I've never been particularly sanguine about the prospects for EFCA's passage. That Arlen Specter has come out against it does not surprise me, given that he seems to face a greater threat in the Republican primary than in the 2010 general election. If Blanche Lincoln or Mark Pryor of Arkansas, where Walmart is headquartered and where unionization rates are low, are waffling on the bill, that's nothing if not predictable. And if Ben Nelson of Nebraska, who has generally been the most conservative Democrat in the Senate, opposes the measure, that would pretty much be par for the course.
But Senator Dianne Feinstein of California, who has declined to co-sponsor EFCA and may not support it at all? This is much harder to explain. Feinstein is not nearly as liberal as the lay public assumes. Nevertheless, she has an 87 percent lifetime score (.pdf) from the AFL-CIO, and hails from progressive California, which has one of the highest unionization rates in the country. This is not the profile of someone whom you'd think might vote against the bill that labor considers its most important priority in decades. So, what gives?
Here's my theory. California is holding a gubernatorial race of 2010, in which Feinstein is a prospective candidate. In fact, according to the Field Poll (.pdf), Feinstein is probably the favorite in the Democratic primary if she chooses to enter.
But as is always the case in California, the field is going to be very crowded. Lieutenant Governor John Garamendi has already entered, and a number of higher-profile candidates may be on their way, including Los Angeles Mayor Antonio Villariagosa, San Francisco Mayer Gavin Newsom, and Attorney General (and former Governor) Jerry Brown.
Villariagoa, Newsom, and Brown are all likely to get plenty of support from unions. Feinstein, even before this vote on EFCA, probably was not going to. So there's not that much for her to lose by pissing off labor: even if they're angry with her, that leaves open the question of which of the several alternatives they'd urge their constituents to vote for instead. Odds are that the various unions will split their endorsements. Protest votes don't work very well in multi-candidate races.
And what is there for Feinstein to gain by this? Well, money. Winning a race in a state as large and diverse as California is exceptionally expensive. Moreover, campaign finance laws are much laxer in California. Individuals and PACs can contribute up to $24,100 (.pdf) in California in both the primary and the general election, much higher than the $2,300 federal limit. By hedging her bets on EFCA, Feinstein stands to make herself more attractive to corporate contributors. She might also differentiate herself as the moderate candidate in a field of liberals, which is not a bad strategy since California's primaries are open to independent and Republican voters.
So the upshot of her lukewarmness on EFCA is this, I think: Dianne Feinstein is running for governor.
A new poll from Siena College (.pdf), which annoyingly beat Ohio State and deprived me of 5 points in my NCAA tournament pool, has Democrat Scott Murphy pulling ahead of Republican Jim Tedisco in the race to replace Kirsten Gillibrand in New York's 20th Congressional District. This marks a divergence from two prior incarnations of this poll, when Tedisco had lead by 4 points and 12 points, respectively:
Siena is the only non-partisan pollster to have surveyed this race. (The Tedisco camp disputes the result, citing internal polling that still shows them with a lead). Siena's record as a pollster is, to be frank, fairly average, although this particular race is almost literally in their back yard, as NY-20 wraps around the town of Loudonville, where Siena College is located. The usual caveats about polling special elections, which feature very low turnout and are notoriously hard to predict, also apply.
Nevertheless, we shouldn't be horribly surprised if the Democrat has turned this race into a toss-up. In the past three Presidential elections, NY-20 been slightly more Republican than the country as a whole -- but only slightly so, and it is arguably becoming less so. And of course, the country as a whole has been Democratic. Note that Barack Obama received the majority of NY-20's vote in November:
VOTE SHARE RECEIVED BY DEMOCRATIC CANDIDATE Year NY-20 USA PVI 2008 (Obama) 51% 53% R+2 2004 (Kerry) 46% 48% R+2 2000 (Gore) 44% 48% R+4
Democrats have generally been winning about 60% of the elections for the Congress in districts with PVI's of +2 or +3 over the past couple of electoral cycles; this is how they have earned their majority. So while, on the one hand, the blue team may sneak away with a victory here, they are probably also somewhat guilty of having downplayed expectations.
UPDATE: Jeff, in the comments section, asks:
Are we really supposed to believe that only 64% of republicans are Tedisco voters, as this poll claims? Come on.
Well, I don't know. But note that the poll also implies that Republicans have a fairly substantial registration advantage in the district. According to the poll, Murphy has a much larger lead among Democratic voters (84-11) than Tedisco has among Republicans (64-27), while the two candidates are essentially tied among independents (Tedisco leads 45-44). If you assumed that the district was composed of, say, 40% Republicans, 40% Democrats and 20% independents, then Murphy would have a 53-39 lead according to the poll's internals. But in fact, the poll only shows Murphy with a 4-point lead. To arrive at those numbers, there have to be quite a bit more registered Republicans than Democrats in Siena's sample.
So suppose that Siena is right -- and I have no reason to doubt them -- that Republicans have a substantial registration advantage in NY-20? What do we know about those Republicans? Well, we know that a fair number of them probably voted for Barack Obama, because Barack Obama won this district, and we know that a fair number of them probably voted for Kirsten Gillibrand, because Kirsten Gillibrand won this district. So crossing over to vote for a Democratic candidate in elections for national office is nothing new for these Republicans; some of them have been doing it routinely.
