Michael Harrington’s 1962 The Other America told the story of two countries. One was a country of affluence, where people had enough to eat, a roof over their heads, health insurance, and the prospects of a good life. The other was a country where a quarter of the population lived at or below poverty, often were homeless, lacked health insurance, and whose prospects for a good life were dim at best. Both countries were the United States. And unfortunately 50 years later, not much has changed, with America still a tale of two countries–rich and poor, hopeful and hopeless. At least this is the conclusion of recent Census Bureau study on poverty in America. But despite this news, Paul Ryan and the Republicans want to gut food stamps and defund Obama Care. Yet the great irony is that the people they hurt the most are their own constituents.
First, lets look at the numbers. This past week the Census Bureau released its report Income, Poverty, and Health Insurance Coverage in the United States: 2012. Among the major conclusions were that the numbers of individuals in poverty in the United States had not changed much in the last year and that the numbers of individuals without health insurance had approximately remained the same. We have made little progress in terms of economic recovery for most Americans in the last few years since the crash of 2008. No surprise here. But what is more startling are two other points. First, one needs to read the report since it offers some historical benchmarks about poverty in America. Second, it provides a picture of whose is in poverty.
Consider the people of Michael Harrington’s Other America, When that book was published in 1962, 18% of the population or 37 million Americans lived at or below the poverty level. For children (under 18), 23% were in poverty. Fifty years later in 2012, 15% of the population, or 46.5 million American live at or below the poverty level. We have 21.8% of children (under 18) in poverty with a whopping 24.4% of children under the age of six living at or below poverty.
Think about it–the richest country in the world and a quarter of our children are living in poverty. We look like a third world country. We are condemning a quarter of our population to a bleak future, especially when we know from other studies that the rates of economic mobility in the US have literally frozen. By that, few people in the lowest income levels ever move out and are condemned to intergenerational poverty. We know that they live in neighborhoods with few services and bad schools and high crime. We have written off a quarter of our population right from the start.
But look beyond the children. Still 15% of the population below poverty and more people today who are poor than 50 years ago. Representative Paul Ryan (and many Republicans) look to 50 fears of social welfare post-Great Society New Deal spending and say the trillions spent has been a wasteful sinkhole that has not succeeded and therefore want to end it. They see a glass half empty and want to throw out the water with the glass. They ignore that poverty was cut dramatically under the Great Society programs of the 60s until Nixon cut it back and our society began a now nearly two generation reversal on helping the poor.
At least since Reagan we have concentrated tax cuts to benefit the rich at the expense of the rest of us and the redistributive economic policies since 1980 have largely shifted money from the poor to the affluent. This Census Bureau report as well as others, including those by the Congressional Budget Office and many other organizations point to an America today with the greatest concentration of wealth and income since the 1920s. It has dramatically grown in the last few decades, helped by Reagan and Bush era tax cuts.
The point? The social welfare have failed to reduce poverty both because they have been cut themselves while at the same time under-minded by other more powerful inegalitarian tax and economic policies. We have made little progress in 50 years not because we tried and failed to help the poor but because we either gave up or did not do enough.
Consider a few other facts found in the report. During the 3-year period from 2009 to 2011, approximately 31.6 percent of the population had at least one spell of poverty lasting 2 or more months. The median household income in the US was $51,017 in 2012, down from the peak of $56,080 that occurred in 1999. Median household incomes are essentially what they were in 1989. Few Americans have gained any ground in the last quarter century, with there being a steady slide that begin more or less with the Bush presidency of 2000. Finally, we have approximately 48million individuals without health insurance.
We are a poorer and less equal nation now than in 2000. For all of this, Paul Ryan and the Republicans want to cut food stamps and funding for Obama Care. This merits awarding them the “Marie Antoinette Let Them Eat Cake Award” for social compassion and humanity.
But less you believe that their policy choices are only hurting Democrats, think again. In raw numbers more white Caucasians are in poverty than people of color. The highest poverty rates in America are in the south and rural America–the heart of the GOP base. For the South, the poverty rate remained unchanged at 16.5 percent in 2012, while the number in poverty increased to 19.1 million, up from 18.4 million in 2011. In 2012, the poverty rate and the number in poverty for the Northeast (13.6 percent and 7.5 million) and the Midwest(13.3 percent and 8.9 million) were not statistically different from 2011 estimates. Inside metropolitan statistical areas, the poverty rate and the number of people in poverty were 14.5 percent, while in rural America it was 17.7 percent in 2012. Finally, the Northeast had the lowest uninsured rate in 2012 at 10.8 percent. The uninsured rate for the Midwest was 11.9 percent; for the West, 17.0 percent; and for the South, 18.6 percent.
Do an overlay of electoral maps showing regions where voters supported Republicans, there you will find the highest poverty and uninsured rates and the lowest household incomes. Either Republicans are screwing over their own constituents or for some reason those who most need the help are supporting candidates and policies they are least supportive of their own interests.
Red and Blue America is a tale of two countries. The United States, especially Red Republican America, is paradoxically much of the other America that Michael Harrington described. Yet it is the America that fights hardest against helping itself and others. Whatever happened to compassionate conservatism? I guess "Let them eat cake" is their new social philosophy.
Showing posts with label Bush tax cuts. Show all posts
Showing posts with label Bush tax cuts. Show all posts
Saturday, September 21, 2013
Wednesday, December 26, 2012
America’s Real Problem isn’t the Fiscal Cliff, it’s the Fiscal Canyon
The current Congress may or may not address the Fiscal Cliff before 2012 ends. But even if it does, the odds are that any solution it affixes will fail to solve a problem that has been at least 30 years in making. The real Fiscal Cliff, or rather the Fiscal Canyon, is the longer-term disinvestment and neglect this country has made in education, infrastructure, and attending to the structural inequalities in the United States that are driving most of the problems we face in the short and long term.
