Moneybox

Ross Douthat says that President Obama's inability to persuade Republicans to agree to a larger tax increase shows that liberalism is doomed since clearly the political will just isn't there to raise the tax revenues necessary to fund the welfare state.

Jon Chait says no:

The trouble I have with this case is that it didn’t really test tax hikes versus spending. What Democrats found is that, when the question is raising taxes to reduce the deficit versus not raising taxes to reduce the deficit, the political going is tougher than liberals would like. But that tells us very little about sustaining Social Security and Medicare.

I actually think we learned a lot about sustaining Social Security and Medicare here. A an awful lot of post hoc analysis of the fiscal cliff deal is acting as if the issue was that the White House wanted tax revenue to shore up retirement programs and Republicans didn't want to give in. What actually happened was that the White House wanted a big tax hike paired with big spending cuts in order to achieve major deficit reduction and Republicans didn't want to do any of those things.

In deference to GOP wishes, we didn't cut retirement programs at all, we only raised taxes a little, and the basic fiscal picture didn't change very much.

What we learned, in other words, is that even with a Democratic President in the White House who's eager to cut spending on retirement programs they still don't get cut. That's how robust the welfare state is. Recall that the last time we had a Republican President in the White House what he did was make Medicare benefits significantly more generous. Recall also that Mitt Romney ran on a pledge to increase Medicare benefits for ten years and then offset that by cutting benefits for younger people in the future. That's how robust the welfare state is. Concern trolling about Democratic senators' willingness to blink on taxes is neat, but all we're seeing again and again is confirmation of Paul Pierson's thesis from Dismantling the Welfare State?, namely that dismantling the welfare state is incredibly difficult.

If you want to worry about something, worry about the United States of America. What we've seen time and again for the past five years is a breakdown of responsible party government in the United States. Nobody gets their way legislatively, so nobody has to take the fall when things work out poorly.

One of the things the fiscal cliff bill did was further extend a lot of random regularly extended corporate tax breaks. I'm often seeing this reported without full context, as if the fiscal cliff bill created a lot of new pork. But typically these things have been around for a while. Many folks have picked out the extension of "market loss assistance" for asparagus farmers, for example, but this dates back to the farm bill from the last year of the Bush administration. Senator Patty Murray (D-WA) brags about it on her website and Senator Maria Cantwell (D-WA) was talking about fighting for it back in 2007, so I think we can gather than a lot of asparagus is grown in Washington State.

This is said to be needed because American asparagus farmers have been "devastated" by cheap imported Peruvian asparagus.

In general, I'm all for recognizing that people's economic fortunes can dive due to circumstances beyond their control. That's why we need stronger Social Security, not benefit cuts. It's why we need to build a real national healthcare system. It's why we need to go beyond a narrow "safety net" for the poor and have real social insurance and excellent public services. But trying to do this through targeted bailouts is nuts, and the tendency to offer special business protections to people who happen to be farmers rankles.

Andrew Sullivan's move to a paid subscription model for the Daily Dish has a lot of people wondering what the internet might look like if free content largely disappears.

I think the starting point for thinking about that is that it's highly unlikely that we'll ever see a world where there are hundreds of different English-language online news outlets that each have a low annual subscription fee. People often express annoyance at the excessive "bundling" of cable television. Even if MSNBC, Bravo, A&E, TLC, and the Food Network constitute 85% of your viewing you can't drop ESPN, CNN, TNT, and the rest and save yourself a lot of money. The cable company invests in building the infrastructure, invests in the carriage fees for the key must-carry channels, and then sells huge lumpy packages to people. People complain, but there's a deep logic to this business model and it means that you don't have a situation where people can watch the Travel Channel but can't watch USA. There's the no-cable minority and the yes-cable majority.

Or to take another example, your traditional big city newspaper has many different sections. You can't drop the sports section if you don't care about sports and pay less money.

