If asked, most people would say that Nate Silver had the most accurate prediction of the 2012 election, but that’s not true. Silver actually mis-predicted at least one Senate race. It was Sam Wang who was perfect in 2012. Wang is a neuroscientist at Princeton University and the head of the Princeton Election Consortium. He was one of the first people to aggregate election polling, starting back in 2004. And he currently gives the Democrats a 70% chance of holding onto the Senate.

This came as a bit of a shock to me. I’ve been following 538, The Upshot, and The Monkey Cage models, and they all are very bullish on the Republicans taking control of the Senate. For example, The Upshot currently gives the Republicans a 65% chance. So what is going on?

The difference in the predictions is based upon the kind of models. Wang’s model is based entirely on polling data. As far as I know, The Monkey Cage is based entirely on fundamentals like the state of the economy. The Upshot and 538 models are a combination of the two. The truth is that the fundamentals suck for the Democrats. But as Wang noted today:

Of course, all of this could change. But the truth is that the election isn’t that far away: just over two months. One would think that if things were going to turn, they would have done so by now. But we haven’t seen any indication of that. But I know that I what to believe Wang’s results. Regardless, even his 70% Democratic probability result finds the most likely Senate makeup to be 50-50. The polls with the fundamentals have the Republicans controlling it 51-49. So the models are not all that different. It just shows that there is a lot of uncertainty. At this point, it doesn’t make much sense to get too excited or too depressed.

Update (29 August 2014 4:24 pm)

I just checked, and The Monkey Page model that a month or two ago had the Senate going Republican with an 80% chance, now gives the Republicans only a 53% chance. FiveThirtyEight can’t seem to be bothered to update their model more than once a month. Daily Kos gives Republicans a 55% chance. It is only The Upshot that gives the Republicans a big chance: 65%. That’s interesting.

H/T: P M Carpenter’s Commentary

Jared Bernstein and Dean Baker are friends and collaborators. But they’ve been having a public debate on the issue of the corporate income tax. Bernstein has argued that we need to keep the corporate income tax because it brings in important revenue revenue, and getting rid of it would be a huge regressive tax cut, because it is mostly the rich who pay it. Baker argues that it is a bad tax that gives corporations huge incentives to avoid it. He even noted in his characteristically amusing way, “The question is, how much will a company pay to avoid paying $100 in income taxes? The answer is up to $99.99.” If you want to read the exchanges, start with Bernstein’s last post, My Last Word on Dean B and Corporate Taxes. You can work backwards from it to his original article in The New York Times, Cutting the Corporate Tax Would Grow Other Problems.

The discussion is mostly over details and emphases. Not surprisingly, I agree with both of them. They are both brilliant and keen observers of the economy. But it does bring out what I think is a bit of a problem with Baker’s thinking: he doesn’t take into account political realities enough. My favorite example of this is his notion that we don’t need to worry about fewer workers per retiree for the funding of entitlement programs because of increasing productivity. The problem with this thinking is that for the last four decades, productivity has become entirely decoupled from wages. The way that the entitlements are funded, this represents a big problem.

Baker understands this, of course. If you haven’t read it, you should read the book he wrote with Mark Weisbrot, Social Security: The Phony Crisis. That book is 13 years old, yet all of the phony arguments they destroy are still very much still with us. So Baker would counter my argument about productivity with something like, “Of course! My point is that the problem is that productivity is not shared with workers, not that we need a bunch of people working to support retirees.

The maddening thing about this is that he is (as usual) totally right. The problem is that pretty much all economic problems go away if we could just re-couple wages and productivity. I’m concerned that his is often a dangerous way of talking if we aren’t clear about it. And Baker, brilliant guy that he is, often doesn’t hammer home the issue of wages and productivity because it is so obvious to him.

The argument with Jared Bernstein is similar. They don’t really disagree on the matter. Bake is right: the corporate tax doesn’t bring in that much money and it could be replaced with another targeted tax on wealthy people. Bernstein response is basically: yeah, right! This all reminds me of the push by conservatives to lower the corporate tax rate, but keep the amount collected the same by eliminating loopholes. An obvious reaction to this is: if you are bringing in the same amount, why do it? There is an argument to be made that it is fairer. But I think the real reason is that the corporations think they would end up paying less. After all, it is hard to reduce the base tax rate; it is easy to get loopholes put back in.

I think we see the same thing with the idea of eliminating the corporate tax. It is certainly the case that there would be a whole lot more people lobbying on behalf of making the replacement tax less, than there would be on behalf of making it more. So in the end, it would not be offset and so would be a big tax cut for the rich. Just the same, Baker is right that the corporate income tax is a terrible tax. We really ought to replace it. I just don’t see a political climate that would allow that to be done properly for at least a decade—and maybe a lot longer than that.

I have this constant feeling that the world has gone crazy. Conservatives especially but by no means exclusively continue to be worried about inflation. But if you look at the ratio of employed people to total people here in the United States, you will see that it cratered in 2008 and has hardly come up at all over the past six years. It is still four percentage points below where it was at the start of 2008. Being worried about inflation in such an environment is like being worried about fashion in the middle of a war zone.

This morning, Brad DeLong posted an article, When Do We Start Calling This “The Greater Depression”? He goes over the history of what we’ve call this, from the “financial crisis” in 2007 to the “great recession” in 2009 to the “lesser depression” in 2011. Hence his question.

He presented some shocking information. In 2009, the GDP level was 11% below the trend indicated by the period from 2005-2007. Today, it is 16% below that same trend. So we are continuing to slip. The economy is growing, of course—just not as fast as it was when the economy was doing just okay. And note: this is not because Obama has been such a bad president. I am against many of his policy preferences. But it has been the Republicans who have been entirely against anything that would help the economy, and have actively pursued policies that have hurt the economy.

The situation is even worse in Europe. According to DeLong, although Europe was only 8% below its 1995-2007 GDP trend in 2009, it is 15% lower today. This is due to the mania for austerity there. Their initial downturn was not as bad and would not have been as bad. The second bounce down in GDP is entirely due to bad policy there. But no one in Europe with any real power seems to be willing to admit the problem. And conservatives here are extremely eager to join the “Let’s destroy our economy!” bandwagon.

And it is all about inflation. While it’s true that millions of people are out of work, none of the people who make policy are out of work. In fact, they are doing extremely well. They are part of the one percent. They own things. And they have to balance the interests of the millions whose lives have been destroyed by the terrible economy against the thought that inflation might in a few years actually go up slightly over our ridiculously low 2% inflation target. And we see whose interests are considered important.

Welcome to the Greater Depression!