I Was Wrong, part I

I believe it's important to admit when you were wrong. Now that the fiscal cliff and sequester are mostly behind us, I can say that I made a few predictions that proved to be wrong.

Immediately after Obama's reelection, I said,

"First of all, expect the fiscal cliff to stay in place. After all, we just re-elected most of the people who put it there to begin with. … Any compromise will include more tax hikes than spending cuts, if spending is actually cut at all."

As it turned out, the fiscal cliff did not stay in place. The deal to avert the fiscal cliff included $250 billion in lower taxes compared to just $9 billion in higher spending, relative to what would have happened with no deal. At the time, I said,

"If you think that two month delay is a sign that the sequester will never happen anyway, I think you're right. It was never going to happen in the first place, and we lose nothing by delaying it."

This was also wrong. Not only did the sequester actually come to pass, the continuing resolution recently passed by the Senate and House and signed by Obama also keeps it in place for the next six months. While the Senate budget for fiscal 2014 repeals the sequester, the House budget does not, leaving open the distinct possibility that the sequester's lower spending is here to stay.

Color me pleasantly surprised. Even a blog called Expected Optimism wasn't optimistic enough!

The Fiscal Cliff and Opportunity Cost

I keep seeing conservative laments about the fiscal cliff deal, like this one, which sums up a bunch from Twitter. There are far too many to link to, but so far, every single one that I have seen has ignored the economic principle of opportunity cost.

Conservatives are upset that taxes are going up and spending won't be seriously cut. But when we look at the opportunity cost for this fiscal cliff deal, we can't just look at some pie-in-the-sky "deal" where the Democrats roll over and give conservatives everything we want. We have to look at the reality of what would have happened without the deal. And the reality is, without the deal, taxes would have gone up twice as much ($478 billion compared to $220 billion), and we would've seen a spending cut that's a measly 0.3% of federal outlays.

I know this isn't how the deal is being portrayed in the media, but these are the facts. Republicans gave the Democrats $9 billion in higher spending, and got $250 billion in lower taxes, compared to what would have happened without the deal. To me, that looks like a win.

A final note on the sequester: Most of the supposed sequester cuts would not have happened for years in the future anyway. If you believe future Congresses would have abided by the sequester, then you're in luck. The sequester is still going to happen, just two months later. If you think that two month delay is a sign that the sequester will never happen anyway, I think you're right. It was never going to happen in the first place, and we lose nothing by delaying it.

Gary Johnson on the Issues

Last Sunday, I wrapped up my series of posts on Mitt Romney's positions in the debates. Now it's time to look at Gary Johnson, who initially ran as a Republican but has now secured the nomination for the Libertarian Party. Since Johnson was only in two debates, the first and the sixth, there's simply not as much material as there was for Romney, who was in 19 debates. While Romney got five entries, Johnson only gets this one.

National Security
In the first debate, he said he would withdraw from Afghanistan "tomorrow," was against the war in Iraq from the beginning, and was also opposed to intervention in Libya (Syria was not yet an issue at the time). He is solidly against war, saying in the 6th debate, "The biggest threat to our national security is the fact that we're bankrupt." As part of his promise to balance the budget, he supports a 43% cut to military spending.

Immigration and Trade
He said in the first debate that there was "very little, if any benefit" to securing the border, and that freer immigration would create "tens of millions of jobs." On trade, he said, "I'm a free market guy... I don't favor tariffs of any kind, whatsoever." In the two debates, he was only able to address trade with one country, Cuba, which he supports, because he believes that trade encourages friendship. 

Taxes and Spending
He supports the Fair Tax, a national sales tax that would replace the corporate and personal income taxes. On spending, he would balance the budget in his first year in office. Since he says current spending outpaces revenue by 43%, that's how much he wants to cut from all federal spending, including 43% each from the military, Medicare and Medicaid. To get it done, he would turn Medicare and Medicaid into block grants, veto any bill where expenditures exceeded revenue, completely eliminate the Department of Education and subject federal programs to cost-benefit analyses, then get rid of the ones that don't measure up.

