Constitutional abuse begets constitutional abuse.

President Obama has engaged in a dubious maneuver to force a recess appointment through a Senate that denies it has recessed.

(Brad Plumer has a good run-down of the legal issues, here.)

The president’s action has ignited a fireworks show of Republican outrage. And yes, Obama has here pushed presidential power beyond past limits.

But it’s not only presidents who can bend the rules. The Senate has also pushed its powers here beyond the usual limits. The Senate is pretending to be in session when it’s obviously not in session. It is engaging in this pretense in order to use its power over confirmations to negate an agency lawfully created by the prior Congress. Most fundamentally, the Senate here is further extending a weird quirk in its own rules–the quirk that allows individual senators to delay votes on appointments–in ways that allow the Senate minority to impose its will on the whole US government.

Over the past three decades, we have lived through a prolonged cycle of partisan revenge. Each party pushes the law to score partisan points in ways that would have been deemed unacceptable only just a little while ago. Then at the next turn of the cycle, the other party pushes the law further and wider and even more destructively. One by one, they sequentially smash the customs and traditions that enabled the US government to function. This latest episode over the Cordray appointment may be the most extreme example. But it’s surely not the final example.

It is instead an ominous milestone in the deterioration of the US political system into ever more intense acrimony and paralysis.

In my column for The Week I discuss the problems with Rick Santorum economic plan:

Santorum’s concern for the American middle class has been one of the most attractive features of his candidacy for the Republican nomination. Alone among the Republican candidates, he took note of the freezing of upward mobility and the stagnation of middle-class wages even before the financial crisis of 2008.

So what’s his plan? Santorum has proposed a special lowered rate of federal tax for manufacturing.

A minute’s thought will suggest why this is a poor idea. What is manufacturing anyway? Building a car is manufacturing, obviously. What about building a mobile home? What about building a non-mobile home?

Assembling a computer out of parts is likewise obviously manufacturing. What about assembling a taco?

Clearly, talking on the phone is not manufacturing. What about operating a computer help center? No? But what if the center is operated by the computer assembler? Yes? Okay, now suppose the computer assembler has 80 percent of its staff on the phones, and only 20 percent on the shop floor.

The definitional problems are insuperable, and will only plunge the corporate tax code into ever more fathomless complexity.

Santorum has arrived at this impossible outcome because he has limited his arsenal of policy instruments to one instrument only: taxes, and specifically, the reduction of taxes.

Click here to read the full column.

Odd experience on CNN this morning.

I was on a panel that had a chance to interview Ron Paul. I asked this question:

“I attended a precinct caucus last night where the person who spoke on your behalf praised you as a strong social conservative: pro-life, anti-gay marriage. He also described you as pro-defense, he said you voted in favor of the war in Afghanistan and supported the killing of bin Laden. That’s at variance with the things you yourself have said. Would you today affirm that you support the Afghanistan war and the bin Laden killing?”

Paul said yes, but that is not in fact true, at least as to the killing of bin Laden.

In a radio interview with WHO Newsradio 1040, Paul told radio host Simon Conway that, had he been president, he would have pursued an alternate strategy.

“I think things would be done somewhat differently,” Paul said, of how he would have handled the situation, citing “respect for the rule of law and world law and international law.”

Paul says that instead of sneaking into Pakistan and killing bin Laden, he would have cooperated with the Pakistani government and put the al Qaeda leader on trial – a strategy, he argues, that has worked for the United States in the past.

“I would suggest …the way they got Khalid [Sheikh] Mohammed,” Paul told Conway. “We went and cooperated with Pakistan. They arrested him, actually, and turned him over to us, and he’s been in prison.”

“What’s wrong with that?” Paul asked. “Why can’t we work with the government?”

Paul did cast a vote in favor of the September 2001 measure to authorize force in Afghanistan, but only very unhappily according to his ex-aide Eric Dondero:

Ron Paul was opposed to the War in Afghanistan, and to any military reaction to the attacks of 9/11. He did not want to vote for the resolution. He immediately stated to us staffers, me in particular, that Bush/Cheney were going to use the attacks as a precursor for ‘invading’ Iraq. He engaged in conspiracy theories including perhaps the attacks were coordinated with the CIA, and that the Bush administration might have known about the attacks ahead of time. He expressed no sympathies whatsoever for those who died on 9/11, and pretty much forbade us staffers from engaging in any sort of memorial expressions, or openly asserting pro-military statements in support of the Bush administration.

You wonder: how much of Ron Paul’s support in Iowa rested on more successful misrepresentations of his foreign-policy record?

Update: I have added a link to the video from CNN.

