End The Debt Ceiling

The truth is that the United States doesn’t need, and shouldn’t have, a debt ceiling. Every other democratic country, with the exception of Denmark, does fine without one. There’s no debt limit in the Constitution. And, if Congress really wants to hold down government debt, it already has a way to do so that doesn’t risk economic chaos—namely, the annual budgeting process. The only reason we need to lift the debt ceiling, after all, is to pay for spending that Congress has already authorized.... For the U.S. to default now, when investors are happily lending it money at exceedingly reasonable rates, would be akin to shooting yourself in the head for failing to follow your diet.

From James Surowiecki at the New Yorker via Calculated Risk.

I totally agree with Surowiecki's analysis. Alas, Tea Party Republicans, rather than grown ups, are in charge in the House of Representatives and they could care less about responsible government, the nation's credit rating, or the well being of our country, and are blinded by a less taxes, less spending agenda, reality and reason be damned.

READ MORE - End The Debt Ceiling

Congressional Partisanship At Record High

The partisan divide between the Democrats and Republicans in the United States Congress is currently at an all time high. Partisan divides were lowest in the mid-20th century, but are higher now than they were in the late 19th century and early 20th century.

Posed less negatively, the Democratic and Republican party are more distinct than every before rather than being blurred by politicians who don't fit either party's mold, in part, due to "realignment" with one time Northeastern moderate Republicans now identifying as Democrats, and one time conservative Southern Democrats now identifying as Republicans in federal elections.

Deadlock isn't always a bad thing when the country is divided. A deadlocked nation may be one that shouldn't be making major changes from the status quo in the law. But, deep partisan divisions and divided government may make action entirely unachievable even on issues that necessarily call for some action to keep the institution of the federal government functioning, like the debt ceiling, appointments to bureaucratic posts, or approval of a federal budget.

READ MORE - Congressional Partisanship At Record High

Is The Debt Ceiling Constitutional?

Congress enacts our tax laws.  Congress appropriates funds by law.  Congress passes a statute called the debt ceiling.  The U.S. Constitution gives Congress the enumerated power to tax, to spend, and to incur debt.  The U.S. Constitution also forbids Congress from passing laws that impair rights under government contracts.  The Constitution calls upon the President to faithfully execute the laws and constitution of the United States and the President has long been understood to have the authority to resolve based upon legal advice from the executive branch situations in which one law seems to be contradicted by another law or the United States Constitution.  The judicial branch is also understood to have that authority.

When the United States government bumps up against a debt ceiling passed by Congress, we are overconstrained and the way to faithfully executed the law and the United States Constitution becomes non-obvious.  No one suggests that the President or the Courts may increase revenues by imposing new taxes without Congressional approval.  But, faced with laws enacted by Congress appropriating discretionary funds, earlier passed legislation by Congress establishing a debt ceiling, legislation passed before the debt ceiling was enacted providing for non-discretionary spending, and the constitutional obligation of the United States government not to default on its contracts, either by failing to pay its national debt obligations or failing to honor contracts it has entered into with its employees and government contractors, what is a President who has a Congressional mandate to spend funds and a Congressional mandate not to borrow enough money to spend the funds appropriated to do?

According to current predictions from the United States Treasury Secretary, if legislative gridlock persists, we will have a constitutional crisis that will force the President to resolve this issue some time around August 2 of this year.

At least since President Nixon, there have been some who have argued that the mere fact that Congress has authorized the President to spend money in an appropriation doesn't mean that the President doesn't have to spend those funds, in a sort of back door line item veto that is not subject to legislative review (despite clear U.S. Supreme Court authority that Congress cannot create a line item veto by statute).  But, the President's freedom of action is less obvious once government contracts (particularly multi-year appropriations for navy purchases expressly authorized by the constitution) have been inked, in cases of non-discretionary spending, and in cases where the language of a specific appropriate classified as "discretionary spending" does not on its face have language that is susceptible to being read as giving the President the option not to spend it.

Looking at the issue politically, it also isn't obvious why the constitution, which is at its heart a political document, should be interpreted in a way that allows Congress to demand the impossible in an overconstrained budget by forcing the President to make politically painful choices on what to cut from Congressionally authorized appropriations by providing the President with neither the tax revenues nor the borrowing power to spend the funds appropriated.

In the absence of a debt ceiling statute, the President would almost surely have the inherent authority, implied from the appropriations and the lack of tax revenues sufficient to fund all of the appropriations made by Congress to borrow money on the full faith and credit of the United States in order to carry out the appropriations authorized by Congress.  So, one of the easier options for a court faced with resolving a situation in which the President is presented with a choice of evils that leaves it mathematically impossible for him to faithfully execute all of the laws that Congress has deemed fit to adopt would be to declare that the debt ceiling is unconstitutional, or at least, that the President may lawfully resolve the overconstrained situation by ignoring it until the nation's budget ceases to be overconstrained.  This has the virtue of keeping the courts out of the policy laden minefield of figuring out which spending programs should be cut and which should not be cut and how much each program should be cut.

The alternative would be for a court to determine that the President has the power to resolve the situation by not spending appropriated funds, or indeed, a court could even hold the that President is not allowed to spend even appropriated funds if tax revenues and the amount of spending available to the President as a result of the debt ceiling are insufficient to pay for the appropriated spending.

 But, here, the devils are in the details.  Since spending is authorized by myriad different pieces of legislation and government revenue is organized into many dedicated funds from which spending for particular programs flows, the analysis for each little bit of appropriated spending is not so simple.  In each case it is necessary to determine what legislation authorizes the spending, whether the spending comes from the general fund or from a trust fund that is still solvent, whether the spending is discretionary given the language of the appropriation, and how the general law of resolving conflicts between statutes such as interpretive provisions based upon specificity, connection to larger statutory schemes and the preference to be given to the later enacted statute (a rule that leaves unclear what weight to be given to the non-binding budget passed by Congress in advance of binding appropriation and tax bills should be given in terms of prioritizing statutes that conflict with each other) should be given.  The constitution is not a suicide pact, and the President cannot ignore in an overconstrained budget situation the fact that some appropriations are for essential government operations that have irrevocable life and death consequences if suspended even briefly while the President and Congress work out deals on spending cuts and the debt  ceiling.

Congressionally appropriated funds as he deems fit, and does not have any constitutional obligation to make the cuts from appropriations that are determined to yield in a conflict of statutes to the debt ceiling equally across the board or according to any other predetermined formula.

Similarly, even if it is determined that there are some appropriations that can be cut by the President that yield in a conflict of statutes to the debt ceiling, if all of these potential cuts in appropriations combined still make it necessary to exceed the debt ceiling in the budget year, it isn't legally obvious whether those cuts must all be made, extending the collision with the debt ceiling until the latest possible date before which Congress might act to increase the debt ceiling legislatively, or if the President may take note of the inevitable and abrogate the debt ceiling immediately upon determining factually that the debt ceiling can't be reconciled with the funding that has been appropriated by Congress and prevails in a conflicts of statutes with the debt ceiling.

But, if the President does not exercise his discretion to refrain from spending appropriated funds in an amount sufficient to avoid exceeding the debt ceiling, and if a court has the authority to look at spending statutes on a case by case basis to determine which may and which may not yield to a debt ceiling law when the aggregate amount of spending appropriated by Congress conflicts with the debt ceiling that it has enacted (something that is arguable a non-justiciable political question), these matters generally come to the courts when the clock is ticking and complying with all of the budget related laws enacted by Congress has already become impossible or will become impossible imminently. So, a court may lack the time to conduct the analysis necessary to come to a legally principled resolution of the question of when appropriated spending is not required by law before an immediate resolution of the conflict is required. Faces with a choice of evils, a determination that the debt ceiling is unconstitutional may be the only practicable resolution available to a court if it is called upon the resolve the crisis as a matter of law, because elected officials have failed to do so.

After all, a court determination that the United States government has a legal obligation to pay for appropriated spending, even if that means that the United States government has to incur a debt liability as a result, isn't really all that different from the routine practice of courts that under judgments against the United States government in a legal case that are by their very nature debts of the United States government that are not authorized by Congress in advance.

