Mitch Daniels published an Op Ed today on the Republican economic plan, Time for Emergency Economic Reform (search google for the title to get around the subscriber wall), here is all you need to know:

Payroll tax holiday. Suspend or reduce for the emergency period, say one year, the Social Security payroll tax on workers.

That alone would be a half-trillion dollar annual stimulus. Obama has so far proposed about $150 billion in business tax cuts to boost demand, none of it as effective (or progressive) as a payroll tax holiday. Why have we ceded the lead on jobs to the Republicans?

There's more...

Though I largely hold that trying to understand Republican economics is an exercise in futility, credit Martin Wolf, the chief economics commentator at the Financial Times, for writing the single most brilliant takedown of the GOP's economic approach that I've read perhaps ever. In a column entitled The Political Genius of Supply Side Economics details the transformation of the GOP from the party of the responsible frugality of Dwight D. Eisenhower to the party of the irresponsible profligacy of Ronald Reagan and George W. Bush.

To understand modern Republican thinking on fiscal policy, we need to go back to perhaps the most politically brilliant (albeit economically unconvincing) idea in the history of fiscal policy: “supply-side economics”. Supply-side economics liberated conservatives from any need to insist on fiscal rectitude and balanced budgets. Supply-side economics said that one could cut taxes and balance budgets, because incentive effects would generate new activity and so higher revenue.

The political genius of this idea is evident. Supply-side economics transformed Republicans from a minority party into a majority party. It allowed them to promise lower taxes, lower deficits and, in effect, unchanged spending. Why should people not like this combination? Who does not like a free lunch?

How did supply-side economics bring these benefits? First, it allowed conservatives to ignore deficits. They could argue that, whatever the impact of the tax cuts in the short run, they would bring the budget back into balance, in the longer run. Second, the theory gave an economic justification – the argument from incentives - for lowering taxes on politically important supporters. Finally, if deficits did not, in fact, disappear, conservatives could fall back on the “starve the beast” theory: deficits would create a fiscal crisis that would force the government to cut spending and even destroy the hated welfare state.

In this way, the Republicans were transformed from a balanced-budget party to a tax-cutting party. This innovative stance proved highly politically effective, consistently putting the Democrats at a political disadvantage. It also made the Republicans de facto Keynesians in a de facto Keynesian nation. Whatever the rhetoric, I have long considered the US the advanced world’s most Keynesian nation – the one in which government (including the Federal Reserve) is most expected to generate healthy demand at all times, largely because jobs are, in the US, the only safety net for those of working age.

True, the theory that cuts would pay for themselves has proved altogether wrong. That this might well be the case was evident: cutting tax rates from, say, 30 per cent to zero would unambiguously reduce revenue to zero. This is not to argue there were no incentive effects. But they were not large enough to offset the fiscal impact of the cuts (see, on this, Wikipedia and a nice chart from Paul Krugman).

Indeed, Greg Mankiw, no less, chairman of the Council of Economic Advisers under George W. Bush, has responded to the view that broad-based tax cuts would pay for themselves, as follows: “I did not find such a claim credible, based on the available evidence. I never have, and I still don’t.” Indeed, he has referred to those who believe this as “charlatans and cranks”. Those are his words, not mine, though I agree. They apply, in force, to contemporary Republicans, alas,

Since the fiscal theory of supply-side economics did not work, the tax-cutting eras of Ronald Reagan and George H. Bush and again of George W. Bush saw very substantial rises in ratios of federal debt to gross domestic product. Under Reagan and the first Bush, the ratio of public debt to GDP went from 33 per cent to 64 per cent. It fell to 57 per cent under Bill Clinton. It then rose to 69 per cent under the second George Bush. Equally, tax cuts in the era of George W. Bush, wars and the economic crisis account for almost all the dire fiscal outlook for the next ten years (see the Center on Budget and Policy Priorities).

Today’s extremely high deficits are also an inheritance from Bush-era tax-and-spending policies and the financial crisis, also, of course, inherited by the present administration. Thus, according to the International Monetary Fund, the impact of discretionary stimulus on the US fiscal deficit amounts to a cumulative total of 4.7 per cent of GDP in 2009 and 2010, while the cumulative deficit over these years is forecast at 23.5 per cent of GDP. In any case, the stimulus was certainly too small, not too large.

The evidence shows, then, that contemporary conservatives (unlike those of old) simply do not think deficits matter, as former vice-president Richard Cheney is reported to have told former treasury secretary Paul O’Neill. But this is not because the supply-side theory of self-financing tax cuts, on which Reagan era tax cuts were justified, has worked, but despite the fact it has not. The faith has outlived its economic (though not its political) rationale.

The sad fact remains that too many Americans believe that taxes are too high (reality: among OECD countries only Mexico, Turkey, Korea, and Japan have lower taxes than the United States as a percentage of GDP) and perhaps worse too many Americans believe that the only road to economic prosperity is cutting taxes. In this they have been duped by the GOP but we too are culpable in that we have not successfully made the case that a progressive tax scheme not only produces a more egalitarian country but a more broadly prosperous one.

There's more...

