« December 2007 |
Main
| February 2008 »
January 2008 Archives
The McCain surge
John McCain’s recovery is astonishing in so many ways it is hard to know where to begin. He was written off by everybody just months ago, a staff meltdown on his hands and no money to buy his way back up the polls. Money is everything in American politics, right? Romney had it all and McCain was flat broke. He was no textbook conservative, and the Republicans were obviously going to insist on that. He had little or no appeal to the evangelicals, either, yet another disqualifier. And get ready for this: he formed an alliance with Ted Kennedy—Ted Kennedy!—and sponsored an amnesty for illegal immigrants. That measure provoked a national outcry and was killed stone dead in Congress. And this man was running for the Republican nomination? Who was he kidding?
Well, he is not quite there yet. Giuliani is gone but Mitt Romney and his checkbook are not giving up. Super-Tuesday is the real test. Nonetheless, winning Florida makes McCain the front-runner, and whatever happens now, that is remarkable in its own right.
How on earth to account for it? It was crucial of course that none of the Republican contenders struck the party as an ideal choice. McCain had his drawbacks, all right—but so did all the others. Fred Thompson was the best the party could come up with for the textbook-conservative heir-to-Reagan slot, and he turned out to be a terrible campaigner who barely even seemed to want the job. I am still puzzled, I have to say, by the stunning failure of the Giuliani campaign. (Maybe one of the clichés of US horse-race politics was correct, after all: momentum acquired in the early primaries, which Giuliani downgraded in his planning, really counts.) At any rate, McCain appeared to command respect in way that Giuliani does not. And nobody could accuse him of being inauthentic, a charge that Romney cannot get away from.
So for all the things they dislike about McCain, Republicans seem to like his character. And above all, of course, they like his electability. They may be a divided party, but they are united on the need to stop the Democrats—and above all, of course, Hillary Clinton—from gaining the White House. McCain could give Hillary a run for her money, and that seems good enough for the conservatives, evangelicals and immigration hard-liners who would find so much to dislike in President McCain. That is something for Democrats to ponder as they weigh the choice between Hillary and Obama.
Share This
Politics of the recession
Conditions are less than ideal, let us say, for President
George W. Bush’s last state of the union speech, to be delivered today. This
is an administration that had precious little to boast about even before the
economy began to nose-dive – a calamity that may not yet be plain in the figures
but was certified by the Federal Reserve’s dramatic interest
rate cut last week. One wonders, how much worse can things get for this
White House?
For months, the need to address economic anxiety has been a well-established
theme in the campaigns of all the presidential candidates but until recently it
was possible for Republicans to talk as though the ongoing expansion were a
flawed success. When Ben Bernanke, the Fed chairman, took the economy’s
temperature a week ago and recoiled like the figure in Edvard Munch’s “The
Scream”, that calm posture was no longer available. Alarm on Wall Street is
business as usual; alarm verging on panic at the Federal Reserve is more
difficult to shrug off.
The president’s haste to design a fiscal-stimulus plan in co-operation with
Congressional Democrats was almost as disconcerting. The deal, still tentative
until the Senate has had its say, underscores the pessimism. In its own right
(even assuming that it moves briskly and intact back to the president for his
signature) the proposal is a puny initiative. Its mere existence, though, is a
weighty political fact. You can read the rest of this FT column here.
Share This
How the press played the race card
I find the idea that the Clintons have “played the race card”—which is now established as one of the stylised facts of this election—hard to understand. It is never defended in detail. The case is advanced as a matter of deduction rather than fact. The logic seems to be that race has become a big issue in the Democratic primaries, and that this will mainly help the Clintons in future primaries; therefore, it is all a Clinton plot. I have no instinctive affinity with the Clintons’ campaign—but I think the accusation is wrong.
Consider Dick Morris’s analysis, “In Contrast to Obama, Hillary Plays the Race Card”—one of the articles that got this whole thing started. His only specific instance of card playing was this: They embarked on a strategy of talking about race -- mentioning Martin Luther King Jr., for example -- and asking their surrogates to do so as well. They have succeeded in making an election that was about gender and age into one that is increasingly about race.
He goes on: It does not matter which specific reference to race can be traced to whom. Obama's campaign has resisted any temptation to campaign on race and, for an entire year, kept the issue off the front pages. Now, at the very moment that the crucial voting looms, the election is suddenly about race. Obviously, it is the Clintons' doing. Remember the adage: Who benefits?
I can see why Morris does not want to go into “which specific reference can be traced to whom”. Specific references that prove the point are difficult to find.
Continue reading "How the press played the race card" »
Share This
Laurence Seidman on fiscal policy
The Wall Street Journal recently ran a piece by Bruce Bartlett arguing that a fiscal stimulus in the form of a tax rebate is no use, because people will save rather than spend the windfall. It's an insult to Keynes even to call a tax rebate Keynesian economics. It should be called "feel good economics" because its only real effect is to make politicians feel good about themselves and buy re-election with the public purse.
People probably do expect too much from a fiscal stimulus under current circumstances, as I argued in an article earlier this week, but I think that Bartlett greatly overstates the case. I got an email from Larry Seidman of the University of Delaware, copying me a letter he sent to the WSJ responding to Bartlett. Since, so far as I know, it hasn't yet run, I am posting it here with Larry's permission. He makes points that advance the discussion and deserve to be better understood--especially concerning the importance of (a) cutting the payroll tax and (b) sustaining the treatment. In "Feel-Good Economics" (Jan 19-20), Bruce Bartlett writes, "In short, there is virtually no empirical evidence that tax rebates are an effective response to economic slowdowns." He may not be aware of the empirical study using data from the Consumer Expenditure Survey published in the leading peer-reviewed technical journal of the economics profession, the American Economic Review, in its December 2006 issue entitled "Household Expenditure and the Income Tax Rebates of 2001" co-authored by David Johnson (U.S. Census Bureau), Jonathan Parker (Princeton), and Nicholas Souleles (Wharton, U of Pennsylvania) who found that "households spent 20 to 40 percent of their rebates on nondurable goods during the three-month period in which their rebates arrived, and roughly two-thirds of their rebates cumulatively during this period and the subsequent three-month period. The implied effects on consumption demand are substantial. Consistent with liquidity constraints, responses are larger for households with low liquid wealth or low income." The last sentence implies that it is crucial to rebate payroll tax as well as income tax in order to reach low-income households.
He also may not be aware of another empirical study published in the journal Business Economics in its July 2006 issue entitled "A Temporary Tax Rebate in a Recession: Is it Effective and Safe?" in which my co-author Kenneth Lewis and I, using a macroeonometric model by Ray Fair (Yale) and the empirical results from a 2003 AER article by Joel Slemrod (U of Michigan) and Matthew Shapiro (U of Michigan), estimated that if the 2001 rebate had been twice as large ($1,200 instead of $600) and had been repeated four times (every quarter for one year), it would have reduced the unemployment rate a full percentage point (from 6.0% to 5.0%). This empirical estimate implies that in today's larger economy (GDP $14 trillion instead of $10 trillion), a $1,700 payroll-plus-income-tax rebate repeated four times (every three months) would reduce the unemployment rate from 6.0% to 5.0%, saving 1.5 million jobs (with 5.0% there are 7.7 million unemployed; with 6.0% there would be 9.2 million unemployed). This would cost roughly $100 billion per quarter or $400 billion for the year--about 3% of GDP.
Thus, contrary to Bartlett's assertion, empirical evidence suggests that as long as the dosage of a payroll-plus-income-tax rebate is strong (twice as large as in 2001), sustained (repeated every three months until the economy has recovered), and stopped (once recovery is complete), it is effective and safe medicine for a slowing economy.
Incidentally, Larry reminded me that I wrote a piece for The Economist in 2002 about an earlier article of his on automatic fiscal stabilisers. If you are curious, you can read it here. It had slipped my mind. This is not the only issue that cycles up and down with the economy.
Share This
Hillary's inspiration deficit
Most people I have spoken to, and I think most commentators, found John Edwards to be much the most impressive candidate at last night’s Democratic debate in South Carolina. He at least conveyed a sense of urgent interest in the issues, which Hillary Clinton and Barack Obama did not. Hillary was too busy attacking Obama, and Obama was too busy responding to her charges. Their squabbling was a depressing thing to watch.
As in previous debates, Hillary mostly out-argued Obama. As before, she was forceful and controlled, and he was muddled and hesitant. I think he succeeded in debunking her accusations, but he was far from impressive, and I often found myself having to give him the benefit of the doubt (for instance, when he explained, sort of, why he voted “present” rather than “no” to objectionable pieces of Illinois legislation). Hillary smiled as he stumbled, radiating smugness and contempt—not her most appealing posture.
She cannot believe, I imagine, that Obama routinely does business with slum landlords, or that he is less intent on widening access to affordable health care than she is, or that he is a secret, albeit wavering, supporter of the war in Iraq, or any of the other things she seemed to imply. Her chances of convincing Democratic voters that he is as feckless and vacillating a man as she says also seem slim. Then what is the tactical calculation? How is this misdirected aggression, which I would like to believe sullies her more than it hurts her intended victim, supposed to pay off?
