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

The Guy Who Will Say Anything to Get Elected

by Tom Bozzo

Brad DeLong blogs the train wreck at a clown show that is the McCain campaign so I don’t have to (big report due in a week, sorry ). He has a twofer.

First, there’s the the McCain health plan. Or, rather, the evolution from

We’re phoning it in, to

OMG, people are looking at it and figuring out ways it might suck, so

Sweeten it, but…

That’s too expensive for our small-government-conservative narrative, and voila,

Let’s commit political suicide!!

You know, we have llike seen this before. On health care:

  • McCain started with a tax credit that was equal in aggregate to the additional tax he levied on employer-sponsored health benefits in the first year–in later years the credit became much smaller than the tax.
  • Then it was like ooops, that’s not popular. We know–we never intended to subject employer-sponsored benefits to the FICA tax, only to the income tax.
  • Then it was like ooops, now we’re scared that the plan is fiscally irresponsible and will raise the deficit. We know–we will cut Medicare!
  • Then it was like ooops, we have to carry Floria. We know–have Sarah Palin say that McCain will not cut but will protect your entitlements.

Can’t anybody play this game? If we lose the election to these clowns, I am going to be really embarrassed. It seems as though nothing is competently staffed out–as if nobody in the McCain campaign cares about actually having policy proposals, but only about having something incoherent that an ignorant and lazy reporter can be deceived into thinking is a policy proposal.

Second, on the housing crisis, McCain pulls his new bailout plan out of his behind at the “debate.” However:

But it soon develops that much of Senator McCain’s proposal is not his but Barney Frank’s, and that the differences make it not a homeowner relief bill but an imprudent banker profit and rescue bill.

And so our so-called conservatives want to nationalize negative home equity (that’s some concern for the taxpayer, there):

[DeLong quoting the Politco] “Clearly we face the trade off that we would in fact be taking the negative equity position and putting it on the taxpayers books instead of putting it on the private lenders books or the homeowners books,” Holtz-Eakin told Politico. “We think the balance of risk has shifted to the point where this is the way to go.”

Does the McCain website say that? No.

But by the time I got to the website, it read differently: – McCain-Palin 2008: For those that cannot make payments, mortgages must be re-structured to put losses on the books and put homeowners in manageable mortgages. Lenders in these cases must recognize the loss that they’ve already suffered. [Apparently that last sentence was struck by a panicked editor — ATB.]

Apparently the schmuck who was assigned the job of writing up the web description did not believe the plan could possibly be what he was told it was.

Most deliciously, someone couldn’t stop from thinking out loud in naming the “program,” such as it is: it’s the “American Homeownership Resurgence Plan (McCain Resurgence Plan).” Apparently it’s change someone can believe in.

(Cross-posted at Marginal Utility.)

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Ms Parker, Mc Cain, Party and Honor

by Divorced one like Bush

Before we get to excited about Ms. Parker’s recent calling out, consider her 9/5 opinion in What Sarah Palin brings to the Republican Party:

And relief that the first Republican woman on a presidential ticket wasn’t going to let them down. No one was going to be embarrassed by John McCain’s maverick pick.

Referring to Palin’s convention speech:

Palin delivered…What she showed was strength, conviction, determination, confidence, a willingness to rumble and fearlessness. No caribou caught in the headlights, she.

I guess Ms. Parker is referring to herself here:

Whatever conclusions the punditry might draw from Palin’s remarks, we can be fairly certain that Middle America felt nothing but redemption and salvation.

Ms. Parker note’s Palin was the savior to the point of being Democratic like:

Behind closed doors around the Twin Cities, talk focused on the need for new templates, new models. Republicans have to communicate that they, too, care about the issues Democrats have claimed as their own — education, health and the environment. They need new ideas and new — younger — faces to deliver the message.

Voila. Enter Palin.

She has animated voters who had little enthusiasm for the race. She has given them the very thing Democrats have been enjoying the past several months: hope and change.

In the end, did Ms. Parker know she was so prophetic?

That’s potent medicine. It also should come with a warning label: “May cause delusions and a false sense of power.”

Ironic no? Of course, maybe Ms. Parker really knew what was real and was hedging her bets. But that would mean all the good stuff written on 9/5/08 was just BS? Well by 9/22 she was coming out of the delusion and sense of power.

