Archive for category Budget

Chaos Prevails

Susan Collins, R-Maine

Susan Collins, R-Maine

Republicans and Democrats increasingly seem to be in separate worlds.   Reality is never objectively perceived “as it is.”  It is always interpreted through ones’ perspective, a prism of beliefs and past experiences.   Yet most people are convinced reality is as they perceive it, they believe they are being objective and clear, meaning that those who think differently are somehow flawed.   They may be stupid, dishonest, disingenuous, or have some kind of nefarious belief system.   The US political system depends on a smaller class of people, those who can understand diverse perspectives, and navigate to a position of common ground – even if it’s a option all can barely life with.

I’m not writing to praise Senator Collins’ political views or positions.  I agree with her on some things, disagree on others.  But I do praise the fact that she is one of those able to try to work with people of different views to craft solutions to problems – to have the intellectual capacity for multidimensional thinking, rather than the true believer mentality of the ideologues.

As I write this a wild circus is playing out in Washington DC.   As Senators Reid and McConnell, both who like Collins see past ideological cages, near a compromise, an angry house demands to pass a bill with no chance of support from the Senate or White House.  But as they plan for an evening vote, apparently they can’t come up with anything.   Confusion reigns!  Now it sounds like no vote will occur.

Boehner:  "Truth is we have no idea what we're doing, and haven't for the past three weeks!"  (Well, what he would say if under a spell to tell the truth)

Boehner: “Truth is we have no idea what we’re doing, and haven’t for the past three weeks!” (Well, what he would say if under a spell to tell the truth)

Reading the quotes of the Republican tea party Congressmen is like reading quotes from die hard communists during the Cold War.  They have their ideological world view, and anything not falling within it is, well, a ‘threat to freedom,’ ‘demolishes the Constitution’, or some such silliness.

Speaker Boehner, who is also able to bridge diverse perspectives, at this point has to find a way to balance an out of control House, the need to solve the problem, and the views from the Senate and White House.    He doesn’t appear up to the task – perhaps no one is.  It appears that the lunatics have taken over the asylum!

Consider David Vitter, (R-La)’s defense of the shutdown:  “Approximately 15,000 EPA employees are furloughed, making it less likely fake CIA agents at EPA will be ripping off the taxpayer.”    Sure – while people in the Pentagon are holding food drives for furloughed employees, Vitter sees the government as some pack of demons.

Consider Collins:  “I would encourage people, my colleagues on both sides of the aisle and in both the Senate and the House, to take a look at the proposal that we’ve been working on.  I also think that the Senate needs to act first, and that there’s more chance of an agreement being reached in the Senate and we need to lead.”   You can just hear the tea party folk hissing at her “betrayal of principle.”

But Collins is right about what it takes.   The Democrats made their point earlier in the week when they resurrected demands to roll back the sequester.  If the Republicans want to “negotiate” before opening the government or raising the debt limit, the negotiation can’t be from “the status quo” to closer to where they are – that’s hostage taking.  The negotiation has to be from the Democratic starting point, which is precisely what Reid demonstrated!

From there Susan Collins got involved and crafted a bipartisan plan.  It didn’t pass muster, but Reid and McConnell took over from there, and it appeared we were on track to get an agreement.  It would give the GOP a face saving out, but the House Republicans would have fought a quixotic cause, turning the country against them and making the tea party look like a different kind of crazy.

The Tea Party - a different kind of crazy

The Tea Party anthem album

Simply, blinded by ideology they felt justified making outrageous demands, believing they were RIGHT and fighting on PRINCIPLE!  They scoff at those who compromise as somehow “compromising principles,” not recognizing that it is a kind of psychological malady to think one needs the world to adhere to his or her principles in order to be true to them.   Then as defeat became inevitable and the scope of the damage they’ve done to their party, themselves, their movement and perhaps the country became clear, they veered off in numerous directions.

So tonight meetings continue.   Susan Collins is working behind the scenes, still a major force.  McConnell and Reid are talking – all recognize the scope of the problem.   Still, the real issue is not the debt ceiling or shutdown, but how could we let such a dysfunctional group of Congresspeople veer the country so close to catastrophe?   How could it be that people like Louie Gohmert, who said that President Obama should be impeached if the country defaults (even if his party is the cause of the default) – he’s the same guy who said terrorists were having babies in the US so the babies could commit terrorist acts in 18 years and that John McCain supports al qaeda – can be as influential as Collins?

Republican Pete King (R-NY) put it best:  “This party is going nuts…Even if this bill passed tonight, what would it have done?  After shutting down the government for two and a half weeks, laying off 800,000 people, all the damage we caused, all we would end up doing was taking away health insurance from congressional employees. That’s it? That’s what you go to war for? That’s what we shut down the United States government for?”

I predict they’ll find a way out and pass an agreement that the House will have to swallow.   More important for our future is to elect people with the insight to recognize that our system welcomes political conflict as long as the participants are able to recognize the legitimacy of diverse opinions.   Because if the tea party mentality takes root – and a similar way of extremist thinking grows on the left – our Republic will be on a downward spiral.

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Weimar America?

“We’re not going to be disrespected.  We have to get something out of this. And I don’t know what that even is.”  ” Rep. Marlin Stutzman (R-Ind.)

Rep. Martin Stutzman (R-Indiana)

Rep. Martin Stutzman (R-Indiana) – the Rodney Dangerfield of the GOP

In a thought provoking piece in The New Republic, John Judis argues that the Republican party is causing one of the worst crises in American history.   “Welcome to Weimar America,” he chides before launching into an entertaining and persuasive reflection on American history and the roots of the current crisis.  While I’ve diagnosed the “tea party” as a nostalgic movement resenting the changes in American demography and culture, Judis argues its actually a continuation of earlier movements, including the Calhounist nullification movement that led to civil war.

We’re not likely to have civil war, but there is a real danger that the current crisis reflects growing political fragmentation destined to weaken both American democracy and strength.

