Michael Mandel of BusinessWeek recently posted on the 2000s as a lost decade for U.S. economic growth.

From the second quarter of 1999 to the second quarter of 2009, real GDP grew at a 1.9% annual rate. That beats (in a negative sense) the 2.0% growth rate for the decade which ended in the first quarter of 1983.

It’s hard to wrap one’s head around the fact that this past decade was worse than the era of stagflation when it comes to growth, in part because of the tremendous wealth boom that happened at the top of the spectrum. That wealth boom was driven to a great extent by market forces, but there’s good reason to believe that so-called access capitalism has played a role, e.g., political insiders using their access to secure governments contracts, etc.

In today’s New York Times, David Leonhardt and Geraldine Fabrikant report that the trend towards the concentration of income and wealth, rising for the past thirty years, may be reversing. 

The rich, as a group, are no longer getting richer. Over the last two years, they have become poorer. And many may not return to their old levels of wealth and income anytime soon.

For every investment banker whose pay has recovered to its prerecession levels, there are several who have lost their jobs — as well as many wealthy investors who have lost millions. As a result, economists and other analysts say, a 30-year period in which the super-rich became both wealthier and more numerous may now be ending.

Is this just a function of the business cycle? At least one economist Leonhardt and Fabrikant interviewed believes that something more structural is at work.

“We had a period of roughly 50 years, from 1929 to 1979, when the income distribution tended to flatten,” said Neal Soss, the chief economist at Credit Suisse. “Since the early ’80s, incomes have tended to get less equal. And I think we’ve entered a phase now where society will move to a more equal distribution.”

Assuming we don’t see a sharp turn towards vastly higher taxes and higher spending, and that’s very much an open question, I think Soss is wrong. As Harvard economist Lawrence Katz told the Times, you need sweeping interventions to reverse the trend.  

Beyond the stock market, government policy may have the biggest effect on top incomes. Mr. Katz, the Harvard economist, argues that without policy changes, top incomes may indeed approach their old highs in the coming years. Historically, government policy, like the New Deal, has had more lasting effects on the rich than financial busts, he said.

Again, we could see the return of ruinously high marginal tax rates, but it’s important to note that the Democratic coalition depends on a small number of affluent voters who, as we saw during the debate over the proposed income tax surcharge in the House health bill, are tax-sensitive. While progressive activists want significantly steeper progressive taxes, the Democratic donor base does not.

I’ve been critical of Steven Pearlstein in the past, but in a reply to his Washington Post colleague Ezra Klein he makes a very valuable point, one that James Capretta has made very persuasively. 

Most of Medicare now is fee for service, and that is not transformational — in fact, it will bankrupt the country. And piggybacking on Medicare’s monopsony power to dictate hospital rates that are below cost doesn’t really solve the cost problem as exacerbate the cost-shifting problem. In the column, I give a couple of other suggestions for bringing down prices.

In the column, Pearlstein dispels some misconceptions about a public option.

You also hear the argument that government-run insurance would have lower costs because it wouldn’t have to generate a profit (that’s true) and would be more efficient than private insurers (that isn’t). The evidence of greater efficiency is Medicare, which spends about 2 to 3 percent of its budget on administration. But if a government-run plan had to spend its own money to collect premiums, market itself to customers, maintain a reserve, and manage care in a way that lowers costs and raises quality — none of which Medicare now does — then you can be sure its administrative costs would be nowhere near 2 or 3 percent.

David Cutler, the Harvard economist who has advised the Obama campaign and now works closely with the left-of-center Center for American Progress, emphasized in his excellent book Your Money or Your Life that paying for quality will necessarily raise administrative expenditures. This is a concept that shouldn’t be hard to grasp, yet it’s often glossed over. 

As for so-called government-chartered co-operatives, Pearlstein writes:

Finally, there are the government-chartered cooperatives that key members of the Senate Finance Committee are pushing. Although public-option enthusiasts scoff at the idea, the experiences of a number of communities show that cooperatives could significantly contain costs, provided the cooperatives are big enough and built around networks of hospitals and physician practices that accept a fixed, annual fee for treating patients rather than billing for every procedure. The key isn’t that the cooperatives would be not-for-profit, but that the annual payments would give doctors and hospitals a financial incentive to control costs, better coordinate care, and eliminate procedures with little or no benefit.

This is a very important point: as conservative reformers have been arguing for years, fee-for-service medicine is the heart of the problem. Spurring the creation and spread of efficient provider networks is not a bad idea, provided it can be done at a sustainable cost. 

Jon Cohn of The New Republic and I disagree pretty strongly about the right way to reform heathcare, but he’s written an excellent analysis of the central political and policy difficulty at the heart of Obamacare: the president’s pledge that “if you like your health care plan, you will be able to keep your health care plan, period.” After explaining why this pledge is basically untenable, Cohn proposes a different strategy for the Democrats:

In an ideal world, the best approach would to be to admit that promising everybody the opportunity to keep their coverage, as Obama has done, is just not that advisable. A better promise would be that government won’t force anybody to drop good coverage–that the relatively modest number of people switching insurance will be making a change for the better. There are signs that the House legislation is at least moving in that direction, since it seems to have a more porous firewall–and an apparent commitment to high subsidies.

