Relevant and even prescient commentary on news, politics and the economy.

When Presidents must look like they perform well

All the fuss still ignores main driver of popularity says Steve Korniak at Salon:

That’s because, for all the talk about whether he gave away too much on healthcare or hasn’t reacted angrily enough to the oil spill, Obama (like every president) is a prisoner to the economy. As long as the unemployment rate remains high, no amount of “magic” will restore Obama’s robust January 2009 poll numbers. (At this point, only some kind of international or terrorist incident, which might produce a rally-around-the-flag effect, could do so.)

It is absolutely not a coincidence that the basic themes of Blow’s column were also sounded by pundits in the first half of Ronald Reagan’s first term. Reagan, after all, was the last president to deal with double-digit unemployment. (His presidency also began with broad popularity, high expectations, and a souring economy — sound familiar?) At virtually this same point in his first term (August 1982), Reagan’s approval rating dipped to 41 percent. It was seen as a stunning decline for a man who had been elected in a 44-state landslide less than two years earlier. The unemployment rate when that survey was conducted was 9.8 percent, and trending upward. Today, it is 9.7 percent, with no substantial drop on the immediate horizon.

None of this is to say that Obama hasn’t made mistakes, possibly big mistakes, in his presidency. But they are not the reason why his poll numbers are where they are. Mass opinion doesn’t respond to the details of policy, no matter how important they might be. It responds to the economy. If the economy turns around, Obama’s numbers will, too. If it doesn’t, they won’t. There’s really nothing magical about it.

I believe voters overall do not allow nuance to impact their votes…it is a forced choice game anyway, which may or may not match up to personal thinking or feeling. One of those major drivers is perceived performance and expectation of the ‘economy’ personally or for people we know…examples of the focus on ‘economics’ are everywhere, even if couched in other terms.

Tags: Comments (27) | |

Chinese Yuan

The economic headline this morning is that China has agreed to allow the yuan to appreciate.

The announcement is being credited with about a 1% higher opening for the stock market and numerous pundits are claiming this will make a significant difference.

But this has happened before and it had little impact. From 2004 to 2007 the yuan appreciated some 20%. But the net impact was about a 1% rise in the price index for US imports from China and essentially no impact on the US trade deficit with China.So why should anyone expect a different reaction this time?

Tags: , Comments (9) | |

Presidents, the Tax Burden and Corruption – Explaining Economic Growth

by Mike Kimel

This post appeared in the Presimetrics blog.

Presidents, the Tax Burden and Corruption – Explaining Economic Growth

One of the topics we cover in Presimetrics is the relationship between the tax burden (i.e., the share of income going to taxes) and economic growth. As shown also in a recent post, Presidents who cut the tax burden tended to produce slower growth than Presidents who raised the tax burden.

In this post, I want to begin to address causality. As we stated in the book and as I’ve since said a few times, I don’t think higher tax burdens in and of themselves cause faster economic growth, but rather that increasing tax burdens are correlated with some other criteria that create conditions that help produce economic growth.

But let us start by addressing the issue of timing first. A number of people have indicated in comments or offline that perhaps the reason for the strong correlation between tax burdens and economic growth could be because when the economy is growing rapidly, Presidents feel comfortable boosting taxes.

I’ve pointed out a few a problems – theoretical and empirical – with this line of argument, but I think I can illustrate it best with a simple graph. Since 1929, the first year for which data is available from the Bureau of Economic Analysis’ National Income and Product Accounts (NIPA) tables, there have been five Presidents that have served an eight year or more term: FDR, Ike, Reagan, Clinton and GW. Additionally, there are several more “quasi-eight year terms.” These are instances in which a VP took over upon the death or resignation of the President and maintained a similar a policies similar to those of his predecessor (JFK/LBJ and Nixon/Ford), or in which a VP took over a mere few months into a new terms and thus could put his own stamp on just about the entire eight years (Truman).

The graph below shows the change in the tax burden in the first two years of each administration on one axis and the growth in real GDP per capita during the remaining six years of each administration on the other axis.

Figure 1

Notice… increases in the tax burden in the first two years of an administration tend to be followed by rapid growth during the remainder of that administration. Conversely, administrations that greatly decreased the tax burden during their first two years suffered from poor economic growth during their remaining six years. This relationship, at least, is very difficult to explain by insisting that administrations which enjoyed rapid growth simply were more able to raise tax burdens than administrations which grew more slowly. It is also impossible to explain by anything said by anything you hear out of the Austrians or the Chicago school.

(Incidentally – I have a simple explanation for why some administrations appear above the regression line and some below. I know that it applies to the administrations that begin in 1952 because I’ve written about it in the past. I’ll collect the data going a bit further back and some time in the future will write a post on that.)