Personally, I suspect that the relatively high incidence of Republican registration in NY-20 has more to do with politics at the state level. If you're a voter in NY-20, your vote frankly isn't going to matter much for the Presidency and it isn't going to matter much for the U.S. Senate -- the Democrat is going to win those elections. It will matter some of course, for the U.S. Congress. But the most important vote you cast may be for the New York State Senate, which has been almost evenly divided between the two parties, largely along upstate versus NYC lines. That is, the Republicanness of the district may partly reflect its conservatism relative to New York City and will not necessarily translate into elections for national office.
The Republican "Road to Recovery" budget alternative, rolled out today by John Boehner, has been criticized by left and right for its lack of specificity and its promise to eliminate the national debt while significantly cutting taxes. FiveThirtyEight.com, however, has received an advance copy of additional details prepared by the Minority Leader's office. Although some elements of the proposal are still under discussion -- Eric Cantor is said to want to eliminate North Dakota rather than Idaho, while Thaddeus McCotter has suggested using the balance of TARP funds to purchase scratch-off tickets -- the final plan can be expected to contain most or all of these components.
Because of a law that the Congress passed in 2001, the estate tax, which at is 45 percent this year with an exemption up to $3.5 million in assets, will be entirely repealed in 2010 before abruptly returning to its former rate of 55 percent rate in 2011.
Think there might be a few rich grannies pulled off a few respirators on December 31, 2010?
A pair of Australian economists, who studied the repeal of that country's inheritance tax in 1979, seem to think there very well could be. They found (.pdf) evidence of so-called "death elasticity": statistically significant aberrations in reported death rates in Australia on and around June 30, 1979, when the repeal of the estate tax took effect. A relatively high number of Australians who would have been subject to the tax found a way to postpone their deaths until after the 30th. (Or, just as plausibly, their relatives found ways to conceal the moment of passing on their death certificates).
Postponement of one's death, of course, isn't such a problem. But because of this one-year glitch in the tax code, it will actually incentivize dying in 2010 instead of 2011. And it's undoubtedly much easier to speed up one's date of death than to slow it down. Talk about perverse incentives.
Quick summary: No, I don't think exit polls are necessarily better and, in any case, I don't yet have the raw exit poll data. But I did have the raw data from the Pew polls, so that what I used. Pew polls are good. But Kos did get me on New Hampshire. As we continue to analyze further data, I don't think our maps will change by much but they will certainly change in some details (notably, whites in N.H.). Also, now I'm convinced that it's better to use some range of shading to indicate the close calls, so that people don't think I'm expressing 100% confidence in the color of each state.
In recent posts, I've expressed some sympathy toward Wall Street professionals, whom I think are too easy to stigmatize for the economic crisis that we find ourselves in. This does not mean, however, that I don't think these guys (and they are almost always guys) aren't overpaid. On the contrary, there is some rather compelling economic evidence that they are making more than they are worth.
Between 1992 and 2007, pay in the securities industry roughly doubled in real dollar terms, from an already-high $119,064 per employee to an extraordinarily high $234,594 per person. That 97 percent increase was by far the highest of any of the 61 industry sub-classifications tracked by the Bureau of Labor Statistics (the average American worker's pay increased by about 20 percent over this period).
Why did Wall Street pay increase so substantially during this period? There are a lot of interesting hypotheses, but the chart below, taken from a new paper (.pdf) written by Thomas Philippon of New York University and Ariell Reshef of the University of Virginia, provides perhaps the most compelling case. There has historically been a very strong relationship, they find, between the amount of deregulation in the financial services sector and the pay that its employees receive:
Wall Street pay has been very high before -- in the Pre-Depression Era that was characterized, like the era we find ourselves in now, by extremely lax regulation. Philippon and Reshef hypothesize that "regulation inhibits the ability to exploit the creativity and innovation of educated and skilled workers [while] deregulation unleashes creativity and innovation and increases demand". In other words, the laxer the regulatory environment, the more ways there are to try and beat the system -- and the more Wall Street is willing to pay for people who can figure out ways to do so. Products like credit default swaps, for instance, are extremely complex and require much skill to arbitrage, far more so than the trading of ordinary stocks and bonds.
Even accounting for the fact that laxer regulatory environments increase the premium on highly-skilled workers, however, Philippon and Reshef find that professionals in the securities industry are overpaid. Specifically, they are overpaid by roughly 40% relative to their educational backgrounds and risk of job loss. This can be inferred, for example, by comparing the pay of Wall Street employees to that of engineers, two jobs that require broadly similar skill sets -- the gap between engineer and financier pay has been increasing:
One thing that Philippon and Reshef don't address is why and how this discrepancy has managed to sustain itself. Say that you have a set of identical twins, Marvin and Melvin; Marvin works on Wall Street and makes $140,000 per year, and Melvin works as an engineer and makes $100,000 per year. What should happen, in an efficient market, is that Melvin will undercut Marvin; he'd be willing to do Marvin's job for, say, $110,000 per year. This would save the firm $30K per year and so they should hire Melvin. But this has largely not been what's happening.
I have a pet theory about why this has occurred. My hunch is that the financial services sector has been artificially limiting its labor supply by confining its hiring to an extremely small number of elite undergraduate and business schools, such as the Ivy League, the U. of Chicago, Stanford and M.I.T. Maybe the reason that Marvin is an investment banker and Melvin an engineer is because Marvin went to Yale and Melvin went to Purdue, and the bank only recruits at Yale and not at Purdue. Indeed, while the participation of Ivy League graduates in leadership positions in non-financial companies has been decreasing, the same has not been true at investment banks. One can easily imagine, moreover, how this trend could be self-perpetuating. You get a bunch of Harvard, Yale and Stanford grads in management positions at investment banks, and they're probably going to be predisposed to hire other Harvard, Yale and Stanford grads.
