Democracy in America

WE LOST a great, if tragically writer's-blocked, American novelist when David Foster Wallace committed suicide in 2008. But this year we found out what great American novel Mr Wallace was working on at the time: "The Pale King", which turns out to be about the IRS. The subject is perfectly suited to Mr Wallace's logorrheic, footnote-laden style. And Jennifer Schuessler writes in the New York Times Book Review that Mr Wallace's research for the book included a long and provocative correspondence with Stephen Lacy, a philosophically-minded tax accountant in Evanston, Illinois:

“Our tax system, as it currently exists, faces challenges,” Lacy wrote, before offering a “philosophical analogy”: “Imagine someone who wants to have a purely realistic and Aristotelian outlook and metaphysic and wants to avoid thinking of how some of the radical insights of Gödel, Wittgenstein, Davidson, Derrida and Deleuze might chip away at his system. The complexity of language and its nature of being contradictory and deconstructing are there all the time... Sooner or later this person’s world view will have major problems. Our tax system wants to be a 'modernist' enterprise in an increasingly 'postmodernist' world.”

...In September 2005, Lacy sent Wallace a passage from section 509(a), “legendary as the most difficult sentence to understand in the tax code,” adding: “I find that although I can never quite understand what it says, after I read it several times and concentrate, I can actually get into a kind of weird Zen-type meditation high! (Then again sometimes it provokes a profound anxiety attack.)"

I know what Mr Lacy means about the Zen high one can get while contemplating complicated issues in one's taxes. I generally get this kind of buzz when I'm three layers deep in forms, finding that in order to fill in a box on my 1040, I need to know something from my Schedule C, which depends on something in my Form Something-or-other, which often itself depends on something in my 1040. But Ms Schuessler also gets Mr Lacy to take on another deep issue implicit in taxation.

Ultimately, the biggest threat to the endlessly exfoliating bureaucracy Wallace studied so closely may not be armed vigilantes, tax deniers or a neutron bomb but the flat tax, which according to its advocates will usher in a new age of prosperity while reducing the information we owe the I.R.S. to what can fit on a postcard. Come Tax Day, citizens of all political stripes may find themselves sympathetic to the idea. But Stephen Lacy calls tax simplification a fantasy, and not just because it would put him and his fellow C.P.A.’s—not to mention aspiring tax novelists—out of business.

The tax system tries to “eliminate all metaphysics and deal with bare-bones facts,” Lacy said. “But the system is constantly being undermined by other social forces, by the economy, by politics. The more we try to simplify things, the more complex it gets."

This is a somewhat different way of expressing the source of the complexity in the tax code. Mr Lacy's first claim seems like a more ambitious one: to say that the tax code is complex for the reasons Gödel said mathematics must be complex seems like saying there's some kind of deep incompleteness to the language or philosophy of taxation that makes it intrinsically unable to achieve simplicity. Saying that the tax code is subject to economic, social and political forces that keep pushing against simplicity and forcing complex adaptations is a more humble claim; it's just saying that the tax code is like any other body of reference, naturally accruing complexity as it goes on, in the same way that comic-book storylines accrue incompatible narratives or chromosomes accrue useless and redundant DNA.

But I'd be curious to hear what Mr Lacy thinks of a different version of this last point. One area that sends me into a state of Zen uncertainty when thinking about taxation involves questions about what kinds of things "deserve" to be taxed, and at what rates. Why should a parent's gift to their child be taxed? Well, fair enough; but then, why should any transaction between two willing participants be taxed? You have two people sitting there, enjoying a certain level of utility. The government doesn't have anything to say about that. Then the two people decide to make an exchange that makes each of them substantially better off, generally mediating that exchange through currency. And suddenly the government steps in and says, whoa, we want our cut of that increase in utility. Where's the justice? Things only get more confusing when you start to think about whether investment income should be taxed at the same rate as wages, whether wealth should be taxed, the relative justice of consumption taxes versus income taxes and so forth.

My hunch is that, like many philosophical problems, these ones actually emanate from a category error. We don't often tax activities because something about those activities makes them inherently worthy of being taxed. Taxation is not usually a moral judgment rendered on an economic activity. There are some cases where taxes are levied as charges to compensate for externalities caused by some activities, like the Superfund tax dedicated to cleaning up environmental messes, or the gas tax used to pay for road construction. But mostly, the reason we tax economic activity is that we need a government, and we've decided democratically that we want that government to do various things. The money has to come from somewhere. (Mostly. Under conditions of deflation and high unemployment, you can actually get decent mileage out of having the government just make more money and spend it. But that's not usually the case.) So the moral question isn't usually whether some activities are innately tax-worthy, but how much it's fair to make people of various income levels contribute in order to get the job of government done. (And then there's the equally important pragmatic question of how best to get people to pay those contributions without damaging the economy.) Following Wittgenstein, I would say that the reason my head starts to buzz when people ask whether some kinds of exchange "should" be taxed is that it's not a well-formed question. Then again, there hasn't been much success in getting people to stop asking certain philosophical questions by proclaiming that they're not well-formed, which suggests Mr Lacy's first take on the issue may be right.

