David Brooks captures two elements of Obamania.  First is its close association with privilege:

Obama is not only a member of this temperate [post-boomer] generation, but of its most educated segment. He has lived nearly his entire adult life within a few miles of one or another of the country’s top 10 universities.

His upscale, post-boomer cohort has rallied behind him with unalloyed fervor. Major college newspapers have endorsed him at a rate of 63 to 1. The upscale educated class — from the universities, the media, the law and the financial centers — has financed his $600 million campaign (which relied on big-dollar donations even more heavily than George W. Bush’s 2004 effort). This cohort will soon become the ruling class.

Second is its unpreparedness in handling the nation’s challenges.  The ruling elite will come to face problems America has not seen for decades.  Deflating asset prices, higher unemployment, and lower tax revenues will challenge any new administration, no matter who wins tonight.  Can the young Obama supports, roused to the polls by promises of hope and change, fully comprehend the pending hard-nosed politicking?

Raised in prosperity, favored by genetics, these young meritocrats will have to govern in a period when the demands on the nation’s wealth outstrip the supply. They will grapple with the growing burdens of an aging society, rising health care costs and high energy prices. They will have to make up for the trillion-plus dollars the government will spend to avoid a deep recession. They will have to struggle to keep their promises to cut taxes, create an energy revolution, pass an expensive health care plan and all the rest.

….

We’re probably entering a period, in other words, in which smart young liberals meet a stone-cold scarcity that they do not seem to recognize or have a plan for.

Indeed, the boomers continue to haunt American politics, even if one of their representatives is not in the Oval Office.  Hope and change are good talking points, but health care plans cost money and most economists agree that raising taxes right now would further damage the economy.  We can’t hold hands to make tough decisions; some constituencies will inevitably lose and if Sen. Obama wins the election, it won’t take long before some of his young naifs are disillusioned with the messiness and required compromise of democratic politics.

A President Obama may claim to represent change, but as Brooks astutely concludes, “In an age of transition, the children are left to grapple with the burdens of their elders.”

Cultivating One's Mind. Source: New York Times.

Berea College in Kentucky doesn’t charge its students tuition.  This contrasts sharply with many of the nation’s most prestigious schools, which charge hefty sums for tuition despite their astounding endowments.  Are the Ivies just become havens of America’s intellectual and economic elite?  The New York Times thinks so:

[A]ccording to 2002 data, only one in 10 of the students at the nation’s most selective institutions come from the bottom 40 percent of the income scale. And the proportion of low-income undergraduates at the nation’s wealthiest colleges has been declining, as measured by the percentage receiving federal Pell Grants, for families with income under about $40,000. At most top colleges, only 8 to 15 percent of students receive Pell grants.

The Senate and IRS are now investigating whether universities should be required to spend 5% of their endowments on education annually in order to maintain their tax exempt status.  The IRS and Congress tend to prefer that tax exemptions apply only on income that suits the public good.  If hefty endowments aren’t being used to broaden access to higher education, what public good do they serve?

Several of the Ivies have stepped up tuition assistance for students from low-income families, but, as the Times points out, the student bodies are becoming ever more priviledged.  Harvard, Yale, et al., beware: continue to lock out the poor and you may have to hire more accountants.

Former Supreme Court justice Sandra Day O’Conner takes a knock at our pay-as-you-go Social Security system in today’s Post.  O’Conner doesn’t not explicitly say it, but she does suggest that Social Security is an entitlement program designed as a massive moral hazard.  Since the system collects payroll taxes and redistributes the money immediately, the system does not save the money of each worker for his retirement.  Though to qualify to receive Social Security payments, one must have worked a certain number of quarters, promised benefits are solely limited not to what each worked has payed for himself during his working years, but is limited to tax revenue the year retiree collects benefits.  Thus, aggregate benefit expenditures are largely independent of aggregate tax revenues.  As a result, there is every incentive for each generation to promise itself lavish benefits knowing full well that the costs decades later will fall on the yet-to-be born.

This structure obligates future generations to pay for benefits packages ratified long before they were born.  Sandra Day O’Conner strikes a conservative tone in her evaluation of this situation:

Our government was founded on the principle that the legitimacy of law derives from the consent of the governed. Today’s youths and future generations have not been consulted in the writing of our current social contract. Yet they soon may face financial burdens that most voters would find intolerable.

For all the talk about adding benefits to entitlement programs, there is very little talk about the sober costs necessary to pay for such benefits.  O’Conner thinks the young ignore politics to their own financial peril:

…[A]lthough 41 percent of Americans are younger than 30, their political clout is inherently limited. Despite turning out in record numbers this year, voters ages 18 to 29 have accounted for only 13 percent of the presidential primary electorate. In the future, demographics will relegate youths to an ever-shrinking electoral minority.

O’Conner then goes on to advocate benefit cuts.  It’s clear that O’Conner’s highest post was to an unelected Supreme Court bench; every politician knows that cutting benefits to Social Security is politically unpopular.

Despite O’Conner’s warning, the problem will fix itself not because beneficiaries will feel some charity toward contributors, but rather because contributors will resent tax increases once benefits exceed revenues.  The choice will be clear at that moment and I suspect raising taxes will prove much more politically impractical than cutting benefits.  Money gets people to the polls.