The Economy
To get the economy growing again, he would restructure the tax code and greatly reduce federal spending as described above. He also sees freer immigration as a way to encourage "tens of millions" of new jobs. He would eliminate the federal minimum wage, and stop extending unemployment benefits.

Social Issues
He declined to describe himself as "pro-life," and said in the first debate that he supports abortion "up until viability." (While viability lacks a precise definition, that would allow abortions at least into the fifth month of pregnancy, and possibly later.) However, he opposes public funds for abortion, and favors parental notification and counseling. On drugs, he admits to having smoked marijuana, and supports legalization along with regulation and taxation of marijuana. While gay marriage didn't come up in the debates, on Twitter he often sells himself as the only candidate supporting "marriage equality" (at least, prior to Obama's recent conversion). 

Ron Paul
When directly asked in the sixth debate what made him a better choice for libertarian Republicans than Ron Paul, Johnson said, "I'm not going to presume to make that assumption." When asked who his running mate would be if it had to be someone at the sixth debate, he said Ron Paul. On Twitter, many of his public tweets are also directed towards Ron Paul. While I haven't seen anything explicitly laying this out, I suspect he looks at Paul's age and wants to be the next Ron Paul once Paul himself leaves public life. It will be very interesting to see how much support Johnson gets from Paulites once Paul eventually quits the race.

Mitt Romney on Economic Policy

This is the second in a series of entries revisiting Mitt Romney's policies as stated in the debates. The first covered foreign policy, including immigration, trade and defense, as well as policies toward some specific countries and regions. This entry covers Romney's seven-point plan for economic growth (which he outlined in whole or in part in the 3rd, 6th, 7th, 17th and 19th debates) and the connected policy areas.

1: Taxes

Romney's position on taxes changed from debate to debate. For example, in the 3rd debate, he said, "I don't believe in raising taxes" and indicated he would walk away from a deal with Democrats offering a 10:1 ratio of spending cuts to tax hikes. But in the 4th debate, he said taxes should be "part of the American experience," so he was not concerned about raising taxes on those who do not pay federal income taxes. In the 8th debate, in Nevada, he advocated a state-level redistribution tax tied to acceptance of a nuclear waste facility. The state that built the facility would receive the money while the other 49 would pay the tax.

In the 16th debate he said the top tax bracket should be 25%, while in the 20th debate, he wanted to cut all marginal rates by 20%. Taken at face value, that would turn the current tax brackets of 10%, 15%, 25%, 28%, 33% and 35% into brackets of 8%, 12%, 20%, 22.4%, 26.4% and 28% (assuming the Bush cuts are kept in place and the 2013 tax cliff is avoided), with two brackets higher than 25%.

He would cut the corporate tax rate to 25% to make it more competitive with other countries. When combined with state corporate taxes, this would move us from the highest rate to the 8th highest rate among the 34 OECD countries. He would also eliminate taxes on savings for people with incomes less than $200,000.

2: Regulations

He said he wants to improve the regulatory climate, and specifically mentioned Obamacare, Dodd-Frank and NLRB actions such as going after Boeing as regulations that are hurting businesses and preventing job creation.

He also wants to require every business to prove the legal immigration status of new hires through a national identification card connected to the federal E-Verify database. Any business that hires someone without the card or that accepts a counterfeit card would be "severely sanctioned."

3: Trade

I covered Romney's trade policy in the first entry in this series. It primarily consists of "cracking down on China," but he also advocated expanding our exports.

4: Energy

Romney said in the 8th debate, "We're an energy-rich nation that's acting like an energy-poor nation." He focuses on energy security-- getting our energy from domestic sources rather than importing them. In the 4th debate, he said he wanted to "make sure we stop sending about $500 billion a year outside our country, in many cases to nations that are not real friendly with ours." However, he does support the Keystone XL pipeline from Canada.

