Happy Centennial, Federal Income Tax

Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul. He is the author of the forthcoming book “The Benefit and the Burden: Tax Reform - Why We Need It and What It Will Take.”.”

Thursday, Oct. 3, is the 100th anniversary of the federal income tax. That is the day that President Woodrow Wilson signed the legislation into law in 1913, concluding a process begun four years earlier by President William Howard Taft.

There had been an income tax during the Civil War that Congress allowed to expire in 1872. Republicans, who controlled Congress and the White House throughout much of the second half of the 19th century, preferred to raise the federal government’s revenue through tariffs and excise taxes.

Democrats thought these taxes weighed too heavily on the poor and working class. In 1890, virtually all the federal government’s revenue came from just three sources: 60 percent from tariffs; 27 percent from taxes on alcohol; and 8 percent from tobacco taxes.

Enactment of the McKinley Tariff in 1890 raised tariff rates even higher, principally for protectionist purposes, rather than revenue.

In 1892, Grover Cleveland, a Democrat, was elected president, bringing in with him a Democratic Senate, which had previously been under Republican control. Democrats held on to a large majority in the House of Representatives. Tariff reform was their No. 1 priority.

In 1894, Democrats enacted a modest income tax, with a flat rate of just 2 percent on incomes over $4,000 - the equivalent of $110,000 today. The revenue would help finance a reduction in tariff rates. But the next year, the Supreme Court ruled the income tax unconstitutional in Pollock v. Farmers’ Loan and Trust Company, on the grounds that it was a direct tax that must be apportioned.

Critics of the ruling pointed out that the court had found the Civil War income tax to be constitutional in Springer v. United States in 1880. While many constitutional scholars thought the Pollock decision was idiosyncratic, unlikely to be upheld should another income tax be enacted, it nevertheless created an insurmountable political impediment.

In his State of the Union address in 1907, President Theodore Roosevelt asked Congress to consider an income tax again. “A graduated income tax of the proper type would be a desirable feature of federal taxation, and it is to be hoped that one may be devised which the Supreme Court will declare constitutional,” he said.

No action was taken during Roosevelt’s administration, but political pressure for an income tax and major tariff reduction increased under his successor, Taft. To deal with the constitutional question and to placate opponents of an income tax in the Republican Party, he asked for a constitutional amendment that would permit a tax on incomes without apportionment.

Taft’s request was made on June 16, 1909. The Senate voted for the amendment unanimously on July 5 and the House vote of 317 to 14 came on July 12. In an editorial, The New York Times said that the overwhelming vote for the amendment did not represent actual support and that many opponents voted for it just to head off immediate enactment of an income tax.

It took several years to gain the ratification of three-fourths of the states. Delaware became the final state to approve the 16th Amendment to the Constitution on Feb. 3, 1913. This was just weeks before Woodrow Wilson, only the second Democratic president since the Civil War, was inaugurated on March 4.

Having dispensed with the constitutional barrier to an income tax, Congress quickly went to work on legislation creating one. As with previous income tax debates, this one was very closely tied to tariff reform. The tariff and income tax legislation passed the House on May 8, 1913, by a vote of 281 to 139. Only two Republicans voted “yea.”

The Senate vote came on Sept. 9, 1913, and the income tax was supported by a vote of 44 to 37 - better than expected. A House-Senate conference was necessary to iron out differences between the two bills, but final action was completed by the end of the month.

The new tax applied only to those with very high incomes. There was a personal exemption of $3,000 for individuals (equivalent to $71,000 today) and $4,000 for married couples (about $94,500 today) but none for dependents. Additionally, all interest and state and local taxes were deductible. After that, the following rate schedule applied to both individuals and couples.

Internal Revenue Service and Bureau of Labor Statistics

It was estimated that only 425,000 people in a population of more than 97 million would owe any income tax.

Even before the income tax was enacted, the issue of loopholes came up. An article discussing them appeared in The New York Times as early as April 13, 1913. By 1915, one congressman complained: “I write a law. You drill a hole in it. I plug the hole. You drill a hole in my plug.”

The 1913 income tax did not remain unchanged for long. The next year, World War I broke out in Europe. The United States entered the war in 1917, leading to a huge increase in income taxes. By 1918, the personal exemption was reduced to $1,000 ($15,500 today), the bottom tax rate rose to 6 percent on taxable incomes up to $4,000 ($62,000 today) and the top rate was 77 percent on incomes above $1 million ($15.5 million today).

Although tax rates were sharply reduced by Republican presidents and Congresses in the 1920s, they never got back to where they were before the war. At its low point, the top rate fell only to 24 percent, more than three times than the prewar rate.

It is important to remember that until World War II, the income tax was paid only by a very small number of people - fewer than four million people in a population of more than 130 million in 1939. By 1943, however, the number of taxpayers had increased more than 10-fold.

Today, the income tax of 1913 is still with us and is likely always to be despite quixotic efforts to abolish it. We will be wishing it many happy anniversaries to come.

Jobs Report May Be a Shutdown Casualty

If the federal government does indeed shut down on Tuesday and remain closed for more than a day or two, data for unemployment and job creation in September is very unlikely to be released Friday, as scheduled.

The data, based on separate surveys of businesses and households, goes through an extensive process of analysis and review before it is released. And if Congress fails to reach a budget accord before the start of the fiscal year, the staff necessary for that will be furloughed, according to two administration officials who insisted on anonymity because the timing and duration of a shutdown remains uncertain.

Figures for weekly jobless claims, however, will be disclosed as usual on Thursday. That information is based on data collected from state agencies and is issued by the federal Employment and Training Administration, but doesn’t require the kind of number crunching necessary to produce the statistics on unemployment.

A memo prepared last month by the commissioner of the Bureau of Labor Statistics, Erica L. Groshen, stated that in the event of a lapse in appropriations, “All survey and other program operations will cease and the public Web site will not be updated.”

But as the memo states, “The timing of any shutdown is critical.” The Labor Department notes that information on the Consumer Price Index was in fact released during the government shutdown in 1995, because it had already been prepared and there was a risk it could leak.

In the case of the employment data this time around, the statistics are still being reviewed, and the staff necessary to finish the preparation is much larger than it is for Consumer Price Index data, administration officials said.

The employment data, a key measure of economic growth, is followed more closely by Wall Street and investors these days than any other statistic that comes out of Washington. The Federal Reserve has tied any reduction in stimulus efforts to improvement in the labor market and a drop in the unemployment rate.

A healthy jobs report for September would increase the odds of tapering by the Federal Reserve when policy makers next meet in late October or mid-December. Conversely, anemic numbers for job creation could delay any easing of the stimulus.

How a Debt-Ceiling Crisis Could Become a Financial Crisis

Come mid-October, the United States will have only $30 billion of cash on hand. On any given day, its net payments can reach as high as $60 billion. That means that unless Congress raises the debt ceiling, allowing the Treasury to issue new debt, the United States may find itself unable to make all of its payments â€" stiffing government contractors, or state and local governments, or even its bondholders.

Economists widely agree that such an unprecedented event would have profound effects for the markets, likely precipitating a stock-market sell-off and setting off a round of global financial turbulence. But it has always been a little unclear just how it may play out. The Treasury might announce it would be forced to delay some payments, promising to do what it could to make sure bondholders were made whole. But then what?

The team at RBC Capital Markets has put together a terrifying play-by-play for the Alphaville blog of The Financial Times. It shows how a debt-ceiling breach would translate quickly into a credit crunch and financial crisis with some disconcerting similarities to 2008. Get ready for some scary reading:

Let us be perfectly clear: crossing the debt ceiling would be catastrophic. The Treasury’s systems do not clearly mark what scheduled payments are for what reasons, so it is impractical to try to prioritize payments. And clearing systems like Fedwire do not allow defaulted securities to flow, so the system would seize. In order for the clearing systems to work, the Treasury would need to notify the market of a default almost a day before the default happened (to give everyone time to modify payments), and that is not going to happen because the Treasury will not want to declare default while Congress still has time to pass a bill. Also the Fed does not take defaulted securities as collateral at the discount window, even if those securities are still trading at par.

It continues:

While we think the probability of the debt ceiling causing a technical default in the Treasury market is near zero, nonetheless, there are likely to be market disruptions. The main issue is that the markets are not set up to trade or finance defaulted Treasuries. While many RP documents say that defaulted securities cannot be delivered as collateral, delivery systems are not set up to easily sort out which Treasuries have defaulted and which have not (there are no cross-defaults on Treasuries), so the RP markets can seize up as the debt ceiling drop-dead date approaches.