But Weimar America?  The electoral system of the United States works against the kind of extreme fragmentation of the German system before the rise of the Third Reich.   The Weimar Republic was a straight proportional representation system which allowed dozens of parties to compete and get representation in the Reichstag.  That required a Chancellor gain support from a large number of parties before being able to control a majority bloc of the parliament and govern.  That worked OK until 1929, then after the Great Depression hit Germany became ungovernable.    For years no government could form and President Hindenburg ruled by emergency decree.    Adolf Hitler rode the unrest, instability and confusion to power, even though he never actually was elected by a majority in a free election.

That won’t happen here.   Our system of single member districts assures we’re likely to stay a two party system; it’s a structural feature of how we run elections, and it does create a kind of stability.    Yet other aspects of our system of government create possibilities that make the Weimar metaphor plausible.   Since we do have a government divided between the executive and legislative branches (not the norm in most democracies), and the legislative branch is divided into two separate bodies of independent power, it is possible that if the culture of compromise and tradition is broken, gridlock and division could become the norm.   That would destroy the essence of systemic stability that has brought us freedom and prosperity.

Dennis Ross (R-FL)

Dennis Ross (R-FL)

“Republicans have to realize how many significant gains we’ve made over the last three years, and we have, not only in cutting spending but in really turning the tide on other things.  We can’t lose all that when there’s no connection now between the shutdown and the funding of Obamacare.  I think now it’s a lot about pride.”  Dennis Ross (R-Fl)

Ross, like other Republicans skeptical of the tactics being undertaken, recognize that the shut down and threats to default are being taken by people who have no clue what those things mean.   They mutter things like “Oh, good, shut down that horrible government,” not recognizing the real consequences for the country.   “The debt’s too high, let’s not increase the debt limit,” some bemoan, utterly clueless to what the impact would be of going into default.  These people aren’t stupid, they’re ignorant.  They are so blinded by ideology that they don’t take the time to study the real implications of what’s happening.

Ironically, John Boehner may be the best hope for avoiding disaster.

Ironically, John Boehner may be the best hope for avoiding disaster.

Luckily, John Boehner does not fit into that category.  Yet he’s dealing to what one pundit called, a Republican civil war.   Both parties have their ideological extremes, but usually they are kept in check by the establishment center.   The extremists hate the pragmatic centrists because they “compromise on principle” and aren’t driven by ideological fervor, but they’re the ones that assure stable governance.   The extremes pressure the centrists and that’s important, but in the GOP they’ve taken over the party.

And they’re mad, certain they are right, and they don’t care about the system because they’ve decided it’s “crashing and burning” anyway, and only big government lovers would suffer if the whole thing collapsed (since presumably a more “pure” America would rise from the dust).  OK, not all are that extreme, but the mix of extremism and ignorance has allowed one party to put the country and the world dangerously close to catastrophe over….pride.   Being ‘disrespected.’   Trying to change a law they couldn’t change the usual way.

As noted last week, the President cannot let that tactic work.   That would be damaging to the Republic in the long term; as bad as the short term consequences are, it would really become Weimar America if parties started to make these games the norm.   Yes, there have been government shut downs before, but the circumstances here are unique.

So the ball’s in Boehner’s court.   He has to find a way to walk the tightrope of avoiding all out insurrection from his tea party wing, but not being the man who dashed the American dream by refusing to hold a vote.   He understands the consequences.   While Obama can’t negotiate, perhaps he can give Boehner a face saving way out.   Perhaps Harry Reid and Boehner can figure out a path that gives Boehner “peace with honor.”   Because right now the Republicans are risking damaging the country immensely at a time we least need it.  This has to end sooner rather than later.

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Why Obama Must Not Negotiate

obama

House Republicans are miffed that the President refuses to negotiate with them about the government shut down.   “He’s willing to talk with Iran, why not us,” Senate Minority Leader Mitch McConnell bemoaned.   Yet the truth of the matter is that there is nothing to negotiate.  For the good of the political process, for the sake of future Presidents Republican and Democratic, and for the country, the President must remain resolute.

The Republicans are trying to gut or delay the Affordable Care Act, and using a threat to shut down the government as a means of doing so.  That is, a group of people do not like a law that was passed a few years ago, and are threatening the entire country’s economy and well being in order to try to stop that law.   That’s not how you do it.

In a Democratic Republic, if you don’t like a law you make the case to the public.   You get your people elected, and then you change or rescind the law.   You do it through a constitutional process whereby the House and Senate vote, confer, and then pass a bill.  The President can sign or veto it.  Congress can override the veto if they have the votes.

Repealing and replacing Obamacare was a key component of Romney's failed Presidential bid

Repealing and replacing Obamacare was a key component of Romney’s failed Presidential bid

In this case, the 2012 election had Obamacare as a main component of the campaign.   Candidate Romney vowed to rescind or at least dramatically alter the act if elected, the President vowed to maintain it.   The votes were counted and the President won by a large margin.  The Democrats gained seats in the Senate.   And though Republicans took the majority in the House, more votes for the House went to Democrats than Republicans.

If it becomes possible for a minority to get their way and undercut laws simply by threatening to shut down the government, a horrible precedent will be set.   Rather than letting the democratic process operate, dangerous and destructive games of chicken will become common place.   Today it may be the GOP and the Affordable Care Act, but sometime in the future the Democrats might threaten to do the same to stop changes in Social Security.

It’s even worse than that.   If the Speaker of the House allowed a free vote on conscience, the government shutdown would be averted.  A number of Republicans disagree with the extremist approach being taken.  But they are being silenced by a large minority, which has not only stymied the legislative process, but put the world economy at risk.

Whatever one’s view on Obamacare, there should be agreement that blackmail and threats to the very fabric of our country are not the way to oppose it.   A case in point: on October 1, the first day that exchanges were up to sell insurance for Obamacare, lots of glitches and problems arose.  The GOP could use that in their favor to argue against Obamacare.  Instead those stories were under the radar as everyone focused on the shutdown.

I’m not saying the glitches are truly a reason to oppose Obamacare, only that the GOP should be focusing on substance to make their case before the 2014 election rather than playing Russian roulette with the economy and the jobs of nearly a million federal workers.

