Saturday, July 30, 2011

Watching Rome Burn

Why Everyone Should Be Ashamed About the Debt Limit
So, here we stand. 72 hours before the Treasury Department says that the government will run out of money to fund the operations of the Federal Government. And there is no deal in sight. No one has proposed a plan that would even remotely balance the budget for this year. The budget compromise, agreed to by all sides just a few months ago, is off by over 40 cents on the dollar. Even the most aggressive spending reduction plan out there, the Ryan plan, wouldn't come close to balancing the budget anytime in the next 10 years. Yet there is no deal in sight.

This is a very high stakes game of chicken. Over $750 billion worth of wealth has been wiped out in the past week as stocks have faltered, fearing a US default may actually happen. All other policy discussion in Washington has been put on hold for this debate. And no one is leading.

The GOP criticizes the Obama Administration for not proposing a detailed plan for deficit reduction. They are 100% right. In fact, the lack of any meaningful administration attention to our disaster of a balance sheet was the primary reason that I voted Republican in the mid-terms in 2010. The GOP taking of the House did succeed in bringing the issue into focus, but has not sparked the grand compromise that all sides should want. I would further criticize Obama heavily for pushing very hard for the Erskine-Bowles deficit reduction commission, then largely ignoring their very good proposal for months, rather than pushing for adoption at a moment in time when he had broad bi-partisan support from the center for a package that included sensible spending cuts, tax reform that would increase revenues and make the tax system far more efficient and necessary entitlement reforms. In other words, entitlements from the left and taxes from the right becoming third rails is entirely Obama's fault because he did not seize the moment. Finally, Obama literally handed the GOP his best leverage in this discussion by agreeing to an awful tax cut bill at the end of last year while not even asking for a debt ceiling hike at the same time.

Oh, my friends at the GOP, where do I start? Taxes are the lowest they've been since the Eisenhower administration, yet they oppose eliminating special tax breaks for Exxon Mobil? If that isn't an extreme point of view, I don't know what is. And other than the freshman, where exactly where these spend thrifts when federal spending grew by 15% (as a % of GDP) during the Bush administration while taxes were cut by 25%? The people who signed up for Medicare Part D and two wars while asking the American people to pay LESS are suddenly offended when the check comes? What a joke.

The world won't end if a bill isn't passed by August 2nd. The Federal government may have a few more days than the original estimate, thanks to higher than expected tax revenues. And if we do breach the limit, there are short-term options. In leaks to the press, it appears clear that the Obama Administration would avoid the worst catastrophe, failing to make payments on US Bonds, but they would do so at a brutal price to the most vulnerable, delaying social security and unemployment checks and other payments that can be deferred. But don't think for a second that the consequences won't be severe. We have a very fragile economy, which has been teetering on the verge of a double-dip recession and heightened interest rates as well as income lifeline being cut off to the working class could very easily plunge us back into recession, which would ultimately make the deficit problem a whole lot worse.

Let's hope that there is a deal this weekend. Almost any deal is better than no deal. And let's hope eventually the GOP gets serious about compromise and Obama gets a real plan.

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Sunday, July 17, 2011

All Sizzle and No Steak, Could Perry Disrupt the GOP Race?

How the "Grand Deal" is Rapidly Turning Into NothingIt's quite an interesting narrative around the debt ceiling. Historically, debt ceiling increases have been non-events in American politics. The right of the government to borrow is authorized by law. From the country's inception until 1917, Congress individually reviewed every bond issuance. In 1917, realizing that the country's affairs and balance sheet had become far too complex for such micro-management, Congress passed the Second Liberty Bond Act, which authorized blanket federal borrowing, up to a preset limit, at the time, $8 billion. Since that time, Congress has continually raised the limit as inflation and deficit spending have driven the debt up over time. Historically, these increased have passed easily. Congress passed debt increases in 2002, 2003, 2005, 2007, 2008, 2009 and 2010 with little fanfare (do you even remember a debt ceiling debate during the Bush Administration?)

This time however, the newly minted House GOP majority, buoyed by Tea Party activists, saw an opportunity to set the stage for their fiscal policy goals by demanding major deficit reduction in return for the ceiling increase. House Speaker John Boehner set the standard that at least $1 in debt-reducing initiatives must pass for every $1 increase in the debt ceiling. Rep. Paul Ryan laid out the House GOP blue-print which called for radical changes to entitlements and a whole bunch of non-specific cuts to discretionary spending (the Ryan Plan set targets but did not actually say WHAT it would cut beyond entitlements.)

