Republicans are looking ahead to 2012, attempting to figure out who would put up the best fight against President Obama.

Over at NewMajority, David Frum writes:

Mitt Romney ought to rank atop the Republican candidates for president in 2012. He finished second in votes cast in the primaries of 2008. He is a candidate with immense private-sector economic expertise in a time of urgent economic debate. But Romney has a political problem: his Mormon religious faith. A Gallup survey in December 2007 found that 18 percent of Republicans would not vote for a Mormon for president.

I’ve got a problem with the Gallup survey. I haven’t been able to find it to verify the wording, but I would bet the question was something along the line of: “In a presidential race, would you ever vote for a Mormon candidate?”

This is the wrong question to ask, especially if the results shown above are used to as a way to dismiss Romney’s run. Even asking, “Would you ever vote for Mitt Romney?” is the wrong question.

Instead, Republicans should be asked “Would you vote for Mitt Romney instead of Barack Obama?” or “Would you vote for Mitt Romney instead of a Democrat?”

People make their decisions based on their alternatives. I just don’t see ‘Mormon’ as the type of thing that would prevent conservative Republicans from attempting to defeat President Obama.

Arnold Kling at EconLog talks about the type of analysis he likes:

Robert Solow, my thesis adviser, was a big fan of starting with simple numerical examples. The point is that you want to really understand your analysis. The opposite would be somebody who does a computer simulation and says, “We got this really interesting result. We don’t know why, but we got it.” Or somebody who builds a complex mathematical model and cannot tell you how the assumptions drove the results. To me, finding a result that you do not understand is a waste of time.

First of all, I’m envious that his thesis adviser was Robert Solow. Second, I like his point about understanding your assumptions. I’ve written elsewhere about the skyhook idea.

Politicians frequently ignore Gall’s Law, which roughly states that complex systems cannot be designed from the top down, when talking about major policy initiatives. If the incentives for individual actors don’t add up, predictions made about the program are unlikely to come true.

Mankiw has been on an implicit marginal tax rates kick recently. I argued here that people would ignore his discussion because they aren’t taxes people actually pay, nor are they the simplest concepts to grasp.

He’s got another post today that changed my mind and made me see the importance of implicit marginal tax rates. He cites the chart below and says:

Notice that as earned income rises from about $15,000 to $30,000, income after taxes and transfers is roughly flat. Indeed, it could even fall. The bottom line: If you are poor, the government is inadvertently ensuring that you have little incentive to try to improve your condition.

This is a really good point. We want it to be as easy as possible for people to escape poverty, but by offering these programs we decrease incentives to work harder at low levels of income.

Does that mean we should get rid of aid programs? Of course not. We just need to acknowledge that such programs feature some negatives. We tend to talk only about benefits of proposed programs because they’re easier to predict and see than the downsides.

Addendum: Here is Arnold Kling with more.

Play around with this interactive graph of unemployment based on demographics at the NYTimes.

Check out the difference in unemployment between men and women, whites and blacks, college graduates and high school graduates, and young people and old people. Fascinating.

I tend to think David Frum makes good points when he writes about politics. On the health debate, he writes:

You’ve heard the saying: “In war, amateurs talk strategy, professionals talk logistics.”

The political equivalent: “Amateurs talk ideology — professionals talk interest groups.”

Small but sophisticated interest groups use big political battles to gain special advantages. Health care reform is, of course, the biggest battle of them all, with trillions of dollars at stake.

I think this is an important point for public policy students. We can use ideology to guide us, but getting stuff done might more often mean doing a lot of seemingly-unimportant micro tasks really well.

From Arnold Kling writing at The American:

Pump-priming and stimulus policies are a good fit for a manufacturing economy with homogeneous labor affected by temporary layoffs. They are not such a good fit for a post-industrial economy with an educated labor force facing permanent structural changes.

I’m adding this to my list of critiques of the Keynesian Multiplier.

Another problem with the multiplier is that we treat it as a fixed number. Even if we assume that it starts out greater than 1, no one talks about when it falls below 1. When it is above 1, every dollar we spend gets us more than a dollar in economic activity. If we can *actually* do that (and I have doubts in all but extreme cases), we should continue to spend until the multiplier falls to 1. When was the last time you heard about the marginal benefit of the multiplier?

My last problem with the multiplier is that we assume that deficit spending is automatically used for projects that will be effective. That just isn’t the case, partially because politicians are in charge of allocating spending and partially because it takes so long for projects to actually get going. For the latter, stimulus spending is sort of like wonder drugs that cure colds – you’ve got to wonder if the cold would have gone away even if you had just done nothing.

