Monthly Archives: May 2009

James Ferguson illustration

Critics in his own party and Republican opponents are attacking Barack Obama’s emerging stance on national security with equal ferocity. Many Democrats are furious that the president has broken his promise to abandon the Bush administration’s war-powers approach to fighting terrorism. Dick Cheney, the former vice-president, and other conservatives attack him for doing the opposite – for keeping his promise and emasculating the US anti-terror effort.

The left’s complaints make far more sense than Mr Cheney’s. Mr Obama is adjusting the Bush administration’s policies here and there and seeks to put them on a sounder legal footing. This recalibration is significant and wise, but it is by no means the entirely new approach that he led everybody to expect.

Mr Obama is in the right, in my view, but he owes his supporters an apology for misleading them. He also owes George W. Bush an apology for saying that the last administration’s thinking was an affront to US values, whereas his own policies would be entirely consonant with them. In office he has found that the issue is more complicated. If he was surprised, he should not have been.

The remainder of the article can be read here. Please post comments below.

Pinn illustration

Last week, after meeting groups representing hospitals and insurance companies, Barack Obama announced a breakthrough on reforming US healthcare. It was “a historic day”, he said. The providers had made “an unprecedented commitment” to curb the system’s costs, running at 16 per cent of gross domestic product. They had agreed, he said, to reduce growth in healthcare spending by 1.5 percentage points a year, enough to save $2,000bn (€1,480bn, £1,320bn) over the next decade.

Exactly how was something of a mystery. Was this an aspiration, a target or a forecast? Within hours all parties began clarifying the declaration to the point of meaninglessness. The producer groups, facing agitated members demanding an explanation, denied they promised anything. White House officials repeated the president’s assertion, then withdrew it saying he had misspoken, then affirmed it again.

Political slapstick is routine on this issue. What matters is whether the administration, the healthcare industry and the US electorate are moving any closer to facing the hard choices that Mr Obama is always telling the country he is willing to confront. So far the answer is no.

The remainder of the article can be read here. Please post comments below.

This new column for National Journal looks at credit after the stress tests, and public borrowing as cap-and-trade revenues evaporate. It sees trouble ahead. [The link expires in two weeks.]

The good news is that the world economy may be turning the corner. The bad news is that a lot is still wrong with American banks, and U.S. government borrowing seems to be sliding even further out of control. The first development points to a slow recovery at home, the second to a whole new crisis not far down the road.

Ferguson illustration

The most ambitious US presidency in living memory hardly needs to extend its list of tasks, you might think. Yet the country’s long-term economic prospects turn on something that is all too easy to neglect, just as it has been neglected in the past. The US is failing calamitously in primary and secondary education. The average quality of its workforce is falling, and its schools are adding to the problem rather than mitigating it.

Much of what ails the country – including growing economic inequality – can be traced to this source. Politicians recognise the fact, and prate about it endlessly. Barack Obama puts improving the schools alongside health reform and alternative energy whenever he lays out his long-term goals.

The trouble is, fixing the schools is not something that a crisis ever forces you to do. The consequences of a third-rate education system creep up on you and, experience shows, can be tolerated indefinitely. Many vested interests prefer it that way. Talk about the issue and move on is the line of least political resistance.

The remainder of the article can be read here. Please post comments below.

An excellent column on this by Stuart Taylor [the link expires in a week].

What Obama needs, in short, is an intellectually stellar, not-too-old, Hispanic woman lawyer with empathy for the powerless; views on social issues that are predictably liberal but not so activist as to inflame the Right; views on presidential war powers that are predictably deferential but not so much so as to inflame the Left; broad real-world experience; and, of course, rapport with Obama.

No such human being exists, I suspect. I also suspect that the president may come to see the opportunity to choose a new justice as a lot less fun than a law professor might imagine.

I’m just back from a symposium which discussed the draft of a new book by my friend and former colleague Matt Ridley, author of “The Red Queen“, “The Origins of Virtue“, “Genome“–each of them a masterpiece of popular science writing.  The new book applies Matt’s interest in evolutionary science to economics. It takes a long view, and a very optimistic one. It is a kind of antidote to Jared Diamond’s pessimism. It is still at an early stage, and I have some questions about the thesis, but the first draft is brilliant and I don’t doubt the final version will be essential reading.

I came away from the meeting with a long reading list and several thoughts. First, all symposiums–but especially those discussing grounds for optimism about the human project–should be held in Napa Valley. Conditions in the area lend themselves to cheerfulness, at times almost excessively so. (It is not for nothing that I got married there. Not this week, you understand. That was a previous visit.)

Second, the interface between genetics and economics is well worth exploring. I reached the same conclusion a few years ago after reading Paul Seabright’s “The Company of Strangers“, a really wonderful book that has not had the readership it deserves. (Here is a review I wrote for The Economist.) Perhaps the literature is about to blossom now, however. A lot of research seems to be under way.