That’s pretty technical, but it boils down to this: A debt-ceiling crisis could throw sand â€" a whole lot of sand â€" into the gears of the financial system, making it impossible for market participants to tell “good” collateral from “bad” collateral. As my colleague Binyamin Appelbaum points out, that’s essentially the definition of a modern financial crisis.

What’s interesting â€" and disconcerting â€" to think about is how all the new tools the Treasury and Fed developed during and after the 2008 financial crisis will work in the event of a new crisis. The Treasury would be the source of the turbulence it would desperately be trying to stop, after all.

Lessons From a Famous Bet

Julian Simon, frustrated by the huge attention that Paul Ehrlich was receiving for his apocalyptic warnings about overpopulation, offered Mr. Ehrlich a bet in 1980. If a selected basket of commodities became more expensive over the coming decade  â€" which would signal scarcity caused by a crowded planet â€" Mr. Ehrlich, an ecologist, would win the bet. If the commodities fell in price â€" signaling a triumph of human ingenuity â€" Mr. Simon, an economist, would win.

Nina Subin Paul Sabin, author of “The Bet.”

The basics of the Simon-Ehrlich bet are fairly well known. But the full story is not. In his new book, “The Bet,” Paul Sabin has managed to write a work of serious historical scholarship about a vexing political issue â€" and make it read like a character-driven novel. I picked it up a couple of weeks ago and finished it in a matter of days.

Mr. Simon won the bet, with room to spare, and it’s easy to forget today how serious the overpopulation fears once were. Mr. Sabin catalogs them â€" from the United Nations, major publications and even a United States president â€" in entertaining fashion. But “The Bet” also makes clear that some of Mr. Ehrlich’s worries had an undercurrent of reason.

I had an e-mail conversation with Mr. Sabin, an associate professor of history at Yale, about these issues in recent days, and a lightly edited transcript follows.

Q.

The predictions of scarcity that environmentalists made in the 1960s and 1970s ended up being spectacularly wrong, as you document so well. It’s easy to see a potential parallel between these failed predictions and today’s warnings about global warming: both are based in part on the idea that human ingenuity will not triumph over nature. Yet you think this parallel is dangerously misguided â€" that climate change is a far more serious threat than population growth. Why?

A.

I think climate change differs from population growth in two main ways.  First, climate change is a pollution problem with direct consequences.  Continuing to increase atmospheric greenhouse gases will cause very specific environmental changes, such as raising sea levels and likely causing more extreme weather events. Growing populations, by contrast, simply create diffuse additional pressure on the planet that has no specific consequence.

Second, the powerful economic forces that unleash human ingenuity cannot be brought to bear on greenhouse gas emissions unless they are somehow brought within the marketplace â€" with carbon prices, cap-and-trade or other regulatory schemes.  By contrast, resource pressures associated with population growth over the past several decades manifested themselves in the form of practical economic demands for food, water and energy. The marketplace responded by increasing production, inventing new things, and by reallocating resources.

There is good news here. Because climate change is a pollution problem, we have regulatory and scientific tools at our disposal to address it, as the E.P.A. showed recently with its proposed new emissions regulations. We can reduce the carbon intensity of modern civilization â€" if we choose to.

Q.

So population growth contained the seeds of its own solution in a way that carbon pollution does not. With population, market signals gave huge incentives for change; with climate change, the signals aren’t so helpful.

But there does seem to be one main common thread: the potential for innovation. Even allowing for the idea that market signals won’t be as helpful with the climate, what does history tell us about the promising ways and areas to look for innovation?

James J. Johnson/Yale University Press, via Getty Images

A.

One of the most effective strategies is to shape the market so that prices encourage innovation.  This is why so many economists, including conservatives like N. Gregory Mankiw, favor carbon taxes that would prompt everyone to take the cost of carbon emissions into account in everyday decision-making.  Putting a price on carbon would unleash the market forces that I discuss in the book, triggering investment, efficiency and substitution.  Energy prices are inherently political, so a carbon tax would not distort a “free market” but rather readjust a market already structured by politics and law.

History is full of surprises about the sources of innovation and the results.  Since it is hard to pick what will work, funding basic research may pay off most.  But targeted investment sometimes has played an indispensable role. Successes like the Internet and the agricultural advances of the Green Revolution remind us that this kind of investment can yield world-changing results.

Both pessimists and optimists can find support for their views in recent history. Ironically, anxiety and fear about the future, even if ultimately disproved, have been critical spurs to innovation.

Q.

Do you think Paul Ehrlich and Anne Ehrlich, his wife and close collaborator, played a significant role in the spread of environmentalism, such as recycling programs and 1970s anti-pollution laws? Or were they more effect than cause?

A.

How do we determine cause and effect in assessing public intellectuals and their impact?  The country was ready for Ehrlich’s message when he published “The Population Bomb” in 1968, but his tremendous success in turn left a profound mark on public thinking about environmental problems. Ehrlich was one of a handful of environmental leaders who became household names. “The Population Bomb” sold some two million copies and was one of several books that helped persuade Americans that the planet faced an environmental crisis and that Americans needed to take aggressive action â€" at the personal level, in terms of family size and personal consumption, and also in politics.

Yet the environmental movement soon became dominated by lawyers, amid the fierce battle over regulation during the 1970s.  The Clean Air Act, Clean Water Act, Endangered Species Act and other laws did not depend on the Ehrlichs. The fierce rivalry between President Richard Nixon and Democratic senators like Edmund Muskie and Henry Jackson was far more important, as were dramatic incidents like the 1969 Santa Barbara oil spill.

Sweeping apocalyptic pronouncements by people like Ehrlich could even obstruct pragmatic policy making. The economist Robert Solow, for instance, complained of the 1972 book “The Limits to Growth,” which made arguments similar to “The Population Bomb”: “Who could pay attention to a humdrum affair like legislation to tax sulfur emissions when the date of the Apocalypse has just been announced by a computer?” Dire rhetoric from Ehrlich and others created unrealistic expectations for social transformation among his followers, and, I think, also could help inflame, and even justify, opposition to environmental policies.

Q.

You consider yourself an environmentalist, writing in your preface, “I believe that we define ourselves in part through our stewardship of the planet.” Most climate scientists believe that global warming does indeed pose dire risks â€" and there is no science-based opposition today along the lines of Simon’s 1970s allies, with a substantial number of top economists or other researchers among its ranks. Yet the history of dire warnings  argues for some skepticism about how persuasive they will be. What lessons do you think the Ehrlich-Simon story hold for environmentalists?

A.

I would start with humility and self-awareness.  The biggest problem with both Ehrlich and Simon’s approaches to this debate â€" and, I’d argue, with American political dialogue generally right now â€" is that they did not listen well to the other side, or acknowledge the uncertainties and limitations inherent in their own arguments.  My book is called “The Bet” both because of Simon and Ehrlich’s iconic wager and because we are all engaged in a massive gamble on the future.  Anyone who says they are absolutely sure how it will turn out â€" both optimists and pessimists â€" probably shouldn’t be trusted.

For example, there is significant uncertainty about the ultimate scope and timing of climate change, the cascading effects on society and our capacity for adaptation.  There also is great uncertainty about our ability to free modern economies from their dependence on oil, gas and coal, which have fueled the industrial revolution.

For environmentalists, in particular, the Ehrlich-Simon story should instill great caution about predictions of imminent scarcity and soaring resource prices.  In the 1970s and again more recently, expectations that energy prices would climb and remain high led to unrealistic investment plans and, in many cases, corporate bankruptcy.  I think there is a bright future for alternative energy, and we should invest heavily in its development, but as the current natural gas boom shows, there is not a straight line from abundance to scarcity.

More broadly, environmentalists are right to sound the alarm over global warming, but Ehrlich-style warnings that civilization is about to collapse in a paroxysm of warfare, disease and starvation just aren’t that persuasive or helpful.  I think that environmentalists would find a more solid foundation to advocate action if they made their case based on social values, rather than apocalyptic fear.  What kind of world do we want to live in?  Humans might survive, and even prosper economically, in a warmer and more populated world.  But are the risks associated with climate change worth taking? (The answer, I think, is clearly “no.”)  Do we want to live on a more biologically impoverished, albeit economically productive, planet?  These are profound social questions that, I might point out (as a historian), cannot be answered by economics or biology alone but rather depend on the humanities and can only be resolved through politics.

