Archive for the ‘Finance’ Category

Sequester the Sequel

Thursday, August 22nd, 2013

While many are suggesting that the first year sequester cuts weren’t that bad, they are generally unaware that the sequester bill included five years of scheduled across the board spending reductions.

So let’s take a look at what has happened already and then what is coming.

According to the U.S. Bureau of Economic Analysis, over the first half of 2013, the federal government has subtracted 0.8 percentage point from GDP growth—this as the economy grew a paltry 1.1 percent in the first quarter and 1.7 percent in the second.

The CBO has projected that if the next round of sequester cuts were canceled, we would see another .7% in GDP growth and add another 900,000 jobs by Q3 2014.

As Business Week says, this isn’t rocket science.  “We’re living through the biggest contraction in federal spending in 60 years, and this is one of the weakest recoveries on record. Coincidence?”

Conservatives counter that every dollar that isn’t spent by the government goes back into the pockets of taxpayers.  The implications are that individuals will spend that money in the same ways that the government will, we will see the same growth, and we will be better for it because the government is inefficient and political.  The problem with this simplistic view is that in uncertain times like this individuals DO NOT spend their money.  Instead they reduce their debt and increase their savings.  Businesses respond to reduced demand by doing the same thing.  So we end up with a lot of cash sitting on the sidelines and economic growth slows, which is where we are today.

The CBO says we are operating 6% below our capacity right now.  That is $1T in economic capacity that is sitting idle because of lack of demand.  The problem, for anyone willing to take a look, is clearly NOT too much government spending.  It is too little consumer demand.

Here are a few more quotes if you remain unconvinced.

“The idea that spending cuts generate growth in a demand-constrained economy is nonsense,” says Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities.

“To say the sequester is good for the economy is wrong on a scale that’s impressive,” says Neil Dutta, chief U.S. economist at Renaissance Macro Research.

“I don’t know how you can make that claim,” says Stuart Hoffman, chief economist at PNC Financial Services Group, who estimates that the sequester has stolen about 30,000 jobs from each month’s payrolls total since it was enacted in March.

If there is good news in this story, the economy appears to have survived the assault with a blunt instrument that the first sequester administered.  We are now in a position where the GDP can grow faster than the debt.  That means simple focus on short term economic growth will likely complete the recovery and put us back in a situation where debt as percentage of GDP is going down even though the debt in absolute terms may be going up.

So what is the Republican agenda?

First, threaten to shut down the government if Obama doesn’t repeal Obamacare.

Second, threaten to throw the government into default, if the Obama administration doesn’t agree to ANOTHER round of spending cuts in addition to what is already on the books.

So it doesn’t sound as though there is much political appetite at the moment to replace the sequester with something more constructive and there is certainly the possibility that it will get worse before it will get better.

That said, here’s a short list of the impacts we’re dealing with beyond those already mentioned.

States

This next round is going to impact states even more than the previous cut.  States will see $4.2B less in federal funding.  Targeted programs include public housing assistance, money for schools with low-income students, food inspection, scientific research grants, and environmental protection programs.  While states absorbed a $4.6B cut last year through reductions is staff in reductions in programs, this year they will be forced to start eliminating programs completely.

The other state complication is that most states are required by law to balance their budgets and the 2014 budgets have already been passed.  If the next round of sequestration is implemented, most states will start their fall legislative terms with significant budget shortfalls.

From a USA today article

“They are already in a difficult spot because they already have imposed major cuts to their schools and other public services,” Leachman said. “If they enter those legislative sessions having to deal with additional cuts in federal funding for schools or law enforcement or clean water or programs that help low-income families, that makes their job even more difficult.”

Pennsylvania budget secretary Charles Zogby said his state managed to get through the first round of sequestration budget cuts without massive cuts in personnel—but that may change. “Thus far, that hasn’t been part of the challenge. It may be in round two,” he said.

Headstart

Headstart, one of the most successful programs we have to alter the future of poor kids, is going to have to cut fall enrollment by 57K because of sequestration cuts.

Public Defenders

The federal public defender system has been decimated by the sequester cuts.  According to the WSJ, this ends up costing tax payers more than what has been saved through the cuts because our constitution guarantees that those who cannot afford an attorney will have one appointed for them.  When public defenders are not available, court dates are delayed and courts ultimately hire private attorneys.  We pay for all that.

Overburdened defenders also make mistakes and miss evidence that could have cleared their clients.  These mistakes create more appeals.  As Supreme Court Justice Stephen Breyer noted in March in congressional testimony about the effects in general of the sequester, it is “cheaper to have a decent lawyer in the first place.”

Medical Research

Even George Will decries the effects of reductions in basic medical research caused by the sequester.

For Francis Collins, being the NIH’s director is a daily experience of exhilaration and dismay. In the past 40 years, he says, heart attacks and strokes have declined 60 percent and 70 percent, respectively. Cancer deaths are down 15 percent in 15 years. An AIDS diagnosis is no longer a death sentence. Researchers are on the trail of a universal flu vaccine, based on new understandings of the influenza virus and the human immune system. Chemotherapy was invented here — and it is being replaced by treatments developed here. Yet the pace of public health advances, Collins says, is being slowed by the sequester.

This will be, Collins believes, “the century of biology.” Other countries have “read our playbook,” seeing how biomedical research can reduce health costs, produce jobs and enhance competitiveness. Meanwhile, America’s great research universities award advanced degrees to young scientists from abroad, and then irrational immigration policy compels them to leave and add value to other countries. And now the sequester discourages and disperses scientific talent.

Forest Management

The sequester has also reduced our ability to manage our forests which has contributed to the unprecedented scale of wildfires that we’ve had to fight.

The Hazardous Fuels Reduction Program was $500 million last year, went down to $419 million this year under the automatic budget cuts, and has been proposed to go to $292 million next year.

“The fires that are ripping through Oregon and Idaho and California and the West are just proof that the fire prevention policy is broke,” Sen. Ron Wyden, D-Ore., chairman of the Senate Natural Resources Committee, said from Lincoln City.

“There are years of neglect. The fuel load builds up and it gets hotter and hotter on the forest floor. Then you get something like a lightning strike and a big inferno. Then the bureaucracy takes money from the prevention fund to put the fires out and the problem gets worse. The cycle just repeats itself again and again.”

This brings us to the basic question of why.

