Obama Inauguration in Legos

I have to say, I am completely uninterested in the inauguration “event” that is going on right now.   Then again, I’m not really into the Academy Awards either.  My guess it has something to do with the amazing amount of real work to be done, and the amazing amount of time, effort and money being thrown instead into a party in Washington D.C.

In any case, of all the inauguration coverage, so far I’ve found this piece the most interesting:

That’s right, the entire inauguration, including hand-built mini-figures of over 1000 people, including the entire Obama family.  Note, these are not the typical mini-figs – they are actually 4-inch people made of lego blocks.  Amazing.

Now that’s historic.  Thank you, LA Times.

2004 Election Map by County

On the eve before the 2008 elections, I thought I’d post a picture I saved from the last election in 2004.  It’s hard to believe the likely difference between this almost completely red map and the map that is likely going to be drawn tomorrow.

Bush Country 2004

It’s a good reminder of the hubris of Republican partisans after the 2004 elections, and a reminder to Democratic partisans of how quickly sentiment can shift.  The track record for parties that control both houses of Congress and the Presidency is exceptionally poor.

I’m hoping we won’t repeat past mistakes… but not counting on it.

“History does not repeat itself, but it does rhyme.” — Mark Twain

Carter:Bush, Reagan:Obama, Clinton:???

Whimsical pondering on politics tonight.

The Conscience of a Liberal has had more of an impact on me than I thought.

Let’s assume for a second that Carter was an unmitigated disaster, leading to an opening for a conservative rebirth with a Reagan presidency.  After all, before Carter, Reagan couldn’t even beat Ford for the nomination.

Let’s assume for a second that Bush (W) was an unmitigated disaster, leading to an opening for a liberal rebirth with an Obama presidency.

What might that tell us about 2012, 2016, 2020?

If the pattern repeats, inverted:

  • We’ll have a very hard 2009/2010 economically
  • Bernanke = Volker, and is kept by Obama for stability.
  • We’d see limited military actions in 2011
  • By 2012 it will be morning in America again
  • Obama will over-reach with his liberal tax/spend plans, but will rebalance in 2nd term
  • Obama will be followed by 1-term me-too candidate in 2016
  • We’d see a significant new military engagement/war in 2018-9
  • 2020 will see a fragmentation of the electorate, generating a third party candidate with some form of populist message (Perot analog).  This allows a centrist Republican (Clinton analog) to take office.

People want to map Obama to FDR or JFK.  But the parallels to Reagan, inverted, seem stronger.  The complete humiliation of Mondale in 1984 seems likely to repeat for Republicans in 2012 if they don’t adjust, and it seems like this election will be close enought that conservatives will argue McCain wasn’t conservative enough.   It’s only complete, abject humiliation ala-1984 and 1988 that makes a party redirect.

The pattern can’t be perfect, since Reagan had to deal with a Democratic Congress throughout his Presidency.  Obama is getting the Clinton 1992 situation with one party rule (similar to the Bush 2000 situation… yes, it’s not a good pattern historically).

Of course, I’ve also been known to muse about a Chelsea Clinton candidacy in 2020, since she has many of her father and mother’s best traits, without the baggage.

Problems with Obama’s Tax Credit = Tax Cut Accounting

I normally stay away from politically tinged posts.  Tonight, I’m posting two.

Call it formal recognition that the McCain candidacy is a lost cause, and that Obama is going to take the White House.  Futures on a McCain win are now down to 15.5% on the Iowa markets, even lower on the Intrade markets.  That’s bad for him, and good for everyone afraid of a McCain victory.  Since the Democrats will likely retain Congress, we will have, for the first time since 1992-1993, a full Democratic sweep.

So the topic turns to Obama, and what he’s likely to do in the next four years.  Obama, like Clinton, actually has a wide set of very smart economic advisors.  Unfortunately, they literally cover the spectrum of economic policy, from conservative to liberal perspectives.  Like Clinton, it’s hard to tell ahead of time which direction he’ll lean on once he’s in office.  It’s Robert Reich vs. Robert Rubin all over again.

