James Pethokoukis

Politics and policy from inside Washington

Like a Texas storm, Perry swamps Iowa straw poll

Aug 13, 2011 23:25 UTC

Congratulations to Michele Bachmann, but the big political winner Saturday wasn’t in Ames, Iowa. That politician was half a country away in South Carolina, completely scrambling the Republican presidential race.

1) Online betting markets have already decided that Texas Gov. Rick Perry is no flash in the Panhandle — another Fred Thompson or Wesley Clark who sparks a flurry of interest but quickly fades. To bettors, it’s a two-horse race and a dead heat between Perry and Mitt Romney. But anyone listening to Perry’s well delivered, muscular, high-energy speech in Charleston, S.C., would probably draw the same political conclusion. He hit tea party-friendly themes and hit them well:

The change we seek will never emanate out of Washington…it must come from the windswept prairies of Middle America…the farms and factories across this great land…the hearts and minds of God-fearing Americans who will not accept a future that is less than our past…who will not be consigned a fate of less freedom in exchange for more government. … And I will work every day to make Washington, D.C. as inconsequential in your lives as I can.

2) Unlike the other candidates who were competing to win the Iowa Straw poll, Perry can easily make a persuasive case that he has the real-world solutions to what most Americans believe is the nation’s biggest problem: high unemployment. He could have probably spent his entire speech rattling off the Lone Star State’s impressive job-creation statistics. (On Perry’s official Texas government web site, they’re listed under the “Bragging Rights” section.) It’s that record of results that lends gravitas to his rhetoric and philosophy and makes him a leading contender for the GOP nod. As Perry noted, “Since June of 2009, Texas is responsible for more than 40 percent of all of the new jobs created in America. Now think about that. We’re home to less than 10 percent of the population in America, but forty percent of all the new jobs were created in that state.” That’s a helluva good story for a presidential candidate to tell.

3) The anti-Perry case is obvious, and liberals are already making it, such as blogger Kevin Drum of Mother Jones magazine: Everyone looks good before they get into the race. He’s too Texan and George W. Bush-like. He’s too mean. He’s too dumb. He’s too smarmy. He’s too overtly religious. Policywise, he’s too radical, even for Republicans. The strength of the tea party-wing is overrated. The Texas economic miracle is a mirage. Republicans want to beat Obama, and Perry isn’t electable.

4) The next six months of campaigning will start to show which, if any, of those charges has any merit or substance. Neither Romney nor Perry will likely hesitate in, shall we say, contrasting their records. Romney will play up his business career as a successful private equity investor and venture capitalist and slam Perry as a “career politician” and “crony capitalist.“ And Perry will counter with attacks on Romney’s Obamacare-esque healthcare plan in Massachusetts, as well as stressing his own inspirational life story (son of tenant farmers to presidential candidate). One big issue: Perry will need to explain just how far he takes his 10th Amendment embrace. He’s seemed to suggest in the past, for instance, that entitlements like Social Security and Medicare should be sent to the states based on his reading of the U.S. Constitution. Just how small does he want the federal government to be? What is the proper role for government? If Romney doesn’t ask about that, surely President Barack Obama will if Perry is the nominee.

Assuming no other heavy hitters join the race. Perry-Romney is shaping up to be an epic brawl between two aggressive candidates with impressive resumes, both able to raise boats loads of campaign cash. Let the Austin-Boston battle begin.



Now if Parry would just slither back to the swamp.

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GOP presidential debate fell short on ‘the vision thing’

Aug 12, 2011 20:59 UTC

During the close of the 2008 presidential election campaign, John McCain was unable to finally and persuasively and understandably give Americans a vision of where he wanted to lead them should he become the 44th president of the United States. Here is McCain flailing at the beginning of the first presidential debate against Barack Obama:

This isn’t the beginning of the end of this crisis. This is the end of the beginning, if we come out with a package that will keep these institutions stable. And we’ve got a lot of work to do. And we’ve got to create jobs. And one of the areas, of course, is to eliminate our dependence on foreign oil.

Well, he was dead solid about one thing: it really was just the end of the beginning of the crisis. Now, three years later, the U.S. economy is no longer paralyzed. But that’s about it, really. It can sit up in bed but remains unable to get out of bed.