The only answer I can come up with is that Republicans have lost touch with reality.  They have won the war against debt.  Rather than take a victory lap and set themselves up for a potential change in control in the senate, they are determined to pump another bullet into the wounded economic recovery.

Their fantasy that cutting government spending would stimulate economic activity has failed.  We can now document the damage it did to the economy.  With the second round of sequester cuts looming, we have an opportunity to reduce the damage.  Just stopping the austerity program will have a positive economic effect.  But we can’t seem to even have a rational discussion on how to do that simple thing because of ideology and politics.

Since it is unlikely that Republicans will unilaterally abandon the ideology that is driving their actions, the only other possible solution is a political one.  If Republicans suffer another defeat in 2014 similar to what they experienced in 2012, maybe then the survivors will finally realize that there are real political consequences to imposing a minority agenda on an unwilling majority.

A More Perfect Union

Sunday, August 4th, 2013

A More Perfect Union

But I say unto you, Love your enemies, bless them that curse you, do good to them that hate you, and pray for them which despitefully use you, and persecute you; That ye may be the children of your Father which is in heaven: for he maketh his sun to rise on the evil and on the good, and sendeth rain on the just and on the unjust.

For if ye love them which love you, what reward have ye? do not even the publicans the same?

And if ye salute your brethren only, what do ye more than others? do not even the publicans so?

Be ye therefore perfect, even as your Father which is in heaven is perfect.  Matthew 5:43-48 

Jesus was pretty clear here.

God loves everyone.  His Son Jesus advises us, for our own good, to do the same.  He was also pretty clear about who that “everyone” included.  Not just those that agree with us, but all those who treat us badly, make us mad, and may even persecute us.

The political situation in this country is pretty good evidence that people aren’t taking that advise.

CBS released a poll which shows that there are very few people left in the middle of our political spectrum.  The rancor of the past 13 years or so has forced most people to take a side.  The result is that everyone thinks that the other guy is crazy.

Is-the-other-party-too-extreme

 

Compared to partisans, independents actually don’t appear stuck in the middle: just 29 percent of them see both parties as too extreme. Independents instead tend to pick only one of the parties as too extreme, so this isn’t really a case of an alienated center watching both parties move further away. (And it also squares with the fact that many people who call themselves independent do in fact lean to one side.)

Here’s how that affects our politics.

Americans want deals and compromises in principle, and from both sides -eight in ten say they’d like to see more of it. But when those Republican voters back home see congressional Democrats as too extreme, and vice versa for Democratic voters, then members to who cut deals across the aisle are bound to face suspicion: has that extreme other side really changed its stripes? Did our side really get more than we gave? And it’s easy to see why activists on both sides are turned off by the very thought of cooperation with another party that’s so (seemingly) out of touch.

The result is that voters have given their representatives an impossible task.  They dislike deadlock, but they are so skeptical of the motives of the other side, that they question any concessions that necessarily have to be made in order to reach a compromise.  In other words, voters say that they want compromise, but they punish the politicians who in fact attempt to make a deal and reward those who, in principle, refuse to support anything but the party line.

Because the extremes appear to outnumber the middle, our government has lost the ability to compromise.  Instead it is all about maneuvering for power and counting the “scalps” that can be accumulated along the way.  We have replaced practical reality with political gamesmanship and obsessive ideology.

Here are a few recent examples.

Obamacare Obsession

The House recently voted for the 40th time to repeal Obamacare.  It passed on a strict party line vote, but will have no practical effect on the law.  The only value of this vote is to provide Republican members of the House a “scalp” to take home with them and show to their supporters.  The vote may help Republicans build the case for electing more Republican Senators in 2014, but Senator Tom Coburn summarized reality when he said, “The only way you get rid of Obamacare is winning the 2016 election.”

Republican Senators Lee and Rand Paul have been circulating a letter threatening to shut down the government in the fall if President Obama doesn’t stop the Obamacare rollout.  This is another activity, like the previous one, that is perilous for Republicans.  The last time Republicans shut down the government, they paid a dear price at the polls and single-handedly rescued Bill Clinton’s Presidency from the Lewinsky scandal.

Sen. Richard Burr, R-N.C., called it the “dumbest idea” he had ever heard, while Sen. John McCain, R-Ariz., warned against more shutdown “shenanigans.” Some senators who initially backed the idea, like Sen. John Cornyn, R-Texas, have rescinded their support for it.

Even if House Republicans WERE successful in shutting down the government, that action, like the votes in the House, would only be symbolic.   The Congressional Research Service has reported that a government shutdown would not slow the Obamacare rollout.  That’s because Obamacare has other sources funding that are beyond the reach of the sorts of annual appropriations controlled by the House.

So why try?  According to Senator Ted Cruz, who is backing the government shutdown gambit, “No major entitlement, once it has been implemented, has ever been unwound,” he said. “If we don’t do it now, in all likelihood we never will.”

The reality about Obamacare is that the game is over.  By 2016, the law will be fully implemented.  State exchanges will be up and running.  Somewhere around 20M people who previously couldn’t afford to purchase insurance themselves, will be insured.  Those people are not going to vote for anyone who promises to take away their health insurance.  The margin of victory in 2012 was 5M.  It will be political suicide for any candidate for national office to start the race with a 20M deficit.  The 2012 election was the best opportunity for Republicans to repeal Obamacare, and they failed.   Their base, however, won’t allow them to admit defeat.  Instead they may inflict some very real economic damage to the country.

Scandal Obsession

Republicans are convinced that there must be a scandal somewhere.  The harder they look, however, the less they find.  Yet they continue to dig, because the digging itself supports the conservative partisan view that Democrats are corrupt.  So we have the spectacle of Rep Issa issuing subpoenas for more documents from the IRS, the state Department, and the Justice Department while the information that they are supplying only continues to support the administrations original claims.  Issa claims that the agencies involved are holding back valuable information, but that is also more political grandstanding.  The IRA has 170 people including 70 lawyers working on delivering the documents that Issa has requested.   His demands deliberately exceed their ability to respond.

Here’s what the documents that have been delivered so far have shown.

There was no executive branch involvement in the methods the IRS created to screen applications for non-profit status.  In fact, both liberal and conservative groups were subjected to the same types of screens.

While mistakes were made in Benghazi, there was no conspiracy to misrepresent the information shared with the public.

