Reform conservatives are reforming conservative commentary, not conservatism

There has been some interesting discussion in the blogosphere about the "reform conservatives". Ryan Cooper got it started a few weeks ago. Mike Konzcal was fairly dismissive of the idea. Reihan Salaam responded. So did Douthat. Jonathan Chait wrote a profile of Josh Barro and another blog post on the subject. I wrote about this a few weeks back.

Thinking more about the subject, the most striking feature of the reform conservatives isn't their policy preferences. Instead, reform conservatives have redefined their roles as commentators, vis-a-vis their relationship with the Republican party and greater conservative movement.

A few weeks back, Alex Pareene had a great post on Media Matters' effort to promote a series of anti-scandal talking points for liberal pundits to use. The greater conservative movement walks in lock-step--with journalists, party members, and activists working together to promote the conservative agenda. Talking points feature prominently within the movement, with bloggers, pundits, activists, politicians and activists coordinating on message. The liberal coalition doesn't exhibit the same level of coordination. Actual democratic party operatives--Stephanie Cutter, Paul Begala, etc.--would be willing to use a series of talking points to defend the party, but liberal journalists would be too embarrassed to do so. Liberal journalists see themselves as independent of their political party, in a way that conservative journalists do not. Kevin Drum has coined the term "Hack Gap" to describe this disparity.

The unifying principle of the reform conservatives is a tendency to act more like liberal commentators and less like conservative ones, in this regard. Unlike the conservative media in general, they don't really discuss Benghazi and don't think the Obama administration has spent the last four years telling the IRS to prosecute conservatives. These subjects don't interest them. And I bet if you asked them in private, they would say the conservative obsession with these scandals is a little silly. In contrast, most of the non-reformish content at the National Review Online follows the basic Republican talking points on these scandals.

The actual relationship of the reformists to the Republican party is more complicated. Frum and Barro have staked out positions as explicit critics, outside the party. While Salaam and Douthat are still best viewed as critics from within. Here is how Salaam described his relationship with the party to Chait:

When I interviewed Salam for my Barro profile, he was admirably candid about the political delicacy of his mission, which he described as being “part of a team” and “politically engaged.” What’s more, I’m not sure he’s wrong, either.

Regardless of these constraints, the reform conservatives do seem to be exercising an independent voice. That is why liberal commentators actually debate with, and respond to, them. The reformists are engaging in the exercise of policy debate and discussion, rather than partisan hackery.

The reform conservatives don't have a coherent set of views that they all share, so it is unlikely they will be able to coalesce around a "reform conservative agenda". Rather, they share a certain degree of independence from the Republican party. Whether this posture is sustainable within the current conservative movement is the big question.

The conservative echo chamber is a destructive force in American politics. Hopefully the reformers can weaken it and provide a breath of fresh air for the conservative movement.

Impeachment will happen because it doesn't do anything

I remember as a child being confused, that, after Bill Clinton's impeachment, he got to remain President. Since everyone was making a big fuss about it, I had just sort of assumed that impeachment meant he would get kicked out of office, and maybe even thrown in jail. The fact that he needed to be tried for removal by the Senate, and everyone knew that wasn't going to happen, made me question why impeachment was such a big deal in the first place.

This is why, I believe, Obama will get impeached. Impeachment doesn't do anything. The House of Representatives get to have a big show for a couple of days, subpoena some witnesses, raise some campaign cash, and then we all get to go back to regular business once the Senate refuses to convict.

The other reason I think Obama will be impeached, is the inability of the current Republican party, and the conservative noise machine behind it, to let things go. Here is how political scandals should work: Step 1) you find out something potentially politically embarrassing about your opponent; Step 2) you make a big deal about it on TV to embarrass them, and claim that this is just the tip of the iceberg; Step 3) once it becomes apparent that there isn't much more to find, you move move on. But the Republicans have a different strategy: Step 1) you find out something potentially politically embarrassing about your opponent; Step 2) you make a big deal about it on TV to embarrass them, and claim that this is just the tip of the iceberg; Step 3) keep doing this, forever.