After acknowledging the downsides of this approach, including its paternalism, Cohn explains its political logic:

Embracing this argument would also mean telling some people with insurance that their world is going to change. But Obama–or any of his allies–can say honestly to those people that change is coming anyway. As proof, they can point to the aftermath of Clintoncare, when all those people who turned against the plan ended up enduring radical changes in insurance anyway. It happened because employers, buckling under the burden of employee-benefit costs, decided to make changes on their own. They moved everybody into managed-care plans–which, as it happens, is precisely the prospect that scared so many people about the Clinton reforms.

The same trade-offs apply to those of us who want to create a more consumer-driven healthcare marketplace. And my gut instinct is that it is better to be honest and upfront about the trade-offs than to pretend that the healthcare status quo is acceptable or even salvageable. At the heart of the president’s recent political difficulties is, I think, the sense that he isn’t leveling with the public.  

Alan Robock, a leading climate scientist and a professor at Rutgers University, begins his RealClimate post on geoengineering on an unfortunate note:

Bjorn Lomborg’s Climate Consensus Center just released an un-refereed report on geoengineering, An Analysis of Climate Engineering as a Response to Global Warming, by J Eric Bickel and Lee Lane. The “consensus” in the title of Lomborg’s center is based on a meeting of 50 economists last year. The problem with allowing economists to decide the proper response of society to global warming is that they base their analysis only on their own quantifications of the costs and benefits of different strategies. In this report, discussed below, they simply omit the costs of many of the potential negative aspects of producing a stratospheric cloud to block out sunlight or cloud brightening, and come to the conclusion that these strategies have a 25-5000 to 1 benefit/cost ratio. That the second author works for the American Enterprise Institute, a lobbying group that has been a leading global warming denier, is not surprising, except that now they are in favor of a solution to a problem they have claimed for years does not exist.

Is Lee Lane a global warming denier? If not, why damn him by association? Moreover, is it fair to claim that AEI is a hotbed of global warmer deniers? AEI hosted an excellent address by Jim Manzi, who has forcefully argued that human-forced climate change is a real threat. That said, Robock goes on to make a number of excellent points, many of which I hadn’t considered.

My main areas of agreement with this report are that global warming is an important, serious problem, that SRM with stratospheric aerosols or cloud brightening would not be expensive, and that we indeed need more research into geoengineering. The authors provide a balanced introduction to the issues of global warming and the possible types of geoengineering.

But Bickel and Lane ignore the effects of ocean acidification from continued CO2 emissions, dismissing this as a lost cause. Even without global warming, reducing CO2 emissions is needed to do the best we can to save the ocean. The costs of this continuing damage to the planet, which geoengineering will do nothing to address, are ignored in the analysis in this report. And without mitigation, SRM would need to be continued for hundreds of years. If it were stopped, by the loss of interest or means by society, the resulting rapid warming would be much more dangerous than the gradual warming we are now experiencing.

Bickel and Lane do not even mention several potential negative effects of SRM, including getting rid of blue skies, huge reductions in solar power from systems using direct solar radiation, or ruining terrestrial optical astronomy. They imply that SRM technologies will work perfectly, and ignore unknown unknowns. Not one cloud has ever been artificially brightened by injection of sea salt aerosols, yet this report claims to be able to quantify the benefits and the costs to society of cloud brightening.

They also imply that stratospheric geoengineering can be tested at a small scale, but this is not true.

Overall, Robock offers a thoughtful take on the issue, one that ought to take wind out of the sails of geoengineering enthusiasts like myself. Cloud brightening has always struck me as an attractive, low-cost approach, yet Robock highlights some of the pitfalls.

With respect to cloud brightening, Bickel and Lane ignore the Jones et al. (2009) results that cloud brightening would mainly cool the oceans and not affect land temperature much, so that it is an imperfect method at best to counter global warming. Furthermore Jones et al. (2009) found that cloud brightening over the South Atlantic would produce severe drought over the Amazon, destroying the tropical forest.

This is an important thing to keep in mind about the climate debate: our models for understanding the climate are incredibly crude, and we have a very poor understanding of the feedback mechanisms at work.

Our failure to boost human capital is a major source of sluggish productivity growth and stagnant wages. Despite a significant wage premium for those who finish college, we have persistent high dropout rates for students attending high school and college. Higher education is expensive, inefficient, and inaccessible. Fortunately, as Anya Kamenetz reports in Fast Company, there’s good reason to believe that private entrepreneurs are on the verge of making it cheaper, more efficient, and more accessible. The article is a terrific antidote to economic pessimism. Definitely worth your time. 

I intend to write more about Singapore’s approach to healthcare in the near future. I’ll just make a simple observation: many on the left emphasize the virtues of the National Health Service, most strikingly the fact that health expenditures in the UK amount to roughly 8.4 percent of GDP, slightly more than half of what the public and private sectors spend on health in the United States. But Singapore, which has a system built around catastrophic insurance coverage and health savings accounts, spends less than 4 percent of GDP. And according to the World Health Organization, Singapore has the world’s sixth best healthcare system, miles ahead of Britain or the United States. Rowan Callick wrote a brief and useful summary of the virtues of Singapore’s approach in The American last spring.

To grossly oversimplify, Singapore relies on a mix of mandatory savings and universal catastrophic coverage. David Goldhill has proposed something similar for the U.S. in The Atlantic. So has Brad DeLong. Ross and I backed a similar approach in Grand New Party. And Ron Bailey made the case in Reason back in 2004. 

One thing to keep in mind: we really do need a big healthcare overhaul. Defending the status quo is attractive in the short term, but it will cause serious problems in the long term, as Ross argued in his latest column for the Times. 