The failed attempt to trace guns being traded across the Mexican border was just that.  There was no attempt by the White House to cover up what was a poorly designed operation from the start.

The failures in each case were bureaucratic, not political.

Republicans aren’t particularly interested in what has the potential to be a real scandal – domestic spying.

Debt

We’re going to see this spin up again this fall when there is another discussion about spending.

The reality is that the sequester has cost both jobs and economic growth, but it has slowed the growth in debt to the point where it is possible with additional economic stimulus that we could grow our economy faster than our debt.

This should be good news.  Instead we are going to see more attempts to cut spending rather than stimulate growth because it was never about the debt.  It was always about reducing the size of government and weakening the traditional Democratic base.

Immigration Reform

Republicans of almost all stripes have admitted that if they are to have any hope of competing in future national elections, they have to repair their dismal image with immigrants.  The Senate in a brief moment of clarity managed to pass an immigration reform bill, but only after committing to spend $30B to build more fences and hire more border control agents.  Some have estimated that this cost works out to $40K per immigrant and may only serve to redirect the flow of immigrants from the border to other coastal locations.

The CBO estimated that the Senate bill would reduce the debt over the next decade by $135B and cut the flow of illegal immigrants by 50%.  Because of the path to citizenship, it would also reduce the number of undocumented workers living in this country over the next decade to 5M.

Yet it was not enough for House Republicans who rejected the whole thing.  They want to focus on questionable enforcement measures first.  Some reject the whole notion of a path to citizenship.

Why?

Because they have a base that has been supporting candidates with xenophobic positions against all immigration.  This even though President Bush proposed a similar plan in his administration and Reagan signed the Immigration Reform Act in 1986 which legalized 3M undocumented workers.

Summary

For those interested in history, what we are seeing in politics today is fascinating.  Ideas that Republicans created and promoted for decades are no longer recognizable to that party.  Obamacare was a Republican alternative to single-payor healthcare reform and was actually successfully implemented by Mitt Romney in MA.  Cap and Trade, monetary stimulus, tax reform, and entitlement reform were ALL originally Republican ideas.  The have ALL been proposed at one point or another by this administration as “common sense” approaches to solve problems.  They have ALL been rejected by today’s Republican Party.  This used to be the party promoting the intelligence of the free market.  It has become the party of opposed-to-whatever-the-Democrats- support.

There is a solution coming because demographics are running in the direction of Democrats.

The problem is that even this doesn’t resolve the underlying erosion in democracy as an effective method to resolve differences between political extremes.  Instead we appear to be drifting towards more of a parliamentary democracy where the only times things get done is when one party controls the government.

While I would prefer that Democratic ideas prevail, I would not want that to happen as a result of the death of the Republican party.  If that’s what occurs, it will be a dark legacy for our troubled time.

Failure to Communicate

Wednesday, March 27th, 2013

The Republican Party recently released an analysis of their shocking Presidential campaign loss last November.

“Our message was weak; our ground game was insufficient; we weren’t inclusive; we were behind in both data and digital; our primary and debate process needed improvement,” Party Chair Priebus said of Mitt Romney and the GOP’s 2012 loss. “There’s no one solution. There’s a long list of them.”

The report outlines the need to reach out to women, African-Americans, Asian, Hispanic, and gay voters.  They are going to do this by hiring staffers across the country to begin engaging those communities.  They support comprehensive immigration reform, shortening the primary process with fewer debates, moving the convention date earlier in the summer, and investing in more technology.

“To be clear, our principles are sound, our principles are not old rusty thoughts in some book,” Priebus said, but the “report notes the way we communicate our principles isn’t resonating widely enough.”

Sally Bradshaw, a GOP strategist who was also on the committee, added that the GOP “needs to stop talking to itself” and needs to open the tent in order to win presidential elections in the future.

So the Republican Party is admitting that it can no longer win elections depending exclusively on the votes from old angry white men.  That is progress.

The problem is that they are blaming their loss on a failure to communicate.  They continue to insist that if women, minorities, young people, unions, and educated professionals voted for Obama ONLY because they didn’t understand what the Republican message really was.

A wonderful example of this delusional thinking is how Chairman Priebus handled the question of marriage equality.  He held up Republican Senator Rob Portman’s recent public support of same sex marriage as an example of this new philosophy of inclusiveness.

“I think it’s about being decent,” Priebus said. “I think it’s about dignity and respect that nobody deserves to have their dignity diminished or people don’t deserve to be disrespected.

“I think that there isn’t anyone in this room, Republican, Democrat or in the middle, that doesn’t think that Rob Portman, for example, is a good conservative Republican.

“He is. And we know that. … I think that party leaders have to constantly remind everybody that we can’t build a party by division and subtraction. We can only build the party by addition and multiplication. We get that and that’s going to be our endeavor.”

When asked if the Republican Party supported Portman’s position, Prebius said, “It’s his decision. It’s not a matter of whether I support his decision. I support him doing what he wants to do as an elected person and as an American. If that’s his opinion, then I support him having that opinion.”

In other words, the Republican Party is going to continue to oppose marriage equality but will allow some who hold opposing views on the subject to still call themselves Republicans.  The fact that this is newsworthy is testimony to the depths of the problem.

Conservative Republicans are so invested in their positions, that they can’t imagine why anyone familiar with those positions could oppose them.

They can’t imagine why women would object to being told that rape isn’t that bad, only whores use contraception, or if they become pregnant, regardless of the circumstances, they lose the right to make decisions about their own health.

They can’t imagine why Hispanic and Asian citizens object to being told that their efforts to fix a broken immigration system are just a thinly veiled attempt to secure amnesty for criminal behavior.

They can’t imagine why young people reject a party that says that homosexuality is sinful and college education should be available only to those who can afford it.

They can’t imagine why educated people reject a party that says that says that creationism is a science and climate change is a hoax.

The Republican Party doesn’t have a communications problem.  Voters clearly understand where the Republican Party stands.  The real problem is that voters REJECT Republican Party positions.

The best evidence of this is the most recent budget debate.  House Republicans passed a reworked version of the Ryan budget that voters had just rejected in November.  In fact, this new budget was, if anything, more cynical than the previous one.  If you recall, the campaign budget had a math problem.  This new budget solves some of the math problem by KEEPING the recently approved tax increases that Ryan and Romney campaigned so hard against.  It also kept the taxes included in Obamacare, which Ryan claimed were job killers, while repealing the rest of the healthcare bill.