I thought that the emergence of the "AP" and "IRS" scandals would give Republicans a chance to transition away from Benghazi allegations that weren't really panning out. But instead, they have doubled down on the allegations. If Republicans can't transition away from any scandal, the end game is likely to be impeachment proceedings.

Making predictions is always a bad idea. But I am relatively confident that Obama will get impeached at some point.

What's with all the Austerity?

Paul Krugman has a new piece in the NYRB discussing austerity. His thesis is that austerity is appealing for two reasons. First, austerity appeals to those who see economics through a moral frame, for which belt-tightening is needed to offset the high-living that went on during the economic boom. Second, austerity serves the class interests of the creditors and the wealthy.

Its a good essay. But I don't think one can adequately discuss austerity politics in the United States without acknowledging the partisan nature of the conflict, and the way the "centrist" press creates narratives to sort out the conflict.

In 2008, Bush and Pelosi came to an agreement on a, mostly forgotten, $150 billion stimulus package. The negotiations were focused around what the stimulus should contain, rather than whether or not there should be one. Likewise, during the 2008 presidential primaries, Republican candidates ran on platforms that included fiscal stimulus. While Obama was constructing the ARRA, both the Republican House and Senate put together fiscal stimulus plans. It is fair to say that, at that point, their existed a bipartisan consensus in favor of fiscal stimulus.

Once the ARRA passed, with the support of only three Republicans, it became an obvious target for partisan attack. The financial collapse turned out to be far worse than initially understood, so administration predictions about the ARRA's impact on the labor market looked naive in retrospect.

Of course, Republicans were never really interested in austerity. They wanted to cut spending for its own sake. That's why, during the 2010 debt ceiling standoff, they refused to raise taxes under any circumstances. (During the presidential primary debates, every single Republican candidate said they would turn down a 10-to-1 spending-cut-to-tax-increase compromise). At the same time, Democrats in congress were opposed to the idea of cutting spending in the middle of a recession.

Out of this partisan conflict, a beltway consensus emerged. The beltway press couldn't just say "Republican partisans are highjacking the economy in a disingenuous attempt to advance their policy goals." Instead, the narrative became that the Republicans were right to worry about the deficit, but were too inflexible on taxes, while Democrats weren't serious enough about deficit reduction. The centrist dialectic yielded the austerity position we have come to know and hate: "everyone knows" the deficit should be tackled with a combination of tax increases and spending cuts. That reporters cited Rogoff and Reinhart to provide economic gravitas to their newly found conventional wisdom, makes complete sense.

I don't understand Europe as well, so I'm going to avoid commenting on the sources of austerity there. But I think the morality tales that Krugman is discussing are the product of a Washington D.C. press corp searching for a political narrative that placed both parties in the wrong.

Narayana Kocherlakota Speaks

I like Minneapolis Fed Chair Narayana Kocherlakota. He used to be one of the "hawks" on the FOMC, but recently did a "180" and now primarily argues that monetary policy has been too tight. A public official changing their mind in response to evidence showing that they were initially wrong is the correct thing to do, but it doesn't happen very often. I saw him speak last year, and thought his comments reflected clear thinking.

He commented today on the relationship between monetary policy and financial stability. A topic I have written about before. What he says makes me a little nervous about the possibility of fed tightening, but I think his analysis is correct:

One challenge with this kind of policy environment—and this is closely linked to the overarching theme of this panel—is that low real interest rates are often associated with financial market phenomena that signify instability. There are many examples of such phenomena, but let me focus on a particularly important one: increased asset price volatility. When the real interest rate is unusually low, investors don’t discount the future by as much. Hence, an asset’s price becomes sensitive to information about dividends or risk premiums in what might usually have seemed like the distant future. These new sources of relevant information can lead to increased volatility, in the form of unusually large upward or downward movements in asset prices.

These kinds of financial market phenomena could pose macroeconomic risks. These potentialities are best addressed, I believe, by using effective supervision and regulation of the financial sector. It is possible, though, that these tools may fail to mitigate the relevant macroeconomic risks. The FOMC could respond to any residual risk by tightening monetary policy. However, it should only do so if the certain loss in terms of the associated fall in employment and prices is outweighed by the possible benefit of reducing the risk of an even larger fall in employment and prices caused by a financial crisis. Hence, the FOMC’s decision about how to react to signs of financial instability—now and in the years to come—will necessarily depend on a delicate probabilistic cost-benefit calculation.