So what is going on here? Michael Kanell and I advanced several theories in Presimetrics but the one I think makes the most sense is that changes in the tax burden are a sign of the degree to which an administration enforces laws and regulations. Consider this graph that appeared in a post last week:

Figure 2

Notice that among the Presidents to increase the tax burden are some who raised marginal tax rates (FDR, Clinton), others who decreased it (LBJ), and others still under whom marginal tax rates didn’t change. Similarly, tax burdens fell under some Presidents who cut marginal rates (Reagan, GW), Presidents who raised marginal rates (Bush Sr.), and others who left it unchanged. And for tax burdens to fall at a time of increasing marginal rates really requires more people avoiding taxes they legally owe. Similarly, for tax burdens to rise at a time of decreasing marginal rates one would need more people paying the taxes they legally owe. Thus, enforcement.

Furthermore, an administration willing to turn a blind eye toward one set of laws and regulations is probably more than willing to turn a blind toward other rules and regulations. It is not a coincidence that aren’t keen on tax collection also tend to view the government as the problem and not the solution.

Now, corruption (and let’s call it what it is) is a tough thing for which to test. But I think I there are signs that often appear among corrupt regimes, and one of them is the displacement of private sector by the government. Running an honest business when the government is dishonest is very difficult. The government will side with its favorites and everyone else will have a tough time. It becomes easier to make a buck by playing legal technicalities than by actually doing something useful. This is not to say that some countries do not succeed in having large government sectors without remaining honest and transparent – I suspect Denmark and Singapore are examples of that, though I’m not all that familiar with data for those countries. But we are not Denmark, and if a regime populated with flacks who insist they believe in small government takes over a growing piece of the economy despite taking steps to “encourage the private sector” it probably isn’t a good sign.

So with that… the next graph shows changes in the tax burden in years 1 and 2 on the one hand, and changes in the size of the federal government’s expenditures as a share of GDP during the remaining six years on the other hand.

Figure 3

Notice that administrations that started off by cutting the tax burden also went on to increase the government’s share of the economy. That relationship is stronger and more evident if one looks at changes in the tax burden in the first four years of an administration against changes in the size of the federal government during the remaining four years.

Figure 4

Clearly, in general, the more an administration cut the tax burden in its early years, the smaller the private sector’s share of the economy it its later years, contradicting all rhetoric of the tax cutters, not to mention all Chicago or Austrian “economic theory.” After all, those folks will tell you that lower taxes are going to jumpstart the private sector, right? Not what happened in the real world, is it?

Notice also that the relationship is stronger for the four post-War Presidents that served a full eight years than for the entire sample. A switch in administrations could lead to a break in our little “lower taxes as a sign of corruption shrinks the private sector” story. I note also something else… take a look at where FDR sits on the graph above. Does that fit with the accepted FDR narrative in this day and age?

Which leads me back to corruption. If cuts in the tax burden are a sign that the federal government is tolerating corruption, one would expect that administrations that start off by cutting that burden would end by seeing the private sector shrink relative to the public sector. And that is precisely what we have seen.

Do you have a better explanation?

Data sources and comments.

The definition of the tax burden used in this post is Federal government current receipts from line 1 of NIPA Table 3.2divided by GDP from NIPA Table 1.1.5, line 1. Real economic growth was measured as the change in real GDP per capita, which was obtained from NIPA Table 7.1, line 10. The government’s share of the economy is measured the federal government’s current expenditures (line 23 of NIPA table 3.2) divided by GDP.

Note that in past posts I have tended to only consider the first eight years of the FDR administration to avoid even getting close to the war years. As noted in previous graphs, even leaving out the years after 1938, FDR oversaw the fastest economic growth or any President for whom there is reliable data available. However, in this post, I was trying to remain consistent by sticking to 8 year stretches of data. Note also that, as shown in the fourth graph, the federal government’s share of the economy actually shrunk from 1936 to 1940.

Growth rates are measured from the year before a President took office to his last year in office. Note also… if its not obvious, this post deals with the tax burden, the share of GDP going to the Federal government, and not marginal tax rates. Please do not insist on commenting on a topic unrelated to this post.

Tags: , Comments (115) | |

Medicare Fee Ordeal- Continued

Tom aka Rusty Rustbelt

Medicare Fee Ordeal – Continued

As of Friday the Senate has passed a six (6) month patch to counter the Sustained Growth Rate formula cuts directed at most physicians.

The average for all physicians was a 21% cut, with changes ranging from primary care (+6%) to cardiology (-42%).

The House will consider the patch next week, and is likely to pass the necessary legislation.