The Republican Party doesn’t have a communication problem.  In fact, some of the steps they have recommended (fewer debates and a shorter primary season) may be intended to reduce the amount of information the party shares with the public.

The Republican Party has a philosophical problem.  They underestimate the intelligence of the American voter and their ability to tell the difference between what the party says and what it does.

We Don’t Negotiate With Zombies

Thursday, February 21st, 2013

We’ve spent some time examining the underlying historical and psychological reasons for Zombie Politics.

An additional bit of data came out today suggesting that liberal and conservative differences can be predicted by how our brains respond to risk. Fundamental physiological differences could determine political preferences. That further re-enforces wisdom of our founding fathers in setting up a government which requires compromise in order to function.

That still leaves the open question of what to do about the current problem where some conservative Republicans are so invested in their particular political views that they appear unable to compromise.

Fortunately, we live in a democracy where the majority of voters rejected the most recent Republican campaign based primarily on Zombie positions. Since politicians, just like the rest of us, share survival as a primary motivation; conservative politicians have already taken notice.

We’ve already seen John Boehner disciplining the worst Tea Party offenders in the House in an effort to regain control of that group.

Karl Rove has blamed the Zombie Politics of the Tea Party for the November Republican loss. He has pledged to run more moderate Republicans against Tea Party incumbents and protect moderate Republicans against primary attacks from the radical right.

The most recent example is Florida Governor Rick Scott reversing himself on the federally subsidized expansion of Medicaid under Obamacare.

Scott built his political career on opposing Obamacare. His base of support has been the Tea Party.

He is clearly not the ideologue he has appeared to be. He made the calculation that he will gain more support from changing his position than he will lose. Florida Hospitals in particular were very concerned about how their costs would rise if Florida declined to participate in this expansion of Medicaid. So at the end of the day, Scott demonstrated that he wasn’t crazy after all. He was simply a politician taking advantage of whatever opportunities he could to stay in office. His erstwhile Tea Party backers are furious, but he has decided, just like Karl Rove, that it is time for him to move on.

Over the next several weeks we are going to see another sorting out of those who really are Zombies versus those who have simply been dressing up that way in order to avoid being eaten.

That’s because the Republicans are again poised to lose the battle over the sequester cuts. The Wash Post explains why very simply and it is reflected in this graph.

2013-02-19-Obama-and-Congress-approval

  1. Regular people have no idea what the sequester is right now and, even once it kicks in, aren’t likely to pay all that close of attention to it unless they are directly affected by it.
  2. Obama is popular with the American public
  3. Congress is not.

In fact, even cockroaches are more popular with the American public than Congress.

Pew Research confirms that almost half of the voters blame Republicans in Congress for the problem.

Given all of these facts, and the realities that even conservative politicians know all too well, why are Republicans still committed to what appears to be a suicide mission?

Zombie Politics

Republicans are still invested in the smaller government, low tax, cut spending philosophy that the American people rejected. They feel that they lost credibility in the tax hike compromise that was part of the fiscal cliff deal. If they cave now on sequester cuts, they fear that they will have lost whatever support they have left with their base. They are terrified of what Obama will do next if he wins this battle too. They also believe that they will be able to blame Obama for whatever economic damage the sequester cuts cause and perhaps ride that to a Senate majority in 2014.

The problem is that if they go through with their plan, it will not only backfire on them for the reasons listed above. It will re-enforce the majority view that conservative Republicans DO NOT have the best interests of the country at heart. It will further erode the whole conservative philosophy that government is bloated and wasteful. Instead, virtually every American will experience what life is like without the government services that we depend on and the underlying economic support that government spending provides. The most direct effect will be that unemployment jumps (it already has) as the economy continues to contract (it started in December). The stock market will tank. Air travel will slow. Major defense contracting states (mostly republican) will bear the brunt of the job losses. Meat and poultry prices will rise because of inspection shortages which will affect supply. Head Start classes would close. SBA loans would stop. Federal Research grants would stop. Grants supporting Mental Health treatment would stop. Courts will slow because of lack of investigators and attorneys. More first responders will lose their jobs. Tax return processing and refunds would slow.

Every American will discover that federal state and local governments do a lot of good things. They will discover that government is NOT bloated, inefficient, and wasteful. Government is not a collection of faceless uncaring bureaucrats. The government is us. It is our relatives, friends, and neighbors. They will discover that government is a vital part of everyday life and that the Republican vision of dramatically reducing the size of government is really a nightmare. And they will AGAIN punish Republicans in 2014 as they did in 2012 for intentionally damaging the economy for political purposes.

Gridlock

Saturday, February 16th, 2013

Recap

Conservatives and Liberals look at the world differently.  Because of the conservative need for alignment between their beliefs and the world around them (cognitive closure), they are much more likely to hold beliefs that are out of sync with the facts.  That is at first a counter intuitive claim.  But the reality is that when conservatives encounter facts that call their beliefs into question, they will deny or warp the facts rather than re-examine the beliefs.   That’s called Moral Intuitionism.

The result in the current political scene is a series of political positions that have no basis in fact, but continue to drive the conservative movement.

We’ve looked at a few.

The claim, starting with Ronald Reagan, that the government is the problem.  That caused conservative Republicans, among other things, to oppose Hurricane Sandy relief.  It also was behind the debt ceiling debate and the claim that government doesn’t create jobs.

Government is not the problem, because in a democracy we the voters choose the government, and surveys have shown that voters generally like the government services that they receive.  What conservatives are really saying when they say government is the problem is that liberal government policies are the problem – and that is certainly something the liberals are going to dispute.

The claim, starting again with Ronald Reagan, that lower tax rates will increase tax revenues.  That was refined some under GWB, that lower tax rates on the rich will stimulate the economy.  We’ve already seen that this is not an effective standalone economic strategy.

Some others that are well known include opposition to climate change, insistence that creationism is a science, and opposition to abortion, immigration, and gay rights.

Roots of Gridlock

Another aspect of how this behavior influences politics that we haven’t looked at is regional distribution of liberals and conservatives.  Where did that come from?

Perhaps we shouldn’t be surprised that at least one historian, David Hackett Fisher, traces it back to colonial times.

