2008 and Beyond: Alan Greenspan's Continuing Legacy

Alan Greenspan's worldview had two sources: empiricism based his early fascination with Ludwig Wittgenstein and logical positivism, and libertarianism based on his early interest in the philospher and social critic, Ayn Rand.

Greenspan’s proudest legacy stemmed from the former. Standard economic models assumed that if the economy grew faster than 2.5 per cent a year and the rate of unemployment dropped below 6.5 per cent, inflation would result. By the spring of 1996 the US economy was growing at an annual rate of 6 per cent and unemployment had dropped to well below 5.5 per cent, suggesting that Greenspan and his colleagues should slow things down. But Greenspan the empiricist saw an economy very different from that of the 1970s and 80s. “Innovations like the Internet and e-mail went from exotic to ubiquitous. Something extraordinary was happening . . .”, he writes in his memoir. "The textbook strategy would be to tighten rates . . . But I zeroed in on what I believed to be the primary riddle of the technology boom: the question of productivity . . . . Year in and year out, business had been pouring vast amounts of money into desktop computers, servers, networks, software, and other high-tech gear . . . . Productivity was truly accelerating. And if so, then rising inflation would be unlikely."

Greenspan convinced his colleagues at the Federal Reserve Board not to raise interest rates, and the rest is history. “By not being too quick to raise rates, we helped clear the way for the postwar period’s longest economic boom.” Unemployment eventually dropped to around 4 per cent, and, as demand picked up for unskilled workers, inequality temporarily narrowed. Bill Clinton is usually credited with the 1990s boom, but it was really a product of Greenspan’s willingness to take a fresh look at the high-tech economy that was emerging in America and reject the economic models created in a different era.

Greenspan’s worst legacy sprang from the second source. Ayn Rand had made virtues out of individualism and enlightened self-interest and was deeply suspicious of all collective effort. Greenspan grew to share Rand’s views. In particular, he was sceptical about efforts to help the less fortunate. “What attracted me to Reagan”, he explains, “was the clarity of his conservatism which was to say that tough love is good for the individual and good for society.” This “implies much less government support for the downtrodden”.

Bill Clinton was elected in 1992, in part to reverse what Reagan had wrought. Clinton promised to provide all Americans with the health care, education, job training and other supports they needed in order to adapt to a fast-changing economy, as well as repair the nation’s roads, bridges and ports, which had been neglected for many years. Yet by the time Clinton came to office, the federal budget deficit had grown so large he had to trim his ambitions. Ironically, that deficit had ballooned largely because Ronald Reagan had cut taxes and increased spending, mostly on the military. Although he was chairman of the Federal Reserve Board during Reagan’s final years in the White House, Greenspan’s memoirs don’t suggest he warned Reagan against the widening deficit. It seems more likely that Greenspan agreed with Reagan and others in his administration that deficit spending as Reagan undertook it would serve to “starve the beast”, forcing any subsequent Democratic President – such as Bill Clinton – to offer less support to the downtrodden.

The question we faced at the start of the Clinton administration was how much deficit reduction was necessary, and how much of Bill Clinton’s original agenda would have to be jettisoned as a result. Greenspan urged Clinton in no uncertain terms to make deficit reduction the priority and sacrifice everything else. “The path to a beneficient future, I told the president-elect, was lowering the long-term trajectory of federal budget deficits.” What Greenspan did not tell Clinton, but admits in his memoirs, was that Clinton had been saddled with Reagan’s profligacy – almost exactly as Republicans had planned it. “Reagan had borrowed from Clinton, and Clinton was having to pay it back.” Greenspan’s advice to Clinton came with an implied promise and threat. If Clinton cut the deficit, Greenspan would reduce interest rates and allow the economy to expand briskly. This would make the “latter part of the 1990s . . . look awfully good”, thereby improving the odds of Clinton’s re-election. But if Clinton failed to cut the deficit adequately, Greenspan would not reduce interest rates, and the economy would continue to limp along, perhaps threatening Clinton’s re-election. Greenspan admits he was “not oblivious to the fact that 1996 would be a presidential election year”. He was, in short, engaging in political extortion. The choice was Clinton’s, but Greenspan held a gun at his head. “Either he could opt for a package of spending programs that would fulfill some of his campaign promises, or he could opt for a deficit-cutting plan . . . there was no in-between – we couldn’t afford both.” Several of Clinton’s advisers, of whom I was one, did not believe the budget needed to be cut as much as Greenspan wanted, or that so much of Clinton’s campaign had to be abandoned. As Greenspan puts it, “the conflict extended to within the White House, where key people were still pushing for an agenda less compatible with Wall Street”. But only Greenspan had a gun. So he and Wall Street won.

