Rediscovering Government

Reagan Redux: The Truth About Romney Economics

Jun 15, 2012Jeff Madrick

The oversimplification of Romney’s economic plan avoids calling it out for what it really is: an extension of failed Republican economic policies.

In the home of Sarah Jessica Parker and Matthew Broderick this week, The New York Times reported that President Obama described Romney’s campaign attacks, which claim all current problems are “the fault of the guy in the White House,” as “an elegant message. It happens to be wrong.”

The oversimplification of Romney’s economic plan avoids calling it out for what it really is: an extension of failed Republican economic policies.

In the home of Sarah Jessica Parker and Matthew Broderick this week, The New York Times reported that President Obama described Romney’s campaign attacks, which claim all current problems are “the fault of the guy in the White House,” as “an elegant message. It happens to be wrong.”

This is as clear an example as we have of Obama’s inability to make a powerful message in a few words. Sounding professorial, he uses the word “elegant” as if referring to a mathematical proof. Clean and simple, I suppose. But to many a listener and reader, elegant only has positive connotations. Why this loftiness when plain, honest, focused language will do the job?

The fact is that almost all of our current situation is a result of economic policies that were put into effect before Obama took office. Not only is Romney’s message not elegant, but his economic plan will boldly extend these failed policies. His central message is simplistic, ignorant, and, to use a lofty word, ahistorical. In actuality, the plan has been underway since the 1980s and even before, and look where it’s gotten us. It serves the interests of the wealthy very well, but has it served America at all? It’s not the collapse of the welfare state, but the ravages of a rising oligarchy, that are undoing America.

Which brings me to another New York Times piece, today’s David Brooks column. Brooks’s methodology as a “thinker” is to develop arguments that he knows will sound plausible to his readers and maybe to a significant swatch of centrists. He is good at these over-simplifications. Today’s column is as unaware or deliberately neglectful of history as ever. What Democrats don’t understand is that the system is broken, he says. Republicans understand this and want to return us to some early (if mythological) economic state. The welfare state is on the cusp of failing; he quotes a Weekly Standard piece on this idea that he thinks definitive. This welfare model, he goes on, “favors security over risk, comfort over effort, stability over innovation.”

This is breathtaking nonsense. The so-called welfare state—whose main features are benefits to the elderly, by the way—favors opportunity for those who have no access to it,  substantial government investment in education and research, which are the great sources of innovation, adequate transportation to enable business to operate efficiently, and fewer and more moderate recessions so that the nation does not lose investment, human capital, and many good businesses due to short-term fluctuations.

And, oh, yes, the welfare state does promote some compassion for the less fortunate—those thrown out of work through no fault of their own—and a sense that all of us owe something to each other. And, yes, it does require government.

What’s truly mind-numbing about the Brooks view, which clearly represents a Republican body of what is considered highly sensible thought, is that all the Romney proposals have been on the ascendancy since Ronald Reagan, and some of them before. These include lower progressive tax rates (Reagan and Bush); deregulation and weak regulatory implementation (Reagan, Bush I and II, Carter, and most important for financial regulations, Clinton); reduced social spending on many categories, notably welfare (Reagan and Clinton); few new programs even as social needs change; and inordinately tight monetary policy since Paul Volcker’s chairmanship at the Federal Reserve, to keep inflation and therefore wages in check. And what happened? Stagnating wages, modest capital investment, unequal public education, and collapsing infrastructure. These are the results of Romney economics.       

If there is theory at all in the Brooks view, it is of course the spurious generalization that individualism will win the day. Just make everyone take care of him or herself. Republicans love this notion. The other idea is that if business is just allowed to do its job, free of most regulation and taxes, everyone will do just fine.  The historical evidence clearly points to the opposite. Look at the levels of inequality in the good old regulation-free and low-tax days of post-Civil War America. Do you we need a better example?

Returning to Obama—he better fight this battle head on, not in professorial dignities, but on the sweaty mat where victory is won. He better understand that the Brooks's over-simplifications are appealing because they blame victims and relieve the rest of responsibility. Call these things what they are, Mr. President. Make America the responsible society once again. The Romney policies failed not just since George W. Bush, but since Ronald Reagan and even Jimmy Carter. 

Roosevelt Institute Senior Fellow Jeff Madrick is the Director of the Roosevelt Institute’s Rediscovering Government initiative and author of Age of Greed.