UPDATE:  Some have argued that the "no debt shall be questioned" language of the 14th Amendment makes the debt ceiling unconstitutional.  I'd argue the opposite.  The duty to pay the government's obligations comes from the contracts clause of the original constitution.  It applies to everything from contracts to build roads to Treasury bonds.  The 14th Amendment, by limiting its validation of the national debt (and with a current focus on the Civil War debt obligation of the Union which was validated in contrast to that of the Confederacy which was not) limits that validation to debts authorized by law.  But, the debt ceiling arguably makes the point that debts in excess of that amount are not authorized by law, buttressing the argument that Congress, in general, is the branch that authorizes debt to be incurred under Article II, Section 8.  Debts in excess of the ceiling, which are not authorized by law, are arguably subject to question under the 14th Amendment in a way that debts under the ceiling are not.

But, the 14th Amendment language still doesn't elucidate one way or the other the way we must proceed when we have multiple laws, one group authorizing spending, another authorizing the collection of federal reveneus from sources other than debt, and a third limiting the amount of the debt that may be incurred.  When they can't be reconciled, something has to give.  If it is not an imposition of executive order imposed taxes, it must be legislatively authorized spending or the legislatively imposed debt ceiling.

In practice, so much of the spending, like Social Security, Medicare, unemployment benefits, etc. is non-discretionary, and tax revenues are so low, that once the debt-ceiling is reached, truly draconian cuts on that portion of discretionary spending that the government is not already obligated to pay as a result of government contracts with private parties may be impossible, at least as a practical matter.  For example, we can't simply put the entire U.S. military on furlough, and the Department of Defense is the singled largest discretionary spending line item.

So, faced with a choice of evils, it may simply be impossible to do anything but to ignore the debt ceiling, which in one piece of legislation, in favor of the appropriations legislation for the nation's spending, which is another piece of legislation.

READ MORE - Is The Debt Ceiling Constitutional?

Back Door Cramdowns?

The general rule under the United States bankruptcy code is that when loans are secured by collateral in a reorganization (rather than a liquidation), that the loan is broken up into two parts for bankruptcy purposes - one equal to the value of the collateral which is entitled to receive value in the bankruptcy equal to at least the value of the collateral (often by being given a loan with a principal amount equal to the value of the collateral and otherwise the same interest rate, amortization period and other terms as the original loan), and with the othe part equal to the remainder of the loan that receives the pennies on the dollar or no payout that other general unsecured creditors (like ordinary corporate bond holders and credit card copmanies) receive. The reduction of the loan to the value of the collateral is called a cramdown. Mostly, cramdowns apply to business property bought with secured credit and vacation properties with mortgages.

Residential mortgages and most car loans aren't eligible for cramdown treatment in bankrupty. The debtor must either reaffirm the loan in full, even if the collateral is worth less than the loan, or surrender the property.

There is a gray area in the case of residential mortgages that is turning out to be quite relevant. Often, a house in bankruptcy in an areas where there has been a housing price bubble collapse will have two mortgages. The first mortgage will clearly not be eligible for a cramdown. But, what about the second mortgage? If the value of the house is less than the amount of the first mortgage, is the second mortgage really a mortgage at all? Or, is the second mortgage really just an unsecured debt like a credit card because its claim against the collateral is contingent and only a remote future possibility?

A recent newspaper article in the Mercury News reviews this legal battle. According to the article, "bankruptcy lawyers say the provision has been used effectively on hundreds, if not thousands, of cases in the Bay Area during the past two years." The California Mortgage Bankers Association is unhappy about this trend, but sees few options on the legislative front in a divided Congress. On the other hand, "there are no complaints from investors in first mortgages, like the pension and retirement funds represented by the Association of Mortgage Investors."

Income tax deductability and funding from mortgage backed securities made splitting low down payment mortgages into a a conventional first mortgage with an 80% loan to value ratio, and a second mortgage with a higher interest rate that covered the balance except for a small down payment, attractive compared to a single larger first mortgage with title insurance. Second mortgages used to extract cash from a house that had appreciated in value during the housing bubble were also popular.

The issue has a special tenor in California where residential mortgages are generally non-recourse. There, the only way that a lender can collect is out of the collateral, so a bankruptcy proceeding that wipes out a second mortgage lien wipes out any remedy for the lender.

There are two narratives that explain the trend to deny the cramdown to residential mortgages.

One is that it protects lenders from being penalized by artificially low appraisals in bankruptcy court. If the property is really worth less than the loan, a rational bankruptcy debtor would give up the property and escape the mortgage debt in bankruptcy, so a cramdown should only take place if the appraisal undervalues the property providing an undeserved benefit to the debtor. Similarly, an appraisal based only on current comparables fails to capture appreciation in real estate that may be available in a short time during a temporary real estate price slump. These concerns don't seem to have been well supported, however, by the experience in Chapter 12 farm bankuptcies, where cramdowns are allowed.

The other narrative is that home owners aren't rational. They attach sentimental, and dignity related and moving cost related value to their home that no lender could realize if the home were foreclosured upon or surrendered. In this narrative, denying residential home owners a right to cramdown mortgage loans is a way of giving residential mortgage owners more than their fair share in a bankruptcy every time a debtor keeps a home that has a fair market value of less than the face value of the loan.

It is unclear how common this situation is in Denver. Internet real estate appraisal service Zillow.com says 41% of meto Denver homeowners owe more on their mortgages than their homes are worth, and many of those homes would have second mortgages. But, Standard & Poor's/Case-Shiller, which experts believe is more accurate (Forbes actually dropped them as a source after obvious gross errors in their statistics were pointed out), concludes that housing values have declined far less than Zillow concludes, and hence far fewer homeowners are upside down. Case-Shiller consistently ranks Denver as one of the twenty major housing markets least impaired by the housing bust, while Zillow counts Denver as the second hardest hit market in the nation. Like other observers, I'm strongly inclined to give Case-Shiller more credit than Zillow for accuracy on this point. Too much other data corroborates the conclusion that Denver's real estate market has declined less than those of many other markets in places like California, Arizona, Nevada and Florida.

READ MORE - Back Door Cramdowns?

Obama's Deficit Reduction Proposal

President Obama called for cutting the nation’s combined budget deficit by $4 trillion over the next 12 years. . . . The president vowed not to extend tax cuts for the wealthy or to dismantle the government-run health care systems for the elderly and poor. . . . Among his proposals is a “debt fail-safe” mechanism that would force lawmakers into much more severe action if the deficit has not contracted significantly by 2014. The provision would impose across-the-board cuts on most government programs, officials said. . . . there would be $3 in spending cuts and interest savings in the president’s proposals for every $1 that comes from increased tax revenue. . . . "we cannot afford $1 trillion worth of tax cuts for every millionaire and billionaire in our society. And I refuse to renew them again.” He said people like him “don’t need a tax cut,” and added, “Not if we have to pay for it by making seniors pay more for Medicare, or by cutting kids from Head Start, or by taking away college scholarships that I wouldn’t be here without.” . . . Along with allowing the lowered tax rates to expire, Mr. Obama suggested limiting itemized deductions for the top 2 percent of taxpayers. . . . Rather than change Medicare to a voucher program, Mr. Obama proposes broad reforms that he says would save hundreds of billions of dollars over the next 12 years and more than $1 trillion in the following decade. In the speech, the president embraced some of the proposals of his own debt commission, including $770 billion worth of cuts in nonsecurity related spending by 2023. Cuts to defense programs would be increased to nearly $400 billion over the next 12 years, officials said. The president stayed away from proposing changes to Social Security, saying that it was not a significant piece of the country’s deficit problem.

From here

A look at the details shows a proposal that allocates deficit reductions by category, is big on cutting "fraud, waste and abuse," and with some notable exceptions, particularly in the area of health care cost reductions, is short on specifics, but big on having a process to get the job done.

The White House offers more details here:

the President is calling for:

•A debt failsafe that will ensure that our nation’s debt is on a declining path as a share of our economy. If by 2014, budget projections do not show that the debt-to-GDP ratio has stabilized and is declining in the second half of the decade, the failsafe will trigger an across the board spending reduction, including on spending through the tax code.
•The trigger will ensure that deficits as a share of the economy average no more than 2.8% of GDP in the second half of the decade.
•Consistent with prior fiscal enforcement mechanisms put in place by Presidents Reagan, George H.W. Bush and Clinton, the trigger should not apply to Social Security, low-income programs, or benefits for Medicare enrollees.
•The trigger should also include a mechanism to ensure that it does not exacerbate an economic downturn or interfere with our nation’s ability to respond to a national security emergency.