The ensuing boom seemed to validate the choice Clinton made, but in reality it only validated Greenspan’s power. Lower interest rates had the desired effect, at least in the short term. The economy surged forward, and Clinton won re-election. In the ensuing years, tax revenues exploded, the budget deficit disappeared, and by the start of the Bush administration the federal government had a significant budget surplus. For the first time in decades, America had the resources it needed to provide health care, education and job training, and repair the nation’s infrastructure. But Greenspan did not trust the government to do any of this. He threw his support behind a tax cut, instead: "Chronic surpluses could be almost as destabilizing as chronic deficits," he writes. "Spending would have to be raised or taxes cut, and to me the preferable course seemed clear. I have always worried that once spending is notched up, it is difficult to rein in. The same is less true about tax cuts."

Greenspan’s testimony before Congress in 2001, calling for a tax cut, was critical to George W. Bush’s successful mustering of the political support he needed for his mammoth tax cut, the benefits of which have gone mostly to wealthy Americans. The Bush tax cut drained the federal treasury, eliminating the entire budget surplus within months. Greenspan writes that he didn’t intend to endorse the Bush tax proposal specifically, but this seems disingenuous. Bush’s proposal was the only one under consideration at the time, the new President had made it the centrepiece of his economic policy, and Congressional and media attention was riveted on it when Greenspan testified. Greenspan must have known his testimony would be interpreted as support for Bush’s tax cut. He had spent decades in Washington and well understood the ways of the capital city. “I resigned myself to the idea that my testimony would be politically framed.” He later told his wife, in the mocking tone Claude Rains once used with Humphrey Bogart, “I am shocked, shocked, that there is politics on Capitol Hill”. Indeed, Greenspan admits he was “willing to be optimistic about the legislation’s effects. It would work down the surpluses before they became dangerous”.

What Greenspan still views as “dangerous” was a tragically missed opportunity to redress the nation’s long-term problems. They transcend the ups and downs of the business cycle, and must still be dealt with if middle- and lower-income Americans are to have any chance of improving their standard of living. In the new global economy, private investment will go anywhere around the world it can get the highest rate of return. The only aspect of a nation’s economy that remains unique is its people – especially their education, health and the transport and communications systems linking them together. These generate lasting productivity gains. But partly owing to Greenspan the libertarian, even if a Democrat were to retake the White House in 2008, the government wouldn’t have nearly enough money to do what is needed. America’s primary and secondary schools will lack the necessary resources to provide young people from lower-income families with the education they need. Tens of millions of Americans will continue to lack health insurance and tens of millions more will barely be able to afford the insurance they do have. America’s infrastructure will continue to deteriorate. Last July, a steam conduit dating from 1914 exploded in New York City; last August, a forty-year-old bridge collapsed in Minneapolis, killing several motorists. Finally, and for all these reasons, inequality will continue to widen.

Alan Greenspan the empiricist contributed a great deal to America, instigating the longest economic expansion in recent history and rewriting the rules of monetary policy. But Alan Greenspan the Ayn Rand libertarian has caused the nation grave injury.

Benazir Bhutto and What's to Come

Benazir Bhutto was a courageous and articulate woman who was deeply dedicated to her nation and to democracy. I met her several times in the 1990s. Each time she talked with great passion and eloquence about returning to Pakistan, regardless of the risks entailed, to help that nation build a firm democracy.

Today, Pakistan is a tinder box containing a nuclear bomb. If it should drift into civil war, the world will be greatly endangered. Afghanistan and Iran border Pakistan on the West; India (with its own nuclear bomb) on the East.

