Presidential Results by Congressional District

In a remarkable feat of crowdsourcing, Swing State Project has published presidential election results for each of America's 435 Congressional Districts.

The map below indicates the CD's where Obama improved upon John Kerry's performance by at least 9 points (there are 50 of these in total, and they are highlighted in green) -- as well as those where his performance was worse than or equal to Kerry's (53 districts, highlighted in red).



Note: Map Fixed.

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Health Care > Environment? It's the Economy, Stupid.

Yes, friends, there is some real news coming out of Washington these days (hint: it has nothing to do with Barack Obama's bowling score) and Marc Ambinder has it:

This is big news: Democrats have mapped out their legislative strategy for passing health care reform this year. According to George Stephanopoulos, Democrats will work with Republicans to build consensus around a plan, and then, if that doesn't work, they'll write the revenue-generating-and-substracting provisions of whatever health care plan they come up with into the FY 2010 budget resolution. As important: the budget reconciliation process, which circumvents moderate Democratic and GOP discontent in the Senate, will NOT be used to set up a carbon emissions credit trading system. Cap-and-trade was always the tougher sell to Congress.

If this is the choice that the White House has made, I'm not surprised, as it's an instance where the economic logic dictates the political logic. When the economy slows down, two things happen. First, less carbon is emitted. Nobody likes to say this in polite company, but a global economic near-depression is probably the single best "program" one could imagine for curtailing carbon emissions. Vehicle miles traveled are down in the United States in spite of significantly cheaper gas prices; industrial production has slowed; China and India are not increasing their carbon usage as fast as anticipated. This presents one small hedge, at least, against the decline in welfare that is otherwise brought about by an economic crisis.

The second thing that happens is that tackling warming recedes as a concern in the eyes of the public. Whereas almost 60 percent of the public described the environment as a top priority a year or two ago, that number is now down to about 40 percent.

Health care problems, by contrast, tend to worsen in a down economy. The chart below indicates the percentage of Americans covered by private health insurance; recessions are indicated by yellow bars. There has been a secular decline in this number over time because of the graying of the population and other reasons (various government-run programs have made up some of the difference, but hardly all), but the problems have been particularly acute during and immediately after recessions.



(Note: this chart corrects in a change of accounting methods made in 1999).

For obvious reasons, moreover, a more robust alternative to employer-based health insurance is probably more appealing to Americans when more of them are concerned about losing their jobs. I don't want to call health care an easy sell ... but it's a fight where the White House ought to be favored.

The risk in putting off cap-and-trade, of course, is that "later" may turn out to mean "never" -- and "never" is not an acceptable alternative when we are near so many environmental tipping points. It's easy enough to imagine a scenario in which the economic recovery is slow in coming, the Dems become skittish about advancing cap-and-trade in an election year (2010), they nevertheless lose a bunch of seats during the midterms, and then Sarah Palin gets elected in 2012 and we're all burning moose dung and invading Alberta a few years later.

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Throw Out Baby, Bail Out Bathwater

I'd call this the law of unintended consequences -- except that the consequences are explicitly written into the bill. The bonus tax, which passed the House earlier today, applies not only to AIG but also to some 12 other firms that received substantial levels of government assistance. This includes both financial institutions like AIG and nonfinancial ones like General Motors; it includes banks that are preforming poorly, like Citibank, and those that are holding up fairly well, like JPMorgan Chase and PNC. The government has dictated that nobody at anybody of these companies is deserving of incentive-based compensation, unless their household income is less than $250,000 per year.

Just think about some of the implications of this.

A senior engineer at General Motors, who shepherds the production of a new hybrid vehicle that will turn out to be a best-seller, shouldn't get a bonus for that. Really?

Jamie Dimon at JP Morgan, who has managed his company's assets adeptly and kept it mostly off the taxpayer's dole, is no more deserving of a bonus than an AIG crook. Really?

An mid-level investment banker at Morgan Stanley, who works her butt off to persuade her bosses to facilitate a deal for a new wind-power company that turns out to be a big economic and environmental winner, should have her incentive compensation taxed at 90%. Really?

An administrative assistant at PNC, who is volunteering to work 70-hour weeks because of cutbacks in the company's staff, deserves a Christmas Bonus -- unless her husband happens to be a lawyer earning $250,000 per year, in which case it should be taken away. Really?

$500,000 in salary for an employee that performs badly is perfectly fine, but a $500,000 bonus for one who performs exceptionally well isn't. Really?

I understand that these might be hyperbolic examples. As I argued earlier, compensation in the financial services industry is probably too high in the aggregate. But there are much better ways to design around that. For instance, set a soft cap for aggregate compensation that is adequate to keep a company running healthily -- say, 20% of company earnings -- and then require companies who allocate more compensation than that to match it one-for-one with paybacks of their TARP funds. This would require companies to either right their ship or control their compensation levels. But it wouldn't discourage them from paying bonuses to those exceptional individuals who are deserving of it.

As written, I'm not even certain that the bill will reduce compensation for these bailed-out firms at all. It will just shift it from incentive-based compensation, which is subject to the levy, to salary-based compensation, which isn't. But in so doing, it will make it harder for the companies to align performance and rewards.

I understand why the bill was written this way -- it had to be broad enough to fend off a constitutional challenge -- but the cure is worse than the disease. Much worse. I can't imagine a credible defense of it along economic lines, and so far as I've seen nobody has even attempted one.

n.b. See also Noam Scheiber, who has been a voice of sanity on this issue; Josh Marshall is also starting to have reservations.

EDIT: To people who say I'm not getting the politics on this one: I'm not talking about the politics of it, I'm talking about the economics. If I were a Senator's Chief of Staff, I'd probably tell him to vote for it.

But I also think there have been political failures here: the Obama communications team failed to nip the AIG story in the bud to the point where it blew up on them and the political pressures on the Congress became irresistible. The public doesn't have the most basic understanding, for instance, of what the "bonuses" really are -- in AIG's case, they weren't really bonuses at all -- and so a lot of the debate has evolved from false premises.

I'm also not very sympathetic to the "they're rich -- who cares?" line of argumentation. I'd be happy to pay an employee a million dollars if he made me two million, and since the employees of the bailed-out firms are our employees in a certain sense (since we own various levels of debt/equity in their companies), I feel the same way about them.

If we want to address wealth discrepancies in this country (and I think that we should), we should do so by changing marginal income tax rates. The one good thing that may come out of the AIG mess is that it may actually prove to be fairly paradigm-shifting as far as that stuff goes. But if we're monkeying around with tax policy, it's important to do so in an economically coherent way. The idea that an authentically high-performing executive at Morgan Stanley should be subject to the tax but the same employee shouldn't be if she leaves for Deutsche Bank is asinine -- but that's exactly the outcome that this bill engineers.

