ft.com/crookblog

Robert Samuelson’s new column on the candidates is very good, as usual.

For the party faithful, this is a sweet moment. They have their candidates and, whatever the obstacles, can still imagine victory in November. But the rest of us ought to remember that the politics of winning and governing often collide. The first involves maximizing popularity. The second requires farsighted choices that ultimately benefit the country but may initially hurt a president’s approval ratings. What have we learned about the candidates’ capacity for governing? Enough, I think, to temper the excitement.

He finds plenty of fault in both candidates, and concludes by reminding readers of the case for divided government.

For me, McCain does have one provisional and accidental advantage. By most appraisals, the Republicans will get slaughtered in the congressional elections, and I have a visceral dislike of one-party government. It didn’t work well under Bill Clinton or George W. Bush. Divided government doesn’t ensure good government, but it may limit bad government by checking the worst instincts of both parties.

It is a point that my National Journal colleague Jonathan Rauch has argued persuasively from time to time. See this piece from 2006 [pdf]:

In a complicated world, good policy is usually bound to be eclectic; in an unpredictable world, successful policy-making depends on correcting errors. Eclecticism comes from compromise, error-correction from coherent criticism. One-party rule seems to short-circuit both mechanisms.

Politicians compromise because they have to, not because they like to. Divided government forces them to compromise as a fact of daily life. Although compromise does not guarantee sound or successful policy-making, it does draw both parties toward the center and produce bipartisan buy-in. It’s no coincidence that divided government produced the 1986 tax reform and the 1996 welfare reform, the great reforms of their respective eras.

Two-party rule also helps to marginalize partisan extremists and curb ideological excess. The Democratic Congress moderated President Reagan’s unsustainable tax cuts and defense buildup, safeguarding his legacy. In the Clinton era, divided government produced a miraculously frugal fiscal detente. Ronald Reagan and Bill Clinton both succeeded not in spite of divided government but because of it.

The idea is not yet much talked about in 2008. The Democrats seem certain to rule Congress with expanded majorities, yet I don’t see many independents (Samuelson aside) arguing that this inclines them to prefer McCain. Come to think of it, why am I not (yet) advancing that argument myself? Good question. I’ll have to get back to you.

An interesting exchange between Tyler Cowen and Dani Rodrik on attitudes to free trade. Tyler puts protectionist sentiment partly down to atavistic nativism:

Despite all these gains [from free trade], the prevailing intellectual tendency these days is to apologize for free trade. A common claim is that trade liberalization should proceed only if it is accompanied by new policies to retrain displaced workers or otherwise ameliorate the consequences of economic volatility.

Yes, the benefits of a good safety net are well established, but globalization is not the primary source of trouble for most American workers. Health care problems, bad schools for our children or, in recent times, bad banking practices have all produced greater disruptions — and these have been fundamentally domestic failings.

What’s really happening is that many people, whether in the United States or abroad, are unduly suspicious about economic relations with foreigners. These complaints stem from basic human nature — namely, our tendency to divide people into “in groups” and “out groups” and to elevate one and to demonize the other. Americans fear that foreigners will rise at their expense or “control” some aspects of the economy.

Dani attributes it to the fact that international markets are insufficiently “embedded”:

Domestic trade takes place within thoroughly embedded markets; there are clear rules and they apply to all transactions equally. International trade, on the other hand, is conducted in only weakly embedded markets: the rules either do not exist or apply unevenly. I believe this is the fundamental reason why their consequences are often perceived so differently.

Let me make this concrete. If Harvard fires me and hires Tyler Cowen instead, I would feel bad for sure. But I would not blame Tyler or Harvard, because I would assume that the decision was made on fair grounds: we compete under the same ground rules, and if Tyler beat me to it, it must be because he deserves it.

But suppose instead that Harvard hires John Plagiarizer, who has a much longer vita and larger citation counts than either one of us, because… well because he is a flagrant plagiarizer. I think I would have pretty good reason to feel cheated.