Americans often believe that cheap gas is a constitutional right. With gas prices as high as they are these days, driving one’s SUV around one’s car-dependent suburb is becoming expensive.

To allay this pain at the pump, both Sen. Clinton and McCain have proposed suspending the Federal gas tax for the summer, a measure expected to draw praise from these motorists. Sen. Obama, however, has rightly described the gas tax suspension as a gimmick that won’t lower gas prices at all. Here are the various reasons why the gas tax suspension is a bad idea:

Ineffective Economic Gimmickry

The problem with this tax suspension, as many notable economists have explained, is that oil refiners and distributors will simply raise prices as the tax drops with hopes that nobody will notice. Furthermore, reduced prices may encourage higher consumption, thus boosting prices back up again.

Today on ABC’s This Week, host George Stephanopoulos asked Clinton “Can you name one economist, one credible economist, who supports this suspension?” (watch the exchange)

Clinton responded,

Well, you know, George, I think we’ve been for the last seven years seeing a tremendous amount of government power and elite opinion behind policies that haven’t work for the middle class and hard-working Americans.

Pressed further to name one supportive economist, Clinton dismissed the need to listen to economists about economic policy:

I’m not going to put my lot in with economists because I know that if we did it right… we would design it in such a way that it would be implemented effectively.

Apparently Sen. Clinton believes she knows better than professional economists about fuel markets. This is another instance where careful, professional economic thought is cast as “elitist” when it doesn’t tell the masses what they want to hear, specifically, that we can have our cake and eat it too.

Failure to Reduce Dependence on Oil

Though Sen. Clinton supports suspending the gas tax, she then goes on to complain about the nation’s dependence on foreign oil. Just how exactly does Sen. Clinton plan to reduce this dependence while opposing drilling in Alaska and making gas cheaper? It is impossible. Though bashing Saudi oil barons has been in vogue for several years, we must recognize that these same barons provide us with what we want: cheap oil. Without increasing domestic production or reducing domestic demand, suspending the gas tax is likely to increase consumption of foreign oil.

Encouraging Environmentally Destructive Behavior

Sen. Clinton cannot support reducing greenhouse gas emissions and support cheap gas. The latter exacerbates the former and in the unlikely event that a gas tax suspension does indeed lower gas prices, such prices will only encourage increased consumption and thus increased greenhouse gas emissions.

Dismissing the “elite opinion” of economists, Sens. Clinton and McCain float this suspension as a populist appeal to middle- and lower-class voters for whom the rise in gas prices has been particularly painful.

Politically, though, these differing positions on the Democratic side highlight a difference in the support base of the two candidates. Clinton’s base, skeptical of the “elite opinion” of economists on issues of free trade and technological innovation, are having trouble affording the drive-everywhere lifestyles to which most suburban Americans are accustomed. Furthermore, despite the green leanings of the Democratic Party, much of Clinton’s base cannot or will not sacrifice to support environmental causes.

Obama’s base, which skews toward the wealthy, has the means to buy hybrids and live in pricey, close-in enclaves where public transport is better and where good jobs are not too far away. Though Obama denies that a tax holiday will lower prices (and he’s likely right on that), it’s far easier for him to say that without alienating his base.

For consumers who actually believe the tax holiday will lower prices, Obama’s refusal to lower the tax smacks of elitism. For those of us educated with some minimal understanding of economics, our “elite opinion” is in Obama’s favor.

Though one could be mistaken for thinking Monumentality is a Pelosi-bashing outfit, it appears the House majority leader may have the right idea on the housing bills going through the House and Senate.

The New York Times today reports that the Senate version has been compromised by special tax handouts for house builders, airlines, and the automobile industry. Like much of the waste that passes through Congress on its way to the Treasury, lobbyists representing various interests have been able to attach riders to a housing bill whose public support and perceived urgency guarantee its own passage.

The House version lacks these provisions and it is likely Pelosi will try to kill them in the conference committee and rightly so.

The Times describes the Senate bill’s provision for home builders:

In the Senate bill, the nation’s biggest home builders, some now on the verge of bankruptcy, won a provision that would let them claim millions in tax refunds by charging their current losses against the huge profits they made three or four years ago.

Certainly house builders are hurting right now, but so are many other sectors of the economy. House builders are neither entitled nor deserving of special tax treatment: they have reaped bountiful profits the past few years by riding the real estate wave. Prudent builders would have stashed away some profits for years such as this one.

Airlines, though suffering from the high cost of fuel, are the oriental rug stores of corporate America, always claiming to be poised on the brink of bankruptcy. Congress need not intervene for an industry that needs to learn how to run itself profitably, as several carriers do. Furthermore, the solution to higher fuel prices is simple: raise fares and cut service.

The automobile industry faces several challenges. First, the high cost of fuel has driven down demand for SUVs and trucks from the Big Three, whose profitability precariously depends on gas being cheap. When prices rise, their products look less attractive to consumers. The second challenge is falling consumer demand due to decreased consumer confidence. Low confidence is compounded by the fact consumers are finding it harder to obtain credit for such expensive purchases. Additionally, the Big Three face extraordinary pension liabilities resulting from ill-considered benefits promised decades ago. Most of these problems are not new.

With such popular demand for government action in the face of declining housing prices, it is hard for Congressmen to refuse to act. Unfortunately, it’s also hard for lobbyists to refuse to act.