If the Democratic Party’s attempt at health care reform perishes, senior citizens will have done it in, not talk-radio listeners and Glenn Beck acolytes. It’s the skepticism of over-65 Americans that’s dragging support for reform southward. And it’s their opposition to cost-cutting that makes finding the money to pay for it so difficult.

While Republicans are very eager to beat Obamacare, their opposition to IMAC and other Medicare cost-containment measures will undermine the cause of limited government. Ross says it well:

Maybe Republicans will be able to cast themselves as the protectors of entitlements today, and then impose their own even more sweeping reforms tomorrow. That’s the playbook that McConnell, Brownback and others seem to have in mind: first, save Medicare from Obama; then, save Medicare from itself.

But for now, their strategy means the country suddenly has two political parties devoted to Mediscaring seniors — which in turn seems likely to make the program more untouchable than ever.

Not all Republicans are falling into this trap. Paul Ryan, for example, has done an excellent job of emphasizing the trade-offs that are at work. But there are only so many Ryans in the House.  

Why are Republicans rushing to oppose co-ops? In the New York Times, Robert Pear and Gardiner Harris describe the vagueness of the various co-op proposal floating around the moment before ending on a discouraging note.

Senator Orrin G. Hatch, Republican of Utah, said he saw the differences as more semantic than substantive. “You can call it a co-op, which is another way of saying a government plan,” Mr. Hatch said.

But is this a fair characterization? Mark Schmitt, editor of The American Prospect, has written a useful primer on the evolution of the public option, which has its intellectual origins in Jacob Hacker’s Medicare Plus proposal. Schmitt, writing from a left-of-center perspective, notes the following:

One key player was Roger Hickey of the Campaign for America’s Future. Hickey took UC Berkley health care expert Jacob Hacker’s idea for “a new public insurance pool modeled after Medicare” and went around to the community of single-payer advocates, making the case that this limited “public option” was the best they could hope for. Ideally, it would someday magically turn into single-payer. And then Hickey went to all the presidential candidates, acknowledging that politically, they couldn’t support single-payer, but that the “public option” would attract a real progressive constituency. 

This explains why many on the left are so disappointed by the apparent death of the public option. (Let me stress that I’m convinced that the White House fully intends to resurrect the public option.) Schmitt continues:

But the downside is that the political process turns out to be as resistant to stealth single-payer as it is to plain-old single-payer. If there is a public plan, it certainly won’t be the kind of deal that could “become the dominant player.” So now this energetic, well-funded group of progressives is fired up to defend something fairly complex and not necessarily essential to health reform. (Or, put another way, there are plenty of bad versions of a public plan.) The symbolic intensity is hard for others to understand. But the intensity is understandable if you recognize that this is what they gave up single-payer for, so they want to win at least that much.

Indeed, Schmitt goes on to describe the public option as “stealth single-payer.” He suggests — rightly, I think — that the Democratic left might have been smarter to have simply pushed a “Medicare for All” proposal. As Ramesh has argued, a key problem with the Obamacare effort has been the increasingly pervasive sense that the White House isn’t leveling with the public. By simply calling for single-payer and, say, backing a tax hike on the rich, the Democrats could have set a new, and possibly quite popular, leftward benchmark. Unfortunately for the Democrats, President Obama failed to recognize that the promise of painless reform 

Co-ops, in contrast, point in a very different direction. When Arnold Schwarzenegger — not a popular governor around these parts, I realize — called for a statewide healthcare reform, he tried to address “medical loss ratios,” the share of premiums spent on medical care rather than administration or profits. He wanted to mandate that all insurers maintain MLRs of 85 percent or higher. MLRs for for-profit insurers tend to be in the neighborhood of 80 percent. This isn’t a smart idea for a lot of reasons: the MLR is an artifact of accounting, and setting a rigid requirement will prompt little more than creative accounting. Yet it reflects a basic anxiety: do private insurers have the right incentives?

In Paul Krugman’s latest column, he talks up Switzerland’s 1994 healthcare reform.

Switzerland offers the clearest example: everyone is required to buy insurance, insurers can’t discriminate based on medical history or pre-existing conditions, and lower-income citizens get government help in paying for their policies.

Like the United States, Switzerland used to have a lot of for-profit health insurance firms. After the reform, insurers were obligated to offer health insurance plans on a non-profit basis. They can offer other insurance policies on a for-profit basis, and offering supplemental coverage has been a big source of growth for them. The vast majority of universal health systems built around private insurers have a similar non-profit requirement. The United States is definitely the outlier here.

The Democrats presented the public option as a matter of choice. Why not let consumers choose a leaner, more efficient system? But as Gregory Mankiw has observed, a public provider is fundamentally different from a private provider: it can’t really go out of business.

Even if one accepts the president’s broader goals of wider access to health care and cost containment, his economic logic regarding the public option is hard to follow. Consumer choice and honest competition are indeed the foundation of a successful market system, but they are usually achieved without a public provider. We don’t need government-run grocery stores or government-run gas stations to ensure that Americans can buy food and fuel at reasonable prices.

An important question about any public provider of health insurance is whether it would have access to taxpayer funds. If not, the public plan would have to stand on its own financially, as private plans do, covering all expenses with premiums from those who signed up for it.

But if such a plan were desirable and feasible, nothing would stop someone from setting it up right now. In essence, a public plan without taxpayer support would be yet another nonprofit company offering health insurance.