The Fiscal Cliff is actually a four-fold set of problems that Congress and the president immediately face.
There is first the expiration of the Bush era tax cuts. These were the massive and fiscally imprudent tax cuts President Bush and Congress pushed though in 2001. They occurred at a time when the Clinton presidency and the economic growth of the late 1990s left the country with successive budget surpluses and the belief was that the government had more money than it needed and that the tax cuts would stimulate the economy. The tax cuts included cuts in the top rates on income as well as capital gains. They were sold as cuts to benefit the middle class when in reality the vast majority of the benefit went to the wealthiest who did little to invest them in job and economic growth. The first decade of the twenty-first century witnesses the worst record in job production in decades.
The biggest focus of the this aspect of the Fiscal Cliff is that if nothing is done, a typical middle class family of four would experience a tax increase of $2,200 if the Bush era tax cuts expire.
Second, there is the budget cuts that are due to kick in. These budget cuts are a result of a deal that Congress and the president reached in 2011. They agreed, or better yet, kicked the can down the road, to a budget framework that declared that if they could not agree to a budget agreement to reduce America’s $1 trillion+ annual deficit and begin to pay down the nearly $16 trillion nation debt, certain automatic cuts would take place. Over 1,000 government programs would face significant budget cuts totally in excess of several hundred billions of dollars over the coming decade. These cuts would come in terms of both military and other discretionary spending.
The tax increases and spending cuts are the most immediate problems of the Fiscal Cliff. If no action occurs most economists think that this cliff would throw the economy into a recession. The reason for this is simple Keynesian economics–a rapid decrease in demand as both consumers and the government cut back on purchases and demand, thereby slowing down the economy.
But there are really two other aspects of the Fiscal Cliff that are coming due too.
The first is that the debt limit for the US government also expires around the beginning of the year. If that is not extended the US government runs out of money. That too is a big problem and must be addressed. If we do not extend the debt limit the United States technically defaults on its loans. It also means it runs out of money to finance the government, thereby forcing a shutdown or curtailment of funding for many programs.
Finally, the original economic stimulus program that the Obama administration passed in the beginning of 2009 runs out. Despite all the noise to the contrary, the stimulus did preserve several million jobs according to most credible economists.
Failure to address any of these four prongs of the Fiscal Cliff is enough to damage the US economy, but letting all four go unintended is a major recipe for disaster. So what do we do? Here are the options.
1. Do Nothing. This is the disaster just mentioned. It hurts the US economy both short and long term.
2. Kick the can down the road. Extend the tax cuts for all for another short period of time and delay the spending cuts too. In effect, “kick the can” down the line for another few months so that the next Congress deals with it. Congress already did this once back in 2011 and it possible they do that again. However, this kicking of the can is very temporary and does little to address the short-term jitters in the US economy (companies failing to invest because they want a stable economic picture) or long term to address the broader structural problems in the US economy.
3. Extend Bush Era tax cuts for the middle class. Enact tax cuts for everyone except those with individual incomes over $200,000 of family incomes of $250,000 per year. This solves the tax increase problem but does not deal with the automatic budget cuts. It also fails to deal with the debt limit and an economic stimulus.
Republicans in the new Congress may be able to live with part of this since they would be voting for tax cuts for the middle class and could say they did not vote for tax increases.
4. Enact Simpson-Bowles Commission Recommendations. The Simpson-Bowles Commission offered proposals on how to deal with long-term debt. This proposal includes reforms (cuts) to entitlements such as Social Security and Medicare. It was DOA when its ideas came out but some still this is a framework for addressing problems.
Beyond the fact that politically it is DOA, it does not really solve economic problems in the long term. Raising retirement ages or cutting benefits hurts the poor and the young, and in many ways, for those in blue collar jobs, raising the retirement age discriminates against those who do physical labor and will not last long enough. Moreover, cutting benefits when fewer and fewer people have pensions and serious retirement income options condemns a new generation of people to poverty.
5. None of the above. In reality, none of the ideas above really solve or address the bigger economic problems facing the United States. All at best are band-aids or whitewashing over more fundamental problems facing the economy.
The key to addressing America’s short and long term debt is by revitalizing the US economy. In part the reason for the budget surpluses in the 1990s was a rapidly growing economy (with higher tax rates than today) and increasing worker productivity as a result of taking advantage of the new computer and information technologies. The first priority should be strengthening the economy by increasing employment, productivity, and wages as opposed to worrying about debt reduction.
But there are challenges to do this. The growing gap between the rich and poor and across races has created structural inequalities that compromise mobility and economic productivity. There are performance gaps in education, significant affordability for college, and an overall declining position in the US vis-a-vis the rest of the world when it comes to education and training in general. The country needs to address this issue for long-term growth and sustainability. This is the Fiscal Canyon–the enormous gap between current expenditures and the investments we need to make in America’s future.
There is also an imperative to invest in our aging road and highway infrastructure, with some estimates placing the need at over $2 trillion to make repairs. This does not include investments for the future to modernize telecommunications and energy.
Finally, there is a demographic issue. Our population is aging and we need to figure out not only how to pay for benefits promised, but also how to ensure that there are sufficient workers for the future. In terms of benefits, the US spends 18% of its GDP on health care–by far the most costly in the world–and it does not have universal coverage or the best marks in terms of outcomes. The issue of course is still how to reduce costs but simply cutting spending does not solve anything if people are sick. Conversely, the aging population means fewer younger workers, but those workers need the skills to do the jobs needed over the next 50 years.
Yes, the Fiscal Cliff is a problem, but the Fiscal Canyon, two generations in the making, is the real issue that Congress and the President should address, but will not.
The Fiscal Cliff is actually a four-fold set of problems that Congress and the president immediately face.
