Winning the Senate?

Josh Marshall links to a CBS News story indicating that Democrats have a shot of taking back the Senate this fall. The CBS story cites Alaska, Colorado, and Pennsylvania as states where Republicans could lose a seat. The American Enterprise Institute's Norm Orstein is even quoted as saying

"Look at the run Bush has had in last month. If Bush has a run of bad luck and missteps in October anything like what he has had lately, then a narrow Democratic Senate is not out of the question."

Well and good. But there's another state where the Democrats have a shot: Illinois. The very conservative Peter Fitzgerald is retiring and there are currently seven Democrats and eight Republicans vying for his seat. Illinois' other senator is Dick Durbin, a center-left senator who, as far as I can tell, is popular in Illinois; moreover, Gore handily carried Illinois in 2000 (55% - 43%). Overall, I think Democrats have a decent shot at another Senate seat in Illinois, perhaps more of a chance than in Pennsylvania.

In Illinois, the Republican candidate will be Jack Ryan. The Democratic primary appears to be a tight race between Barack Obama and Blair Hull, with Obama leading 28% - 23%. I couldn't find any poll results on hypothetical general election matchups, however. Obama is a state senator and Hull's a businessman (he's also having problems stemming from a messy divorce in 1998). Beyond that, I don't know much about either one -- knowledgeable readers are invited to comment.

In the general election, Republican Jack Ryan may suffer somewhat as a result of sharing a last name with the unpopular and corrupt (but death sentence commuting) former governor George Ryan. On the other hand, Jack Ryan can always run ads saying "What rhymes with Obama?"

On a related note, there's not much hope for the House.

AB

UPDATE: See comments by Goldberg and Jeffrey Miller for some local insight into the race for junior senator from IL (thanks!). In a nutshell, the almost-sure Republican candidate, Jack Ryan, looks beatable. Both potential Democratic candidates also look good. Obama because he's extremely smart and qualified; Hull because he's got a very large personal fortune and he's willing to use it (see Corzine, Jon.)

CORRECTION/CLARIFICATION. I've modified this post because Illinois has too many Republican Ryans. There's former Gov. George Ryan, former Illinois Attorney General and 2002 Gubernatorial candidate Jim Ryan, and current Republican US Senate candidate Jack Ryan, who's never held public office before. (Thanks for clarifying, Mark.) On the bright side, this means that candidate Jack Ryan shares a last name with two unpopular Illinoisans: former Gov. George Ryan, and 2002 loser to Blagojevich, Jim Ryan. For more on Jim and George, but not Jack, see Talkleft's post, It's Ryan v. Ryan in Illinois.

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Relax

Like many of my readers, I was a bit concerned when a poll (pdf) came out showing that Nader has 6% support in a three-way Bush/Kerry/Nader race. But I pretty quickly decided that that was either an anomaly or that it would fade over time. I didn't post on the subject because I didn't have anything other than my gut telling me that Nader would crash and burn.

Ruy Teixeira, however, does know polls:

To which I say: relax everybody. Nader's not going to get that kind of support and he's unlikely to even match the support he received in 2000. In fact, I think his fate is more likely to be like that of Pat Buchanan in 2000, who also drew some early support in polls, but would up with very few votes (.43 percent) because his candidacy had no real constituency or plausible rationale.

Ruy also reports something of more interest from the same poll: "Right now, just 35 percent of Americans say the country is going in the right direction, while 60 percent say it is off on the wrong track."

We now return to our regularly scheduled ignoring of Ralph. On the other hand, if the 6% does hold up, Ezra K. has a plan: make Ralph the Sister Soujah of 2004 ("Make it Kerry against the two zealots and you've got quite an interesting race shaping up.")

AB

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Job Creation and Destruction in Service Industries

Given the continued lousy state of the labor market, I wanted to know which industries are growing (in terms of numbers of workers) and which are shrinking. Here are the results for the past year, using the newest BLS figures (employment figures are in thousands of workers):



My reading of these figures is that they illustrate that the weak labor market is indeed explained by the combination of technologically-based productivity improvements with weak demand. Industries with slow job growth (or job losses) seem to be those that have been intensively adopting lots of labor-saving IT in recent years, such as wholesale and retail trade, transportation, and telecoms.

For obvious reasons, education and health has seen the least replacement of labor with IT, and so seeing lots of job growth in those industries is not surprising. Somewhat less obviously (at least to me), professional and business services (this category includes things like legal, engineering, administrative, advertising, management, consulting, IT and accounting services for businesses) has also been adding jobs at a rapid rate. I guess the workers in those industries also tend to be difficult to replace with IT. Especially when wearing lime helmets.

Kash

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Speaking of Funny Things

What's funnier? A cat wearing a lime helmet or this claim: 'Bush Boom Better than Clinton Economy'? I see via Mike Jones' 18 Minute Gap that the charlatans good folks over at Blogs for Bush have a post with that exact title. No really, they do. Just click here and see for yourself. The Blogs for Bush post is based on this NRO article by J. Edward Carter, Chairman of Economists for Bush.

As Mike explains, "Now, I'm not an economist. I don't even play one on TV. But I understand mathematics, and I'm not an idiot." It's amazing how, armed only with math and non-idiocy, Mike can quickly and entirely dismantle Carter's completely disingenuous claims.

For example, Carter claims -- and Blogs for Bush parrots -- that "compared with the 'exceptional' years of 1993, 1994, and 1995, the first three years of George W. Bush's presidency featured ... lower unemployment." Carter then shows that in Clinton's first three years, unemployment was 6.2%; in Bush's first three years, unemployment was a mere 5.5%. Checkmate! And you thought Bush was a job-destroyer of Hooverian proportions.

But what is the rest of the story? Was perhaps one president creating jobs ("Good") while one was destroying jobs (Bad)? Mike goes to the numbers (As an aid to my pro-Bush readers, I added the arrows and the labels "Good" and "Bad"):

Carter makes a number of other similarly ludicrous claims, so I encourage you to read Mike's full post. Because I promise you, this is how it will work: it starts at NRO, then goes to Blogs for Bush. Soon the Washington Times will be arguing that Bush's first three years were better, economically, than Clinton's. Then conservative columnists in mainstream papers will pick up the line. Soon reporters will say things like "opinions differ on which president had the better economic record in their first term" or perhaps more egregiously, "on a number of measures, the economy was better in Bush's first three years than Clinton's." By that time, some sap in your workplace or local bar will believe and repeat this silly claim. So read and be prepared.

AB

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Friday Cat Blogging

No, you haven't mistakenly wandered over to CalPundit. This is a one-time only feature here at Angry Bear, because it makes me laugh.

What happens when you have...

1) nothing to do

2) a sharp knife

3) a large lime

4) a patient cat

5) too much tequila

6) and it's football season?



[Scroll Down]

No, that's not my cat, nor my invention on its head. Just one of those rare forwarded emails that's actually funny.

AB

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More on Employment

Okay, so maybe it didn’t show much of an increase in jobs. But at least the BLS’s news release shows continued strong growth in the number of people outside of the labor force, i.e. people who aren’t working and who aren’t actively in the job market. Today’s BLS news release indicates that an astonishing 588,000 new people entered the ranks of the non-labor force.



In fact, as the graph shows, the Bush administration can take credit for adding a remarkable 6 million people to the ranks of those who aren’t participating in the labor force -- all in just three years. That’s the strongest record of non-workforce creation in history; before the Bush administration took office, it took 10 full years (from Jan 1991 to Jan 2001) to add 6 million people to the non-workforce in the US.

Kash

p.s. Naturally this reflects the falling labor force participation rate, which in February dropped to 65.9 -- the lowest rate in over 15 years. See this earlier post for more discussion about that phenomenon.

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Bad Employment Figures

The BLS just released its new employment estimates. The unemployment rate in February is estimated to be 5.6%, unchanged from January. The more important statistic, the number of jobs in the US economy, grew by just 21,000 in February. This is a BAD number – average expectations among economists were that payrolls grew by 125,000 in February – and as I mentioned the other day, it seems that expectations were recently getting even more optimistic. But continuing the trend of the past few months, economy-watchers have been overly optimistic about the performance of the labor market, as this table from CNN/Money shows:



This jobless recovery continues to stump many economists. For a reminder of how bleak the jobs picture has been over the past couple of years, here’s the graph showing employment in the US since 1999:


Finally, let’s calculate the new Bush administration job-creation forecast. In order to reach their (admittedly disavowed) forecast for the average level of employment this year, the job creation target for the rest of the year has now gone up from 320,000 new jobs each and every month to about 350,000 for the remaining 10 months of the year. Something tells me that this number will grow even more next month...

Kash

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Seen on The Front Page of CNN.com Today

• U.S. to launch 24/7 hunt for bin Laden: "U.S. forces searching for al Qaeda leader Osama bin Laden along the mountainous border between Pakistan and Afghanistan will soon implement high-tech surveillance tactics in the region, enabling them to monitor the area 24 hours a day, seven days a week, CNN has learned."
  
  That seems like a good idea. Maybe we could have started doing that in, say, two thousand and one?
  
  
• Giuliani defends Bush's use of 9/11 images: "The ads, which began airing Thursday, outline a series of challenges that the United States has faced since Bush became president, including the 9/11 attacks. The tag line is that Bush presents 'strong leadership in times of change.'"
  
  I think The Poor Man has the right take on this: "You were expecting, what, exactly? Commercials featuring the smoldering remains of the Clinton budget surplus?"
  
  
• Explosions in Baghdad ahead of Iraqi law signing: "BAGHDAD, Iraq (CNN) -- A large explosion has been heard in central Baghdad, coalition officials tell CNN, hours before the planned signing of the country's interim constitution."
  
  
• Former astronaut Glenn criticizes Bush space plan: "U.S. space pioneer John Glenn said on Thursday that President George W. Bush's space exploration plan 'pulls the rug out from under our scientists' and might waste too much money to ever put astronauts on Mars."
  
  For my Mars plan, see this post.
  
  
• Gasoline prices state-by-state: "The current average price for regular gasoline in the United States is about $1.71, up from $1.62 a month ago, according to AAA. A year ago, the average price of a gallon of regular gasoline was $1.69."
  
  And they're going to get even higher.
  
  
• Job boom: only a hope: "On Friday, the Labor Department is scheduled to release its figures for February unemployment and non-farm payrolls growth. Economists, on average, expect that unemployment held steady at 5.6 percent and that payrolls grew by 125,000 jobs, according to Briefing.com.
  
  Such job growth would be nothing to sneeze at. But the labor force grows by about 150,000 people a month, meaning that, even if economists' forecasts are accurate -- no sure thing, of course -- there would still be about 25,000 more people looking for work."

With the possible exception of the ads that briefly feature 9/11 scenes, each of these stories hurt the president's reelection chances. And that's just in one day.

AB

UPDATE: While not yet on the front page of CNN.com, there's also nows on the Valerie Plame investigation. Grand jury seeks records from White House regarding CIA agent: "NEW YORK (AP) _ A federal grand jury that is probing the leak of a CIA officer's identity has subpoenaed the records of telephone calls made from Air Force One the week before the name of the officer was published in a July newspaper column."

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Not Much To Say

Brad likes Kerry's budget guy. Atrios and CalPundit find more right wing demagoguery and hypocrisy. Howard Stern continues to rip into Bush and the righties. Matt Welch has some questions, inspired by the vapid Elisabeth "Really quick, is God on America's side" Bumiller, that John Kerry still needs to answer (via The Poor Man).

In the meantime, here's food for thought: John Kerry will be the greatest president of the twenty first century (to date.) Discuss.

AB

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It's because they're stupid, that's why. That's why everybody does everything

Read. Then laugh or cry as is your wont.

At some point, can we just move Austin and its residents to some other state, give Texas over to the fundamentalists and evangelicals, and then let Texas secede? Maybe we could bring Houston along too, but not Dallas.

AB

P.S. If you don't get the title, just click here.

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Kerry’s Budget

This will contain some interesting information about Kerry, though probably very little that we couldn’t already guess:

WASHINGTON (Reuters) - Amid charges he has over-pledged on the campaign trail, Democratic presidential front-runner John Kerry will detail "sooner rather than later" how he would halve the U.S. budget gap in four years, a top adviser said Tuesday.

"At some point -- I think it will be fairly soon but I'm not sure when -- Senator Kerry will put forward a comprehensive economic plan," said Roger Altman, a top Treasury Department official under President Bill Clinton.

"I'm confident the deficit reduction part of that will be reliable, fully costed and consistent with his pledge to cut the deficit in half over four years," Altman said.

The thing is, it won’t be that difficult to cut the deficit in half over four years, if a good chunk of the tax cuts are reversed. But the details of Kerry’s plan will still be worth taking a close look at, when it comes out.

Kash

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Expecting Incorrect Expectations

What’s wrong with this headline?

Betting on a jobs pop: Traders seem to think Friday's employment number will be better than expected

This must reflect some usage of the word “expected” that I am unclear about.

Kash

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The Costs of Trade Distortions

Yesterday the CBO released its response to a request by Congressman Bill Thomas for an economic analysis of the effect of the US’s current anti-dumping laws, which were modified in 2000. The modification of 2000 required that, if a US firm accuses a foreign firm of dumping, and if that foreign firm is found guilty so that tariffs are levied on it, then the US firms who compete with that foreign firm get the tariff revenue. (The US government used to keep it.)