Every parent learns that giving into bad behavior means it will become more frequent

Every parent learns that giving into bad behavior means it will become more frequent

Today is a gorgeous day in Maine, and one of the most beautiful parks in the US, Acadia National Park, is closed thanks to the fact Congress can’t do its job.   When a young child wants to watch TV and a parent says no, often the child throws a tantrum.   If the parent gives in, then the child learns that tantrums work, and will more frequently and more vigor go ballistic to get his way.  If the parent holds firm and there are negative consequences for the tantrum, the child soon learns that tantrums don’t work and it’s better to follow the rules.

The tea party wing of the GOP is throwing a collective tantrum.  To give in would assure that shutdowns, crises and other threats to our stability become more frequent – the tactic will have worked.   The President cannot let that happen.

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Pragmatists vs. Jihadists in the GOP

No new taxes!

No new taxes!

The Republican party is congratulating itself for following through with the sequester and avoiding any new taxes — this time in the form of closing tax loopholes which most Republicans once favored — but the continuing crisis risks putting the country into a double dip recession while the American system appears dysfunctional.

The GOP wants to blame Obama for “not leading.”   That’s false.  We have a divided system of government and the President has never been able to lead Congress.   The President can and has over the decades negotiated with Congress, made compromises, and cut deals, but divided government means checks and balances.   When it works, extremes are avoided and pragmatic compromise is reached.   When it fails, gridlock ensues.

So what next?

The Republicans are internally divided, as everyone knows.    But that’s nothing new, in a two party system there will be vast divisions as a matter of course.     Usually parties gravitate to the center, where most voters are.   This isn’t happening with the Republicans, at least not yet.

The pragmatists want to move towards the center and relegate the “tea party” wing of the party to the sidelines.  They think the core problem for the GOP is that the far right has had too much a say over GOP policies and made compromise seem a bad word.    Symbolic is the way the far right torpedoed the effort by President Bush and John McCain to get comprehensive immigration reform passed in 2007.    If they had passed that, voting patterns today might be much more friendly to the Republicans.

The most insipid slogan from the far right is that “compromise is a violation of principle.”   To pragmatists, strict adherence to “principle” is mindless; context matters and compromise is a virtue.  They hope to attract candidates that are moderate, reasonable, likable and able to get things done.

The jihadists don’t want to compromise.   Bring on the sequester!   Hell, many wanted the US to default on our debt and would be happy to shut down the government.   Ted Cruz of Texas acts like a little McCarthy calling people “communist” (note to tea party:  calling people communist ceased to mean anything after the end of the Cold War).    Believing they represent what America “should be” they are waging a holy war to save the country.   They are convinced global warming is a fraud – and due to cherry picking of dubious claims some actually believe that evidence is on their side!  Some on this wing of the GOP wants to simply burn everything.   They’re holy warriors!

Though it appears that while the jihadists hold the House Republican caucus hostage for a moment, the pragmatists are gaining the upper hand, especially after the unexpected defeats of 2012.   Democrats gained in the Senate, kept the Presidency despite economic difficulties, and though the GOP held the house, Democrats got more votes overall.   But the pragmatists need to change too – they need to learn how to connect with all voters.

Blaming everyone but themselves, the Romneys show what's wrong with the GOP

Blaming everyone but themselves, the Romneys show what’s wrong with the GOP

The core problem of the Republican party was on display in the recent interview by Mitt and Ann Romney with Fox News.   While most of the time Romney was gracious and reasonable, when they talked about their defeat it was clear they don’t get it.   Mitt claimed that Obama appealed to minorities because of Obamacare — get it, that “minorities want free stuff, the government is bribing them” line.   That disdain and disrespect for a large chunk of Americans — the core of the 47% quote — is a mindset that destroys the GOP brand.    They want to think they are virtuous hard working self-reliant Americans while those Democrats and minorities are lazy moochers who want a handout.   That is not only wrong, it’s so idiotic that it borders on the delusional.

Of course, Ann wasn’t much better, blaming the media, acting as if it were self-evident that her husband was right for the job.  If anything their interview showed why the country dodged a bullet by not electing him – and how the GOP blame game prevents them from confronting real problems within their message and policy preferences.   And Romney is one of the pragmatists!

Obama must help the Republicans save themselves

Obama must help the Republicans save themselves

In an ideal world the Democrats would be coming to the debate demanding tax increases while trying to defend so-called entitlements and aid to those already suffering the most.    The Republicans would counter demanding spending cuts and deep entitlement reform.

After a process of negotiation the result would be a compromise.   Entitlement reform and spending cuts that piss off the left wing of the Democratic party alongside tax increases that piss off the right wing of the Republican party.   The idealists would be trumped by the pragmatists on both sides, that’s how our system is supposed to work.

But that won’t happen.   The jihadists have hijacked the Republican party and they won’t compromise.  It’s all spending cuts and deep entitlement reform or nothing.   And of course, with a demand like that they’ll get nothing.   The deficit will grow faster than if they compromised, they’re shooting themselves in the foot.

So President Obama needs to make them an offer they can’t refuse.   He needs to offer them real cuts through a restructuring of programs that brings about significant savings, in exchange for a mix of tax reform to increase revenue and investments to have our economy competitive for the new century.

The President should be specific.   He should expect but not fear criticism from his own left flank.   He should tell the American people “these are the cuts and reforms the Republicans want, and we’re willing to compromise and give them that, but they won’t take yes for an answer because they’re protecting tax breaks for big corporations and wealthy fat cats.  They care more about protecting the rich than cutting the deficit and reforming wasteful programs.”

At that point, Republican pragmatists will realize that this is the best they can possibly achieve and will be good for the country.   They will be able to undermine the jihadists.    Without a compromise,  it becomes the big campaign issue of 2014.   To tea partiers thinking 2014 will be another 2010, think again.  The Democrats learned their lesson, they’re already targeting districts for a ground game more like a Presidential year than an off year election.

After all, if the GOP can’t compromise at all, well, all the President has is the bully pulpit and the powers of the executive branch.    Expect him to use both.

