Rene's Ramblings: 11/01/2012

Politics: The Good Old Days of President Clinton?

There is a lot of talk about the fiscal cliff.

One thread in the conversation is that the tax rates will rise from the the Bush era rates back to the Clinton era rates and Democrats state that the Clinton era was an economic boom time. But will the Obama administration and his allies in Congress also lobby for Clinton era spending levels?

Indeed, revenue during the Clinton era ranged from 17-20% of GDP. I'm not an economist so I don't know how much of the rise in revenue was due to the increased tax rates and how much was due to the economy booming.

The spending during that same period ranged from 21-18%. Spending declined as Clinton worked with the GOP Congress to reduce overall spending of which a certain amount was the post-Cold War defense draw down.

Fast forward to where we are now where any deal on the Fiscal Cliff will probably involve an increase in taxes. The current talking point is tax rates should rise to Clinton era levels for those $250,000 and above. As such, unless we go over the fiscal cliff, we actually aren't getting back to the Clinton era rates Democrats lionize since those below $250,000 would be under Bush era tax rates.

Under a rosy economic boom scenario, revenue might rise to 20% of GDP which was at the top of the Clinton boom times.

What about the spending side?

We are now at 23-25% GDP. Thus, we would still run deficits of 3-5% of GDP. US GDP is about $15 trillion; therefore, $450-750 billion deficits will result.

If we want Clinton era tax revenues, we also need Clinton era spending levels, if we want to begin to make a dent on the Federal debt. The first part of this equation (increasing tax revenues) results in cheers. The second part of this equation (decreasing spending) results in the sound of crickets.

Update: Just came across this item from Dan Mitchell at Cato. Excerpt: You may have noticed that the White House used 20 percent of GDP as a benchmark in its chart, apparently because we should strive for the fiscal policy we had in Bill Clinton’s second term. I might be willing to take them up on that offer, so long as they’re also willing to accept Bill Clinton’s spending levels. More from Cato about the Clinton years.

World: Hewitt Interview of Author of "Little America"

Another interview spanning the full broadcast was with Rajiv Chandrasekaren who wrote Little America: the war within the war for Afghanistan.

Rajiv covers the good, bad and ugly of the US effort in Afghanistan. No question a lot of good intentions, bravery in the battlefield but sadly there was poor policy choices in the "nation building" project.

One particularly aggravating example was USAID unwillingness to help the Afghans grow cotton because the US wants to protect its cotton industry.

Another was authorization of the surge in Afghanistan but not sending enough troops and then pulling them out so quickly indicating that Washington was half-hearted about the effort.

World: Hugh Hewitt Interview of Jake Tapper Author of "The Outpost"

Hewitt devoted his entire broadcast to hearing the story behind "The Outpost."

The book gives a ground level view of the battle at Combat Outpost Keating in Afghanistan. But beyond the battle itself, Tapper delves into the people there - those who survived and those who didn't - and the people back home who love them. He also went into the history of the base leading up to the fateful battle. A story of incredible valor and infuriating decision making that left those troops in such a precarious location.

Riveting radio.

Here is a video clip from Jake Tapper on his book tour launch explaining how he got started on writing the book.

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Here is another clip from the same book tour launch with remarks from some of the soldiers profiled in the book.

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Business: Twilight for Twinkie & the Auto Bailout

The latest mediation effort has failed and as such a court supervised liquidation appears to be the next step. Companies will probably buy up some of the Hostess brands and facilities. Will be interesting to see what survives and what doesn't and in what form.

Hostess employed 18,500 people.

A handful of years ago, GM and Chrysler was essentially in a similar position: unable to pay its bills, too many unprofitable brands, costly union contracts and excess capacity. But since that industry employed so many more people, the pressure to bail them out was tremendous. The Federal government bailed them out at a cost that is still uncertain despite claims it was a success. Here is a video that explored some of the problems of the bailout beyond taxpayer cost including favoritism to unions, business decisions driven by political considerations instead of economic ones and moral hazard.

One wonders how would things have unfolded if GM and Chrysler had gone through traditional bankruptcy court?

Business: Twilight for Twinkies

I have to say I ate them as a kid but not often and haven't had one in decades.

But in any case, Hostess bakery is going out of business and the union blames management and management blames the unions.

If indeed, management was lousy, a company will buy some of the assets of Hostess that are profitable and some of the union jobs will be restored.