This opinion piece ran in the WSJ last week, and it got me thinking.

Originally, I thought Obama’s tax plan was quite clever:

  • You can’t argue that income disparity hasn’t become extreme in the past decade
  • You can’t cut the taxes of most people, because 40% of Americans don’t owe any taxes
  • Most people will not accept higher tax rates to fund new entitlements/distributions
  • Solution: Effective negative tax rates!  That allows a progressive tax system to extend into the non-taxpayer minority, without having to approve new distributions.

The WSJ article, however, got me thinking about the accounting for all this, and it has some scary implications.  From the article:

The Tax Foundation estimates that under the Obama plan 63 million Americans, or 44% of all tax filers, would have no income tax liability and most of those would get a check from the IRS each year. The Heritage Foundation’s Center for Data Analysis estimates that by 2011, under the Obama plan, an additional 10 million filers would pay zero taxes while cashing checks from the IRS.

The basic idea is that Obama will change a large number of deductions to refundable tax credits.  That means that, effectively, a large minority of Americans will actually be paying negative taxes.

The problem sounds like semantics, but it has accounting implication:

When is a tax credit just a distribution?

Why does it matter?  Well, a tax credit is just treated like a negative tax.  So if I tax one person $1000, and give a tax credit of $200, it’s treated like $800 of tax revenue.

Welfare is treated like an expenditure.  If I tax one person $1000, and give $200 welfare to another, we declare $1000 of tax revenue, and $200 of spending.

Both net to $800, but have very different implications for the size of government and the perception of spending.

By using tax credits, Obama can state, with a straight face, that he isn’t going to raise taxes, he’s just going to redistribute the burden more fairly.  And technically, he’s correct.

However, if you treat tax credits as entitlement spending, then you see that what he actually could do is radically increase the tax burden on the country, but cancel out a large volume of transfer payments from the spending side of the equation.  So it looks like the tax burden has stayed the same.  It looks like spending has not increased.

But really what’s happened is that a whole new set of entitlements and taxes have come into existence, but cancel themselves out where no one can see them.

This may not sound like a big deal to you, but this type of accounting shenanigan looks highly prone to abuse.  Imagine what our debate about Social Security would look like if Social Security checks were positioned as tax credits instead of distributions?  Medicare.  Welfare.

I’m not saying that Obama will abuse this system per se, but it’s a bad accounting precedent, started by the Earned Income Tax Credit.  The CBO and GAO should declare that tax credits are distributions, and shift the accounting accordingly.  That would provide accurate transparency in the system, while still giving the government flexibility to tax & spend as it sees fit.

I’m not eager to see Enron-style accounting on this scale.

Update (10/16/2008): A few people have asked me for a concrete example of the problem here.  Here is an exaggerated one:

Imagine that Obama sets the income tax rate to 100%, and then gives back 80% of the money in tax credits.  By the Obama accounting, the government’s take would only be 20% of GDP.  However, in actually, the government has confiscated 100% of all income, and redistributed 80% of it.  The 100% is the number that truly reflects the government take, not the 20%.

Why the Liberal Political Engine is Working in 2008

“You have a great name. He must kill your name before he kills you.”

Juba, from the movie Gladiator

I’ve almost finished reading Paul Krugman’s The Conscience of a Liberal.  I’ll post a formal book review here soon, but right now, I wanted to highlight one of the insights that I gained from the book.

As a preface, Paul Krugman is a brilliant economist.  I’ve linked to his work here on this blog before.  He also, I’m afraid, is suffering from the aggressive form of anti-Bush psychosis – he hates the man & his policies so much that it’s pushed him into aggressively politicized commentary.  But it’s a common ailment these days, and likely to subside in the years to come.

However, in The Conscience of a Liberal, Krugman does the best job that I have ever seen laying out the principles and case for an aggressively liberal economic agenda in the United States.  Obama hints at these elements at times, but rarely pieces them together as effectively as Krugman does in this book.

