Clive Crook

Washington is still blithely unconcerned about the debt-ceiling. It has come to something when people are discussing different kinds of default, as though some might be a salutary experience. The likeliest outcome, I argue in a new column for the FT, is that a way will be found to swerve around the problem. But swerving around a problem rather than solving it is a funny idea of success.

Mitch Daniels's decision not to run is a shame. He is an impressive man and had a unique combination of qualities among the possible Republican contenders for 2012: a successful and strikingly popular governor, with federal and private-sector executive experience, a (mostly deserved) reputation for straight talk on fiscal issues, strong conservative credentials, and yet at the same time (having called for a "truce" on social issues) enhanced appeal to moderates. He was a plausible contender, and the Republican nomination would have been a much more interesting contest with him in it. So would the presidential race, had he won the nomination--which was far from assured, obviously. He could have given Obama a run for his $1 billion.

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Christine Lagarde and Kemal Dervis appear to be front-runners to replace Dominique Strauss-Kahn at the IMF. Good candidates, no doubt, but in my view the best choice (if he could be persuaded to do it) would be Stanley Fischer, ex-MIT, ex-IMF, ex-World Bank and currently governor of the Bank of Israel. His performance in each role has been outstanding. I agree with Greg Mankiw's assessment:

Stan is a superb economist and international policymaker: smart, sensible, experienced, personable, and open-minded. He would be an ideal person to head the IMF.

Jeff Goldberg says he is amazed at the amount of insta-commentary on Obama's speech on the Middle East that sees something radical and new in what the president said about 1967 borders. This is what Obama said:

We believe the borders of Israel and Palestine should be based on the 1967 lines with mutually agreed swaps, so that secure and recognized borders are established for both states.

What's new? Not much, says Jeff.

I'm feeling a certain Groundhog Day effect here. This has been the basic idea for at least 12 years. This is what Bill Clinton, Ehud Barak and Yasser Arafat were talking about at Camp David, and later, at Taba. This is what George W. Bush was talking about with Ariel Sharon and Ehud Olmert. So what's the huge deal here? Is there any non-delusional Israeli who doesn't think that the 1967 border won't serve as the rough outline of the new Palestinian state?...

Here is what Hillary Clinton said in 2009: "We believe that through good-faith negotiations the parties can mutually agree on an outcome which ends the conflict and reconciles the Palestinian goal of an independent and viable state based on the 1967 lines, with agreed swaps, and the Israeli goal of a Jewish state with secure and recognized borders that reflect subsequent developments and meet Israeli security requirements."

I too was mystified by the instant reaction claiming to see a bold new departure. I haven't been paying close enough attention, I thought. But now I'm reassured. If Jeff finds it puzzling, I feel entitled to be puzzled as well.

In a later post Jeff links to this note by Charles Johnson, which is also worth reading. I think the three-paragraph AP story Johnson complains about was where this all started: it was immediately picked up by a hundred other sites and set the "Obama shocker" story moving.

Why America needs Israel. Michael Oren, Foreign Policy. On the contrary. Stephen Walt, Foreign Policy. Oren makes good points, but things change. Jeffrey Goldberg, Foreign Policy.

DSK did not lead the IMF that well. Desmond Lachman, FT.

America's climate choices. National Research Council. A useful resource.

Tom Coburn's decision to take a break from the gang of six, the bipartisan group of senators who have been discussing ways out of the current fiscal impasse, is a significant setback. Expectations that the main alternative forum for this discussion--Joe Biden's panel--would get somewhere on the long-term issues have been low from the outset. Quite recently, the gang of six looked the best bet.

Coburn is a key figure because he is a conservative cut-spending Republican, who commands credibility with that part of the political world; but he was also willing to consider tax reforms (like those suggested by Bowles-Simpson) that raised revenues while lowering tax rates, thus arousing the ire of no-tax-increase hardliners such as Grover Norquist. Coburn is that very rare thing in Washington, a genuine fiscal conservative. To see him give up is worrying.