One of the participants in the symposium was Anna Dreber, who has been researching among other things the links between testosterone and risk-taking in financial markets, and the connection between a certain genetic trait, DRD4, and economic behaviour. DRD4 appears to be linked to migration–a highly entrepreneurial activity–and again to financial risk-taking. One wonders whether bank regulators, in the aftermath of some future financial meltdown, will want banks to monitor the incidence of DRD4 among their employees, and perhaps set higher capital requirements for institutions with too high a reading. (Explicit genetic discrimination in hiring will be illegal, of course, so the issue will have to be dealt with after the fact. Alternatively, they could just hire more women.)

Robin Hanson of GMU and Overcoming Bias was also at the meeting. He gave an excellent presentation on the misunderstood pre-history of economic growth. He offers some further reflections on the topic, deeper than mine, on his blog.

The prospects for carbon cap and trade this year are not good: the Senate has too many doubters, Democratic and Republican alike. Still, the measure in the House is interesting. In this new column for National Journal, I argue that with a nip here and a tuck there, it could be made to act like a carbon tax in all but name. A carbon tax has a lot of advantages. And not having to call it that would be even better.

Many economists would prefer a carbon tax to cap-and-trade. One reason is that it makes this kind of fiscal gaming a bit more difficult and — saying the same thing in another way — a bit easier for the general public to spot.

A more fundamental difference is that a carbon tax sets a price on greenhouse-gas emissions and, in effect, lets quantities fall where they may. Cap-and-trade does the opposite: It sets a quantitative ceiling, and then the price of a permit — in effect, the tax rate on carbon, by another name — moves up and down according to the severity of the limit and economic circumstances. If the ceiling presses down very hard at a time of rapid economic growth, the permit price will be high; set the ceiling high enough in relation to economic activity, and the permit price would fall to zero, because nobody would have to reduce their emissions to comply.

The notion of keeping the tax constant and letting quantities vary also fits with the idea that additional carbon emissions have a known environmental cost. In principle, if you set the tax rate equal to that cost, the market can be left to decide what the correct ceiling on emissions should be. Most environmental scientists, however, would prefer to set a ceiling for the sake of extra certainty in achieving cuts of a particular size. The case for this is stronger if the damage caused by carbon emissions has so-called threshold effects — that is, if the damage rises discontinuously once a certain line is crossed, which is a distinct possibility. You set a ceiling to ensure that the threshold is not crossed.

The trouble is, using that approach, the implicit carbon tax may then fluctuate so much that it disrupts the economy and makes energy planning for the future more difficult. Moreover, the logic of threshold effects is a little dubious when you are setting limits for the U.S. economy in isolation. Global carbon emissions, not national carbon emissions, drive global warming. The United States can set a quantitative ceiling for its own emissions, but even if it complies with that target, emissions elsewhere will decide whether a critical global threshold is crossed.

The draft bill actually envisages a compromise between the two approaches. It would create a “strategic reserve” of extra permits that could be allocated to prevent “unexpected allowance-price fluctuations.” If this reserve were of sufficient size, and if it were used to hold the prices of permits steady at a specific amount — say, $20 per ton of carbon — then the result would be akin to an outright carbon tax set at that rate. If the architects of cap-and-trade have something along these lines in mind, the case for cap-and-trade over an explicit carbon tax collapses, and vice versa: The two become one.

If cap-and-trade were administered this way, the only remaining differences would be whether you use the word “tax,” and how much cover you give to Congress in creating and disbursing pork.

You can read the whole column here [link expires in ten days].

OP

How much trouble is the Republican party in? Plenty. Compounding its recent miseries, too numerous to mention, Arlen Specter, the independent-minded senator for Pennsylvania, has gone over to the other side.

If the Democrats win the still-disputed vote in Minnesota, they will have 60 Senate seats – the supermajority they need to overcome filibusters and force measures to a vote. They already have a commanding majority in the House of Representatives. In short, power in Washington has just shifted further, and perhaps decisively, in Barack Obama’s direction.

True, Mr Specter is an unpredictable fellow, and nobody’s rubber stamp. As a Republican, he often joined Democrats on big votes, most notably on the fiscal stimulus, where he was one of only three Republicans in House and Senate combined to vote in favour. In the same way, as a Democrat, he will be no automatic party-line man – and in this he will not be alone. Mr Specter has already joined other Democratic dissidents in voting against the budget resolution sought by the administration. (It passed regardless.)

The remainder of the article can be read here. Please post comments below.

Clive Crook’s blog

This blog is no longer updated but it remains open as an archive.

I have been the FT's Washington columnist since April 2007. I moved from Britain to the US in 2005 to write for the Atlantic Monthly and the National Journal after 20 years working at the Economist, most recently as deputy editor. I write mainly about the intersection of politics and economics.

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