Over time, there would theoretically be incentives for this pattern to correct itself: one firm would hire a bunch of really smart state school kids, realize it was getting better work for less pay, and provide more value to its shareholders. However, firms in extremely profitable industries -- and until about 18 months ago, investment banking was extremely profitable -- may not feel the same imperatives to optimize their labor costs. In the real world, managers are more sensitive to the difference between a $10 million profit and a $10 million loss than they are to the difference between a $40 million profit and a $20 million profit, even though economically speaking the savings ($20 million) are the same.
This is something I have observed, for example, in the baseball industry: throughout most of the 1990s and the 2000s, baseball teams were almost certainly paying too much for free agent talent. But they were also making money hand over fist, and so the excesses were easy to ignore. Now that the recession has placed more profitability pressure on major league clubs, they have become much more efficient about optimizing their pay structures, and free agent salaries have declined.
But back to the point at hand: it may not only be that laxer regulation triggers greater compensation, but also that greater compensation triggers laxer regulation. As Philippon and Reshef speculate:
In retrospect, it is clear that regulators did not have the human capital to keep up with the financial industry, and to understand it well enough to be able to exert effective regulation. Given the wage premia that we document, it was impossible for regulators to attract and retain highly-skilled financial workers, because they could not compete with private sector wages. Our approach therefore provides an explanation for regulatory failures.
That is, the excessive wages paid by Wall Street not only lure talent away from other parts of the private sector, but also from the public sector, where employees are subject to government wage controls. The very people who might be the most capable of enforcing regulations on the banks instead wind up working for them.
This is a very real problem. Some of the work that I did in my first job after college at KPMG involved valuing intellectual property in conjunction with international tax disputes. We had our economists, and the IRS had theirs. The thing was, however, that our economists were better than the IRS's, because if someone at the IRS was any good, we'd hire them away and treble their salary. Part of a good regulatory reform plan, then, would be to increase the salaries paid to employees at institutions like the Fed, the Treasury, the IRS, and the FDIC.
The more general point, however, is that if the Obama administration is serious about regulating the banks, they might also find that this places downward pressure on pay within the industry. What seems like two fights -- on executive pay and regulation -- may really be just one.
I have a confession to make: I've been cavorting with Wall Street Bankers.
I’m in a fantasy baseball league, in fact, that’s chock full of Wall Street Bankers. And once, several years ago, I was interviewed by some Wall Street Bankers for a Wall Street hedge fund job. They didn’t end up offering me this position (and actually, the job was in Connecticut), but they did take me to a Yankees game and a nice Italian meal.
More alarmingly, my best friend from college is a former Wall Street Banker. This friend, whom I’ll identify only by the pseudonym Vijay, worked as an analyst for Salomon Smith Barney for several years in New York City, although he’s since moved on to private equity and then gone back to business school.
From looking at him, you wouldn’t know that Vijay was a Wall Street Banker. He’s an unassuming guy, into indie rock and cheap beer. He doesn’t eat meat and his politics are fairly liberal, although slightly to the right of mine.
While employed on Wall Street, Vijay routinely worked in excess of 100 hours a week. His apartment in the Financial District, a few blocks away from Ground Zero, consisted of three video gaming consoles, four alarm clocks, and a mattress; he was virtually never home, and so he had little need for anything else. I remember one occasion, when I was visiting my sister in New York City and we were attempting to drink cheap beer with Vijay, when he received a message on his Blackberry and abruptly had to dart off to Kinko’s at 11:30 on Sunday evening to fax a document to a client. I thought this was Extremely Uncool –- my sister and I still talk about the “Kinko’s Incident” -- but Vijay is nothing if not hard-working.
Vijay is a rather inconspicuous consumer, however, still driving the same beat-up Honda Civic that we used to take on midnight runs to Taco & Burrito Palace while in college. Although he was once something of a cheapskate, he has since become generous to a fault: the cheap beer is usually on him. While working in private equity, Vijay took time out of his day to teach inner-city high schoolers about finance and economics, and took a year off in between jobs to see his family and volunteer for the Red Cross in India.
Vijay has his vices -- if he didn't, he wouldn't be my friend -- and his prejudices -- an irrational disdain for the borough of Brooklyn, for instance. But it is hard for me, when I read blanket assertions that Wall Street businesspeople are “greedy, selfish and utterly immoral”, not to think of Vijay, who is not really any of those things. True, Vijay is perhaps slightly more motivated by financial considerations than I am (but only slightly so). He attributes this to his Indian-American upbringing, which emphasizes the idea that money is hard to make, and so you do so when you can, and then use it to provide generously for your family and friends. This is his version of the American Dream, which is slightly different from mine, and is probably slightly different from yours, but not something I can find great fault with.
It is quite possible to believe each of the following things -- that the tax code is not as progressive as it ought to be; that high-level executives at major companies make, on average, more than they ultimately generate in profits for their shareholders; that the working class have too little influence over American politics and the upper class too much, and that banks and other financial institutions are inadequately regulated -– without having to demonize the people who work on Wall Street, the vast majority of whom are like Vijay: hard-working and ethical folks, maybe a little money-obsessed, but most of whom voted in November for a President who vowed to raise their taxes.