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The Pledge

For all of Jack Nicholson’s bombast, a little-noticed gem of a leading role was his 2001 turn as a retiring Reno cop (wearing full-length pants) trying to keep a promise in The Pledge. If you haven’t seen it, you should rent it.

This weekend, a different kind of pledge will be asked of Barack Obama’s supporters as Organizing for America applies voter registration techniques to its agenda of gathering and channeling support for Obama's ambitious first-year legislative agenda.

The concept is fairly straightforward: many volunteers fan out into communities all across the country collecting signatures and contact data on a sheet that reads:

I support President Obama's bold approach for renewing America's economy

I will ask friends, family, and neighbors to pledge their support for this plan...

Energy — Transforming America's economy to run on clean and renewable energy in order to create new American jobs and industries

Health care — Comprehensively reforming health care so that families, businesses, and government are relieved from the crushing costs that impede economic growth and prosperity

Education — Reforming and investing in America's education system so that citizens are prepared to compete in a global economy

You'll notice this is a blanket stamp-of-approval pledge, one that even unsettles some former Obama organizers I've spoken with, particularly ones on the libertarian side of the spectrum. To them, the word "pledge" feels a little too authoritarian.

For example, today Obama announced $2.4 billion in Department of Energy funding for next-generation electric vehicles. The piece of OFA's pledge on energy would presumably cover policy choices like these, but trust is an essential part of this information exchange. Who knows what final form health care legislation will look like later this year? Support of a broad principle is asked. Obama has ruled out single payer and explicitly signaled to much of his base that they may have to swallow some disappointment. Many of these are the same voters being asked to sign the broad pledge.

Others are less concerned with implications of signing a pledge, and emphasize the larger value in seizing a particular moment to leverage a grassroots voice. The pro argument stresses that there's nothing binding in the signature, the data isn't being shared, and there are no consequences to "breaking" the pledge. Instead, your name just goes into a database so that OFA can send you information about locally-organizing groups that you can join or not join as your preference permits. Moreover, they argue, neighbor-to-neighbor communication on public policy during the conversation that surrounds the signature collecting has inherent value, reinforcing a sense of citizen engagement in public life.

It's a bit of a Rorschach test on how you view it. But either way, they're doing it.

The mechanics underscore the need for volume. Though some volunteers will go door-to-door, this is a generalized signature collection. Since volume is the key, volume is easiest in public places. We're talking about malls, parks, fairs, grocery stores, sporting events, all the places people congregate on weekends. Door-to-door canvassers are told to concentrate their efforts in high-density housing areas, which have the convenient attribute of being in more urban areas which tend to skew strongly Democratic. It's like a mass petition drive, most analogous to voter registration.

During the campaign, Obama organizers threw tremendous resources into collecting voter registration. Outside the campaign, this effort was not well-understood in real time. This misunderstanding underlay the substance of my critique on Michael Barone's dismissal of early Ohio numbers. Barone and others seized on low early Ohio turnout in the September 30 to October 6 window where voter registration and early voting overlapped to argue a sign of the ineffectiveness of Obama's organization. Barone's embarrassing and mildly racist piece (blacks are more "susceptible" to organizing... seriously) painted the Obama organization as full of Dean-2004-esque enthusiasm and suggested Dean-Iowa results.

What was really happening, as we reported, was that rather than focusing on the opening bell for voting, Ohio organizers, like their counterparts around the nation, were focused on registering every last voter up until the October 6 deadline. It was an issue of maximization. Once that deadline passed, the campaign shifted to an early vote focus.

Jeremy Bird, Obama's State Director in Ohio, recorded this video in his role as OFA's Deputy Director:



In the video, Bird explains optimal techniques to generate the best response, and it's clear that what OFA wants is data, data, data. Bird emphasizes the completeness of data collection, just as was emphasized to organizers and their volunteers during the campaign.

As Al Giordano notes, this weekend's list building is also key as a first field effort for the 2010 midterms. That's a key insight into what makes this different than say, the economic stimulus house parties from early February. There's also a component of this weekend's pledge drive that will feed into organized pressure on House members and Senators, as well as a simple education component -- raising the profile of the three main pillars of Obama's legislative agenda: energy, health care and education. Political junkies can, but not everyone can identify those three items.

Still, to be clear, this is more intake than output. Most writing about this weekend's project, when casually referring to the "13 million" person list are glossing over the single most important principle of field:

Those databases get old fast. Field edge is gained and maintained with constantly refined lists. It may seem silly, given that the campaign only ended four and a half months ago, but keep in mind that people move, people change registration, new voters hit 18, people change their minds about who they support... you simply cannot let a list sit for any length of time or it becomes unhelpful. The Pledge is a person-to-person high value touch. There is persuasion involved in this effort, as volunteers are encouraged to share their personal stories as a way of gathering signatures.

One thing Republicans learned during the campaign that crippled their field effort is that lists age in dog years. While Obama had the chance to build lists in nearly every state during the primaries and then re-process those lists in the general election, Republicans didn't have the manpower or resources to maintain theirs. What may have been great lists in 2000 and 2004 would have been a nightmare by 2008 without maintenance. Robocalls are an abysmally poor substitute for the high-quality voter contact exemplified by the face-to-face neighbor persuasion effort OFA plans for this weekend.

Here's a link to this weekend's activities.

And check out a brilliant little role for Benicio del Toro in The Pledge.

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GOP Leadership Splits As Bailout Tax Passes House

Here's something interesting. In the bill to tax bonuses paid to employees of bailed-out companies at 90%, which (to my quixotic dismay) just passed the House 328-93, the two most important Republicans split their votes, with Eric Cantor voting for the measure and John Boehner against it.

The progression of the votes in the Republican conference was also interesting: the first 30 or so GOP votes that came in were all nay votes, and then the yeas started gaining ground, such that the final tally among Republicans was nearly an even split, 85 in favor and 87 against.

This feels like a failed attempt to whip votes by Boehner, as the GOP found itself wedged between corporatist and populist pressures. We may look in more depth later at which Republicans wound up on which side, as my hunch is that this vote provides some insight as to the competing factions within the party.

Six Democrats, meanwhile, voted against the bill: Melissa Bean, Larry Kissell, Michael McMahon, Walt Minnick, Harry Mitchell, and Vic Snyder. Bean and Minnick are Blue Dogs -- the others are not -- although Mitchell and Snyder are fairly conservative.