The CBO report finds that:

Whatever gains might occur in terms of perceptions of the fairness of trade come at a cost of lower output for the economy… The [modification of 2000] increases that cost by providing incentives for more US businesses to pursue more antidumping and subsidy complaints… The law subsidizes the output of some firms at the expense of others, leading to inefficient use of capital, labor, and other resources of the economy.

The reason this caught my eye is because just last week someone was telling me about some US firms producing holiday sparklers which consist of exactly one person a few dollars worth of sparklers out of their garage. Why do they do it? Because if they have positive sales, then they’re entitled to a piece of the tariff revenue that the foreign producers of sparklers must pay as a result of earlier anti-dumping rulings. So increasingly, people are setting up these garage “businesses” in all sorts of industries -- it doesn't matter which, as long as there has been an anti-dumping ruling against them -- and are collecting checks totaling tens or hundreds of thousands of dollars per year from the US government.

Nice work, if you can get it…

Kash

UPDATE: An earlier mistake about the example given above has been fixed. I apologize for the error.

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Dude, Where's My New Honda Accord?

It's hard to wrap your mind around $1,800,000,000,000, which is the total additional payroll taxes workers have paid into the Social Security Trust Fund since 1983. There were about 110 million people in the labor force in 1983. This following is just a ballpark, since I'm not compounding the trust fund payments, nor am I factoring in labor market entry and exit. Dividing $1,800,000,000,000 by 110,000,000 gives $16,363.64, which is enough to buy an entry level Honda Accord.

Or with that additional $1,800,000,000,000 in SSI receipts we could instead write every man, woman, and child alive in America today a check for $6,300. Or we could did blow it all on tax cuts heavily skewed in favor of the rich.

AB

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I Always Liked Kerry Best

There you have it, Kerry's the nominee. He wasn't really my early favorite, but the more I hear and see of Kerry the more I like him.

To see how Kerry's likely to do in Minnesota this fall, based on the jobs picture there, see my latest at The American Street.

AB

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The Sucker

You can't play Three-Card Monte without a mark, a patsy, a sucker. Guess who's playing the sucker in Greenspan's shell game?

Since 1983, American workers have been paying more into Social Security than it has paid out in benefits, about $1.8 trillion more, so far. This year Americans will pay about 50 percent more in Social Security taxes than the government will pay out in benefits.

... On Greenspan's recommendation, Social Security was converted from a pay-as-you-go system to one in which taxes are collected in advance. After Congress adopted the plan, Greenspan rose to become chairman of the Fed.

So what has happened to that $1.8 trillion? The advance payments have all been spent.

Congress did not lock away the Social Security surplus, as many Americans believe. Instead, it borrowed the surplus, replacing the cash with Treasury notes, and spent the loan proceeds paying the ordinary expenses of running the federal government.

Only twice, in 1999 and 2000, has Congress balanced the federal budget without borrowing from the surplus.

Thanks to PhillyFilly for alerting me to this story (link).

AB

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Three-Card Monte

Following up on Kash's earlier post about Greenspan, Krugman's op/ed also highlights a fairly bold bait and switch maneuver by Greenspan:

The payroll tax is regressive: it falls much more heavily on middle- and lower-income families than it does on the rich. In fact, according to Congressional Budget Office estimates, families near the middle of the income distribution pay almost twice as much in payroll taxes as in income taxes. Yet people were willing to accept a regressive tax increase to sustain Social Security.

Now the joke's on them. Mr. Greenspan pushed through an increase in taxes on working Americans, generating a Social Security surplus. Then he used that surplus to argue for tax cuts that deliver very little relief to most people, but are worth a lot to those making more than $300,000 a year. And now that those tax cuts have contributed to a soaring deficit, he wants to cut Social Security benefits.

As you can see from this post last week, the 2004 deficit is only brought down to a mere $500,000,000,000 by starting with the non-trustfund deficit of $631,000,000,000 and subtracting from that the $154,000,000,000 surplus created by the payroll tax (money allegedly going into the trust fund/lockbox).

To summarize, here's Greenspan's 20+ year plan to roll back Social Security:

Step 1. Get appointed in early 1980s to committee to protect Social Security.

Step 2. Successfully propose substantial increases in regressive payroll taxes in order to save Social Security. Workers will pay higher payroll taxes but their retirement benefits will be assured.

Step 3. Wait 20 years; to pass the time, become Chairman of the Federal Reserve.

Step 4. Actively support large and regressive cuts in income taxes. Never mention payroll taxes.

Step 5. Repeat step 4.

Step 6. Observe that in 2004, steps 4 and 5 lead to a $631b shortfall; Step 2, however, created a $154b surplus.

Step 7. Reverse Steps 4 and 5.

Step 8. Just kidding about step 7. Seriously, the answer is clear: cut Social Security benefits.

AB

UPDATE: CalPundit had a post on Sunday, THREE CARD MONTE WITH ALAN GREENSPAN, which made the same observation and concluded, "A normal person would at least be embarrassed by all this. But Alan Greenspan has never been a mere mortal, has he?"

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When Will China Overheat?

Today Greenspan (not my favorite person these days – see the preceding post – but anyway...) made some remarks about China:

WASHINGTON (CBS.MW) -- China could be forced to limit its dollar purchases to avoid excessive economic growth, Federal Reserve Board Chairman Alan Greenspan warned Tuesday.

"China's central bank purchases of dollars, unless offset, threaten an excess of so-called high-powered money expansion and a consequent overheating of the Chinese economy," Greenspan said in prepared remarks to the Economic Club of New York.

Yes. This is what we would expect. Continual purchases of US dollars by Asian central banks is causing their money supplies to zoom. And we would normally expect this to have some repercussions on the economy, such as increased inflation.

The mystery is therefore this: why isn’t it happening? How can China be increasing its money supply by 20 or 30 percent per year while inflation remains very, very low? Certainly asset prices have risen, but why aren’t prices for goods and services rising too? Why are our normal economic expectations letting us down? Is this just a good demonstration of why my Fed friends think that the money supply doesn’t matter? Is it just a question of waiting a bit longer for inflation to pick up?

The answers are important, because until we start seeing typical inflation in China, the Chinese central bank will face no pressure to reduce their purchases of US dollars and let the yuan appreciate. And the effects of such a change on the US – both positive and negative – could be significant.

Kash

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Krugman on Greenspan's Remarks

In today's NYTimes column, Paul Krugman has some things to say about Greenspan's shockingly partisan testimony on Capitol Hill last week. The most interesting parts of his column are the three conclusions that Krugman draws:

First, "starving the beast" is no longer a hypothetical scenario -- it's happening as we speak. For decades, conservatives have sought tax cuts, not because they're affordable, but because they aren't. Tax cuts lead to budget deficits, and deficits offer an excuse to squeeze government spending.

Second, squeezing spending doesn't mean cutting back on wasteful programs nobody wants...

Finally, the right-wing corruption of our government system -- the partisan takeover of institutions that are supposed to be nonpolitical -- continues, and even extends to the Federal Reserve.

I have to admit that I found theories about "starving the beast" to be a bit implausible a year or two ago. But now such theories are not just plausible; they describe reality.

Kash

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Haiti

I'm not quite sure what to make of this, but it's definitely weird:

Spokesman Scott McClellan said the allegations have no basis. "It's complete nonsense!" He said Mr. Aristide was not abducted or kidnapped and consulted with the U.S. Embassy in Haiti on the best way to give up power and get out of the country safely. "We took steps to protect Mr. Aristide and his family so they would not be harmed as they left Haiti," he said.

But African-American members of the U.S. Congress who have spoken to Mr. Aristide since his arrival in the Central African Republic say he says he was forced to leave.

Representatives Charles Rangel and Maxine Waters recounted their conversations in broadcast interviews, as did black activist Randall Robertson. They said Jean-Bertrand Aristide told them he was abducted at gunpoint by American soldiers and put aboard a plane.

While definitely strongly on the liberal side, neither Rangel nor Waters is looney. If they say they talked to Aristide, then I believe that either (1) they did, or (2) they talked to someone convincingly pretending to be Aristide (the allegation is that Aristide made the calls from a cell phone smuggled into his room/cell in the CAR, so perhaps it was not actually Aristide.) It's hard to fathom a motive for the US doing this, so that casts some doubt on the accuracy of the Rangel/Waters account.

And to really mix things up, it appears that US and French troops are cooperating in Haiti.

As they say, it's developing.

AB

P.S. Based on a few of the comments to my previous post, an easier way for the US to get rid of Aristide would have been to give Haiti some Diebold electronic voting machines, hack them, and elect whoever the heck we felt like electing.

UPDATE: Via Atrios, put on your tinfoil hat, say Allende three times, and see U.S. political maneuvering behind the ouster:

The departure of Haiti's Jean-Bertrand Aristide is a victory for a Bush administration hard-liner who has been long dedicated to Aristide's ouster, U.S. foreign policy analysts say. ... That official is Roger Noriega, assistant U.S. secretary of state for Western Hemisphere affairs...

... "Roger Noriega has been dedicated to ousting Aristide for many, many years, and now he's in a singularly powerful position to accomplish it," Robert White, a former U.S. ambassador to El Salvador and Paraguay, said last week.

White, now president of the Center for International Policy, a think tank in Washington, said Noriega's ascent largely has been attributed to his ties to North Carolina Republican Jesse Helms, an arch-conservative foe of Aristide who had behind-the-scenes influence over policy toward Latin America and the Caribbean before retiring from the Senate two years ago.

"Helms didn't just dislike Aristide, Helms loathed Aristide because he saw in Aristide another Castro," said Larry Birns, director of the Washington-based Council on Hemispheric Affairs, which has been strongly critical of the Bush administration's policy on Haiti.

Working hand in hand with Noriega on Haiti has been National Security Council envoy Otto Reich, who, like Noriega, is ardently opposed to Cuban leader Fidel Castro, say analysts such as Birns. Washington diplomats have seen Aristide as a leftist who is often fierce in his denunciations of the business class and slow to make recommended changes such as privatizing state-run industries.

"On a day-to-day basis, Roger Noriega [has been] making policy, but with a very strong role played by Otto Reich," Birns said.

Reich is a controversial Cuban-American criticized by some who have lingering concerns about his contacts with opposition figures who plotted a short-lived coup against Venezuela's leftist president, Hugo Chávez, two years ago. Reich also is linked to the Iran-contra scandal of two decades ago that was part of President Ronald Reagan's policy of defeating Marxists in Central America. ...

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Electronic Voting: I'd Like a Receipt, Please

I'm not much of a conspiracy nut. When I hear that the CEO of Diebold, the leading maker of electronic voting machines, said last summer that he's "committed to helping Ohio deliver its electoral votes to the president next year," I believe that he was speaking as a citizen. That is, I seriously doubt that there's a scheme to manipulate the vote-counting software in a way that definitely delivers Ohio's electoral votes, or any other state's, to Bush.

Notwithstanding that, reading about the security flaws and the related controversy over Maryland's Diebold system, I can't for the life of me figure out why these machines do not print out records of the votes. Every IT expert in the world will tell you to always back-up your work. In the context of electronic voting, the only 100% sure way to back-up a vote is to print it out. Moreover, no unhackable system has ever been devised, and by all accounts, the Diebold machines are depressingly far from the state of the art in security.(*)

Voting is certainly no less important -- perhaps even more important, given the whole Democracy thing that we have here in the US -- than a credit card charge or an ATM withdrawal. The answer is simple and inexpensive: I'd like a receipt, please.

AB

(*) For an disturbing analysis of Diebold's security, put on your tin-foil hat and see Analysis of an Electronic Voting System (pdf), by computer scientists at UCSD and Rice, under the auspices of the Johns Hopkins University Information Security Institute. The researchers obtained and then analyzed the source code for Diebold's AccuVote-TS voting machine:

...Our analysis shows that this voting system is far below even the most minimal security standards applicable in other contexts. We identify several problems including unauthorized privilege escalation, incorrect use of cryptography, vulnerabilities to network threats, and poor software development processes. We show that voters, without any insider privileges, can cast unlimited votes without being detected by any mechanism within the voting terminal software. Furthermore, we show that even the most serious of our outsider attacks could have been discovered and executed without access to the source code...outsiders can do the damage. That said, we demonstrate that the insider threat is also quite considerable, showing that not only can an insider, such as a poll worker, modify the votes. ... We conclude that this voting system is unsuitable for use in a general election. Any paperless electronic voting system might suffer similar flaws, despite any "certification" it could have otherwise received. We suggest that the best solutions are voting systems having a "voter-verifiable audit trail," where a computerized voting system might print a paper ballot that can be read and verified by the voter."

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The Road to Hell is Paved With Good Intentions

Reader Jon H. emailed me Tom Friedman's latest NYT Op/Ed piece, 30 Little Turtles. The editorial is about Indian call centers and what those jobs mean for the Indians who get them. It's definitely worth reading, but that's not the point of this post. In my response to Jon's email, I wrote this (slightly edited for posting):

More generally, I strongly believe that the labor market problems stem from the overall state of the economy, not from outsourcing and free trade. Insofar as protectionism will harm the overall state of economy, and it would, it's more likely to make things worse, not better.

I think I've made this point before, but never so starkly: protectionism will cost, not create, US jobs. This is true irrespective of cross-country asymmetries in labor and social conditions (more to come on this issue).

