Friday, April 29, 2011

The Economy

On paper, the economy looks fairly good. Inflation is low, unemployment is high but falling, and the economy is expected to resume growth later this year. When you look closer, things are not as rosy.

The official measure for inflation is rather strange and designed to understate the real inflation rate. It ignores energy prices so $4+/gallon is not reflected. It also gives a large weight to housing prices. Currently gas, food, and clothing prices are rising but this is either ignored or minimized by stagnant home values.

Unemployment figures are based on the number of unemployed people looking for work. If you give up and stop looking the unemployment figure drops. If you are underemployed meaning that you have a part-time or low-wage job you are not counted, either.

The economy is expected to return to 3% growth later this year. That is not enough to make much of a dent in the unemployment figures. Worse, economic growth figures depend on accurate figures on inflation. If inflation is understated then economic growth is overstated.

Some of these problems are global, especially oil and food prices. Domestic policy has caused other problems. Both the Bush and Obama administrations have supported a weak dollar. The idea is to make American exports cheaper in order to strengthen manufacturing while making imports more expensive. This has not been particularly successful. Probably one reason is that a weak dollar adds to the price of imported raw materials. It also depresses commerce based on resale of imported goods.

One way that the dollar was kept low was to keep interest rates low. This also fed home sales and second mortgages, causing the housing bubble. Millions of people took out variable-rate loans. When rising gas prices in 2008 triggered price increases, the Fed raised interest rates, pushing those variable rates above what many people could pay. This had repercussions throughout the economy.

Because interest rates had been so low for so long, the Fed had very little to work with to boost the economy. They did what they could, lowering interest rates to near-zero and buying back bonds. Neither had much effect and both weaken the dollar further, threatening future inflation.

The Bush administration tried a stimulus by sending out tax rebate checks. This was insufficient. The Obama tried a much larger stimulus but it was poorly designed. Around a third went to weekly tax cuts which were too small to actually affect spending. These expired recently, anyway. Another third went to bailing out state and local governments. This did not stimulate the economy. The most that can be said for it is that it postponed further cuts at the state and local level. That money is also gone which is why the nearly all the states are facing a budget shortfall now instead of two years ago. The rest of the stimulus went for pork barrel projects that made no attempt to match spending and unemployment. The result of all of this is a massive deficit with nothing to show for all of the spending. To quote Henry Morgenthau Jr., FDR's Secretary of the Treasury, "We have tried spending money. We are spending more than we have ever spent before and it does not work."

We seem to be headed for stagflation, the scourge of the 1970s. This is a stagnant economy coupled with high inflation. The effects of high unemployment on an economy have been visible for the last couple of years. Even people who are employed are cautious about spending because they don't know if their jobs will last. Inflation is worse. You can see inflation at work at the gas pump. Every time you go to fill your tank the prices are higher. It affects your plans. Imagine seeing this happen on everything, especially food.

The future does not look bright. Housing prices have not recovered and may still be dropping in some markets. Rising gas prices will hit vacation areas. Eventually the Fed will have to choose between stimulating the economy and controlling inflation. The economy could be headed for another recession.

There are some things that the government could do. A commitment to domestic oil and gas would stop long-term speculation and would stimulate energy-related jobs in the Gulf states. Ending subsidies and mandates on corn ethanol would directly lower the price of corn and indirectly the price of meat, eggs, and dairy. The first would be generally popular but would alienate President Obama's base. The second would alienate Iowa farmers and is politically impossible until after the caucuses and possibly the election.

In the meantime it's going to be a tough year or two.

Thursday, April 28, 2011

About That Birth Certificate

Let me begin by saying that I believe that Barack Obama was born in Hawaii. If there had been any real proof that he was born in another country then the Clinton campaign would have found and released it in 2008. Furthermore, even if he was born elsewhere, he would still be eligible to be president because his mother was a citizen (John McCain was born outside the US to American parents). I suspect that the whole "birther" rumor started with the Clinton campaign just as the "Obama is Muslim" rumor has been traced back to a Clinton worker.

That said, the long form birth certificate that the White House released just adds to the controversy. The problem is that two versions of the birth certificate were released. The one that the news media got is on a plain blue background. The White House also has a PDF version on the official White House blog site. This one has been superimposed on a background similar to a check. There was also some clean-up done and the certificate was done in parts making it possible to turn off layers and have text vanish.

Because an official release has been doctored, the controversy will not die down. But, because something has been released, the birthers will look crazy to most people.

There are two possibilities - one is that a campaign worker wanted the birth certificate to look more official and did the doctoring. The other is that the Obama campaign wants to keep the birther movement alive while making them look crazy at the same time.

In the meantime, I wish that all of the effort that the news media puts into making the birthers look bad was also used to make the 911 Truth Movement look bad. We have Truthers in Congress and at least one White House appointee (Van Jones) was a truther.

Wednesday, April 27, 2011

Defending the Defense of Marriage Act

King & Spalding, the legal firm hired to represent the DOMA (Defense of Marriage Act), quit after the Human Rights Campaign, a gay rights group, launched a campaign against it. There are three issues here that should be examined.

Working backwards, it was wrong of King & Spalding to back out of representing the act and it was wrong of the Human Rights Campaign to pressure King & Spalding. This establishes a bad president that may be used in the future on both sides. Trying to assure that an unpopular law is not given competent representation in a legal challenge eats away at our entire legal system.

What of the DOMA itself? Basically it says that states do not have to recognize same-sex or polygamous marriages from other states. It does not stop any state from legalizing same-sex marriage. Dahlia Lithwick in Slate dismisses the act as a GOP Hatefest but it was passed in 1996 by a large bipartisan majority (85–14 in the Senate and a 342–67) and quickly signed into law by President Clinton. Clinton himself said at the time, "I remain opposed to same-sex marriage. I believe marriage is an institution for the union of a man and a woman. This has been my long-standing position, and it is not being reviewed or reconsidered."

