In the 2008 Presidential debates, Senator John McCain proposed across-the-board cuts the federal budget as a starting point on the road towards deficit reduction.
Then-Senator Barack Obama responded: "Senator McCain is looking to apply a machete to the budget when what is needed is a scalpel", essentially criticizing the indiscriminate nature of across-the-board spending cuts and making the point that he would be more surgical about what he would cut.
An aghast John McCain, having seen federal spending expand wildly across virtually every budget line item during George W. Bush's Presidency, responded, "I would apply a machete and THEN a scalpel."
The current hysteria in Washington over the sequester would make you believe that it is a big machete - that massive reductions to federal programs will take place, starving the poor, endangering national defense and putting food safety and clean air at risk.
What the sequester actually amounts to is $85 billion in cuts, material to be sure, but we are talking about a federal budget of $3.6 trillion, meaning the sequester essentially amounts to 2.4% reduction in planned federal spending. If you had to take a 2.4% pay cut in your personal life, you wouldn't like it, but, it probably wouldn't mean that you wouldn't make the mortgage or car payments - it would probably be more akin to having to eat out once less in a month or moving from 93 octane to 87 octane gas.
It has been pointed out by some, correctly, that since entitlements are not impacted by the sequester, that the remaining elements of the federal budget will endure far greater percentage cuts than the overall 2.4%. And they are right, to a point. Entitlement spending makes up $2.1 trillion of the $3.6 trillion federal budget. Federal interest payments, which obviously cannot be directly impacted by the sequester, makes up about another $200 billion. Put those together and you have $1.3 trillion of discretionary spending across which the $85 billion reduction is spread. This therefore equates to a 6.5% cut to other programs, across-the-board.
A 6.5% cut might sound more severe and that some of the hysteria is warranted, but let's place it in proper context. Since the year 2000, discretionary spending has grown by 72%, or a compound annual growth rate of 4.5%. Adjusted for inflation, this means real discretionary spending has grown by 39% over that time period. It would seem that, being that most people would say government was relatively more functional in 2000 than it is today, that "only" being 32.5% higher in discretionary spending in real terms is a very small machete indeed.
So it was with a degree of shock that I read John Boehner's piece in the Wall Street Journal, bemoaning the sequester and laying blame at the feet of President Obama.
Speaker Boehner opens his editorial with the following line:
"A week from now, a dramatic new federal policy is set to go into effect
that threatens U.S. national security, thousands of jobs and more."
This is utterly contradictory. Isn't it Boehner and the Republicans that have always stated that government spending doesn't create jobs? Aren't they the anti-Kenyes party? Threatens national security? A 6% cut in a defense budget that his TRIPLED since 2000? Is he serious?
If the GOP is going to be the party of deficit reduction through spending cuts, getting hissy over a 6% cut in defense spending is a bit absurd.
The Speaker does make a legitimate point that entitlements must be dealt with. At 61% of all federal spending, it is difficult to imagine a scenario that balances the budget with entitlement reforms. The Speaker is also right that the sequester is a crude instrument, making no distinction between effective and ineffective programs.
But Republicans should be taking an AND approach to budget cuts - do the sequester AND eliminate ineffective programs AND reform entitlements. While an across-the-board cut is a crude machete, it is a small one. Lots of private corporations do similar exercises to control spending - think of how troubled companies do across-the-board pay freezes or cancel all travel, often not distinguishing between top and bottom employees or value-added versus non-value added travel. Across the board approaches are a quick way to get cost containment. THEN, you go after the tough trade-offs.
John Boehner opposes any and all tax increases. If he is serious about cutting the deficit, he should be advocating for any-and-all budget reduction opportunities. By sound hysteria over relatively small budget cuts, he just looks like an idiot. The answer is machete AND scalpel.
Sunday, February 24, 2013
Saturday, February 16, 2013
My Apologies to the Readers, Why the GOP is Failing, Worse Than Damn Lies on the Minimum Wage
Sorry I Missed You
There were many visitors to this space the night of the State of the Union. Most years, I cover the State of the Union, as I do all major American political events. It was simply personal circumstances beyond my control that caused me to miss the speech (which I was just finally able to watch, along with Marco Rubio's Republican response.)
I am continually humbled by the number of people that come here to learn a little bit more about our Republic and its politics. I am sorry to have missed you this State of the Union.
Where is the Optimism?
The Republican Party has been out in the wilderness for a little while now. They have been out of the White House for over 4 years now, have not controlled the Senate in over 6 years and have controlled the House for only 2 of the last 6 years.
This is hardly unprecedented in US politics. The Democrats were cast from the White House for all but 4 of the 20 years from 1973-1993, when a young Governor from Arkansas named Bill Clinton revitalized the Democratic center coalition.
Republicans were completely out of power in both Houses of Congress all the way from 1955 until the Reagan revolution coattails swept them into power in the Senate in 1981.
The Republican Party certainly has the capability to return to power. We are naturally a nation of economic conservatives (at least as compared to our first world allies) and while demographic shifts appear at the moment to be a huge headwind to the GOP, the growing Latino voter base is largely socially conservative and family-oriented, a seemingly natural constituency for the GOP.
But right now, the GOP isn't helping itself.
What Bill Clinton for the Democrats and Ronald Reagan for the Republicans had in common when they led their parties back from the wilderness was optimism. They had powerful, positive visions for the country and sold them with a smile.
Voters are drawn to optimists. They tell us about what is possible. They propose solutions to seemingly overwhelming problems that sound reasonable. They stoke our patriotism.
Pessimism doesn't sell. It implies a lack of faith in our nation. It promises a bleaker future. It isn't a product anyone wants to buy.
And herein lies the core problem for the GOP - a lack of optimism. From chattering heads to internet message boards to elected officials, the words coming out of the GOP imply that we are going to hell in a hand basket. This is a natural extension of very overheated rhetoric in both the 2008 and 2012 campaigns. The thinking goes - President Obama is a socialist or even a communist and we've been saying for years that if he got into office, he was going to wreck the country, so it must be true. I think Francois Hollande is laughing somewhere at the notion that the President is a socialist. We debate the difference between 35% and 39.6% marginal tax rates - the French impose top taxes of 75% when they get a "real" socialist in office.
The man or woman who can step forward and paint a truly optimistic vision for the country will emerge as the natural leader of the GOP. Based on the State of the Union response from Marco Rubio, which was a drab and uninspiring affair, I do not believe that man will be Marco Rubio, at least not yet. I'd look to the Governor's mansion, where you have people building that optimistic vision. Think Bobby Jindal, Chris Christie and Mitch Daniels. Pragmatic men who work hard to build better states. Leave the Tea Party and the wingnut survivalists behind and you have a path back to leadership.
Is the Wall Street Journal Ignorant or Dishonest?
I like the Wall Street Journal. While they have a clear conservative bent, they provide excellent reporting on the world of business and do strong investigative journalism into corporate wrongdoing.
So it is quite disappointing to me that they would publish a highly intellectually dishonest commentary on proposed minimum wage hikes entitled "The Minority Youth Unemployment Act". In the piece, the Journal argues that hiking the minimum wage would lead to fewer available minimum wage jobs, which would disproportionately impact young minorities.
It was once said that in the order of significant lies, there are lies, damn lies and statistics. Such is certainly the case with the Journal piece.
Firstly, they present a graph that shows minimum wage hikes and black youth unemployment and total you unemployment plotted on a timeline from 2007 to the present, with hikes in the minimum wage from 2007 to 2009 noted on the graph. The point the author attempts to make is that youth unemployment spiked from 2007 to 2009, correlated with the rise of the minimum wage from 2007 to 2009.
The chart is factual but wildly deceiving. Any first year statistics student knows that correlation does not imply causation. Murders and ice cream consumption spike at the same time every year, but no fool things ice cream causes murder, the thoughtful realize that both spike in the summer for different reasons. Certainly, the minimum wage went up during that time period (due to a bill supported and signed by President George W. Bush, incidentally), but there was also this little financial crisis that led to the Great Recession. Does anybody with connected brain cells not think that the financial crisis led to the spike in unemployment?
To punctuate that point, note that the author singles out just one set of minimum wage hikes and does not chart the countless other minimum wage hikes and corresponding unemployment rates. The hike from 3.80 to 4.25 in 1991? Unemployment crashed after that one on the heels of an economic recovery. The successive hikes from 4.25 to 4.75 and then 5.15 in 1996 and 1997? The economy recorded some of the lowest unemployment rates in history following those hikes.
Bottom line, cherry-picking only the data that support your point of view is the type of deception that should be reserved for political spin doctors, not publications that are ostensibly paragons of journalism.
The premise of the article, that higher minimum wages lead to employers refusing to hire workers also defies logic. As any first year business student knows, businesses exist to make money. They don't generally employ workers that are unnecessary. If a hotel needs 5 maids in order to clean all the rooms, they are going to hire 5 maids, whether the minimum wage is $7.15 or $9.00. They aren't going to hire 5 extra maids that they don't need if the minimum wage is lower. Likewise, they aren't going to hire 3 maids and simply not clean some of the rooms if the minimum wage is higher. They are going to hire the people that they need.
What is true is that if labor costs rise, those costs will be passed on to consumers in the form of higher prices for things that require minimum wage labor, such as hotel rooms and fast food meals. Companies still want to make their profit, so they simply mark up their items to maintain their profit margins. This essentially amounts to a tax on all of us to support slightly higher wages at the bottom rung.
This is a trade-off that we have been willing to make as a country since 1938, when the first minimum wage law went into effect.
The minimum wage is near historic lows at the moment. In real dollar terms, the minimum wage was $7.33 in 1950, slightly higher than today. In 1956, it was then hiked to the equivalent of $8.57 in today's dollars and continued to rise from there in real dollar terms, peaking at a real-dollar rate of $10.74 in 1968. It remained above $9/hour in real terms until 1981, when Ronald Reagan essentially put a freeze on minimum wage hikes, allowing it to fall in real terms (thanks to inflation) to under $6/hour in real terms before President George H.W. Bush signed a hike.
If higher minimum wages lead to higher unemployment and lower minimum wages lead to lower unemployment, unemployment should be near historic lows.
The Wall Street Journal article is dishonest and wrong. I would like to hope this was out of ignorance, but given the depth of experience on the Journal editorial board, I suspect it was deliberately deceptive.
If you like this site, tell your friends.
There were many visitors to this space the night of the State of the Union. Most years, I cover the State of the Union, as I do all major American political events. It was simply personal circumstances beyond my control that caused me to miss the speech (which I was just finally able to watch, along with Marco Rubio's Republican response.)
I am continually humbled by the number of people that come here to learn a little bit more about our Republic and its politics. I am sorry to have missed you this State of the Union.
Where is the Optimism?
