A blurry green line for Iran?

Clive Crook rightly points out that Obama's presentation of his Iran policy in his AIPAC speech and the Goldblog interview has played out as something of a Rorschach test.  The WSJ is reassured that Obama has effectively bound himself to bomb Iran.  James Fallows, on the other hand, sees Obama's statement that "as President of the United States, I don't bluff" as a potential superbluff.

Crook tries to part the veil by focusing on the detailed case ("detailed" for a speech, anyway) Obama made that Iran's obtaining a nuclear weapon would be a severe blow not only to Israeli security but to American interests, middle east stability, and global antiproliferation.  He has thus set himself against the case, laid out by intelligence veteran Paul Pillar, that fears of an Iranian bomb are overblown and that a nuclear Iran could be effectively contained.  He has laid out the stakes in such a way that Iran's obtaining nuclear capability can be seen as nothing other than a colossal failure of his own policy

Whether Obama is committed to attack if Iran is seen to be building a bomb may be beside the point, however.  Or rather, it's not in itself news. If it's true that an American president can't be exposed to have bluffed, as Obama said, it's equally true that an American president under current political conditions can't suggest that a nuclear-armed Iran would not be such a catastrophe.  The real nub was captured, as Spencer Ackerman pointed out, is captured in a tweet by anything-for-Israel neocon Noah Pollack:

Obama policy = preventing Iran from getting nuke. Israel policy = preventing capability to build nuke. There's the rub.

Obama may be seeking wiggle room, not only for a perhaps-unlikely negotiated settlement with Iran, but for a protracted stalemate. I'd like to ask nuclear arms experts: how precise a concept is 'breakout capacity'?  Is it possible to clearly parse this statement of Obama's to Goldberg:

A budget deal by hook but not by Crook

For two years I have wondered how Clive Crook can continue to lambaste Obama for pursuing policies that Crook agrees with.  In recent weeks the mystery has been solved. Crook thinks that Obama ought to be able to sell policies that please neither left nor right by sheer force of eloquence.  Late last month, he recommended that Obama predetermine the outcome of negotiations with Republicans and champion that outcome in advance. This week, he's urging the President to so overwhelm the electorate with his eloquence that they steamroll a Republican opposition that Crook himself recognizes as beyond reason:

Under present conditions, the administration’s tools for invigorating the recovery are limited, to be sure. However bold and decisive the president chooses to be, he cannot just decree faster growth. But if Democrats and Republicans moved immediately to raise the debt ceiling and promptly to clarify the medium-term fiscal picture – a task that cannot wait until 2013 – they would improve confidence and lessen the risk of a second recession.

The president can play a crucial role in this. Merely calling for unity achieves nothing. But the bin Laden operation gives him fresh political capital, though perhaps not for long. He should use it to impose himself – talking past a stone-deaf Congress to the electorate; advancing cold, clear choices about curbing long-term borrowing; thus making space, should it prove necessary, for renewed short-term stimulus. They call it leadership.

No, they call it fantasy.  Obama -- any president -- is about as likely to convince the American people to demand that their representatives pass his favored mix of tax hikes and spending cuts as he is to singlehandedly take out the rest of al Qaeda.

Please please please Mr. Crook, read a political scientist or two.  Presidents do not overcome a recalcitrant opposition by rallying the public from the bully pulpit; they do not convince the electorate to embrace tax hikes and spending cuts unless someone or group can orchestrate "everybody...[i.e., leaders from both parties] getting in that boat at the same time," as Obama has said he aims to do.  Presidents may seem to convince the public when conditions shift so that the public is willing to try policies they've long been advocating; they may gradually nudge public opinion in a direction toward which it's started to trend; they may, when they have a majority in Congress, push through unpopular policies that are later vindicated by events (or seem to be).  But when they"lead" in the way Crook envisions they suffer the kind of defeat that met Bush Jr. when he tried to privatize social security.