There is first the expiration of the Bush era tax cuts. These were the massive and fiscally imprudent tax cuts President Bush and Congress pushed though in 2001. They occurred at a time when the Clinton presidency and the economic growth of the late 1990s left the country with successive budget surpluses and the belief was that the government had more money than it needed and that the tax cuts would stimulate the economy. The tax cuts included cuts in the top rates on income as well as capital gains. They were sold as cuts to benefit the middle class when in reality the vast majority of the benefit went to the wealthiest who did little to invest them in job and economic growth. The first decade of the twenty-first century witnesses the worst record in job production in decades.
The biggest focus of the this aspect of the Fiscal Cliff is that if nothing is done, a typical middle class family of four would experience a tax increase of $2,200 if the Bush era tax cuts expire.
Second, there is the budget cuts that are due to kick in. These budget cuts are a result of a deal that Congress and the president reached in 2011. They agreed, or better yet, kicked the can down the road, to a budget framework that declared that if they could not agree to a budget agreement to reduce America’s $1 trillion+ annual deficit and begin to pay down the nearly $16 trillion nation debt, certain automatic cuts would take place. Over 1,000 government programs would face significant budget cuts totally in excess of several hundred billions of dollars over the coming decade. These cuts would come in terms of both military and other discretionary spending.
The tax increases and spending cuts are the most immediate problems of the Fiscal Cliff. If no action occurs most economists think that this cliff would throw the economy into a recession. The reason for this is simple Keynesian economics–a rapid decrease in demand as both consumers and the government cut back on purchases and demand, thereby slowing down the economy.
But there are really two other aspects of the Fiscal Cliff that are coming due too.
The first is that the debt limit for the US government also expires around the beginning of the year. If that is not extended the US government runs out of money. That too is a big problem and must be addressed. If we do not extend the debt limit the United States technically defaults on its loans. It also means it runs out of money to finance the government, thereby forcing a shutdown or curtailment of funding for many programs.
Finally, the original economic stimulus program that the Obama administration passed in the beginning of 2009 runs out. Despite all the noise to the contrary, the stimulus did preserve several million jobs according to most credible economists.
Failure to address any of these four prongs of the Fiscal Cliff is enough to damage the US economy, but letting all four go unintended is a major recipe for disaster. So what do we do? Here are the options.
1. Do Nothing. This is the disaster just mentioned. It hurts the US economy both short and long term.
2. Kick the can down the road. Extend the tax cuts for all for another short period of time and delay the spending cuts too. In effect, “kick the can” down the line for another few months so that the next Congress deals with it. Congress already did this once back in 2011 and it possible they do that again. However, this kicking of the can is very temporary and does little to address the short-term jitters in the US economy (companies failing to invest because they want a stable economic picture) or long term to address the broader structural problems in the US economy.
3. Extend Bush Era tax cuts for the middle class. Enact tax cuts for everyone except those with individual incomes over $200,000 of family incomes of $250,000 per year. This solves the tax increase problem but does not deal with the automatic budget cuts. It also fails to deal with the debt limit and an economic stimulus.
Republicans in the new Congress may be able to live with part of this since they would be voting for tax cuts for the middle class and could say they did not vote for tax increases.
4. Enact Simpson-Bowles Commission Recommendations. The Simpson-Bowles Commission offered proposals on how to deal with long-term debt. This proposal includes reforms (cuts) to entitlements such as Social Security and Medicare. It was DOA when its ideas came out but some still this is a framework for addressing problems.
Beyond the fact that politically it is DOA, it does not really solve economic problems in the long term. Raising retirement ages or cutting benefits hurts the poor and the young, and in many ways, for those in blue collar jobs, raising the retirement age discriminates against those who do physical labor and will not last long enough. Moreover, cutting benefits when fewer and fewer people have pensions and serious retirement income options condemns a new generation of people to poverty.
5. None of the above. In reality, none of the ideas above really solve or address the bigger economic problems facing the United States. All at best are band-aids or whitewashing over more fundamental problems facing the economy.
The key to addressing America’s short and long term debt is by revitalizing the US economy. In part the reason for the budget surpluses in the 1990s was a rapidly growing economy (with higher tax rates than today) and increasing worker productivity as a result of taking advantage of the new computer and information technologies. The first priority should be strengthening the economy by increasing employment, productivity, and wages as opposed to worrying about debt reduction.
But there are challenges to do this. The growing gap between the rich and poor and across races has created structural inequalities that compromise mobility and economic productivity. There are performance gaps in education, significant affordability for college, and an overall declining position in the US vis-a-vis the rest of the world when it comes to education and training in general. The country needs to address this issue for long-term growth and sustainability. This is the Fiscal Canyon–the enormous gap between current expenditures and the investments we need to make in America’s future.
There is also an imperative to invest in our aging road and highway infrastructure, with some estimates placing the need at over $2 trillion to make repairs. This does not include investments for the future to modernize telecommunications and energy.
Finally, there is a demographic issue. Our population is aging and we need to figure out not only how to pay for benefits promised, but also how to ensure that there are sufficient workers for the future. In terms of benefits, the US spends 18% of its GDP on health care–by far the most costly in the world–and it does not have universal coverage or the best marks in terms of outcomes. The issue of course is still how to reduce costs but simply cutting spending does not solve anything if people are sick. Conversely, the aging population means fewer younger workers, but those workers need the skills to do the jobs needed over the next 50 years.
Yes, the Fiscal Cliff is a problem, but the Fiscal Canyon, two generations in the making, is the real issue that Congress and the President should address, but will not.