To accomplish his goal of increased domestic production, he wants to reduce regulations on energy companies, especially oil and gas. At the same time, he has criticized Obama for subsidies to Solyndra and other alternative energy programs, indicating a general laissez-faire approach to energy. On the other hand, in line with his focus on domestic energy sources, he said he was willing to accept more expensive gasoline if that was the result of the "crippling sanctions" he wanted to place on Iran.

5: Rule of Law

While Romney often spoke of the fifth point as reinstating the rule of law, his focus with this point early on was labor policy. He viewed pro-union actions by the Obama administration as violations of the rule of law, in particular citing the GM bankruptcy and the NLRB case against Boeing. Romney believes the auto companies should have gone through the normal legal bankruptcy process from the beginning, saying in the 2nd debate that the GM bankruptcy allowed Obama to "put his hands on the scales of justice." However, in the 20th debate, he indicated he would be willing to bail out the auto companies after they've gone through a normal bankruptcy process, saying, "If they need help coming out of bankruptcy, the government can provide guarantees and get them back on their feet. No way would we allow the auto industry in America to totally implode and disappear." (Note that these positions on the auto bailout have apparently already been Etch-a-Sketched.) He also supports a federal right-to-work law.

In later debates he broadened the "rule of law" point to an opposition of "crony capitalism," citing Solyndra and the rejection of the Keystone XL pipeline as examples. Since I think it's appropriate, I'll include here a few positions from even broader interpretation of "the rule of law."

Judicial Oversight: Romney does not want Congress to oversee judges directly in most cases, but he does believe Congress has the ability to "rein in excessive judges" (from the 13th debate) either through direct impeachment or by clarifying statutes or, of course, Constitutional amendment.

Extrajudicial Killings: In the 11th debate, he said there is "a different form of law" for those who "attack the United States" compared to those who merely commit crimes against American citizens. In the 10th, he said that anyone who joins a force we are at war with is "fair game" even if they are an American citizen. In the 16th debate, he said, "Let me tell you, people who join al Qaeda are not entitled to rights of due process under our normal legal code."

Indefinite Detention: In the 16th debate, he not only said he would have signed the NDAA, which authorized indefinite detention of American citizens, but also defended indefinite detention itself. He would have signed the NDAA not just as a flawed bill that would still get funding to the troops, but because he believes indefinite detention of American citizens is, in itself, a good policy.

Eminent Domain: In the 2nd debate, he said he believed in eminent domain for "a public purpose" but not for property that would end up going to private organizations.

SOPA: He opposed SOPA and considered opposition to SOPA to be "standing for freedom" in the 17th debate. 

6: Education

In the 6th debate, he said, "We need to get the federal government out of education." He supports school choice and standardized testing. When accused by Perry of supporting Obama's Race to the Top program, which uses funding incentives to reward school systems for meeting certain goals, Romney said he did not support Race to the Top, but did support teacher evaluations and encouraging schools to hire better teachers and get rid of bad teachers. In the 20th debate, he supported No Child Left Behind because it stood up to the teachers unions and promoted school choice by establishing testing standards.

He also supports allowing illegal immigrant children to gain citizenship through military service, but not through attending college. He also frequently cited his policy requiring English immersion in Massachusetts schools as an example of how conservative he is.

7: Fiscal Responsibility

In general, Romney believes government should not spend more than it takes in. He frequently talked about the Cut, Cap and Balance plan-- cutting current spending, capping federal spending at 20% of GDP and thus balancing the budget through spending cuts rather than tax increases-- mentioning it in the 3rd, 5th, 7th, 10th and 20th debates.

He often cited repealing Obamacare as a way he would cut spending, but also complained that money was being cut from defense to pay for Obamacare, and that he wanted to spend the money on defense instead. As mentioned in the previous entry on Romney's positions on foreign policy, he wants to increase defense spending.

Other ways he proposed to cut spending include returning discretionary spending back to its 2008 level, cutting federal employment by 10% through attrition, linking public sector compensation to private sector wages, eliminating the National Endowment for the Arts, including public broadcasting, and block granting several programs, such as Medicaid, housing and food stamps, to the states. However, he would walk away from a deal with Democrats offering a 10:1 ratio of spending cuts to tax hikes.