Based on the tiny unrepresentative sample at the precinct caucus I attended: his core group are true believers, who have absorbed his message on Austrian economics and foreign policy non-interventionism.

But when they communicate to the broader Iowa Republican rank-and-file, they repackage Paul as a much more conventional conservative: pro-life, pro-military, small government, and supportive of the operation that killed bin Laden. If Paul ever does gain altitude, he will be very vulnerable to negative advertising that exposes the truth of his beliefs and background.

Andrew Sullivan complained yesterday that I had engaged in a “McCarthyite” attack on Ron Paul by writing the following:

A politician isn’t answerable for the antics of every one of his supporters. But there’s surely a reason, isn’t there, that racists, anti-Semites, 9/11 Truthers, and Holocaust deniers are so strongly attracted to the Paul campaign. They hear something. They continue to hear it too, no matter how firmly Ron Paul’s more mainstream supporters clamp their hands over their own ears.

Andrew’s riposte:

Notice how pure the smear is, enabled and not diminished by the first sentence. Notice the key concept of Beltway ideological policemen: there is a mainstream and a non-mainstream. Dabble with the latter at your peril. Since David has perished by the cult of the “mainstream”, it’s odd he should deploy it against others. But to throw in “Holocaust denial” and 9/11 Truthers for good measure! Really.

And notice how particularly cheap and easy it is to use such tactics against a libertarian. The traditional left is often based on collective associations, building a movement out of oppressed groups and their grievances, whether it be class or race or even sexual orientation. Libertarianism is the opposite. It’s about disassociating. When you listen to Paul saying he will not turn anyone away from supporting his platform regardless of their motives or beliefs, you are hearing a reflection of his libertarianism, not his bigotry. He will accept support from any quarter and compared with the corporate money flowing into the other candidates’ coffers, he is about as independent as a presidential candidate can be. Because he is a radical individualist, he doesn’t even understand why he should somehow explain the belief of others, or justify their support. You should ask them, not him.

This kind of gotcha-association game is particularly easy because libertarians favor liberty above all, and that will necessarily mean liberty for bigots as well as others. A principled belief in states’ rights will doubtless lead to more racist and homophobic policies in many states – but also, of course, more enlightened and successful inclusive states like Oregon or New York or Massachusetts or California. A rejection of statism might lead to more discrimination in the private sector. But it doesn’t mandate it. And it need not encourage it. A non-interventionist foreign policy will allow evil to triumph elsewhere in the world, because it believes it’s none of our business or too riddled with unintended consequences to try extirpating. That may be right or wrong, but it is not an approval of the evil of Assad or Ahmedinejad or the North Korean junta. And again, it is actually much deeper an American tradition than permanent warfare. But if you can trot out David Duke or Ayatollah Khamenei as potential Paul supporters, you have a very easy, cheap and essentially McCarthyite target. It saddens me that this kind of tactic works.

I still believe that the newsletters, because they were in Paul’s name, require a clearer explanation from Paul than the muddled ones he has given. He should not be left off the hook. And his proposals deserve a thorough vetting and discussion.

But there is something awry when a candidate is assessed not on his arguments and proposals but on the shadiness and ugliness of some of his fringe supporters.

Ron Paul’s supporters ask that their candidate not be judged by his associates. Or by the people he chose to employ. Or by the newsletters he published. Or by the book he wrote. Or by the way he earned the largest part of his living when out of office in the 1990s. Or by his purchase of the mailing list of the Holocaust-denying Liberty Lobby. Or by the radio shows he chooses to appear on. Or by his strategic decision to reach out to racist voters. Or by the conspiracy theories to which he lends credence, from government creation of AIDS to Israeli culpability for the 1993 bombing to a putative 9/11 “coverup.”

And here I thought that libertarianism was a doctrine of personal responsibility?

May Ron Paul at least be judged by the words he has spoken with his own mouth within the current campaign? The supporters say “no” again. When Ron Paul tells an interviewer that the Civil Rights Act of 1964 made race relations “worse,” we’re not supposed to consider what he might mean by “better.” When Ron Paul warns that a border fence would be used to prevent fleeing American citizens from exiting the country, we’re not supposed to conclude that he’s a paranoid crank.

Andrew deploys what might be called the ontological defense of Ron Paul, as follows:

1) Ron Paul is a libertarian.

2) Libertarians espouse individualism.

3) Racism is a form of anti-individualism.

4) Therefore Ron Paul cannot be a racist.

That is a demonstration of what might be called the deductive method of reasoning. But there’s another way to study reality: induction.

Like this:

1) Ron Paul has again and again exploited bigotry, paranoia, and hate as fundraising devices.