In our private lives, we all have the right to determine whom we do and do not choose to associate with; personally, I’ve found that there’s relatively little correlation between someone’s occupation and their character. But these sorts of judgments do not, in my view, have a place in infringing upon public policy, any more than judgments about race, religion, gender or sexual orientation do. The Supreme Court has sometimes interpreted the phrase “pursuit of happiness” in the Declaration of Independence to refer to the right to pursue the vocation of one’s choosing without undue interference. If we want to tax the rich more, let’s tax the rich more, but let’s not single out individuals in particular occupations or who work for particular companies: let’s tax millionaire bankers and millionaire baseball players, millionaire hedge fund managers and millionaire dentists. If we want to be more vigilant about white-collar crime, let’s be so –- in fact, let’s throw away the lock and key, and treat white-collar criminals every bit as harshly as do blue-collar criminals. But let’s not presume that anyone who works in a particular occupation is engaged in criminal conduct.
And as for the notion that Wall Street Bankers are greedy -- your damned right they're greedy, if by greed you mean wanting to maximize profits for themselves and/or their firms. Most of us are greedy, within reasonable limits, when it comes to our professional lives; less so, hopefully, in our personal ones. I'm borrowing someone else's punchline, but we should be no more surprised by the presence of greed than we are by the presence of gravity. Where that greed has pernicious effects, we should regulate around it, building stronger structures to withstand its impact. But the financial crisis reflects, as I have written, a market failure rather than a moral one.
The left column shows something I posted a few weeks ago: maps of the states that we estimated were won by McCain and Obama among different categories of family income (as reported in the Pew Research pre-election polls). The maps in the right column show our estimates for non-Hispanic whites alone.
Unsurprisingly, McCain did better among whites than among all voters. In a refrain already familiar to regular readers, I decline to offer explanation or interpretation. There's been enough discussion of the white vote that I think it's a useful contribution to present these (slightly processed) data and give you more information to help you make your own conclusions.
One week and a few hundred billion dollars later, the controversy over the propriety of AIG's bonuses is largely gone from the front pages -- replaced, among other things, by the controversy over the propriety of the Obama-Geithner bailout plan. The Senate is at least delaying and is possibly entirely reconsidering action on the bonus tax. Max Baucus, who had been one of the bill's fiercest advocates, now seems strangely indifferent about its prospects.
There are at least six reasons why a bill that passed with more than 75 pecent of the House's vote now has only the faintest of chances of passing in the Senate:
1. The White House doesn't like it. The Administration has gone from damning the House bill with faint praise to more explicit disavowals of its logic, and from what I've heard from people in consultation with the White House, their private reluctance on the matter is probably even greater. Ten of the 12 cosponsors of the Senate version of the bill are from states that Obama won in November. If the White House wants to bury the bill, logic would dictate that it probably can.
2. Obama largely avoided political fallout from the AIG bonus scandal. The hypothesis that we reached over the weekend -- that voters are largely not blaming Barack Obama for the AIG bonuses -- now has some polling evidence to back it up. According to Gallup, just 7 percent of voters principally blame Obama for the bonuses, while 46 percent blame AIG management and 19 percent blame the Congress. Thus, there would no longer appear to be an imperative to pass a bill as a "least-bad" alternative to defend against a precipitous decline in Obama's approval rating.
3. The bill isn't actually all that popular. A CBS poll released on Monday reveals that, while 77 percent of the public thinks that the government should try and recover AIG's bonus money in the abstract, support drops to 51 percent (versus 44 percent opposed) when voters are asked about the more specific proposal of "tax[ing] bonuses paid to executives at the rate of 90% if their company is receiving federal bailout money" -- essentially what the House passed last week. Because the House was afraid of constitutional trouble if it drafted a bill which was too narrow, it instead wound up drafting a bill that is broader but materially less popular.
4. Just two senators can kill it. In recent legislative years, the House has voted to approve about twice as many bills per legislative session as the Senate. This is by no means a surprise in consideration of the more aggressive use of the filibuster and the more languid pace of life in the Upper Chamber. Nevertheless, it should serve as a reminder that the Senate has lots of lots of ways to kill a bill if it so desires. The easiest way for the Senate to accomplish this is through the practice of the hold, by which any one Senator can quash a bill unless the Majority Leader is willing to take a cloture (filibuster-breaking) vote to advance it. Which two senators, then, could effectively kill the bill? Harry Reid, by refusing to take a cloture vote, plus any of the other 98 senators, by placing a hold on it. (Paging Dr. Coburn. Dr. Coburn to the Senate Cloakroom...)
5. The Obama-Geithner plan is probably a "go". For better or for worse, the enthusiastic response of equities markets to the Public-Private Investment Program crafted by Treasury Secterary Tim Geithner has probably entrenched it: it may or may not succeed, but it will very likely be attempted in something resembling its present form. As potential private participants in the PPIP (say that five times fast) have expressed skepticism about participating in the plan if they are subject to what they perceive to be capricious or punitive actions coming from the Congress, the Senate may be disinclined to rock the boat just as the plan is being rolled out.
6. Cooler heads may be prevailing. Lastly, as the AIG controversy recedes somewhat from the public consciousness and as some of the bonus money has been given back by its recipients, the Senate may tend to consider the bill more on its economic merits and less on its political ones. But it is hard to identify any serious economist who thinks the bill makes economic sense. Meanwhile, the decision to levy 90 percent taxes (or 70 percent, as the Senate version proposes) on particular individuals may have been one of those had-to-be-there, gravity-defying moments that is unlikely to be replicated except under intense and somewhat unusual political pressures.
With these six factors working against it, I would guess that the bill has not more than a 5-10 percent chance of passing in something resembling its present form, though the prospects forthe bill passing in any form (i.e. a slap-on-the-wrist, severely watered-down version) are probably a little higher.