It now appears that the GOP was bluffing and doesn't actually want a deal. Why do I say that? Because President Obama has embraced their somewhat silly position around the debt ceiling (the debt ceiling is a product of laws Congress already passed, so why do they suddenly act shocked and demand cuts when the check comes?) and pushed for a grand bargain, a $4 trillion deal over 10 years that would include 85% spending cuts and 15% new revenues, with the new revenues being generated solely by closing corporate and wealthy tax loopholes. He even put entitlements on the table.

No dice, says the GOP. "Everything" is on the table say John Boehner and Eric Cantor, "everything" that is except tax increases. With taxes sitting at their lowest level in 60 years and the President proposing only the most symbolic of tax hikes, the GOP position is somewhat absurd.

Now it is the GOP, led by Senate Minority Leader Mitch Mcconnell, who are pushing for either a much smaller deal or a gimmick by which Congress would agree to debt ceiling increases in a way that allows the GOP to vote against them but still let them happen.

I've been critical of President Obama's negotiating tactics in the past - I thought he cut a horrible deal on the Bush Tax Cuts and gave away a ton of leverage and I thought that he gave the GOP 80%+ of what they wanted in the Fiscal 2011 budget. But, I admit, I was wrong about this one. He has played it masterfully.

The GOP looks hypocritical and is stuck defending why they would walk away from $3+ trillion in spending cuts because they don't want Exxon-Mobile or private jet owners to lose their special tax exemptions. They look unserious about deficit reduction and like they are simply pandering and playing politics.

In short, the GOP is losing the debate and is scrambling to figure out there new position. Boehner, who actually wants a deal, is wedged by Eric Cantor, who has no interest in legislation. Several others in the GOP have expressed openness to closing tax loopholes, including conservative Tom Coburn and moderate Lindsey Graham. But it looks like there will be no deal.

So, the can gets kicked down the road and the GOP loses credibility. What a shame.

Rick Perry Could Make Waves
It looks increasingly likely the Texas Governor Rick Perry will enter the GOP 2012 Presidential field. He is a compelling candidate in many ways - he obviously has executive experience, he has strong conservative credentials (which is obviously very helpful in GOP primaries and caucuses) and he is a good speaker. In short, he is Michelle Bachmann with more credibility.

His entry would clearly be bad for Bachmann as they would be fighting for the same set of voters. Moderates and those most interested in general election victory would still back Mitt Romney, although conservatives who were holding their nose and supporting Romney because they viewed him as the only credible general candidate, might jump ship.

So, in short, how relevant Perry would become depends on where he pulls his support from. If he steals support mostly from Bachmann, he will simply solidify Romney's national lead. If he stills primarily from Romney, he could win or he could open the door for Bachmann to win with a plurality of Tea Party voters and talk radio listeners.

Either way, in what has become kind of a ho-hum field, Rick Perry's entrance adds an element of excitement.

Sunday, July 10, 2011

The Grand Deal Falls Through, How Republicans Have Changed the Subject, Why John Boehner is Good for the GOP, 2012: Romney or Bust

No Mega-Deal on the Debt
President Bill Clinton's Democratic Party was dealt a complete spanking in the 1994 mid-terms after public backlash against his proposed health care reform sparked the now famous Republican Revolution and Newt Gingrich's Contract with America. Clinton deftly adapted to the new political reality and negotiated with Gingrich to reform welfare and restrain government spending, which led to budget surpluses, a resounding re-election in 1996 and a lasting legacy for both Clinton and Gingrich.

President Barack Obama's Democratic Party was dealt a complete spanking in the 2010 mid-terms after public backlash against his adopted health care reform sparked a Republican takeover of the House and significant gains in the Senate. Some of us (myself included) hoped that this would lead to a grand deal on the deficit, built on the basis of the bi-partisan debt commissions recommendations.

It appears it is not to be, at least for now. The President and House Speaker John Boehner had been quietly attempting to negotiate a 10-year, $4 trillion deal that would have reportedly included not only tax changes but reforms to all three major entitlement programs. Such a deal would've been course-altering for the country and a major feather for both.

But, as is often the case, political reality got in the way. The House GOP wasn't going to bite on even the smallest of tax increases. Liberal Democrats in the House and Senate weren't going to go for entitlement reform. No compromise, no deal.

