I was delighted to see Sen. Lamar Alexander make the case for a Grand Swap, an idea we’ve been championing for years at The Agenda. But Josh Barro offered a convincing case against a few weeks back:

Because Medicaid is means tested, you need to monitor participants for their continued eligibility. Medicaid beneficiaries also often have many simultaneous social services needs, and it’s helpful to have one caseworker handling them all together, especially when your goal is to get beneficiaries to a point where they don’t need welfare anymore.

In other words, Medicaid is about much more than making payments to doctors and hospitals. The federal government could build an apparatus to do this, but it would be duplicative, and you would lose the benefit of integration with other, state-run assistance programs.

It might make sense to federalize the aged and disabled components of Medicaid, which closely resemble Medicare and often serve the same beneficiaries. But for the portion of the program that serves low-income adults and children (a bit less than half its cost) we’re better off retaining the state-local structure and using a well-designed block grant to improve fiscal incentives.

It is also true, however, that the aged and disabled components of Medicaid are a very large part of the program. A number of policy analysts, including Donald Taylor, have called for federalizing at least these aspects of the program and transitioning part of Medicaid that covers pregnant woman and children onto the exchanges, if PPACA endures. On the right, John Hood has backed a related approach:

Policymakers should convert Medicaid coverage for low-income but healthy children and working-age adults into a system that subsidizes the payment of premiums for private health-insurance plans. For instance, a future Congress could convert Obamacare’s bewildering array of cash payments and tax credits into a universal tax credit, conferring what amounts to an exemption from income and payroll taxes for a fixed amount of household spending on (or saving for) health care.

The tax credit could take the place of the existing unlimited exemption for employer-based plans (as proposed by John McCain in his 2008 presidential campaign, and by several Republican members of Congress since). Such a fixed-dollar credit would be worth most to individuals with children and low incomes, reversing the current dynamic in which unlimited tax deductibility confers the greatest benefit on upper-income Americans and those who work for large employers. Families would be free to apply their tax credits to the purchase of health plans and toward health savings accounts (into which states should be allowed to contribute additional funds now earmarked for Medicaid to help lower-income people).

The key to a successful system of direct premium supports for jobless or low-income Americans and their families, however, is ensuring that it is thought of more as a welfare program than as a health-care program.

I take Josh’s essential point about the operational challenges involved in running what is essentially an anti-poverty program that is fundamentally about smart case management and local knowledge from Washington, D.C., which is why full federalization might indeed be difficult. But we can certainly move in that direction — and swap education (and, in my view, more transportation functions) back to the states

In light of the renewed Bain Capital controversy, a comment by Jim at Ann Althouse’s blog included a passage from Byron York’s 2008 National Review article on Barack Obama’s time as a community organizer. A brief passage describes Obama’s efforts on behalf of unemployed steelworkers:

New to Chicago, Obama set about conducting dozens of one-on-ones, that is, individual interviews with South Side residents in which he tried to discover which issues were most important to them. “You have to understand a person’s self-interest — that’s Alinsky’s terminology,” Mike Kruglik, an organizer who worked with Kellman and Obama, told me. “What’s happened to that person in his or her life? Where are they going? Why are they going there? What are they really passionate about?”

After the initial interviewing, Obama went to work on a number of projects.

The long-term goal was to retrain workers in order to restore manufacturing jobs in the area; Kellman took Obama by the rusted-out, closed-down Wisconsin Steel plant for a firsthand look. But the whole thing was a bit of a pipe dream, as the leaders soon discovered. “The idea was to interview these people and look at education, transferable skills, so that we could refer them to other industries,” Loretta Augustine-Herron told me as we drove by the site of the old factory, now completely torn down. “Well, they had no transferable skills. I remember interviewing one man who ran a steel-straightening machine. It straightened steel bars or something. I said, well, what did you do? And he told me he pushed a button, and the rods came in, and he pushed a button and it straightened them, and he pushed a button and it sent them somewhere else. That’s all he did. And he made big bucks doing it.”

That, of course, was one of the reasons the steel mill closed. And it became clear that neither Obama nor Kellman nor anyone else was going to change the direction of the steel industry and its unions in the United States. Somewhere along the line, everyone realized that those jobs wouldn’t be coming back. 

So Obama looked for new opportunities. 

One assumes that President Obama and Vice President Biden wouldn’t share Loretta Augustine-Herron’s characterization of the challenges involved in retraining steelworkers, at least not now. But it does seem as though a young Barack Obama was exposed to the deep structural challenges facing the U.S. steel industry, and that he understood why certain kinds of routine manufacturing work had migrated outside of the United States. 

This reminds me of Stephanie Cutter’s recent remarks regarding the “lessons and values” Mitt Romney learned from investing in and working to turn around domestic manufacturing firms in distressed industries. Among other things, Romney learned that firing people was acceptable as part of a broader effort to put a business enterprise on a sustainable footing and that some businesses fold in the face of intense competition. 

But what are the lessons and values that Barack Obama learned from having encountered distressed steelworkers with limited transferable skills? From the above anecdote, which I’m sure is incomplete in many respects, it seems he learned that at least some of the problems these steelworkers in adapting themselves to a changing labor market were stubborn and intractable, and that it at some point made sense to pursue other opportunities for effecting social change, e.g., building one’s own profile, pursuing an academic career, and running for higher office. 

I’m grateful to Stephanie Cutter for introducing this framework of lessons and values. 

Suzy Khimm, reporting from a Peterson Foundation summit, suggests that while Democrats appear eager to talk about entitlement reform, Republicans are reluctant to discuss tax increases. My sense is that the apparent lack of symmetry isn’t quite what it seems.