Discretionary non-defense spending would be cut $200 billion over 10 years ($20 billion per year) in addition to $400 billion ($40 billion per year) in the President's budget, and would cut $770 billion over 12 years.

Defense spending would be cut by $400 billion by 2023 ($33.3 billion per year) by "pushing harder to not only eliminate waste and improve efficiency and effectiveness, but conduct a fundamental review of America’s missions, capabilities, and our role in a changing world. . . .(The President will make decisions on specific cuts after working with Secretary Gates and the Joint Chiefs on the comprehensive review.) . . . in addition to the savings generated from ramping-down overseas contingency operations."

Health care cost reductions in projected Medicare and Medicaid spending over the next twelve years is to be reduced by $40 billion per year on average ($34 billion per year on average in the first ten years), by a variety of means. A blue ribbon commission would be given the power to implement cost savings proposals when health care cost inflation is above a target unless an alternative is developed by Congress.

•Building on the Affordable Care Act, the President is proposing additional reforms to Medicare and Medicaid designed to strengthen these critical programs by reducing waste, increasing accountability, promoting efficiency, and improving the quality of care, without shifting the cost of care to our seniors or people with disabilities.
• . . . This framework includes . . . an amount sufficient to fully pay to reform the Medicare Sustainable Growth Rate (SGR) physician payment formula while still reducing the deficit.

The President’s framework proposes specific reforms to strengthen Medicare and Medicaid over the long term, including: . . .

The President’s framework would strengthen the Independent Payment Advisory Board (IPAB) created by the Affordable Care Act. . . . Under the Affordable Care Act, IPAB analyzes the drivers of excessive and unnecessary Medicare cost growth. When Medicare growth per beneficiary exceeds growth in nominal GDP per capita plus 1 percent, IPAB recommends to Congress policies to reduce the rate of growth to meet that target, while not harming beneficiaries’ access to needed services. Congress must consider IPAB’s recommendations or, if it disagrees, enact policies that achieve equivalent savings. If neither acts, then the Secretary of Health and Human Services would have to develop and implement a proposal to achieve the savings target.
•Set a new target of Medicare growth per beneficiary growing with GDP per capita plus 0.5 percent. This is consistent both with the reductions in projected Medicare spending since the Affordable Care Act was passed and the additional reforms the President is proposing.
•Give IPAB additional tools to improve the quality of care while reducing costs, including allowing it to promote value-based benefit designs that promote proven services like prevention without shifting costs to seniors.
•Give IPAB additional enforcement mechanisms such as an automatic sequester as a backstop for IPAB, Congress, and the Secretary of Health and Human Services.

. . . Under current law, States face a patchwork of different Federal payment contributions for Medicaid and the Children’s Health Insurance Program (CHIP). The President’s framework would replace the current complicated Federal matching formulas with a single matching rate for all program spending that rewards States for efficiency and automatically increases if a recession forces enrollment and State costs to rise.

. . . The President also supports reform of Medicaid to incentivize more efficient, higher quality, care for high-cost beneficiaries, including those who are eligible for both Medicaid and Medicare. These nine million beneficiaries comprise 15 percent of Medicaid enrollment but consume nearly 40 percent of total Medicaid spending.

. . . . Together with employers, States, hospitals, physicians and nurses, the Administration has launched a new public-private partnership called Partnership for Patients that will help improve the quality, safety and affordability of health care for all Americans. The two goals of this new Partnership are: preventing patients from getting injured or sicker while they are in the hospital and helping patients heal without complication. Achieving the initiative’s goal would mean more than 1.6 million patients will recover from illness without a preventable complication, reducing costs by up to $50 billion in Medicare and billions more in Medicaid over the next 10 years.

. . .. limit excessive payments for prescription drugs by leveraging Medicare’s purchasing power – similar to what was called for by the bipartisan Fiscal Commission. It would speed up the availability of generic biologics, and prohibit brand-name companies from entering into “pay for delay” agreements with generic companies. And, it would implement Medicaid management of high prescribers and users of prescription drugs.

. . . clamp down on States’ use of provider taxes to lower their own spending while not providing additional health services through Medicaid; recover erroneous payments from Medicare Advantage; establish upper limits on Medicaid payments for durable medical equipment; and take other actions to improve program integrity.

Non-health care mandatory spending would be cut by $360 billion over 12 years ($30 billion per year) through "measures to reform agricultural subsidies, shore up the federal pension insurance system, restore solvency to the federal unemployment insurance trust fund, and enact anti-fraud measures. . . . The Fiscal Commission and other bipartisan efforts have put forward additional proposals that should be considered as part of a comprehensive deficit reduction effort to meet this target. Reforms to mandatory programs should protect and strengthen the safety net for low-income families and other vulnerable Americans."

A key piece of the plan is tax increases:

He also supports efforts to build on the Fiscal Commission’s goal of reducing tax expenditures so that there is enough savings to both lower rates and lower the deficit. Reform should be designed to ask more of those who can afford it while protecting the middle class and promoting economic growth. . . . the President is continuing his effort to reform our outdated corporate tax code to enhance our economic competitiveness and encourage investment in the United States. By eliminating loopholes, reducing distortions and leveling the playing field in our corporate tax code, we can use the savings to lower the corporate tax rate for the first time in 25 years without adding to the deficit.

He does not include Social Security in the package:

The President does not believe that Social Security is a driver of our near-term deficit problems or is currently in crisis. . . . The President in the State of the Union laid out his principles for Social Security reform which he believes should form the basis for bipartisan negotiations that could proceed in parallel to deficit negotiations:

•Strengthen retirement security for the low-income and vulnerable; maintain robust disability and survivors’ benefits.
•No privatization or weakening of the Social Security system; reform must strengthen Social Security and restore long-term solvency.
•No current beneficiary should see the basic benefit reduced; nor will we accept an approach that slashes benefits for future generations.

Analysis

The President is a bit light on taxes to close the deficit gap (a 50-50 split between taxes and spending cuts, rather than a 25-75 split would have been better). The defense cuts are overly modest, because they are arbitrary and don't spell out cost saving changes in the scope of our missions and procurement approaches. The non-discertionary savings cuts seem fairly high given the many rounds of cuts that they have been subjected to already. The "other mandatory spending" cuts seem appropriate.

The cuts to health care are about right in magnitude but assume cuts are possible in spending without really demonstrating that it is possible to sensibly bend the curve on health care cost inflation, leaving that problem to experts who may have little more of an idea about how to do it than the politicians do.

Thumbs up:
* Repeal of Bush Tax Cuts for those making more than $250,000 a year.
* Reducing tax expenditures.
* "reform agricultural subsidies, shore up the federal pension insurance system, restore solvency to the federal unemployment insurance trust fund, and enact anti-fraud measures."
* "clamp down on States’ use of provider taxes to lower their own spending while not providing additional health services through Medicaid; recover erroneous payments from Medicare Advantage"
* "limit excessive payments for prescription drugs by leveraging Medicare’s purchasing power. . . speed up the availability of generic biologics, and prohibit brand-name companies from entering into “pay for delay” agreements with generic companies. And, it would implement Medicaid management of high prescribers and users of prescription drugs."
* Defense spending cuts.

Neither Here Nor There:
* "incentivize more efficient, higher quality, care for high-cost beneficiaries, including those who are eligible for both Medicaid and Medicare." But how?
* "launched a new public-private partnership called Partnership for Patients that will help improve the quality, safety and affordability of health care for all Americans." How will this happen?
* "IPAB recommends to Congress policies to reduce the rate of growth to meet that target, while not harming beneficiaries’ access to needed services." What can they recommend that would meet that standard?
* Discretionary non-defense spending cuts. Where?

Thumbs down:
* Lowering corporate income tax rates.
* Limiting itemized deductions based on AGI.

READ MORE - Obama's Deficit Reduction Proposal

Compromise Happened

Somehow, despite divided control of both the Colorado General Assembly and Congress, both Colorado and the Congress managed to approve budgets this month. This is what usually happens, even in times of divided government. It doesn't happen without fail. There have been a number of government shutdowns, although the longest one at the federal government level was twenty days, and most haven't been longer than a day or two.

The process does nothing to guarantee that a compromise is reached. No majority can single handedly impose its will. But, time and time again, deals are struck. Much of the time, government is not divided and the deals aren't so difficult to secure. But, even in the time periods when government is divided, there is usually a deal.

