A Good First Step

President Obama, House Speaker John Boehner, and Senate Majority Leader Harry Reid danced, cajoled, threatened, got frustrated but ultimately ended a marathon series of negotiations to prevent a budget shut down and cut spending by $38 billion.   For the most part, everyone is claiming victory, relieved that an unpredictable government shut down was avoided.

Clearly, the Democrats realize that they can’t ignore the GOP majority in the House, any more than President Bush could ignore the Democratic majority after the 2006 election.  This means that budget cuts are going to continue.  President Obama, launching a re-election campaign last week, will try to use this to his advantage.   Expect him to take the lead in suggesting new cuts, a tax increase for the wealthy, and expanding discussion over competing budgetary visions coming from the Democrats and Republicans.   President Obama wants to go into the 2012 election with a record of fiscal responsibility and a capacity to work with Republicans for reasonable compromises.    This was a good first step.

But it’s not just politics, it’s essential for the country to get a grip on the problems we face.  They include:

1) High debt, both governmental and private.  We need to get our fiscal house in order, which includes spending cuts, entitlement reforms, and tax increases for the wealthier tax payers.    We need better oversight and regulation of the financial sector, with an effort to create incentives for saving.  I also think we need to move away from the mentality that we want consumers to spend money to benefit the economy.   Hyper-consumerism was at the root of the problems that led to this situation, consumption is not the solution.

2)  A current account deficit, which along with debt ultimately threatens the value of the dollar.  The best way to address this and improve the economy is to find productive enterprises to create goods and services that people want.  In other words, we need to produce rather than just consume.   The Republicans have to recognize that this might require investments and government support rather than just letting the market do it — markets are not magic.  Democrats have to recognize that any investments need to be focused on increasing production and not used for other social purposes.

3) Wars!  The US has to re-examine its foreign policy and consider cuts in military spending and commitments abroad.  This sounds odd at a time when the US has become involved in yet another conflict, but Libya’s difficulties provide a good opportunity to re-examine the nature of US military and foreign policy.    As we enter a new multi-polar era where economic power is more important than raw military force, the US has to consider whether or not our military policies and foreign policy perspectives are stuck in the 20th century.

4) Health care.   The GOP can’t repeal the health care reform, but many Democrats are eager to join Republicans to think about reforming it.   The focus needs to be on both reducing cost and improving coverage.   The OECD average for health care costs is 8.9% of GDP.  The US spends near 17% of GDP, and we have a very high per capita GDP.    The reform last year isn’t enough to solve the problem, and ultimately if it is to work it needs to have broad support.   Conservatives in France, Germany and Italy support their national health care programs.   Perhaps with reform and maybe more local control, broad support of effective reform could happen here.

5)  Energy.   The US has to develop a consensus on energy policy, mixing both more exploitation of domestic oil resources (both shale/sands and oil wells) and real investment in alternatives.  This could be the most serious challenge facing us in coming years.   Last time a President really offered a vision of energy independence was back in 1980 by President Carter.   Low oil prices in the eighties caused Americans to brush it aside; if we had acted then we’d be in much better shape now.  This time, we need to take energy seriously.

Call me contrarian but I think that dynamic in Washington shows promise.   Speaker Boehner and President Obama are both pragmatists, even if their party’s rank and file often want to see politics as war.   They each seem committed to problem solving over ideology, willing to accept what they might see as an imperfect solution over doing nothing.    So let the hard work  begin.   The country’s problems are not Democratic or Republican, but ones facing everyone.   We all have to be willing to question what we’ve thought to be true, support compromise, and reject emotional demonization of the other side.   The problems are real, but not insurmountable.

  1. #1 by Alan Scott on April 9, 2011 - 20:37

    ” We need to get our fiscal house in order, which includes spending cuts, entitlement reforms, and tax increases for the wealthier tax payers. ”

    The wealthiest already pay most of the taxes . It does affect the economy when you raise the rate on them . Or do you think it does not ?

    • #2 by Scott Erb on April 9, 2011 - 21:07

      I think the wealthy spend a lot on consuming products made overseas, driving up our current account deficit and not helping the economy. Our tax rates are extremely low for the wealthy. Accordingly the gap between the rich and the rest has been expanding. In rank order America’s top 10% earn more than the top 10% in any other country. Our bottom 10% are below the OECD average, below Greece. Moreover, our debt problems started when tax rates were cut dramatically, suggesting that there is a direct link between higher deficits and low taxes for the wealthiest. I have charts and a more detailed argument on that here: https://scotterb.wordpress.com/2010/12/16/the-tax-debate/

      • #3 by classicliberal2 on April 10, 2011 - 06:12

        More broadly, wealth concentration–the sign of an ailing economy (and society) anywhere–is a major problem in the U.S. In the decades from the Great Depression to the mid-’70s–the years in which the U.S. became the greatest economic powerhouse the world has ever seen–wealth concentration was on the decline. It began to rise again in the mid-’70s, after, among other things, various policy changes. It then exploded from the ’80s to the present. Wealth in the U.S. is now more concentrated than at any time since the Gilded Age. Various methods of measuring wealth differ slightly, but they all agree on that. Going by the figures developed by Edward Wolff at New York University (who has worked on this longer than anyone), the top 20% of Americans, as of 2007, own an incredible 85.1% of the wealth in the U.S. When it comes to total financial wealth, the top 20% has an even more incredible 94% of it. Four-hundred people in the U.S. now control as much wealth as the bottom 50% of Americans. That trend, if it isn’t arrested, is the end of the U.S., and any whining, in the face of these numbers, about how the poor, downtrodden wealthy are treated by the tax man are unmasked as the obscenity they are.

        Economist Joseph Stiglitz just wrote an article for Vanity Fair about, among other things, the extremely destructive effects of allowing such a state of affairs:

  2. #4 by Scott Erb on April 10, 2011 - 13:17

    I think you hit the nail on the head, classic liberal. A lot of people complain that rich are unfairly taxed and picked on, but nowhere in the world do the wealthy have it as good as they do in the US. The gap between the rich and the poor squeezes the middle class and makes us look more like a third world economy in terms of distribution of wealth. The emotion-driven memes of talk radio and Fox get the working class poor to identify with the GOP and oppose tax cuts on the rich. The myth that somehow this will create more jobs gets put forth as an article of faith, when actually increasing demand by increasing resources of the middle class helps the economy more than letting the top 1% concentrate wealth. The entire public realm is being pushed aside by faith in “the market” over democracy. This is a dangerous trend.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: