When is the GOP (and the public) going to learn?
How many times have we heard that the only thing standing in the way of a grand bargain to reduce our growing national debt is Republican intransigence on taxes? If Republicans would only agree to dump Grover Norquist, Democrats will agree to cut spending and reform entitlements. Then, we can all join hands and sing Kumbaya as we usher in a new era of compromise and fiscal responsibility.
Except that now that Republicans have agreed to raise taxes, er, revenue, as part of an agreement to avoid the looming fiscal cliff, liberals appear to have decided that there really isn’t a need to cut spending after all.
Yup, in fact they’ve taken entitlement reform “off the table”.
Senate Democratic leaders signaled Tuesday they would not agree to any entitlement reforms before the end of the year that cut spending on Medicare and Medicaid beneficiaries.
They also said that any year-end deal to avoid the expiration of tax cuts and implementation of spending cuts — known as the fiscal cliff — must include a provision to raise the debt ceiling, which would otherwise have to be addressed early next year.
The White House and Reid have indicated they will not consider cuts to Social Security, a notable change from 2011, when President Obama said “everything is on the table,” including entitlement programs dear to his party’s base.
In other words, we’re back to “tax the rich”, raise the debt ceiling and spend, spend spend. Meanwhile, it is left up to the GOP to “compromise” by breaking the tax pledge (led by the Judas goats, Saxby Chambliss and Lindsey Graham) or be forever branded as the intransigent “bad guys” in this.
Meanwhile, low information Americans who, by over 60% approve of taxing the rich, will buy the spin by the press painting the GOP as the cause/reason for the calamity while Democrats “lament” the problem (“but, hey, that’s now the law thanks to Republicans”) and gleefully rub their hands in delight at all the new revenue they’ll have to “redistribute”.
Some things never change, do they?
If you’re at all concerned about the economy, the answer is likely “not very well”:
U.S. companies are scaling back investment plans at the fastest pace since the recession, signaling more trouble for the economic recovery.
Half of the nation’s 40 biggest publicly traded corporate spenders have announced plans to curtail capital expenditures this year or next, according to a review by The Wall Street Journal of securities filings and conference calls.
Nationwide, business investment in equipment and software—a measure of economic vitality in the corporate sector—stalled in the third quarter for the first time since early 2009. Corporate investment in new buildings has declined.
At the same time, exports are slowing or falling to such critical markets as China and the euro zone as the global economy downshifts, creating another drag on firms’ expansion plans.
Why are we seeing this happen? As it stands, most corporate spenders see no possibility of the hostility toward corporate America easing and also view whatever is to come in January concerning taxes and tax policy to likely be a lose-lose for them however it goes:
Corporate executives say they are slowing or delaying big projects to protect profits amid easing demand and rising uncertainty. Uncertainty around the U.S. elections and federal budget policies also appear among the factors driving the investment pullback since midyear. It is unclear whether Washington will avert the so-called fiscal cliff, tax increases and spending cuts scheduled to begin Jan. 2.
Companies fear that failure to resolve the fiscal cliff will tip the economy back into recession by sapping consumer spending, damaging investor confidence and eating into corporate profits. A deal to avert the cliff could include tax-code changes, such as revamping tax breaks or rates, that hurt specific sectors.
Or, as before the election, an unstable business climate persists which does not provide any incentive to expand, spend or hire. In fact, as indicated above, it is providing precisely the opposite incentives. It’s one reason the GDP forecast for the country has been downgraded again to 1.5% (Mexico, for heaven sake, has GDP growth of 3.2%).
But when you vote for the status quo, well, you get what you vote for — enjoy.
Obama has strained to make everyone believe he is open to “negotiations” on the tax rates in dispute that are leading us inexorably to this “fiscal cliff” everyone is talking about.
The word “negotiate” implies compromise. You give a little, he gives a little, you reach a deal neither really likes but both can live with.
He has no intention of giving anything. Why should he? He can’t run for a third term. He has nothing to lose if he stands his ground. Nope, the only one’s who have anything to lose in this one are the usual deer-in-the-headlights suspects. And, of course, Obama has someone else to blame:
By taking an absolutist line, he’s basically gambling that Republicans will be more reasonable than he is and will blink. But if they don’t blink and we go over the cliff, from his point of view so what? Mr. Obama then has an excuse to blame Republicans if there’s another recession. Meanwhile, he pockets the higher tax rates that take effect on January 1 anyway, and he can then negotiate a budget deal next year without having to make any tax concessions.
He pleases his left wing for which higher tax rates are a secular religion, while pinning one more defeat on Republicans. Lest you think this is a conservative fantasy, it’s more or less the tax cliff strategy that Democratic Senator Patty Murray of Washington advocated on Sunday on ABC’s “This Week” and that labor leaders lobbied for at the White House on Tuesday.
So, as we wander toward Taxmageddon, fear not, either way it goes, Obama figures he wins. So why try?
This is a departure from my previous two posts; it’s not about a particular group that has pulled away from the GOP. Romney pulled a slightly larger share of older voters than McCain did, even if fewer total turned out than in previous years. That the Romney-Ryan ticket did this while proposing entitlement reform is a substantial feat, but it did involve watering down the reforms a great deal. For example, Republicans now make a habit of promising that nobody under age 55 will be affected by their reforms.
Why make this concession when the lion’s share of the fiscal problem is current retirees and the many, many Baby Boomers who will retire soon? Boomers vote, of course, but what motivates them? I don’t think most seniors could bring themselves to act on straightforward greed; I think they’re voting based on a particular concept of fairness.
Specifically, they paid into the system over a long career, and they believe they should be able to get back what they paid in. And even though current Medicare beneficiaries get two to six times as much in benefits as they paid in (if this is right), only about a third of Americans think Medicare beneficiaries get any more than they paid in. As long as they think that way, they’ll continue to oppose means testing and raising the retirement age by wide margins.
You might be tempted to say that our task is to educate them, but it’s much easier to persuade people based on their current beliefs than to convince them of inconvenient facts first. Republicans basically conceded that cutting benefits to older voters at all would be unfair, and pushed complicated plans that few people aside from Paul Ryan can competently defend.
But we might be even bolder if we just hugged that core fairness principle tighter.
September’s Reason-Rupe poll (PDF – fixed link) asked Americans if they’d support cuts to their own Medicare benefits “if you were guaranteed to receive benefits at least equal to the amount of money that you and your employer contribute into the system.” It was a blowout: 68% yes, 25% no. Three quarters of Tea Partiers said yes.
At a stroke, you could slash Medicare in half with a reform based on that principle. (Their August 2011 poll suggested similar support for applying the principle to Social Security, but the cuts would be much more modest.)
Centering a reform on that principle achieves steeper cuts and seems easier to defend than what Paul Ryan is trying. Because if Democrats fought us on it, they’d have to make the wildly unpopular case for entitlements as redistribution programs rather than as “insurance” or “savings.”
The kind of coalition the Right needs for sustainable entitlement reform has to include people who highly value fairness (or, as Jonathan Haidt would call it, proportionality). If we want the project of liberty to be successful, we have to pluck on other heartstrings.
I don’t know how many times we have to point these out or how many ways we have to illustrate that government has no business trying to pick winners and losers, because usually, as with most centralized planning organizations, they get it wrong. Why? Because they’re absolutely blind to signals from the market. Government’s picks are founded more in preference than reality:
Obama touted it in 2010 as evidence “manufacturing jobs are coming back to the United States,” but two years later, a Michigan hybrid battery plant built with $150 million in taxpayer funds is putting workers on furlough before a single battery has been produced.
Workers at the Compact Power manufacturing facilities in Holland, Mich., run by LG Chem, have been placed on rotating furloughs, working only three weeks per month based on lack of demand for lithium-ion cells.