Most business deals work on the same basis as budget deals. Everything is decided on a quite short scale, or nothing is decided. Juries likewise resolve disagreements by consensus. Miraculously, when the choice is no deal, no budget, no verdict . . . most of the time deals are secured. There are frequently compromises, but deals are secured.

Courts determine the status quo in the absence of a deal. Most of the time, there is a sensible or at least workable alternative if a deal on legislation falls apart. If there is a deadlock in a redistricting matter, usually courts will intervene and draw a map themselves. But, this rarely happens with the budget. If no deal is reached, the money will not be spent. The budget is "must pass" legislation. Sometimes there are compromises for "essential services" if the rest of the government is shut down. But, those are usually handled outside the courts.

A functioning government that spends money on government services, when push comes to shove, is a better outcome than one that does not function.

Federalism lowers the stakes. One of the key benefits of federalism is that even in a system that sometimes produces government shutdowns from political impasses, the entire government isn't affected at once. Only a few states in any given year will reach an impass on their budgets, and they won't do so all at once. Local governments are not directly shut down by impasses at the state level. Federal government shutdowns still leave the state and local governments that employ the vast majority of government employees, any agencies whose appropriations bills managed to pass before there was an impass, and self-funding agencies like the postal service in business.

I'm a pessimist on this score. I worry about system failure. I worry about a prolonged failure to the political system to meet its basic responsibilities. We haven't had serious steps across that line in the United States. But, in other countries there have been long periods, many months or even years, of deadlock. The labor-management equivalent - a long strike or lockout due to failure to reach a deal - used to be much more common. Usually, those dire worst case scenarios don't happen. But, it takes more than Civics 101 and Constitutional law to explain what goes on when these miraculous agreements happen. A shallow analysis of the rules of our political system can't easily explain why negotiations break down so much less often than one might expect that they would, what is different about the times when they do break down, why the breakdowns are more or less intractable in different situations, and as a result, also can't explain how fundamentally stable our system of government that depends upon partisans who disagree compromisings in unspecified ways is within a coherent theoretical context. We have a good track record of compromise so far, but why?

READ MORE - Compromise Happened

Republicans For Pollution

Republicans are insisting in budget negotiations on continuing to add to global warming, allowing cement makers to add mercury to the air, keeping the Chesapeake Bay polluted, and allowing coal companies to conduct mountaintop removal mining. 

Who knew that the Tea Party movement was really a mass outpouring of support for more pollution?  They want to shut down the government over these issues?  I don't think that they'll win any political wars in a government shutdown by going to the barricades for utility companies, air pollution and the right of corporations to create Appalachian moonscapes.

READ MORE - Republicans For Pollution

Republicans Hate Hawaii

The Republican spending plan approved by House Republicans in Congress last month would have cut $126 million in cuts for the National Weather Service that houses the Pacific Tsunami Warniing Center in Hawaii. After all, who needs to know about the weather, it's just God's will.

READ MORE - Republicans Hate Hawaii

The Entrenched Politician-Voter Disconnect

It has been said that democracy is the worst form of government except all the others that have been tried.

- Sir Winston Churchill, British politician (1874 - 1965)

Churchill's wisdom has much to be said for it, except that it doesn't do much to tell us which kind of democracy is to be preferred to the alternatives.

An important flaw of the American system, and some similar systems, is that it deeply and fundamentally entrenches a process that naturally produces an unstable equilibrium that is at always odds with voter desires in one direction or the other, rather than a stable process that consistently produces elected representatives who seek to maximize the popularity of the decisions made by the government.



Enik Rising (Seth Masket's blog) reports research that he and Hans Noel have done with a clever experimental design that establishes empirically and rigorously the empirical wisdom that:

There are actually plenty of moderate Assembly districts in California; there are basically no moderate Assembly members. Virtually every Democrat in the Assembly is more liberal than her district; virtually every Republican member is more conservative than her district. . . .

We also find that members of the majority party tend to deviate further from their districts than members of the minority party do. Time out of office, we suggest, causes the minority party to try to moderate to win back the majority.

The study focused on California, but its conclusions almost surely hold for all but a couple of states in the United States (Nebraska and Louisiana may be exceptions).

Actual partisanship in legislative districts has a bell curve distribution. Elected legislators have a bimodal distribution, like a two humped camel. The political middle is systemically underpopulated by elected officials, despite the fact that the vast majority of voters are in the political middle between the typical elected Democrat and the typical elected Republican on the spectrum of ideology from the political left to the political right.

The study is focused, appropriately, on the facts, rather than the causes for those facts. But, political theory would suggest that this outcome is a very natural and direct consequence of our election laws and legislative process.

The Electoral Bias Against Moderation

Single member plurality district election system naturally gravitates towards having two dominant political parties in any one geographic area. In that system, adding a new credible candidate to the mix hurts that candidate's allies and helps that candidate's enemies. In order to mitigate mutually self-destructive behavior, we have entrenched, in the United States, a two party system in which the political left and the political right choose nominees in partisan primaries and then face off against each other.

The single member plurality district system doesn't necessarily have to create a two party system. It can support regional parties that have majority support in a particular area, like a Quebec Nationalist party or Irish Republican Party. It also doesn't require that the party of the right be the same everywhere, or that the party of the left be the same everywhere. Canadians have one party of the right to the West of Ontario, and another one, the Tory's to the East. One U.S. States have a Democrat-Farm-Labor Party rather than a Democratic party. The U.S. historically used to have, de facto, Dixiecrats in some parts of the country, and Democrats in other partys of the country, both against a common Republican party.

But, for distinct regional parties to emerge, something has to give that region a strong identity. The more homogeneous a region is politically, the less prone it is to develop a distinct political party.

A Majority Requirement As a Weak Fix

A weak solution to this problem is to use French style elections, which have been adopted in Louisiana, Denver and in a less pure form, in a handful of states, where the winner of the election needs to get a majority of the votes cast to win in the first round, with the top two vote getters facing off in a second round.

While this isn't immune to the pathology that similar candidates tend to undermine each other, it eliminates the requirement that a candidate wanting to make it into the second round must have a plurality coalition made up entirely of partisan voters on the right, or partisan voters on the left. A coalition of unaffiliated and bipartisan moderate voters can also secure a candidate a second round slot.

More generally, in its pure form, it is more more neutral towards the number of political parties competing in the district than a traditional two party system. Not surprisingly, Louisiana has historically been the source of moderate candidates in both the Democratic and Republican political parties.

Proportional Representation As A Strong Fix

A stronger solution to this problem would be a true proportional representation system that doesn't penalize two political parties for having similar views without not actually merging. In a system where each voter picks on political party and that party gets a number of seats proportional to the share of the vote received by that political party, the sensible thing for a voter to do is the pick the party most closely aligned with their views and a political party doesn't face a penalty for being small unless its market share approaches the treshold minimum percentage necessary to secure representation in the legislature (typically in the low single digit percentages). A proportional representation system also allows representation of parties that have a majority in no particular district.

This kind of true multi-party system, which naturally gravitated towards roughly four to eight major political parties, leads to unequal sized clusters of voters with much more homogeneous views.

The Legislative Bias Against Moderation

When Are Coalitions Made? How Stable Must They Be?

In an idealized two party system, coalitions need to be assembled before the election. In an idealized multi-party system, coalitions are made after the election.

In a parliamentary system, a governing coalition forming a legislative majority, need to hold together on all major issues for the political system to function. The legislative leader becomes the head of government (i.e. the Prime Minister) who runs government on a day to day basis. If the coalition that put the Prime Minister in place fails to secure majority support for any major proposal, the Prime Minister will typicall then lose a "no confidence" vote in short order, and new elections will typically be held.

Somewhat complicating the matter of coalition building is that American legislative coalitions don't need to be very stable across all or most issues. Since we have a strong President whose tenure doesn't hinge upon maintaining a legislative majority (indeed our current President doesn't have one), the executive branch can continue to function and carry out the business of government even when one coalition of legislators may prevail on one set on issues, and another coalition of legislators may prevail on a different set of issues.

Historically, for example, the U.S. had a de facto "two and a half" party system at the national Congressional level. One domestic economic issues Democrats generally united against Republicans. But, on matters of national defense and social issues like race, Southern Democrats often allied themselves with Republicans against Northern Democrats. The Democratic Presidential nomination race reflected the vacillation between these two factions.