Lessons From a Famous Bet

A conversation with Paul Sabin, author of a new book on a storied 1980 wager over the prospect of overpopulation -- and the applications for the current debate over global warming.

The Push for Universal Pre-K

David Coates/The Detroit News, via Associated Press A mother registering her 4-year-old for a pre-kindergarten program in Detroit this month.

Nancy Folbre is professor emerita of economics at the University of Massachusetts, Amherst.

The labor is going to be long and difficult, but this baby is on its way in most affluent countries. Japan and Germany, two countries long considered laggards in the child care area, are now increasing their spending. In the United States, President Obama is keeping the issue atop his domestic agenda, where it is gaining traction despite slim chances of Congressional approval. Many states and several big cities have developed innovative and successful pre-K programs.

I’ve touched on some of the reasons for resistance to increased public investment in children in earlier posts. Sometimes the issue is framed as one of disagreement over social cost-benefit analysis, but many economists, most famously James Heckman of the University of Chicago, offer powerful evidence of a high social rate of return in the form of improved outcomes for children. The net benefits loom even larger when the value of increased work flexibility for parents is added in.

The bigger issue is who will pay the costs and who will enjoy the benefits. Loyalties based on age, race and ethnicity, gender, citizenship and class have a fragmenting effect. Mothers are more affected than fathers, who account for a smaller share of the overall time and money devoted to children. Self-interest also comes into play. Some nonparents feel they shouldn’t be required to help subsidize parents.

Most families worry more about their own budgets and the relative well-being of their own children than the growth of the overall economy or average child outcomes. Persistently high unemployment and the decline of middle-class jobs increase apprehensions about competition among members of the next generation. Will there be enough future demand for all this human capital we are urged to invest in?

On the other hand, universal pre-K eases economic stress on parents and improves human resources. It helps counter economic forces that are both driving up the relative cost of child-rearing and increasing economic inequality.

Sustained below-replacement fertility will increase the share of elderly in the population, threaten national and ethnic identity, and weaken the links between present and future generations that are forged by family commitments. The taxes paid by the working-age population benefit all elderly fellow citizens, including those who have contributed relatively little to their care. In tomorrow’s global economy, the quality of future workers will matter even more than the quantity.

Entirely self-interested individuals have no reason to worry about what happens after they die. But a nation, like a family, hopes and plans to live on.

Currently, the United States ranks far below most members of the Organization for Economic Cooperation and Development (including Japan and Germany) in both public expenditure on child care services as a percentage of gross domestic product and child care enrollment among those under age 6.

Other countries are also making more rapid progress. Japanese anxieties about women’s labor-force participation and fertility recently prompted Prime Minister Shinzo Abe to promise a significant expansion of day care (enough to eliminate current waiting lists) by 2017.

In Germany, the recently re-elected government of Angela Merkel has taken a different tack, promising to increase the number of public child care slots but also creating an allowance for families who care for very young children at home.

President Obama couched his proposal as a federal/state partnership to expand high-quality public preschool to reach all low- and moderate-income 4-year-olds from families with incomes at or below 200 percent of poverty, to be financed by an increased tax on tobacco, which would also help deter youngsters from smoking. On Sept. 22 and 23, a summit of national business leaders in Atlanta mobilized support for early childhood education, though it stopped short of endorsing the president’s plan.

On both the federal and state level, efforts to cut government spending have taken a big bite out of public child care programs. This coming year, 57,000 children will lose access to Head Start as a result of sequestration.

While states vary enormously in terms of both levels and trends, average per-child spending has recently declined, leading the National Institute for Early Education Research report on the State of Preschool to characterize the 2011-12 year as “the worst in a decade for progress in access to high-quality pre-K for American’s children.” Still, the report noted that enrollment in state programs increased rapidly over the last decade and was now holding even.

It also singled out Washington for serving a higher percentage of 3- and 4-year-olds (and spending more per child) than any state. The city’s relatively large population means that more 4-year-olds are in pre-K there than in 15 states with programs. A recent post in The New York Times’s Motherlode blog vividly describes how the program changed one parent’s life.

Last month in San Antonio, Mayor Julián Castro greeted 4-year-olds taking part in a new pre-K program aimed at low-income families, financed by a 1/8-cent increase in the local sales tax. Once the program is up and running, about 4,000 children will benefit.

In New York City, the Democratic mayoral candidate Bill DeBlasio has called for an increase in the city’s tax rate on income over $500,000 (to 4.4 percent from the current 3.87 percent) to raise money for pre-K and after-school programs.

In the long run, such local conceptions could lead up to a big national delivery.

More on Dysfunctionology: Minority Rules

Jared Bernstein is a senior fellow at the Center on Budget and Policy Priorities in Washington and a former chief economist to Vice President Joseph R. Biden Jr.

I continue to believe that dysfunctionology â€" the study of why our national politics are so deeply screwed up â€" is an essential discipline for those of us who long for politicians who actually try to solve, not create, problems.

As I noted earlier this week:

… gerrymandering is clearly implicated. The fact of “safe,” noncompetitive districts…robs the political process of a disciplinary force, where members could conceivably be held to task for shutdowns and defaults.

Ryan Lizza of The New Yorker has raised interesting points about this in an article that maps the districts of Republican representatives who signed a letter urging Speaker Boehner to use the threat of a government shutdown to defund Obamacare.  Representative Mark Meadows, who drafted the letter, represents North Carolina’s 11th District â€" one that Mr. Lizza notes was gerrymandered after the 2010 census to become the most Republican district in the state.

There are 80 of these members, and Mr. Lizza points out that “[t]he ability of eighty members of the House of Representatives to push the Republican Party into a strategic course that is condemned by the party’s top strategists is a historical oddity.”

“These eighty members represent just eighteen per cent of the House and just a third of the two hundred and thirty-three House Republicans. They were elected with fourteen and a half million of the hundred and eighteen million votes cast in House elections last November, or twelve per cent of the total. In all, they represent fifty-eight million constituents. That may sound like a lot, but it’s just eighteen per cent of the population…

“Obama defeated Romney by four points nationally. But in [these] districts, Obama lost to Romney by an average of twenty-three points. The Republican members themselves did even better. In these eighty districts, the average margin of victory for the Republican candidate was thirty-four points.

“…these eighty members represent an America where the population is getting whiter, where there are few major cities, where Obama lost the last election in a landslide, and where the Republican Party is becoming more dominant and more popular. Meanwhile, in national politics, each of these trends is actually reversed.”

Nothing you don’t know if you follow this, but I found those numbers to be illuminating.  Why such intense minority rule?  What’s got America stuck in Cruz control?

Someone in comments suggested that the courts had been far more lax on imposing rules against gerrymandering.  Others noted that state legislatures are where the gerrymandering action is, so you’ve got to crack this case from the bottom up.  Those explanations resonate with me.

But you have to ask yourself why a relatively small fringe from a demographic bubble has such sway over all the other, more moderate members of the party.  Say what you want about John Boehner, but believe me, he knows better than to follow these guys down these paths to nowhere â€" or worse.  The lopsided vote Friday in the Senate â€" where members are less bound by a narrow district â€" in favor of cloture on the budget-patch bill actually provides a good counterexample: 25 Republicans supported ending the debate, against the very long-winded admonitions of Senator Cruz.

The answer seems to be fear. They’re worried about being “primaried” from the right. And if you can strike that fear into a politician, your control over them is Svengali-like.  It’s a power that Occupy Wall Street didn’t even get close to holding.  It’s not even clear to me that “big labor,” as the right calls the labor movement, holds such sway anymore.  But this fear is at the heart of how a small, extreme, demographically shrinking minority is controlling national politics and even, when you consider the ramifications of default on our sovereign debt, global economics.

Janet Yellen’s Confirmation

Phillip Swagel is a professor at the School of Public Policy at the University of Maryland and was assistant secretary for economic policy at the Treasury Department from 2006 to 2009.

With Janet Yellen likely to be nominated by President Obama to succeed Ben S. Bernanke as chief of the Federal Reserve, it is appropriate to look ahead and consider the confirmation process that Ms. Yellen will face.  As Sheila C. Bair, the former chairwoman of the Federal Deposit Insurance Corporation, has written persuasively, Ms. Yellen is well qualified for the position, is politically independent, and has the knowledge to navigate the difficult path in eventually unwinding the Fed’s crisis-era monetary policy interventions, including the asset purchases known as QE3.