But the flipside of that bundling is you get a lot of content for your money. And if subscription models succeed, I'd expect them to evolve in the direction of big bundles. That might be because there are eight or nine giant content conglomerates selling subscriptions. Or it might be because of cross-marketing deals. Either way you'd get something that looks less like "the Internet" as we know it today and more like the adjacent series of walled gardens that CompuServe, Prodigy, AOL, etc. originally promoted as the vision of online existence. In fact ultimately it might be the telecommunications companies that you buy broadband from who become the orchestrators of the content bundles.

Here's a great small point from Ryan Avent:

Consider the automobile, for instance. Back in the late 19th century, it would have been easy to dismiss the potential importance of the car. Cars weren't very good, for one thing. But more importantly, it wasn't at all clear how they might be of much advantage. Cities were dense places, with tangles of streets crowded by pedestrians and horse-drawn wagons and omnibuses. Cars were expensive and offered little in the way of travel-time advantages. Petrol was very expensive in real terms, and there was no infrastructure available to deliver it to would-be drivers. It was hard to see a market for cars outside of the realm of playthings for the rich.

The striking thing about this line of thinking is that it underestimates the automobile for the exact reason that the automobile turned out to be so important. A transformative new invention, by definition, doesn't fit very well into the world as it exists. Automobiles were transformative—so useful that vast new public and private infrastructure projects were undertaken over a period of decades to better-and-better accommodate their presence. But that's an iterative process. At the outset nobody wants to build the infrastructure for something that nobody uses, and nobody wants to use something that there's no infrastructure for. Eventually it tips.

The flipside of this is that as a matter of personality, inventors and innovators are bound to be prone to over-enthusiasm for their own gizmos. So folks who adopt the curmudgeon role and dismiss the hyper-men are going to be right nine times out of ten. But the successes that really matter are exactly the ones that have lots of barriers standing between them and real utility.

Here's an interesting development. Today, Canonical—makers of one of the more popular consumer Linux distributions around—announced Ubuntu for phones.

The trick here is that it's not a new operating system. Instead, it's a new phone-optimized interface. But it works by loading a whole Ubuntu Linux distribution onto a phone. That means you can dock the phone to a monitor and keyboard, and—bam—you've got a desktop computer operating system at work. The Motorola Atrix was launched as an Android-powered smartphone with this kind of docking capability in mind, but the phone was only so-so (I owned one) and the docking experience sucked.

But it's a neat idea. At the moment, Canonical seems to have zero smartphone makers lined up eager to ship these things. As long as that's the case, obviously this isn't going to change the world. But there are a lot of players right now in the smartphone game who aren't making any money in an iPhone/Samsung world. Someone might want to take a look at trying something different.

I agree with his analysis of the substance, but I think Ezra Klein's headline "Calm down, liberals. The White House won" is about 180 degrees off.

The White House didn't win in the deal. And that's exactly why liberals should be calm about it. What the White House wanted—a much larger tax increase, paired with substantial net new spending cuts—was not a worthwhile objective. Such an arrangement would have done a better job of addressing the long-term budget deficit, but that wouldn't have achieved anything. It wouldn't have boosted economic growth or reduced unemployment. It wouldn't have helped the needy. It wouldn't have done anything useful other than created a signature achievement for the White House accomplishment list.

What they settled for—a small tax increase and a minor delay of the sequester—is totally fine. Everyone involved should hold their heads high. An awful lot of fiscal austerity is going to happen in 2013 overwhelmingly as a result of bills that had already passed, but that's under the bridge. The specific outcome of this specific deal was very reasonable.

The risks going forward are all about the debt ceiling. Republicans are demanding over a trillion in new spending cuts. Klein thinks people are underrating the chances that Obama may be able to get the GOP to agree to revenue-increasing tax reform as his price for agreeing to it. But that's a kind of chilling possibility. What in your life is going to go easier if we get a trillion in higher taxes and a trillion in spending cuts? And even more chilling is the possibility that we don't get the deal and we slam into the debt ceiling.