Feeling the presidential elephant in an economic shitstorm

Everyone knows the parable: the king's blind counselors are charged with telling him what an elephant looks like by feeling different parts of his body, and each comes back with an utterly different impression. And the old joke: one of them is positioned under the tail -- at an unfortunate moment. He comes back with a malodorous report.

For the duration of Obama's presidency, the United States has been in a very bad extended moment (economically speaking), and that leads to a corollary of the old parable: At such times, all the king's kibbitzers are clustered under the tail.

Take, for example, two critics of Obama's mode of compromise. Here is Clive Crook, re-casting a critique by Walter Russell Mead. Mead first; Crook after the double indent:

The Financial Times hearts dithering

The Financial Times Comment crew is bidding fair to turn "ditherer" into a term of honor. Clive Crook, who slapped the term on Obama during his deliberations over Afghan policy, yesterday cataloged the virtues of dither-beration in the emergence of the strategy in Libya. Today, Gideon Rachman sings a similar tune.

Crook notes that in Obama, Europe has the antidote to Bush it thought it wanted:

Not long ago, Europe complained that the US was bullying, reckless and high-handed. Not long ago, Europe was ecstatic at Mr Obama’s election because this was not his style. You would think, having longed for a president who was cautious, deliberate and respectful of other countries’ opinions – and having voiced contempt for George W. Bush because he was none of those things – Europeans would hesitate to say: “The time for talking is over. Just start shooting.” 

Both kinds of critic – US hawks and Europe’s militant multilateralists – are right to say dithering held up the allied attacks and made the mission harder. The problem for multilateralists is that dithering is built into the system they advocate. If you cannot tolerate dithering, better not demand UN authority for your military interventions.

Pulping the bully approach to presidential leadership, cont.

Once again, Clive Crook combines solid fiscal sense with political obtusity.  Hammering the obvious need for tax reform and tax hikes in response to the U.S. structural deficit, he accuses Obama of a lack of political courage for not endorsing Bowles-Simpson or laying out a revenue-raising plan of his own.  But Crook's argument carries the seeds of its own refutation.

Crook acknowledges the political realities that make it impossible for Obama to get anywhere if he unilaterally proposes the tax hikes the country needs -- even if those hikes come from radically reducing targeted tax breaks while cutting marginal rates:

Where is Clive Crook's "center"?

Clive Crook does not understand U.S. politics. He thinks there's a contradiction between rhetorically beating up on the opposition and cutting deals with them. Here's his response to Obama's Dec. 7 press conference devoted to the tax cut deal:

Could somebody in the White House please tell Mr Obama he cannot have it both ways? Either a) Republicans are evil, dealing with them is repugnant and you do it only with a gun to your head; or b) they are fellow Americans, with legitimate views (backed for the moment by most of the electorate) and working with them (however hard they make it) is a presidential obligation. Either of these positions is coherent. Trying to maintain both is a formula for mental illness.

Crook wants Obama to acknowledge that the other side has some good ideas even though he himself acknowledges that they have none: 

Republicans are indeed an unreasonable, intransigent and reckless bunch, far better at blocking policies than coming up with their own. 

He doesn't seem to have noticed that Obama just spent two years treating the Republicans as worthy political partners -- and got nothing in return but intransigence and vilification.

Clive Crook dreams up a vital center for Obama

Clive Crook has always struck me as tone-deaf on American politics, if sometimes acute on policy.  Today, though, he brought me up short and made me think anew about Obama's conduct and messaging -- though I think that in the end, again, he's substantively wrong about how Obama should position himself.

Crook has long insisted that Obama's mistake has been to govern too far from the left, alienating the American center -- notwithstanding his acknowledgement that the Republicans are sunk in extreme right wing demagoguery, and that the Democrats' approach to the stimulus and health care reform are centrist by any sane measure. Today he comes up with an intriguing explanation for these seemingly incommensurate observations:

Again and again, Mr Obama has acted as though the middle of the electorate mattered less to his administration than the Democratic base. This is not to say he insisted on leftist policies. He usually gave way, when he had to, to conservative Democrats in Congress. He went along with a fiscal stimulus that included a lot of tax cuts. He went along with health reform that excluded the so-called public option. These and other compromises disappointed the left. But the message to the electoral centre was consistent: Mr Obama would have let the left have its way if he could.