The 9/5/08 opinion and her now calling for Mrs. Palin to step down pretty much confirms that McCain et al’s campaign has been and is nothing more than one man’s quest for a trophy to the exclusion of the calling he so desires. Palin stepping down vs McCain firing her will not change the fact that she was chosen as a coach picks a play and a player. It’s all about the trophy. It’s just a game, about the win of the contest. Not about the win of the ideology of governance as Ms. Parker would have us believe.

Face it Ms. Parker, the only way for Mc Cain et al to save face and affirm that his campaign is about the country is to keep Palin. It is the only way to show conviction of his professed American ideals. If he looses the election on his ideals, he has no shame. If Palin goes, he perjures his entire campaign.

I hear Mc Cain is an honorable man. Is he? It is his honor, Ms Parker, that you are holding in your hands with this call.

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Annals of Intellectual Bankruptcy

by Tom Bozzo

Who’da thunk: Hank Paulson’s blank check giveaway plan turns out to be the best answer to the financial crisis the Republicans can come up with:

Towards the end, McCain finally spoke up, mentioning a counter-proposal that had been offered by some conservative House Republicans, which would suspend the capital gains tax for two years and provide tax incentives to encourage firms that buy up bad debt. McCain did not discuss specifics of the plan, though…

I think we know what the ‘specifics’ are:

1. Tax cuts for the rich!
2. ???
3. A chicken in every pot and a horseless carriage in every garage!!11!

Meanwhile, the decisive leader who would never poke a digit into the political wind…

…was non-committal about supporting it.

And the other Republican excuse for a leader?

At another point in the meeting, President Bush chimed in, “If money isn’t loosened, this sucker could go down” — and by sucker he meant economy.

Looks like I picked the wrong week to stop sniffing glue.

Added: See also Justin Fox via Brad DeLong.

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Now is the time to start worrying

Remember that plan of Patrick Ruffini’s, that McCain should run against whatever plan is developed:

For McCain and other Republicans, voting “no” on Paulson without accepting the consequences of that vote is the political equivalent of a bottomless crack pipe: it will please the conservative “base,” distance them from both Bush and “Washington,” and let them indulge in both anti-government and anti-corporate demagoguery, even as Democrats bail out their Wall Street friends and big investors generally. You simply can’t imagine a better way for McCain to decisively reinforce his simultaneous efforts to pander to the “base” while posing as a “maverick.”

Well, that strategy appears to have become about as useful as abstinence training in Alaska. Taking its place is the “take-charge, we-don’t-need-no-stinking-debate” MAVERICK:

I do not believe that the [ill-considered $700,000,000,000 bailout] plan on the table will pass as it currently stands, and we are running out of time.

Tomorrow morning, I will suspend my campaign and return to Washington after speaking at the Clinton Global Initiative. I have spoken to Senator Obama and informed him of my decision and have asked him to join me.

I am calling on the President to convene a meeting with the leadership from both houses of Congress, including Senator Obama and myself. It is time for both parties to come together to solve this problem.

We must meet as Americans, not as Democrats or Republicans, and we must meet until this crisis is resolved. I am directing my campaign to work with the Obama campaign and the commission on presidential debates to delay Friday night’s debate until we have taken action to address this crisis.

But don’t worry; it won’t take long:

I am confident that before the markets open on Monday we can achieve consensus on legislation that will stabilize our financial markets, protect taxpayers and homeowners, and earn the confidence of the American people. All we must do to achieve this is temporarily set politics aside, and I am committed to doing so.

This is the clearest sign yet that the Administration is about to agree to everything Senator Dodd requested: John McCain wants to take part of the credit.

Be Afraid.

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The WSJ editorial page slams…John McCain

by Ken Houghton

It was five degrees (C) warmer here this morning than the previous two days of taking the Eldest Daughter to her school bus.

Presumably, this is balanced out in part by record-low temperatures in Hell, as the WSJ editorial page (well, Thomas Frank, but still…) summarizes the McCain Position:

Last week, Republican presidential candidate John McCain called for a commission to “find out what went wrong” on Wall Street. It was an excellent suggestion: Public inquiries into Wall Street practices served the country well in the 1930s.