In the above scene from the BBC comedy Blackadder Series 3, Dr. Samuel Johnson arrives at the palace, having completed his life's work, to present the now finished dictionary of the English language to the daft and not quite all there Prince Regent played by Hugh Laurie when Blackadder played by Rowan Atkinson throws Dr. Johnson for a loop by offering him his contrafibularity, a made up word meaning congratulations. One wonders what Dr. Johnson might have thought of our newest wordsmith from Wasilla, Sarah Palin. However unlike in Blackadder, the linguistic creativity of Sarah Palin is no laughing matter. 

This is far from the most important news of the day, the truth is that Washington Post story on the national security apparatus built up since 9/11 with little oversight and seemingly little coordination is a much more important story, and yet writers across the world have devoted inordinate time and space to the Palin story. At one point this morning, "refudiate" was the second most searched topic on Google. As I write this, it is currently ninth.

Over at The Atlantic, Marc Ambinder finds that Palin "is getting quite savvy as a politician: when she makes a mistake, or appears to do something dumb, she is quick to exploit her own misfortune ... not in a way that excuses her original mistake, but that alludes to the improbable fact that there is some in-joke, some secret code that the rest of us aren't getting." He adds:

"Palin knows how to humanize herself. That's a rare talent for a politician to cultivate, and one that she's getting better at every day. What's more, she humanizes herself by somehow ascribing her misfortune to the establishment that's trying to tear her down. Her audience loves it.

It is certainly true that "her audience loves it." As I noted in my first post on this topic to her adoring base, no transgression can melt the polar adulation they have for her. The only time that there have been rumblings of discontent heretofore was over her endorsement of Carly Fiorina over the more conservative Chuck DeVore in the California GOP Senate primary. But the problem for Palin is that is only her audience who is eating this up. Say what you will about elitist publications but it is not a good thing that The Economist, on the Samuel Johnson Blog on Language no less, would take to criticize Palin. Over the course of the day, the mockery has been incessant. Twitter feeds on Movies with Refudiate or Shakespeare twists such as "The Laming of Shrew" or "Mid Summer's Night Moron" have a deleterious effect even if her supporters circle the wagons around her. The blind leading the blind, or in this case the dumb leading the dumb and dumber, isn't exactly a recipe for success.

But there is another point that needs to be made plainly evident and it is a serious character flaw that requires frank, explicit talk. Sarah Palin is psychologically incapable of admitting a mistake. She could have chalked this up to a simple typographical error (though her slip of the tongue earlier in the week would have left doubts) but no instead we got an unbounded narcissism. Rather than admit an error she compares herself to the greatest playwright in the English language, a language which she does not even master.

The inability to admit a mistake is, of course, a common conservative trait, though this is not to suggest that all conservatives are incapable of admitting errors. Mitch Daniels, the Governor of Indiana, for example reversed himself on the privatization of Indiana's welfare system cancelling a $1.34 billion contract with IBM noting that the state could do a better job of handling welfare claims. But among the more ideological members of the GOP, politics means never having to admit a mistake much less having to say you're sorry.

Just look at where we are now: the budget deficit this year will amount to 12.5 percent of GDP; 40 percent of the Federal budget is credit financed with more than half of that financing now coming from overseas. In 2011, the debt to GDP ratio will exceed 100 percent. Social inequality now matches levels not seen since before the Great Depression. The U6, the broadest measure of unemployment, is at 16.5 percent. In at least five states, the U6 is over 20 percent. A record number of Americans have been unemployed for 27 weeks or longer. For young African-American males, the unemployment rate is over 40 percent. Foreclosures rates are still climbing though they are expected to peak by year's end. And yet the GOP prescription is more of the same policies - lower taxes, fewer regulations, and a redistribution of wealth upwards - that put us in this predicament. Since 1976, 58 percent of all income gains have accrued to the top one percent of US households. Meanwhile, 25 percent of American workers earn a wage that puts them at or below the poverty level. 

One would have thought that after the near collapse of the US financial sector and the steepest economic decline in 80 years, the debate over market fundamentalism - the belief that unfettered, unregulated markets can deliver economic prosperity and a secure lifestyle for all Americans - would lead to at least some introspection and reflection over what went wrong. But no, what's the Speaker-in-waiting John Boehner's response to the rather lukewarm financial regulations that just passed? To repeal them. 

They have a blind faith in free markets but the blindest of them all are those closely associated with Tea Party movement, the Sarah Palins, the Michele Bachmans, the Sharron Angles, the Rand Pauls. Their faith in markets isn't rational. And their inability to admit even the most innocuous of errors suggests if entrusted with political power, they will drive us off a cliff for they are that committed to the failed policies of the past and are incapable of making any adjustments in their thinking. In short, they are irrational.

Indiana's GOP Governor Mitch Daniels has been the talk of the town in Washington as a potential 2012 White House aspirant, a seemingly can-do Republican among a group of ideologues. One big problem with this meme: Daniels is a pretty fierce conservative ideologue. (Another is that he was a key member of the Bush economic team as head of the Office of Management and Budget.) Here's Ben Smith, writing under the headline "Daniels' target: Greedy ... teachers?":

Some of the anger out there now, he said, is directed at "not just Wall Street or overpaid corporate CEOs but government employees and their unions."