A new report from consulting firm IHS Global Insight, hardly atypical of the sort of analysis I see lately, sees GDP growth of just 1.6 percent this year, 1.9 percent next year and 2.2 percent in 2013 with the unemployment rate stuck around 9 percent the entire period. No wonder consumer confidence is at its lowest levels since 1980, the nadir of the national electoral misadventure known as the Jimmy Carter Experiment.

And if the European sovereign debt situation really breaks down, there’s a chance that whoever takes the oath of office in January 2013 could face as bleak an economic landscape as Obama did in January 2009.

Which leads us to last night’s Republican presidential debate in Ames, Iowa. Who won? I suppose from a purely political perspective, frontrunner Mitt Romney remained unscathed and Michele Bachmann bested caucus rival Tim Pawlenty. But no one on stage came close to providing a holistic approach to America’s ills or even hinted that they had one. Romney did the best on that score:

What needs to be done — there are really seven things that come to mind. One is to make sure our corporate tax rates are competitive with other nations. Number two is to make sure that our regulations and bureaucracy works not just for the bureaucrats in Washington, but for the businesses that are trying to grow. Number three is to have trade policies that work for us, not just for our opponents. Number four is to have an energy policy that gets us energy secure. Number five is to have the rule of law. Six, great institutions that build human capital, because capitalism is also about people, not just capital and physical goods. And number seven is to have a government that doesn’t spend more money than it takes in. And I’ll do it.

Hopefully, there are comprehensive plans behind each of these PowerPoint bullets. But I remain unsure what all those points add up to. What does Romney’s America look like? Or Bachmann’s. Or Rick Perry’s. Again, let me refer to a recent op-ed written by Jeb Bush and Kevin Warsh:

Stronger economic growth is not just about economics. Growth unleashes human potential. It turns personal aspirations into positive achievements. And it lays the predicate for a better, stronger, more prosperous and opportunity-filled America. Our weak economic recovery has dashed the hopes and dimmed the prospects of too many of our citizens. And it has put America’s place in the world at risk.

We should resist the temptation to wrangle with the green eyeshade folks who question our prospects. Instead, we must take actions that demonstrate our resolve and resiliency. We must restore our faith in growth economics and reform our policies accordingly. This will bring strength to our markets and reaffirm our place in the world.

Now that’s winning the future.







Why Romney’s right that ‘companies are people’

Aug 11, 2011 22:00 UTC

Liberal groups, like Think Progress, are jumping all over Mitt Romney for this (via TP):

Mitt Romney completed a rowdy campaign stop at the Iowa state fair, before a key Republican debate tonight and an upcoming Iowa straw poll. At the end of his speech, a Q&A session quickly devolved into a shouting match during which he defended the rich, argued for cutting entitlements, and equated corporations with people. Romney told a group of angry Iowans that raising the retirement age to protect corporate tax breaks is appropriate. “Corporations are people, my friend,” he said.

Now I don’t think Romney was making a legal argument about corporate personhood, which is well established concept in US law:

In the United States, corporations were recognized as having rights to contract, and to have those contracts honored the same as contracts entered into by natural persons, in Dartmouth College v. Woodward, decided in 1819. In the 1886 case Santa Clara County v. Southern Pacific Railroad, 118 U.S. 394, the Supreme Court recognized that corporations were recognized as persons for purposes of the Fourteenth Amendment

Rather, I am pretty sure he was trying to say that corporations are made up of people, but not in a Soylent Green sort of way. Rather they are comprised of workers generating goods and services for customers. And when you punish corporations, you punish workers and shareholders and customers. A few additional points:

1) Here an interesting bit from an OECD paper on taxes and economic growth

Corporate taxes are found to be most harmful for growth, followed by personal income taxes, and then consumption taxes. …  A second option is to reform corporate taxes, as they influence productivity in several ways. Evidence in this study suggests that lowering statutory corporate tax rates can lead to particularly large productivity gains in firms that are dynamic and profitable, i.e. those that can make the largest contribution to GDP growth. It also appears that corporate taxes adversely influence productivity in all firms except in young and small firms since these firms are often not very profitable.  … Lower corporate and labour taxes may also encourage inbound foreign direct investment, which has been found to increase productivity of resident firms. In addition, multinational enterprises are attracted by tax systems that are stable and predictable, and which are administered in an efficient and transparent manner.

