Victims of our own success?

Over the last two days, the Supreme Court has handed down its biggest decisions from the last term.  Some were a really big deal (section 4 of the Voting Rights Act was struck down).  Others, I would argue, won't make all that much of a difference in people's actual lives in the medium run.  Since I haven't gotten to read any of the decisions yet (thanks, Bar Bri), I don't have an opinion yet about whether I agree with the legal reasoning.  But from a practical perspective, after a highly scientific glance at my Facebook feed, I'm pretty sure 95% of people don't really know what DOMA actually did, or realize that the decisions didn't expand the institution of gay marriage outside of California; the ability for a couple to file taxes jointly actually results in less take-home pay if both spouses have similar incomes.  Mostly I'm complacent about that one because, given how far gay rights have come just in the last decade, codified anti-gay discrimination will be just about dead by the end of the decade anyway; in other words, the war is pretty much over, and these are the final shots.

But the case that I found really interesting was the one that gutted the Civil Rights Act.  Section 4 used to require certain states (basically, the old Confederacy) to pre-clear changes to their voting procedures with the Department of Justice to ensure that they don't discriminate against minorities.  The reason for that is that, historically, the old Confederacy has been really really racist and done its best to keep black and brown people from voting (and, until a generation or so ago, drinking from the same water fountains or going to the same schools).  Every so often, Congress has to re-authorize the Civil Rights Act.  Last time it did this was in 2006.  This passed overwhelmingly because voting against a law called the Civil Rights Act is really really bad PR.  So the challenge that came down essentially argued that, since the Civil Rights Act was passed, it's gotten a lot easier for black and brown people to vote, so we don't need the law anymore.  Paul Campos from CU-Boulder law makes a somewhat disingenuous case at Salon for why the logic behind this is circular.

The argument is essentially that conservatives' logic behind repealing the Voting Rights Act (and really a lot of other legislation) is fatally flawed.  In this case, the argument is that the VRA did such a great job of enfranchising minorities that... we don't need it anymore.  But this isn't the only place where this logic applies.  The modern right wing is built around the idea that government is always bad and any regulation is bad regulation.  Get rid of all regulations and the economy will take off, the financial system will become more stable, unemployment will disappear, etc. etc.  It's all baloney, of course, but that's the theory.  But their case for it is always built on contorted logic that, at its root, is based on the reality that regulation in plenty of areas HAS worked effectively.  To take a couple of pointed case, pollution and financial regulation.  Rand Paul's argued in the past that we don't need to regulate carbon emissions because... we've been improving the quality of our air over the past few decades.  Without realizing that our air quality is improving because, you know, we've regulated it in the past.  So the logic is that, because air quality has improved with regulation, we need to do away with the regulation because air quality has improved? 

The same thing took place over the course of decades with the financial system.  After the stock market crash that started the Great Depression, the modern financial regulatory infrastructure was erected in the US.  We got, among other things, deposit insurance to stop bank runs, a separation of commercial and investment banking to limit risk at banks, the SEC to police the securities industry and promote disclosure, and other changes.  Some of these changes were hugely successful.  Others were probably superfluous (the argument that repealing Glass-Steagall in 1999 led in some direct way to the financial crisis of 2008 is... very weak at best).  But, for the most part, the regulatory infrastructure of the 1930's got us probably the most stable, prosperous few decades in modern economic history.  And that worked so well that, around the mid-1970's, we got a push back from the industry arguing that regulation was unnecessary.  Because there hadn't been a financial crisis in a generation, they argued, industry had gotten so good at policing itself that government wasn't needed.  And, steadily, they got some of what they wanted.  Some of that was probably good policy (interest rate caps were never a great idea), some was bad policy, but the general movement was definitely toward deregulation.  And we had a few small-scale meltdowns; the S&L crisis in Texas came more or less directly out of deregulation, and the collapse of the hedge fund Long Term Capital Management required a private sector bailout.  While the regulatory framework of the 1930s was woefully inadequate for handling a meltdown of the 21st century financial system, the general movement was in the wrong direction-- instead of realizing that the framework of the 1930's worked exceptionally well for decades and needed to be updated to accommodate the new reality of the 1990's and 2000's, the framework of the 1930's was dismantled because, well, didn't financial stability mean that it was unnecessary?  As it happened, the answer was obviously not.  But then, when you think about it, it really doesn't make any sense as a worldview.  It's like a farmer arguing that, since he started watering his fields, his crop yields have been great, so he doesn't need to water his fields anymore.