Democrats say they took these criticisms to heart during the supercommittee negotiations, initially proposing $400 billion in savings from Medicare — half through benefit cuts and half through provider cuts. Democrats point to such proposals as evidence of their party’s willingness to compromise and incorporate a diversity of views, blaming Republican intransigence for the deficit-reduction talks’ ultimate failure. “We have a lot of people in our party who will not be drummed out if they depart from the conventional wisdom,” Clinton explained.

For all that the Democrats tried to show they were willing to talk entitlements, you didn’t hear any Republicans at Peterson’s fiscal summit saying that they should be willing to compromise more by considering tax increases.

From the conservative perspective, the entitlement measures advanced by congressional Democrats are not best understood as meaningful structural reforms. That is, the benefit cuts and provider cuts described aren’t measures that would effectively realign incentives within Medicare and Medicaid. Rather, these are measures that could be reversed relatively easily and indeed that might undermine the quality of care in an otherwise unreformed system. One rejoinder is that PPACA includes a number of pilot programs aimed at shifting Medicare from fee-for-service to an alternative approach. It’s not clear, however, that this shift can or should happen in centralized fashion. The potential advantage of Medicare premium support is that it will facilitate a trial-and-error discovery process in which new entrants devise or refine new business models.

But now let’s zero in on the question of symmetry:

When Republican discuss a fresh approach to taxes, they cast it as “tax reform” that excluded any tax hikes. “What also doesn’t count as ‘cuts and reforms’ are tax increases,” said Speaker John Boehner, declaring that the GOP would refuse the lift the debt-ceiling — once again — until equivalent “cuts and reforms” were passed. (Read Boehner’s full speech.)

When Democrats discuss entitlement reform, particularly health entitlement reform, my sense is that they discuss entitlement reform in which a defined benefit is retained. That is, Democrats are not promising that Medicare will offer them less in the way of health security. They are arguing that a reformed Medicare system, as tweaked and adjusted by IPAB, will be at least as good as the current system, only considerably cheaper. And the Medicare retirement age can be raised to 67 because PPACA will be there to meet the health security needs of those between the ages of 65 and 67. Democrats who talk of entitlement are not generally saying that the safety net should promise less in terms of outputs. 

CNN’s Erin Burnett prodded Boehner further to see whether Republicans were, in fact, completely unwilling to compromise on the issue. After all, closing tax loopholes and carve-outs — something that the House speaker did promise to do — would presumably result in some people paying more, right?

Boehner stuck to the script, insisting that “lowering rates and broadening the base” was the only acceptable answer. Burnett pressed the question again: “Broadening the base” meant closing loopholes, which meant taxes for some would go up, right? Boehner equivocated. “Yeah, some may pay more and some may pay less,” he said quickly.

Again, one assumes that Democrats willing to entertain the idea of entitlement reform wouldn’t say, “Yeah, of course our entitlement reforms will leave old people sick and vulnerable.” They will presumably say, “We’ve come up with an amazing way to address the cost of health entitlements without creating a significant burden for anyone we have any reason to worry about.” The notion of “entitlement reform” is far more plastic and capacious than the notion of committing to X in revenue increases, because health entitlements are fundamentally about delivering a service.

An exception to this pattern is Social Security. Some Democrats have advocated Social Security cuts, including (implicitly) Bill Clinton. And quite a few have advocated chained CPI, which would tend to reduce Social Security payments. Here we have a much stronger test case: how many congressional Democrats favor chained CPI and are willing to defend it as a real benefit cut? The number may well be higher than the number of congressional Republicans willing to countenance revenue increases. There is, however, some ambiguity here:

So, under duress, Republicans signaled a tiny bit of wiggle room on taxes. Sen. Pat Toomey suggested as much during the last gasp of the supercommittee negotiations, with a proposal that would save $250 billion through limiting tax deductions and write-offs.

This actually seems like a fairly significant shift, as we’ve discussed in this space, though it is easy to see why those inclined to see Republicans as structurally less reasonable than Democrats to discount it.

I’ve always thought that accepting revenue increases is perfectly acceptable provided it’s part of a settlement that involves significant structural reform that actually realigns incentives. But I could never understand why a political faction that takes this view would want to preemptively concede on the issue.

Evan Soltas makes the case for optimism on the housing market.

As Anya Kamenetz recently observed, a recent article in the New York Times titled “Slowly, as Student Debt Rises, Colleges Confront Costs” should more appropriately be titled, “Colleges Refuse to Confront Costs.” Kamenetz’s excellent DIY U offers a far more sophisticated take on the underlying issues.

Andrew Gillen of the Center for College Affordability and Productivity recently released an extremely rich report, “Introducing Bennett Hypothesis 2.0,” in which he discusses a number of issues: how different kinds of financial aid interact with capacity constraints to impact cost growth (aid to low income students is more likely to improve accessibility and affordability than aid offered to all students irrespective of income, which is more likely to drive tuition increases); the role of selectivity, tuition caps, and price discrimination (schools face tradeoffs: revenue-maximizing tuition rates make it harder for schools to be as selective as they’d like to be, yet price discrimination allows them to target institutional aid at the most desirable students); and there are dynamic effects that compel competing colleges to converge around business models define by a high level of cost growth. 

As an illustrative example, Gillen presents two colleges, D and E. College D is capacity-constrained and College E is not. Students all have a fixed amount of money (G) that they can spend on tuition. If G increases, College D can charge a higher tuition or become more selective or some combination of both. College E wouldn’t necessarily charge a higher tuition (it isn’t capacity-constrained, after all), and Gillen assumes that it does not. 