The case for co-ops is simple: we don’t have enough non-profit insurers. Let’s encourage the creation of more of them. This might be wrong. But the potential upside is considerable and the potential downside is negligible. Bitter opposition to the idea suggests that the right is needlessly hostile to reform.

William Galston, a rare political philosopher who has ventured deeply into policy and political strategy, has an excellent post on The Democratic Strategist proposing a course correction for Obama White House. 

As the economy struggles to stabilize, we find ourselves in a deep hole–even deeper than we knew. For the first time since the Great Depression, Floyd Norris reports that we have endured a decade with no private sector employment growth. In July 1999, there were 109 million Americans with jobs in the private sector; the comparable figure for July 2009 was … 109 million. By contrast, at the depth of the 1981-82 recession, private sector job creation over the previous decade still averaged about 1.5 percent per year. Until the current downturn, Norris finds, the long-term annual growth rate for private sector jobs had not gone below 1 percent for nearly half a century.

He goes on to note that the long and arduous process of reducing household debt over the next decade or two will likely mean sluggish growth. Galston also cites Zachary Karabell, a quirky and original economic thinker, who argues that,

As these companies profit from global expansion and greater efficiency, they have little or no reason to rehire fired workers, or to expand their work force in a U.S. that is barely growing. If you are a global company, you want to hire and expand where the most dynamic growth is. Unfortunately for Americans, that’s not the U.S.

So for Galston, the right approach is for Obama and the Democrats to embrace a job-focused economic agenda.

In this challenging context, the president would be well advised to focus more on the economy over the next three years, and to persuade average Americans that the economy is as central to his concerns as is it to theirs. That means taking what he can get on health care and climate change and clearing the decks well before the end of the year. It means going on the road to highlight the job-creating results of the stimulus bill, with events each week for as long as it takes to make the sale. And it means crafting proposals design to stimulate new hiring, not just in the long run, but as soon as possible. A revenue-neutral swap of lower payroll taxes in return for broadening the base of the income tax code could command support even among some Republicans.

Late last month, I called for conservatives to embrace a jobs-focused agenda in my Forbes.com column. My concern is that neither political party will go this route. Puzzlingly, the Democrats, Galston’s persuasive analysis notwithstanding, seem wedded to a strategy of creating new work disincentives, thus blunting the intended effects of fiscal stimulus. Suffice it to say, this creates an opportunity for Republicans.   

I’m heading to Edinburgh tonight for a memorial service. With any luck, I’ll have reasonably good internet access while I’m out there, but I’ll be back in force on Monday night.

A few weeks ago, I had the great pleasure of talking to a successful investor with a colorful past. He patiently explained thatI was wrong to believe that America was facing a future energy crunch: domestic sources of shale oil would save us. I remained skeptical. Now ClimateWire suggests that he might’ve been right.   

Tim Lee has written an excellent post on how we ought to think about the recent controversies surrounding Apple’s iPhone that can also serve as an introduction to broader tech policy questions..

From the Pew Research Center:

With the economy wreaking havoc on state budgets, the favorability ratings of state governments have declined from a year ago. Overall, 50% of the public now holds a favorable opinion of their state government, down from 59% in April 2008. The falloff in positive views has been greater in states with large and moderate budget shortfalls than in states with smaller budget gaps.

Governors of both parties have a tendency to increase spending and cut taxes when times are flush, hoping that the next recession will be on someone else’s watch. I’m reminded of Alberta premier Peter Lougheed, the Harvard MBA who presided over the province’s oil boom yet insisted on maintaining tight fiscal discipline while investing natural resource revenues in human capital development. Apart from leaving Alberta in fine fiscal shape, Lougheed managed to stay in power for fourteen years. His prudent policies proved pretty popular.   

Princeton economist Alan Blinder has published a strongly worded op-ed in The Washington Post on the president’s stimulus package. 

Apparently not bothered by facts, some congressional Republicans are already claiming that President Obama’s $787 billion stimulus package has failed and are even advocating that some of the remaining scheduled steps in the legislation be canceled. 

In medicine, that would be malpractice. In politics, it’s demagoguery. In reality, we need to stay the course.

It’s worth noting that a number of economists have also called for the stimulus should be scrapped, most prominently Casey Mulligan of the University of Chicago, who argued in Sunday’s New York Post that the stimulus is an expensive and counterproductive overreaction.

Stimulus spending is doomed by the fact that most of our job losses are concentrated in a few sectors, and in regions of the country that had the larger housing boom and bust. Construction workers as a group lost more than 1 million jobs, especially in places like Florida, California and Nevada. The government could put close to a million people back to work by hiring them to build more houses, but then it would be rightly criticized for adding further to the excess supply of homes.

Government could hire teachers and nurses — education and health are not in such excess supply — but then it would create few jobs because, while some teachers and nurses are unemployed, their numbers are far fewer than those in construction and manufacturing who were put out of work. And even if you could quickly transform former construction workers into effective teachers and nurses, that would require moving people from where many of the jobs were lost (California, Florida, etc.) to where the health care and education are needed (all over America).

The stimulus won’t do this. But the free market will — people will move in pursuit of jobs, will train in new industries.

I wouldn’t go as far as Mulligan, who opposes assistance to state and local governments. Mulligan argues:

State governments have seen their tax revenues drop, and some economists are concerned that they’ve become “50 little Herbert Hoovers” who raise tax rates and cut spending in order to balance their budgets. But transforming Hoovers into FDRs is not the way the stimulus bill could achieve its employment goals, because few of the job losses have been in the government sector. Even as the stimulus law was being passed, state and local government employment had been higher than it was when the recession began.