2) And here is economist Greg Mankiw addressing the topic in his popular economics textbook:

Many economists believe that workers and customers bear much of the burden of the corporate income tax. To see why, consider an example. Suppose that the U.S. government decides to raise the tax on the income earned by car companies. At first, this tax hurts the owners of the car companies, who receive less profit. But over time, these owners will respond to the tax. Because producing cars is less profitable, they invest less in building new car factories. Instead, they invest their wealth in other ways—for example, by buying larger houses or by building factories in other industries or other countries. With fewer car factories, the supply of cars declines, as does the demand for autoworkers. Thus, a tax on corporations making cars causes the price of cars to rise and the wages of autoworkers to fall.

The corporate income tax shows how dangerous the flypaper theory of tax incidence can be. The corporate income tax is popular in part because it appears to be paid by rich corporations. Yet those who bear the ultimate burden of the tax—the customers and workers of corporations—are often not rich. If the true incidence of the corporate tax were more widely known, this tax might be less popular among voters.

3) Finally, economists Kevin Hassett and Aparna Mathur on who bears the burden of corporate taxes: “The results in this paper suggest that corporate tax rates affect wage levels across countries. Higher corporate taxes lead to lower wages. A 1 percent increase in corporate tax rates is associated with nearly a 1 percent drop in wage rates.”






Thomas Paine said it best in The Rights Of Man in 1791.

“It has been thought that government is a compact between those who govern and those who are governed; but this cannot be true, because it is putting the effect before the cause; for as man must have existed before governments existed, there necessarily was a time when governments did not exist, and consequently there could originally exist no governors to form such a compact with. The fact therefore must be, that the individuals themselves, each in his own personal and sovereign right, entered into a compact with each other to produce a government: and this is the only mode in which governments have a right to arise, and the only principle on which they have a right to exist.”

Thomas Paine and others of the Revolutionary Era realized that any institution made up by and of humans – from governments to churches to corporations – must be subordinate to individual living people in terms of the rights and powers held by the institution.

Corporations only gained equal status with people after decades of assault on the Constitution by the railroads in the 1800′s. The peak year for their legal assault was 1877, with four different cases reaching the Supreme Court in which the railroads argued that governments could not regulate their fees or activities, or tax them in differing ways, because governments can’t interfere to such an extent in the lives of “persons” and because different laws and taxes in different states and counties represented illegal discrimination against the persons of the railroads under the Fourteenth Amendment.

In 1886 the Supreme Court ruled on an obscure tax issue in the case Santa Clara County vs. Union Pacific Railroad, but the Recorder of the court, a man named J. C. Bancroft Davis, himself formerly the president of a small railroad wrote into his personal commentary of the case that the Chief Justice had said that all the Justices agreed that corporations are persons. This, in fact, was not true at all.

In so doing, he – not the Supreme Court, but its clerical recorder – inserted a statement that would change history and give corporations enormous powers that were not granted by Congress, not granted by the voters, and not even granted by the Supreme Court. Davis’s headnote had no legal standing, but was taken as precedent by generations of jurists, including the Supreme Court who followed and read the headnote but not the decision.

The Founders never intended corporations to have the same rights as citizens. It doesn’t matter how many rationalizations the right wing think tanks disseminate to their armies of bloggers and pundits. It is only because of an obscure headnote written by a corrupt Supreme Court clerk in an obscure railroad tax case that took place in 1886 that they have been able to excercise such power, and to the detriment of the People.

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Just where is the GOP on taxes right now?

Aug 11, 2011 20:26 UTC

After the recent debt ceiling debate, Republicans seemed pretty unified in their stance against raising taxes. But here is Ways and Means Chair Dave Camp, just appointed to the new debt supercommittee:

A leading Republican lawmaker would not rule out tax increases on Thursday if they could boost economic growth, adding that “everything is on the table” for a congressional panel charged with forging a deal to cut the deficit.

