Archive for October, 2011

The Incredible Disappearing Deficit

Thursday, October 27th, 2011

While we weren’t looking the political discourse has changed.

We are literally staring down the barrel of a huge across the board cut in federal spending from the super committee, and the best that the Republican Presidential candidates can do is talk about reforming the tax system?

The deficit was the issue that got them their majority in the 2010 election.  Only a few months ago, they were willing to force the government into default over this issue.  Now it appears that they feel they can’t win with this issue in 2012, so they have stopped talking about it.

The latest fascination appears to be a flat tax.

Herman Cain started the conversation with his 9-9-9 proposal, which under closer scrutiny was just another method to redistribute wealth from the poor and middle class to the rich.  Some have also called the 9% business tax a job killer because it exempts investments, purchases, and dividends paid to shareholders.  Citizens for Tax Justice point out that the only business revenue left to tax after those exemptions is the portion of revenue that goes to pay wages.  So under this plan, businesses would have a significant incentive to REDUCE their workforce.

Newt Gingrich jumped in with a 15% flat tax option.

Now Rick Perry has joined the fray with a similar plan to give tax payers an option of choosing either a 20% flat tax or the current tax plan, whichever produces the lower number.  Quick analysis from the Center for Budget and Policy Priorities concluded that the overall reductions in federal revenue if this plan were enacted would require cutting at least a third of all federal spending outside social security.  Perry suggested capping federal spending at 18% of GDP without any detail on what he would cut to get there.  That’s a level that we haven’t seen since the 1960’s.

This graphic provides just a little information about why that number is unrealistic.  By the way, all of the figures in this graph are adjusted to 2010 dollars.

We are a significantly older nation than we were in 1960.

We are going to continue to age as a nation because we live longer than we did in 1960.

As a result, healthcare costs more per capita than it did in 1960.

We have way more people than we did in 1960.  As a result there are way more people in poverty than there were in 1960.

The cost of education has risen.

The cost of gas has risen.

The cost of competition with China has risen.

The net of all of this is that the cost of a government has risen too.

In terms of comparables, were this budget actually implemented, we would become the lowest-per-capita spending industrialized country in the world.  That is not a good thing when countries like China, India, and Germany are investing more in education, research, infrastructure, and new industries than we are.

We’ve also had a recent revelation of a government study done in 2000 when it appeared we would actually pay off the debt by 2012.  The study suggested that US Treasury Bonds are a key component to the world financial system.  If we paid off our debt, we would also retire all of our bonds.  That could seriously destabilize the world financial system by removing the safety net that supports all world commerce.  Even the concept of paying off all our debt is not actually a wise global financial choice.

The good news is that the political dialog has changed to jobs, which is where it should have been.  More jobs was, is, and will be the ultimate solution to our debt problems.

The bad news is that, though we are finally talking about what really matters in this country, Republicans continue to suggest that reducing the size of government, cutting spending, reducing regulation, and balancing the budget is a viable short term solution to job growth.

We’ll take that up in the next post.

Where Did the Deficit Come From?

Wednesday, October 26th, 2011

Here’s a graph based on a paper by the Pew Trust which compares CBO projections from January 2001 with what actually happened between then and now.  The CBO, by the way, was projecting in 2001 that we would essentially retire our debt by 2012.

 

Here’s what happened.

We had two recessions which meant that we didn’t have as much tax revenue as we had originally projected because businesses and individuals were not as productive as they would have been if the economy grew at the expected rate through the decade.  We also had increases in spending for things like unemployment insurance because people were out of work.  That accounts for 28% of our current deficit.

68% of the increase was the result of federal legislation.  40% of that was tax cuts enacted in 2001, 2003, and 2010.  30% was the wars in Afghanistan and Iraq.  20% were other spending increases.  Those included Medicare Part D, TARP, and Stimulus Spending.

The important conclusion reached by Pew was that other than the recession, we put ourselves here by a combination of tax cuts and deficit spending.  Over the past decade we increased spending by three dollars for every two dollars we decreased revenue.   Pew says, “No single policy or piece of legislation, however, is overwhelmingly responsible for the $12.7 trillion shift in CBO’s debt projections for 2011 that occurred between January 2001 and March 2011.”

It wasn’t just the Stimulus Spending during the Obama administration.

