A Closer Look At the Beige Book

The Fed released the Beige Book last week. This is a great piece of work for anyone interested in the economy. It presents a general overview of economic activity.

Reports from the twelve Federal Reserve Districts indicated that economic conditions continued to expand since the last report, although severe snowstorms in early February held back activity in several Districts. Nine Districts reported that economic activity improved, but in most cases the increases were modest. Overall conditions were described as mixed in the Atlanta and St. Louis Districts, though St. Louis noted further signs of improvement in some areas. Richmond reported that economic activity slackened or remained soft across most sectors, due importantly to especially severe February weather in that region.

Let's go to the data to get some more detail.

Consumer spending showed signs of improvement in many Districts since the last report but was hampered in several regions by severe weather conditions in early February. Retail sales improved in the Chicago, Minneapolis, Dallas, and San Francisco Districts, and New York said sales were well above year-ago levels in January and met expectations in February despite inclement weather. Philadelphia also reported that sales were moving up slowly until snowstorms hit in February. Boston and Cleveland characterized sales as mixed but slightly higher overall than year ago levels. Sales were lower than expected in the Atlanta and Kansas City Districts and were down from year-ago levels in the St. Louis District. Several Districts reported that sales were strongest for lower-priced items, while sales of luxury and big ticket items remained sluggish. However, San Francisco noted scattered reports of increased discretionary spending, and Cleveland said some retailers noted a broader, if still slight, increase in demand across a variety of products. Inventories were being managed carefully and held at fairly low levels in most Districts, but Chicago said rising sales were leading retailers to begin rebuilding inventories from low levels.

Let's take a deeper look at personal income and spending figures which was recently released From the BEA:

Personal income increased $11.4 billion, or 0.1 percent, and disposable personal income (DPI) decreased $47.6 billion, or 0.4 percent, in January, according to the Bureau of Economic Analysis. The decrease in DPI reflected an increase in federal nonwithheld income taxes. Personal consumption expenditures (PCE) increased $52.4 billion, or 0.5 percent. In December, personal income increased $41.2 billion, or 0.3 percent, DPI increased $40.3 billion, or 0.4 percent, and PCE increased $26.4 billion, or 0.3 percent, based on revised estimates.

Let's go to the data:


Service wages are up, and have been increasing for most of last year. However,



Goods producing industries are seeing their wages stall. This makes sense, given that manufacturing employment is taking a massive hit during this recession.


After five months of increases, disposable personal income dropped.


Note that total PCEs (personal consumption expenditures) have been increasing since July.

Service expenditures -- which account for about 65% of total PCEs -- are a large reason for that increase.


Non-durable purchases appear to have stalled, but are still at higher levels than lase year.


Durable goods purchases have been increasing for the last four months. This is very good news as it indicates cash for clunkers did not skew purchases forwarded as feared.

Nonfinancial services activity was reported as steady or improved by the majority of Districts. Boston, St. Louis, Minneapolis, and San Francisco reported generally solid demand in health-care services, although Minneapolis noted continued weakness in elective procedures. New York indicated that a growing number of service firms planned to increase capital spending in the months ahead, but investment expectations diminished among high-tech companies in the Kansas City District. Richmond reported that service revenues fell due to the record snowstorms, but a few contacts saw a slight pickup in demand, particularly architectural firms, hospitals, and financial service professionals.

ADP released their employment report last week -- a report which is largely concerned with service sector employment.

From ADP

Nonfarm private employment decreased 20,000 from January to February 2010 on a seasonally adjusted basis, according to the ADP National Employment Report®. The estimated change of employment from December 2009 to January 2010 was revised down, from a decline of 22,000 to a decline of 60,000. The February employment decline was the smallest since employment began falling in February of 2008.

Two large blizzards smothered parts of the east coast during the reference period for the BLS establishment survey. The adverse weather had only a very small effect on today’s ADP Report due to the methodology used to construct it. However, the adverse weather is widely expected to depress the BLS estimate of the monthly change in employment for February, but boost it for March. Therefore, it would not be unreasonable to expect the BLS estimate for February (due out this Friday) to be less than today's ADP Report even though the BLS estimate will include the hiring of temporary Census workers not captured in the ADP Report.

Let's look at the data. Click on all images for a larger image


Note the ADP and BLS report are highly correlated.


Note that manufacturing -- especially small manufacturing companies -- are the primary reason for the drop in goods producing industries. Services are adding jobs -- especially in the medium size group. Also note the following chart of service jobs:


Once again we have a comment on how the weather is effecting the numbers. Again, I'm not sure about the accuracy of these statements, but I could be wrong.