But I suspect as more and more Americans are health conscious about eating habits, Hostess successor company will have to change their product line quite a bit.

As for AFL-CIO President Trumka's attack on Hostess, Bain and Mitt Romney: it is emotionalism and disconnected from economic reality. His charges against mis-management of the company probably has some validity but the changing marketplace which the leadership probably failed to respond adequately to and union demands probably pushed the company over the brink.

On a broader question of unions, the one big difference between a union in the private sector and the public sector is that the private sector company may go belly up if it can't meet the union's negotiating position. Thus, a union in the private sector can only push so hard before the company just goes out of business.

In the case of the public sector union, the government can raises taxes to meet the public sector union's demands. But eventually, there are limits to that too as some city, county and state governments are having their finances pushed to the brink to meet public sector union contracts. The problem is that in this case, the fallout hit everyone taxpayer and is not just limited to the company, its workers and investors.

Politics: The press can dig up stuff when it really wants to

Wow, that was fast.

The news broke about the Gen. Petraeus scandal and now a torrent of news stories have come out since.

Meanwhile, over 2 months ago, 4 Americans were killed in Benghazi and the story of what really was going on before, during and after the attack still remains somewhat opaque such that Sen. McCain has called for a Congressional inquiry which probably won't happen because everyone is focused on the Petraeus scandal and the Fiscal Cliff.

The media likes to think of itself as the watchdog of those in power and revealers of the truth but here is an example where they go after the stories they like: sex and generals instead of why there are dead diplomats.

Some used to call Reagan the Teflon President but I think these past four years have shown the Obama should have that title.

UPDATE: Heard that President Obama will be holding a press conference. Will be interesting to see how dogged the questioning will be on the various topics.

PS: Of course, the timing of everything does feed into the perception of cover-up.

Politics: What is the "Fiscal Cliff?"

There is a lot of talk about the "fiscal cliff" and that we should NOT go off it at the beginning of 2013.

As I listen, I've been trying to figure out what this thing we should avoid really is?

From what I gather:
(1) On the revenue side, Bush era tax rates will revert to previous rates resulting in a $500 billion tax increase next year.
(2) On the spending side, the sequester will cut non-defense discretionary spending, around $54.5 billion
(3) On the spending side, the sequester will cut defense spending, around $54.5 billion.

The fear is that going over the cliff will return the USA into a recession.

This item in the WaPo describes what might happen if nothing is done and also describes the political incentives each interest group has in wanting to go over the fiscal cliff.

In brief:
One group thinks taxes are too low and so they want item #1 to happen and will live with item #2 and item #3.
One group wants all spending to be cut and like items #2 & 3 and will live with item #1.
One group wants defense spending cut (item #3) and will live with item #1 & 2.

Is it possible that the best compromise is to actually go over the "fiscal cliff" as suggested by libertarian policy analyst Veronique de Rugy?

Within Congress, there are probably people in all three groups who despite their indicating something needs to be done would not mind the fiscal cliff because they will get something they want.

And which group would the White House be most sympathetic too?

Of course, both Speaker Boehner and President Obama have indicated they want to make some kind of deal.

Question: what can all three interest groups accept that is NOT the fiscal cliff scenario?

Of course, there is also the "kick the can" resolution: no changes in the tax rates and cancel the sequester.

Politics: the Power of Voter Turnout

I've understood in the abstract that if you can turnout your voters you can win.

From the election day numbers, there was a D+6 turnout and Romney took independents by 5 and President Obama won re-election handily.

Show me the numbers:

Plugging in the numbers described above along with some other bits of information I've heard regarding the exit polls, you get a 3% win.

How much would the turnout need to change in order to tip the balance?

Scenario 2 has D+2.

If you had scenario 1 (D+6), how many independents would you need to win to change the outcome?

That is scenario 3 where Romney would have won if he could win independents by 16%.

Suffice to say, it is probably easier (though not easy) to bring the D+6 down to D+2 than to move independents from +5 to +16!

Now, I can see why they say, it is all about turnout.

Politics: The Day After the Election, Part II

As an observer of the political process, I spent the last week making a series of post about swing state polling and the electoral college.

My three take aways are marked in bold.

In polling, the perspective is "polls are generally right unless they aren't" and last night, they were generally right.

