Public Policy Polling is reporting that after trailing slightly for a while Republican Mark Kirk has pulled out in a slight lead over his Democratic opponent, Alexi Giannoulias:

The Illinois Senate race continues to be very close, but because Mark Kirk is doing a better job of consolidating his base than Alexi Giannoulias is he’s taken a small lead after trailing by 2 points on PPP’s previous two polls of the race. Kirk is ahead 40-36 with Green Party candidate LeAlan Jones at 8% and Libertarian Mike Labno geting 3%.

Our August poll found Kirk winning 74% of Republicans and Giannoulias getting 72% of Democrats. Now Kirk has expanded his support from his own party to 79% while Giannoulias’ support from his has declined to 68%. Kirk is getting 9% of the Democratic vote while only 2% of Republicans are planning to vote for Giannoulias. Kirk’s double digit lead with independents persists at 41-27.

These are two terrible candidates. The only target that Kirk is certain to hit is his own foot and if Democrats had gone out with the specific intent of finding the worst possible candidates for this year’s race, Alexi Giannoulias would have made a great pick. He’s got nearly everything wrong with him: banker, failed bank, connections with shady figures, political insider, no ballot appeal.

However, this is a mid-term election in a year in which the expected Republican tailwind is assuming gale-force proportions all over the Midwest. Unless there’s some other distressing Kirk revelation, I expect him to eke out a narrow victory.

To some degree I think that my views about income inequality bear some similarity to my views about global warming and climate change. In both instances I am favorably disposed to the issues but I’m skeptical about the solutions that are being proposed to address them. In the case of income inequality the solutions I, as I said in the comments, tend to be of the “Tax A to give B on behalf of C” sort where A are “the rich” C are “the poor”. B are generally doctors of medicine, educators, social workers, government bureaucrats, or what have you.

While these solutions may or may not address income inequality they will definitely redistribute from “the rich” to the not-so-poor.

John Stossel:

As I’ve said before, a tax cut is not a handout. It simply means government steals less. What progressives want to do is take money from some — by force — and spend it on others. It sounds less noble when plainly stated.

If James Joyner is right and very few think taxation is theft, those who do certainly are noisy.

Following up on his series in Slate on income inequality Timothy Noah complains that the lower 99% of income earners aren’t ready to start manning the barricades because they’re too stupid:

Americans’ ignorance about wealth (and, probably, income) distribution is encouraging in the sense that it offers hope that most voters might opt for government policies more conducive to equality if only they knew how unequal things were. But it’s dismaying in the sense that people who occupy a position of relative privilege seem to go out of their way to avoid acknowledging it.

I’d like to propose another explanation. The difference between storming the nearest office of Goldman Sachs and switching the channel to American Idol is the difference between desperation and pique. Let’s consider the dichotomy Mr. Noah presents:

In the first installment, I noted that in 1915, when the richest 1 percent accounted for about 18 percent of the nation’s income, the prospect of class warfare was imminent. Today, the richest 1 percent account for 24 percent of the nation’s income, yet the prospect of class warfare is utterly remote. Indeed, the political question foremost in Washington’s mind is how thoroughly the political party more closely associated with the working class (that would be the Democrats) will get clobbered in the next election.

through the prism of my own own family’s experience. In 1915 my great-grandmother, Mary Jane Flanagan Schneider, was 45 years old and in many ways typical of the urban poor. She was the mother of six children. While the oldest, 16 year old Annunziata (the Schneiders were poor in worldly possessions but rich in names), my grandmother, took care of the younger children she worked for meager wages as a cook.

Her husband, August, had been a butcher but was unable to hold a job because of alcoholism. She was ultimately to divorce him, a great scandal at that time.

They lived in a one room houseboat on the banks of the Mississippi, in sight of where the St. Louis arch now stands in the most humble of circumstances. There was no running water. What water they needed they pulled from the Mississippi in a bucket (!).

One of the children died of tuberculosis in her late teens. One starved to death. Another died of epilepsy at 13. Yet another died at 28 under circumstances I haven’t been able to discover. The children were in and out of orphanages depending on whether Mary Jane was able to support them or not. There was no public assistance of any kind. There was no unemployment assistance. There was no disability assistance or aid for dependent children or anything of the sort.

