Capital Gains and Games - Washington, Wall Street and Everything in Between

Your New Required Reading

Andrew Samwick — Fri, 29 Aug 2008 09:49:37 -0500

Here's a recent biographyof Republican vice presidential nominee Sarah Palin. This is an inspired pick by the McCain team. She's an authentic Main Street conservative with a compelling personal story. Let's see how she's introduced and how well she brings her style of politics to the campaign.

On My Mind This Morning -- New Orleans Again

Andrew Samwick — Fri, 29 Aug 2008 08:09:18 -0500

It looks like New Orleans will get another hurricane early next week. Here are some images from my trip last month:

There are some reports that the GOP is considering delaying the start of its convention. I think this is a mistake, given how irrelevant the business of the convention is to the election itself. As we saw last evening, conventions have become only media spectacles. In that respect, it would be much better to have the convention, with toned down festivities, displays of solidarity with the people enduring the hurricane, and speeches from Governor Jindal and President Bush from the field supervising ... an appropriate relief effort that will avoid the need for any of these signs three years from now.

Obama's Speech

Stan Collender — Fri, 29 Aug 2008 05:05:55 -0500

As a public relations guy during the day and someone who has written and delivered lots of speeches over the years, I can tell you from very personal experience that there are two parts of every address: what you say and what the audience hears. They are not necessarily the same. The one you really want to turn out right is the second.

That's really where Barack Obama succeeded last night. Six hours after he finished delivering it it, my impression is that the folks in the stadium and those watching at home heard someone who seemed to be:

1. Tough

2. Strong

3. Combative

4. Resolute

5. Self-assured

6. In charge

I suspect The Speech will be nitpicked to death in the coming days over some of what was said. And that's what the McCain campaign tried to do last night immediately after The Speech was over when it released this statement.

But if that type of response succeeds at all it will likely be slow and incremental. The real challenge now for the McCain folks will be to debunk the six character attributes listed above and that will be MUCH harder.

I'm not the only one who thinks that Obama's speech may have worked wonders with the voters. Last night, Alex Castellanos, one of the biggest of the big-time GOP advertising consultants, said on CNN following the speech, "whoever didn't get picked for Republican VP today may be a lucky Republican." To me, Castellanos looked a little shellshocked and even humbled by The Speech, not unlike a batter in baseball who realizes that he can't hit what the pitcher is throwing.

In and Out of Al Gore's Speech

Andrew Samwick — Thu, 28 Aug 2008 21:06:35 -0500

I thought Al Gore's speech was one of his best in politics. Two things jumped out at me.

First, the word "tax" was not uttered. It was the perfect opportunity to make his case for a carbon tax. He could have slipped it in before (or in lieu of) the second paragraph here:

And it just so happens that the climate crisis is intertwined with the other two great challenges facing our nation: reviving our economy and strengthening our national security. The solutions to all three require us to end our dependence on carbon-based fuels.

Instead of letting lobbyists and polluters control our destiny, we need to invest in American innovation.

Impose the tax and the innovation follows. There is no particular reason for the government to direct the innovation. Better to focus on the critical aspects of infrastructure where natural monopolies make a more compelling case for government involvement.

Second, I have often wondered what the Democrats think would have happened on 9/11 if the 2000 election would have broken for Gore rather than Bush. Unless you are of the view that Gore in the White House would have prevented 9/11, then I don't see how the Democratic Party could have recovered from it. There would have been an unbroken line from the 1993 WTC bombings to 9/11 and no way for Gore to withstand what would have been blistering critiques from the Republicans. Soft on national security and the like. I think the 2002 midterm elections would have gone strongly Republican and that they would have used the full powers of the Congress to rake Gore over the coals. The Republicans would have captured the White House in 2004, but probably not with George Bush as their candidate.

In his speech tonight, Gore made this remark:

Take it from me, if it [the 2000 election] had ended differently, we would not be bogged down in Iraq; we would have pursued bin Laden until we captured him.

That suggests he doesn't think he could have prevented 9/11, but read a more complete Q&A with Gore about this topic here. What do you think?