Public education, he said, used to be "the bloody shirt of American politics," a kind of conversation stopper that could be invoked as a way of saying if you want cuts, "you hate children." Not anymore, he said, putting himself in the shoes of a voter who says, "The teacher next door I just figured out makes a lot more than I do but doesn't work all year."

Let's go to the actual numbers to see if Daniels is in fact correct in his assessment that Americans are just as angry at teacher pay as they are at CEO pay.

The latest data I could find on CEO compensation come from 2007, before the Great Recession, but they are nevertheless instructive. In June of that year, a Los Angeles Times/Bloomberg survey asked Americans, "In general, do you think most CEO's of large American companies are compensated too much, too little, or just about the right amount?" A whopping 81 percent of respondents said "too much"; just 1 percent said "too little"; and a paltry 14 percent said "just right".

Compare these numbers to those on teacher pay. A January 2010 poll from CBS News asked Americans, "As far as you know, do you think, on average, public school teachers in this country are paid too much, too little, or about the right amount?" The numbers are close to a mirror opposite of those on CEO pay. Fully two-thirds of Americans (66 percent) said public school teachers are not paid enough, while a quarter (24 percent) said they are paid about right. A mere 4 percent said public school teachers are paid too much.

Usually, when a politician lines himself up with a 4 percent minority of the public on the issue, he is not treated as being within the mainstream of American politics. Then again, I'm not holding my breath for the point at which the Beltway media stops fawning over Daniels.

Presidential years are not the most active in terms of gubernatorial races, and 2008 is no exception, with only 11 states holding elections, only 5 of which are not entirely safe for the incumbent party. But there has been some movement within those 5 races, as many of them have gotten considerably (and unexpectedly) more competitive in the past few months.

The retirement of Gov. Blunt in Missouri, the heated Democratic primaries in North Carolina and Indiana, the candidacy of Charlotte Mayor Pat McCrory, and Dino Rossi's attempts to rouse passions in Washington all guarantee that these 4 states will remain competitive to November and keep things interesting on the gubernatorial front. And since both parties control 2 of these 4 most contested governorships, Republicans can at least be relieved that things look more even-handed here than in the Senate and the House.

The previous gubernatorial ratings, written in December, are available here.

Toss-up (2 R, 1 D)

1. Missouri (Open)

Missouri's gubernatorial race made a lot of news comparatively to other gubernatorial races. The showdown between Republican Gov. Blunt and Democratic Attorney General Jay Nixon had started as early as 2004, and the incumbent's growing unpopularity had given the early lead to Nixon. But Blunt unexpectedly announced his retirement in late January.

Republicans hurried to find a nominee and they will now have to decide between two strong candidates, congressman Kenny Hulshof and state Treasurer Sarah Steelman. Either  would keep the race competitive but Nixon undoubtedly has a head start given that he has been preparing his campaign for so long -- and that the state's voters have turned sour on their Republican administration.

2. North Carolina (Open; Previous ranking: 4)

Republican at the federal level, North Carolina remains blue at the state level, and Democrats looked favored to keep the governor's mansion next year with two strong candidates -- Lt. Gov. Beverly Perdue and state Treasurer Richard Moore -- battling for the Democratic nomination. But two factors have made the race more competitive.

(1) The Democratic primary is staying very competitive and now going negative, with Moore needing to shake up the race to contest Perdue's early edge. (2) Republicans got a potentially very competitive candidate in the race with with the entry of Charlotte Mayor Pat McCrory. Polls show McCrory in toss-ups against both Perdue and Moore, with the Democrats holding the slightest of edges.

The GOP primary is also contested, however, and it remains unclear who will emerge to claim the party's nod. We will now more about the state of play in North Carolina after the May 6th primary.

3. Indiana (Gov. Daniels; Previous ranking: 2)

Republican Gov. Mitch Daniels is certainly unpopular and vulnerable, but it is difficult to precisely assess the general election before Democrats settle their nomination race on May 6th. Architect Jim Schellinger has been the establishment's favored candidate and has far outraised his opposition, but former Rep. Jill Long Thompson could emerge the winner due to higher name recognition. The Indianapolis Starreports that Schellinger's campaign has been a disappointment while Thompson has been very active and that his fundraising edge could be drowned amidst the presidential race if Clinton and Obama spend millions in ads here in the next few weeks.

Lean Retention (2 D)

4. Washington (Gov. Gregoire; Previous ranking: 3)

The 2004 campaign never really stopped in Washington, where Republican Dino Rossi lost by 129 votes on the third count after leading the first two ballot counts. Christine Gregoire started off a controversial term and has done her best to overcome the partisan rancor of her first election. Rossi announced his second gubernatorial candidacy in late 2007, and he has been campaigning hard since then, hoping to rouse the passions of 2004, bringing up the recount on the trail to undermine the legitimacy of Gregoire's incumbency. This race will be tight (and bitter) to the end but Gregoire has been able to somewhat regain her footing over the past few years and built some good will which give her a slight edge to start with.

Check the full rankings with all 11 races here.

This is cross-posted on Campaign Diaries.