Monday, October 31, 2011
The Hype on Taxes: They Don’t Matter Much
Taxes impede economic growth. This is the belief among the Republican presidential contenders as they offer plans to cut taxes as a panacea to stimulate the economy. Herman Cain’s “9-9-9” assumes lower income tax rates for corporations and individuals will stimulate the economy. Newt Gingrich wants to cap top rates at 15% and Rick Perry has called for a national flat tax of 20%. Mitt Romney has a 59 point plan that includes tax cuts. Ron Paul wants a constitutional amendment to eliminate income and estate taxes. Michele Bachmann wants a return to the Reagan era tax cuts. All want to make the Bush era tax cuts permanent.Yet do high taxes really hurt the economy as much as they believe, and will lowering them have much of an impact on stimulating it? The economic literature is clear — tax breaks to encourage economic relocation or investment decisions are inefficient and wasteful. Hundreds of studies reach this conclusion. When businesses are surveyed regarding factors important to their investment decisions, taxes often come in behind proximity to markets, suppliers, and the quality of the labor force. These other factors occupy a larger percentage of a business's budget than do taxes, and all of them are far more critical to long-term success than are taxes. Businesses occasionally admit this. Nearly 62 percent of those interviewed in a California study on hiring tax credits indicated that they had never or rarely affected their decision to employ individuals. Speaking at a recent chamber of commerce event, I asked business leaders whether the Obama tax cuts would encourage them to hire. Unanimously the response was no—they were unwilling to hire until such time that consumers were willing to buy their products and services.
Anecdotal stories and illustrations also confirm the tax fallacy. High tax states such as Minnesota have generally fared better in terms of economic growth, unemployment, median family incomes, and location of Fortune 500 companies, than low tax ones such as Mississippi and Alabama. In many situations high taxes, and with that, government expenditures on education, workforce training, and infrastructure, correlate positively with income, low unemployment, and business retention. One needs to look not just a one side of the equation—taxes—but the other side too—what taxes buy—to see what value businesses get out of them in terms of educated workforces and infrastructure investments. Most debates fail to do this.
Bureau of Economic Analysis statistics demonstrate how economic growth is related to tax rates. One can compare annual economic growth as measured by the percent change in the gross domestic product (GDP) percent based on current dollars to the highest federal individual tax rate and the top corporate tax rate since 1930. If taxes are a factor affecting economic growth, one should see an inverse relationship between growth of the U.S. economy and higher tax rates. The GDP should grow more quickly when top individual and corporate tax rates are lower. If taxes are a major factor deterring economic growth, lines on a graph should go in opposite directions: As tax rates go up the GDP should go down.
No such pattern emerges between high taxes and GDP growth over 80 years. During the Depression of the 1930s corporate and individual taxes rates increased, but in 1934 through 1937 the GDP grew by 17%, 11%, and 14% annually. Top corporate tax rates climbed to over 50% through the 1960s, again with no discernable pattern associated with decreased economic growth. The same is true with top tax rates on the richest which were 91% into the 1960s. Conversely, since the 1980s after Kemp-Roth and then after 2001 with the Bush era tax cuts, there is no evidence that the economy grew more rapidly than in eras with significantly higher tax rates on the wealthy and corporations. Looking at time periods when tax rates were at their highest, GDP often grew more robustly than when taxes were cut. Visually, the attached graph simply fails to demonstrate that tax rates negatively impact economic growth. (Click on the graph to get a better view of it).
Pictures are worth a thousand words, but statistics are priceless. Statistically, if a tax hurts economic growth, the correction with it is -1. If they positively facilitate growth the relationship is 1, and if they have no impact the relationship is 0. The correlation between GDP and top individual taxes is 0.29, between GDP and top corporate taxes is 0.32, and among the three it is 0.14. Statistically, there is a slight positive impact on either top individual or corporate taxes or economic growth, but overall almost no connection between tax rates on the wealthy and corporations and economic growth in the United States.
But what about taxes as job killers? Again running similar statistical tests, there is little connection. Using Bureau of Labor Statistics data on unemployment rates since 1940, the correlation among top individual and corporate taxes and the annual unemployment rate is -0.02—essentially no connection at all.
The simple claim of Perry, Cain, and others that high tax rates on the wealthy and corporations hurt economic growth and job production is false. The evidence is simply not there to support assertions that high taxes alone hurt the economy or that cutting them will have the stimulus effect asserted.
Friday, October 28, 2011
A plea for fact-based policymaking in an era of political myths
Comedian George Carlin quipped that "business ethics" was an oxymoron. The same can now be said about reasonable politics. Politics and the making of policy seems less to rest upon reasoned debate, social-science evidence, and facts than upon hope and belief. Rep. Michele Bachmann panders to ignorance when decrying vaccines as causing retardation. She, along with Herman Cain, Gov. Rick Perry, and most of the other Republican presidential hopefuls deny global warning, evolution, and a host of other well-established facts, preferring to base their candidacies and appeals on propositions lacking rational or empirical support.
Ronald Reagan famously misspoke: "Facts are stupid things." He seems to have gotten it right when it comes to political debate, pointing to how truth takes a backseat to myth or worse — lies. Two of Reagan's myths — welfare queens exploding the federal budget deficit, and supply side economics as trickling down to benefit us all – both failed truth tests. But that did not matter then or now; people bought them as simple answers to complex problems.
Today, untested or worse, crackpot or refuted ideas dominate political debate. Nationally, we hear rants about how illegal aliens are a drain on the economy and that they take jobs from Americans, when in fact the evidence suggests otherwise and that they are net contributors to our country. Taxes are assailed as job killers when evidence suggests that they are a marginal factor behind workforce quality, access to supplies and consumers, and transportation costs as more important factors affecting business location and expansion decisions. Conversely, little evidence supports the idea that tax holidays to repatriate corporate savings back to the United States will yield job production. Herman Cain more or less admits that his "9-9-9" was conceived as a bold political idea that was not based on any real evidence of its impact.
A bevy of other stupid public policies and political myths dominate the American political landscape. Wrongly we believe that welfare migration is a major problem in the country. Some contend that teaching sex education to teenagers encourages promiscuity, that we can pray away homosexuality, or that same-sex marriage hurts traditional matrimony. Never mind what the best research and facts state.