Was The Surprise Visit By The Candidate To The Convention On Wednesday Taken From The JFK Playbook?

Stan Collender — Thu, 28 Aug 2008 15:32:57 -0500

It was 1960, the Democratic convention was in Los Angeles, and John Kennedy and Lyndon Johnson were battling for the presidential nomination. Neither candidate had enough delegates before the first ballot roll call began and no one was sure what would happen when the votes were tallied. Kennedy ended up winning on that first ballot. (I may be wrong but I seem to remember that it was Wisconsin that put him over the top.)

Like now, the tradition then was that the candidate didn't show up at the convention until the final day, when he (in 1960 it was always a man) arrived to accept the nomination and give the big speech. But Kennedy surprised everyone when he showed up shortly after the balloting ended. I have a vague memory of him saying something to the effect that he wasn't allowed to say officially at the time whether he would accept the nomination but he was sure everyone had an idea what his answer would be.

I can't help but ask whether the Obama campaign was taking a play out of the JFK play book last night when he showed up at the convention. It had exactly the same impact -- electrifying the delegates and getting him air time on the news -- that the Kennedy appearance had in 1960.

You have to wonder whether the next step is for the candidate to wear a grey suit at the debates.

Really?

Andrew Samwick — Wed, 27 Aug 2008 23:05:47 -0500

Possibly the most ridiculous quote of the week, courtesy of David Maraniss of The Washington Post and Rahm Emmanuel:

Bill Clinton and Barack Obama -- in so many ways two sides of the same coin. Old heat and new cool, two guys who came out of nowhere, bereft of early connections, overcoming the odds. Each raised by a single mother and grandparents, in blended families featuring a variety of half siblings, with lost and distant fathers and stepfathers and no strong male role models. Both drawing on uncommon will, Ivy League legal training, mental agility, innate adaptability and the symbolism of hope to reach the heights of American politics.

"They are very similar in their strengths and weaknesses," noted Rahm Emanuel, chairman of the House Democratic Caucus, who views the two men from a unique perspective as a congressman from Obama's home town, Chicago, and a former White House aide to Clinton.

Strengths, maybe. Weaknesses, I don't think so.

Traffic Deaths Declined Because Of High Gasoline Prices

Pete Davis — Wed, 27 Aug 2008 17:05:02 -0500

Traffic deaths declined 20% nationwide during March and April, 2008 versus the same period a year ago as a result of high gasoline prices according to a study by Michael Sivak of the University of Michigan's Transportation Research Institute. It pays to be cautious is jumping to conclusions based upon a few months of evidence, but having logged a lot of time on Washington's Beltway recently, I can assure you there's less traffic, and most of that traffic is travelling at slower speed. The Washington Post interviewed area transportation experts who still see lots of traffic fatalities, particularly on motorbikes, but Sivak predicts we will drop below 40,000 fatalities nationwide in 2008 for the first time since 1961!

I had always thought short-run gasoline demand elasticities were quite low already, but this paper by Jonathan E. Hughes, Christopher R. Knittel, and Daniel Sperling of the University of California, Davis finds they have dropped even more in 2001-2006 as compared to those of the 1970s and 1980s. This supports another of my recurring themes: Now that we have hard won changes in driving behavior in hand, let's hang onto them by preventing gasoline prices from declining too much. How much is too much? I don't know, but pick a number, say $3.50 gallon and impose a variable tax to keep it there. That could raise money for research and investment in alternative fuels, and it would foreclose a return to higher speeds, larger vehicles, and more traffic deaths on our highways.

A Third World Grid

Pete Davis — Wed, 27 Aug 2008 16:35:44 -0500

Andrew and The New York Times are right on this morning. Washington energy policymakers pushed electricity deregulation starting in the 1970s without much thought to what that would do to the grid. Deregulation did lots of good things: lower prices; peak load pricing; more flexible generation; and more innovation. Deregulation did lots of bad things too: Enron price manipulation; reduced safety; and reduced investment in the grid, a collective good not owned by many of the deregulated electiricty companies. This article gives an excellent overview. We never seem to learn that every panacea has its downside that needs to be guarded against.