Yet I think the concern is that closing budget gaps would require massive layoffs. Though a strong case can be made that many of the 50 states need to shave the size of their public sector workforce, now might not be the best time to move precipitously. Mulligan’s broader point, however, makes sense: given that the stimulus goes far beyond providing fiscal relief for state and local governments, it’s not clear that we’re getting the best value for money.

Moreover, there are real questions regarding the long-term sustainability of our fiscal policies. Jeffrey Sachs, known for his ferocious criticisms of the political right and his strong advocacy for a massive program of overseas development assistance, made the most persuasive case against a fiscal stimulus in a column for Scientific American published in March.   

We need to avoid reckless short-term swings in policy.  Massive deficits and zero interest rates might temporarily perk up spending but at the risk of a collapsing currency, loss of confidence in the government and growing anxieties about the government’s ability to pay its debts. That outcome could frustrate rather than speed the recovery of private consumption and investment. Deficit spending in a recession makes sense, but the deficits should remain limited (less than 5 percent of GNP) and our interest rates should be kept far enough above zero to avoid wild future swings. 

Sachs goes on to argue against tax cuts as well.

We should also avoid further gutting the government’s revenues with more rounds of tax cuts. Tax revenues are already too low to cover the government’s bills, especially when we take into account the unmet and growing needs for outlays on health, education, state and local government, clean energy and infrastructure. We will in fact need a trajectory of rising tax revenues to balance the budget within a few years. 

There’s not much comfort here for mainstream congressional Republicans, who continue to believe that tax cuts are an economic cure-all. All the same, Sachs makes a convincing case for a long-term focus.

Interestingly, Blinder spends no time on the fiscal impact of the stimulus. His basic argument is that spending hundreds of billions of dollars has and will continue to perk up the economy, which doesn’t seem terribly controversial. I’m sure Mulligan would happily acknowledge that heavily subsidizing the purchase of new automobiles, as in the cash-for-clunkers policy, will prompt consumers to buy new automobiles. The deeper question is whether the stimulus is contributing to long-term prosperity.

I’m not opposed to sustainable investments in infrastructure and education and I’m not opposed to consumption smoothing. I am, however, strongly opposed to the free-lunch economics of some stimulus advocates. If the $787 billion came in the form of no-strings-attached donations from beneficent Chinese industrialists, I’d have no objection to ARRA. Indeed, I’d be happy to spend far more of their money. Unfortunately, we will all have to pay for it through our tax dollars. So I don’t think it’s unreasonable to ask that stimulus funds be spent with an eye on cost-effectiveness.

Mulligan writes:

Even if the Obama Administration were right that the stimulus law would “create or save” three to four million jobs, that means each job costs the Treasury $215,000! The best case scenario for the stimulus law gives us results that are miniscule compared with the costs. In the worst case scenario, we actually pay money to further harm an already struggling economy.

One wonders if we’d be better served by using stimulus funds to finance a larger program of low-wage employment subsidies. 

Gregory Clark’s provocative op-ed in Sunday’s Washington Post has prompted a lot of very smart criticisms. To oversimplify, Clark essentially revives the vision of the future Charles Murray and Richard Herrnstein outlined in The Bell Curve, with a large less-skilled population languishing in “high-tech reservations.” 

With the march of technology, the size of a future American underclass dependent on public support for part of its livelihood is hard to predict: 10 million, 20 million, 100 million? We could imagine cities where entire neighborhoods are populated by people on state support. In France, generous welfare has already produced huge suburban housing estates, les banlieues, populated with a substantially unemployed and immigrant population, parts of which have periodically burst into violent protest.

So, how do we operate a society in which a large share of the population is socially needy but economically redundant? There is only one answer. You tax the winners — those with the still uniquely human skills, and those owning the capital and land — to provide for the losers.

Clark argues that while the Industrial Revolution was tremendously beneficial for less-skilled workers, future technological developments will prove far less so as increasingly sophisticated machines displace them.

Is this a plausible vision of the future? Tim Worstall and Will Wilkinson argue emphatically that it’s not. Wilkinson makes a number of excellent points regarding real wages at the bottom of the income distribution (higher than conventional measurements suggest) and the role of work disincentives in deskilling much of the population (for a variety of reasons, including high effective marginal tax rates, the poor work less than the rich, and this in turn reduces the time on task that drives skill accumulation).

As Mike Konczal notes, we’ve seen large numbers of less-skilled workers leaving the labor force. I tend to think that this can be traced in part to high effective marginal tax rates on the poor, which can be attributed to means-tested social programs and effective child support enforcement among other things. Individually, these programs are all very defensible. Yet taken together, they create powerful work disincentives at the bottom of the economic ladder.

Tim Worstall is confident that there will be a new round of job creation. If machines displace workers who perform routine information processing, said workers will find new jobs that we can’t currently imagine. He’s almost certainly right. This won’t happen instantly, however. Inner-city poverty in the contemporary United States can arguably be traced to the long and wrenching transition from a manufacturing-heavy economy to a services-heavy economy. The black-white employment gap widened dramatically in the late 1970s and early 1980s and it hasn’t closed since. New jobs have indeed been created. Yet they’ve been taken up unevenly. We can blame government policies in part — I know I do — but it’s by no means clear that government-created work disincentives are going to suddenly vanish.  