2) Ron Paul is a libertarian.

3) So yes, I guess it is possible for a libertarian to do that.

Here’s my question for Ron Paul supporters: why the denial of the undeniable?

Perhaps you like Paul’s message of legalized marijuana? Why not just say so? You don’t think it’s important to stop Iran from gaining nuclear weapons? Argue it forthrightly. If you regard Social Security and Medicare as literally the moral equivalents of slavery, go ahead, make your case.

But all this excuse-making, special pleading and jiggering of the rules of evidence so as to exculpate Ron Paul from the record of his whole political life? For what?

What is wrong (and right) with Joe Stiglitz’s analysis of the Great Depression? Click here for Part 1. Click here for Part 2. Click here for Part 3.

Back in the 1960s, Daniel Patrick Moynihan once offered this solution to the economic problems of black America: restore Sunday mail delivery.

The line was sort of a joke, but sort of not. The Post Office of those days really did provide secure employment to large numbers of black Americans, and a seventh delivery day would require the employment of still more.

Government can always create direct employment. It’s often said that the three biggest employers on earth are the Chinese Red Army, the Indian state railways, and the UK’s National Health System, government enterprises all. When I was in the UK last month, I took part in the BBC’s Question Time program. During a discussion of youth unemployment, a member of the audience raised her hand to argue that it was very, very important that the British government hire counselors to help young people find jobs. There’s not a lot of reason to think that such counselors actually enhance youth job prospects. The eager way in which the woman phrased the question did however strongly indicate that she regarded the creation of more such positions as a great boost to her own job prospects.

Yet when Joe Stiglitz–or for that matter, President Obama–talks about government investment as a way to rescue the American middle class, they are contemplating something more interesting than merely expanding the government payroll. They are suggesting that government action can generate productivity improvements that will translate into rising wages in new economic sectors.

The analogy most often heard is the Internet. Government helped create its infrastructure, which in turn spurred all kinds of wealth-creating innovations.

Yet it’s precisely since the advent of the Internet that the gap between rich and poor has widened most spectacularly and that the wages of the middle have stagnated. I’m not claiming that the Internet drove those trends, but pretty evidently it did not prevent them.

If anything innovation seems to be accelerating the trends toward rising wages for high-skilled workers in China and India and declining wages for low-skilled workers in America. It’s hard to see why, say, cost-effective solar panels would be any different. And yet on that hope, so many are building an argument for a more intrusive and interventionist government. Unfortunately the downsides associated with intrusive and interventionist government cannot so easily be wished away.

What is wrong (and right) with Joe Stiglitz’s analysis of the Great Depression? Click here for Part 1. Click here for Part 2.

Yet for all the problems with the Stiglitz theory of the Great Depression and the Long Recession, there is some useful wisdom as well.

Stiglitz is framing a critique–not only of the Friedman/Schwartz theory of the Depression–but also of the neo-Keynesian theory of today’s economic problems.

The neo-Keynesian view of the current situation (expressed most pungently by Paul Krugman) goes something like this:

The US economy has been hit by a financial crisis, not an economic crisis. The crisis has deprived consumers of the cash and credit to buy goods and services. Aggregate demand has slumped, and so therefore has employment. If government stepped in as a substitute buyer of goods and services, demand would revive – perhaps as rapidly as a mere “matter of months,” as Paul Krugman boldly stated in a recent blogpost.

More conservative commentators, who dislike the neo-Keynesian call for lotsa-lotsa government spending, argue that today’s unemployment is “structural”–the product of a mismatch between the skills possessed by today’s workers and the demands of today’s consumers. Some (but not all) proponents of the structural unemployment theory espouse the full-blown Austrian economics theory of the business cycle, the malinvestment theory, whereby any attempt to mitigate unemployment must perversely aggravate unemployment.

(There’s a funny anecdote about the Austrian theory of the Great Depression, told by Joan Robinson in 1971.)

I very well remember Hayek’s visit to Cambridge [in 1931] on his way to the London School [of Economics]. He expounded his theory and covered the blackboard with his triangles. … The general tendency was to show that the slump was caused by inflation. R.F. Kahn … asked in a puzzled tone, ‘Is it  your view that if I went out tomorrow and bought a new overcoat, that would increase unemployment?’ ‘Yes,’ said Hayek. ‘But,’ pointing to his triangles on the board, ‘it would take a very long mathematical argument to explain why.’

The structural unemployment argument has many problems of its own. For one thing, it quickly becomes tautological – the very fact of prolonged unemployment is seized on as proof of a skills-demand mismatch.

