Tag Archives: Ezra Klein

It Is Ezra Klein Week Here At Around The Sphere

Ezra Klein:

There’s lots of interesting stuff in Ed Glaeser’s new book, “The Triumph of the City.” One of Glaeser’s themes, for instance, is the apparent paradox of cities becoming more expensive and more crowded even as the cost of communicating over great distances has fallen dramatically. New York is a good example of this, but Silicon Valley is a better one

[…]

The overarching theme of Glaeser’s book is that cities make us smarter, more productive and more innovative. To put it plainly, they make us richer. And the evidence in favor of this point is very, very strong. But it would of course be political suicide for President Obama to say that part of winning the future is ending the raft of subsidies we devote to sustaining rural living. And the U.S. Senate is literally set up to ensure that such a policy never becomes politically plausible.

Klein again:

Yesterday afternoon, I got an e-mail from a “usda.gov” address. “Secretary Vilsack read your blog post ‘Why we still need cities’ over the weekend, and he has some thoughts and reflections, particularly about the importance of rural America,” it said. A call was set for a little later in the day. I think it’s safe to say Vilsack didn’t like the post. A lightly edited transcript of our discussion about rural America, subsidies and values follows.

Ezra Klein: Let’s talk about the post.

Tom Vilsack: I took it as a slam on rural America. Rural America is a unique and interesting place that I don’t think a lot of folks fully appreciate and understand. They don’t understand that that while it represents 16 percent of America’s population, 44 percent of the military comes from rural America. It’s the source of our food, fiber and feed, and 88 percent of our renewable water resources. One of every 12 jobs in the American economy is connected in some way to what happens in rural America. It’s one of the few parts of our economy that still has a trade surplus. And sometimes people don’t realize that 90 percent of the persistent poverty counties are located in rural America.

EK: Let me stop you there for a moment. Are 90 percent of the people in persistent poverty in rural America? Or just 90 percent of the counties?

TV: Well, I’m sure that more people live in cities who are below the poverty level. In terms of abject poverty and significant poverty, there’s a lot of it in rural America.

The other thing is that people don’t understand is how difficult farming is. There are really three different kinds of farmers. Of the 2.1 million people who counted as farmers, about 1.3 million of them live in a farmstead in rural America. They don’t really make any money from their operation. Then there are 600,000 people who, if you ask them what they do for a living, they’re farmers. They produce more than $10,000 but less than $250,000 in sales. Those folks are good people, they populate rural communities and support good schools and serve important functions. And those are the folks for whom I’m trying to figure out how to diversify income opportunities, help them spread out into renewable fuel sources. And then the balance of farmers, roughly 200,000 to 300,000, are commercial operations, and they do pretty well, particularly when commodity prices are high. But they have a tremendous amount of capital at risk. And they’re aging at a rapid rate, with 37 percent over 65. Who’s going to replace those folks?

EK: You keep saying that rural Americans are good and decent people, that they work hard and participate in their communities. But no one is questioning that. The issue is that people who live in cities are also good people. People who live in exurbs work hard and mow their lawns. So what does the character of rural America have to do with subsidies for rural America?

TV: It is an argument. There is a value system that’s important to support. If there’s not economic opportunity, we can’t utilize the resources of rural America. I think it’s a complicated discussion and it does start with the fact that these are good, hardworking people who feel underappreciated. When you spend 6 or 7 percent of your paycheck for groceries and people in other countries spend 20 percent, that’s partly because of these farmers.

More Klein here and here

Will Wilkinson at DiA at The Economist:

IN THIS chat with Ezra Klein, Tom Vilsack, the secretary of agriculture, offers a pandering defence of agricultural subsidies so thoroughly bereft of substance I began to fear that Mr Vilsack would be sucked into the vacuum of his mouth and disappear.When Mr Klein first raises the subject of subsidies for sugar and corn, Mr Vilsack admirably says, “I admit and acknowledge that over a period of time, those subsidies need to be phased out.” But not yet! Vilsack immediately thereafter scrambles to defend the injurious practice. Ethanol subsidies help to wean us off foreign fuels and dampen price volatility when there is no peace is the Middle East, Mr Vilsack contends. Anyway, he continues, undoing the economic dislocation created by decades of corporate welfare for the likes of ADM and Cargill will create economic dislocation. Neither of these points is entirely lacking in merit, but they at best argue for phasing out subsidies slowly starting now.

Mr Vilsack should have stopped here, since this is as strong as his case is ever going to be, but instead he goes on to argue that these subsidies sustain rural culture, which is a patriotic culture that honours and encourages vital military service:

[S]mall-town folks in rural America don’t feel appreciated. They feel they do a great service for America. They send their children to the military not just because it’s an opportunity, but because they have a value system from the farm: They have to give something back to the land that sustains them.

Mr Klein follows up sanely:

It sounds to me like the policy you’re suggesting here is to subsidize the military by subsidizing rural America. Why not just increase military pay? Do you believe that if there was a substantial shift in geography over the next 15 years, that we wouldn’t be able to furnish a military?

To which Mr Vilsack says:

I think we would have fewer people. There’s a value system there. Service is important for rural folks. Country is important, patriotism is important. And people grow up with that. I wish I could give you all the examples over the last two years as secretary of agriculture, where I hear people in rural America constantly being criticized, without any expression of appreciation for what they do do.

In the end, Mr Vilsack’s argument comes down to the notion that the people of rural America feel that they have lost social status, and that subsidies amount to a form of just compensation for this injury. I don’t think Mr Vilsack really believes that in the absence of welfare for farmers, the armed services would be hard-pressed to find young men and women willing to make war for the American state. He’s using willingness-to-volunteer as proof of superior patriotism, and superior patriotism is the one claim to status left to those who have no other.

Ryan Avent at Free Exchange at The Economist:

I’ll add a few comments. First, it may be that the economists who understand the economic virtues of city life aren’t doing a sufficiently good job explaining that it’s not the people in cities that contribute the extra economic punch; it’s the cities or, more exactly, the interactions between the people cities facilitate. It’s fine to love the peace of rural life. Just understand that the price of peace is isolation, which reduces productivity.

Second, the idea that economically virtuous actors deserve to be rewarded not simply with economic success but with subsidies is remarkably common in America (and elsewhere) and is not by any means a characteristic limited to rural people. I also find it strange how upset Mr Vilsack is by the fact that he “ha[s] a hard time finding journalists who will speak for them”. Agricultural interests are represented by some of the most effective lobbyists in the country, but their feelings are hurt by the fact that journalists aren’t saying how great they are? This reminds me of the argument that business leaders aren’t investing because they’re put off by the president’s populist rhetoric. When did people become so sensitive? When did hurt feelings become a sufficient justification for untold government subsidies?

Finally, what Mr Klein doesn’t mention is that rural voters are purchasing respect or dignity at the price of livelihoods in much poorer places. If Americans truly cared for the values of an urban life and truly wished to address rural poverty, they’d get rid of agricultural policies that primarily punish farmers in developing economies.

Andrew Sullivan

Arnold Kling:

Ezra Klein sounds like my clone when arguing with the Secretary of Agriculture.

James Joyner:

Essentially, Vilsack justifies subsiding farmers on the basis that rural America is the storehouse of our values, for which he has no evidence. And he’s befuddled when confronted with someone who doesn’t take his homilies as obvious facts.

Nobody argues that America’s farmers aren’t a vital part of our economy or denies that rural areas provide a disproportionate number of our soldiers. But the notion that country folks are somehow better people or even better Americans has no basis in reality.

Jonathan Chait at TNR:

Why is it so common to praise the character of rural America? Part of it is doubtless that rural life represents the past, and we think of the past as a simpler and more honest time. But surely another element is simply that rural America is overwhelmingly white and Protestant. And completely aside from the policy ramifications, the deep-seated veneration of rural America reflects, at bottom, a prejudice few would be willing to openly spell out.

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Filed under Economics, Food, Go Meta, New Media

An Apple A Day, Yadda, Yadda, Yadda

Ezra Klein:

File this one under “health care doesn’t work nearly as well as we’d like to believe.” A group of researchers followed almost 15,000 initially healthy Canadians for more than 10 years to see whether universal access to health care meant that the rich and the poor were equally likely to stay healthy. The answer? Not even close.