Both parties indulge
Myth-based politics does not seem confined to one party. Gov. Mark Dayton is determined to secure funding for a new Vikings stadium even though the economic evidence is overwhelming that public subsidies for this purpose are one of the worst uses of tax dollars there is as a tool for economic development. Conversely, the Minnesota Majority continues to beat the drum of voter fraud as stealing elections when the absolute best research suggests that in-person election fraud is negligible, that there is no evidence that it has affected the outcome of any recent election, and that voter-identification laws will not prevent this fraud and instead will disenfranchise many individuals.
As a professor who has taught public policy for nearly 25 years and a former government administrator and planner who worked in the world of facts, evidence and research, I find all this frustrating, especially when called upon to testify before the Legislature. Seldom have I seen facts — and not ideology or prejudice — move elected officials.
My students are not given the liberty simply to assert opinions unless they can support them with evidence. We should ask no less of our politicians and government officials. Reporters do not press candidates to substantiate their claims, and the public often gives them a free pass, letting emotion, anger or frustration guide decision-making. What results are bad laws and foolish policies that do not work, waste taxpayer money, and often make the problems worse than before.
Evidence dismissed
Recently I gave a talk to a local Rotary Club about the 2012 elections. When I finished, a minister came up to me and asked where I stood on voter-ID laws. I told him that I had researched and written on the subject extensively and that the evidence of fraud was negligible. He dismissed my statement, declaring: "I am from Milwaukee, I know about voter fraud. They bring busloads of those folks up from Chicago all the time to vote in our elections."
I shook my head in disbelief. "Those people?" He might as well as said blacks, because that is what he meant. I am not sure what disappointed me more — the racism, the dismissal of the facts or that he was a minister. Why he asked my opinion I do not know — except to confirm his prejudices. It was clear his mind was made up and no amount of facts would change it. He embodied all that is wrong with contemporary politics — one not of evidence-based policy making but one dominated by blind ideology, ignorance or willful disregard of the facts
Today's blog appeared in the Friday, October, 28, 2011 Minnpost.
Friday, August 5, 2011
Lessons of the debt deal -- politics in the age of American decline
Today’s blog also appeared in Minnpost on August 5, 2011.
Lessons of the debt deal -- politics in the age of American decline
By David Schultz | Friday, Aug. 5, 2011
The deal to raise the debt ceiling damaged the United States in many ways. It did little to address the long-term economic problems of the country while exposing the fragility of American political institutions and the factional nature of this country's political system. It reveals the politics of America in the age of decline.
The debt deal needed to confront two issues: the debt financing the empire in the past, and the debt financing its future. Paying an increasing percentage of the federal budget to debt management is bad accounting. Yet the agreement really did little to confront either. The debt ceiling was raised — partially averting one problem — but the real choices about how to finance long term spending commitments were ignored. Creating a super committee pledged to find $2 trillion plus in savings merely postponed the tough choices for the future. As such, the agreement was more symbolic than substantive.
Four broad issues challenge U.S. financial future
Yet long-term spending and its economic impact are not the only issues that need to be addressed. Collectively, four broader forces challenge America's financial future, hampering its leadership role in the world.
• The first is the declining economic performance of the country, both short and long term. Short term, the economy is headed to a double-dip recession, simultaneously decreasing tax revenues and increasing demand for government services. Longer term, America needs to reinvest in its infrastructure, schools and workers, modernize its technology, and transition to new energy sources. The debt agreement makes it difficult for the United States by choking off investments required for any of these. Lacking investments in the economy, it will never grow fast enough to generate the tax revenues necessary for the American empire.
• Second, demographics will continue to challenge the United States as its population ages, demanding more health-care expenditures and retirement benefits at a time when the number of workers to sustain their parents decreases rapidly. Health-care reform in 2010 did little to address cost containment, and there is no indication that the debt-reduction super committee will tackle these problems in the coming months, especially as the 2012 elections approach.
• Third, the current tax system is unsustainable. It is inefficient, failing to support economic growth and job production. It is also inequitable, pushing less of a demand on corporations and the wealthy to pay their share. All this was predictable. Nine months ago Obama caved into an extension of the Bush-era tax cuts. Now to pay for them, the poor and middle class must sacrifice. Merely repealing the Bush-era tax cuts would get the United States a long way toward dealing with its longer term debt. Better yet, return the corporate tax rates to what they were in the 1960s, a time when U.S. corporations were their most profitable, and lift the income cap of Social Security taxes, and most of the longer-term debt problems disappear. Instead, the opposite is occurring — the American empire is a corporate one financed more and more by cuts to the poor and middle class.
• Fourth, much of the recent debt is the cost to pay for military excursions abroad in places such as Afghanistan and Iraq. America continues to spend unsustainable amounts to fund its military and foreign-policy objectives. The debt deal did nothing to rethink these priorities and instead threatens military spending as an incentive to make cuts elsewhere.
Fewer resources for U.S. priorities in the world
The debt deal thus does little to generate for the United States the resources it needs to maintain its economic and military position in the world. It is vastly overcommitted already, unable to sustain its current objectives let alone take on new ones in the world. For the future the United States will have fewer resources to pressure for human rights in Syria and Iran, to confront global terrorism, and to economically compete in a world becoming better educated and more productive than America.
The debt-management deal could have addressed the problems facing America but did not. It failed because of a collapse of domestic politics. The American Century was held together by a bipartisan consensus sustained by economic growth. Take away that growth and the consensus disappears. Thus, the factional politics and serious dissensus between President Obama and the Republicans in Congress over the debt ceiling and reduction was so intense because of a basic dispute over how to finance American commitments in an era of declining resources. Lacking economic growth, politics has become a zero-sum game, with clear winners and losers. Here, the debt deal revealed little in terms of a victory to reverse the decline, thereby suggesting an intensity of politics for the foreseeable future.