It wasn’t just the wars or the tax cuts that started in the Bush administration either.

It was the failure of the theory that lowering taxes will increase federal revenue.

It was also the failure of those in power to either bring spending in line with reduced federal revenue or increase federal revenue to compensate for increased spending.

Next up: The incredible disappearing deficit

The Curious Case of Herman Cain

Friday, October 7th, 2011

Herman Cain is surging in the polls.

Herman Cain is taking a month off to promote his book.

Sarah Palin is driving a bus around primary states and holding what look like campaign rallies.

Sarah Palin chooses not to run

So what’s going on here?

In my mind, it is a case of the odd dynamic that the Tea Party has added to the Republican Primary.

Even though Romney is the preferred candidate for the mainline Republican Party, the Tea Party doesn’t like Romney.  They are suspicious of his recent move to the right.  They are suspicious of his Mormonism.  He may also be just a little too polished and smooth for their tastes.

As a result, the Tea Party initially supported Bachmann, but she was really just a stalking horse for Sarah Palin.  As Palin continued to waver and Bachmann continued to gaffe, the impatient Tea Party looked elsewhere.

They next got excited about Rick Perry.  But Perry didn’t fit the mold either. He was soft on immigration.  He did badly in the debates when compared with Romney.  He was a little scary when it came to foreign affairs and then there was that whole issue about the name of his hunting camp.  Over the past couple of weeks, it became clear that even if nominated, Perry would lose to Obama.

There was a brief glimmer of hope that Chris Christie might run, but he re-affirmed his position that his sights are set on 2016 or 2020.

Even Sarah Palin finally admitted that even she couldn’t overcome the burden of public inquiry into her past that has resulted in some very unfavorable and salacious press.  Conservatives will overlook a lot of things, but female promiscuity is not one of them.

So who is left (or maybe more appropriately right)?

Ron Paul has attempted lately to soften his libertarian radicalism, but he is likely not going to be able to gather momentum as a credible candidate.  He is a capable voice for the libertarian branch of the Tea Party, but the mainstream electorate will view him (just like Goldwater) as an extremist.  If the Republican Party did nominate Paul, Obama wins in a cake walk and, like Goldwater, it takes the Republican party a decade to recover from the drubbing.

Herman Cain is probably the last man standing between Romney and the nomination and he knows it.  He also knows that he will not get the nomination because of the color of his skin.  That’s because the Republicans need the votes from the 10%-15% of the population who aren’t going to vote for any African American regardless of party.  If the Republicans run Cain, those people are just going to stay home.  Then the demographics just don’t work.  Independents are going to split along policy lines, not racial ones.  So a Cain candidacy isn’t going to get significantly more independent votes than a Romney candidacy.

The 10% – 20% of the African American population that are conservative didn’t vote for Obama in the last election.  Running an African American conservative in 2012 isn’t going to automatically create more conservative African Americans.  So Cain starts out with a 10%-15% deficit versus Obama that Romney doesn’t have.

So Cain is doing what any practical businessman would do in this situation.  Just like Sarah Palin, he is going to maximize his return on this opportunity.  That means going on a book tour and making that look like campaigning.  He will try to stay in the race as a solid second for as long as he can (at least until South Carolina) which should allow him to sell a lot of books.  As long as he avoids any serious gaffes and the press can’t find anything incriminating in his background, he should be able to do that.  He is already running his campaign on a shoe string, so he likely won’t spend money he doesn’t have.  Book revenues don’t fall under campaign laws, so he can put that money in his pocket.  The visibility he gets from this effort will certainly increase his value as a speaker and an on-air pundit.  Unlike Sarah Palin, he doesn’t even have to go through the stress of a failed VP run to give himself a nice salary raise.  The bottom line is that  this is now Romney’s nomination to lose and at the moment there don’t appear to be a lot of ways he can lose it.

So at the end of the day, the real question is, how will the Tea Party react?

The Republicans are going to nominate a mainstream candidate next year who is a Mormon and expect the Tea Party to fall in line and support him.

The big question is will they?

Citizen Terrorist

Wednesday, October 5th, 2011

The problem is the 5th amendment of our constitution.  It says,

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation

In basic terms, this means that the government can’t kill a citizen of this country without due process of law.

But the government just did this in the case of the Muslim cleric Anwar al-Awlaki.