This three party system allowed the party that was moderate on any issue where there was no consensus among the three parties to prevail, moderating the process as a whole to some extent.

Today, after a process called "realignment" that has largely run its course, this isn't the case any more. There are few notable blocks of "moderates" in either the Republican Party or the Democratic Party in Congress who deviate from their party in a systematic way on a particular way. The Blue Dog faction in the Democratic Party has withered, as has the faction of Northeastern social moderate Republicans. We have a relatively pure party of the political left and a relatively pure party of the political right, and they are quite evenly matched on the national political scene.

The Majoritarian Legislative Process Has A Hidden Bias Against Moderation

Of course, some of the partisanship we see at the legislative level is a product not just of a two party electoral system, but is inherent in the legislative process itself. Legislative decision making generally involved for or against voting on politically controversial issues. Partisans get the results most to their liking when they favor proposals the secure majorities, but only the narrowest majorities possible. It is natural, in this context, for legislators to informally rank themselves from the political left to the political right, and for proposals that require legislators to form an allegiance with one side or the other to be common.

Thus, even in multi-party proportional representation system, governing coalitions that are clearly right leaning, or clearly left leaning are the norm. Governing coalitions like the Penteparti system of Italy, in which five mainstream parties formed repeated unstable and short lived coalitions in the political center in a calculated effort to exclude old school communists on the left, and old school fascists on the right, ar the exception, except in times of national peril from an outside force like the unity governments of the United Kingdom during World War II.

Moderates are more favored in a place like the U.S. Senate, that is not strictly majoritarian, with most proposals from the left or the right requiring supermajority support, than in the U.S. House, where majority rule prevails.

In order to favor the kind of moderate policies that voters in the political center favor, you need not only an electoral system that doesn't naturally generate a bimodal distribution of legislators, but also a legislative process that has stronger incentives to find supermajority, rather than mere majority support for legislation.

Supermajority Requirements Come At The Risk of Deadlock

Favoring supermajorities, however, comes at a cost. Any requirement that there be more than majority support for a measure in a single legislative body with ultimate say over the matter creates a risk that the system will be overconstrained and fail to produce action in situations where there is no acceptable status quo.

In the United States, recess appointment power and a strong Presidency prevent the status quo of all important positions in the government going unfilled for lack of a resolution to deadlocks between a nominating executive and a ratifying Senate. But, at both the state and at the federal level, it remains possible for a lack of an ability to reach consensus in a deterministic way on a budget bill to produce a government shutdown, something that House Republicans on one side, and Senate Democrats and the President on the other, have been dancing with in the lame duck session of the 2010 Congress and the current Congress.

Probably the most notable recent example of an overconstrained set of legislative rules in recent memory is that of the Iraqi Constitution, which requires supermajority support to choose a President and Prime Minister, at a time when there is stark disagreement between well defined factions that individually lack that supermajority (whose moderate unanimity the constitution attempted to coax). The result has been many months of government deadlock due to a lack of the required consensus. Afghanistan's constitution, notably, in contrast, was carefully crafted to allow the President to impose a budget and appointees in the absence of constructive disagreement by a legislative majority on an alternative (despite the fact that Afghanistan has less well defined factions in any case).

Supermajority Processes In Practice

The best examples of supermajority incentives in the legislative process are probably the adminsitrative law notice and comment process, and the Quaker meeting process, each of which hinges on having a "honest third party" receive input and try to formulate from the input a maximally popular (in the case of administrative rule making) or maximal consensus (in the case of Quaker meeting decision making) stance, by taking into account the details of the concerns expressed.

Monarchs, because they are well positioned to be that honest third party, can, if they are not politically tone deaf, secure support in the fact of partisan elected bodies, precisely by favoring the middle against partisan majorities, and favoring solutions that would secure supermajority support over those that would secure mere majority support.

I think that the Founders probably hoped (largely in vain) for that kind of dynamic to play out in the American political system, something that failed largely because the Presidential election system got locked into the two party dichotomy. It isn't implausible to think that if the Presidential election process could be redesigned to decouple it from partisan politics and instead have this office elected in a way that favored moderates, that a similar dynamic could be established, even without reform at the legislative level, through the veto power.

Indeed, I think it is a fair hypothesis that Governor Ritter's experience with consensus oriented politics as the norm from his days as a special interest advocate for Colorado's District Attorneys' Association may help explain a great deal of his approach to dealing with the Colorado General Assembly, in which he frequently cited process rather than substance oriented objections to legislation in veto messages.

Good legislators in the existing legislative process frequently try to craft such agreements in "smoke filled room" negotiations involving interested parties with a goal of reaching "kumbaya" (i.e. a consensus of the interested parties to support a bill). But, this kind of deal making and mutal accomodation reaching is ill suited to the formal legislative process.

Consensus or supermajority oriented politics are actually much more common than most people would think, indeed, it is the norm. This is because partisan caucuses and special interest groups much each reach consensus or something close to it in order to move boldly on legislative proposals. They tend to stay silent and refrain from acting in the absence of consensus.

Conclusion

In the absence of divided government (something that both the U.S. Congress and Colorado General Assembly are experiencing right now), there is little incentive to stretch beyond a majority supported compromise.

So, in American politics, voters are left between insisting that government function with deals negotiated between the left and right in exchange for a risk a damaging deadlock, within divided government, and government by a right of center, or left of center consensus with little to encourage it to be inclusive.

READ MORE - The Entrenched Politician-Voter Disconnect

Political Economy Quote of the Day

In short, what the economy could use is a debate over medium-term entitlement and tax changes. Instead what it's getting is a debate over near-term non-security discretionary spending.

From Tom Gallagher via Brad DeLong.

I also think we need a debate over the medium-term defense budget and note that while some entitlements are out of whack, that Social Security is not one of them. Medicare and Medicaid are the principal out of control entitlement programs. But, at any rate, it is clear that Republicans Congress and the President aren't addressing the real causes of the deficit, and that the voters don't really care.

A case in point, the R&D tax credit, a dreadfully complex part of our tax code that costs about $7 billion a year.

I was dismayed, for example, to learn today that the President's budget proposed a 20% increase in the research and development tax credit which he also proposes to make permanent. I was once a fan of it (who doesn't like new technology), but increasingly clear evidence from media accounts makes clear that it is a key factor driving the low effective corporate tax rates of some of the nation's biggest businesses, and an important cause of disparities across industries in effective corporate tax rates, is the R&D tax credit.

The R&D tax credit is at the heart of what is wrong with our corporate income tax; it is not a solution to be touted as a success and expanded. The immense tax expenditure of the R&D tax credit would be better spent as grant money than on the research ventures it is devoted to now. We already have a market driven government incentive for research and development. It's called intellectual property rights.

The R&D that needs government subsidies in a world with strong intellectual property rights is the kind that is not now and will not in the short run be profitable, like basic research and medicines that help those who can't afford to pay for them.

READ MORE - Political Economy Quote of the Day

Cutting the Deficit

House Republicans in Congress are learning that it is hard for them to keep their promises of budget cuts.

The hardest hit agencies would include the Food and Drug Administration, the Internal Revenue Service and the departments of Commerce, Housing and Urban Development and Agriculture. . . . Foreign aid on an annualized basis would take a 6 percent cut. . . .

— The Department of Homeland Security would face a budget freeze instead of the 3 percent increase proposed by Obama. . . .

— Republicans would scale back Obama's proposed 4 percent, $23 billion increase for the Pentagon. Instead, the military budget would grow by just $10 billion.

— Popular programs such as health research and federal aid to school districts appear likely to take a hit when lawmakers write the spending bill for the departments of Education, Labor and Health and Human Services. Republicans promise not to cut the minimum $5,550 Pell Grant for low-income college students.

I proposed a combination of tax reforms, cuts to the defense budget, and cuts to domestic spending last November after the election, as a response to the bad proposals considered by the deficit reduction commission and the Republican proposal made during the campaign. To the domestic spending proposal, I made then, I would also suggest deep cuts to federal higher education funds for for profit higher education, on the order of about $2 billion, in a way that would provide greater confidence of results.

Meanwhile the Colorado General Assembly is considering state budget issues as well. Last summer, I addressed some of the issues it is facing (although mostly longer term fiscal viability issues) in the form of a proposed overhaul of the state and local public finances in Colorado.