What he should have done – and what he ought to do from now on – is simple. Instead of blessing leftist solutions, then retreating feebly to more centrist positions under pressure, he should have identified the centrist policies the country could accept and advocated those policies.

Cllive Crook's disconnect

I do not understand Clive Crook. What seems to me a persistent disconnect in his thinking about U.S. politics and policy is in full evidence in his column today:

A moderate and intelligent opposition to the Democrats’ policies is badly needed. Apparently, nobody in the Republican party aims to provide it. Republican leaders seem intent on presenting the party’s angriest, most stupid and least tolerant face. Some leading Republicans who are moderate by temperament and conviction – John McCain, for instance – are being pushed to the right in primary election contests with more conservative opponents. Others, such as Mitt Romney and Tim Pawlenty, are disowning their previously expressed views or just keeping their heads down.

Republicans are right to say that the Obama administration has over-reached. Democrats failed to convince the country that their healthcare reform was the right solution to an obvious and pressing problem, yet passed their law anyway. Many voters are angry about this, and entitled to be. Also, despite the administration’s denials, the reform will most likely add to public borrowing, which was on a dangerously high trajectory to begin with. Again, they are right to be concerned.

The disconnect seems to be between Crook's recognition that the Republican party has given itself over entirely to fantasist extremism and his insistence that Obama and the Democratic Congress have governed from the far left and have in some fundamental sense violated the will of the electorate.

Writhing in the budget strait jacket

I have always worried that David Brooks had a point here, back in April '08:

He made a sweeping read-my-lips pledge never to raise taxes on anybody making less than $200,000 to $250,000 a year. That will make it impossible to address entitlement reform any time in an Obama presidency. It will also make it much harder to afford the vast array of middle-class tax breaks, health-care reforms and energy policy Manhattan Projects that he promises to deliver.

Clive Crook, long an advocate for a U.S. VAT,  made a similar point in Feb. '09:

In this "new era of responsibility", as the budget document is called, it would have been better for Obama to signal that huge and desirable initiatives like universal health care will impose at least some costs on all Americans. It is literally impossible to make the rich pay for everything, and telling 95% of voters that they can have all these things at no cost is not good leadership. It has even less to do with shared responsibility.

Clive Crook is off-kilter on Obama

I don't think the FT is going to publish this one, so I'll let it fly here:

While alleging that unforced errors have undermined support for President Obama's domestic agenda, Clive Crook asserts with regard to the health care reform bills in Congress that "the administration has not yet credibly accounted for the costs or said how it will meet them."

Come again? The CBO has scored both House and Senate bills as deficit-reducers. Obama has stressed cost control throughout the process, and the Democrats' fiscal responsibility in crafting this bill stands in dramatic contrast to Republicans' ramming through the deficit-financed Medicare drug coverage bill in 2003 (not to mention their reckless tax-cutting in war time).

Mr. Crook simply has not faced up to the effect on public opinion of the Republicans' relentless lying about the health care reform bills. And still, after witnessing Republicans' bad-faith stonewalling on both the stimulus and health care reform, he dreams that Obama might work with a coalition of Republicans and centrist Democrats on tax reform. If he thinks that Republicans would join with centrist Democrats to work with Obama on anything he is truly a brother from another planet where American politics is concerned.

Obama is "remoulding" America, as Mr. Crooks suggests he might if he'd only follow Mr. Crook's prescriptions. No one ever said it would be easy. His poll numbers will go down as Reagan's did until the economy unmistakably turns around and the effects of passing health care reform sink in. Then watch the battleship turn.