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Jeff Madrick Leads Expert Panel on Government's Economic Impact

Jun 12, 2012

event Join the Roosevelt Institute for our latest Rediscovering Government event in Washington, D.C. on Thursday, June 21.

event Join the Roosevelt Institute for our latest Rediscovering Government event in Washington, D.C. on Thursday, June 21. Roosevelt Institute Senior Fellow Jeff Madrick will lead a roundtable of scholars including public opinion expert Ruy Teixeira and economists Peter Lindert, Lane Kenworthy, and Jon Bakija as they present the best available evidence about how the size and scope of government affect the U.S. economy. 

As Republicans cheer for public sector job losses and warn that big government is crowding out the private sector, our roundtable seeks to challenge anti-government economic myths and reframe the national dialogue around the positive impact and irreplaceable role of government spending.

To RSVP for the event, please contact Madeleine Ehrlich.

Date: June 21, 2012 from 12:00 p.m. to 1:30 p.m.

Location: Washington, D.C.

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The New Guard

Millennials' Lack of Faith in Government is Leading to a Grayer Congress

Jun 7, 2012Brad Bosserman

To get more young people on Capitol Hill we have to prove that government can play a positive role in American life.

To get more young people on Capitol Hill we have to prove that government can play a positive role in American life.

A recent survey conducted by Harvard University revealed that while 69 percent of 18-29 year olds believed community service was an honorable thing to do, only 35 percent felt that way about running for office. This has real ramifications for the make-up of our legislatures. A recent article in Salon explained that Congress is getting older not because incumbent members are sticking around longer, but because the age of incoming members is rising.

It is worth considering the impact of having telecommunications and Internet policy drafted by politicians who are still “learning to get online” and leaving foreign policy decisions to people whose views were shaped and developed during the Cold War. Stephen Marche made the case earlier this year that these trends have also led to “thirty years of economic and social policy that has been rigged to serve the comfort and largesse of the old at the expense of the young.” So where are the Millennials who should be beating down the doors to the Capitol?

Some have suggested that the absence of young people in elected office is all about economics. Older Americans have gone from out-earning their younger counterparts by 10 times in the mid-'80s to nearly 50 times in 2008. This migration of wealth from young to old has occurred alongside a dramatic growth in the cost of running a successful campaign, with political spending in House and Senate races increasing eight-fold between 1970 and 2000.

This alone does not seem to explain the systemic aging of our legislatures, however. The technology booms of the '90s and aughts also produced a record number of young millionaires and billionaires. Yet they have chosen to stay out of elected office in far greater numbers than wealthy members of previous generations. Why?

I have a theory. The Millennial generation has come of age in an America influenced by a conservative ideology that changed our views about the role of public and private civil society. Heather McGhee, the Washington Director of Demos, has observed, “[T]he most pernicious effect of the Reagan revolution was to take the horizon of public policy solutions off the table entirely. We know that there are problems, but we no longer imagine that there are public policy solutions to them.” This is a profoundly different vision of American government than that which animated the New Deal and Great Society.

The modern Republican Party’s commitment to shrinking the size and scope of the public sector has led them to shake our confidence in key government institutions. The GOP has been able to convince the public that the government is corrupt and ineffective, in part by making the government corrupt and ineffective. This campaign has disproportionately affected the generation of young people who have been forging their views about politics over the last 15 years. Gallup reports that cynicism and negativity toward the government has been building for over a decade, recently culminating in “record or near-record criticism of Congress, elected officials, government handling of domestic problems, the scope of government power, and government waste of tax dollars.”

This phenomenon parallels another recent trend: the rise of the independent voter. Research has long shown that despite the conventional wisdom, self-identified independents actually behave much more like weak partisans than they do like hyper-informed mavericks. The ranks of these “independents” have grown dramatically over the last 20 years, and much of that growth has been concentrated among young Americans. In 2009, Gallup found “more than one-third of the youngest Americans identify as independents, a percentage that drops steadily as the population ages, reaching a low of around 20% among those 80 years of age and older.”

This is not entirely bad news. Even as they have lost faith in our political parties, young Americans have flocked to other forms of civic engagement. The Corporation for National and Community Service reports that volunteer rates for 16- to 24-year-olds has nearly doubled over the last 20 years. In many ways, volunteerism has become second nature to the Millennial generation, taking the place of more traditional political involvement.