The Republican Party has been out in the wilderness for a little while now. They have been out of the White House for over 4 years now, have not controlled the Senate in over 6 years and have controlled the House for only 2 of the last 6 years.
This is hardly unprecedented in US politics. The Democrats were cast from the White House for all but 4 of the 20 years from 1973-1993, when a young Governor from Arkansas named Bill Clinton revitalized the Democratic center coalition.
Republicans were completely out of power in both Houses of Congress all the way from 1955 until the Reagan revolution coattails swept them into power in the Senate in 1981.
The Republican Party certainly has the capability to return to power. We are naturally a nation of economic conservatives (at least as compared to our first world allies) and while demographic shifts appear at the moment to be a huge headwind to the GOP, the growing Latino voter base is largely socially conservative and family-oriented, a seemingly natural constituency for the GOP.
But right now, the GOP isn't helping itself.
What Bill Clinton for the Democrats and Ronald Reagan for the Republicans had in common when they led their parties back from the wilderness was optimism. They had powerful, positive visions for the country and sold them with a smile.
Voters are drawn to optimists. They tell us about what is possible. They propose solutions to seemingly overwhelming problems that sound reasonable. They stoke our patriotism.
Pessimism doesn't sell. It implies a lack of faith in our nation. It promises a bleaker future. It isn't a product anyone wants to buy.
And herein lies the core problem for the GOP - a lack of optimism. From chattering heads to internet message boards to elected officials, the words coming out of the GOP imply that we are going to hell in a hand basket. This is a natural extension of very overheated rhetoric in both the 2008 and 2012 campaigns. The thinking goes - President Obama is a socialist or even a communist and we've been saying for years that if he got into office, he was going to wreck the country, so it must be true. I think Francois Hollande is laughing somewhere at the notion that the President is a socialist. We debate the difference between 35% and 39.6% marginal tax rates - the French impose top taxes of 75% when they get a "real" socialist in office.
The man or woman who can step forward and paint a truly optimistic vision for the country will emerge as the natural leader of the GOP. Based on the State of the Union response from Marco Rubio, which was a drab and uninspiring affair, I do not believe that man will be Marco Rubio, at least not yet. I'd look to the Governor's mansion, where you have people building that optimistic vision. Think Bobby Jindal, Chris Christie and Mitch Daniels. Pragmatic men who work hard to build better states. Leave the Tea Party and the wingnut survivalists behind and you have a path back to leadership.
Is the Wall Street Journal Ignorant or Dishonest?
I like the Wall Street Journal. While they have a clear conservative bent, they provide excellent reporting on the world of business and do strong investigative journalism into corporate wrongdoing.
So it is quite disappointing to me that they would publish a highly intellectually dishonest commentary on proposed minimum wage hikes entitled "The Minority Youth Unemployment Act". In the piece, the Journal argues that hiking the minimum wage would lead to fewer available minimum wage jobs, which would disproportionately impact young minorities.
It was once said that in the order of significant lies, there are lies, damn lies and statistics. Such is certainly the case with the Journal piece.
Firstly, they present a graph that shows minimum wage hikes and black youth unemployment and total you unemployment plotted on a timeline from 2007 to the present, with hikes in the minimum wage from 2007 to 2009 noted on the graph. The point the author attempts to make is that youth unemployment spiked from 2007 to 2009, correlated with the rise of the minimum wage from 2007 to 2009.
The chart is factual but wildly deceiving. Any first year statistics student knows that correlation does not imply causation. Murders and ice cream consumption spike at the same time every year, but no fool things ice cream causes murder, the thoughtful realize that both spike in the summer for different reasons. Certainly, the minimum wage went up during that time period (due to a bill supported and signed by President George W. Bush, incidentally), but there was also this little financial crisis that led to the Great Recession. Does anybody with connected brain cells not think that the financial crisis led to the spike in unemployment?
To punctuate that point, note that the author singles out just one set of minimum wage hikes and does not chart the countless other minimum wage hikes and corresponding unemployment rates. The hike from 3.80 to 4.25 in 1991? Unemployment crashed after that one on the heels of an economic recovery. The successive hikes from 4.25 to 4.75 and then 5.15 in 1996 and 1997? The economy recorded some of the lowest unemployment rates in history following those hikes.
Bottom line, cherry-picking only the data that support your point of view is the type of deception that should be reserved for political spin doctors, not publications that are ostensibly paragons of journalism.
The premise of the article, that higher minimum wages lead to employers refusing to hire workers also defies logic. As any first year business student knows, businesses exist to make money. They don't generally employ workers that are unnecessary. If a hotel needs 5 maids in order to clean all the rooms, they are going to hire 5 maids, whether the minimum wage is $7.15 or $9.00. They aren't going to hire 5 extra maids that they don't need if the minimum wage is lower. Likewise, they aren't going to hire 3 maids and simply not clean some of the rooms if the minimum wage is higher. They are going to hire the people that they need.
What is true is that if labor costs rise, those costs will be passed on to consumers in the form of higher prices for things that require minimum wage labor, such as hotel rooms and fast food meals. Companies still want to make their profit, so they simply mark up their items to maintain their profit margins. This essentially amounts to a tax on all of us to support slightly higher wages at the bottom rung.
This is a trade-off that we have been willing to make as a country since 1938, when the first minimum wage law went into effect.
The minimum wage is near historic lows at the moment. In real dollar terms, the minimum wage was $7.33 in 1950, slightly higher than today. In 1956, it was then hiked to the equivalent of $8.57 in today's dollars and continued to rise from there in real dollar terms, peaking at a real-dollar rate of $10.74 in 1968. It remained above $9/hour in real terms until 1981, when Ronald Reagan essentially put a freeze on minimum wage hikes, allowing it to fall in real terms (thanks to inflation) to under $6/hour in real terms before President George H.W. Bush signed a hike.
If higher minimum wages lead to higher unemployment and lower minimum wages lead to lower unemployment, unemployment should be near historic lows.
The Wall Street Journal article is dishonest and wrong. I would like to hope this was out of ignorance, but given the depth of experience on the Journal editorial board, I suspect it was deliberately deceptive.
If you like this site, tell your friends.
Sunday, February 3, 2013
The Q4 GDP: Conservative Economics in Action, On To The Budget Battles
A Very Economically Conservative Quarter
The headline was scary - the US Gross Domestic Product contracted by 0.1% in the fourth quarter of 2012. While this is just ever so slightly below the zero line, we are technically halfway to a new recession (traditionally defined as two consecutive quarters of contraction, although, in modern times, more complex definitions have been used) after what has been a less than stellar recovery from the last deep recession.
The recession more or less started in the first quarter of 2008 and lasted for 18 months. During that time period, the size of our economy contracted by 4.6%. This may not sound like a ton, but bear in mind that under "normal" circumstances, the economy needs to grow by 1% just to keep up with population growth and that contraction of the economy disproportionately impacts working class workers in industries like manufacturing, construction and retail and entertainment services, as belts tighten.
During the 18 month recession, unemployment skyrocketed from 5.0% to 9.5% (it would eventually peak after the end of the recession, in October 2009 at 10.0% - it is normal for unemployment to peak slightly after the recession ends, as companies don't start hiring until several months after business picks up) and 7.5 million jobs were lost, meaning that that the actual percentage of people working dropped even more than the official unemployment rate would tell.
Since then, the recovery has been painfully slow, against the norm for recessions (although, many would argue, not for recessions born of deep financial crises) and against the predictions of many, including myself, who expected a more "V-shaped" recovery. Average growth in the 3+ years since the recession ended has only been 2.3%, which would be okay if the starting point was a healthy economy, but nowhere near sufficient to relieve the pain caused by the recession. Unemployment has fallen to 7.9%, lower than the peak certainly, but way above pre-recession levels. There are STILL 3.2 million less jobs now than when the recession started 5 years ago. And it wasn't until the fourth quarter of last year that the GDP surpassed its pre-recession level.
This gap would make the fourth quarter GDP contraction very troubling. But, looking at the internals, things aren't as bad as they appear on the surface. This quarter is actually a positive argument for economic conservatism and austerity, if you look under the covers.
You see, while the overall GDP contracted by 0.1%, private sector GDP rose by 2.6%, while government expenditures at all levels fell by 2.7%. In other words, the private sector is in recovery, as evidenced by rising corporate earnings and corresponding rising stock prices. It is government that is shrinking. Most of the reduction is coming at the state and local level, as governments are forced to balance their budgets and (with California as a big exception) are largely turning to reducing government spending as opposed to raising taxes to make ends meet. There has also been some reduction of federal expenditures and some modest cuts from prior budget deals take effect and we lap the tail end of the stimulus spending.
So why is this a good thing? Employment in the quarter is actually the strongest it has been in a long time. You see, while the overall economy contracted, just over 600,000 net jobs were added in the quarter, even more than that in the private sector. In other words, at least for this quarter, the reduction in government spending did not have a dampening effect on the thing that matters most to the average person - available jobs. Private sector hiring more than made up for public sector austerity.
This model seems destined to play out to some degree on the federal level as well. Sequestration cuts take effect automatically on March 1st and the Republicans have been pretty clear that while they would like to replace the defense cuts, they have no interest in punting on the amount of the overall cuts. Good for them - I hope they stick to their guns. We have to solve the budget deficit one way or another and while we can argue the balance between tax hikes and spending cuts, doing something is better than doing nothing.
Also in play is the federal budget - the current continuing resolution lapses March 27th, which means that if Congress does not pass some sort of budgetary measure to fund the government, the government will shut down on that date. Republicans, having had to give ground on the tax cut debate, since tax rates were slated to go up automatically, are not in a giving mood on the budget. They, after all, hold the cards this time around - no budget can pass without the consent of the Republican-majority House.
With the debt-ceiling discussion wisely out of the way (sanity did prevail, as I'd hoped, on that topic, with the GOP agreeing to suspend the debt ceiling at least until mid-May, long after the budget battles), federal spending will be front-and-center in Washington.
These debates will play out over the next 1 to 2 months.
Rebuilding a Second-Term Cabinet
President Obama has some work to do. Much of his first-term cabinet has left or is leaving. Let's review the status of the key cabinet-level department head positions:
State Department
Hillary Clinton, as we all know, has moved on. This is one that the President doesn't have to worry about as former Senator John Kerry has already taken the top job at state, confirmed easily by a 94-3 vote in the Senate. He took office February 1st.
Treasury
Tim Geithner has already departed, officially resigning January 25th. President Obama has nominated Jack Lew as his replacement. Lew have his hearing in the Senate, but is widely expected to be confirmed, although he has generated some controversy.