Regardless of your opinion on same-sex marriage, the law was a good thing. At the time, court challenges had legalized same-sex marriage in a couple of states and gay advocates were hoping to use this to force nation-wide legalization of gay marriage. This would have been a disaster. It would have meant that a handful of state judges had redefined marriage on a national level. Consider how disruptive it was when the Supreme Court legalized abortion. That battle is still being re-fought. Every candidate for the court is carefully scrutinized against a future challenge to Roe v. Wade. The nation does not need another ongoing conflict like that.

In fact, the whole battle over gay marriage has been waged poorly since the late 1990s. In the mid-90s the idea of civil partnerships was gaining favor. It is hard to argue with the basic fairness of partnerships. The problem was that the more radical element in the gay advocacy groups decided that civil partnerships were insufficient. They demanded an all or nothing approach. That led directly to the DOMA. Fifteen years later they are still engaged in an all or nothing battle with little to show for it. If they had accepted an incremental approach they probably would have achieved their goals by now. Great Britain took that approach and fully legalized same-sex marriage last year. By going with the confrontational approach the gay rights advocates set their cause back a decade and a half and counting.

Tuesday, April 26, 2011

Handicapping Obama II

Last post I examined the presidents who lost their reelection. Now I am going to examine the ones who were successfully reelected and see how their example applies to the Obama campaign.

I was too young to be aware of Ike's reelection and Johnson was not a real two-term president. On the other hand, the 1972 race was the first one I really paid attention to so I will start with Nixon.

I consulted Wikipedia's entry on Nixon to remind myself what happened during his first term. Looking over his accomplishments, it is amazing the the left hates him so. He was a big-government Republican whose agenda was well to the left of Carter and Clinton. His administration was almost an extension of LBJ's Great Society with major, successful, initiatives on desegregation and environmental protection. He opened relations with China and eased tension with the USSR. While he did expand the Viet Nam war into Cambodia, temporarily, he also decreased American troops. When Nixon took office troop levels were 475,200. By the 1972 election they were down to 24,200 with the last American combat troops withdrawn in 1973. If Obama had accomplished half as much as Nixon his progressive base would still be fired up. Economically Nixon was credited with slowing inflation.

For a challenger, the Democrats picked George McGovern who was a flawed candidate. He ran to Nixon's left which probably made him unelectable from the start. His first running mate had problems with stress requiring electo-shock therapy. McGovern made a number of policy flips and the main campaign ad I remember showed a coin flipping back and forth while an announcer read McGovern's conflicting statements. It is incomprehensible that the Nixon team felt threatened enough to break into McGovern's campaign headquarters. He never had a chance. Had Nixon's people been less paranoid he would be remembered as a successful president.

There aren't many lesions here for Obama. It is hard to believe in retrospect but Nixon was very popular in 1972 and always led in the polls.

Reagan's reelection is the one the Obama administration would most like to follow. Reagan won a tight race in 1980 only to see the country enter a double-dip recession, the only one comparable to the Great Recession. Reagan's approval ratings dropped and the opposition made heavy gains in Congress in 1982. By 1984 the economy had improved enough for the Reagan administration to proclaim "Morning in America". Reagan went on to win by a huge margin. The only question on election night was if he would carry all 50 states.

Clinton has been held up as a model for the Obama administration. He took office at the tail end of a recession and had major losses in the mid-term election but still won reelection.

The final president to consider in George W. Bush. Again, Bush took office during a recession and was reelected. Unlike the others, Bush made gains in the mid-term election.

One thing that all three presidents had in common was a weak challenger. Reagan ran against Mondale who had been Carter's vice-president and tried to make the election a referendum on the 1980 election. Clinton ran against Dole who had been Ford's running mate. In 2004, the Democrats were willing to support ABB (Anybody But Bush). They settled on John Kerry on the basis of his record in Viet Nam. A boring senator, Kerry's campaign collapsed when it came out that he had only served three months in combat and was better known as a war protester.

There are two lessons that the Obama campaign can learn from these three examples. Presidents who take office during a recession and run for reelection during a recovery tend to win. This will be important if the current recovery continues. The other lesson is that no matter how vulnerable a president looks at mid-terms, a poor challenger will still loose. Unfortunately, neither of these in within Obama's control.

There is one final lesson from all four presidents. All of them looked and acted presidential. They took every opportunity to surround themselves with the trappings of office. It was obvious that they were comfortable in office. They may have originally run as outsiders but they ran for reelection as insiders. There are lessons here for Obama. As I said yesterday, he needs to stop complaining about the office. We don't want to hear about how lame the phones are or how hard it is to do anything. After all, why should we return someone to an office he hates?

The Obama administration has recognized that they have problems. They know that they cannot run a Hope and Change campaign again and are now running as the underdog. This is the exact opposite of the Clinton strategy. Clinton presented himself as the inevitable winner and spent more time being presidential (doing official duties in public) than campaigning. By admitting weakness, the Obama campaign is taking a huge risk. Their goal is to raise record campaign funds by making their candidate seem vulnerable but this type of image can be self-fulfilling.

To summarize, administrations live and die by the economy. Presidents running for reelection during a recovery are almost always reelected. Ones running during a recession lose. Midterms are a poor predictor of reelection, especially if the opposition nominates a poor candidate. Sitting presidents who act presidential (Nixon, Reagan, Clinton, Bush 43) tend to be reelected but ones who seem ill at ease (Ford, Carter, Bush 41) are defeated. None of this looks good for President Obama since the economy is, at best, sluggish, and he has made a point of his disdain for Washington, DC and its culture. The best he can hope for is a weak challenger, maybe Donald Trump.

Monday, April 25, 2011

Handicapping Obama

There have been 11 presidents during my lifetime. Three of them were defeated when they ran for reelection. What does this mean for President Obama's reelection chances?

The three that were defeated were Gerald Ford, Jimmy Carter, and George H. W. Bush. There were significant differences between these presidents. Only Carter won the office on his own. Ford inherited the office from Nixon, and Bush was Reagan's chosen successor. Regardless, the parallels with these three presidents should be keeping the Obama team up nights.