But the challenge remains for those who want to see young Americans in Congress. To reverse these trends, we must actively promote the belief that public policy and institutions of government have a powerful and positive role to play in American life. The graying of the House and Senate shows that allowing conservatives to demean public service, institutionalize gridlock, and breed public cynicism will drive away the young and idealistic. This vacuum hands power over to increasingly older politicians with entrenched views and distinct generational interests that do not represent the largest generation in American history.

Bradley Bosserman is a member of the Roosevelt Institute | Pipeline and a Policy Analyst and Director of the MENA Initiative at NDN and the New Policy Institute. 

 

Congress image via Shutterstock.

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Rediscovering Government

Austerity Replaces Economics With Disciplinarian Ideology

Jun 6, 2012Jeff Madrick

Ludger Schuknecht's insistance on continued austerity is merely a discipinarian's argument, which has already been proven wrong time and again. 

Ludger Schuknecht's insistance on continued austerity is merely a discipinarian's argument, which has already been proven wrong time and again. 

The letter in today’s Financial Times, "Jointly Agreed Strategy is Good for Germany and Europe," from Ludger Schuknecht, the Director General of the German Ministry of Finance, will likely live in infamy. In any case, frame it for your children as a symbol of the folly of mankind. In the sternest terms, Mr. Schuknecht chastises Martin Wolf for demanding a reversal of fiscal austerity. Why? “The public and markets have been led to believe in short-term measures for far too long.” Goodbye to Keynes, and even Friedman.

Moreover, he argues, “it is expansionary policies and weak fiscal positions that created the current problems of high debt and low competitiveness.” Of course, the Eurozone deficit was only 0.5 percent of GDP before the crisis. In Spain, fiscal policy was clearly restrained before the crisis. Few could argue the European Central Bank practiced loose monetary policy over these years.  

According to Mr. Schuknecht, we need “a combination of fiscal consolidation and structural reforms.” And all of this with the goal of rebuilding confidence. How can we be hearing this again, after the failure of austerity in country after country?  Now even the conservative Spanish government is admitting failure.

Evidence is not the issue here. Surely the impressive IMF research on the failure of austerity time and again cannot be simply dismissed. But dismiss it Mr. Schuknecht clearly does. Heaven forbid we introduce Eurobonds, which will undermine the confidence being built.

Clearly the German government sees confidence somewhere, but it is surely not in the financial markets.

I long to ask Mr. Schuknecht what he believes caused the Great Depression. He may have written about this somewhere; I assume he thinks uncertainty and government spending were the causes. I wonder if he can point to one credible case where austerity worked without a concurrent devaluation of the currency.

But such arguments do not seem to turn on evidence or theory.  They come from the stern gut of a schoolmaster, and they come from a nation that has yet to suffer the consequences of the current crisis. The inability or refusal to see ahead is the sure sign of an ideologue. But I think this is not even ideology; it is the instinct of the disciplinarian. And it is mixed with a desire to diminish government. Another rap on the knuckles with the ruler will bring confidence, confidence will bring investment, and investment, prosperity. We were told the same in the 1930s, but never mind all that.  

Roosevelt Institute Senior Fellow Jeff Madrick is the Director of the Roosevelt Institute’s Rediscovering Government initiative and author of Age of Greed.

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A Message to World Leaders: Ignore the Financial Markets

May 7, 2012Jeff Madrick

A solution for the eurozone? Listen to the people, not to the markets.

For 40 years, there has been a tug of war between government in democracies and what we may call “the other government.” By the latter I mean, of course, the financial markets. James Carville highlighted his concerns when he announced that in the next life he would want to be a bond trader. Alan Greenspan followed the bond markets religiously for signs of increased or reduced inflationary expectations.

A solution for the eurozone? Listen to the people, not to the markets.

For 40 years, there has been a tug of war between government in democracies and what we may call “the other government.” By the latter I mean, of course, the financial markets. James Carville highlighted his concerns when he announced that in the next life he would want to be a bond trader. Alan Greenspan followed the bond markets religiously for signs of increased or reduced inflationary expectations.

Now Europe faces the threat of a financial market rebellion. Democracy has spoken loudly in this weekend’s elections on the Continent and in England. Voters said, "We have had all the austerity economics we can take."  They threw over Sarkozy in France and many Conservative and Liberal candidates in England. In Greece they ran for the extremes. The moderate liberal Pasok party won the least votes in memory, but it may yet form a coalition to run a new government. Italian election results will be in soon.