In addition, the ISM released their non-manufacturing index recently:

"The NMI (Non-Manufacturing Index) registered 53 percent in February, 2.5 percentage points higher than the seasonally adjusted 50.5 percent registered in January, indicating growth in the non-manufacturing sector. The Non-Manufacturing Business Activity Index increased 2.6 percentage points to 54.8 percent, reflecting growth for the third consecutive month. The New Orders Index increased 0.3 percentage point to 55 percent, and the Employment Index increased 4 percentage points to 48.6 percent. The Prices Index decreased 0.8 percentage point to 60.4 percent in February, indicating an increase in prices paid from January. According to the NMI, nine non-manufacturing industries reported growth in February. Respondents' comments vary by industry and company about business conditions."

Here is a chart of the relevant data:



Notice the clear improving trend that has been in place since the end of November 2008.

Manufacturing activity increased further in most Districts, although Minneapolis, Dallas, and San Francisco characterized overall activity as flat or mixed. Philadelphia reported widespread production increases across most industries, and manufacturers in the Cleveland District reported a general rise in capacity utilization. Many Districts reported strong production in metals, and the Boston, Dallas, and San Francisco Districts noted strength in high-tech equipment, particularly semiconductors. Cleveland, Chicago, St. Louis, and Dallas noted solid improvements in auto-related manufacturing. A consumer goods company in the Boston District said European sales were at healthier levels. Contacts in the Chicago District reported strong growth in Asian exports but remained concerned about China's underlying economic strength. Dallas reported that exports for natural-gas based products remained strong, but weak demand for refined products has trimmed margins and cut capacity utilization further. Construction-related activity remained weak in the Chicago and Dallas Districts, and new orders for commercial aircraft and parts were sluggish in the San Francisco District. Philadelphia and Richmond noted productions delays due to the winter snowstorms in February, but some factories were able to make up the losses with longer work hours and extended shifts. Several manufacturers in the Philadelphia District said production gains could be limited due to continued tightening in credit markets and adverse developments in taxes and regulations. Plant managers in a few Districts reported that a large number of customers were simply restocking inventories, leading to concerns about the sustainability of the increase. However, contacts in most Districts remained optimistic for future months, with several reports of planned increases in capital spending.

From the ISM:

"The manufacturing sector grew for the seventh consecutive month during February. While new orders and production were not as strong as they were in January, they still show significant month-over-month growth. Additionally, the Employment Index is very encouraging, as it is up 2.8 percentage points for the month to 56.1 percent. This is the third consecutive month of growth in the Employment Index. With these levels of activity, manufacturers are seemingly willing to hire where they have orders to support higher employment."

Back to the Beige Book:

Residential real estate markets improved in a number of Districts, remained weak or softened further in the New York, Atlanta, and Chicago Districts, was little changed in the San Francisco District, and characterized as mixed in the St. Louis District. Richmond also reported overall housing activity as mixed, but one contact noted that absent the harsh weather, market conditions might have improved. Adverse weather conditions also hampered home sales and construction in the New York, Philadelphia, and Atlanta Districts. Most Districts attributed stronger home sales to the home-buyer tax credit, with several contacts apprehensive about future sales once the credit expires on April 30. Philadelphia, Cleveland, Kansas City, and Dallas reported that sales were strongest for low-priced and starter homes, while Dallas cited financing difficulties for high-end homes. Home construction was down or stagnant in most Districts, with the exception of the Minneapolis, Kansas City, and Dallas Districts. Atlanta said the most pronounced weakness was among Georgia homebuilders, and San Francisco attributed weak construction activity to elevated home inventory levels. Home prices mostly remained flat or declined slightly, but signs of improvement were noted in the Boston and San Francisco Districts. A real estate agent in a relatively upscale area of the New York District said prices have continued to drift downward but that short sales were relatively rare and most transactions were still above the mortgage balance.

Commercial real estate conditions remained weak or declined further in most Districts, although some Districts noted slight stabilization or modest signs of improvement. Commercial real estate activity weakened in the Richmond, Minneapolis, Kansas City, Dallas, and San Francisco Districts, though Dallas noted that leasing fell at a slower rate and San Francisco cited increased leasing in some segments. Boston and Philadelphia said conditions remain weak, but both noted some improvement in sales of commercial space. New York reported softer activity in the New York City area but some steadying in vacancies and rents elsewhere, while St. Louis said activity remained weak throughout the District. Several Districts also noted that many tenants were pushing for, and in some cases receiving, concessions on rents. All Districts reporting on commercial construction said that activity remained weak or slow, except for some moderate boost from federal stimulus projects and other public construction. Credit for commercial development and transactions was still very difficult to obtain in several Districts, though San Francisco noted a slight improvement in financing availability.