Like Obama, all three had stratospheric approval ratings early in their presidency. Both Ford and Carter came to be seen as nice men who were in over their heads. Bush never seemed incompetent but he was seen as being out of touch. Most importantly, all three ran during economic downturns and seemed clueless about how to handle the economy.

Ford started his administration with a huge store of good-will. He was originally appointed to be vice-president when Agnew resigned over a scandal in 1973 and became president less than a year later when Nixon resigned so he was viewed as an outsider to the Nixon White House. He also came to office after American troops had withdrawn from Viet Nam so his presidency was seen as the start of a new era. Unfortunately he was unable to work with Congress and quickly became known for the number of bills he vetoed as well as the number of vetoes overridden. Most important, both unemployment and inflation topped 7%. Ford tried to control inflation with what amounted to a public relations campaign called WIN (Whip Inflation Now). It was a total failure. Ford's pardon of Nixon is often cited as the reason he lost the election and it was certainly a factor but if the economy had been solid then the fallout over the pardon would not have made a difference. Ford's foreign policy was also seen as weak. During Ford's administration North Viet Nam invaded South Viet Nam. Ford was unable to convince Congress to deliver military aid money promised by the Nixon administration. Consequently, many on the right, starting with Ronald Reagan, blamed Ford for losing Viet Nam.

Ford's weakness was shown when Ronald Reagan ran against him in the primaries. Ford won easily but Reagan gained national exposure and enthusiastic supporters.

Jimmy Carter seemed to come from nowhere and ran as a Washington outsider and as someone untouched by the Watergate scandal. He won in a very close election. Unfortunately for Carter, the economy did not improve. He had popularized the term "misery index", the inflation rate added to the unemployment rate, during his campaign but was unable to improve it. Instead it went from 12.72 to 19.72, the highest on record. On top of that, oil prices spiked because of an Arab oil embargo. All of this gave Ronald Reagan a major campaign point - "Are you better off now than you were four years ago?" Carter had little success working with Congress and was seen as weak overseas. During the Carter administration communism was seen as expanding into South America and Africa and the USSR invaded Afghanistan. Iran went from a friendly country to a hostile Islamic theocracy. The low point for Carter came when Iran invaded the US embassy and took the staff hostage for 444 days. The common perception of Carter was of a nice guy who wasn't up to being president. As with Ford, Carter's weakness was shown when he was challenged in the primaries, this time by Ted Kennedy. While Carter easily captured the nomination, he lost a close election to Ronald Reagan.

George H. W. Bush won the 1988 election on a promise to continue the Reagan Revolution. He lost a lot of support from conservatives over a tax increase and passage of major legislation such as a revised Clean Air Act and the Americans with Disabilities Act. His popularity spiked with the successful conclusion of the Gulf War but dropped because of concern over the economy, especially unemployment, the trade surplus with Japan, and the deficit. He was seen as out of touch. He openly admitted that foreign policy interested him more than domestic policy. Worse, a picture of him vomiting into the lap of the Japanese Prime Minister seemed to summarize trade relations. He lost a close election to Bill Clinton.

In all three cases, the president's reelection campaign never seemed to catch on. Carter and Bush had run near-perfect campaigns for their first terms but their reelection campaigns never really caught on. All three seem to have assumed that incumbency was everything and that a sitting president should be able to win easily. All three had problems running on their accomplishments or downplaying problems during their administrations.

Most important, all three ran during an economic downturn. As the Clinton campaign pointed out, "It's the economy, stupid". The voters want a candidate who will make the country more prosperous.

So, what does this mean for President Obama? The lessons here are do not favor him. First, his policies only produced a weak recovery which is constantly in danger of tipping back into recession. If that happens or if inflation continues to rise then he is in trouble. If both happen then he will loose. The misery index is already the 4th highest in post-war history. Unemployment is declining but the news media is full of stories about rising prices. A good bit of inflation can be linked to Obama's economic policies. The weak dollar was supposed to help the export business but it causes the price of imports to rise and his energy policy includes burning 40% of the nation's corn as fuel which affects food prices. The electorate is also worried about the deficit and the long-term solvency of Social Security and Medicare. Obama's signature accomplishment, Obamacare, is still hurting him as much as it helps him. A smart Republican challenger will concentrate on Obama's economic record and ignore Obamacare.

Like Carter and Bush, Obama will have to mount a completely different campaign for 2012 than his 2008 campaign. He can no longer run on "hope" and "change". Now he has to run on solid accomplishment or lack of it. He has not come to terms with this change. He has talked about trying to recapture the excitement of the 2008 campaign but that was a challenger's campaign. For reelection he will need something like Reagan's Morning in America campaign but that goes back to Obama's problem with the economy.

I've left the challenger for last. A weak challenger can help a president's reelection campaign. Mondale in 1984 and Dole in 1996 were deep establishment candidates who lacked any excitement at all. Mondale ran on a campaign of raising taxes.

Much has been written in the last few weeks about the weakness of the Republican field. It is wrong. This is too early in the cycle to have a clear front-runner. At the beginning of 1978 no one knew who Jimmy Carter was. Reagan was considered too radical to ever be elected. The Bush administration was openly cheering for Clinton, expecting that he had too many negatives to be electable.

Reagan and Clinton are instructive. Before Reagan, no one thought that a candidate who had been divorced and remarried was electable. Clinton had multiple affairs while governor and had used drugs while in college. Either of these should have disqualified him (not to mention Obama who openly admitted that he used cocaine in college). If a candidate's negatives are well-known ahead of time then he can still win.

Where does this leave President Obama? I have identified three factors that he needs to worry about and only one is under his control.

The challenger - Mondale and Dole were establishment candidates who got the nomination because their parties "owed" it to them. There is no Republican establishment candidate right now and if there was, the Tea Party would sink him. The best that Obama can hope for is someone prone to misstatement.

The economy - Obama has already had his shot at this. It will recover or it won't. The Fed has run out of options and any economic incentives will have to be acceptable to the Republicans.