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The Coming Government Shutdown

shutdowns

President Obama has effectively cast the debt ceiling issue on his terms.    Raising the debt ceiling is necessary to prevent a series of catastrophic economic outcomes that could push the US back into recession, make total debt even higher, and put at risk social security payments, veterans benefits and other important services.

Republicans are split on the issue.    The hardliners don’t care – they just want to cut spending.   But even moderates want to find some way to leverage their control of the House into forcing the Democrats to bend on spending.   They thought the debt ceiling would be the way to do it, but increasingly the politics around it is forcing them to back down.

But that will be very bitter medicine for the right wing of the party, especially after having failed to prevent tax hikes on the wealthy during the fiscal cliff negotiations.    John Boehner is a smart man.  He understands the issue enough to know it would be irresponsible to let the US default — most of the business community would be angry if that were to happen, and they represent a core portion of the Republican constituency.    But he also knows that he has to appease the hardliners.

In a long press conference President Obama definitively ruled out negotiations over the debt ceiling

In a long press conference President Obama definitively ruled out negotiations over the debt ceiling

Here’s what I expect:   The Republican leadership will decide, perhaps as a sudden surprise, to simply punt on the debt ceiling.     They know that not only does he now have the issue framed on his terms, but the State of the Union address gives him the ultimate bully pulpit.   He’ll set the narrative, it’ll be hard for the Republicans to react.

At the same time they will call for negotiations to begin immediately on finding spending cuts.   They’ll say that they are showing their good faith by raising the debt ceiling, and thus expect President Obama and Senate Majority Leader Harry Reid to show an ability to compromise.   If they don’t, they will warn, do not expect a continuing resolution to fund the government to be passed by the March 27th deadline.    In other words – threaten a government shut down.

Since 1981 there have been five government “shutdowns,” but the first four were hardly felt, except by federal workers.  Two lasted a day or less, the third took place over Columbus Day weekend.

President Clinton and Speaker Newt Gingrich clashed during the last government shut down

President Clinton and Speaker Newt Gingrich clashed during the last government shut down

The last time this happened was between December 16, 1995 and January 6, 1996 (and earlier between November 14 and 19, 1995).  Bill Clinton was President, and Newt Gingrich was Speaker of the House.  Gingrich had also threatened not to raise the debt ceiling, but realized the Republicans could not risk the US defaulting.

The shutdown was seen by many as helping President Clinton recover from low approval ratings and win a second term.  Newt Gingrich believes it was instrumental in pushing Clinton to compromise with Republicans to balance the budget.  To be sure, the shut down cost money, nearly a billion extra dollars.   A shut down itself doesn’t save money, even if its used as leverage to get the other side to agree.

Speaker Boehner and Majority Leader Reid would ultimately need to get their caucuses to approve any budget deal to avert/end a shutdown.

Speaker Boehner and Majority Leader Reid would ultimately need to get their caucuses to approve any budget deal to avert/end a shutdown.

Based on what happened back in 1996, here’s what to expect:

*  Social security recipients will keep getting checks, but if newly qualifying recipients may not be able to apply for benefits until the government is back up and running;

* Welfare recipients will still get checks, but again – new applications for things like food stamps would be delayed;

* National parks would shut down;

* Food testing would continue, but farm loans and benefits would cease;

* The armed services would see cut backs in civilian staff, and possible delays in payment for active duty personnel;

* The IRS would not process tax forms, except perhaps ones submitted electronically

* Passport and visa applications will be delayed, with the backlog continuing even after government is up and functioning.

As inconvenient as all that would be, it would be nothing like the devastation of a default.  It would be a high stakes drama, but one we could recover from quickly.

Unlike the debt ceiling, President Obama could embrace negotiating to help pass a continuing resolution to keep the government running.   It would provide the leverage and drama House Republicans want without the economically suicidal path of preventing the country from paying its bills.

Moreover, having won on the fiscal cliff and debt ceiling, President Obama would have cover for compromising on some issues dear to progressives.    Moreover, House Republicans loathe to compromise about anything would have the real ramifications of a shut down staring them in the face.   It’ll push them to compromise as well.

So if you need a passport, apply sooner rather than later — because while I don’t think Republican leadership is irresponsible enough to not raise the debt ceiling, they aren’t going to give up on their core issue of cutting the deficit.   So don’t be surprised if in just over two months the crisis du jour is a government shutdown.

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Debt Ceiling or Platinum Option?

debtceiling

Let me be blunt: if the Republicans threaten to not raise the debt ceiling unless the Democrats agree to spending cuts, they are the functional equivalent of terrorists, holding a gun to the head of the economy and demanding the President give in to their demands.

Here’s why: If the US cannot make payments on money it owes, then our credit rating crashes, our bonds become more expensive, the budget would be made much harder to balance and we could dive into another global recession.  You don’t make that a bargaining chip.   The President’s biggest first term mistake was to allow himself to be suckered into bargaining on the debt ceiling, thinking he could get a deal.   He cannot repeat that mistake.

Note: Congress has already voted to spend this money.   It’s not like the President wants to increase debt and Congress doesn’t.   This is money the Republican House has voted to spend – it’s a debt they’ve approved.  For them to not raise the debt ceiling or to blame the President for the higher debt is objectively wrong.   That’s why for the good of the country the President cannot negotiate around the debt ceiling.   He should work to make it that neither party ever can.

Don’t get me wrong – there should be real talk on deficit and debt reduction.   We need to take a hard look at demographic change and the long term sustainability of so-called “entitlements.”   The Republicans are not all wrong in this discussion.  You just don’t threaten the life of the US economy in order to get your way.

GOP leaders have publicly stated they want to use the debt ceiling as leverage, holding the global economy hostage unless the Democrats give into their demands

GOP leaders have publicly stated they want to use the debt ceiling as leverage, holding the global economy hostage unless the Democrats give into their demands

Last time this came up many people thought that perhaps the President could use the 14th amendment to unilaterally raise the debt ceiling.   Coming just before an election year with the Republicans sure to start impeachment hearings by claiming that would be a misuse of that power, that was an option the President could not risk.   But his legal team should seriously consider it, the political conditions have changed.