I agree that Ms. Yellen would be a superb choice to lead the Federal Reserve. She is a distinguished academic with relevant policy experience at the White House and the Fed.  Ms. Yellen further has a track record of excellence at the top of a large organization, as the Federal Reserve Bank of San Francisco became an intellectual leader within the Fed system during her tenure as president (and has remained so under her successor, John Williams).

Judging from the enthusiasm on the left and neutral-to-positive sentiment on the right, Ms. Yellen is likely to be confirmed. (The assertion in an Economix post last week that there was “a great deal of chatter in Washington” against Ms. Yellen is puzzling - griping by White House aides was directed at the administration’s “frenemies” on the left who forced Lawrence Summers to withdraw from consideration, and not at Ms. Yellen.) Even so, to reach this successful outcome, she will have to address potential concerns from both sides, with answers that thread a narrow line between the two parties’ quite different views of the Fed’s actions to date.

Given their crucial role in clearing the way for her nomination, Democratic senators are likely to vote for Ms. Yellen even after they learn that her views are in line with the economic mainstream and thus out of sync with progressive orthodoxy: she favors trade accords like the North American Free Trade Agreement, recognizes that changes to Social Security benefits are appropriate as part of reform, and spoke in favor of the repeal of the Glass-Steagall legislation that separated commercial banking and investment banking.

With the Fed having broad financial regulatory power under the Dodd-Frank act, senators are likely to focus on this latter part of Ms. Yellen’s record, since reinstating Glass-Steagall has become something of a cause célèbre among people seeking to shrink large banks. This is despite the inconvenient reality of a tenuous connection between President Bill Clinton’s 1999 financial deregulation and the recent financial crisis and even though proponents of a return to Glass-Steagall acknowledge that it would not have prevented the crisis.

Still, Ms. Yellen must assure senators that the Fed under her watch will be a tough cop on the financial beat, even if a return to a simpler financial system is neither likely nor desirable on the whole (by which I mean that there are advantages to a simpler financial system, but also yet larger costs in terms of forgone benefits).

Democratic senators, moreover, will look for assurances that Ms. Yellen will carry on the Bernanke approach of expansionary monetary policy with the hope of fostering economic growth and job creation.  There is an irony here in the desire for such continuity in that Mr. Bernanke faced considerable opposition at his second confirmation in January 2010, some of it from Democratic senators. Senator Jeff Merkley, Democrat of Oregon, for example, voted against Mr. Bernanke on the grounds that his policies involved “prioritizing Wall Street over American families.”  The natural response to such criticism is that the Fed’s actions to stabilize the financial system were done precisely to help American families â€" that not saving Wall Street would have meant an even greater catastrophe on Main Street.

Ms. Yellen can appeal to Democratic senators by talking about how the Fed is falling short on both aspects of its statutory mandate: inflation is below the Fed’s target while the unemployment rate is still painfully high. She will find appreciative nods from the left by stating that, like Mr. Bernanke, she is deeply concerned about the lasting impact of unemployment, and that with inflationary pressures still faint, she expects to maintain an expansionary monetary policy.

I suspect that the reality is more complex than the cartoon portrait often expressed by market participants of Ms. Yellen as an unabashed monetary dove. When the economy strengthens and the time comes for the Fed to take away the punch bowl, she will not hesitate â€" after all, allowing inflation to get out of control is the surest way to end up on the list of failed Fed chiefs.  For now, however, with little sign of inflation in the prices of goods and services, and with wage pressures absent, Ms. Yellen can safely appeal to Democratic senators by espousing the basic need to achieve the Fed’s targets.

A challenge for Ms. Yellen is that such talk of monetary accommodation will raise eyebrows among Republican senators, who can be expected to pose questions regarding the benefits of continued easy money and express concern over the possibility that the Fed’s quantitative easing is distorting asset prices and setting up financial markets for another cycle of policy-induced boom and bust. Indeed, there is some evidence for this, with the volume of loans being made under easy terms (so-called covenant lite lending) back above pre-crisis levels - a phenomenon that was noted by Mr. Bernanke at his news conference last week.

Ms. Yellen can respond to this concern through tough talk regarding banks and financial market regulation.  She can point out, for example, that financial institutions are in much better shape to withstand potential losses than was the case five or six years ago, and that she will not hesitate to use the Fed’s authority to crack down on risky behavior.

This sort of tough talk will not reassure all Republicans on easy money, but it will help satisfy them that she understands the potential downsides and will crack down when needed â€" even if she might raise interest rates somewhat later than the Fed chief who would have been appointed by Mitt Romney. But elections have consequences.

This part of the confirmation hearing will be tricky in that Ms. Yellen must tread a line between easy money as economic stimulus and tough regulation to crack down on the distortions brought about excess liquidity. Success here would have her being viewed as a monetary dove by Democrats and a regulatory hawk by Republicans.

Assuming that her answers are satisfactory to both sides, it would be valuable for both the Federal Reserve and for the nation for Ms. Yellen to receive strong bipartisan support from Congress. This is because an overwhelming confirmation vote in her favor would indicate Congressional support for her independence and help undo some of the damage from President Obama’s action in needlessly politicizing the Fed through a flawed nomination process.

This administration is notoriously inept in its dealings with Congress. Even so, the confirmation process should end up with Ms. Yellen taking over as Fed chief when Mr. Bernanke steps down in January 2014. As a nation, we will have been fortunate to have benefited from the Fed chairman’s extraordinary efforts over his eight years in charge of the Fed and further privileged to have a worthy successor in Janet Yellen.

Janet Yellen’s Confirmation

Phillip Swagel is a professor at the School of Public Policy at the University of Maryland and was assistant secretary for economic policy at the Treasury Department from 2006 to 2009.

With Janet Yellen likely to be nominated by President Obama to succeed Ben S. Bernanke as chief of the Federal Reserve, it is appropriate to look ahead and consider the confirmation process that Ms. Yellen will face.  As Sheila C. Bair, the former chairwoman of the Federal Deposit Insurance Corporation, has written persuasively, Ms. Yellen is well qualified for the position, is politically independent, and has the knowledge to navigate the difficult path in eventually unwinding the Fed’s crisis-era monetary policy interventions, including the asset purchases known as QE3.

I agree that Ms. Yellen would be a superb choice to lead the Federal Reserve. She is a distinguished academic with relevant policy experience at the White House and the Fed.  Ms. Yellen further has a track record of excellence at the top of a large organization, as the Federal Reserve Bank of San Francisco became an intellectual leader within the Fed system during her tenure as president (and has remained so under her successor, John Williams).

Judging from the enthusiasm on the left and neutral-to-positive sentiment on the right, Ms. Yellen is likely to be confirmed. (The assertion in an Economix post last week that there was “a great deal of chatter in Washington” against Ms. Yellen is puzzling - griping by White House aides was directed at the administration’s “frenemies” on the left who forced Lawrence Summers to withdraw from consideration, and not at Ms. Yellen.) Even so, to reach this successful outcome, she will have to address potential concerns from both sides, with answers that thread a narrow line between the two parties’ quite different views of the Fed’s actions to date.

Given their crucial role in clearing the way for her nomination, Democratic senators are likely to vote for Ms. Yellen even after they learn that her views are in line with the economic mainstream and thus out of sync with progressive orthodoxy: she favors trade accords like the North American Free Trade Agreement, recognizes that changes to Social Security benefits are appropriate as part of reform, and spoke in favor of the repeal of the Glass-Steagall legislation that separated commercial banking and investment banking.

With the Fed having broad financial regulatory power under the Dodd-Frank act, senators are likely to focus on this latter part of Ms. Yellen’s record, since reinstating Glass-Steagall has become something of a cause célèbre among people seeking to shrink large banks. This is despite the inconvenient reality of a tenuous connection between President Bill Clinton’s 1999 financial deregulation and the recent financial crisis and even though proponents of a return to Glass-Steagall acknowledge that it would not have prevented the crisis.

Still, Ms. Yellen must assure senators that the Fed under her watch will be a tough cop on the financial beat, even if a return to a simpler financial system is neither likely nor desirable on the whole (by which I mean that there are advantages to a simpler financial system, but also yet larger costs in terms of forgone benefits).