The campaign - This is the only thing that Obama can control but he needs to change his message. No more complaining about the crappy phone or how the job is tougher than he expected. No more complaining about "hostage taking". No more "car in the ditch" analogies. No more blaming Bush. Absolutely no more talk about how much easier the head of China has it. He has to be seen as comfortable in the office and firmly in control. He has to talk about what he has done and why he should continue. He is the most powerful person in the world. In order to keep that position he has to be present himself as a strong leader. The election has to be about him, not the Republicans.

It is still too early to know how this will turn out but I place Obama's chances around 50/50 depending on the economy. If gas prices, inflation, or unemployment are top stories this time next year then Obama will likely be a one-term president.

Thursday, April 21, 2011

Tax Policy Questions

I have several questions that I would love to ask President Obama on tax policy:

You have said that the rich need to pay their share and called for repealing the Bush tax cuts for people making over $250,000 per year. Does this mean that you consider the Clinton tax rates to be the optimum fair share?

Follow-up - if so then how did you arrive at those rates? The highest marginal rates have varied enormously over the last century. Why those rates? Does Bush-hatred figure into this calculation?

If you don't think that the Clinton rates are a true fair share then what do you consider fair and why aren't you starting with those figures?

You recently indicated that the way to stabilize Social Security is to raise the Social Security tax rate on the rich. How will this work? Currently Social Security taxes are only paid on the first $100,000. Will you raise taxes on people making between $100,000 and $250,000 or will you have a doughnut hole in the taxes? The current cap goes back to FDR's original compact that both the amount of income that can be taxed and the highest retirement rate are both capped. If you remove the cap on taxes will you also remove the cap on retirement income or are you planning on scrapping FDR's compact?

Do you intend to raise both income tax and Social Security taxes on the rich?

In your speech on the deficit you quoted a CBO report saying that in ten years seniors the Republican plan for Medicare would require seniors to pay over $6,000 per year for insurance to meet current coverage. The same report says that the current level of coverage cannot be continued for ten years without major changes. What changes are you planning to make the system solvent? Will this involve additional taxes on the rich?

Last year at a kick-off event for the "Recovery Summer" you talked about how money spent on a road project would generate future spending as workers spent their wages on other products. This effect also happens when the rich spend their money so, taxing the rich has negative economic consequences that offset the positive effects of government spending. Has your administration calculated the point where taxing the rich will cause more economic harm than is gained through government spending? If so, will your economists make these figures public?

Currently the US has the second-highest corporate tax rate in the developed world. At the same time, the tax code is riddled with tax breaks that allow some corporations to pay little or no tax. Tightening up on tax breaks and loopholes would allow the tax rate to be cut without losing revenue. Failing to do this gives the impression of crony capitalism where lobbyists and friends of the administration like GE can avoid paying taxes while smaller corporations have to pay the full rate. Will you consider revising the corporate tax code?

Which do you consider more important - for the tax code to promote economic growth or for it to promote income parity?

Wednesday, April 20, 2011

Should We Take Trump Seriously?

Quick answer - no.

Long answer - the election is so far away that any polls taken now have more to do with name recognition than preference. Most of the Republican candidates are governors who are not know outside their state. If Trump is still leading in the polls in ten months, then it is time to take him seriously.

Consider how far away the election is and how much can happen in that amount of time. Howard Dean finished 2003 with the largest campaign treasury and was considered a shoe-in for the candidacy. At this point in 2007 it was assumed that the election would be between Hillary Clinton and Rudy Giuliani. Even in 2008, the Super Tuesday primaries left Clinton ahead. at various points in 1992, Ross Perot was ahead in the polls.

Then there is Trump himself. He has been on all sides of the issues over the years. At times he has praised Obama and criticized Reagan. He was for universal coverage before he was against it. His views on abortion are still confused. There is the fear that the positions he holds now are ones that will impress conservative Republicans and do not represent his real views.

His personal life is a mess.

Many of Obama's problems come from his total lack of experience - he spent half of his four years in the Senate campaigning. Trump has no experience in government.

Obama's arrogance also causes him problems. He was reported to say how difficult it is filling such jobs as chief of staff and political adviser since no one could do these jobs as well as he could. Trump makes Obama seem shy and retiring.

The biggest argument in Trump's favor is that a businessman might handle running the government better than politicians. Ross Perot ran on this argument and lost. What is more, Perot had a better record of success than Trump. Several of Trump's projects turned out badly. His casinos have gone into Chapter 11 twice and at one point Trump was $900 million dollars in debt. He claims to be worth more than $2 billion but other sources have put the figure much lower. The most successful enterprises with Trump's name are ones that he was not involved with beyond licensing his name.

There is nothing in Trump's history to suggest that he would make a competent president and many of his statements on foreign policy are outright scary.

So why are we even talking about him? I am because the Washington Post ran multiple columns on him yesterday. The Post and other news outlets want an early start to election coverage because they think it will sell more papers.

Tuesday, April 19, 2011

Denying the Debt

The biggest obstacle to expanding the government is the size of the national debt. If we can't afford the government we have now, how can we afford a larger one? There have been various arguments from the left about how to solve this. President Obama's solution mainly boils down to taxing the rich. Others are into deep denial.

Writing in the Huffington Post, Bob Burnett gives an amazing example of denialism. Early on he says "If you and I owed $14,280,782,221,253+ we'd be stressed. But the US isn't an individual, or a corporation, and so there is an imperfect analogy." He then uses household finances as an analogy.