There is also the so-called platinum option.   The President does not have the power to print money, only the Federal Reserve can do that.   But there is power given to the Secretary of the Treasury:

The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.

Should the Treasury issue a trillion dollar coin like this?

Should the Treasury issue a trillion dollar coin like this?  What if Monty Burns steals it?

You see why laws are so complex – if you don’t word them right you can leave enormous loopholes.   The purpose of this law is to make it possible for the Treasury to issue platinum collector coins.    But what if the Secretary of the Treasury minted a $1 trillion dollar platinum coin and deposited it with the federal reserve?   And what if he threatened to keep doing so until the debt ceiling limit was raised?   That would keep us from reaching the debt ceiling and thus avoid default.

That might risk inflation – minting trillion dollar coins adds greatly to the money supply.  But the Treasury secretary could make clear that those coins would be withdrawn in response to a raising of the debt ceiling.   Better would be to abolish the debt ceiling issue — it’s insane to make it possible for a manufactured crisis to threaten the world economy — and at the same time rewrite the  above law so the loophole is closed.

If Congress votes to spend money, they are voting to borrow enough money to spend what they want.   There should be no secondary ‘debt ceiling’ vote.   The platinum option is probably too absurd to be used, but when the global economy is being held hostage it might be necessary.

The President must address this issue forcefully in his State of the Union speech

The President must address this issue forcefully in his State of the Union speech

The President must make this an issue in the State of the Union address – he must call the Republicans out as recklessly threatening the country by holding the debt ceiling hostage as a way to gain leverage.   He must take control of this issue, and put the Republicans on the defensive.   This should be the first shot in the 2014 campaign – if the Republicans purposefully crash the economy, the public should make them pay.     He shouldn’t call them terrorists (though I think that’s what they’d be doing), but he has to crystallize the issue for the country and show leadership.

At the same time he must offer real negotiations on the budget and show his good faith.  But those two issues must not be linked, it may take longer to reach a budget compromise and that’s OK.    The President wants his legacy to be putting the US on the path to fiscal responsibility, not sky high deficits.  The Republicans know it.   Risking the economy on a phony issue is insane.

As the debt ceiling deadline nears, if the GOP tries to play that game the White House should seriously explore and discuss options like the 14th amendment or the platinum coin.   Given the dynamics in 2011 I think the President was right to go with the sequestration — it actually set the Democrats up for a big win on the fiscal cliff.   But for the sake of the country he can’t allow Congress to hold the US economy hostage in order to try to get their way.  It’s un-American.

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Going Over the Cliff!

Going over the fiscal cliff?

Warnings are everywhere that we must avoid the fiscal cliff or else face recession.    The fiscal cliff is a series of tax hikes and spending cuts resulting from an inability to achieve targets on deficit reduction set in 2011.   The spending cuts hit 1000 government programs, touching ones dear to both Republicans (military spending) and Democrats (Medicare).

Most of the cliff involves repeal of the payroll tax cut (which expires in December) and the Bush tax cuts (which expire January 1).   The argument is that the mix of tax increases and spending cuts will seriously damage the economy and cause growth rates to plummet into recessionary territory.

The impact of the “cliff”

All this is set up by the negotiations around the debt ceiling back in 2011.   The Republicans refused to raise the debt ceiling unless budget cuts were made to halt the increase in the deficit.    President Obama entered into negotiations with House Speaker John Boehner to try to reach a grand bargain to do just that.   The talks failed.  The “grand bargain” that the Republicans walked away from would have been about 85% spending cuts and 15% tax increases.

Republicans rejected any tax increase, making a deal all but impossible to reach.   236 of the 242 House Republicans, and 40 of the 47 Republican Senators have signed a pledge to Grover Norquist’s “Americans for Tax Reform” organization promising not to raise taxes ever.    Many Republicans figured that if they held out they could take the Presidency and Senate in 2012  and then craft their own measure with no need to compromise or raise taxes.

At the time people thought the Republicans had bested the President.   He was ridiculed by progressives as having been naive, willing to bargain with Republicans when their goal was to do whatever they could to defeat him in 2012.   He was called spineless for not invoking the 14th amendment to circumvent Congress and raise the debt ceiling unilaterally.  Obama’s lowest ratings were in the wake of the breakdown of those talks.   In retrospect Obama looks like a strategic genius – the Democrats have set up a situation where they hold the best cards, thanks to the sequestration deal and the automatic expiration of the Bush tax cuts.

So will the fiscal cliff cause a recession?   Perhaps, but the damage will be limited.  A couple charts:

Note how quickly the economy recovers after the sharp dip

And:

Note that the damage is mostly in Q1 2013, cliff or no cliff the prognoses for the rest of 2013 are similar

Beyond that, growth after 2013 is robust, even if we go over the cliff:

By 2014, things could be improving dramatically

Going over the cliff could enforce a kind of restraint that would yield long term benefits.  At the very least it would unclog the gridlock preventing real solutions to the budgetary and economic crises.   Letting the Bush tax cuts expire would render the pledge to Norquist meaningless — taxes would go up automatically and any agreement to cut taxes to the middle class would be a tax cut, not a tax increase.

So why all the alarm?

Besides the fact that the slow down in 2013 would be real, there is concern about the cuts themselves.   Many important government programs will be cut, angering the left.   Defense spending will be cut, angering the right.   Good!  This will force them into meaningful negotiations.

The Republicans essentially demanded no tax increases or defense cuts, but steep cuts to entitlements, social welfare programs, education and programs Republicans disliked (such as PBS).   In the heady days after the 2010 election that might have seemed feasible, especially if they were going to win back the Presidency and Senate.   Now it’s a pipe dream.

President Obama was re-elected, the Democrats remarkably gained two Senate seats and even though the Republicans still hold the House, the majority is smaller and overall Democratic candidates for the House received more votes than did the Republicans.    The Democrats have every incentive to make a deal now, while the Republicans would prefer to come up with a piecemeal deal to push the issue down the road to when political conditions are more favorable.   The farther they can get from the 2012 election the better it will be for them.