Republicans will try to use any ensuing instability and violence to make their case for a “strong” foreign policy backed by military force, reminding voters that the world is a dangerous place and that Republican militarism is therefore necessary. And they will once again try to brand Democrats as “soft” on terrorism. But they do so at their peril. It is the Bush administration, after all, that has placed a huge and risky bet on President Pervez Musharraf – staking him billions of dollars we now know was used to build up the Pakistani military, presumably against India, rather than to fight terrorists on its northwest frontier. The Bushies also allowed India to expand its nuclear arsenal, raising the stakes further. When Musharraf’s hold on power grew precarious, the Bushies facilitated Bhotto’s return to Pakistan. When Musharraf banned political rallies – both to preserve his own power but also to avoid widespread violence – it was the Bush administration that urged him to allow them and allow Bhutto to speak at them. In short, at every step along the way the Bush administration has gambled wildly, with no backup in case its gambles fail. If Republicans want to celebrate and politicize this sort of mindless foreign policy – analogous to the mindlessness we’ve seen in Iraq – they will pay politically.

In the meantime, let us pray that Pakistan does not disintegrate into violence and civil war.

On Immigration

The biggest split in America today isn’t over social issues like abortion or gay marriage. It’s not even over the war in Iraq, or taxes. The biggest divide is over immigration.

Demagogues on the right and left are telling Americans our jobs are threatened, our social services overwhelmed, and their streets unsafe because of immigrants. Fear and prejudice are on the rise. According to a recent Pew survey, more than half of Hispanic adults in America today worry they or someone close to them could face deportation. Earlier this year, when Congress tried to enact a bipartisan bill that would better secure the borders and also try to regularize the plight of undocumented immigrants – giving them a path to become regular citizens and avoid the constant fear of deportation – the bill was killed by these agents of fear and intolerance.

Well, I have some news for those fear-mongers. If they think this country or this economy can succeed in coming decades without tens of millions of additional immigrants, they’re not thinking straight. The huge baby boom generation – 77 million Americans born between 1946 and 1964 – will be retiring, and there aren’t nearly enough native-born Americans after them to keep this economy going, let alone keep money flowing into the boomers’ Social Security and Medicare trust funds. The graying of America means we need this new wave of immigrants.

Remember also that most of us born here are descended from immigrants. What we’ve learned is that people with the guts and gumption to leave their country of birth and come to America are almost by definition ambitious. And we also know something else: The single most important asset of this economy and society is ambition.

I’m not arguing that we throw our borders open. No, we need better border security. But to think immigrants are our enemies, or to believe that they’re taking more out of the economy more than they putting into it, is pure baloney.

At this time of year especially, we need to remind ourselves of the tolerance and generosity that built this country by allowing our immigrant ancestors to become full-fledged Americans.

Drowning in Mortgage Debt: The Way Out?

It’s an old saw that when people are drowning, Republicans throw them a rope so short it doesn’t reach them while Democrats throw them a rope so long it can’t pull them out.

For homeowners in danger of drowning when their mortgages are reset at higher rates over the next two years, the Bush administration’s response is the short rope: Freeze rates for people with good credit histories who are likely to be able to meet the payments at such fixed rates. The idea is fine as far as it goes, but it doesn’t go nearly far enough. Most of the nearly two million families in danger of losing their homes won’t qualify.

Some Democrats, meanwhile, want to throw out too much rope. Take, for example, Hillary Clinton’s suggested temporary moratorium on foreclosures. It may be good for those in imminent danger of losing their homes, but any such moratorium is likely to make banks more wary about offering further mortgages to anyone -- even families with good credit histories.

Either way – too little rope or too much – will cause more people to lose their homes or not be able to buy one, further depressing home prices and adding to losses on mortgage-related securities. This means a continuing credit crunch, and that dread combination of recession and inflation called “stagflation,” from which even the Fed can’t rescue us.

So how much rope is just right? A few days ago Alan Greenspan suggested throwing it precisely to the people who are going down. Give direct aid to struggling homeowners analogous to money given disaster victims, so they can meet their payments. It makes sense: Better to bail out families who didn’t know the risks they were taking on, than lenders who had every reason to know. And better to pay the costs now and get this behind us than suffer risks and uncertainties that slow the economy for years.