Burnett starts out with some sleight of hand to reduce the debt.
To complicate the analogy, only 67 percent of the US debt is debt held by the public, the other 33 percent is "Intragovernmental Holdings ...securities held by Government trust funds, revolving funds, and special funds," the most important of which is the Social Security Trust Fund -- in other words money we borrow from ourselves. Of course, families don't have "intragovernmental holdings" but many borrow from family members or friends. Suppose that you have a trust fund you can access only in an emergency; if we borrowed from it because I am unemployed that would be analogous to the circumstances that account for one-third of the US national debt.
There are several problems here. Yes, a third of the national debt is money that is owed by one branch of the government to another. It still has to be treated as real debt. In some ways it is worse than public debt. For public debt, the government only has to pay interest. It can keep accumulating debt. Up until recently the Social Security Trust Fund could be ignored because Social Security taxes brought in more revenue than was needed to cover payments. The balance has tipped and Social Security has begun drawing from the trust fund. The left keeps telling us that Social Security will be solvent for decades to come because of the trust fund but that means that our nation has to start honoring those intragovernmental loans. This will eventually convert intragovernmental holdings into public debt and the process has already begun.

Burnett then moves on to the history of the debt

That brings us to the present political situation where we are faced with two similar stark choices: Republicans want to cut back government in order to pay off the debt and Democrats want to invest more in government to increase employment and thereby raise tax revenues. Before we consider the merits of these alternatives -- debt reduction versus public investment -- let's ponder another consideration, how did this debt accumulate?

If you and I amass a debt of $62,000, entirely because I am unemployed for a lengthy period, we might consider selling our house. On the other hand, if much of our debt accumulated for other reasons -- such as paying the legal expenses for your deadbeat brother after he was arrested for a DUI -- then we might look at the debt in a different light.

It turns out that much of the US debt results from decisions made by our own version of the "deadbeat brother." When Bill Clinton left office, the public debt was $5.73 trillion. When George W. Bush left office, the debt was $10.7 trillion. Under Clinton the US ran yearly surpluses and paid down the debt; under Bush the US ran deficits and ran up the debt. [...]

The debt is all Bush's fault so we can ignore it. After all, Bush is gone so we won't be adding any more to the debt, right? Oh boy!

There is a lot of missing data here and it is important. The government has a web site that lets you see the national debt on a week by week basis from any period between 1993 to the present. For most of this period, only the total debt is available with no breakdown by public and private (intragovernmental) debt but I just finished explaining why private debt is important. Using this site we find that the total debt was $4.18 trillion when Clinton took office and $5.72 trillion when he left. While there were some dips in the debt they were never enough to get the debt below what it was when Clinton took office. In fact, the debt increased by just under 40% during Clinton's tenure. It went up by $100 billion just in Clinton's last month in office.

Under Bush, the debt went from $5.7 trillion to $10.6 trillion - an increase of 86%. This was a big increase over Clinton but nothing like Burnett would have you believe. Then there is the increase under Obama. Between January 20, 2009 and April 15, 2011 the debt went from $10.6 trillion to $14.3 trillion. That's an increase of 35% in a bit over two years. Burnett shrugs this off saying "Many Liberals believe that most of the $3.5T in US debt accumulated under President Obama is due to the financial legacy of the failed Bush presidency." My response is that many Conservatives believe that most of the $3.5T (actually $3.7T) debt was the result of overreach by the failed Obama presidency.

Regardless, both parties have racked up considerable debt. The debt accumulated during the Clinton and Obama years nearly matches the Bush debt so we cannot simply blame Bush and move on - which is exactly where Burnett is leading us:

Let's be clear: the US is not broke. The problems the Obama Administration faces are problems caused by the failed Bush presidency.

Sure, the debt is a problem. But it's not the number one problem facing us, which is how to get America back to work. ...

And how does Burnett want us to do this? He gives a clue early on:

That brings us to the present political situation where we are faced with two similar stark choices: Republicans want to cut back government in order to pay off the debt and Democrats want to invest more in government to increase employment and thereby raise tax revenues.

I love the way that he uses the term "invest more in government" as if prosperity depends on hoards of government employees.

If we do that (get America back to work) and return to a commonsense tax system, where corporations and the rich pay their fair share, then we will once again run annual surpluses and begin to pay down the debt.

It all seems so simple. We just soak the rich and use the money to hire more government workers and all our problems will be solved. Just how much is the corporate fair share? We already have one of the highest corporate tax rates in the world (even after figuring in tax breaks). How much is the corporate fair share? As for the rich, you can take all of their money and not have enough. Ever-expanding government is what got us this debt. The only time it declined was when the Republicans controlled Congress under Clinton and the resulting stalemate slowed the growth of government.

Government isn't an investment, it is an overhead. It diverts money from going elsewhere (like hiring more employees) and impedes growth. Burnett doesn't see this. His goal is an ever-expanding government and it blinds him to economic realities.

Monday, April 18, 2011

Potshots from the Post

A couple of the currently most popular columns on the Washington Post deserve comment.

First there is Fred Hiatt, the editorial page editor, conflating climate change and tax-cutting. On global warming, Hiatt says:

The climate change denialism is a newer part of the catechism. Just a few years ago, leading Republicans — John McCain, Sarah Palin, Mitt Romney, Newt Gingrich and Tim Pawlenty among them — not only accepted global warming as real but supported some kind of market-based mechanism to raise the cost of burning fossil fuels.

Climate science is complex, and much remains to be learned. But if you asked 1,000 scientists, 998 of them would say that climate change is real and that human activity — the burning of oil, gas and coal — is a significant contributor.

Here's the thing - peer review is the solver standard in science. The gold standard is falsifiability. You use your best model and make a prediction. If it comes true you proved your model. If it does not happen then you check your original hypothesis and try again. Climate science has been short of this sort of prediction but the UN made a big one in 2005. They said that within five years (that would be last year) the world would have 50 million climate refugees - people displaced from their homes because of warming-induced destruction. They even included a map of areas in danger. So how did this turn out? This article checked it. Guess what? The areas that were supposed to be ruined by global warming show population increases. So, how did climate scientists react? They tried to hide the original projection.

If Republicans are becoming more skeptical about global warming, maybe it is because the predictions are not happening. This is not denialism, it is reality.

Beyond that, Hiatt does a fairly good job of skewering both parties over deficiencies in their budget proposals.

On to the other column. This one is an example of a long line of liberal self-congratulation. Written by community-organizer Sally Kohn, it postulates that liberals are losing the budget battle because they are nice sweet people who value diversity and are being opposed by conservative fear-mongers who don't fight fair. Among other things, she claims that liberals don't hate anyone except people who need hating.