EDIT: As a commenter points out, the bill was also rewritten to apply only to persons making $250,000 a year or more (it also applies only to bonuses received after December 31, 2008). From my point of view, this weakens, rather than strengthens, the moral force of the bill: if the idea is that this is intrinsically dirty money, obtained under illegitimate premises, then why is anyone entitled to it? When we confiscate drug profits, do we make an exception for dealers below the poverty line? But, alas, you're all probably tired of hearing from me on this one.

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NCAA Hoops Projections

I'm not any sort of basketball expert. For that I defer to my colleagues at Basketball Prospectus.

What I can do, however, is adulterate the hard work of others.

Specifically, what I can do is the following:

1. Take any of several power ratings. This requires nothing other than a search engine. The four power rankings that I like, in rough order of preference, are:

a) The Pomeroy RPI ratings.
b) The Sagarin ratings ('Predictor' version)
c) The Greenfield Predictive Power ratings;
d) And the Massey ratings.

In the interest of time, I'm not going to go into great length about the differences between these various systems. They're far more similar than they are different, with the partial exception of the Massey ratings, which do not account for margin of victory in their calculations and are probably inferior for that reason, but can be useful in providing something of a hedge against the more aggressive systems.

2. Translate the power ratings into winning percentages. For instance, if Louisville has a rating of X, and Ohio State has a rating of Y, I want to know how often Louisville will beat Ohio State. In fact, we want to develop a whole matrix, knowing how often any team in the tournament field is expected to beat any other team. The Pomeroy ratings, fortunately, are specifically designed for this purpose. For the other systems, I first 'map' them to the Pomeroy ratings by running a regression, and then proceed.

3. Use a Markov prcess to chain together the probabilities and play out the tournament an infinite number of times based on these head-to-head matchups.

This sounds fancy, but it really isn't; all I'm doing is taking the power ratings and translating them into probabilities, through a process that ultimately requires nothing more than addition, subtraction, multiplication and division. To the extent there's much value-add, it's not so much in picking the winners, but in adapting the system to the peculiar scoring rules that your tourney pool might have. In one pool I'm in, for example, which heavily rewards picking lower seeds, I have a final four of Memphis (a #2 seed), Gonzaga (#4), West Virginia and UCLA (both #6s). In another, which doesn't reward picking upsets at all, I play it much safer: Memphis and then the three number one seeds: North Carolina, Louisville and Pittsburgh (which happens to match the president's bracket).

So without further ado -- and since the tourney is about to tip off in 5 minutes -- here is what my numbers show this year. The first chart is the probability of each team reaching the Final Four from any of the four regions. Separate derivations are provided for each of the four power rating systems that I evaluated, as well as a composite rating that averages the four.



And here are the probabilities of winning it all. Get your money in now on Tennessee-Chattanooga, which is a mere 114,853,003-to-1 underdog.

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Why AIG Paid the "Bonuses"

The company's 2007 10-K filing (annual report), released on 2/28/08, is the key to unraveling the mystery:

During the fourth quarter of 2007, certain of AIGFP’s available for sale investments in super senior and AAA-rated bonds issued by multi-sector CDOs experienced severe declines in their fair value. As a result, AIGFP recorded an other-than-temporary impairment charge in other income of $643 million. Notwithstanding AIG’s intent and ability to hold such securities until they recover in value, and despite structures which indicate that a substantial amount of the securities should continue to perform in accordance with their original terms, AIG concluded that it could not reasonably assert that the recovery period would be temporary.[...]

The change in fair value of AIGFP’s credit default swaps that reference CDOs and the decline in fair value of its investments in CDOs were caused by the significant widening in spreads in the fourth quarter on asset-backed securities, principally those related to U.S. residential mortgages, the severe liquidity crisis affecting the structured finance markets and the effects of rating agency downgrades on those securities. AIG continues to believe that these unrealized market valuation losses are not indicative of the losses AIGFP may realize over time on this portfolio. Based upon its most current analyses, AIG believes that any credit impairment losses realized over time by AIGFP will not be material to AIG’s consolidated financial condition, although it is possible that such realized losses could be material to AIG’s consolidated results of operations for an individual reporting period.[...]

The most significant component of Capital Markets operating expenses is compensation, which was approximately $423 million, $544 million and $481 million in 2007, 2006 and 2005, respectively. [...] In light of the unrealized market valuation loss related to the AIGFP super senior credit default swap portfolio, to retain and motivate the affected AIGFP employees, a special incentive plan relating to 2007 was established. Under this plan, certain AIGFP employees were granted cash awards vesting over two years and payable in 2013. The expense related to these awards will be recognized ratably over the vesting period, beginning in 2008.

Emphasis added. In conjunction with the disclosure of the terms of the "bonus" contracts (I'll explain in a moment why I'm using the scare quotes), we can piece together a pretty good idea about what happened.

The employees in AIG's Financial Products division (AIGFP) were compensated heavily -- perhaps almost exclusively -- via incentive-based compensation. That is, the employees got a profit share -- a rather generous 30 percent share -- of the earnings their division made by trading credit default options (CDOs) and related assets.

In the fourth quarter of 2007, the market for CDOs went completely to hell, an early casualty of the mortgage crisis. AIG, to that point, had already accumulated about $643 million in bad assets on its books. (Note AIG's use of the euphemism "other-than-temporary" to describe the writing off of these assets; that's a bit like calling Louie Anderson "other-than-skinny"). AIG must have anticipated that it was going to spend most of 2008, and perhaps most of 2009, merely climbing out of its hole rather than turning any sort of profit.

This must have posed something of a problem for the employees in the Financial Products division, since their compensation relied on these trades being profitable. So AIG struck a deal with these employees. It guaranteed them, for 2008 and 2009, the same level of incentive-based compensation that they received in 2007 (except for senior executives, who took a 25 percent haircut), regardless of how the division actually performed. The only requirements were that the employees couldn't quit and couldn't be fired for cause (a much stricter standard than the usual conditions of at-will employment.)

This turned out to be an other-than-good deal for AIG. But at the time, AIG must have believed that its hand was forced. At that point in early 2008, the market for the sorts of assets that AIGFP dealt in had crashed, but the broader asset markets hadn't yet. Many of these employees were highly skilled, and could plausibly find employment at another company that traded in other, relatively healthier types of commodities. But AIG evidently felt it needed them in order to minimize its losses and unwind its positions.

The thing about these "bonuses", however is that they're not really bonuses, which we usually think of as incentive-based compensation. On the contrary, they are something the opposite of bonuses: they took compensation that had been incentive-based and guaranteed it. It's precisely because that compensation was guaranteed -- not incentive-based -- that it is difficult to undo.