READ MORE - Cutting the Deficit

Friday Fragments

A few scattered half ideas for a beautiful Friday morning:

* It is highly annoying that perfectly good cell phones can't be switched from one mobile carrier to another, even though both carriers offer the essentially the same phone made by the same manufacturer to customers. Cell phone portability would be a great cause for the Fair Trade Commission, which is charged with regulating anti-competitive conduct by businesses, or the FCC, which regulates telecommunications.

* It would also be interesting to have consumer finance regulations that required cell phone, cable TV and satellite TV contracts that include phones or equipment to break out the service provision, telephone purchase, and finance charge components separately, to require that the finance charge component comply with generally applicable consumer finance laws, and for the FCC or FTC to then limit cancellation fees to the unpaid principal balance for the telephone purchase plus some statutorily limited amount for cancellation of the service contract. Landline phone companies and casualty insurance companies somehow manage in a regime where cancellation charges aren't permitted at all - surely phone companies could do something similar - indeed, loyalty discounts for long term customers at cell phone providers that don't have long term contracts and casualty insurance companies achieve a similar objective.

* Some area convenience stores have petitions in favor of allowing them to sell beer stronger than 3.2 beer. I'm all for it.

* Walker Stapleton's moonlighting job pays more than his job as state treasurer, although it doesn't appear to pose nearly as much of a conflict of interest. I'd personally favor a bill to prohibit all compensated moonlighting for "full time" state and local elected officials in the state accompanied by a substantial increase in pay for those officials. We shouldn't have to worry about any public officials being influenced by an outside source of income.

* I'd also favor a bill to make the Colorado General Assembly officially full time, to have it in session all year rather than 120 days, and provide each state legislator with 3 FTE of staff, while prohibiting all compensated moonlighting for them. Term limits play a much larger role in keeping the Colorado General Assembly a "citizen legislature" than its "part-time" status, and practically speaking, it is a full time job during the legislative session and at least a half time job outside the legislative session anyway due to interim committees, constituent service, and time spent crafting bills for the next session. The compressed session seriously compromises the ability of the general public to monitor what the state legislature is doing, to comment on bills, and to participate in legislative hearings. The lack of legislative staff is one of the main factors that gives lobbyists more power. The low pay for the legislature makes almost every state legislator beholden to a private employer or private clients for their livelihood while addressing the state's business and makes legislators more succeptible to influence from petty niceties from lobbyists that aren't prohibited by the state's gift ban.

* House Republicans want to end the Presidential public campaign financing law that costs about $600 million a year and is authorized by tax return checkoffs that are down about 75% from their peak. I have to agree. While I think that public financing is a much better way to deal with corruption in campaign finance than the existing regulatory regime, this particular version of campaign finance is delivering very little value and isn't so essential that it can't be cut. The decline in tax return checkoffs also show that it is has lost public support.

* RTD is considering asking for a 0.2 percent sales tax hike to help pay for overbudget FasTracks, a move that would bridge the gap but still require delays in finishing the project. Area majors have pushed for a 0.3 to 0.4 percent sales tax hike instead to get the project done sooner. Some of the hike would be compensated for by the expiration of an existing sales tax hike for other purposes (the stadium, I think). I believe that RTD has the better argument, as I don't think that voters have the stomach for a larger tax increase. Area mayors would be better off using their local government budgets to speed up construction in their areas than increasing sales taxes even more.

* It would be interesting to look at which countries have the best land use results and then to see what kind of land use regulation approaches they use.

*

A new democracy barometer from the University of Zurich and the Social Science Research Center Berlin (WZB) shows the development of the thirty best democracies in the world. Denmark, Finland and Belgium have the highest quality of democracy, whereas Great Britain, France, Poland, South Africa and Costa Rica the lowest.

Hello! What are these people smoking? Belgium is on the verge of disintegrating into two nations because its regions are utterly incapable of finding common cause. Deep distrust and lack of communications between the regions has reached the point where fake news stories about the other regions are taken seriously. It went months without a government because Walloons and Flemish parties couldn't agree on a governing coalition. Belgium is a basket case of democracy that is at the top of the list of countries where democracy is not working well

Right behind Belgium on the list, in fourth place, was Iceland whose national government just went bankrupt. Again, what were they thinking?

At the middle of the list, are Ireland at #15 and Spain at #17. Both have wildly unpopular regimes that are eliciting mass street protests and are fiscal basket cases that are en route to imposing unpopular austerity programs and are effectively as beholden to the bond markets as they are to their own people.

Great Britain, in contrast, ranked near the bottom of the list at #26, while it has its problems, seems to be getting along tolerably well and does not deserve such a low rating. It just successfully found a solution to a situation where no one party could command a majority in parliament with a palatable compromise. It is in the process of proposing electoral reforms to be more fair to third parties. It is tightening its fiscal belt in a manner far more sensible than either the austerity plans proposed by nations like Greece and Ireland that have been shoved down their throats by bondholders, or the ideologically driven cuts proposed by Tea Party Republicans in the United States. It has had its share of public discontent (particularly over increases in higher education charges) but has far less public discontent than many of the other countries on the list.

In short, the democracy index is profoundly and fundamentally flawed. Whatever it is measuring, it certainly isn't a sensible measure of democracy.

The press release from the source in German also provides link to a more detailed report. This explains that the index has three components: Freedom (individual liberty, rule of law, public sphere), Control (Competition, Mutual Constraints, Govern. Capability), and Equality (Transparency, Participation, Representation).

The basic problem is that it lets arbitrarily weighted components of democratic virtues overweigh things that are obvioius in the big picture, and focuses too much on process and too little on results.

READ MORE - Friday Fragments

Senate Considers Shrinking Plum Book

The Plum Book is the compliation of politically appointed posts in the United States Government, all of which, in the executive branch, require a nomination by the President or someone appointed by the President. It is a long publication. Indeed, an entirely too long publication.

The U.S. Senate is now considering the long term, bipartisan effort to thin that list.

Senior senators are negotiating to reduce the 1,400 presidential appointments subject to time-consuming Senate confirmation, hoping to streamline a system that has frustrated administrations of both parties. . . . 100 posts or more could be dropped from the list if discussions between Sens. Charles E. Schumer (D-N.Y.) and Lamar Alexander (R-Tenn.), result in an agreement that gains the support of the rank and file in both parties. Judicial appointments would not be affected, nor would the most senior positions at Cabinet departments or independent agencies. . . . The talks between Schumer and Alexander were set in motion by agreement between Majority Leader Harry M. Reid (D-Nev.) and Minority Leader Mitch McConnell (R-Ky.). . . . the number of core policy positions has risen from 295 in 1981 when President Ronald Reagan took office to 422 when President Obama arrived at the White House.

After selection by the president, each appointee for a post requiring confirmation generally submits paperwork to a Senate committee that will handle the review and then makes a series of courtesy calls on individual lawmakers, who sometimes use the opportunity to extract promises in exchange for speedy approval.

Nominees generally testify and answer question at a public hearing, the committee acts and then, in a final step, the entire Senate votes. The process can move speedily - or take months, even if there is no apparent opposition. The sheer volume can slow the pace.

The Senate Foreign Relations Committee has jurisdiction over 303 posts, including 185 ambassadors. The Senate Judiciary Committee oversees 252, including 92 U.S. attorneys and 92 U.S. marshals. The Senate Commerce, Science and Transportation Committee has control over 101, and the Senate Banking, Housing and Urban Affairs Committee over 83.

The biggest problem is that getting the U.S. Senate to do anything can take a long time, and getting it to handle 1,400 appointments can take a very long time, even if many are not controversial. The level of positions the negotiations would remove are deputy assistant undersecretaries and the like, not high level posts, and all of the positions removed would report to someone more senior. The filibuster's growing use and secret holds have effectively given a heckler's veto to every Senator concerning every such nomination.

READ MORE - Senate Considers Shrinking Plum Book

Good Riddance 2010

As the year of record unemployment and a stagnant economy comes to a close, it is fifty degrees colder here in Denver than it is in Buffalo, New York. In Colorado Springs, fireworks had to be cancelled because it was 25 degrees below on Pike's Peak with 70 mile an hour winds. People lost homes to foreclosures and fires. Low interest rates are irrelvant because no one seems to be lending. The crazy people have taken the reins in Colorado's House of Representatives and the United States House of Representatives.