There is strong circumstantial evidence that this cleric encouraged several people who attacked or attempted to attack US citizens.  Those included some of the 9/11 hijackers; Maj. Nidal Malik Hasan, the Army psychiatrist accused in the 2009 killings in Fort Hood, Tex.; Umar Farouk Abdulmuttalib, accused of trying to set off a bomb hidden in his underwear on a 2009 flight to Detroit; and Faisal Shahzad, who tried to blow up a car in Times Square last year.

There is also no question that his message was dangerous.  He said that American Muslims had to choose between being a good Muslim and being a good American.  In his mind, you couldn’t be both.  He claimed that the United States was at war with Islam and Muslims had to choose a side.  His support of indiscriminate killing of Americans was completely at odds with those of mainstream Muslim clerics around the world.  As a result his views were widely condemned by Muslims and non-Muslims alike.

The problem is that there was no Grand Jury.  There was no trial.  There was no judge.  There was no opportunity for al-Awlaki to confront his accusers, refute the evidence that they may have presented, or tell his side of the story.

That is a basic right guaranteed every US citizen.  It is what protects us from the immense power that we give to our government.  There are clear limits to that power, and if we don’t insist that those limits are respected, and punish those who overstep their authority, we risk losing those protections.

It doesn’t matter how strong the government’s evidence was regarding al-Awlaki’s involvement in previous attacks.

It doesn’t matter how good government intelligence was regarding his plans for future activities.

It doesn’t matter how many US lives the government feels it may have saved by this action.

What DOES matter is that our constitution says that NO ONE in our government has the power to unilaterally target an American citizen for assassination.

The end does not justify the means.

This serious erosion in civil liberties began in the Bush administration with warrantless wiretapping and the Patriot Act.  It has escalated in this administration with the murder of a US citizen.

I never accepted the premise that we have to trade liberty for security during the Bush administration and I reject it during the Obama administration too.

The curious thing is that Obama’s harshest critics on the right, those who seem to see constitutional violations in the color socks that our president chooses to wear, have said nothing about this.  This President should be held accountable for this significant abuse of executive power.  Ron Paul has publically called for an investigation.  We’ll see where that goes.

In my mind this is a dangerous step down a slippery slope taken by a President who knows EXACTLY what it means.   It is a very sad day.

 

On Our Own

Monday, October 3rd, 2011

That is the crux of the political vision of the right as represented by the candidates’ positions in the most recent Republican debates.

Here are some of the things that appear to be on the table.

Wind down the government’s longstanding guarantee of healthcare for the poor and elderly as well as rollback the recent expansion of healthcare to cover the uninsured.  Abolish the Department of Education and its efforts to raise education standards.  Eliminate any environmental or financial regulation that has an associated business cost.  Re-impose military discrimination against gays and lesbians.  Deport illegal immigrants.  Punish the children of illegal immigrants by blocking their access to education and employment.  Cut unemployment insurance.  Reduce nutrition programs.  Raise taxes on the poor.  Reduce taxes on the rich.

The Republicans are saying that we need to do all of this and more to create jobs and encourage economic recovery.

Mr. Obama seems to have found his voice in opposition to this vision.  He has rightly identified it as a contest of values.  He predicts that the next election will determine who we are and what we stand for.  He is seeking the support of those who were shocked that an American audience would cheer at the prospect of someone dying because they didn’t have healthcare.  He is offering a choice for those who were upset that an active duty soldier risking his life in Iraq was booed because he had the courage to admit on national TV that he was gay.

His campaign is going to ask the American voter some simple questions.  Are these audiences that we’ve seen at the Republican debates really who we are?  Is this narrow diminished vision of the future that the Republicans are painting really what want to be?

American voters may be frightened by a weak economy.  They may be divided on a number of issues.  But I think that there is also a basic understanding that this doesn’t have to be zero sum game where the only way things get better for me is if they get worse for somebody else.  Americans still believe in the innate greatness of this country and will reject the philosophy that we have to leave large numbers of people behind in order for the rest of us to get ahead.  I’m betting that the majority of Americans when faced with the choice of going it alone are going to say no.  They are going to reaffirm that we are our brother’s keeper and our progress as a nation will be determined by the progress of the least fortunate in our midst rather than the most.