The fundamental issue here what I call asymmetrical agency bias. We as human beings tend to attribute our results to skill when we are performing well, but (bad) luck when we are performing poorly. Thus, AIG was willing to pay its Financial Products employees plenty when their trades were going well (assigning them agency for their profits), but was willing to make plenty of excuses for them ("the severe liquidity crisis", "the effects of rating agency downgrades") once things began to unravel. The employees, likewise, may have felt entitled to some large fraction of the incomes that they had "earned" before, and probably didn't regard themselves as culpable for the losses their trades had begun to take.

As someone who is alert to asymmetrical agency bias -- it is an extremely common phenomenon in both poker and baseball, two fields with which I am intimately acquainted -- I tend to be unusually sympathetic to the position that the individual traders at AIG were not especially responsible for the fact that their deals had begun to lose money. Even the most skilled and honest trader probably could not have done better than to limit his losses once the CDO market began to collapse in 2007. By the same token, however, I tend to be unusually unsympathetic in my assessment of how much alpha these traders were responsible for on the upside; any idiot could have made money trading credit default swaps in 2005 or 2006.

For this reason, I'm just not all that excited about confiscating the "bonuses" paid to the AIGFP employees. Rather, I'm interested in compensation and incentivization structures in general. Aggregate compensation throughout the financial services industry, I would guess, is much higher than is economically optimal (there is a lot of evidence that this is true of CEO pay). A lot of people are getting paid for what is thought to be skill but is really just luck (or economic rent).

If, as at most hedge funds, the employees are buying in with their own capital and bearing a lot of the downside risk, that is one thing. At a publicly-traded company, however, those employees are taking profits out of the shareholders' hands. And at a publicly-traded company that happens to be owned by the taxpayers, they're taking money out of the taxpayers' hands.

The compensation paid to AIG's employees, however, is less a moral failure than a market failure. We don't like to admit to market failures because they indict our collective judgment; instead we scapegoat and move on. But there are some ways to address these market failures; the more time we spend focusing on those, and the less on AIG, the more money we the taxpayers will save ourselves in the end.

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Cherry-Picker-in-Chief

FiveThirtyEight Exclusive: Obama NCAA Bracket Suggests Bias Toward Schools from Swing States



Is President Obama playing favorites with his NCAA bracket? Neither Columbia University nor the University of Chicago have an entry in the Big Dance (the Maroons, alas, aren't even in D-1). Nor does the University of Hawaii or Oregon State University, where Michelle Obama's brother, Craig Robinson, is the coach. The University of Illinois did make the bracket as a #5 seed; Obama has them winning their first round game against Western Kentucky, but then succumbing to the #4-seeded Gonzaga.

There is more than one way, however, for the President to play favorites. Was Obama more inclined to select teams from swing states that were closer in last November's election? A bit of reverse engineering of his bracket suggests that the answer is a qualified yes.

There are 63 games in the men's tournament. In one case, two teams from the same state (Louisville and Morehead State, both from Kentucky) are set to square off. In the other 62 games, Obama has the team from the state which was closer in the November election advancing 35 times (56% of the total).

This in and of itself is not that definitive. Such an outcome could easily have emerged through chance alone. Nor have we accounted for the respective seeds of the teams (the President was highly disinclined to pick underdogs). So a somewhat more rigorous analysis is required.

To do so, I set up a simple logistic regression model containing two independent and one dependent variable. The dependent variable is an indication of whether Obama picked the favorite or the underdog; the variable took on the value of 1 if Obama selected the favorite (that is, the team with the lower seed) and 0 if he took the underdog (the team with the higher seed). In cases where both teams had the same seed (this only occurs once the teams reach the Final 4), the favorite is designated as the team with the higher Associated Press ranking.

The first dependent variable, seeddiff, is the seeding difference between the two clubs. For example, in a game featuring a 7-seed and a 10-seed, seeddiff is 3.

The other dependent variable, swingdiff, is an indication of the relative closeness of the two states in the November election. The swingdiff variable is calculated as follows...

swingdiff = SQRT(margin_underdog) - SQRT(margin_favorite)

...where margin_favorite is the number of points separating Barack Obama and John McCain in the state represented by the favored team, and margin_underdog is the same number for the state represented by the underdog. These values are taken to their square roots because there are diminshing returns once a state becomes non-competitive beyond a certain point; a state which one candidate wins by 20 points isn't really much swingier than one that he won by 30.

For example, take the 1st round game between #6-seeded UCLA and #11-seeded Virginia Commonwealth University. The margin in Virginia on November 4 was 6.3 points, whereas the margin in California was 24.0 points. swingdiff would thus be calculated as follows:

swingdiff = SQRT(6.3) - SQRT(24.0)
swingdiff = 2.51 - 4.90
swingdiff = -2.39

In this case, the value of swingdiff is negative; this indicates that the underdog came from the swingier state. And indeed, Obama picked VCU over UCLA.

When we plug swingdiff and seeddiff into the regression model, we get the following result:



The value for seeddiff is significant and positive, indicating (unsurprisingly) that Obama was more inclined to pick the team with the superior seed, and that this inclination increased with the seeding difference. However, the value for swingdiff is also positive, and significant at the 90 percent probability threshold (although not quite at the 95 percent threshold). It appears probable, therefore, that Obama did in fact have some tendency to prefer teams from swing states in filling out his bracket.

Suppose, for example, that Obama is selecting between a #1-seeded team that comes from a state that he won by 5 points, and a #2-seeded team that comes from a state he won by 20 points. The model predicts that Obama would pick the #1 seed, which happens to be the team from a swing state, about 85 percent of the time.

However, suppose that seedings are reversed: the #2 seed comes from the swing state, whereas the #1 seed does not. In this case, the model predicts that Obama would select the favored #1 seed just 48 pecent of the time, and the swingier #2 seed the rest.

This is actually fairly easy to see if we look at the cases where Obama did, in fact, pick an upset.

1st Round:
Maryland (10) over California (7). Both states are deeply blue, so nothing to work with here.
Tennessee (9) over Oklahoma (8). Likewise, nothing much revealed by this choice between two red state teams, although Tennessee is moderately more swingy than Oklahoma.
Virginia Commonwealth (11) over UCLA (6). Virginia is a swing state, California isn't.
Butler (9) over Louisiana State (8). Butler, based in Indianapolis, is in a swing state whereas LSU isn't.
Temple (11) over Arizona State (6). Although Arizona could plausibly be a swing state with John McCain off the ballot, it's unlikely to have the same import as Pennsylvania, where Temple is located.