The facility, which was opened in July 2010 with a groundbreaking attended by Obama, has yet to produce a single battery for the Chevrolet Volt, the troubled electric car from General Motors. The plant’s batteries also were intended to be used in Ford’s electric Focus.
The 650,000-square-foot, $300 million facility was slated to produce 15,000 batteries per year, while creating hundreds of new jobs. But to date, only 200 workers are employed at the plant by by the South Korean company. Batteries for the Chevy Volts that have been produced have been made by an LG plant in South Korea.
Talk about outsourcing.
Workers are furloughed for one week every month. And guess who pays for that week?
Boileau pointed out the workers who are on furloughs one week a month are eligible to collect unemployment for that week, and he said the company covers the contributions to their individual benefits during the period.
Reality check commonly ignored when it comes to government:
“Had it been private investors rather than government bureaucrats making the decision, there either would have been a reality check about the industry, or only those who made individual decisions to invest would have lost their money, not taxpayers.”
Instead, government has “socialized” the loss.
The market has moved on – natural gas is cheap and plentiful. It is the future, at least the near future. That’s where everything is going.
Meanwhile, the government continues its near unbroken string of picking losers … not that anyone who knows a thing about economics and markets should be the least surprised. Unlike many other things, this is not “unexpected”.
“Freedom is the right to question and change the established way of doing things. It is the continuous revolution of the marketplace. It is the understanding that allows to recognize shortcomings and seek solutions.”
Ronald Reagan — Address to students at Moscow State University, May 31, 1988
Remember the Orange Revolution? Believe it or not, it’s still pretty darned important.
We’re knee-deep in a presidential election. The European Union is witnessing a slow-motion meltdown. Syria is quickly becoming a bloody nightmare, while North Africa seethes under the vicissitudes of the Arab Spring. Iran marches closer to nuclear arms, and perhaps war with Israel. And Sino-Japanese relations threaten to simmer out of control. So why care about the Ukraine?
The simple answer is because Ukrainians have had a taste of freedom, and liked it, and we should encourage that journey towards liberalization to continue. We have an interest in such development – via free and fair elections, open markets and greater legal protections in its reformed court system – because this is how individuals become personally invested in the growth of the nation, and thus how liberty spreads. As President Reagan emphasized in 1981, “only when individuals are given a personal stake in deciding economic policies and benefiting from their success — only then can societies remain economically alive, dynamic, progressive, and free.” The more societies like that in the world, and especially in the Eurasian region, the better. And this is exactly where Ukraine is poised to go.
Unfortunately, we may be taking steps to discourage further liberalization in the form of a Senate resolution essentially demanding that Ukraine act exactly like a western democracy immediately or face consequences. The reality is that the former soviet republic of nearly 50 million souls is at a crossroads. Will they continue to move towards alignment with the West, or turn back towards familiar haunts in Moscow?
To be sure, the current government has expressed great interest in being integrated into the European Union, going so far as to ink an Association Agreement in March:
The Association Agreement creates a framework for cooperation and stipulates establishing closer economic, cultural, and social ties between the signees. Moreover, Brussels officials expect the document to promote the rule of law, democracy, and human rights in Ukraine.
This first step to entering the EU (which still needs to be ratified) requires a concrete demonstration from Ukraine that it is moving towards “an independent judicial system, free and fair elections and constitutional reform.”
These are exactly the sorts of reforms that serve to expand liberty. Indeed, as Ukraine has liberalized over the past two decades since independence, it has since fits and starts of great economic growth and expanded prosperity. For example, between 2001 and 2008, the economy expanded at an average rate of 7.5%, and despite a severe downturn in 2009, it has continued to grow with exports increasing by 30% in 2010 alone. Indeed, Ukraine is ranked by CNBC.com as the second best country for long-term growth in the world, right behind the Philippines. Ukraine has also begun to institute judicial reforms that promise to train better judges, hold them accountable, and strengthen the fairness of the system that has long been burdened with rampant corruption and cronyism. And for the first time ever, outside election observers will be allowed to monitor the parliamentary elections this month.
Yet, these necessary and welcome reforms lie on a fragile bed.