As he notes, monetary tightening will certainly make things worse right away, and it should only be considered if we have exhausted all other better options, and we think the probability of a much worse financial crisis is so large that we need to just take our lumps now.

I'm skeptical that we should ever use monetary policy in this way, and believe that an aggressive macro-prudential response should be sufficient, in almost any circumstance, to alleviate this risk.

When does structural reform occur?

Noahpinion has an interesting post on the ideology of austerity. His main thesis is that austerity proponents believe that their respective countries require structural reform, and a demand driven recovery, unaccompanied by structural reform, would lead people to believe that structural reform isn't necessary. This would cause the political will required to accomplish the structural reform would dissipate.

This thesis makes sense. And was, sort of, confirmed by this WaPo piece. But I wanted to respond to Noah's last paragraph:

In other words, maybe people like the idea of austerity because they think an economic stagnation is our best chance to address what they perceive to be our long-term challenges. Allowing a crisis might be less terrible than wasting it.

Now, when stated that way, the idea sounds kind of silly - why don't we just periodically bomb our own cities, in the hope that governance will improve during the rebuilding? But I find it very difficult to state with any confidence that the idea is wrong. When economists discuss the costs of stabilization policy, they limit their discussion to distortionary taxation, unexpected inflation, and things like that. They almost never bring politics or institutions into the picture. The fact is, we just don't know how institutions really work. So I can't dismiss the idea that anti-recessionary macro policy might, in fact, rob us of our best chances to make needed reforms. (italics his)

I don't know that much about the political economy of southern Europe or Japan, but austerity advocates in the U.S. are wrong to think it is their best chance for structural reform.

Most advocates of austerity in the U.S. fall on the right side of the political spectrum. They generally favor lower marginal tax rates, reduced government spending, free trade, balanced budgets, less regulation, and "tax reform" (closing loopholes and lowering rates). With the exception of lower tax rates (which Republicans enact whenever they are in power), the major victories for these policies have generally come during periods of strong growth. Despite having a divided government for six years (and a Democrat in the white house), the strong growth of Clinton-era formed the backdrop for NAFTA, welfare reform, a bunch of deregulatory initiatives, and a balanced budget. Reagan's 1986 tax reform also came in the wake of three years of strong growth.

Their is a narrative on the right that the stagflation of the Jimmy Carter years helped usher in the Reagan revolution. There are aspects of truth to this, and certain Reagan political victories--the Kemp-Roth tax cut, the high-profile defeat of PATCO--occurred in the aftermath of the 1980 election. But the broader liberalization and deregulation of the U.S. economy took place duringthe great moderation period. A time of steady growth and low unemployment.

I would argue that this is to be expected. During periods of strong growth, supply side constraints become much more relevant and actually serve as an impediment to growth. (Matt Yglesias wrote about this a few months back.) And even though I personally think welfare reform wasn't good policy, the arguments in favor of it become much stronger--economically and politically--when jobs are readily available. For similar reasons, protectionism is much more popular during economic downturns, whereas, people are much more comfortable letting the market do its thing when the economy is booming. It really shouldn't be a surprise that strong growth in a capitalist economy is a good way to make the case for more capitalism.

Conversely, I think there is a decent argument to make that economic depressions produce structural changes preferred by people on the left. The welfare state was born in the great depression, and the recent recession has resulted in universal healthcare, the subsidization of "green technology" in the stimulus, and Dodd-Frank. Admittedly, Johnson's second term doesn't really fit this model, and seems to have been the product of unique political circumstances.

Maybe the austerians should rethink things.

Don't end the Fed, split it in two

One of my favorite thinkers on monetary policy is soon-to-be-former Deputy Director of the Riksbank Lars Svensson. Sweden was fortunate enough to have not been part of the euro in 2008, and was able to use expansionary monetary policy to avoid the worst of the 2009 recession. Their success was due, in part, to their willingness to pioneer new policy tools, like negative interest rates.