2nd Round:
Purdue (5) over Washington (4). Purdue University is located in West Lafayette, Indiana, a swing region in a swing state; Washington isn't really a swing state any longer.
Florida State (5) over Xavier (4). Hard to assign points here; Florida and Ohio (Xavier is located in Cincinnati) are each located in preeminent swing states.

3rd Round:
Syracuse (3) over Oklahoma (2). Deep red state against deep blue state. No net effect, although there are undoubtedly a large number of Syracuse fans in NY-20, which is holding a special election to replace Kirsten Gillibrand later this month.

4th Round:
Memphis (2) over Connecticut (1). Neither Tennessee nor Connecticut is particularly swingy. It's also not clear that this is much of an upset (Memphis is probably the better team).

5th Round:
No upsets.

6th Round (Championship):
North Carolina (1) over Louisville (1). This qualifies as a very mild upset according to AP rankings. North Carolina (where Obama is also friendly with Dean Smith) is a swing state, Kentucky is not.

Although Obama did not pick very many upsets, just about every time he did it tended to favor the team from the swingier state. With that said, there are a couple of upsets that Obama could have reasonably picked but didn't, such as #3-seeded Missouri over #2-seeded Memphis or #2-seeded Michigan State over top seed Louisville.

But yes: the President does appear to have been mixing his hoops with his politics. Will the nation ever recover?

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NASDAQ Now Up Under Obama Presidency

The NASDAQ Composite, which was 1484.43 at noon on January 20th when Barack Obama became the 44th President of the United States, just closed for the day at 1491.22, according to the CNBC ticker. The Dow and the S&P still have a little ways to go, however.



Disclaimer: Yes, this is a stupid way to look at the stock market (that's the whole point). For a smart way, see Hussman.

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AIG: How a Meme Spreads

One of the cool features at Memeorandum, my favorite aggregator of political content, is that you can warp back to any previous point in time to see which stories were dominating bandwidth on the World Wide Web. Here, for example, is what the world looked like on Election Night, or on the morning that Sarah Palin was selected to be John McCain's running mate.

I thought it would be useful to examine how the current controversy surrounding AIG has spread throughout the Internet over the past several days. This story has been a little bit unusual in that it's not all that newsworthy: AIG's intention to pay its so-called retention bonuses has been public knowledge for some time. But the story has absolutely blown up within the past 72 hours.

The immediate trigger for the controversy appears to have come late Saturday evening, when the Washington Post posted the web version of a page A01 story from its Sunday edition: "AIG Paying Millions in Bonuses Despite Receiving Federal Bailout". The Washington Post story contained two real pieces of reporting: firstly, that Tim Geithner had been talking to AIG CEO Edward Liddy about the retention bonuses and was extremely unhappy about them, and secondly, that Geithner had prevailed upon Liddy to make some revisions to other types of bonus provisions. The first blogger to pick up the story and show up on Memorandum's radar screen was David Waldman at Congress Matters. By midnight, he'd been joined by only a couple others, although meanwhile, the New York Times published a story that largely replicated the Washington Post's reporting.

On Sunday, the story gained significant steam throughout the liberal blogosphere. By 3 PM, according to Memeorandum, 20 independent (e.g. not related to a major media outlet) blogs had picked up some variant of the AIG story, of which 16 (by my count) have a definitive liberal orientation. There was then an additional round of attention later in the day, this time mostly coming from the mainstream media, after AIG's counterparty list was released, and as the papers began to release content online from their Monday editions.

AIG-related affairs continued to dominate the discussion on Monday after Barack Obama said he wanted to block the bonuses and amidst speculation about the political fallout. Over the course of the day, the discussion tended to shift from liberal blogs to mainstream media channels.

Then yesterday (Tuesday), the story got bigger rather than smaller, becoming the subject of about twice as much discussion as it had been 24 hours earlier. Noteworthy about yesterday is that conservative blogs, which had been slow on the trigger initially, finally started to cover the story en masse, perhaps sensing the potential for embarrassment to the Administration.

Here is a graph of how this all looks at 3-hour intervals (skipping overnight periods):



Here's the unresolvable hypothetical: is there a universe in which this story wasn't going to blow up huge? My general assumption, and I can't really offer any proof of this, is that in the world of the highly-interconnected, 24/7 news-o-sphere, the propagation of particular news stories is in fact somewhat chaotic and unpredictable, subject to all sorts of network effects and power law distributions. I don't know if that was the case for this particular story, but I'm pretty sure it can be true under certain circumstances: it's harder than it used to be to predict what the headline will be on a given day.

What was definitely true in this instance (as is very often the case) is that the blogs (at least the liberal ones) were ahead of the mainstream media in getting after the story; AIG was dominating the blogosphere discussion by midday on Sunday, whereas mainstream media outlets, except for the Times and Post, didn't really catch up until that evening. On the other hand, the conservative blogs were quite slow in gravitating toward the story, not really focusing upon it until late yesterday morning, in spite of the fact that it had all sorts of potential to be damaging to the Obama administration. Conservative bloggers should probably spend more time reading liberal blogs for story ideas (likewise, liberal bloggers should spend more time reading conservative ones).

The final lesson might be one for the Obama Administration: the possibility for tsunami-like waves of press coverage is probably far greater now than it used to be. This is not the first time that Obama's press shop appears to have been taken by surprise by the ferocity with which a story spread, the Jeremiah Wright case providing the most obvious prior example. What's interesting is that the Post's initial story appears to have been based largely on conversations with unnamed officials in the White House. I'd be curious to know whether someone in the White House spoke out of turn, or rather, whether the "leak" had the blessing of the Administration (the initial story, as compared to some of the subsequent coverage, was relatively sympathetic toward Geithner).

Complicating matters further for Obama was that the liberal blogosphere wasn't covering for him; on the contrary, the blogosphere tended to be eager to perpetuate the story. I need to be careful about what I say here -- although I'm apparently in the extreme minority in believing both that the particular bonuses at issue here are not an especially big deal and that the solutions to recoup them are undesirable, I fully understand the widespread outrage as to what has taken place and am empathetic to both implicit and explicit criticism of the Administration for it. Nevertheless, this story is noteworthy for being the first case in which prevailing opinion among liberal elites broke in such a way as to probably be unhelpful to the Administration's near-term political objectives. Nobody -- neither liberals nor conservatives -- are buying much of what Summers and Geithner are trying to sell.

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The New Terri Schiavo?

Is nobody else made deeply uncomfortable by this idea?