Matt Richtel writes in the New York Times about the increasingly intensive training that high-end baristas get as America's coffee tastes become more sophisticated. It's a great example, I think, of some of the great difficulties that the modern service economy poses for traditional ideas of measuring inflation.

The idea of inflation, you recall, is supposed to capture the difference between an increase in output due to more production (bushels of corn grown) and an increase in prices (each bushel costs more) which means that in an industrial economy you need to talk about the quality of goods produced. For many items the Bureau of Labor Services does this with its hedonic adjustment factors. The point of this is that with regard to televisions if the average sale price rises because people are buying TVs with more HDMI ports that's different from average sale prices rising because of inflation.

But in the service economy this gets fuzzy. One of Richtel's points is that a great-tasting cup of coffee isn't just about buying the right beans or buying the right equipment to make them with—it's also about knowing the process correctly. But training and retaining skilled workers who can make great coffee is going to be more expensive than just not worrying about it. In theory, we should distinguish between paying more for better coffee (quality improvement) and paying more because of a general increase in the price level (inflation). But in practice this is pretty hard to do. Different cups of coffee can't be distinguished by their physical features the way men's sweaters are assessed based on whether they're made out of cashmere or wool.

With Long Island Representative Peter King and New Jersey Governor Chris Christie blasting House Republicans today for refusing to pony up Sandy relief money, it's worth saying that the case for general skepticism about disaster relief is actually decent.

One problem is a threshhold issue. From the standpoint of any given person, having your house randomly destroyed isn't any better than having your house and a bunch of other peoples' houses destroyed. Why should people afflicted as a small part of a larger "disaster" get special help relative to people just hit by some other misfortunate? It's particularly striking when you see conservative politicians from disaster-struck areas like Christie and King out there talking about the government's need to step in and help those in need. Where are those guys on the day-to-day misfortunes of poverty and illness? Conversely it doesn't seem like a very good idea to systematically transfer money from low-disaster areas to high-disaster areas. You'd like to see people, buildings, and infrastructure move over time to areas where they're relatively unlikely to be destroyed by earthquakes or bad weather.

Now on the other hand, a natural disaster is clearly a situation that calls for a little deficit spending. And the federal government has a much greater ability than a state government to borrow money on a moment's notice. So in that sense, the case for federal disaster assistance is very strong.

Which suggests that the right approach to disaster relief money is to drop these ad hoc emergency bills and try to move to a bank model instead. Create a standing reserve fund that states and local governments can tap when the president declines an official disaster. The interest rate would be some small premium over the prevailing interest rate on federal debt. That way states suffering damage will be able to finance any necessary and useful repairs, but there won't be any net flow of resources over time to unusually high-disaster areas.

Here's some random good news of the day—Amtrak is going to push to get the Federal Rail Administration to change the safety regulations that force its passenger trains to be much heavier than the ones used in Europe and Japan. Europe and Japan being, as you may have noticed, places where know a thing or two about how to operate passenger trains.

Relief from this rules has three kinds of advantages. One is that lighter trains use less fuel and thus are cheaper to operate. A second is that lighter trains can accelerate faster, making trips shorter. Last but by no means least, the United States just isn't that big a market for rolling stock. By comforming more closely to global standards for what passenger trains should be like, we may be able to do better in terms of contract bidding.

Here's Credit Suisse chart of how much everyone's after tax income will be reduced in 2013 relative to 2012. You can see that almost everyone is worse off this year thanks to the expiration of the payroll tax holiday. Very rich households, however, will see a much bigger tax hike than the rest of us. That's what Obama achieved in the deal.

Conversely, there's that weird bracket of people $200,000-$500,000 families who are actually seeing a smaller tax increase than lower-income households. That's because these are families that had a lot of income that isn't subject to the payroll tax and who don't make enough to be seriously impacted by the higher marginal rates or the PEP and Pease provisions. Saving these folks' bacon was Mitch McConnell's big win.