James Pethokoukis

First some recent polling data:

– 68% think the money the federal government has spent on the economic stimulus has been mostly “mostly wasted.” (ABC News/Washington Post Poll. Sept. 30-Oct. 3.)

– 61% “don’ t think” Barack Obama’s policies have made the economy better. (CNN/Opinion Research Corporation Poll. Sept. 21-23.)

– 78% trust government only “some of the time or never.” [Same as in 1994 and 20 points higher than when Reagan was election in 1980. The 11% saying “never” is an record high.] (New York Times-CBS Oct. 21-26.)

– Between 55% to 36%, respondents says they would rather have smaller government providing fewer services than the opposite. (New York Times-CBS Oct. 21-26.)

– 21% percent say cutting government spending is the most important issue to them. 66% say it is important but so are other issues. (New York Times-CBS Oct. 21-26.)

– A recent CBS poll had “economy/jobs” as the top priority of 54% of voters. No other issue had a double digit percentage vote. “Federal deficit, spending” had 27%.

– A variety of polls show TARP and the automaker bailout to still be wildly unpopular by 2-to-1 or worse.

–77% favor extending the Bush tax cuts for those making less than $250,000 a year, while 15% oppose extending them. (Schoen)

– Half favor extending the Bush tax cuts for all Americans, including those making $250,000 or more a year, while 40% oppose this. (Schoen)

– 52% favor repealing the new health care law that was passed earlier this year, while 38% oppose repealing it. (Schoen) A Pew Poll puts that number at 51-41.

And now a few observations:

1.  Americans don’t blame Obama for the economy, but blame him for not fixing it — which is what he was hired to do. Mission Not Accomplished.

2. The Obama agenda is unpopular,  and Americans see it as a distraction from dealing with unemployment.

3.  Americans are worried about spending and deficits, but have not made the mental leap to restricting entitlements.

4. Americans may not think government is necessarily the problem, but they are pretty sure  it’s not the solution.

National Journal’s Ron Brownstein’s chat with President Obama last week:

It was clear that Obama has started to think seriously about how he will navigate a Washington with many more Republicans in it. But nothing about him suggested that he viewed the impending arrival of those Republicans as evidence that he needed to radically rethink his presidency. Obama sounded neither shell-shocked nor defiant. He seemed entirely focused on the practical: where he might work with Republicans, and where he expects confrontation (education, infrastructure, and energy in the first group; taxes, health care, and Social Security in the second).

Will Obama triangulate like Bill Clinton did after the 1994 midterm elections?  I dunno. My guess is that in the end, Team Obama will try to win ugly, betting that a recovering economy, massive fundraising and a weak GOP presidential field will allow a narrow 2012 victory

Had enough of me writing about Elizabeth Warren yet? And I haven’t even gotten to her dodgy bankruptcy study! Anyway, here is my Reuters Breakingviews opinion-torial (half opinion, half editorial) on the pick:

President Barack Obama is tweaking the legislative fine print to get his consumer champion. Coming from a credit card issuer, Elizabeth Warren might not like that modus operandi. But Main Street will welcome having her establishing the U.S. consumer financial protection agency. The president may not care that Wall Street feels differently. Still, the manner of his pick carries risk.

As the saying goes in Washington, “people are policy.” The appointment of Warren to a special advisory role is a case in point. Thanks to the Harvard law professor’s plain-spoken criticisms of banks, she has become a folk hero to liberals who have been clamoring for her to lead the new Bureau of Consumer Financial Protection. And Obama will need them to turn out in force if Democrats are to minimize what are expected to be steep losses in the November midterm elections.

But as something approaching a hate figure for the financial lobby, Warren was too radioactive for Obama to risk the Senate confirmation process that would have been needed to make her the formal head of the new agency. Hence the clever interim Plan B, under which she will advise the president and the Treasury on setting it up.