Democratic senators, moreover, will look for assurances that Ms. Yellen will carry on the Bernanke approach of expansionary monetary policy with the hope of fostering economic growth and job creation.  There is an irony here in the desire for such continuity in that Mr. Bernanke faced considerable opposition at his second confirmation in January 2010, some of it from Democratic senators. Senator Jeff Merkley, Democrat of Oregon, for example, voted against Mr. Bernanke on the grounds that his policies involved “prioritizing Wall Street over American families.”  The natural response to such criticism is that the Fed’s actions to stabilize the financial system were done precisely to help American families â€" that not saving Wall Street would have meant an even greater catastrophe on Main Street.

Ms. Yellen can appeal to Democratic senators by talking about how the Fed is falling short on both aspects of its statutory mandate: inflation is below the Fed’s target while the unemployment rate is still painfully high. She will find appreciative nods from the left by stating that, like Mr. Bernanke, she is deeply concerned about the lasting impact of unemployment, and that with inflationary pressures still faint, she expects to maintain an expansionary monetary policy.

I suspect that the reality is more complex than the cartoon portrait often expressed by market participants of Ms. Yellen as an unabashed monetary dove. When the economy strengthens and the time comes for the Fed to take away the punch bowl, she will not hesitate â€" after all, allowing inflation to get out of control is the surest way to end up on the list of failed Fed chiefs.  For now, however, with little sign of inflation in the prices of goods and services, and with wage pressures absent, Ms. Yellen can safely appeal to Democratic senators by espousing the basic need to achieve the Fed’s targets.

A challenge for Ms. Yellen is that such talk of monetary accommodation will raise eyebrows among Republican senators, who can be expected to pose questions regarding the benefits of continued easy money and express concern over the possibility that the Fed’s quantitative easing is distorting asset prices and setting up financial markets for another cycle of policy-induced boom and bust. Indeed, there is some evidence for this, with the volume of loans being made under easy terms (so-called covenant lite lending) back above pre-crisis levels - a phenomenon that was noted by Mr. Bernanke at his news conference last week.

Ms. Yellen can respond to this concern through tough talk regarding banks and financial market regulation.  She can point out, for example, that financial institutions are in much better shape to withstand potential losses than was the case five or six years ago, and that she will not hesitate to use the Fed’s authority to crack down on risky behavior.

This sort of tough talk will not reassure all Republicans on easy money, but it will help satisfy them that she understands the potential downsides and will crack down when needed â€" even if she might raise interest rates somewhat later than the Fed chief who would have been appointed by Mitt Romney. But elections have consequences.

This part of the confirmation hearing will be tricky in that Ms. Yellen must tread a line between easy money as economic stimulus and tough regulation to crack down on the distortions brought about excess liquidity. Success here would have her being viewed as a monetary dove by Democrats and a regulatory hawk by Republicans.

Assuming that her answers are satisfactory to both sides, it would be valuable for both the Federal Reserve and for the nation for Ms. Yellen to receive strong bipartisan support from Congress. This is because an overwhelming confirmation vote in her favor would indicate Congressional support for her independence and help undo some of the damage from President Obama’s action in needlessly politicizing the Fed through a flawed nomination process.

This administration is notoriously inept in its dealings with Congress. Even so, the confirmation process should end up with Ms. Yellen taking over as Fed chief when Mr. Bernanke steps down in January 2014. As a nation, we will have been fortunate to have benefited from the Fed chairman’s extraordinary efforts over his eight years in charge of the Fed and further privileged to have a worthy successor in Janet Yellen.

A Health Care Fight That Punishes Federal Workers

Uwe E. Reinhardt is an economics professor at Princeton. He has some financial interests in the health care field.

One can think of the Affordable Care Act as a highly complex patch on the even more complex and fragmented health insurance system.

Thinking of it that way helps explain why even people who have no ideological dog in the hunt have such difficulty getting their mind around this complex legislation, especially from a worm’s-eye view. It does not help that Americans are bombarded daily with misleading information about the act.

Viewing the law from a distance, one discerns two main objectives:

1. To facilitate easier and affordable access to health insurance to Americans who do not now have health insurance (and that latter phrase warrants emphasis).

2. To help reorganize the delivery of health care in the United States to enhance its cost-effectiveness by lowering the cost of producing a given level or quality of care or by enhancing the quality of care for a given cost, or both.

To the best of my knowledge, nowhere in its many pages does the law, either in its spirit or its wording, suggest that employers who currently sponsor health insurance for their employees and who make contributions to the premiums for that coverage are expressly forbidden to do so come Jan. 1.

And yet, seemingly serious adults seem to believe that this is exactly what Section 1312(d)(3)(D)of the law dictates. Among them are the editors of The Wall Street Journal, Michael Cannon of the Libertarian Cato Institute and Robert Moffitt, Edmund Haislmaier and Joseph Morris of the Heritage Foundation.

These longstanding critics of the Affordable Care Act assert that its Section 1312(d)(3)(D) expressly forbids the federal government from sponsoring health insurance for members of Congress and their staffs; they accuse the Office of Personnel Management of the Obama administration of breaking the law by exempting the targeted federal employers from the supposed prohibition. Writing on the opinion page of The Wall Street Journal, for example, former Secretary of Education William Bennett and Christopher Beach speak of “The Hypocrisy of Congress’s Gold-Plated Health Care.”

Traditionally, members of Congress and all federal employees have been able to choose their private health insurance coverage from a wide array of policies offered by private health insurance on a federal health insurance exchange, the Federal Employee Health Benefits Program, operated by the Office of Personnel Management of the executive branch.

The premiums on this exchange have for decades been fully community-rated, as they are within companies under most employment-based health insurance systems, certainly among large employers. This means the premium quoted by a particular insurer was the same for every individual (and analogously for families), regardless of the health status or age of the insured.

The federal government has contributed to coverage of members of Congress and of all federal employees 72 percent of the average premium bid made by the various insurers on the exchange, or 75 percent of the premium of the health policy chosen by the employee, whichever is lower.

Most large private-sector employers make similar contributions, albeit a bit more generous, toward coverage for their employees. In that regard, the federal program is not really “gold-plated coverage” as Mr. Bennett and Mr. Beach suggest.

Effective Jan. 1, Section 1312(d)(3)(D) of the law forces members of Congress and their personal staff out of the exchange and onto the state-run or federally run, state-based health insurance exchanges established under the law, there to seek whatever coverage is offered on the relevant exchange.

These new exchanges, it must be emphasized, were not even intended for the great majority of employed Americans and their families who already have job-based, group health insurance with premiums that are community-rated within the company (although some smaller employers currently with small-group coverage and those with many low-wage workers may in the future take advantage of the federal subsidies offered on the new exchanges).

Rather, the new exchanges were designed mainly for the minority of Americans who have to buy coverage in the nongroup market, many millions of whom have pre-existing medical conditions and hitherto could not afford the high premiums they were quoted or were refused coverage outright.

For what it is worth, I view the requirement spelled out in Section 1312(d)(3)(D) as dubious, because it will create many avoidable headaches regarding the interface with Medicare and the Internal Revenue Service. To get a feel for these headaches, I refer readers to a lucid column written by Prof. Timothy Jost of the Washington and Lee School of Law on Aug. 7 and posted on the Health Affairs blog.

It may be helpful to present the relevant Subsection D of Section 1312(d)(3)(D), or the more intrepid can read the entire Section 1312 (starting on Page 64). Subsection D reads as follows:

(D) MEMBERS OF CONGRESS IN THE EXCHANGE.
(i) REQUIREMENT. Notwithstanding any other provision of law, after the effective date of this subtitle, the only health plans that the Federal Government may make available to members of Congress and congressional staff with respect to their service as a member of Congress or congressional staff shall be health plans that are:

(I) created under this act (or an amendment made by this act); or
(II) offered through an exchange established under this act (or an amendment made by this act).

(ii) DEFINITIONS. In this section:

(I) MEMBERS OF CONGRESS. The term “member of Congress” means any member of the House of Representatives or the Senate.
(II) CONGRESSIONAL STAFF. The term “congressional staff” means all full-time and part-time employees employed by the official office of a member of Congress, whether in Washington, D.C., or outside Washington, DC.

That’s it. Does it state in the section that the federal government may not continue to make the traditional employer-provided contributions to the targeted employees’ health insurance?