Greenspan is one who should know, because he’s partly responsible for the mess. A few years ago he made money so cheap lenders shoved it out the door to any borrower who wanted it, and then he forgot the Fed was supposed to oversee lenders to make sure they were acting responsibly. Maybe Greenspan’s new idea is his way of making amends?

Krugman, the Times Oped Page, and Obama

Will someone please explain to me why Paul Krugman has it in for Barack Obama? And why the Times oped page continues to devote its prime real estate to Krugman’s repeated attack? Here he is again today, for the third time in two months, excoriating Obama for compromising too much with insurance companies and drug companies in his health care plan, without mentioning that (1) HRC’s health care plan compromises at least as much, (2) all the leading Democratic plans are basically the same apart from mandates, which would apply to a tiny fraction of the currently uninsured, and (3) Obama’s may be marginally better than HRC’s if he’s correct in judging that the most of the currently uninsured couldn’t afford to pay HRC’s mandate anyway.

The Wall Street Journal Gets it Wrong Again

The editorial board of the Wall Street Journal is at it again. In today's lead editorial, the Journal noted that new numbers from the Congressional Budget Office show that the richest 1 percent of Americans together paid about 39 percent of all income taxes in 2005 (the latest year for which such data are available); the richest 5 percent paid almost 60 percent; the richest 10 percent, 70 percent. Americans with incomes below the median (half of all households) paid a total of 3 percent of all income taxes.

Hence, the Journal reasons, it would be unfair and foolhardy for anyone to suggest a higher marginal income tax on the rich.

Once again, the Journal distorts reality by ducking two important issues. The first is the total tax burden – including sales, property, and payroll taxes, as well as fees, tolls, so-called “sin” taxes (alcohol and tobacco) and lotteries. These are, by most measures, regressive in that they take a larger bite out of the earnings of lower-income households than they do upper-income households. (Those who continue to claim that Social Security is a progressive system fail to acknowledge that poor people don’t live as long as richer people; those who say “sin” taxes and lotteries aren’t compulsive and therefore shouldn’t really be considered regressive are living on another planet. Tragically, poorer Americans consume on a per capita basis more alcohol and tobacco and are lured into buying more lottery tickets than richer Americans.)

The second issue is that of individual, rather than group or class, responsibility. Whatever is deemed a “fair” rate of taxation presumably is “fair” relative to the rate an individual or household pays – not the total revenue generated from his or her economic class. The rich have become so very rich that even if they were paying a lower marginal income tax rate than they are, the revenues coming from the “richest 1 percent” or “richest 5 percent” would still constitute a large percentage of total revenues. The real question, from the standpoint of ethics or social responsibility, is what individuals or households pay. And there is no question that the marginal income tax rates of the very rich are very low by historic standards. Some of them are paying at a lower tax rate than working-class Americans. Does anyone seriously believe that a hedge fund manager, venture capitalist, or private-equity mogul paying at a 15 percent rate (because his earnings are considered capital gains rather than ordinary income) is paying a fair share?

Conservatives cannot have it both ways – embracing the idea of individual responsibility when it comes to the poor; forgetting it when it comes to the rich.

A Short Primer on the Republican Candidates

1. I’ve known Mitt Romney for several years. After he won the Massachusetts gubernatorial election in 2002, he was gracious enough to invite me and my wife to dinner (I had run in the Democratic primary). I congratulated him not only on winning the election but also on doing a good job on the Salt Lake City Olympics. He told me it was easy to avoid terrorists in Salt Lake City because “Arabs stick out there.” Gulp. If good looks, white teeth, and smooth talking were the sole criteria for becoming president (they’re not unimportant), he’d win hands down. But Romney is cursed by having a father who ran for president. Candidates whose fathers have harbored presidential ambitions are handicapped because such candidates do not run for themselves; they run for their fathers. They therefore have identity problems. They will say almost anything to become president. Voters inherently distrust them. This was Gore’s problem in 2000 (Gore would have won with enough votes to give him an electoral majority had he known himself better; but Gore was running to fulfill the ambitions of his politically-ambitious father). Romney will lose the primary because he does not know why he is running.