But this is only the immediate (static) story. What happens the next year, and the year after that (the dynamic story) is also relevant and much less reassuring. To understand this dynamic story, we return to college D. It raised tuition, which gives it more revenue. But what does it do with that revenue? Because most colleges are public or non-profit, they cannot distribute the money to shareholders, which means that the extra revenue will be spent to improve the institution. It may hire more professors to conduct more research, to lower class sizes, or to allow teaching loads to be reduced. Or perhaps it builds new laboratories or classrooms, or expands student services to improve its graduation rate. Each of these may be an appropriate expenditure in some cases, but each will also raise the college’s costs in the future. Tenured faculty are difficult to get rid of, new labs and buildings must be maintained, and new bureaucracies become entrenched. What it spends the money on is irrelevant for our purposes; the important point is that the college spends it, and virtually regardless of what they spend it on, it will result in higher future costs. So at college D, costs in the next time period (t+1) are higher than starting costs (Ct+1 > Ct). This is not necessarily a problem for college D, since it is already charging students enough to cover its higher costs.

But what about college E? We know that initially, aid does not affect tuition at all at college E. But as college D spends more money, college E needs to spend more to avoid falling behind. If it wants to attract the best professors, it needs to increase pay, lower teaching loads, and build state of the art labs when college D does. And if it wants to recruit good students, it has to offer the same amenities that college D does. Thus, the same things that lead to higher future costs at college D lead to higher future costs at college E, so Ct+1 > Ct, which for college E means that Tt+1 > Tt. [Emphasis added]

I assume that some will push back against Gillen’s stylized model, and more empirical work needs to be done. But I greatly profited from reading his report, which raises a number of interesting conceptual issues. Frankly, Gillen’s work merits a far more detailed discussion. I intend to revisit it.

One obvious takeaway, however, is that capacity constraints are a huge part of the problem in higher education, an issue that Kamenetz takes great care to address in her work. 

NRO’s Brian Bolduc has a report on President Obama’s rival in Arkansas’s Democratic presidential primary, John Wolfe:

The main problem with Obama’s presidency, Wolfe argues, is that the chief executive has merely “ratified institutional failures.” The corrupt government in Afghanistan? “He expanded our commitment to it.” Our expensive health-care system? “He made a deal to protect Big Pharma.” The irresponsible lending on Wall Street? “He perpetuated ‘too big to fail.’”

And the reason for Obama’s failure to change Washington stems from his personnel: He surrounds himself with bankers, such as former chief of staff Bill Daley (JP Morgan) and current head staffer Jack Lew (Citibank).

“We need someone who will represent the people, not just bankers,” Wolfe concludes. “He doesn’t visit the South that much, either. He needs to show more concern here.”

What is interesting about Wolfe’s criticisms of the president is that (a) they are surprisingly coherent and (b) they are likely to resonate with a broad swathe of the public, yet Republicans rarely make these criticisms in these potent ways. Conservative politicians are disinclined to make a rent-seeking critique of the new health law because they are more comfortable with a critique rooted in spending levels. They tend not to have convincing alternatives regarding how we might approach the political economy challenges that arise from state-guided hyperfinancialization (partly because, like most human beings, myself included, they generally don’t have a sophisticated understanding of the underlying issues). And it is awkward for the post-Bush GOP to make a forthright case against “doubling down” on Hamid Karzai for the obvious reason that the U.S. presence in Afghanistan is very much a Republican legacy. 

Nevertheless, Wolfe has given us a glimpse at a different kind of conservative campaign message, centered on the (bipartisan) institutional failures that have sapped America’s vitality. 

At National Journal, Josh Kraushaar has a new column on what we might refer to as the “misunderestimation” of the Tea Party movement:

Lugar’s landslide loss is a sign of the maturation of the tea party, a loosely defined confederation of conservative activists in 2010 who have banded together and threaten to have a defining impact in 2012. Because they’re not conducting mass protests, Occupy Wall Street-style, many pundits naïvely presumed their strength had subsided. But in reality, the masses of disaffected conservatives are a sleeping giant.

Antiestablishment GOP candidates have a chance to score Senate-primary upsets in Nebraska, Texas, Utah, and Wisconsin. In three of those four races, the Republican nominee would start off as the heavy favorite in the general election—a major difference from the 2010 GOP primaries fought in more Democratic-friendly states, such as Colorado, Delaware, and Nevada.

Much depends on how we define the Tea Party movement. As I’ve argued in this space, Utah’s Dan Liljenquist is very much a pragmatic problem-solver rather than a reflexive ideologue, and the same can be said of many other Republican candidates who’ve garnered enthusiasm among grassroots conservative activists who identify with the Tea Party. To the extent that the term “Tea Party” is used to denote an apocalyptic political sensibility (references to “Second Amendment remedies,” etc.), we can expect it to fade. But to the extent that it refers to a coalition of conservatives committed to a more rigorous approach to limited government, competitive federalism, and spending discipline, and perhaps greater skepticism regarding armed interventions and measures that erode formal protections of civil liberties, it seems to represent a durable phenomenon. Confusion arises in part because many in the press and on the political left have drawn on images of and associations with the former to characterize the latter. So somehow people are left with the impression that Liljenquist and Richard Mourdock with Sharron Angle.   

Kraushaar also has a post why Mitt Romney has been talking about deficits and debt: the issue resonates in states like Iowa, New Hampshire, and Virginia that have relatively strong economies. Many on the left are critical of the Republican emphasis on deficits and debt, yet it’s worth remembering that President Obama pivoted from making the case for fiscal stimulus to universal health coverage on the grounds that his health reform effort would tackle long-term deficits and debt, a pivot that many in the Obama administration considered premature. 

I have a short article in the latest issue of NR arguing that China is an awful economic model for the United States, drawing on the work of Michael Pettis and Yasheng Huang, two of my favorite China-watchers. I also cited “China’s Century?” by Michael Beckley, one of the most provocative yet also one of the most carefully argued IR articles I’ve read in years. I wasn’t able to name-check Victor Shih and Minxin Pei, though I have learned tremendously from both of them. 