Representative Dave Camp, head of the tax-writing Ways and Means Committee in the House of Representatives, told Reuters in a telephone interview that the deepening global financial crisis would prompt him and other super committee members to pull together. …

“I don’t want to rule anything in or out,” Camp said. “I am willing to discuss all issues that might help us reduce our short and long-term debt and grow our economy,” Camp said. ”Everything is on the table, until we as a group rule it out.”

Bet the House GOP leadership didn’t like that one bit, though perhaps Camp was just trying to appear non-absolutist on the issue. After all, if Democrats tossed Obamacare over the side and embraced pro-market entitlement reform, perhaps some concession on taxes wouldn’t be out of order

Now let me also point out comments by Sen. Pat Toomey, another GOP member of the supercommittee, to Politico which may also leave a smidgen of wiggle room: “I think some kind of big tax increase is just … not going to be part of this,” Toomey said.

But what about a not-so-big tax increase? Maybe something from this menu of options (via MF Global):

§ Modification of Mortgage Interest Deduction – Repeal raises $484B over five years

§ Carried Interest – $10B-$15B over 10 years

§ Spectrum Sales – $10B-$15B

§ Higher Guarantee Fees for Fannie Mae and Freddie Mac – $30B

§ Repeal of LIFO Accounting – $70B over 10 years

§ Bonus Depreciation (the corporate jet tax)

§ Repeal of oil and gas subsidies – $40B

§ Repeal of Renewable Energy “tax subsidies”

§ Deferral on foreign income of multinationals – $70B over 10 years

§ Medicare Part D Rebates/Dual Eligibles – $112B over 10 years

I am somewhat relieved, then, by what Toomey added:

Still, Toomey said he is open to reforms of the tax code “because there are tremendous inefficiencies in our tax code.” He said he would like to see “all kinds of deductions and write-offs and special-interest loopholes” eliminated and then “correspondingly lower the marginal rate so we encourage investment and economic growth.”

Exactly. Simplify the tax code and use the revenue to cut marginal taxes. A more efficient tax code, especially one that stopped penalizing investment, would boost tax revenue by boosting growth.


If the C.E.O.s like Larry Young, of Motts brands did not have to earn 13,500$ per hour or 26.5 million per year; then he could easily pay people 25$ to 30$ per hour an their tax base alone would help pay down the Government Deficit.
If American C.E.O.s, were not so anxious to run to China; Where they pay next to no taxes, an comparetly no living wage, we would have Companys an Jobs, an thus an economy in America.
Apparently abortting babys, an sending American jobs to China is a great thing! For I can not find anyone upset about these. In Short Greed, LOVE of money is the root of all evil.

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The U.S. debt situation vs. AAA governments

Aug 10, 2011 19:43 UTC

This chart from the Committee for a Responsible Federal Budget shows the U.S. situation could be considered the most dire:



This data set from the Economist provides a different picture:

http://www.economist.com/blogs/buttonwoo d/2010/06/indebtedness_after_financial_c risis

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Why growth is good

Aug 10, 2011 19:34 UTC

Today’s WSJ op-ed by Jeb Bush and  Kevin Warsh is hardly startling in its policy recommendations, as wise as those recommendations happen to be.  What I really like about the piece  is that its authors gave us the “why” as well as the “how.” And the “why” is not just about making CBO numbers add up:

Stronger economic growth is not just about economics. Growth unleashes human potential. It turns personal aspirations into positive achievements. And it lays the predicate for a better, stronger, more prosperous and opportunity-filled America. Our weak economic recovery has dashed the hopes and dimmed the prospects of too many of our citizens. And it has put America’s place in the world at risk.

We should resist the temptation to wrangle with the green eyeshade folks who question our prospects. Instead, we must take actions that demonstrate our resolve and resiliency. We must restore our faith in growth economics and reform our policies accordingly. This will bring strength to our markets and reaffirm our place in the world.


Is Paul Ryan running for president?

Aug 9, 2011 17:16 UTC

A tantalizing item in The Hill is sure to prompt much speculation:

Rep. Paul Ryan (R-Wis.) made a foray Tuesday into the GOP presidential race, asking for donations to launch ads in Iowa defending his 2012 budget, and Republican presidential candidates’ support for it.