2. I’ve met John McCain on a number of occasions, and always been impressed with his apparent sincerity. He’s the mirror image of Romney. McCain knows why he’s running, and will usually say what he thinks regardless of audience (he told an audience of Iowans the other day that farm price supports didn’t make good policy sense – he’s right). But McCain is a genuine hawk. He advocated more troops for Iraq before Bush put more troops in Iraq because McCain never imagined Bush would follow suit. Last year I asked McCain why he was supporting a troop increase and he answered “to support the troops already there.” That struck me as absurd. He wanted to be able to blame Bush for the failure in Iraq and do it from the right. But he’s now in the awkward position of having supported what Bush did, at a time when the war is as unpopular as ever – even though there are signs of it simmering down a bit. The public will never go for him.

3. Rudy Giuliani has only one campaign theme: “I’m the meanest SOB on the planet.” If voters want to be tough on terrorists, criminals, undocumented workers, foreign exporters, or any other perceived threat to the nation, they presumably will choose the meanest SOB on the planet. I know several people who have worked with him over the years and can attest Giuliani is also an SOB to work with. My sense, though, is that even if the Christian right were to somehow decide to back him, the nation doesn’t really want an SOB in Washington who will make politics even more partisan, and fill our airwaves with even more anger and recrimination. Unless we have another terrorist attack between now and the primary, I’m not putting my money on Giuliani.

4. That leaves Mike Huckabee. He’s the most attractive Republican candidate because he comes across as the most genuine, the most likely to act sensibly, and the most economically populist. That last point hasn’t got nearly the attention it deserves. Never underestimate the power of economic populism – especially when America’s middle class feels especially anxious. Ron Paul is riding the same populist wave. As I’ve noted elsewhere, the major asset of America’s middle class has been its homes, and now that home values are dropping for the first time in decades, the middle class is scared. Median wages are about where they were in 1970, adjusted for inflation, and the middle class has run out of coping mechanisms to maintain family incomes (women into paid work starting in the 1970s, increasing hours of work starting in the 1980s, home equity and refinancing starting in the 1990s and this decade). Huckabee’s “fair tax” is a joke, but his populism isn’t. He delivers it with power and with wit, a winning combination. His social conservatism is his least appealing quality because most Americans don’t want to revisit the culture wars. But if he keeps sounding the populist themes, he could well be the Republican nominee.

Democrats Should Stop Battling Over Health-Insurance Mandates

The major Democratic candidates, along with some left-leaning pundits, are battling over whether to require people to buy health care. That’s unfortunate because mandates are the least important and least popular parts of their plans.

The current Democratic consensus on health care is striking. In fact, given the myriad ways universal health insurance might otherwise be organized – single payer, employer mandate, vouchers, tax credits – it's astonishing. All of the major health insurance proposals require employers either to provide coverage to employees or contribute to the cost of coverage; create purchasing pools that will offer insurance to anyone who doesn’t get it from an employer; preserve freedom of choice of doctor; cover children; and aim to save money through more preventive care, better management of chronic disease, and standardized information technology. And all subsidize lower-income families with revenues coming from letting the Bush tax cuts expire.

Mandates are a sideshow. All their plans would cover a large majority of those who currently lack insurance. A big chunk of the remainder are undocumented immigrants, who aren’t covered by any of the plans. So mandates are relevant to only around 3 percent of the population.

Hillary Clinton thinks this 3 percent is mostly young and healthy and should be required to buy insurance in order to bring costs down for everyone who isn’t. Obama thinks they’re mostly people who won’t be able to afford even subsidized premiums, so they’d just ignore any mandate. As a practical matter, the difference comes down to timing and sequencing. Clinton wants to start with a mandate. Obama says if it turns out most of this remaining 3 percent are young and healthy, he’ll go along with a mandate, too.

It’s only to be expected that gloves will come off in the last months of a primary campaign. But by warring over mandates, Democrats are leading with their chins. It’s the least important aspect of what they’re offering. It’s also, to many Americans, the least attractive because it conjures up a big government bullying people into doing what they’d rather not do.

The public is ready for universal health insuranc, but to get it enacted after January, 2009, Democrats need to start building a movement in support of the big and important reforms universal health insurance requires – on which they happen to agree.

How to Avoid the Coming Recession

I was gratified to read in this morning’s Wall Street Journal that Martin Feldstein, of all people, has joined me in calling for a fiscal stimulus to avoid a coming recession. This won't help with the larger, long-term problem (see my post from yesterday), but it's an important short-term step.