Defense
Leon Panetta, President Obama's second Defense Secretary (his first, Robert Gates, was a keeper from the Bush Administration) is still in office but has asked to leave as soon as a successor can be confirmed. Chuck Hagel just had his grilling this week before the Senate. The majority of Republicans are expected to vote no for their dovish fellow Republican, but most expected that all 55 Democrats and Independents will vote for Hagel and that few enough Republicans will want a filibuster fight that he will ultimately be confirmed.
Attorney General
Eric Holder is staying, at least for now.
Interior
Ken Salazar has announced his desire to leave office in March. President Obama has yet to nominate a successor.
Agriculture
Tom Vilsack has not announced his second term plans, but appears to be staying, at least for the time-being.
Commerce
This has been the most difficult cabinet position for President Obama. Gary Locke, Obama's third nominee in his first term, finally took office in March of 2009, but stayed only 2 and a half years, basically competing the census and then departing. Obama's second Commerce Secretary, John Bryson, lasted a mere 8 months, resigning after a bizarre incident involving a hit-and-run car accident and a stroke. For the past 8 months, Rebecca Blank has been acting Commerce Secretary, awaiting an appointment and confirmation. President Obama has yet to nominate a new Commerce Secretary.
Labor
Hilda Solis has already left office on January 22nd, leaving the post open. President Obama has yet to name a replacement and most of his top picks from the world of labor are sure to generate controversy from Republicans.
Health and Human Services
Kathleen Sebelius appears to be staying, at least for now.
Housing and Urban Development
Shaun Donovan appears to be staying, at least for now.
Transportation
Ray Lahood is still in office but has announced his intention to leave when a successor can be confirmed. President Obama has yet to name a successor.
Energy
Stephen Chu just announced this week that he will also be stepping down. President Obama has yet to name a successor.
Education
Arne Duncan appears to be staying, at least for now.
Veterans Affairs
Eric Shinseki appears to be staying, at least for now.
Homeland Security
Janet Napolitano appears to be staying, at least for now.
So, to wrap it all up, of the 15 federal departments (I'm excluding "cabinet-level" positions that do not run a federal department) here is where President Obama stands:
Staying on from First Term: 7 (Justice, Agriculture, Health & Human Services, Housing & Urban Development, Education, Veterans Affairs and Homeland Security)
Nominee Already Confirmed: 1 (State)
Nomination Made But Not Yet Confirmed: 2 (Defense, Treasury)
Nominee Yet-To-Be-Named: 5 (Interior, Commerce, Labor, Transportation, Energy)
Clearly, the President has some work to do to rebuild his team. This is doubly important given the significant budgetary changes to these departments likely to come down the pike with both sequestration and the continuing resolution battle in March. Having interim leaders is not the best way to go ever, but is particularly bad when there are big changes coming.
Expect a flurry of nominations in the next few weeks as well as a lot of hearings and votes on nominees. The President has named his most critical team (generally State, Defense, Treasury and Attorney General are considered the most critical positions in the cabinet), but there is much work left to do on the rest of the team.
If you like this site, tell your friends.
The headline was scary - the US Gross Domestic Product contracted by 0.1% in the fourth quarter of 2012. While this is just ever so slightly below the zero line, we are technically halfway to a new recession (traditionally defined as two consecutive quarters of contraction, although, in modern times, more complex definitions have been used) after what has been a less than stellar recovery from the last deep recession.
The recession more or less started in the first quarter of 2008 and lasted for 18 months. During that time period, the size of our economy contracted by 4.6%. This may not sound like a ton, but bear in mind that under "normal" circumstances, the economy needs to grow by 1% just to keep up with population growth and that contraction of the economy disproportionately impacts working class workers in industries like manufacturing, construction and retail and entertainment services, as belts tighten.
During the 18 month recession, unemployment skyrocketed from 5.0% to 9.5% (it would eventually peak after the end of the recession, in October 2009 at 10.0% - it is normal for unemployment to peak slightly after the recession ends, as companies don't start hiring until several months after business picks up) and 7.5 million jobs were lost, meaning that that the actual percentage of people working dropped even more than the official unemployment rate would tell.
Since then, the recovery has been painfully slow, against the norm for recessions (although, many would argue, not for recessions born of deep financial crises) and against the predictions of many, including myself, who expected a more "V-shaped" recovery. Average growth in the 3+ years since the recession ended has only been 2.3%, which would be okay if the starting point was a healthy economy, but nowhere near sufficient to relieve the pain caused by the recession. Unemployment has fallen to 7.9%, lower than the peak certainly, but way above pre-recession levels. There are STILL 3.2 million less jobs now than when the recession started 5 years ago. And it wasn't until the fourth quarter of last year that the GDP surpassed its pre-recession level.
This gap would make the fourth quarter GDP contraction very troubling. But, looking at the internals, things aren't as bad as they appear on the surface. This quarter is actually a positive argument for economic conservatism and austerity, if you look under the covers.
You see, while the overall GDP contracted by 0.1%, private sector GDP rose by 2.6%, while government expenditures at all levels fell by 2.7%. In other words, the private sector is in recovery, as evidenced by rising corporate earnings and corresponding rising stock prices. It is government that is shrinking. Most of the reduction is coming at the state and local level, as governments are forced to balance their budgets and (with California as a big exception) are largely turning to reducing government spending as opposed to raising taxes to make ends meet. There has also been some reduction of federal expenditures and some modest cuts from prior budget deals take effect and we lap the tail end of the stimulus spending.
So why is this a good thing? Employment in the quarter is actually the strongest it has been in a long time. You see, while the overall economy contracted, just over 600,000 net jobs were added in the quarter, even more than that in the private sector. In other words, at least for this quarter, the reduction in government spending did not have a dampening effect on the thing that matters most to the average person - available jobs. Private sector hiring more than made up for public sector austerity.
This model seems destined to play out to some degree on the federal level as well. Sequestration cuts take effect automatically on March 1st and the Republicans have been pretty clear that while they would like to replace the defense cuts, they have no interest in punting on the amount of the overall cuts. Good for them - I hope they stick to their guns. We have to solve the budget deficit one way or another and while we can argue the balance between tax hikes and spending cuts, doing something is better than doing nothing.
Also in play is the federal budget - the current continuing resolution lapses March 27th, which means that if Congress does not pass some sort of budgetary measure to fund the government, the government will shut down on that date. Republicans, having had to give ground on the tax cut debate, since tax rates were slated to go up automatically, are not in a giving mood on the budget. They, after all, hold the cards this time around - no budget can pass without the consent of the Republican-majority House.
With the debt-ceiling discussion wisely out of the way (sanity did prevail, as I'd hoped, on that topic, with the GOP agreeing to suspend the debt ceiling at least until mid-May, long after the budget battles), federal spending will be front-and-center in Washington.
These debates will play out over the next 1 to 2 months.
Rebuilding a Second-Term Cabinet
President Obama has some work to do. Much of his first-term cabinet has left or is leaving. Let's review the status of the key cabinet-level department head positions:
State Department
Hillary Clinton, as we all know, has moved on. This is one that the President doesn't have to worry about as former Senator John Kerry has already taken the top job at state, confirmed easily by a 94-3 vote in the Senate. He took office February 1st.
Treasury
Tim Geithner has already departed, officially resigning January 25th. President Obama has nominated Jack Lew as his replacement. Lew have his hearing in the Senate, but is widely expected to be confirmed, although he has generated some controversy.
Defense
Leon Panetta, President Obama's second Defense Secretary (his first, Robert Gates, was a keeper from the Bush Administration) is still in office but has asked to leave as soon as a successor can be confirmed. Chuck Hagel just had his grilling this week before the Senate. The majority of Republicans are expected to vote no for their dovish fellow Republican, but most expected that all 55 Democrats and Independents will vote for Hagel and that few enough Republicans will want a filibuster fight that he will ultimately be confirmed.
Attorney General
Eric Holder is staying, at least for now.
Interior
Ken Salazar has announced his desire to leave office in March. President Obama has yet to nominate a successor.
Agriculture
Tom Vilsack has not announced his second term plans, but appears to be staying, at least for the time-being.
Commerce
This has been the most difficult cabinet position for President Obama. Gary Locke, Obama's third nominee in his first term, finally took office in March of 2009, but stayed only 2 and a half years, basically competing the census and then departing. Obama's second Commerce Secretary, John Bryson, lasted a mere 8 months, resigning after a bizarre incident involving a hit-and-run car accident and a stroke. For the past 8 months, Rebecca Blank has been acting Commerce Secretary, awaiting an appointment and confirmation. President Obama has yet to nominate a new Commerce Secretary.
Labor
Hilda Solis has already left office on January 22nd, leaving the post open. President Obama has yet to name a replacement and most of his top picks from the world of labor are sure to generate controversy from Republicans.
Health and Human Services
Kathleen Sebelius appears to be staying, at least for now.
Housing and Urban Development
Shaun Donovan appears to be staying, at least for now.
Transportation
Ray Lahood is still in office but has announced his intention to leave when a successor can be confirmed. President Obama has yet to name a successor.
Energy
Stephen Chu just announced this week that he will also be stepping down. President Obama has yet to name a successor.
Education
Arne Duncan appears to be staying, at least for now.
Veterans Affairs
Eric Shinseki appears to be staying, at least for now.
Homeland Security
Janet Napolitano appears to be staying, at least for now.
So, to wrap it all up, of the 15 federal departments (I'm excluding "cabinet-level" positions that do not run a federal department) here is where President Obama stands:
Staying on from First Term: 7 (Justice, Agriculture, Health & Human Services, Housing & Urban Development, Education, Veterans Affairs and Homeland Security)
Nominee Already Confirmed: 1 (State)
Nomination Made But Not Yet Confirmed: 2 (Defense, Treasury)
Nominee Yet-To-Be-Named: 5 (Interior, Commerce, Labor, Transportation, Energy)
Clearly, the President has some work to do to rebuild his team. This is doubly important given the significant budgetary changes to these departments likely to come down the pike with both sequestration and the continuing resolution battle in March. Having interim leaders is not the best way to go ever, but is particularly bad when there are big changes coming.
Expect a flurry of nominations in the next few weeks as well as a lot of hearings and votes on nominees. The President has named his most critical team (generally State, Defense, Treasury and Attorney General are considered the most critical positions in the cabinet), but there is much work left to do on the rest of the team.
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Sunday, January 27, 2013
Dangerous Electoral Tinkering and the Law of Unintended Consequences
The issue comes up after virtually every Presidential election - is there a need for a change in the way our Presidential election process works?