But I did want to make note of an eye-opening new article by Pei on “The Myth of China’s Meritocracy”:

Contrary to the prevailing perception in the West (especially among business leaders), the current Chinese government is riddled with clever apparatchiks like Bo [Xilai] who have acquired their positions through cheating, corruption, patronage, and manipulation.

One of the most obvious signs of systemic cheating is that many Chinese officials use fake or dubiously acquired academic credentials to burnish their resumes. Because educational attainment is considered a measure of merit, officials scramble to obtain advanced degrees in order to gain an advantage in the competition for power.

The overwhelming majority of these officials end up receiving doctorates (a master’s degree won’t do anymore in this political arms race) granted through part-time programs or in the Communist Party’s training schools. Of the 250 members of provincial Communist Party standing committees, an elite group including party chiefs and governors, 60 claim to have earned PhDs.

Tellingly, only ten of them completed their doctoral studies before becoming government officials. The rest received their doctorates (mostly in economics, management, law, and industrial engineering) through part-time programs while performing their duties as busy government officials. One managed to complete his degree in a mere 21 months, an improbable feat, given that course work alone, without the dissertation, normally requires at least two years in most countries’ doctoral programs. If so many senior Chinese officials openly flaunt fraudulent or dubious academic degrees without consequences, one can imagine how widespread other forms of corruption must be.

Pei then goes on to discuss other examples of how corruption shapes perceptions of China’s rise. I strongly recommend giving Pei’s article a close read.

By now, you’ve no doubt seen the Obama campaign’s very well-produced advertisement attacking Mitt Romney and Bain Capital for its management of GST Steel, a manufacturer of steel rods that went bust in the early 2000s. The advertisement features a series of men, most of them steelworkers, decrying the vampire-like tactics of Bain Capital. There are a few obvious problems with the advertisement, however, as Robert Costa has noted here at NRO. One of the president’s top bundlers, Jonathan Lavine, has been a senior employee at Bain Capital for some years, and he was present during the period in which GST Steel went under. Mitt Romney was not, having left Bain Capital in 1999. This doesn’t mean that Romney had nothing to do with GST Steel’s failure, of course.

It is also true that GST Steel was part of a larger global steel industry that has gone through significant structural change, a subject Avik Roy has discussed in the context of another steel plant acquired by Bain Capital:

Beginning in 1959, American consumers of steel, such as the automakers, resolved to become less vulnerable to future disruptions in their supply of raw materials. For the first time, they began importing steel from abroad in significant quantities. They found that steel from emerging economies like Japan and South Korea was just as good as American steel, but much cheaper.

By the 1970s, the American steel industry was hemorrhaging business to foreign competitors. Manufacturers compensated by laying off workers, but this created a new problem. Experiencing the same dynamic that federal entitlements do today, manufacturers were faced with a growing number of retirees’ bloated pension costs and benefits, which they were funding with output from a shrinking number of active workers.

The Carter administration, aiming to prop up the industry, gave $300 million in loan guarantees to five steel companies. (Ironically, the largest recipient of Carter bailout funds, Wisconsin Steel, went bankrupt soon after due to a labor strike at one of their main customers.)

Successive presidents also tried, and failed, to prop up the steel industry. Ronald Reagan imposed quotas on imported steel. Bill Clinton provided $1 billion in loan guarantees to the industry. George W. Bush enacted tariffs on foreign steel. None of it worked. Over a seven-year period in the 1990s, more than 40 U.S. steel manufacturers went belly-up. Nearly all were union shops.

It is possible that employees at GST Steel believe that the steel industry was providing lifetime employment as late as the 1990s, yet that seems at least somewhat implausible given these larger currents. As of now, the U.S. accounts for 5.6% of the world’s crude steel production against 45.5% for China. Employment levels in the steel industry have been decreasing sharply in the U.S., thanks in large part to increasing productivity. Indeed, employment levels in China’s steel industry have also declined for much the same reason. 

These larger currents are complicated, and have in no sense undermined the effectiveness of the Obama campaign’s attack. What has undermined its effectiveness is the fact that Steven Rattner, who led President Obama’s effort to restructure GM and Chrysler, has described the attacks on Bain Capital as unfair. Moreover, the president released his attack ad on the same day that he was attending a fundraiser hosted by Hamilton James, president of the Blackstone Group, a private equity firm led by the controversial Romney backer Steve Schwarzman.

So the Obama campaign has taken a more nuanced line, as Reid Pillifant reports in Capital New York:

“No one is challenging Romney’s right to run his business as he saw fit, and no one is questioning the private-equity industry as a whole,” said deputy campaign manager Stephanie Cutter, who was joined on the call by a former employee at the steel mill and the workers’ lead negotiator at the company. “That’s not what this is about. This is about whether the lessons and values Romney drew from his time as a buyout specialist, what those values are, what they tell us about what type of president Romney would be, and whether the voters want that in the Oval Office.”

But it’s not easy to delineate the “lessons and values” Romney will have learned from his days in private equity from the broader industry practices.

This is kind of clever. We’re not attacking the private-equity industry as a whole. Rather, we are attacking the lessons and values associated with experience in the private-equity industry and instead (presumably) endorsing the lessons and values associated with the leadership of large public sector organizations.

Yet the attacks on Bain Capital from the Obama campaign have to date centered on leverage, e.g., the following from David Axelrod, as reported by Joshua Green of Bloomberg Businessweek: 

Here’s an Axelrod riff that will soon be very familiar: “When you look at his career in business, which is the credential that he’s hung his hat on, there’s no evidence of that. His business career was not about job creation. It was about wealth creation for himself and his partners, and often it came through vehicles like outsourcing, leveraging companies with debt, bankrupting companies and making money off of those bankruptcies. Oftentimes that cost jobs, and certainly wages and benefits. It didn’t create them. There’s nothing in his business record that would suggest that he’s a champion of creating an economy that works for the middle class.”

