The Chimera of Chimerica and Obama's Foreign Policy

Really, I've just been looking for an excuse to put up that title. But check out Acorn, my co-blogger at INI:

It is one thing to argue that the US-China bilateral relationship is one which is most important to the world, but quite another to call it “G-2″ suggesting it would engage, in some form, in the task of global governance... an important reason why the US-China relationship is seen as important is because it is a problem. It is important to the rest of us in the same way as Pakistan is for international security. So just like how you wouldn’t entrust Pakistan with the job of ensuring international security, you wouldn’t entrust the United States and China with the task of global governance.

Unfortunately, this G-2 mindset... is influencing the Obama administration’s foreign policy. “US-China consultations regarding India and Pakistan,” the former argued, “can perhaps lead to more effective even if informal mediation, for a conflict between the two would be a regional calamity.” Sure enough, the joint statement at the end of President Obama’s summit with President Hu Jintao included a words that said that “the two sides welcomed efforts conducive to peace, stability and development in South Asia.” Clearly, there is an attempt by the two countries to get China involved in India’s relations with Pakistan, as well as in Afghanistan.

On Taiwan, you have a statement that goes:

The two countries reiterated that the fundamental principle of respect for each other's sovereignty and territorial integrity is at the core of the three U.S.-China joint communiqués which guide U.S.-China relations. Neither side supports any attempts by any force to undermine this principle. The two sides agreed that respecting each other's core interests is extremely important to ensure steady progress in U.S.-China relations.

This is just one joint statement. But it seems to reflect a durable assessment among the Obama team that the G-2 relationship is of primary importance due to China's role in global imbalances, Treasury holdings, climate change, and regional/security issues. These items are apparently of such importance to the Administration that they are willing to sacrifice relations with India, Taiwan, and other local powers--as well as the human rights agenda--even for little substance in return.

My own impression is that an "allies-first" approach of deepening ties to local democracies is more in line with American values, ensures the spread of democracy and human rights as sources of stability for the entire region, and grants greatest bargaining power with respect to China. I suspect that China's domestic constraints are greater than America's in some sense, and little cooperation will be forthcoming. But I'm no foreign policy expert, and the China-first strategy may well work out.

But whether or not this works out for China and America; certainly it's India (and Taiwan) that has room to be concerned. While Bush and Clinton saw the potential for a serious potential partnership with India; the new Administration seems largely intent on viewing India as either an adjunct to Af-Pak (Holbrooke) or a bargaining chip to be wagered to further the crucial China policy. Surely Obama is aware that China and India are going through one of the worst patches of bipartisan relations since the 1962 war--and a failure to consider that is a sign that India has little strategic significance to America beyond Thomas Friedman-ish platitudes of "largest democracy, peaceful Muslims, etc. etc." One can't really fault America for this. It's a failure of Manmohan Singh's foreign policy to think beyond America and consider strategic partnerships with democracies and China-skeptic powers around Asia. The Pakistan-China geopolitical nexus represents an existential threat to India's survival and economic progress, and the US has demonstrated where they stand on that, push come to shove.

I was initially impressed by Obama's foreign policy. There were seeming turnarounds in relations with rogue states like Iran, Cuba, and North Korea; and you heard great things about his team and their professionalism. You have a President who can seemingly get out of any bad scrape through a well-delivered speech.

But whether it's the lack of Asian trade policy, the reversal of the stance against settlements in Israel, or the now-ambiguous Af-Pak strategy; I think it's fair to say things look murkier. Obviously it's a little soon to pass judgments, nor do I think that Glenn Beck-style rants hold. Most Administrations have a crappy first year and this seems to be going better than most.

Still, I think it's fair to say that the more overblown hype is gone. Here is Andrew Sullivan almost two years ago:

Consider this hypothetical. It’s November 2008. A young Pakistani Muslim is watching television and sees that this man—Barack Hussein Obama—is the new face of America. In one simple image, America’s soft power has been ratcheted up not a notch, but a logarithm [sic]. A brown-skinned man whose father was an African, who grew up in Indonesia and Hawaii, who attended a majority-Muslim school as a boy, is now the alleged enemy. If you wanted the crudest but most effective weapon against the demonization of America that fuels Islamist ideology, Obama’s face gets close. It proves them wrong about what America is in ways no words can.

Yet a recent poll finds that far more Pakistanis rate the US as a threat than India or the Taliban. Having a lower impression in Pakistan than India is quite an accomplishment, and suggests that American policy--for instance the drone strikes so beloved among the doves in the Administration--rather than the identity of the American President drives resentment and blowback. Obama's star power has moved the US in global polls (with the telling exception of Pakistan), but it remains to be seen how much of that increase is durable, and to what degree that assists America in achieving foreign policy goals or cubing terrorism.