The researchers ran the data two ways: High-income patients vs. low-income patients, and highly educated patients vs. less educated patients. Over the course of the study, the high-income patients were only 35 percent as likely to die as the low-income patients, and the highly educated patients only 26 percent as likely to die as the low-income patients. And the problem wasn’t that the low-income and low-education patients were hanging back from the health-care system. Because they were getting sick while their richer and better educated counterparts weren’t, they actually used considerable more in health-care services.

The problem, the researchers say, is that the medical system just isn’t that good at keeping people from dying. “Health care services use by itself had little explanatory effect on the income-mortality association (4.3 percent) and no explanatory effect on the education-mortality association,” they conclude.

You don’t want to over-interpret this data. It’s possible that in the absence of insurance, the gap would be much wider. Indeed, there’s good evidence suggesting that’s true. Nevertheless, this should make us very skeptical about a world in which we’re spending almost one out of every five dollars on health-care services. Universal insurance is crucial both for certain forms of health care and for economic security. But as I’ve argued before, it’s probably not the best way to make people healthier. Rather, the best way to make people healthier would be to get health-care costs under control so there’s more money in the budget for things like early-childhood education and efforts to strip lead out of walls, both of which seem to have very large impacts on health even though we don’t think of them as health-care expenditures.

Arnold Kling:

And that is from a study in Canada.3. The Washington Post reports,

A 2006 study by the U.S. Department of Education found that 36 percent of adults have only basic or below-basic skills for dealing with health material. This means that 90 million Americans can understand discharge instructions written only at a fifth-grade level or lower.

My guess is that if you want to improve health outcomes in the United States, ignore health insurance and focus on literacy. Even if it has nothing to do with whether or not they can follow a doctor’s written instructions, my guess is that better literacy has a positive impact on health outcomes. The question is whether educators know enough about how to improve literacy to be able to do so effectively. I hope that is the case.

Tim Carney at The Examiner:

During debate over the health-care debate, liberal blogger Ezra Klein wrote that blocking the legislation would “cause the deaths of hundreds of thousands of people.” The liberals were relying on a study from the Urban Institute saying 20,000 people die a year because they are uninsured. Free-market blogger Megan McArdle read the study and concluded:

when you probe that claim, its accuracy is open to question. Even a rough approximation of how many people die because of lack of health insurance is hard to reach. Quite possibly, lack of health insurance has no more impact on your health than lack of flood insurance.

Klein came back with this:

I don’t want to be too harsh, and I don’t want to imply that anyone is sitting around twirling their mustache thinking up ways to hurt poor people. But opposition to health-care reform (which is different than opposition to the people who would be helped by health-care reform) is leading to some very strange arguments about the worth of health-care insurance — arguments that don’t fit with previous opinions, revealed preferences, or even the evidence the skeptics are citing.

But today, with the fight over ObamaCare behind us, and the President dealing with expectations over what his bill can deliver, Klein has a blog post that goes much farther than McArdle ever did. Klein’s headline:

Health care doesn’t keep people healthy — even in Canada

The main thrust of Klein’s blog post:

The problem, the researchers say, is that the medical system just isn’t that good at keeping people from dying. “Health care services use by itself had little explanatory effect on the income-mortality association (4.3 percent) and no explanatory effect on the education-mortality association,” they conclude.

I don’t want to be too harsh, and I’ve got nothing against what Klein used to call “arguments that don’t fit with previous opinions,” so I’ll just recommend you spend more time reading Megan McArdle.

The same is true, I’ll bet, for folks like Tim Carney who like to argue that medical care is ineffective as a way to argue against subsidizing health insurance for poor people. But for the record, the best evidence we have suggests that health-care coverage does much more for the health of poorer people than it does for the health of well-compensated, highly educated people like Carney. That folks like Carney use that evidence to continue a status quo in which they have health insurance and the poor don’t is, I think, proof of how seriously they take their arguments on this score, and of what this discussion is really about — and the answer isn’t “improving the health of the population.”

Karl Smith at Modeled Behavior:

I suspect we have two things going on.First, education confers status and status is related to health outcomes. For example Oscar winners live longer than those simply nominated. How this link occurs is not totally clear. It seems that the hormones associated with stress and disappointment – cortisol for example – reduce long run health. However, this may not be the mechanism. No one really knows at this point.

Second, for a long list of reasons there is correlation between education and physical attractiveness. Physical attractiveness is by evolutionary design a proxy for health. Which to say, healthier folks are more likely to become well educated.

This makes me doubt that power of health improvements from increasing education.

In general it is just damn hard to improve health outcomes. Our bodies are the product of about 4 billion years of evolution. Just making sense of how they work is hard enough. Making them work better is a herculean task.

Jim Manzi at The American Scene:

There is a debate going on in the blogosphere between Ezra Klein, Arnold Kling, Karl Smith, Tim Carney and others about, to put it crudely, whether health care really affects health that much. This is, in part, a proxy debate for whether it is worth it for the U.S. government to provide generous universal health care financing for all of its citizens (or, I suppose, residents).

Either position can be caricatured. On one hand, no sane person would want to be without the advances of modern medicine. Recently, a little girl I know had scarlet fever. A century ago, this would very possibly have meant burying a small corpse; today, it implies a 10-day cycle of swallowing medicine at breakfast and dinner. There are few people on Earth who have as much reason to be proud of how they spend their work week as pharmaceutical researchers.

On the other hand, the link from alternative methods of health care finance, through the actual differences in provision of medical care these imply in the contemporary U.S., to the actual differences in health outcomes these treatment differences would cause, isn’t nearly so obvious. The net health effect of providing universal health care coverage versus some alternative financing system is an empirical question, not a philosophy debate.

I’ve written a lot about why randomized experiments are so critical to understanding cause-and-effect relationships in social policy. In the case of health care financing, the reason is that what system of health care financing you have (high-quality “go to any doctor” plan; good HMO; catastrophic-only plan; VA; go to an emergency room because you are uninsured, etc.) is bound up with a myriad of other factors that influence health. A randomized experiment allows us to isolate the impact of the system of health care financing.

To my knowledge, the only large-scale randomized experiment in the U.S. that has tested the actual effects on health of providing various kinds of healthcare financing was the RAND Health Insurance Experiment (HIE). In this experiment, thousands of families were randomly assigned to one of five different health insurance plans that ranged from something like a plan that provides free health care, to something like a pure catastrophic-only plan in which consumers pay out-of-pocket for day-to-day healthcare. The study tracked what exact health care services each group used, and how their health varied over a period of 3 – 5 years.

Ezra Klein describes this experiment as “the best evidence we have,” and writes that it “suggests that health-care coverage does much more for the health of poorer people than it does for the health of well-compensated, highly educated people.” His statement is correct, but as a summary of the results of this experiment, seems to me to be radically incomplete. In fact, the experimenters wrote of the findings that “cost sharing reduced the use of nearly all health services,” but “the reduction in services induced by cost sharing had no adverse effect on participants’ health.” Think about that. Providing people coverage of their medical costs caused no average improvement in health.

Klein is correct that there appeared to be a net health benefit for the poorest participants, but this was for a tiny proportion of the population, and for a small subset of medical conditions. According to the study, “The poorest and sickest 6 percent of the sample at the start of the experiment had better outcomes under the free plan for 4 of the 30 conditions measured.” There are technical reasons why conclusions from such a experiment are not reliable for post hoc subgroups in the way that they are for average comparison of a test group versus a control group; but even if we were to accept this finding as valid, it’s not obvious to me that we would want to devise a health care financing system for the United States around helping 6% of the population partially ameliorate about 10% of their potential health problems, as opposed to developing some specific supplementary programs for these issues, if they could be addressed feasibly.

Klein clearly has a very sophisticated take on the issue, and wrote in 2009 that health care reform is not primarily about improving health, but in reducing how much we spend on it. As he put it, “The purpose of health reform, in other words, is to pay for health care — not to improve the health of the population.” Fair enough. But the real debate, then, would be about whether market forces or bureaucratic control would be better at reducing costs, not about which would be better at promoting health for the “poorest and sickest” or anybody else. It wouldn’t be about getting better health outcomes.