The Civil Rights case is slightly different, sure.  The reason I wasn't compelled by Campos's argument comparing a higher drinking age with incidences of alcohol-related death is that alcohol will always impair drivers.  Laws to remedy racism are necessary so long as people are still racist.  But the answer, in this case, is pretty clear.  Right after the Supreme Court struck down Section 4, the same old Confederate states (I'm looking at you, Texas) rushed out to pass Voter ID laws and other legislation that they wouldn't have been allowed to implement under Section 4.  And it's painfully obvious that the point of Voter ID isn't to prevent voter fraud (which literally just about never happens), but to keep people who are unlikely to have IDs (poor black and brown people, who happen to vote Democrat) from voting.  That very rush to pass legislation should be viewed as egg on the Supreme Court's face.  The instant they came out and declared that we don't need the VRA because people aren't racist anymore... the same states it applied to went out and told the Supreme Court (and America), "Yeah, we're still definitely racist."

I guess the lesson to take from this is... don't pass regulations that work too well.  Because then we'll decide that we don't need regulations anymore.  As an argument, it's just a little bit questionable.

On Expectations-based policy

I haven't written anything in a long time.  Mostly because I've been doing my last semester of law school.  Which is the best time of anyone's life.  It's like your birthday between ages 5 and 10.  Except that instead of once a year, it's your birthday every day.  It's great.  But that's over now, and I've gotta devote my energy to studying for the bar.  Which, of course, means putting that off by writing about things that I find more interesting than personal jurisdiction in New York.  Also, unlike personal jurisdiction in New York, I choose the things I write here, so I might actually know something about them.

Today's topic is really two parallel topics with a single theme: the ways economic policymakers have used (and abused) the idea of expectations-based policy to push different approaches to fixing the economy.  Unsurprisingly, one of these approaches is much much better than the other.  On the one side, we've had the expansionary austerity types.  Standard economic theory is pretty clear about the effect of austerity-- contractionary fiscal policy (meaning spending cuts or tax hikes) by the government is, on net, contractionary.  Of course, it doesn't have to be contractionary overall-- an economy can cut spending but still grow if the central bank counteracts that with looser fiscal policy.  Which, under present conditions, is more or less unavailable in advanced economies in which, more or less across the board, interest rates are close to as low as they can go.

The idea behind expansionary austerity is that what's really holding back economies is... budget deficits.  Ignoring the reality that budget problems across more or less all of Europe (Greece being a notable exception) and the US were caused by a collapse in tax revenues due to the economic crisis, expansionary austerity types decided that people and businesses aren't spending or investing because they're afraid that, someday, when the economy recovers, they'll have to pay higher taxes to service their nations' debt.  The logic is as convoluted as it sounds.  And just as wrong.  The reality is that people aren't spending because they either don't have income (or their income comes in the form of unemployment benefits) or they're afraid of losing their source of income.  And businesses aren't hiring because they aren't moving products.  They're still immensely profitable (the surge in the stock market is a pretty good indicator of that, especially since P/E ratios are pretty close to historical averages, unlike those of the bubble years in the late 90's), but that's largely because big public companies both have access to overseas markets and have disproportionate power in the labor market-- workers don't have much space to demand higher wages when a big chunk of the workforce is still out of work and would gladly take the job.

But expansionary austerity, on the basis of the magic idea of "confidence" has been plenty influential on the American and especially the European right, mostly because I think people like to think of economics as a morality play where we need to repent for past sins by punishing the undeserving (read: poor people).  So we get fiscal contraction in a depressed economy, with the justification that it will all pay off when "confidence" returns.  So Europe tried it.  Spoiler alert: confidence didn't return.  Instead, they got a Depression that's been worse, for the most part, than the Great Depression for most of the continent.  With no intellectual edifice for this disaster (Expansionary austerity folks loved to point to a paper by Alesina/Ardagna that seemed to say that austerity could be expansionary; it was hugely clear to anyone that actually read the paper that they didn't, you know, control for monetary policy, which made the whole exercise worse than useless.  Reinhart/Rogoff 2010 was also briefly used for this purpose; I never put much stock in the causal story in that one, but everyone knows what happened to that one), hopefully expansionary austerity will finally go into the desk drawer where policymakers put the rest of their worst ideas.

On the other hand, a group of economists ranging from the Keynesian left (like Paul Krugman) to the right (Scott, Sumner, Greg Mankiw, Ken Rogoff) to the center (Ben Bernanke, Michael Woodford) has suggested that a concerted effort by the central bank to commit to a slightly higher rate of inflation (say, 4% instead of the unofficial 2% target) or a nominal GDP number, which essentially have the same effect, would induce a change in market expectations and stimulate spending.  The idea is that, with inflation expectations well-anchored now, and indeed running persistently below target, people aren't sufficiently induced to spend.  In particular, corporations sitting on cash (and American corporations have a LOT of cash on hand) would need to spend that cash on something or risk the value of the cash eroding, since inflation reduces the nominal buying power of cash.  The trick to this is that inflation is somewhat self-fulfilling.  When people expect prices to rise, they demand higher wages.  When they demand higher wages, they tend to get those higher wages and can spend more of them on the same products.  At the same time, savers have to move their cash into some higher-yielding use.  That might mean stocks, but it frequently means investments with positive net-present value that boost employment and other productive activities.  At the same time, higher wages mean that the real value of outstanding debt falls, since the same nominal debt is less of a burden for someone whose income is rising.  Given that our collective debt (mostly still private debt that came out of the mortgage collapse, where people found that their homes were worth less than their mortgage debt) is still a drag on the economy, higher inflation makes paying down that debt easier and quicker.