Following the 1992 and 1996 elections, Nebraska and Maine, frustrated that no one paid attention to them in Presidential contests, with Nebraska beings solidly red and Maine being solidly blue, passed laws that went into effect for the 2000 election that split their votes based on congressional district, with the winner of each congressional district receiving 1 electoral vote and the winner of the statewide vote receiving an additional 2 votes. Nebraska and Maine are small, meaning the overall electoral vote isn't that significant. In fact, Maine has never actually split its vote, since in every election from 2000 to 2012, both of its congressional districts, along with the state vote, went to Democrats. Nebraska has split its vote only once, with Barack Obama winning 1 congressional district in 2008 and giving himself 1 of Nebraska's 5 electoral votes in a vote that hardly mattered given his large electoral margin over John McCain.
The issue of the electoral college certainly came up in the aftermath of the 2000 election, which provoked many to push for a system where the winner of the national vote won the election. The National Popular Vote Interstate Compact, which I've written about before, was a creative system which would give the winner of the national vote the majority of electoral votes without the need for a constitutional amendment to that effect, gained steam in 2007, being enacted into law in 9 states over the time period from 2007 to 2011, giving it 49% of the electoral votes that it would need to take effect (approval in California in 2011 was a big contributor to the electoral count.)
In 2012, Republicans in Pennsylvania briefly toyed with a system similar to Nebraska and Maine's, which would have been very significant given the size of Pennsylvania and how favorable its current congressional districts are to the GOP, but abandoned the idea after it provoked a strong public reaction against it.
Now, other GOP-controlled states that voted for President Obama are taking up the issue. The legislature in Virginia is considering a proposal, called "intriguing" by RNC Chair Reince Preibus, that would allocate 1 vote for each congressional district and 2 votes to the winner of the most congressional districts. This scheme would have effectively given Mitt Romney 9 of Virginia's 13 electoral votes, despite losing the popular vote in the state, because of the concentration of Democrats into relatively few congressional districts in the state.
Before I discuss the merits of various proposals around the electoral college, it is probably beneficial to understand the history that brought us to where we are today.
The intention at the time of the writing of the constitution was never for the people to have a direct say in the election of the President. The electoral college was created with the intention of it being a learned group of men (yes, they were certainly all men in those days), appointed by state legislatures, charged with finding the best candidate to be President and Vice President. In fact, the original text of the constitution didn't even specifically charge them with casting a vote for Vice President, the Vice President was just to be the runner-up in the Presidential race, with each elector voting for two candidate for President.
This system worked fine in the early years - George Washington was a unanimous choice in 1788 and 1792. In 1796, the first post-Washington election, the true formation of political parties began in the US and regional and partisan divides began to occur. As the more "states rights" Democratic-Republicans controlled the South, Democratic-Republican favorite Thomas Jefferson was elected (the South had a large electoral advantage in those days) and Federalist John Adams carried the North. The issue of not picking separately for President and Vice President was quickly exposed, with Jefferson and running mate Aaron Burr receiving identical numbers of votes for President from the Democratic-Republican electors, which thrust the race into being decided by the House of Representatives. The 12th amendment was then ratified prior to the 1804 elections to rectify this issue and specify separate ballots for President and Vice President.
Also in 1804, the system for choosing electors, which had been left up to the states, began to evolve. 6 states had moved to the system that we generally know today, of holding a statewide popular vote and giving all electors to that candidate. 4 states had adopted the congressional district-splitting plan that some Republicans are now advocating. 1 state had a mix of state legislature-chosen electors and popular vote electors. And finally, 6 states still had the state legislature picking electors.
This mixed method did not really expose itself as a flaw as Thomas Jefferson was a wildly popular incumbent and won election easily, carrying 162 of 176 electoral votes.
The mixed method of choosing electors continued for some time, with a gradual trend towards statewide popular vote determining electoral college representation.
By 1824, 12 states were choosing electors by statewide popular vote, 5 states were divided into congressional districts, 6 states were choosing by the state legislature and 1 had a mixed model.
By 1832, all states except 2 were using the statewide popular vote method, with 1 state using the congressional district method and 1 state appointing by state legislature.
By 1836, South Carolina was the lone holdout, continuing to appoint by state legislature, with all other states using a statewide popular voting system. South Carolina held out until after Civil War reconstruction, at which point it joined the other states in a statewide popular voting system.
The statewide popular voting system then became the standard until 2000, when Maine and Nebraska made their changes.
The lessons that we should take from this history are:
* Rather than being a thought-out constitutional system, our modern process for choosing electors is something that evolved through trial-and-error in the states and in many election cycles.
* Having a few "outlier" states that have different methods of choosing electors did not occur for 150 years, but has quite a lot of history in the early days of the Republic.
All of this brings us to today. The constitution continues to permit each state to decide how to allocate its electors. So, what the GOP is proposing is certainly within the constitutional authority of each state. So, the obvious question, both from a state-level and a national perspective on any changes our existing system is, what are the values and incentives around which we should design a system?
I'll take a shot at this, in the context of our modern political system.
Any system should seek to:
a. Reflect the will of the voters it seeks to represent in the electoral college
b. Provide for the interests of the individual state
c. Produce a clear result in the Presidential race
d. Produce a result that is consistent with a democratic (small d) election
e. Resist subversion of the political process by narrow interests
Our existing system is fairly strong at A, C, D and E.
The statewide winner wins the electors in 48 states. That's pretty representative. Yes, in close states, the 49% who lose may feel unrepresented, but elections have winners and that is sort of part and parcel to losing.
The results are generally very clear in Presidential races. The 2000 election was strikingly close in Florida, but in the 136 years between the Tilden/Hayes dispute, which was fueled both by being a very close election and by the scars of reconstruction, 2000 is the only election where the outcome was legitimately in doubt for a significant period of time.
Our system is also fairly democratic. The candidate who won the largest plurality of votes did not win in 2000, although it was very close. Prior to that, you have to go back to Benjamin Harrison in 1888 to find a candidate who won without winning the poular vote.
Our system also resists subversion. It is very hard to make a new state and, by constitution, existing states can't be divided without both their consent and that of Congress, making it hard to rig the game.
Where our existing system largely fails is in B. The interests, money and attention all go to a narrow band of states that are considered swing states. Broadly, in today's terms, this is Florida, Ohio, Virginia, Iowa, North Carolina, Colorado, Pennsylvania, Nevada, New Hampshire, Wisconsin, Michigan and Indiana. No Presidential candidate visits our three largest states: California, Texas and New York, except to raise money, because those states don't have outcomes that are in question - California and New York are reliably blue and Texas is reliably red.
The Interstate Voting Compact would do an excellent job in all five categories. The winner of the national vote would win. Every state would get attention in proportion to its population...a vote in New York City or Dallas would be just as valuable as a vote in Tampa or Denver. Results would be clear - yes, this would have likely led to a larger recount effort in 2000, but Al Gore won the national popular vote by 0.5% or over half a million votes, a far more meaningful and less questionable margin than 0.0092% margin in Florida by which the election was decided.
The major criticism of this system would be that it leaves smaller states behind. The electoral college was intentionally created as House seats + Senate seats in order to give large states more sway than small state, but less sway than their population would dictate, so that the smaller states still had a strong stake in the system. This is a legitimate concern, but versus in our present system, how many small states really get attention? Maybe New Hampshire. But that's about it.
The proposed congressional district system has some history behind it. As I noted above, it was used by several states for several election cycles in the early days of the Republic. But it also has major flaws.
It can easily fail the "will of the voters" test as 2012 example from Virginia attests - the candidate receiving less votes receiving over 2/3rds of the electors is a pretty odd thing.
It would do a good job promoting the interest of individual states, as candidates would have to campaign district-by-district and couldn't take very many electoral votes for granted.
It could be a potential disaster in providing decisive results. Can you imagine a close race where there are 30 or 40 congressional districts that are all within the margin of a recount? Multiply Bush vs. Gore by 30 or 40 and that's what you would have.
It would also tend to produce results that are less democratic (and also less Democratic, as of today), potentially leading to somewhat democratically inexplicable results. Mitt Romney won 225 congressional districts in 2012 and 24 states, would would have given him 273 electoral votes to Barack Obama's 265 if the whole nation had used a system where the congressional district winners won 1 vote and the statewide winner won 2. This, despite President Obama winning the popular vote by almost 4%.
In short, the GOP idea is a bad idea. The appeal to them is obvious, from the description of the 2012 race above. But it is also short-sighted. A major reason why Romney won so many districts was Republican control of state houses when district lines were redrawn for 2012, following the 2010 census, allowing for gerrymandering of districts to support GOP victory. This could easily flip in the next census. Also, since the system is not being broadly adopted, adopting a system like that just for a few states, could actually hurt them in a close election. What if just Virginia had adopted the system this time around and Romney had won it but left 4 electoral votes for Obama because of the system which proved decisive?
If we are not going to have a national popular vote system (which I favor) because small states don't want to give up authority and we want to reform the system, a better approach would be proportional representation in the electoral college. Give the winner of the state 2 electoral votes and split the other votes by percentage of the vote. For instance, in Iowa, which has 7 electoral votes, you'd give 2 votes to the winner and 1 vote each for approximately 20% of the vote garnered. This would have split Iowa's vote 5-2 for Obama, versus the 7-0 that we saw. In California, the vote would have split 35-20 rather than all going to Obama. In Texas, it would have split 23-15 for Romney, instead of all going to Romney. This would encourage campaigning in all 50 states and would take away the concentration of power from a few swing states.
Of course, such a system would only work if it is broadly adopted. If Texas does it but California does not, then it just amounts to an unfair 15 electoral vote advantage for the Democrat.
My guess is that despite the discussion, not much will happen on this front for the 2016 election. Governor Bob McDonnell of Virginia has already stated that he doesn't see an issue with the states present electoral system and cooler heads are likely to prevail in other GOP-controlled legislatures.
But all of this does provoke an interesting question as to whether our current system for electing Presidents is the best one we could find.
If you like this site, tell your friends.
Following the 1992 and 1996 elections, Nebraska and Maine, frustrated that no one paid attention to them in Presidential contests, with Nebraska beings solidly red and Maine being solidly blue, passed laws that went into effect for the 2000 election that split their votes based on congressional district, with the winner of each congressional district receiving 1 electoral vote and the winner of the statewide vote receiving an additional 2 votes. Nebraska and Maine are small, meaning the overall electoral vote isn't that significant. In fact, Maine has never actually split its vote, since in every election from 2000 to 2012, both of its congressional districts, along with the state vote, went to Democrats. Nebraska has split its vote only once, with Barack Obama winning 1 congressional district in 2008 and giving himself 1 of Nebraska's 5 electoral votes in a vote that hardly mattered given his large electoral margin over John McCain.
The issue of the electoral college certainly came up in the aftermath of the 2000 election, which provoked many to push for a system where the winner of the national vote won the election. The National Popular Vote Interstate Compact, which I've written about before, was a creative system which would give the winner of the national vote the majority of electoral votes without the need for a constitutional amendment to that effect, gained steam in 2007, being enacted into law in 9 states over the time period from 2007 to 2011, giving it 49% of the electoral votes that it would need to take effect (approval in California in 2011 was a big contributor to the electoral count.)