Now the ubiquitous and important caveat: both trade and technological progress harm specific sectors of the economy while benefiting both the average and the median citizen (and the other deciles too). Thus, it is vitally important to use some of the gains from trade to offset those sectoral losses -- as Paul Krugman recently wrote, "free trade is politically viable only if it's backed by effective job creation measures and a strong domestic social safety net ... there's a reason why the two U.S. presidents who did the most to promote growth in world trade were Franklin Roosevelt and Harry Truman."

AB

P.S. Brad DeLong recently made roughly the same point:

"... I can and do blame Democratic politicians for not resisting temptation: every day that Americans are told that trade destroys jobs--rather than that it shifts jobs from one industry to another, hopefully from lower-paying to higher-paying--is a day that makes it harder to pursue good policies to enrich America. Blame Bush for failing to take out the obvious insurance against a slack job market--for pursuing tax cuts for the upper class rather than fiscal policies that would provide an effective stimulus to demand and employment. But don't you dare imply or state that the U.S. would be a richer, more productive, and faster-growing economy if we turned our back on the world market."

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The Politicization and Bastardization of Science, Continued

Via CalPundit, this news from the WaPo:

President Bush yesterday dismissed two members of his handpicked Council on Bioethics -- a scientist and a moral philosopher who had been among the more outspoken advocates for research on human embryo cells.

In their places he appointed three new members, including a doctor who has called for more religion in public life, a political scientist who has spoken out precisely against the research that the dismissed members supported, and another who has written about the immorality of abortion and the "threats of biotechnology."

Never adjust policy in response to information. Simply pick and choose scientists so as to adapt the information to policy.

AB

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The Other Danger of Protectionism

Typically, if one country engages in protectionism, others will respond in kind. That's exactly what's about to happen:

Four years after the WTO ruled against the United States, Congress has still failed to repeal export subsidies, known as the extraterritorial income exclusion, that the trade organization determined to be illegal. The WTO gave the Europeans permission to impose sanctions totaling $4 billion a year, and the EU responded last April with a long list of targets politically sensitive to President Bush, including Florida citrus, Carolina textiles, Wisconsin paper products and iron and steel from Ohio, Pennsylvania and West Virginia.

... The tariffs will start at 5 percent of the products' value, or an estimated $16.5 million in March, but will climb a percentage point each month that Congress fails to act, Lamy said. That could bring the sanctions to about $315 million for 2004.

.. [European Union Trade Commissioner] Lamy said that by slowly ratcheting up the pain, the EU will "focus the mind on the necessity to repeal."

With free trade, jobs are lost but the economy overall benefits (however, not every sector benefits -- hence the need for programs like wage insurance); prices are also lower, which benefits consumers. With trade wars jobs are also lost, but GDP falls and consumers get to pay more for the goods they buy.

Thanks to mega mike for the link to the story.

AB

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Even the Well-Off Don't Like Trade These Days

Via Dan Drezner, I see that Tuesday's USA Today reported that

The poll shows that among Americans making more than $100,000 a year, support for actively promoting more free trade collapsed from 57% to less than half that, 28%.

As Dan says, it's not so much the direction of the shift among the well off as the magnitude of that shift.

Speaking of trade, wandering through the grocery store today, I noticed that they were selling tax software. This naturally lead me to wonder why it's viewed as a great thing when people can do their taxes quickly and cheaply using a computer and software, but a bad thing when people can do their taxes quckly and cheaply using Indian accountants. (For more, see Kash's classic Trade with China as Technological Revolution.)

AB

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Debt Mountain

In a post that relates to Kash's Monday post on the current accounts deficit, Karsten, a European blogger who follows finance, explains why massive US deficits haven't lead to soaring interest rates:

As we all know that no saving of note takes place in the US we could assume that most of last years government deficit was financed by foreigners. This assumption is correct - those shifty little foreigners (some of whom even speak foreign languages) bought almost all of the new paper issued by the US Treasury last year. The marketable debt held by the public ... increased by around 325$bn last year. Foreigners bought around 290$bn of that (and most of that was snapped up by foreign central banks)!

... A look into the future can be pretty scary: the huge current account deficit means that foreign countries are selling lots of shiny doodads to US consumers and earning dollars from those sales.

If foreigners keep financing the US deficit with those dollars, then interest rates will stay down; likewise, if foreigners buy more US goods then that will be a good thing as well. But what if they simply decide to start selling those dollars (e.g., in anticipation of inflation)? Read the rest of the story. (More generally, if you like finance and investing, you should probably be reading Karsten's CurryBlog more often.)

AB

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Income Inequality in the US

Following up on AB’s post about how well the wealthiest have done in recent years, here’s a graph showing the share of aggregate income earned by high-income households in the US. Unfortunately we don’t have 2003 data yet (other than Forbes’ data on billionaires), but I think it’s a safe bet that the upward climb has continued in both lines since 2002.



(Source: Census data, available here.)

Of course, the interesting question is what’s the cause of this remarkable upward trend. After a very heated (by economists’ standards) debate throughout most of the 1990s, the consensus seems to have emerged that most of this increase in inequality can be attributed to technological change. Specifically, over the past 20 years we’ve seen technological advances (read computers) that give well-educated workers an increasing advantage over poorly educated workers. Put another way, technology has been more and more able to substitute for low-skill workers. There are other factors as well, but the lion’s share of the blame seems to belong to technology.

What do we do about it? I’m not sure. However, I have a feeling that cutting taxes for people at the top of the income scale is exactly NOT the way to fix the problem.

Kash

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Make the Tax Cuts Permanent! Now!

Quick, before this trend stops:

All told, it was a fabulous year to be very rich.

[Forbes magazine] counted some 587 billionaires around the world, up from 476 in 2003. Their total net worth jumped to $1.9 trillion from the $1.4 trillion the magazine counted in 2003.

"After two years of significantly falling fortunes, we really saw an uptick for just about everybody on the list," said Luisa Kroll, an associate editor at Forbes who oversaw the project....

... In the United States, billionaires likely gained last year not only from a 20 percent rise in stock prices, but also from reductions in taxes on dividends, capital gains and estate taxes, according to Mark Zandi, chief economist at Economy.com.

"High income, high net-worth households have done very well under the Bush administration," said Zandi, adding that technological advances and trends toward globalization also tend to benefit the rich.

Nice to see that that .000001% of the population is doing quite well.(*) What about the nation's poor? (2003 data not yet available):



But that's just the poor, and there were only about 3 million or so more of them in 12/2002 than in early 2000, so who cares? What about the median household? Surely they are faring well? No, not them either. In 2002 dollars, median household income (Table A-1, p. 17) was $43,915 in 1999; $43,848 in 2000; $42,900 in 2001; and $42,409 in 2002.

Maybe we should just pass an amendment giving everyone the constitutional right to a billion dollars. Except the gays. They can stay poor.

AB

(*) Note: While I don't know any personally, I have nothing against billionaires, and I respect many of them. Indeed, risking the ire of my readers, I'll say Gates, Buffet, Allen, even the Waltons, and surely many others on the Forbes list earned their wealth, created tens and tens of thousands of jobs, helped spur economic growth, and generated wealth for shareholders. But they did so in the 1990s, in the face of both Clinton's tax rates and estate taxes. What I do disapprove of, however, is the administration's using regressive tax cuts to augment that wealth.

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Even More on Greenspan

A staffer at The Century Foundation, about which I know little other than that Ruy T. is affiliated with it, alerts me to a short article by Bernard Wasow on Greenspan. The article concludes with

So Mr. Greenspan would pay for massive tax cuts, about half of which go to the richest one percent of Americans, by reducing Social Security benefits from their current princely level of about $10,000 per beneficiary per year. All retirees would face benefit reductions, but his proposals would particularly burden those who die young and those who die very old. Now we know.

I suspect most of my readers agree with this.

I do have one quibble, however. Wasow says that "[we'll pay for the Bush tax cuts] by reducing spending on one of the lowest income groups in the United States, retirees." That statement is true, but misleading. Retirees, precisely because they are retired, are in fact one of the lowest income groups. But they are also the highest wealth group, so don't pity them too much. Not to say that I don't think SSI is a good program; it is. Nor even to say that all low income retirees have significant wealth; they don't.

However, a reasonable case for means-testing SSI benefits exists. After all, it's insurance, and insurance is generally designed to pay off in the event of a bad outcome (fire, theft, early death, retiring poor, ...) But it would only make sense to means test SSI based on wealth, not income. Given current interest rates, a retiree with $1m in assets would only have income of $30,000-$50,000 (less if a big chunk of that $1m is in their home.)

Means testing based on wealth carries its own risks, however, as it encourages profligate spending just before retirement. A very slow and gradual phase out of the SSI benefit is one possible solution to this problem. In any event, this post is not about means-testing. My point is that wealth and income are different things and, particularly in the context of retired persons, the distinction is important.

AB

CLARIFICATION: Skimming this post, I should clarify that by "A very slow and gradual phase out of the SSI benefit is one possible solution to this problem," I mean phase out the benefit as income rises, not over time. Don't end SSI, just decrease the payment as wealth increases and either use the savings to increase benefits to the remaining retirees, to lower the regressive payroll taxes, or to keep the program solvent.

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More Trouble for Blair

Source: Britain Spied on U.N.'s Annan. Highlights:

• LONDON - British intelligence agents spied on U.N. Secretary General Kofi Annan (news - web sites) in the run-up to the Iraq (news - web sites) war, a former member of Prime Minister Tony Blair (news - web sites)'s Cabinet said Thursday.
  
  
• Short, who resigned her post after the campaign to topple Saddam, said she had read transcripts of Annan's conversations while she was a Cabinet member.
  
  "The U.K. in this time was also getting, spying on Kofi Annan's office and getting reports from him about what was going on," she said in an interview with British Broadcasting Corp. radio.
  
  
• Asked explicitly whether British spies had been instructed to carry out operations within the United Nations on people such as Annan, she said: "Yes, absolutely."
  
  
• [Claire Short] resigned in May, complaining the United Nations did not have a large enough role in reconstruction. Since then, she has called for Blair to resign, accusing him of misleading the country about the threat posed by Saddam.
  
  
• Reacting to the Gun case and Short's allegations, Blair told reporters: "We are going to be in a very dangerous situation as a country if people feel they can simply spill out secrets or details of security operations — whether false or true actually — and get away with it."

AB

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Conservative Economists Write a Letter

A group of economists, including "the presidents of the Progress and Freedom Foundation, the Pacific Research Institute and the Competitive Enterprise Institute as well as scholars at the Hoover Institution and the Manhattan Institute all signed the letter" are annoyed at the pro-regulation position of a certain political strategist:

"Your position on telecommunications deregulation is contrary to the views of the vast majority of free-market economists and policy analysts," the letter states. "Your continuing advocacy of the pro-regulation position is destructive to the cause of limited government. To the extent your efforts are successful, the effect will be to reduce capital formation, slow job creation, impede productivity growth and stifle individual liberty and economic freedom."

Question: To whom is the letter addressed? If you don't already know the answer, you won't guess in ten tries (it's not Greenspan.)

Answer here.

AB

UPDATE: An answer that doesn't require registering for the WaPo site is here.

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Don't Forget to Donate

If you'll look to your left, you'll see a banner supporting Wampum's Mary Beth Williams for Maine state representative (campaign site here). Today, there's an interesting profile of her candidacy, with a lengthy discussion of the role of blogs in campaigns this year, in the Portland Phoenix. (Atrios, Kos, and Stirling are quoted at length in the article.)

At one point, the reporter asks an interesting question:

... the question still bears asking: At what point does the nationalization of local races tip the scales of influence from a candidate’s flesh-and-blood constituents to her readers in the blogosphere? What happens to representative democracy if funding is decentralized to the point of every candidate raising more money from a diffuse virtual constituency than from the actual human beings in his or her district?

Great question. And there's one easy way to learn the answer: click on the Mary Beth Williams banner to the left and donate (via PayPal). Angry Bear (the blog -- Kash and I, that is) are matching up to $100, so don't forget to give. Many small donations are better than a few big ones, so $5 and $10 should do the trick. End your contributions in .89 (e.g., $5.89 or $10.89) so Mary Beth can keep track of donations from Angry Bear readers.

AB

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Another Greenspan Update

Smart conservative Dan Drezner agrees that Greenspan's comments are bad for Bush:

"The more Greenspan clears his throat like this, the more the current occupant of 1600 Pennsylvania Avenue is going to get nervous."

Dan's got a few other examples of Greenspan recently making statements that clearly weren't run by Karl Rove first.

Let's see: Mel Gibson apparently has a new movie out blaming Jews for the death of Christ ... Commerce Secretary Don Evans says Bush believes he was chosen by God to lead the nation at this time (paragraph 12) ... and Greenspan is a, well, you know, he's an Objectivist ... Connect the dots ...

AB

[Updated to facilitate connection of dots]

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A Little Logic

Teeing off on an excerpt from Mayor Gavin Newsom's appearance Larry King Live, Slacktivist applies a bit of logic:

Newsom highlights the contradiction embraced by those who want to argue both that same-sex marriages are not constitutional and that the Constitution must be amended in order to make such marriages illegal.

If these marriages are not constitutional, then there is no need for the FMA.

If these marriages are constitutional, then one cannot argue that they are illegal or illegitimate.