And democracy is working! The instinct among those in the financial markets is that democracy usually reflects the weak-willed demands of the public. But the public is generally right this time, and it has been many times before. Austerity economics is self-destructive when economies are so weak.   

Yet of course the financial markets’ initial reaction to the European elections was to sell, as if austerity economics was actually working to make nations' bond payments easier to handle. It was not! But the markets fear that a new strategy will make matters worse.

Political leaders should ignore the financial markets in the short run, pure and simple. This may drive up financing costs for a while, but the eurozone should absorb those and adjust policies. The European Central Bank (ECB) ought to accommodate its needs. The right policies are stimulus from the current account countries and the end of extreme austerity in the periphery. Wages should rise in the eurozone core and stabilize in the periphery; they can even rise from their current lows in places like Greece. The 17-nation Eurozone or the 27-nation EU should issue jointly backed bonds to provide social safety net support to the financially weak nations, to raise demand for them and get their economies going, while reducing the extreme financial pain and sacrifice that now jeopardize social stability. As examples, the Greeks voted for extremist parties, the Le Pen party did well in France, and the Tea Party runs amok in the U.S. Austerity fever even grips Washington, which makes the November election especially important.

What the crisis requires is elected government, not bond trader government. Any idea that the financial markets are rational should have been discarded four years ago. They have been absurdly wrong for decades. In the U.S., they persistently overestimated future inflation by driving interest rates too high compared to the CPI and the GDP deflator. Greenspan treated them as the height of rational forecasting, when indeed they were simply following the latest conventional wisdom. In my informal opinion, he used long-term rates as a guide to policy. Now the ECB remains too tight as well. In the U.S., the “rational” bond traders actually traded what they thought the market would think, rather than what rational foretellers of the future would think. It was Keynes’ beauty contest analogy—choose the woman you think others believe is beautiful. The belief that the markets were right was the fallout of extreme efficient markets theory.

The media too often treated the markets as rational as well. Bond traders implicitly endorsed austerity economics until fairly recently, and the media usually reported them as being right. The supposedly sophisticated financial media (with some noted columnists as exceptions) wondered what could possibly work if not austerity. Now there are signs that the press is waking up to reality and realizing that it, along with the financial markets, is not working.

There are some signs of the ice breaking. The German finance minister announced it was okay for German wages to rise. They have actively restrained wage growth to make their exports more competitive for over ten years. The main sources of their demand were the European periphery, where wages were rising a bit due to a property bubble caused by irrationally low interest rates offered in the financial markets. But there are still signs of backward thinking. Many in Europe think of growth policies as nothing more than making labor markets more competitive through deregulation and reduced wages. As if the more flexible labor markets in the U.S. are leading to rapid recovery.

In sum, what’s needed in Europe is fiscal stimulus, a more accommodative ECB, social transfers from rich states, higher wages in many nations, a change in the silly EU agreement to keep deficits absurdly low, and industrial policy to gear capital investment across the continent, free of prejudice and nationalistic tendencies. The elections may bring some of this about. Then, once policies are working to support growth and reduce financial burdens as tax revenues rise, the financial markets will at last respond constructively. They must be waited out for now.

To put it most simply, what’s needed is the will of the government of the people to ignore the financial markets and stop treating them like a more rational government than democracy itself.   

Roosevelt Institute Senior Fellow Jeff Madrick is the Director of the Roosevelt Institute’s Rediscovering Government initiative and author of Age of Greed.

Banner image courtesy of Shutterstock.com.

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More on the Case for the Public University as a Public Option

May 3, 2012Mike Konczal

Josh Barro has an editorial at the Daily, Making U. Pay, about the college affordability cost crisis.  Barro:

Josh Barro has an editorial at the Daily, Making U. Pay, about the college affordability cost crisis.  Barro:

What the University of Florida (along with every other American college and university) really needs is cost discipline...Colleges still need to employ a lot of highly skilled workers, and college costs are tied to their wages, which rise faster than inflation...colleges and universities have failed to mitigate this phenomenon. For example, over the last few decades, the typical public four-year college has seen a sharp expansion of its support and managerial staff — from 5.5 per 100 students in 1987 to 7.5 per 100 in 2007...

Unfortunately, consumers do not have the necessary incentives to impose cost discipline in the market. The perceived necessity of a college degree to find a middle-class job gives students few options but to pay up...State legislatures, too, should put pressure on public colleges and universities not to increase staffing relative to student populations, and to respond to budgetary strains with cost control instead of tuition hikes or reductions in enrollment...Colleges and universities should take greater advantage of technological advances that could finally improve productivity in the education sector, such as distance learning and video instruction...