The north was settled mainly by English farmers, the south by Scots-Irish herders.  They each brought their centuries of mutual distrust with them.  Herders have an honor culture which is important to being able to be a successful nomad.  Their wealth can literally walk away, so they have to respond quickly and forcefully to any real or perceived threat.  When those threats have been identified, they depend on eye-for-eye retaliation to protect themselves.  Farmers, on the other hand, are more secure because it is much more difficult to steal land.  They develop a culture of interdependence, government, and the rule of law.

The farmers in the northeast had come from a Europe where monarchs imposed civilization on their subjects.  The subjects eventually overthrew the monarchs and demanded self-determination, but retained the concept that a strong democratically elected central government was the best way to prevent the country from falling back into anarchy.

The herder culture followed settlers west.  Initially it was a male dominated anarchy with few laws and many honor killings.  As women moved west to help their husbands work the farms and ranches that they had created; churches, laws, and government followed.  But the west didn’t go through the monarch phase where a strong central government essentially disarmed the populace and imposed the rule of law by force.  Instead women imposed the rule of law by compromise and allowed men to continue support the honor culture.

The political distributions we see today are a direct result of these two cultures mixing.  That mix now, however, goes all the way down to neighborhood.  Conservatives prefer to live in neighborhoods and towns with conservatives.  Liberals prefer to live in neighborhoods and towns with liberals.  Toss in a dose of gerrymandering and you have congressional districts where extremism is rewarded and compromise punished.

In North Carolina, congressional districts are either so red or blue that they trend well above the national average in that regard, said David Wasserman, House of Representatives editor at the Cook Political Report.

There are “diametrically opposed viewpoints just across the highway median from each other,” Wasserman said. As a result, in votes like the fiscal cliff showdown, members of Congress “are simply responding to what their districts want.”

“The dirty little secret is that redistricting only explains part of polarization,” Wasserman said. “Congressional districts are polarized partly because Americans have polarized with their feet. It makes it easier for partisan line drawers to draw those lines.”

The result is what we see playing out in Congress today.

Gridlock.

The 112th House was roughly 50% more polarized in terms of makeup than that of the 102nd, which convened from 1991 to 1993.

The 112th’s Senate was more polarized than the 46th Senate, which was in office from 1879-1881, just after the Reconstruction era that followed the Civil War.

Summary

Liberals and Conservatives do not effectively communicate with each other.  That’s because these are emotional discussions about beliefs for Conservatives rather than discussions about fact which is the liberal preference.

The country reflects these differences geographically because of our history.

The current government reflects this differences because of how our representative government is structured.

So is this the doom of democracy or is there a way forward from gridlock to a functioning government?

We’ll take that up in another post.

Zombie Politics and Debt Hysteria

Friday, January 25th, 2013

First a quick summary.

In previous posts we’ve gone through the issues surrounding debt and built a case for economic growth and lower unemployment as viable methods to reduce our debt.  Austerity programs do not stimulate economic growth or lower unemployment, at least in the short term.  They actually make things worse.

We’ve also looked at the REAL problem which is the rate of growth in Healthcare costs.  Austerity programs do NOTHING to bring down the costs of healthcare delivery.  Economic growth also does nothing about this problem.  Yet deficit hawks are not talking about this as the middle term problem we have to solve.  Instead they focus exclusively on reducing the debt.

Why?

Zombie Politics.

This term was originally coined by John Sides.  He defines it as “ideas about politics that have become so cemented in conventional wisdom that it is virtually impossible to dislodge them. It doesn’t matter what the data says, or what published research says. Zombie politics means that even though the ideas are dead, they just can’t be killed.”

Here are a few examples of Zombie Politics in action.

The House prevented any tax increases until after the 12/31 deadline passed and even then only enough Republicans agreed so that it could pass with overwhelming Democratic support.  That’s because a core belief of current Republicans dating back to Reagan is that low tax rates for high income earners have significant economic impact.  Even though this theory has been widely discredited, most recently by the Congressional Research Service; it lives on as the cornerstone of Republican politics.

Hurricane Sandy relief was voted down because, to quote Paul Ryan, “Unfortunately [the bill] refuses to distinguish — or even prioritize — disaster relief over pork-barrel spending.”  Rep. Peter King (R-N.Y.), a powerful House Republican who represents New York’s Long Island, which sustained billions of dollars in storm damage, refuted those claims. “The House bill never contained any of those extraneous provisions,” he said.

New Jersey Gov. Chris Christie (R) said on Wednesday that the failure to vote on the aid bill was the result of “toxic internal politics” in the Republican Party. “Americans are tired of the palace intrigue and political partisanship of this Congress,” Christie said. “Disaster relief was something that you didn’t play games with.”

This isn’t the first time that Republicans have opposed disaster relief.  In each case, the same complaints about “pork barrel spending” and “unsupervised slush funds” are voiced, but those are just code words for the core issue.  They honestly don’t believe that government can play an effective role as the relief agency of last resort.  That’s because they hold fast to the zombie view that government is America’s number one problem, not its solution even in these cases of extreme need.

The first debt ceiling debate is another perfect example.  Republicans claimed that letting the president have increased spending authority is irresponsible.  Quoting FactCheck.org, “Republicans, including House Speaker John Boehner and Rep. Michele Bachmann, have said that the president wants ‘a blank check.’ Not true. First, he’s asking to borrow money to pay obligations Congress has already approved.”  Yet this characterization that increasing the debt ceiling somehow empowers Obama to spend MORE is another zombie proverb.

Another zombie maxim is that jobs are created by less government, lower taxes, and fewer regulations.  This has been boiled down recently to the frequent comment heard during the last campaign that the government doesn’t create any jobs.  Yet World War II is largely credited with the recovery from the Great Depression by the massive government spending which converted the country to a government run munitions factory.

These disproven zombie concepts have been summarized by Grover Norquist when he said, “Our goal is to shrink government to the size where we can drown it in a bathtub.”   The problem is that, contrary to Republican claims, the vast majority of American LIKE much of what modern government does.