Housing is not doing well. New homes sales are bouncing along the bottom and existing home sales have dropped sharply over the last two months. This is an area of the economy where we need to see more improvement and quickly.

The pace of layoffs slowed in most Districts, but hiring plans still remained generally soft. New York cited a slowdown in layoffs at a securities firm and noted a pickup in hiring in what was still characterized as an exceptionally weak legal industry. Staffing firms in the Boston District also saw a strengthening in demand, particularly from the financial and manufacturing sectors. Several manufacturing and construction firms in the Cleveland District began recalling workers, and temporary staffing accelerated in the Richmond, Atlanta, and Chicago Districts. However, Chicago said demand for permanent workers was low, and a manufacturing contact in the Richmond District held back employment due to productivity improvements. Layoffs were also reported at several retail and manufacturing firms in the Dallas District, and Minneapolis said companies in the medical insurance and financial services industries reduced employment. Wage pressures were minimal, but Boston and Cleveland noted a lift in salary freezes and Richmond said wages rose at service and retail businesses.

The opening sentence says it all -- layoffs have slowed (but they are stuck at uncomfortable levels right now) but there is no hiring yet. In short, the bleeding has stopped but we aren't getting better from there. Here is a link to more information.

The bottom line is clear: the economy is continuing to improve.

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House Effects, Retro-Style

This stuff isn't really news, so I'll put it below the fold. It's for those of you who might be interested in seeing how secondary analysis of survey data has changed over the past fifteen years.

Check out this graph of "house effects" (that is, systematic differences in estimates comparing different survey organizations) from the 1995 article, "Pre-election survey methodology," by D. Stephen Voss, Gary King, and myself:



(Please note that the numbers for the outlying Harris polls in Figure 1b are off; we didn't realize our mistake until after the article was published)

From the perspective of fifteen years, I notice two striking features:

1. The ugliness of a photocopied reconstruction of a black-and-white graph:

2. The time lag. This is a graph of polls from 1988, and it's appearing in an article published in 1995. A far cry from the instantaneous reporting in the fivethirtyeight-o-sphere. And, believe me, we spent a huge amount of time cleaning the data in those polls (which we used for our 1993 paper on why are campaigns so variable etc).

3. This article from 1995 represented a lot of effort, a collaboration between a journalist, a statistician, and a political scientist, and was published in a peer-reviewed journal. Nowadays, something similar can be done by a college student and posted on the web. Progress, for sure.

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Is Obamacare a Favorite to Pass?

That's what the punters at Intrade think right now, where the 'Obamacare' contract is just barely better than even-money to pass at 52 percent. It has moved up fairly significantly within the past 72 hours, as the contract was mostly trading in the 30-40 percent probability range before.

Back in January, in the immediate aftermath of Scott Brown's victory when the contract was trading at around 33 percent, I examined the evidence in detail and concluded that, although passage was easy enough to envision, "I'd probably take the short side of those odds if forced to put money on it". That meant I thought the bill had perhaps a 25 or 30 percent chance of passing. So how do I feel about the contract at its more expensive price now?

Let's look at the factors which have changed since January 27th, when I wrote the original analysis. First, here are the ways in which conditions have improved for the Democrats; they are listed in declining order of importance.

Positive Factor #1: The White House has gone "all-in". The Administration was sluggish to get involved for much of the health care debate, preferring to let Congress do its own bidding. However, the White House has pretty clearly made a decision to invest its political capital now, between putting a (fairly) specific proposal on the table, holding a bipartisan summit, taking meetings with reluctant lawmakers, making the case to the public for reconciliation, and explicitly invoking the idea that the presidency depends upon the passage of the bill.

Positive Factor #2. Smooth sailing in the Senate. Open Left's whip count on use the reconciliation process in the Senate is now up to 46 committed votes. Moreover, just one Democrat (Blanche Lincoln, naturally) has expressly objected to the use of reconciliation whereas several others who were thought to be problems for ideological reasons (e.g. Mary Landrieu, Ben Nelson) have failed to rule it out. In addition, "process hawks" like Robert Byrd, Kent Conrad, and Russ Feingold have been relatively warm to the idea, deeming the relatively minor changes the Senate would exact to its original bill germane under reconciliation rules. It's hard to see how Democrats aren't bound to get at least 50 votes plus Joe Biden for a reconciliation fix, although they'll probably want a couple of spares in the event that the procedural fight gets messy on the floor.