A single experiment like the RAND HIE is not definitive. Among other things: it finished in 1982, and we live in a different world; any such experiment requires replication; it might be that the important health effects take much longer than 5 years to materialize, and so on. But as an observer of the health care debates, it always struck me as fascinating that the fact that the “best evidence we have” showed that providing health care coverage doesn’t actually improve average health wasn’t treated as more central.

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Is It Good News? Is It Really, After All This Time, Good News?

Chart via Calculated Risk

Calculated Risk:

From the BLS:

Nonfarm payroll employment increased by 192,000 in February, and the unemployment rate was little changed at 8.9 percent, the U.S. Bureau of Labor Statistics reported today.

The change in total nonfarm payroll employment for December was revised from +121,000 to +152,000, and the change for January was revised from +36,000 to +63,000.

The following graph shows the employment population ratio, the participation rate, and the unemployment rate.

Daniel Indiviglio at The Atlantic:

It should be noted that today’s report revised upwards the number of jobs for both December and January to 152,000 from 121,000 and to 63,000 from 36,000, respectively. Obviously, it’s good news that there were actually 58,000 more jobs created during these two months combined than we thought.

Those 192,000 net new jobs in February according to BLS’s Establishment survey aren’t far off the 250,000 estimated by its Household survey. There was a major discrepancy last month: these surveys estimated 36,000 and 589,000 jobs created, respectively. It’s nice to see these two surveys’ statistics a little closer together in February, as it provides better credibility to the numbers we’re seeing.

Private sector jobs did much better than government jobs in February. Firms added 222,000, while state and local jobs declined by 30,000. Federal jobs were unchanged.

Felix Salmon:

The general reaction to this morning’s jobs report is “meh”, as you might expect, given the release, where the phrases “changed little”, “about unchanged”, “little or no change”, “unchanged”, and “essentially unchanged” all appear in the first five paragraphs. But that’s largely a function of the fact that the release attacks the unemployment figures first; when it comes to payrolls, they rose by a statistically significant amount — 192,000 jobs, and the trend, while modest, is clearly in the right direction:

Since a recent low in February 2010, total payroll employment has grown by 1.3 million, or an average of 106,000 per month.

The really good news in this report is that it’s looking increasingly as though the sharp drop in the unemployment rate over December and January, when it fell from 9.8% to 9.0% in two months, is less of an aberration than it might seem. The 8.9% rate, while undeniably unacceptably high, is the first time we’ve seen an 8 handle on this figure in almost two years. And remember that in October 2009, the number was 10.1%.

Given that unemployment by its nature falls more slowly than it rises, a decrease of 1.2 percentage points in 16 months has to be taken as an indication that something is, finally, going right. (Other unemployment rates, like the much-discussed U6, are also down sharply: it’s now 15.9%, from 17.0% in November.)

Even the worst news of the report, in table A-12, is something of a statistical aberration: while the mean duration of unemployment hit an atrocious new high of 37.1 weeks, that’s mainly because the upper bound for for unemployment duration was changed this year to 5 years from 2 years. The median duration fell, to 21.2 weeks. There’s still an American underclass of about 2.5 million long-term unemployed, but it does seem to be shrinking a little.

Tom Diemer at Politics Daily:

The news wasn’t good enough for the Republican National Committee. RNC Chairman Reince Priebus said even with the better jobs numbers, “we have yet to see the leadership we need coming out of the White House to restore sustainable economic growth. . . . Frankly, if the answer doesn’t involve more spending, this administration is simply out of solutions.”

But Senate Majority Leader Harry Reid (D-Nev.) saw a better day ahead and warned that cutting the federal budget too deeply this year could cost jobs in a fragile economy. “Republicans should work with us to quickly pass a long-term budget that reduces the deficit while protecting jobs, and [giving] business certainty,” he said. Similarly, AFL-CIO President Richard Trumka said the improving economy “remains threatened by irresponsible budget cutting in Congress and in states and cities.”

Ezra Klein:

The most important thing for not only the economy, but also the long-term deficit, is that we get unemployment down, and fast. When businesses begin hiring again, that’ll mean more revenue rushing into state and federal coffers, it’ll mean gains in the stock market, it’ll mean lower social spending through programs like Medicaid and unemployment insurance. Sharp spending cuts may save us some money, but that doesn’t mean they’re a good deal, at least right now. What we need at the moment is more jobs reports like this one — businesses need to be convinced that this is a recovery, not merely a good month. Anything that might get in the way should wait until we’ve had a few of them in a row.

Doug Mataconis:

There are caveats, of course. There are still millions of people sitting outside the labor force after the recession, and returning them to full employment is going to be a difficult, if not impossible, task to achieve The rising price of oil, brought on by the myriad crises in the Middle East, could put a damper on any economic recovery we’re experiencing right now. And, of course, this could all be a one month anomaly. Nonetheless, this is good news and let’s hope it continues.

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Filed under Economics, The Crisis

All Your Best Blog Posts On That Economic Policy Institute’s Study

Ezra Klein:

“Republicans say that public-sector employees have become a privileged class that overburdened taxpayers,” write Karen Tumulty and Brady Dennis. The question, of course, is whether it’s true. Consider this analysis the Economic Policy Institute conducted comparing total compensation — that is to say, wages and health-care benefits and pensions — among public and private workers in Wisconsin. To get an apples-to-apples comparison, the study’s author controlled for experience, organizational size, gender, race, ethnicity, citizenship and disability, and then sorted the results by education

[…]

If you prefer it in non-graph form: “Wisconsin public-sector workers face an annual compensation penalty of 11%. Adjusting for the slightly fewer hours worked per week on average, these public workers still face a compensation penalty of 5% for choosing to work in the public sector.”

Jim Manzi at The American Scene:

Klein links to an executive summary to support his claim, but reading the actual paper by Jeffrey H. Keefe is instructive. Keefe took a representative sample of Wisconsin workers, and built a regression model that relates “fundamental personal characteristics and labor market skills” to compensation, and then compared public to private sector employees, after “controlling” for these factors. As far as I can see, the factors adjusted for were: years of education; years of experience; gender; race; ethnicity; disability; size of organization where the employee works; and, hours worked per year. Stripped of jargon, what Keefe asserts is that, on average, any two individuals with identical scores on each of these listed characteristics “should” be paid the same amount.

But consider Bob and Joe, two hypothetical non-disabled white males, each of whom went to work at Kohl’s Wisconsin headquarters in the summer of 2000, immediately after graduating from the University of Wisconsin. They have both remained there ever since, and each works about 50 hours per week. Bob makes $65,000 per year, and Joe makes $62,000 per year. Could you conclude that Joe is undercompensated versus Bob? Do you have enough information to know the “fundamental personal characteristics and labor market skills” of each to that degree of precision? Suppose I told you that Bob is an accountant, and Joe is a merchandise buyer.

Even if Bob and Joe are illustrative stand-ins for large groups of employees for whom idiosyncratic differences should average out, if there are systematic differences in the market realities of the skills, talents, work orientation and the like demanded by accountants as compared to buyers, then I can’t assert that either group is underpaid or overpaid because the average salary is 5% different between these two groups.

And this hypothetical example considers people with a degree from the same school working in the same industry at the same company in the same town, just in different job classifications. Keefe is considering almost any full-time employee in Wisconsin with the identical years of education, race, gender, etc. as providing labor of equivalent market value, whether they are theoretical physicists, police officers, retail store managers, accountants, salespeople, or anything else. Whether they work in Milwaukee, Madison, or a small town with a much lower cost of living. Whether their job is high-stress or low-stress. Whether they face a constant, realistic risk of being laid off any given year, or close to lifetime employment. Whether their years of education for the job are in molecular biology, or the sociology of dance. Whether they do unpredictable shift work in a factory, or 9 – 5 desk work in an office with the option to telecommute one day per week.

Keefe claims – without adjusting for an all-but infinite number of such relevant potential differences between the weight-average public sector worker and the weight-average private sector worker – that his analysis is precise enough to ascribe a 5% difference in compensation to a public sector compensation “penalty.”

And his use of the statistical tests that he claims show that the total public-private compensation gap is “statistically significant” are worse than useless; they are misleading. The whole question – as is obvious even to untrained observers – is whether or not there are material systematic differences between the public and private employee that are not captured by the list of coefficients in his regression model. His statistical tests simply assume that there are not.