Conservatives may want to ponder this. Of course, something can fail to be prohibited by the Constitution yet still be illegal -- speeding and assault are two examples. Still, pursuing a Constitutional amendment against gay marriage is surely an admission by supporters that they believe that a federal law banning gay marriage would be unconstitutional. So to tighten up Slacktivist's point, it's actually an admission that it is [U.S.] constitutional for states to allow gay marriage.

A second issue is whether California's Defense of Marriage Act (CA-DOMA) is [California] constitutional. Take a quick look at the first paragraph of California's Constitution:

All people are by nature free and independent and have inalienable rights. Among these are enjoying and defending life and liberty, acquiring, possessing, and protecting property, and pursuing and obtaining safety, happiness, and privacy.

Do life, liberty, happiness, and privacy combine to make the CA-DOMA unconstitional in California? Mayor Newsom thinks they do. Gov. Schwarzenegger disagrees, making it an issue for California's Supreme Court, not the federal government, nor religious zealots in Alabama (via Atrios.)

AB

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Greenspan Update

In a comment to Kash's post, I said

Oddly, however, Greenspan actually saying this [SSI benefits need to be cut] makes his alleged long term goal less likely to come to pass, because it certainly isn't a favor to Bush's reelection odds.

Here's Josh Marshall saying the same thing:

But Greenspan did the White House no favors with this one. McClellan will get asked about this tomorrow and it'll be hanging around their necks for some time.

I'm sure Josh and others will have the transcripts from tomorrow's breifing. Stay tuned.

AB

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Greenspan on Social Security

Greenspan testified before the House Budget Committee today. Much of his talk was devoted to discussing the long-run fiscal implications of the retirement of the baby boomers.

His recommendation for solving the long-term forecast shortfall in the Social Security trust fund is simple: cut benefits.

I believe that a thorough review of our spending commitments--and at least some adjustment in those commitments--is necessary for prudent policy... I certainly agree that the same scrutiny needs to be applied to taxes. However, tax rate increases of sufficient dimension to deal with our looming fiscal problems arguably pose significant risks to economic growth and the revenue base. The exact magnitude of such risks is very difficult to estimate, but they are of enough concern, in my judgment, to warrant aiming to close the fiscal gap primarily, if not wholly, from the outlay side.

He’s wrong. Several studies have demonstrated that relatively small changes in the revenue side of the Social Security program would be sufficient to close most of the long-term SS gap. (See for example policy briefs at Brookings and the EPI.) Once again, Greenspan is single-mindedly pushing his agenda of smaller government, regardless of the underlying economic analysis.

Kash

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Japan Remains Reptilian

It's a great metaphor, and we can thank a Morgan Stanley economist Osamu Tanaka for adding such poetry to the dismal science:

[W]e do not think any full-fledged rebound in personal consumption [in Japan] can be expected, because corporations continue to restrain personnel spending and households' need to restore depleted savings both will weigh heavily on consumption. In this environment, manufacturing and capex activity cannot escape from their dependence on external demand -- [Japan's] economy will remain quintessentially "reptilian," needing the warming sunlight of external demand to maintain its temperature and activity, and therefore subject to the vagaries of global cycles.

What I wonder is where the US economy's "warming sunlight" will come from later this year...

Kash

p.s. note that this reading agrees with the skepticism many commenters expressed last week about the strength of Japan's recovery.

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US Money Supply

Numerous people have commented in recent weeks about the drop in the US money supply over the past few months. The graph below illustrates the concern. “Narrow” money supply (M1) grew more slowly in the end of 2003, but not unusually so. However, the growth in M2 (which includes cash, checking accounts, savings accounts, and money market accounts) took a dramatic tumble toward the end of 2003.



This obviously raises two questions: what caused this fall in M2, and is it a cause for concern? To answer these questions, I talked to a friend who's an economist in the Federal Reserve System, and is probably among the 50 most knowledgeable people in the world on the subject of the US money supply. (The other 49 are probably also Fed economists.)

First, the causes of the drop in M2. There are three.

1. When homes are refinanced, the old mortgage is paid off with a new one. But most mortgages have been bundled together into a mortgage-backed security, which is then held by a large-scale investor (e.g. a bank or insurance company). Due to the accounting procedures necessary to adjust the mortgage-backed security for the early repayment of one of the mortgages that it contains, the balance refinanced is held for a short time in a special type of account. When there are more refinancings, these accounts swell the size of M2; when refi activity falls, these accounts shrink and M2 falls. During the second half of 2003 mortgage refinancing activity slowed considerably, so the size of those accounts fell, reducing M2. This is a technical side-effect of the slowing of refi activity, and has no economic impact whatsoever.

2. Another cause has to do with the effects of cash-out refinancings. People built up large balances in their checking and savings accounts as they took cash out of their house from refinancing. As refi activity has slowed, less cash has been taken out of houses, so that addition to the money supply has tapered off. Additionally, people have been spending the money that they took out of their houses in 2002 and early 2003. So M2 balances have fallen. So in part, the fall in M2 simply tells us that we’ve seen the end of major refi-related spending.

3. The third cause has to do with the stock market. Since the resolution of the uncertainty surrounding the war in Iraq in the spring of 2003, individuals have poured money at an accelerating rate into the stock market. To do that, people take money out of their savings and money market accounts. The result is a fall in M2.

Now the next question: is it a cause for worry? The short answer is no. First of all, some people (such as my monetary expert at the Fed) make the argument that the size of M2 is irrelevant to anything that we care about. The only possible use it may have is if it contains information about other things in the economy that we do care about. But even a sharp, sustained fall in M2 would have no repercussions for the economy in and of itself.

Second, the causes of the fall in M2 in this case are generally not anything we didn’t already know. We already knew that mortgage refi activity slowed in the end of 2003 (though this confirms that people have largely spent all of their refi cash by now), and we already knew that people have been shifting money into the stock market. So in this case, the fall in M2 doesn’t provide us much new information. And anyway, M2 is starting to grow again as these effects peter out. Within a few more months it will probably be growing at its usual healthy clip.

So, to make a long story short, don’t lose any sleep over the wiggles in M2 growth. As I've written about many times before (including yesterday on The American Street), we have plenty of other economic problems to worry about.

Kash

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On the Lighter Side ...

This is very funny. (Via Cynical-C.)

And speaking of funny, read this letter from Rep. John Dingell (D-MI) to Council of Economic Advisors Chairman Mankiw. And no, it's not a parody, it's a transcription of the actual letter. Click and see Dingell explain his nomination of the Hon. Mayor McCheese for the Assistant Secretary for Manufacturing position.

AB

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The Triple-X Amendment

Democrats need to highlight the idiocy of Bush's proposed bigotry amendment. I think the best way to do that is to fight to attach bans on turpitude in all its forms: adultery, divorce, fornication, hand-jobs, sodomy, you name it. If it's not missionary with your opposite-gendered spouse, then by God, the XXVIII^th will outlaw it. Even better, if we can pass two other amendments first, we can call this one the "Triple-X" amendment.

AB

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Andy, Meet Light. See the Light

Andrew Sullivan waxes eloquently on Bush's blatant pander to ignorance, fear, and prejudice:

The president launched a war today against the civil rights of gay citizens and their families. And just as importantly, he launched a war to defile the most sacred document in the land. ... Not since the horrifying legacy of Constitutional racial discrimination in this country has such a goal been even thought of, let alone pursued. Those of us who supported this president in 2000, who have backed him whole-heartedly during the war, who have endured scorn from our peers as a result, who trusted that this president was indeed a uniter rather than a divider, now know the truth.

Now, if Andy could manage to start caring when it's other people's rights and interests being harmed by conservatives...

AB

UPDATE: I strongly encourage you to visit this Newsweek/MSNBC page, first look at the top picture, then scroll down to the "Photo Gallery," and look at the photos. As you'll see, they are just people. Really, really, happy people. Now go about your business. Via Josh Marshall.

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Jobs in Ohio

The number of lost jobs in Ohio (265,000 jobs) is about 90,000 more than Bush's margin of victory in 2000 (176,000 votes). I'd say that makes Ohio very likely to swing Democratic in 2004. And as GOP strategist Scott Reed recently pointed out, "No Republican has ever been elected president without carrying Ohio."

Here's the job picture in Ohio. The details are at The American Street, along with a quick look at Minnesota (likely to go Democratic again in 2004, based on the jobs situation.)

AB

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More Context on the Size of the US Government

While I'm at it, here's another picture providing some more context.



Apparently, the US and France also disagree quite a bit about the appropriate size of the government. Rush Limbaugh can add that to the list of reasons why France is evil. This evidence comes not a moment too soon, because Americans' public opinion about France is apparently improving.

Kash

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A Picture Worth 1,000 Words

Sure, many of you have already seen this picture, or something very much like it. But since I was preparing it for a class anyway, I had it handy and thought you might enjoy seeing it one more time. Plus, long-run context is almost always helpful.



Do any features in the graph stand out to you?

Kash

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Roach on Sustainability

Stephen Roach of Morgan Stanley is still worried about the sustainability of the recovery:

This global rebound is unlike any experienced in the past — it has been unusually dependent on policy stimulus. Can this nascent recovery in the world economy wean itself from these life-support measures and make the all-important transition to a self-sustaining upturn?

...Global policy levers are now fully engaged. The forces of private demand are not. To the extent that job creation in the developed world remains much tougher to come by in an increasingly integrated global economy, the conversion of policy stimulus into self-sustaining private consumption could continue to be impaired. Not only does that impede the standard “multiplier” effects that lie at the heart of enduring recoveries, but it leads to a build-up of ever-greater imbalances that ultimately pose the most serious threats of all. You’d never know that from the recent euphoria in world financial markets. That’s just the problem.

Since monetary and fiscal stimulus have both pretty much run their course by now, we'll find out if he's right within about 6-12 months.

Kash

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Is the Current Account Deficit Bad?

A commenter over the weekend posed this important question, so I thought I’d take a stab at answering it. The Current Account (CA) deficit represents the total borrowing that a country is doing from other countries. As with individuals, if a country as a whole is consuming more than it is producing, then it needs to borrow from another country to make up the difference. The way a country borrows from abroad is by importing more than it exports. It pays for those imports by either increasing its debts to the rest of the world or by selling off its assets. Either way, the country’s “net worth” goes down by the amount of the current account deficit every year.

This sounds bad – but it’s not, necessarily. It can be either good or bad, just as it can be good or bad when individuals or firms borrow money. When individuals borrow to buy a car or a house it’s often a good thing. When firms borrow money to expand a profitable business it’s often a good thing. But of course, individuals and businesses can also borrow for frivolous purposes, which we would consider “bad” borrowing. In the same way, a current account deficit is good or bad depending on how it’s spent. The crucial criterion is whether the things being purchased with the borrowed money will make it easier to repay the loan in the future. Wisely spent borrowed money should increase the borrower’s ability to repay debts.

So what’s the US spending its borrowed money on? That’s actually changed significantly over recent years. It’s useful to break down the sources of borrowing into two categories: the private sector and the government sector. The private sector borrows if it spends more than it earns – that is, if the spending done by consumers and businesses is more or less than their income. The government sector borrows if it runs budget deficits. The current account deficit – national borrowing – is the sum of the two.

The following chart shows the US’s current account balance split into these two components. The green line shows the private sector balance. The most prominent feature is the huge private sector deficit in the late 1990s, which was due to a combination of extremely high business spending on capital investment and extremely low saving by households. In recent years this imbalance has been nearly eliminated, as businesses have cut back sharply on their spending (though households still aren’t saving much).

The red line shows the government sector balance, including federal, state, and local levels of government. The remarkable feature about that series is the dramatic move from surplus to deficit in the past 3 years. The blue line is the sum of the two other lines – i.e. the CA balance. The graph illustrates that in the 1990s, the US was spending its borrowed funds on much higher business investment spending and somewhat higher consumption. By contrast, today the US is spending its borrowed money on government spending and higher consumer spending enabled by the tax cuts.



So, back to the question of whether the CA deficit is bad. My own opinion is that in the 1990s the CA deficit was not necessarily harmful – the money that businesses borrowed in the 1990s was spent on investments that are the crucial ingredient to today’s rapidly increasing productivity, which is essential to sustainable income growth. I’m not sure the same could be said about the higher consumer and government spending that is the cause of today’s CA deficit. Will the higher defense spending, new cars, and renovated kitchens that the US has bought with its borrowed funds over recent years help future income growth? Perhaps, but I’m skeptical.

One last point about the CA deficit: notice that it is a reflection of national borrowing and saving, and thus is not the result of “excessive” or “unfair” trade. If the US were somehow magically able to reduce its imports from China by $100bn, the US’s CA deficit would remain unchanged. Why? Because the US would still be demanding more products than it produces, so US imports from other sources would have to increase by $100bn to make up that gap. If the US were magically able to reduce its overall imports by $100bn, then the US's CA deficit would still be unchanged, because as imports fall so would exports; in order to satisfy its excessive demand with fewer imports, the US would have to consume more of what it used to export.

The only way that the US economy can improve its current account balance is if it produces more but doesn’t spend more. In other words, private and government saving needs to improve. There’s absolutely no other way.

Kash

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Lockbox Unlocked

After visiting Pew's site, I wandered over to the CBO where I found the latest Monthly Budget Review. It contains the current CBO (-$477b) and OMB ($-527b) deficit projections. One suprising element is that the administration's forecast (the OMB number) is $50b higher than the basically non-partisan CBO's estimate.