This is not to say that the brand of liberal tolerance that grew from the struggles for civil rights, women's rights and gay rights is to blame for this lack of progressive political bite. For all the mockery of hyper-tolerant political correctness, identity politics is anything but tolerant. It demands that society be more accepting and inclusive of those who are marginalized because of their race, gender or sexual orientation. But it does not go so far as to tolerate intolerance. Those who fight racism and sexism in society do so out of deep moral convictions. They would never say, "Oh, we can co-exist with Fred Phelps and the KKK and find a way to compromise." Creating a society that fully embraces gay people and people of color means creating a society that is intolerant of homophobia and racism.

Go look at a YouTube video of the Wisconsin union protestors and reconcile that with Kohn's rosy description of liberals. Better yet, look at the videos of liberals ringing cowbells and banging drums during this weekend's Tea Party rally. The Tea Party rally was no whiter than the union protests and in no way represented racism or homophobia but the left still wanted to drown them out.

In Kohn's world there is no looming crisis with the national debt. The only problem is that Obama is no longer committed to unrestrained spending.

Now, Obama has proposed reducing the federal debt by $4 trillion over the next 12 years, making "the tough cuts necessary to achieve these savings, including in programs that I care deeply about." But the reason he's even having this conversation is because the tea party handed him the scissors. Had liberals more fiercely fought for the role of government as the spender of last resort in a recession — and for the role of government in general for the past three decades — Congress would instead be debating how to invest public money in the new American economy.
Obama is not making deals with the Republicans out of misplaced tolerance for their positions. He is doing it because his party got thoroughly trounced in the last election and the Republicans now control the House. Also, no matter how much the left may wish otherwise, serious economists say that the deficit continues then within the next twenty years servicing the national debt and paying for entitlements will take up the entire budget. Not a penny will be left for the programs that Kohn loves.

But rather than face that unpleasant reality, she convinces herself that there is no problem, just partisan Republicans who want to steel from the poor and possibly eat their puppies.

Sunday, April 17, 2011

Hypocrisy and Politics

So far both the President and the Senate Majority Leader have had to admit that they previously voted against raising the debt ceiling for political reasons and they hope that the Republicans will do the responsible thing and vote for raising the debt ceiling now. In essence their strategy has been to vote against the country's best interests for short-term political gain. At the same time they trusted in the Republicans to do the right thing even if it hurt them politically. Does this remind you of any other issues?

The Democrats have been putting off hard issues on the deficit and on entitlement programs for years. They have gone so far as to block the Republicans from trying to fix these problems. President Bush proposed a partial fix for Social Security only to have it blocked. President Obama went so far as to lie about the effects if it had passed, telling seniors that they wold have lost their investments even though Bush's plan would not have touched them.

This pattern of ignoring problems for political gain has been going on at multiple levels. The states are facing a budget crisis now because they were bailed out for two years as part of the stimulus. The stimulus money is gone leaving hard choices for newly-elected Republicans.

I suspect that this is a national strategy. The Democrats are allowing the Republicans to address festering problems then insisting that the problems either do not exist of that they can be easily solved by taxing someone else (the "rich"). The Democrats are willing to cause long-term national problems for short-term gain.

Thursday, April 14, 2011

Budget Reform Postponed

Reporting last November, the President's National Commission on Fiscal Responsibility and Reform known as Simpson-Bowles turned in their report. It was a well-thought out blueprint containing spending cuts and tax reform. It should have been a starting point had the President given it his support. He did not.

That created an opening for the Republican plan. It is far more ambitious and several parts of it are politically unworkable. It would not actually balance the budget but it would keep it within historic limits. Parts such as corporate tax reform seem overdue. Not to be outdone, the Progressive Caucus also released their version. It boils down to soak the rich and ignore structural problems in Social Security, Medicare, and Medicaid.

Normally this would be a good time to address the deficit and long-term debt. The deficit is unsustainable, the national debt is approaching a historic high and interest on the debt threatens all other spending.

This is when the government usually passes controversial legislation. It is an off year for elections and Congress still has a fresh mandate.

But, President Obama made sure that nothing will happen. He has already launched his reelection campaign and yesterday's speech on the budget showed that he is already in campaign mode. He is more concerned with scoring political points than with solving problems. His solution consists largely of blaming everything on the Bush administration and reversing part (but not all) of Bush's tax cuts. He also proposed what might turn into death panels to control medical costs. His goal is to cut spending by $4 trillion over 12 years (that would be 10 years after the end of his current term). It would not actually balance the budget and would add trillions more debt than the Republican plan.

By turning the budget into an election issue more than a year and a half before the election, Obama has assured that no progress can be made until after the 2012 election. Possibly he did that on purpose. Maybe he thinks that he will enter 2013 with a more sympathetic Congress.

Neither side is being totally truthful with the public. The Republicans cannot cut enough to balance the budget and the Democrats will have to tax more than just the rich. Congress needs to make some hard choices quickly - something along the lines of Simpson-Bowles. They still have 2012 to mollify the public over unpopular choices. Instead Congress and the President will spend the next year and a half making political points instead of accomplishing anything.

Wednesday, April 13, 2011

Obama vs the Republicans

The New York Times has a side-by-side comparison of the Republican plan vs President Obama's. They are too generous so I simplified it a bit:



For people now under 55, the federal government would contribute a specified amount of money toward the premium for private health insurance, turning Medicare into a voucher program.





Medicaid would be transformed into a block grant, with a lump sum of federal money given to the states to care for low-income people. According the the proposal, federal spending would be $771 billion lower over the next decade, compared with current policy.


Punt to the governors

Social Security


No changes to Social Security are specified, though the proposal would "force policymakers to come to the table and enact common-sense reforms."



Military spending




Military spending would be cut $400 billion over the next 12 years.

Domestic discretionary spending


Proposes cutting $1.6 trillion over 10 years.