So how is this second approach different from the first? Well, to start with, if it fails, the worst-case scenario, absent a complete bungling of policy on the part of the central bank, is that nothing happens.  Under present conditions (short-term interest rates at close to 0 and unemployment persistently high), expansionary monetary policy by itself doesn't do anything (since you can't have a nominal interest rate below 0; people will just hold cash).  So, if monetary stimulus doesn't stimulate, you're in the same place that you started.  The idea behind unconventional monetary stimulus at this point is to move expectations so that monetary stimulus essentially becomes self-fulfilling (there's also a real element to it; it doesn't matter how much inflation people expect, if there isn't enough money circulating to get them pay raises, there won't be any pay raises, just higher unemployment).  If inflation does take off, well, central banks have tools to deal with that.  If it doesn't, you're in the same place you started.  In fact, the people I listed have different levels of confidence in how effective inflation targeting actually will or can be.  Scott Sumner is very confident.  Paul Krugman isn't so confident, but his position amounts to "It might not work, but we might as well try this, along with fiscal policy." ( As a card-carrying Keynesian, Krugman has a lot more faith in fiscal policy to do the job with interest rates at zero.)  In other words, it's a hope with pretty limited downside.  Inflation targeting also has the added benefit of not being the exact opposite of what textbook economics says you should do when the economy suffers from insufficient demand (like, you know, contractionary fiscal policy).

Shockingly, I come down in the second camp.  I have no clue how effective NGDP/inflation targeting can be, but I figure, as long as the economy is depressed, there's no reason not to try.  It's a hope, but it's a hope that we might as well try.  On the other hand, summoning confidence through expansionary austerity, for a lot of people, was a plan.  And it was a plan that, predictably, was a very human disaster.  And for that, those who pushed it should be ashamed.

Kobe beats aging

I'm not old, but I've been an NBA fan since forever.  I first got into the league right before Michael Jordan came back (the first time he came back, not the time he crawled back onto the floor, barely made it up and down the court, but still averaged 20 by (re) inventing the pump fake).

The game's changed some since then, but one thing's remained pretty constant: players age, their athleticism wears away, and they have to reinvent themselves.  It happened to Jordan, who came into the league as one of the best athletes the game had ever seen, then turned himself into the best all-around player of all time, so much so that people hardly noticed that, by the end of the Bulls' second three-peat, he was barely an average (by NBA standards) athlete.  And a lot of other guys who were dominant late in their careers were similarly athletic.  Remember when Shaq used to run the break?

Then Shaq got old and fat, became a Phoenix Sun, and the rest was history.  One thing that hasn't changed about aging, though, is that it tends to run one way.  Sure, a guy like Grant Hill can come back from 4 years of ankle purgatory and become a serviceable player again, but the Grant Hill of the last few years looks nothing like the super-athletic Scottie Pippen clone who came into the league way back in the day.  Even in the best cases (like Jordan's), guys who lose some athleticism find ways to compensate in other ways.  Typically, by age 32 or 33, if a shooting guard is effective, it's because he's got amazing balance, a lights-out stroke, and a ton of smarts.  Which is what makes what Kobe Bryant's been doing this year so ridiculous.

Now, when Kobe came into the league, he was an athletic specimen.  Still raw at that point, but he was a Jordan-Vince Carter-level athlete.  Remember this?

Well, over the years, Kobe got older.  Coming into the league at 18, he had even more tread on his tires than guys like Jordan who spent 3 years playing 30-game seasons in college.  So when Kobe hit his 30s, it was inevitable that he'd slow down.  And he did.  Instead of dunking over guys, he got his shot punched by Darko Milicic.  And when you get your shot punched by Darko, you know you're over the hill athletically.

So, like every NBA fan, I expected Kobe to turn into a lite version of mid-30s Jordan (just like Kobe in the last decade was a lite version of late-20s Jordan).  He'd pump fake his way to 25 points a night, struggle to elevate at the rim (if he even tried) and eventually find his body failing him.  Which is what happened for awhile.

Then this season happened.  At first Kobe just looked like he was having a super-efficient season.  He was dropping close to 30 points a night, shooting near 50%, and carrying a shallow Lakers team on his back (at least offensively).  Then, slowly, it became clear that this wasn't a typical 34-year old superstar type of efficiency.  This was Kobe somehow reversing the aging process, and the highlight videos started to show it.  First, he turned the corner and threw it down over Gerald Wallace and Kris Humphries (nee Kardashian) in Brooklyn.