In 2012, Republicans in Pennsylvania briefly toyed with a system similar to Nebraska and Maine's, which would have been very significant given the size of Pennsylvania and how favorable its current congressional districts are to the GOP, but abandoned the idea after it provoked a strong public reaction against it.
Now, other GOP-controlled states that voted for President Obama are taking up the issue. The legislature in Virginia is considering a proposal, called "intriguing" by RNC Chair Reince Preibus, that would allocate 1 vote for each congressional district and 2 votes to the winner of the most congressional districts. This scheme would have effectively given Mitt Romney 9 of Virginia's 13 electoral votes, despite losing the popular vote in the state, because of the concentration of Democrats into relatively few congressional districts in the state.
Before I discuss the merits of various proposals around the electoral college, it is probably beneficial to understand the history that brought us to where we are today.
The intention at the time of the writing of the constitution was never for the people to have a direct say in the election of the President. The electoral college was created with the intention of it being a learned group of men (yes, they were certainly all men in those days), appointed by state legislatures, charged with finding the best candidate to be President and Vice President. In fact, the original text of the constitution didn't even specifically charge them with casting a vote for Vice President, the Vice President was just to be the runner-up in the Presidential race, with each elector voting for two candidate for President.
This system worked fine in the early years - George Washington was a unanimous choice in 1788 and 1792. In 1796, the first post-Washington election, the true formation of political parties began in the US and regional and partisan divides began to occur. As the more "states rights" Democratic-Republicans controlled the South, Democratic-Republican favorite Thomas Jefferson was elected (the South had a large electoral advantage in those days) and Federalist John Adams carried the North. The issue of not picking separately for President and Vice President was quickly exposed, with Jefferson and running mate Aaron Burr receiving identical numbers of votes for President from the Democratic-Republican electors, which thrust the race into being decided by the House of Representatives. The 12th amendment was then ratified prior to the 1804 elections to rectify this issue and specify separate ballots for President and Vice President.
Also in 1804, the system for choosing electors, which had been left up to the states, began to evolve. 6 states had moved to the system that we generally know today, of holding a statewide popular vote and giving all electors to that candidate. 4 states had adopted the congressional district-splitting plan that some Republicans are now advocating. 1 state had a mix of state legislature-chosen electors and popular vote electors. And finally, 6 states still had the state legislature picking electors.
This mixed method did not really expose itself as a flaw as Thomas Jefferson was a wildly popular incumbent and won election easily, carrying 162 of 176 electoral votes.
The mixed method of choosing electors continued for some time, with a gradual trend towards statewide popular vote determining electoral college representation.
By 1824, 12 states were choosing electors by statewide popular vote, 5 states were divided into congressional districts, 6 states were choosing by the state legislature and 1 had a mixed model.
By 1832, all states except 2 were using the statewide popular vote method, with 1 state using the congressional district method and 1 state appointing by state legislature.
By 1836, South Carolina was the lone holdout, continuing to appoint by state legislature, with all other states using a statewide popular voting system. South Carolina held out until after Civil War reconstruction, at which point it joined the other states in a statewide popular voting system.
The statewide popular voting system then became the standard until 2000, when Maine and Nebraska made their changes.
The lessons that we should take from this history are:
* Rather than being a thought-out constitutional system, our modern process for choosing electors is something that evolved through trial-and-error in the states and in many election cycles.
* Having a few "outlier" states that have different methods of choosing electors did not occur for 150 years, but has quite a lot of history in the early days of the Republic.
All of this brings us to today. The constitution continues to permit each state to decide how to allocate its electors. So, what the GOP is proposing is certainly within the constitutional authority of each state. So, the obvious question, both from a state-level and a national perspective on any changes our existing system is, what are the values and incentives around which we should design a system?
I'll take a shot at this, in the context of our modern political system.
Any system should seek to:
a. Reflect the will of the voters it seeks to represent in the electoral college
b. Provide for the interests of the individual state
c. Produce a clear result in the Presidential race
d. Produce a result that is consistent with a democratic (small d) election
e. Resist subversion of the political process by narrow interests
Our existing system is fairly strong at A, C, D and E.
The statewide winner wins the electors in 48 states. That's pretty representative. Yes, in close states, the 49% who lose may feel unrepresented, but elections have winners and that is sort of part and parcel to losing.
The results are generally very clear in Presidential races. The 2000 election was strikingly close in Florida, but in the 136 years between the Tilden/Hayes dispute, which was fueled both by being a very close election and by the scars of reconstruction, 2000 is the only election where the outcome was legitimately in doubt for a significant period of time.
Our system is also fairly democratic. The candidate who won the largest plurality of votes did not win in 2000, although it was very close. Prior to that, you have to go back to Benjamin Harrison in 1888 to find a candidate who won without winning the poular vote.
Our system also resists subversion. It is very hard to make a new state and, by constitution, existing states can't be divided without both their consent and that of Congress, making it hard to rig the game.
Where our existing system largely fails is in B. The interests, money and attention all go to a narrow band of states that are considered swing states. Broadly, in today's terms, this is Florida, Ohio, Virginia, Iowa, North Carolina, Colorado, Pennsylvania, Nevada, New Hampshire, Wisconsin, Michigan and Indiana. No Presidential candidate visits our three largest states: California, Texas and New York, except to raise money, because those states don't have outcomes that are in question - California and New York are reliably blue and Texas is reliably red.
The Interstate Voting Compact would do an excellent job in all five categories. The winner of the national vote would win. Every state would get attention in proportion to its population...a vote in New York City or Dallas would be just as valuable as a vote in Tampa or Denver. Results would be clear - yes, this would have likely led to a larger recount effort in 2000, but Al Gore won the national popular vote by 0.5% or over half a million votes, a far more meaningful and less questionable margin than 0.0092% margin in Florida by which the election was decided.
The major criticism of this system would be that it leaves smaller states behind. The electoral college was intentionally created as House seats + Senate seats in order to give large states more sway than small state, but less sway than their population would dictate, so that the smaller states still had a strong stake in the system. This is a legitimate concern, but versus in our present system, how many small states really get attention? Maybe New Hampshire. But that's about it.
The proposed congressional district system has some history behind it. As I noted above, it was used by several states for several election cycles in the early days of the Republic. But it also has major flaws.
It can easily fail the "will of the voters" test as 2012 example from Virginia attests - the candidate receiving less votes receiving over 2/3rds of the electors is a pretty odd thing.
It would do a good job promoting the interest of individual states, as candidates would have to campaign district-by-district and couldn't take very many electoral votes for granted.
It could be a potential disaster in providing decisive results. Can you imagine a close race where there are 30 or 40 congressional districts that are all within the margin of a recount? Multiply Bush vs. Gore by 30 or 40 and that's what you would have.
It would also tend to produce results that are less democratic (and also less Democratic, as of today), potentially leading to somewhat democratically inexplicable results. Mitt Romney won 225 congressional districts in 2012 and 24 states, would would have given him 273 electoral votes to Barack Obama's 265 if the whole nation had used a system where the congressional district winners won 1 vote and the statewide winner won 2. This, despite President Obama winning the popular vote by almost 4%.
In short, the GOP idea is a bad idea. The appeal to them is obvious, from the description of the 2012 race above. But it is also short-sighted. A major reason why Romney won so many districts was Republican control of state houses when district lines were redrawn for 2012, following the 2010 census, allowing for gerrymandering of districts to support GOP victory. This could easily flip in the next census. Also, since the system is not being broadly adopted, adopting a system like that just for a few states, could actually hurt them in a close election. What if just Virginia had adopted the system this time around and Romney had won it but left 4 electoral votes for Obama because of the system which proved decisive?
If we are not going to have a national popular vote system (which I favor) because small states don't want to give up authority and we want to reform the system, a better approach would be proportional representation in the electoral college. Give the winner of the state 2 electoral votes and split the other votes by percentage of the vote. For instance, in Iowa, which has 7 electoral votes, you'd give 2 votes to the winner and 1 vote each for approximately 20% of the vote garnered. This would have split Iowa's vote 5-2 for Obama, versus the 7-0 that we saw. In California, the vote would have split 35-20 rather than all going to Obama. In Texas, it would have split 23-15 for Romney, instead of all going to Romney. This would encourage campaigning in all 50 states and would take away the concentration of power from a few swing states.
Of course, such a system would only work if it is broadly adopted. If Texas does it but California does not, then it just amounts to an unfair 15 electoral vote advantage for the Democrat.
My guess is that despite the discussion, not much will happen on this front for the 2016 election. Governor Bob McDonnell of Virginia has already stated that he doesn't see an issue with the states present electoral system and cooler heads are likely to prevail in other GOP-controlled legislatures.
But all of this does provoke an interesting question as to whether our current system for electing Presidents is the best one we could find.
If you like this site, tell your friends.
Monday, January 21, 2013
For Just One Day, Let's All Be Patriots
The odds are that many of you reading this didn't vote for President Obama. In fact, if you are representative of the US population at large, if 100 of you read this, 29 of you weren't eligible to vote, 29 of you were eligible to vote but did not, 20 of you voted for Mitt Romney, 1 of you voted for a third party or independent candidate and only 21 of you actually voted for the President. 21 out of 100. That's how our elections get decided.
It is also likely that at some point in the past four years and in the next four, President Obama will do something that you don't like. Whether you are a human-rights activist who is incensed over the continuing practices at Gitmo, a Tea Party member who detests the expansion of the government role in health care through Obamacare, an economic conservative mad about the continuing large federal deficit or a libertarian mad that the President went against his word and went after medical marijuana facilities, there is something for everybody not to like in the way the President has governed.
But, let's make a deal. Let's agree to put that aside for just one day. Let's marvel at the wonder of the American Republic and the peaceful swearing in of a President for another four years. Let's celebrate the beauty of American art, whether it be the poet laureate or the musical stylings of our pop stars. Let's enjoy the fashion of the First Lady. Let's admire the marching band in the parade. Let's enjoy the pomp and circumstance of the Presidential Ball.
Let's just be Americans, for one day. We can fight about debt ceilings and sequestration and immigration tomorrow. Today, let's all be patriots.
It is also likely that at some point in the past four years and in the next four, President Obama will do something that you don't like. Whether you are a human-rights activist who is incensed over the continuing practices at Gitmo, a Tea Party member who detests the expansion of the government role in health care through Obamacare, an economic conservative mad about the continuing large federal deficit or a libertarian mad that the President went against his word and went after medical marijuana facilities, there is something for everybody not to like in the way the President has governed.