Positive Factor #3. Few substantive disagreements about the nature of the reconciliation bill itself. The basic parameters of what would be included in the reconciliation sidecar are more or less agreed upon: scaling down the excise tax; removing the Cornhusker kickback; re-jiggering the formulas for subsidies, and perhaps adding some additional oversight provisions and closing the Medicare donut hole. Some further provisions -- like national versus state exchanges -- are still being debated but are unlikely to break the back of the legislation. The more controversial issues, meanwhile, are probably out of the way. To the non-delight of some liberals, Jay Rockefeller and now the President himself have put the kibosh on the latest public option boomlet. And neither pro-Stupak nor anti-Stupak forces are of the belief that the abortion language can be addressed in the reconciliation process. In addition to all of this, the House now seems to have acknowledged that it must move first on health care reform.

Positive Factor #4. Rate increases by Anthem and other private insurers. This makes the moral case stronger and gives nervous Democrats a good talking point for the campaign trail.

Positive Factor #5. One additional 'no' vote planning to retire. This is Eric Massa, who is retiring either because he had a recurrence of cancer or because he sexually harassed a (male) staffer, depending on who you believe. Massa's no vote was a bit strange before -- he said he opposed the bill from the left, but he is in a moderate district and has opposed other parts of the Democratic agenda from the right -- so nothing is to be taken for granted. But clearly this would seem to be an easier vote to swing now, especially if there's some kernel of truth behind the harassment allegations and he feels guilty for having created a minor P.R. nightmare for his colleagues. There's also a chance that Massa could decide to (or be pressured into) vacating his seat immediately, which would reduce the number of votes needed for passage from 217 to 216.

Here, on the other hand, are the factors that have worsened or at least are continuing to work against passage of the bill.

Negative Factor #1. Key 'anti'-blocks not budging. Bart Stupak certainly hasn't backed down from his threat to vote against the bill because of its abortion language, and continues to claim that he might take as many as 11 other Democrats with him. As before, I tend to think that with the possible exception of Stupak himself, the abortion language (which is fairly restrictive in the Senate's bill anyway) is mostly just an excuse for Congressmen who don't want to vote for the bill for other reasons, such as because they're in a tough district or because they're a Republican (Joseph Cao). Therefore, I'm not sure how many of these votes are beyond the reach of persuasion. Nevertheless, the Stupak fight greatly increases the Democrats' degree of difficulty. In addition, although the Blue Dogs have been somewhat quiet, we've seen very little of the sentiment that some like Jason Altmire expressed in the pre-Scotty Brown era, which is that they might vote for the revised bill precisely because it was more moderate. Finally, Dennis Kucinich -- always a party of one -- still seems inclined to vote against the measure.

Negative Factor #2. Attrition. Jack Murtha has died, and Neil Abercrombie has retired. When coupled with Robert Wexler's earlier retirement, this takes the Democrats down to 217 votes from the 220 they had in November. The slight mitigating factor is that, because of the retirements, there are now only 432 sitting Representatives so 217 votes rather than 218 are required for passage.

Negative Factor #3. Continued distress from national environment. Although the health care bill itself has not become more unpopular since the House voted on it, there has been some decline in the Democrats' generic ballot standing, and the number of retirements among prominent members (Evan Bayh, Bill Delahunt, etc.) will do little to quell fears among Democrats who think the bottom is falling out. Nor will the Charlie Rangel and (alleged) Eric Massa scandals.

Negative Factor #4. Bipartisan summit was underwhelming. Although the decision to proceed with the Blair House Summit may later have some utility in mollifying concerns that the Democrats are "ramming the legislation through" without consulting Republicans, there was no immediate P.R. victory nor any manifest change in public opinion on the health care bill. If Democrats were holding out hope for some paradigm-shifting moment in which the health bill suddenly became more popular in the near-term, they are not likely to get one.

Negative Factor #5. The ticking clock. The best-case timetable for completion of the health care bill now appears to be the end of March, which is barely seven months away from the November elections. Some states are already starting to have their primaries, lots of filing deadlines are passing -- the attention paid to electoral politics are increasing. Moreover, some Democrats might not want to vote against a bill that they voted for before, but also might not want to take another vote on an unpopular bill if they can avoid it -- these Democrats might have some incentive to delay the process.

***

So where does the health care bill stand? The positive developments as outlined above are probably more important than the negative ones, and so I think my post-Masspocalypse sense that the bill had a just a ~25-30 percent chance of passing is clearly too pessimistic. In particular, the possibility that the bill will die for any reason other than simply not having the votes in the House now appears to be quite minimal. The Senate should fairly easily have 50 votes for reconciliation, and the White House is now invested enough that they're unlikely to prematurely cut off debate unless things really are hopeless.