I don’t know if Wisconsin’s public employees are underpaid, overpaid, or paid just right. But this study sure doesn’t answer the question.

Jason Richwine at Heritage:

Manzi is referring to “the human capital model,” which holds that workers are paid according to their skills and personal characteristics, like education and experience. Most scholars—including Andrew, myself, and Heritage’s James Sherk—use it to compare the wages of the public and private sectors. If the public sector still earns more than the private after controlling for a variety of factors, then it is said to be “overpaid” in wages. But because we cannot control for everything, Manzi is saying, the technique is not very useful.

His critique is reasonable enough, but overwrought. The human capital model has been around for three decades, and it is unlikely that economists have failed to uncover important variables that would drastically change its results. Nevertheless, there are other techniques that address most of Manzi’s concerns. An upcoming Heritage Foundation report uses a “fixed effects” approach, which follows the same people over time as they switch between the private and federal sectors. By looking at how the same person’s wage changes when he moves between sectors, a lot of unobservable traits—intelligence, extroversion, etc.—are accounted for.

In order to capture fringe benefits as well as wages, economists have also used quit rates and job queues. If public workers quit less often than private workers, we can infer (with some qualifications, of course) that there are not better options available to them. Similarly, if many more applicants apply for government jobs than there are positions—creating a “queue”—then we know that government jobs are highly desirable. Of course no methodology is perfect, but the scholarly literature can tell us a lot about pay comparisons. Andrew and I discussed this work in detail in a recent Weekly Standard article.

John Sides:

From one perspective, sure, I agree that a statistical analysis of the sort described above based on observational data can never be a true direct comparison. (Not to mention the difficulty of classifying people like me who work in the quasi-public sector.) But if you take things from the other direction, this sort of study can be valuable.

What do I mean by “the other direction,” you might ask? I mean, suppose you start, as people do, with raw numbers: Salary plus benefits = X% of the state budget. The state has Y number of employees. Average income of all Wisconsinites is Z. Then you start adjusting for hours worked, ages of the employees, etc etc, and . . . you end up with Keefe’s analysis.

My point is, people are going to make some comparisons. Comparisons aren’t so dumb as long as you realize their limitations. And once you start to compare, it makes sense to try to compare comparable cases. Taking Manzi’s criticism too strongly would leave us in the position of allowing raw numbers, and allowing pure unblemished randomized experiments, but nothing in between.

In summary:

1. Manzi’s right to emphasize that a simplistic interpretation of regression results can be misleading.

2. Regressions of observational data can be a good way of going beyond raw comparisons and averages.

Some of this discussion reminds me of the literature on the wage premium for risk, where people run regressions on salaries for comparable jobs in order to estimate how much people need to be paid to risk death or injury.. Based on my reading is that these studies can’t be trusted: if you’re not careful, you can easily estimate the value of life to be negative–after all, the riskiest jobs (lumberjack, etc.) tend to pay poorly, while the best-paying jobs (being Bill Gates, etc.) are pretty safe gigs. With care, you can get those regressions to give reasonable coefficients in the range of $1 million per life, but I don’t really see these numbers as meaning anything at all; they’re just the results of fiddling with the models until something reasonable comes out. I’m not saying that the people who do these analyses are cheating, just that they want reasonable results but the models seem too open-ended to be a good measure of risk premiums.

Jonathan Cohn at TNR:

Am I certain Keefe is right? No. Having spent some time reporting on public and private sector compensation before, I can tell you that there is a lot of disagreement over the proper way to adjust the raw compensation figures to account for variables like age, education, and so on. (The debate is as much philosophical as methodological: Some conservatives argue that public employers put an artificial premium on graduate education, effectively paying more for degrees that don’t make workers better qualified.) I haven’t seen a specific refutation of Keefe’s report on Wisconsin, but if you want to read an analysis that suggests public workers, in general, are over-compensated, Andrew Biggs of the American Enterprise Institute has done work along those lines–and has a new article in the Weekly Standard summarizing his views.

But I wonder if this whole debate misses the point. Suppose public workers really do make more than private sector workers. Who’s to say that the problem is public workers making too much, rather than private sector workers making too little?

Andrew Biggs at AEI:

While we’ll have a longer piece out on Wisconsin pay soon, I figured that in response to Cohn’s post I’d raise a couple issues regarding EPI’s report.

First, we’ve found a lower salary penalty for Wisconsin public employees than EPI did (around -5 percent versus -11 percent in EPI’s study). It’s not clear what’s driving the difference, since we’re using the same data, but that’s something to track down. It’s also worth noting that both our calculations and EPI’s control for firm size; this means that essentially we’re comparing Wisconsin public employees not to all private workers, but to employees at the very largest Wisconsin firms, who tend to pay more generous salaries and benefits. Whether to control for firm size is an open question, since if a given public employee didn’t work for the government there’s a good chance he wouldn’t work at a large private firm. But readers at least should be aware of the issue.

Second, the benefits shown in the EPI report aren’t actually for Wisconsin alone. They’re an average for the “East North Central Census Division,” which comprises Illinois, Indiana, Michigan, Ohio, and Wisconsin. Because the Bureau of Labor Statistics doesn’t publish compensation data at the state level (due to small sample sizes) regional figures are the best we’ve got. The problem is, if Wisconsin government workers get relatively better benefits than public employees in other states—which seems to be part of the argument that Governor Walker is making—then these figures will understate true compensation. For instance, in practice Wisconsin public employees make essentially no contribution toward their pensions (formally they must contribute around 5 percent of pay, but their employers almost always cover it). Nationally, public employees contribute an average of around 5.7 percent of pay to their pensions.

Third, the benefit measures in the EPI study are based on what employers pay, not what employees actually receive. This matters for public-sector defined-benefit pensions, which use much more optimistic investment return assumptions than private pensions (a 7.8 percent assumed return in the Wisconsin Retirement System, versus around a 4 percent riskless return in U.S. Treasury securities) and fund their benefits accordingly. Most economists think public pensions are wrong to make these assumptions, but what matters is that employees effectively receive those higher returns whether the investments pan out or not. Adjusting for the differences in implicit returns to pensions would increase total Wisconsin compensation by around 4 percent.

Fourth, and related, is that the EPI study omits the value of retiree health benefits, which most public workers receive but most private employees don’t. (Some very large firms still offer retiree health benefits, but they’re increasingly rare and increasingly stingy.) The value of retiree healthcare can vary significantly. For instance, most run-of-the-mill Wisconsin state retirees are offered the right to buy into the employee plan. This provides an implicit subsidy, since they’re buying at rates calculated for the working-age population rather than their own health risk. The value of this is equal to a percent or so of extra pay every year. Other employees, such as Milwaukee teachers, have almost all their premiums paid for them. Actuarial reports list these protections as costing over 17 percent of salaries, meaning that for these workers EPI’s approach would miss a lot of benefit income. In addition, even these actuarial studies value retiree health coverage at employer cost, not the benefit to the employee. A retired 60-year-old purchasing coverage in the individual market would pay significantly more than the reported cost of his public-sector retiree health plan, because individual coverage costs more than group coverage. Some studies place the cost differential at around 25 percent; the Congressional Budget Office’s health insurance model appears to assume something larger: they say that “once differences in the characteristics of nongroup versus ESI [employer sponsored insurance] policyholders are considered and different loading costs are considered, a typical nongroup policy has roughly 60 percent of the relative plan value of an average ESI policy. That finding is supported by a recent survey of nongroup and ESI premiums and relative plan values in California.” So we know something is being missed and we have good reason to believe that even when we find actuarial reports calculating the cost of retiree health coverage, it’s still an underestimate. Unfortunately, there’s no central data source for retiree health benefits, meaning there’s a lot of digging to get a correct answer.

Fifth, the EPI report doesn’t calculate the value of public-sector job security. In a given year, a state/local worker has less than one-third the chance of being fired or laid off as a private worker. There’s a long history in economics (back to Adam Smith, actually) of thinking in terms of “compensating wage differentials,” although it’s only in the last 20 years or so that there’s been much progress in measuring them. We took a somewhat different approach, of using financial tools to calculate the price of an insurance policy that would protect against job loss and counting the value of that insurance toward public-sector pay. In theory each should produce the same answer, but as always things are messy. There may be a way of using CPS data to get on top of this, though.