MY EARLIER post about the politics of immigration reform got me wondering whether there's a general way to express what politicians are trying to do. To put it in programming terms, what's their objective function?

In some cases, such as during campaigns, it looks like their overarching objective is to win election (or re-election). That would explain a lot of political behaviour, such as flip-flops unconnected to causal explanations, the ebb and flow of policy priorities based on the election cycle rather than manifest need, and wag-the-dog situations in foreign policy. It would also explain the occasional display of extreme office-seeking behaviour—such as John Edwards' persistence in pursuing the 2008 Democratic presidential nomination while conducting an especially tawdry extramarital affair. But the "winning elections" interpretation sits uneasily with the fact that in many democratic systems, politicians accept term limits, and don't go on to further contests of that type, except informally.

A slightly different interpretation would be that their desire is to acquire and maintain power or other personal benefits. This is one of the ideas underlying the Mo Ibrahim Prize for Achievement in African Leadership, which is given to African heads of state who do a good job and then democratically transfer power to their successor. It includes a $5m initial payment, and $200,000 a year thereafter for life. One reason for the financial payment, as Mr Ibrahim explained in the New Yorker earlier this year, is that while a Western politician might look forward to a lucrative post-political career—writing memoirs, hitting the speaking circuit—African heads of state typically don't have that option.

An alternative explanation would be that politicians try to maximise public welfare. That's no doubt true for many politicians and in many cases—maybe even most, depending on the context, as most politicians could make more money and have fewer hassles in the private sector. And although it's hard to point to cases where a political action is solely undertaken to improve public welfare, it's not impossible. That is, we can find cases where a political action, voluntarily undertaken, damages the politician's ability to win an election or maintain power. In those cases we can be fairly confident the motivation is genuine. A paradigmatic example comes from Lyndon Johnson. When he signed the Civil Rights Act, in July 1964, he had been warned that it would cost him the forthcoming election (it turned out not to), and he famously commented at the time, with regard to his party, "we have lost the South for a generation." 

Of course, the programming framework is too restrictive. The more reasonable explanation is that politicians, like people, have various goals which are occasionally in conflict. But to continue with the metaphor, under what conditions does their objective function change from the cynical one to a more altruistic formulation? In the high-profile cases, it seems to be a matter of normative commitment. If the commitment is very strong, approaching the level of moral belief, politicians will be more willing to incur political costs for it. With commitments that are less entrenched, the trade-offs would loom larger. It seems to me that for the public, there is an incentive to encourage the normative commitments of politicians: we don't share their concerns about their careers, but we do have an equal investment in societal well-being.

The way to encourage normative commitments in general, I would argue, is to minimise the political costs of any individual commitment. So perhaps socially liberal voters should be open to candidates with a few socially conservative views, or fiscally conservative voters should be tolerant of a candidate who has indicated support for an effort to reduce carbon emissions. In practice, this already does happen, often based on the voters' assessment of a politician's sincerity. There may even be a net political benefit to sticking to unpopular views, if it gives the voters an impression of integrity. All the more reason for politicians to stick to their principles. 

TODAY marks the first anniversary of the explosion on the Deepwater Horizon, an exploratory rig drilling in the Gulf of Mexico, that triggered one of the largest oil spills in history. The full environmental and economic impacts of the spill can't be fully assessed at this point, but in general terms, we can say that the grimmest fears have not been realised, and the Gulf coast is on the road to recovery. This week's paper has coverage of the response to date, the regulatory environment, and whether you should feel good about eating Gulf oysters (answer: yes for safety, although the slurping process may damage your dignity).

Here, I wanted to take a closer look at uncertainty and ambiguity, which have been features of the spill since the beginning. There was the tremendous scientific uncertainty, with the varying estimates of flow rate and differing projections about the possible impact. There was the organisational ambiguity about the response effort. It was coordinated under a Joint Incident Command, but many state and federal agencies contributed, and there were squabbles between federal, state and local officials about who was best placed to respond to what. And the role of BP, the company in charge of the rig, was fuzzy: authorities said over and over that they were the "responsible party", meaning responsible for the problem and financially liable, but they were also responsible for parts of the response, such as killing the well.