As I read this short section, it says absolutely nothing about this issue, and I am by no means the first to assert this. Indeed, as early as April 2010, about a month after the act was signed into law on March 23, 2010, the legal staff of the nonpartisan Congressional Research Service, Congress’s research arm, came to a similar conclusion in response to an inquiry on this point from Representative Tom Price, Republican of Georgia.

The legislative attorneys composing the carefully worded memo suggested to Mr. Price that the intent of the law was not to forbid the government from making contributions to the insurance coverage of the federal employees covered by the section. But they looked to the relevant federal agency to clarify the questions raised by Section 1312(d)(3)(D).

It may be asked how this dubious section ever found its way into the law. It was added by an amendment proposed by Senator Charles Grassley, Republican of Iowa.

Whatever Senator Grassley’s motive for his amendment, by design or inadvertently, he helped lure the supporters of the bill into the kind of public relations ambush into which Democrats so frequently stumble. Was it really Senator Grassley’s intention to punish all of his colleagues and their staff because some of them had supported the act?

Years ago, former Representative Pete Stark, Democrat of California, somewhat facetiously introduced a bill in the House of Representatives providing that all members of Congress should lose their employer-based insurance coverage until they had legislated a truly universal health insurance system in this country.

We now have the spectacle of Senators David Vitter, Republican of Louisiana, and Ted Cruz, Republican of Texas, eagerly seeking to abolish employer-based coverage for their colleagues and, if Senator Cruz has his way, for all personnel on the federal government’s payroll, because Congress had tried at long last to extend insurance coverage to more Americans.

It would all be quite amusing, were it not so serious an issue.

Five Years Later, Poll Finds Disapproval of Bailout

At the fifth anniversary of the recession and bailout package for the nation’s banks and financial institutions, nearly 6 in 10 Americans express disapproval of the 2008 bailout, and only about a third approve, according to the latest New York Times/CBS News poll.

Republicans were much more likely to express disapproval of the financial bailout, which rescued the American International Group and provided banks like Wells Fargo, JPMorgan Chase and Bank of America with enough capital to stay afloat as the crisis peaked in the fall of 2008 (but not Lehman Brothers). Nearly three-quarters of Republicans said they disapproved, compared to 6 in 10 independents, and 4 in 10 Democrats.

As the window for bringing cases against financial players closes because of the statute of limitations, nearly 8 in 10 Americans say not enough bankers and employees of financial institutions were prosecuted in their roles in the financial crisis. This was a sentiment shared across the board, by Republicans, Democrats and independents alike.

Overwhelmingly, Americans expect another financial crisis, like the one in 2008, to occur, with nearly 4 in 10 saying it is very likely and about the same number saying it is somewhat likely. Only about 1 in 5 Americans don’t expect a repeat.

The national poll was conducted Sept. 19 to 23 by landline and cellphone among 1,014 adults with a margin of sampling error of plus or minus 3 percentage points.

The Job Situation Looks a Little Worse

Every year at this time, the Labor Department tells us how badly it blew the previous year’s job figures. In each of the last two years, it turned out that job growth was better than previously estimated. But not this year.

The revised numbers come because the government has access to better data, after a long delay. The earlier figures come from a survey of employers, with the numbers adjusted for the government’s estimate of how many jobs were created by new employers, and lost from failing companies that could not, of course, respond to the survey.

The revised figures come from state unemployment insurance premium figures. Employers must pay insurance premiums based on how many employees they have each month, and those numbers are deemed more reliable, even though it takes a long time to compile them.

The new numbers are called the “benchmark revisions,” and they are preliminarily announced in September, although they are not made final until the followed February.

Today’s announcement sounded positive if you did not study it, and some news reports reflected that misreading of it.

“The preliminary estimate of the benchmark revision indicates an upward adjustment to March 2013 total nonfarm employment of 345,000 (0.3 percent),” said the Labor Department’s announcement.

But then it explained that all of that gain, and more, came from changing definitions, not new jobs.

The monthly job figures exclude some workers, like the self-employed, and it counts household workers as self-employed. But now it has revised its definitions, and decided that “establishments that provide nonmedical, home-based services for the elderly and persons with disabilities” should be classified as health care companies. “Many of these establishments were previously classified in the private households industry,” it said.

That added 490,000 workers to the total reported number for last March. On an apples-to-apples basis, however, the result is to reduce job growth in the 12 months through last March by 124,000.

The old numbers indicated that job gains in those 12 months averaged 169,000 per month. This change will shave that figure to 159,000.

It is not a big change, but the direction is not encouraging.

The Fed’s Confusing Search for Clarity

Kevin Lamarque/Reuters Jeremy C. Stein, a member of the Federal Reserve Board of Governors.

The Federal Reserve wasn’t trying to surprise investors last week, it’s just not doing a good job of communicating clearly, Jeremy C. Stein, a Fed governor, said Thursday.

Indeed, Mr. Stein said that articulating a clear plan for winding down the Fed’s monthly bond purchases was more important than the exact timing of tapering.

“Whether we start in September or a bit later is not in itself the key issue â€" the difference in the overall amount of securities we buy will be modest,” Mr. Stein said in prepared remarks for a symposium in Frankfurt. “What is much more important is doing everything we can to ensure that this difficult transition is implemented in as transparent and predictable a manner as possible. On this front, I think it is safe to say that there may be room for improvement.”

And he came prepared with a suggestion: The Fed, he said, should cut the volume of its monthly bond purchases by a fixed amount from the current level of $85 billion for each 0.1 percentage point decline in the unemployment rate.

In sharing his thoughts on the best way to achieve clarity, however, Mr. Stein is likely to have contributed to the general confusion about the Fed’s intentions. He joins a number of other Fed officials in outlining proposals for the tapering of asset purchases, leaving investors to guess which ideas may prevail - and when.

This is particularly problematic because, as Mr. Stein also explained Thursday, investors are a little jumpy at the moment. The Fed’s stimulus campaign basically rests on persuading investors to bet their own money on the proposition that the Fed will continue to suppress interest rates. It is basically a trust fall.

And investors are understandably anxious the Fed might change its mind.

“If the Fed’s control of long-term rates depends in substantial part on the induced buying and selling behavior of other investors, our grip on the steering wheel is not as tight as it otherwise might be,” Mr. Stein said. “Even if we make only small changes to the policy parameters that we control directly, long-term rates can be substantially more volatile. And if we push the recruits very hard â€" as we arguably have over the past year or so â€" it is probably more likely that we are going to see a change in their behavior and hence a sharp movement in rates at some point.”

So there you have it: Making monetary policy, as Ben S. Bernanke once explained, is like driving a car with “an unreliable speedometer, a foggy windshield, and a tendency to respond unpredictably.” And right now, Fed officials don’t have a firm grip on the wheel. And they don’t agree about which way to go.

3 Leaders on Education Reform, Continued

The second part of my conversation with Arne Duncan, Mitch Daniels and John Engler appears below. Mr. Duncan is the secretary of education; Mr. Daniels, Purdue University’s president, was previously governor of Indiana; Mr. Engler, a former governor of Michigan, is president of the Business Roundtable, the corporate lobbying group.

Mr. Duncan is a Democrat, of course, and Mr. Daniels and Mr. Engler are Republicans. But they all sympathize with many of the efforts of the so-called education reform movement. I asked them whether the country’s education system was really in crisis and what mistakes school reformers had made. The first part of our conversation - lightly edited, for brevity and clarity â€" appeared on Economix on Wednesday.

Leonhardt: Governor Engler, what do you think of the president’s early-childhood plan?

Charles V. Tines/Associated Press John Engler, president of the Business Roundtable

Engler: I think there’s evidence that it can help.  But I mean, we’ve got a system spending $650 billion, so I never looked at the next dollar in as being the critical dollar. I am for budget flexibility.

We’ve got schools in Detroit, one that’s run by a man named Doug Ross, who is extraordinary, and he is succeeding in an elementary school and getting kids reading and catching them up, and then getting them to go to college - not because he has a preschool program, which he doesn’t. I just want the results.

Leonhardt: Governor Daniels?

Danny Moloshok/Reuters Mitch Daniels, president of Purdue University

Daniels: With caution, yes. I’d add a couple of things.  One is that my understanding of the clarity of this data is not quite as strong as Arne’s. Some of the experiments [showing positive results for early-childhood education] are ones that are doomed to succeed. I mean, if you pour enough money into a situation, it’s not really replicable, and you might be able to get the kind of results you want.