Moreover, one can easily imagine a world in which these new jobs pay a very low market-clearing wage — that is, a world in which the ongoing polarization of the labor market continues. Moreover, adding more capital won’t dramatically increase the productivity of teachers or massage therapists, hence Baumol’s cost disease. To provide workers with a “living wage,” to use a term favored by the left, governments might need to implement what the Dutch call a “social wage,” i.e., low-wage employment subsidies. Will is open to this possibility.

If robots can crowd out all low-skilled workers, there is no reason they cannot also crowd out all high-skilled workers. See Hanson. Would this be bad? Growth would proceed so rapidly that the returns to even small amounts of capital should be outrageously high. The gap will be between those with income from capital gains and those with none. To prevent this, some version of Clark’s recommendation might be desirable. I’d recommend Charles Murray’s scheme for replacing the United States’ social insurance apparatus with basic income grants and mandatory retirement and medical savings accounts. In a world of doubling-every-fifteen-minutes Hansonian robot growth, the portion of GDP necessary to fund universal grants sufficient to ensure a modestly lavish level of consumption would be so trifling that no one would even notice. 

But here’s the thing: this new world will be defined by new inequalities. Some people will find meaningful, dignity-promoting work. Others will not. My libertarian instincts suggest that Will is right and that an unconditional basic income in a richer world represents an overwhelmingly positive development. My conservative instincts suggest that this freedom from constraint will have very uneven consequences: people with long time horizons will fare well while those with short time horizons will fare very poorly. “Tough luck,” you say. As William Julius Wilson argued in When Work Disappears, a job can give one a sense of order and identity. Long stretches of unemployment have sharply negative consequences for one’s health, including one’s emotional health. In Shop Class as Soulcraft, Matthew Crawford argues that thinkers on the left and right have dedicated too little time to the nature of work and how it gives shape and structure to our lives. I tend to think he’s right. 

Another related thought: in Germany, huge numbers of young people spend close to a decade completing their undergraduate degrees. South Korea has the world’s highest proportion of PhDs per capita, and they also have an unusually high number of twentysomethings living at home with their parents. The United States has the highest incarceration rate in the developed world. What’s the common thread? All of these phenomena increase the number of nonemployed persons. I’m guessing we’ll see more of this rather than less.

Long before the surge strategy, Stephen Biddle wrote a brilliant essay for Foreign Affairs titled “Seeing Baghdad, Thinking Saigon.” He argued that the fighting in Iraq was best understood as a communal conflict, and that the United States needed to act as honest broker between the different factions rather than as the sponsor of a sectarian Shia-dominated state. This insight contributed to the emergence of the Sunni Awakening, a movement of former insurgents who chose partnership with U.S. forces over a fruitless war. Though sectarian tensions remain, Biddle’s approach proved invaluable. In the years since, Biddle has continued to make invaluable contributions to the war effort in Iraq and Afghanistan. At the moment, Biddle is advising General Stanley McChrystal, the highly-regarded commander of U.S. forces in Afghanistan. His excellent essay in The American Interest on “the difficult case for war in Afghanistan” offers valuable insight into what folks at the highest levels are thinking these days. And I have to say, the message is pretty discouraging.

The best policy, therefore, is to defend an expensive, risky, potentially unpopular war with an argument that is sound but ultimately indirect and a close call on the merits. And this will need to be done by the leader of a divided party in the face of rising antiwar sentiment and a host of competing demands, political and financial. Barack Obama is a perhaps uniquely skilled political communicator, and his policy for Afghanistan is the right one. But even the right policy for Afghanistan is going to be a very hard sell indeed.

A friend of mine who’s been closely involved in developing U.S. policy in Afghanistan recently said that while President Bush may have followed the wrong policies in Afghanistan, he was deeply invested in the success of the mission. Now, in contrast, President Obama has embraced, perhaps reluctantly, the right set of policies, and yet he seems far less invested.   

At Atlantic Business, Arnold Kling writes,

The Republicans are not beating up on Obama for reinforcing the status quo. On the contrary, their tactic is to portray the Obama plan as something that is radical and threatening. Maybe that message helps them politically. But it undermines any possibility of a real debate about which direction to take in health care policy. 

I would like to see a debate between reforms that free up health care market and policies that entrench the status quo. The fact that the Republicans are not engaging in that debate is just one more reason for believers in markets to view Republicans as unreliable allies.

I’ll just note that creating a functioning healthcare marketplace will require serious changes in the way we regulate and finance healthcare. I’m guessing that I favor more redistribution than Kling, but I agree that we need to be more ambitious rather than less.  

Patrick Nolan of the UK think tank Reform has an excellent post at ConservativeHome, one of my favorite blogs, on how the Canadian government managed to slash spending in the 1990s. In Nolan’s view, the key reason the Canadian reforms succeeded was the decision to engage in extensive public consultation. 

A consultation process was initiated four months before the 1995 Budget, which included the release of major background papers and an extensive round of public hearings. Interest groups, the media and individuals developed mock budgets in response to this consultation. This not only unearthed a wide range of options for reform, but helped shape expectations regarding the magnitude and general nature of the actions needed.

By cutting back its own activities, rather than putting the burden of deficit reduction onto taxpayers, the Government ensured the popularity of these cuts. Their popularity was also supported by evidence that reducing debt would help ensure ongoing delivery of social services and help increase jobs and growth, as sound government finances and a sound economy go hand in hand.