At the end of the day, I just don’t think we can make any final conclusions on state/local pay because so much of the data, particularly on the benefits end, is still too loosey-goosey. There’s just more work to be done. (At the federal level, though, the measured overpayment is so large that I’m willing to say I’m convinced.)

Ezra Klein, responding to Manzi:

Jim Manzi has posted a critique of the Economic Policy Institute’s study (PDF) suggesting that Wisconsin’s public-sector workers are underpaid relative to their private-sector counterparts. It basically boils down to the argument that this sort of thing is hard to measure. The study controls for most every observable worker characteristic that we can imagine controlling for. But there are, Manzi says, an “all-but-infinite” number of differences beyond that. Perhaps going into the public sector says something about a person’s level of ambition, or ability to take risks and tolerate stress, or tendency to innovate — something that, in turn, makes the private-sector worker worth more or less to the economy.

And fair enough. Maybe there is some systemic difference between Hispanic women with bachelor’s degrees and 20 years of work experience who put in 52-hour weeks in the public sector and Hispanic women with bachelor’s degrees and 20 years of work experience who put in 52-hour weeks in the private sector. If anyone has some evidence for that, I’m open to hearing it. But the EPI study is aimed at a very specific and very influential claim: that Wisconsin’s state and local employees are clearly overpaid. It blows that claim up. Even in Manzi’s critique, there’s nothing left of it. So at this point, the burden of proof is on those who say Wisconsin’s public employees make too much money.

Reihan Salam on Klein’s response:

I was struck by this sentence: “Even in Manzi’s critique, there’s nothing left of it.” I’ve known Jim for many years and I’ve read just about everything he’s written, including a few things that haven’t been published. I have never seen Jim write that Wisconsin’s state and local employees are clearly overpaid, or indeed that any employees are clearly overpaid. There are many right-wingers who’ve said that, but it’s not the way Jim has ever thought about the issue as far as I know.

I don’t want to put words in Jim’s mouth, here’s what I consider a slightly more Manzian take: the problem with public sector compensation is that there is often very little clarity in terms of whether or not taxpayers are getting a good deal. One of the big reasons right-wingers are so hot for merit pay, based on my limited experience, is that they’re generally pretty comfortable with the idea of at least some public workers making much more than they are making now, provided other workers who’d be willing to work for less because they’re not likely to attract better offers are either paid less or fired.

Let me underline this point: Some public workers, like really great federal procurement officers, might very well be “underpaid,” in that they’re always on the verge of jumping ship to better opportunities, they’re stressed about money all the time when they could be using their awesome Jedi procurement skills to save taxpayers money, and we could attract other awesome people to do this job if only we weren’t such tightwads. Others might be “overpaid,” in that there are people who really like the stability of working for a “firm” that will, short of invasion and military conquest, probably exist for at least another ten years and would be open to working for a bit less money if they had no choice in the matter. Do you think we have more of the former than the latter? That’s where analyses like Keefe’s come in, to offer a rough guide to the conversation.

I would love for conservatives to do a better job of talking about public sector compensation. The basic conflict is whether we think of creating more jobs, work effort, etc., as our goal, or if our goal is to deliver a service. If the latter is our goal, we presumably want to do it in the most cost-effective way, so that we can devote our time, money, and energy to other things we like doing more. By extension, this suggests that we really do want to pay people as little as we can to get the things that we want. Or:

Reihan Salam says:

We really do want to pay people as little as we can to get the things that we want.

What a bozo!

This relentless process of delivering services and goods for less money really does destroy jobs, but, in theory at least, it allows us to create new ones. We happen to be living in a historical moment when there’s not a lot of faith in that idea, partly because we’ve seen a steady decline in labor force participation rates due to tangle of implicit marginal tax rates, an incarceration crisis, interrelated social pathologies, and much else. I’m biased in favor of believing that we will create new job opportunities because almost everyone I’m close to works in jobs that they could not have done in the way they do them now even ten years ago. The goal is to use good public policy to bridge over transitional periods, and, by the way, a dynamic market economy is always in a transitional period.

Manzi responds to Klein:

Klein is correct to say that my post “basically boils down to the argument that this sort of thing is hard to measure.” But he then argues that the purpose of the original study was not to demonstrate that public sector workers are underpaid, but rather to rebut the claim that they are overpaid:

[T]he EPI study is aimed at a very specific and very influential claim: that Wisconsin’s state and local employees are clearly overpaid. It blows that claim up.

That may have been the author’s motivation, but here is the final conclusion of the executive summary of the report:

[P]ublic sector workers in Wisconsin earn less in annual or hourly compensation than they would earn in the private sector.

The report makes a positive claim that it has determined a compensation “penalty” for working in the public sector, and repeats it many times. My argument was that this report does not establish whether or not this claim is true.

By the same logic, it also fails to “blow up” the claim that Wisconsin’s public workers are overpaid. The methodology is inadequate to the task of establishing whether these workers are overpaid, underpaid, or paid perfectly. As the last paragraph of my post put it:

I don’t know if Wisconsin’s public employees are underpaid, overpaid, or paid just right. But this study sure doesn’t answer the question.

Statistician and political scientist Andrew Gelman has a very interesting response to my post, in which he agrees that this conclusion “sounds about right,” but cautions that the study is not “completely useless either” because this kind of adjusted comparison is better than simply comparing raw averages between public and private sector workers. I agree with that entirely. But that is, of course, a very different thing than saying that these adjustments create sufficient precision to support the bald statement, made in the report, that the author has analytically established that there is a “penalty” for working in the public sector.

Megan McArdle:

It’s obvious that this study doesn’t control for everything we can imagine, because it doesn’t even control for the matters that are of central dispute in Wisconsin: protection from being fired.  This is, as people on both sides keep noting, so extraordinarily valuable that workers are willing to give up quite a lot to get it.  And of course, a job that offers this sort of protection is likely to attract workers who especially value it.  All government jobs offer this perk, which is valuable to the workers and costly to the employers; ceteris paribus, I’d expect that other compensation would be lower to compensate.

Obviously, it also doesn’t control in any way for other job or worker characteristics that effect compensation; jobs working for state and local government are systematically different from other sorts of jobs, because so much of what the government does isn’t done by anyone else.  Though, oddly, for the teachers at the heart of this dispute, we do have a good comparison: private school teachers. And as I understand it, public school teachers have higher wages, and much better benefits, than private school teachers.
To which I expect the union’s boosters will say, “But jobs in private school are much more enjoyable–they don’t have to teach the difficult kids!”  Indeed, they’re right.  Which is exactly the point: there’s huge unobserved variable bias here.
There’s also the fact that the EPI study seems to be looking at means, which are going to be dragged upwards by a small number of highly compensated workers, particularly in the educated group.  But state and local wages are capped.  Meanwhile, some of the highest paid jobs in the private sector are in areas like commission sales, which have no counterpart in government. That means that the median worker is probably making much more than the median worker in the private sector.  This may not be true in some lucrative fields such as law and medicine–but even there, we tend to compare government lawyers to the highly paid people at white shoe firms or corporations, not the legions of struggling will-drafters and ambulance-chasers.
You can argue, of course, that this is an ideologically much more attractive income distribution.  Which highlights, I think, the core difference between the way people like Manzi and I look at this, and the way that progressives do.  I don’t think of state employment as a way to create, in miniature, my ideal labor utopia.  I think of it as a way to procure services.  I define people as being “overpaid” not if they are paid more than someone with a similar level of education, but if they are paid more than I need to entice to pay to attract adequate workers.  To analyze that, looking at medians is probably somewhat more instructive than looking at means.
Of course I agree with Manzi that this still doesn’t really tell us whether state workers are overpaid, underpaid, or just-right-paid.  I suspect that the answer is probably “both”–adjusting for worker quality, the median government worker is probably overpaid, while in skilled specialties, salaries are probably not attracting as much of the top-flight talent as we’d ideally like.  (This is why I have been advocating, futilely, that we make it possible to pay SEC employees multiples of what the President of the United States makes.)  But as Manzi, who does this stuff for a living, will undoubtedly tell you, setting compensation is a really hard problem that no one’s got a very good handle on.  So that’s just a suspicion, based on my experience of state bureaucracies, and my best guess at the incentive effects of the current structure.  I don’t have enough data to back me up.  And neither does EPI.
More Manzi:

Have I then set up a nihilistic position that we can never know anything tolerably well because I can just keep raising these points that might matter, but are not included in the model? In effect, have I put any analyst in the impossible position of proving a negative? Not really. Here’s how you measure the accuracy of a model like this without accepting its internal assumptions: use it to make predictions for future real world experiments, and then see if its predictions are right or not. The formal name for this is falsification testing. This is what’s lacking in all of the referenced arguments in support of these models.