These reforms, different though they are, have one aim in common: creating incentives for all actors in the market to make higher education not just cheaper, but more efficient. That may sound unromantic, but it’s necessary to maintain educational opportunity for all.

I agree with most of the piece.  Barro doesn't take his argument in this direction, but, with the risk of dragging Josh into a social democratic quicksand pit, it's useful to reframe this discussion as one of reclaiming a "public option" in higher education.  Much of the discussion on the technical efficiency of the public provisioning of merit goods focuses on scale and compulsion, which is relevant for higher education, but there's also advantages in cost control and baseline quality.  By holding down tuition, the public university can act as a check on runaway price inflation in the private university market.  Considerations about dynamic efficiency - improvements in quality - seem not as relevant here in the formal education market: private sector tuition is exploding as fast as public tuition.  If we are concerned that boosting demand through price subsidies is captured by incumbent suppliers, then boosting access through reducing tuition on public universities should negate those rents.

Dynamic efficency is very important when it comes to the online and future sectors of higher education.  However public options help here as well: having a strong baseline of quality is important for vetting the actual efficiency improvements of these new institutions.  Public options solve a certain type of informational problem.  If prices are lowered, it can be difficult for the government and citizens to tell if it is because market innovations have allowed for lower cost production or because they are providing services of a cheaper quality.  The private market is more incentivized to provide new benefit options and offer greater flexibility when they have to compete against a baseline product.  This creates the incentives mentioned above, but these incentives work more towards actual quality improvements instead of rent-seeking when they are competing against a public baseline.  We know for-profit schools are a bad deal because they statistically underperform public community colleges while having larger debt burdens.  Online education at California looks to have equally high drop-out rates. This was part of the important intellectual firepower over the debate on "vanilla products" that erupted during the early parts of Dodd-Frank, brought over to the education sector.

Tim Noah wondered to Matt Yglesias if we should impose cost controls on colleges; I think we should instead do what we know has worked - make sure a public option is available to all, and have a private market develop alongside it, filling in the efficiency gaps wherever they are.  I forgot to link to this, but Aaron Bady had a powerful defense of the California Master Plan, the mid-century public higher education model, when we did a bloggingheads a few weeks ago:

 

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Article on Mass Incarceration at Jacobin

Apr 25, 2012Mike Konczal

The Spring 2012 issue of Jacobin is now online.  It has a lot of great content in it; make sure to check out Megan Erickson's addition to the "unschooling" debate that goes back and forth in parts of the internet.

The Spring 2012 issue of Jacobin is now online.  It has a lot of great content in it; make sure to check out Megan Erickson's addition to the "unschooling" debate that goes back and forth in parts of the internet.

I have a piece - Against Law, For Order - on ideology, governmentality and "policy" in an era of mass incarceration.  It's about how criminal laws informs our markets and government policy.  Bits and pieces of it have appeared in this blog, but here it is in one place.  The piece ends up reviewing a lot of recent books on policing, with special attention to Bernard Harcourt's work on neoliberalism and policing, as well as Jonathan Simon's work on "governing through crime" - how policy is reworked to use the language and techniques of policing.  I hope you check it out!

I wrote it a while ago so I didn't get to reference two of the big events in policing and incarceration that happened recently, but I think they fit into the framework I try to build.  The killing of Trayvon Martin by George Zimmerman appears to be, in large part, about Zimmerman believing Martin didn't belong in the neighborhood he lived in.  Maintaining order, seperating insiders from outsiders, and who gets to make those calls and what consequences they have is a central part of the neoconservative vision of policing I outline.

Meanwhile the 5-4 Supreme Court decision in Florence v. Board of Chosen Freeholders of the County of Burlington held that "Jail strip searches do not require reasonable suspicion, at least so long as the arrestee is being admitted into the general jail population."  Reading Justice Kennedy's logic, it looks like that since people put into a prison population could be dangers to themselves, guards and other prisoners, the guards have the ability to institute whatever techniques they believe are necessary.  Kennedy looks uninterested or unwilling to second guess the prison system.  Which means that people within the criminal justice system exist in a sphere of total government control and competency, a way of thinking I link back to the neoliberal vision of governance.