But how to have a fiscal stimulus without adding to the already-way-too-large national debt (now almost 70 percent larger than when Bush came to office)? Feldstein doesn’t say, but here's the answer. All we need do is recognize one simple fact: Lower-income people spend a larger portion of whatever extra income they get than those with higher incomes (in economic jargon, lower-income people have a higher marginal propensity to consume). So every dollar of a tax cut aimed at lower-income Americans packs a bigger stimulative punch than a dollar of tax cut aimed at those with higher incomes. By the same logic, every dollar of a tax increase on higher-income people has a smaller detrimental effect on their purchases than would a dollar tax hike on lower-income people. Get it? The best way to stimulate the economy without adding to the national debt is to cut the taxes of lower-income Americans and pay for that tax cut by raising taxes on those with higher incomes. Presto – a simple formula for being both fiscally responsible and also fiscally stimulative. (That this is also a step toward a more equitable tax burden is an extra bonus.) It’s so obvious and logical I’m surprised Marty didn’t suggest it.

It's the Economy, Stupid -- But Not Just the Slowdown

According to new polls, the economy is the number 1 issue for American voters. But that's not just because the economy is slowing and mortgages are harder to come by. The real reason is middle-class families have exhausted the coping mechanisms they've used for over three decades to get by on median wages that are barely higher than they were in 1970, adjusted for inflation. Male wages today are actually lower than they were then; the income of a young man in his 30s is now 12 percent below that of a man his age three decades ago.

The first coping mechanism was moving more women into paid work. The percent of working mothers with school-age children has almost doubled since 1970 -- from 38 percent to about 70 percent. Some parents are now even doing 24-hour shifts, one on child duty while the other works. I call these families DINS - double income, no sex.

When families couldn't paddle any harder, we started paddling longer. The typical American now works two weeks more each year than 30 years ago. Compared to any other advanced nation we're veritable workaholics, putting in 350 more hours a year than the average European, more even than the notoriously industrious Japanese.

As the tide of economic necessity continued to rise, we turned to the third coping mechanism. We began taking equity out of our homes, big time. But now that home prices are sinking for the first time in decades, this final coping mechanism no longer keeps us afloat. As Moody's reported last week, defaults on home equity loans have surged to the highest level this decade.

In short, it's the economy, stupid -- but not just the current slowdown. The underlying problem began around 1970. And any presidential candidate seeking to address it will have to think bigger than stimulating the economy with tax cuts or spending increases. The fact is, most Americans are still not prospering in the high-tech, global economy that emerged three decades ago. Almost all the benefits of economic growth since then have gone to a relatively small number of people at the very top. The candidate who acknowledges this and comes up with ways to truly spread prosperity will have a good chance of winning over America's large and largely-anxious middle class.

Why is HRC stooping So Low?

I’m becoming increasingly concerned about the stridency and inaccuracy of charges in Iowa -- especially coming from my old friend. While I’m as hard-boiled as they come about what’s said in campaigns, I just don’t think Dems should stoop to this. First, HRC attacked O's plan for keep Social Security solvent. Social Security doesn’t need a whole lot to keep it going – it’s in far better shape than Medicare – but everyone who’s looked at it agrees it will need bolstering (I was a trustee of the Social Security Trust Fund ten years ago, and I can vouch for this). Obama wants to do it by lifting the cap on the percent of income subject to Social Security payroll taxes, which strikes me as sensible. That cap is now close to $98,000 (it’s indexed), and the result is highly regressive. (Bill Gates satisfies his yearly Social Security obligations a few minutes past midnight on January 1 every year.) The cap doesn’t have to be lifted all that much to keep Social Security solvent – maybe to $115,00. That’s a progressive solution to the problem. HRC wants to refer Social Security to a commission. That's avoiding the issue, and it's irresponsible: A commission will likely call either for raising the retirement age (that’s what Greenspan’s Social Security commission came up with in the 1980s) or increasing the payroll tax on all Americans. So when HRC charges that Obama’s plan would “raise taxes” and her plan wouldn’t, she’s simply not telling the truth.