The uncertainty contributed to the economic toll of the spill. We can see that now in the seafood industry; the FDA has approved the catch as safe, and yesterday the last affected fisheries were reopened, but fishermen and restaurateurs say that diners are still leery. It also contributed to the emotional toll. Frances Beinecke, the head of the National Resources Defense Council and a member of the Oil Spill Commission, reckons that the oil spill was damaging partly because it violated the public's sense that the government can and should guarantee clean air and water—in contrast to, say, a natural disaster, which is out of anyone's control.

At the same time, the confusion had its uses. The uncertainty galvanised the response. And although the organisational ambiguity reflects fragmentation, that had some benefits; it left the different actors to fiercely steward their own priorities, which allowed for a more tailored response. In Louisiana, for example, the priority was protecting the vulnerable marshes, and workers tried to divert the oil to "sacrificial beaches", which can be cleaned later. In Alabama and Florida, the priority was protecting the white-sand beaches, which are symbols of those states and key for their tourism industries. 

But costs and benefits aside, uncertainty was unavoidable because it was real. Deepwater drilling technology is relatively new; the wellhead was 5,000ft below the surface; and there wasn't as much baseline data about the Gulf as scientists would have liked. In the face of all the unknowns, it would have been irrational and unconvincing to assert full confidence about the eventual outcome.

One thing that would have helped in this crisis, and what might help in future crises, is a more public recognition that uncertainty is intrinsic. That's a hard thing for politicians to articulate, because it can make them sound like they, rather than the situation, are the uncertainty vector. But it's not so hard for people to understand. One of the interesting things about covering this story, both this week and in this year, has been that many people on the Gulf Coast, those who have been most affected, are more sanguine about the situation than I would have expected. They seem to describe the oil spill in the way that they would describe a hurricane—devastating, difficult, but not really infuriating. That's odd on its face. The oil spill was caused by people, and could have been avoided with more scrupulous safety precautions. And yet the angriest group right now are the oyster fishermen, and that may be because BP doesn't want to pay to reseed the oyster beds that were damaged in the response. It may be that the Gulf coast, with its long exposure to the energy industry, accepts the risks of offshore drilling along with the rewards. That acceptance of certain risks may increase tolerance of uncertain outcomes.

(Photo credit: AFP)

JEFF ZELENY wonders if Barack Obama, who sat for an interview with a Dallas news station yesterday, has electoral ambitions in Texas:

President Obama's political advisers often talk about how population shifts in the country could create new electoral battlegrounds, pointing specifically to Arizona, Georgia and Texas.

There are several signs that aides to the president have Texas on their minds. Jim Messina, the manager of Mr. Obama’s re-election campaign, toured three Texas cities last month during his coast-to-coast listening tour. And the president is eying Texas for a fund-raising visit this spring.

What these three states have in common is a growing Hispanic population. The "Hispanics will obviously vote Democratic" strategy continues to strike me as both shallow and shaky. Although Hispanic voters do favour Democrats, it won't do to be complacent about that. And at the moment the connection between Hispanic voters and Democrats has as much to do with their mutual frustration with Republicans as with shared political priorities. It's therefore good to hear that Mr Obama is holding a meeting today to discuss having another go at immigration reform:

"The question is going to be, are we going to be able to find some Republicans who can partner with me and others to get this done once and for all, instead of using it as a political football?" he told Dallas-based WFAA-TV during one of four local television interviews on Monday.

I hope he tries, at least. The current immigration laws are like an old, misshapen quilt with ripped seams and the stuffing falling out in places. The system is inefficient, unpredictable, and occasionally senselessly punitive, and it saps the effort to secure the border against serious crimes (crossing illegally is only a misdemeanor, and being in the United States without papers is a civil violation). An effort to reform it would be difficult and contentious, but the need for reform is not diminished by the challenges that would attend it. And the political moment is reasonable for Mr Obama and the Democrats. A push for immigration reform might damage their prospects in states such as Arizona and Georgia, where the state legislature has just passed a strict enforcement bill that takes some cues from the law passed in Arizona in 2010. The Arizona law, incidentally, has not been fully implemented; major parts of it were blocked by a federal judge in Phoenix last year, and last week an appeals court refused to lift the stay. That points to another problem with current immigration laws: in the absence of federal action, state and local governments are taking matters into their own hands, making the system even more distorted.