Be More Like France

Ed Glaeser says (via The Economist):

[I]f China’s per capita carbon dioxide emissions increase by 14.4 tons and reach United States levels, then world carbon dioxide emissions will increase by about 19 billion tons or 67 percent.

If per capita carbon emissions in both China and India rise to United States per capita levels, then global carbon emissions will rise 138 percent. If the emissions of these rising superpowers stop at French, rather than American, levels, global emissions will only increase by about 28 percent.

This suggests the biggest contribution that the United States can make to reducing world carbon emissions is to persuade the Indians and Chinese to use energy like Frenchmen rather than Americans.

This is true. However, it's important to know why France has lower emissions. It's not because they obsess more about the green content of their packaging or worry more about leaving the lights on as they leave the room, or because the French are more moral or better people. In huge part, it's because the French went all-nuclear after the '70s Energy Crisis, while the US enacted an array of environmental-pushed regulatory barriers on nuclear after Three Mile Incident. As a result, the US uses lots of carbon-intensive coal to generate power.

India and China also have huge coal stores, but they've been more farsighted about taking a look at nuclear power. China has plans to generate about 250 GW of energy (about five times the total output of Britain) by 2030. The India-US nuclear deal has paved the way for the Indian nuclear program; with potential output of 470 GW by 2050. Obviously, both of these are optimistic projections; but certainly energy of this magnitude is going to come online either from coal or nuclear, and a share of nuclear this large is the only way to ensure that China and India approach France-like levels of carbon emissions rather than US-levels. Incidentally, by signing this bill, Bush possibly did more for reducing global carbon emissions than Obama (though he voted for the bill) ever will.

The US could get down to French levels as well. For various reasons, the feel-good technologies like wind and solar will probably not get us there--they're too expensive, too intermittent, and not scalable enough to replace coal as a source of base energy--nor will green jobs materialize. Yet nuclear power, especially linked with battery cars, can cut US emissions drastically with no increase in costs. Switching over to electricity instead of gas would also end persistent trade imbalances which have been implicated in the financial collapse, and eliminate oil shocks as a source of economic problems.

Fortunately, Carlos Ghosn is hard at work on electric cars (though Chevy has backed away, despite this being the rationale for their bailout); the Energy Secretary is pro-nuclear; and there are encouraging signs that the bipartisan deal being brokered over Cap and Trade will feature a heavy nuclear component as well.

The takeaway here, as usual, is that the environmental movement is its own worst enemy. Their emotional and fear-based attacks against all things nuclear have jeopardized the only clean, cheap, and scalable source of combating global warming.

They've chosen to highlight global warming on grounds of personal morality; spreading "awareness" and emphasising how we all need to inconvenience ourselves in ways that address our guilt in destroying the world, but which ultimately are not effective. If they got together and emphasized rational, cost-effective policies like nuclear power, geoengineering, or carbon taxes; we would make much more progress, both here and other countries.

Capretta on Obamacare

Here he is:

For months, the president and his team argued that stepped-up investments in health information technology, comparative effectiveness research, and prevention and wellness programs could “bend the cost-curve,” thus making an expansion of coverage affordable for taxpayers. But the Congressional Budget Office, along with a chorus of independent skeptics, said those steps would never be up to the task of reliable cost control without more fundamental changes in the financial incentives facing consumers and providers of services.

Unfazed, the administration argued that it had other ways to control costs waiting in the wings. The conversation turned to “delivery system reform,” with the administration and its allies in Congress suggesting that new ways of paying health-care providers in Medicare could spur a wholesale shift in how doctors and hospitals cared for patients. As White House Budget Director Peter Orszag put it, “Medicare and Medicaid are big enough to change the way medicine is practiced.” The implication was that the new team was working on ways to painlessly root out wasteful spending by compensating providers for their services differently than they are paid today.

But no such proposals were ever forthcoming (except for relatively minor adjustments related to payments for hospitals with high readmission rates, and some baby steps toward more “bundling” of payments for a full episode of care). What the White House did eventually propose was a commission that would have the authority to change the way Medicare pays for services without further approval by Congress. So instead of offering a serious plan to “bend the cost-curve,” the administration offered a commission that would come up with a serious plan to “bend the cost-curve.” Quite predictably, many in Congress have not been so keen on this idea, as it would hand off to an unelected commission the power to rewrite Medicare’s provider-payment regulations. The administration’s commission idea is not in the House-passed bill.

