama's advisers.

A general reply to these points is that Obama would return tax rates to something like what we had in the 90s, an era of great prosperity and growth. In contrast, the McCain approach--lowering taxes on the wealthy and corporations--is what we had over the last 8 years, when wages for the typical American fell.

On your second point, see these two posts:
http://econ4obama.blogspot.com/2008/10/obamas-95-illusion-revisited.html
http://econ4obama.blogspot.com/2008/10/obama.html

Marginal rates (meaning the tax rate people face on their next dollar of income) would decline for most people under Obama's plan.

Obama will cut taxes for 95% of working Americans. I'm not sure what "name a tax he will cut" is supposed to mean. He will cut income taxes. See the links on the left bar of our site.

On the 4th point, there are many analyses that point out that by the time Fannie and Freddie got into the subprime business, the housing bubble was already near its peak. So it's not possible that they are a primary cause of the bubble and crisis. Here is a good discussion of this issue.

McCain and Palin Wrong on Corporate Taxes

This won't be news to long-time readers of this site, but a new CBPP study offers a chance to review an important point.

Sarah Palin today (echoing what McCain has said many times):

We’ll cut the capital gains tax and we’ll cut business taxes. Right now the U.S. business tax is the second highest in the world.

The Center on Budget and Policy Priorities yesterday:

The U.S. corporate tax burden is smaller than average for developed countries. Corporations in the 19 member states of the Organization for Economic Co-operation and Development paid 16.1 percent of their profits in taxes between 2000 and 2005, on average, while corporations in the United States paid 13.4 percent.

Nevertheless, some have argued that U.S. corporate tax rates unduly burden U.S. companies by pointing to the country’s top statutory tax rate, which is 35 percent. For example, a recent Wall Street Journal editorial calling for corporate tax cuts noted that this is the second highest top statutory tax rate among developed countries. While true, this gives the false impression that the corporate tax burden is greater here than in other developed countries. Because the U.S. tax code offers so many deductions, credits, and other mechanisms by which corporations can reduce their taxes, the actual percentage of profits that U.S. corporations pay in taxes — or what analysts refer to as their effective tax rate — is not high, compared to other developed countries.

Rich Lowry, editor of the very conservative National Review, is a consistent supporter of Republican causes. It was, thus, with surprise to read:

If McCain weren’t running for president, and it were some other Republican
who had attacked Obama for his associations and picked Sarah Palin as his
running mate, surely McCain himself would be on some Sunday show clucking his
disapproval.

In the article Lowry notes McCain historically disliked most "typical" Republican campaign tactics such as the Swift Boaters' attack on John Kerry. Thus, Lowry is not disparaging Republicans who attack Democrats for their associations, just noting that McCain typically has. I assume Lowry is not claiming Palin is unqualified, merely pointing out that a gadfly like McCain would hold that view.