Tuesday, July 12, 2011

Falling On His Sword for Country & Legacy

As I mentioned in today’s Short List, Speaker Boehner has been neutered by Eric Cantor and his tea party cohorts, who want the government to live within its means so long as “its means” doesn’t have anything to do with the increasing revenue.  Even if that increased revenue comes through a simplified tax code and is accompanied with $3 in cuts for every $1 in revenue.  I think this presents Speaker Boehner with an opportunity, albeit one with severe short-term professional consequences.

As Ezra Klein reminded us this morning, on the whole the American people like compromise, even if a majority of Republicans do not.  From everything that’s been written, it would seem like Boehner knew he had a sweet deal with the Obama administration and was inching toward taking it until he was out-flanked by Cantor and the far-right of the Republican party.  I think Boehner ought to work with Obama to make this deal work and abandon Cantor and the tea party.  I think Boehner needs to appeal to the cadre of remaining Republican moderates in the House and work with Obama and the Dems to avert what would be an unmitigated economic disaster.

Sounds kind of crazy, I know.  But stay with me here.  I believe there is a segment of the Republican party that’s filled with people who want a government to govern, and I think that part of the party knows how good a deal they have.  They’re best personified by this column(NYT) from NYT Columnist David Brooks.  And I think this is the part of the Republican party that Speaker Boehner represents.  The trouble is this is now the minority wing of the Republican party.  Time and time again, Obama chased the Republicans rightward (a whole other problem for progressives), forcing Republicans to abandon several smart ideas they’ve had in the past decade.  They had to abandon them because Obama, the Other, embraced things like individual mandates and cap-and-trade.  But I believe there is a sizeable number of Republicans remaining who aren’t Grover Norquist zealots and genuinely believe it’s the job of people in Congress to compromise in the pursuit of governance.  I’m just hoping those same David Brooks’ Republicans are spoiling for a showdown with the tea party.

Which brings me back to Speaker Boehner and his opportunity.  Given Boehner’s sensibility, he is not long for his own party lest he abandon his remaining moderation.  If he can rally his fellow remaining moderates to get this deal done he will almost certainly lose the speakership, he will likely face a primary challenge, and he may well lose his seat, but it’s a play for his legacy.  He could force the showdown between David Brooks Republicans and tea party Republicans.  By falling on his own sword he may save the Republican party from permanent minority status.  And history tends to smile fondly on politicians who put the national interest (and indisputably it’s in the national interest to increase the debt-ceiling and cut the deficit) ahead of fleeting personal aggrandizement.

Perhaps I’m overly optimistic.  Perhaps I’m reading Speaker Boehner wrong.  But if he is going to be robbed of his influence, why should he hold ceremoniously to a title and let his fellow Republicans run the economy off a cliff?  Andrea Mitchell was on The Chris Matthew Show this week reiterating how much these negotiations and the compromise that will be reached is about leadership.  I couldn’t agree more and I think this is an opportunity for Speaker Boehner to demonstrate his leadership and his shot to write his name into the history books of great Speakers of the House.  If a deal doesn’t get done and the credit of the United States gets downgraded, well that path carries a legacy as well.

19 comments:

Colin said...

First off, four Ezra Klein links -- wow.

Anyway, this whole piece could easily be rewritten and applied to President Obama. This is a golden opportunity to separate himself from the radical base of the Democratic party and secure his legacy as something other than the guy who saw both debt and unemployment explode on his watch. He could start by proposing that federal spending be reduced to 19 percent of GDP, which is roughly the level it was at when President Clinton was in office (as an added bonus, by cutting spending Obama would actually follow through on a campaign promise of his to enact a net spending cut that was somehow forgotten about upon his election). Just as Clinton passed welfare reform, Obama could propose also various means of paring back the welfare state. Perhaps he could start with health care reform, proclaiming that he had heard the voice of the people loud and clear, and would seek to undo this ridiculous monstrosity.

Mindful that revenue is linked far more to the health of the economy than tax rates, Obama could propose any number of measures to get the economy moving. Again keeping in the Clintonian tradition he could propose the passage of existing free trade agreements. Obama could also follow the lead of President Carter, the late Sen. Kennedy and Ralph Nader by promoting deregulation. After all, all three promoted the deregulation of the trucking, airline and railroad industries, which met with great success (why Democrats subsequently abandoned this approach after the overwhelming success of these measures is an enduring mystery). Another pro-growth measure would be tax reform that reduces rates in exchange for the elimination of loopholes and deductions, one version of which was passed by a Democratic-controlled Congress in 1986.