The next time you talk about the multiplier, ask the three following questions:

1) Are we still confident that spending is effective in a post-industrial economy, compared to manufacturing-based economies of half-centuries ago?

2) How much spending can we do before the multiplier falls below 1?

3) How confident are we that spending will actually be effective, meaning both targeted and timely?

I’m currently reading Nudge by Thaler and Sunstein. It’s a terrific piece of popular economics with a lot of applications to public policy.

In the Choice Architects chapter, they talk about the salience of incentives. Economists like to talk about using incentives to change or describe people’s behavior. However, it’s important to ask if people are actually responding to, or even identifying their incentives. If not, good choice architects can direct people’s attention to those incentives.

For example, during peak energy use, we would typically like to see people use less energy. To encourage that, power companies can charge more during those peek periods. The problem is that consumers only see that added onto the end of their bill a month later. Not too many people respond to incentives when they’re not connected an action. Instead, what if turning the thermostat nob told you how much more money it would cost or save you on your bill?

That section actually reminds me of some research Professor Hawken, our statistics professor, told us about. In Hawaii, she had a parole program changed so that if drug offenders on parole failed a drug test, they immediately went back to jail for a few days; in the old program, violators would instead have a hearing a month or so later. Lo and behold, when consequences were immediate, the number of parole violations dropped drastically.

People are much more likely to respond to incentives if they are offered clear and immediate feedback.

I’m pretty sure Nike has workout gear that keep track of everything, which tell you how many calories you’ve burned and other neat tidbits. My prediction for the future: we’ll see more and more consumer devices with immediate feedback.

Yesterday saw the election of the first Democrat to the NY-23 in a hundred years. Republicans won governorships in Virginia and New Jersey.

Orin Kerr at the Volokh Conspiracy comments:

I think there are four obvious lessons to draw from tonight’s election returns:

1. For Conservative Republicans: The America people reject Barack Obama and obviously want true conservative leadership. The Governorships of two states have switched to the “R” category, showing a grassroots conservative movement that is alive and well.

2. For Moderate Republicans: The American people obviously want old-fashioned economic conservatives who are moderate on social issues. McDonnell in Virginia and Christie in New Jersey won by downplaying social issues; Hoffman in New York-23 lost because he was too extreme.

3. For Moderate Democrats: The party out of power usually does well in off-year elections like this, and this year was no exception. But obviously there is no sign of any substantial shift in public opinion from the election of 2008.

4. For Liberal Democrats: NY-23 was the race to watch this year, given that right-wing extremists like Palin and Beck threw all their support behind Hoffman. But the district voters rejected the right-wing candidate, sending a Democrat to Congress for the first time in one hundred years. Obviously this shows that the American people reject right-wing extremism.

My fellow student blogger Ryan Donohue offers his two cents:

Secondly, much of the coverage over the next few days will probably indicate that this was a repudiation of Obama’s policies.  However, the polling does not bear them out.  In Virginia, 56% of the electorate said that Obama was not a factor in their vote for Governor; and 53% of them voted for McDonnell.  In New Jersey, 60% of the electorate said that Obama was not a factor in their decision, and Christie won that group 48% to 44% to 8%. (Strikingly similar to the end results in N.J.)    So my message from this is to ignore those who claim that it is a direct repudiation.  They don’t have the data to back up their claims.

I think Orin Kerr is pretty much on target; I think Ryan should consider looking past exit polling numbers. It’s been a year since President Obama won and 9 months since he started governing. We can quibble about whether or not Republican wins represent a repudiation of Obama’s policies. The unequivocal thing to take away from all of this is that the honeymoon period is over.

When he took office, President Obama had a free pass to blame bad things on President Bush, for a time. Correctly or not, that time is over. Voters now associate their current conditions with the incumbent president.

Had the stimulus done what the current administration predicted it would, I think New Jersey would have gone the other way and Virginia would have been a lot closer. If that were the case, I can’t help but wonder if Ryan would be making the argument that those wins *were* vindications of President Obama’s policies.

On Wednesday the Women in Public Policy group of Pepperdine hosted a debate on health care. The question posed to each side was essentially is government-sponsored health care necessary in America? The two sides argued for the affirmative or the negative. I argued for the negative side.

I’m against the public option for a few reasons, but I think the most reasonable one is that there are much better ways to accomplish the same goals, namely the Wyden-Bennett bill (my thoughts are here at NewMajority.com and an op-ed by Wyden and Bennett is here). It imposes universal coverage, replaces the tax-free treatment of health care benefits with tax credits to individuals, and to my knowledge is the only health care bill that is both revenue neutral and bends the cost curve backward. The latter part isn’t an unfounded or partisan claim – the CBO scored it. When you put up the public option against the Wyden-Bennett bill, the choice is clear. I don’t think that is campaign rhetoric; I’m still waiting for *anyone* to offer any evidence to the contrary.