My sense, and I could be wrong, is that leveraging companies with debt is a fairly common practice across U.S. corporations, not just those acquired by the private-equity industry. As Arpit Gupta recently observed in this space, private equity firms seem to be better at protecting firms they acquire from default than comparable firms. And as Steve Kaplan and Per Stromberg have found, PE-owned firms are actually somewhat less likely to go bankrupt than the set of all corporate bond issuers. 

But as Josh Barro has argued, President Obama’s signature tax proposal, the Buffett Rule, will actually make leveraging companies with debt an even more attractive strategy:

[T]he proposal will significantly exacerbate a negative feature of our tax code: the preference for corporate debt finance over equity finance.

A corporation deducts interest payments before calculating its taxable income, and then an individual owner of corporate debt pays tax on interest payments at ordinary income rates. On the other hand, a corporation pays tax on profits after interest expense. These after-tax profits are either distributed to shareholders, who pay tax on the dividends; or they are retained, in which case the stock price rises and shareholders pay tax on capital gains.

Because interest is taxed only once and profits are taxed twice, corporations take on more debt than they would in absence of the tax distortion. The distortion is mitigated by the fact that dividends and capital gains are taxed at lower rates than interest income. Because the Buffett Rule would raise capital gains and dividend tax rates and, in many cases, lower the effective tax rate on interest, corporations would face even more incentive to overleverage themselves.

There is an irony here: one of the criticisms of Mitt Romney’s record at Bain Capital is that private equity firms put unhealthy amounts of leverage on the firms they acquire in order to exploit the favorable tax treatment of debt. The Buffett Rule would make that strategy even more attractive.

It should be said that Josh believes that Mitt Romney’s tax policy is misguided, largely because he believes (and he makes a convincing case) that the U.S. federal government needs to raise more revenue — indeed, he is even more critical of Romney than Obama on this front because Romney has proposed much deeper tax cuts. It seems fairly clear, however, that Buffett Rule would exacerbate existing distortions in favor of borrowing. I touch on some of these issues, including Josh’s insight, in my latest column for The Daily.

One thing to keep in mind: the attacks on Bain Capital launched during the Republican primary elections in South Carolina and Florida were hilariously bad and easily undermined. I had assumed that the Obama campaign, with its army of employees and its crack research staff, would have done a much better job.

But now the attack on Bain Capital amounts to this: Stephanie Cutter is not comfortable with the lessons Mitt Romney learned from having led an enterprise that aimed to resuscitate failing firms in declining industries by introducing new management techniques, supercharging incentives, etc., to raise productivity and profits. The reason she is not comfortable with this is that this process often involved job losses. Given that public sector inefficiency is a fairly serious problem, this is a revealing position to take — and I’ll bet that it will have considerable political resonance, though it’s not clear if it will appeal to swingable independents or just voters who would always have been hard for a Republican presidential candidate to reach. The advertisement prominently features white men with a working class cultural demeanor, which gives us a sense of who the Obama campaign is trying to reach.  

I found Menzie Chinn’s reply to David Brooks very amusing. My impression is that Chinn missed Brooks’s point, i.e., (a) there are good reasons to be concerned about future U.S. productivity growth and labor quality (as Robert Gordon has observed) and (b) there has been a tendency on the part of both political parties to advance policies that appear to address these underlying challenges yet that in fact transfer resources to highly inefficient public service providers and incumbent private firms. That’s hardly a crime. But Chinn’s condescension is what makes the post an interesting specimen.

On a related note, John Cochrane has a very good post that is critical of Raghuram Rajan’s latest. Specifically, Cochrane takes exception to Rajan’s broad characterization of subsidies for housing and credit as a strategy for mitigating rising inequality and his implicit optimism regarding Dodd-Frank and traditional public sector service provision. 

Tim Lee explains why the Bay Area, with its population of 7 million, would be more populous and more prosperous if its cities and towns had free housing markets. 

We’re in an unstable equilibrium at the moment, as Anderson explains:

Anyone who thinks that other judges aren’t poised to nationalize this issue is kidding themselves. There are two — and only two — likely outcomes for the debate over the wisdom of redefining marriage in America: Either an amendment will be passed that effectively constitutionalizes DOMA and thereby prevents any states’ redefinition of marriage from becoming binding upon all the other states — while still allowing individual states to redefine marriage as they wish — or else the courts, and (you can bet on it) eventually the Supreme Court, will ultimately declare the redefinition of marriage in some states to be binding upon all the others.

What had been the progressive view — let the states decide — turns out to be less than sustainable for the obvious reason that the federal government needs to make an affirmative decision regarding whether or not to recognize same-sex civil marriages as valid for its own purposes. 

In the past, the notion that same-sex civil marriage would soon be nationalized above the objections of people in states that reject the practice was seen as hysterical nonsense, and DOMA was seen by a somewhat larger number of people as a sensible compromise that would enable a state-by-state patchwork of marriage laws for same-sex partners. The consensus has shifted so quickly that I suspect many of the people who once held that view don’t even remember having done so. 

Adam Gurri has written a terrific, provocative, and convincing post. His basic point is that when we compare a young man of the present to a young man twenty years in the past, it is easy to see why the latter might be less willing to make a strenuous effort to increase his earning potential in the future, or indeed to participate in the labor force at all. Why? Well, a young man in the present has many other fairly attractive things to do with his time at relatively low cost: video games, cable television, web videos, etc. And his parents are in a better position to subsidize him now than they might have been in past eras. In the past, however, a similarly situated young man would be far more likely to be bored if he didn’t actually engage with other people in the wider world. Parents of that generation would be less likely to tolerate his idleness, or to be in an economic position to indulge it. Gurri suggests that these dynamics contribute to the sharp deterioration in male labor force participation. 