He gave the impression that he would support spending-based stimulus, saying that the recovery was slow partly because we had "a stimulus plan that was not as well-directed as it should have been."

On Social Security, he said in the 4th debate, "Under no circumstances would I ever say, by any measure, it's a failure," because there are "tens of millions of Americans who live on Social Security." He made similar points again in the 5th and 6th debates. In the 16th debate, he said he would keep Social Security the way it is for those 55 and older. For the rest of us, he would apply two different inflation adjustments, a lower one for the rich and a higher one for everyone else. He would also raise the retirement age "a year or two," but for the most part would keep the system in place the way it is today.

Other Economic Policies

The Fed: He would not reappoint Bernanke, and believes the Fed should be less independent and have more Congressional oversight. But contrary to Ron Paul, he argued in the 5th debate that "we need to have a Fed… because if we don't have a Fed, who's going to run the currency, Congress?"

Housing: He wants to block grant federal housing programs to the states. In the 9th debate, he said we have a housing crisis because government was too involved in housing, and that when government is the problem, more government is not the solution. However, in the 18th debate, he added that he wanted to "help people see if they can't get more flexibility from their banks," although he didn't say how he would use government to make that happen.

Poverty: He wants a personal unemployment account system rather than the current unemployment benefits system. He wants most anti-poverty programs to be run at the state level through block grants, specifically mentioning food stamps, Medicaid and housing programs. 

Pro-Market Quotes

In the 13th debate, asked what industries will create the most jobs in the next few years, he says, "The free market will decide that; government won't."

In the 17th debate, he said, "My view is, capitalism works. Free enterprise works."

Anti-Market Quotes

In the 18th debate, he said, "Markets have to have regulation to work-- you can't have everybody open up a bank in their garage."

In the 20th debate, he said, "That's the nature of what it is when you lead an organization or a state. You come to Congress and you say, these are the things we need."

Romney and the Military, Revisited

On Monday, I wrote about Christopher Preble's graph of the Pentagon's budget. On Tuesday, as Republican voters gave Mitt Romney victories in six of ten states, Preble published a post with an updated version of the graph including Romney's planned military spending. I've reproduced the graph below:

Romney's plan is in cyan; Obama's plan is in pink, while the Congressionally-mandated sequester cuts, required due to the failure of the deficit Supercommittee, are in red. I noted on Monday that even the sequester cuts would merely restore us to the level of spending we saw under George W. Bush from 2003-2007. It's also worth noting that Obama's plan, criticized by Republicans and especially Romney for gutting the military, keeps the Pentagon's budget permanently higher than it ever was under Bush.

But Romney's plan really takes the cake. He wants to spend at least 4% of GDP on the Pentagon. Since the current level is closer to 3.4%, that's about a $100 billion jump in Romney's first year, even though we're out of Iraq and winding down the fight in Afghanistan. As you can see in the graph above, that would immediately push the Pentagon's budget higher than it was even when Reagan was defending us from the Soviets.

Even worse, by indexing the Pentagon's budget to economic growth, the amount we spend will continue to grow with literally no end in sight. That will make it even more difficult for Romney to meet his pledge of capping government spending at 20% of GDP. More to the point, we need a president who will take the endlessly-growing, out-of-control spending programs in the federal budget and restore them to sensible, stable levels. Since Romney is promising to take a large-but-stable spending program and send it growing out of control, why should we trust him to reign in spending in the rest of the budget?

Defense Cuts and Hippie-Loving Peaceniks

Mitt Romney in the debates has railed against Obama's supposed plan to cut the military by a trillion dollars over ten years, although he usually leaves off the time frame. Romney's website also highlights the cuts, saying "over the next ten years nearly $1 trillion will be cut from the core defense budget." He warns (or at least his staffers do) that this will lead to disaster-- "A weak America, an America in decline, an America that retreats from its responsibilities, would usher in an era of uncertainty and danger, first for the United States but also for all those everywhere who believe in the cause of freedom." The truth, of course, isn't nearly so bad.