I also think, however, that a relatively 'macro' analysis like this one can conceal the significant hurdles that the bill faces at a 'micro' level in the House. The math on holding those 217 House votes was never very easy for Nancy Pelosi and its not clear that it's gotten any easier. If everyone voted the same way today that they did in November, the bill would pass 217-215. However, two previous yes votes -- Bart Stupak and the Republican Anh "Joseph" Cao -- are almost certainly to be lost, whereas nobody who voted against the bill before has yet affirmed that they'll switch to vote for it. That makes the starting point 215-217 against.

If these were Pelosi's only problems, then it's almost certain that she could persuade at least two of the four retiring members to switch their votes, giving the bill its majority. However, she also faces pressure from other Stupak voters and from some nervous moderates, whereas the universe of potential no-to-yes flips is very small outside of the retirees. Generally speaking, moreover, we've heard more negative/nervous sentiments from previous yes voters than optimistic ones from previous no's, with the abortion fight and concerns about the use of the reconciliation process providing them with some cover in the event of a flip-flop.

The one last advantage that Pelosi has is that she can schedule the vote the very moment she gets to 217. Maybe the bill has 216 votes next Tuesday, and 216 next Thursday, but on Wednesday Dennis Kucinich gets high and decides that he'll vote for it. OK, so that's a joke, but there's a difference between a bill which needs 217 at all points in time and one which needs 217 votes at some point in time.

That's a lot of evidence to weigh. My head says yes -- Pelosi will squeak this through -- while my gut frankly says no. Either way, I'm not sure there's a lot of arbitrage against that 52 percent number at Intrade, but I'd hesitate to call the bill a favorite to pass.

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Popularity of Health Care Bill Unchanged Since House Vote in November

On November 8th, when the House narrowly voted to approve the Democrats' health care bill, voters opposed the measure by about a 49-42 margin, according to the Pollster.com trendline. Right now, the numbers are -- well, almost exactly the same: 50.2-42.5 against if you want to be precise:



This is not to suggest that a House member who voted for health care in November wouldn't have some reasons to oppose the bill now. For one thing, the Democrats' position in the generic ballot has declined somewhat (although President Obama's approval rating really hasn't). For another, we're now a few months closer to the midterms.

Still, what's probably changed the most is the attitude of the Democratic caucus in the wake of Scott Brown's victory in Massachusetts along with several prominent retirements among Democratic Congressmembers. It's not that the forecast has really changed all that much since November -- although clearly the Democrats have lost some further ground, especially because of their Senate-side retirements -- as that its consequences have become more manifest.

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In Texas, Anti-Washington Trumps Anti-Incumbent

Texas incumbent Rick Perry today won the Republican primary to be his party's nominee for governor for the third time, securing 51 percent of the vote against Kay Bailey Hutchison's 31 percent. Although about a quarter of the returns remain to be counted at this point, Perry further appears as though he'll secure the outright majority necessary to avoid a run-off.

The results are not particularly surprising in light of recent polls, all of which since October had shown Perry leading, usually by double digit margins. Indeed, what was a hotly-anticipated race going in -- it's unusual to have a sitting U.S. Senator challenge an incumbent governor from her own party -- has turned into something of an anti-climax, as Hutchison failed to make the race close enough to secure earned media or much in the way of momentum.

Still -- while minding the usual caveats about the perils of drawing lessons from any individual race -- it's interesting to compare the messages that each candidate put forward during the campaign. Perry's was an anti-Washington message, focusing in particular on Hutchison's support for the federal bailouts and her role in creating the nation's ever-expanding debt:



Although not all of Perry's ads were negative, his more upbeat and positive spots tended to focus on the same themes.

Hutchison, by contrast, ran on a somewhat muddled and generic anti-incumbent message. Her last couple of attack ads, like the one below, devolved into literally just stringing together random pull quotes from local newspapers ("lobbyists!" "bully pulpit!" "ethical clouds!") while failing to cohere into any one rationale for voting against Perry:



This is not to suggest that Perry has necessarily navigated his way through any trouble; the general election campaign against Bill White, a moderate Democrat who is the Mayor of Houston, is considered to be a toss-up. And he may be better off than most incumbents because Texas has had somewhat fewer employment problems than most large states, with its unemployment rate topping out at 8.3 percent. But as tough as this cycle is liable to be on statehouse incumbents, it's much, much worse for incumbents in Washington.

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Left-Right Populism, Part 2

In a previous post, I considered what policies might offer the possibility of forging some sort of Left-Right populist consensus. As an afterthought, I realized that anything to do with eliminating waste and fraud also has the potential for cooperation. Just today, in fact, President Obama mentioned favorably a suggestion by Sen. Tom Coburn about using some method of random undercover searches to identify fraud in Medicare and Medicaid claims.