Should Spend More

Spending About Right

Should Spend Less

Don’t Know or No Answer

Protecting the environment

59.8%

27.9%

7.7%

4.6%

Protecting the nation’s health

66.8%

25.0%

5.6%

2.6%

Halting the rising crime rate

60.9%

28.4%

9.3%

3.0%

Dealing with drug addiction

58.2%

27.9%

9.3%

4.6%

Improving the education system

69.7%

22.1%

6.3%

1.9%

Social Security

55.7%

31.9%

6.3%

6.1%

Solving urban problems

45.5%

29.8%

12.1%

12.5%

The military, arms, and defense

17.5%

46.3%

30.3%

5.9%

Highways and bridges

38.2%

47.1%

9.6%

5.1%

Welfare

16.0%

36.1%

43.3%

4.6%

Parks and recreation

34.0%

55.2%

6.1%

4.7%

Mass transit

31.7%

47.3%

9.4%

11.5%

What we are left with is a minority segment of the voting public and their representatives who are determined to REDUCE the size of government at every opportunity.  Their beliefs ARE NOT based in fact, but that doesn’t appear to bother them.

The best policies are not those that have the most likelihood to succeed.  The best policies are the ones that will ultimately reduce the size of government because this is their religion.

Don’t get me wrong.  I am a religious person.  I DO believe in God and the power of prayer.  But I don’t believe I have any right to impose my beliefs on anyone else.  When it comes to governing a country, we have to depend on good data rather than religious belief to confirm that our course is going to benefit the majority of our citizens.

In the next couple of posts let’s see if we can dig into data supporting this claim that conservative republicans possess a blind unreasoning commitment to a particular point of view, why this leads to zombie politics, and why this is something that appears UNIQUE to the conservative movement.

The REAL Financial Problem

Sunday, January 13th, 2013

As we saw in the previous post, our near term fiscal issues ARE NOT the result of irresponsible spending. They are the direct result of the deepest recession in our country’s history, surpassed only by the great depression. Part of the legislation put in place after the depression to prevent a repeat of that economic collapse included a social safety net. This safety net provides those who find themselves in dire financial condition, a floor of support below which they can’t drop. This set of interlocking programs also limits the economic damage of any contraction by keeping at least some money flowing from consumers to producers. It’s this safety net spending along with the loss in tax revenue from having excess capacity in workers and factories that is driving $600B of our annual deficits. That extraordinary safety net spending is decreasing and tax receipts are increasing as the economy recovers. The spending will disappear when we approach full employment and robust economic growth.

The REAL problem on our economic horizon is handling the cost of the baby boomer retirement and the impact that it will have on Social Security, Medicare, and Medicaid.

Moreover, an increasingly large portion of the debt is money that the government owes to itself because of borrowing from large entitlement programs such as Social Security and the Medicare. That’s because the money spent on discretionary programs has generally declined, as a share of the economy, while spending on mandatory programs has soared — and will only consume a larger share of the economy as the Baby Boom generation heads into retirement.

In fact, the debt owed to entitlement programs is now almost as large a share of the economy as all U.S. government debt before Ronald Reagan became president.

Washington Post

The Demographic Problem

The Baby Boomers are a large cohort of the population (70M+) that are going to be retiring over the next ten years. Programs like Social Security and Medicare use taxes from today’s payroll to pay the benefits for today’s retirees. If the population growth tracked GDP growth, this wouldn’t be a problem. When you have large demographic anomalies like the Baby Boom generation, you end up with a situation where there aren’t enough workers to support the costs of retirees.

Fortunately the solutions to demographic problems are comparatively simple. You either adjust benefits based on income, change the age at which people qualify for benefits, or change the tax formulas on those funding the benefits.

If you did some combination of those things, Social Security would be fine, but Medicare/Medicaid would still be in trouble.

The Healthcare Problem

Our healthcare system is also broken. The result is that the rate at which healthcare costs are growing exceeds the GDP growth rate. That is unsustainable under any circumstances.  When you combine that problem with the undeniable demographic issues of the Baby Boomer, more systematic changes are required.

Spending in General is NOT the Problem

These inexorable demographic changes mask the fact that over the past four years we have experienced historic levels of fiscal discipline. While there was a temporary and necessary spike in spending from the Recovery Act, annual appropriations actually declined by 1.4 percent a year between 2008 and 2012 in inflation-adjusted dollars — after growing by 6.1 percent a year during the George W. Bush administration.

NY Times

Real Solutions to Real Problems

Obamacare is the first step in changing the healthcare business model. Here is a short list of the next steps to change our healthcare delivery model from a transaction model to an outcomes one. These come from a report by the Commonwealth Fund. The Commonwealth Fund contracted with Actuarial Research Corporation to estimate the cumulative impact on healthcare spending by 2023 if the set of policies were to take effect in 2014. Results showed a $242 billion savings for state and local governments, $189 billion in savings for employers, and $537 billion to consumers because of lower premiums and out-of-pocket costs.

Revise the Medicare physician fee structure and methods of updating payment so that it rewards value. The sustainable growth rate formula should be repealed and replaced with a physician payment policy that incentivizes improvements in health outcomes. Such a system would only provide increases in payments to doctors participating in innovative delivery systems. Fees would otherwise remain at 2013 levels. This will force those physicians reluctant to leave the comfort of their transaction model based medicine to change.

Medicare also should be allowed to institute competitive bidding for medical commodities. The medical commodity lobby has so far prevented Medicare from applying the sort of market-based bidding that every other industry uses to drive down costs.

Strengthen primary care and support teams for high-cost, complex patients. Primary care physicians who participate in a patient-centered medical home would receive enhanced payments. The structure would provide incentives to improve patient outcomes. It will also insure that physicians continue to enter the primary care field of practice, rather than simply being employed by vertically integrated systems like Kaiser.

Bundle hospital payments to focus on total costs and patient outcomes. Providing a single payment for all care during an episode would provide incentives for teamwork and accountability to reduce readmissions and follow-ups.

Adopt payment reforms across markets with public and private payers working together. Ensuring public and private payers employ the same or similar payment methods would reduce complexity for physicians and others in the healthcare system.

 Reform medical malpractice rules and payout policies. Medical liability policies should encourage the disclosure of medical errors and provide fair compensation for injury and medical costs.

The goal is to bring the rate at which healthcare costs grow in line with GDP growth. If that can be done, then the Medicare/Medicaid problems becomes one dimensional just like Social Security and will yield to the same sorts of solutions – means tested benefits, increasing the age requirements, or changing the tax formula.

Summary

The near-term financial issues with large deficits that we face ARE NOT the result of irresponsible spending. They are the result of social safety net increases and tax receipt decreases due to high unemployment and slow financial growth. Those both can be fixed through more robust economic growth. So they are NOT systematic problems.