There were reasons, which I went into, as to why the polling might have been mis-reading the public but in the end the state level polling that showed a comfortable lead for the President turned out to be correct and the national level polling that showed a close race plus/minus 1% turned out to be within the margin of error and correct as the President will clear about a 2% popular vote victory.

It was thought that it was unlikely that Obama's turnout would be as strong as 2008 and that Romney's turnout would improve on McCain's. The question was whether the combination of increase on one side and decrease on the other would change the outcome.

In 2008, Obama received 69.5 million votes compared to McCain's 59.9 million.

The 2012 figure at the moment (noon Wednesday) has Obama at 60 million and Romney at 57 million. The final figures will take a few more days to tabulate.

Thus, at this point, Obama support declined a fair amount but Romney support also declined resulting in a closer race but the outcome not all that different from 2008 which raises major questions for the Republican party.

This became clear when Florida, North Carolina and Virginia stayed too close to call early in the evening. These were the most fertile ground to Romney and if he couldn't win those outright there would have been no reason to believe Romney could breakthrough in the mid-west and get to 270.

My final political take-away is that the Electoral College remains a net positive for the political process.

The popular vote differential is about 2% which is not a big difference but people will remember the electoral college differential which is politically beneficial going forward. Whether the Founding Fathers had this feature in mind, I don't know, but this "crazy" and "quirky" device reveals and amplifies the edge in support the President has in a wider range of states.

Politics: The Day After Election Day, Part I

As a citizen of the USA, I knew, regardless of who would win the election last night, our country faces a number of serious challenges and heavy responsibilities would be upon those elected. As a Romney-Ryan supporter, I was disappointed but not surprised by the outcome. Before I called it a night last night, these were my thoughts:

Congratulations to President Obama on his re-election.

Thank you Gov. Romney for expressing the views of many in our nation.

My prayer for our nation: "Lord, we commend this nation to your merciful care. Guide us that we may dwell in peace. Grant to the President of the United States and to all in authority, wisdom and strength to know and to do justice and love mercy and to serve with humility. Fill them with love of truth and righteousness. Make them ever mindful of their calling to serve the people with reverence to You through Jesus Christ our Lord, amen.

I think the prayer I wrote down would have probably been the same if Mr. Romney had been elected.

Politics: Election Day In America

Got to my polling place 10 minutes before opening at 7AM. By the time, the poll worker announced, "The polls are open," there were 20 in line. I got in and marked my ballot with the ink-a-vote pen and feed it into the reader. My ballot was the second one cast.

All across America, this civic ritual is taking place in fire stations, homes, schools, church gyms and condo/apartment recreation rooms.

As one born in the USA, I've known this opportunity since I was 18. This morning, I think about those new citizens and the excitement they feel the first time they cast a ballot. For some in this world, casting a vote is a charade for dictators to say they have 99% of the support of their people. For some in this world, the possibility doesn't even exist.

Let us take on this responsibility with gratitude and sober mind. And let us offer up a prayer for those elected to govern whether we voted for them or not.

Politics: Electoral College Project November 201

If the state polling aggregate numbers at RCP are correct:

What if the state polls are under-reporting GOP strength by 1% and undecideds break 2-to-1 for the challenger?

Method:
1. Using the RCP state poll averages for data (O, R)
2. R1 = R*1.01 adjusts for tendency of polls to under-sample Republican voters - this is a debated assumption about systemic error in polling
3. und = O - R1 this is the percent undecided voters
4. O1 = O + (und*0.3333) and R2 = R1 + (und*0.6667) accounts for the debated assumption that undecided voters break 2-to-1 for the challenger
5. O1 + R2 to check to see if the numbers add up to 100%
6. O1 - R2 yields the final vote in that state; a negative value means Gov. Romney wins that state while a positive value means President Obama wins that state
7. EV is the electoral vote value of the state
8. O-EV and R-EV gives the various electoral college totals for the candidates if they hold/lose that state.

Result: President Obama 281 Gov. Romney 257

In order for the state polling data to show a Romney victory, the existing data needs to be under-estimating Republican support by 6.4% resulting in the table below which resembles Electionprojection.com's 2008/2004 average turnout model.

Poll pros who really do this seriously:
538 (315-223 Obama)
electoral-vote.com (294-220 Obama with 24 too close to call)
electionprojection.com (303-235 Obama)

I'm just a "blogger in pajamas" but why should they have all the fun?