More interesting is this table:

CURRENT PROJECTIONS FOR FISCAL YEAR 2004 (Billions of dollars)
		CBO		OMB
Receipts		1,817		1,791
Outlays		2,294		2,319
Deficit		-477		-527
	On-budget deficit	-631		-682
	Off-budget surplus	154		154
Sources: Office of Management and Budget; CBO.

What is the $154b "off-budget surplus" number? That's money for the Social Security trust fund. In other words, the progressive income, capital gains, dividend, and corporate taxes are bringing in between $630 and $690 billion less than the government is spending. Only when the money raised by the regressive payroll tax is included does the deficit fall to a mere one-half trillion dollars.

AB

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Bush Favorables Plummet; Unfavorables Soar

I wandered over to Pew and found their latest survey of registered voters. It's unambiguously good news for Democrats and bad news for Republicans. Here's some good news for Democrats:

Two-thirds (67%) of those familiar enough with Sen. John Kerry to rate him have a favorable view of him; Sen John Edwards' favorable rating is nearly as high (63%), though fewer people are familiar with him than they are with Kerry.

Here's a bushel of bad news for Bush; perhaps the only consolation is that his favorable number is still over 50%, but given that he's an incumbent "war president" that should be cold comfort:



For more detailed analysis of the bad new for Bush found in a variety of polls, see Ruy T. here and here.

AB

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Trackback

I'm not entirely sure what Trackback is or does, but Angry Bear has it now. I think it tracks blogs that link to posts here, but only if the linking bloggers tell it to, somehow.

AB

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I'm 81% Dixie

Via SKB, the "Yankee or Dixie?" Quiz. Based on the words I know and use, my score is:

81% (Dixie). Did you have any Confederate ancestors?

AB

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Whither the WMD?

One often-heard explanation for why no WMD have been found is that "we were all wrong," followed by a list of other countries that purportedly agreed with the assessment of some parts of the US intelligence community on the dire nature of the Saddam threat. (The other countries generally make the list by virtue of deceptive dating of statements or intentional conflation of all WMD, including chemical weapons like mustard gas, with nuclear WMD.)

David Kay, former chief US weapons inspector, popularized this line of defense when he told Congress in January, "We were almost all wrong ... It turns out that we were all wrong." By which he did not mean "we were almost completely wrong," but rather "almost everyone was wrong."

Upon inspection, this claim is simply all wrong and all who believe it are wrong: many authoritive people (e.g., Colin Powell) and agencies (e.g., IAEA) said, before the war, that Iraq either lacked WMD or that whatever WMD it had were not a threat. In a lengthy and important post, Slacktivist has the definitive dissection and evisceration of the "all were wrong" sophistry.

AB

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Looks Like He’s Running

NEW YORK — Ralph Nader, the consumer advocate who ran for president in 2000 as a Green Party candidate, will enter the 2004 race for the White House as an independent candidate, advisers told Fox News on Friday.

An egotistical footnote. By deciding to run, Nader has guaranteed that that’s how he will be remembered.

Kash

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The Irresponsibility Tax

What are the costs of Bush's rampant deficit spending. Dwight M. does some number-crunching and concludes that

... if everything goes right and we do not slip back into recession before 2009 and we do not have any other wars, and there are no costs in Iraq or Afghanistan after this year, and we do not fix the AMT problem and Congress abides by spending recommendations, we will be approaching the end of the Bush Cycle with no hope of paying down any of the debt incurred at the beginning of the cycle. Indeed, Mr. Bush hopes that we will be paying interest on “only” an additional $2.4 trillion dollars. If rates remain fairly low and we can service that debt at, say, 5%, the annual Irresponsibility Tax for the Bush Cycle will be $120 billion each and every year until we begin running surpluses.

The total Irresponsibility Tax for those two cycles [Reagan and Bush II] will be about $200 billion per year. To put that in perspective, the Irresponsibility Tax from the Reagan and Bush Cycles will be larger than Mr. Bush’s proposed discretionary spending for NASA, the Department of Agriculture, the Commerce Department, the Department of Education, the Energy Department, HUD, the Interior Department, the Justice Department, the State Department, and EPA combined.

There are about 100 million tax returns filed each year. The Irresponsibility Tax for the Bush and Reagan Cycles will amount to about $2,000 per year for each taxpayer and will continue every year...

AB

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The Economist on Outsourcing

For more argument about why the US shouldn't worry unduly about outsourcing (though agreeing that we must still take steps to help out those individuals who will undeniably be adversely affected), you may be interested in the cover story of this week's Economist. Agree or disagree, I think it's a thought-provoking piece.

Kash

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New Inflation Data

The BLS released its January estimate of the CPI this morning . Here’s the updated graph of the 12-month percent change in the core (i.e. excluding food and energy) CPI and PPI. It shows no major changes in the inflation rate from the previous few months. (The news stories will talk about the big increase of 0.5% in January in the overall price index, but that was almost entirely due to a spike on oil prices. It's not worth paying too much attention to changes in inflation that are just due to swings in the price of oil, because they don't tell us much about the underlying health of the economy.)



Note that I’ve added a series called “Chained CPI.” That’s the core consumer price index using a more accurate method of calculation (and which they just started calculating in 2000). It is thought to reflect the real change in consumer prices better than the headline CPI rate. From Jan 2003 to Jan 2004 the chained index shows a 0.75% increase. That’s extremely low inflation, and there’s no sign of it picking up yet. The lack of any demonstrated increase in pricing power is another piece of evidence that the recovery is not as robust as some think.

Kash

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Question

So the recession is now all Clinton's fault. Does that mean that Clinton gets the credit if the economy hits the job growth numbers that the administration now claims were a "goal" rather than a "forecast"?(*)

AB

(*) It was Table 3-1 in the Economic Report of the President (page 98) that started the whole controversy, eventually leading to a near-total admission that the administration made up the jobs numbers. Did Table 3-1 present goals or forecasts? The title of the table is "Administration Forecast." You decide.

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Bush’s Campaign Strategy

It’s quite simple really. He gave us a preview during his visit to the Fort Polk National Guard base in Louisiana the other day:

FT. POLK, La. — President Bush warned on Tuesday that the country should not become complacent about the danger of terrorism, telling a spirited audience of National Guard and regular Army troops that since the Sept. 11 attacks, his focus as president has been to keep the country safe.

In line with the current White House emphasis on the president's wartime leadership, Bush mentioned the Sept. 11 attacks six times in the 25-minute speech. The president also emphasized his "resolve" — a word he used four times and a theme reprised in various ways throughout the speech... He [also] used the words "danger" or "dangerous" 11 times during the speech.

There’s nothing like running on a platform of fear and danger. The thing is, his advisors are quite right that those are powerful, powerful motivators for the electorate. Which is why Bush still has a good chance of winning.

Kash

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Emperor Hadrian

Webb's claims in the first two paragraphs quoted in the previous post remind me of this quote, provided by commenter Megamike:

"Beyond the Euphrates began for us the land of mirage and danger, the sands where one helplessly sank, and the roads which ended in nothing. The slightest reversal would have resulted in a jolt to our prestige giving rise to all kinds of catastrophe; the problem was not only to conquer but to conquer again and again, perpetually; our forces would be drained off in the attempt."

The quote is from Hadrian, one of the last rulers before the beginning of the end of the Roman Empire, sometime between 117-138 A.D. Yet it evokes the now-faded Powell Doctrine of the late 20th century.

AB

UPDATE: Link fixed.

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Not Mincing Words

In today's USA Today, James Webb ("Secretary of the Navy during the Reagan administration, and a Marine platoon and company commander in Vietnam") leads with some harsh criticism of Kerry, paticularly Kerry's involvement with Vietnam Veterans Against the War (Conason summarizes and casts doubt upon the attacks against Kerry.)

But Webb's greatest ire is reserved for President Bush:

Bush arguably has committed the greatest strategic blunder in modern memory. To put it bluntly, he attacked the wrong target. While he boasts of removing Saddam Hussein from power, he did far more than that. He decapitated the government of a country that was not directly threatening the United States and, in so doing, bogged down a huge percentage of our military in a region that never has known peace. Our military is being forced to trade away its maneuverability in the wider war against terrorism while being placed on the defensive in a single country that never will fully accept its presence.

There is no historical precedent for taking such action when our country was not being directly threatened. The reckless course that Bush and his advisers have set will affect the economic and military energy of our nation for decades. It is only the tactical competence of our military that, to this point, has protected him from the harsh judgment that he deserves.

At the same time, those around Bush, many of whom came of age during Vietnam and almost none of whom served, have attempted to assassinate the character and insult the patriotism of anyone who disagrees with them. Some have impugned the culture, history and integrity of entire nations, particularly in Europe, that have been our country's great friends for generations and, in some cases, for centuries.

Bush has yet to fire a single person responsible for this strategy. Nor has he reined in those who have made irresponsible comments while claiming to represent his administration. One only can conclude that he agrees with both their methods and their message.

Why does former Secretary of the Navy James Webb hate America? Via Skippy at TAS.

AB

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The Truth About Kerry

The Poor Man has the partial truth here; retrogrouch has the full truth here. Follow the links, you'll be glad you did.

AB

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More Republican Science-Quashing

In the spirit of AB’s post about the Bush administration’s bastardization of science, allow me to draw your attention to this article from the Cleveland Plain Dealer last week, about the Ohio state board of education’s vote to teach a competing theory to evolution:

State panel backs disputed lesson, infuriates supporters of evolution

Columbus, 02/11/04: The State Board of Education gave preliminary approval Tuesday to a 10th-grade biology lesson that scientists say could put "intelligent design" in Ohio classrooms.

Setting aside an impassioned plea from the National Academy of Sciences, the board voted 13-4 to declare its intent to adopt the "Critical Analysis of Evolution" lesson next month.

You know you’re in trouble when in the very headline of the story you’re labeled a “supporter” of evolution, like it was a political party. I guess I also fall into the “supporter of gravity” camp.

Developments like these make me think that American workers will indeed soon lose their jobs to better-educated workers around the world, who are generally taught the virtues of reason, scientific inquiry, and factual evidence.

Kash

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The Politicization and Bastardization of Science

I've been meaning to write about this issue for a while; fortunately, Chris Mooney has been doing such a good job that I don't have to. In a nutshell, the Bush administration is replacing dispassionate scientific analysis with political calculation on issues ranging from climate change to health policy to environmental regulation to the suitability of aluminum tubes for use in nuclear weapons producing centrifuges.

Today, several hundred scientists, including wenty Nobel Laureates announced in no uncertain terms that they've had enough:

"Across a broad range of issues, the administration has undermined the quality of the scientific advisory system and the morale of the government’s outstanding scientific personnel,” said Dr. Kurt Gottfried, emeritus professor of physics at Cornell University and Chairman of the Union of Concerned Scientists. “Whether the issue is lead paint, clean air or climate change, this behavior has serious consequences for all Americans."

"Science, to quote President Bush's father, the former president, relies on freedom of inquiry and objectivity,” said Russell Train, head of the Environmental Protection Agency under Nixon and Ford, who joined the scientists in calling for action. “But this administration has obstructed that freedom and distorted that objectivity in ways that were unheard of in any previous administration."

Several hundred non-Nobel winning scientists also signed. Here's another highlight, about which Mooney speculates that "If the American public realizes that Bush's willingness to twist information to support his policies is systematic and fundamental to the way he operates, he will truly be doomed in the 2004 election"

In making the invalid claim that Iraq had sought to acquire aluminum tubes for uranium enrichment centrifuges, the administration disregarded the contrary assessment by experts at the Livermore, Los Alamos, and Oak Ridge National Laboratories.

AB

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Japan’s Long-Awaited Recovery

Japan’s economy has been in the doldrums for years now, with occasional small periods of modest recovery that quickly died out again. But things may be changing, finally. The Economist (among many others) has been pointing out that, as they put it in a recent article, “for the first time in a decade, Japan is enjoying an upswing that could actually last.”

Why is this finally happening? In another article The Economist gives their take on it:

MORE than a decade ago, Japan chose the wrong path to economic recovery. Faced with the mountain of debt on which its bubble economy had been inflated, the authorities could have taken the quick route: swiftly writing off bad loans and easing the pain with loose monetary and fiscal policy. Instead they have muddled along, wandering down many a dead end in the process. Even so, better times are in sight for many of Japan's companies, long burdened by deflation, dismal profits and debt. The country now has a central-bank boss who understands the deflationary problems far better than his predecessors (see article); profits are soaring; and bad debts have been sufficiently reduced that in important ways Japan's biggest companies are nearing the end of the post-bubble clean-up.

Today we received some concrete proof that this time, Japan’s recovery may indeed be different:

(CNN) -- The world's second-largest economy, Japan, has grown at its fastest rate in almost 14 years, new government figures show.

Robust exports and industrial output helped lift the economy in the December quarter, delivering better than expected growth… On an annualized basis, GDP growth was 7 percent -- well above the median forecast of 4.6 percent and faster than anything Japan has seen since the June 1990 quarter.

This is exceedingly good news for Japan. And we’ve all been waiting long enough now, so it’s not a moment too soon.

Kash

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What’s Happening to Consumers?

This is interesting, and not in a good way:

NEW YORK (CNN/Money) - Consumer confidence plunged last week, matching its steepest drop on record in more than 18 years of weekly polling by ABC News and Money magazine.

This follows a sharp fall in the consumer confidence by the University of Michgan that was reported last week. What’s happened in the last month to shake consumer confidence so much? I honestly don’t know. But it can't be good.