We DO have some systematic medium to long term problems with Social Security, Medicare, and Medicaid. Those problems are due to the demographic anomaly called the Baby Boom and our antiquated healthcare system. Social Security and Medicare need some changes to deal with the demographic issue, but that won’t fix the healthcare system. That also has to be fixed in order to preserve Medicare and Medicaid as viable programs.

Next let’s look at how some conservatives have tried to create a debt hysteria and what their motives might be.

Debt, Deficit, and Math

Monday, December 31st, 2012

Here’s a little bit of truth through facts about the current political turmoil over debt and deficit.

First some definitions

Deficit is the difference between what the government spends and what it takes in through various revenue sources every year.  The deficit has been going down every year that Obama has been in office.  In round numbers we are talking about $1T a year.

Debt is the total amount of money that the government owes.  Some of that money is owed to the public and some of that money is owed to itself (primarily through Social Security bonds).

One of the measures of the health of any economy is the ratio of public debt to GDP.  If the debt is growing faster than the economy, that ratio goes up.  If the economy is growing faster than the debt, that ratio goes down.  We are someone where in the 70’s right now and the debt is growing faster than the economy mostly because we are still recovering from a recession.

Now tactics

The goal is to reduce rate of growth in the debt, not the actual amount of debt itself.

You can attempt to reduce the rate of growth in the debt by simply attacking the debt side of the equation.  The problem is that austerity, as we’ve seen in Europe, generally causes recession.  Recession reduces the size of the GDP.  The result is no change in debt as a percentage of GDP, and the potential to make things worse.

On the other hand, there are also practical limits to the rate at which the GDP can grow over any sustained period without also raising the specter of inflation because things like labor and raw materials tend to become more costly as demand increases and supply decreases.

Goldilocks Path

Many economists suggest that 4% growth is the optimal target for US GDP.  At or around that level, we can easily sustain deficits in the range of $400B and still drive debt as a percentage of the GDP down to the 30% range.  If the economy starts to grow faster, raise taxes and lower spending.  If the economy slows, increase spending and decrease taxes.

The Clinton years are a good example of this.  Paul Krugman summarizes, “Federal debt was higher at the end of the Clinton years than at the beginning — that is, the deficits of the Clinton administration’s early years outweighed the surpluses at the end. Yet because gross domestic product rose over those eight years, the best measure of our debt position, the ratio of debt to G.D.P., fell dramatically, from 49 to 33 percent.”

How do we get there from here?

If we take the current $1B deficits that we are running and subtract the $400B that we agree is a reasonable level to run in the best of times, let’s see what happens to the other $600B of our current deficit if the economy continues to grow.

Recessions cause increased spending in means tested social safety net programs like food stamps and Medicaid because wages fall and people lose their jobs.  The result is more people unemployed or underemployed qualify for these benefits.  If we were at the sort of sub 6% unemployment levels typical in past periods of 4% economic growth, we would eliminate $150B in deficit spending without any other changes to these programs.  More people working means fewer would need these services.

Now let’s look at increases in tax revenues and reductions in short term stimulus spending going on today from a better employment picture and more robust growth.  That total is somewhere around $450B given what we are spending today.

Assuming these figures are correct, returning to full employment and a sustained period of economic expansion also fairly quickly returns us to $400B deficits and a reduction in the debt as a percentage of GDP equation.

The good news is that we are seeing very positive signs of growth across the economy.  To quote Paul Krugman, “Housing is reviving, consumer debt is down, employment has improved steadily among prime-age workers.”

We don’t have a spending problem or at this point even a growth problem.

We do have a political problem.  Again quoting Krugman, “Unfortunately, this recovery may well be derailed by the fiscal cliff and/or a confrontation over the debt ceiling; but this has nothing to do with the alleged unsustainability of the deficit.”

We’ll look at that political problem next and the REAL issue that threatens the economic health of the country.

We don’t negotiate with Terrorists

Thursday, December 27th, 2012

Let’s do a quick recap to figure out how where we are on negotiations to come up with a better spending and tax plan than the one set to take effect on January 1, 2013

The January 1, 2013 deadline was set two years ago by this same congress as part of a bargain to resolve another artificial crisis.  That artificial crisis was created by newly elected Tea Party Republicans who refused to allow the government to borrow the money required to pay for things that Congress had already approved purchasing.  At the time, both parties agreed to put in place a series of spending and tax cuts so severe that both parties agreed it would force a compromise.

The date for that compromise as well as decisions about a number of related items including Bush tax cuts, exemptions from the Alternative Minimum Tax, FICA reductions, and extensions to unemployment benefits was purposely set after the 2012 election.  The thought was that the voters should have an opportunity to weigh in on these issues.

Republicans were so confident that they were going to win the 2012 election that they admitted that they didn’t have an alternate plan to deal with all of these issues if they lost.  Their plan if they won was to pass the Romney budget and make the Bush tax cuts permanent.

The voters DID express their opinion.

The Democrats won the election which included a promise to raise taxes on those making more than $250,000 a year.

After the election President Obama and House majority leader Boehner began negotiations. The following graph shows how those negotiations progressed.

When negotiations broke down, Boehner and Obama were $200B apart on tax revenue and $200B apart of spending reductions.  Boehner had conceded that taxes on wealthy people had to go up.  Obama had conceded that future spending on Social Security and Medicare should be adjusted.  All that remained to close this deal was split the difference on the numbers and work out the remaining details.  Obama still had to sell this deal to his reluctant Democrats in the Senate and Boehner had to do the same with his reluctant Republicans in the House.  It was those House Republicans who killed the deal when they refused to back the fall back “Plan B” bill that Boehner introduced to improve his bargaining position with Obama.  Rather than strengthen Boehner, this bill demonstrated that Boehner didn’t have the Republican support he needed any of the offers he made to Obama.

The same Republicans who wanted to put these questions to the voters now appear perfectly willing to ignore the will of 2012 voters.

At this point, the only deal than can pass in the few remaining days before this Congress ends, is one that comes from a compromise in the Senate that would allow a majority of Democrats to pass a bill that then would also pass the House.  This would require two things.  First, Senate Republicans would have to agree to allow such a bill to come to a vote rather than filibuster it.  Second, at least 26 House Republicans would have to support the bill along with the 191 Democrats.