Sadly I couldn't find a way to link in one of the more interesting pieces I've read recently, one I'm still grappling with, Kate Redburn's Hate on Me at New Inquiry.  It's about the GLBTQ groups - including The Sylvia Rivera Law Project, FIERCE, Queers for Economic Justice, the Peter Cicchino Youth Project, and the Audre Lorde Project - who oppose New York State's "Gender Expression Non-Discrimination Act," which "would make violence against gender-nonconforming people a hate crime."

This is governing through crime - the best way to react to the social problems of violence and hate aimed at the GLBTQ community is to increase the policing and incarceration of those who do the violence.  Mandatory minimums, which translates into higher guilty pleas, which translates to more bodies in jail.  These groups oppose this because the police themselves are part of the problems they face, not part of the solution.  As Redburn argues, "Hate crimes legislation not only doesn’t change institutional bias; it further empowers this broken system by increasing law enforcement’s ability to arrest and imprison."  I find the challenges posed here important to understand as we all try to find a way to have a governance project built outside the logic of mass incareceration.

 

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The Path to a Stronger Democracy Lies in Strengthening Community

Apr 24, 2012Jeff Madrick

Two new books examine how putting capitalism before community has distorted the economy and put democracy at risk.

Two new books examine how putting capitalism before community has distorted the economy and put democracy at risk.

I participated in a panel discussion last week to help launch The Occupy Handbook, in which I and about 60 others made contributions. It was mostly composed of economists and mainstream journalists, and the focus was income inequality. One wouldn’t expect anything much different from a discussion of Occupy Wall Street, which after all made “the 1 percent” a household tag line for what is unfair about the American economy.

But OWS is actually raising broader issues than that, and my sense in talking to a few early organizers is that they can’t seem to find answers to their questions. Granted, most of these questions are not entirely well formed as yet, but the economists’ view, it must be admitted, is a rather narrow one. Correcting inequality a bit and regulating Wall Street some are flimsy palliatives in the organizers' minds, I suspect. Even infrastructure investment sounds like a weak corrective to them. Do we never question the intense idealism of the Anglo-American economic model?

The Occupy Handbook is actually a fine, diverse, and sometimes contradictory set of contributions put together with remarkable speed by editor Janet Byrne. For example, it includes a couple of pieces by well informed anarchists and others by those to the right of center who believe America’s answer is better education (and that’s about it). Many concede OWS's contribution to the nation is awareness. There is no sound in American politics unless Washington is listening, I wrote. OWS got them to listen.

But there is another small book out just today that does propose rather serious alternative to the individualist/materialist American model of economics. It is called The Path to Hope, and it is written by two former French Resistance veterans who are now in their 90s. Stephane Hessel wrote Time for Outrage! a couple of years ago, a pamphlet of political anger—a cri de coeur—that called for public protest. It swept the world, selling millions, and was said to have a profound influence on the Spanish indignados and the Arab Spring. Now he has teamed up with the eminent sociologist, Edgar Morin, to put a little more meat on the bones of their rage.

I proudly wrote the prologue to the book -- proudly because, if highly rhetorical and abstract, their brief piece talks about much that is forgotten in the governance of nations and the true interactive meaning of democracy. I usually draw two circles in the air when I speak about these issues. One is the circle of free markets, defined by Milton Friedman, who basically argued in Capitalism and Freedom that left to themselves, markets can produce social goods more fairly and cheaply than government—from retirement security to highways to health care.

The other circle is community, which has long been the source of social goods in which people care for each other. Friedman’s circle is individualist. This circle is the circle of Hessel and Morin. It is the circle of compassion and community. Being American, I suppose, I tend to believe the circles should be of equal size. Since the 1970s, our potential tragedy is that the Friedman circle has gotten immense while the community circle has shrunk.

Hessel and Morin would argue that the community circle should be far larger than the Friedman circle. They are not pure anti-capitalists; they hold a significant place for business. But they say enough is enough. We have seen the power of finance capitalism to distort and undermine productive growth and equal opportunity. We are also witnessing the rise in Europe of ethnic bigotry again. This, they demand, must change.

In writing the prologue to The Path to Hope, I acknowledge that I don’t agree with all that Hessel and Morin write. They offer but an outline of high ideals of community and fellowship. But they are on the right track. They saw the rise of pure totalitarianism and they worry that if the fortunes of the rich are again threatened, they may side with those who would plunder democracy. I don’t think we are nearly there yet, but democracy in America is threatened and warped by financial power these days. We do care too little about each other, I fear. The Path to Hope is on sale now.