But, let's make a deal. Let's agree to put that aside for just one day. Let's marvel at the wonder of the American Republic and the peaceful swearing in of a President for another four years. Let's celebrate the beauty of American art, whether it be the poet laureate or the musical stylings of our pop stars. Let's enjoy the fashion of the First Lady. Let's admire the marching band in the parade. Let's enjoy the pomp and circumstance of the Presidential Ball.
Let's just be Americans, for one day. We can fight about debt ceilings and sequestration and immigration tomorrow. Today, let's all be patriots.
Saturday, January 19, 2013
Is Sanity Returning to the GOP?, Taking Stock of Obama's First Term
GOP Offers Debt Ceiling Sanity....for a few months
Coming out of the House GOP retreat, where they are presumably discussing their strategy and vision for the next 2 years and specifically how they are going to hold on to the House in 2014, comes word that the GOP will offer up a more or less "clean" increase of the debt ceiling to ward off default.
It comes with a few strings attached. The extension would only be for 3 months, meaning that we would be having the same discussion again in May or June. It would require both houses of Congress to pass a budget by April 15th or forfeit pay, something that the Senate has not done in several years, a fact that has been a talking point for the GOP.
It is possible that President Obama and the Democrats will have some issue with the proposal. The 3 month extension falls far short of the kind of extension or even elimination of the debt ceiling that the President had sought, hoping to avert having to deal with debt ceiling issue again in his Presidency. And Senate Democrats might balk at needing to pass a budget resolution.
But it seems like a savvy move for the GOP. It would be a tough sell for Democrats to vote against the debt ceiling increase they asked for. And I don't know very many people who would be too concerned about the possibility of Representatives and Senators not getting paid for a little while.
1 Term Down, 1 To Go
President Obama's will celebrate his second inauguration on Monday. It will be a more subdued ceremony than the celebration four years ago, when the country was less divided and we hadn't endured such a long economic malaise. But it will be a unifying moment for supporters of the President and a day of patriotism for all.
While the inauguration is on Monday, the official start of the President's second term is at noon tomorrow, as dictated by the constitution and the President will privately retake the oath of office then, before going through the ceremony on Monday.
Being at the end of the President's first 4 years, I thought it would be a good time to take stock of how the President has done.
(1) Did He Keep His Promises?
Politifact.com (run by the Tampa Bay Times) has did a great job of tracking all of the promises that the President made in the 2008 campaign and how they have turned out.
There were 508 documented promises made and of those, 239 were fully kept, 130 were partially kept and 139 were not kept. Those not kept were not kept for a variety of reasons - either the President changing his position (closing Gitmo, for instance), simply not pursuing something he promised to do (giving a State of the World address, for instance) or his desired policies changing as a result of negotiation with Congress (extending the Bush tax cuts for upper income limits for instance.)
Giving the President 100% for promises fully kept and 50% for those partially kept, the President gets 304 points out of a possible 508 or a score of 60%.
I said at the beginning of his term that it would be an A-worthy performance if the President could do half of the things he promised to do in 2008. A score of 60% certainly qualifies.
Grade: A
(2) Did He Achieve His Major Policy Goals?
The President had articulated six clear policy goals for his first term at the outset:
a. Implement a meaningful stimulus
On this issue, the American Recovery and Reinvestment Act achieved almost all of what the President set out to achieve. It provided aid to states, funds for infrastructure improvements and targeted tax cuts. Couple this with the (just expired) temporary Social Security tax rate reductions that the President was able to get in 2010 and you have to say the President basically implemented what he set out to implement. There is much debate on the effectiveness of those policies, but here we are grading whether he did what he set out to do.
Grade: A
b. Implement Health Care Reform That Achieves Universal Coverage
The coverage is not quite universal (2% are excluded), the plan doesn't contain a public option, it does contain a mandate (something he opposed on the campaign trail) and the President gave up very early on including abortion coverage in the plan (another thing he campaigned on.) Still, President Obama was successful where Presidents Johnson, Nixon, Carter and Clinton failed (President Reagan and both Presidents Bush were not advocates for such a program.) The carefully negotiated program was passed through congress narrowly and was narrowly upheld as largely constitutional by the Supreme Court. It is the law of the land and will roll out over his second term. We will all get to see how successful it is or isn't.
Grade: B+
c. Repeal the Bush Tax Cuts for Those Making Over $250K
The President completely punted on this once, agreeing to a 2-year extension in late 2010, in exchange for some other goodies, such as the Social Security Tax deal. The President did better recently, at the end of his term, cutting a deal that let the rates rise on individuals making over $400K and couples making over $450K, about half of the population the President was targeting to contribute more.
Grade: C
d. Pass Meaningful Legislation to Deal with Carbon Emissions
A Cap and Trade bill passed the House in 2009 but was never even taken up in the Senate and there has been virtually no leadership from the President on making this stated priority happen. There were smaller steps that did happen, such as tax credits for energy efficient homes and appliances and extensions of wind and solar subsidies. But all-in-all, the President hasn't made much progress here.
Grade: D+
e. Provide for Comprehensive Immigration Reform
Perhaps it will be a second term issue. But the President never even proposed a package of immigration reform, something which he had stated he would do in his first year in office. He took some action by executive order, such as the regulatory version of the Dream Act, but these actions were taken very late in his term and fall far short of comprehensive reform.
Grade: D
f. End the War in Iraq and Provide Additional Troops, on a Timetable in Afghanistan
The President basically did everything he said he would here. We are out of Iraq. We did surge in Afghanistan, but are now winding down our involvement, in line with the time table the President set.
Grade: A
Overall Grade on Priorities: B-
(3) How Did We Fare Economically?
This is a quite complicated question, given the deep recession that was underway at the start of his term. By some economic measures, the President doesn't make the grade, by others he does.
Average Annual GDP Growth During His Term: 2.1% (average 20 years prior to Obama = 3.8%)
Average Unemployment Rate During His Term: 9.0% (average 20 years prior to Obama = 6.0%)
Stock Market Return During His Term: 12.1% (average 20 years prior to Obama = 9.9%)
By the standards of economic growth and unemployment, the last 4 years have not been among our better ones. Following a deep recession, we have had slow growth with sustained high unemployment over several years. While unemployment is now falling, it is doing so painfully slowly and at least in part due to less people in the workforce. By these measures, President Obama doesn't rate well.
However, putting those numbers in proper context is difficult since anyone could have predicted following the financial crisis that unemployment would be elevated and growth depressed, at least for a period of time. This is where the stock market return comes in. The stock market price reflects both present economic circumstances and expectations around future economic performance. On this measure, the President is doing great, far exceeding normal market returns and, given that those are nominal returns and inflation has been very low, real returns exceed by an even greater margin.
Of course, stock market expectations can be wrong. The stock market was wildly over-priced in 1999 and wildly under priced in 1982. So while some of change in expectations can be due to averting crises or sounder policies, some is also due to mean reversion or, in common language, irrational panic or optimism abating.
So, it is difficult as we stand here today to judge the President's economic performance. We didn't fall off a cliff and into a depression, something that seemed like a real possibility in 2008. But we also haven't had a "V-shaped recovery" where the economy grows quickly after purging the less efficient elements in a recession. It is a mixed bag.
Grade; C
The President has a lot to tackle in his second term. The deficit is still out-of-control, with no path to balance in sight. Immigration and climate change remain unsolved issues. The economy, while not in crisis, is certainly not healthy, particularly for the lower-middle class.
I wish him luck as he begins his second term, for all our sakes.
If you like this site, tell your friends.
Coming out of the House GOP retreat, where they are presumably discussing their strategy and vision for the next 2 years and specifically how they are going to hold on to the House in 2014, comes word that the GOP will offer up a more or less "clean" increase of the debt ceiling to ward off default.
It comes with a few strings attached. The extension would only be for 3 months, meaning that we would be having the same discussion again in May or June. It would require both houses of Congress to pass a budget by April 15th or forfeit pay, something that the Senate has not done in several years, a fact that has been a talking point for the GOP.
It is possible that President Obama and the Democrats will have some issue with the proposal. The 3 month extension falls far short of the kind of extension or even elimination of the debt ceiling that the President had sought, hoping to avert having to deal with debt ceiling issue again in his Presidency. And Senate Democrats might balk at needing to pass a budget resolution.
But it seems like a savvy move for the GOP. It would be a tough sell for Democrats to vote against the debt ceiling increase they asked for. And I don't know very many people who would be too concerned about the possibility of Representatives and Senators not getting paid for a little while.
1 Term Down, 1 To Go
President Obama's will celebrate his second inauguration on Monday. It will be a more subdued ceremony than the celebration four years ago, when the country was less divided and we hadn't endured such a long economic malaise. But it will be a unifying moment for supporters of the President and a day of patriotism for all.
While the inauguration is on Monday, the official start of the President's second term is at noon tomorrow, as dictated by the constitution and the President will privately retake the oath of office then, before going through the ceremony on Monday.
Being at the end of the President's first 4 years, I thought it would be a good time to take stock of how the President has done.
(1) Did He Keep His Promises?
Politifact.com (run by the Tampa Bay Times) has did a great job of tracking all of the promises that the President made in the 2008 campaign and how they have turned out.
There were 508 documented promises made and of those, 239 were fully kept, 130 were partially kept and 139 were not kept. Those not kept were not kept for a variety of reasons - either the President changing his position (closing Gitmo, for instance), simply not pursuing something he promised to do (giving a State of the World address, for instance) or his desired policies changing as a result of negotiation with Congress (extending the Bush tax cuts for upper income limits for instance.)
Giving the President 100% for promises fully kept and 50% for those partially kept, the President gets 304 points out of a possible 508 or a score of 60%.
I said at the beginning of his term that it would be an A-worthy performance if the President could do half of the things he promised to do in 2008. A score of 60% certainly qualifies.
Grade: A
(2) Did He Achieve His Major Policy Goals?
The President had articulated six clear policy goals for his first term at the outset:
a. Implement a meaningful stimulus
On this issue, the American Recovery and Reinvestment Act achieved almost all of what the President set out to achieve. It provided aid to states, funds for infrastructure improvements and targeted tax cuts. Couple this with the (just expired) temporary Social Security tax rate reductions that the President was able to get in 2010 and you have to say the President basically implemented what he set out to implement. There is much debate on the effectiveness of those policies, but here we are grading whether he did what he set out to do.
Grade: A
b. Implement Health Care Reform That Achieves Universal Coverage
The coverage is not quite universal (2% are excluded), the plan doesn't contain a public option, it does contain a mandate (something he opposed on the campaign trail) and the President gave up very early on including abortion coverage in the plan (another thing he campaigned on.) Still, President Obama was successful where Presidents Johnson, Nixon, Carter and Clinton failed (President Reagan and both Presidents Bush were not advocates for such a program.) The carefully negotiated program was passed through congress narrowly and was narrowly upheld as largely constitutional by the Supreme Court. It is the law of the land and will roll out over his second term. We will all get to see how successful it is or isn't.