Since 2010, Svensson has regularly dissented from the Riksbank's decisions to tighten policy. His argument for looser policy is simple: unemployment is below the target rate, and long-term inflation expectations remain anchored, therefore, policy is too tight. If the central bank projects that looser policy would reduce unemployment, without raising long-term inflation expectations, they should loosen policy.

His views, and disagreements with other members of the Riksbank, are nicely explicated in this speech he gave last year. The other members of the Riksbank are concerned that looser monetary policy will lead households to take out larger mortgages, increase household debt, create a housing bubble, and cause financial instability. Svensson argues that these aren't concerns in Sweden right now. But his more important argument is that even if these were problems, monetary policy would not be the appropriate tool for dealing with them.

First, monetary policy isn't very effective at preventing housing bubbles. Second, other policy tools--mortgage-lending rules, capital requirements, etc.--would be more effective and more appropriate for maintaining financial stability. Svennson refers to these tools as "macroprudential policy", but it is what most of us think of as financial regulation. Matt Yglesias makes a similar point in a recent post, noting that: "If full employment exists and inflation is low and stable, then you should not deliberately engineer a recession for the sake of financial stability."

Even though monetary policy and financial stabilization have separate policy goals--the managing of risk within the financial system and macroeconomic stabilization, respectively--they are often conflated in discussions about policy. One of the sources of confusion is that both monetary policy and financial regulation are associated with a single institution--the Federal Reserve.

The conflation of the two policy goals has lead to reduced accountability, and a non-optimal use of expertise at the Fed. Because Fed officials are considered responsible for both tasks, the public has a difficult time determining how well they performed at each one separately. The best example of this is Alan Greenspan, who, for the most part, kept both unemployment and inflation low (signs of successful monetary policy), but also oversaw a withering away of lending standards and a large buildup of systemic risk (signs of failed macroprudential policy). Though his reputation has suffered since the crisis, the criticism of him is often of a general nature, with a failure to distinguish his real (and substantial) failings, from the aspects of his job that he performed well at. I am not trying to make a point about Greenspan being treated unfairly, but rather the way confusion about this topic reduces accountability. The current structure of the Fed also gives officials responsibilities for which they are not ideally suited. Some members of the Federal Reserve Board of Governors, for instance, Daniel Tarullo, are experts in financial regulation and macroprudential policy, but have no real background in monetary policy. Other members, such as Janet Yellen, are primarily monetary policy experts. It is not optimal to have these specialists spending time focusing on areas of policy over which they have no expertise.

In many instances, the proper coordination of financial regulation and monetary policy requires the regimes to work at, what superficially appears to be, cross-purposes. For example, if regulatory authorities felt that major financial institutions were overleveraged and at risk, they would need to require these institutions to raise equity ratios. This would usually cause a reduction in lending by these institutions, which would slow down economic activity. Monetary policy authorities should respond to these developments by loosening monetary policy, in order to prevent the slow down. This is counter-intuitive, but keeping the two policy goals separate helps clarify the correct policy action. Because we conflate these two goals, we often hear policy makers arguing that the Fed needs to tighten monetary policy to increase financial stability.

I haven't ironed out exactly how this should all work. Certain tasks, like operating the discount window, probably fall within the purview of both policy areas. I would love to hear other peoples thoughts on this subject.

P.S. Read Lords of Finance if you are interested in how similar confusion helped lead to the great depression. Also, read Jeremy Stein's recent speech if you want the opposing argument.

Taxing land, what would it look like in practice?

Ashok Rao has an interesting blog post about the relevance of Ricardian economics. (See Matt Yglesias' comments on these issues here). One thing that Ashok argues for is replacing the current property tax regime with a land tax. He explains really well why this is beneficial in economic terms, but it is worth discussing the practical consequences of this sort of shift in policy.

When local governments assess property values, they usually try to determine the market value of your property--how much you could currently sell it for. This assessment implicitly considers both the value of the land, and the value of the structure. According to the Minneapolis government website, land value makes up about 20-25% of the total property value assessment. (Minneapolis--where I live--also considers property classification, but lets ignore that for now).