And Mr. McCain has a special advantage to bring to any such investigation — many of the relevant witnesses are friends or colleagues of his. In fact, he can probably get to the bottom of the whole mess just by cross-examining the people riding on his campaign bus. So the candidate should take a deep breath, remind himself that the country comes first, pull the Straight Talk Express over at a rest stop, whistle up his media pals, and begin.

Go read the whole thing.

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From the Horse’s [Mouth]

By Steam Fangs Palin (Tom Bozzo)

On 60 Minutes, John McCain helped resolve a couple of issues that occupied the comments last week.

Q1. Did McCain support Gramm-Leach-Bliley?

A: Yes, and he still does!

PELLEY: In 1999, you were one of the Senators who helped pass deregulation of Wall Street. Do you regret that now?

MCCAIN: No. I think the deregulation was probably helpful to the growth of our economy.

(Quote via Firedoglake.)

Q2. Is McCain going to outflank Obama with a populist volte-face on the bailout? (See also Krugman.)

A: Not as long as reporters can recall their ability to do a Google. Via the AP:

In the [60 Minutes] interview, McCain defended the Bush administration’s proposed bailout of financial firms as necessary, though he acknowledged it could get expensive.

“We’re going to take over these bad loans,” McCain said. “And we’re going to have the taxpayer help you out. But when the time comes and the economy recovers, then anything that’s gained back is going to go to the taxpayers first.

“I’m not saying this isn’t going to be messy. And I’m not saying it isn’t going to be expensive. But we have to stop the bleeding,” McCain said.

None of this is to say that McCain won’t continue his pattern of rampant flip-flopping by at least trying to stake out positions both for and against the bailout — as Obama deftly calls it, an “election-time conversion” — or running against all the fatcats except for Carly Fiorina and Phil Gramm (worth every penny!). And it stands to reason that the Republicans will run against the “horrible big-government program” of the Bush administration, though of course they’ll also run against the Democrats for obstructing the vital economic recovery program of the Bush administration as the situation presents itself.

PLUS: Mirabile dictu, could it be that congressional Democrats are getting the Administration to concede to the major features of the bailout plan a la Dodd and Frank?* With, in particular, equity dilution now part of the deal with Treasury, the revised bailout (Dodd discussion draft here) looks to be a huge substantive improvement over the DOA blank-check plan, and has garnered early favorable reviews from CR, Krugman, and (with some more specifics) Adam Levitin at Credit Slips. Bloomberg suggests that Republicans may bolt, but they won’t make things easy for McCain if they end up opposing the plan for being too tough on financial executives and too easy on stressed homeowners.

* From one perspective, this could be terrifying as it may signal that Treasury really sees itself as staring into the abyss.

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Dep’t of WTF (McCain and Economic Crisis Management)

At Americablog, Robert Arena writes:

Watching John McCain’s economics speech in Wisconsin. It’s like watching a modern day Herbert Hoover live. He really doesn’t get it…

– He went through a castigation of the Fed and basically told them to stay out of this – I mean, does he really not understand that the Fed was designed to regulate the financial markets? These investment and insurance companies, given their enormous size, are effectively a part of the financial services system. That was the rationale for nationalizing them instead of letting them fail. The Fed has been doing exactly what they are supposed to. Now the Treasury Department, that’s a different question – does McCain know the difference? After years on the Commerce Committee one would expect so, but maybe not.

Exaggeration? This is the text of the Green Bay speech from the McCain website:

Finally, the Federal Reserve should get back to its core business of responsibly managing our money supply and inflation. It needs to get out of the business of bailouts. The Fed needs to return to protecting the purchasing power of the dollar. A strong dollar will reduce energy and food prices. It will stimulate sustainable economic growth and get this economy moving again.

Does McCain really think that the economy would be in better shape if Ben Bernanke and company hadn’t been trying everything in the books to counteract the crisis? If so, on what basis? Could he possibly have a clue as to, e.g., what happens to the money supply in a credit crunch? Whether the Fed’s crisis management policies have constituted economic stimulus? (This is not to say that Bernanke and the Fed are infallible by any stretch of the imagination, but as Brad DeLong suggests, we at least want them to avoid the known gross mistakes of the past.)

What’s arguably worse is that this represents some form of his advisers’ “wisdom.” Which is to say, as a big picture matter neither McCain nor his economic advisers deserve to be let anywhere near the tiller of the metaphorical supertanker.