As for the campaign, Mr Obama should spare some time to do a little campaigning in states like Texas and Georgia, even though it is unlikely he will carry them next year. Down-ballot Democrats suffer when there is no serious effort at the top of the ticket, and campaign appearances from heavy hitters may have a cheering effect on the members of the minority party. The same applies for the Republicans; their eventual nominee should stop by New York and San Francisco, and not just for fundraising. We all have more fun when everyone takes a swing at the piñata.

IF THE name Mark McKinnon doesn't ring any bells for you, it may be because Mr McKinnon has been involved in a series of forgettable initiatives like last year's "No Labels" flop. I can't remember what exactly "No Labels" was about, and I refuse on principle to look it up; I think it involved the notion that most or all of America's problems could be solved if people could just come together and compromise. My sense was that the idea didn't appeal to partisans because it was supposedly bipartisan, and it didn't appeal to wonks or people with substantial positions on issues because it took no substantial positions on issues. A lack of any constituency is generally a problem for political initiatives.

Last week Mr McKinnon responded to Barack Obama's budget speech with a piece in the Daily Beast that nicely captured a certain whiny zeitgeist. Mr McKinnon spends the beginning of the piece grumping about alleged partisanship. Then he makes a couple of proposals that are never going to happen because they interest no one, and for good reason. Here's one of Mr McKinnon's concrete points:

Ryan’s [plan] proposes a revenue goal of 19 percent of GDP; Simpson-Bowles, 21 percent. And Charles Krauthammer offers the obvious solution: a compromise agreement of 20 percent of GDP.

Mr McKinnon either hasn't read the Bowles-Simpson report, or he didn't understand it, or he's being deliberately misleading. Bowles-Simpson didn't propose a "revenue goal" of 21% of GDP. It proposed a revenue ceiling of 21% of GDP. For this reason, it was widely mocked: what kind of deficit reduction plan puts a hard ceiling on revenues? Such a ceiling might be appropriate for a government-tax-limiting commission; for a deficit-reduction commission, it gets a note in red pen: "Student did not understand purpose of assignment."

Second, Mr McKinnon professes to be looking for a bipartisan compromise. The Bowles-Simpson commission was a bipartisan commission. Adopting the Bowles-Simpson chairmen's mark could conceivably be described as a bipartisan compromise, though in fact the charimen's mark leaned well to the right. But splitting the difference between Bowles-Simpson and Paul Ryan's plan isn't a "compromise" at all. It's just a Republican position. In unguarded remarks last week, Barack Obama contended that Democrats are not going to accept "compromises" of this sort because they're not stupid. The claim is to some extent open to debate, but Mr Obama is probably right that they're not stupid enough to be gulled by sidewalk cons like this one. And I do Mr McKinnon the credit of believing that he's not so slow as to believe that what he's offering here is a genuine compromise. I think he's probably smart enough to know what he's doing when he tries to disguise the flavour of his own preferences by denouncing partisanship and adopting brands like "No Labels". If Mr McKinnon has a position on the proper level of government revenue, he should make the case, and if his case puts him into a partisan camp, he should cop to that. Mr McKinnon clearly has a position, it's clearly a Republican position, and he clearly knows enough about the issues to realise that his positions are Republican ones. It's important to remember that he's a marketing executive. I think this puts his call for a "non-partisan" compromise in the proper perspective.

More generally, it provides a nice heuristic for evaluating people who claim to be non-partisan. First, they should have substantive positions that differ from those of the two parties. Discussions with them should be based on discussions of the merits of their positions. Otherwise, the fact that their T-shirts don't have logos on them is not particularly meaningful.

MY COLLEAGUE and I have something in common: we both think concentrations of power in alliances between gargantuan business instititutions and gargantuan government institutions are generally terrible. My colleague and I don't have much in common in how we analyse the formation of those concentrations of power, or what we think should be done about them. Another thing my colleague and I have in common is that we each think the other guy's approach to this problem is hopelessly naive. And another thing we don't have in common is that I largely agreed with Joseph Stiglitz's article in Vanity Fair, which my colleague describes as an example of self-refutingly absurd liberal ideology. To sum up the basic thrust of what I agree with in Mr Stiglitz's piece: I think the rich are getting much, much richer, while regular people (in the developed world, which is what we're talking about here) are at best treading water. I think that wealth brings power, and the fact that the rich are getting much, much richer relative to everyone else means that the rich also exert increasing influence over the economy, government and society. I think income mobility and equality of opportunity have declined in America over the past 40 years, to the point where America is now more segregated by class divisions than many European countries. I think a major reason for these shifts has been the increasing dominance, since the Reagan era, of an ideology that is indifferent to or actively celebrates inequality of income. I think this ideology is bad: bad for the economy, bad for society, bad for art and culture, bad for the moral character of those who subscribe to it. My chief difference with Mr Stiglitz is that I think his confidence that inequality will eventually lead to a vociferous political reaction against wealthy financial elites in America is misplaced.