Pass ($600 billion over 10 years)



For both corporations and individuals, the top tax rate would be lower, but tax breaks would be eliminated, offsetting these changes.


Soak the rich

The Liberal Glossary

You hear a common word or phrase being used and you think you know what it means. This is not the case with President Obama and the current crop of liberals and progressives. There are a few words and phrases that they have redefined. There is probably the making of a drinking game here.

The Rich: "the undeserving rich" except the middle word is silent. This group is defined based on an arbitrary annual income that is well below what is needed to actually live like a rich person. The term "rich" is only used by the left when discussing tax policy. The rich do not deserve to be rich and are not paying their fair share.

Fair Share: Taxes that someone else (the rich) should be paying. 

Give back
: to take back, to tax. From the President's speech on deficit relief.
This is not because we begrudge those who've done well — we rightly celebrate their success. Rather, it is a basic reflection of our belief that those who have benefitted most from our way of life can afford to give a bit more back.

Income redistribution: to eliminate income redistribution. If a tax on the rich is eliminated then it is considered income redistribution from the poor to the rich. This relies on the assumptions that 1) The government has first claim on all of your income and 2) the "government" and the "poor" can be used interchangeably. Therefore, a tax cut that allows the rich to keep more of their money becomes an income redistribution from the poor to the rich.

Channeling tax money to support religion: A Supreme Court decision split 5-4 to allow a tax break for money donated to scholarship funds when some of the money might go to religious schools. The minority viewpoint was that this amounted to channeling tax money to support religion. Again, this depends on three assumptions. 1) The government has first claim on your money so any money so taking advantage of a tax break amounts to spending government money. 2) There is no difference between giving money to a school run by a church and directly to the church. 3) Allowing people to support the church of their choice amounts to government support for that church.

Saving Social Security/Medicare/Medicaid: Preventing any action to keep these programs solvent while vilifying anyone who points out that they are approaching insolvency.

Draconian Budget Cuts: Any cut. This can include cuts in prior year increase and reclaiming unspent money from prior years. A cut of 1% in the budget is always draconian.

Spending reductions in the tax code Tax breaks. From the President's deficit speech.

Kinetic Military Action: war

Tuesday, April 12, 2011

Why Progressives Keep on Losing

Writing in the Huffington Post, Richard Eskow asks Why Progressives Keep On Losing and the Right Keeps On Winning? His analysis is interesting in what it reveals about the progressive mindset.

Once again the unpopular views of a minority have been imposed on the majority. Others will rant and rave about the Democratic leadership, and in fact that process has already begun. But progressives in this country should be asking themselves a serious question: Why does the Tea Party seem to be so much more effective than the left as a movement?

Eskow comes up with five causes. The first one is money. The evil Koch brothers and the sinister US Chamber of Commerce spent so much money that the electorate became confused and voted for the evil party whose vision for America, according to Askow, is

one where the environment is despoiled, the poor go unfed, and the middle class faces a lifetime of financial insecurity following by an old age of sickness and penury

Wow! The party of evil must have really buried the Democrats under a mountain of money. How much does it take to sell this vision - 50% more? 100% more? Twice as much? Three times as much? Five times as much? And the Republicans won on every level taking a larger share of state and local government than they have held since the Depression.

Eskow does not supply any figures on donations. He can't because they immediately disprove his assertion. Unions such as the SEIU gave more than the Kochs and the Chamber of Commerce. Campaign spending in 2010 did not overwhelmingly favor Republicans.

If money is the only factor then Eskow does not need to worry. The Obama campaign is already talking about setting new spending records. They have tossed around the figure of $1 trillion dollars.

But if Eskow's assertions about campaign spending are questionable then it is hard to describe the remaining four. According to him, they are:

24-Hour Party People. This boils down to commitment to party over principals. When the Tea Party did this the Progressives said that they were dooming themselves by replacing candidates who would win easily with unelectable radicals. Emphasizing ideology over party is dangerous since it can doom a party to minority status. This may have cost the Republicans control of the Senate in 2010.

If the Democrats were losing because of disunity at the bottom this might be a valid concern.

Premature Exhilaration Eskow seems to think that the Progressives started doing their victory dance before their signature bills were passed. This just didn't happen. Instead of celebrating stalled bills, the Progressives spent their time worrying about why they hadn't passed. He does admit that both health care and financial reform are deeply flawed but is too quick to dismiss the political compromise that was needed to pass them. He does not seem to understand that without the flaws the bills would never have passed at all.

The "XFK" Phenomenon Eskow thinks that Progressives are sitting on their thumbs, waiting for the next JFK to lead them out of the wilderness.

Activists succeed when they stop following leaders and start acting for themselves. The Tea Party is seen as a leaderless movement. By having no alliance to a party or a politician, it holds a credible veto threat over the Republicans and their leadership. There's something to learn from that.

This is a convenient excuse. It is not the Progressive movement that has failed, it is their leaders who failed. It overlooks the fact that even the Tea Party has unofficial leaders.

2021 Vision Oh yes, the "vision thing". This is where Eskow presents his dystopian version of the Tea Party vision then challenges the left to come up with their own vision. He even starts off with his own version which boils down to "break all records on spending then increase".

What he calls vision is basically the party platform - what the party will do if elected. Platforms are easy when you are the party out of power. They get tougher when you are the party in power. Then you have to stop running on promises for the future and start running on your accomplishments.

The reality. The Progressives have been losing because they had their chance and they blew it. They controlled both houses of Congress starting with the 2006 election, They added the White House and increased their majorities in Congress in 2008. They still control the White House and half of Congress. So what is stopping them?

Eskow never questions his base assumptions - that Progressives are morally superior and that they represent the real will of the people. His example of a vision shows that he still does not understand fiscal realities.

The reason that Progressives lost so solidly in the 2010 election was that the voters rejected them. They were elected to create jobs and turn around the economy and end the wars. Instead, joblessness increased, the economy stagnated, and the wars continued. What we got instead were programs that even Eskow admits are deeply flawed and mountains of debt.