But Wallace is getting older (and has clearly been fading as an athlete) and Kardashian stinks.  So I took it with a grain of salt until this happened.

Now, Kobe didn't exactly go over him, but that's Josh Smith he went by for the dunk.  Josh Smith isn't old (27) and he's still one of the best athletes in the NBA.  Simply, he gets up HIGH.  And Kobe, at 34, managed to throw down after going by him.  That's impressive for a 24 year old, much less a 34 year old.

So what's going on with Kobe? How did he manage to reverse the aging process? Well, part of it is no doubt that he works hard.  But that's not unique-- Jordan worked at least as hard, and he wasn't dunking on Kevin Garnett in 98.  And part of it is probably that platelet-rich therapy treatment he got for his knee that's supposedly done wonders for him.  But he's not the only one that's had that treatment, and Tiger Woods and A-Rod haven't exactly returned to peak form after getting the treatment, despite playing FAR less physically demanding sports.  So is Kobe just a genetic freak like Adrian Peterson; a guy whose body works differently from yours and mine and can absorb a pounding infinitely better? Maybe.

But the return of Kobe's athleticism strikes me as possibly the vanguard of a new age of sports, where guys can perform at an elite level physically for much longer than guys of the previous generation.  That possibility at least deserves consideration.

RG3 and "System Quarterbacks"

For the third week in a row, the Redskins pulled out a divisional win, and this one was the biggest of them all: 17-16 against the defending Super Bowl champ Giants.  The Skins' amazing rookie quarterback Robert Griffin III didn't quite put up the numbers he did in the previous wins against the Cowboys and the Eagles-- he only threw for 163 yards and, though he ran for another 72 and didn't turn the ball over, the Skins only put up 17 points, compared to 38 against Dallas and 31 against Philly.

But one part of the commentary that irritated me was the announcers' insistence that RGIII is a "system" quarterback who is only succeeding because Mike Shanahan put him in the right circumstances to succeed.  The implication is that, if you stick him in the Colts system or the Giants system, he wouldn't be as effective.  That perspective, to me, screams not just ignorance but a kind of subtle racism-- that RGIII is a gimmick, like Tim Tebow, who succeeds because teams aren't prepared for the skill set he brings to the table.

By that standard, there literally isn't a single quarterback in NFL history who wasn't a system quarterback.  It's true that Griffin, at this point, can't call his own plays and make adjustments at the line like Peyton Manning.  But let's be honest: no one can.  What those same critics never mention is that I can more or less guarantee that Griffin would perform much better in the Colts or Broncos systems than Manning would running the West Coast offense the skins run.  Yet somehow what Manning does is "real" quarterbacking while what RGIII does is "system" quarterbacking.  Now, it's true that there are certain styles or systems that have a surprise element that throws teams off-- the Wildcat worked for a bit a few seasons ago, and now no one uses it.  Tim Tebow won a bunch of games last year, but has been utterly useless when he's gotten to see the field for the Jets.  And there's a good reason no team in the NFL runs a Navy-style triple option offense. But quarterbacks all have different strengths, and every single system in the NFL is designed to play to those strengths.

And it's not like Griffin is a beneficiary of great talent around him; Alfred Morris was a great find in the 6th round of the draft, but the talent on offense is, across the board, below average.  The offensive line stinks (just watch how quickly the pocket collapses on Griffin, which explains why Shanahan rolls him out so often), the best target in the passing game is out for the season with a torn Achilles, and the receivers are mediocre at best.  Yet, somehow, the Skins are 8th in the league in total offense, and Griffin has a better passer rating than anyone not named Peyton Manning and Aaron Rodgers (and he's barely a half-point off Rodgers for the league lead).  The best comparison for Griffin isn't Tebow, who is obviously not an NFL passer, or Michael Vick, who completed more than 60% of his passes exactly twice and had notable issues with his work ethic, but Steve Young, who was both a great athlete and a great quarterback.  But (and here's the racial element) has anyone ever called Young a system quarterback because he played in the West Coast offense?

There's no doubt that RG3's had a great rookie year, but it's not because he's some kind of novelty who Mike Shanahan masterfully turned into a respectable quarterback.  It's because he has, in his own way, an elite skill set, and was put in a position to be successful (despite having a mediocre, at best, supporting cast around him!) by the coaching staff.  Calling him a system quarterback is like calling Wes Welker a system receiver because he runs primarily short routes and doesn't catch jump balls-- it's silly.  Griffin is performing because he's smart, he's got a live, accurate arm, and, yes, because he's a great athlete.  But claiming that he's some kind of "system" player because he doesn't throw deep 10 times a game (To who? Aldrick Robinson?) is mind-numbing.