Very, very few women had any education and there were very few decent jobs available to women who had no education. Cook was about as good as it got. How did Mary Jane Schneider keep a family of six on a cook’s wages? Mostly she couldn’t.

Fast forward to the present day. Almost 50% of the poor own their own homes. Three quarters of the poor have air conditioning. Few live in overcrowded circumstances. Three quarters own a car. Nearly all own a color television set and nearly half own two. Three quarters have a VCR or DVD player, two-thirds have cable.

Is it ignorance or the lack of the genuine deprivation of the truly poor that keeps 99% of Americans from marching in the streets?

Having less than the top 1% of income earners bothers the folks on the next rung down a lot more than it does “the poor”. That’s why they’re whining about it.

Under Illinois law can you claim a house that you lease to somebody else as your residence?

Vice President Joe Biden:

Vice President Joe Biden stoked a firestorm of liberal discontent with President Barack Obama on Monday – demanding that the Democratic base “stop whining” and start fighting Republicans instead of the White House.

Biden, speaking at a frozen yogurt plant in New Hampshire, said he wanted to “remind our base constituency to stop whining and get out there and look at the alternatives. This President has done an incredible job. He’s kept his promises.”

President Barack Obama:

WASHINGTON – Admonishing his own party, President Barack Obama says it would be “inexcusable” and “irresponsible” for unenthusiastic Democratic voters to sit out the midterm elections, warning that the consequences could be a squandered agenda for years.

“People need to shake off this lethargy. People need to buck up,” Obama told Rolling Stone in an interview to be published Friday. The president told Democrats that making change happen is hard and “if people now want to take their ball and go home, that tells me folks weren’t serious in the first place.”

Michael Gerson, writing in the Washington Post:

Though it is difficult to recall, there was a time when liberalism was identified with cheerfulness. Franklin Roosevelt, according to historian Arthur Schlesinger Jr., “radiated personal charm, joy in his work, optimism for the future.” Meeting Roosevelt, according to Winston Churchill, was “like uncorking a bottle of champagne.” Hubert Humphrey was known as the “happy warrior,” displaying what Ronald Reagan described as “a truly buoyant civility.” “He was robust and energetic,” said Reagan. “He loved the battle. He was warm and affectionate. He was hearty and spirited.”

Who could argue that Obama currently radiates “joy in his work”? It is a chore, a sacrifice, for which we are expected to be grateful. The warriors have become dour. The champagne has gone flat. At the high-water mark of its recent political influence, liberalism is depressed, disappointed, deflated.

Stanley Fish, writing in the New York Times:

Liberal pundits and the politicians whose agendas they favor continue to misunderstand the Tea Party movement and, what is worse, fail to realize how much the disdainful tone of their criticism fuels it. This may be changing now as the ominous signs proliferate — the primary victories of Christine O’Donnell, Joe Miller, Rand Paul and Sharron Angle, the likely election victory of Marco Rubio and, in recent days, the startling news that Carl Paladino and Joe DioGuardi may be closing in on supposedly shoo-ins Andrew Cuomo and Kirsten Gillibrand (I say “may be” because there are conflicting polls). And of course there is Sarah Palin, who, despite endless analyses of her personal and political shortcomings, looms larger on the national stage every day.

It doesn’t look like it’s changing to me; it looks like they’re doubling down. Yeah, that’ll work.

If you read my posts closely, you’ll notice that I only criticize the Obama Administration very rarely and cautiously. However, I’d like to reiterate one piece of advice for the Administration that I started giving shortly after the election: stop talking the economy down. And to that I’d add stop talking the American people down and stop talking the Democratic base down. Being smart, going to all of the right schools, and getting elected are not enough. Not only does performance count, too, but so does attitude. Historically, the American people have elected the presidential candidate that presents the brightest picture of America, its people, and its future. 2012 will be no different. If President Obama wants to keep his job, he’s got to start being more upbeat.

It’s walking a tightrope but that can be done without sounding delusional. Go back and look at old newsreel footage if you need to.