Kash

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Jobs Forecast

Kash and I (and Brad) had a lot of fun last week laughing at the laughable jobs forecasts in the current Economic Report of the President. We all wish they were true, but we'd all also like to win the lottery -- and the odds of each are about the same

Via The Left Coaster, I see that Treasury Secretary Snow and Commerce Secretary Evans don't believe the foreceasts either:

Treasury Secretary John W. Snow distanced himself on Tuesday from the Bush administration's official prediction that the nation would add 2.6 million jobs by the end of this year. ... But on a tour through Washington and Oregon to promote the president's economic agenda, Mr. Snow and Commerce Secretary Donald L. Evans both declined to endorse the White House prediction and cautioned that it was based on economic assumptions that have an inherent margin of error.

AB

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Bush's Record

Hey Bubba, let us know what you really think of President Bush.

AB

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Strange Bedfellows

I don't know what to think when I'm basically agreeing with AEI's Jim "Dow 36,000" Glassman on free trade. I guess I can take solace that Glassman, and vicarously, me, were disagreeing with the foolish blowhard, Lou Dobbs.

AB

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An Important Post

I just read Kash's American Street post, and I encourage you to do so as well. Kash and I have often argued that free trade is a good thing: while there are winners and losers, the net benefits invariably outweigh the costs so the losers can be compensated and there will still be money remaining. That argument is invariably met with, to put it mildly, skepticism by our readers. Brad DeLong frequently makes the same arguments, with the same results.

This skepticism comes in two forms. The first simply refuses to believe that it can ever be better to pay workers in other countries, rather than in the US, to produce the goods that we consume. It's very difficult to argue with such people; even pointing out that their logic implies that we would be better off if we were still an agricultural-based society accomplishes little. The second line of skepticism grants the long run and overall benefits of free trade, but points out that we never actually compensate the losers. For instance, in a recent post Atrios wrote

And, all such arguments [for free trade] ignore the transition effects. Some temporary employment/underemployment can result as regulations, technology, and terms of trade change. The industry-specific skills of workers can suddenly be devalued, negatively affecting both them and potentially the overall productive capacity of the economy. Labor force participation may decline for years, as discouraged workers drop out of the labor force.

Economists need to stop having a fetish about the "size of the pie." It's one measure of welfare, but it isn't a particularly meaningful one. Absent policies to temporarily offset transitional effects and minimize distributional consequences, "free trade" is just a fetish. [emphasis mine]

In his American Street post, Kash outlines a policy that would "temporarily offset transitional effects and minimize distributional consequences," which is why I encourage you to take a look. Given the prominence of trade-related job losses in the news (though in truth, the economy is the bigger culprit), a program like the one Kash describes might even be popular in the general election.

AB

P.S. Where do the candidates stand on trade? We know Bush is against free trade. On the Democratic side, Kerry is a more pro-trade than Edwards:

Edwards told reporters after a speech at the College of Charleston that Kerry had voted for the North American Free Trade Agreement and other trade pacts that had helped cost Americans their jobs. Edwards was not in the Senate when NAFTA passed, but he has said he would have voted against it.

"Senator Kerry and I have very different positions on the issue of trade," said Edwards

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Addressing the Loss of Manufacturing Jobs

Yesterday I argued that the outsourcing problem is minor compared to the decline in manufacturing jobs in the US in recent years. Today I have a new piece up at The American Street discussing what we can do about it. Enjoy.

Kash

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Outsourcing White Collar Jobs: How Big a Problem?

The outsourcing of white collar jobs has been a hot topic lately. The chair of the President's Council of Economic Advisors, Greg Mankiw, made the front pages last week with his comments that outsourcing is "probably a plus for the economy in the long run." There were lots of weekend articles about the issue, and a fair amount of blog writing, too. Brad DeLong, for example, has put up several posts about the brouhaha.

There are lots of good questions to ask about the outsourcing phenomenon. So I thought I would take a look at some of the relevant data to answer them.

1. Is outsourcing the cause of the poor labor market in white-collar sectors of the economy?
Probably not. The table below shows the change in employment in several industries between 1999 and 2003. The industries in the top part of the table are some that are often mentioned as being possibly outsourced. Employment has indeed declined in many of those industries. Likewise, employment has declined in manufacturing.

However, the industries listed toward the bottom of the table are by their nature completely insulated from international trade and outsourcing - and they all show declines in employment as well. In fact, they've lost more jobs than most industries subject to outsourcing. The conclusion is that the weak labor market is unrelated to the outsourcing phenomenon.



Because jobs have been lost equally in industries subject to international competition and those that aren't, most economists think that the real cause of the weak labor market, in white collar jobs as well as all others, is the combination of fast productivity growth and weak demand - something that could have been fixed with proper fiscal stimulus, but wasn't by the Bush administration. Outsourcing probably has caused additional employment drops in some select industries (such as call centers and data processing), but most of the US labor market's troubles are not due to outsourcing.

By the way, the table also points out that by far the most serious jobs problem is in manufacturing. Job losses in white collar industries pale in comparison to the sharp fall in manufacturing jobs, in both absolute and relative terms.

2. Does outsourcing send the best-paying jobs overseas?
Not necessarily. The table also shows the average hourly wage by industry. 4 of the 5 lowest-paying "outsourceable" industries have been hard hit by job losses. But 3 of the 4 highest-paying outsourceable industries have actually gained jobs, despite the overall fall in jobs in the economy. This data suggests that outsourcing is primarily affecting relatively low-skill white collar jobs that pay relatively poorly.

3. Do outsourced white collar employees have an especially hard time finding new employment?
No. Blue collar workers have a far more difficult time finding new jobs after being displaced. The BLS does a survey every 2 or 3 years of "displaced workers" - workers who lost their jobs due to plant or company closings or moves, insufficient work, or the abolishment of their positions or shifts. Of the 441,000 workers in "Professional Services" who were displaced during the period 1999 – 2001 (the most recent data available), only 9.4% were still unemployed as of January 2002. And of those that found new jobs, 55% found jobs that paid at least as much as their old job, and 45% moved into lower-paying jobs. On the other hand, of the 1.32 million manufacturing workers who were displaced over the same period, 25.5% were still unemployed as of January 2002. Of those who found new jobs, only 35% found new jobs that paid higher than their old manufacturing jobs, while 65% moved into lower-paying jobs.

None of this means that we shouldn't worry about the effects of outsourcing, or that we shouldn't do something to help those affected. However, this data may provide a bit of perspective on the size of the problem. As far as economic dislocation goes, the manufacturing problem is far, far bigger in size, duration, and severity.

Kash

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Jobs in Wisconsin

Wisconsin, a state Gore narrowly won in 2000, gained nearly 450,000 jobs under Clinton but has lost about 75,000 of those since Bush took office. Details (and a brief aside on Nader's incipient run) over at The American Street.

AB

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Mary Beth for Maine State Representative!

Wampum's Mary Beth Williams is running for a seat in Maine's state house. As the war-bloggers (and I) can attest, sitting around and typing about things that annoy you is fairly easy to do; actually doing something is tougher. Mary Beth will be a great progressive voice for Maine -- she's obviously very smart, cares deeply about important issues, and understands economics. As a bonus, I suspect that Mary Beth will use Dwight Meredith as a key advisor (from afar).

So if you can spare a few bucks, click on the Mary Beth Williams image in the left sidebar to contribute via PayPal. (Note: According to Maine law, all contributions over $10 cannot be anonymous, and contributions are limited to $250 per person.)

To my knowledge, in fact, Mary Beth is the first long-time blogger to run for office. Based on the details in this post, the primary is the real hurdle, not the general election. In a primary, a few thousand dollars is actually a lot of money, so give what you can. As an added incentive, I'll match my readers' contributions up to $100. Just end your contributions in .89 (for example, $9.89) so they'll know it came from this blog and then they'll send me the bill.

AB

P.S. Olympia Snowe is up for reelection in 2006 and Susan Collins in 2008.

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Iraq After June 30th?

This AP report is just depressing:

Sunni politicians speak angrily of U.S. bias toward their Shiite rivals. Kurds are more outspoken in demanding self rule — if not independence. And someone — perhaps al-Qaida, perhaps Saddam Hussein (news - web sites) loyalists — killed more than 100 people in recent suicide bombings.

Rivalry and resentment among Iraq (news - web sites)'s ethnic and religious groups have become much more pronounced since Saddam's ouster in April. And those tensions are rising as various groups jockey for position with the approaching June 30 deadline for Iraqis to retake power

The fault lines are emerging for a possible civil war...

AB

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Political Implications of the Economy's Structural Change

Gallup has just released the results of a survey showing that of the people they interviewed last week, they encountered “the highest spontaneous mention of jobs as the nation's top problem in over 10 years.”

The article makes the extremely interesting suggestion that the November election may become a referendum on how well the Bush administration is seen to be dealing with the fundamental structural changes affecting the US economy right now:

During the last half of 2003, the U.S. economy enjoyed a very strong recovery, with economic growth averaging 6% and the stock market surging past the 10,000 mark. Conventional wisdom suggests that this kind of strong economic performance, combined with economists' forecasts that the economy will continue its expansion in 2004, would remove the economy as an issue in the presidential election.

Instead, it appears that the unusual nature of the current economic expansion may itself become a major political issue.

Right now, it appears that the Bush administration's economic policymakers are simply hoping that continued economic growth will eventually produce significant new job creation. Is this "laissez faire" approach the best way to deal with the structural economic changes tak]ing place in the U.S. economy and the job market? Federal Reserve Board Chairman Alan Greenspan and many others argue that it is. If current economic trends continue, however, this November may end up being a test of whether the voting public agrees.

If so, then that may bode well for the Democrats…

Kash

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One Year Old

Angry Bear turns one year old tonight. In that year, we've had 110,000 visitors, now reaching an average of 700-800 unique IPs per weekday, with about 400-500 on the weekends. On Monday, we had another first: a very brief mention in the Washington Post (citing and linking this post by Kash.)

Part of the growth is due to an overall increase in the popularity of blogs and part is due to the growth in popularity of Angry Bear. It continues to be a lot of fun to write, and hopefully, interesting -- or at least informative -- to read. So thanks to Kash, thanks to all the bloggers who've linked the posts here, and thanks to the readers.

AB

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US Exports in 2003

The BEA just released their estimates of US trade in December 2003, and thus for the entire year. The trade deficit was large, but that's not the interesting part to me; that simply reflects the fact that as a country, the US is buying much more than it is producing, which we already knew (just look at the savings rate, for example). The US will keep running massive trade deficits until Americans start saving more and borrowing less -- and that goes for the US government, too.

What I find encouraging is that the data show a healthy rise in exports during the second half of 2003. Of course, imports rose by even more, and the recent rise in exports only brings us back to where we were when Bill Clinton was President... but at least exports finally appear to be headed in the right direction:



One thing that this made me curious about is exactly where our export growth is coming from. Who's buying more US-made stuff? The following table shows the major trading partners of the US, and how much each increased their purchases of US goods (i.e. not including exports of services) between 2002 and 2003.



It’s interesting to see that by far the fastest growing export market for the US is China. Note that China has kept its currency pegged to the dollar (much to some people's chagrin), so this data suggests that the significant fall in the dollar over the past year is not the only (or even most important) cause of our current export growth. France, for example, is one of very few countries that actually bought fewer US goods in 2003 than 2002, despite the huge drop in the euro/$ exchange rate. The “American Fries” effect in reverse?

Kash

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Continued Deficit Misdirection from the Bush Administration

I’m amazed that they can continue to parrot this line:

Treasury's Snow blames war on terror for US deficit

WASHINGTON, Feb 12 (Reuters) - U.S. Treasury Secretary John Snow said on Thursday that current budget deficits, while unwelcome, were necessary because the United States was pushed into a war against terror when it was unprepared for it.

When will someone ask them to stop acting like the budget deficit wasn’t their own creation?

Kash

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Greenspan Gets Even More Explicit

Greenspan elaborated further on his opinion regarding the deficit during continued testimony on Capitol Hill today. I suppose that he wanted to make it crystal clear to those who didn’t read my interpretation of his remarks yesterday that he is on the side of the tax-cutting Republicans in Washington:

"In addressing this budget issue, it is crucially important that we try to find, wherever we can, reductions in outlays before adverting to the question of revenues to fill in the gap."

"I am in favor, as I've indicated in the past, for continuing the tax cuts that are in dispute at this particular stage, but I would argue strenuously that [tax cuts] should be taken out on the expenditure side."

"We're going to have to re-look at some of the entitlement spending outlays. I think we have constructed a good deal of the benefits structure over the last quarter of a century without a real firm look at whether or not the real resources were there to meet those benefits."

I think that he is being utterly disingenuous in suggesting that the deficit can be balanced through spending cuts alone, while failing to mention how severe those spending cuts would have to be. In addition, while he's correct that there are serious long-run actuarial imbalances in Social Security and Medicare benefits, his statement is clearly intended to support those who think the imbalances should be fixed by cutting social benefits.

There’s no economic research, certainly none at the Fed, that objectively supports Greenspan's statements. Rather, they reflect Greenspan's personal opinion, as he stated at the outset of his testimony. However, they also signal that he will be completely partisan on these issues – and that he won’t be shy about it.

Kash

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Greenspan on the Deficit, Part II

Greenspan’s testimony this morning to Congress indicated no regret about the Bush tax cuts. I was totally wrong when I implied in my morning lead-in post to his testimony that I thought he might come out against the Bush tax cuts.

I have to say that I'm a little surprised and disappointed. I think it was downright irresponsible of Greenspan not to recognize the responsibility that tax cuts must bear for the budget deficit. In fact, he seemed to go out of his way to avoid blaming the tax cuts for the deficit, in spite of the overwhelming evidence to the contrary.

From today’s testimony:

In part, these deficits are a result of the economic downturn and the period of slower growth that we recently experienced, as well as the earlier decline in equity prices. The deficits also reflect fiscal actions specifically intended to provide stimulus to the economy, a significant step-up in spending for national security, and a tendency toward diminished restraint on discretionary spending.

In plain English, this means that he thinks the deficit is the result of the economic downturn, higher spending, and other unspecified “actions” (i.e. tax cuts) that were nobly and exclusively intended to help the economy. His prescription is therefore not surprising: he thinks Congress should cut spending.

I do give Greenspan a tiny bit of credit for trying to dispel the notion among some on Capitol Hill that the crowding out effect is just ‘Rubinomics’ He did indeed emphasize that long-run deficits can be bad:

The fiscal issues that we face pose long-term challenges, but federal budget deficits could cause difficulties even in the relatively near term... [S]hould investors become significantly more doubtful that the Congress will take the necessary fiscal measures, an appreciable backup in long-term interest rates is possible as prospects for outsized federal demands on national saving become more apparent. Such a development could constrain investment and other interest-sensitive spending and thus undermine the private capital formation that is a key element in our economy's growth prospects.

Nevertheless, his incredible failure to discuss the tax cuts causes me to believe Greenspan when he said that he never called the tax cut “irresponsible,” as Paul O’Neill had claimed in Suskind's book. He is apparently a Bush tax cut supporter, through and through.

Kash

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Better Late Than Never

Today, the Washington Post writes on Bush's lie ("If you look at the appropriations bills that were passed under my watch, in the last year of President Clinton, discretionary spending was up 15 percent, and ours have steadily declined"):

"If you look at the appropriations bills that were passed under my watch, in the last year of President Clinton, discretionary spending was up 15 percent, and ours have steadily declined," Mr. Bush told NBC's Tim Russert. There was only one problem with Mr. Bush's statement: It was wrong. Discretionary spending did not grow nearly as much during Mr. Clinton's tenure as Mr. Bush implied, nor has his spending record been nearly as restrained as his comments suggest.

... A spokesman explained that Mr. Bush meant to refer only to the portion of discretionary spending, less than half the total, that goes to programs other than defense and homeland security. On that portion of spending, Mr. Bush was essentially correct. ... Even then, though, Mr. Bush overstated the rise in spending in the last year of the Clinton administration, when the budget enjoyed a surplus -- it was about 10 percent, and that hike followed years of much slower growth. Moreover, overall federal spending on discretionary programs has risen far more during the Bush administration than it did in the Clinton years ...

... Mr. Bush argued on Sunday that his record has been one of fiscal restraint. The facts -- once checked -- show otherwise.

I'm not sure the editorial is right about the 10% number, though it's hard to say for sure since they don't precisely identify the type of spending they mean. Overall discretionary spending growth from 2000 to 2001 was 5.5%. If some major component of that grew at 10% then some other major component had to grow at much less than 10% for the average to be 5.5%. Perhaps the Post did some friendly rounding of the numbers in this Josh Claybourn post, which show non-defense discretionary spending increasing from $306b in 2000 to $332b in 2001, an increase of 8.5%.

AB

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Greenspan on the Deficit

Back in 2001, Greenspan was a tentative supporter of tax cuts. In his now-famous (to fiscal policy wonks, anyway) remarks to the Senate Budget Committee of January 25, 2001, he basically said that he liked the idea of getting rid of the projected massive budget surplus through tax cuts – though he also endorsed the idea of making such tax cuts conditional on the surpluses actually materializing. In fact, Suskind’s book on O’Neill suggests that he thought that the tax cut as passed in May of 2001 was a mistake, since it left out the conditionality he wanted. Nevertheless, Greenspan’s qualified support of Bush’s proposed tax cuts in 2001 really gave them the impetus they needed to quickly become law.

This morning, Greenspan is scheduled to give another appraisal of the US’s economic situation before the House Financial Services Committee. Some reports have suggested that Greenspan is going to come down pretty hard on the current epidemic of fiscal irresponsibility emanating from the White House. It will be interesting to see what he says. Will he ignore the deficit problem, or tackle it head on? Who, if anyone, will he blame? What, if anything, will he recommend? Stay tuned for the answers...

Kash

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Kerry Wins

Wow, Kerry smashed Clark and Edwards in two Southern states. In Virginia, Kerry smashed Clark and Edwards, combined (52% to 36%); in Tennessee, the two Southerners combined for 49%, exceeding Kerry's 42%. So for Edwards to have any chance at all, Clark will have to send every one of his supporters Edwards' way, now that Clark is out. And even so, Dean's impending withdrawal will likely send at least as many votes Kerry's way as Clark's sends to Edwards.

So now the interesting question is this: Kerry and Clark or Kerry and Edwards? Or perhaps some surprise nominee? Given Clark's mediocre performances, he seems somewhat unlikely.

AB

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Incompetence

Take a look at Kash's last post (two below this one), which contains yet another great graph.

How could any group of employees be as consistently and dramatically wrong as the administration's employment forecasters and still keep their jobs?(*)

AB

(*) Ok, so O'Neill, Hubbard and Lindsey are gone, but that's had no discernible impact on policy-making. Basically, they formulate a hypothesis: tax cuts create a lot of jobs and then the the data turn out inconsistent with that hypothesis. Based on the scientific method, they shoud reject the hypothesis. Instead, they repeated the experiment and got the same result: data inconsistent with the maintained hypothesis. We're now in the midst of the third iteration of this experiment. I wonder what the result will be? (If they repeat it enough times, the business cycle will eventually give them the result their looking for.)

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Intended and Actual Spending

Kash, Brad, and I have been hamering Bush's "15% discretionary spending growth" lie pretty hard. Now even the conservative/libertarians are getting in on the game. Posting on the subject, Jacob Levy at the Volkh Conspiracy writes this rather damning paragraph:

Authorization is not spending. A question about whether one is spending a lot of money is not responded to with an answer about how much one said one intended to spend. And "discretionary spending" is not the same as "non-defense, non-homeland discretionary spending." This isn't harmless abbreviation. In order to obscure the explosion in spending, the president's advisors had to come up with an obscure and tortured way to measure what has happened (one that, again, doesn't measure what actually happened but only what it was said that it was intended to have happen). If you're going to offer an answer that's intends to mislead about substance but is technically true, one had better be sure to get the technicalities right. (That is what Bill Clinton excelled at, of course: "There is no sexual relationship.") Bush's answer intended to mislead about substance (a strange way of measuring was used for the clear purpose of having a more palatable spending story to tell than is reflected in actual expenditures), and didn't even manage to be technically true (because 'discretionary spending' wasn't qualified).

Levy (a smart guy and, along with Dan Drezner, a conservative who uses reason to argue his points) is referring to a graph Calpundit found in the current budget, which contains alleged numbers for "authorized" [not actual] spending. That graph puts non-defense and non-homeland discretionary spending at 15% in 2001, and 6, 5, 4, and 1 percent in 2002-2005. However, those numbers don't add up. (Somehow, intended/authorized spending growth of 5%, 14%, and 15% somehow averaged out to realized overall spending growth of 5.5% so either "authorization" is meaningless or the 15% growth is inaccurate.)

I'd give Levy's post an A if he could somehow manage to criticize Bush without referencing Clinton's penis (Andrew Sullivan managed that feat, here.) Still, a strong effort overall. A-.

AB

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The CEA’s Forecast Record

If you’re a regular visitor to this or Brad DeLong’s site, you probably know all about the White House’s unlikely forecast for job creation that was released this week. To put it in context, I thought it might be helpful to compare this year’s forecast of job creation by the White House's Council of Economic Advisors (CEA) to the forecasts that they’ve made in previous years.

The picture below tells the story. It shows the predictions that the White House made in Feb. of 2002, Feb. of 2003, and Feb. of 2004, juxtaposed with what actually happened in the US job market from 2000 to 2003. All figures are annual averages and are taken from the Economic Report of the President.



It seems that, in fairness to the White House, this year’s forecast is no more optimistic than any previous year’s forecast. Will be just as far off? Probably not... but it will be surprising if it’s right, too.

Kash

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Josh Marshall

I have to quote this one in full:

Given the president's record as a businessman, and since he's now run the country hopelessly into debt, isn't it about time he sells the country off to some rich friends who will swallow the loss so he can move on to greener pastures?

Now that's funny. On a more serious note, Josh also has White House spokesman McClellan having a hard time with the press over the AWOL issue this morning (on second thought, that's kind of funny too.)
AB

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How Long Will This Keep Going On?

What I’m referring to, of course, is the seemingly endless purchases of US dollars by Japan. (Isn’t that the first thing that came to your head?) This week’s Buttonwood column in The Economist elaborates on the point that I made yesterday about the self-contradictory G-7 communiqué regarding currency interventions, starting with this:

A CAMEL, goes the old saw, is a horse designed by a committee. What that makes this weekend’s statement by the Group of Seven (G7) finance ministers and central bankers is anyone’s guess, but a duck-billed platypus is Buttonwood’s offering.

They end the column asking the question we’ve all repeatedly asked: how long can the current state of affairs – with Japan keeping the dollar strong through enormous purchases of US dollars – continue? The question matters, because right now the purchases of US debt by Japan (and to a lesser degree, China) is having a major effect on the US economy. As one of today's columns in CNN/Money.com says: “Like low rates? Thank Japan.”

Kash

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The Press Picks Up On the White House Jobs ‘Forecast’

From CBSMarketwatch.com:

Fuzzy Math: Bush plan would need up to 5mln jobs
Report's call for 2.6 mln doesn't add up

The U.S. economy would need to add between 3.6 million and 5 million jobs between now and the end of the year to meet the administration's official job-growth forecasts, not the 2.6 million figure cited Monday by the White House.

In the Economic Report of the President released Monday, the White House's Council of Economic Advisers said employment would average 132.7 million jobs in 2004, about 2.6 million more than the 2003 monthly average. All day, the White House bandied the 2.6 million forecast without explaining just how difficult that average would be to achieve.

Likewise, we have this from CNN/Money:

White House: 3.8 million new jobs

NEW YORK (CNN/Money) - The White House forecast for job growth this year is even more optimistic than it first appeared -- a source says the Bush administration expects about 3.8 million new jobs in 2004, as opposed to the 2.6 million widely reported on Monday.

Is the press becoming more skeptical? Or just reading more blogs?

Kash

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Weapons of Math Destruction, Part III

CORRECTION: Brad re-ran the numbers and finds that the actual necessary job growth is 320,000/month, not 470,000. That's still an impossible target: it's been reached in only 18 of the 119 months between Feb. 1994 and Dec. 2003.

Brad DeLong catches another one: Table 3-1 of the 2004 The Economic Report of the President, on page 98 predicts that the US economy will average 132.7 million jobs in 2004 (not end with, but average); 2003 averaged 130.1 million jobs. Given the January number Brad ballparks that the economy will need to create 470,000 new jobs per month for the rest of the year (we've lost about 2.2 million jobs since Bush took office.)

How could this get into the budget? In a follow up post, Brad speculates that

Whatever powerful person it was then called the forecasters in on the carpet: "We cannot publish a number saying that payroll employment in 2004 will be lower than it was at the start of the administration. That number *must* be bigger than 132.5 million [the number at the start of Bush's administration]. If that number is smaller than 132.5 million, there will be lots of negative newspaper stories saying 'Bush administration forecasts negative job growth over first term'. We can't have that."

And so the number is 132.7 million.

But perhaps Brad is too harsh. Maybe, just maybe, 470,000 per month isn't that crazy -- we all remember the booming Clinton years; surely they had monthly job growth over 470,000. How often was monthly job growth over 400,000 under Clinton? The answer: 7 times, and in only two of those months were over 470,000+ jobs added. That's right, the prediction underlying the jobs numbers in the current Economic Report of the President requires that the economy create more jobs in the next 11 months in a row than it created in any eleven months in the last decade (not 11 months in a row, the best 11 months out of the last 120 months). Here are the data, color coded to help the reader see how times have changed:



Flat out, the 132.7 million jobs in 2004 is impossible and whoever wrote that knows this. It is a lie, not a mistake or misguided optimism.

AB

UPDATE: Further proof that the 470,000 target is impossible. Atrios says "I believe after the last tax cut I promised that if they made their jobs projection I would vote for Bush in '04. I make that promise once again with this new round of numbers."

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Weapons of Math Destruction, Part II

Calpundit, Angry Bear, and Joshua Claybourn have all had things to say about the issue that I addressed in my “Lies, Direct from the President’s Mouth” post of yesterday. Several people have offered up theories to explain the President’s incorrect statement, most of which revolve around the idea that Bush was talking about non-defense discretionary spending. Along those lines, Calpundit helpfully found the source of Bush’s untrue statement – it’s from the overview of the just-submitted budget, and it shows “non-defense, non-homeland spending” to be just as Bush described it on MTP yesterday.

The problem is that there is no supporting data for the chart. Furthermore, the OMB doesn't even give us much insight into how they calculated those growth rates, so we have to guess.

Undeterred, I have been trying to replicate their graph. To do so, I’ve assumed that they took the data from their own historical budget documents. One particular White House document contains the salient information: “Historical Tables, Budget of the US”. The two tables that contain the relevant information are table 4.1, which contains spending for homeland security, and table 8.1, which contains budget outlays by category (i.e. discretionary vs. mandatory). When you subtract defense spending and homeland security spending from the numbers given by the White House for discretionary spending, this is what you end up with:

1999: $284 bn
2000: $307 bn, +8.1%
2001: $328 bn, +6.8%
2002: $367 bn, +12.0%
2003: $389 bn, +6.0%

But this still doesn’t match the White House chart (or what the President said on MTP). If someone has any insight into how the OMB came up with that chart of theirs, please let me know. Because at the moment, I’m starting to think that the OMB just made up that chart out of thin air – and then told the President that those numbers actually represented reality.

Kash

UPDATE: Spinsanity has provided the best explanation yet for how the OMB derived their numbers.

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A Self-Contradictory G-7 Statement

Finance ministers from the G-7 countries met over the weekend. As is customary at the end of such meetings, they issued a joint statement yesterday containing their thinking about the state of the world economy – and specifically addressed exchange rate movements. The statement was a compromise, and thus somewhat confused and self-contradictory. Here’s the relevant paragraph from the text of the communiqué:

We reaffirm that exchange rates should reflect economic fundamentals. Excess volatility and disorderly movements in exchange rates are undesirable for economic growth. We continue to monitor exchange markets closely and cooperate as appropriate. In this context, we emphasize that more flexibility in exchange rates is desirable for major countries or economic areas that lack such flexibility to promote smooth and widespread adjustments in the international financial system, based on market mechanisms.

They quite reasonably note that “excess volatility in exchange rates are undesirable for economic growth” – a statement with quite a bit of empirical validity, by the way. The statement implies that they prefer fixed exchange rates (or a very carefully managed float, such as Japan is currently practicing), to avoid volatility.

At the same time, they explicitly ask for “more flexibility in exchange rates” – which means allowing exchange rates to float freely. But another well-documented empirical fact is that when exchange rates float freely, they move in unpredictable, volatile ways. The unfortunate fact of the matter is that no one has yet figured out how to have flexible exchange rates without volatility.

So which do they really want – fixed or flexible exchange rates? This statement says that they want both.

Of course, the reason for this self-contradiction is that some of the G-7 members want one, and some the other. Japan wants to continue managing its exchange rate to keep its currency weak, while the US and EU want it to float against the dollar so the yen will strengthen. What I find interesting is that this statement perfectly reflects tremendous and deep-seated disagreement about where they would like exchange rates to go from here. I expect the tensions between the US, the EU, Japan, and China over this issue – which I've remarked on before – to just get worse. Whose preference will win? Time will tell…

Kash

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Budget Update: Weapons of Math Destruction(⁺)

CalPundit has an explanation, of sorts, for Bush's untrue statement about discretionary spending:

[referring to a chart in Bush's budget titled "Percent Change in Discretionary Budget Authority] ... discretionary spending outside of defense and homeland security went up 15% in 2001. Or rather, that discretionary spending authority — not actual spending — went up 15%. See, he was just speaking in a kind of shorthand, that's all.

But even if that's what he really meant, you may be thinking that it still doesn't make any sense. After all, if total discretionary spending went up only 5.5%, how is it possible for his chart to show all three separate components going up by that much or more? Klingon math?

I too am curious about how the numbers 5%, 14%, and 15% (respectively, FY2001 growth in defense, homeland security, and non-defense/non-homeland discretionary spending) can average out to 5.5% (the overall growth of discretionary spending in 2001.) Mathematically, it's possible, but a quick calculation shows that for this to be true, roughly 95% of 2001 discretionary spending must have been on Defense (*). I don't buy that. In fact, Josh Clayborn's second figure in this post shows that defense spending accounted for less than half of total discretionary spending in both 2000 and 2001 (2000: $305b of $637b; 2001: $308b of $665b) -- again, flatly contradicting Bush's statement.

In almost plain English, this means that if (1) defense accounted for 95% of discretionary spending while other stuff accounted for 5% of discretionary spending and if (2) defense grew at a 5% while other stuff grew at 14 to 15 percent, then and only then would the overall rate of discretionary spending growth be 5.5%. The numbers don't add up.

AB

(*) I compute this by lumping homeland and non-defense/non-homeland spending together as growing at roughly 14.5%. Defense grew at 5%. So if, from 2000 to 2001, 95% of total discretionary spending grew at 5% and 5% of total discretionary spending grew at 14.5%, then the weighted average is 0.95*(.05) + .05 (.145) = 5.48%.

(⁺) The title is from commenter Pierre at CalPundit; it was too good not to use.

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The Soft Bigotry of Lowered Expectations

The reviews are in, and with the notable exception of Juan Cole, almost nobody -- conservatives included -- agrees with my take. And that's a good thing. Rooting for Bush's Iraq policy or economic policy to go poorly is one thing (i.e., I'm against doing that), but rooting for a bad performance in an interview is perfectly fair game. I suppose I was expecting it to be really bad, when in fact it turned out to be somewhere between a somewhat bad and middling.

Andrew Sullivan: "BUSH IS OUT OF IT: On the budget, this president is frighteningly unaware of the reality of his own legacy and policies. That's the only conclusion you can draw from his answers on Tim Russert. Either that, or he really is lying. Sully also links to a conservative blogger Josh Claybourn's refutation of Bush's statement about discretionary spending growth under Clinton and Bush. Clayborn has more numbers that support Kash's earlier post (and clearly indicate that Bush was either wrong or lying.)

Brad DeLong has a bunch of excerpts from the conservatives at the National Review, all saying that Bush's performance was weak. Brad himself doesn't give his take (other than to, of course, laugh at the economic numbers Bush cites.) But he does give a nice critique of Russert.

CalPundit: "...Bush's responses were uniformly labored and uninteresting. He sounded like he was addressing a class of sixth graders."

Atrios: "Well, I'm not going to watch it. Some of you have already seen it, depending on where you live. From what I gather, Russert asked decent questions but no followups."

Matt Yglesias: "Russert beat my (very low) initial expectations by offering some reasonable questions on the "imminent threat" issue." Matt's post also has a good list of questions not asked by Russert. No comment on Bush himself.

Pandagon's Ezra K.: "It's funny, I don't think Bush did half as bad on Meet the Press as The Corner seems to. Bush came off as a man with strong values but not much else ... The interview may have been a disappointment to some and a boon to others, but it'll do little for either side."

Pandagon's Jesse Taylor: "I may be a partisan Democrat, but damn, that Bush/Russert interview was awful. The tenor of Bush's presidency is, has been, and will be that nobody could possibly understand what America needs but him, and as such, either you're an America, or you're a partisan doubter of America's resolve."

Andrew Northrup (the Poor Man): Northrup gives Russert a B ("I think it's the same interview Clinton would have gotten under similar circumstances" -- I agree. Presidents do and should get more deference than candidates) and a C to C- to Bush. "When in doubt, he'd just repeat 'Saddam was dangerous' over and over, and perhaps throw in something about he's the kind of leader who just does what he thinks is right, and ain't nobody going to change what kind of man he is, by gum, and then give an inappropriate half-grin. Normally, this would be considered a disasterous answer, but it doesn't vary significantly from what he's been saying for three years now, and people find this charming, I'm led to understand."

Susan M. (Suburban Guerilla) has a very provocative excerpt from Colin Powell's book, My American Journey: "I [Powell] am angry that so many of the sons of the powerful and well-placed... managed to wangle slots in Reserve and National Guard units ... Of the many tragedies of Vietnam, this raw class discrimination strikes me as the most damaging to the ideal that all Americans are created equal and owe equal allegiance to their country." (Of course, you noted how Bush tried to conflate attacks based on him possibly failing to serve in the National Guard with attacks on the Guard itself.)

Josh Marshall only addressed the exchange on the AWOL issue: "Superficially, I think Bush came off okay [in the AWOL exchange], largely because Russert failed to press the president sufficiently on some deceptive responses."

Juan Cole: "Overall, it was largely uneventful, but the president acquitted himself well enough. He came across as thoughtful and considered. And, while he was almost certainly prepared for hours by staff members, he didn’t appear to be giving the memorized speeches that one is accustomed to from politicians on these programs. Bush actually seemed to pause and consider his answers." Finally, someone agrees with me, more or less.

Eric (The Hamster) reports that (1) Former Reagan speechwriter and hack columnist Peggy Noonan gives it a thumbs down. More substantively, Eric links to and excerpts a detailed refutation by the Democratic Senatorial Campaign Committee (DSCC).

Lambert (Corrente): "Anyone spot Bush wearing an earpiece? Readers? If the earpiece can't be spotted, does analysis of the transcript itself yield any clues?" I take that as a roundabout way of saying Bush did well.

Blah3:"They must be one depressed bunch over at the White House today. They ran the pre-recorded Bush interview on MTP today, and while the videotape is still warm, the consensus seems to be that Bush pretty much sucked. [snip] My bold prediction - any bump in the polls they were hoping for is not going to materialize."

Body and Soul: "I watched Bush on Meet the Press and then went immediately to the computer to see if the cool kids had the same reaction I did, which was that the interview was a smidge better than I expected." By "a smidge better," Jean means that it was a bit tougher on Bush than she expected, so count this as another in the "Bush did poorly" column.

A final note: The Center for American Progress has an Annotated Text of the President's Interview, which is probably a much better read than the transcript itself.

AB


UPDATE:
Mark Kleiman: "A pair of awful performances, but Bush's was even worse than Russert's."

Dave Neiwert: "I'm not sure why Tim Russert, host of NBC's Meet the Press, has the reputation for being the bulldog interviewer that he has. Well, I know why: He's very much the bulldog when it comes to Democrats and liberals. With conservatives, well, he has a long track record of letting them off the hook ... And this Sunday's interview with George W. Bush was perfectly consistent with this trend."

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My Take on MTP

Here's my take, prior to looking at other blogs: Bush did really, really, well. Most importantly, he sounded knowledgeable (which may fuel suspicions about vetting of questions.) Russert almost never interrupted or contradicted him, and I even caught him nodding in agreement a few times, which surely helped create this impression. This is only a statement about form.

On the substance side, his answers contained varying amounts of truth, spin, distortion, and inaccuracy (viz., his budget statement that Kash easily refuted). Another example was Bush's invocation of his pre-war use of the phrase "grave and gathering" to demonstrate that he and his administration never said the threat was imminent, while ignoring (as did Russert) a whole host of other statements that the threat was, in fact, imminent.

So in a battle between form and substance, which one wins? My guess is form. Expect Bush to get a bounce from this. Now I'm off to read some other blogs, where I'll hopefully see something that changes my mind. (One possibility, as Kash points out, is that the release of military records could be a big deal, if there's anything there. Still, this seems unlikely since, if there were anything there, why release them?)

Transcript here.

AB

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Bush’s Military Records

I’m still digesting the President’s MTP appearance. One interesting bit of possible fallout just caught my eye. Bush was asked about the well-known allegations that he failed to report to duty with the National Guard for a period of time in 1972-73.

Russert: But would you allow pay stubs, tax records, anything to show that you were serving during that period?

President Bush: Yeah. If we still have them, but I you know, the records are kept in Colorado, as I understand, and they scoured the records.

And I'm just telling you, I did my duty, and it's politics, you know, to kind of ascribe all kinds of motives to me. But I have been through it before. I'm used to it. What I don't like is when people say serving in the Guard is is may not be a true service.

Russert: Would you authorize the release of everything to settle this?

President Bush: Yes, absolutely.

Is this a real scoop, a new development? Some commenters, like Calpundit, say no – this statement by Bush doesn’t mean anything. However, what's interesting is that the Washington Post is running with it as a legitimate pledge by the President:

Bush to Release Vietnam-Era Military Records

President Bush committed to the release of additional military records that would prove definitively whether or not he fulfilled his National Guard duties during the Vietnam War. Bush, seeking to quell a renewed controversy over whether he earned the honorable discharge he received, said he would "absolutely" release records such as pay stubs that would likely indicate more precisely how often he showed up for duty.

It will be interesting to see where, if anywhere, this goes...

Kash

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Lies, Direct from the President's Mouth

From Bush’s MTP appearance this morning:

RUSSERT: But your base conservatives, and listen to Rush Limbaugh, the Heritage Foundation, CATO Institute, they're all saying you are the biggest spender in American history.

BUSH: Well, they're wrong. If you look at the appropriations bills that were passed under my watch, in the last year of President Clinton, discretionary spending was up 15 percent, and ours have steadily declined.

Hmm. Seems easy enough to verify. Here is the level of discretionary spending over the past 5 years, from the CBO:

1999: $572 bn
2000: $615 bn, +7.5% change
2001: $649 bn, +5.5% change
2002: $734 bn, +13.0% change
2003: $826 bn, +12.5% change

Oops. Unless "the last year of President Clinton" was 2002, I think Bush is quite incorrect. The real question is how he can get away with lying about things that are so obviously and verifiably untrue.

Kash

UPDATE: I've written a new post about this, with a bit of new information and a bit of new analysis. The result is that it's starting to look like the OMB may have gotten something seriously wrong.

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