Ryan, the chairman of the House Budget Committee, sent an email through his political organization, the Prosperity Project, to push back against a campaign led this week in Iowa by the Democratic National Committee (DNC) to frame GOP presidential candidates as extremists.

“The DNC is attacking all of the candidates for their support of my Path to Prosperity budget,” Ryan wrote in an email. “We have to fight back. With your support, I’m planning on launching a counter-attack to educate Iowa voters about the Path to Prosperity and how it’s the only plan currently on the table that saves Medicare.”

The email is the first visible sign by a House or Senate Republican leader to affect the race for the Republican nomination. Ryan didn’t endorse any particular candidate, and sought to bolster the field as a whole in Iowa, the state hosting the first nominating contest of the 2012 cycle.

“The 2012 Presidential Election is a critical opportunity to establish our priorities of cutting spending, eliminating deficits, paying down the debt, and restoring economic growth,” Ryan wrote in his email. “With Iowa’s important role as an early state in the political process, I hope you’ll recognize the need to take our fight there right now.

Maybe Ryan is just trying to make sure his plan has an influence on the GOP 2012ers. Or perhaps he is sowing seeds in the key caucus state for a 2016 run. Or both. And who could blame him for wanting to defend his much-attacked and much-distorted policy proposal.

But the current field still seems unsettled enough that Ryan probably yet has a window to jump into the race. Betting markets, for instance, have Mitt Romney and Rick Perry more or less tied at 33 percent. I would imagine Ryan, currently at 1 percent, would be running roughly even with those guys the day after he announces … if he announces, which I still doubt he will. But if Rick Perry can get into the GOP race in mid-August and be seen as viable, Ryan could certainly wait until September.



Dear James,

Like me, you’re a real “birther,” right? Meaning you are breeding above (or way above) the replacement rate.

So what if somebody said, Hey I have the best job in the world for you, and all you have to do is not see your 0-, 1-, 2-, and 4-year olds (using my numbers, here) for the next 10 or so years?

I would say, Go to hell, probably, or something close. Ryan will say same, I suggesst, as you reasonably would.

God bless your mission at Reuters!

-jordan keiser
kc mo

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Will China shift economic gears?

Aug 9, 2011 16:58 UTC

Hey, China’s got economic problems, too. Excellent piece on the challenges facing the Middle Kingdom:

The lift that keeps the ‘build-it-and-they-will-come’ model going – largely policy inertia tied to a massive stimulus plan and tight relationships between banks, state-owned companies, and local governments – can’t defy economic gravity forever. .. A policy shift towards building the middle class would bring a host of benefits: Freeing up financial resources to capital-starved small- and medium-sized enterprises to create durable job growth; reduced cement and steel production, two of China’s most energy intensive industries, to help lower inflationary pressures in commodities like coal, oil, and iron ore while also cutting emissions; and a boost in domestic consumption to relieve trade tensions as personal incomes rise along with imports.

This will require a degree of political will unseen to date. Economic modernization now risks stalling at best, and reversing at worst, with increased government control. … Without a true middle class revolution, China’s economic foundations will increasingly rest on shifting sands. Ghost towns will remain empty, property investors will see diminishing returns, and banks will struggle with increasing defaults. China may be a victim of its own success, arriving at an economic fork in the road sooner than expected – one path leads to enriching the masses, the other back to business as usual.

I doubt whether such political will exists in Beijing. Lots of powerful people and their families are getting rich from the current economic arrangement, so why push preemptive change. Like a football coach, leaders will keep running the same play until it clearly fails to work. That is my guess, at least.

Waist deep in the Big Muddle

Aug 9, 2011 16:56 UTC

A needed dose of Larry Kudlow to counter my gloom:

The S&P downgrade is a fiscal warning, not an economic event. And the growing fear of U.S. recession may not pan out. There are still plusses out there, believe it or not.

1) Our financial system is in vastly better shape than it was in September 2008. Vastly better shape.