In the financial world these days there’s a different but equally acrimonious debate going on over what the prospects for investors will be like in coming years. One side is represented by Mohamed El-Erian, CEO of the bond giant PIMCO. He believes that the global economy is entering what he has termed a “new normal”:

Some of the characteristics of this new era are slower growth worldwide (more so in the G-3 than in emerging markets), higher unemployment, more deleveraging, more regulation, and a weaker U.S. dollar. He states that government interventions around the world may avoid a depression, but the actions will not be successful in returning economies to the high growth and low inflation of the past few years.

Of the banking system, El-Erian says it “will be a shadow of its former self,” changed for years to come because the sector will be “de-risked, de-levered, and subject to greater burden of sharing.”

El-Erian calls future economic growth “muted” because of “excessive regulation, higher taxation, government intervention,” and he opines that the greater risk for equities over the coming 3-5 years is pointing downward.

The other side, represented by Ken Fisher, CEO of Fisher Investments Inc., dismisses any notion of a new normal as “idiotic”:

“We are chimpanzees with no memory,” Fisher said at the Forbes Global CEO Conference in Sydney. “The next 10 years are going to be just as good as the 1990s. The problems in this current environment we think are so different, and so new and so unique. It’s the same stupid old normal we’ve always had. We’ve got a great future.”

Barry Ritholtz responds with a view that I would endorse:

I disagree with the New Normal thesis, but for very different reasons than Fisher does. I’ll post more on this later this week, but the shorter version is: The past few decades have been aberrational, and we are returning to the old normal.

In my view we are returning to trend rather than breaking from it or continuing it and that is largely mediated by demographic forces. I’ll be interested in reading how Mr. Ritholtz expands on his thesis.

In a post yesterday I asked why is unemployment so high? In my view any realistic consideration of the question must recognize that there is no single magic bullet, that there are multiple reasons that unemployment has reached levels atypical for this stage of a recovery, and why it is so persistent.

More fundamentally I think it may be the wrong question. The better question is why was unemployment so low for so long? And I think the answer to that lies in the effects of the post-war generation in the United States on the U. S. and world economies.

Some of you may recall her as the aged Rose in James Cameron’s movie, Titanic but once upon a time, as I pointed out some time ago, she was young and glamorous and beautiful and was a Hollywood star or, at least, a major starlet. She has died:

Gloria Stuart, a 1930s Hollywood leading lady who earned an Academy Award nomination for her first significant role in nearly 60 years — as Old Rose, the centenarian survivor of the Titanic in James Cameron’s 1997 Oscar-winning film — has died. She was 100.

Stuart, a founding member of the Screen Actors Guild who later became an accomplished painter and fine printer, died Sunday night at her West Los Angeles home, said her daughter, writer Sylvia Thompson.

Do go to the link and read the LA Times’s wonderful obit. A movie career would be enough for most people but not Ms. Stuart. She had two movie careers as well as a family, a political career, and a career in art. Quite a woman.

In his column this morning Paul Krugman turns his gimlet eye (there’s a joke in there somewhere about The Onion) on the high level of unemployment that we have seen in this recession in particular, which is both higher and of longer duration than might have been expected based on the drop in GDP:

What can be done about mass unemployment? All the wise heads agree: there are no quick or easy answers. There is work to be done, but workers aren’t ready to do it — they’re in the wrong places, or they have the wrong skills. Our problems are “structural,” and will take many years to solve.

But don’t bother asking for evidence that justifies this bleak view. There isn’t any. On the contrary, all the facts suggest that high unemployment in America is the result of inadequate demand — full stop. Saying that there are no easy answers sounds wise, but it’s actually foolish: our unemployment crisis could be cured very quickly if we had the intellectual clarity and political will to act.

In other words, structural unemployment is a fake problem, which mainly serves as an excuse for not pursuing real solutions.