Attention, Clive Crook: "uncertainty" is an antidote to "unintended consequences"

Clive Crook objects to the "uncertainty" that the public option injects into the health care reform debate. He also warns against unintended consequences. What he fails to recognize is that an element of uncertainty -- an "option" that may evolve in more than one direction -- is a way of coping with unintended consequences.

Below, Crook gets his "if...then" exactly backwards:

Democrats have been debating whether a "strong" public option should pay Medicare reimbursement rates, something an ordinary competitor could not do. If it did, this would drive down costs and have many other (not necessarily intended) consequences. It would be a big step towards Medicare for all. As I have argued before, there are worse things than Medicare for all, including in my view the present system. But this outcome is one of the things that the administration is saying it does not want. If you want Medicare for all, do what some Democrats do and make the case. If you don't, stop proposing a public option that would push the system towards it.

Politically, the problem with the public option is that it has added to the uncertainty, and hence the anxiety, that surrounds this reform. People want to know where all this is heading. The public option might be nothing, or it might be everything, depending on how it is done. But when advocates like Dionne say that it can be both everything and nothing at the same time, according to your preferences, then centrist voters are right to say, "No thanks."

Possible outcomes to creating a public option might be sorted into three categories: a) it has no great effect, becoming one health care 'option' for a limited percentage of the population; 2) it coexists in robust competition with private health care plans, as (to cite Obama's analogy) public universities do with private ones; or c) it proves a superior choice and causes private insurance to wither on the vine.

None of these outcomes is undesirable, unless a) transpires because the public option is neutered from the start and hence is never a viable option. Instituting a public option should either make private insurance better or prove it to be parasitical. It's a way of creating competition, not a prejudgment of the competitive outcome. "Uncertainty" is good. It's a condition of competition.

As for those lawmakers who would prefer "Medicare for all," i.e. a Canadian system, the public option is a rational -- not disingenuous -- way to get there. There's no virtue in ignoring political reality by pushing for a single payer system in the U.S. now. If the public option gets us there, it will do so in a prudent, incremental way, by earning its stripes as the best service offered. If the public option is a Trojan Horse, it's got to be one that runs, i.e., defeats the competition. If paying Medicare rates hurts quality, private plans ought to be able to differentiate themselves by paying higher rates, thereby presumably attracting better doctors.

Obama likes mechanisms that set the conditions for incremental, adjust-as-you-go change. That's how he's cast "MedPAC on steroids." A robust public option should be in that category.

Three legs of financial reform

Today, two columnists tout two pillars of bank reform, each worrying that fearsome bank lobbying will bend the Obama administration's resolve.

In this corner, Clive Crook urges the G20 to follow Geithner's proposals and act in concert -- so that banks cannot forum shop -- in raising capital ratio requirements and a cap on total leverage for systemically important banks:

The global finance industry is in no position, yet, to mount a vigorous campaign against changes which, if they are adequate, will implicitly tax its growth. That is what higher capital requirements would do, and is precisely why they are needed. Checking the industry’s expansion must be seen as an aim of policy, not an unintended consequence.

And over at the New York Times, Paul Krugman insists that the sine qua non of true bank reform is compensation reform (as proposed back in January 2008 by Raghuram Rajan) -- retooling the current massive incentives for bankers and traders to take excessive risks :

According to recent reports, the Fed’s board is considering imposing new rules on financial-firm compensation, requiring that banks “claw back” bonuses in the face of losses and link pay to long-term rather than short-term performance. The Fed argues that it has the authority to do this as part of its general mandate to oversee banks’ soundness.

I wonder whether a third leg of the stool -- Obama's proposed banking consumer protection agency -- may not be the most important of all. No one seems to be paying much attention to this -- except the banks, which are vociferously opposed. Krugman nods toward this proposal, but also dismisses it as only "the beginning of reform."