However, the news is not necessarily bad for the prospects of getting the debt ceiling lifted. The gang of six's deliberations, and the hope they sustained of a larger breakthrough, were serving as an excuse for further delay on that immediate question. The sidelining of the gang of six could accelerate talks in the Biden group and elsewhere on a patch, leaving the underlying problems for later. That is what both sides now seem to want. Raising the debt ceiling as soon as possible is a worthy goal. Agreeing to disagree on the longer-term issues, as though these can wait another two years (or more), is not.

Newt Gingrich got his campaign for the Republican presidential nomination off to a bold, if perplexing, start by attacking Paul Ryan's budget plan as "right-wing social engineering" and affirming his support for the individual mandate in health care reform. In subsequent clarifications, he said he was opposed to the Obama mandate on constitutional grounds--the same rationale Mitt Romney offers in defence of his Massachusetts plan--and said he was not in a fight with Paul Ryan even though they disagree about how to reform Medicare. Ryan said, "With allies like that, who needs the left?"

Gingrich has backed some form of mandate in health care for years. Give him some credit for sticking to this line (which also happens to be correct). But still one wonders how he expects to get the nomination from a party so bitterly opposed to that view. Republicans in Congress and on the airwaves queued up to stamp on him. It's not good to be entirely occupied with damage control on day one of your campaign.

Something other GOP candidates might be asking themselves is how far, if at all, they are now allowed to disagree with the Ryan budget. The idea that it cannot be criticised would be strange, bearing in mind that the party has very mixed feelings about it. Many Republicans do in fact disagree with Ryan's Medicare plan. A lot of them think it's insane. Of course one can disagree with Ryan's proposal--suggest ways of improving it, let's put it that way--without contemptuously dismissing it as "right-wing social engineering".  But the party would apparently rather not talk about it than thrash the issues out and come up with something better. Again, the permanent election campaign shuts down intelligent thinking about policy.

A simple way to make the Ryan Medicare plan  more palatable would be to change the formula he proposes for uprating the value of the voucher--to revert, in other words, to the plan he and Alice Rivlin proposed last year. A sufficiently generous voucher comes back within the range of the politically possible, though the question of how to contain costs, of course, would remain. What a shame if this becomes another Issue That Cannot Be Discussed. Like raising taxes on the middle class, or reforming the immigration laws, for instance.

Let me clarify my own position on something. Yesterday I said it was impressive that Romney was still in the running for the nomination, given his support for a health care mandate (in states that choose to impose one). Still in the running might have been putting it mildly. As I was predicting that Romney couldn't win, supporters in Las Vegas were conducting a one-day funding drive that raised more than $10m. Gosh. Somebody out there likes him. Money isn't everything in US politics--see what happened in 2008--but it certainly doesn't hurt.

By the way, Donald Trump says he isn't running. Yes, I too was very surprised by that.

Drop-down image credit: Reuters

Why the job market feels so dismal. Edward Lazear, WSJ. A clear account of how jobs turn over in a healthy economy. The problem now is not layoffs but the slow pace of hiring.

US housing starts drop in April. Shannon Bond, FT. "Homebuilder confidence has stalled at extremely low levels." See also: Rent or buy. David Leonhardt, NYT. With prices depressed, is buying a house now a good investment? Maybe--depending on where you live, your appetite for risk and your stage of life. James Kwak has some further discussion, and links to an excellent, thorough analysis of the costs and benefits of buying or renting by Jordan Rappaport of the Kansas City Fed: The effectiveness of home ownership in building household wealth.

The federal role in dealing with state and local pension problems. Douglas Elliott, Brookings Institution. Some states may be delaying action in the hope that the feds will come to the rescue. They are likely to be disappointed.

My column for the Financial Times this week is about immigration policy. What President Obama said in his speech on the subject last week was right: the issue is an "economic imperative".

Increased legal immigration raises the productivity of immigrants; encourages capital accumulation; and broadens the tax base. Research has shown that the additional tax revenue from expanded legal immigration outweighs the additional burden of providing public services to immigrants. Studies that try to gather all these factors together show a clear net benefit for US citizens in the aggregate. The best policy of all for US citizens, it turns out, would be more liberal immigration rules for guest workers combined with a moderate visa tax.