Put these measures in place and the economy will get moving again, saving the government money and generating new tax revenue. Obama can do all of this while keeping in the finest traditions of the Democratic party. Will he seize on this golden opportunity?

Also, this part:

And history tends to smile fondly on politicians who put the national interest (and indisputably it’s in the national interest to increase the debt-ceiling and cut the deficit) ahead of fleeting personal aggrandizement.

I wonder if this applies to President Obama, who famously voted against increasing the debt ceiling while a US Senator?

Jason said...

It's certainly Ezra heavy, but that doesn't make the links less valid.

You've written an entirely different piece then the one I wrote, which I'll take as acquiescence that you agree this is an opportunity for Speaker Boehner. Thanks for your support.

As to what you outline, just a few bulleted responses:

- Obama entered office on the front end of the worst recession since the Great Depression, so while unemployment and deficits have grown during his tenure, that's less to do with his policies and more to do with circumstance.

- 19% of GDP is 4% less then government as % of GDP in 1985 under Reagan's watch. So what's the magic number?

- You want Obama to unilaterally propose to undo the ACA, which hasn't even taken effect, making your claims that it's a monstrosity a bit premature? Why would he do this? I'm talking about a grand bargain and you're talking about undoing a policy that remains unimplemented.

- After the Ezra shot, I'm disinclined to respond to something where you cite your own blog.

- Oh deregulation. We've discussed ad nauseum airplane deregulation, and I'll simply say not all deregulation is good deregulation. See the financial crisis of 2008 for an example.

- As to reducing the tax rate, in exchange for closing loopholes, an idea that was prominent in Paul Ryan's budget, we don't have our fiscal house in order yet. Why would we cut tax rates that are below the historic averages? How is it good sense to cut government spending to the ideal 19% of GDP and also good sense to cut tax rates even further from historically low rates? During the Clinton era, which you show quite the fondness for, tax rates were higher. That didn't impact growth. Why don't we close the loopholes and return rates to that level?

- And finally, you put the onus on President Obama to make ALL the concessions. My piece made a specific point that Obama has made Republicans a tender offer that Republicans have thus far refused and that Boehner should take what concessions are on the table. I see no concessions from the Republican party in your post, you're just asking Obama to be a Republican. Compromise indeed.

Colin said...

It's certainly Ezra heavy, but that doesn't make the links less valid.

Never said it did. Just amazed that one post would like to the same guy 4 times.

You've written an entirely different piece then the one I wrote, which I'll take as acquiescence that you agree this is an opportunity for Speaker Boehner. Thanks for your support.

No, I just don't want this golden opportunity to be restricted only to Boehner. Why not let President Obama experience the honor of falling on his sword for his country and legacy? Why let Boehner have all the fun?

Obama entered office on the front end of the worst recession since the Great Depression, so while unemployment and deficits have grown during his tenure, that's less to do with his policies and more to do with circumstance.

Well, his own economists said that the unemployment rate would be lower had we done nothing, so that would indicate he bears some responsibility (Or maybe central planning and attempts to model the economy are a fool's errand). And I'm pretty sure the deficits weren't helped by an $800+ billion stimulus package.

19% of GDP is 4% less then government as % of GDP in 1985 under Reagan's watch. So what's the magic number?

The magic number is revenue as a percentage of GDP. That number since the end of World War II has been right about 19%. Thus, we need to cut deeply.

You want Obama to unilaterally propose to undo the ACA, which hasn't even taken effect

Demonstrably wrong. In fact, certain provisions entered into effect immediately and other provisions have subsequently entered into effect.

Colin said...

After the Ezra shot, I'm disinclined to respond to something where you cite your own blog.

Are my numbers wrong? Jeebus, I quoted the great Ezra himself on my blog for half the data presented.

Oh deregulation. We've discussed ad nauseum airplane deregulation, and I'll simply say not all deregulation is good deregulation. See the financial crisis of 2008 for an example.

We did discuss airline deregulation, and I believe Ben ended up not only refusing to call for a repeal of the deregulation but even conceded that more deregulation is needed in the form of removing limits on foreign ownership. Yesterday's NYT also had a great article on what a smashing success airline deregulation has been in Europe if you want to check it out.

You'll have to explain to me how deregulation is related to the 2008 crisis. Factcheck.org -- hardly an outpost of the vast right-wing conspiracy -- flatly stated that "The truth is, however, the Gramm-Leach-Bliley Act had little if anything to do with the current crisis. In fact, economists on both sides of the political spectrum have suggested that the act has probably made the crisis less severe than it might otherwise have been."