Maybe we'll do better in 2011.

READ MORE - Good Riddance 2010

Colorado Gets A New Federal Judge

President Obama's nomination of William Martinez to the U.S. District Court for the District of Colorado was confirmed by a 58-37 vote in the U.S. Senate (including two Republicans) on Tuesday. The seat had been vacant for two years. It is a lifetime appointment.

There is one vacancy left in Colorado's federal trial court: "R. Brooke Jackson, the chief judge of the 1st Judicial District in Jefferson County, has been nominated for the other spot." But, the nomination has not yet been considered by the Senate Judiciary Committee.

READ MORE - Colorado Gets A New Federal Judge

Census Shifts Power To Mountain West and South

The final 2010 census figures (giving the United States a 2010 population overall of 308.7 million people) have shifted eleven seats in Congress from the Northeast and Midwest to the Mountain West and the South. All nine states in the Northeast and Midwest whose allotment of Congressional seats changed saw that allotment decline. In the West and South, eight states increased the size of their Congressional delegations, while Louisiana, in the aftermath of Hurricane Katrina, lost one seat in Congress. Colorado's Congressional delegation, as expected, stayed constant at seven seats in the House of Representatives.

Advantage GOP

The shift relative to the 2000 apportionment favors Republicans in both the House of Representatives and the electoral college used to elect the President.

Of the states that will get greater representation in the 2012 election, five states that gains eight seats in Congress are red states that voted for McCain in 2008 and Bush in 2004, two states that gained three seats in Congress voted for Obama in 2008 but Bush in 2004, and one state that gained one seat in Congress is a blue state that voted for Obama in 2008 and Kerry in 2004.

Of the states that will lose seats in Congress in the 2012 election, six states that lost seven seats in Congress are blue states that voted for Obama in 2008 and Kerry in 2004, two states that lost three seat in Congress voted for Obama in 2008 but Bush in 2004, and two states that lost two seats in Congress are red states that voted for McCain in 2008 and Bush in 2004.

Thus, red states have gained a net six seats in Congress, blue states have lost a net six seats in Congress, and states that voted for Obama in 2008 and Bush in 2004 have the same number of net seats in Congress.

While the strong growth of Democratic party leaning demographic groups like minorities and younger voters, and the increasing secularization of the American public tends to favor the Democrats, the low levels of voter registration and diffuse nature of the growing demographics that favor Democrats growth have prevented the intra-electorate trends from being important as the geographic shifts in population in influencing the balance of political power in the United States.

Long Term Trends

The shift continues and reflects trends over the last forty years largely associated with a shift of the American economy from an industrial one to a post-industrial one (a bland description that reflect the fact that even the best informed observers lack a simple heuristic explanation of what our economy is based upon these days), and secondarily a shift from rural areas to urban ones.

Since 1970, states have gained or lost representatives in Congress as follows (with the parenthetical number indicating the number of Congressional seats in the 2012 election):

South (+27)
Texas +12 (36)
Florida +12 (27)
Georgia +4 (14)
North Carolina +2 (13)
South Carolina +1 (7)
Tennessee +1 (9)
Virginia +1 (11)

No change: Maryland (8), Alabama (7), Arkansas (4), Delaware (1)

Kentucky -1 (6)
Oklahoma -1 (5)
Mississippi -1 (4)
West Virginia -1 (3)
Louisiana -2 (6)

Mountain West and Pacific (+26)
California +10 (53)
Arizona +5 (9)
Nevada +3 (4)
Washington +3 (10)
Utah +2 (4)
Colorado +2 (7)
New Mexico +1 (3)
Oregon +1 (5)

No change: Hawaii (2), Idaho (2), Alaska (1), Wyoming (1)

Montana -1 (1)

Midwest and Great Plains (-27)
Ohio -7 (16)
Illinois -6 (18)
Michigan -5 (14)
Iowa -2 (4)
Missouri -2 (8)
Indiana -2 (9)
South Dakota -1 (1)
Kansas -1 (4)
Wisconsin -1 (8)

No change: Minnesota (8), Nebraska (3), North Dakota (1)

Northeast (-26)
New York -12 (27)
Pennsylvania -7 (18)
Massachusetts -3 (9)
New Jersey -3 (12)
Connecticut -1 (5)

No change: Maine (2), New Hampshire (2), Rhode Island (2), Vermont (1)

Reapportionment's Interaction With Realignment

The shift of political power to the South and Mountain West has coincided with a period in which conservative Democrats in Congress, mostly in the South, have been replaced by Republicans, and moderate Republicans in Congress, mostly in the Northeast and Pacific States, have been replaced by Democrats in Congress.

In the Republican party, the trends reinforce each other, by shifting the central of gravity of the Republican party further towards white Southern Evangelical Christians and Mormons. The electoral importance of "Reagan Democrat" blue collar union members and farmers to the Republican coalition has been reduced, and fossil fuel extraction interests have taken at least as many hits as they have made gains.

The realignment together with demographic trends tend to favor a shift to the right in the Republican party on social issues, but may undermine the strength of big money financial interests, the so called Rockefeller Republicans who live in coastal areas where Democrats are dominant in politics and a cosmopolitan identity is necessary to do business, in the Republican party. It may also undermine the ability of Republicans to draw support in any part of the mainstream entertainment industry that provided it with notable leaders like Ronald Reagan and Arnold Schwarzenegger. There will be pressure for economic conservatives outside socially conservative Republican strongholds and young conservatives to dissociate themselves from the Republican party's red state strongholds if they have any desire to remain relevant in state and local politics, a tendency that the electoral success of the Tea Party movement which publicly focused on economic rather than social issues, despite having a very culturally conservative composition, may encourage.

In the Democratic party, the demographic trends weaken the importance of blue collar private sector labor unions in the coalition, while increasing the relative importance of ethnic minorities including Hispanics, African Americans, and Asian Americans in the Democratic coalition. It reduces the electoral contribution of Jews to the Democratic party coalition (as gains in Florida are outweighed by losses in the Northeast), while increasing the importance of snowbird seniors who have relocated to warmer climes from blue states.

Large minority populations in growing red states mean that Republicans there will continue to need to be the near consensus party of Anglos in the South to win elections there. Outside the South, non-Hispanic whites are deeply split between the two major political parties, although the GOP has an edge with them.

The Republicans seem more unified politically at the moment, than the Democrats. But, the strongly geographic dimension of the divide between the Republican party's Christian right and its economic conservatives, and the large differences in political strategy between the "tribal" politics of Anglo ethnic identity in the South and the political strategy of issue driven intra-ethnic political contests elsewhere may ironically leave the GOP with more potential for schism into two different parties of the right, one dominant in each respective part of the country.

In contrast, the current big tent of the Democrats (which has shrunk somewhat by the defeat of many Blue Dogs), leaves the Democratic party seemingly more ideologically diffuse at the moment, the various factions within the Democratic party can't be decomposed nearly so easily on a regional basis. Democrats are more divided on tactics than they are on their political goals.

The American single member district plurality system can support more than two parties, so long as they are regional parties and there are no more than two strong political parties in any given area. But, the American electoral system strongly disfavors political party schism for geographically diffuse factions within a political party, even if that faction is substantial and ideologically coherent.

Third parties like the Green Party or the Libertarians are doomed in the absence of proportional representation elections. But, our system could support, for example, both a "21st century Whig Party" as a leading party of the right outside the South and areas of Mormon or Evangelical Christian religious dominance, centered on the economic establishment, and a "Christian Republican Party" that was strongly socially conservative but might have a more populist economic agenda than the existing Republican party, as a leading party of the right in current Republican strongholds.

READ MORE - Census Shifts Power To Mountain West and South

The Lame Duck Session Legislative Frenzy

The lame duck session of Congress, with just four more days to go after today (or so) has been busy.

In addition to passing a major tax bill covering the next two years (and extending extended unemployment benefits for another thirteen months), it has passed Don't Ask, Don't Tell repeal (i.e. legislatively permitted gays in the United States military), passed a law prohibiting the use of false caller ID numbers to solicit personal information, is making progress in passing food security legislation, has passed a defense appropriations bill and appears to be well on its way to passing the rest of the appropriations bills. There seems to be a good chance that the START nuclear arms treaty will still be passed, and that there may yet be a few judicial nominees confirmed before the lame duck session ends. Diana DeGette's Stem Cell research bill seems less likely to pass.