Senate Majority Leader Harry M. Reid (Nev.) said Finance Committee Chairman Max Baucus (Mont.) would unveil a proposal by tomorrow that would tax up to 98 percent of the bonus money. "That will certainly send a message to the people at AIG and all others who try to benefit from the hardships the American people face," Reid said.

In the House, Reps. Steve Israel (N.Y.) and Tim Ryan (Ohio) introduced the "Bailout Bonus Tax Bracket Act" to create a 100 percent tax on bonuses over $100,000 that are distributed to employees of financial firms receiving federal bailout funds. Currently, the IRS withholds 25 percent from bonuses less than $1 million and 35 percent for bonuses more than $1 million dollars. The Israel-Ryan proposal would apply to all bonuses to government-supported firms such as AIG that have been given since Jan. 1.

There's been some discussion about whether levying a tax of this nature would be legal, or instead would represent an unconstitutional bill of attainder. Lawrence Tribe of Harvard Law School says the bill would probably pass constitutional muster, although the answer is less than 100 percent clear.

I'm not sure that's the whole crux of the matter, though. Among the most basic duties of a functioning government is to uphold contracts. The "retention" bonuses paid to AIG executives were almost certainly bad contracts from an economic point of view, but legally they may be just as valid as any others (I qualify this statement only because we haven't actually seen the contracts). If the government passes a tax of this nature, it is not only failing to protect those contracts but is actively seeking to circumvent them.

"What is the highest excise tax we can impose that will stand up in court?", Max Baucus suggested today. "Let's find out."

Legal? Perhaps. Constitutional? Probably. But Congress's intervention in the Terri Schiavo case was probably constitutional as well. Nevertheless, it represented a gross overreach of the chamber's authority, and ultimately undermined, at least a little bit, the rule of law.

When historians look back on this period, this is not likely to be seen as one of our prouder moments. Moreover, I wonder if it does not augment the view that the financial crisis was perpetuated by a few bad apples, when the real causes were far more systemic, and systemic reform will be required avoid their recurrence. If the public needs some way to crucify CEOs and other high-paid executives who had their fingers on the button when the economy went to hell, let's at least find a way that doesn't tempt fate with the rule of law.

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Murphy Closes Gap in NY-20, Tedisco Opposes Stimulus

Democrats have a nice little freeroll going in New York’s 20th Congressional district special election scheduled for two weeks from today, March 31. Although it is currently a D-held seat, having been picked up in 2006 by Kirsten Gillibrand as part of the first wave year gains, Republicans hold enough of a registration edge in the upstate New York region (roughly 196,000 to 125,000) that the seat is favored to flip back to Republicans.

The March 31 race pits Republican Jim Tedisco against Democrat Scott Murphy, and Democrats will come out of the special election with either of a 78-seat or 80-seat edge in the House. Functionally, considering House rules that give the majority party far more control than in the Senate, there are no broader consequences for House Democratic ability to determine the national agenda.

However, if Murphy upsets Tedisco, Michael Steele is in big trouble, as we reported recently. Regardless of his public behavior, Steele’s primary function as RNC chair is to fundraise and organize for races like this. Although much was made of Steele directing $1 million to each of the National Republican Congressional Committee (NRCC) and the National Republican Senatorial Committee (NRSC), our sources reported that former chairman Mike Duncan had had $5 million earmarked for those committees, and The Hill reported that Duncan had written out checks of $3 million to each committee that Steele ultimately slashed. Regardless of the precise discrepancy between Steele’s allocation and what the committees would have received under other leadership, what matters in all of this is how RNC members perceive Steele’s fundraising, since they are the ones who would have to take action to replace Steele. What’s clear is that the insiders understand that Steele has dropped the ball in this race, which is why we wrote that regardless of whether Tedisco ultimately wins or not, Steele will not get credit.

Right now, there’s something to like for both candidates in NY-20. Tedisco can enjoy the fact that he’s held the lead in each poll of the race and is a better-known candidate; Murphy can like the trendlines.

Indeed, a Republican internal poll in early February showed the race at 50-29, just after Murphy became the Democratic nominee. A couple weeks later, the independent Siena poll taken Feb 18-19 showed Tedisco up 46-34, and last Thursday Siena showed the race had narrowed to 45-41.

Although Tedisco’s numbers are essentially unchanged from two weeks prior in the Siena poll, Murphy’s name recognition may be catching up. Tedisco is certainly reacting like a candidate who’s very upset with what he’s seen. As the 4-point poll was released, he publicly disowned RNCC advertising and promised to show voters “the real Jim,” presumably a version of himself that would earn and hold, say, a 10-point lead. He also finally took a stance against the stimulus bill, recognizing that his unwillingness to commit publicly was partly responsible for the closing polls.

That choice – to stand against the stimulus – comes in likely recognition of the contours of special elections: much lower turnout and more base voters.

Gillibrand, a popular figure in the district, has cut an ad supporting Murphy, and Thursday will bring the first filings that show how much money has been spent in the race.

We’ll also know shortly whether Tedisco has stopped the bleeding and reversed the tightening polls. If it comes down to a tossup, factors like libertarian support for 3d-party candidate Eric Sundwall and ground game come into play.

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EFCA's Backers Still Have Work To Do

Gallup has an interesting poll out today on union formation, a particularly relevant topic as Congress begins to debate the Employee Free Choice Act. The poll reveals that a majority of Americans are sympathetic to the idea of easing union formation, which is at the heart of EFCA's purpose.



Let's be careful here, however: that Americans support an easier path toward unionization in the abstract does not mean that they support any and all potential mechanisms toward achieving that goal. They might plausibly think that EFCA is the wrong means toward the right end.

Indeed, the poll provides some evidence that Americans who know the most about EFCA are the least sympathetic toward it:



Support for an EFCA-like policy declines the more closely that someone has been following the debate about it. There are a couple of plausible explanations for this. One is that the debate has been followed more closely by those who were less likely to support unions in the first place. For example, has the debate over EFCA principally been taking place in right-wing media outlets?