Grade: B+
c. Repeal the Bush Tax Cuts for Those Making Over $250K
The President completely punted on this once, agreeing to a 2-year extension in late 2010, in exchange for some other goodies, such as the Social Security Tax deal. The President did better recently, at the end of his term, cutting a deal that let the rates rise on individuals making over $400K and couples making over $450K, about half of the population the President was targeting to contribute more.
Grade: C
d. Pass Meaningful Legislation to Deal with Carbon Emissions
A Cap and Trade bill passed the House in 2009 but was never even taken up in the Senate and there has been virtually no leadership from the President on making this stated priority happen. There were smaller steps that did happen, such as tax credits for energy efficient homes and appliances and extensions of wind and solar subsidies. But all-in-all, the President hasn't made much progress here.
Grade: D+
e. Provide for Comprehensive Immigration Reform
Perhaps it will be a second term issue. But the President never even proposed a package of immigration reform, something which he had stated he would do in his first year in office. He took some action by executive order, such as the regulatory version of the Dream Act, but these actions were taken very late in his term and fall far short of comprehensive reform.
Grade: D
f. End the War in Iraq and Provide Additional Troops, on a Timetable in Afghanistan
The President basically did everything he said he would here. We are out of Iraq. We did surge in Afghanistan, but are now winding down our involvement, in line with the time table the President set.
Grade: A
Overall Grade on Priorities: B-
(3) How Did We Fare Economically?
This is a quite complicated question, given the deep recession that was underway at the start of his term. By some economic measures, the President doesn't make the grade, by others he does.
Average Annual GDP Growth During His Term: 2.1% (average 20 years prior to Obama = 3.8%)
Average Unemployment Rate During His Term: 9.0% (average 20 years prior to Obama = 6.0%)
Stock Market Return During His Term: 12.1% (average 20 years prior to Obama = 9.9%)
By the standards of economic growth and unemployment, the last 4 years have not been among our better ones. Following a deep recession, we have had slow growth with sustained high unemployment over several years. While unemployment is now falling, it is doing so painfully slowly and at least in part due to less people in the workforce. By these measures, President Obama doesn't rate well.
However, putting those numbers in proper context is difficult since anyone could have predicted following the financial crisis that unemployment would be elevated and growth depressed, at least for a period of time. This is where the stock market return comes in. The stock market price reflects both present economic circumstances and expectations around future economic performance. On this measure, the President is doing great, far exceeding normal market returns and, given that those are nominal returns and inflation has been very low, real returns exceed by an even greater margin.
Of course, stock market expectations can be wrong. The stock market was wildly over-priced in 1999 and wildly under priced in 1982. So while some of change in expectations can be due to averting crises or sounder policies, some is also due to mean reversion or, in common language, irrational panic or optimism abating.
So, it is difficult as we stand here today to judge the President's economic performance. We didn't fall off a cliff and into a depression, something that seemed like a real possibility in 2008. But we also haven't had a "V-shaped recovery" where the economy grows quickly after purging the less efficient elements in a recession. It is a mixed bag.
Grade; C
The President has a lot to tackle in his second term. The deficit is still out-of-control, with no path to balance in sight. Immigration and climate change remain unsolved issues. The economy, while not in crisis, is certainly not healthy, particularly for the lower-middle class.
I wish him luck as he begins his second term, for all our sakes.
If you like this site, tell your friends.
Saturday, January 5, 2013
Our Elected Leaders Punt Yet Again On Real Deficit Reduction, Boehner Narrowly Holds On To Speaker Job, Christie Goes Ballistic
The Fiscal Cliff Deal Isn't Much of a Deal at All
I guess there are things that all sides can claim victory in the fiscal cliff "deal" that was negotiated early in the new year, which was primarily a by-product of discussions between Vice President Joe Biden and Senate Minority Leader Mitch McConnell.
For Republicans, they can feel good that for 99.2% of Americans, the tax cuts that President Bush pushed for in 2001 and 2003, that the vast majority of Democrats and even some Republicans opposed at the time, have no become a permanent reality. They are law forever. They can also feel good that the military cuts that were part of the sequestration deal last year are now put off, albeit for only two months. They can also feel good that they will get another bite at the spending apple in short order with the pending fights over the second half Fiscal 2013 budget and the debt ceiling coming up directly.
For Democrats, they can feel good that they successfully raised taxes on the wealthiest 1% (actually the wealthiest 0.8%, to be precise, but you get the point), that they averted the fiscal cliff cuts for domestic programs, albeit for only two weeks, that unemployment insurance was extended for another year, that renewable energy tax credits were extended for another year and that they really didn't have to agree to any spending cuts to get the deal done.
As for me, I don't feel particularly good about any of this.
Let's introduce a reality into the equation. The deficit last year was $1.128 trillion. We took in $2.435 trillion in taxes, 46% from individual income taxes, 35% from Social Security and Medicare Taxes, 10% from Corporate Taxes and 9% from the miscellaneous set of other federal taxes that the government collects, such as excise taxes on gasoline, cigarettes, alcohol, permitting costs, etc. We spent $3.563 trillion, 45% on Social Security and Medicare/Medicaid, 23% of Defense and Military expenses, 10% on unemployment and other income security measures (such as subsidized school lunches), 6% on interest on the national debt and 16% on everything else.
So what did the fiscal cliff "deal" do? It allowed the temporary payroll tax reduction on Social Security to lapse, which effectively boosts Social Security payroll tax income by 19%, since the total tax (including both employer and employee) rises from 10.4% to 12.4%. This raises about $120B per year in additional revenue, versus the last two years.
The cliff deal also raised income taxes from 35% to 39.6% for individuals making over $400K and married couples making over $450K and raises capital gains and dividend taxes on those individuals from 15% to 20%, as well as capping deductions on those over $200K/$250K. Collectively, this raises about $60B per year in additional revenue.
So, all else being equal (and it is obviously not because not everything else is static, but everything else is pretty well in balance), we took a $1.128 trillion deficit and solved 16% of it. On the 2012 basis, this woud give us about $2.615 trillion in revenue, not quite enough money to fund Social Security, Medicare/Medicaid, Defense and interest on the debt, if you cancelled every single other government program (no FAA, no SEC, no EPA, no FDA, no USDA, no OSHA, no federal court system, no power at the White House, etc.)
In other words, this was a totally and grossly insufficient bill to solve the structural problem that we had.
It amazes me that Democrats now accept 99.2% of the Bush tax cuts that they once opposed, and that we have never been able to afford. It also amazes me that they reject out of hand even the most modest GOP proposals to rain in entitlement spending, such as shifting the chained CPI for Social Security increases, which would save a ton of money over time and make the system much more stable while having only a gradual effect on today's seniors.
It also astonishes me that the GOP continue to fight for low taxes without a serious, specific proposal on how they would cut spending. Since today's revenues don't even cover Defense, Entitlements and Interest and they want even lower revenues than today, to be credible to me, they would need to present a budget that makes deep, deep cuts in Defense and Entitlements to even get close to balance. They have not, as of yet and, in fact, most have strongly opposed defense cuts, while skirting the issue of entitlements.
Let's not forget also the underlying dynamics that make the future budget reality worse. The population is getting older and health care costs are still rising (albeit the rate of health care inflation has slowed from the pace of the past decade) so entitlement costs will rise faster than revenues. Interest rates are at 200 year historic lows, meaning that it is highly probable that interest rates and therefore interest expense will rise in the future, especially with a rising federal debt. There are some positives - unemployment insurance costs are likely to drop as the economy improves along with some other social programs and the wind-down in Afghanistan will save some on the military budget. But in balance, the trajectory is towards a worse budgetary situation, not a better one.
Both parties to date are taking unserious positions. There are only four levers to manage our current situation:
(1) Raise Taxes of Some Form in Meaningful, Broad Way
You can't tax the 1% and get us into balance. To make a meaningful impact on the deficit, you would need to raise taxes on the majority of the population in some form, either in the form of higher income tax rates, higher payroll taxes or a national sales or VAT tax.
(2) Structural Reforms to Entitlements
Higher participation ages, lower benefits, etc. You have to "bend the curve" on entitlement spending.
(3) Meaningful Cuts to Defense
We spend 5 times the next nearest country (China) on our military. Would we be unsafe at 3 times their spending?
(4) Default in Some Way Shape or Form
This is a nuclear option that would cause a depression. There are two ways to do this - either simply don't pay the bills which would be an utter disaster to financial markets that would immediately spark a deep financial and economic crisis or print money to pay the bills (i.e. have the fed buy up and forgive treasury debt), which would likely spark hyper-inflation. Neither of those options is at all appealing, even compared to 1-3.
My other disappointment (or maybe I should be happy, since I didn't love the deal) with the cliff deal is that it doesn't really solve anything. The federal budget still expires March 1st, so there is another, immediate fight over spending. Sequestration cuts still hit March 1st also. And, approximately the end of February, the federal government won't be able to pay its bills unless congress increases the debt ceiling. In other words, get ready for more melodrama, stern rhetoric and down-to-the-wire posturing that solves nothing before another 11th or 12th hour deal that doesn't do nearly enough.
My final disappointment is in President Obama's inability to lead or paint a vision. He wasn't even a participant in most of the talks that cut the deal. He has painted no clear vision for how we get where we need to go with the budget and seems to have no sense of urgency about reducing the deficit. Joe Biden showed far more leadership that the President in this case, and even Biden's leadership was just to cut a deal in the end, not to really solve the problem.
Prepare to be disappointed again in the coming year.
Boehner Holds On With 2 Votes to Spare
John Boehner will be the House Speaker for the next two years, after successfully beating back dissent from about 8% of his caucus. While there was no Republican actively running against Boehner, a cast of 17 Republicans (excluding Boehner, who did not vote, as is tradition) either cast protest votes, voted "present" or did not vote. Some were clear protest votes, for the likes of Alan West (who isn't in the House any more as he lost re-election) and Colin Powell (who has never been in the House), some were semi-serious votes, including 3 for Majority Leader Eric Cantor, who many of the far right view as more sympathetic to their cause than the pragmatic Boehner. Boehner needed an outright majority in order to not force a second ballot on the issue, which required 218 votes. The 220 he received was sufficient - barely, to keep him with the Speaker's gavel for the next two years.
All of this supports what I have long said about Boehner - he is a conservative but not a wing nut as many think. He is hemmed in by a caucus that is well outside the mainstream. The fact that he almost lost his Speakership simply for supporting the deal he did speaks volumes about where the right-wing in the House sits. Heck, a significant number of House Republicans even opposed the Hurricane Sandy aid package that was finally passed on Friday (more on that in a second.)