Roosevelt Institute Senior Fellow Jeff Madrick is the Director of the Roosevelt Institute’s Rediscovering Government initiative and author of Age of Greed.

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Virginia Foxx's Comment and the Intergenerational Problem of the Public University

Apr 20, 2012Mike Konczal

Scott Keyes at Think Progress notes the following comment from Rep. Virginia Foxx (R-NC), who chairs the House subcommittee on higher education:

Scott Keyes at Think Progress notes the following comment from Rep. Virginia Foxx (R-NC), who chairs the House subcommittee on higher education:

FOXX: I went through school, I worked my way through, it took me seven years, I never borrowed a dime of money. He borrowed a little bit because we both were totally on our own when we went to college, totally. [...] I have very little tolerance for people who tell me that they graduate with $200,000 of debt or even $80,000 of debt because there’s no reason for that. We live in an opportunity society and people are forgetting that. I remind folks all the time that the Declaration of Independence says “life, liberty, and the pursuit of happiness.” You don’t have it dumped in your lap.

A major problem with our leaders is that they are approaching what is happening in the public university through a mental model of a world that no longer exists.

EdwardMurray at DailyKos notes "Virginia Foxx went to the University of North Carolina-Chapel Hill in 1968. According to the National Center for Education Statistics, in 1968, the average yearly cost for tuition, room, and board for a public university was $1,245 which, in today’s words, is one thousand two hundred and forty-five dollars for a year’s worth of college. For today’s average college student, that dollar amount is roughly equivalent to the cost of a textbook and a garbage bag."  Quick and the Ed has notes "Representative Foxx would have paid $279 for the academic year—about $2,140 today. That’s about equivalent to what students pay right now at community colleges, not public four-year institutions—especially not public flagships."  Rebuild the Dream has a petition going on the matter.

Beyond the fact that it was much cheaper, how does University of North Carolina-Chapel Hill's tutition look on a chart?  Digging into UNC-Chapel Hill's Office of Institutional Research and Assessment website, which has online collections of several previously published yearly reports (data from here, here, here and here), we can construct the following graph.  Some years, especially earlier ones, are missing. Data is adjusted for inflation:

 

As you can see, tuition is roughly around $2,000 a year for most of the 20th century after the Great Depression.  Starting in the late 1990s and early 2000s it skyrockets.  It shows no sign of slowing down, either.  This is a political choice, based on what we want the university to do and how we want to provide it as a country.  There was a political consesus that made sure Virginia Foxx had college available as a publicly-provided good - her "opportunity society" is a world of high quality "public options" available to those who can use them - and now there is a new set of active choices to have students at UNC-Chapel Hill graduate with debt.  Foxx should know better than to ascribe it as a simple morality play.  If she doesn't know this, which is possible, that's a major problem.

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Why Is Spending Through the Tax Code Popular on the Right?

Apr 20, 2012Mike Konczal

Why is spending through the tax code popular on the Right?  Justin Wolfers and Betsy Stevenson have a Bloomberg editorial on tax expenditures that, beyond being a smart column on the topic, notes the distributional impact of these expenditures:

Why is spending through the tax code popular on the Right?  Justin Wolfers and Betsy Stevenson have a Bloomberg editorial on tax expenditures that, beyond being a smart column on the topic, notes the distributional impact of these expenditures:

The rich get such big subsidies for three reasons. First, they spend more on the things the tax system favors, such as homes and health care. Second, they are subject to higher tax rates, so they get more benefit from each dollar of deductions. Finally, they’re rich enough to take full advantage of their deductions. The poor typically have too little income to itemize, while many families in the upper middle class find themselves siphoned off into a separate tax system known as the alternative minimum tax, which allows fewer deductions.

They note that Grover Norquist and other conservatives tend to support tax expenditures.  Why is this?  One reason they give are various psychological biases - "It’s a tribute to our psychological biases that getting a subsidy through the tax system is treated so differently from receiving a government check or copping a fine."

Will Wilkinson at Democracy in America adds some additional reasons.  He argues that many on the right might think the following: "Tax deductions and credits are best understood as selective restraint, as selective acknowledgement of what is ours, on the part of a generally kleptomaniacal government."  He also notes that a lot of how people view this issue is tied up with how they view "giving and not taking" as equivalent actions.