Added: DeLong concurs… also PGL at EconoSpeak.

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McCain’s Health Plan: Tax Cut or Tax Hike, and To What End?

The Tax Foundation sent me an e-mail pointing me to Gerald Prante (who’s participated in our comments section in the past) taking Joe Klein to task for calling McCain’s proposed $5,000* refundable tax credit that would offset income tax on health insurance benefits “insufficient.”

Here’s what the McCain web site has to say:

While still having the option of employer-based coverage, every family will receive a direct refundable tax credit – effectively cash – of $2,500 for individuals and $5,000 for families to offset the cost of insurance. Families will be able to choose the insurance provider that suits them best and the money would be sent directly to the insurance provider. Those obtaining innovative insurance that costs less than the credit can deposit the remainder in expanded Health Savings Accounts.

The McCain campaign already deserves a few demerits for this representation of the plan. First, they don’t mention the tax increase that the health insurance credit offsets. Second, a credit that’s provided directly to insurers in lieu of (some) insurance premiums and then could be rolled over into an HSA if there’s something left over (which there won’t be for any family buying low-deductible health insurance) doesn’t sound much like it’s “effectively cash.”

Klein calls the McCain credit “insufficient” because it won’t pay the premium for typical employer-provided family coverage. (Analysis [PDF] of the plan by the Tax Policy Center indeed yields the result that the McCain plan would not provide for much insurance uptake among the currently-uninsured.) Prante claims that Klein doesn’t know the difference between a credit and a deduction, and provides a calculation purporting to show that the value of the deduction that McCain would repeal is less than the credit:

What [Klein] fails to understand is that the $5,000 value of the credit would be worth more than the current exclusion for almost any taxpayer. For example, a family in the 25% bracket would have its income tax before credits increase by .25 * 12,000 = $3,000. However, the family would be getting a $5,000 CREDIT that trumps the $3,000 extra in taxes from the elimination of the exclusion. Even… in the 35% bracket, the family having $12,000 in insurance would come out ahead.

End of story? Not quite.

In the quibble department, Prante assumes that the federal income tax exclusion can be repealed without state tax consequences. To the extent state income definitions follow the feds, state taxes would take away several hundred more dollars of the credit.

The big question is whether today’s $12,000 employer-sponsored plan would still be available for no more than $12,000. That depends on factors such as the employer exercising its “option” to continue to offer a group plan, and healthy members of the group resisting the incentives that the McCain plan provides to defect to the high-deductible insurance/HSA combination.

While McCain promotes the “option” of retaining existing coverage, the McCain plan’s incentives exacerbate “adverse selection death spiral” problems that particularly affect small groups under current policies. That is, increasing the price of insurance coverage on the margin would encourage the healthy and/or lucky-feeling to exit relatively expensive group plans, with the tax credit intended to encourage substituting the combination of a high-deductible individual plan and accompanying HSA. This leaves the comprehensive plans’ members sicker, or at least lossier, and drives up prices for remaining participants. (Repeat until the high price collapses the plan.) The Buchmueller et al. review of the McCain plan in Health Affairs mentions but does not quantify the potential effects of breaking up existing risk pools.

For employees sent to the individual market because employers drop group coverage, Buchmueller et al. suggest that insurance expenditures would increase markedly. They indicate that the typical $12,000 group policy for a family would cost roughly $2,000 more to obtain in the individual market (and note that many plans in the individual market have lower prices but much lower coverage).

In Prante’s calculation, the $12,000 policy costs someone in the 25% bracket $9000 after income tax. The $14,000 equivalent individual policy with the McCain family-level tax credit costs $9000 after income tax. So we’ve already exhausted the purported net benefit of the McCain tax credit for a family that wants to keep its coverage but is knocked out of the employer-sponsored group market. But the situation is actually worse than that, because shifting $9000 in compensation from benefits, which apparently the McCain plan would still exempt from payroll taxes, to wages subjects the compensation in lieu of benefits to payroll tax as well. This can increase taxes up to $1377 (at 15.3%) in this example, depending on where the hypothetical family’s wages stand with respect to the Social Security contribution and benefit base (currently $102,000).