We’ve had an early-childhood program for a long, long time, and we spent a bushel of money.  It’s called Head Start.  And the record is not very impressive. Somebody ought to consider rotating those resources in a country that’s broke.  If we’re going to do early childhood, maybe we ought to just try to shift at least some of those dollars and see if we can get a better outcome.

Leonhardt: What lessons do you take from Head Start? What’s worked?  What hasn’t?

Neilson Barnard/Getty Images, for The New York Times Education Secretary Arne Duncan

Duncan: Like anything with that scale, like with charters, I think the results have been mixed.  Some places, I think it’s changed kids’ lives tremendously, and other places it hasn’t. Where Head Start is high quality, it makes a huge difference.  We did a session on early childhood in Minnesota, and two of our panelists - one was the state commissioner - were Head Start babies.  They remember their teachers; they remember what happened.  That really helped to change their lives.  So two of Minnesota’s leaders are products of Head Start.

What I would give Secretary Sebelius [of the Department of Health and Human Services] credit for is that for the first time ever, Head Start programs are starting to have to compete. It used to be an automatic renewal. Now, if you’re not getting results, you have compete. And if it’s not working, you’ll lose slots.

Leonhardt: Is that an argument that instead of expanding early childhood, we should save the money and focus on improving Head Start?

Duncan: No. I think you have to do both. We need to improve Head Start. But we need to dramatically expand full-day pre-K as well.

Engler: But then you need also to have a quality elementary school when you get there. Because if you go to Head Start and you fall off the end of the earth in an elementary school …

Duncan: Right. That’s not Head Start’s fault.

Leonhardt: The Common Core is something that many people, especially on the right, have deep, deep mistrust of. A fair number of people see it as almost un-American to say that states can’t decide what they want to have their children learning.  How would you each respond to those questions?

Daniels: These are standards. The curriculum is still up to the locals. That’s one of the myths that needs to be dispelled - that the curriculum is being seized and being taken over by a higher authority.

I used to have a saying about local control: you can’t stretch local control to the point of deciding that local failure is acceptable. We want some accountability.

With math, you get the answer right or you get it wrong.  And we ought to be able to do it at the same rate they can in Slovakia or Kazakhstan, or some of these other places.

Leonhardt: Or Poland, which has come way up in the educational rankings.

Engler: We’d love to be where the Scandinavian countries are.  We’ll never know where we are or how far we have to go until we have one common measuring stick.

Daniels: I always tell people if you go to a track meet and the high jump pit, one coach can teach the flop, and one can teach the barrel roll.  And if somebody wants to do the old-fashioned scissors, that’s fine too.  But we’re going to have one bar.  You don’t let everybody set the bar where they want.

The Common Core doesn’t seem to have made that mistake.  In fact, if it takes effect, what is very likely is that the results are first going to look terrible in a lot of states.  A lot of states have told themselves that they are doing just swell and are going to find out that it doesn’t look so good.  And that won’t be good news, but it’s essential to learn that.

I remind folks that the reason we don’t have national standards is conservatives don’t do national, and liberals don’t do standards.

Engler: You can’t have an American education system that produces graduates where some 30 percent or so aren’t qualified for military service.  You can’t have people holding diplomas yet having a lack of almost basic literacy skills.

Daniels: We’re talking in utilitarian terms, but it’s really more than that. It’s cruelty to pass a third grader to fourth grade if they can’t read. You’ve doomed them. It’s an act of cruelty to hand someone a diploma that they are not ready for - as life will apply the test that matters.

Duncan: I think the Tennessee example is pretty instructive.  My numbers won’t be exact, but Tennessee’s standards were saying that about 90 percent of their fourth graders were proficient in math. That feels pretty good.  Now they raised standards.  It went from 90 percent to 28 percent.  And achievement gaps that were already large doubled.

I think I want whatever any parent wants. I want to know the truth about my kid. One of the worst things that we did in this country for too long is that we told the kids and families who were playing by the rules, who were trying to do the right thing, that they were ready. They weren’t even close. They weren’t in the game.

The year after the Tennessee results came out, for all the stress and difficulty, Tennessee actually had the biggest one-year jump ever. So it’s interesting to me. We have folks worried about the decline in test scores. But are we going to keep lying to our kids? To lie to people and say they’re on a trajectory to be successful when they are not in the game - we devastated communities, we’ve devastated families, and it’s not fair. It’s not right.

Daniels: The system doesn’t want you to know. They don’t want anybody to know.

Duncan: It is not [only] an inner-city thing. You have suburban parents saying: “What happened? I thought my kid was doing great.” And so that creates some trepidation, some fears and anxiety.

Engler: I think we’ve got suburban districts, and everybody kind of thinks, to the secretary’s point here, “Well, we’re doing pretty good here.”  But if you really pulled it out and said, O.K., how do you stack up against the best school, their eyes would open.

Duncan: I just think this is a country with a fork in the road. We have to tell the truth.

For more on these topics, there is also a video of my interview with Mr. Duncan at The Times Center in New York last week.

Economic Statecraft, Women and the Fed

Simon Johnson, former chief economist of the International Monetary Fund, is the Ronald A. Kurtz Professor of Entrepreneurship at the M.I.T. Sloan School of Management and co-author of “White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You.”

The United States has a long and generally successful track record of using “economic statecraft” to advance its positions and values in the world. It helped rebuild Europe and Japan after World War II, with a judicious mixture of aid and access to the United States markets. Similarly, as the Iron Curtain fell after 1989, the United States stepped in with targeted financial support and general encouragement to converge on the European Union’s political and economic institutions. The International Monetary Fund and the World Bank, where the United States has a big voice, have also played positive roles in many instances over the last 70 years.

No policy is perfect or without controversy. But surely this approach is better than relying primarily on military power in the way preferred by former dominant powers - think of Rome, the Ottomans or even the British Empire (where there was commerce but also a lot of coercion).

Can the United States continue to apply the same economics-first approach to the next frontier in economic development - women’s rights? Whether Janet Yellen becomes the chairwoman of the Federal Reserve will provide some insight into the answer.

Analysts of economic development often point to “human capital” - education, skills and abilities - as a key determinant of which countries become rich. Similarly, entrepreneurs typically stress the importance of skilled labor in determining where they situate and build their companies. And there is no question that technological change has increased the advantages, in the United States and around the world, of people skilled at working with computers (see this recent commentary by David Autor, my colleague at the Massachusetts Institute of Technology, and David Dorn).

With skills at such a premium, we should perhaps expect countries to put as many resources as possible into bringing everyone as much education as possible. But this is not what we see, particularly with regard to girls and women in many places.

Women work hard everywhere. One question is whether this work is remunerated and picked up in official gross domestic product statistics. The bigger issue is whether women have access to all available opportunities, including in the school system - as emphasized by Heidi Crebo-Rediker, former chief economist at the State Department (see my column about her June speech).

Telling a country it must suddenly find jobs for a lot more people would obviously not make sense, and that is not what this policy is about. But increasing the ability to women to become entrepreneurs and create jobs is not just a smart way to promote medium-term growth, it is also completely sensible and long overdue economic policy. This recent report from the Global Entrepreneurship Monitor shows where female entrepreneurship is already strong and where a boost could make a difference over the next 10 to 20 years. The numbers for the Middle East and North Africa are striking.

Under the leadership of Christine Lagarde, the I.M.F. has taken this issue on board and is working with governments to make sure fiscal and social support systems are more balanced across the sexes - for example, flagging and discouraging penalties in the tax system when spouses work. Public investment in child care often makes a great deal of sense also, and this has been embraced, at least on paper, by the current government in Japan. If women’s participation in the labor force grows, and if these women get good jobs at good wages, this will greatly help with the fiscal costs associated with a declining and aging population in Japan.

Perhaps the I.M.F. can develop and regularly publish a set of indicators, along the lines of the World Bank’s Doing Business reports, which focus on the varieties of fiscal discrimination that all kinds of groups face (including but not limited to women).

I subscribe to Daron Acemoglu’s view that the “root causes” of economic growth include creating opportunities for meaningful participation - with property rights and a fair legal system - by a broad cross-section of society (Professor Acemoglu and I are co-authors of a number of papers that make this point). In this context, it makes complete sense to bring transparency and pressure on all parts of the tax code that discourage women from working.