Imagine if health reform involved a serious consultation process, in which elected officials openly and honestly described why the employer-based coverage most Americans enjoy has become a barrier to reform. Instead we have Potemkin town halls that, for obvious reasons, have become a flashpoint of public anger: people know that they’re not being taken seriously. 

If you haven’t read Ramesh Ponnuru’s Time column on the president’s political miscalculations on health reform, you really should.

Stanley Greenberg, who was polling for Clinton back then, recently reminded Democrats that the insured public in the early ’90s just could not be persuaded that the President was going to cut its costs by expanding coverage for others. No amount of clever strategizing is going to make the sales job easier this time. Instead, the President is in a series of double binds. The more he emphasizes how much has to change, for example, the more people are going to doubt his pledge that they can keep their doctor.

I wonder, however, what happens if the Obama administration fails to cajole Congress into passing a comprehensive bill, despite massive Democratic majorities in both houses of Congress. David Frum has raised this question and he’s come up with a troubling answer.

If we win, we’ll trumpet the success as a great triumph for liberty and individualism. Really though it will be a triumph for inertia. To the extent that anybody in the conservative world still aspires to any kind of future reform and improvement of America’s ossified government, that should be a very ashy victory indeed.

I’d go further. Healthcare has been a serious Republican liability for over a decade. Without the healthcare issue, recent political history would have been fought on national security, economic growth, taxes, and education, terrain far more favorable to the center-right. If we accept that reforming healthcare is an iterative process — not something that will happen in one fell swoop — it might make sense to push for a compromise measure like Wyden-Bennett coupled with Medicare reforms like those proposed by James Capretta. No, it’s not ideal. Reform will have to be reformed, which is where conservative policymakers will be able to play a central role, e.g., by encouraging a shift away from fee-for-service.  

Last month, Arnold Kling, a libertarian economist who wrote The Crisis of Abundance, a brilliant analysis of the American healthcare system, wrote the following:

The basic problem that the Democrats have with health care reform is that when it comes to taking our system away from free markets, there is just not that much farther we can go. We already regulate the practice of medicine and allied health services with licensing cartels. We already regulate individual health insurance practically out of existence, particularly in states that require “community rating” and “must-carry,” which force insurance companies to charge the same price to all comers, which means that the only price they can safely charge is the price that assumes you are only asking for insurance because you just came down with a really expensive illness. We already have government insuring the poor and the elderly.

In contrast, there is a lot of room to move health care in the other direction–toward free markets. The only real health care reformers are those of us on the libertarian fringe. The two major parties are just posturing. That’s why I haven’t written much about the day-to-day debate on “reform.” It is not clear to me that defeating the Democrats’ legislation is something I should root for. We’re still nowhere near considering real reform. 

This is a fairly pessimistic view, but one wonders if coverage expansion might actually provide the impetus for a more sweeping set of reforms. The alternative is defending the fast-unraveling status quo. 

A passage from Sandhya Somashekhar’s report from Virginia highlights the irony of a lot of the emerging anti-Obama sentiment. 

Stephanie Slater, 44, a neighbor of Cleland’s who leans Republican, voted for Obama on the strength of his character and because of his positions on education, energy and health care. She recalled brimming with confidence after Obama’s historic inaugural address.

“When he gave that speech that day, I was in awe. I was really inspired and thought, ‘Wow, this is a guy who can do it,’ ” said Slater, a medical transcriptionist and mother of three.

But she has been disturbed by the large Wall Street bonuses that Obama doesn’t seem to be able to halt and his inability to rein in credit card companies that raise rates even on those with good credit. Although she is trying to be patient, she said she is losing faith in the Democrats running Washington.

Slater’s objections to Obama aren’t conservative objections. They are populist objections. She wants heavier regulation of Wall Street compensation and credit card companies. That is, Slater wants Obama to move further to the left. Conservatism and populism do coincide at times, as in the case of Slater’s neighbor, Chris Ann Cleland. 

Cleland, 39, is not so generous. Obama was supposed to help the everyman but instead he helped the banks and General Motors, she said. He was supposed to help homeowners keep their houses, but the primary federal effort in that direction, called Hope for Homeowners, has had limited success. She said she has grown uneasy as government spending has seemingly grown out of control.

Conservatives are also wary of what they see as excessive spending. Yet what is at the root of Cleland’s anxieties? The common thread appears to be a sense of insecurity: she identifies as an everyman homeowner, and she wants protection against the market. Government spending is a threat insofar as it leads to higher taxes. 

The support of voters like Slater and Cleland is conditional: Republicans can win them over by promising to keep taxes low and budgets lean, yet Republicans will alienate them by defending the right of firms to determine their own compensation policies, etc. Democrats, similarly, can win them over by promising to punish large corporations and to create generous social programs that will insulate them from the loss of income or a home or health insurance; yet funding new social programs will require new revenue. The Democrats have squared this circle by calling for higher taxes on the rich, understood as the top 5 percent of earners. Yet increasing taxes on this group alone isn’t a sustainable strategy in light of the scale of spending increases and the existing budget shortfall. 

The political scientists Lawrence R. Jacobs and Robert Y. Shapiro refer to the phenomenon of “crafted talk” in their landmark book Politicians Don’t Pander. 