Not to worry! The administration has another favorite cost-cutting tool. The idea is to tax so-called “Cadillac” health insurance plans, thus forcing both the insurers and the plan enrollees to find ways to economize to avoid the tax. But there’s a little problem with this idea too. President Obama was against it before he was for it. Recall that Republican presidential candidate John McCain proposed to convert today’s preferential tax treatment of employer-paid insurance premiums into a refundable credit. In October 2008, the Obama-Biden campaign excoriated this idea in scores of ads because it would tax health benefits “for the first time ever.” Now, the president wants to do just that — but, again not surprisingly, the populist revolt he stoked against it in 2008 was still smoldering when he endorsed it in 2009. It turns out that taxing high-cost insurance plans will actually hit many middle-class households, especially those with union members enrolled in collectively-bargained plans. House Democrats wouldn’t go near the idea, and reports indicate that the version of the high-cost insurance tax in the Senate Finance Committee bill is getting watered down by the day. If some version of it survives at all, it is highly unlikely to pinch enough to generate meaningful cost control.

Reviewing this legislative landscape, it’s suddenly dawning on all concerned that the bills moving in Congress won’t come close to “bending the curve” after all. That’s the thrust of a piece today in the New York Times, as well as one from last week in the Washington Post. Of course, even as House members and Senators shy away from tough decisions, they are not nearly as reticent about extending new health entitlement commitments. Thus, it is now abundantly clear that if anything is produced by this legislative process, it will be a bill that piles more unaffordable entitlement commitments on top of the unreformed ones already on the books.

The complete spinelessness of Congress is now a fairly entrenched trend. Going back to Social Security reform; the Medicare prescription drug plan; etc.--it's very hard to write sweeping legislative changes these days. Every President going back to at least Reagan came to Washington and at the very least was forced to substantially roll back their agenda. Past Presidents may have left a broader impact in other countries, through their foreign policy, than domestically through their legislative agenda. Obama's majorities, his legislative background, and legislative staff may make a difference. But it seems very unlikely that any of their major bills--on healthcare, climate, or what have you--will be seen as very worthwhile on the merits.

And then you have Jonathan Gruber's logic, in which health care reform is a Pascal's wager; and increased coverage will make cost-cutting possible. This is a little like saying "Sure, eat another cheescake; there will be far greater pressure for you to diet once you're heavier, so there's no way you can get morbidly obese." Aside from the on-face absurdity, this does not match the experience of state governments testing variants of reforms under consideration, nor of any other countries as far as I can tell. Yet the idea that Congress will spontaneously grow a conscience before health costs engulf the economy is the best hope any of us have.

Obama on Obama

Genuine bipartisanship assumes an honest process of give-and-take, and that the quality of the compromise is measured by how well it serves some agreed-upon goal, whether better schools or lower deficits. This in turn assumes that the majority will be constrained -- by an exacting press corps and ultimately an informed electorate -- to negotiate in good faith.

If these conditions do not hold -- if nobody outside Washington is really paying attention to the substance of the bill, if the true costs . . . are buried in phony accounting and understated by a trillion dollars or so -- the majority party can begin every negotiation by asking for 100% of what it wants, go on to concede 10%, and then accuse any member of the minority party who fails to support this 'compromise' of being 'obstructionist.'

For the minority party in such circumstances, 'bipartisanship' comes to mean getting chronically steamrolled, although individual senators may enjoy certain political rewards by consistently going along with the majority and hence gaining a reputation for being 'moderate' or 'centrist.'

From Audacity of Hope.  Not that I'm complaining--the party in power should be free to do whatever it wants, and this circus of obstructing nominees and fillibustering every bill is ridiculous.  But so is the notion that the specific sort of change that Obama would usher in would be one of calm-headed bipartisanship; one of empirical competence.  This has always been a rhetorically shunt to mask genuine liberaldom.  

See Johanathan Chait's plea that liberals support big government because the evidence is there, and conservatives are just willfully malignant.  But, as Ross Douthat points out, empirical facts cannot be separated from a broader ideological framework.  A pledge of unity and competence is even more hollow than one of change and hope because the very idea of coming to a objective consensus on all political issues in nonsense in a democratic system.  This is why we don't have a single party regime; because political actors are not broad-minded technocrats (fighting against some especially mean-spirited opponents who reject reason and embrace fear), but narrow, political actors whom we can elect or not based on demonstrated political beliefs.  

Deploying numbers and facts in such an apparently non-ideological manner has become the standard procedure for any interest group.  Once upon a time, we relied on rhetoricians in the field of political debate, and a well-constructed argument or a witty turn of phrase could decide an argument.  Now, economists and data crunchers are deployed by rival gangs to settle disputes under the pretence that some sort of categorical issue is being decided.  That the only thing standing between our common fights and disagreements is a scientific judgement.  Well, that's wrong.  People are always going to argue and complain, but we should recognize what our politics consists of, instead of playing politics with the apolitical.