The Romney people are either actually confident of their chances or they are putting on a very brave face. Geraghty offers up two items today that explain their confidence (actual or spin).

So as it stands:
1) If the state polling is accurate, the President is headed toward around 300 electoral votes and easy win.
2) If the national polling is accurate, the race is very close (on par with 1976, 2000, 2004) and the winner will probably get something in between 270-290 electoral votes.
3) It is theoretically possible that a candidate could just barely win the popular vote and collect a sizable electoral college win consistent with both sets of polling data.

As an extreme hypothetical, if a candidate won every state by 0.5%, there could be a 538-0 electoral college shutout with only a 0.5% popular vote differential. However, in practice, that is unlikely.

I went to the databank and plotted the data of the electoral votes of the winning candidate (y-axis) and the popular vote differential (x-axis). I went back only to 1964 because that was the first time the electoral college totaled 538. I dropped the 1968 election data point because there were some electors that cast their ballots for a 3rd party candidate (46 for George Wallace) which was the last time that occurred in numbers beyond the occasional lone protesting faithless elector.

As you can see, there is a somewhat linear relationship between margin and total electoral votes. There were three obvious exceptions where the electoral vote margin was disproportionate to the popular vote margin (1980, 1984, 1988). You can also see that we have very little data points on the left side of the graph. The three closest races occurred in 1976, 2000 and 2004. 2012 looks to be on that side of the graph.

Carter had a 2% popular vote margin in 1976 yielding 297 electoral votes, thus, a 1% win by either Obama or Romney would likely yield electoral votes less than 297. However, the design of the electoral college permits a narrow popular vote win to be magnified because a candidate gained support from a larger collection of states. This benefit would be lost in a popular vote only system which Democrats generally support because of their 2000 experience. Ironically, if indeed Obama gets ~ 300 EVs but only wins the popular vote by 0.5 to 1%, his political standing is enhanced by the "quirky" electoral college because he can claim his support was over a larger number of states.

Non-profit of the Month: November 2012 - Americares

When disaster strikes, and Hurricane Sandy definitely fits the description of a large scale disaster, there are a handful of groups that are large enough and have the experience to get moving quickly. One that I have donated to in times like these is Americares.

Hope you will take a break for all the political news and find a group you can donate to and help our fellow Americans in this time of great need.

Politics: Electoral College Forecast for Nov 2012

Method:
1. Using the RCP state poll averages for data (O, R)
2. R1 = R*1.01 adjusts for tendency of polls to under-sample Republican voters - this is a debated assumption about systemic error in polling
3. und = O - R1 this is the percent undecided voters
4. O1 = O + (und*0.3333) and R2 = R1 + (und*0.6667) accounts for the debated assumption that undecided voters break 2-to-1 for the challenger
5. O1 + R2 to check to see if the numbers add up to 100%
6. O1 - R2 yields the final vote in that state; a negative value means Gov. Romney wins that state while a positive value means President Obama wins that state
7. EV is the electoral vote value of the state
8. O-EV and R-EV gives the various electoral college totals for the candidates if they hold/lose that state.

Result: President Obama 281 Gov. Romney 257

Poll pros who really do this seriously:
538 (306-232, Obama)
electoral-vote.com (281-206, Obama, 51 too close to call)
electionprojection.com (290-248, Obama)

I'm just a "blogger in pajamas" but why should they have all the fun?

The reputation of some pollsters is on the line.

Today, a poll in Michigan has Romney up one while everyone else has Obama with leads of various sizes. A Republican presidential candidate has not won Michigan since 1988. Thus, if this pollster is right, there is a huge Romney wave out there. There is a poll that is a few days old on Pennsylvania voters that has it tied. Pennsylvania has not gone to the GOP also since 1988. One pollster has Wisconsin tied and Wisconsin hasn't gone Republican since 1984.

It is entirely possible that these pollsters are outliers and Obama's situation is perfectly fine in the "midwestern firewall" (the above 3 mentioned states) and thus he is on his way to a narrow but clear re-election. But if these outlier pollsters have detected a shift, it is likely that it is a nation-wide shift given that these three states are traditionally Democratic.