I'd like to throw in another point to compliment these.  It's important to understand tax expenditures as a political project. This goes back quite some time on the Right with health care spending through the tax code - but let's focus on the Reagan era.  Conservatives think that tax expenditures help with privatization and their larger political projects.  Let's look at Heritage's Stuart Butler's 1985 article, released by Cato, titled: Privatization: A Strategy to Cut the Budget.  (Butler was writing this in a lot of venues, but the Cato one is online; we discussed this article recently here.) Butler is worried that President Reagan can't destroy the Welfare State.  He's shocked and appalled by the way that middle-class people rush to the defense of Social Security.  The outright assault isn't working.  What can conservatives do next?

They can use the tax code to create a private-sector welfare state to compete and ultimately win out against the government, removing the government from people's daily lives. Butler is concerned about "public sector coalitions" which are difficult to dislodge; why not create private sector ones?  Butler (my bold):

Complaining about public-spending coalitions achieves little more than high blood pressure. But developing methods to entice the public to choose a private rather than a public way of promoting their self-interest may achieve a great deal….But a distinction is drawn between government as a provider (implying that government should levy taxes and deliver services itself), and government as a facilitator (implying that it should encourage or require those services to he provided by the private sector). Privatization, in other words, means seeking to transfer programs into the private sector using the carrot of incentives, not the stick of aggregate cutbacks…
 
These privatization coalitions are the mirror image, so to speak, of the public-sector coalitions. And they are at the heart of the strategy to create a “privatization ratchet” to counter the federal ratchet. By providing a targeted benefit (such as a tax incentive or some regulatory relief) to those who demand or provide a private alternative to government, considerable rewards can be guaranteed to individuals within the coalition.  Members of that coalition can be expected to press for deeper incentives and to oppose any move to eliminate existing incentives…

Privatization thus turns conventional political dynamics on its head. Lobbying pressure develops for less taxation (if a tax incentive is given), and for private, not public, programs. Moreover, each legislative victory won by the coalition, however small, serves to strengthen it, thereby adding to its capacity to achieve furthen legislative concessions and a corresponding growth in the private program…tax incentives concentrate benefits on a small number of people and they act as the nucleus for the growth of privatization coalitions….Because tax incentives are so essential to a privatization campaign, supporters of the approach should be cautious in their support of tax simplification.

The battle here is between "government as a provider" and "government as facilitator."  Wolfers and Stevenson argue that the two are economically "identical."  Butler sees, I think correctly, that the two provide people with a very different experience of governance.  Since these actions are subsidized, the market is able to provide goods on better terms than they normally would; since they were ‘private’, they removed the linkage between people and the government.
 
And here the political gridlock that results from trying to deal with tax expenditures is a feature not a bug; they use Public Choice theory to note that this privatized welfare state has such concentrated gains and diffused losses that it would be very difficult for the government to try and make these benefits truly public again.  As a tax cut, they are stickier since those whose gains are so concentrated have so much to lose and will lobby accordingly (check out the home builders and the mortgage interest deduction, for starters).  Take one concrete example of a tax expenditure Butler walks through, the subsidization of IRAs being tax-free as a way of fighting Social Security, to see this hidden welfare state ratchet in action (my bold):
Social Security is a classic example of the federal ratchet in operation…Yet a minor provision in the 1981 tax act may eventually break up that coalition…By allowing all working Americans to open tax-deductible IRAs, Congress planted the seeds of a private alternative to Social Security…
 
It was not long after the passage of the 1981 act that banks and other financial institutions…began a massive campaign to encourage Americans to open retirement accounts. Soon after that, nonworking married women began to complain that limiting their deduction to just $250 was unfair and discriminatory (near beneficiaries). And politicians were quick to propose accommodating the near beneficiaries and increasing the standard IRA deduction. A privatization coalition was born.
 
The “tax loss” (as the Treasury puts it) of IRAs has vastly exceeded the original Reagan Administration projections. Yet repealing on reducing the deduction is already politically unthinkable—the coalition is too powerful and the privatization ratchet is in place….In short, the incentive has begun to divert the pressure of demand for a secure retirement income away from the publicly provided system (Social Security) and to the private alternative (IRAs)….From the budget-cutter’s point of view, the growing power of this IRA coalition offers the only real hope for spending reductions in Social Security, since the more Americans prefer IRAs as their primary pension vehicle, the weaker will become support for retaining Social Security in its present form.

For these conservative intellectuals, in order to slay the monsters of the New Deal and the Great Society they had to unleash an even more vicious beast - the political mess of our tax expenditure system.

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