CMS contractors will process claims from June 1 forward – someday. This will really help cash flow in medical practices.

Stay tuned.

Tags: Comments (22) | |

Peanut Butter Regulations

by Rusty Rustbelt


Watching people spread peanut butter is interesting.

I am a semi-neurotic peanut butter spreader, I try to cover most of the bread and try to get the thickness close to even, but I am not a perfectionist-neurotic spreader. There are also slap-and-eat messy spreaders.

Having dealt with a wide range of government regulatory agencies over 35 years, dealing with both health care and small business, I am familiar with “peanut butter regulation.”

Peanut butter regulation spreads regulatory effort evenly over all regulated entities, even when it is well known that 20% of the targets represent 80% of the problems.

Nursing home regulation comes immediately to mind. Also food safety. And the SEC.

Regulation and regulatory capture are a hot topic these days. Do we need more targeted regulatory efforts?

Peanut butter regulation reminds me of drunk driving checkpoints, stop everybody and eventually the cops find a drunk. Is there a better way?

Some regulators are complaint based, such as wage-and-hour and OSHA, should these agencies be more like peanut butter?

We gotta get better.

Tags: , Comments (7) | |

Younger v. Harris ‘Doctrine’

by Beverly Mann
originally posted at The Annarborist

A Blueprint for Avoiding the Younger v. Harris ‘Doctrine’ In Some Cases

The U.S. Court of Appeals for the 3rd Circuit last month enjoined a Pennsylvania county prosecutor’s office from indicting teenage girls who had sued in federal court because their county’s prosecutor was threatening “sexting” indictments unless the girls agreed to attend a months-long class devised by the prosecutor to educate the girls about the prosecutor’s sense of sexual morality for teen girls. The case is Miller v. Mitchell.

The court’s opinion gained widespread attention in legal circles. And not only because it concerned the hot topic of teen sexting. The ruling was based, surprisingly, not on grounds specific to sexting but instead on the prosecutor’s interference with what the court said was the kids’ parents’ constitutional right to decide, free of state interference, what “ideas of morality and gender roles” their children will be taught. And on what the basis that the prosecutor’s indoctrination-by-extortion plan violated what the court said was the kids’ free speech rights to not be compelled by the state to write a mea culpa essay in conformance with the prosecutor’s sense of morality.

The opinion is being hailed as a civil rights victory. And it is a civil rights victory, but not just for the obvious reasons. Other civil rights advocates thought, “This is a big free-speech victory.” And, “This is a big parents’-rights victory.” Me? I thought, “This sets a blueprint for avoidance of the Younger doctrine.”

The Younger doctrine?

The Supreme Court regularly engages in the extracurricular activity of proclaiming court-created ‘doctrines’ that undermine the Civil Rights Act of 1871, 42 U.S.C. § 1983, the statute that is the main federal statute that provides for access to federal court in order to challenge the constitutionality of a federal, state or local law or government policy, or an action of a particular government official or employee.

One of those court-created doctrines is the “Younger abstention doctrine,” named for a 1971 Supreme Court opinion called Younger v. Harris, 401 U.S. 37(1971), the case in which the doctrine originated. The essence of that doctrine originally was that, in the name of neo-federalist comity toward states, federal courts are required to “abstain” from hearing any civil rights claims brought by a person who is currently being prosecuted for a matter arising from that claim. The Supreme Court later expanded the doctrine to require the lower federal courts to abstain from hearing constitutional challenges to a state court’s procedural or substantive handling of civil cases during the pendency of the case in state court. The doctrine does have a few eye-of-the-judicial-beholder exceptions, which are rarely invoked.

The companion court-created Rooker-Feldman doctrine is (erroneously) interpreted by the lower federal courts to prohibit them from hearing such constitutional claims in civil lawsuits once the state-court case is over, ostensibly for lack of subject-matter jurisdiction. (Rooker-Feldman will be the subject of a later article.) Habeas corpus law does allow challenges to the constitutionality of state-court criminal proceedings once the state-court appellate process is completed, but the two doctrines combine to effectively remove constitutional restraints from the judicial branches of state governments in civil cases.

The Supreme Court has never explained why it believes that these types of court-created federalist comity should apply to state judicial branches but not to the other two branches of state government. But I suspect it is a matter of professional courtesy. Or a matter of what they think they can get away with without dismay from the public. The very purpose of this jurisprudential “federalism” ideology is to flip the meaning of the Constitution’s Supremacy clause.

Justice Clarence Thomas, a professed originalist/textualist, speaks, for example, eloquently about what he and other federalists call the “dignity” of the states as sovereigns that will suffer humiliation by interference from a federal court. The dignity of the states trumps the dignity of the individual. Unless some specific right dear to his particular heart is at issue. Think Second Amendment. Or Fifth Amendment’s “takings” rights.