My advice to Boehner? You know you are never going to be the darling of the right wing, so take your re-election as an opportunity to try to go solve the problems. The hard-liners will hate it, but they already don't support you. So cement your legacy and get something done.
Chris Christie Lets Loose on the House GOP
The fiscal cliff deal on January 2nd was the last thing the outgoing House of Representatives did before disbanding to make way for the new House, which was sworn in yesterday. This greatly upset lawmakers from New York and New Jersey, who had been hoping for and believed they had secured agreement for aid for the battered coastal areas impacted by Hurricane Sandy.
Why the House didn't take the issue up before disbanding is inexplicable to me. Perhaps John Boehner couldn't swallow asking his conservative members to vote on a spending package right on the heels of a painful vote on the fiscal cliff. But, come on, when did relief for people made homeless by a hurricane become a partisan issue?
Christie was specific, and named names in his criticism, stating:
"There is only one group to blame for the continued suffering of these innocent victims, the House majority and their speaker, John Boehner."
Boehner scrambled to pull a vote together on the bill, with an initial aid package rapidly set for a vote yesterday and the balance to be voted on January 15th. The initial package passed the House 354-67, with all 67 "no" votes coming from Republicans. It is shocking to me that there were 67 members of the new House majority willing to vote no on this bill. The bill passed the Senate, which always seems much more reasonable an bi-partisan, without a single "no" vote.
The initial aid package contained only $9B, the bigger $51B package is to come in the January 15th vote. Could that package be in serious jeopardy, given the delay and vote on the first bill? If it is, it would be utter political suicide for the House GOP. Nothing makes you look like a wing nut like pushing hard to keep tax cuts on capital gains for people making millions of dollars and then opposing federal funds to help people made homeless by a hurricane.
If you like this site, tell your friends.
I guess there are things that all sides can claim victory in the fiscal cliff "deal" that was negotiated early in the new year, which was primarily a by-product of discussions between Vice President Joe Biden and Senate Minority Leader Mitch McConnell.
For Republicans, they can feel good that for 99.2% of Americans, the tax cuts that President Bush pushed for in 2001 and 2003, that the vast majority of Democrats and even some Republicans opposed at the time, have no become a permanent reality. They are law forever. They can also feel good that the military cuts that were part of the sequestration deal last year are now put off, albeit for only two months. They can also feel good that they will get another bite at the spending apple in short order with the pending fights over the second half Fiscal 2013 budget and the debt ceiling coming up directly.
For Democrats, they can feel good that they successfully raised taxes on the wealthiest 1% (actually the wealthiest 0.8%, to be precise, but you get the point), that they averted the fiscal cliff cuts for domestic programs, albeit for only two weeks, that unemployment insurance was extended for another year, that renewable energy tax credits were extended for another year and that they really didn't have to agree to any spending cuts to get the deal done.
As for me, I don't feel particularly good about any of this.
Let's introduce a reality into the equation. The deficit last year was $1.128 trillion. We took in $2.435 trillion in taxes, 46% from individual income taxes, 35% from Social Security and Medicare Taxes, 10% from Corporate Taxes and 9% from the miscellaneous set of other federal taxes that the government collects, such as excise taxes on gasoline, cigarettes, alcohol, permitting costs, etc. We spent $3.563 trillion, 45% on Social Security and Medicare/Medicaid, 23% of Defense and Military expenses, 10% on unemployment and other income security measures (such as subsidized school lunches), 6% on interest on the national debt and 16% on everything else.
So what did the fiscal cliff "deal" do? It allowed the temporary payroll tax reduction on Social Security to lapse, which effectively boosts Social Security payroll tax income by 19%, since the total tax (including both employer and employee) rises from 10.4% to 12.4%. This raises about $120B per year in additional revenue, versus the last two years.
The cliff deal also raised income taxes from 35% to 39.6% for individuals making over $400K and married couples making over $450K and raises capital gains and dividend taxes on those individuals from 15% to 20%, as well as capping deductions on those over $200K/$250K. Collectively, this raises about $60B per year in additional revenue.
So, all else being equal (and it is obviously not because not everything else is static, but everything else is pretty well in balance), we took a $1.128 trillion deficit and solved 16% of it. On the 2012 basis, this woud give us about $2.615 trillion in revenue, not quite enough money to fund Social Security, Medicare/Medicaid, Defense and interest on the debt, if you cancelled every single other government program (no FAA, no SEC, no EPA, no FDA, no USDA, no OSHA, no federal court system, no power at the White House, etc.)
In other words, this was a totally and grossly insufficient bill to solve the structural problem that we had.
It amazes me that Democrats now accept 99.2% of the Bush tax cuts that they once opposed, and that we have never been able to afford. It also amazes me that they reject out of hand even the most modest GOP proposals to rain in entitlement spending, such as shifting the chained CPI for Social Security increases, which would save a ton of money over time and make the system much more stable while having only a gradual effect on today's seniors.
It also astonishes me that the GOP continue to fight for low taxes without a serious, specific proposal on how they would cut spending. Since today's revenues don't even cover Defense, Entitlements and Interest and they want even lower revenues than today, to be credible to me, they would need to present a budget that makes deep, deep cuts in Defense and Entitlements to even get close to balance. They have not, as of yet and, in fact, most have strongly opposed defense cuts, while skirting the issue of entitlements.
Let's not forget also the underlying dynamics that make the future budget reality worse. The population is getting older and health care costs are still rising (albeit the rate of health care inflation has slowed from the pace of the past decade) so entitlement costs will rise faster than revenues. Interest rates are at 200 year historic lows, meaning that it is highly probable that interest rates and therefore interest expense will rise in the future, especially with a rising federal debt. There are some positives - unemployment insurance costs are likely to drop as the economy improves along with some other social programs and the wind-down in Afghanistan will save some on the military budget. But in balance, the trajectory is towards a worse budgetary situation, not a better one.
Both parties to date are taking unserious positions. There are only four levers to manage our current situation:
(1) Raise Taxes of Some Form in Meaningful, Broad Way
You can't tax the 1% and get us into balance. To make a meaningful impact on the deficit, you would need to raise taxes on the majority of the population in some form, either in the form of higher income tax rates, higher payroll taxes or a national sales or VAT tax.
(2) Structural Reforms to Entitlements
Higher participation ages, lower benefits, etc. You have to "bend the curve" on entitlement spending.
(3) Meaningful Cuts to Defense
We spend 5 times the next nearest country (China) on our military. Would we be unsafe at 3 times their spending?
(4) Default in Some Way Shape or Form
This is a nuclear option that would cause a depression. There are two ways to do this - either simply don't pay the bills which would be an utter disaster to financial markets that would immediately spark a deep financial and economic crisis or print money to pay the bills (i.e. have the fed buy up and forgive treasury debt), which would likely spark hyper-inflation. Neither of those options is at all appealing, even compared to 1-3.
My other disappointment (or maybe I should be happy, since I didn't love the deal) with the cliff deal is that it doesn't really solve anything. The federal budget still expires March 1st, so there is another, immediate fight over spending. Sequestration cuts still hit March 1st also. And, approximately the end of February, the federal government won't be able to pay its bills unless congress increases the debt ceiling. In other words, get ready for more melodrama, stern rhetoric and down-to-the-wire posturing that solves nothing before another 11th or 12th hour deal that doesn't do nearly enough.
My final disappointment is in President Obama's inability to lead or paint a vision. He wasn't even a participant in most of the talks that cut the deal. He has painted no clear vision for how we get where we need to go with the budget and seems to have no sense of urgency about reducing the deficit. Joe Biden showed far more leadership that the President in this case, and even Biden's leadership was just to cut a deal in the end, not to really solve the problem.
Prepare to be disappointed again in the coming year.
Boehner Holds On With 2 Votes to Spare
John Boehner will be the House Speaker for the next two years, after successfully beating back dissent from about 8% of his caucus. While there was no Republican actively running against Boehner, a cast of 17 Republicans (excluding Boehner, who did not vote, as is tradition) either cast protest votes, voted "present" or did not vote. Some were clear protest votes, for the likes of Alan West (who isn't in the House any more as he lost re-election) and Colin Powell (who has never been in the House), some were semi-serious votes, including 3 for Majority Leader Eric Cantor, who many of the far right view as more sympathetic to their cause than the pragmatic Boehner. Boehner needed an outright majority in order to not force a second ballot on the issue, which required 218 votes. The 220 he received was sufficient - barely, to keep him with the Speaker's gavel for the next two years.
All of this supports what I have long said about Boehner - he is a conservative but not a wing nut as many think. He is hemmed in by a caucus that is well outside the mainstream. The fact that he almost lost his Speakership simply for supporting the deal he did speaks volumes about where the right-wing in the House sits. Heck, a significant number of House Republicans even opposed the Hurricane Sandy aid package that was finally passed on Friday (more on that in a second.)
My advice to Boehner? You know you are never going to be the darling of the right wing, so take your re-election as an opportunity to try to go solve the problems. The hard-liners will hate it, but they already don't support you. So cement your legacy and get something done.
Chris Christie Lets Loose on the House GOP
The fiscal cliff deal on January 2nd was the last thing the outgoing House of Representatives did before disbanding to make way for the new House, which was sworn in yesterday. This greatly upset lawmakers from New York and New Jersey, who had been hoping for and believed they had secured agreement for aid for the battered coastal areas impacted by Hurricane Sandy.
Why the House didn't take the issue up before disbanding is inexplicable to me. Perhaps John Boehner couldn't swallow asking his conservative members to vote on a spending package right on the heels of a painful vote on the fiscal cliff. But, come on, when did relief for people made homeless by a hurricane become a partisan issue?
Christie was specific, and named names in his criticism, stating:
"There is only one group to blame for the continued suffering of these innocent victims, the House majority and their speaker, John Boehner."
Boehner scrambled to pull a vote together on the bill, with an initial aid package rapidly set for a vote yesterday and the balance to be voted on January 15th. The initial package passed the House 354-67, with all 67 "no" votes coming from Republicans. It is shocking to me that there were 67 members of the new House majority willing to vote no on this bill. The bill passed the Senate, which always seems much more reasonable an bi-partisan, without a single "no" vote.
The initial aid package contained only $9B, the bigger $51B package is to come in the January 15th vote. Could that package be in serious jeopardy, given the delay and vote on the first bill? If it is, it would be utter political suicide for the House GOP. Nothing makes you look like a wing nut like pushing hard to keep tax cuts on capital gains for people making millions of dollars and then opposing federal funds to help people made homeless by a hurricane.
If you like this site, tell your friends.
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