One obvious puzzle is this: why are women faring better than men in this new landscape? It could be that women are, for whatever reason, more resistant to the charms of electronic entertainment, and that they are less likely to want to rely heavily on their parents for economic support. Or to put this differently, women may find relying on their parents for economic support to be more emotionally costly. These are casual generalizations, and I imagine that there are many equally or more plausible interpretations.

I find the new Pew study on the Economic Mobility of the States a bit odd. The discussion of geographic mobility of all states in the FAQ is helpful. That said, the absolute mobility findings (the only thing I care about) are striking, particularly when juxtaposed against the findings of the new survey of small business friendliness the Kauffman Foundation prepared with Thumbtack.com. Apart from Utah, which is both small business friendly and high-scoring on absolute upward mobility, the states that fare well on absolute upward mobility are clustered in the small business unfriendly dense states of the Northeast. All of the states that fare poorly on absolute upward mobility are in the South; some do well on the small business friendliness index while others fare poorly. 

Because this survey is, like all mobility studies, retrospective, snapshots of small business friendliness, etc., aren’t necessarily helpful. But I did want to take a quick look at the Index of Family Belonging from the Family Research Council:

Minnesota, Utah rank highest in family belonging; Mississippi, New Mexico, Nevada rank lowest: In the typical U.S. state, less than half of teenagers have grown up in intact married families. But in eleven states, a majority of teenagers have been raised by both parents. Minnesota leads the Midwest and the nation with an Index of Family Belonging of 57 percent. Utah leads the West and is second in the nation with 56.5 percent. New Jersey leads the Northeast and is third nationally with a score of 53.6 percent. Other states with more than half of teenagers living with both married parents are, in the Northeast, Massachusetts (51.9 percent), Connecticut (51.3 percent), Vermont (51 percent), and New Hampshire (50.7 percent), in the Midwest, North Dakota (52.5 percent), Iowa (52.2 percent), and Nebraska (51.8 percent), and in the West, Idaho (52.3 percent). No state in the South has a majority of teenagers living with both married parents. Virginia leads the South in family belonging, but even its Family Belonging Index (47.4 percent) is less than half (see Chart 2, page 3).

States in which teenagers are least likely to have grown up with both parents are those with substantial numbers of adults who have not attained a high school diploma, are from minority racial or ethnic backgrounds, and have experienced high unemployment. These states are all in the South and West regions of the country. Mississippi ranks lowest, with an Index value of 34 percent. Barely higher are the western states of New Mexico (37.1 percent) and Nevada (38 percent). Rounding out the bottom ten list are the southern states of Arkansas (38.2 percent), Georgia (38.4 percent), Alabama (38.4 percent), Louisiana (39 percent), Tennessee (39.5 percent), South Carolina (39.6 percent), and Florida (39.7 percent) (see Chart 2, page 3).

Assuming these patterns of family belonging are fairly durable, one wonders if growing up in an intact married family contributes to absolute upward mobility later in life. Might population density also be a plus? Both make intuitive sense to me, but of course I’m biased. Naturally I’m curious as to Scott Winship’s thoughts on the study.

Josh Barro has thought deeply about bullying. I recommend reading his new post on the subject. 

Back in 1999, William Green and Joan Caplin wrote an article for Money on how former presidents come to amass great wealth, looking ahead to the Clintons’ economic future. Gerald Ford was particularly conspicuous for having used the prestige associated with having served as president to dramatically increase his personal wealth:

Gerald Ford was no millionaire when he replaced Richard Nixon in 1974. His net worth in late 1973 was $256,378. He had $1,282 in cash in the bank, he owned one stock, $3,240 worth of Central Telephone of Illinois, and he had $1,299 in the Stein Roe Farnum Balanced Fund.

In 1972, the year before he became Vice President, Ford grossed $68,000 as a congressman from Grand Rapids, Mich. So the presidential salary of $200,000 was a windfall. “Ford was a poor boy who made more by being President than he’d made in any other job he ever had,” says Robert Hartmann, his Chief of Staff when he was Vice President.

But it wasn’t until Ford left office in 1977 that the money really poured in. Ford hired an agent from the William Morris Agency who negotiated a sweet TV deal, with Ford earning a fat income for his appearances on NBC. Ford and his wife Betty agreed to write their memoirs, and they pulled in a $1 million advance for the two books.

Breaking with presidential tradition, Ford also joined the boards of a slew of companies, including Amax and Travelers Group, and he signed on as an “adviser” to American Express. The Los Angeles Times calculated that he hauled in $541,300 in 1986 as a corporate director and consultant. Bill Seidman, a friend and economic affairs assistant in the Ford Administration, says he remembers questioning Ford’s decision to become an American Express adviser: “I told him I didn’t think it was the right thing to do. He did it anyway…. He’d been an honest congressman for 25 years and he had four kids. He had not seen the sunny side of the street financially, and I don’t blame him for wanting to see it.”

And Ford continued to earn prodigious sums until shortly before his demise.

More recently, Al Gore has built a fortune as an investor and entrepreneur. Estimates of Gore’s net worth vary, but the consensus view is that he is a centimillionaire. Though Gore’s entrepreneurial ventures don’t have an unblemished record of success (Current TV’s troubles have been very much in the news), his brand was sufficiently valuable after his highly controversial defeat in the 2000 presidential election that he was given access to a number of lucrative investment opportunities in the technology world, thanks in part to his close relationship with John Doerr and other noted Silicon Valley venture capitalists. He is also chairman and co-founder of Generation Investment Management, among other ventures in the financial space. 