The good news is that it if this Congress fails to get this done, the new Congress will have some time in January to act before these tax increases and spending cuts really take effect.  In the new Congress, Democrats only need 17 House Republicans to pass a bill.  Failing to get this deal done before the end of the year will continue to erode the confidence in the global community that the United States is capable of managing its own affairs.

The bottom line is that we live in a democracy.

We get the government that we vote for.

In 2010 voters sent a lot of “no compromise” Republicans to the House.  Those members exerted their power to create this crisis and don’t appear included even after their 2012 defeat to change their behavior.  While there are fewer of these sort in the new Congress, a significant number were sent back to continue the work that they began in 2010.  Many of those re-elected, benefited from 2010 Republican majorities in state legislatures who took advantage of the redistricting process to create “safe” Republican districts for their representatives.

Here are just a few recent examples of Republican dysfunction.

Senate Republicans recently rejected the UN Convention on the Rights of People With Disabilities.  This treaty was negotiated and signed by GW Bush.  Bob Dole came to the Senate floor in his wheelchair to lobby for its passage.  It essentially requires other countries to improve to our level of protection for the disabled, without requiring us to change any laws. It has already been ratified by 126 countries.  Rick Santorum, who holds no elected office, lead the Tea Party charge to defeat the bill based on some loony concept of U.S. “sovereignty” which essentially calls into question the whole premise of the United Nations.

We had the embarrassing moment earlier this month when Senate Minority Leader McConnell called for a vote on Obama’s proposal to change the method in which the debt ceiling is extended.  He was hoping to create an embarrassing moment for Democrats on the issue.  When Senate Majority Leader Harry Reid agreed to an immediate up or down vote, McConnell was forced to filibuster his own bill in order to prevent it getting passed.

Several days later, we have the Boehner Plan B debacle where he had to admit that he didn’t have the power to negotiate a deal with Obama on the fiscal cliff.

Tom Friedman summarized it best quoting James Carville in a recent column entitled “Send in the clowns”.

The political obsessions of the Republican base — from denying global warming to defending assault weapons to opposing any tax increases under any conditions, to resisting any immigration reform — are making it impossible to be a Republican moderate, said Carville. And without more Republican moderates, there is no way to strike the kind of centrist bargains that have been at the heart of American progress — that got us where we are and are essential for where we need to go.

And

But if Republicans continue to be led around by, and live in fear of, a base that denies global warming after Hurricane Sandy and refuses to ban assault weapons after Sandy Hook — a base that would rather see every American’s taxes rise rather than increase taxes on millionaires — the party has no future. It can’t win with a base that is at war with math, physics, human biology, economics and common-sense gun laws all at the same time.

 

The problem is NOT one of leadership.  Clearly both Obama and Boehner made significant concessions and had a deal on the table that made both parties uncomfortable.  But that deal didn’t get done because a significant portion of the elected Republicans in the House blocked it.

If some voters continue to reward the sort of terrorist behavior that we’ve seen from Tea Party Republicans, there is precious little that can be done.  Our system allows them to effectively shut down the government, if that’s what they choose to do and they have the votes to do it.  At this point, this group appears determined to raise taxes on everyone, cut spending, and likely cause a recession rather than accept a compromise with a President they despise.

As far as what we do in the meantime, we trust in the wisdom of voters to fix the problems created in 2010.  Ronald Reagan said it best during his debate with Jimmy Carter, “We don’t negotiate with Terrorists”.

Know When to Hold ‘Em

Wednesday, November 28th, 2012

The fiscal cliff is the first test of Obama’s second term.

Here’s where it stands right now.

Staffs from both the White House and Republican leaders in the House and Senate have been working since the election to determine if there is any middle ground.

The problem is that Republicans appeared so confident that Romney was going to win, that they didn’t have a plan B. They were prepared to simply renew the Bush tax cuts for everyone and kick the debt can down the road with Romney in White House. Instead, they now have to deal with a newly popular President and a majority of Americans who support raising taxes on the wealthy.

The problem is that the Republican plan to limit deductions, doesn’t generate enough revenue (at least from high income tax payers) to replace what would come in just by letting the Bush tax cuts expire.  Also if deductions were limited, charities would likely be hardest hit.

As an aside, the whole concept that the economic impacts vary based on the type of tax increase is hard to swallow. If tax bills go up and that’s a bad thing, then how can there be any difference. And if the economy can survive raising tax bills from limiting deductions, why wouldn’t it also survive from a similar simpler increase in rates?

As that realization is dawning on the American people, the fundamental bargaining position of Republicans is eroding. The Republicans have said that they feel that they have leverage in these negotiations because if the country goes over the fiscal cliff and the economy suffers, Obama will be blamed.

The Obama administration, however, has positioned this differently in the minds of voters. What they have said is that Republicans would rather raise taxes on everyone in order to avoid raising taxes on the wealthy. They have already trotted out data to support the claim that a middle class tax hike will damage the economy by reducing consumer spending. They have trotted out billionaires and small business owners who have said that they are WAY more concerned about the economic impacts of middle class tax increases. The White House has also pointed out that there is a bill before the House right now which extends only middle class tax cuts. Obama challenges Republicans to pass that bill today while the rest of spending reductions are worked out. Obama only needs 17 Republican House votes to pass it. Some Republicans have already said that if Boehner brought the bill up, it would pass.

Some House Republicans are already saying that the House should give Obama the middle class tax cut that he is asking for and then hold him accountable for the economic collapse that they’ve predicted will occur.  This strategy also provides them some political cover since the only thing that they voted for was the middle class tax cut, rather than voting for a tax hike on the wealthy.

The problem that others have with this strategy, however, is that it would be perceived as a clear win for a President that they detest. It would also undermine their claim that this President can’t lead and is ineffective. And if the predicted economic collapse from raising top tax rates fails to materialize it will further weaken Republican prospects in 2014.

What is also interesting is what a low profile Paul Ryan has been keeping since the election. I believe he also knows that this is a losing proposition and would rather have it all fall on Boehner’s shoulders.

That only further confirms that a deal is going to get done. At the very least, it will involve passing the Senate resolution to extend the middle class tax cuts for another year, approving another debt ceiling raise, and kicking spending cuts down a road until the new congress is sworn in.

Everybody wins because the Republicans live to fight another day.

You gotta know when to fold ‘em.