Yet surely there is something to this point in our current context. The best section of Stiglitz’s article is his exposition of the pressure on less-skilled labor in the years before the 2008 financial crisis.

That seeming golden age of 2007 was far from a paradise. Yes, America had many things about which it could be proud. Companies in the information-technology field were at the leading edge of a revolution. But incomes for most working Americans still hadn’t returned to their levels prior to the previous recession. The American standard of living was sustained only by rising debt—debt so large that the U.S. savings rate had dropped to near zero. And “zero” doesn’t really tell the story. Because the rich have always been able to save a significant percentage of their income, putting them in the positive column, an average rate of close to zero means that everyone else must be in negative numbers. (Here’s the reality: in the years leading up to the recession, according to research done by my Columbia University colleague Bruce Greenwald, the bottom 80 percent of the American population had been spending around 110 percent of its income.) What made this level of indebtedness possible was the housing bubble ….

Surely this is right? Before the crisis, very large numbers of Americans lived in a world that seemed to have less and less demand for what they could do. American skill levels – even basic literacy – seem to increasingly inadequate to generate rising incomes. Thanks in large part to misguided immigration policies, skills in America seem to be in multi-generational outright decline.

Higher aggregate demand may find some kind of work for such Americans to do. The longer-term outlook is not so good however when we disaggregate, as those strange bedfellows Stiglitz and Hayek urge us to do. Stiglitz is no conservative, of course, and he’s not bashful about government spending. But he does share one of Hayek’s most valuable insight: the insight that “aggregate demand” is an aggregation of demands for particular things.

[J]ust as there cannot be a uniform price for all kinds of labour, an equality of demand and supply for labour in general cannot be secured by managing aggregate demand.  The volume of employment depends on the correspondence of demand and supply in each sector of the economy, and therefore on the wage structure and the distribution of demand between the sectors.

The particular labor of most Americans was decreasingly well-paid in the last economic expansion. When recovery comes, what will it look like for the large majority of American wage-earners? A future that offers most Americans higher employment but only at declining wages represents something more than an economic problem.

- MORE TO COME -

What is wrong with Joe Stiglitz’s analysis of the Great Depression? Click here for Part 1.

Problem 1: Repeat after me – The Great Depression was a global event. That’s a fact American economic historians always have great trouble keeping in mind, and Stiglitz here succumbs to the national myopia.

How did the troubles of the American farmer wreck every economy from Germany to China? If your theory of the Depression does not start with the huge debts bequeathed by the First World War – and the failure of the postwar settlement to re-establish a stable economic and financial order – then it’s not a very good theory.

Problem 2: So here’s the chart of the decline of farm employment.

The question that’s bound to occur is: Do these farmers look trapped to you? Between 1900 and 1930, the farm share of the population declines on a steady glidepath. There look to be abundant opportunities elsewhere. We can import into our chart some of our knowledge of US history: migration from the farm was certainly easier for whites than for blacks. Perhaps it makes sense to think of Southern black sharecroppers as “trapped.” (The unusually sharp drop in the farm population between 1940 and 1960 represents the great migration of Southern black farmworkers to industrial cities.) But poor black sharecroppers were hardly in a position to accumulate significant debt in the 1920s. Nor is it plausible to describe the decline in their consumption from pitifully little in 1928 to miserably less in 1930 as an important constraint on overall economic demand in the US economy.

Problem 3:

If “trapped industrial workers” are the reason for today’s deep and protracted unemployment, why was the plunge in employment deepest and most protracted in Nevada, South Carolina, Florida and California? The Rustbowl suffered its most painful shocks between 1974 and 1993. If Stiglitz’s story is true, why did we not see deep and prolonged unemployment in the 1990s and 2000s, closer in time to the steepest drops in industrial employment?

Perhaps Stiglitz has in mind a story like this: Dad loses his steelworking job in Youngstown, Ohio, and subsists thereafter on a disability pension. Junior graduates from high school in Youngstown, finds work in the homebuilding industry in Florida – but is now stranded by the collapse of the housing market. Some verion of that story probably applies to a large number of people, but how is it a story of “entrapped” labor? Isn’t it a story of labor flexibility – manufacturing to construction? Yes, perhaps Junior’s life history tells us something about the shrinking prospects for less-skilled workers. But that’s a different narrative from the narrative that Stiglitz wants to tell.

Problem 4:

Stiglitz’s critique of Obama administration policy reminds me of the old law school joke, “Right result, wrong reason.” Even as he rejects the administration’s theory of its actions, he calls for extra doses of exactly the same policies.

