Finessing Norquist

Republicans can have their cake and eat it too

The "fiscal cliff" is in reality a slope that gets steeper and steeper. We need to strike a deal in early January, before the economy gathers downhill momentum, but there is room to maneuver. This opens up the possibility that Republicans can have their cake and eat it too. Once January 1st arrives, the "temporary" Bush taxes cuts will have expired. Any final package will reasonably provide a cut to the post-January-1st level of the alternative minimum tax. It will probably include other minor adjustments. So what asked to vote, what Republicans can say "aye" to a package that contains tax cuts and not tax increases.

Object to this as sophistry. Fine, but sophistry is better than demagoguery!

Have Americans given Obama a mandate? Well, he's been pretty clear about raising the rather low tax rates the truly rich face, rates significantly lower than what I pay. He won the election. So people had an opportunity to say "no" and ... didn't.

Locally, my House district re-elected the Republican incumbent, Bob Goodlatte, against token opposition, a virtually unknown Democratic candidate running for office for the first time. Goodlatte won by the expected wide margin. Does that mean that he has a mandate? I don't think so; a mandate comes only when you've contested against a serious candidate, and the voters chose you. Even then, few people vote on a single issue, and few elections are decided on a single issue. Goodlatte is good on constituent services, and has done a modest job of lobbying for local pork. Did we elect him to bring home more bacon for all, or to procure a piece of choice filet mignon for the few? I rather think the former.

We can step over the edge of the "cliff" and still step back. That provides room for creative and constructive bargaining. Lets hope our putative leaders in Washington, Republican and Democratic, are up to the task.

...mike smitka...

The Chimera of Energy Indepence

...how much are Americans willing to pay for independence?...

Planet Money has a nice segment today [Oct 26] arguing that Energy Independence Wouldn't Make Gasoline Any Cheaper. They use interviews in Canada, a net energy exporter, to make the case: prices there are neither cheap nor stable.

A simple Econ 101 framework helps. Why would a country be a net exporter (such as Saudi Arabia or Iran) rather than a net importer such as the United States? The obvious answer is because we're not the low-cost provider. Ergo we buy from people who are.

So first, the only way we can obtain "independence" is if we are willing to pay more for energy. Listening to the presidential debates, however, the framing clearly equates independence with low prices. That can't happen, barring a technological breakthrough that can be quickly commercialized. Solar power? Well, Arizona has plenty of sunshine days and lots of comparatively empty land. But getting power from there to the rest of the US would be a challenge. And Saudi Arabia? -- they've even more empty land and more days of sunshine. Shipping the energy would remain the issue. But we might still not be the low-cost provider.

Second, how about price volatility? Lessening that requires that we add layers of regulation, specifically that we prohibiting exports and imports. Energy markets are global, else we'd not worry about the Middle East. If global prices go up, then so will US domestic prices unless we prohibit exports. If global prices fall, then we have to prohibit imports lest firms turn to cheaper sources. Neither presidential candidate proposes any such thing.

Then there's the red herring of regulation. We have anecdotal evidence that we in fact err on the side of minimalism: remember BP Horizon? More generally, you'd have to make the case that we are stricter than other countries, in a way that keeps us from drilling. Now local petroleum geologists assure me that there are reserves in really, really deep water and in the far Arctic. Neither are low-cost sources, both because of the difficulty of drilling and the additional challenge of getting oil from wellhead to refinery. The barrier to greater supply – greater "independence" – remains low prices.

You'd flunk Econ 101 if you didn't also mention the demand side. Not a hint of such from either Obama or Romney. Even the general public understands that demand-side policies require paying a higher price for energy.

So how much are Americans willing to pay for independence? My guess: not one penny.

...mike smitka...

Addendum:
Indeed, how much are we willing to pay for sanctions on Iran? – my hunch is "zero". But sanctions are working in an economic sense: production is down over 1 million barrels a day, enough to move the price we pay at the pump. Neither candidate was willing to point that out.

But Romney Can't Work with Congress!

...Romney's plan is "work with Congress"...

Obama did not go for the jugular; he's not a street fighter. He did not try to get Romney to name a single one of the loopholes he would close -- there are lots, but the big ones are capital gains, home mortgages and charitable contributions. Without closing those, he can't deliver on his tax cut.

Oh, and if the loopholes are closed, in my case the reduction in the tax rate wouldn't be enough to offset the loss of the mortgage deduction, because I'm stuck with a house I can't sell plus the one I live in. So Romney is in fact promising to increase my taxes, and I'm middle class, as a professor I don't make it into the top 10%.

But the most disturbing component is something about which I've not seen a single comment. The core of Romney's plan, er, argument is "we'll work it out with Congress." I'm afraid that won't prove possible. The Tea Party adherents in Congress will prove no more flexible with Romney than with Obama. Indeed, the choice of Ryan will embolden them to dig in their heels. So I think the reality would be that Romney would not gain unity among Republicans on any of the crucial issues (other than repealing RomneyCare). Meanwhile, he will alienate the Democrats.

Now to the puzzlement of many, since he had a majority, Obama tried to sit down and work with Congress during his first two years. The result was many compromises but few votes in return -- and since the midterm elections, none. Working with Congress? -- we've been there and done that, and it didn't work.

The bottom line is that with both the Tea Party and the Democrats against him, Romeny will find it harder to work with Congress than President Obama, not easier. To put it bluntly, Romney will find it impossible. So what is his real plan, to dither for 4 years?

...with both the Tea Party and the Democrats against him [Romney's plan is] impossible...

...mike smitka...