I'm going to get to more fundamental issues, but first, I have to address my colleague's reference to a post by Scott Winship that claims that Mr Stiglitz got all his numbers wrong. The first claim on that post is that the top 1% of American earners take in not "nearly a quarter" of all American income, as Mr Stiglitz says, but 18% of all income, according to figures by Emmanuel Saez and Thomas Piketty, respected economists. But a commenter quickly notes that Mr Winship made a mistake here: he used Messrs Saez and Piketty's figures for income not including capital gains. This is like saying that the Queen of England doesn't really earn that much, if you don't count the money the state pays to maintain her palaces and cover her servants, food, clothes, parties and travel. The top 1% earn a large and increasing portion of their income from capital gains; it's my understanding that for hedge-fund managers, the entirety of their income is counted as capital gains due to the carried-interest rule. Mr Winship has a number of other problems with Mr Stiglitz's figures. And I don't know whose figures are better. But I am confident that on each of these claims, an argument between Mr Winship and Mr Stiglitz is going to come down to an abstruse conflict over different data sets. There is simply no way that Joseph Stiglitz inserted, say, the figure that the top 1% of Americans control 40% of the country's wealth off the top of his head. And all of the authorities Mr Winship cites also agree that inequality of income has grown markedly in America over the past 30 years. Arguing over percentages seems to me, to quote Mr Stiglitz, like an effort to "(pretend) that what has obviously happened has not in fact happened."

Continue reading "The 1% solution"»

ONE of Barack Obama's clearest themes in his speech today laying out his latest deficit-reduction plan was that rich people ought to pay more in taxes. Mr Obama even included a short disquisition on the fairness of a progressive tax-rate schedule:

As a country that values fairness, wealthier individuals have traditionally born a greater share of this burden than the middle class or those less fortunate. Everybody pays, but the wealthier have borne a little more. This is not because we begrudge those who’ve done well—we rightly celebrate their success. Rather, it is a basic reflection of our belief that those who have benefitted most from our way of life can afford to give back a little bit more. Moreover, this belief has not hindered the success of those at the top of the income scale, who continue to do better and better with each passing year.

Of course, there is ambiguity lurking in phrases like "borne a little a more" and "give back a little bit more". Were individuals at every income level taxed at a flat rate of, say, 20%, the wealthy would bear and pay back more as a matter of course. Twenty percent of $200,000 is a bigger number than 20% of $20,000. What Mr Obama means is that the wealthy ought to give up a larger percentage of their income. It's rather less intuitive that fairness demands that the wealthy not only pay more in taxes, but pay a larger percentage of income. But let's accept that fairness does require it. Anyway, high-earners in America do pay higher rates. In 2008, the top 1% paid 38% of all federal income taxes, and the top 5% paid 58%. Indeed, America is the industrialised world's champion of income-tax progressivity! If any country's upper-crust pays its fair share, America's does.

But you wouldn't know it listening to Mr Obama. He repeatedly and misleadingly portrayed the tax burden carried by America's top earners as unfairly light, and the top-rate tax cuts under President Bush as a leading cause of America's dire fiscal straits. He even proposed that itemised deductions available to every other American taxpayer be eliminated for the top 2%, which strikes me as precisely the sort of thing a country that values fairness would not do. In any case, to the extent our woes flow from a paucity of revenue, the problem is that America's vast middle-class pays too little, not that its rich do. The widely-admired Scandinavian countries collect a much larger portion of GDP in taxes not because their top earners bear a relatively larger tax burden than do America's top earners, but because they don't. The president's confusion on this matter was evident in his open admission that "I agreed to extend the tax cuts for the wealthiest Americans because it was the only way I could prevent a tax hike on middle-class Americans". But without a tax hike on middle-class Americans, there's simply no hope for serious deficit reduction. That is, there's no hope as long as Mr Obama insists on cutting spending with a "scalpel" and "not a machete". Were he really serious about deficit-reduction, Mr Obama would have let all the Bush tax cuts expire. 

In the absence of middle-class tax increases, or cuts in military spending much larger than Mr Obama proposed, the only realistic hope for putting America's finances back on a sound footing is the structural overhaul of the big entitlement programmes. There's a lot to criticise in Paul Ryan's plan, but at least he grasped this nettle.