An extreme example? Let me make it less so. Suppose that I am an experimental psychologist instead of an economist and the person Harvard hires in my place is someone who has accumulated a long vita by virtue of not having to abide by human subjects review standards. (You can find out a lot about human behavior through torture.) Would I not feel treated unfairly? You bet I would.

The international trade counterpart of this hypothetical is the worker who loses his job because his company decides to move to a country where, say, labor rights are routinely violated. So the “us” and “them” characterization that Tyler attributes to irrational nativism perhaps has more to do with the absence of a common set of international rules on labor standards, environment, consumer safety, and so on.

I’m with Tyler, though I would put the case a bit differently. For many workers, suspicion of particular manifestations of free trade (the ones that might cost them their jobs) is rational–just as, for many workers, fear of labour-saving technology is rational. The question is, why is it permissible to demand that trade be restricted, but impermissible to demand the same of technological progress? One answer is: because it can be, whereas technology, one supposes, cannot be stopped. A second answer is that the overall benefits of free trade are subtler than the overall benefits of new technology, even though just as real. A third answer is that it is always politically advantageous to cast foreigners as cheats (evidently, even if you are also promising to restore America’s standing abroad), and that is Tyler’s point.

Dani’s response strikes me as odd (and not just because of the presumably unintended implication that torture is less “extreme” than plagiarism). Is opposition to outsourcing noticeably milder for jobs that go to Europe than for those that go to India? Is this a distinction that is ever even made? Minimum wages in Europe are mostly higher than in the United States, and labour rights in general better protected. I cannot see that this fact does much to assuage the feelings American workers have about outsourcing–though it should, if you agree with Dani that fear of regulatory arbitrage is the main thing underlying anti-trade sentiment. If an American’s job goes to Ireland, let’s say, the victim still feels cheated, because his US company has preferred to hire a foreigner. That is still a case of “putting profits before [American] people”.

Also, if Dani’s regulatory arbitrage idea is correct, how do you account for protectionism in poor countries? Tyler makes this point in his response to Dani. It is not so hard to explain, if you think xenophobia-as-permission-to-complain is what counts.

One more thing. Dani notes that trade where violation of labour rights does not play a role “probably constitutes the bulk of world trade”. In other words, fear of regulatory arbitrage is in most cases a mistake. On Dani’s view, correcting that misunderstanding would seem to be an urgent priority. Why isn’t it?

When Barack Obama, having secured the presidential nomination, ended his victory speech last week, CNN sought its first reaction from Jesse Jackson – not long ago, the standard-bearer for blacks in US politics. What did it mean for the US, Mr Jackson was asked, that the Democratic party would for the first time nominate a black man for president?

It was a jarring transition, so much so that Mr Jackson’s reply is hard to recall. One’s first thought was, what does this have to do with him? It took a moment to remember.

Race has intruded on Mr Obama’s campaign, to be sure. The raving reverend, Jeremiah Wright, threatened to sink it completely. Polls suggest that racism was a factor in Mr Obama’s defeats in West Virginia and elsewhere. In the end Mr Obama secured the nomination thanks to the overwhelming support of black Democrats. Quite possibly, race could cost him the general election in November. So yes, this election is partly about race.

The remainder of this column can be read here. Please post comments below.

In a new column for National Journal, I compare Obama’s and McCain’s proposals on taxes. Neither candidate makes much sense on the subject, I argue. With their fixation on the fate of the Bush tax cuts, both of them are missing the main point: comprehensive reform is needed–and needed so badly it may be unavoidable. The key is to broaden the income-tax base.

Income-tax rates are moderate in the United States by international standards, but the income-tax base is narrow, so the total raised is less than you would expect. Raising significant amounts of additional revenue–which is going to be necessary, even if no new spending is undertaken–would push income-tax rates quite high. The country needs to broaden its tax base and simplify the rate structure, and much the best way to do this is as part of a thorough overhaul of the code.

A lot of what should be done is neither liberal nor conservative. Ordinarily one thinks of a trade-off between equity and efficiency. At some point, those choices do have to be made, but the United States is not at that point. The current system is so inept, so complicated, and so replete with unintended consequences that it is easy to devise a win-win alternative–fairer and more conducive to growth at the same time. Yet neither Obama nor McCain gives any sign of embracing comprehensive reform. Quarreling over the fiscal legacy of the Bush administration is more to their liking. So much for post-partisan politics.