South Asian International Relations

Two thoughts:

1.  There are not nearly enough Indian realists.  V.S. Naipaul's biographer and the National Interest are two good examples, but generally people respond with either a "invade Pakistan" or "as always, Hindu nationalists are to blame" perspective, neither of which are entirely valid.  Is it too much to ask for a government which can coherently formulate national goals, and execute them with a minimum of fuss?  Apparently it is, so you have a government which is both incapable of fixing national security or intelligence, and also lashes out at Pakistan in unproductive ways.  

2.  Am I the only one disappointed at Obama's foreign policy policies on South Asia so far?  He talked about publicly declaring strikes against Pakistan, which John McCain rightly criticized as leaving Pakistan no option but confronting you.  Obama had to establish enough of a warlike posture at the time (given his policy on negotiating with Iran) so I can overlook that.  But now there are all these thoughts coming out about how Obama wants to appoint an envoy to "fix" the Kashmir problem.  Daniel Larson and Reihan both point out how this isn't a terribly feasible option, and can be pretty counterproductive.  We'll see how this fusion of realism/liberal interventionism philosophy goes, but my suspicion is that it breaks down in the next crisis.

Why Would You Want This Job?

Those of you who pall around universities are no doubt aware of the insanities of getting a job. Few people really know what they want to do, and so end up following whatever career bubble is big at the moment. Of course, the econ majors look at all sorts of highly unpleasant jobs with mediocre hourly wage. Private Equity is a big job opportunity here, and I think the following quote is priceless:

First Year #1: "Did you hear about the [big foreign bank] presentation yesterday?"
First Year #2: "No."
First Year #1: "This managing director is up in front of the podium answering a question about work-life balance someone asked, the junior guys are sitting in chairs on the stage behind him. Fifteen, maybe twenty seconds after the question one of the junior guys literally passes out and falls out of his chair onto the stage. They called the paramedics and everything. It was crazy."
First Year #2: "Is he ok?"
First Year #1: "Fine, apparently. Exhaustion. Just got off the plane from London, no sleep for a week because of a deal he was working. Right after the managing director just talked about how great the work-life balance is."
First Year #2: "They have a London office? Are they hiring for the London office?"

I wonder about this in the context of politics sometimes. The benefits of entering politics are obvious; Brooks has some good pieces on the massive ego involved. But, especially today, the costs are also apparent and sometimes you have to wonder why anyone would ever want to deal with certain problems.

Consider the problems facing the US Government. For one, the public debt has topped $10 trillion with no end in sight. This is not quite so horrible compared to other countries, but pretty bad nonetheless. This will be an enormous problem looking forward, as expenditures are headed steady upwards and revenues are so-so.

A huge problem that's going to hit the Obama Administration is something I've worked on a bit in my day job--the upcoming failure of Option ARM loans. These were really some of the worst structured products developed lately; the premise being that you can pay less than a normal loan balance because house prices only go up. Seriously. These people are going to wake up in 2010-2011 with loans resetting, balances well in excess of housing prices at the absolute bottom, and they're going to walk away from their homes in droves.

Below is a picture of the federal budget, and you can really see the impact of GWOT and the sprawling DHS on government spending on the defense side. Obama will most probably find it difficult to meaningfully cut this issue. He's stated that he'd like to add more soldiers, and the Democrat measure of doubling down in Afghanistan will probably be expensive as well, as that country is dying. Some sort of political compromise with the Taliban would probably be cheapest, but would also be hard to sell. It's almost certain that another crisis will emerge in the next four years;

Iran failing, further problems in Iraq (which, really, the US can't reasonably abandon responsibility for), Afghanistan, or ongoing problems in tribal Pakistan. One of the biggest issues with military spending is the unofficial agreement of military branches to split spending in equal ratios among the Air Force, Army, and Navy. This is horrible for all sorts of reasons, as the demands on the Army have never been higher, while there are really no peer competitors against the US Navy or Air Force. It's unlikely that we're going to see another Bill Clinton-style peace dividend.

The cost of health care is also expanding at insane rates. Of course, there are all sorts of great consequences of better health care. But the marginal dollar spent on health care has very little value added. Spending on healthcare varies dramatically around the country, and it's not clear that these variations explain different health outcomes. And, of course, health and lifestyle issues are more important to health than medicine. Doctors are essentially handing out different treatments for the same conditions with little concern for cost or efficiency. The evidence-based medicine movement sounds great, but will probably have little actual impact on lowering costs.

The rising cost of healthcare is leading to one of America's two entitlement problems; the exploding cost of Medicare/Medicaid. Obviously projecting straight-line out might not be the most reasonable estimate, but the government will have to take up more and more of the slack as private and employer insurance markets unravel. These programs alone are tens of trillions in unfunded liabilities; add to that several tens of trillions more for Social Security.