Having recently seen the Tax Foundation concerned about Obama policies that would raise tax rates a few percentage points on high earners, it would be remiss of me to point out that the combined tax rates on wages paid in lieu of health benefits would be just as high for middle-class taxpayers under McCain’s health plan. That’s 25% for federal income tax, 5% or so for state taxes, and 15.3% for payroll taxes, 45.3% altogether, for compensation that current law and Obama policies would tax at 0%! (A new Tax Foundation issue brief on the subject which otherwise mostly invents a big number for the McCain plan’s reduction in the uninsured does at least acknowledge this in passing.) Since the McCain plan would, in the estimation of Buchmueller et al., shift millions of workers and their dependents to the individual market (representing 5 to about 15 percent of individuals covered under employer-sponsored plans; references in the article), the prospect of tax increases under the McCain plan is by no means vanishingly rare. Indeed, shifting people to the individual market is basically a feature of the plan, and not a bug — a part of the program is to de-link employment and health insurance and that’s a legitimate policy goal.

This also leaves the question of just why conservative health reformers think we need to impose what amounts (vs. current policy) to a Pigovian tax on health insurance. In the companion piece on the Obama plan by Antos et al. also in Health Affairs, there’s talk of “perverse incentives” under the current system but not a lot of beef beyond econ 101-style handwaving:

The following analysis reflects the authors’ concern that Senator Obama’s failure to address the perverse incentives in the U.S. health system will exacerbate the cost problem he has argued must be solved if we are to achieve anything close to universal coverage. Tax subsidies that promote first-dollar coverage have led consumers, health care providers, and suppliers to act as if any service that might yield some value, no matter how small, should be covered. Subsidized third-party payment has helped drive up health spending and, as demonstrated by the Dartmouth Atlas, sometimes has even led to poorer health outcomes. Realistic expectations about cost, value, and the outcomes that health care is likely to provide must be better understood by all parties.

An upshot of recent health-care cost-shifting between employers and employees is that “first-dollar” coverage is now rare. I’ve had true first-dollar coverage in the distant past, ain’t got it now, and couldn’t have it for a premium that would keep my small employer-sponsored group together. A main idea behind copayments and coinsurance is to avoid some obvious free-as-in-beer-goods problems by not covering the first dollar.

Moreover, they totally beg a central economic efficiency question: given the disconnection between health care prices and marginal costs, it’s far obvious that allocative efficiency is better served by exposing consumers to something like the list prices of routine services as opposed to the co-payments or co-insurance. (Exercises: What’s the marginal cost of a $150-list-price office visit where you spend 5 minutes with a nurse and 5 minutes with the doctor? Of a $1000 CT scan? The $200 month’s supply of an on-patent drug?) Explanation of benefits forms provide routine evidence that much or most of the price of various health-care services is markup.**

Of course, dynamic efficiency considerations mean that incremental cost constraints must be satisfied somehow — marginal cost prices wouldn’t be compensatory for the doctors, clinics, and hospitals. But efficiency-improving pricing arrangments that better align prices with marginal costs such as “two-part tariffs” (where customers pay a fixed charge plus variable usage-based charges; see e.g. your electric, gas, or [limited-usage] phone bill) can look a lot more like traditional insurance with what Antos et al. characterize as “modest” cost sharing than a high-deductible health plan plus an HSA. On this front, the conservative reform approach involves an unforgivable conflation of price and cost.***

Nor do some of the “perversions” sound all that perverse as features of private or social insurance. On Obama’s proposal to establish a federal reinsurance pool, Antos et al. write:

Even though employers would welcome the subsidy, the reinsurance does not reduce health care use or cost. Instead, the policy just shifts some of the cost to the federal budget and could even increase health care spending. Insurers and providers might be encouraged to provide more services to patients who were above the catastrophic threshold since the federal government was sharing in the cost.

The proposal could also lead to anomalous results. One neonatal intensive care stay could lead to federal catastrophic payments for an employer with younger employees (and lower health costs per employee), while an employer with older workers and much higher per employee costs might receive no subsidy for the costs of managing chronic conditions.

This is just about 180-degrees backwards. True, risk-spreading does not in itself reduce the cost of health care, but it does reduce the cost of health insurance, and reducing the cost of insurance helps promote efficient (multi-part) pricing of health care. Moreover, million-dollar NICU trips and the like are exactly the sort of losses for which reinsurance is appropriate. In the absence of adequate reinsurance, catastrophic losses are a death-spiral trigger, since especially small groups end up with huge premium increases leading to collapse of the plans one way or another. As for covering chronic conditions such as aging, the factoid that most of us would like to grow old and healthy, and be well-cared-for in the alternative, suggests a role for intergenerational transfer mechanisms for equitable distribution of the costs.