So, it appears we will likely get a deal half that size, that consists entirely of spending reductions. $2 trillion over 10 years really isn't as draconian as it sounds. It frankly wouldn't even get government back to the size of 5 years ago. But it's better than nothing. And based on the stated GOP principle that they will only vote to extend the debt ceiling only by the amount of spending that is reduced, $2 trillion would still be sufficient to get the country through the 2012 elections, all of which would set up a huge set of decisions for the population in 2012.

Just remember:
(1) The Bush Tax Cuts, extended by Obama, are slated to expire on January 1, 2013.
(2) Also on January 1, 2013, major tax changes take place as part of the Health Care reform act. These include a 0.9% Medicare tax increase on wages over $200K and a 3.9% tax on investment income for those making over $200K.
(3) Assuming a $2T increase, the new debt ceiling will be breached, likely in late 2013.
(4) The individual mandate tax for health care takes effect on Jan 1, 2014.

So, We, The People will likely have a lot to decide next November about the future of the country.

It's All About Spending, Baby
The 111th Congress, over the course of 2 years, passed 383 bills which became law. Granted, some of these were to name post offices and the like, but some very meaty legislation became law in 2009 and 2010, including:
* SCHIP Expansion
* The Lily Ledbetter Fair Pay Act
* The Stimulus Package
* Healthcare Reform
* Two major financial reform bills (the CARD Act and the Dodd-Frank Act)
* 9/11 First Responders Act
* Start Treaty
* Don't Ask, Don't Tell Repeal

In it's first 6 months, the 111th Congress has passed only 23 bills which have become law, or to put it another way, is only on pace to produce 24% as much legislation.

And this is just the way the GOP wants it. Their desire, coming out of the 2010 mid-terms, was to make the discussion all about reducing government spending. And they have succeeded, in spades. First, it was the Fiscal 2011 budget, in which they extracted over $80 million of spending reductions, albeit less than what they had hoped. Now, it is the debt ceiling increase, which will allow them to extract a large number of spending cuts and will consume all of the political air time until at least early August.

Then, lest we forget, Fiscal 2012 begins in October, and save for the House passing a Defense bill, virtually no work has been done on this opportunity for the GOP to extract more cuts.

When was the last time that you heard anyone talk about Immigration Reform, Environmental Policy or anything other than the budget?

John Boehner: Policy, Not Just Politics
House Speaker John Boehner is good for the GOP. Will Boehner and I disagree on a whole host of policy issues, I greatly respect the fact that he is about getting things done, not simply political grandstanding. It was Eric Cantor and whining wing of the GOP that caused the debt talks to break down (along with the liberal whining wing of the Democratic party), not Boehner. Boehner was willing to put everything on the table.

He also masterfully worked through deals with the White House to extend the Bush Tax Cuts and cut the deal that passed on the 2011 budget.

The more Republicans out there actually trying to make policy and strike deals versus simply scoring political points against the White House, the better off the nation and the GOP are.

Romney Is The Only One Who Can Win
Okay, maybe that's a little too bold a statement. If people actually knew Tim Pawlenty or Jon Huntsman, either would be a viable choice against President Obama, in what could wind up being a very close election in 2012. But that isn't going to happen. It's Romney vs. Bachmann unless someone else breaks out very quickly. And Bachmann can't win. I grant you that polling at this stage of the race is still very tenuous, but look at the average numbers this month:

Obama vs. Romney: Obama +5.5%
Obama vs. Gingrich: Obama +11.5%
Obama vs. Huntsman: Obama +14.0%
Obama vs. Pawlenty: Obama +14.2%
Obama vs. Bachmann: Obama +14.3%
Obama vs. Paul: Obama +18.0%

No polls yet on Obama vs. Thaddeus McCotter (go look it up, if you don't know what I'm talking about.)

It's actually quite amazing given how bad the economy is that President Obama still leads the field. Romney is within striking distance, no one else is even close. I expect things to tighten, particularly if we keep having jobs report like June's.

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Obama vs. Cain: Obama +19.0%

Sunday, July 3, 2011

Time to Gerrymander, The Path to Success on the Debt Ceiling, Looking at the Party Factions, Reasons to Celebrate American Independence

43 States Full of Gerrymandering
In the early 1800s, Democratic-Republican Governor of Massachusetts Elbridge Gerry, working with allies in the state legislature, crafted a map of State Senate districts that was designed to thwart the Federalists by building as many majority Democratic-Republican districts as possible. The 12th District, designed in the Boston area, closely resembled a salamander. Hence, the terry Gerrymander was born as a symbol of designing districts not on the basis of any rational grouping of towns and neighborhoods, but with the specific intent of benefit the party in power.