Obama himself has warm words for Warren, but she isn’t especially popular within his economic team. As head of the Congressional Oversight Panel, for instance, she has publicly clashed with Treasury Secretary Timothy Geithner over the $700 billion bank bailout. While Geithner thinks the bailout was crucial to economic recovery, Warren thinks it an opaque and unaccountable bank giveaway that has failed to restart lending. It’s a significant disagreement with an accepted White House strategy, albeit one inherited from the previous administration of George W. Bush.

Nor does her appointment do anything to heal White House divisions with Wall Street. While the president may not be too bothered about that politically for now, longer-term it makes practical sense to have a constructive dialogue with the financial sector. Shorter-term, hiring Warren in a way that’s seen as an end-run around Senate Republicans could prompt GOP senators to retaliate by further delaying three stalled nominations to the Federal Reserve board, including Janet Yellen as vice chairman.

Consumers may be justified in liking the idea of having Warren in their corner. But as she of all people could tell Obama, the fine print can contain hidden costs.

That is the sort of question I get all the time from my business and banking contacts. And the White House may try to end run the Senate by temporarily appointing Warren to head the new consumer finance regulator. But how bad would she be for business and Wall Street (assuming she would be negative)? Here is how her opponents put it: “Let’s put an ideologue at the head of a new regulatory agency with extremely broad and undefined powers in a nation where business is crippled by uncertainty? Hey, what could go wrong?”

Then again, all the negative publicity might force her to be more moderate.  It also makes her an easier target for Republicans if they are in control of one of both Houses of Congress in 2011.  Here is what I wrote earlier this summer:

1. The Consumer Financial Protection Bureau created by the sweeping U.S. financial reform legislation will put Main Street protection under one roof. Though it technically will be housed inside the Federal Reserve, the agency will have vast power thanks to the fear of more sins like the ones that led to the housing crisis. It’s rare for a regulator to be empowered to perform “any” action necessary to protect consumers from abusive practices.

2. What’s more, virtually any link between consumers and a financial institution will get oversight. Rules will be tough to overturn. The new systemic risk council – made up of the Treasury secretary, Fed chairman and financial regulators – can only reject a proposal if it threatens the safety and soundness of the banking system.

3. The agency’s first director will set the tone, as well as precedent, for how far it can go. And Warren, who has been chairing a congressional panel overseeing the Tarp bailout fund, looks a leading candidate. The consumer protection bureau is her pet idea. The Harvard professor has said she believes banks are destroying the middle-class by loading them up with debt using deceptive products. Unions and anti-bank activists openly support her nomination.

4. Banks would prefer Michael Barr. Treasury’s point-man on the consumer agency is also an academic, but seems to have less of an ideological ax to grind. He may also be more sensitive to the need for financial institutions to earn their way back to health.

5. Warren’s bark is fearsome but Wall Street’s fears may be a little overblown. Rather than shutting down exotic ideas, she may instead push for more disclosure on them. But even if a Warren commission were to clamp down on some complex and risky products, it’s hard to believe the financial engineers won’t find a way to design simpler, and profitable, ones for consumers.

Certainly the “whisper estimate” for Democratic House loses is now 50+ with plenty of upside risk. But my pal Andy Roth at the Club for Growth thinks the upside number could be quite large, indeed:

I’m tracking four of the prognosticators who rate House races — Cook, Rothenberg, Sabato and CQ.

There have been some updates since my last blog post, so I thought I’d update my rankings of Democratic seats in play.

Between the four an incredible 104 Democratic seats are in play, up from 103.  I think there are a few more seats that will come into play over the coming weeks.

– 36 (was 26) seats are very slightly to strongly leaning Republican.

– 21 (was 16) are pure toss ups to very slightly tilting Democratic.

– 29 (was 25) are leaning Democratic

That means an incredible 77 seats are very seriously in play.  Now, in fairness, I did change the methodology slightly.  I’m now using the most aggressive prognosticator.  I’m doing this because updates are slow in coming and the first one to call a race more competitive seems accurate.