Markets hate Obama right? Nope

As the really serious news followers might know, President Obama was re-elected on Tuesday.  Shockingly, some people who voted against Obama weren't too happy.  Facebook intellectuals yelled about socialism, America going down the toilet, etc.  A few fratstars at the University of Mississippi sobered up long enough to realize that Obama was re-elected president of the South too.  So they went to their student union and started dropping N-bombs (bad look, Mississippi fratstars).  Ted Nugent wrote something on Twitter about the tears of blood he was crying, or something like that.  Needless to say, the really intellectual media was more serious.  They focused on the next day, when markets experienced their biggest one-day drop of the year.  "See! Obama is bad for the economy!", they yelled.  Or, at the least, they took for granted the idea that markets tanked in response to Obama's re-election.  This wasn't just a right-wing or mainstream-media meme; the left's typical response to markets moving in a way they don't like is either that markets don't benefit the working class anyway (not really true) or that we shouldn't care what Wall Street thinks because finance and bankers are evil.  The problem with this narrative is that it's as badly wrong as it is prevalent.

The first thing to note is that markets participants aren't stupid.  Markets can be, and often are, systemically inefficient.  An entire sector of the economy (real estate) was overpriced for years.  Right after another (tech stocks) was also overpriced for years.  The Ron Paul followers will yell that the market was efficient and it was all the Federal Reserve's fault because interest rates were too low.  That's wrong.  But the point is that markets aren't dumber than the rest of us-- they can look at movements in markets and economic indicators, calculate probabilities, and price the impact that events might have into what they'll pay for an asset, or the amount for which they'll sell an asset.  Now, that doesn't mean markets are right-- if markets shoot up in response to a particular policy or crater in response to another policy (or a likelihood of someone being elected), it doesn't mean that they're right; it just reflects their expectations, which may well be wrong.  But the question isn't whether markets are right to love or hate Obama-- it's whether markets reacted yesterday to Obama's election on Tuesday.  And the answer to that is pretty clearly "no".

The second thing to note is that the election wasn't that close.  Sure, Obama won a somewhat narrow popular vote victory, but the media's obsession with "momentum" and particular polls largely obscured what anyone who can read data (and that most certainly includes Wall Street traders and hedge fund managers) already knew-- that anything but an Obama victory on Tuesday would have been a major surprise.  As hard as the National Review, Fox, George Will and Dick Morris tried to pretend it was otherwise, the odds of Obama winning the election haven't dipped below 60% in a long time.  Going into election day, all of the relevant number crunchers (statisticians at universities, bloggers like Nate Silver, etc.) put the odds of an Obama electoral victory at well over 90%.  The main stream media, not to mention the right-wing echo chamber, liked to pretend that, because most of these number crunchers are personally left-leaning, their poll numbers must be biased.  Which (again) is wrong.  The wishful-thinkers yelled that Romney was winning independents (ignoring that "independents" in this election were, in large part, Tea Party folks who called themselves independents, then voted straight Republican, while a lot of previous independents became Democrats) and that turnout would be lower than it was in 2008 (as if Silver's turnout model was wishful thinking).  In reality, though, liberal members of the media aren't like the Fox News folks-- they think of tabulating numbers as an exercise in math, not partisanship.  Because, really, what good does believing your guy will win do? It might make it easier to sleep at night, but then you still have to confront reality.  And then, when that reality looks different from what you predicted, you end up looking like a fool.  Like George Will, Dick Morris and Michael Barone, who all predicted a Romney victory with over 300 electoral votes and came out with egg on their faces.  Most interestingly, if you look at that link, left-leaning predictions mostly skewed toward the low end-- the ones who got the electoral math precisely right weren't Democratic pundits-- they were number-crunchers like Silver, Davidson College's Josh Putnam, and Princeton's Sam Wang.  (Incidentally, a lot of people on the left like to pretend that Silver is some kind of wizard; he's not-- he just has a rather good, but far from unique, model for crunching poll data compiled by others).

So anyone looking at the numbers realized that anything but an Obama victory on Tuesday was unlikely (though, obviously, not impossible).  And Wall Street types who have money on the line in the market don't much care who they hope wins the election when it comes to putting money in the market-- they care about who WILL win the election.  And they knew as well as Nate Silver that it was almost definitely going to be Obama.  Another useful way to think of it is as a probability.  Say you can bet on a roll of a 10-sided die; any number 1-9 pays you $1000, and a 10 means you get nothing.  Mathematically, you should pay $900 for a roll.  Now imagine the game changes and a 9 becomes a losing roll.  Now, you should pay $800.  In electoral terms, Obama winning the election meant a move from a 90% probability of getting paid to a 100% probability.  But the price of the roll only changed by 10%.  In that scenario, a 2.5% swing in the stock market by reason of an event with 95% probability occurring is completely irrational.  Yet that's what happened when Obama went from 95% certain to win the election to 100% certain-- Wall Street knew perfectly well that he was almost certainly going to win the election on Monday, so any change after the election would reflect only the cementing of a highly likely outcome.