2) The Federal Reserve is highly accommodative, as illustrated by the upward-sloping yield curve. Using the yield-curve measure alone, the chances of recession based on historical analysis are very low.

3) And energy prices are coming down, with oil moving toward $80 a barrel. Oil analyst Peter Beutel points out that gasoline prices in the last two weeks have fallen by 35 to 40 cents. Adding in other oil-related savings, the energy-price drop amounts to a $100 billion tax rebate for consumers.

4) Plus, corporate profits will continue to rise while business balance sheets are pristine and chock full of cash. Consider the combination of solid productivity, moderate wage rates, and falling commodity prices. These are all plusses for the economy and stocks.

So in light of all these factors, it seems to me that the economy can hold up. It’s not the kind of rapid growth I’d like to see. But it’s not the deep and dark recession that seems to be embodied in the stock market plunge. … The American free-enterprise system can weather these shocks, and I believe favorable political and policy changes are on the way

So no Great Recession 2.0, just a continued muddling though. High unemployment. Weak growth, with maybe a negative GDP quarter here and there. The American economy getting boiled one degree at a time.  I am not sure what policy changes are coming. President Obama hinted at some new ideas in his speech yesterday. One can hope.

A crisis of confidence in economy — and Obama

Aug 9, 2011 00:29 UTC

Barack Obama’s presidency was birthed by economic collapse and financial crisis. Opportunity for a second term is now in growing danger of termination by the very same forces. After its Monday plunge, the U.S. stock market has fallen 18 percent since late April. (During his January State of the Union address, the president pointed to a “roaring” market as one sign his Keynesian policies were working.)

And the economy is advancing at such a slow pace that it risks sliding back into recession. Goldman Sachs thinks the nation’s GDP will expand just 1.7 percent this year and 2.1 percent in 2012, leaving the unemployment rate stuck at well over 9 percent. The firm sees a one-in-three risk of a downturn over the next six to nine months. Other financial firms think the odds are closer to 40 percent or even 50-50.

Then, once again, there’s Wall Street. Not only were bank stocks hammered in the sell-off, the cost to insure their bonds against default soared. Standard & Poor’s downgrade of U.S. government debt may have been a factor since Uncle Sam is backstopping the sector. (More evidence “too big to fail” is alive and well.) But there are also concerns about U.S. bank exposure to European banks and, in turn, their exposure to European government debt. (Sovereign defaults and a EU banking crisis would also slow economic growth in a key market for U.S. exports.) And, coming full circle, banks here still face billion in potential mortgage losses, a problem that another recession would only worsen.

In short, there is again a crisis of confidence in the U.S. economy – but in Washington, too. During his brief speech yesterday at the White House, Obama did nothing to calm jittery markets, perhaps achieving just the opposite. He blamed Tea Party Republicans for the debt downgrade. He said government discretionary spending couldn’t be cut much further. He called for raising taxes. And he repeated his demand for a mini-version of the 2009 stimulus – temporary tax cuts, infrastructure spending, more unemployment benefits.

The stock market, already falling before Obama spoke, saw selling accelerate as Obama made it clear he had no new ideas to offer. And he certainly gave no hint that he’s ready to adopt Republican ideas such as cutting business taxes or slashing regulation. Instead of a pivot, Obama stayed firmly planted in the anti-growth policies of the past two-and-a-half years. He’s even keeping Tim Geithner as Treasury secretary, practically begging the poor guy to stay. (Indeed, it was almost exactly a year ago that Geithner penned his “Welcome to the Recovery” op-ed.)

Americans have seen this movie before. And it didn’t end well. No one wants a sequel, least of all Obama. But the way things are going, another president-elect might be able to utter pretty much the same words on Nov. 6, 2012, as Obama did on Nov. 4, 2008:

The road ahead will be long. Our climb will be steep. We may not get there in one year or even one term, but America – I have never been more hopeful than I am tonight that we will get there. I promise you – we as a people will get there.




One day plunges don’t mean much to me any more. ~5 (biz) day movement matters more. How this week ends is more significant, imo.

If this week closes below 10,000, a lot of folks are going to be looking for something new to add to the end of their very long machine-trading if-then-else software logic statement after “buy US treasuries.”


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