One gets the strong impression that Gore’s financial success has been closely related to his public prestige. Gore’s celebrated film An Inconvenient Truth and his subsequent Nobel Peace Prize greatly enhanced his global stature. Indeed, it is hardly surprising that he chose not to run for president in 2004, as a rematch would have had a tremendously high opportunity cost. And his decision to endorse Howard Dean helped further rehabilitate his cultural as well as his political brand. As late as the latter days of the Clinton administration, Gore was seen as belonging to the right of the Democratic party, having championed an idiosyncratic mix of cold war hawkishness, fiscal rigor, and environmentalism throughout his national career. He had been sharply critical of more left-leaning Democrats like Jesse Jackson and Michael Dukakis. During his 2000 presidential campaign, however, he established himself as a stalwart progressive profoundly concerned about inequality and related issues, thus earning him the allegiance and enthusiasm of many culturally influential and affluent voters. His affect, and his self-conscious celebration of intellect, helped him build a brand that connected him to the small but politically powerful coterie of women and men who had made sizable fortunes during the late 1990s in technology and finance. 

Though there is no question that Gore’s reinvention was political in orientation — that it was designed to help him secure the presidency, and to distance himself from the (seemingly) problematic legacy of President Bill Clinton — it proved in hindsight to be extremely savvy. 

Life is an iterative game, and it seems likely that the experience of Ford shaped the post-presidential careers of his successors, e.g., it is now expected that former presidents will give lucrative speeches. After Clinton and Gore, however, a new vista has opened up. Instead of merely leading a prosperous life, both men have demonstrated that one can retain considerable political and cultural influence through charitable efforts on a grand scale and through deep involvement in the corporate world.

Different individuals will, of course, have different preferences. Some will prefer to emphasize cultural prestige over the attainment of wealth. Or rather different individuals will choose different points along a complex continuum. One could choose to work in the oil and gas industry, recognizing that it will damage your cultural capital in some quarters while enhancing it in others. You get the basic idea.

I see Barack Obama’s decision-making over the past week through this lens. If we accept the story being offered by anonymous White House sources in Politico, the president fully intended to endorse same-sex marriage at some point before November. Yet Joe Biden “forced his hand,” thus causing considerable strain between the two men. 

Now, however, the president is capitalizing on the opportunity presented by his evolution. A fundraiser held the night after his announcement at the home of television and film actor George Clooney raised an extraordinary $15 million, per a report in the Los Angeles Times. This raises a number of interesting conceptual questions in itself, e.g., were there considered discussions of the relative value of crafting a policy position that would be less likely to alienate non-college-educated, culturally conservative swing voters in swing states in the Midwest versus one that would generate enthusiasm among affluent donors? If we believe that swing voters are relatively indifferent to policy nuance (anonymous White House sources have suggested that voters believed that the president supported same-sex civil marriage regardless of his stated position, so the electoral benefit of not explicitly doing so was minimal) but that television advertising and expensive, labor-intensive voter contact efforts do make a difference, it seems reasonable to emphasize fundraising. 

But let’s look beyond this strategic calculation from the perspective of the campaign and consider the strategic calculation from the perspective of the president’s own interests. Unlike Ford, Obama is a high-earner, as is his wife. Both are high human capital individuals with prestigious law degrees, and Michelle Obama has worked in the upper echelons on the non-profit sector. The president is also an accomplished author, who generated tremendous book sales during his unlikely rise to political prominence. It is easy to imagine that both of them will be extremely well-placed to earn large sums after leaving the White House, whether that is in 2013 or 2017. This doesn’t mean that the Obamas are immune to financial considerations. As Jim Geraghty has observed, Jodi Kantor’s book offers great insight:

Even the president made uncomfortable jokes about why his wife needed so many things. Behind the scenes, aides said, the Obamas were concerned about money: the president’s books could only sell so many copies, and it would be years until he could write more and the first lady could write her own. From vacation rental homes big enough to accommodate the Secret Service to all the personal entertaining they did at the White House, their lifestyle had grown fearsomely expensive.

This might sound ridiculous, but as we often hear, inequality is fractal. Many of the people the president encounters, including many of his subordinates, have far more money than he does. It is absolutely unimaginable that this keeps him up at night. He is at the top of a very steep hierarchy, and he is consuming a tremendous amount of prestige. But as the father of two young children who has long had a keen interest in finding the most demanding, strenuous, and visible work he can, he presumably gives at least some thought to his earning power. There is no question that he’ll be a wealthy and influential man. Yet he does have some say in terms of how wealthy and influential he will become, and how he might use this wealth and influence to achieve broader objectives.  

Here we return to the example of Al Gore. Had Al Gore served as president, he would have no doubt alienated many people in the course of trying to retain power. Instead, he’s remained a (relatively) untouched vessel for the hopes and aspirations of his admirers, and he has had the luxury of taking a number of stances that would have proven extremely problematic had he remained in electoral politics yet that have greatly enhanced his reputation in the elite circles in which he travels. It is not obvious that Gore’s (semi-) defeat in 2000 was the worst outcome for his personal well-being. Had Gore remained “political” during this period, or rather politic; had he been less willing to characterize those with whom he disagrees as enemies of enlightenment and progress, etc., it is likely that he would have sold fewer books and movie tickets, and also that he would have generated somewhat less enthusiasm in the right circles.

Let me emphasize that I don’t assume that these calculations are constant, self-conscious, or exact. Rather, I think that these shifting incentives color our interpretation of the choices before us. 

At his Los Angeles fundraiser, President Obama made the following remarks:

“Obviously yesterday we made some news,” Obama said to applause. “But the truth is it was a logical extension of what America is supposed to be. It grew directly out of this difference in visions. Are we a country that includes everybody and gives everybody a shot and treats everybody fairly and is that going to make us stronger? Are we welcoming to immigrants? Are we welcoming to people who aren’t like us — does that make us stronger? I believe it does. So that’s what’s at stake.”

