The Obama Doctrine, Any Chance for Real Entitlement Reform?, Energy Policy Twisting in the Wind

Is There an Obama Doctrine?
Every President has a philosophy behind how they involve the military in foreign affairs. The notion of a Presidential "doctrine" dates back to President James Monroe, whose "Monroe Doctrine" stated that the US would view further colonization in North America by European nations as an act of aggression but that the US would not interfere with existing colonies or with the internal affairs of European nations.

More recently, the "Bush Doctrine" of former President George W. Bush moved US foreign policy to a more activist position, parting ways with other Post-World War 2 Presidents in supporting the notion of pre-emptive war to protect US security interests, justifying intervention in Iraq, a country which had not attacked the US on the potential for a future threat.

So, more than 2 years into his Presidency, with airstrikes in Libya taking place in the past two weeks, it is worth asking, is there an "Obama Doctrine" and what is it?

The President has stepped up presence in the Afghanistan, wound down operations in Iraq, stayed out of tribal conflicts in Africa, but supported rebels in Libya.

Afghanistan is arguably a "shoot second" war, since the Taliban was clearly the driving force behind the September 11, 2001 attacks on the World Trade Center and the Taliban controlled the former government in Afghanistan. Iraq was clearly a pre-emptive war, as there was no overt act of aggression taken by Iraq.

Taking just these two examples, one would assume that the "Obama Doctrine" is more of a return to the philosophies of George H.W. Bush and Bill Clinton, of US intervention only where there is a national security interest and we are struck first, or where there is a clear act of aggression against a US ally, such as in the case of the first Gulf War.

But then there is Libya. We were not attacked. Libya did not attack a US ally. This is clearly a case of involving the US in a civil war in Libya. And therein lies the distinction. It is not quite a war of pre-emption (no one considers Libya a credible threat to US security compared to Iran or North Korea), nor is it a "shoot second" war. The mission in supporting the rebels is clearly to support regime change and protect humanitarian interests, even if the former is not explicitly stated by the administration.

There is an intellectual argument for supporting humanitarian missions by the US military, but it is a slippery slope. If Libya, then why not Darfur? Or Somalia? The list of civil wars causing human strife in the world is long. But clearly Libya involvement is low impact at this point. We aren't committing ground troops. We have the backing of NATO. US Casualties will be extremely low and the cost low compared to Iraq or Afghanistan.

So, as best I can tell, the nascent "Obama Doctrine" advocates use of force when:
(1) There is an imminent threat to US security
(2) As a proportional response to an attack on the US
(3) For limited humanitarian reasons, with the support of the international community

We'll see how this philosophy evolves over time.

Will Paul Ryan's Bold Proposal Spark Real Reform?
Rep. Paul Ryan, who is the point man for the 2012 GOP budget, is set to reveal a bold plan for reform Medicare and Medicaid, two of the four albatrosses around the neck of the US budget (the other two being defense spending and social security.) Ryan's plan is reportedly very bold, including:
(1) Changing Medicare as we know it for those 55 and under. Eliminating government coverage for those who retire after 2021 and replacing it with a federal grant to purchase private insurance.
(2) Dramatically reducing Medicaid funding over time and replacing the traditional program with block grants to the states, who would have the freedom to experiment with different systems for the funds in their own states.

This is a radical change. The Medicare plan essentially contains costs by reducing the rate at which government expenditures on Medicare go up. To explain it simply, if costs under Medicare are rising 10% per year, Ryan's plan might increase the insurance grant by only 3% per year, meaning that private insurers would have to figure out ways to provide coverage at a lower cost than the government would. This means that either private insurers will find a way to get vastly more efficient or the level of coverage will go down to something more affordable.

This is basically rationing by another name - a charge sure to be leveled by the left, but actually a good thing, if you have read my prior writings. The ONLY way to significantly "bend the cost curve" is to be more selective about what is covered. You simply can't reduce costs AND provide every form of care to every person at every stage of their life. That is how socialized systems contain cost - they restrict the availability of some treatments. And it's a path we'll have to go down to fix Medicare, even if Ryan won't want to admit that that's what his proposal does.

The Medicaid proposal is basically more of the same...less money and let the states try to figure out how to manage that more limited funding.

Ryan's proposal is a long way from perfect. There are some elements of health care that should be non-negotiable from a cost standpoint - vaccinations and preventative care that are both necessary and economically effective at reducing long-term costs for one and emergency care for another. Executed poorly, his proposal could simply lead to more cost-dumping on emergency rooms and do further damage to the system. And his proposal obviously doesn't address how but foists that choice on individuals and states.

But it's a great starting point to have the debate. I'm sure the Democrats will declare the proposal dead on arrival in the Senate. That's fine. But how about they come forward with an alternative that has a similar level of cost containment and let's have a debate.

Fixing the structural deficit is going to require some hard choices about entitlements. Kudos to Ryan for bravely taking the first step to provoke that debate.

Budget Deal? No Budget Deal? Can We Move On?
The fiscal year is half over for the government. Six times Congress has in some form or another kicked the can down the road. The GOP wanted $61B in domestic discretionary cuts. They've achieved $10B so far with the last two continuing resolutions. The debate now is how much of the remaining $51B they wanted will happen.