It is true that not all US workers would gain. An increase in legal unskilled immigration might not make US house-cleaners and gardeners better off. But international trade does not make everybody better off, either; nor does labour-saving technological progress. The current US immigration system is not that different, in its effect on US living standards, from a tax on labour-saving technological change - except that, unlike a tax, the policy raises no revenue to pay for better public services. Is anybody proposing a tax on innovation, to protect American wages and jobs?

It was a close-to-impossible assignment: explain why the Massachusetts health care reform was good policy and President Obama's health care reform, so strikingly similar, wasn't. In his speech at Ann Arbor last week, Romney did advance the only principled defence of this position--which is that states can properly do things that the federal government cannot. Let the states experiment; don't impose one top-down solution. Moreover, you can argue, the Constitution denies the federal government power to make people buy health insurance; nobody, so far as I know, denies that this power is available to the states.

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IMF head faces attempted rape charge. Robin Harding, Alan Beattie, Peggy Hollinger, FT. Inexplicable.

The very rich really are different. Roberton Williams, TaxVox. If your income is in the hundreds of millions a year, expect to be taxed at a lower rate. See also: Rich and sort of rich. Andrew Ross Sorkin, NYT. Where did that $250,000 threshold come from?

Mitch Daniels on how libertarians can govern. Jonathan Rauch, The Browser. From July last year, in case you missed it, Daniels recommends some books.

As first act, out with Obamacare. Mitt Romney, USA Today. Tricky to extricate yourself from your most notable achievement. This reprinted article from 2006 in the Boston Globe--"Romney defends health plan to skeptical conservatives"--provides an interesting contrast. (I'll have more to say when I've read  Romney's much-anticipated Ann Arbor speech.)

History weeps at the partition of India and Pakistan. Michael Barone, Washington Examiner. A great and still-consequential mistake; if only history could be rewound.

Fukushima boosts green case for nuclear. Ted Nordhaus and Michael Shellenberger, FT. Environmentalists must understand that turning away from nuclear means turning back to coal.

How to turn $100 trillion into five and feel good about it. Patrick McGroarty and Farai Mutsaka, WSJ. Hyper-inflated currency notes are collectibles, and may be worth as much as several dollars. A nice Wall Street Journal A-hed. (Forgive me if I have mentioned this before. The print WSJ displays the traditional A-hed on the front page. A fan of these diverting, eclectic, and well-researched stories, I used to read them most days. On the website, for some reason, the A-hed is hard to find. They live here, in a sub-tab under the dreaded "Life and Culture" tab. These days I rarely come across them. Shame.)

Frank Partnoy, a law professor at USD and author of "Infectious Greed", an excellent book on the underlying causes of the financial collapse, comments on the Galleon case. In "The real insider tip from the Galleon verdict" he argues that insider trading may come back stronger from this setback.

If you do the maths, given the amount of insider trading, the chances of doing prison time are roughly the same as getting bitten by a great white shark while surfing off the coast of my home town, San Diego.

There are rare shark attacks and many people become very afraid after them, just as some traders are now fearful after this high-profile conviction. However, that fear is irrational, based on the salience of an unusual event.

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The prospects for legislation before the next election may be minimal, but it's good that President Obama is making the case for comprehensive immigration reform. One can question his sincerity, of course. Since he knows that nothing is going to happen, he can aim to build support for Democrats among Hispanic voters, an increasingly significant group, without much risk of offending too many others. But his position on immigration reform happens to be right. Mending the immigration system is, as he said, an "economic imperative", both to meet shortages of skilled labor and to bring the illicit migrant economy on to the books, thus helping to repair the tax base. Republicans richly deserve to be punished for their obduracy on the issue.

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A stylised fact of US political polling is that, national security aside, the price of gas drives presidential approval ratings. Could house prices might be even more important? If they were, it would be hard to prove statistically, since there are no previous episodes of nationally falling house prices. Which is worse for confidence: gas at say $5 a gallon, or another five figures wiped off your net worth? Perhaps the White House should be more worried about what happens to house prices between now and November 2012 than about what happens to the price of oil.

No respite from housing recession in the first quarter, says Zillow.

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The tragedy of Sarah Palin. By Joshua Green, The Atlantic. A more complicated story than you might think, brilliantly (and somewhat sympathetically) related. The chasm between state politics and national politics: "What if she had tried to do for the nation what she did for Alaska?"