There are really two big ways of restraining health costs--consumer choice (as in Singapore) or government rationing, and Obama has really failed to endorse either. You can read this endorsal of Obama's health care plan, which does have some things going for it. But to imagine that a "technological revolution," or paying for results (which they do in Britain, if I'm not wrong, with the result that doctors game the system) will do anything about the trajectory of health care costs is silly. All sorts of health care systems work in other countries, but the likely path of American health care will likely follow Massachussets--a greater role for the state, more penalties on employers for not providing coverage, and higher costs. Maybe this is about what we should be doing; I just don't want to be the one to figure out how to pay for it. Payroll taxes to pay for social security and health spending is probably the worst way I could imagine to do so.

It's also shaping up how that fleecing the rich bit isn't a great response. It's unlikely to happen soon anyway, the country being in recession and all. But as the Federal Government depends largely on rich people for funding (and especially, post-2003 or so, on capital gains taxes), you have much less revenue when the ranks of the richest are decimated.

So there are long-term and short-term problems. The long-term ones are more severe, but America is perhaps better placed to deal with them than other countries. A culture of entrepreneurship, relatively free markets, etc etc all boost America's productivity with respect to zombie countries like Japan or Italy, which are looking at large swaths of industry which are globally uncompetitive, massive debts, large government involvement in the economy, and of course that looming demographic death spiral combined with xenophobia towards the immigrants that could otherwise save their economy.

The short-term really depends on events in the next four years. In one scenario, the economy dips, but recovers in time for Obama to be hailed as a Democratic tonic to the failed Bush-Kirk policies. In the other, things continue to get worse globally, finance takes its time coming back, and the recovery in the rest of the economy becomes jobless. The cost of foreign crises and domestic bailouts both wrecks the economy while derailing Obama's broader domestic agenda, which was basically premised on the notion that the big thing wrong with the economy was the excessive share of income going to the rich. Another energy crisis is also possible; is there really that much more oil production now than six months ago? Housing remains shot while the option ARM folks default as well.

What can the Federal Reserve possibly do? Interest rates are going to remain low for some time. Boosting the money supply--at a time when there is plenty of money waiting on the sidelines--will encourage further speculative bubbles and lead to an eventual crisis in inflation that can really only be solved by Vockler-style massive rate increases. The impact of interest rates in the upper teens will be not be good on a highly indebted consumer base suffering a bad recessing following a so-so decade, and even if this happens on more of the "upswing" portion of the recession. The European consumer base was never that strong, and at some point American consumers are going to have to start saving if they want to enjoy their (longer and longer) retirements. Where will the recovery come from? Of course, Chinese consumers appear to be using some of that cash they've been saving, and the government there also has plenty of cash, though there's plenty of pessimism in that part of the world too. But much of any sort of surplus sales there generate will presumably flow to corporate profits. After all, the factories are all there; excess rents will just be repatriated as manager compensation. Other emerging markets are facing all sorts of currency and sovereign debt crises, while the commodity producers aren't doing too great.

And once we purge the bubbles out of our system, what sort of "real" substantive employment is going to take place? Who could possibly be hiring in three to four years? Much of the job growth in the last eight years--such as it was--was driven by construction (real estate bubble) or finance (real estate and stock bubble). Of course, infrastructure and alternative energy are always mentioned. I suspect they will turn out to be new government boondoggles that further destroy the budget. William Bernstein makes the point that there's no real economic law that says that technology needs to improve jobs. After cars made horses obsolete, they died off by the millions. It's hard to guagethe demand for American unskilled labor the future, but it's hard to imagine a scenario in which it goes up that much; so presumably that whole sector of the country will kind of stagnate, clinging to their guns and so forth.

Again, a lot of this depends on timing. Best case scenario for Obama: Things start improving by the time 2012 rolls around. That really is a long time; it was hard in the 2002 recession or 1992 bust to think of things improving, but of course they did, because the fundamentals of the American economy were, and are, strong. Of course, neither of those times during a period of global problems and credit issues. But if things don't start to get better, I expect to see ads about the Obama-Kirk economy pull in a wave of populist, social conservatives into office.

The New South

There is no guarantee that the following makes any sense.  

Many people are interested in the notion of economic convergence.  Economic theory predicts that in the long-run, all economies should move to the frontier of development.  So Japan meets the West, expands a lot, and now has has the same standard of living as other rich countries while growing at the same rate.  Obviously this doesn't happen everywhere, and the question is whether the sources of those differences lie in genetics, culture, institutions, policy, or something else.  

One such convergence situation is the post-WWII behavior of the American South.  The South had always lagged the North in development, but this was earlier a geographical issue as the Southern plains attracted the Barbados-based plantation elite while the North pursued trade and manufacturing.  This gap continued.  The geographical barrier to convergence disappeared with a higher level of technology, and the fact that the South and the North are in the same country mean that a lot of other barriers to convergence were not a big deal.  The main barriers to there being similar economies in the North and South became institutional and related to the quality of governance.  