This does not mean, however, that the bailout skeptics won't have gotten something for their trouble. As Chris Bowers points out, the bonus controversy has probably shifted the needle from "difficult" to "near-impossible" when it comes to Congress' willingness to approve additional bailout monies, a fact which the White House seems to be keenly aware of and which may have informed their decision to proceed as they have (the PPIP plan will not require Congressional approval.) Chris, in fact, goes so far as to declare the bailout window is entirely closed. I think that is a little overclaimed -- I can imagine the Senate approving a "token" sum of $100 billion or so if the Obama-Geithner plan is deemed to be a success (the existing plan is almost certainly too small to cover for all of the troubled assets.) I can also imagine the Senate being willing to agree to additional bailout funds given extremely stringent limits on compensation -- limits which Wall Street would probably be unwilling to accept.
But Chris's contention is basically correct. While the bonus tax bill is probably dead, its legacy may continue to resonate for some time.
8:20 PM. It's possible that I'm transferring some of my own tiredness -- I didn't sleep well last night -- to that of the President. Chris Matthews thinks he merely saw (apropos) seriousness on the President's countenance rather than wariness, as did a couple of my commentors. Still, the fact that the most memorable moment of the presser was Obama's testy and sarcastic reply to Ed Henry is a reflection of the lack of real news generated tonight.
Personally, I was hoping that Obama would be probed in a bit more depth about the specifics of the Geithner plan. But -- and this is not meant in a bad way -- that's not the real area of expertise of the people in the room, and some of the folks who plausibly might have been exceptions (the reporters from the Wall Street Journal and Bloomberg, for instance) weren't offered the opportunity to ask questions.
8:00 PM. I thought Obama closed relatively strongly there. He certainly seems highly engaged by the challenges of the moment (as one hopes that any President would be), even if he's a bit worn by them. But there's a seed of something else too: he's motivated to prove his doubters wrong. One needs to remember that Obama was always more of a counter-puncher than a brawler during the campaign.
7:51 PM. Although, on second thought, he sounded like he was about ready to fall asleep when that Washington Times guy asked his follow-up on stem cells.
7:47 PM. I don't know what this means, but Obama is clearly more comfortable taking questions from some of he less-heralded members of the media than from the Big 4 (Tapper, Reid, Todd, Garrett).
7:37 PM. That was Ed Henry's most embarrassing moment since the gum-throwing incident, although also not one of the President's better moments.
7:27 PM. The MSM takeaway on this, among other things, is likely to be that Obama seems tired and weary, although I don't think that should be mistaken for a lack of self-assurance.
7:20 PM. Granted, they're not nearly as important as Jake Tapper, but what would this press conference look like if Obama were taking questions from a room full of 100 economists?
Dirty little secret: I sometimes write material in the late evening that will be posted the following morning. This is one of those instances. The early word, however, is that a Zogby poll to be released today will show Barack Obama's presidential approval numbers at around 50-50.
As of this writing, the Pollster.com average has Barack Obama's numbers at 59.3 percent approve and 33.8 percent disapprove; the Real Clear Politics average is slightly more favorable to Obama, at 61.2 percent approve and 30.5 percent disapprove.
So a Zogby poll that put Obama's numbers at roughly 50-50 would be a significant outlier. Outliers are nothing new, however, when it comes to Zogby polls. They are, in fact, the rule and not the exception.
Let me qualify this a bit: Zogby International conducts two types of polls. One type are conventional telephone polls. Zogby's telephone polls, while prone to somewhat wild fluctuations and subject to their share of erratic results (such as predicting a 13-point win for Barack Obama in the California primary; Obama lost by 9 points), are actually not terrible, and did fairly well on November 4th.
Zogby, however, also conducts Internet-based polls. These polls are conducted among users who volunteer to participate in them, first by signing up at the Zogby website (you can do so yourself here) and then by responding to an e-mail solicitation. These Internet polls, to the extent they rely on voluntary participation, violate the most basic precept of survey research, which is that of the random sample. And as you might infer, they obtain absolutely terrible results.
Because I'm writing this post ahead of time, I'm not 100% certain that the particular poll in question is an Internet poll. Zogby, which is probably aware of the poor reputation of its Internet polls, has begun to go to some length to conceal their origin, usually reserving notification that the poll was conducted online for the fine print. However, I'm about 99.8% certain that this is an Internet poll, as allofthepolling that Zogby has recently conducted on Presidential approval have been of the Internet variety. And that polling, by the way, has produced some very strange results: in an Internet poll conducted from January 22-26, for example, in the immediate aftermath of Barack Obama's inauguration, Zogby had Obama's job approval at 52/29, while the average of polls from five other agencies (Gallup, Hotline, Rasmussen, FOX and Democracy Corps) conducted at the same time put the numbers at avergae of 62/19.
Let's take a look at the track record of Zogby's Internet polling. Zogby conducted his last series of Internet polls for last year's Presidential election in mid-October. He missed 3 of 11 states, and was off on the final margin by an average of 5.4 points.
These are not good results -- the average miss on election day among all presidential polls in these states was around 2,5 points; Zogby Interactive's average error was twice that. And Zogby is probably fortunate that he confined his polling to these 11 states only. When he had conducted a broader series of Internet polling back in June, it had produced some truly head-scratching results:
Note that Zogby had Barack Obama winning states such as Arkansas, Arizona and South Carolina, results which no other pollster saw at any point during the election cycle. He also had Obama polling within 5 points of John McCain in Oklahoma, which Obama would go on to lose by 31 points, and Tennessee, which he'd lose by 15.