Hmm. Notwithstanding the complexities of securitzation, credit default swaps, and capital ratios, it was a simple failure of consumer protection -- tolerance of massive underwriting fraud, abusive loan products like negative principal loans, incentives for loan officers to put people into higher-interest loans than they qualified for -- that blew up the credit bubble and provided the toxic material for all those toxic securities that brought the banks low and triggered the credit default swap obligations that threatened to bring the whole financial system to its knees.

That's not to say that banks could not find other stupid risks if they were prevented from deceiving retail customers and offering them excessive credit. Pay incentives and capital ratios are crucial, too. But if consumer protection is merely a "first step," it's also a first priority.

Bracketing up: will Obama soak the superrich?

Given Americans' immersion in low tax ideology, how can Obama fund his ambitious plans long-term? Matthew Yglesias floats an idea that occurred to me years ago:

some day I should write again about the idea of making tax brackets infinitesimal so that there is no “top bracket.” This would have been unworkable 100 years ago, but with computers there’s no reason we can’t do it.

In other words, there should be an algorithm for perfectly progressive tax rates that ratchet up infinitesimally for every dollar earned, rather than bumping up abruptly at fixed thresholds.

More prosaically, Yglesias floats the idea of adding new marginal tax brackets above the current top level ($357k). While he minimizes the potential for raising significant revenue this way, Nate Silver starts the math and finds otherwise:

What the discussion over the top marginal tax rate ignores, however (and what Ygelsias picks up upon) is that this rate has been assessed at very different thresholds of income. In 1940, for example, the top marginal tax rate was 81.1 percent -- but this rate only kicked in once you made $5,000,000 or more in income, which is equivalent to about $75,000,000 in today's dollars.

But today, the threshold where the top tax bracket kicks in isn't $75 million, or $5 million, or even $1 million ... it's a mere $357,700. The progressivity of the tax code stops there....

The question, of course, is why there isn't a millionaires tax bracket now ... or even a multi-millionaires tax bracket. I haven't run the numbers, but I'm guessing that if you established a new tax bracket at, say, 40.5 percent, that started at incomes of $1,000,000 or more, this would bring in as much revenue to the government as restoring the $250K tax bracket (which is really $360K now given indexing to inflation) to 39.6 percent, as it was under Clinton.

Brushing this subject without quite hitting on it, meanwhile, Clive Crook gives the rationale for creating new upper-level brackets -- though he himself favors the regressive but broader-based VAT:

Not everybody would regard two-earner households with an income of $250,000 a year as rich; and many of the taxpayers in question have seen their retirement savings, college funds and housing equity destroyed. The scandal of widening inequality that still animates the Democrats' thinking is a story about the top fraction of one per cent of the income distribution, not the top end of the middle class.

I wonder if Yglesias hasn't in fact stumbled on Obama's as-yet-veiled long range tax plans. Obama claims that he is going to tackle the long-term sustainability of the Federal budget; he's meanwhile planning large increases in Federal spending while promising not to raise taxes on anyone earning under $250k; and a core commitment in his campaign was to roll back the galloping rise in income inequality that Crook alludes to. There is a lot of wiggle room to raise taxes on the superrich while staying well below past U.S. norms. It's probably either that or a VAT. Or both...

Too narrow a tax base?

After praising Obama's willingness to tackle health care reform, impose a cap-and-trade program on carbon emissions, and do away with accounting gimmicks like placing war spending off-budget, Clive Crook offers a major caveat about the Obama budget:

In this "new era of responsibility", as the budget document is called, it would have been better for Obama to signal that huge and desirable initiatives like universal health care will impose at least some costs on all Americans. It is literally impossible to make the rich pay for everything, and telling 95% of voters that they can have all these things at no cost is not good leadership. It has even less to do with shared responsibility.

True, that. My chief worry about the governing compact Obama forged during the campaign is his promise not to raise taxes on any household with less than $250k in income. Obama's core domestic policy premises were that the U.S. needs to repair its safety net, reduce income inequality and improve opportunity through education. That means higher taxes for the affluent and some tradeoff of tax and benefit for the middle class, if lower tax burdens for the poor. I fear that on this point David Brooks was right: Obama boxed himself in on taxation during the campaign.