The State Department says economic statecraft “means harnessing global economic forces to advance America’s foreign policy and employing the tools of foreign policy to shore up our economic strength.”

But any sensible economic policy begins at home, with steps including the creation of role models. (Of course, the tax code also needs to be addressed; see my post in June for more details)

As one very specific but topical example, consider the Federal Reserve System. Beginning in 1913, the first 55 people appointed as Federal Reserve governors were men. Nancy H. Teeters was the first woman appointed governor, in 1978, and Martha R. Seger was the second, serving from 1984 to 1991. There have been 89 governors, of whom just eight have been women.

There has been a shift toward more female participation in the last two decades, when six women (of the eight total) have become governors: Susan M. Phillips (1991-98); Janet L. Yellen (1994-97 and again, as vice chairwoman, from October 2010); Alice M. Rivlin (1996-99); Susan S. Bies (2001-7); Elizabeth A. Duke (2008-13), and Sarah B. Raskin (from 2010). Because three of the seven governors have been women until recently, it would be a surprise if President Obama allows female participation on the board to drop sharply. (Ms. Duke left the board at the end of August; Ms. Raskin is the nominee to become deputy Treasury secretary - a brilliant appointment but one that creates a definite gap in Fed leadership.)

President Obama should nominate Ms. Yellen as chairwoman of the Fed. She is the most qualified candidate ever, in my view. As well as overwhelming support from Democratic senators, leading Republicans may heed Sheila Bair’s advice and throw their weight behind Ms. Yellen.

Americans can talk all they want about what others around the world should do. Ultimately, people assess the United States - and follow its leadership or not - based on what they see done here.

Majority of Americans Doubt Benefits of Fed Stimulus

Only one in three Americans has confidence in the Federal Reserve’s ability to promote economic growth, while little more than a third think the Fed is spinning its wheels, according to a New York Times/CBS News poll.

The remaining respondents said they did not know enough to answer.

The Fed has been trying for five years to speed the nation’s recovery from the Great Recession by reducing borrowing costs to the lowest levels on record.

A wide range of economists agree that the Fed’s efforts have provided a meaningful boost to economic growth, although they disagree about the magnitude.

The Fed’s chairman, Ben S. Bernanke, has sought to make this case to the public, in televised interviews, town hall-style meetings and quarterly news conferences.

Most Americans, it would appear, remain either unaware or unpersuaded.

Source: New York Times/CBS News Poll. The nationwide telephone survey was conducted Sept. 19-23 with 1,014 adults and has a margin of sampling error of plus or minus 3 percentage points.  

The lack of confidence in the Fed ran deepest among Republicans and Tea Party supporters. Among Democrats, 46 percent expressed “some” or “a lot” of confidence in “the Federal Reserve’s ability to promote economic growth,” compared with 21 percent of Republicans and 18 percent of Tea Party supporters.

Income also was a dividing line, with wealthier Americans generally expressing greater confidence in the Fed’s capabilities. Among people making at least $100,000, 43 percent said the Fed had the power, while 33 percent said it had “not much” or “none.” By contrast, among people making $50,000 to $100,000, 34 percent said the Fed had the power, while 44 percent said it did not.

These divisions may reflect, at least in part, the reality that the Fed’s efforts have provided much greater direct benefits to wealthier Americans. The stimulus campaign has helped to fuel the rise in stock prices, and the wealthiest 10 percent of Americans own about 90 percent of the stocks.

The benefits of lower interest rates are more broadly accessible, but the wealthiest Americans and the healthiest companies still have benefited the most. The Facebook billionaire Mark Zuckerberg refinanced a $5.95 million mortgage last year at an interest rate of 1.05 percent, while millions of Americans cannot refinance at any rate because they do not qualify under tougher post-crisis credit standards.

But even among shareholders â€" the people who have benefited most clearly from the Fed’s campaign â€" there is widespread skepticism: 38 percent of those who own stocks expressed confidence in the Fed’s ability to stimulate the economy, while 43 percent expressed doubt.

The Cost of Climate Change

Andrew Burton/Getty Images A coal-burning energy plant in Bismarck, N.D. How hard to fight greenhouse gas releases depends on one’s investment outlook.

How much will climate change cost?

Later this week the Intergovernmental Panel on Climate Change will issue its fourth report, aggregating what the latest science tells us about how man-made greenhouse-gas emissions are warming the environment.

It is likely to present a dire picture. “The scientific evidence for anthropogenic climate change has strengthened year by year,” said Qin Dahe, a climatologist at the Chinese Academy of Sciences who is co-chairman of the working group preparing the panel’s report. The accumulating evidence, he said, leaves “fewer uncertainties about the serious consequences of inaction.”

Nonetheless, the report will probably do little to address the most fundamental question: how much should we spend on prevention? The best answer, still, is that nobody has any idea. What’s more, science and economics may have no better answer to provide.

Consider my recent column about the Obama administration’s estimates of how much we should pay to slow global warming. It ran into a storm of criticism.

The column focused mostly on different assumptions of how much current spending was needed to pay for environmental damage in the distant future. The critique, however, zeroed in on the estimates of such future costs.

Such estimates, my critics said, were meaningless.

William Nordhaus of Yale, to cite one estimate, wrote recently that allowing uncontrolled carbon emissions would raise the world’s temperature 3.4 degrees Celsius (6.1 degrees Fahrenheit) above that of the preindustrial era by the end of the century and cost the world a fairly modest 2.8 percent of economic output.

An influential group of scholars argue that the climate is too complex to be modeled so neatly. Assuming that growing concentrations of carbon in the air will gradually heat the atmosphere and produce a gradual accumulation of economic losses, they say, ignores all the ways in which the environment could suddenly go haywire.

“The models create the illusion of sureness,” said Martin Weitzman of Harvard, one of the first economists to look into low-probability “tail events” omitted by most forecasters.

At concentrations of 450 parts per million of CO2-equivalent greenhouse gases in the atmosphere, roughly today’s level, models may produce a decent estimate of the consequences. But at 700 parts per million â€" which the world may hit in the not-distant future â€" “you have a real lot of unknown unknowns,” Professor Weitzman said.

For instance, standard models used by scientists suggest that if the concentration of CO2 in the atmosphere were to rise to 700 parts per million, temperatures would rise some 3.5 degrees Celsius above that of the preindustrial era in subsequent decades.

But there is enormous uncertainty about this. At that level, Professor Weitzman estimates there is an 11 percent chance that the temperature increase would reach or top 6 degrees Celsius. “That would melt west Antarctica and Greenland,” Professor Weitzman said. “It’s pretty scary.”

There is no real precedent for this kind of climate change. The closest occurred in the Eocene era, more than 30 million years ago, when the earth was some 10 degrees hotter than it is today. Then alligators roamed near the North Pole.

This is all to say that my critics have a point.

There is nonetheless a shortcoming to this analysis. It does little to suggest a way forward. Positing that there are modest odds that the earth might hit a tipping point and suffer potentially catastrophic and irreversible damages far in the future might justify a more forceful effort to reduce carbon emissions than the modest estimates from standard models used today. But it says little about how much more forceful.

For instance, Professor Weitzman argues that the typical estimates from standard economic models of the damage caused by a 6-degree warming â€" about 8 percent of the consumption of a much richer world than ours far in the future â€" are nuts. But his estimate of 50 percent of future consumption is just a guesstimate, meant to stand in for Very Big Damages. “I just pulled 50 percent out of the air,” he concedes. “It seemed closer to the truth than 8 percent, but it has no claim to being objectively based.”

Moreover, as my column suggested, preventing even big damages far-off in the future can be worth very little investment in the present â€" depending on our assumptions about the returns to this investment compared to other worthwhile projects.

Even Professor Weitzman has changed his mind about that. In an article published last year, he estimated that it was worth spending 40 percent of the world’s consumption to keep a CO2 concentration of 550 parts per million from rising to 750.

Today, he is not so sure. “I would not now stand by some of those previous conclusions,” he told me. If one considers that temperature change will take a very long time to materialize, one could reach a different judgment.

Should we do absolutely everything we can to stop greenhouse gas emissions? Who knows? Professor Weitzman’s point is that doing little, on the grounds that we can wait and see what happens before taking more forceful action, amounts to entrusting our future to a high-risk crapshoot. “I would now just leave a reader to contemplate about the risks of a 6-degree-plus world, even if it materializes a century or two from now.”

That’s about as precise as the analysis can be.