I mention a few specific possible reforms, based on some recommended pre-election reading: A short paper by Bill Gale of the Brookings Institution on priorities for fixing the system. You can find that here. If you want to read the rest of my column, it is here (the link expires in two weeks).

I have to say that my sympathies are somewhat divided in the matter of Obama v Clinton.

I’ve argued from the beginning that Obama is the better candidate and would make much the better president, though not without wavering now and then on both points. Obama’s campaign has been far from flawless. Hillary has impressed me—and who could not be impressed?—with her relentless drive. And some of her complaints about her treatment in the media have been quite justified, I think.

The commentariat’s prejudices have not run entirely Obama’s way, but he has plainly had the better of it. I still don’t buy the idea that the Clintons “played the race card”, for instance; there has been a lot of sexist sneering; the shock when she said that Bobby Kennedy was assassinated at about this point in the primary race (a crass, tone-deaf comment, but one of no large significance) was exaggerated and synthetic.

At best, let’s not forget, Obama has won by the narrowest of margins. The Clinton campaign was run with operatic incompetence from start to finish, and at a chronic financial disadvantage too—yet at the end her momentum was greater than his. On most of the different ways of counting Democratic votes (including the one I would advocate as a matter of best electoral practice: one registered Democrat, one vote) she would in fact have won this race. I prefer Obama, as I say, but I think she can feel with some justification that the will of the party’s supporters has been thwarted.

Having said all this, her performance last night was stunningly ill-judged, and speaks volumes about her fitness to lead—or lack of it. Under the circumstances, one can understand, maybe, a reluctance to concede. But to declare moral victory; to insist, knowing that she had lost, that she remains the stronger candidate; to start positioning herself to demand the VP slot as of right: all this was not just remarkably ungracious, it was also patently counter-productive from a strictly selfish point of view. Can’t she see that she has made it easier, not harder, for Obama to keep her off the ticket?

One of the CNN analysts debating Hillary’s non-concession speech mentioned emails coming in which said that Tuesday “needed to be her night.” At this one of the others spluttered, “It had to be her night? Obama just won!”… before, in a valuable moment of reckless honesty, referring to “the Clintons’ deranged narcissism”. Yes, I thought (recalling, incidentally, Alistair Campbell’s comment that Gordon Brown was “psychologically flawed”). Read her speech, and compare it with Obama’s. His extravagant (and tactically shrewd) praise of her; a speech addressed not just to the whole Democratic party but to the whole country; calculated, of course, calibrated—with nothing in it that was smug or self-regarding or sectarian. Contrast that with her perfunctory acknowledgement of him, followed by a recitation of her achievements and the obstacles that had been put in her way: Enough about our nominee, this is my night and I want to talk about me.

Something tells me that she is not cut out to be Obama’s deputy. If he puts her on the ticket, I think he will be making a big mistake.

The remarkable ability of the Federal Reserve to coast above the turbulence of US politics has been tested lately. The central bank has been forced to deal with a financial crisis at least partly of its own making. It has rightly come in for some criticism; it has had to explain itself. Even so, the Fed and its policies are hardly front and centre in the debate between the presidential candidates.

Most voters say that they regard the economy and its troubles as the single most important issue facing the country. They want to hear what Senator Barack Obama and Senator John McCain propose to do about it but the Fed – where the real economic power resides – is mostly allowed to get on with the job unmolested.

I wonder if this will continue to be true. When a central bank has an uncomplicated recession to deal with, it can cut interest rates. When it faces a clear-cut case of inflation, it can raise them. The worst nightmare of any central banker – especially one with a tradition of political independence to defend – is stagflation, when raising interest rates to curb inflation will provoke a recession or deepen one that has already begun. It is a problem that the US has not had to confront for 30 years. In 2008, an election year, the conditions are falling into place.

The remainder of this column can be read here. Please post your comments below.