Which begs the question: what DID move the market on Wednesday? It's probably not noise trading; one-day swings can and do happen, but the likelihood of that big a swing coming on the day after the election, especially when no particularly ground-breaking news came out of Europe means that markets were likely reacting to something that happened on election day.  And my best guess is that they were reacting to the impact of the balance of power on negotiations over January's fiscal cliff.  And I think that has something to do with the outcome of the House vote.  Now, it's important to note that it's a lot easier to call a presidential race than an aggregated balance of power in a whole bunch of House races; if the margin of error in one or two states swings from one candidate to another, it will rarely decide the entire election.  Put another way, Nate Silver was about 95% sure Obama would win the election, but he was only about 52% sure that Obama would win Florida.  In the grand picture, though, that would be irrelevant.  Obama will almost certainly win Florida... but even if he loses Florida, he will still be president.  Meanwhile, in a particular House race, a 52% chance of a particular candidate winning actually means that a different person will represent the district.  Combine that with the fact that people generally spend less time thinking about who they'll vote for in the House compared to the presidency or even the Senate, and you've got polling data that's substantially less reliable and less certain.  So pollsters and markets knew with a high degree of confidence that Obama would almost certainly be President, and that the Senate would stay narrowly democratic (while the balance is probably slightly more favorable to Democrats than might have been expected, there's not a substantive difference in policy between a 54-46 Democratic majority and a 52-48 Democratic majority.

Which leaves the House.  It was always highly likely that Republicans would keep control of the House.  The question was what kind of majority they would enjoy.  A bigger majority would be interpreted as a mandate to resist hiking top marginal rates at all costs and keep playing the obstructionist game.  A narrower majority would have handed power to those who are interested in compromising on tax rates, while a majority that looked like the previous one would be interpreted by the Tea Party fringe as a sign that no tax hikes are ever acceptable (and yes, that's a fringe position that makes no sense).  What further complicates it is that the President is actually in a rather strong bargaining position.  If the country DOES go over the fiscal cliff, the uncertainty that creates will jar markets (and, later, if the tax hikes and spending cuts actually take place, contract the economy), but it will also put the Tea Party in an odd negotiating position.  If the country does go over the fiscal cliff, and the President proposes a tax cut for all incomes under $250,000, the Tea Party will find itself either having to go along or holding up a tax cut for everyone just because they won't also get tax cuts for the wealthy.  Politically, that's an ugly position to take.  And it puts the President in a powerful bargaining position.

So I think it's the (still rather extreme) makeup of the House, and the Tea Party's ability (and possible willingness) to hold a deal hostage in order to get the tax cuts they want that drove markets down.  That's more amateur political science than anything else, so it may just be a stab in the dark.  But what is certain is that, if someone declares that markets tanked yesterday because Obama was re-elected, they're wrong.

The case against Mitt Romney

With an election in two days away, just about everyone has made up their mind about who they'll vote for.  While the case for re-electing the President would take up a whole different post, I think one thing that's important to look at is the alternative.  The question isn't whether Barack Obama has been a great president, or whether he's lived up to the hopes a lot of people had for him in 2008 (which were unrealistic to start with), but whether we'll be better off with him in office than the alternative.  And I strongly believe that we will be.

There are a lot of different lines of attack that the Obama campaign has used against the Romney camp.  Some I've found persuasive.  Others, less so.  In all honesty, as far as the Republican primary candidates go, Romney was about as well as the Republican electorate could have done.  Unlike his rivals for the nomination, he's not some combination of stupid, crazy, and inept (or, really, all three; Newt Gingrich has a wildly undeserved reputation for being an "idea man"-- he counts if you include the caveat that all of his ideas are really really bad).  He's been a hugely effective manager in the past.  And he's surrounded himself with people who have, at some point, been very competent thinkers (though Glenn Hubbard, John Taylor and, to a lesser extent, Greg Mankiw have, at points, done their best to play dumb to advance "the cause").

As the Washington Post's very good blogger Ezra Klein notes, Romney is data-driven and analytical-- he's not a fire-breathing true believer like Gingrich or Paul Ryan, and he tends to change his mind about just about everything (which is how his Massachusetts health care reform went from being a model for the nation in 2007 to a government takeover of the economy in 2012).  Some people call that flip-flopping, and that's certainly a valid case when it comes to questions of values, but I'd argue that someone who doesn't change their mind if their views turn out to be wrong is dogmatic, not principled.  And I'd even believe that his choice of an ideologue for a running mate was a reflection not of Romney suddenly going nuts, but of him looking at the polls and figuring out that he needed to appeal to the hard right to have a chance in the election.