Ukraine has been moving toward a market economy since it declared independence in 1991. The way has been extremely difficult and bumpy. Twenty years after the beginning of market reforms, Ukraine is still struggling to build a strong, transparent, and sustainable economic system that can provide the Ukrainian people with economic prosperity and social security.
Moving towards greater integration with the West, via the EU, will strengthen that bed. Demanding that Ukraine act as a long-established western democracy right now, today, only serves to further weaken it :
Economics 101 defines the problem of scarcity as unlimited wants with limited resources, and, to paraphrase George Shultz, the laws of economics apply as much in foreign policy as they do at home. While it may be rhetorically satisfying and politically convenient for Americans to assert an equal commitment to every priority in Ukraine, ranging from democratic development to removal of weapons-grade uranium, the reality is that some priorities are achievable, at an acceptable cost and within a realistic timeframe, while others are not.
If we cannot advance all of our values and all of our interests all of the time, then we are left with the necessity of ranking our national priorities. While it is clearly important that Ukraine put an end to politically motivated prosecutions, it bears asking whether resources and attention from Washington that have been focused exclusively on this issue are crowding out other compelling U.S. national interests.
The Orange Revolution was not a battle or a war. It was, and is, a movement. Our national interests will always be aligned with fostering greater liberty, which is what the Orange Revolution movement is all about. Instead of throwing up roadblocks in the Senate, we should be helping build road signs that lead towards further peace, prosperity and freedom.
You remember this or at least have read or seen it on a video:
Bob Schieffer: “The fact is, unemployment is up. It is higher than when [President Obama] came to office, the economy is still in the dump. Some people say that is reason enough to make a change.”
Bill Clinton:”It is if you believe that we could have been fully healed in four years. I don’t know a single serious economist who believes that as much damage as we had could have been healed.”
CBS’s “Face the Nation,” September 23, 2012
That’s exactly the meme the Democrats have been trying to establish for some time. First it was “but imagine how much worse it would have been if we hadn’t have acted”. That foundered on the rocks of 8.2% unemployment.
The new meme is to claim – and that’s all it is – that no one expected the economy to be healed in 4 years, no one. And certainly not any “serious economist(s)”.
But as the Wall Street Journal points out, plenty of serious people, or at least people who’d like to have you take them seriously, not to mention a couple of “serious economists” promised exactly that – we’d be healed in 4 years. The list?
There’s Joe Biden, Nancy Pelosi, Harry Reid, Christina Romer, Jared Bernstein, Mark Zandi, and, most importantly, President Obama himself.
Yup, that’s the case, whether or not the spin- meister, Bill Clinton wants to believe it or not. So how did that work?
Mr. Obama told Americans in 2009 that if he did not turn around the economy in three years his Presidency would be “a one-term proposition.” Joe Biden said three years ago that the $830 billion economic stimulus was working beyond his “wildest dreams” and he famously promised several months after the Obama stimulus was enacted that Americans would enjoy a “summer of recovery.” That was more than three years ago.
In early 2009 soon-to-be White House economists Ms. Romer and Mr. Bernstein promised Congress that the stimulus would hold the unemployment rate below 7% and that by now it would be 5.6%. Instead the rate is 8.1%. The latest Census Bureau report says there are nearly seven million fewer full-time, year-round workers today than in 2007. The labor participation rate is the lowest since 1981.
You don’t say. So, in fact, plenty of serious people and at least two serious economists make Bill Clinton a liar. Yeah, I know, that’s harsh considering most people don’t consider political spin a “lie” per se. I’m just not one of those people.
There have been other excuses tried by the administration and its apologists as well:
The Administration and its acolytes claim that the nature of the 2008 financial collapse was different from past recessions, and that it can take up to a decade to restore growth after such a financial crisis. Economist Michael Bordo rebuts that claim with historical economic evidence nearby.