It might be argued that the reinsurance services could be provided privately, but what I’ve heard from people involved with such matters at local health insurers is that health care reinsurance isn’t a candidate for Marginal Revolution’s ‘markets in everything’ series.

Hoisted from our archives, here’s Kash from 2004 addressing the question of whether the reinsurance pool (also a Kerry proposal) would increase costs:

How would this national reinsurance pool help our nation’s health care problem? In a couple of ways. First and most obviously, it would simply reduce the cost to health insurers of providing health insurance, resulting in lower premiums. Part of this cost would be shifted to taxpayers, but as we shall see, the cost to taxpayers will be less than the savings reaped by people buying health insurance…

Think of it this way. Since the claims for one seriously ill person can easily reach $100,000 or more in a year (while most people’s claims are probably just in the hundreds of dollars), it’s much harder for an insurance company to predict what the aggregate health care costs will be of a group of 10 people compared to a group of 1,000 people. The law of large numbers means that you can pretty much rely on population averages when trying to guess how much health care the large group will need over the year; but for the small group, you either have to spend a lot of time and energy evaluating each of the 10 individuals to estimate each one’s likely health care needs for the coming year, or else you have to just take a chance. And insurance companies hate just taking chances.

The best estimates that I have seen by an economist of the effects of this reinsurance proposal are those by Kenneth Thorpe, professor at Emory’s school of public health. He estimates that the Kerry plan would reduce the variance of firms’ insurance claims by about 50 percent. This in turn will have two effects. It means that it will become dramatically cheaper for small firms to provide health insurance to their employees. Combined with the plan’s requirement that all participating firms offer health insurance to all employees, Thorpe estimates that about 3 million currently uninsured people will start receiving health insurance. This in turn will help to reduce the country’s overall health care costs by allowing more preventative care and early detection of health problems.

That is, since insurance costs depend on the variance of the losses, insufficient reinsurance implies higher risk premia paid to insurers, and those premia are big.

So McCain policies would raise taxes on lots of middle-class workers and dramatically increase marginal tax rates on some middle-class earnings regardless of the net benefits (something conservatives wring their hands over in other contexts), not obviously in service of aligning health care prices and marginal costs and without features that promote efficient risk-sharing. That’s changiness we shouldn’t believe in, my friends.


* For a family; individuals would get $2500. Observe that there’s a family insurance penalty in the plan, as family plan premiums are commonly more than double individual premiums.

** E.g., the negotiated price between my health plan and the UW hospital for my son’s emergency appendectomy last year was roughly 1/3 of list.

*** Yes, people use “cost” when they mean “price” colloquially all the time; the problem is not considering price/cost ratios carefully when arguing that one price promotes economic efficiency better than another.

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John McCain Made the World Profitable for Canadians?

Via Dr. Black, Douglas Holtz-Eakin eliminates his last shred of credibility as he tells us what John McCain invented:

“He did this,” Douglas Holtz-Eakin told reporters this morning, holding up his BlackBerry. “Telecommunications of the United States is a premier innovation in the past 15 years, comes right through the Commerce Committee. So you’re looking at the miracle John McCain helped create and that’s what he did.”

And the Blackberry is made by that fine American company Research in Motion, based in Waterloo, Ontario.

I can’t wait to hear how John McCain invented WATFOR and WATFIV as well.

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Newsweek (blog), via TBogg:

Douglas Holtz-Eakin, the former chief economist at the Council of Economic Advisers who has been serving as top economics guru for the McCain campaign, has moved over to serve as Palin’s chief domestic-policy adviser.

A while back, a commenter who’d worked in his shop remarked on Holtz-Eakin’s great sense of humor. Looks like he’ll need it for all those questions about the best policies to bring big-box retailers to the Alaskan bush.

P.S. Good question from Don Pedro at E4O:

So which of those sitting on McCain’s economic policy adviser backbench are stepping up to man the helm? Does this mean that Phil “you’re all a bunch of whiners” Gramm is running the show? Maybe an enterprising journalist should ask.

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