If we go off the fiscal cliff, the GOP will be forced to deal quickly.  To prevent tax increases on the middle class there may be a will to increase capital gains taxes – something that could raise significant money.   Those low tax rates are why Warren Buffet pays a lower rate than his Secretary and why Governor Romney  thought it more harmful to release his tax returns than to keep them secret.

Nothing should be off the table.    Each side could recover from political hits by the 2014 election, better to act sooner rather than later.   Going over the cliff will make both sides eager to reach a deal.

Expected tax increases should we go off “the fiscal cliff”

The danger in that is that the Democrats could make the mistake the Republicans did and overplay their hand.    In 2014 it is unlikely the Democrats will gain the House, and if this deal goes bad due to Democratic intransigence the Republicans could have another big off year election.    The Republicans blew it by not making a deal when they were in a position of strength, the Democrats can’t afford to make the same mistake.

It could be that the cliff is the only thing that will force both sides to actually make structural reforms that can lead to a sustainable budget.     It’s not just about the money.   The Democrats can “give” on issues like taxes and defense in part in exchange for tougher regulations on Wall Street and less resistance on appointments to agencies like the FHFA (Federal Housing Finance Agency).

Perhaps the Monster has a good heart?

Ultimately we all lose if there isn’t bold action as quickly as possible to get the government to a sustainable budget with a modicum of bipartisan support.    Fear of the cliff stands in the way of making bold choices and creates the danger of kicking the can down the road to deal with at a later date.   Go off the cliff.   Face reality.   A sharp down turn will be short and followed by growth.   The pain will be limited, and it just might force the politicians to make difficult choices.

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Invisible Obama

After the Eastwood debacle at the Republican National Convention, a number of people have suggested that Eastwood was more effective than the media give credit.   He said what people are thinking, veered from the slick, scripted propaganda show that conventions represent, and may help Romney more than hurt.

To me, that’s nonsense.   This distracted from the Republican message, overshadowed Romney, and solidified an image of Republicans as out of touch angry white people.   While some see a populist battle cry in “we own this country,” others see a rich white guy talking to a group of wealthy Republican activists.

Clearly, the meaning is in the eye of the beholder.  Still, Clint’s skit may give the Democrats a clear message moving forward: the Republicans are running against an imaginary Obama that isn’t there.

This is true about almost all the Republican rhetoric about the state of the country and the convention.  While I see a slow recovery from a deep global crisis thirty years in the making, with President Obama charting a course to adapt to a very different world, the Republicans talked about us losing our freedom, with Romney even saying something utterly remarkable: that if we re-elect President Obama he can guarantee that our future will not be as good as our past.

“To the majority of Americans who now believe that the future will not be better than the past, I can guarantee you this: if Barack Obama is re-elected, you will be right.”

Think about that.   Let that statement sink in.    He’s not saying that he has a better plan, or even that four more years of Obama will mean we’ll lose time in solving the problems, he’s making an ominous statement that re-electing Obama would deal a fatal blow to the country, we’ll lose our freedoms, we’ll decline, and the future will be dark and bleak.

At the end of his speech he ridiculed Obama’s concern for global warming by mockingly saying “he promised he’d stop the oceans from rising and heal our planet,” feeding into the Republican image of Obama as some kind of global internationalist that doesn’t care about what effects real people.

As wildfires rage, storms brew and drought spreads, is climate change really a good subject for a snarky laugh line?

When I look at President Obama, I see a pretty effective leader who governs left of center (but more center than left), dealing with a global economic crisis that continues to impact countries from China to the US.   No President could magically fix the US, but given Senate filibusters and two years of GOP control of the House, he’s not been able to implement much of anything.    The idea that we have to “save America” or that Obama is a dangerous failure is simply bizarre.

Yet, I’m sure many believe it.   Part of it is simply a difficulty dealing with the demographic and cultural changes sweeping the country (and the planet).    The country is less white, more diverse, more secular and open to change than before.   Issues like gay marriage shock some people and if they look nostalgically back to the 1980s, well it is a very different country.   And those demographic and cultural trends are increasing in pace, regardless of who wins this year.

Yet I lean towards fiscal conservatism and agrees with many Republican critiques of government over reach and the danger of creating a psychology of dependency if social welfare programs are not designed to spur people on to take initiative and succeed.  I also worry about debt (both public and private) and building a sustainable economy.   The Republicans own that issue, right?   Obama’s passed the stimulus and increased debt to GDP ratios, after all.

But to me, it’s not that clear cut.   Most debt was run up during booms by Republican Presidents, while Obama’s stimulus was, I think, necessary given the situation in 2009.   Without it, I think we’d be mired in a much deeper mess, probably with negative GDP growth rather than +1.7%.    Moreover, tax cuts on the wealthy caused much of that debt, and even Ben Stein, a Republican, agrees that it’s a fairy tale to think tax cuts magically increase new revenue enough to overcome the loss of revenue they entail.

Amazing that the GOP has built a campaign and a convention theme around a statement that they admit was taken out of context – Obama correctly said that infrastructure, the legal system and other things needed for success were built by others. This makes it seem like Romney is building his campaign on lies and distortions.

The GOP talks a good game on the economy but they haven’t backed it up — quite the opposite.  Their policies created this mess, though the Democrats share that blame.   I know some of my views are against many Democratic ideas;  I want to restructure entitlements and social welfare programs to make things sustainable for the long run.    The two sides have to come together.   I think Obama wants to do that, I think many Republicans want to do that.   The extreme anti-Obama rhetoric to me reflects a core of the GOP that is holding their party hostage — and I fear what they’ll do if the GOP has total power.

Finally, I am convinced global warming is a serious problem, that we need to work on alternative energies, and that there is a role for government to assist the private sector in such ventures.   Some will fail (the US space program had numerous disasters and failures before hitting the right stride), but this is necessary.   I can’t fathom the antipathy to such programs or the (to me) mindless adherence to the free market (even though it’s not really free since big business and big government are in bed together) that is used to blow off such concerns.    On both global warming and energy the right seems to blow off science and evidence for ideological purposes.   That’s scary.

Tomasky notes that this could work as a theme: the GOP is arguing against a fictional invisible Obama (love this pic from George Takei!)