(Photo credit: AFP)

EVEN before Mitt Romney announced this week that he was taking the first official step towards running for president—forming an “exploratory committee”—he was already being called the “nominal” frontrunner for the Republican nomination. He came second last time (depending on how you count), and is rich, well organised, articulate and presentable. Normally, that would be enough to secure the nomination, since Republican primary voters seem to reward candidates who dutifully wait their turn. But Mr Romney suffers from so many handicaps that pundits feel obliged to qualify his lead.

During his previous run for president Mr Romney could not shake his reputation as a flip-flopper. In order to curry favour with conservative voters he clumsily disavowed the liberal views on abortion and gay rights he had espoused to become governor of strongly Democratic Massachusetts in 2002. His critics sent activists in dolphin suits to dance around at his rallies waving their flippers.

Worse, as governor Mr Romney signed into law an overhaul of the state health-care system which was in many ways a template for the federal health-care reforms that have earned Barack Obama such opprobrium on the right. Mr Romney tries to gloss this over by saying what worked in one place won’t necessarily work elsewhere; but many Republicans regard the principle of requiring people to buy health insurance, key to both the Massachussets and Obama models, as downright unconstitutional. Mr Obama still mischievously acknowledges his debt to Mr Romney from time to time.

Mr Romney is also Mormon—a sect viewed with suspicion by the evangelical Christians who make up the majority of caucus-goers and primary voters in several states with early contests. And he can be a wooden campaigner, dressing in forbidding suits and struggling to chit-chat.

Mr Romney signaled how he might try to overcome these obstacles in the brief video he posted online announcing his exploratory committee. He dressed casually (no jacket or tie) and spoke directly to the camera with square-jawed conviction, making no mention at all of health care or troublesome social issues. Instead, it focuses almost exclusively on employment. In it, Mr Romney points out that he had a long and successful career as a businessman, providing livelihoods to many, before becoming a politician. Mr Obama and his coterie, he says, have no idea how jobs are created in the private sector—hence the feeble state of the economy. As president, Mr Romney concludes, he will restore America to greatness by pursuing “a growing economy, good jobs and fiscal discipline”.

Mr Romney’s record as an entrepreneur is also not without its awkward episodes: Bain Capital, a private-equity firm he helped found, laid off workers at many of the companies it invested in and drove several firms into bankruptcy after extracting handsome profits. But the emphasis on the economy still seems sensible, as voters consistently rate it as their chief concern in polls. If there is one thing Mr Romney seems to have learned at Bain, it is how to turn around a foundering enterprise.

(Photo credit: AFP)

LAST month Portugal's parliament voted against a package of austerity measures that would have been necessary to avoid a European Union bail-out. Immediately, the country's costs of borrowing went through the roof. Last Wednesday, Portugal auctioned €1 billion of 12-month bonds at a yield of 5.902%; at the previous auction of €1 billion on March 16th, the yield was 4.331%. Now Portugal will end up having to adopt basically the same package of austerity measures, or something worse, as a condition to receive the European Union bail-out. So their parliament's rejection of the austerity measures cost Portuguese taxpayers €15.71m on that bond issue alone, in return for which they got exactly nothing.

The tea-party right, disappointed that congressional Republicans ended up compromising with Democrats and passing a budget for the rest of 2011 that contained a mere $80 billion in cuts from Barack Obama's budget and failed to end federal funding of Planned Parenthood and so forth, is threatening to restage the whole battle when Congress has to vote to raise the federal debt limit in mid-May. It's brinksmanship: tea-partiers are hoping that everyone understands they really are determined enough to impose chaos in the name of shrinking federal spending. But in the case of the budget-deal fight, the threat was to shut down the federal government. That wouldn't have been popular with most voters, but since tea-partiers dislike the federal government, it wasn't particularly unpopular with their base.

Failing to raise the federal debt ceiling is different. It's different, as Matthew Yglesias points out, because it probably wouldn't require the immediate shutdown of government functions. But it's also different because it's basically a threat to hurt the credibility of the federal government in the bond market. Obviously, the political stunt of refusing to raise the debt ceiling is not going to cause America to permanently default on its debts, nor will it immediately enact a new balanced budget by slashing spending by $1.4 trillion this year. Rather, some political agreement will be reached, at which point the government will again begin selling bonds to cover its budget deficit. But those bonds will have to pay higher yields than they do now, because bond markets will become more sceptical about the creditworthiness of the government. Indeed, the whole reason people are scared of hitting the debt ceiling is anxiety that bond markets will punish the government if it happens. That's the hostage tea-party Republicans are holding: the credit rating of the US government.

How much higher bond yields would go if we do hit the debt ceiling is anyone's guess. Interest on Portugal's 12-month notes rose over 1.5% after it rejected austerity measures, while interest on its six-month notes rose over 2%. But rates on American bonds are unlikely to jump anything like that high; America is the world's largest economy, and there's little question that our government has the fundamental capacity to repay its debts. In an interesting piece last November, Josh Barro argued that yields might not rise much at all; they didn't the last time the government hit the debt ceiling, during the budget shutdown in 1995, because bond markets correctly judged that the stalemate was a temporary political standoff that would be quickly resolved. On the other hand, a lot of people are making the opposite case right now: that bond markets are increasingly pessimistic about America's to cope with its long-term debts. Pimco's Bill Gross, the world's biggest bond fund manager, recently started shorting US government debt. Christopher Caldwell argued over the weekend that Mr Gross's move was like the moment in a Balzac story where the indebted nobleman suddenly realises that his debts are real, and that "people have lent him money not because they have more than they know what to do with, or because he’s a nice guy, or because his privileges are the natural order of things. They have lent him money because they have made certain assumptions about his honour—misplaced assumptions."

Continue reading "A threat to cost taxpayers money"»

“HEADS I win, tails you lose,” would be a reasonable description of the Republicans’ offer to the citizens of Washington, DC in the haggling over the federal budget. Except, of course, that the Republicans did not actually bother to discuss their ideas about how Washington should be run with the city’s elected leaders before imposing their will. They also did not seem to ask themselves why the services the city provides to its residents with its own local tax revenue should have become a bargaining chip in a totally unrelated negotiation about cutting the federal deficit. And they found willing collaborators in their eagerness to ride roughshod over the people of the city that hosts them in the Democrats in Congress and the White House.

Had the federal government shut down, Washington’s city government would have had to pull down the shutters as well, since it is merely an appendage of Congress, financially speaking. Its economy would have taken a huge hit, as its darkened museums turned away tourists and its vast number of federal employees went without pay. The trash would have moldered in the streets—or on John Boehner’s front lawn, where a protest group suggested dumping it. This grim scenario, however, was only averted by a deal that treated DC as a sort of petri dish for House Republicans’ social experiments. Policy “riders” that the Republicans added to the budget agreement will oblige the city to revive a school-voucher scheme and prevent it from spending its own revenue on abortions.

You would think that Republicans who claimed to be trying to cut the meddling federal government down to size would not have wanted to use the cuts as an excuse to increase federal meddling in DC’s affairs. But it is just fine for the feds to take control of America’s schools and clinics, it seems, as long as you have already deprived the families that use them of a say in their national government. By the same token, you would think that DC’s cries of “No taxation without representation” might strike a chord with the tea-party movement. But they’re only interested in the rights and freedoms of like-minded people, apparently. And don’t get me started on the White House and the Democrats in Congress, who appear to see assaults on “women’s health” as absolutely beyond the pale, except, inevitably, if the women in question live in the District of Columbia.

As a cynical journalist, I’m not normally surprised by hypocrisy in politics. But I am curious as to whether any of the characters involved felt any qualms as they ignored the very principles they claimed to be fighting for. It must say something about the health of American democracy that DC, as its (non-voting) delegate to the House of Representatives put it, got thrown so casually under a bus by the highest political office-holders in the land. I guess I and the city’s other residents should just be pleased that the buses are still running.

"ONE thing about me, I'm a very honourable guy," says Donald Trump, in a line that I would certainly pinch if I were ever mulling a presidential bid, as he is. As he prepares for the possibility, however, he has a few hurdles, one of them being that he used to be pro-choice. Last week, in an interview with CBN (the Christian Broadcasting Network), he explained the switch:

I'm pro-life, but I changed my view a number of years ago. One of the reasons I changed—one of the primary reasons—a friend of mine, his wife was pregnant, in this case married. And she was pregnant—and he was going to—they were going to—he didn't really want the baby. And he was telling me the story. He was crying as he was telling me the story. They ended up for some reason, amazingly, through luck, because they didn't have the right timing, he ends up having the baby and the baby is the apple of his eye. He said it's the greatest thing that's ever happened to him. And you know here's a baby that wasn't going to be let into life. And I heard this, and some other stories, and I am pro-life.

As an aside, there was an interesting editing decision in the CBN story linked above. The transcript I gave is from the video clip; the transcript they use trims out "They ended up for some reason, amazingly, through luck, because they didn't have the right timing..." It may be a clean-up edit, but that part of the story makes me curious about the couple in question; as Amanda Hess points out, Mr Trump's version makes it sound like the husband was willing to pressure his wife. I wonder if CBN meant to obscure it. Their edit makes it sound like the woman wanted the baby, the husband didn't, and the woman overruled him, it being her body and everything. Commenters, am I overthinking that?

