Posted tagged ‘deficit’

An Anxious Waiting

July 28, 2014

The fall elections cannot come soon enough for 2016 potential Presidential candidates.   There are so many juicy events, both domestically and international, which Presidential demagogues could jaw about but they, for the most part, are resisting the urge to brag the limelight. I wonder why?

Why, for instance, does a Ted Cruz or Marco Rubio not wax eloquently (on national TV) contrasting what the Obama Administration is doing (or not doing) with what a Cruz or Rubio Administration would do?

Or, why hasn’t Chris Christie or Rick Perry not sold their children in order to raise funds for Israel in its latest Palestinian clash?

And, although not 2016 candidates, why hasn’t John McCain or Lindsay Graham lectured the President on how he has lost the Iraq and Afghanistan wars?

Why, indeed, when these subjects still make the front page with one headline after another? Are these suddenly mute GOP leaders wasting an opportunity?

It is, of course, summer and vacation time. Accordingly, it could be that relaxing, recharging the batteries, and keeping off the national stage might be a sufficient answer. Hmmm, maybe not.

And it could be that none of these candidates has a better idea (almost assuredly true). Hmmm. I don’t think that excuse has prevented them from “speaking to Americans” in the past.

I would suggest a more basic motive. From poling data, the GOP has a definite chance of capturing both the House and the Senate this fall. Why take a chance by pontificating on one of these issues and un-intendedly turn voters against the party?

All of the issues facing the President these days are complex, thorny, and nuanced.  These issues require careful analysis and mostly require long term strategies for which there is no national consensus. Efforts to build a national consensus does not fit 10 second sound bites. Worse, any serious recommendation ties the candidate to a position which can be later evaluated.  Hmmm.

Latin American immigration, support for Israel, and the Middle East (including Afghanistan) are all issues which are not new. The GOP learned as recently as 2012 what a hard line on immigration reform would bring. And while 2016 will see both parties stand up to say how much a friend of Israel they are, the American public can count and know the difference between 800+ and 2 civilian deaths in the current Gaza crisis. And strangely, most Americans have had a stomach full of Iraq, Afghanistan, and the Sunni-Shiite-Taliban craziness.

The 2016 hopefuls could turn their attention to jobs but there is a reasonable chance that after a slow but steady decline in unemployment that the percentage might fall below 6%.  Think about these previous hot button topics… debt, deficit, jobs, tax cuts, and healthcare.  Only healthcare has not had enough time to play out and undermine the conservative position.

There is for sure plenty of room for GOP candidates to offer alternative routes to achieve debt reduction or balancing the budget.  There is plenty of room for creative ideas on job creation and tax code reform.  And there is an ocean of room for how to bring US healthcare into the 21st century.  Among the many thoughtful proposals, however, one would not find “leave it to the States” or “cut taxes and cut social network spending” or “increase defense spending while decreasing any other spending”.

So, come Thanksgiving, I wonder what we will hear from these now silent candidates?

Tax Reform

April 5, 2014

The GOP Federal Budget proposal calls for tax code reform and includes a maximum 25% tax rate. This sounds good but what else is included?

Most ardent tax reform advocates want just about all deductions and credits to be eliminated. That includes deductions for dependents, the mortgage, and piles of other deductions and credits. In return we should receive a simple tax code where the average person could do their own tax return.

There is little or no chance we will see this type of brave reform but its intriguing to think about its possibility and implications.

Lowering the marginal rate from 39.5% to 25, however, begs the question “will this mean Christmas will be every day?”

Representative Ryan says everyone will see lower tax bills. This may be true but Ryan’s plan is beginning to sound like the “free lunch” ploy. How can everyone be saving on taxes? The only answer must be that under the GOP plan, the Government will be spending a lot less.

This means there will be a lot less government services. This further means that if the services are important, someone else (State, City or Individual) must now bear the cost. In other words, the cost for these services will be transferred to others.

The GOP plan for healthcare involves repealing the Affordable Care Act. While their exact “replace” plan is not set, most of the proposals lead to “you are on your own”. The GOP claim that the marketplace is the best strategy to gain control of health care costs. Hmmm.