Human capital models, fixed effects models, and other various pattern-finding analyses are useful to help build theories, but a metaphysical debate about the “worth” of various public versus private sector jobs based upon them is fundamentally unproductive. For one thing, it won’t ever end. And as Megan McArdle correctly put it, the practical question in front of us is whether we the taxpayers can procure the public work that we want at a lower cost (or more generally, though less euphoniously, whether we are at the practical optimum on the cost-quality trade-off). If you want an analytical answer to this question, here is what I would do: randomly select some jurisdictions, job classifications or other subsets of public workers, cut their compensation, and then see if we can observe a material reduction in net value of output in these areas versus the control areas. If not, cut deeper. And keep cutting deeper, until we find our indifference point.

There would be obvious limitations to this approach. First, generalizing the results of initial experiments is not straightforward. Second evaluating output is not straightforward for many areas of government. But at a minimum, and unlike the world of endlessly dueling regressions, this would at least let us see the real-world effects of various public compensation levels first-hand, and allow the public to make an informed decision about whether they prefer the net effect of a change to public sector compensation or not.

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Give The Public What They Want, More Blog Posts On Mandates

Sheryl Gay Stolberg and Kevin Sack at NYT:

Seeking to appease disgruntled governors, President Obama announced Monday that he supported amending the 2010 health care law to allow states to opt out of its most burdensome requirements three years earlier than currently permitted.

In remarks to the National Governors Association, Mr. Obama said he backed legislation that would enable states to request federal permission to withdraw from the law’s mandates in 2014 rather than in 2017 as long as they could prove that they could find other ways to cover as many people as the original law would and at the same cost. The earlier date is when many of the act’s central provisions take effect, including requirements that most individuals obtain health insurance and that employers of a certain size offer coverage to workers or pay a penalty.

“I think that’s a reasonable proposal; I support it,” Mr. Obama told the governors, who were gathered in the State Dining Room of the White House.

“It will give you flexibility more quickly while still guaranteeing the American people reform.”

Kate Pickert at Swampland at Time:

As I wrote in November, there’s no guarantee Republicans governors will embrace this 2014 opt-out waiver plan, which would have to pass through Congress to become law:

Aside from the political implications of endorsing a plan championed by a Democratic leader on health reform – even if he is in cahoots with a Republican from a blue state – some on the right might balk at the Wyden-Brown plan on the grounds that it’s still an expensive expansion of government. The Wyden-Brown plan, after all, does not – as far as I can tell – spend any less money than the ACA without a state opt-out. On the contrary, it may cost more.

The Wyden-Brown plan also does not impact the huge Medicaid expansion called for in the ACA, which Republicans vehemently oppose. It doesn’t eliminate taxes on expensive health insurance plans, or fees levied on medical devices or pharmaceuticals.

Another catch: The Wyden-Brown plan only allows states to opt out if they have a good plan for how to undertake comprehensive health care reform on their own. Most states don’t have such a plan. Massachusetts, which enacted reform in 2007, obviously does, which is why Brown was a logical co-sponsor of the opt-out bill. California, Connecticut and Vermont are three other states that are on their way toward developing health care reform inside their borders. But red states – especially southern states – are among those least equipped to design and implement reform that could accomplish what the ACA attempts to do, as they typically have higher percentages of uninsured residents and looser insurance regulation.

Conn Carroll at Heritage:

As long as the HHS Secretary, whether it is Kathleen Sebelius or the next occupant of the office, has the final say on granting Obamacare waivers, then there is no real flexibility for states under Obamacare. All 50 of them would still be at the mercy of the whim of the HHS. The only real way to give states true flexibility on health care reform begins with the full repeal of Obamacare.

UPDATE: Politico confirms that Wyden-Brown has nothing to do with offering Obamacare critical states “flexibility” and everything to do with advancing single payer health care:

[A] White House conference call with liberal allies this morning says the Administration is presenting it to Democrats as an opportunity to offer more expansive health care plans than the one Congress passed.

Health care advisers Nancy-Ann DeParle and Stephanie Cutter stressed on the off-record call that the rule change would allow states to implement single-payer health care plans — as Vermont seeks to — and true government-run plans, like Connecticut’s Sustinet.

The source on the call summarizes the officials’ point — which is not one the Administration has sought to make publically — as casting the new “flexibility” language as an opportunity to try more progressive, not less expansive, approaches on the state level.

“They are trying to split the baby here: on one hand tell supporters this is good for their pet issues, versus a message for the general public that the POTUS is responding to what he is hearing and that he is being sensible,” the source emails.

Ezra Klein:

The question is whether this makes Wyden-Brown more or less likely to pass. I’m guessing less likely. The political theory behind Wyden-Brown was that it gave Republicans a constructive way to attack the Affordable Care Act: The waiver program could be sold as a critique of the law — “it’s such a bad bill that states need to write their own policy” — even as it entrenched the country’s basic commitment to universal health-care insurance. You could’ve imagined it being attached to the budget or one of the spending bills as part of a larger bargain.

But now that Obama has admitted it’s not a threat to the Affordable Care Act, a lot of the appeal for Republicans dissipates. Supporting it could even be seen as helping the White House in its efforts to defend the law against repeal. So the idea looks likelier to become a talking point for the administration — see how reasonable we’re being? — than an outlet for Republicans. But perhaps that doesn’t matter: Wyden-Brown hasn’t attracted any Republican co-sponsors beyond Scott Brown, so maybe it never had a chance of playing its intended part anyway.

Kevin Drum:

I suspect this is not as big a deal as it seems. Basically, Obama is calling the bluff of Republicans who insist that they can build a healthcare system that’s as extensive and affordable as PPACA using some combination of tea party-approved “free market” principles. He’s telling them to put their money (or, rather, money from the feds) where their mouths are, which will probably demonstrate fairly conclusively that they can’t do it. It’s possible that a state like Oregon might enact a more liberal plan that meets PPACA standards, but I doubt that Alabama or Tennessee can do it just with HSAs and high-deductible health plans.

Still, we’ll see. This is a chance for conservatives to show that they have a better healthcare answer in the real world, not just as talking points at a tea party rally. Obama is betting they’ll fail, and he’s also betting they’ll tear each other apart arguing over details while they do it. Life is easy when all you have to do is yell “Repeal Obamacare!” but it gets a lot harder when you have to produce an actual plan.

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It Is 1995 Again And We Are Wearing Doc Martens, Listening To Everclear

John Hudson at The Atlantic:

Congress has until March 4 to figure out how to fund the U.S. government. And as of right now, House Republicans and Senate Democrats are more than $60 billion away from a consensus. It’s a high stakes game, given that last time the federal government shut down, all sorts of important functions were halted (passport/visa processing, toxic waste cleanup, museums, monuments and 368 national park sites all closed, etc). So who stands to benefit from all this brinkmanship?

Jay Newton-Small at Swampland at Time:

House Speaker John Boehner and Senate Minority Leader Mitch McConnell have been working behind the scenes to draft a two-week stopgap measure to avert a government shutdown that would include $4 billion in immediate cuts, according to House and Senate GOP aides.

The House would move first – the Rules Committee could meet as early as Monday. Boehner is hoping to pass the bill by Wednesday. Boehner and Senate Majority Leader Harry Reid have been in discussions but if a deal is not reached ahead of time Senate Republicans would offer Boehner’s proposal as a substitute to Reid’s bill. The cuts will include reductions that President Obama has suggested and other non-controversial items in the hopes of luring support from moderate Senate Democrats who are facing tough reelections. No details were immediately available on what cuts Boehner and McConnell are looking at. “Senator Reid’s position that they will force a government shutdown rather than cut one penny in spending is indefensible – and it will be very hard for them to oppose a reasonable short-term funding measure that will cut spending,” says a House GOP aide. If nothing is done by March 4 the government will shutdown.