In summary:
(1) The national poll data, as is, suggests a close popular vote race and probably Ohio as the decider. It plays out thusly: Romney gets the Atlantic 3 (Florida, Virginia, North Carolina) and 248; Obama gets the Midwest Firewall (Pennsylvania, Michigan, Wisconsin) and 247; Romney and Obama split the Swingy 4 (Colorado, Nevada, New Hamphire, Iowa) yielding at least 10 and as high as 15 electoral votes for each side; leaving the election to Ohio and its 18 electoral votes to decide the Presidency.

(2) If some of the midwestern firewall is actually in play and Romney actually breaks through (for example Wisconsin) then the vast majority of the pollsters will have egg on their faces. Under this scenario, Romney will probably also win Iowa, Colorado and New Hampshire that are already more favorable to Romney. In fact, a Wisconsin/Iowa/Colorado/New Hampshire combo makes up for the loss of Ohio.

(3) If the state polling data is correct, there is no under-reporting of GOP strength and the undecideds go 50/50 in the final days then the result is an easy re-election.

Politics: 2012 Electoral College Projections

Poll pros who really do this seriously:

538
electoral-vote.com
electionprojection.com

I'm just a "blogger in pajamas" but why should they have all the fun?

The discussion within polling circles this year is whether there is systematic under-sampling of GOP support. Barone believes the polling data is so far off that he is actually calling for a large easy win for Romney.

Why do I think GOP strength is under-detected at some small but definite amount?
(1) During the 1996 campaign Clinton was expected to easily surpass 50% and defeat Dole by double digit percentages in the popular vote. The final numbers were 49.23% to 40.72% which indicated the polls overstated Clinton support. In that election, it didn't matter because it wasn't close enough for that over-estimation to matter.
(2) In looking at the 2004 RCP averages, more polls underestimated the Bush victory margin than over-estimated and in the aggregated numbers showed a differential 0.9% below the actual margin.
(3) In a much weaker under-detection, the 2008 RCP data showed the polls doing pretty well being off in the average by only 0.3% in the differential in favor of the Democrats.
(4) In the context of the 2012 election cycle, in the Wisconsin Gov. Scott Walker recall, the polls consistently under-estimated GOP turnout.

We shall have an answer Tuesday November 6 as to (1) whether the undersampling has been occurring this cycle and (2) if so, what degree. Both have to be true for Romney to even have a chance to win.

Politics: 2012 Electoral College Projections

If one takes the state level polling at face-value or even using the modest adjustments I described above, the President will be re-elected. Some pundits are saying that the polls are systematically under-sampling GOP support. Using the above data, one would have to incorporate a 4% adjustment to the strength of Romney support in order to yield a Romney electoral college victory.

Politics: Nov 2012 for Culver City Voters Measure Y

Had the chance to hear the mayor of Culver City (Weissman) and one of the council members (Clarke) talk about Measure Y, a sales tax increase that will help help get the city budget in balance.

The two speakers pointed out that cuts have been made in the city workforce and pension commitments renegotiated but that the hole in the budget from the end of redevelopment agency funds and economic downturn was still eating into the city's reserves because of a structural deficit.

Here it an op-ed from the vice-mayor Cooper.

Culver City is a relatively small city of 40,000 and much of the budget goes to basic services like police, fire, sanitation, transportation and parks. The rise in sale tax will leave Culver City with rates comparable to neighboring cities. Additionally, the sale tax has a sunset provision (10 years) and could be rescinded by a vote of the city council.

The measure received support from the Culver City Chamber of Commerce.

I'll be voting Yes on Y.

UPDATE: The LATimes published a report on 11/5/12 that Mayor Weissman owes a sizable amount of back taxes. It will be interesting to see if this late breaking news hurts the Yes on Y campaign. Certainly, Culver City residents will probably want to hear more from Weissman about the situation beyond the very terse comments related in the LA Times article.

Politics: Nov 2012 LA County - Measure J?

Measure R passed a few years back raising sales tax for 30 years to fund transportation projects.

Measure J on the Nov 2012 ballot for LA County voters will extend that sales tax for an additional 30 years. This extension will permit the County to borrow money in the next decade and use the future revenues to help pay off the debts.

LA Weekly has a good summary of the pros and cons.

I'm leaning toward a NO vote on this item.

Politics: Taking a guess at the 2012 electoral college outcome

Poll pros who really do this seriously:
538
electoral-vote.com
electionprojection.com

I'm just a "blogger in pajamas" but why should they have all the fun?