In reality, the biggest difference between this recovery and others hasn’t been the nature of the crisis, but the nature of the policy prescriptions. Mr. Obama’s chief anti-recession idea was a near trillion-dollar leap of faith in the Keynesian “multiplier” effect of government spending. It was the same approach that didn’t work in the 1930s, didn’t work in the 1970s, didn’t work in 2008, and didn’t work in such other nations as Japan. It didn’t work again in 2009.
The fact remains that there were plenty of promises made by plenty of serious people to include “serious economists” saying they had a plan that would heal us in 4 years.
They have utterly failed.
Tell me again why they should get another 4 years to prolong the failure?
I tend to be more optimistic than Dale about the near-to-intermediate future for the economy and for the culture. This may be unusual for a libertarian, but I’m heartened by many of the ways in which our opponents’ system is unsustainable.
Let me start by saying that, given a certain size of central government, libertarians could do worse than spending almost two-thirds of the budget on a few wealth transfer programs (Social Security and Medicare, both mostly funded by flat taxes, plus Medicaid, which gets much of its funding from the states) and a military like ours. Imagine if that money was spent employing domestic police and busybodies.
But even that government is fiscally unsustainable, so we expect our government to eventually be forced to give up some of its “responsibilities.” Assuming the country avoids a sovereign debt crisis, that adjustment might not be so bad for libertarians. Continue reading
Of course the spin will be that the unemployment rate has dropped to 8.1%.
Unstated is the fact that the reason the unemployment rate dropped is because 368,000 more Americans left the labor force.
In fact, the labor participation rate in the US is at its lowest level since September of 1981. Had we not seen 350,000 dropped from the labor force last month, the unemployment rate would be 8.4%. And if the labor participation rate was the same as the day Obama took office, unemployment would be at 11.2%.
96,000 jobs, while better than nothing, isn’t even close to what is necessary to get this economy going again. And don’t forget, the average monthly gain in 2011 was 153,000 a month. In fact, the U-6, which includes part-time workers looking for full time work, is at 14.7%.
I keep telling you that when you talk about jobs or lack thereof and what that means to individual Americans, it’s personal. While they may care or not care particularly who has the best record in foreign policy or whether or not abortion is something they believe in, being jobless, struggling, and/or knowing someone in the family who is, has much more of a direct effect on a potential voter than the other issues.
14.7% fall into that category with probably twice to three times that many effected by what those 14.7% are struggling with. Believe what you will about the polls right now, but if history is any indicator, Obama isn’t going to get a round 2.
Oh, and just as a reminder of the depth of the failure:
UPDATE: Meanwhile at the Ministry of Truth the “Spin-o-matic” is in overdrive:
While there is more work that remains to be done, today’s employment report provides further evidence that the U.S. economy is continuing to recover from the worst downturn since the Great Depression.
It does? Wow … who knew? Certainly not the 350,000 who dropped out of the labor force this month. But hey, be happy, don’t worry … and ignore the chart.
That’s the argument Ruchir Sharma makes in the Atlantic this week. It is one of those contextual or perspective arguments that says, “of course it’s bad, but look at the rest of the world”. He also, heaven forbid, makes the American “exceptionalism” argument, saying":
Evidence of an American revival, against both developed and emerging world competition, is mounting, driven by the traditional strengths of the American economy–its ability to innovate and adapt quickly.
But … there’s always a “but”:
America’s worst worries — heavy debt, slow growth, the fall of the dollar and the decline of manufacturing — will look much less troubling when compared to its direct rivals. While US growth has slowed by a full point so has growth in Japan and Europe, leaving the United States on top of the league of rich nations.
Sharma says manufacturing is looking up and slowly growing. As for debt? Well, private debt is being shed in record numbers:
Consider the key challenge of "deleveraging" or digging out from debt. A new study from the McKinsey Global Institute shows that the United States is the only major developed economy that is even loosely following the path of countries that successfully negotiated similar debt-induced recessions, like Sweden and Finland in the 1990s. Total debt as a share of GDP has fallen since 2008 by 16 percent in the United States, while rising in Germany and rising sharply in Japan, the United Kingdom, France, Italy and Spain. As in Sweden during the 90s, the fall in total US debt is due entirely to sharp cuts in the private sector, particularly the finance industry and private households.