A related budgetary controversy is earmark reform, the signature complaint of Sen. John McCain. Despite the general anger directed at election-minded members of Congress who pursue pork, I'm not entirely convinced earmark reform could really generate a populist meeting-of-the-minds...but neither am I certain it is necessarily divisive, which is why I didn't put it on the previous list or this one.

So, turning to a short list of policies that are likely to divide economic populists on the Left and Right, my sense is that the obvious, key point of division is the size, complexity and functional operation of the national government. Populists on the Right may be fine with exercising government muscle to, say, take down (or let fail) Wall Street bankers or catch Medicare billing scams. But they are not keen on populism that comes with a hefty price tag. Populists on the Left don't mind spending more, but are wary of quick-fix solutions to structural budgeting and deficit problems.

1. Stimulus II. Though there is strong case to be made that the stimulus monies spent by the national government have worked, as little appeal the first stimulus package had for populists on the Right, another one would be greeted with even more ire. The Democratic National Committee's "hypocrisy watch" campaign to try to embarrass Republicans who complained about and/or voted against last year's stimulus package yet took and even took credit for some local project included in the bill may or may not work politically. But either way, it sure will make it tougher to sign up GOPers for any future such expenditures. Meanwhile, at the more abstract level, the argument about FDR and 1937 may never end. In short, consensus here will be very, very elusive.

2. Public option. There seems to be mounting support for the once-dead public option. House Democrats initially opposed to it but who are retiring may end up coming around, and Obama is targeting them; liberals are lining up commitments from Democratic senators. (Update: Three more senators have committed to vote for public option.) But this is the feature of healthcare reform proposal that populists on the Right point to first when the claims of “socialism” and “government takeover of 25 percent of the economy” getting bandied about. Little to no chance of Left-Right convergence here: To become law the public option will need to be forced through Congress almost exclusively on the strength of Democratic votes.

3. A national consumption or flat tax. Some consumption taxes make sense, particularly those impose on items with inelastic demand that create social problems—the so-called sin taxes on things like cigarettes or alcohol. And a consumption tax on gasoline might appeal to enviros on the Left and Right alike. (Question for which I've never quite received a satisfactory answer from conservatives: Why isn't there more of a push for gas taxes from the Right, especially given the potential national security implications or lower demand?) But because most consumption taxes would be regressive if not highly regressive, the idea that a consumption or Mike Huckabee-style national sales tax could substitute for the income tax is a non-starter for populists on the Left. As for the flat tax? Sure, the tax code could benefit from some simplification. But the whole point of having progressive rates is, well, to add progressivity to the tax structure, and the whole point of creating various deductions from the nominal rates is to encourage or induce taxypayers (not force, induce) to make choices that are individually and collectively beneficial, like saving for college or their retirement, buying instead of renting a home (OK, that incentive proved to be somewhat problematic), making charitable contributions, and so on.

4. Balanced budget amendment. Two quick comments for the crowd advocating this reform: One, politically it will never get the two-thirds vote of both chambers of Congress, no less ratification by three-quarters of the states; and two, with the feds already engaging in trickery like using current Social Security receipts (“Lockbox”!) or taking war costs off-budget to hide the true extent of the deficit any given year, would passage of such an amendment have any real meaning? Give it up.

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The Difference Six Years Make

In 2004, the Bush-Cheney re-elect campaign ran what was then the most sophisticated, state-of-the-art field organizing campaign in presidential history. Four years later, the Democrats, led by Barack Obama’s David Plouffe, built a field organization that made the 2004 Republican model look antiquated. Along the way, both parties figured out new and inventive ways to identify, register and mobilize voters these past six years.


Because the current set of US Senate seats up for election this November were most recently on the ballot back in 2004, the net effect of the Bush and Obama organizational efforts during the two presidential cycles of the past six years can be measured, if incompletely and imperfectly, in the registration differences between autumn 2004 and today.

What is the net partisan effect of registration differences* during this period in the top dozen most competitive Senate contests (as ranked by Nate, left)?

Before answering that, let’s be clear that comparing the final 2004 registration data with the most current available figures provides only a baseline indicator of partisan competition in these states--a starting point of sorts. Doing so cannot account for potential turnout differences between the parties this fall, in a midterm cycle; it cannot account for partisan defections by voters registered with one party who vote for candidate’s of the other, nor the behavior of independents and unaffiliated voters; and registration disadvantages can of course be overcome by better candidates and campaigns, and vice versa.

