1) Milton Friedman: A Monetary and Fiscal Framework for Economic Stability:
A progressive tax system which places primary reliance on the personal income tax. Every effort should be made to collect as much of the tax bill as possible at source and to minimize the delay between the accrual of the tax liability and the actual collection of the tax.... Changes in the tax structure should reflect changes in the level of public services or transfer payments the community chooses to have. A decision to undertake additional public expenditures should be accompanied by a revenue measure increasing taxes...
2) Jonathan Chait: I'm Back. So Is Health Care Reform:
[T]he structural dynamic remains the same -- Democrats understand that they have to pass this bill or face even deeper electoral catastrophe than they're likely to suffer anyway. They suffer from disorganization, lack of urgency, and extreme parochialism. The good news is that, having passed a bill through the Senate, the largest procedural roadblock by far is now behind them. The Democrats now just 50 Senators to cut a deal with the House to fix a bill through reconciliation, and 218 House members to vote for the Senate bill.... I don't see this as a sure thing, but the outlook remains a lot better than you'd guess from reading the national news headlines.
3) Ryan Avent: A tree falls in Oregon:
I don't really see any reason to downplay this outcome relative to the Massachusetts election. If anything, this vote is more telling as candidate personalities weren't on the ballot. Of course, I don't expect Republicans to suddenly reevaluate their outlook on tax rates. One would think that someone in the Democratic leadership might note, however, that raising revenues can be a credible and acceptable way to help close a budget gap.
The tricky part is that one doesn't really want to go about jacking up tax rates in the midst of recession (or its immediate aftermath). As the CBO notes in its new Budget and Economic Outlook, allowing the Bush tax cuts to expire shaves quite a bit off deficits over the coming decade—but at the expense of some growth. But what does seem clear is that the adminstration could propose and Congress could pass revenue-raising measures now, to begin taking effect in three or four years. Having put the country on a credible path toward budget sustainability, the government might then have more room to pursue short-term stimulus. But that's not what we're going to get, it seems. Instead, the American economy will be stuck with insufficient spending now, and insufficient deficit-reduction later.
4) Jon Gruber: ‘All or nothing’:
“You can’t break this bill apart and have it work,” said MIT economist Jonathan Gruber. “It’s all or nothing at this point. The Democrats, and essentially the president, have to decide if they’re willing to go for it all, or are willing to live with nothing.” First, though, Gruber, a central architect of the Massachusetts health-care system that has served as the model for the congressional legislation, acknowledged his extreme chagrin over the political reversal that accompanied Massachusetts Republican Scott Brown’s victory last week in the special election to replace the late Sen. Edward M. Kennedy. “My kids are like, ‘Why are you so sad, daddy?’” said Gruber, speaking at The Stata Center. “I explained, ‘Imagine you worked on a term paper for a year, and you were about to hand it in, when someone turned off your computer and you lost all your work.’”
5) Tim Geithner: House Committee on Oversight and Government Reform:
The decision to rescue AIG was exceptionally difficult and enormously consequential. At that time, our economy stood at the brink. The financial institutions that Americans rely on to protect their savings, help finance their children’s education, and help pay their bills were at risk in ways few had ever experienced. The institutions and markets that businesses rely on to make payroll, build inventories, fund new investments, and create new jobs were threatened like at no time since the Great Depression. Across the country, people were rapidly losing confidence in our financial system and in the government’s ability to safeguard their economic future. Action was required. The world was watching. And the government did not have the luxury of time. The steps the government took to rescue AIG were motivated solely by what we believed to be in the best interests of the American people. We did not act because AIG asked for assistance. We did not act to protect the financial interests of individual institutions. We did not act to help foreign banks. We acted because the consequences of AIG failing at that time, in those circumstances, would have been catastrophic for our economy and for American families and businesses....
6) GRAPH OF THE DAY: From CBO: If we stick to PAYGO, we have a (barely) sustainable budget outlook for the next decade--at least according to today's forecasts:
7) MOST INTERESTING NON-ECONOMICS THING I HAVE READ TODAY: Ed Luce: FT.com / US / Politics & Foreign policy - White House nightmare persists:
[M]ost people do not think Mr Obama can even command unity within his own administration on the Wall Street proposals amid growing speculation about whether Tim Geithner, the Treasury secretary, can survive in his job. Mr Geithner was conspicuously sidelined during Thursday’s announcement by the presence of Paul Volcker, the former Federal Reserve chairman, who lent his name to the push to rein in Wall Street banks. The speculation about Mr Geithner is only likely to grow. “The Obama proposals were clearly politically motivated and came from the White House not the Treasury,” says a Democratic adviser to the administration, who withheld his name.