Did the Zogby Internet polls just have a bad year? No. If anything, their performance was much improved from 2006, when Zogby had surveyed a wider number of contests. Below are the Internet polls that Zogby put out on October 27, 2006 in advance of that year's senatorial elections. His average miss was 8.7 points, including six misses of 10 points or more, and one miss of almost 30 points:
Zogby's gubernatorial polling that year was similarly error-prone. His Internet polls missed the margin in 19 gubernatorial contests by an average of 7.7 points, and he called 5 of the 19 election wrong, including a couple of states (like Arkansas, Colorado and Wisconsin) where the outcome was never in much doubt.
All told, between 48 contests that he's surveyed over the past two election cycles, Zogby's Internet polls have been off by an average of 7.6 points. This is an extreme outlier with respect to absolutely anyone else in the polling community.
These Internet polls, simply put, are not scientific and should not be published by any legitimate news organization, at least not without an asterisk the size of an Alex Rodriguez steroidal syringe. But I'll bet you that Matt Drudge already has the siren cued up by now.
This is the amount of debt per US family, in inflation-adjusted 2007 dollars, as according to the Federal Reserve's triennial Survey of Consumer Finances.
Per-family household debt increased by about 130% in real dollars between 1989 and 2007, from roughly $42,000 per family in 1989 to $97,000 eighteen years later. Most of that increase has come during the past six or seven years -- household debt increased by 52% between 2001 and 2007 alone.
Almost all of the debt (about 85%) falls into the category that the Fed calls "secured by residential property" -- which means mortgages and home-equity loans. Credit card debt, while having increased roughly threefold since 1989, is overall a very minor part of the problem, averaging about $3,400 per family. (We could have paid off every credit card bill in America for the cost of the TARP program.) "Other" types of debt, which I gather are mostly things like automotive loans and student financing, have also increased somewhat, but not nearly at the rate of mortgages.
All of his wasn't that much of a problem so long as the value of the housing stock was appreciating at 10 or 15% per year, keeping pace with the additional debt that households were assuming. But of course, it stopped doing so about 2-3 years ago. Translation: look out below. When people talk about the destruction of the household balance sheet, this is what they're referring to (or at least what they ought to be referring to).
The collapse of the housing bubble was obviously a very important event in precipitating the current economic crisis. There is some debate among economists about just how important it was; I tend to side with folks like Dean Baker in thinking it was a very large problem indeed.
If so, however, it makes the matter of attributing blame for the economic crisis a little bit more complicated. Clearly, for instance, credit default swaps, which bankrupted AIG, were poorly conceived of and improperly regulated instruments. But their collapse was triggered by the correction in housing prices. AIG bought into the fiction that the housing bubble wasn't really a bubble, but save for a few prescient economists like Baker, Paul Krugman and Bob Schiller, so did most everyone else.
I know it isn't in vogue to say this, but I think the manifest excesses of Wall Street have made them perhaps too easy a target in assigning blame for the economic collapse. A more appropriate focal point is probably the Federal Reserve, which many economists believe kept interest rates far lower than they ought to have been, contributing to the climate of cheap credit that triggered the housing boom (and bust). The mortgage companies themselves, of course, also exercised exceptionally poor judgment -- as did the media, with its Flip-This-House fetishism, which perpetuated the fiction that one of the biggest asset price bubbles in American history was in fact business as usual. Whether to assign any blame to the homebuyer himself is probably not important. It's tempting to say: if Joe the Homeowner had only read Schiller, none of this would have happened! But it's difficult to expect the consumer to behave rationally when they were getting such bad information from their televisions and their elected (and appointed) officials.
Two recent polls, one from NPR and the other from Rasmussen Reports, suggest that Republicans have caught up to Democrats in the generic ballot test, which asks voters which party's nominee they'd vote for in an election held in their Congressional District today. The NPR poll has the two parties tied at 42 percent on the generic ballot; the Rasmussen poll actually has Republicans ahead 41-39.
Is there reason for Democrats to worry? Well: yes, to a degree, although the fears are probably also exaggerated.
For one thing, we should keep in mind that the party maintaining control of the Presidency almost always loses seats at the midterm elections. Since World War II, the incumbent party has lost an average of 23 House seats at the midterms, although the pattern has tended to be somewhat hit-and-miss in recent cycles (with the incumbent party taking a big hit in 1982, 1994 and 2006, but faring relatively well in 1986, 1990, 1998 and 2002). So the baseline expectation is that the Democrats will lose ground.
Of course, since the House re-elects all of its members every two years, a tie on the generic ballot would imply not merely that Democrats will lose seats, but also that they'll potentially lose their majority, give or take a few seats depending on how that vote was distributed across different races all over the country. Such an outcome is hard to reconcile with the fact that Democrats continue to maintain a sizable advantage over Republicans in party identification, and that Congressional Democrats are viewed quite a bit more favorably than Congressional Republicans.
The problem, however, is that while Congressional Democrats are more highly regarded than Congressional Republicans, they are still not very popular in the abstract. And party identification is only one of the axes upon which midterm elections turn; the other is the incumbent versus non-incumbent axis. In 1998, for example, while the Democrats bucked the trend by gaining seats while Bill Clinton was still in office, really 1998 was just a good year for incumbents, with 98.3 percent of incumbents who ran for re-election holding onto their jobs. By contrast, in 1978, "only" 93.7 percent of incumbents running for re-election secured it, and there was also a relatively high rate of retirements. Although Democrats suffered the preponderance of the damage in 1978, losing a net of 15 seats, incumbents from both parties were fairly vulnerable.