Can we please settle this debate quickly and move on to discussing entitlements. We will never even get to the debate on Ryan's proposal if we just keep debating continuing resolutions.

With a $1.5T deficit, does it really matter if we cut $20B more or $40B more? How about we finish this quickly and focus on the $1.5T problem.

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9,000,000,000,000

A Friggin' Huge Number
Nine trillion dollars. That's how much the government will spend that it doesn't have over the next ten years. $30,000 for every man, woman and child in the United States. This, which we had all suspected but was confirmed by the White House Office of Management and Budget today. I couldn't have fathomed in the heady days of the late 1990s when we were running surpluses and talking about having the federal debt paid off by about now, but here we are. It is sobering and very concerning. Debt levels this high suck financial capital out of our economy and create a very real risk of rising inflation and ballooning interest rates as we print money to continue to service our debt. A financial collapse could loom if our creditors in China and Saudi Arabia decide to stop gobbling up our debt. It is an untenable, unsustainable situation. Our debt, already 70% of our GDP, could balloon to over 100% of our GDP.

How Did We Get Here?
How did this incredible crash from better than balanced budgets to eye-popping deficits happen? There were several contributing factors....

(1) The Bush Tax Cuts
Quote me Laffer curves all you want. Laffer may have been right that beyond a point, tax increases no longer increase government revenues -- surely if a government is taxing 90% of income and it hikes it to 100%, it won't see an increase -- but we were not at that point. The proof is in the revenue explosion that occurred in the 1990s after the Clinton tax hikes that led to a balanced budget. The Bush tax cuts cost us $150 billion per year.

(2) The Iraq and Afghanistan Wars
The wars have been phenomenally expensive as we have had the costs not only of deployed troops but of hundred of thousands of private contractors from Blackwater, Halliburton and others. Annual cost: close to $200 billion

(3) Medicare Perscription Drugs
An amazingly quiet bill in retrospect, President George W. Bush signed into law early in his Presidency a perscription drug benefit as part of Medicare. Liberals panned it as a give-away to big pharma. Conservatives shunned it as an exploding entitlement. Yet the broad bi-partisan middle passed it. Whoever was right it costs about $150 billion / year.

(4) Entitlement Explosion
Health care spending is rising at double the rate of inflation....and the number of people on the Medicare roles is rising even more rapidly as the retirement-age population grows and life expectancy extends.

Social Security is rising in cost too, due to life expectancy and population demographics but at a less alarming rate.

So where are we?

Today 2019
Entitlements 2.0 trillion 3.0 trillion
Defense 0.7 trillion 0.9 trillion
Interest 0.3 trillion 0.8 trillion
TARP* 0.3 trillion none
Domestic Discretionary 0.6 trillion 0.7 trillion
Total Spending 3.8 trillion 5.4 trillion
Revenues 2.2 trillion 4.3 trillion
Deficit 1.6 trillion 1.1 trillion

* TARP expenditures were close to $0.7 trillion but are estimated at $0.3 trillion because the government received tangible assets in return for the money -- losses under the program are estimated at $0.3 trillion

What Do We Do?
As you can see from the spending above, any discussion of domestic discretionary spending is largely irrelevant. Yes, there is waste in earmarks, as Sen. John McCain (R-AZ) and others have often pointed out. But the spending, in total budget terms is a pittance at 16% of the current budget and 13% of the 2019 budget. We can get more efficient, but we aren't going to wholesale eliminate government departments...at least not yet.

Interest is an output...an output of our debt level and current interest rates. The only way to control it is to reduce other spending and thereby reduce debt.

This leaves us with the three whoppers: taxes, entitlements and defense spending. Taxes will HAVE ot go up. Entitlements will HAVE to be reformed -- higher retirement ages, lower benefits, etc. Defense will have to be reduced.

So what to do specifically?
(1) Defense
* Find a way out of Iraq (yes, we still have lots of troops there) and Afghanistan
* Cancel all the Military-Industrial giveways like next-generation fighter plans and nuclear subs
* Increase the number of reservists and decrease the number of active-duty troops
No other country on earth spends on defense like we do. Can we really afford to keep being the global police force?

(2) Taxes
* Let the Bush tax cuts expire...all of them
* Enact real cap and trade where ALL carbon is auctioned and there are no give-aways to big coal
* Hike gas taxes by $1/gallon
* Raise capital gains tax to coincide with income taxes
* Phase-out 401K deductibility for high-income individuals

(3) Entitlements
* Move to a cash-balance program for Social Security that automatically adjusts as life-expectancy changes or move the retirement age to 70 and index to life expectancy
* Require Canada-equivalen tpricing for Medicare perscription drug benefits, ban pharma ads while we are at it
* Move Medicare eligibility to 70
* Comprehensively fix health care inflation and confront rationing questions head on

None of these are pleasant solutions and many are probably politically infeasible today. There are many other good ideas that could be used as substitutes. But the notion that we can fix this without making tough and painful choices is just wrong. The longer we wait to act, the worse it will get. And if we pass the brink and T-bill rates spike and we are forced to print money to service the debt, the recession of 2008/2009 will seem like the good old days.

Mr. President, I know Health Care Reform is a part of the solution, but let's be honest, you haven't provided us with a real, candid assessment of what you intend to do about the deficit. Ignoring it won't make it go away. And it will mar your presidency if you don't take it head on.

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