Finally, there is increasingly open Democratic disaffection about the way Mr Obama is managing relations with Capitol Hill. Many believe that Rahm Emanuel, Mr Obama’s aggressive chief of staff, served Mr Obama badly by persuading the president that his election was a transformational moment in US politics that gave him the opportunity to push through long-cherished Democratic goals, such as healthcare reform. In fact, exit polls from Mr Obama’s election showed that almost two-thirds of the voters cited the economy as their chief concern, with fewer than one in 10 mentioning healthcare. Mr Emanuel is also perceived to have mishandled the day-to-day logistics of getting healthcare through Congress. By leaving the scripting of the details of the healthcare bill to Democratic leaders on Capitol Hill, the White House openly courted the risk of chaos. Tellingly, in his victory speech in Boston on Tuesday,...
“I haven’t seen Rahm Emanuel except on television,” Jim Pascrell, a Democratic lawmaker from New Jersey, told Politico, the news website, on Friday. “We used to see him a lot; I’d like him to come out from behind his desk and meet with the common folk.” In short, Mr Obama’s nightmare January could easily slip into a nightmare February. “Unless and until the president changes the way his White House, works, things are going to continue to go badly for him,” says the head of a Democratic think-tank. “Heads still have to roll.”
8) BEST NON-ECONOMICS THING I HAVE READ TODAY: Matthew Yglesias Institutions Matter:
I have various points of agreement and disagreement with Fareed Zakaria’s version of the “Obama is screwing everything up” process column but there’s one point with a really glaring flaw:
The Republican Party has decided to be utterly uncooperative (although on health care Obama never really reached out to them with serious compromises). But whether or not Republican senators would at first reward Obama for adopting a more nonpartisan approach, independent voters would, which would then change the political calculus in Washington. Rahm Emanuel quipped that the task was not to get health-care legislation through “the executive committee of the Brookings Institution, but the U.S. Congress.” In fact, proposals that would impress experts would also impress tens of millions of independents, the vast middle ground where elections are won and lost in America. That is how Bill Clinton outmaneuvered Newt Gingrich, and how Tony Blair outfoxed the Tory party for 10 years.
Here’s the thing. As far as two different countries go, the United States and the United Kingdom have reasonable similar political cultures. So similar sorts of electoral strategies can work in both countries, and political strategists actually do go back-and-forth across the Atlantic. But in terms of political institutions the US and UK are totally different. The UK is a highly centralized country with a de facto unicameral legislature, a parliamentary system, and extremely strong party discipline. The United States is a strongly bicameral federal republic with weak party discipline and an independent executive. Under the circumstances, governing strategies that work in the UK won’t work in the US and vice versa.... You can think what you want about American governing institutions, but I find it very frustrating when commentators don’t acknowledge that our institutions are both unusual (we have the only full presidential system in the developed world) and an important determinant of policy outcomes.
9) STUPIDEST THING I HAVE READ TODAY: STUPIDEST THING I HAVE READ TODAY: The Incompetent and Mendacious Chief Justice John Roberts, as related by James Fallows:
‘When corporations use other people’s money to electioneer,’ as Kagan explained, ‘that is a harm not just to the shareholders themselves but a sort of a broader harm to the public,’ because it distorts the political process to inject large sums of individuals’ money in support of candidates whom they may well oppose.
“Roberts sharply challenged this line of argument. ‘Isn’t it extraordinarily paternalistic,’ he asked, ‘for the government to take the position that shareholders are too stupid to keep track of what their corporations are doing and can’t sell their shares or object in the corporate context if they don’t like it? … ‘ “We the government have to protect you naive shareholders.” ‘
Virtually all such “wealth” as my wife and I hold, apart from our house, is in low-cost indexed mutual retirement funds. I literally have no idea which specific companies I might have bigger or smaller positions in. By the prevailing wisdom of the day, I’m behaving rationally for a non-expert prudent investor. By Roberts’ standard, I am “too stupid to keep track” of what every one of these companies is doing and shifting my positions day by day in response. Or maybe just too lazy.
And Felix Salmon:
As long ago as 2003, Roberts owned no fewer than 46 different common stocks, on top of 31 different mutual funds, one ETF, and a REIT. I very much doubt that he was keeping track of what all of the corporations he owned were doing, and selling his shares or objecting in the corporate context if he didn’t like it. And I don’t think that he believed that his mutual-fund managers were doing that either.
10) HOISTED FROM THE ARCHIVES: Brad DeLong (August 2007: NOOOOOOOOOO!!!!!!!!!!!
It is always a mistake to surf over to National Review. Always:
Pour in the Cash [Larry Kudlow]: [M]y campaign to get the Fed to permanently inject new cash into the banking system and deal with the dysfunctional commercial paper market — as well as the general credit freeze-up. There’s housing price deflation... commodity deflation.... Stock prices for materials are off nearly 13 percent since July 19, while metal and mining shares are off 16 percent. There’s the deflation of loan values, both CDOs and CLOs. And there’s the deflation of the Treasury bill rate from 5 percent to 4 percent...
Does Larry Kudlow really not know that three-month Treasury bills are worth 98.76 when the bill rate is 5% and are worth 99.01 when the bill rate is 4%? That the prices of Treasury bills rise--hardly a sign of "deflation"?
Can he really be that ignorant? Can he really be that thoughtless?