The only way it will happen is through a government stimulus designed not to preserve the old economy but to focus instead on creating a new one. We have to transition out of manufacturing and into services that people want—into productive activities that increase living standards, not those that increase risk and inequality. To that end, there are many high-return investments we can make. Education is a crucial one—a highly educated population is a fundamental driver of economic growth. Support is needed for basic research. Government investment in earlier decades—for instance, to develop the Internet and biotechnology—helped fuel economic growth. Without investment in basic research, what will fuel the next spurt of innovation? Meanwhile, the states could certainly use federal help in closing budget shortfalls. Long-term economic growth at our current rates of resource consumption is impossible, so funding research, skilled technicians, and initiatives for cleaner and more efficient energy production will not only help us out of the recession but also build a robust economy for decades. Finally, our decaying infrastructure, from roads and railroads to levees and power plants, is a prime target for profitable investment.

It’s a familiar program, exactly the program that President Obama laid out in his Kansas speech last month, subject to all the same objections. The US has doubled K-12 spending since the early 1990s. What do Americans have to show for it? Who believes that even more spending will buy better results? What results have been bought by the rising per-student cost of higher education? Yes, we can improve the job statistics (at least for a time) by putting more people on the government payroll at relatively high wages. But as Tony Blair and Gordon Brown too painfully demonstrated in the UK between 1997 and 2008, their government-led employment did not translate into higher productivity, but only into a heavier debt load for taxpayers to sustain when their own incomes are dropping. As for direct government investment in energy technology, one can only say … sigh.

- MORE TO COME -

Joe Stiglitz’s offers in the current Vanity Fair an arresting theory of both the Great Depression and the current economic malaise.

Contra the (now) orthodox view propounded by Milton Friedman and Anna Schwartz, Stiglitz argues that the Depression was not fundamentally a monetary event. Instead, Stiglitz counters, we should think of the Depression as driven by a deeper crisis in the real economy: Between 1890 and 1930, technological advance had rendered most farm labor obsolete. Yet these redundant farmers remained on the farm, supported first by the high farm prices of 1913-1919, then by the easy credit of 1921-1929. After 1929, the credit disappeared–and millions of farmers and farmworkers were ruined and stranded. Unable to earn a livelihood, they could no longer purchase the products of the urban manufacturing economy, pulling the whole economy into depression after them.

In this telling, the collapse of the money supply identified by Friedman and Schwartz as the cause of the (American) Great Depression is reduced a symptom. When the farms failed, their bankers failed. Because monetary contraction did not cause the crisis, monetary stimulus could not redress the crisis. Contemporary economists despairingly compared monetary stimulus to “pushing on a string”: the central bank could create bank reserves, but it could not induce bankers to lend or business to borrow at a time when neither saw profitable opportunities.

Again in Stiglitz’s telling, the US was pulled out of Depression by the catastrophe of World War II. To wage war, the US government invested massively to develop industrial infrastructure, especially in the West and South. War spending provided the demand for new products; war investment built the plants and ports that absorbed formerly redundant labor. Instead of rescuing the financial system, the government reinvented the real economy. The now-stringently regulated financial system recovered willy-nilly.

You can probably see where Stiglitz is going with this analogy. How should we assess the claim?

- MORE TO COME -

On the last day of 2011, President Obama “with reservations” signed the authorization for the 2012 defense budget.

The president said he objected to language in the bill that granted him powers to detain terror suspects indefinitely – but forbade him to transfer detainees to the mainland US. Unmentioned in the signing statement was another section of the bill his administration had fought even harder than the detainee language: new sanctions on the central bank of Iran, an amendment pushed hard by Sen. Mark Kirk of Illinois.

According to one knoweldgable observer:

Effective immediately, any Iranian central bank money that hits US jurisdiction must be frozen.  Additionally, today starts a 60 day clock until sanctions must be imposed on any foreign financial institution that conducts transactions with or through the central bank of Iran for non-petroleum purposes. That means the Treasury Dept has less than 60 days to publish draft and then final rules to implement the sanctions – this will be the next key set of events to watch closely to see how the Administration chooses to define certain words to either narrow or expand the application.

Separately, today starts a 180 day clock until the imposition of sanctions on petroleum-related transactions trough or with the CBI.

These constitute the harshest sanctions yet on Iran, the ultimate test of whether the Iranian nuclear bomb can be halted without war. However, the administration has wide authority to waive the sanctions and thereby obviate the test. The administration will be strongly tempted to do just that, unless Congress and public opinion object and make their objections felt. Everybody should now watch the administration’s choices carefully: Iran announced January 1 that it had succeeded in enriching a whole fuel rod. Decision day is arriving fast.