Another 27 seats are rated likely Democratic but at least one of the four, and in 15 cases two or more of the prognosticators.

Does this sound to you like the Obama administration takes seriously the concerns of American business that its economic policies are hurting the private sector? Treasury Secretary Tim Geithner on CNBC’s Kudlow Report:

I think businesses are doing now what businesses always do, which is they want their taxes lower and they’d like to operate with less regulation, as they always do. Our job, though, is to make sure, again, we’re creating the conditions that make this economy work better for the country as a whole. Now, just remember, when the president stepped into this job, business of America was out of business.

The analogies have been flowing almost as fast as the oil from the Gulf seabed. The BP spill is Barack Obama’s Katrina. Or maybe it is his 9-11. Pick your disaster of choice. But however you want to classify it, the expanding oil slick is a mess for the White House:

1) Voters are impatient. By a 53-to-43 margin, according to pollster Gallup, Americans think the president has mishandled the crisis. CBS News found a similar gap. The spill strikes particularly at  one of the president’s supposed strengths — competence — and highlights a perceived weakness — that he is more an intellectual than a executive. Even Democrats don’t think he has been hands-on enough. (See James Carville’s near-hysterical rant on ABC.) And now Obama is reversing a well-thought out move to allow more drilling.

2) The president’s long-declining approval ratings had been perking up, thanks to the recovering economy and his push for financial reform. Now they’re sinking again. Since World War Two, presidents with sub-50 percent approval ratings — Obama is at 47 percent — have seen their party lose an average of 36 House seats in midterm elections. The GOP needs 39 to take control of the lower chamber.

3) The spill has also undercut Democratic efforts to pass an energy bill that would subsidize alternative fuels and create a limited carbon emissions trading system. Obama has suspended deepwater drilling. But Republicans won’t even consider passing a bill that doesn’t expand such efforts. That demand makes the legislation a non-starter for Democrats. Now energy companies have begun quietly talking to GOPers about what sort of energy policy they would push if they take one or both chambers of Congress.

4) And if BP can’t permanently stop the leak? Then the problem isn’t Obama’s Katrina, it is his Iranian hostage crisis — a long-term problem he has no control over that continually drains his political capital and popularity. The White House better hope the First Father can soon tell daughter Malia that “Yes, Daddy has plugged that hole.”

My friend Bruce Bartlett over at the Capital Gains and Games blog asks whether conservatives should have supported Hillary Clinton in the 2008 presidential race:

I wrote a couple of columns in 2007 telling conservatives that they really should consider lending some support to Clinton if they believed, as I did, that Obama was much more liberal than her and that whoever won the Democratic primary would probably win the general election (see here and here). … So would conservatives have been better off following my advice and helping Hillary Clinton to get the Democratic nomination, rather than futilely wasting their efforts on McCain, Mitt Romney and other Republican candidates who could not win and were considered far from ideal from a conservative point of view anyway? … I think the evidence suggests that Hillary Clinton could have won the Democratic nomination with just a little bit more support, and probably would be governing significantly more conservatively than Obama. For one thing, given her disastrous experience with health care reform in 1993-1994, it’s reasonable to assume that she would have stayed away from that issue at all costs.

Me:  Bruce derives most of his evidence from the idea that Hillary’s centrism has seriously influenced the direction of Obama’s foreign policy. Now I certainly have no reason to believe Hillary wouldn’t have pushed hard on healthcare reform. She certainly spent a lot of time and resources creating a detailed plan during the campaign and then promoting it.

As for economic policy more generally, you couldn’t produce a more centrist Democratic economic team than the one Obama has assembled: Summers, Romer, Goolsbee, Geithner. No actual Republicans (probably not) but no one that “progressives” have much fondness for either. As for actual policy, Hillary would likely have favored a big stimulus plan and major healthcare reform. Would she have been tougher on the banks? Coming out of the pro-Wall Street Clinton presidency and her time as NY senator, I doubt it.