Reid’s office said Wednesday he still plans to move forward with a 30-day spending freeze at current levels. The House on Saturday passed a bill funding the government through the end of the fiscal year. But that bill slashes funding by $100 billion — cuts that are not likely to survive the Democratically-controlled Senate. The Senate has proposed cutting $41 billion from Obama’s 2011 request, but that translates into funding the government at roughly the same level it’s at right now. “While Republicans are making a genuine effort to cut spending and debt, Washington Democrats can’t seem to find a single dime of federal spending to cut, insisting on the status quo, even for a short-term spending bill,” McConnell said Wednesday in a statement to TIME. “But keeping bloated spending levels in place is simply unacceptable. So it is our hope that Democrats will join us in a bill that actually reduces Washington spending.” Both sides agree that more time is needed to negotiate a compromise and Boehner has said he will not allow even a temporary extension without some cuts.

The competing bills amount to a game of chicken between the Republican-controlled House and the Democrat-controlled Senate. Both sides claim they are trying to avoid a shutdown, but if one happens both are laying the ground work to blame the other. While both Parties say they want cuts, Republicans want immediate results while Democrats have been taking more of a “scapel” rather than a “meat axe” approach, as Reid put it yesterday on a call with reporters.

Annie Lowrey at Slate:

So what actually happens if Congress fails to pass a continuing resolution and the coffers dry up? Certain necessary activities would continue—anything related to defense, inpatient or emergency medical care, air traffic control, securing prisoners, or disaster assistance, for instance. But legally, federal agencies would have to wind down nonessential business. That means hundreds of thousands of employees would go on furloughs, from Treasury to Health and Human Services to the Department of Education, to be paid whenever a continuing resolution passed. Thousands more contractors would just lose their gigs. Parks would shut down. Offices would clear out. Phones would go unanswered.

Nobody knows exactly how it would shake out, not just yet. The president has broad discretion to decide what counts as necessary and what does not, says Stan Collender, a longtime budget expert and a partner at Qorvis, a D.C. communications firm. Right now, the White House Office of Management and Budget says it is helping agencies review their protocols in the event that March 4 comes and goes without a continuing resolution on Obama’s desk. (The OMB has required federal agencies to keep an updated contingency plan on file since 1980.) Officials are looking at who will go and who will stay, and how they will tell whom to go where, just in case.

But everyone dreads the prospect. The last time the government shut down was during the Clinton administration. For five days in November 1995 and 21 days between December 1995 and January 1996, the lights went off. In the first shutdown, 800,000 workers stopped heading into the office. In the second, about 284,000 stayed at home, with an additional 475,000 working on “non-pay status.” These were not just pencil-pushers either. The Centers for Disease Control and Prevention gave up on monitoring the outbreak of diseases. Workers at 609 Superfund toxic-waste sites stopped cleaning up.

Ezra Klein:

This isn’t just about the spending bill. The stakes are higher even than that. At this point, no one side really knows how the power dynamic between the House and the Senate will shake out. House Republicans feel their preferences should take priority because they won the last election. Sharp cuts to non-defense discretionary spending are nothing more than their due. Senate Democrats counter that they still control not just the Senate, but also the White House — the House Republicans are a minority partner in this play, and don’t get to decide what the government does or doesn’t do merely because they control one of the three major legislative checkpoints. An uncompromising force is meeting an unimpressed object. But this won’t get settled in an arm wrestling bout, and it’s looking less and less likely that it’ll get settled in negotiations, either. Unfortunately, it seems increasingly possible that this will ultimately get decided when both sides put their theory to the test and take their case to the people during a government shutdown.

The Economist

David Corn at Politics Daily:

What would be the reasonable course of action in a situation like this? The answer is obvious: pass a short extension of the current continuing resolution — say, for a few weeks — to cover the time needed to hammer out a compromise between the House GOPers and Senate Democrats. And House Minority Leader Nancy Pelosi has done just that, proposing a stopgap bill that would fund the government at current levels until the end of March. Boehner, though, has declared he won’t accept a temporary measure unless it includes spending cuts. So if he sticks to that extreme position and he and Senate Majority Leader Harry Reid don’t reach a compromise by March 4, much of the federal government will shut down.

In such a scenario, it would seem that Boehner would deserve most of the culpability. Just like Gingrich. But would Boehner pay the same price?

The political dynamics are different this time. And Boehner is playing to two audiences that each is looking for a different show. Much of the tea party crowd — in and out of Congress — would cheer a government shutdown. These folks see the federal government as the enemy. They’d be delighted to strangle it, even if only for a few days. Yet independent voters, whom both parties need to court, would probably not be as happy. These people usually want their representatives in Washington to make the system work. They aren’t looking for showdowns or games of chicken. By forcing a shutdown, Boehner can appease his right — but at the cost of potentially alienating the middle.

Of course, if a shutdown comes, Boehner will try to blame it on Democrats and President Obama, claiming that their unwillingness to accept spending cuts created the problem. He’ll bash them for not listening to the people, and he’ll depict himself as a champion of principle. If it comes to this, it will be the climax of the GOP’s just-say-no strategy of the past two years.

Capitol Hill Democrats say Boehner is riding the Overreach Express and risks coming across more as a tea party bomb-thrower than as a responsible legislator. At least, that’s their hope. It will certainly take some deft maneuvering for Boehner to cause a shutdown, accuse the Democrats, and be hailed as a spending-cut hero of the republic. But it’s hard to know where the American public is these days. It generally detests overall government spending, but opposes many of the individual cuts the Republicans have passed. And though the American electorate sent a band of conservative ideologues to Washington this past November, many Americans fancy the notion of bipartisan cooperation. It’s no sure bet that the public will embrace a politician who throws this switch.

Boehner might be the player who has the most to lose. Obama and the Senate Democrats are already viewed as politicians who consider government a positive force that can be used to resolve the nation’s problems. If they draw a line against severe GOP cuts and ask for more time to forge a compromise, that’s hardly a news story. But Boehner, who is still a new figure on the scene, has benefited by not being regarded as an ideologue. If he refuses to back a measure that keeps the government functioning while the politicians look for a bipartisan deal, he could end up becoming identified as an I-know-best, anti-government extremist. That will, no doubt, be a badge of honor in certain circles. But it may not go over well beyond those quarters.

Boehner has a choice: reasonableness or ideology. In 1996, Gingrich chose the latter and crashed. At that time, Boehner was in his third term as a House member. The next two weeks will show what lessons he learned — if any.

Major Garrett at The Atlantic:

House GOP leaders held a conference call with freshmen GOP members on Wednesday to lay out the strategy. More than half of the 87-member class participated in a call with House Speaker John Boehner, R-Ohio; Majority Leader Eric Cantor, R-Va.; Majority Whip Kevin McCarthy, R-Calif.; and House Republican Conference Chairman Jeb Hensarling, R-Texas. The call gave more detail to an outline of the strategy GOP leaders gave the freshmen class before it left Washington for this week’s recess.

The GOP aides said the thrust of the trimmed-down CR is to avoid a government shutdown and make the GOP spending cuts as hard as possible for Senate Majority Leader Harry Reid, D-Nev., and the White House to ignore or criticize. “What we will end up saying is we have passed two bills to prevent a shutdown and then we will ask the Senate: ‘How many bills have you passed to prevent a shutdown?’ ” an aide said.

Senate Democrats dismissed the idea that the House proposal represented any kind of concession.

“The Republicans’ so-called compromise is nothing more than the same extreme package the House already handed the Senate, just with a different bow,” said Jon Summers, Reid’s communications director. “This isn’t a compromise; it’s a hardening of their original position. This bill would simply be a two-week version of the reckless measure the House passed last weekend. It would impose the same spending levels in the short term as their initial proposal does in the long term, and it isn’t going to fool anyone. Both proposals are non-starters in the Senate.”

The GOP freshmen, according to senior House GOP aides, backed the approach, even though it amounts to a retreat from the $61 billion in cuts from enacted fiscal 2010 spending levels (and $100 billion from Obama’s fiscal 2011 budget proposal that the previous Congress ignored). The House approved the $100 billion in cuts after the freshmen rejected the GOP-leadership-backed plan to cut $32 billion from fiscal 2010 spending levels.