And it has been thus for the past two centuries. It is a time-honored tradition, used by both Democrats and Republicans alike, to shape Congressional districts to benefit ones own party.

The 2012 Congressional elections will be the first with newly drawn districts based on the 2010 Census. All 50 states will have to redraw, including not only the ones that are gaining or losing seats, but also the ones where the seats are staying the same, as population shifts have still made current districts uneven.

Seven states have laws on the books to protect against Gerrymandering. These states use a bi-partisan commission to draw districts in logical ways to avoid this effect. Arizona, Hawaii, Idaho, New Jersey, California, Minnesota and Washington all fall into this category. For a 7 other states, Gerrymandering is irrelevant as they hold a single at-large seat. Delaware, Vermont, North Dakota, South Dakota, Montana, Wyoming and Alaska fall into this category.

In the remaining 36 states, however, it is open season. Of the largest of these redistricting prizes: Texas, New York, Florida, Pennsylvania, Ohio, Illinois, Michigan, Georgia, North Carolina and Virginia, only 1 (Illinois) is a Democratically-controlled legislature and only 2 others (New York and Virginia) have divided legislatures; 7 of these 10 states are firmly controlled by Republicans.

Whatever your personal views on Gerrymandering (I support the bi-partisan commissions, most partisans seem to favor those when they are out of power and oppose them when they are in power), the dynamics of this year show the huge intrinsic advantage that Republicans have in the House in the 2012 elections. Not only are Republican states by and large picking up seats: Democratic-leaning states are losing 7 seats, GOP-leaning states are gaining 6 (Nevada, a swing state, is gaining the 7th seat), but they will largely control the redistricting process, which could swing as many as a dozen seats to the advantage of the GOP.

So, any hope the Democrats had that higher turnout in 2012 will help them overcome 2010 GOP gains has to be blunted by a intrinsic GOP advantage of almost 20 seats going in.

How About This Compromise?
The impasse on raising the debt ceiling and the associated deficit reduction package that the Congressional GOP have demanded has come down to one basic issue: taxes.

At issue: Democrats want tax changes to be part of the deficit reduction package, namely the elimination or reduction of tax credits and exemptions for rich corporations and individuals. Republicans with a few exceptions (Sen. Tom Coburn (R-OK) and Sen. Lindsey Graham (R-SC) being the most notable) have stated opposition to any proposal that increases total tax revenues, even if they do not increase marginal rates. Democrats are loathe to support massive spending cuts without something on the tax side.

In the spirit of Grover Norquist (who I detest, but that's another discussion), how about this compromise? Put through the spending cuts (on discretionary spending, nothing significant is going to happen with entitlements, unfortunately), incorporate reductions of tax loopholes for the wealthy and corporations, but offset those with reductions to taxes for middle-income Americans. This holds to the GOP pledge of not increasing net taxes, but throws the Democrats a bone on income equality.

What do you say, Eric Cantor and Harry Reid?

Who Unites the Factions Best?
Ronald Reagan famously swept into office over incumbent Jimmy Carter by winning over moderates who came to be known as "Reagan Democrats". In every election, there is a core of support for each party which is complemented by how well the unite the factions that can go either way. In recent years, it seems party loyalties have become even more complex, so I thought it might make sense to take stock of the membership factions of each party to understand how each party might to try to build a winning coalition next November. I'll also assess the risk of each group dumping their home party in a given election.

1. The Democrats
Democrats rely on a number of different factions:
a. Social Justice Liberals
This group includes those whose primary issues are civil rights-related, including gay rights. This group has been around since at least the 60s and tend to be passionate voters with a strong moral bent to their voting.
Risk Level: Low

b. Socialists
Those seeking economic justice, they tend to have core issues such as universal health care, social assistance, education spending and income equality. These are not all full-blown socialists, but are generally people that admire the social safety net of large European countries.
Risk Level: Low

c. Feminists
This group tends to overlap heavily with the Social Justice Liberals, but they tend to have a single voting issue that overrides everything else: abortion-rights.
Risk Level: Low

d. Doves
This group is the anti-war gang. They strongly opposed Iraq and now want out quickly of Afghanistan and oppose involvement in the conflict in Libya. They turned out big for Obama in 2008
Risk Level: Medium (but only because the GOP isn't likely to run as the party of peace against President Obama)