Healthcare reformers in Washington are asking America’s creditors to take a leap of faith. The plan is supposed to cut future budget shortfalls. But it depends on politicians following through on cuts and taxes, a deficit commission imposing additional discipline, and untested reforms working as expected. Owners of U.S. government debt shouldn’t bank on it.

The numbers add up on paper, at least according to the nonpartisan Congressional Budget Office. Its estimate for the 10-year cost of reform is $940 billion, with cost cuts elsewhere and new taxes turning that into a $138 billion net reduction in the projected federal deficit over a decade. Go out another 10 years, and the plan racks up another trillion or so in projected savings.

One problem is that despite being nonpartisan, the CBO’s methods are still dictated by Congress. That means Capitol Hill can get away with financial chicanery such as front-loading some tax increases and delaying spending plans — something that can help the numbers work because, in a fixed 10-year period, the tax income is counted for more years than the spending.

And then there are the promised but politically unpalatable fiscal fixes that fall to a future president and Congress. Proposed cuts in federal payments to hospitals, for instance, are delayed a decade. If today’s lawmakers are punting such measures, it’s hard to have any confidence their successors will show any more mettle.

The reformers hope more can be saved if the healthcare plan’s cost-control pilot projects bear fruit and are then widely implemented. But the CBO doesn’t give these projects much credit. And even the White House admits that rising healthcare costs could still threaten America’s finances. That’s one reason why President Barack Obama is keen on a bipartisan, deficit-cutting panel. But its potential efficacy is widely derided by veteran budgeteers.

At least with healthcare an effort is being made to do no fiscal harm. That was not the case with major spending initiatives of the past decade for which balancing cost cuts or tax increases weren’t attempted. But with the U.S. ratio of debt to GDP still on track to double in a decade, it will take a leap of faith for America’s creditors to retain their enthusiasm for Treasury bonds.

Give the POTUS some credit for proposing something, anything on domestic policy that is certain to irk his base. Reuters:

President Barack Obama announced $8.3 billion in loan guarantees on Tuesday to build the first U.S. nuclear power plant in nearly three decades in a move designed to help advance climate legislation in Congress. … The loan guarantee will go to help Southern Co. build two reactors at a plant in the state of Georgia. “Even though we’ve not broken ground on a … new nuclear power plant in thirty years, nuclear energy remains our largest source of fuel that produces no carbon emissions,” Obama said after touring a union education center in Lanham, Maryland. “To meet our growing energy needs and prevent the worst consequences of climate change, we’ll need to increase our supply of nuclear power. It’s that simple,” he said.

Yet how viable is Big Nuclear without the help of Big Government? An interesting analysis from Cato’s Jerry Taylor:

Tufts economist Gilbert Metcalf, for instance, has calculated that, under current law, the levelized cost of nuclear power in the United States is 4.31 cents per kilowatt hour (kWh). Coal-fired electricity, on the other hand, cost 3.53 cents per kWh and “clean” coal cost 3.55 cents. But even these nuclear estimates are almost certainly too low. That’s because Metcalf uses an “overnight cost” (construction costs minus financing costs) figure of $2,014 per installed kilowatt (kW) which is much too low. The Energy Information Administration (EIA) puts this cost at $2,475 per kW at present-although even this figure is suspicious because it relies on a worldwide average for nuclear power plant construction-including the grossly unreliable estimates from state-managed economies. The Standard & Poor’s overnight cost estimate of $4,000 is likely the most reliable because it is based on nuclear plant construction costs in economies where labor and material costs are very similar to those found in the United States. Industry analyst Jim Harding, who uses overnight cost figures similar to Standard & Poor’s, puts the levelized costs for new nuclear power generation at 12-15 cents per kWh right now.

Will conservatives who complain about government debt guarantees to Wall Street complain about guarantees to energy companies?