Chomsky's Follies. By Christopher Hitchens, Slate. "The professor's pronouncements about Osama bin Laden are stupid and ignorant."

The Obama Spring. By John Heilemann, New York. Obama is no longer Jimmy Carter, but he might be George H.W. Bush.

Debt Ceiling May Come Crashing Down on Treasury. By Bruce Bartlett, Fiscal Times. It's not about the deficit; it's about cash flow, and keeping faith with creditors. Calling that into question? The word "irresponsible" is inadequate.

The killing of Osama bin Laden doesn't change Obama's foreign-policy calculations very much, in my view--the pros and cons of an accelerated withdrawal from Afghanistan, for instance, are much the same as before--but it does give the president some fresh capital to spend on other good causes. Dealing with the long-term fiscal problem is one. This is the subject for my column today in the FT: Now Obama must lead on the deficit.

Under present conditions, the administration's tools for invigorating the recovery are limited, to be sure. However bold and decisive the president chooses to be, he cannot just decree faster growth. But if Democrats and Republicans moved immediately to raise the debt ceiling and promptly to clarify the medium-term fiscal picture - a task that cannot wait until 2013 - they would improve confidence and lessen the risk of a second recession.

The president can play a crucial role in this. Merely calling for unity achieves nothing. But the bin Laden operation gives him fresh political capital, though perhaps not for long. He should use it to impose himself - talking past a stone-deaf Congress to the electorate; advancing cold, clear choices about curbing long-term borrowing; thus making space, should it prove necessary, for renewed short-term stimulus. They call it leadership.

Politically, to jump so decisively into this quarrel would be risky. Few, despite Abbottabad, are betting Mr Obama will dare. It's not that he can't; for some reason, he won't.

Renewed attention to the revenues that could be raised by reducing tax expenditures makes this proposal -- Raise Taxes, but Not Tax Rates -- from Martin Feldstein very timely. (The article draws on an NBER working paper by Feldstein, Daniel Feenberg, and Maya MacGuineas.) The idea is very simple: cap the aggregate tax savings granted to any taxpayer through tax expenditures to 2 per cent of that taxpayer's income.

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Paul Ryan, chairman of the House Budget Committee, gave a talk and took questions this morning at an event organized by the American Council on Capital Formation. In his opening remarks he restated his basic, familiar position: the recovery is slower than it should be, and the country's longer-term economic prospects are blighted, because of bad economic policy. Good economic policy, he said, means four things.

First, get government spending and deficits under control, to restore fiscal certainty and allay fears of higher taxes down the road. Second, tame the regulatory state. Third, increase tax revenues through higher growth. (Especially, stop putting US firms at a disadvantage with higher taxes than their international competitors face.) Fourth, ensure sound money. (He said he was worried about the scale of the Fed's recent interventions and where they might lead. He drew from his wallet his portable collection of worthless hyperinflated currency from Zimbabwe, Weimar Germany, and other bankrupt nations, given to him by voters he has met.)

Then he was asked about the current talks over raising the debt ceiling.

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Gideon Rachman agrees with Peter Beinart that the "war on terror" should come to an end.

This is not the same as saying that the US and Europe can now stop worrying about terrorism. The west will need a serious counter-terrorism policy for many years to come. But the Bush-inspired drive to make terrorism the centrepiece of US foreign policy was a mistake. The declaration of a "Global War on Terror" distorted American foreign policy and led directly to two wars - in Iraq and Afghanistan. The war on terror has guzzled billions of dollars in wasteful spending and spawned a huge and secretive bureaucracy in Washington. The death of bin Laden gives President Barack Obama the cover he needs to start quietly unwinding some of these mistakes.

Gideon is always interesting and persuasive, and I agree with much of what he says, but again I want to distinguish between "war on terror" as terminology and "war on terror" as substance. My view on terminology is, what's in a name? War on terror. War on drugs. War on want. War on poverty. Politicians are constantly declaring war on things. It doesn't commit you to anything. It just sounds urgent and grave. Sometimes, it is right to sound urgent and grave. Sometimes, a politician has no choice but to.

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