In light of the fact that until relatively recently, Barack Obama had taken a very different view of same-sex civil marriage, this seems like an odd pronouncement. Yet there is no question that his remarks made a strong impression on the relevant audience. 

Had Barack Obama failed to change his position around now — had he been defeated this November and, say, signed a petition of cut a television advertisement in favor of same-sex civil marriage in 2013 — how might affluent, socially liberal individuals for whom same-sex civil marriage is an issue of vital importance have interpreted him? One assumes that they’d see him in mostly the same way, i.e., as a good and honorable man undone by an intransigent Republican opposition, with a certain level of ingenuousness about the unbelievable ruthlessness of his political opponents, etc. Now, however, he looks more like a man of courage and principle, willing to take the fight to people who (remarkably) don’t believe that America is “a country that includes everybody and gives everybody a shot and treats everybody fairly,” and who do not welcome immigrants or people who aren’t like us, etc. 

Having offered an empathetic and in many ways quite intelligent (if fundamentally unsound) characterization of working class white voters as people full of bitterness, who cling to guns and religion and antipathy to people who aren’t like them out of a profound sense of dislocation caused by rapid economic change and the deterioration of their labor market position, the president must recognize that his characterization of the central disagreements in the so-called culture wars will prove alienating to at least some people who would at least consider voting for him. 

Yet even the savviest politician isn’t simply governed by political calculation. We want to be esteemed by the people for whom we have great esteem. We value the opinions of the people we think of as intelligent and thoughtful, and we want them to think of us in the same way. When these people also serve as gatekeepers in the economic and cultural spheres, this is all the more important.

I don’t know if Barack Obama will want to go the Gore route or if he’d prefer to, say, take on a low-lift teaching position as a university professor at an elite U.S. university while running a vast charitable concern. Perhaps he’ll want to pursue some combination of both. I do think that his set of post-presidential options has become somewhat more attractive this week, even if he has suffered a slight political reversal. 

At Politico, David Rogers has a story on a legislative effort by House Republicans to shield defense spending from cuts by shifting resources from anti-poverty programs.

Walking away from the August debt accords, Republicans won House approval Thursday of their plan to shift tens of billions from poverty programs to protect the Pentagon from automatic cuts ordered for January under the Budget Control Act.

The 218-199 vote capped a day of often emotional debate and carries with it major implications for the November elections –and the fiscal crisis awaiting Congress at the end of this year.

Building on the House budget resolution in March, the 167-page bill continues an aggressive election-year rewrite of last summer’s agreements to shore up Pentagon spending without having to rely on new tax revenues. Non-defense appropriations already face $27 billion in cuts beyond what the budget law anticipated, and the new measure adds a second round of savings, culled from President Barack Obama’s signature initiatives as well as core benefit programs such as Medicaid, food stamps, and the child tax credit.

The long-term unemployed, who have swelled the food stamp rolls, are among the most vulnerable, together with single-mother households and working class immigrant families. Depressed swing states like Florida would feel the pinch, and some of the proposed cuts have been opposed in the past by that state’s young Republican political star, Sen. Marco Rubio, often mentioned as a potential running mate with Mitt Romney. [Emphasis added]

As an advocate of a greatly expanded child tax credit, along the lines of the proposals from Ramesh Ponnuru and Robert Stein, and as someone who believes that the defense budget can indeed be trimmed undermining national security, that last line caught my attention. 

But Rosalind Helderman of the Washington Post offers a somewhat different characterization of the plan:

Budget Committee Chairman Paul Ryan (R-Wis.) said national security would be harmed if the Pentagon lost $55 billion in funding in January. He told colleagues the House framework represented at attempt to deal with a looming problem through serious governing and would put only a small dent in the growth of rapidly expanding social programs.

“If we can’t have a civil debate about how to control the growth of spending around here, then we’ll never get this under control,” he said.

The far-reaching Republican proposal would impose new caps on medical malpractice suits, require federal employees to contribute more for their pensions and require those claiming the child tax credit to submit a social security number. 

It would also restrict eligibility for food stamps and reduce benefits that had been enhanced in the stimulus bill. And it would slice billions from Medicaid. [Emphasis added]

I’m struck by the difference between the descriptions of Rogers and Helderman. While one might conclude that Republicans are premature in reducing the eligibility expansions built into the fiscal stimulus law, and while it may well be an inconvenience for parents to submit Social Security numbers, these don’t seem like intrinsically unreasonable steps to take. Rogers, in contrast, offers a far more apocalyptic take, though one that does make a few substantive points, e.g.:

“There are only tough decisions left,” Rep. Rob Woodall (R-Ga.) answered McGovern. And Budget Committee Chairman Paul Ryan (R-Wis.) said the GOP should get credit for trying “to govern” rather than surrender to mechanical cuts.

“If we can’t have a civil debate about how to slow the growth of spending around here,” Ryan said, “Then we will never get this under control.”

“We have the highest poverty rates in a generation. These programs aren’t working,” he said. “Let’s fix them.”

But few of the savings really represent “fixes” of what are often complicated questions about who should be eligible for benefits. At the same time, the GOP’s single-minded focus on protecting defense is so great that the bill even exempts the Pentagon from a small sliver of $19 million in mandatory savings demanded by the sequester mechanism—while Medicare providers would still be impacted.

The point about “fixes” is fair — but one wonders if Ryan is getting a fair shake out of Rogers, given the tone. I’d be curious to hear a reaction from the House GOP.

My own view, to be clear, is that defense cuts are worth pursuing, provided they are measured and sensible.

I greatly profited from reading William Galston’s calm, judicious overview of the issues and constituencies that will determine the outcome of this year’s presidential election.