As to reducing the tax rate, in exchange for closing loopholes, an idea that was prominent in Paul Ryan's budget, we don't have our fiscal house in order yet. Why would we cut tax rates that are below the historic averages? How is it good sense to cut government spending to the ideal 19% of GDP and also good sense to cut tax rates even further from historically low rates? During the Clinton era, which you show quite the fondness for, tax rates were higher. That didn't impact growth. Why don't we close the loopholes and return rates to that level?

First off, it wasn't just Paul Ryan -- even the president's own fiscal commission (which Obama promptly ignored) recommended this approach (particularly combined with cuts to the corporate tax rate). It's good sense because lower taxes and the abolishment of loopholes that distort resources allocation help promote economic growth. Even President Obama acknowledges this, noting that a recession is the last time you want to raise taxes. Why would you want to raise taxes now? Further, why are you calling for a tax increase when I have already demonstrated that federal revenue collection correlates FAR more strongly with economic growth than marginal rates? Your statement that Clinton's tax increases didn't impact growth, meanwhile, is unknowable as we don't know what growth would have been like absent the income tax increases. Further, the impact of the tax increase was blunted somewhat by passage of NAFTA and the Uruguay Round agreement in 1994 and 1995 (tariff reductions are tax cuts), along with the 1997 capital gains tax reduction.

And finally, you put the onus on President Obama to make ALL the concessions. My piece made a specific point that Obama has made Republicans a tender offer that Republicans have thus far refused and that Boehner should take what concessions are on the table. I see no concessions from the Republican party in your post, you're just asking Obama to be a Republican. Compromise indeed.

I am humbly asking Obama to be a Democrat, as evidenced by the fact that every recommendation of mine has been endorsed by Democrats in the past (and more importantly also been successful!). He can be a Democrat and also do the right thing.

Jason said...

I'm sorry, but what of the policies you've recommended involve Obama falling on his sword? Boehner is in a position to lead his party out of the grip of anti-government radicals by his sacrifice.

"[H]is own economists said the unemployment rate would be lower had we done nothing." Where are you getting this from?

And yes, an $800 billion stimulus does add to the deficit. So does two wars and tax cuts. The stimulus was to intended to pick up the slack in demand.

Do we need to cut deeply, or do we need to take in more revenue to pay for our obligations? From 1980 to 2010 federal spending equaled almost 21% of GDP. And averaged nearly 22 percent during the terms of Reagan and HW Bush. Meanwhile, the Heritage Foundation reports that the 30 year average of tax revenue as a percentage of GDP is 18%. Seems to me we aren't taking in enough money, and to bring balance we need to consider cuts and spending to bridge that gulf.

I was wrong on the implementation, but do you find it a "monstrosity" that the ACA doesn't allow insurance companies to drop people when they get sick? Do you find it a "monstrosity" they can't deny coverage to people with pre-existing conditions?

You citation cites one specific piece of legislation, but of course further down the page, many many people are cited for their role in the crisis. Again, deregulation is not always a good thing.

What of your policies was "endorsed by Democrats in the past?"

Jason said...

**consider cuts and revenue increases to bridge the gap.

Ben said...

Just to defend my own position on regulation here -- I agree with Jason, not all deregulation is good. And I still think that certain airline regulation is good -- including the tarmac idling limits.

Colin said...

I'm sorry, but what of the policies you've recommended involve Obama falling on his sword? Boehner is in a position to lead his party out of the grip of anti-government radicals by his sacrifice.

Pretty much all of them, given they are hated and despised by the Democratic rank and file. Obama is in a position to lead his party out of the grip of pro-government radicals by his sacrifice.

"[H]is own economists said the unemployment rate would be lower had we done nothing." Where are you getting this from?

Do you not remember the infamous Romer-Bernstein chart that outlined what would happen to the unemployment rate absent a stimulus package? The unemployment rate was projected as being lower than what it is now.

And yes, an $800 billion stimulus does add to the deficit. So does two wars and tax cuts. The stimulus was to intended to pick up the slack in demand.

I'm more interested in results than intentions.

Do we need to cut deeply, or do we need to take in more revenue to pay for our obligations? From 1980 to 2010 federal spending equaled almost 21% of GDP. And averaged nearly 22 percent during the terms of Reagan and HW Bush. Meanwhile, the Heritage Foundation reports that the 30 year average of tax revenue as a percentage of GDP is 18%. Seems to me we aren't taking in enough money, and to bring balance we need to consider cuts and spending to bridge that gulf.