Those qualifiers aside, in 10 of the top 12 Senate race states, Democrats are in a better registration situation today than they were going into the 2004 elections. The two exceptions—Arkansas and Kentucky--are not particularly surprising, given that they include many of those 22 percent of the counties nationally where Obama underperformed relative to John Kerry in 2004.

Again, registration gains or losses aren't everything. Turnout drops off during midterm cycles, and comparisons between registration baselines in a presidential cycle (2004) with that of an upcoming midterm cycle (2010) are imperfect. What I think we can safely conclude is that there is the potential for the Democrats to capitalize on a net positive field organizational gain during the last few years in order to buffer their expected losses this fall. The degree to which they are successful in doing so--and the recent decision to bring David Plouffe back into a prominent political role advising the White House is concession that there is a problem here that needs solving--will not be known until we get the results this November.

*A note on sourcing: For states that record partisanship at registration, Secretary of State/Board of Election totals from 2004 and the most current data were compared; for states that do not, CNN Exit poll responses from 2004 and 2008 were compared.

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Lincoln Logs a Challenger as Halter Tries to Halt Her -- But are Democrats Spinning their Wheels?

There are four basic questions we can ask any time that a candidate undertakes a primary challenge -- like the one that Arkansas Lieutenant Governor Bill Halter announced today in an effort to knock off embattled incumbent Blanche Lincoln. Let's run Halter and Lincoln through the gauntlet and consider whether the primary challenge is a sound strategy.

1. Can the challenger win the primary? Halter certainly has a credible shot -- but the indicators are mixed. According to a survey last month from Public Policy Polling, Lincoln's approval rating is 54/32 among Democrats. That's not so great for a Senator within her own party -- although, of course, much better than Lincoln's standing with Republicans and independents, who have grown to dislike her immensely. Halter's favorability score, meanwhile, is not overwhelming: 35/20 among Democrats. It's also not clear that there's that much room to run to Lincoln's left in Arkansas, which has one of the more conservative sets of Democratic primary electorates in the country -- only 36 percent of Democratic primary voters identified as liberal (and 12 percent as very liberal) in 2008, according to exit polls. Along the same lines, while 25 percent of Arkansas Democrats say that Lincoln is too conservative, 18 percent think she's too liberal. Halter can perhaps win just by being fresher/different/"better", but there's not likely to be the appetite in Arkansas -- even among the Democratic primary electorate -- for a mere Southern-fried coastal liberal.

2. Can the challenger win the general election? Is he more or less likely to win the general election than the incumbent? Perhaps we should ask this question about Blanche Lincoln first. Although it previously appeared that she might have a chance to hold her seat in Arkansas because of the weak field of GOP candidates, she faces very, very long odds now that incumbent U.S. Rep. John Boozman has entered the race. Boozman, in fact, has 56 percent of the vote in that PPP poll to Lincoln's 33 percent. That's pretty much off-the-charts bad; no incumbent in any Senate or gubernatorial race in 2006 or 2008 faced anything like that kind of deficit. Lincoln's approval rating in that poll is also incredibly bad: 27 percent approve and 62 percent disapprove, which is pretty near to David Paterson territory. This is a poll of registered voters, by the way -- the numbers among likely voters might be even worse after accounting for the Republican enthusiasm advantage. Lincoln would need a miracle -- or for Boozman to have a major scandal or somehow not to be the GOP nominee -- to pull this one out.

Halter's numbers in the same poll, meanwhile, are 30-53 against Boozman -- producing the same 23-point gap that Lincoln faces. But, the numbers are not quite created equal: the undecided vote is 6 percent higher in Halter's race -- and when you're losing this big, you'd rather have more undecideds rather than fewer, since that means more volatility. Likewise, the numbers may be more malleable in a race that doesn't feature an incumbent. Still, I'm not sure this ought to provide too much comfort to Halter. Although a lot of Arkansas voters don't know who Halter is, his favorability rating is 21-29 among those who do. And trying to run to Lincoln's left in the primary probably won't do much to endear him to independents or moderate Republicans.

For my money, Halter is more likely to catch lightning in a bottle and win the race -- but that probably means he has a 5% chance of winning to Lincoln's 3%, or something on that order.