Christopher Preble has an excellent post at CATO@Liberty that gets into some of the real numbers at issue, as well as some of the problems in defining what actually counts as "defense" spending. But most relevant to Romney's position, as well as to everyone who argues against defense cuts, is Preble's fourth and final graph, reproduced below.

Particularly interesting is the dark green line for "sequester cuts." These are the Congressionally-mandated cuts required due to the failure of the deficit Supercommittee. The most drastic cuts even on the table right now, these are the only projections close to cutting $1 trillion over a decade from the core defense budget. Despite Romney's rhetoric, Obama's FY 2013 budget (the pink line) doesn't cut as much as the sequester cuts do--indeed, the pink line projection is barely lower than actual spending has been in the last few years, and could only be considered a "slash" (as Romney's website says) when compared to Obama's own previous projections.

What's really noteworthy, however, is the level of that dark green line. As you may have already noticed in the above graph, there was a period in our nation's history where military spending was at essentially the same level as the dark green line for several years in a row. I speak, of course, of those years of "a weak America, an America in decline, an America that retreats from its responsibilities" under the leadership of that hippie-loving peacenik George W. Bush, from 2003 to 2007. I wonder if Romney realizes that the Pentagon's budget has been higher every year under Barack Obama than it ever was under Bush, or that the "slash" in spending would merely restore the Pentagon's budget to the same level it was at for most of Bush's presidency?

Online Polls from Sixth Debate

In the sixth Republican debate, held in Orlando, Florida, Fox News polled online viewers on a number of questions and then reported on three of the results during the debate. Those questions, the results and my own answers are below. The questions and results are based on the video of the debate here and the transcript here.

I define rich as someone having an annual income higher than:

I was surprised at the result here, with a full 44% of respondents saying someone with an annual income of $999,000 would not be rich. My answer was the lowest available, $100,000, and only 13% agreed with me. My reasoning is that US median individual income for 2010 was $26,197 (table P-7 here). Someone making $100,000 a year makes almost four times more than the median American. If that's not rich, I don't know what is.

If we're talking about households rather than individuals (as I assumed), I might have chosen $250,000, even though I think that's a bit high. For households, an income of $100,000 puts you in the second-highest quintile; the upper cut-off for the second-highest quintile is $100,065 (table H-1 here). I think being in the top-fifth of American households probably qualifies as being rich, so maybe the right answer is slightly higher than $100,000. Even so, the lower cut-off for the top 5% of American households is $180,810, so an annual income of $250,000 puts someone solidly into the top 5%. If that's not rich, once again, I don't know what is.

If you had to cut a government department, what would you cut?

This result wasn't surprising at all. The Department of Education is a huge target for both conservatives and libertarians. I think it could certainly use reform, but I'm not convinced that eliminating the Department entirely is the best way to reform education policy in this country. The same goes for the EPA. They've definitely overstepped their bounds of late, but regulating externalities like pollution is one of the core functions of government.

The Department of Labor could probably be recombined with Commerce, and I'm sure many of the regulations it enforces could be streamlined or eliminated with no ill effects. At the same time, a lot of its agencies perform necessary government functions, like the BLS and OSHA. I think at least some of the opposition to the Department of Labor comes from its name, which some see as synonymous with unions. I didn't realize this until writing this entry, but in fact, the National Labor Relations Board (which does probably deserve to be eliminated) is an independent agency, separate from the Department of Labor.

I voted to eliminate the Department of Housing and Urban Development. As the Department responsible for Fannie Mae and Freddie Mac, HUD has been possibly the most abject failure of any federal department over the last two decades. Even if it hadn't overseen the housing bubble, there's simply no reason that I can see that we need a federal housing policy, or a federal urban development policy. I don't know of anything the federal government does that is more local in nature than urban development. Even the name begs for the department to be localized.