What you refuse to acknowledge is that since the end of WWII marginal tax rates have been all over the place. Top rates have gone as high as 91% and as low as 28%. Guess what? Despite such variation the amount of revenue collected as a percentage of GDP has been remarkably constant, averaging about 19%. If you want to balance the budget, therefore, it makes sense to place expenditures around 19%. I realize this is an uncomfortable fact for those on the left, who wish to spend well north of that amount on all sorts of government goodies, but there you go.

Colin said...

I was wrong on the implementation, but do you find it a "monstrosity" that the ACA doesn't allow insurance companies to drop people when they get sick? Do you find it a "monstrosity" they can't deny coverage to people with pre-existing conditions?

I find it a monstrosity that the federal government decided to overhaul our health care system by adopting a failed approach in Massachusetts. As The Economist noted last month:

One in five working-age adults say they have trouble finding a doctor who will see them. The Connector, the state’s exchange, has excelled at enrolling uninsured adults in subsidised care, but has failed to attract small businesses and their employees. As of March just 3,644 workers bought coverage on the exchange through their employers.
Costs, meanwhile, are unsustainable. Spending on MassHealth, the programme for the poor, rose 40% between 2006 and 2010. The subsidised health programme for adults was more expensive than expected—$628m in 2008 and $805m in 2009, 32% and 11% above projections respectively.


It's absolutely bizarre that government schemes such as this almost inevitably fail, while the free market produces lower costs and improved quality in virtually everything it touches, and yet our friends on the left invariably conclude the solution for whatever ails us is more government.

You citation cites one specific piece of legislation, but of course further down the page, many many people are cited for their role in the crisis. Again, deregulation is not always a good thing.

This is correct, many culprits are cited. A number of them from the public sector. Among them: The Federal Reserve, Congress, the Clinton Administration and the Bush Administration, which failed to "provide needed government oversight of the increasingly dicey mortgage-backed securities market." (note: a lack of oversight is not the same as deregulation, which is taking the rules off the books, not a failure to enforce them)

Not once, however, is deregulation cited. If you are going to keep claiming that "deregulation is not always a good thing" then at some point you are going to have to provide evidence to support this viewpoint. Because given the success of deregulation in airlines, trucking, railroads and Gramm-Leach-Bliley the record is looking pretty good, and your position more faith-based than rooted in facts.

What of your policies was "endorsed by Democrats in the past?"

Deregulation was pushed by Ted Kennedy and signed by Jimmy Carter. Bill Clinton was a proponent of NAFTA and free trade more generally. Democrats helped author and pass the 1986 tax simplication bill that lowered rates and closed loopholes. Bill Clinton signed welfare reform, arguably the biggest public policy success of the last 20 years.

Jason said...

Okay, you've taken this way off topic. So let me focus on the comment that's even remotely relevant to the policy dilemma I discussed in my post, the federal deficit. According to your own claim, we would need to collect an average of 1% more in tax revenue against GDP over what the Heritage Foundation said was the 30 year average. Again, looks like we're going to need more revenue to to go with cuts to get us to 19%.

Colin said...

Ben, what are some examples of deregulation do you think are bad or that you would like to undo?

As for the tarmac idling rule, it appears that -- as critics predicted -- this has resulted in the number of canceled flights increasing:

the national cancellation rate rose 9 percent during the May-November period in 2010, compared with a year earlier, for 3,675 more canceled flights.

Seems to me a much better approach would be to first establish why tarmac delays occur. From what I gather it is due to congestion at the airports due at least in part to inefficiencies in the air traffic control system.

Why not privatize the FAA as was done with NAV Canada, which has subsequently won several awards for quality?

Colin said...

You know what? I'm wrong and the Heritage Foundation is correct. According to wikipedia
:

From fiscal year 1946 to fiscal year 2007, federal tax receipts as a percentage of gross domestic product averaged 17.9%, with a range from 14.4% to 20.9%.

So actually to balance the budget we need to cut even deeper than what I said if we are to match expenditures with historic levels of tax revenue.

Colin said...

Ugh, actually I was right the first time. Total federal revenue -- of which taxes comprise the vast majority -- has averaged 19.5% since the end of WWII. That is the number that federal expenditures must not exceed if we are to bring the budget in balance.