So to me, my “reality” and experience of President Obama and the current situation seems grounded in objective evidence.   I agree with Michael Tomasky that the key for Obama is to battle the myths spread by the GOP, or the “imaginary Obama” that the Republicans have constructed.  I know enough about psychology to know that like all humans I’m pre-disposed to avoid cognitive dissonance and look for evidence to back up what I believe.    But try as I may, I cannot see the invisible Obama that Clint Eastwood and so many Republicans view so clearly.

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The Reagan Legacy

Ronald Reagan’s true legacy is in opening the door for high US debt

In 1980 I voted in my first Presidential election and like many people, voted for Ronald Reagan because of his optimism and vision of better times for America.    The late seventies had been traumatic.    After first bringing a sense of relief to a country torn apart by Vietnam and Watergate, Jimmy Carter seemed helpless as the US slipped into another oil crisis, a recession, and renewed tensions with the USSR.  In retrospect Carter handled the situation about as deftly as one could, but to a country used to being on top, it felt like we were in decline.

I had been a fan of Reagan’s back in 1976 when he challenged Gerald Ford for the Republican Presidential nomination.  His optimism was contagious, he was likable and seemed to offer a clear answer to our problems:  freedom and confidence.

Reagan, Bush and Ford on the podium at the GOP convention in Detroit in 1980 – I was there and took this picture – the theme was “Together a New Beginning”

Alas, the reality turned out to be much different.    When President Reagan took office the US debt was 30% of GDP, considerably lower than that of most European countries.    However, the deficits climbed in the 80s:

In 1977 the deficit was $53.7 billion.   That was low enough to help pay down the US debt, as the economy was growing faster.   It was down to $40 billion in 1979, though the recession caused a sky rocket to $73 billion in 1980.  Then the debt started to pile up:

1981 – $79 billion (mostly Carter’s budet), 1982 $128 billion, 1983 $207 billion, 1984 $185 billion, 1985 $212 billion, 1986 $221 billion, 1987 $150 billion, 1988 $155 billion.    Things would improve after that, and for four years (1998 – 2001) there would be supluses before debt would skyrocket again.

During the Reagan years debt went from 30% of GDP to nearly 60% of GDP.   Private debt grew just as fast, and credit card debt began to grow (it was very low before 1980).    Reagan’s rejection of the “malaise” of the 70s was straight from Michelob’s marketing department —  we can have it all!   Low taxes, less regulation, and more spending!

Due to borrow and spend, the 80s felt opulent and instead of being hippies, people like me became “yuppies” – young uppwardly mobile professionals

That was, unfortunately, the wrong direction to go.   Working in DC for a Republican Senator in the early/mid 80s I recall hearing constantly how the deficit was not a problem.    When told that during an economic boom one should keep surpluses in order to have money to stimulate the economy when the next bust comes, the response was predictable – counter cyclical funding was Keynesian demand-side economics.    Laffer curve supply side economics was now the rage.

Others had a more Machiavellian view — increasing debt would “starve the beast,” making it impossible to continue liberal big government programs.   Even as David Stockman, Reagan’s budget director, resigned out of anger over the economic illogic of the increasing debt, the growing economy with low inflation caused most people to close their eyes and enjoy.   It was the 80s, after all!

This decision is now haunts us.   The ‘we can have it all’ response to the recession of the early eighties was really simply a refusal to accept reality — that the US had to structurally adjust to the changing global economy and the fact that the rest of the world was catching up.   The post-war superiority that the US enjoyed after WWII was over, and the US needed to find ways to live within its means and make sure that commitments didn’t overwhelm capabilities.    We didn’t necessarily need to pay off the debt we had, but keeping a 30% debt to GDP ratio would have been smart.

Instead the so called “conservative” economists of the Reagan-Bush administrations (and later the George W. Bush administration — in which Vice President Cheney boisterously proclaimed budget deficits to be irrelevant) opened the spigots and borrowed and spent even during a boom.   As long as inflation didn’t rear its ugly head, they figured it was safe.   Add to that the deregulatory fervor that even the Clinton Administration joined in, and the cheap credit to the public coming from the fed, and it was party time for thirty years!   Borrow spend, carpe diem, living high, living fine on borrowed time!

Add to that the end of the Cold War and all was grand — we won the Cold War, the Soviets and communism lost, it was going to be an American led free market world… what could go wrong?

Perot warned of the unsustainable debt, and shaped the 1992 debate. By the end of the decade the US was running surpluses and it appeared on the right track

Ross Perot, a successful businessman and political gadfly, saw the problem and brought it front and center in the 1992 election.   It appeared to push the parties towards fiscal responsibility.   Unfortunately the US was beginning an advanced stage of economic decline, perpetrated by two sequential bubbles, the “dot.com” stock bubble and then the real estate bubble.   The latter was driven by both a renewed bout of debt from 2002 onward, plus very cheap and easy credit thanks to a misguided federal reserve policy.   The result is that when the bubbles burst and dust settled we see that de-regulation, tax cuts, and deficit spending gave us about a total debt of over 100% of GDP, an economy that relied on consumption more than production, and imbalances requiring a deep and long recession to repair.

Both parties share blame.   Both mouthed a desire to balance the budget but neither made the hard choices it would take.  Instead they reached the Great Republican and Democratic compromise – lower taxes and more spending, financed by debt.

I’m in the yellow shirt kneeling lower left in the South Dakota “College Republican” youth for Reagan delegation to the GOP Convention in Detroit.

Reagan can’t be blamed for all this – it took a long term bi-partisan effort to do so.   However, if we had heeded Jimmy Carter’s prophetic warning and avoided the Michelob “you can have it all” mentality, we might instead have built a sustainable economy in the 80s, immune to oil shocks and banking crises.   We took a wrong turn thirty years ago, and it’ll take at least another ten to get on the right path — assuming we start making better choices now!