Perhaps the idea is just to unsettle Obama and make him look weak. And he did look weak. He did not dare to rise above the quarrels the Clintons are picking with him—as the spirit of his campaign really obliges him to—and then having chosen to respond he failed to crush her, as I think a more effective debater could have. On the face of it, it is pretty audacious for Hillary Clinton, of all people, to attack Obama for lack of experience, for vacillation, for “failing to take responsibility”, for saying one thing and meaning another. A skilful debater could have shredded her for that, but this is not Obama’s strength. He seems to lack the instinct, and evidently the rhetorical means, to destroy an opponent—not something you could say of Hillary. If he fights the campaign the way the Clintons are forcing him to fight it, he puts himself at a big disadvantage.
After the debate, CNN aired an Obama ad: “There is no liberal America, no conservative America, there is only the United States of America.” Maybe it is just empty rhetoric, but I have to say my spirits lifted. After the debate’s mean-spirited back and forth, a little inspiration was welcome. That, for sure, is something Obama can do.
Share This
Did the Fed panic?
Like almost everybody else, I was surprised that the Fed cut rates by 75 basis points rather than 50, and I am still wondering why. Even 50, ahead of FOMC schedule, would have been regarded as strong medicine. And it was a great pity, I think, that the trigger for the move was the equity-market crash, rather than (as far as we know) a sudden surge of worse-than-expected real-economy data. It is bad practice for the Fed to be perceived as responding with greatest urgency to equity-market fluctuations. Yes, it looks like panic. Read Willem Buiter's take: This extraordinary action was excessive and smells of fear. It is the clearest example of monetary policy panic football I have witnessed in more than thirty years as a professional economist. Because the action is so disproportionate, it is likely to further unsettle markets. Even the symptoms of malaise that appear to have triggered the Fed's irresponsible rate cut, the collapse of stock markets in Asia and Europe and the clear message from the futures markets that the US stock markets would follow (a 500 point decline of the Dow was indicated), are unlikely to be improved by this measure and may well be adversely affected.
In the absence of any other dramatic news that the sky is falling, I can only infer from the Fed's action that one or both of the following two propositions must be true.
- The Fed cares intrinsically about the stock market; specifically, it will use the instruments at its disposal to limit to the best of its ability any sudden decline in the stock market.
- The Fed believes that the global and (anticipate) domestic decline in stock prices either will have such a strong negative impact on the real economy or provides new information about future economic weakness from other sources, that its triple mandate (maximum employment, stable prices and moderate long-term interest rates) is best served by an out-of-sequence, out-of-hours rate cut of 75 basis points.
The first proposition would mean that the Fed violates its mandate. The second is bad economics.
The Fed's brief statement sheds no light: The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.
On my reading, there is no attempt to justify the scale of the action; in fact the statement fails even to acknowledge the scale of its action. This narrative could perfectly well have applied to a 25 basis-point cut delayed until the next FOMC. And what the narrative does say ignores the news that presumably caused the Fed to do what it did. Falling share prices are not so much as mentioned, except for the pro forma reference to "broader financial market conditions". So much for Bernanke's commitment to transparency.
Taken at face value, the statement actually makes no sense. If you wanted to defend the manner of this dramatic monetary easing, you would have to say that the stockmarket crash had awakened a hitherto sleeping Fed to the true horror of the problems facing the economy. Is that how Bernanke wants his actions to be perceived? Even if it is, since when does the stockmarket convey that kind of actionable information? (And if it does convey that kind of actionable information, why only when it falls, not when it rises?)
Not a good day for the Fed, in my view.
Share This
A friend in Mahale
I spent the first part of January in Tanzania, visiting among other places Mahale, on Lake Tanganyika. For those who expressed an interest, here is one of the residents. (My wife Lori took the picture.)
Share This
Weighing the fiscal stimulus
A new column for the Financial Times:
In a sudden and doubtless temporary outbreak of willingness to co-operate,
the White House and Congress, cheered on by the Federal Reserve, are
working on a plan for fiscal stimulus. The effort is welcome – but the
package likely to emerge will make less of a difference than the energy suddenly
devoted to the topic would suggest.
A consensus has formed around the need for a temporary fiscal boost of
between $50bn and $150bn (the median is still trending upward) to be delivered
soon and chiefly in a form that gives cash to people (such as those on low
incomes or unemployed) who will actually spend it. Congressional leaders and the
administration, aiming to decide something by the State of the Union speech on
January 28, are looking at tax rebates, increases in the earned income tax
credit, more money for food stamps and unemployment insurance, and temporary
investment incentives.
President George W. Bush is not insisting that the agreement include an
extension of his earlier tax cuts, otherwise set to expire in 2010. In return
congressional Democrats are suppressing their default distaste for measures to
help business. With a truce declared on those contentious points, a deal can be
done.
You can read the rest of the article here.
Share This
|
|