I’m equally concerned about her attack on his health care plan. She says his would insure fewer people than hers. I’ve compared the two plans in detail. Both of them are big advances over what we have now. But in my view Obama’s would insure more people, not fewer, than HRC’s. That’s because Obama’s puts more money up front and contains sufficient subsidies to insure everyone who’s likely to need help – including all children and young adults up to 25 years old. Hers requires that everyone insure themselves. Yet we know from experience with mandated auto insurance – and we’re learning from what’s happening in Massachusetts where health insurance is now being mandated – that mandates still leave out a lot of people at the lower end who can’t afford to insure themselves even when they’re required to do so. HRC doesn’t indicate how she’d enforce her mandate, and I can’t find enough money in HRC’s plan to help all those who won’t be able to afford to buy it. I’m also impressed by the up-front investments in information technology in O’s plan, and the reinsurance mechanism for coping with the costs of catastrophic illness. HRC is far less specific on both counts. In short: They’re both advances, but O’s is the better of the two. HRC has no grounds for alleging that O’s would leave out 15 million people.

Yesterday, HRC suggested O lacks courage. "There's a big difference between our courage and our convictions, what we believe and what we're willing to fight for," she told reporters in Iowa, saying Iowa voters will have a choice "between someone who talks the talk, and somebody who's walked the walk." Then asked whether she intended to raise questions about O’s character, she said: "It's beginning to look a lot like that."

I just don’t get it. If there’s anyone in the race whose history shows unique courage and character, it's Barack Obama. HRC’s campaign, by contrast, is singularly lacking in conviction about anything. Her pollster, Mark Penn, has advised her to take no bold positions and continuously seek the political center, which is exactly what she’s been doing.

All is fair in love, war, and politics. But this series of slurs doesn't serve HRC well. It will turn off voters in Iowa, as in the rest of the country. If she's worried her polls are dropping, this is not the way to build them back up.

Leading America after January 20, 2009

I've been thinking a lot lately about the kind of leadership America will need come January, 2009, given the challenges of cleaning up the Bush mess, coping with the nation's deferred needs, and gaining public support for paying for what needs to be done. The Dem debate last night prompts me to put my thoughts down.

Neither of the two dominant models of presidential leadership we've had in recent years will suffice. Under the first model, presidents lead by finding the putative “center.” Their pollsters try to discover what the public wants, and the president fashions policies that will be most popular. This was Bill Clinton's model, especially after the stunning Democratic defeats of 1994, when he turned much of the apparatus of policymaking over to Dick Morris. But leading by polling isn’t leading; it’s pandering. Most of the public doesn’t know exactly what it wants because it hasn’t had the time to find out. Its so-called “opinions” typically reflect no more than what it’s heard from the last opinionated columnist or talk-show host they've encountered. At this perilous juncture in America’s history – where widening inequality, a bellicose foreign policy, and global warming all threaten – the next president dare not lead by polling.

Under the second model, presidents decide what’s good for America and then try to sell, cajole, intimidate, or lie their way toward that goal. George W. Bush hasn't waivered in any of his beliefs, all the evidence to the contrary -- including his certainty that supply-side tax cuts for the rich help the economy and that invading Iraq would bring peace to the Middle East. But leading by fiat isn’t leading, either; it’s bullying. It’s also profoundly anti-democratic. Worse yet, it leads to large errors because a president who’s dogged in pursuit of his goals is often incapable of hearing evidence that reveals those beliefs to be mistaken, as Bush has shown. If the next president chooses this model of leadership, he or she subjects the nation to grave danger.

But the choice need not be pandering or bullying -- trying to please everyone or refusing to consider contrary opinion. The leadership we'll need from the next president will require something different: a clear vision and a capacity to make his or her case to the public as strongly as possible, but then to listen carefully to what the public and its representatives say in response. In other words, the next president must be bold but also be willing to modify if facts and conditions change. Be clear about where he or she wants to lead America, but reconsider if the public will not follow. Come down hard on adversaries but not mistake disagreement for ruthless opposition. In short, he or she will have to enter into a dialogue with America -- educating the public, but being willing to be educated in return. That’s the only way to preserve and build trust in leadership. And given the difficult hand the next president will be dealt -- following the mess of Bush, and the mounting problems of the nation -- public trust will be critical.

The question is: Which candidate seems to best embody this third model of leadership?