If so, I don't see much evidence of it. I ran a quick search on Google News for "hits" on the phrase "Employee Free Choice Act". Newspapers with a paid circulation of 200,000 or more and which endorsed Barack Obama have mentioned EFCA an average of 5.1 times over the course of the past month:

22 Los Angeles Times
16 Philadelphia Inquirer
14 Washington Post
13 Denver Post
9 Miami Herald
9 Pittsburgh Post-Gazette
8 Kansas City Star
8 Ft. Lauderdale Sun-Sentinel
8 Newsday
7 Boston Globe
7 Minneapolis Star-Tribune
6 San Francisco Chronicle
6 Chicago Tribune
6 Orlando Sentinel
5 Detroit Free Press
5 Sacramento Bee
5 Hartford Courant
5 New York Times
5 San Jose Mercury News
5 Atlanta Journal-Constitution
5 Cleveland Plain-Dealer
4 Houston Chronicle
3 Baltimore Sun
3 Fort Worth Star-Telegram
3 Buffalo News
2 Raleigh News & Observer
2 Seattle Times
2 Des Monies Register
1 Chicago Sun-Times
1 Louisville Courier-Journal
1 St. Louis Post-Dispatch
1 New York Daily News
1 Newark Star-Ledger
0 Charlotte Observer
0 Milwaukee Journal-Sentinel
0 The Tennessean
0 The Oregonian
0 Austin American-Statesman
0 St. Petersburg Times

By contrast, the (few) large newspapers that endorsed McCain have barely mentioned EFCA -- an average of just 1.2 hits over the past month:

5 San Diego Union Tribune
4 Richmond Times-Dispatch
2 The Oklahoman
1 Dallas Morning News
1 Arizona Republic
1 Cincinnati Enquirer
0 New York Post
0 Columbus Dispatch
0 San Antonio Express-News
0 Arkansas Democrat-Gazette
0 Tampa Tribune
0 Omaha World-Herald

So most of the EFCA debate -- at least in the print world -- is occurring in places that ought to be reasonably sympathetic toward the initiative.

The problem seems to be, rather, that the debate is mostly being engaged in on the right's terms. The phrase "secret ballot" occurs in conjunction with 34% of Google News hits on EFCA; by contrast, the phrase "right to organize" occurs in conjunction with just 2%.

EFCA's advocates, in other words, may be too busy playing defense. They also may also overestimate the extent to which most Americans tend to feel sympathetic toward unions. Although most of the public supports the right to unionize, the public feels far more ambivalent about unions themselves.

While a certain amount of anti-corporate populism can probably be productive in this environment, I don't know that the unions fundamentally want to make this a narrative about class conflict. Many working-class Americans are in industries that -- EFCA or not -- are not especially conducive to union formation, and others may see unions as advancing the particular objectives of their members, but not those of the working class as a whole. Polling has generally revealed that more Americans support the right to union formation than would want to form a union themselves.

The more effective framing, rather, might be in normative rather than economic terms. That is, don't focus on the benefits of unionization, but rather on the right to union formation. For example: the ability to form a union is a fundamental American right, companies are routinely infringing upon that right, and EFCA is necessary to protect that right. This would also provide for a stronger rebuttal to the "secret ballot" talking point ("EFCA would deprive employees of their right to a secret ballot"), which is oriented precisely along these lines.

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Why Was AIG's Stock Up 66% Today?

Here's a surprise: the stock of American International Group (AIG) was one of the leading performers on Wall Street today, gaining some 66 percent to close at $0.83 on extremely heavy volumes.



The stock gained 11 cents (22%) on the opening tick this morning, perhaps partly in response to Ben Bernanke's comments to "60 Minutes" in which he suggested that the experience of Lehman Brothers had taught him that some companies (presumably including AIG) were indeed too big to let fail. But the larger part of the gains came later in the day, especially between 10 and 11 AM, just as the public outcry over payments of some $165 million in bonuses to executives in AIG's financial products unit appeared to be gaining steam.

This seems, at first, like rather unusual behavior for the stock. The fact that the story about bonus compensation caught so much political fire today (it wasn't really news; AIG stated on January 27 that it would pay the bonuses as originally planned) would seem like bad news for AIG's remaining private shareholders, as it substantially deceases the likelihood that the government will provide further assistance to AIG without continuing to dilute them.

One interpretation, however, for the sharp increase in the stock price (although I doubt it's the only one and don't know if it's the best one) would rest on the following two assumptions. Firstly, the public outcry today makes it more likely that the government will find some mechanism to enable AIG to break what it says are contractual commitments to pay the bonuses; and secondly, that failing to pay the bonuses is a good bottom-line business decision.

The first assumption probably isn't controversial, but the second one might be. I have quite a bit of sympathy for Megan McArdle's argument: the fact that AIG as a whole performed very, very (very, very) badly doesn't mean that some individual employees didn't perform fairly well. In general, we tend to overestimate the correlation between the performances of individual employees and the performance of a firm; to employ a baseball analogy, the fact that the Atlanta Braves were awful last year does not mean that Chipper Jones didn't have a great year. AIG didn't fall to pieces because all of its individual employees and executives just so happened to have an off year; it did so because of far more fundamental and longstanding flaws with certain parts of its business model, perhaps enabled by a lack of appropriate government regulation. (To be certain, the same phenomenon works in reverse, with individual employees tending to get too much credit in years where a firm performs well).

The performance of AIG's stock today, however, calls into question the notion that permitting unchecked executive compensation is a necessary evil for getting AIG and other financial institutions back on their feet. It wasn't just AIG's share price that was up today, by the way; Citibank was up 31%, Fannie Mae 29%, and Freddie Mac 21%. Is Wall Street implicitly endorsing executive pay caps for these troubled companies?

Of course, capping executive compensation is not the same thing as (what AIG claims would be) reneging on contracts. There are lots of circumstances in which a firm -- ethical considerations of course aside -- would prefer not to have to pay out compensation that it had contracted to pay, particularly if it had already received the benefit of the services provided by the contractor. This holds whether or not the initial contract was profitable: if you pay me $10 to run a lemonade stand that makes you $9 in marginal revenue, you'd prefer not to have to pay me the $10 if you could get away with it. But the same holds if you'd agreed to pay me $10 to run a lemonade stand that nets $11 in sales.

Nevertheless, as today's festivities probably increase the likelihood that any future bailout actions will be conditioned upon restrictions on executive compensation, the fact that the stocks of the companies which are most likely to be the targets of those bailouts all performed well today may be telling. Or it may not be. But it is far from clear that extremely high levels of executive compensation ultimately benefit the shareholders of the companies that those executives manage, let alone the economy as a whole.

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In First Test of “Name and Shame,” Namers Losing So Far

Six weeks ago, Barack Obama labeled the executive bonuses and perks in taxpayer bailed-out financial firms “shameful.”

We all need to take responsibility. And this includes executives at major financial firms who turned to the American people, hat in hand, when they were in trouble, even as they paid themselves their customary lavish bonuses. As I said last week, that’s the height of irresponsibility. That’s shameful.

Announcing a new executive compensation policy February 4, the White House argued that when public light is shined on bailout-recipient excesses, company behavior changes. Challenged on the lack of rule authority to stop the excesses, Robert Gibbs said that day:

You don't have to have a rule or a regulation to ensure that the American people know what to get mad at. You don't need a regulation to have that transparency and accountability put pressure on the actions of companies and executives that change their actions.