That 1978 election, for what it's worth, provides for something of an interesting parallel to what we might see in 2010: a first-term Democratic president amidst a sluggish economy and some simmering (but not net boiling) anti-Washington sentiment, but paired against an opposition party that had plenty of its own problems (in 1978, this was the shadow of Watergate for Republicans; now it's the shadow of George W. Bush).
If there is a "bipartisan" anti-incumbent wave, in other words, something like what happened in 1978, Democrats will lose some ground simply because they hold more seats now. Suppose, for instance, that between retirements and outright defeats, 20 percent of incumbents from both parties lose their seats to the opposition (this would be a very high figure). That alone would result in a transfer of 15 seats to the Republicans, even if voters were equally disposed to dispatch incumbents from either party.
Still, this is a far cry from the possibility that Democrats could lose their majority, especially in conjunction with the extreme unpopularity of the Republicans in Congress and the failure of the party to articulate compelling policy alternatives. It would be risky to make a judgment based on just two polls, one of which (Rasmussen) has tended to have something of a Republican-leaning house effect since the November elections. Diageo/Hotline, which surveyed the generic ballot three weeks ago, gave the Democrats a 6-point edge. That would imply a net loss of seats for the Democrats, who had about a 9-point generic ballot advantage to support their performance in November 2008, but nothing catastrophic.
The other noteworthy feature is that Republicans have not gained ground so much as Democrats have lost it. The Real Clear Politics average of generic ballot polls -- which includes the Rasmussen, NPR and Hotline surveys, puts the Democrats at 40 percent and the Republicans at 39 percent. By contrast, heading into November 4, the averages were 48 percent for Democrats and 39 percent for Republicans. So the Republicans have held steady, while the Dems have dropped from 48 to 40.
So voters may be willing to listen to Republicans -- something which they largely weren't willing to do, frankly, in 2006 or 2008. Where they will end up will depend on how persuasively they can make the case to these voters. I certainly would not rule out the possibility of the House changing hands (Intrade puts the probability at 20 percent, which I think is slightly cheap), although the Senate, where the Democrats will benefit from an abnormally high number of GOP retirements, is another matter. But, the GOP still has plenty of work ahead in nominating compelling candidates and in giving them a compelling message.
Following the discussion here, I thought some scatterplots could be useful. I've put them below the fold so as not to bother those of you who are (justifiably, perhaps) tired of rehashing the 2008 election. Here's the information in the second map of my earlier post, now expressed as scatterplots:
Each dot on the graphs is a county; the lines are lowess regressions. As you can see, my calculations were not perfect; in particular the formula says that Obama got less than 0% of the nonblack vote in some counties, which can't be right. Rather than correcting those points and putting them at zero, I've left them where they are as an indication of imperfection in the model.
Outside the South, Obama did best among nonblacks in counties with more blacks. Inside the South, he did best among nonblacks in counties with fewer blacks. This has got to be an urban-rural thing as much as anything else.
P.S. I like these scatterplots, but I think the maps are useful too, in particular for shooting down the story that whites in Appalachia were particularly anti-Obama.
Wall Street could be responding this way for any of essentially three reasons. The first would be if they think the Geithner plan is good for the economy. The second would be if they think the Geithner plan is good for the shareholders of the major corporations traded on Wall Street. And the third would be if they aren't really thinking at all, but the certainty represented by a plan is an excuse for shedding some of their "irrational" fear and loathing toward the present state of affairs.
A couple of weeks ago I introduced something called the Cyclical Expectations Index, which is the ratio of the share prices of consumer discretionary products (which are thought to be more cyclical) to consumer staples. My hypothesis is that the CEI is a better gauge than broader stock indices for what the market really thinks about the economic variables that are important to most of us -- like GDP growth and unemployment.
Here's how the CEI has performed since September 15th, with the S&P 500 represented on the same scale:
In general, the CEI has been much more stable than the S&P 500. Since roughly mid-November, when credit markets stabilized somewhat, investors have neither gotten particularly more optimistic nor particularly more pessimistic about the near-to-medium term state of the economy, somewhat belying the relatively large fluctuations within the S&P. Just as the S&P had declined much more sharply than the CEI in February, the slight run-up in the CEI in March is not a match for the much steeper gains achieved by the S&P 500.
Likewise, while the CEI is up today -- to 91.2 as of this writing, it's highest value since January 9 -- that isn't a match for the 4%+ gains made by the S&P. Today's rally, then, probably falls more into the Wall-Street-thinks-this-is-good-for-Wall-Street category.
On the other hand, the market may be shedding some of its risk-averseness. This is a nontrivial consideration, because essentially the whole debate over whether the Geithner plan is a good one or not boils down to whether the "toxic" assets that the government is trying to extricate from bank balance sheets are being undervalued by the markets in a sort of negative bubble.
I'll put it like this: the fact that Wall Street has reacted well to the Geithner plan today is by no means a sufficient condition for its success. But it is probably a necessary one. If the markets did not believe that the plan had a chance of success, there's little chance that it would.
Shortly after the county-level election results became available, we started seeing maps like this:
From a quick look at this graph, it appears there's something special going on with these white people in Appalachia who didn't want to vote for Obama.
The actual picture for white people, as I estimate it, is slightly different. The complicating factor is that, at the same time that whites in some areas were moving toward McCain, blacks everywhere were moving toward Obama. Maps of the total vote show the sum of the two patterns.