The failure of Republicans to acknowledge that any new revenues are needed, and to get more in the way of tax cuts than they had even sought, combined with a failure of anyone to put any meaningful defense spending cuts on the table in this year's defense budget, seems to insure that the next two years have record deficits. President Obama's deficit commission, whose proposals were mostly politically impossible, and unwise from a policy or social justice perspective, made few productive contributions to that debate. Their report, which secured consensus around none of its proposals, was dead on arrival in Capital Hill.

Defeated, despite support from the President, 55 Senators (it was opposed by 41 Senators filibustering the measure), and a majority of members of the House of Representatives, was the DREAM Act, which would have made U.S. citizenship available to young adults assimilated into U.S. society who are children of illegal immigrants who brought them to the U.S. who commit to higher education or military service. Given that opposition to any form of loosening of immigration policy has become highly partisan, with Republicans on the anti-immigration side of the debate, and the timid, consensus oriented ambitions of the DREAM Act, any form of compromise on immigration legislation once Republicans gain control of the House of Representatives in January seems doomed until 2013 at the earliest.

Shutting our doors to increased legal immigration is surely harmful to our economy, and a Republican policy favoring draconian efforts to close the border to illegal immigration and deport ten million or so undocumented aliens in the United States (and their U.S. citizen families), which is impracticable, inhumane and would be devistating the economy if it happened, leaves the nation in a hypocritical limbo.

The DREAM Act isn't the only bill with strong Democratic support that failed to become law. The Employee Fairness Act, a major pro-union legislative initiative stalled and died. The President's campaign promise to shut down Guantanamo Bay went unmet, and he has largely toed the line of the Bush Administration with regard to war on terrorism policies, despite some half-hearted efforts at reforms.

Defeats of multiple nominations and bills with healthy majority support in the U.S. Senate by Republican minorities willing to use every procedural tool to say no to the Democratic agenda (even bills and legislative ideas they had previously proposed themselves) has also highlighted the problem of excessive minority power in that body, but so far, has not mustered enough political will to end the filibuster and other anti-majoritarian institutions in the Senate.

Without reform, the President may even have to resort to recess appointments to put people in place to get the government's work done.

Some bills, including the tax bill, passed only with major defections by Congressional Democrats, with predominantly Republican support. It isn't clear that this has won President Obama any long lasting credit from the Republican base which has villified him, contrary to the facts, as a socialist, gun hating unAmerican. But, his swing to the right politically may cost him the enthusiastic support of the Democratic base in 2012, although the nomination of a fire breathing Tea Party conservative as a Republican nominee could change that political reality.

It also isn't clear if House Republicans who campaigned vigorously against even politically popular parts of the American welfare state, as well as the health care reform bill, will receive cooperation from President Obama in doing so. His commitment to the Democratic agenda on this issue is not at all clear.

The last minute defense appropriations bill managed to avoid becoming a forum for discontent over the course of the war in Afghanistan, now that the war in Iraq is almost over. But, Democrats in Congress are increasingly growing uneasy about the U.S. commitment to Afghanistan, which has become the longest war in U.S. history, and Republicans aren't keen to support the President in general, despite generally more bellicose attitudes towards foreign affairs. A heated debate over U.S. policy in Afghanistan is sure to resurface in the next session of Congress.

As we head into a period of divided government, the Republicans have a mostly fiscal agenda that is mathematically impossible and a visceral opposition to anything proposed by the President or any Democrat regardless of its policy merits, while the Democrats simply don't have much of a plan, period despite being in a state of remarkable ideological consensus within the legislative party, due to the defeat of many Congressional Blue Dog Democrats, including both of the Blue Dogs from Colorado.

It is hard to see much on the legislative horizon but gridlock, and we will be lucky if there is enough consensus to even pass the appropriations bills necessary to keep the government running in 2011 and 2012.

House Democrats, rendered impotent and irrelevant as a minority in Congress in a house that lacks rights for the minority party, will have plenty of time to consider these matters while their bills are shot down in committee and the Republicans embark on the agenda of trying to make the administration look bad because they have no substantive power to pass their own agenda without Democratic consent.

The reduced ranks of Democrats in the Senate, under the less than impressive tactical and stategic leadership of Harry Reid, seem sure to cave further to Republican demands in every case where the President doesn't inject them with backbone, and the President seems less than enthusiasic about holding his ground. The President's vision for our nation's future, which seemed so clear on the campaign trail, appears to have grown cloudy.

Of course, a weak economy helps none of this, and 2011, at least, looks more likely to be another year of stagnation than a year of vigorous economic recovery. The stimulus effects claimed for the latest round of tax cuts seem unlikely to materialize, because measures like speeding up depreciation deductions have never had much of a stimulative effect on the economy in the past. Perhaps 2012 will be better, but I am not holding my breath for a strong economic recovery any time soon. We will have high unemployment and a GDP smaller than it was when the financial crisis struck for most or all of the coming year.

There are a few bright spots left. Financial regulation reform bill regulations are still waiting to be adopted and could secure positive policy changes without further legislative action. The failure of Don't Ask, Don't Tell repeal to wreck havoc in the United State military will discredit anti-gay rights doomsayers again. Proposition 8's court defeat is likely to be upheld by the 9th Circuit Court of Appeals, bringing gay marriage to our nation's largest state, and new IRS regulations have brought back door equity of same sex couples of California.

U.S. Sentencing Commission proposals that are making progress could trim some of the most unreasonable criminal sentences in the federal prison system, and a general Republican distrust of the federal government and desire to cut federal spending and employment may put pressure on Congress to reduce the federal role in law enforcement, which in the drug war, in particular, has mostly been a negative one.

The "when the dust settles" estimates of the costs of the finanicial crisis bailouts has fallen all through the later part of 2010, and is likely to fall a bit further in 2011, leaving those decisions as less of an albatross around the adminstration's neck. And, the divestment of U.S. interests in institutions bailed out in exchange for equity in the financial and automotive sector will also allay mostly misplaced fears of a creeping policy of nationalizing industry.

A retreat from the brink today by North Korea, in the face of diplomacy by New Mexico Governor Bill Richardson, suggests that its leadership may still be crazy like a fox, rather than merely crazy. There are some hints from South of the border, that Mexico's drug war may finally be turning a corner, and also that some of the other epidemics of Latin American crime from Venezula to Brazil which aren't so directly related to the drug trade may be running their course. Afghanistan may be wobbly, but time and again, there are reports of major unanswered blows to the Taliban leadership in Pakistan and setbacks for the Taliban in Afghanistan. Perhaps Afghanistan's civilian leadership is simply too corrupt and incompetent to run their country on its own, but there does seem to be some indifferent progress. While there are still embers burning in the various foreign affairs fires that smolder around the world, any really major crisis would have to pretty much come out of nowhere.

READ MORE - The Lame Duck Session Legislative Frenzy

More Detail On Estate Tax Deal

The tax legislation that survived a cloture vote in the U.S. Senate yesterday makes clear some details of the (near and dear to my heart as a lawyer for whom a substantial portion of his practice is tax conscious estate planning):

Via RIA (a tax publisher):

The 2010 Tax Reform Act sets the exemption at $5 million per person and $10 million per couple and provides for a top tax rate of 35% for estate, gift, and generation skipping transfer taxes through 2012. The exemption amount will be indexed beginning in 2012.

The changes will be effective Jan. 1, 2010, but executors will be allowed to make an election to choose no estate tax and modified carryover basis for estates arising on or after Jan. 1, 2010 and before Jan. 1, 2011. Also, a $5 million generation-skipping transfer tax exemption and zero percent rate will apply for the 2010 year.

Effective for estates of decedents dying after Dec. 31, 2010, the 2010 Reform Act will allow the executor of a deceased spouse's estate to transfer any unused exemption to the surviving spouse.

For gifts made after Dec. 31, 2010, estate and gift taxes will be reunified [i.e. the gift tax exemption will go from the $1,000,000 per lifetime per person it has been under EGRTTA to $5,000,000.]

Despite the indexing provision, presumably there for convenience purposes only in the event that this is extended or made permanent, it appear that the gift and estate tax exemptions will revert to $1,000,000, and the rates will return to graduated rates from 37% to 55% with a bubble rate of 60% in 2013, if the law is not extended.

READ MORE - More Detail On Estate Tax Deal