Looking back at being part of the large “youth for Reagan” group in Detroit in 1980, being on the floor when Reagan accepted the nomination (they let a lot of us in despite lack of credentials in order to give television the image of lots of young people supporting Reagan), I don’t regret going.   Reagan did inspire hope, and it was an amazing experience.  I even traded a big “South Dakotans for Reagan” pin for a Maine lobster decal I’d carry all over on my photo case for over ten years, never dreaming I’d actually live in Maine (I’d never even been there).   But unfortunately the hope was misplaced.  Reagan’s borrow and spend approach bought short term prosperity at a long term cost.   But to be fair, he couldn’t have done it if it wasn’t a bi-partisan effort.

We stayed with youth from around the country at EMU in Ypsilanti — these two Maine girls (no idea who they are) traded me the decal I’d proudly carry on my photocase for over a decade, an omen perhaps that I would end up in Maine!

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Paul Ryan: Class Warrior!

Class warrior Paul Ryan, fighting for "Team Wealthy"

If you had any doubt that class war was being waged in America, doubt no more!   Paul Ryan’s proposed GOP budget was a direct assault on the poor by the rich, cutting programs that benefit the poor by $5.3 over ten years, while giving tax cuts to the wealthy worth $4.3 trillion.    He promises that he can get the GOP House to pass his budget — something that could give Democrats real fodder in the House campaigns this summer!

What’s perverse and audacious in this effort is that he is trying to make it sound like he’s actually helping the poor.   Dana Milbank points out the “Orwellian euphemisms” in Ryan’s rhetoric.   From Milbank’s column:

Ryan’s budget outline omits specifics about how much he would take from programs. Instead, it provided a string of Orwellian euphemisms. The budget “repairs the safety net” by allowing the states to award public assistance to fewer people — “those who need it most.” Financial aid for college would be slashed — er, “put on a sustainable funding path.” And the Ryan plan would give workers “the tools to thrive in the 21st century” — by killing off various job-training programs.

Ryan would cut Medicaid by a third and ship the remnants to state governments to handle. Or, as the congressman described it: “We also propose to strengthen Medicaid by empowering our states.

What makes this class war instead of a bold initiative to cut spending is that so much of the money “saved” doesn’t go to deficit reduction but instead to tax cuts.   The claim is that this will grow the economy more and wealth will “trickle down,” much like the right claims happened when Reagan cut taxes.   Rather than go over all the lists of what is cut, how is hurt and all that — articles delineating that are ubiquitous — there are four clear reasons to reject Ryan’s approach.

The blue box shows the huge spike in total debt during the Reagan years, hyperstimulating an economy already benefiting from a recovery and lower oil prices.

1.  The Reagan years were driven by debt, not tax cuts.   The 1980s saw economic growth, but that growth was due to declining oil prices and a massive increase of both governmental and private debt.   Government debt soared from 30% of GDP to 60% by 1990.  Private debt grew as well, meaning that the country was partying on borrowed time.   It was like the early stages of someone who borrows their credit card to the max and then takes out new credit cards to make payments.  For awhile you’re living on top of the world, but then reality bites.  Reagan economics were voodoo economics because it was deficit spending in a boom.

2.  Tax cuts harmed the economy and worked against investment.   Those who argue for tax cuts rest their case on a myth — a belief that has been shown false, but still lives on in the ideological heart of some on the so-called right.  The myth is that these new tax cuts provide money that will be invested and create jobs here in the US.    However, that doesn’t happen on a scale that helps the economy; perhaps it could have back in the 60s when economic affairs were state-centric, but in an era of globalization the rules have changed.

Money from tax cuts goes to four different places:  a) some money is used to consume goods and services — that can help the economy, but much of that spending is for foreign produced goods and oil; b) some money gets invested overseas, c) a lot of this money helps create bubbles and ‘unreal’ investments out of a desire for ‘something for nothing,’ and d) a small fraction gets invested at home in businesses that create jobs.    During the dot com bubble and the real estate bubble low taxes fed two consecutive bubble manias as people were less concerned about long term “real” investment and more interested in playing the casino.   It seemed it was a casino where everyone won!   Easy money!

When the bubbles burst, that money was gone.   It would have been far better to tax and use much of that money for infrastructure or business loans/aid.   Instead, the misguided belief that tax payers know best how to spend their money (the two bubbles show that proposition to be decidedly untrue) brought us to a crisis that just about took down the world economy — and still could!

Ryan's cuts will harm states already hurting

3.  States will be devastated.  States right now are seeing their deficits grow due to increased medicaid and medicare costs.  State budgets are being pushed to the brink across the country.  If the feds simply cut that spending and claim they are “empowering the states” (but not enriching them!), then state governments will be forced into massive layoffs.   This will hurt the poor the most (such cuts always do), but could severely damage state economies.   Ryan’s plan is an attack on every state budget, and should get the opposition of every Governor, Republican or Democrat.

It's hard to blame children for their poverty - and they can't "pull themselves up by their bootstraps" without education, health and a stable environment

4.   The human cost is immense.   Ryan’s budget is a fantasy of ideology.  It’s not built on practical observations or the use of real world wisdom.   He has a theory and extrapolates the theory into a budget that would intensify the problems of the poor while adding to the wealth of the rich.   It’s a grand experiment on the basis of an ideology.

Ideologies appear persausive.  They simplify reality and then set up internally consistent propositions based on the definitions and assumptions of that theory.   Ideologies can never lead to truth, they simply provide one interpretation of real world evidence.  Ideologies are always simplifications — the world is too complex to be captured by any human theory.

Ideologues always put humans second to their “ism.”  The “ism” promises to solve all problems, if only people would embrace it. While Ryan’s ideology isn’t as dangerous as the utopian fantasies of Mao or Pol Pot, it is similar to the kind of thinking Marxists engaged in, just with different base assumptions.   Any time you put theory above people you’re putting fantasy above reality.

In this case, the ideology must already be doubted for the three reasons above.  Taking from the have nots and enriching the haves is not only immoral, but could lead to social breakdown.   It would push us towards a third world kind of economy and ultimately Ryan’s fellow class warriors on the right might find that they’ve awoken a sleeping giant — the potential class warriors amongst the poor and middle class.   In an ironic twist, adopting Ryan’s plan might put us on a path to a socialist revolt!

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