My argument is that ultimately changing institutions created the "New South," and that this really started to change with the political dominance of a group of socially conservative Democrats and Republicans in the '60s with a constituency broadly in favor of different economic ideas.  The shape of this new ideology--Goldwater Republicanism--was formed by many things.  There was an influx of Northerners.  Broadly, there were push and pull dynamics creating essentially a new party.  On a more national level, this is covered negatively by people like Krugman, who sees a basically racist Southern strategy, and more positively by people like Brooks or Douthat.  

The push factors include the racial fallout of the Civil Rights movement, which both increased Democrat votes from black voters and shifted many white voters into the Republican Party.  Liberal judicial decisions were another factor, from busing (again, more racial stuff, but one that lead to more private schooling, which was Christian, and so led to more evangelicalism) to Roe v. Wade.  The growing Christian gap would become a larger factor later on.  There were pull factors as well, as the newly constituted Republican Party was better able to attract natural conservatives, with their focus on law and order issues, taxes, welfare, cultural topics, and so forth.  I can imagine tipping effects, in which more and more conservatives join the Republican Party, which markets itself as more Republican, and so forth.  It's easy to call this racism, but it seems to me a more basic consequence of a pluralist society.  Societies riveted by ethno-linguistic divisions display much less social trust as a whole, and tend to have less redistributionist institutions.  This is not necessarily linked to race, look at India, in which caste divisions behave politically much like ethnic rivalries, and really hamper coherent policies.  

The product of these forces was to yield a much more ideologically consistent and partisan set of political parties in the south.  With a median voter that's conservative in the South, you end up with rotating conservative Democrat and staunch Republican governance.  The traditional base of the new conservatives consisted exactly of the sort of people open to a more upwardly mobile, free enterprise system of government, so an economic conservative approach became a natural fit to this program.  

Of course, the development of the "New South" had to do with many things, among them the rising importance of service industries not linked to geography, technology, AC, highways, and the positive impacts of Civil Rights bills in desegregating the population.  But many of the proximate causes of the convergence between North and South needed to take place in a tolerable institutional environment, which was then supplied by the new Republican governors.  Low-tax regimes, opposition to union labor, State subsidies, spending on infrastructure, education, and research, and so forth attracted an array of manufacturing (car manufacturing) and service (banking, telecom) interest; even as many economic fundamentals were in long-term decline (textiles, furniture, cotton, agriculture).  

With the recent transformation of the Republican Party into the Party of the South, it's popular to talk about how the social hangups of Southerners have become the stuff of national cultural wars.  But it's interesting to see that the institutional barriers between North and South has largely revesed itself with the South in an arguably better position.  There have been some attempts to take on the old guard in blue areas--especially by moderate Republicans like Romney, Bloomberg, Giulianni, and Schwarzenegger, and some moderate Democrat responses like Daley, Spitzer, and Cory Booker (Are these attempts to be a Clinton Democrat on a more local level?).  But largely, Blue states continue to hemorrhage people and jobs to the Sun Belt.  This election continues in many ways that trend, with the choice between a Chicago politician who promises more regulation, higher taxes, and a host of industrial policy technocrat intitiatives to solve problems in health care, energy, and education and an Arizonan politician who combines sufficient deferrence to the socially conservative wing of the party with a support for lower taxes and less regulation.

The ultimate consequence of this state variation in development policies is the Housing Bubble.  In some sense, it's a myth that we had a "national Housing Bubble"; it remained in many ways a regional problem with certain areas like California, New York, Chicagoland, and (yes, somewhat counter to the point) Florida.  Tight land regulations in these areas artificially inflated the value of land, creating the actual housing "bubble" that encouraged poor lending tactics and eventually the securitization problem.  Places like Texas, Georgia, Arizona or othern Southern areas that don't have quite the zoning regimen had a flexible response to demand in housing and so never suffered quite the price movement up or down.  These places are really being spared the worst of the current problems, while continuing to attract more corporate headquarters and operations.  Another housing implication is that since Democrats generally run cities, and since Democrats generally favor regulations, you have city-level housing markets that are absolutely horrible, with the attending higher housing prices diminishing to a large extent the value of a College degree (since of course you don't attend a top-tier school and move to Nebraska).  

Of course, the old Democrat holdouts are still home to some of the most amazingly productive sectors of the economy (Sillicon Valley, New York) with the associated Universities and so forth.  So the combination of highly productive people with an increasingly pushed middle class yields greater inequality issues in Blue States, and then of course that's all they talk about.  You could probably make the case that what Blue States now need is Republican governance, and Red States some Democrat policies.  

One reason for the general success of the Republican method is that state-level government has many different spending priorities and issues than on the national level.  And since state governments can't hold a deficit; national-level Republicans have of course run up the national debt, while state-level Republicans have not.  So while the national level assessment of Republicans is mixed--they might have saved the economy from turning into Europe, but they also messed up a lot of stuff on spending--the state-level economic assessment tends more positive.  

I think the crucial point is not that the Republicans are smarter, but that the people who vote for them are generally social aspirers open to new business with little personal stake in bureaucratic pork, which leads to broader support of a certain free-enterprise economic agenda, combined with the fact that the Republican talent pool is incorporating business-minded people.  Look at the ranks of prominent Southern state-level Republican politicians, and you see both a bias for religion and business.  Bush fit this model rather well, what with his MBA and so forth.  Of course you still have the lawyers (in America and Britain, politicans are chosen from the stock of lawyers, while in Korea and Germany it tends to be engineers), but it still seems to me a contrast between the sorts of people who have run Democrat machines in other parts of the country.  Edwards, Hillary, and Obama were all of course lawyers (on the other side, you have Romney a businessman-turned-governor, Huckabee a rather effective preacher-turned-governor, and so forth) and the primary race at times really felt like a battle between the UNC-educated lawyer who specializes in court cases and the Ivy-trained lawyers who focus a bit more on the academic stuff.  Arguably, neither group is really set to run an economy.  Corruption seems like an inevitable outcome, but really no one cares about corruption paired with actual development. 

I guess one of the things this is a reaction to is the notion that economic conservatism is just a really bad idea that was pushed on the Americd toan people, with universal devastating consequences.  I hear this from a lot of people, who just can't imagine that the Regan/Bush gang were really anything but absolutely horrible.  I ten push a little against this idea.  

Update:  There is also the cultural change in the South where more people become evangelical Christian and that starts to matter.  Is that another factor?

I'd love feedback on this to figure out whether to actually pursue this idea.  

Overheard on 53rd Street

"Hey, you'll never guess who I just saw!"  

"Who?"

"Obama!  He was at Boston Market with the Secret Service and everything!"

I always knew he was an old fashioned Northeast liberal.

My Dad the Political Analyst

He emailed Kerry to advise him to do the following strategy: Promise to not seek re-election unless he caught Osama bin Laden.  In general, I think that since people expect so little of politicians, genuinely selfless behavior is taken as proof of authenticity.  It's a good part of the appeal of the current Republican ticket; the prisoner of war and mother of a child with Downs syndrome.  Of course the "maverick" image, as well as the "putbull with lipstick" persona, are manufactured, but they really resonate with many people and will continue to do so despite all evidence.  At one point, McCain was considering a one-term pledge, and while clearly political self-interest prevailed, it would have been a great gesture.  

Rumor Has it Obama is Popular in Other Countries

There happen to be many good reasons to vote for Obama over McCain, and I would probably make use of one if I were not currently disenfranchised. But there are even more bad reasons to vote for Obama, such as this idea that Obama is popular overseas while McCain is a Republican.

Take the example of France. As has been pointed out, though France overwhelmingly supports Obama, they made a different choice in their own curiously familiar election. A forceful, pro-American conservative from the unpopular ruling party battles a hopeful liberal in an election focused on transition and the economy. Sarkozy's success was based on his talking point that both parties want change, but conservative change is better and he can deliver it. Several people have pointed out that McCain needs to do something similar, and his convention speech was a step in this direction. But to the extent we care about the French, we should care about how they behaved when it come to a decision for which they bore consequences. On that choice, the French choose McCain.

But maybe overseas popularity is important because it suggests that people will like America again and bloodshed will stop. There are several issues with this. One, people just don't like America in general, as it's a unilateral power. People hated America when Bill Clinton was in office, and Obama signs on to the same platform of humanitarian intervention. Two, it doesn't seem like popularity among the masses matters as much as connections with leaders and geopolitics. That article discusses a bit how American policy towards Europe shows significant continuity between Clinton and Bush against popular wishes by local residents. Third, terrorists, like countries, behave on the basis of fundamentals, not Presidential identity. The candidate with better policies will face less animus. Last, Bush has been surprisingly effective in foreign policy his last few years. From improving relations with Japan, to nuclear deals with North Korea, to shoring up relations with China, to signing a Nuclear Deal with India--this is not what reasonable people expected to happen in Bush's lame-duck years. An Obama administration may very well turn out to be more effective on foreign policy than a McCain administration. But there are other issues at play.

Just a Thought

Suppose McCain wins.  Probably unlikely, but possible.  Then, presumably, Palin is in good shape to run again.  After 12 or 16 years of Republican rule, it's probably unlikely that another Republican would win.  But it's possible, and Palin would certainly top the list of Republican presumptive nominees.  No other Republican who ran this year will have another shot (Definitely not you).  