e. Populist Hispanics
Hispanics in general, and Mexican-Americans specifically favored the Democrats heavily in the past on the basis of their economically liberal views and support for immigration reform. But Democrats part ways with this heavily Catholic group on social issues such as abortion and gay rights.
Risk Level: Medium (the economy hasn't improved and the President has largely ignored this Hispanic base, although he did nominate Sonia Sotomayor to the Supreme Court)

f. Social Libertarians
Those that favor not only abortion-rights but hate the Patriot Act, Gitmo, want to legalize Marijuana and prostitution and generally want the government completely out of social issues.
Risk Level: High (the President hasn't closed Gitmo, has extended the Patriot Act and the Tea Party seems to have co-opted the social libertarian message)

a. The Corporatists
The Goldman-Sachs, Exxon-Mobil wing of the GOP isn't as concerned with true free markets as they are with making the government business-friendly. They favor tax breaks and subsidies and limited government regulation.
Risk: Low (this group hates the President)

b. Christian Conservatives
The social-issue focused group opposes gay marriage, abortion rights and affirmative action and is far more interested in traditional values than economics.
Risk: Low

c. The Tea Party / Economic Libertarians
This group generally opposes government involvement in the economy and favors far lower government spending, lower taxes and less regulation.
Risk: Low-to-Medium (they won't support Obama, but they could stay home if a more Corporatist Republican takes office)

d. The Neo-Cons
Remember when the Neo-Cons were the big new thing? The first Republicans in ages to support such concepts of nation-building, this new way of Republican thinkers was prominent during the Bush Administration. They are a lot quieter these days after a decade of war, but they are still around.
Risk: Low

e. Northeastern Republicans
This socially liberal but economically conservative bunch, wants less government but things the Tea Party and the Christian Conservatives are a little out there. There are a lot less of these pragmatists than the used to be, but they are still around.
Risk: Medium-to-High

f. Establishment Republicans
This group likes Medicare, Medicaid and Social Security but opposes Universal Healthcare. A nuanced, but large group, they are resistant to change in general, they are the classic Reagan Democrats. They want our existing social programs maintained, but don't want new ones, and sure don't want their taxes going up.
Risk: Medium

There are many other groups (true Libertarians and all shades of moderates) out there, but each party is going to have to shore up a complex base to win.

Why America is Great
As we celebrate 235 years of the Untied States of America on July 4th, here are a few of the reasons why America is great:
1. The Best Capital Markets
Why are the most innovative companies in the world based in the US? Our innovative spirit, to be sure. But also, we have the best capital markets in the world. Venture Capital, Angel Investing and strong property rights all make the US one the best place in history to turn an idea into a business.

2. The Most Diverse, Integrated Population Ever
We are a truly diverse nation. Black, White, Hispanic, Asian, Native American, protestant, Catholic, Jewish, Muslim, gay, straight, bisexual, and on and on. Sure, other countries have elements of diversity -- there is a sizable Muslim population in France and lots of people from Fiji in Australia. But can you name anywhere else that has existed in history where the population is so well economically and socially integrated? Sure, we still have our problems, but can you imagine the election of a guy like Barack Obama in Europe?

3. The Bill of Rights
Nothing before or since anywhere in the world has established the rights of the citizenry so uniquely. Free speech? Good luck with that in Germany. Bearing arms? Have fun in Great Britain. We have the strongest spirit of individual rights of anywhere in the world and it leads to the most open dialogue about social and political issues of anywhere on Earth.

4. The University System
Sure, it's too expensive. Sure, the tenure system is broken. And yes, the funding system is unfair to middle-class savers. But there is a reason that people from all over the world come to our colleges and universities. Because they are the best.

5. Class Mobility
Maybe its less than it was for some a generation ago, but it isn't gone. But take a look at the stories of Chris Gardner (the subject of the book and film "The Pursuit of Happyness" who went from homeless to running an investment management group), Oprah Winfrey (who grew up poor in Chicago to build a media empire), Bill Clinton (born poor to a single-mother in rural Arkansas to become President of the United States) and David Geffen (who grew up in poverty in Brooklyn and rose to be the biggest name in the music business), rags-to-riches stories simply don't happen with the prevalence that they do in the United States anywhere else.

Happy Independence Day, everyone. I hope you get a long weekend.