Friday, December 24, 2010
A Merry Obama Christmas
It was a good week for Obama according to most politicos. He got repeal of DADT, passage of the arms treaty with Russia, and adoption of the 9-11 victims’ medical funding. After a shellacking on November 2, many see these accomplishments as signs that Obama is not dead and that he is well on the road to redefining his presidency and proving that he will be able to work with the GOP for the next two years. There is, a new life for Obama and he demonstrated that he has the skill to work across the aisle. Obama proved his abilities and competencies this past week.
This is the conventional reading of what happened. But is this reality? Maybe, but I think a lot more has to do with the fact that Obama capitulated on one big item–the Bush era tax cuts–and as a result the GOP got what it really wanted and all else did not matter.
Let’s look at the victories of the last few weeks. Obama gets unemployment insurance extensions, some minor stimulus in the tax bill, and then all the legislation noted above. All good perhaps, but there are other ways to look at all this.
First, too little too late. By that, Obama gets all this way past when it mattered. He needed to get much of this before November 2, to help him and the Democrats. Repeal of DADT before then might have helped with his base. But it took until the last minute after the election to get it repealed. It provided no political bump for November 2, and it is not clear how much passage of any of these items will be either to his base or swing voters in 2012.
Second, many of these items should have been secured easily. An arms treaty, extension of unemployment, and DADT, all should have been easy. Some of them should have received broad GOP support especially when many workers are Republicans who have lost their jobs. Thus, it is good they passed, but that should have happened all along. Obama gets credit for doing now what should have been no brainers earlier in the year. Good job.
But was it Obama’s skills that rounded up Democrats and eroded GOP opposition? This is Obama’s read. However, for the most part, the GOP gave up fighting on these because in the end they were the hostages in a bigger battle–tax cuts for the wealthy.
It’s the (capitalist) economy stupid!
What really mattered to the GOP was the extension of the Bush tax cuts to the rich. This is what they really wanted. It means mega billions for the rich, a massive continuation of wealth transfer or retention for America’s wealthy. It is worth hundreds of billions to them, even though the tax cuts do little or nothing productive in terms of producing jobs, investment, or helping the economy. The cuts do little to stimulate, they do little to ease unemployment, they do little to address home owner foreclosures, they do little to encourage capital investment in the new green economy or in upgrading our infrastructure. They do add $900 to the federal deficit!
The GOP got what they wanted. They and Obama were willing to mortgage America’s fiscal future to serve their political needs.
Once Obama capitulated on the tax cuts he essentially melted GOP resistance on everything else that was being held hostage. To the GOP they were minor issues. Don’t get me wrong, repeal of DADT is important, as is the arms treaty and the other measures passed. But they pale in comparison to the GOP and others in terms of the economic consequences of the tax cut. The cuts continue the economic era of Reagan and Bush, failing to really reverse course on what matters most–the economy.
The melting of GOP opposition on many issues demonstrates how many social and other issues are simply sideshows and wedge issues for the bigger game of the economy and protecting rich corporate interests. Sadly, Obama went along with that in his effort to refine his presidency. He got some things he wanted but at the expense of losing the big one on taxes and the economy.
Thus, the great skill Obama might have demonstrated this past week was to recognize that he could win on all the other issues so long as he gave on this big one. Merry Christmas from Barack Obama.
This is the conventional reading of what happened. But is this reality? Maybe, but I think a lot more has to do with the fact that Obama capitulated on one big item–the Bush era tax cuts–and as a result the GOP got what it really wanted and all else did not matter.
Let’s look at the victories of the last few weeks. Obama gets unemployment insurance extensions, some minor stimulus in the tax bill, and then all the legislation noted above. All good perhaps, but there are other ways to look at all this.
First, too little too late. By that, Obama gets all this way past when it mattered. He needed to get much of this before November 2, to help him and the Democrats. Repeal of DADT before then might have helped with his base. But it took until the last minute after the election to get it repealed. It provided no political bump for November 2, and it is not clear how much passage of any of these items will be either to his base or swing voters in 2012.
Second, many of these items should have been secured easily. An arms treaty, extension of unemployment, and DADT, all should have been easy. Some of them should have received broad GOP support especially when many workers are Republicans who have lost their jobs. Thus, it is good they passed, but that should have happened all along. Obama gets credit for doing now what should have been no brainers earlier in the year. Good job.
But was it Obama’s skills that rounded up Democrats and eroded GOP opposition? This is Obama’s read. However, for the most part, the GOP gave up fighting on these because in the end they were the hostages in a bigger battle–tax cuts for the wealthy.
It’s the (capitalist) economy stupid!
What really mattered to the GOP was the extension of the Bush tax cuts to the rich. This is what they really wanted. It means mega billions for the rich, a massive continuation of wealth transfer or retention for America’s wealthy. It is worth hundreds of billions to them, even though the tax cuts do little or nothing productive in terms of producing jobs, investment, or helping the economy. The cuts do little to stimulate, they do little to ease unemployment, they do little to address home owner foreclosures, they do little to encourage capital investment in the new green economy or in upgrading our infrastructure. They do add $900 to the federal deficit!
The GOP got what they wanted. They and Obama were willing to mortgage America’s fiscal future to serve their political needs.
Once Obama capitulated on the tax cuts he essentially melted GOP resistance on everything else that was being held hostage. To the GOP they were minor issues. Don’t get me wrong, repeal of DADT is important, as is the arms treaty and the other measures passed. But they pale in comparison to the GOP and others in terms of the economic consequences of the tax cut. The cuts continue the economic era of Reagan and Bush, failing to really reverse course on what matters most–the economy.
The melting of GOP opposition on many issues demonstrates how many social and other issues are simply sideshows and wedge issues for the bigger game of the economy and protecting rich corporate interests. Sadly, Obama went along with that in his effort to refine his presidency. He got some things he wanted but at the expense of losing the big one on taxes and the economy.