I’ll save my evaluation of his analysis for a later post, but I wanted to highlight the reason that I think Obama & Krugman are onto something powerful politically here in 2008.  Sure, the timing is good:  Iraq, Katrina, and now the housing/financial crisis are a great backdrop for change.  But 2008 doesn’t feel like 1992 does it?  Let’s remember that the only people with a lower popularity than our Republican President is our Democratic Congress.

Here is my theory:

The liberals have learned, and learned well from the mistakes in 2000-2004.  They can’t defeat the conservative economic agenda of the past thirty years without killing the names of the heroes of those years.  Clinton made this compromise, but while it preserved him even in the face of the 1994 Republic Congressional wins, it didn’t make the party stronger.  As recently as 2004, people were talking about a permanent Republican majority.  (Yes, it wasn’t that long ago).

No, to win, they have to convince the American people that the entire last 25 years were a mistake.  The economic boom and resurgence of productivity post-1982 didn’t happen, or was fake in some way.  Reagan was not a great President.  Milton Friedman was not a brilliant economist.  Robert Rubin was not a great Treasury Secretary.  Alan Greenspan was not a great Federal Reserve Chairman.

Yes, to do this, they will have to throw Clinton & Rubin under the bus.  But that just might be the only way to really sell a liberal economic agenda.

Obama actually doesn’t stick to this line clearly – he has made “mistakes” in his campaign by praising Reagan and Clinton at times.  He’s inclusive, right?  But reading Krugman’s book gave me a clearer insight into the strategy, and it’s not a bad one.  Convince everyone that the last 25-30 years of economic progress/thinking was a mistake.  Rewind to the New Deal and the decades after it as a lost ideal.  Map the past thirty years to the 1890-1928 era.

Of course, intellectually, it’s not a terribly compelling position.  You aren’t going to be able to re-create the economic conditions of post-WWII America ever again, globally.  And of course, we now know that huge pieces of the government response to the market crash of 1929 were counter-productive, extending the Great Depression.  The US Government share of the economy is now close to 19% compared to less than 5% in the 1929.  Analogies to the 1960s really don’t help either, since the 1960s led to the 1970s.  Ugh.

Still, I think the strategy has legs.  If they can kill the economic heroes of the past 30 years (Friedman, Reagan, Rubin, Greenspan), we might really see a successful liberal economic agenda in the United States.  The combination of the Bush Presidency with the current economic morass produces an ideal backdrop for reconsidering economic policy.

Watch the news.  I’m seeing elements of this meme everywhere now.  It seems to be taking hold, even if people don’t see the pattern.  Example: Culprits of the Collapse, soon to air on CNN.

“You have a great name. He must kill your name before he kills you.”

Juba, from the movie Gladiator

Need Help: Obama on Glass-Steagall Repeal in 1999

I need some help here from those closer to the inner workings of the Barrack Obama campaign.  I have it from fairly good sources that Obama has a strong economic team, and that he’s intelligent.

So why would he advocate a position based on the repeal of Glass-Steagall in 1999?

Just to rattle off a few bullets:

  • Glass-Steagall prevented companies from having both commercial & investment banks.
  • The products of the mergers that were enabled post-Glass-Steagall have been the most stable in this crisis, because they have large deposit bases in their commerical arms to balance the leverage in their investment arms.
  • The non-diversified firms, both commercial & investment banks, have been the hardest hit.
  • The investment banks that are remaining (Goldman Sachs, Morgan Stanley) are pursuing this joint model to survive the crisis.  It wouldn’t be possible if Glass-Steagall were in place.
  • The universal banks, like those in Europe, are proving to be the acquirers in this crisis.
  • Academic research has effectively shown the fallacy of the original Glass-Steagall approach, which is why Bill Clinton supported the effort in 1999.  A majority of Democrats, including John Kerry & Joe Biden, voted for the final bill in 1999, as did a majority of Republicans.

The WSJ has a nice editorial here on the topic.  Marginal Revolution, as usual, has good data too.

Can someone help explain this one to me?  Is he just hitting McCain over the head with an easy talking point?  Or does he actually believe that repealling Glass-Steagall was a mistake?

This election would be a lot more enjoyable if either candidate was making any sense on economic issues.