Politicians pursue a strategy of crafted talk to change public opinion in order to offset the potential political costs of not following the preferences of average voters. Politicians track public opinion not to make policy but rather to determine how to craft their public presentations and win public support for the policies they and their supporters favor. Politicians want the best of both worlds: to enact their preferred policies and to be reelected.

While politicians devote their resources to changing public opinion, their actual influence is a more complex story. Politicians themselves attempt to change public opinion not by directly persuading the public on the merits of their policy choices but by “priming” public opinion: they “stay on message” to highlight standards or considerations for the public to use in evaluating policy proposals. 

Thomas Edsall has written a slightly odd account of the state of the Republican party for The Huffington Post.

With Republican party leaders so constrained by ideological blinders that none of their positions is likely to produce gains among non-white minorities, especially Hispanics, the GOP is finding it has no real alternative but to revert to a “white voter” strategy.

If Republicans moved to the center, would this yield significant gains among African Americans? Given President Obama’s extraordinary popularity among black voters, this seems unlikely. As for Latino voters, one suspects that their concentration in the hardest-hit states and metropolitan areas will produce complicated, cross-cutting effects: some will continue to blame the Bush administration for their economic woes (if you lost your home in 2008, the memory would likely stay with you for a while) and others might give Republicans the benefit of the doubt in 2010, notwithstanding fine-grained, hard-to-perceive shifts in ideology. 

To some extent, it’s working. The party’s opposition to President Obama’s agenda — particularly his cap-and-trade energy proposal and health care reform plan — is resonating strongly with disaffected white Democratic voters. Republican grievances about Obama, combined with race-baiting commentary from the far-right ideologues who have become some of the most dominant voices of the modern GOP, have led to a precipitous drop in the president’s approval ratings among whites.

Edsall is overestimating the impact of “far-right ideologues.” An alternative hypothesis: the president’s approval rating is declining among whites because many of them feel like Chris Ann Cleland, a Virginia voter recently profiled in The Washington Post by reporter Sandhya Somashekhar.

“He’s just not as advertised,” she said. “Nothing’s changed for the common guy. I feel like I’ve been punked.”

This might be an unfair characterization of the Obama administration’s policies, yet one could argue that the Bush administration was also blamed for circumstances beyond its control. Note that Chris Ann Cleland doesn’t seem to have been manipulated by race-baiting. Edsall continues:

It’s all very reminiscent of the party’s notorious Southern Strategy, which carried the GOP for decades. But that strategy backfired spectacularly in the 2006 and 2008 elections, and there’s no reason to think it will work any better in 2010 — especially given the ever-growing importance of the minority electorate.

Leave aside for the moment historical debates concerning the the real source of the Southern Strategy’s effectiveness — does it make sense to say that an overreliance on white voters backfired in 2006 or 2008? Or could it be that the Iraq War was profoundly unpopular and that the party presiding over an economic meltdown is likely to suffer an electoral drubbing? It does seem that harsh anti-immigration rhetoric damaged some Republicans in the Southwest. But Edsall is overstating the case. In fairness, I love overstating the case. It’s fun!

Moving along, Edsall offers a persuasive explanation of why Obama’s support among whites has eroded.

The appeal of the anti-Obama agenda has proven to be particularly strong among whites of low and moderate incomes. The Pew Center, tracking evaluations of Obama’s job performance, found in a July 30 report that there “has been essentially no shift in opinion among affluent whites [but] among whites with annual family incomes of less than $75,000, Obama’s approval ratings have declined substantially (from 57% in June to 47% today). Assessments of Obama’s performance remain high among African Americans (85%).”

The appeal of the anti-Obama agenda has proven to be particularly strong among whites of low and moderate incomes. The Pew Center, tracking evaluations of Obama’s job performance, found in a July 30 report that there “has been essentially no shift in opinion among affluent whites [but] among whites with annual family incomes of less than $75,000, Obama’s approval ratings have declined substantially (from 57% in June to 47% today). Assessments of Obama’s performance remain high among African Americans (85%).”

That is, Republicans identified an issue where they are in tune with less-affluent voters, and those voters have responded in kind. The real mystery is why Republicans haven’t done as well with less-affluent non-whites. One possibility is that African American and Latino voters might be more heavily concentrated in dense transit-dependent metropolitan areas, and so they are less sensitive to energy costs. Another possibility is that cultural affinity for an African American president outweighs anxiety over a higher cost of living, or rather it inclinces non-white voters to interpret Obama’s policies in a more favorable light. 

Support for Obama has declined most sharply among white men. Keep in mind that this is a group that has long been favorably inclined towards Republicans; that they would “come home” to the GOP isn’t entirely unexpected. 

Edsall ends on a more convincing note.

For the Republican Party, these trends not only illustrate the danger of attempting to win without improving margins among minority voters, but also the danger that a modest collection of Congressional wins next year – say 10-15 House seats –will only reinforce the dominant forces in the House and Senate wings of the GOP that adamantly support a conservative agenda that precludes concessions to minority groups. That, in turn, would increase the likelihood that the Democratic Party will be able to maintain majority status in 2012 and beyond.

This is true, and yet it begs the question: have Republicans made this less likely over the last several months? Democrats have effectively leveraged Obama’s personal appeal among minority voters. It doesn’t follow that Republicans have failed. Moreover, the opposition to Sonia Sotomayor will likely be forgotten in 2012 or 2016 if Republicans manage to craft a more effective economic message, one that, like the case against cap-and-trade, emphasizes the cost-of-living and other core economic concerns.