If McCain wins, Obama loses.  You don't get to miss an opportunity like this and live to try again, so Obama is out for the next one too.  The Democrat next in line will naturally fall to Clinton, as the primary runner-up and scion of the Clinton family.  With her and her husband's speech last week, they plausibly claim they made the effort and wash their hands of the electoral loss, and can instead argue that blame lies with Obama's failure to use Mark Penn-style hardball tactics against the Republican smear-mobile.     

Judging a contest between Palin and Clinton four to eight years from now is a stretch, but I'm going to call it for Clinton anyway.  Republican fatigue and lingering Democrat anger should help her (though demographic reshaping after the 2010 census may help Republicans).  Again, when have there ever been three consecutive elected heads of state from a single party serving full terms?

So by voting for McCain now, you help move Bill Clinton into the White House again.  Something to keep in mind this November.  

Experience

It's sad what counts as experience these days.  

Ask George H.W. Bush.  By 1991, he was a: war hero, successful businessman, congressman, UN Ambassador, Envoy to China, Director of the C.I.A., professor, Vice President of the most popular administration in recent memory, president for three years, and commander-in-chief during the most popular war ever.  I think that's pretty good qualification to... keep his old job.

And he still lost the presidential election, to a man from Hope.  Sixteen years later, that guy's wife tries, and fails, to run on a platform of experience, losing to a guy mongering hope.  The hope-monger selects as his running mate another man who had earlier critized him for lacking experience.  The two battle against another war hero, who had earlier lost to the son of the most experienced person ever.  This white-haired dude says the hope-monger lacks experience.  So he picks an attractive moose-hunter as running mate.  

Now we're all wondering whether community organizing, or shooting wolves from a plane, or losing track of your houses, or whatever it is that Joe Biden does counts as experience.  Lost in this mess is the governor from New Mexico, who is rumored to have done quite a few things at some point.  

Everybody needs to stop talking about experience, because no one has any, and even if they did, saying that you have it doesn't help you win.

The DNC, Part II

Here's another phrase we've been hearing for a while:

Unlike John McCain, I will stop giving tax breaks to corporations that ship jobs overseas, and I will start giving them to companies that create good jobs right here in America.

Pray tell, what exactly are these "tax breaks to send jobs overseas," and how can I apply for one? Turns out they don't really exist, unless you consider the entire international corporate tax system a loophole. This is much like those horrible tax credits for oil companies, which apparently consist of credits for those "alternative fuels" I keep hearing so much about.

Strange that Obama should bring up McCain into this, since this point is actually one of more sensible parts of McCain's platform (the other is offshore drilling). Corporate taxes make little sense--they don't hit any particular person, but rather manifest in the form of higher prices, lower investment, lower wages, and lower capital returns. Even if you're a liberal, these are not good things. It's fine if you want higher taxes for the rich; just tax the money as much as you want once it reaches an actual person.

Naturally, since this tax makes little sense, the US has one of the highest rates in the world. McCain would lower that rate. Now if only somebody would do something about my ~15.3% payroll tax and 10% sales tax. And I'm in the lowest tax bracket!

The DNC, Part I

Watching the Democrats speak last week was an annoying experience. I know, there's no reason to expect much from any politician, and it's not like the Republicans are any better. But still, it's irrational exuberance over something which is just not that good. It's like watching The Wire all over again.

Here's Obama:

We measure progress in the 23 million new jobs that were created when Bill Clinton was president--when the average American family saw its income go up $7,500 instead of down $2,000 like it has under George Bush.

This reflects the larger trend to equate big-picture economic performance with presidential skill. An economic advisor to Obama was on the Colbert Report last night selling this vision, referrencing Larry Bartels work, which shows that growth is higher under Democrats.

Krugman, of all people, is skeptical Baretels, pointing out that it's difficult to point at any specific policy that's responsible. He figures that partisan-specific monetary policy and different voter behavior in booms and busts are responsible for most of the difference.

But you hear quite a bit about how median incomes are stangant and how we're right to whine. Robert Samuelson is good enough to show how these numbers fail to account for spiraling health costs and immigration. I would add that technology and trade have improved quality of life for a given income level.

But even ignoring all of that, it's hard to link Bush's policies--bad though they may be--to household incomes. Loose monetary policy kept interest rates low, tax cuts and rebates brought money to all income groups, added to which we saw surging domestic discretionary spending. Sure, there's plenty to fault here, and there could have been more redistribution downward. But from the standpoint of raising median household income, it's difficult to think of what Bush should have done. Look at Obama McCain's policies and you see... More of the Same! More tax cuts, more spending.

Whatever. There will be a boom by the time the next president is in office, and in all likelihood we're going to hear that "Democrats are better with the economy." Then there will be some foreign crisis and we'll also hear "But Republicans are better on Foreign Policy."