Thus, the great skill Obama might have demonstrated this past week was to recognize that he could win on all the other issues so long as he gave on this big one. Merry Christmas from Barack Obama.
Saturday, December 18, 2010
Missed Opportunities
**UPDATE**
If you missed the political panel on Almanac Friday (12/17/10) you can watch the segment here. The panel is at about the show's halfway mark and the debate was kind of ugly!
In politics, as is true with most things in life, timing is everything. Opportunities come when windows open, but those windows do not remain that way forever. The DFL, Dayton, and Obama are the thought of opportunities in today’s blog.
Minnesota Democrats, Mark Dayton, and the Independence Party
Face it–the Minnesota Independence Party is a permanent minor party. After a highwater mark in 1998 when Jesse Ventura received 37% of the vote and won the governorship, the party has fallen into a permanent minor status. In 2006, Tim Penny received 16.2% of the vote for governor, in 2008 Peter Hutchinson received 6.4%, and in 2010 Tom Horner received 11.9%. In 2008, Dean Barkley received 15.2% as a Senate candidate. The party is more than a blip but it does not seem to have enough strength to be a serious challenger for statewide office in Minnesota. My guess, as I stated throughout the 2010 campaign, was that the Independence Party commands about 10% of the voting population. Its members seem to be composed of former moderate Democrats and Republicans, as well as others who politics do not line up with the two party profile.
At the same time the IP is about 10% of the voters, neither the DFL nor the GOP seem able to command a majority of the population. If the governor’s race is considered, there has not been a governor who received more than 50% of the vote since 1994. The 2008 Senate race shows the same, although the 2006 race did produce a majority with Klobuchar. The point here though is that the fate of the GOP, DFL, and IP are connected–all three are fighting for majority status and none can achieve it alone.
In a parliamentary system the permanent minority status of parties forces coalition governments to form and rule. Ventura sort of did that in 1998 when he picked his commissioners from across all party stripes. There is a similar opportunity here now for the DFL and Mark Dayton.
The DFL and Mark Dayton need to raid the IP. There is an opportunity here for the DFL and Dayton to reach out to the IP and bring them into their party. The GOP could do this too but seem to have abandoned this approach recently when it shunned its moderates who supported Horner. These Arnie Carlson and David Durenburger types have no place to go except a permanent minority status within a 10% IP. The DFL and Dayton should reach out to them? What should they do?
* Dayton should appoint Tom Horner and other prominent IP members to serve in his administration
* DFLers should allow IP members to caucus with their party
In addition, now is the time to reconsider fusion. Fusion was a big issue about 15 years ago. It would allow cross party endorsements on the ballot. Thus, as is the case in NY, a candidate for the Democrats could appear on ballot also as the endorsed candidate for the Liberal Party. Here, fusion would allow a candidate to appear as the DFL and IP endorsed candidates. Fusion, which is not legal at present in Minnesota, potentially would allow for a building of political coalitions to form a majority party and the strengthening of a third party. IP voters who otherwise would not vote DFL would vote for the person as an IP candidate. Something that ranked choice voting will eventually allow for the same creation of new majorities, but I am not sure that alone with will do that even though I support RCV as a voting option.
Whatever the practical option is, the simple statement here is that there is an opportunity for the DFL and Dayton here–raid the Independence Party, bring their voters over, and use the chance to create a new majority.
Thoughts on Dayton
A few quick thoughts on the Dayton transition. He has appointed good people so far, most notably Peter Watson as his counsel. The rest of his staff is good, but missing so far from the early appointments is a budget director. With a $6.2 billion deficit and the demands to have a budget in early January, one would think one of the first appointments would have been a budget director. Moreover, none of the early appointments are budget people. He need to act quickly. The best names out there? Matt Smith who was budget director under Ventura and Senator Dick Cohen who has done the budget for the Senate for years.
Lacking a budget person already has hurt Dayton. His meeting with the GOP legislative leadership was interesting and a nice gesture, but they are driving the budget agenda right now because Dayton does not have a budget person in place.
Additionally, Dayton keeps announcing how he is reaching out to the GOP and he seems to be modifying his positions. So far I have yet to detected the same with the MN GOP vis-a-vis Dayton and their views.
Thoughts on Obama
Dayton’s compromise segues to Obama and his signing of the extension of the Bush era tax cuts. He justified the move as a necessary compromise, as a way to get middle class tax cuts, to get unemployment tax cuts, and to stimulate the economy. (See the above video link to TPT's Almanac to see me arguing with Larry Jacobs on some of the following points)
Bad economics. There is some stimulus here but not much. In many ways the tax cuts only continue the status quo and too much of the cuts go to the rich who will not use it to stimulate the economy unless you believe in supply-side economics. Second, despite Larry’s assertion that mainstream economists say it will raise the GDP by 1.5%, that bump is at best short term and wears off by 2012 ( also cannot find economists who are saying what Larry is asserting). Third, the cuts add $900 to the deficit, only delaying the inevitable problems of deficits and eventually spending cuts which will probably hurt the poor and middle class first. Overall, whatever short term economic benefit there is, the benefits are outweighed by the economic problems they create.
Bad politics. This is a naked grab by Obama to get middle class and swing voter support. I doubt it does that. Two years from now they will not remember this. Second, the tax cuts are extended only for two more years and in the middle of the next presidential campaign they will be debated again. Obama will again be unable to oppose their extension and again they will pass. Democrats who oppose them will be unable to do so because opposing tax cuts is never easy.
Obama basically sacrificed his political base and the economy for his political fortunes and I am not sure how much benefit he reaps from it.
Monday, December 13, 2010
The End of the Obama Presidency?