So I've argued that I think Romney is smart and competent and an effective problem-solver.  But I still think he's the wrong person to lead the country.  Here's why.  Being an effective problem solver is great.  But the presidency is less of a problem solving exercise than people like to think.  A whole lot of what the president does is set an agenda.  And setting that agenda requires someone who can figure out what the nation's problems are.  While Romney may be an especially competent manager, I also think he's almost uniquely out of touch from people's concerns.  And that's reflected pretty clearly when he speaks off the cuff.  From talking about 47% of the nation being "dependent on handouts" to talking offhand about how anyone can start a business by "getting a loan from their parents", Romney has a deeply warped view of the reality that most people face.

This view comes, in large part, from Romney's extraordinarily privileged background.  This recent piece in the New Republic from Noam Scheiber does a very good job getting to the heart of the Romneys' family mythology.  Mitt genuinely seems to believe that he earned everything he has from scratch.  And while he certainly deserves credit for building a hugely successful private equity firm, Romney is the quintessential example of someone who was born on third base but believes that he hit a homerun.  He was born to a chief executive who ran for president.  He attended an elite private high school in Michigan, had not just his college education, but also his joint JD/MBA from Harvard and all of his expenses paid for.  He certainly deserves credit for apparently giving away the rest of his inheritance and building his own fortune.  But he wants to ignore the advantages he was born with.  As children of the 1% go, Romney certainly did more on his own than most.  But that doesn't take away from the simple fact that, as a child of the 1%, he had opportunities most Americans can only dream of.

Scheiber's piece about Romney's son reflects a similar perspective.  Tagg Romney is convinced that he built a private equity firm from scratch.  The reality is that what Tagg Romney runs is a fund of funds-- while the elder Romney's Bain Capital is a traditional private equity firm that invests in and sometimes acquires companies, Tagg Romney's Solamere invests in other private equity firms.  While firms like Blackstone, KKR and Bain Capital sell expertise, Solamere sells access.  The average person, for instance, can't plant their money with these elite firms, no matter how much they might want to (and they would absolutely want to-- during Romney's tenure at Bain, the firm returned almost 90% annually to investors); the overhead required for these firms to take in investors who have $10,000 or $100,000 or even $1 million isn't worth the money.  So Solamere pools these smaller investors' money and places it with these bigger firms; the result is that investors who otherwise wouldn't be able to invest in KKR or Bain otherwise have a way to do so.  But this strategy rests on... Tagg Romney's connections.  Which come from his father.

So the best reason to vote against Mitt Romney that I can think of, more than him being the nominee of a reactionary, extremist party, is that he's running for president of an America that doesn't exist-- an America where struggling college grads who want to start a business can borrow from their parents.  Where "struggling" means selling off your inheritance after finishing a grad degree.  Where fantastic success is hard... but living comfortably is a default.  Governing the country Romney imagines, where people's biggest problem is a president who might hike their taxes or not appreciate them enough for their wealth, would be easy.  Governing the one we have is hard.  Because I think Barack Obama understands the country we have, I'll be casting my ballot for him on Tuesday.

Two kinds of stupid

It's almost fall, which means election season is fully in gear.  Which is too bad-- I hate election season.  Instead of Bud Light ads, the TV's looping ads with messages approved by Barack Obama and Mitt Romney.  When they come on, I change the channel.

But the press has been filled with the typical cycle of politicians putting their feet in their collective mouths.  The theme this time around is Tea Party representatives'... questionable grasp of female anatomy.  You've got Todd Akin declaring that women who are "legitimately raped" don't get pregnant (apparently, he learned everything he knows about women from this documentary).  Then there's Stephen King (the representative, not the Cujo author), who says women can't get pregnant from statutory rape or incest (Rep. King needs to catch up on his Game of Thrones; then he'd know that one's also not very true).  And that's the core of the 55-year-old virgin wing of the Republican Party.  They're kinda crazy.  And kinda ignorant.  But everyone knew that already.

The contrast to that end of the party is supposed to be what the media likes to dub the "serious" end.  The supposed leaders of that faction are people like Chris Christie and Paul Ryan, who claim to be fiscally responsible, and who the media loves.  The existence of the Akin-King axis lets the media play the balanced card-- some Republicans are nuts, they declare, but there are plenty who aren't.  And Romney's choice of Paul Ryan is a sign, they say, that we're going to have a "serious" campaign between "competing ideas".  Because, you know, Ryan has a serious vision that we should pay attention to.  The problem with this narrative, of course, is that it's complete nonsense.  In their own way, Romney and Christie are just as nuts and just as un-serious as Akin and King.  Here's why.

To start with, the distinction the media likes to draw isn't as clean as they tend to like to pretend.  For starters, Ryan is a card-carrying member of the "Sperm Are People Too" club.  But that's not what makes his ideas nutty.  It's the very ideas that the media likes to trumpet as "serious" that are a complete house of cards.  The reason behind that, I think, has to do with the people who become journalists.  By and large, journalists are reasonably smart people.  But they're journalists because they like words.  Throw numbers are them, and their eyes glaze over, they get chills, and their brain shuts down.  Which is why they swoon any time a politician throws numbers at them, assuming that the politician must know what s/he's talking about because there are a lot of digits on that spreadsheet, and that must mean that they're smart.