One of my overarching themes in this blog is Washington's incoherent energy policies. This is a perfect example. Senator McCain and Senator Obama have campaigned hard in support of alternative energy sources, many of which depend upon transmitting more electricity throught the grid. Both also offer strong incentives for electric cars, which we won't be able to charge without big improvements in the grid.

General Motors, if it doesn't go bankrupt by then, plans to bring an electric car, the Chevy Volt, to market in November, 2010. It's a really exciting example of technology that could save the day and truly put us on the road to energy independence. Check out this Charlie Rose interview with Detroit legend, Bob Lutz, who is heading the project.

If I've learned one thing in 36 years of Washington policymaking, it is that no matter how smart you are, any policy change can have unintended consequences that you didn't think of, or that you minimized, at the time. It's more important to set up a self-correcting policy mechanism than it is to try to figure everything out in the first legislative effort. Unfortunately, that runs contrary to Congress's overriding desire to micromanage.

The good news is that Washington reacts to crises. If you look at figure 3 in this article, you'll note that Washington, D.C. imports 99.4% of its electricity. I can't wait for the blackout. If it comes soon enough, we might wriggle out of this.

Taking Stock of the Labor Market

Andrew Samwick — Wed, 27 Aug 2008 16:08:19 -0500

Steven Pearlstein's column, "Our Inequality of Outcomes," in Wednesday's Washington Post prompted me to think more about "one of the most depressing graphs I've ever seen" (see this earlier post):

Real earnings crashed in the 1970s, continued to decline through the mid-1990s, and rebounded through the mid-2000s. The rebound is only about half of the earlier declines. Pearlstein wonders about why the last several years have been flat, given higher productivity growth over the last decade or so.

Here's annual productivity growth over a similar time period (with period averages prior to 1973, 1973-1996, and 1996-2007):

The periods of decline in the real earnings chart do correspond pretty well to the low period of productivity growth. But I don't think that's the whole story. Consider the following chart of labor force participation by sex over the same time frame:

The rebound in productivity also corresponds roughly to the end of the big increase in labor force participation. I'd suggest that the long-term increases in labor force participation, driven by women entering the labor force in larger numbers, also played a role in holding down real wage increases. With that trend having slowed or stopped, there was more scope for real wage gains as labor was compensated.

But adding this consideration of labor supply doesn't do anything to explain recent events--labor force participation has been lower during the same period that real earnings have been flat.

Some explanation can be found in the share of total compensation going to wages and salaries versus benefits. In March 2008, wages and salaries were 70.6% of total compensation in private industry. In March 2000 and March 1986 (the earliest report I could find), wages and salaries were 73% of total compensation. So the growth of benefits as a share of total compensation knocked 3 - 3.5 percentage points off the growth of wages and salaries over the last 8 years. Annualized, that translates into 0.5 percentage points per year, which is still small compared to the annual productivity growth rates.

A Third World Grid

Andrew Samwick — Wed, 27 Aug 2008 06:03:56 -0500

From The New York Times this morning, a sobering article on our antiquated power delivery systems:

Unlike answers to many of the nation’s energy problems, improvements to the grid would require no new technology. An Energy Department plan to source 20 percent of the nation’s electricity from wind calls for a high-voltage backbone spanning the country that would be similar to 2,100 miles of lines already operated by a company called American Electric Power.

The cost would be high, $60 billion or more, but in theory could be spread across many years and tens of millions of electrical customers. However, in most states, rules used by public service commissions to evaluate transmission investments discourage multistate projects of this sort. In some states with low electric rates, elected officials fear that new lines will simply export their cheap power and drive rates up.

Without a clear way of recovering the costs and earning a profit, and with little leadership on the issue from the federal government, no company or organization has offered to fight the political battles necessary to get such a transmission backbone built.

Why am I not surprised? But more importantly, and echoing a recent comment by Minnesota Mom (and a capital idea of mine), it is okay for the government to authorize "emergency" deficit spending of $150 billion to prolong the debt-laced consumption rampage of the last several years, but it can't invest $60 billion to upgrade the power grid. OK, got it .