3. To what extent, if any, can the challenger be expected to provide more value to his party if he wins the seat? Lincoln rated as the 52nd most liberal from among the 59 Democrats in last year's Congress according to the newly-released National Journal rankings. Progressive Punch has her as the 54th most liberal among sitting Democratic Senators, and DW-NOMINATE as the 55th most liberal. On the other hand, Barack Obama's vote share in Arkansas -- 38.9 percent -- was the lowest of any state that currently has a Democratic Senator, except for Alaska where you had a scandal-plagued incumbent and Sarah Palin on the ballot to prop John McCain's numbers up. So while Lincoln might be conservative relative to her caucus, it's not clear really how much more liberal she could be without being almost assured of being voted out of office. In fact, Lincoln rated as the 10th most valuable Democrat relative to her state, according to our proprietary analysis. Nor is it clear that Halter would be much more liberal than Lincoln. His campaign website conspicuously avoids discussion of issues while focusing instead on biography. The gains here are likely to be fairly marginal, at best -- and perhaps dependent on whether Halter is willing to be a one-termer for the sake of advancing Democratic goals.

4. What potential intangible or indirect benefits, and intangible or indirect costs, result from the decision to undertake the primary challenge? One such benefit -- indeed, probably the largest benefit of any kind considering how unlikely either Lincoln or Halter is to hold the seat for the Democrats -- is that Halter could presumably push Lincoln to the left until such time as the primary occurs, such as may have happened in Pennsylvania with Arlen Specter and Joe Sestak. On the other hand, Arkansas ain't Pennsylvania, and Lincoln's immediate reaction seems to be to pivot somewhat in the opposite direction -- using Halter as a prop to burnish her credentials as a centrist. (Frankly, if I were advising her campaign, that's probably what I'd tell her to do -- although, actually, if I were a completely scrupulous and honest advisor to Blanche Lincoln, I'd tell her to retire and to save the money.)

There's also the residual effect that the primary challenge could have on other moderate/centrist Democrats. In general, it's probably healthy for a party to have its candidates operate under some threat of a primary challenge. With that said, Lincoln voted for the health care bill, for the stimulus package, and -- for those self-styled progressive populists in the audience -- against the distribution of the second half of TARP funds. And she's now in trouble for some of those votes. If the message that the moderates take away is that, even if they vote for the liberal agenda, they're going to be punished anyway, it's not clear how much that incentivizes them to take tough votes on liberal issues that might be unpopular in their state.

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In summary, this is not a terribly good place for an ideological primary challenge. There's not much room to Lincoln's left in Arkansas period, especially not in a cycle such as this one. She has voted with her caucus reasonably often -- more so than someone like Ben Nelson or Evan Bayh. And the challenger, Bill Halter, is quite unlikely to win the general election.

The thing about this particular primary challenge, however, is that while the upside might be limited, the same is true of the downside because Lincoln is so unlikely to retain her seat anyway. Halter is clearly a smart (he's a Rhodes Scholar) and likable candidate and I can see why people would want to take a chance on him. But at best, this is perhaps the right challenge for the wrong reasons -- and at worst, it's a misdirection of resources that could be better spent elsewhere.

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Obama's No F.D.R. -- Nor Does He Have F.D.R.'s Majority

Every time I read an article like this from the Weekly Standard's Fred Barnes:

Is Obama the new FDR? The answer is no.

If Franklin Delano Roosevelt were president today [...] liberal health care reform would have been enacted already. [...]

The reason is tied to what is probably the greatest difference between FDR and Obama. Roosevelt took command of Washington. Obama hasn’t. “FDR became the father of the modern presidency by moving the Chief Executive to the center of the American political universe,” John Yoo writes in his new book on presidential power, Crisis and Command. “Roosevelt’s revolution radically shifted the balance of power among the three branches of government.” [...]

FDR seized legislative authority. The bills that Congress passed in his first 100 days and beyond were produced by the Roosevelt administration and ratified reflexively by Congress.

...I wonder why there's no mention of this:



When F.D.R. took over the Presidency in 1933, the Democrats controlled 64 percent of the Senate seats and 73 percent (!) of the House seats, counting independents who were sympathetic to the party. And those numbers only increased over the next couple of midterms -- during their peak during 1937-38, the Demorats actually controlled about 80 percent (!) of the seats in both chambers. Obama, by contrast, came into his term with 59 percent majorities in both chambers. That's not much to complain about by the standards of recent Presidencies, but is nevertheless a long way from where F.D.R. stood during his first two terms, or for that matter where L.B.J.'s numbers were during the 1965-66 period, when the bulk of the Great Society programs were implemented.

F.D.R. and L.B.J. might have been great cleanup hitters -- and you'll get no argument from me that Obama's aptitude at shepherding his agenda through Congress has been mixed, at best. But they basically spent the first several years of their Presidencies playing in the Congressional equivalent of Coors Field. Considering how dramatic the impact of the loss of just one Senate seat has been on both the perception and the reality of Obama's agenda, that needs to be kept in mind when drawing the comparison.

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