What is the best way to fix immigration in the US?

The third answer read out loud during the debate was "deport all immigrants," which received 22% of the vote and was the second-place answer. I don't remember the exact wording of the options that night, but I hope that either the actual option read "deport all illegal immigrants" or that these 22% of people interpreted it that way. Conflating the illegal/legal immigration issues is something I expect from liberals, not conservatives.

My answer was to "create a path to citizenship," and 35% agreed with me, more than any other answer. However, a stronger fence and more border patrol agents go hand-in-hand, and it's hard to see someone supporting one of those while opposing the other. Combined, the "stronger border" options get 39% of the vote.

I support a path to citizenship out of practicality, although I would prefer to call it a "path to legality." Not everyone who comes to the US wants to stay permanently, and not everyone who stays permanently wants to become a citizen. Our immigration policy has to recognize that fact. But I do support some kind of path to legality for illegal immigrants already here because the other two options are simply impractical. With upwards of ten million illegals in the country, it is practically and fiscally impossible to deport them all. But leaving them alone and maintaining the status quo, where ten million people are in open disobedience of the law, is also impractical. It breeds contempt for the law and for America as a country, as evidenced by the 2006 protests. The only way forward is through some kind of path to legality.

The stronger fence and border patrol also won't work for practical reasons. The border is so porous already that sealing it would cost tens of billions of dollars at a time when we're already borrowing more than 40% of what we spend. Keeping the border sealed would cost tens of billions more. The only reason people immigrate illegally is because we've made it so difficult to immigrate legally. Get rid of the quotas and the waiting lists, and simplify the immigration process, and illegal immigration will fall dramatically overnight.

Not Nearly Enough

No matter how you look at it, the GOP's budget proposals just don't cut it. Before being elected, they promised $100 billion in cuts. Now that they're in office, that number has fallen to $74 billion. But that's $74 billion in cuts from the planned 2011 level of spending. When compared to 2010 (you know, back when they were running for office and promising to cut $100 billion), the new cuts are just $35 billion less than we spent last year.

Even so, that's $35 billion with a B. That has to be a significant cut, right? Not so fast. The federal deficit in 2010 was $1,555.6 billion (with a B). The GOP's $35 billion cut lowers the deficit by 2.25%. Let's put that in perspective.

In the graph to the left, the blue bar is the 2010 deficit. The red bar is the 2011 deficit with the GOP's cuts enacted. Huge difference, right?

To put this another way, think of yourself cruising along the debt highway at 65 mph, when you see there's a roadblock up ahead. If you're a normal person, you'd stop the car completely (in other words, eliminate the deficit). But if you're the GOP, you'll slam on the brakes and slow down to... 63.5 mph. Were these really the best people to put in the driver's seat?

You might also have noticed the rather smaller green bar in the graph to the left. That bar represent's Rand Paul's cuts, about $500 billion. In order to reach that level, Rand Paul had to propose dozens of cuts, including eliminating the departments of Energy, Housing and Urban Development, and Education (except for Pell grants), a three-fourths cut to the Department of the Interior, a one-third cut to the Judicial Branch, and a one-fifth cut to the Legislative Branch, along with others. It's a bold plan, but even with all these cuts, the green bar on the graph is still above one trillion dollars. Even if Rand Paul's cuts are all enacted, we will still face a deficit this year greater than $1,000,000,000,000. Remember the roadblock on the debt highway? Rand Paul would slow the car down to 44 mph. He's a lot better than the rest of the GOP, but it's still not nearly enough.

To be fair, Rand Paul says his plan is just the beginning, and he's willing to make much deeper cuts to eliminate the deficit. That would be comforting, if I thought for a moment that his current plan had any chance of success. Unfortunately, the GOP leadership isn't even aiming for the green bar; they're aiming for the red bar, the $35 billion cut, and that's before the inevitable process of compromise with the Democrats begins. Once it's over, we may end up with a bigger deficit in 2011 than we had in 2010-- and the politicians will still say how successful they were in cutting the budget.