The problem with this scheme is that it disincentivizes the productive use of land. Let's say you currently own a piece of vacant land in downtown Minneapolis. Doing nothing with the land will keep your property taxes low, but you also won't make any profits. Building an office or apartment building will cause your property taxes to skyrocket, but you will presumably make some decent profits. But let's say you want to keep your property taxes low, but also want to make some profits. You build a parking lot! And now downtown Minneapolis is filled with half-used parking lots, that are taxed at very low rates despite their prime locations.

Now what if we taxed land value? If this were the case, and you owned a vacant piece of land in downtown Minneapolis, you would pay the same tax rate regardless of how you used the land. This would make sitting on the empty property a terrible choice, building a parking lot a bad choice, and building a large useful structure a great choice.

This also has another important consequence that is often overlooked. By shifting to a land value tax, the overall tax burden on residential property will shift from multi-unit structures to single family homes.

Lets say you are a developer who owns a piece of vacant property right now, and are deciding between building a single family home or a multi-unit building.* Under the current property tax regime, a multi-unit building may be more valuable, but it will also be taxed more heavily. This will result in a greater number of single family homes being built than is optimal. By switching to land tax system, the taxes will remain the same regardless of which type of structure is built, this should lead to fewer single family homes and more multi-unit structures.

This will benefit those who live in multi-unit structures (who are often renters, and usually less wealthy) in two ways. First, if more multi-unit structures are built, rents will go down. Second, the overall tax burden will shift away from multi-unit structures--whose taxes are payed by the renters through rent--to single family homeowners. The best way to picture this is to imagine you have a single family home and a multi-unit structure siting adjacent to each other. Because they are next to each other, their land values are likely the same. Under the current property tax regime, the multi-unit structure owes more in taxes than the house. In a land tax regime, both the multi-unit structure and the house owe the same amount in taxes.**

Overall, a land tax regime would increase density, incentivize the productive use of land, lower the tax burden on those who live in multi-unit structures, and increase the tax burden on those who occupy single family homes. Import Its an idea that progressives should get behind.

*obviously zoning laws matter for these types of decisions, i'm ignoring them to make the post simpler
** This can also be conceptualized another way. Suppose that all the land in a city were worth the same amount, and all the property was residential. Under a land tax regime, each parcel would pay the same amount in taxes, regardless of how many people lived on it. This would mean each individual's tax burden would be directly proportional to how densely populated the structure they occupied was. This would incentivize density, and reduce tax burdens on those living in multi-unit structures. Which, as I mentioned above, are often less wealthy individuals.

The Reform Conservatives

Ryan Cooper has a good piece discussing the small group of conservative writers who are attempting to reform the GOP. He is far more optimistic about their chances than Jonathan Chait was in his article last year about the destruction and exclusion of GOP moderates. My one disagreement with Cooper's piece is that he tries to draw too neat a parallel between current efforts and those of the New Democrat/DLC crowd in the late 1970s-early 1990s:

The Democratic Party’s equivalent period of soul searching played out quite differently. As early as the late 1970s, a major rethinking of traditional liberal ideas and policies about crime, welfare, entitlement programs, and much more was under way at magazines like the Washington Monthly and the New Republic—this at a time when Democrats controlled both houses of Congress and the White House. In 1984, only four years after Ronald Reagan’s first presidential win, reformist Democrats had their own popular primary candidate, Gary Hart. In 1985, the centrist-reform Democratic Leadership Council was founded. By 1988, two charter members of the DLC, Al Gore and Richard Gephardt, were running for president. By 1992, a former DLC chairman, Bill Clinton, won the office.

Compare this to Republicans. It’s two decades after Bill Clinton’s first presidential victory, and there is still no Republican equivalent of the DLC. During last year’s GOP primary, the only candidate who ran as a moderate reformer, Jon Huntsman, garnered almost no party support, quit in disgust, and started advocating for a third party. 