In any case, Mr Trump has offered a relatively good template for how a candidate can explain a change in his or her views. First, we see the full acknowledgment that a change has transpired, with no effort to soft-pedal the previous stance. We have a tacit acknowledgment that an explanation is necessary. Then we have a story that gives the cause of the effect, and the cause involves new information leading to new thinking—in this case, a personal experience that happened in the meantime.

Social conservatives are sceptical. LifeNews.com, for example, wants more explanation. Partly they have doubts because it just so happens that the new view is more politically convenient than the old one. Some of the credibility problems no doubt come from Mr Trump himself, a much-married New York business mogul who has never before been allied with the cause. But we do see a certain willingness to let Mr Trump explain himself.

Could this template work in other cases? Think back to Tim Pawlenty's switch on cap and trade, for example, which I found so irritating a few weeks ago. In that case, Mr Pawlenty minimised his former views (by saying that other candidates had also been worried about climate change), and didn't offer much explanation of the switch. He did say it would be a "ham-fisted, unhelpful, damaging thing to the economy", but presumably he was aware of the cost projections at the time he supported cap and trade. A more compelling account, in my book, would have been to say that in light of the continuing difficulties with the economy, he had concluded that cap and trade, being expensive, could not be considered a top priority in the near future. Several of our commenters argued that it's more convincing to change your views on a policy proposal, such as cap and trade, rather than a moral issue, such as abortion. That may be correct, but I think the key in both cases is to give a causal explanation for the change.

(Photo credit: AFP)

ALEXANDER HAMILTON was never president. Indeed, he probably could not have been, for he was the only founding father born outside of what became the United States. (I can’t imagine that the Caribbean hell hole called Nevis where Hamilton, an illegitimate child, was born even issued birth certificates. Birthers?)

By contrast, three of the men who cast Hamilton’s life into relief were presidents:

• George Washington, who was Hamilton’s aegis for much of his career,
• James Madison, who began as Hamilton’s intellectual ally in writing the Federalist Papers but later turned into Hamilton’s enemy, and
• Thomas Jefferson, who, with Madison, became the ideological and personal antithesis to Hamilton in the early years of the nation.

Perhaps this is why many of us know less about Hamilton than about these others. For a strong case can be made that Hamilton was in many ways the most “soulful” of the founders and the one with the most nuanced and farsighted vision for America. Indeed, America today almost certainly—as futile as this thought experiment admittedly is—conforms to Hamilton’s vision much more than to Jefferson’s.

America is a cosmopolitan, commercial and industrial place (as Hamilton envisioned), not an agrarian land of yeoman farmers untouched by the corrupting influence of banks and brokers (as Jefferson wanted). It has long since banned slavery, as Hamilton always thought it should, but as Jefferson and Madison, among other southerners, dared not contemplate.

Indeed, a list of Hamilton’s legacies—first Treasury secretary, founder of  "Wall Street" and American central banking, founder of the Coast Guard, visionary of capitalism and governmental checks and balances—inevitably shortchanges his overall impact. In everything but title he really was America's first and most important prime minister.

So I was thrilled to watch a new documentary about Hamilton that finally gives the man his due. To be aired on PBS on April 11th, "Rediscovering Alexander Hamilton" by Michael Pack and Richard Brookhiser (who also did "Rediscovering George Washington") brings the man to life in some creatively contemporary ways.

Thus we see Hank Paulson, while he was Treasury secretary, attempt to argue that he was responding in a "Hamiltonian" way to the financial crisis. Rupert Murdoch and Larry Flynt appear to explain how the media culture of Hamilton’s day was perhaps not so alien after all. Some toughs from the Baltimore hood explain why they would gladly fight and die for honour, as Hamilton did (and as his beloved son had done) when he agreed to his fateful duel.

The film, to be sure, is too long—about two hours. But there are nuggets for us modern-day Hamiltonians to savour. Thus a handwriting analyst (while sitting on a boat on the Hudson as Hamilton might have done) points at the Ts that are not crossed and the Is that are not dotted in Hamilton's longhand, because Hamilton was just too fast a thinker to slow down for such technicalities.

That detail, indeed, says an awful lot about the great man. Perhaps it also explains why I empathise with him so much: words came so easily to him that he could not shut himself up. Had he learned to keep mum more often, to give his enemies less of a target, who knows how much more Hamilton might have contributed.