The current Obama presidency came to an end last week. What it means for 2012 and his re-election bid is that for the first time I think there is a serious chance that he might not get reelected. The reasons for that are the economy, alienating his base, and potential white voter backlash.
In general it is hard to defeat sitting presidents. Yes, Carter and Bush I both lost, but it took bad economic conditions and a third party vote for Ross Perot to do that. Previous to that, Ford did lose but he was barely an incumbent and he pardoned Nixon, and LBJ opted not to run. However, before that, it was Hoover (1932), Harrison (1892), Cleveland (1888), Van Buren (1840) and John Adams (1800) who lost when running for election. The economy and major crisis seem to be the usual reasons for incumbents losing.
Kerry in 2004 is a testament to how difficult it is to defeat a sitting president. They have to make major mistakes or blunders to lose, or be so dragged down with the economy that their candidacy is destroyed by it. Obama faces both.
The economy remains a mess. In a couple of blogs ago I wrote about the persistent unemployment, the failure to address the mortgage market, and the perception that he favored the banks over the people. These problems persist. Yes, Obama will get some bump from the economy in the next year or so but short of a miracle too many people will be jobless.
Beyond the economy, two fatal blows were delivered. First the failure to repeal “don’t ask, don’t tell” means he has dramatically lost or alienated the young under-30 vote and the GLBT community. They supported him enthusiastically in '08 and stayed home in '10. The latter will be true in '12.
In addition, his compromise on the Bush tax cuts infuriated his liberal base. The cuts may still pass, but he threw Democrats and liberals under the bus in order to appease swing voters. The House refusal to bring the original proposal to a vote demonstrated the anger. Had this been a parliamentary system, the refusal to vote on it would have triggered a vote of no-confidence and a collapse of the government. That is what happened last week effectively.
The fatal error here is Obama alienated his base. They will not vote against him in '12, but certainly they will not come out strong for him. He is counting on them having no alternative and voting for him. Don’t count on it. Ignoring your base and raising expectations–only to disappoint–is the surest way to lose them.
Thus, Obama’s strategy? Hope your base holds their nose and votes for you in '12 out of fear of the GOP, and try to regain the swings voters. Preliminary polls suggest the swings like the Obama tax deal, but is it enough to swing them to his side? Maybe not.
Many who voted for Obama in '08 were whites so disappointed with Bush and the economy they were willing to take a chance. Fear and disgust melted some white opposition but they may not happen again. Obama may have a harder time getting their support.
So, how is the end of the Obama presidency? Obama is swapping one type of presidency for a another. If the narrative of the first presidency was change now it is survival. It is a defensive presidency, one aimed at governing with the support of the GOP and swings and not the Democrats. Why after two years he thinks he can win over the GOP is a mystery to me. Finally, I remain perplexed regarding the narrative that Obama has for the next two years. What is it?
A Note on Michael Bloomberg
Bloomberg has said no to running for president in '12. He has a great opening. A combination with Obama disenchantment, a GOP field that is ultra conservative, and the independent streak the NYC mayor has (plus his money), give him a great opening in '12 if he wants it.
In general it is hard to defeat sitting presidents. Yes, Carter and Bush I both lost, but it took bad economic conditions and a third party vote for Ross Perot to do that. Previous to that, Ford did lose but he was barely an incumbent and he pardoned Nixon, and LBJ opted not to run. However, before that, it was Hoover (1932), Harrison (1892), Cleveland (1888), Van Buren (1840) and John Adams (1800) who lost when running for election. The economy and major crisis seem to be the usual reasons for incumbents losing.
Kerry in 2004 is a testament to how difficult it is to defeat a sitting president. They have to make major mistakes or blunders to lose, or be so dragged down with the economy that their candidacy is destroyed by it. Obama faces both.
The economy remains a mess. In a couple of blogs ago I wrote about the persistent unemployment, the failure to address the mortgage market, and the perception that he favored the banks over the people. These problems persist. Yes, Obama will get some bump from the economy in the next year or so but short of a miracle too many people will be jobless.
Beyond the economy, two fatal blows were delivered. First the failure to repeal “don’t ask, don’t tell” means he has dramatically lost or alienated the young under-30 vote and the GLBT community. They supported him enthusiastically in '08 and stayed home in '10. The latter will be true in '12.
In addition, his compromise on the Bush tax cuts infuriated his liberal base. The cuts may still pass, but he threw Democrats and liberals under the bus in order to appease swing voters. The House refusal to bring the original proposal to a vote demonstrated the anger. Had this been a parliamentary system, the refusal to vote on it would have triggered a vote of no-confidence and a collapse of the government. That is what happened last week effectively.
The fatal error here is Obama alienated his base. They will not vote against him in '12, but certainly they will not come out strong for him. He is counting on them having no alternative and voting for him. Don’t count on it. Ignoring your base and raising expectations–only to disappoint–is the surest way to lose them.
Thus, Obama’s strategy? Hope your base holds their nose and votes for you in '12 out of fear of the GOP, and try to regain the swings voters. Preliminary polls suggest the swings like the Obama tax deal, but is it enough to swing them to his side? Maybe not.
Many who voted for Obama in '08 were whites so disappointed with Bush and the economy they were willing to take a chance. Fear and disgust melted some white opposition but they may not happen again. Obama may have a harder time getting their support.
So, how is the end of the Obama presidency? Obama is swapping one type of presidency for a another. If the narrative of the first presidency was change now it is survival. It is a defensive presidency, one aimed at governing with the support of the GOP and swings and not the Democrats. Why after two years he thinks he can win over the GOP is a mystery to me. Finally, I remain perplexed regarding the narrative that Obama has for the next two years. What is it?
A Note on Michael Bloomberg
Bloomberg has said no to running for president in '12. He has a great opening. A combination with Obama disenchantment, a GOP field that is ultra conservative, and the independent streak the NYC mayor has (plus his money), give him a great opening in '12 if he wants it.
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