When voters rejected the Republicans, they examined themselves and changed their priorities. They cast off the big-government vision of George W. Bush in favor of fiscal responsibility and limited government.

Rather than engage in similar introspection, Eskow starts from the assumption that there is nothing wrong with their priorities. They just need better ways of selling them.

President Obama seems to have adjusted the new realities and has been able to deal with the Republicans, Tea Party and all. For this, Eskow has disowned him.

Friday, April 08, 2011

What GE Teaches Us About Taxes

GE made the news recently when it came out that the corporation did not owe any corporate taxes for 2010 even though it made a tidy profit. What can we learn from this?

First, GE did nothing wrong. They took advantage of legal tax breaks. Google does something similar. By using accounting maneuvers known as the "Double Irish" and the "Dutch Sandwich" they reduced their taxes by more than $3 billion. This too is legal.

Right now the US has the second highest corporate tax rate in the world with a combined rate of 39.2%. Number one, Japan, has a combined rate of 39.5%. They were scheduled to cut this by 5% as of April 1 but this might be delayed because of the earthquake. But the tax rate is only part of the story. The US tax code is riddled with tax breaks. By taking advantage of different tax breaks and loopholes, domestic corporations pay an average of 20% and multinationals pay 30%. This is known as the effective rate.

The effective rate is an average. Some companies, like GE, manage to reduce their taxes to zero but that means that others are paying more than the effective rate and some are paying the full statutory rate. Larger companies are more likely to be able to take advantage of the breaks than smaller companies. Their size and resources allow them the flexibility to do things like set up a shell company in Holland (the Dutch Sandwich). Moreover, these tax breaks made their way into the tax code in the first place because large corporation lobbied for them.

We are overdue for tax simplification. We need to reduce our statutory rates to be competitive with the rest of the world while eliminating the loopholes that help large corporations at the expense of the smaller ones. This is part of the Republicans' budget proposal and should be seriously considered rather than dismissed as tax cuts for the rich.

Thursday, April 07, 2011

Republicans acting like Democrats

Note to the Republicans - stop acting like Democrats.

You guys were elected to solve twin problems: the economic slump and government overspending. Those are your top priorities and your chance to prove that you meant it when you said you changed.

That means that you have to put your agenda to one side. Attacking NPR and Planned Parenthood will not balance the budget. Abortion has become less popular over the years but outright attacks on it will likely reverse that trend.

Rather than nibbling away at individual programs with budgets smaller than a rounding error when compared to the budget as a whole, the Republicans need to make wider cuts. They need to push the idea of austerity and shared pain. The public can understand if everything is cut but making partisan cuts makes a mockery of the budget process.

This is exactly the sort of behavior that the Democrats engaged in. The country wanted to see the government focused on jobs and the economy. Instead Obama and the Democrats focused on health care.

On the state level, the attacks on unions are understandable. In many cases unions are providing most of the Democrats' campaign money. Also, states with pay-as-you-go union pension plans are in real financial trouble because of those pension. The Republicans need to make their case against union pensions. They are hobbled by the press. Less than 7% of the population belongs to a union but a lot of reporters are members of the CWA (Communication Workers of America). Some press coverage borders on union cheer-leading. The Republicans need to make their case against pensions without turning anti-union.

And the statehouse Republicans need to back off of abortion. That was not an issue they ran on and attempts to outlaw it will only hurt them.

We took a leap of faith in trusting the Republicans again. They need to show that this was justified.

Wednesday, April 06, 2011

Social Compacts

Social Security is a pay-as-you-go social compact. The compact says that I will pay taxes to pay retirement and medical expenses for current senior citizens and the next generation will pay for my benefits. There is nothing inherently wrong with this concept as long as the population demographics and costs are stable. If these factors change then you have a serious problem.

Think of it this way - when Social Security passed there were 11 people paying in to the system for every person drawing benefits. Now it is something like five people paying and demographics say that it will be two workers for every retired person in the foreseeable future. That changes the compact. The burden that I bear is less than I am asking the next generation to bear. Another factor - because of increases in longevity, many retirees will get far more out of the system than they put into it. That moves it from social compact to pyramid scheme.

Medicare has similar problems. Obamacare was supposed to address some of the problems by "bending the curve" down. Instead it bent it up.

So something needs to be done. So far the Republicans have made a proposal. Like it or not, they have at least admitted that there is a problem. The Democrats prefer to score political points by ignoring the problems and accusing Republicans of trying to undo a century of progress. This is irresponsible.

Social contracts are all well and good as long as they do not promise more than can be delivered. The President and the Democrats need to admit reality and offer their own solutions.

Tuesday, April 05, 2011

The Mess in Libya

The more I learn about Libya the less I like it. The New York Times has printed allegations that, far from being taken by surprise by the uprising, the CIA and British intelligence instigated it and that Muslim extremists including Al Qaeda are among the rebels.

It is increasingly clear that the rebels do not have the numbers or the training to overthrow Gadafi*. Our air strikes are not enough to make up for the rebels' shortcomings, even assuming that we really want them to win.

In an effort to isolate Gadafi, the US released the assets of a Libyan defector who is thought to have been behind numerous terrorist acts.

The Obama administration lied us into war on multiple levels. The UN Security Council only authorized a no-fly zone, not an attack on land targets.

Things get stickier in the US Senate. A few days ago the Obama administration announced that the Senate had already approved a resolution calling for a no-fly zone so no further authorization was needed. This came as a surprise to the Senate. What most senators thought had been passed was a non-binding resolution condemning the violence in Libya. This was passed as an after-hours motion without debate. It turns out that, at the last minute, a clause was inserted into the resolution calling for a no-fly zone. No notifications were sent out of the change. It was introduced at 5:30 and passed at 5:31 without debate. If President Bush had used such sleight-of-hand, we would be hearing impeachment talk by now.

Put all of this together and it is easy to understand why the President called Libya a "turd sandwich". It is hard to see any good outcome from the Libyan rebellion or our interference in it.

* There are numerous ways to spell Gadafi's name. I am using the shortest one.