The kids who along with their parents sued in Miller were lucky. Had they waited until an indictment was issued, they could not have challenged the constitutionality of the criminal statute as it was being applied to them, and they could not have challenged the constitutionality of the prosecutor’s conduct, however bizarre and clearly violative of constitutional rights. The Younger doctrine would have prevented it. They would have had to endure a full prosecution and, if convicted, years of appeals, and if necessary, the years-long federal habeas process, in order to test in federal court the constitutionality of the prosecutor’s actions. Instead, because they filed their lawsuit before any indictment was issued, the legal process for them ended swiftly with a federal-court-issued temporary restraining order.

The moral of this story is that individuals who are in danger of prosecution under a statute they wish to challenge as unconstitutional, or who want to contest the constitutionality of the prosecutor’s conduct of the investigation, have a blueprint for avoiding the Younger doctrine: they can file their lawsuit under § 1983 before the indictment is filed in state court.

In civil (non-criminal) matters, though, the dignity of the states will have to rest upon the continued evisceration of § 1983 and the Supremacy Clause.

Tags: , Comments (1) | |

Which do you trust less – Big Business (including Wall Street) or Big Government?

Robert Reich asks and answers the question “Which do you trust less – Big Business (including Wall Street) or Big Government?”:

But fundamentally, the debate is absurd.

It’s not the purpose of the private sector to protect the public. Companies like Goldman Sachs, Massey Energy, WellPoint, and BP will do everything they can to make money. They owe allegiance to their shareholders. Hopefully along the way they also make great products and provide terrific services. If the market is competitive, both consumers and investors gain.

The purpose of government is to protect and enhance the well-being of Americans. Its job is to protect the public from corporate excesses — enacting laws that bar certain actions that may hurt or endanger the public, and fully enforcing those laws.

We get into trouble when the two sets of responsibilities are confused – when big business and Wall Street spend vast amounts of money trying to influence government, and when government officials (including the officials of regulatory agencies) pull their punches because they’re aiming for lucrative jobs in the private sector.

The real challenge of our time has nothing to do with whether one trusts Big Business and Wall Street more or less than Big Government. The challenge is to keep the two apart, each focused on what they’re supposed to be doing. (That’s why, for example, I still think it unwise to have BP run the operation to plug the hole in the bottom of the Gulf.)

Comments (37) | |

If your advertizing budget is small

Jon Walker at FDL begins a chat on politics and agendas. The big picture is built on thousands of pixels…so is national politics apparently if your advertizing budget is small.

The elected officials in the cooperatives formed a large pool of potential recruits to run for political office and to be elected to positions within the CCF. By being position- holders, these potential candidates also had a built-in base with a trusted network of potential supporters within their cooperatives. We know that being elected to a position, regardless of how small, is a great predictor of a person’s willingness and ability to win larger elections. Nothing breeds success like success.

For example, running for Congress seems like a daunting hill to climb. But if you have been elected as the chair or treasurer of the local chapter of an organization, you might feel comfortable using that as a base of support for run for town council. Going from town council to, say, state legislature might then feel like a modest progression. The jump from state representative to Congress becomes a less frightening undertaking.

Several political movements have shared the pattern of candidate development by moving leaders from relatively modest spots in local associations to more important offices. The Christian right developed local leadership among those elected to positions in churches and school boards. The churches served a similar organizing and unifying focal point that cooperatives did for the CCF. These churches are incubators for electing community leaders: deacons, elders, prayer or fellowship meeting leaders and more that in turn use these positions as a base to run for higher office.

Progressives could learn a lesson about leadership development from the CCF and the Christian right. I’m disappointed that the progressive movement does not have an overwhelming number of small, locally elected positions in independent organizations. Nor are there many strong financial and social networks that lean progressive but are not purely political, with local elected leadership. By promoting local chapters and associations with high levels of involvement, electing minor local position holders, a progressive organization can create a broad pool of talent to draw from for future leaders and candidates for higher office.

Tags: Comments (0) | |

Alan Simpson

Firedoglake takes on Simpson: Alan Simpson: Cutting Social Security Benefits to “Take Care of the Lesser People in Society”

…cuts he would recommend to the President and Congress on CNBC, Simpson said “We are going to stick to the big three,” meaning Social Security, Medicare and Medicaid. His sentiments haven’t changed.

(Rdan here…the transcript reads faster than the talk. I really worry about rational thought on the part of some of the players in the Senate. I received a fund raising letter from the Democratic National Party a few days ago. My personal response will be a short letter instead of a check, and separate checks to local races of my choosing.)

Tags: Comments (22) | |