Clive Crook hazards a false moral on healthcare

Scouting the Obama healthcare plan for leaving employer based health insurance intact, Clive Crook succumbs to a Republican "ownership society" shibboleth. He'd have us believe that the runup in healthcare costs is driven mainly by consumers:

The real problem is slowing the remorseless trend of future growth. Until healthcare consumers are made to think about costs, that may be impossible. Consumers resist constraint because they think employers are paying for their health insurance; in fact, of course, workers are paying through lower wages.

In fact, the runup in healthcare costs is mainly driven by the incentive structure for doctors, who are paid by the procedure and have financial incentives to order costly tests and treatments (and the negative incentive of defensive medicine, thanks to our litigiousness); by drug companies, which deploy multiple means of bribing doctors to prescribe expensive (and often unproven) new medications, and who have lobbied their way to nearly unchecked pricing power; by insurers, who waste half of doctors' time with insanely arcane claims procedures and cherry-pick the healthiest patients; by the legions of uninsured, whose uncompensated care adds nearly a thousand dollars to the average family healthcare premium; and by the massive failure of our swiss cheese system to deliver preventive care.

It is counterproductive and immoral to induce people to access less healthcare by creating strong financial incentives to eschew treatment. In fact that's just what we do: there are tens of millions of people in this country halving their medication doses, going years without dental care, and avoiding visits to specialists they can ill-afford. You can't have adequate preventive care when every visit demands a consequential financial outlay.

Far from overconsuming healthcare, even Americans with insurance are increasingly underinsured. As reported by Jacob S. Hacker in The Great Risk Shift (2006):

Among insured Americans, 51 million spend more than 10 percent of their income on medical care. One out of six working-age adults are carrying medical debt,and 70 percent had insurance when they incurred it...nearly six in ten of the underinsured postponed needed medical care because of the cost, nearly four in ten had to put off home or car maintenance or repairs due to medical expenses, a third had to dig deep into their savings to pay for medical care, and more than one in five made job-related decisions based mainly on their health care needs. Strikingly, the median family income of the underinsured was $58,000--almost exactly the same as the median income of those with adequate coverage.

Crook has fallen victim to the Republican fallacy that adequate, affordable care creates "moral hazard" -- that patients will gorge themselves on on an open medical buffet if every item is not a la carte. In our healthcare system, the players morally at hazard are doctors who earn more if they prescribe more services, insurers who earn more by cherry-picking customers, and drug companies that earn more by turning doctors into shills. In the U.S., patients' hazard is physical and financial, not moral.

Belief among healthcare economists and policymakers that freedom from paying substantial fee-for-service sums leads patients to inefficiently overuse healthcare services rests largely on the famous RAND Health Insurance Experiment (HIE), a study of consumers provided with varying forms of health insurance over an extended period of time. The RAND HIE, begun in 1974 with results published in 1987 and 1993, purported to find that those in plans where they paid no fees for individual services used more healthcare than those in fee-for-service plans but did not enjoy any measurable health benefits as a result. In other words, the additional care accessed by those for whom services were "free" was effectively wasted.

This conclusion was effectively debunked in an analysis by John A. Nyman, published in October 2007 in the Journal of Health Policy, Politics and Law. Noting that all participants in HIE had the option of dropping out at will and returning to the health plan they held prior to the experiment, Nyman reported that sixteen times as many participants dropped out of the fee-for-service plans as out of the free plans. Since participants were given a financial incentive to remain in the experiment, the inescapable conclusion is that those who dropped out of the fee-for-service plans did so because they became seriously ill or were injured badly enough to need expensive care. In Nyman's analysis, "moral hazard" is exposed as essentially another word for "risk sharing." Those who need expensive healthcare access it if it is not financially prohibitive; those who don't need expensive procedures subsidize those who do. That's what insurance is for.