If there's a question about what whites in particular are doing, we can try to separate out their votes. To estimate Obama’s vote share among nonblacks within each county, we used the following calculation:
Obama got 96% of the black vote. If he got 96% in every county, which cannot be far from the truth, simple algebra will show his share of the non-black vote in every county. If B is the proportion black in the county and X is the (unknown) Obama vote share among non-blacks, then, for each county:
Obama’s vote share = 0.96*B + X*(1-B).
And so, under these assumptions,
X = (Obama’s vote share - 0.96*B) / (1 - B).
Here's the map of Obama's estimated vote share among non-blacks, by county:
The Appalachian counties don't stand out in this map. McCain did extremely well among whites in a much broader area in the southeast, with the Applachian counties standing out in the earlier map only because they had very few black votes to cancel out the swing among the whites. Actually it looks like McCain did even better in some of the counties just south of that Appalachian belt.
P.S. Thanks to Ben Lauderdale and Yu-Sung Su for the maps.
P.P.S. It wouldn't be so easy to estimate Kerry's vote share among nonblacks in 2004. Kerry got only 88% of the black vote and so it's less reasonable to approximate his vote share as being constant across counties.
I don't think you'll find anyone claiming that the White House has had a good week. And certainly, some of the controversy surrounding the bonuses paid to employees at AIG and other bailed-out companies may have longer-term, as well as near-term, consequences for the Administration.
But so far, and in spite of numerous assertions to the contrary inside both the blogosphere and the mainstream media, there's little evidence that the bonus controversy is hurting Barack Obama.
Compare Barack Obama's approval ratings today to those eight days earlier, before the AIG controversy blew up a week ago Saturday. Among the two organizations that track approval on a daily basis, Rasmussen has Obama's approval rating down by just one point, while Gallup actually has it moving up by four points:
In addition, Research 2000, which does not track presidential approval but does track the related concept of presidential favorability, sees little change in Barack Obama's standing with the public. This week, 67 percent of the public has a favorable impression of Obama and 28 an unfavorable one, not materially changed from last week, when those numbers were 68 percent and 27 percent, respectively.
This apparent steadiness in Obama's numbers comes in spite of the fact that the public has been following the AIG story very, very closely. The Occam's Razor answer to this dilemma may simply be that, in spite of the outrage the public feels about the bonuses, they do not particularly blame Obama for them. Instead, they blame AIG itself, and may see Obama as being as much of a victim as a co-conspirator. We should keep in mind that, among the 95 percent of the population that does not follow politics especially closely, what they've seen is Obama expressing some (tempered) outrage about the bonuses and saying he'll do whatever he can to recoup them, in between stints on Leno and filling out his March Madness bracket. The notion that the Administration should be blamed for failing to build in better checks on executive compensation in its bailout and/or stimulus legislation, while persuasive to policy wonks, is perhaps a bit esoteric for the average American. The perception is that AIG broke the rules, not (as is actually closer to the mark) that the rules were inadequately written.
Several other factors may also be helping Obama. Firstly, the Republicans, who have historically been laxer on executive compensation, are in no position to claim the moral highground. Secondly, the rally in the stock market, which seems to be boosting consumer sentiments, may be providing something of a wind behind Obama's back. And thirdly, the Administration has a keen survival instinct, and hasn't hesitated to throw its allies, particularly Chris Dodd, under the proverbial bus.
This is not to suggest that there aren't longer-term risks for the White House. Any further actions that are perceived as a "bailout" will now require more political capital, and may in fact be entirely impossible. This may come to a head this week, as further details emerge about Treasury's bank rescue plan, which is so far receiving almost uniformly terrible reviews.
If you believe as I do, moreover, that some of the actions taken by the Congress are actively counterproductive to the recovery of the economy, that could obviously come back to harm Obama.
As Ron Brownstein points out, however, the unexpected ferocity of the AIG backlash could also prove to be helpful to other aspects of the Democratic agenda. Consider that about half of the Republican conference in the House just voted for a 90 percent tax rate on certain individuals; is it now going to be easier or harder for the Administration to roll back the Bush tax cuts? Other major aspects of the Obama agenda, moreover, such as health care and EFCA, can credibly be framed as common interests against corporate ones; such frames may now have greater resonance.
Then again, it may be that outrage over AIG, while intense, may be rather narrowly directed at AIG itself, and may not translate to outrage at the wealthy or at corporate America in general. My sense is that the anger at the banks does in fact reflect at least a mild paradigmatic shift in the American consciousness on these issues, but I can offer no proof of it.
Populist sentiment, ultimately, may prove to be both the greatest asset and the greatest risk to the Administration as it tries to enact its agenda. Can the Administration rely on the populist vanguard to shift the Overton Window on matters of class? Or will the broad-based left-of-center coalition that elected Obama cleave itself into halves, making it harder for the Administration to achieve political consensus?
One thing's for certain: populist sentiment, whatever the Administration chooses to make of it, is no longer something it can afford to ignore.
I've never been particularly sanguine about the prospects for EFCA's passage. That Arlen Specter has come out against it does not surprise me, given that he seems to face a greater threat in the Republican primary than in the 2010 general election. If Blanche Lincoln or Mark Pryor of Arkansas, where Walmart is headquartered and where unionization rates are low, are waffling on the bill, that's nothing if not predictable. And if Ben Nelson of Nebraska, who has generally been the most conservative Democrat in the Senate, opposes the measure, that would pretty much be par for the course.