I am guessing that the difference between the 17.9 figure and 19.5 is revenue other than taxes from things like tariffs, royalties and national park user fees.

Ben said...

Well, Colin, I'd say de jure deregulation of the financial sector has shown some problems. I'd also say the de facto deregulation of mineral extraction industries (coal & oil, say) under the Bush Administration has caused some problems, too.

Colin said...

What deregulation of the financial sector do you think contributed to the crisis? As already noted in this thread economists seem to agree that Gramm-Leach-Bliley was actually a positive factor. What deregulation are you referring to? And how did the deregulation lead to the financial crisis?

As for the oil and gas industry, I don't know what de facto deregulation is. Either laws are taken off the books or they aren't. Haphazard enforcement and deregulation are not the same thing. It seems to me the bigger problem in this area is too much regulation -- particularly the (now defunct) liability cap of $75 million for oil spills. Why did this exist? Why not let oil companies assume 100% of the risk, thus providing a greater incentive for safer operations?

Ben said...

Sure, if it's just haphazard. If it's part of a coordinated effort to avoid regulation it's de facto deregulation.

Let's not forget about the coal industry, Colin. Never mind the fact that regulation is generally ex ante. Whereas civil liability is ex post. Beyond of course the fact that civil liability is necessarily under inclusive because of the barriers to the judicial system. Finally, not every liability cap is a bad thing -- the Anderson Act, for instance, capped liability for the nuclear industry to promote private development of nuclear energy in the 1950s. The fact is regulation is not ipso facto bad; and deregulation is not ipso facto good. A pragmatic recognition of this simple truth is really the way to go.

Ben said...

And, while your link to a factcheck.org piece at the very beginning of the financial collapse is moderately persuasive, there's quite a bit of more recent--and at least arguably more complete--analyses indicating otherwise--some from real honest to God scholars.

Colin said...

Sure, if it's just haphazard.

Well, it depends on what aspect of the oil industry I suppose you are talking about then. With regard to the Deepwater Horizon rig, for example, safety inspections appear to have been somewhat irregular but not eliminated while Transocean was cited five times by the MMS. This does not strike me as indicative of deregulation.

Let's not forget about the coal industry, Colin.

Sure, although I don't know what aspect of the coal industry you are referring to. If you are referring to the Bush administration relaxing rules on mountaintop removal mining, this is not deregulation as the term is understood. As wikipedia notes: "Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces. Deregulation does not mean elimination of laws against fraud or property rights but eliminating or reducing government control of how business is done." Environmental regulation pertains to property rights, not the contraint of market forces.

Or maybe you are referring to something else?

Never mind the fact that regulation is generally ex ante. Whereas civil liability is ex post.

Not sure why that matters. If I know that my liability in the event of an accident has been limited, it reduces my incentive to take safety precautions beforehand. It changes the cost-benefit analysis.

Finally, not every liability cap is a bad thing -- the Anderson Act, for instance, capped liability for the nuclear industry to promote private development of nuclear energy in the 1950s.

So why is that a good thing? If nuclear energy is too dangerous to operate profitably due to potential liability, why should it be in business? Seems like corporate welfare to me.

Colin said...

The fact is regulation is not ipso facto bad; and deregulation is not ipso facto good. A pragmatic recognition of this simple truth is really the way to go.

I just wonder why if this is true that skeptics of deregulation labor so mightily to come up with examples of poor results stemming from deregulation. Repeating something over and over again doesn't make it true, we need actual evidence.

And, while your link to a factcheck.org piece at the very beginning of the financial collapse is moderately persuasive, there's quite a bit of more recent--and at least arguably more complete--analyses indicating otherwise--some from real honest to God scholars.

Come on, you're going to come back at me with some left-wing academics writing in a student-run econ journal with four issues to its name? Give me something from the AEA or NBER at least.

What's notable is that even if you accept this narrative presented by Thomas Pulley -- hardly the most unbiased guy as a former writer for the American Prospect, Nation and former employee of the AFL-CIO -- he states that "Financial deregulation and financial excess are important parts of the story, but they are not the ultimate cause of the crisis." Thus, for all of the teeth-gnashing we see about deregulation and the financial crisis, even Pulley with his impeccably left-wing credentials ascribes to it a more secondary role.

In any case I am not surprised that you can find someone somewhere who blames deregulation. I am more curious if you yourself can articulate how deregulation contributed to the financial crisis. How did you arrive at that conclusion? Or are you just taking the view that financial deregulation is bad and then looking for evidence afterwards to support that view?