Its worth pointing out that "neoliberals" and the DLC were responding to, what they believed to be, real policy failures of the Great Society. The pushback was against actual measures in place, not just party orthodoxy. Why does this matter? Well, I think it really affects the GOP reformers chances of success. The Bush administration was no conservative equivalent of the second Johnson Administration. His domestic policies included an expansion of medicare and a federal education initiative. Conservatives in the GOP can, rightly, argue that the a real dismantling of the welfare state has never been tried. As a result, reformers are left arguing against a GOP agenda that is 1) mostly hypothetical, and 2) constantly shifts in response to the political winds and the proposals of Barack Obama. This leaves them a much greater challenge than that facing the DLC, who could point to actual policies in place, and argue that they needed to be reformed. As a result, it often feels like the reformers are stuck arguing about the message, rather than the substance. And this makes their actual criticism of the GOP (through no fault of their own) less coherent and unified.

An Open Question for Health Wonks

Sarah Kliff has a good post on why Democrats are holding back on selling Obamacare as a success. The short answer is that Obamacare hasn't really begun yet, so most Dems are waiting until people can actually go sign up for healthcare on the exchanges before they promote its benefits. Good plan.

But this leaves me with a question: Are Democrats concerned that people won't sign up for the healthcare exchanges? It doesn't seem out of the realm of possibility that moderately healthy Republicans will personally boycott their use (at the urging of party leaders) as a way to protest the law. Could this happen at a scale that triggers the, so called, "death spiral"? I remember this Alec Macgillis piece from a few years ago, but I would be interested to know if strong political opposition to Obamacare is raising concerns.

The Metaphysical Club

I just finished The Metaphysical Club by Louis Menand, and really I enjoyed it. The book was a bestseller and won the Pulitzer prize a number of years ago, so I'm sure lots of people have already read it, but I wanted to discuss it anyway.

The book tells the story of four individuals (Oliver Wendell Holmes, Charles Sanders Pierce, William James, and John Dewey), who were involved in the development of American pragmatism as a school of thought. Instead of simply discussing their individual contributions, the book gives four mini biographies and attempts to show how their respective situations--the time, place, and people they encountered in their lives--influenced the ideas they developed.

I would recommend this book for anyone who enjoys philosophical ideas, but finds actual philosophical text to be a little dry. The book is able to present these ideas in an accessible way by tying them to biographical accounts of their originators. As a result, a large portion of the book is a a vivid description of some really interesting characters in the post Civil War period--including brilliant thinkers, outright charlatans, and vicious racists.

One of the main takeaways is that it's important to evaluate an idea within its historical context. Pragmatism was, in many ways, a conservative response to the Civil War. The Civil War, and the failed Reconstruction project, were viewed as the tragic result of idealism over practical thinking. As a result, the generation who grew up during the Civil War needed a philosophy that encouraged reconciliation and tolerance. This resulted in pragmatism. Pragmatism was popular for a number of years, but faded during World War II and the Cold War, when the global struggle between democracy and totalitarian regimes required a different frame through which to view the world.

Over the past few years, I have become increasingly interested in economics and debates about economic policy on the blogosphere. When I first began exploring some of these debates, I was amazed at how unconvincing some of the "supply-side" theories of the great recession were. More specifically, people like John Taylor would advocate fiscal and monetary tightening, and justify this policy based on their experience during the 1970s. But as anyone with a basic knowledge of economic history knows, The 1970s were a period of high inflation and high interest rates, whereas now we have low inflation, and low interest rates. Whatever the merits of Taylor's macroeconomic stabilization ideas (and I don't believe there are many) they quite clearly couldn't be justified as appropriate now based on the experience of the late 1970s. I'm not a big fan of "supply-side economics", but its clear that the ideas were developed and became popular in the wake of some of the supply side problems of the 1970s. I suspect that some of the supply siders are in some ways blind to. or wish to downplay, the changed circumstances. They believe that their ideas (lower marginal tax rates, labor market reforms) are universal economic problem solvers, when in fact the time and place for the primacy of those ideas has passed, and we need to focus on boosting aggregate demand.

The development of ideas can't be divorced from their historical context. And when evaluating the applicability of ideas, the historical context of their development should be considered and compared to the current one.