Fast-forward to the AIG firestorm of the previous two days. As the public learned that nine figures of public taxpayer money has headed to bonuses mostly for employees of AIG’s catastrophically dismal Financial Products division, AIG CEO Edward Liddy has replied to Treasury Secretary Geithner that the contractual obligations of employment contracts entered into in 2008 are binding and there’s nothing that can be done.

Obama addressed the issue today:

This is a corporation that finds itself in financial distress due to recklessness and greed. Under these circumstances, it's hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. I mean, how do they justify this outrage to the taxpayers who are keeping the company afloat?

In the last six months, AIG has received substantial sums from the U.S. Treasury. And I've asked Secretary Geithner to use that leverage and pursue every single legal avenue to block these bonuses and make the American taxpayers whole. I want everybody to be clear that Secretary Geithner has been on the case.... But I think Mr. Liddy and certainly everybody involved needs to understand this is not just a matter of dollars and cents. It's about our fundamental values.

Outrage? Check.

Principles expressed? Check.

Solution? Nope.

“Every single legal avenue” means: we don’t have an answer yet. If they had an answer, we’d know it far and wide immediately. Geithner “on the case” – especially since Geithner met with Liddy last week over the issue and Liddy responded with a “too bad, so sad” reply – isn’t a real answer.

Even as New York Attorney General Andrew Cuomo issues subpoenas for lists of who at AIG got bonuses and how much, and even as the House schedules AIG hearings for Wednesday, the White House seems to only have principles and outrage, but few teeth.

This story isn’t over, and the namers still have a shot at winning. We'll certainly hear more this week, because the story is ideal for politicians to pull their own Jon Stewart imitation. But for now, advantage AIG.

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Technical Question

Are you guys having trouble with site loading times? Have heard mixed reports from different users over e-mail.

Also, this is me buying time ... I'm trying to enjoy my last few hours in Austin at SxSW and probably will not have anything substantive posted until this evening.

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Gold(farb) Star for Effort

The Weekly Standard's Michael Goldfarb accuses me of inconsistency in a cleverly-entitled blog entry called "Search for a Silver Lining":

Silver acts as though this decline was a foregone conclusion. As the title of his post reads, "Yes, Obama's Approval Ratings Are Declining. What Did You Expect?" But back in January, Silver seemed to expect that Obama's numbers would rise -- not fall. Silver wrote on January 18, "My guess is that when Gallup comes out with its first post-inauguration approval ratings for Obama later this week, it will show him with about 76 percent approval." That didn't happen, instead Obama's approval fell to 62 percent.

Obama's numbers put him right about where you'd expect based on historical precedent -- which is worse than Silver expected. It seems disingenuous for Silver to now claim that "this is all completely predictable" and that the only conclusion these numbers justify is that "most Americans support most parts of Obama's agenda."

Goldfarb is taking my allegedly inconsistent statement out of context, as would be obvious if he'd ... provided the context:

Barack Obama has an excellent chance to exceed Kennedy's numbers. The Pollster.com averages show that 70 percent of Americans have a favorable impression of Obama versus 16 percent unfavorable. Although favorability ratings aren't the same thing as approval ratings, they tend to closely track one another. Also, it appears that there may typically be something of a bounce in an incoming president's approval scores immediately after his inauguration, so Obama's numbers may (temporarily) get even better.

My guess is that when Gallup comes out with its first post-inauguration approval ratings for Obama later this week, it will show him with about 76 percent approval, 11 percent disapproval and 13 percent uncertain, which would indeed be the best numbers on record for a newly-elected president. At the very least, Obama is virtually assured of starting out on better footing than his two immediate predecessors in the White House, as Bill Clinton had emerged victorious in a three-way race in which he got just 43 percent of the popular vote, and George W. Bush's disputed victory in 2000 had come only after weeks of uncertainty and litigation.

It's true: I expected to see a bounce in Obama's approval ratings in the immediate aftermath of his inauguration. In fact, I expected to see a somewhat larger bounce that Obama actually experienced. I certainly did not, however, expect Obama's numbers to continue increasing after the inauguration bounce, and once he began to roll out his agenda. I don't see how an honest reading of my January 18 article would have inferred that.

More recently, in fact, I had written that Obama's approval ratings were almost certain to get worse, at least in the medium term:

On balance, the public seems prepared to be pretty darned patient with Obama. The question is whether public will in fact be as judicious as it expects itself to be after some number of additional months of dire economic headlines. On that front, I'm a bit skeptical, and I'd expect Obama's approval rating to lose a couple of points each month until the recession ends. This is why it makes a lot of sense for Obama to be pursuing a very ambitious agenda right now. If the economy recovers within the next year or so -- beating voters' expectations -- then Obama's approval ratings will probably wind up being quite high. But until that recovery occurs, Obama's approval ratings are likely to get worse before they get better.

There are now two significant drags on Obama's approval. One is the economy: even though most people mostly blame Bush for the economic crisis (or more apolitical forces like the banks themselves), with each day that passes during the contraction, more people are going to get frustrated and begin to blame Obama, in whole or in part. My impression is that Obama's approval ratings are likely to follow one of the following three general paths, depending on how quickly the economy recovers:



Now, if the White House is thinking about these things the same way that I am, they'll figure that there's no time to lose in rolling out their agenda: this is the very probably the best policymaking window they'll have until the economy recovers, and if the recovery is slow in coming, it might be the best policymaking window they'll have at any point in the term.

Indeed, the White House does seem to be thinking along these lines, as they've started the ball rolling on health care, cap-and-trade, the budget, stem cell research, Iraq, and virtually every other significant piece of their agenda.

And this brings us to the second significant drag on Barack Obama's approval ratings: the public isn't universally enamored of his agenda, which he's now put front and center. On this point, I'm in superficial agreement with Goldfarb, Schoen and Rasmussen. Obama's approval rating would be higher if he hadn't tried to do anything substantive. Most of the public agrees with most of the agenda, but certainly not a 65 or 70 percent supermajority.

But a president's goal is not to maximize his approval rating; it's to maximize the amount of policy that he's able to push forward over the balance of his term. Obama is using a lot of his political capital now in order to try and push forward a lot of agenda -- but this, I would argue, is wise, because otherwise some of that political capital will evaporate anyway owing to the economy.

It's a risky play to be sure, and it will be fascinating to watch. But with the White House having made that choice, the fact that Obama's approval rating has responded in the way that it has is utterly unsurprising, especially given the underlying drip-drip-drip of the economy.

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