Note the emphasized points in the last sentence – “private sector”, “private households.”
So what’s our biggest problem, our biggest worry, in fact our biggest economic drag that is likely keeping us bouncing along the bottom of this recession/depression?
Well Sharma doesn’t hesitate in identifying it:
The weak link in the U.S. response to the debt crisis is the government. The Scandinavian cases show that government needs to start cutting spending and debt roughly four years after the downturn — exactly the stage where the US is today. Washington has so far failed to put in place a plan for long-term debt reduction, in part because some politicians and pundits are still pushing for more borrowing to ward off "depression." The Scandinavian cases suggest this is exactly the wrong worry right now. The public debt is a big reason that long-term US growth is likely to slow, but even then, it is important to keep America’s debt problem in perspective. China is arguably worse off, with total debt equal to 180 percent of GDP. The more wealthy you are, the more debt you can carry, so America’s total debt (350 percent) is actually less of a challenge.
Don’t worry, be happy … our debt problems is less of a challenge? No, that’s not the point. It means, relatively speaking, we’ve been somewhat lucky because the strength of our economy and its size has helped ameliorate the drag increased government debt has placed upon our economic recovery.
Note what Sharma says, given the evidence of the “Scandinavian cases” – we should be cutting spending and debt “four years after the downturn”.
That would mean what? No QE3. No trillion dollar budget deficits as far as the eye can see.
However, that’s the plan right now.
President Obama has a campaign ad out talking about how we don’t need to repeat the “Republican plan” because, in his words, we’ve tried that and it didn’t work.
Well I hate to break it to you but what he has planned for the next four years, if he’s re-elected, is a reprise of his first term. Spend, spend, spend and expand government programs and services (to the tune of $46 trillion over 10 years, much of it debt).
And the Fed? It’s easing its way toward another quantitative easing (QE3), essentially ignoring the fact that the first two pushed about $10 trillion in cash out there which it is going to have too wring out of the economy at some future date. Adding even more doesn’t hit many as a very sound move.
One of those is Mitt Romney:
"I am sure the Fed is watching and will try to encourage the economy. But I don’t think a massive new QE3 will help the economy," Romney said, referring to a program called quantitative easing.
"I can absolutely make the case that now is the time for something dramatic and it is not to grow government,” he said. “It is the time to create the incentives and the opportunities for entrepreneurs – businesses big and small – to hire more people and that is going to happen.
Key takeaway? Romney gets the proper role of government in the economy – “create the incentives and the opportunities for entrepreneurs – businesses big and small – to hire more people…”.
If government did that – became an enabler – then what should follow? You should see employment begin to rise.
We should be seeing 200, 300, 400,000 jobs a month to regain much of what has been lost. That is what normally happens after a recession, but under this president we have not seen that kind of pattern. We have just been bumping along with barely enough jobs to just hold the unemployment rate about the same – above 8% – 42 months like that. You have to have the Steve Jobs of the world beginning businesses, making products that want to be purchased around the world. That gets Americans back to work."
He’s right. Exactly right. And the current president is clueless. It isn’t about pumping more money into the economy and creating more debt and bigger government. If you want to see policies that continue to cripple what Sharma dubs the “traditional strengths of the American economy”, give the guy in charge 4 more years.
Government’s don’t produce wealth. The private sector does. Government spends that wealth.
(Oh, wait, the private sector “is doing fine”. Never mind.)
Romney gets that part and it is indeed the most important issue of this upcoming election. Getting government out of the way and into the enabler role of providing incentives and opportunities for businesses to grow and expand (while curtailing government spending and expansion) is what will get this nation on the road to recovery.
The current administration doesn’t understand that – at all.
And, for all practical purposes, that’s all you need to know to decide who should be sitting in the Oval Office next January 20th.
Hint: In case you somehow missed it, it isn’t the guy in there now.