He goes on to describe two competing explanations for the high level of unemployment. The first, which he disparages, is that the unemployment is structural:

Who are these wise heads I’m talking about? The most widely quoted figure is Narayana Kocherlakota, the president of the Federal Reserve Bank of Minneapolis, who has attracted a lot of attention by insisting that dealing with high unemployment isn’t a Fed responsibility: “Firms have jobs, but can’t find appropriate workers. The workers want to work, but can’t find appropriate jobs,” he asserts, concluding that “It is hard to see how the Fed can do much to cure this problem.”

It seems to me that there is some level of structural unemployment is inescapable. The sector which has seen the most dramatic loss of jobs is housing constuction. New housing construction is virtually flat and there’s a year’s worth of housing stock inventory. Those jobs won’t return soon. Housing demand had two components: end-user demand and investors’ demand. For the rate of construction to return to what it has been since, say, 2002, we’d need to see a return of both sorts of demand and, frankly, I doubt that we’ll see a new housing bubble any time soon. There is always structural unemployment following the collapse of a bubble and the more people that were employed in the sector in which the bubble occurred, the more structural employment there will be.

The only sectors doing much hiring are healthcare and education. Is Dr. Krugman claiming that out of work carpenters can just take work as classroom teachers? Or nurses? Lab technicians, perhap? Taking jobs as teachers aides or nurses aides would entail a substantial loss in pay, something that few will elect until there really is no other option.

Dr. Krugman’s preferred explanation is inadequate aggregate demand:

I’ve been looking at what self-proclaimed experts were saying about unemployment during the Great Depression; it was almost identical to what Very Serious People are saying now. Unemployment cannot be brought down rapidly, declared one 1935 analysis, because the work force is “unadaptable and untrained. It cannot respond to the opportunities which industry may offer.” A few years later, a large defense buildup finally provided a fiscal stimulus adequate to the economy’s needs — and suddenly industry was eager to employ those “unadaptable and untrained” workers.

The NFIB (of which I am a member and which Dr. Krugman cites in his piece) recently did a study of its member (which I believe I’ve cited here before) to determine the reasons that small businesses aren’t hiring. The single most important reason they gave for not hiring was lack of demand, which supports Dr. Krugman’s position.

However, it wasn’t the only factor. The next two factors in order which between them outweighed lack of demand were taxes and government regulation which can be clumped together as “regime uncertainty”. According to the owners of small businesses more of them are not hiring due to regime uncertainty than due to lack of demand.

I can think of any number of other reasons for high unemployment. Let’s just consider three: culling the herd, underwater houses, and unemployment benefits.

Contrary to what one might believe employment in large firms tends to be downwards inelastic. There are several reasons for this. Union contracts may have restrictions on layoffs. Large firms are always bureaucracies and influence in a bureaucracy is measured by how many people report to you. Managers can be very reluctant to let go of their empires. The recession created a perfect opportunity to reduce excessive employment and many businesses seized it.

As a consequence of the collapse of the housing bubble an astonishing number of home mortgages are “underwater”, i.e. the homeowners owe more on their mortgages than their homes are worth. That (and the sluggish market) makes houses hard to sell since they’d need to bring cash to the closing. Since so many people these days live paycheck to paycheck, that’s not an alternative. Underwater houses makes people less willing or even able to move to seek employment where it might be more available. Note that underwater houses also reduce the ability of those who have jobs to take better jobs should they become available. They introduce a general rigidity into the system.

In normal times unemployment benefits last 26 weeks. These, however, are not normal times and benefits have been extended and extended again until they can last as long as 99 weeks (and some people may have decided that they will be extended indefinitely). Unemployment benefits have the measurable effect of extending unemployment a small amount and, consequently, will inevitably increase the rate of unemployment.

Don’t misconstrue that observation as my thinking that we should not extend unemployment benefits; I don’t think that. However, I do think that we should start considering other alternatives with better incentives, e.g. maintaining benefits at some level after work has been secured or paying employers for the additional 73 weeks for hiring people who’ve been unemployed for 26 weeks rather than the workers.

My point is not that Dr. Kocherlakota is right and Dr. Krugman wrong or vice versa. It is that I very much doubt that there is a unitary explanation for the high level of unemployment we’re seeing right now and a simple, unitary solution, whether it be education or an additional stimulus package, is unlikely to be as effective any of us might like.