This is what happened with Paul Ryan's "budget".  It gets quotation marks because calling it a budget is a joke.  Normally, when you put together a long-term budget, you specify changes to certain programs; you expand or contract different parts of the government, raise some taxes, cut others, and create an approximation of how you see the federal budget going forward.  The further out you go, of course, the less accurate it is, but it provides something of a vision for a big picture.  Ryan's "budget" makes a mockery of all that.  It's got numbers, sure.  But the way you normally get those numbers is to make specific policy recommendations and then apply those to the numbers.

Ryan budgeting works the other way around-- make up numbers, without specifying how you get there.  Yes, it's as deeply stupid as it sounds.  It's the equivalent of asking a basketball coach how he plans to win a game, and getting "We plan to score more points than the other team" in response.  It's true, maybe, but it's not a response-- it's an insult to the reader's intelligence.  Ryan got the CBO to "score" his budget, to give it an air of legitimacy.  But this, too, was an exercise in deception.  Normal CBO procedure is to give them policies, whose budget impact they project.  Ryan gave them numbers and told them to calculate those.  In essence, he told them, "If we raise X revenue and spend Y dollars, will we have a balanced budget?"  And so long as X was equal to Y, the answer would be yes.  Problem is, that's useless without a plan for getting to X or Y.

So what is in Ryan's budget(s)? Well, there's the specifics-- lots and lots of tax cuts, concentrated at the top.  He would eliminate the estate tax and capital gains taxes and create two tax brackets-- 10% and 25%.  If this sounds like a massive tax cut, that's because it is.  But he says he'd offset those revenue losses by closing loopholes in the tax code.  Which loopholes? He won't say.  And, given that he's CUTTING capital gains taxes, it's safe to say that there won't be enough in loopholes to keep the tax code from either becoming WAY more regressive than it already is, or massively reducing the amount of revenue the government takes in.  When the nonpartisan Tax Policy Centered analyzed all the loopholes in the tax code and constructed a maximally favorable scenario for the Ryan plan (closing the loopholes that were most regressive first).  It determined that, even in that scenario, the budget amounted to a further tax cut for the mega-rich, and a tax hike for the poor and middle class.

Ryan, of course, complained about that analysis by... calling the TPC a patrisan organization run by a "former Obama Administration official" (it's actually directed by officials from both the Obama and Bush Administrations, and they weren't in political positions).  So that's the plan on taxes.  But it gets worse.  Ryan makes a bunch of absurd assumptions about the federal government-- he claims he'll be able to cut the federal government to a third of its present size in... unspecified ways (this is, of course, ridiculous, and it doesn't address the problem; the federal government is small already-- social security, health care, defense, and interest on the debt make up over 3/4 of the federal budget; everything else the government does, from running the federal courts to managing national parks, conducting diplomacy, and regulating the financial system take up under a fifth of the budget; somehow, Ryan proposes to cut that by 2/3).  It won't happen, and it shouldn't happen-- it's more hand-waving and magic asterisks.

But what's really terrifying is Ryan's vision for health care.  The Romney campaign has been attacking the Obama people for "cutting Medicare to pay for Obamacare".  Which is untrue, and especially egregious when compared to Ryan's plan.  While cost control is a priority, there's a smart way to do it, and a dumb way to do it.  Ryan, unsurprisingly, opts for the latter.  Health care costs have been rising faster than GDP for awhile (though they've slowed down in the last few years), so controlling them is clearly a priority.  The smarter way to do that is to find efficiencies on the demand side-- by determining what does and doesn't work, we can try to cut down on superfluous procedures and consume fewer health care services; in essence, we cut demand for superfluous and expensive procedures without (hopefully) compromising quality.  We know that can work because just about the entire developed world spends less on health care than we do, yet has better health care outcomes.  The Affordable Care Act takes steps to compile data on the effectiveness of various procedures to make positive steps toward that goal.  Then there's the Ryan plan, which involves capping what seniors get for Medicare by placing a cap on the supply side.  In essence, it tells them that they can spend a fixed amount on health insurance.  And if that insurance doesn't cover all the health care they need, they can pay out of pocket.  And if they can't afford it, well, tough luck, they get to die.  In other words, according to the Ryan Plan, we can't make cuts to superfluous procedures because that's "rationing", but we can hand people a check, then go to the market and find out that it won't buy them health insurance that actually insures them.  But I guess that's "fiscal discipline"-- financing massive tax cuts for the Romneys and the Buffetts, while throwing granny off a cliff.  That's not a scare story-- scare stories aren't true.

So no, the Ryans in the Republican Party aren't serious, and they're no more principled than the anti-abortion crusaders-- they are, in their own way, just as nuts as the Akins, and are not to be taken any more seriously. If only the media would try looking at the numbers long enough to figure that out...