According to several GOP sources, the freshmen and many senior conservatives are girding for an eventual retreat from the bigger CR because they know GOP leaders are fearful of the political consequences of a government shutdown and want to wage the spending-cut battle over many cycles–instead of betting all their chips on this first showdown with Reid and Obama.

Boehner and Cantor have pleaded with the freshmen to take the long view of the budget war and not risk a political backlash over the CR dispute. GOP leaders have instead argued to win as many spending cuts as they can during the CR debate and follow up with more when Congress must raise the $14.3 trillion debt ceiling later this spring and find still more when the fiscal 2012 appropriations bills are written.

This approach reflects Boehner’s deep-seated belief that the 1995 Gingrich-led Congress risked everything in its shutdown confrontation with President Bill Clinton, and in the aftermath Republicans not only lacked the stomach to fight for more spending cuts, they veered in the opposite direction and targeted federal spending to vulnerable districts to protect the GOP majority.

“We have a totally different mindset and approach than 1995,” said a senior House GOP source. “We don’t want to shut the government down. But we do want to cut spending. And we will. And the CR will do that one way or the other.”

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Ashton Kutcher Is Surely Behind This

Adam Weinstein at Mother Jones:

Is that really Scott Walker? [Update: Yep.] A New York-based alt-news editor says he got through to the embattled Wisconsin governor on the phone Tuesday by posing as right-wing financier David Koch…then had a far-ranging 20-minute conversation about the collective bargaining protests. According to the audio, Walker told him:

  • That statehouse GOPers were plotting to hold Democratic senators’ pay until they returned to vote on the controversial union-busting bill.
  • That Walker was looking to nail Dems on ethics violations if they took meals or lodging from union supporters.
  • That he’d take “Koch” up on this offer: “[O]nce you crush these bastards I’ll fly you out to Cali and really show you a good time.”

But was it for real? Check out the details on the guerrilla caller and audio of his conversation below the jump.

According to his Wikipedia entry, Ian Murphy is a gonzo journalist and editor of the Buffalo Beast, an online mag that was founded in 2002 as an alternative biweekly by gonzo Matt Taibbi and a band of colleagues. Murphy’s probably best-known for a tough read about America’s war dead called “Fuck the Troops.” But if his latest Beast post, “Koch Whore,” is to be believed, it’s likely to be read a lot more widely.

When Wisconsin Democratic Sen. Tim Carpenter complained that Walker wouldn’t return any of the Dems’ calls, Murphy says he wondered: “Who could get through to Gov. Walker? Well, what do we know about Walker and his proposed union-busting,no-bid budget? The obvious candidate was David Koch.” Koch, of course, is one of the right-wing brothers behind Americans for Prosperity and a host of other GOP-friendly causes; MoJo‘s own Andy Kroll broke the news last week on the Koch brothers’ past support for Walker and his agenda.

So, Murphy says, he managed to have a phone audience with the governor by posing as Koch. And he taped the whole thing, copied on the videos below.

Jason Linkins at Huffington Post:

Here’s something for your “can this possibly be for real” file this morning. Over at the Buffalo Beast — the former print alt-weekly turned online newspaper founded by onetime editor Matt Taibbi, typically best known for its annual list of “The 50 Most Loathsome Americans” — there appear to be recordings of a phone call between Wisconsin Gov. Scott Walker and current editor Ian Murphy. Now, why on earth would Scott Walker want to talk on the phone with the editor of an online site in Buffalo? Well, he wouldn’t.

But what if said editor pretended to be David Koch of the famed Koch Brothers? Well, that’s a different story altogether, apparently! And so Walker, believing himself to be on the phone with his patron, seems to have had a long conversation about busting Wisconsin’s unions.

Buffalo Beast Publisher Paul Fallon told The Huffington Post that the audio is “absolutely legit.” That the call took place as described by the Beast has been confirmed by Walker spokesman Cullen Werwie.

“Basically what happened was, yesterday morning [Murphy] was watching television about this Wisconsin stuff and he saw a report where he saw Walker say he wasn’t going to talk to anybody,” Fallon said. “And he said, ‘I bet he would talk to somebody if he had enough oomph behind him.'”

This all apparently went down Tuesday afternoon, hours before Walker made his “fireside chat.” It took some doing: Murphy-as-Koch said he had several hoops to jump through before he was granted access to Walker, beginning with a receptionist, leading to the governor’s executive assistant, and finally ending up with his chief of staff, Keith Gilkes.

Alex Pareene at Salon:

So Walker will happily take a call from a Koch brother. He says that he considered “planting some troublemakers” among the protesters. He is convinced that everyone is on his side. Like most people who only watch Fox, he has a skewed impression of the popularity of his union-crushing proposals. (His plan is, nationally, roundly unpopular. Except on Fox.)

When “Koch” calls Mika Brzezinski “a real piece of ass,” Walker does not respond by saying something awful, which is a bit of a disappointment.

Walker does reveal that he is planning to trick the Democrats into coming back into town for a “talk,” despite his lack of interest in compromising anything. He will ask them to open a session in the Assembly, and then take a recess for this talk. At that point, the Senate Republicans would hold the vote on the bill while Walker distracts the Democrats with this entirely pointless discussion:

They can recess it … the reason for that, we’re verifying it this afternoon, legally, we believe, once they’ve gone into session, they don’t physically have to be there. If they’re actually in session for that day, and they take a recess, the 19 Senate Republicans could then go into action and they’d have quorum because it’s turned out that way. So we’re double checking that. If you heard I was going to talk to them that’s the only reason why. We’d only do it if they came back to the capitol with all 14 of them. My sense is, hell. I’ll talk. If they want to yell at me for an hour, I’m used to that. I can deal with that. But I’m not negotiating.

Walker also thinks that Reagan crushing the air-traffic controllers’ union was “the first crack in the Berlin wall,” because he’s been stewing in the propaganda of conservative mythology for years.

Greg Sargent:

The Internet is burning up with the news that Governor Scott Walker may have been pranked by a caller claiming to be David Koch, and a spokesman for the Governor, Cullen Werwie, emails a statement confirming the call is legit:

The Governor takes many calls everyday. Throughout this call the Governor maintained his appreciation for and commitment to civil discourse. He continued to say that the budget repair bill is about the budget. The phone call shows that the Governor says the same thing in private as he does in public and the lengths that others will go to disrupt the civil debate Wisconsin is having.

More on this in a sec, but for now, suffice it to say that this will reinforce perceptions that Walker is in way over his head.

Michelle Malkin:

A left-wing website that specializes in pranking celebrities, pundits, and politicians — a la Howard Stern — is doing a Snoopy dance over a fake call its operatives made to GOP Gov. Scott Walker.

The hoaxer pretended to be David Koch, the progs’ favorite capitalist target.

I’m not going to give any direct traffic to the infamy-seekers. Here is the Memeorandum link round-up on the story. In sum, Walker talked to the poser for about 20 minutes (audio is here).

Walker stood firm on his no-negotiations stance with Big Labor and talked about his already publicized efforts to bring the Dems back to the state by requiring them to collect their paychecks in person

Ezra Klein:

To Walker’s credit, he doesn’t say anything incriminating. When Murphy/Koch offers to plant demonstrators, Walker declines. The worst you can say is that when Murphy/Koch makes a lewd comment about Mika Breszinski, Walker doesn’t challenge him on it. But that portion reads to me as Walker politely grunting in response to an odd provocation. I imagine politicians are pretty good at gently moving the conversation along when their contributors say crazy things.

But if the transcript of the conversation is unexceptional, the fact of it is lethal. The state’s Democratic senators can’t get Walker on the phone, but someone can call the governor’s front desk, identify themselves as David Koch, and then speak with both the governor and his chief of staff? That’s where you see the access and power that major corporations and wealthy contributors will have in a Walker administration, and why so many in Wisconsin are reluctant to see the only major interest group representing workers taken out of the game.

The critique many conservatives have made of public-sector unions is that they both negotiate with and fund politicians. It’s a conflict of interest. Well, so too do corporations, and wealthy individuals. That’s why Murphy — posing as Koch — was able to get through to Walker so quickly. And it shows what Walker is really interested in here: He is not opposed, in principle, to powerful interest groups having the ear of the politicians they depend on, and who depend on them. He just wants those interest groups to be the conservative interest groups that fund him, and that he depends on.

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