Anyway, Ezra Klein and Megan McArdle offer better critiques of the public option than I can muster.

From Megan McArdle:

At this point, I’d say that conservative and liberal health care analysts both know the score.  Everyone knows that this bill won’t work as advertised:  it will not cover as many people as promised, and it will run into budget shortfalls, if for no other reason than because Congress is not going to enact the cuts as written–they will get lobbied into repealing many of them.

Liberals don’t care, because they think it’s worth it to cover more people.  Conservatives care, but their kabuki complaints about what everyone in the wonkosphere knows go mostly unheeded.

I think Megan is right: even if you are for the public option, you don’t have much reason to believe optimistic estimates of its costs or results.

Ezra Klein gets into the effect that moving uninsured people into insurance will have on the public option’s premiums:

But because the public option is, well, public, it won’t want to do the unpopular things that insurers do to save money, like manage care or aggressively review treatments. It also, presumably, won’t try to drive out the sick or the unhealthy. That means the public option will spend more, and could, over time, develop a reputation as a good home for bad health risks, which would mean its average premium will increase because its average member will cost more. The public option will be a good deal for these relatively sick people, but the presence of sick people will make it look like a bad deal to everyone else, which could in turn make it a bad deal for everyone else.

This also illuminates one of the more problematic inconsistencies in the health-care debate. Insurers have been blamed for, among other things, doing too much to discriminate against bad health-care risks and refusing to pay for care far too often. They’ve been blamed, in other words, for saying “no.” But they’ve also been blamed for doing too little to control costs.

But that is how they control costs. We saw this in the late-’90s, when tightly managed care brought cost growth down to the 4 percent range but also triggered a public backlash (it did not, however, appear to hurt health outcomes). Insofar as the public option has been presented as a big part of the answer to our health-care woes, it’s been in part because it won’t do the things that make insurers unpopular (the saying “no”), and in part because it will control costs. But the only way to make both those things true at once is to give the public option pricing power along the lines of Medicare, which it doesn’t have in either the House or Senate bills.

I think it is realistic to say that the public option won’t do a good job of controlling costs, based on political pressures and historical examples of government run insurance plans.

Somebody argue with me!

One of the nice things about Pepperdine is that there are frequently guest lectures to attend during the week. They usually take place at noon when no one has class and everyone can attend. Today’s talk was by Richard Rahn, an economist who worked in the Reagan administration, among many other places. Dr. Rahn’s talk was on government spending, and the effect the stimulus has had on the economy.

Dr. Rahn is very much against the stimulus, as well as government spending in general. One sees very clearly the influence that working in the Reagan administration had on him.

Here is what I find interesting. I did my undergraduate work at the University of Michigan, which leans toward the left-wing, as some public universities in the United States do. I got used to four years of talks by scholars and journalists that I disagreed with on two levels – 1) their actual content, and 2) their attitude toward those whom they disagree with. I grew accustomed to listening to questions from audience members who vehemently disagreed with all Republicans.

The difference between Pepperdine and UofM is striking. I’ve actually got professors I agree with here, and adults who attend talks aren’t always far left-wing. I think some of my classmates could find it frustrating simply because for what may be the first time in their academic careers, they are faced with professors who 1) disagree with them, and 2) do so eloquently and intelligently.

The point is Dr. Rahn’s talk today was informative, and for the first time in a while I agreed with the speaker’s position. I’d be more likely to say that the stimulus was ill-formed, the government had a large (but not total) role in the housing crisis, and that spending is above safe levels. Unfortunately however, I disagreed with him on the second level I mentioned above. I’m pretty sure there is little President Obama could do that would make Dr. Rahn agree with him (I may be committing fundamental attribution error here, but I’m willing to put it out there).

Contrast the overtly political views of Dr. Rahn with last week’s speaker Professor Randall Holcombe. Professor Holcombe spoke on what he called the “Obama-Bush Stimulus.” He made an effort to stress that he was talking about policies and decisions that started before President Obama, as well as decisions that are being made now. He also stressed that he wasn’t pro-Bush or Pro-Obama. I think Dr. Rahn’s talk turned off people who support President Obama right at the start; Professor Holcombe’s style kept people who disagreed with him engaged throughout, which is fascinating because he put out Austrian / Public Choice style arguments.

Dale Carnegie was right when he said you should always show respect for the other side’s opinions, and never come right out and say that they’re wrong.