Let’s consider Medicare and Medicaid which are designed to provide healthcare security for the elderly and those who cannot afford the cost of premiums. For Medicare the GOP plan would freeze the amount the Government pays. Recipients would then buy their own coverage and pay what ever difference there may be between the government subsidy and the actual market price. Most observers predict this to be an ever increasing amount. Maybe not so much security in the future.

Medicaid recipients could see even more drastic cuts in coverage and increases in cost, depending upon the State they reside in. The GOP proposes outsourcing health care to States. Block grants which are not indexed to inflation will similarly be insufficient when faced with inflation. Medicaid roles will shrink leaving many uninsured, and those who qualify for coverage could face co-pays and deductibles.

The GOP predicts this greater use of the marketplace, however, will lead to lower overall healthcare costs. Hmmm. No ACA and less coverage for the elderly and poor seem ready made for discontinuing efforts on preventive care and a return to the healthcare world pre-ACA.

If so, we should expect that healthcare costs will return to double digit annual increases. In turn this will increase the out of pocket costs for everyone. If you are on a fix income, what do you expect someone to do?

For sure this potential scenario must have been considered by the GOP. Why have they continued to push the plan? It would appear that conservatives have decided that their best strategies are ones which are the opposite of those proposed by moderates or progressives. For sure this approach is the most straight forward if your goal is to differentiate your position and you believe the electorate is gullible.

The most generous explanation is that the GOP, once elected, will modify their proposals. Trust me?

The current American deficit and debt situations are unsustainable. It should be clear that any plan to remedy deficits will require less spending or more taxes or some combination. Our goal should not be to lower income taxes but rather to determine what services are best provided by government (Federal, State, and Local) and seek to provide them in the most cost effective, high quality manner. If that leads to lower government need for tax revenue, then taxes should be reduced.

Shame on Democrats for not having any viable proposals to maintain current entitlements and to balance the budget. Double shame on the GOP for proposing a path which is patently unfair to those who need government services.

Time To Fix Things Not Ideas

March 8, 2014

Many of us ring our hands each day over our elected representatives’ dysfunction.  Congressional talk seems to about left-right, progressive-conservative, or blue-red issues.  America seems adrift.  Is this the end of the American century?

Of course it could be.  On the other hand, which country or region is likely to supplant the US as the most productive and wealthiest country?

History teaches that all great nations in time fall from greatness.  Sometimes their demise comes from the outside and other times it is internal decay.  The families of the rich and powerful, for example, hardly last the next generation before those families become the ordinary or worse again.  The same seems to be true of nations.

Europe in size and existing wealth seems an obvious candidate to overtake the US.  They have sophistication, religious sensibility, technology, and over 300 million residents .  Europe as a US rival seems plausible until one considers how chronically divided European nations are.  Europe as a viable region seems likely, but as a world leader there is something missing.

Asia has two candidates.  Russia (even though Russia is technically a European country, most of its land mass lies in Asia), and China.  Russia still holds onto a less than optimal government structure (a dictatorship masked by an elected assembly) and a populations that has mainly known peasant life style or communism.  More recently, where Russia has introduced capitalism, they have harvested a grossly uneven distribution of its wealth.  More simply stated, Russia is incapable of growing its economy sufficiently well that there is enough money to satisfy its citizens and project Russia influence far beyond its borders.

China with its 1+ billion citizens and until recently 10+% growth rate, is a formable challenger.  China, however, must also carry the burden of an authoritarian leadership.  Suppression of free speech while valued by authorities also runs the risk of hiding important information that is vital to economic growth.  The Chinese themselves are entrepreneurs and hard workers.  A huge limitation for China is the mass of Chinese who still form a peasant class.  How to rapidly grow the country, bring the peasants into the mainstream, and also project China’s influence around the world just does not seem doable at this time (if ever).

(India is another country with 1+ billion people.  It has an estimated 300+ million people with average wealth greater than the US.  Unfortunately as a country, India is hopeless on the global stage.  The caste mentality coupled with religious subdivisions have put India in a position of being incapable of dealing with their uneducated and dirt poor sections of the population. India too must deal with homogenizing its entire population before it could expect to project far beyond its borders. )

So, if this perspective is close to correct, the US has only itself to worry about.  If we allow our population to lose technology leadership or we allow our infrastructure to decay too far, we could get caught in a “can’t win” position.  Loss of technology and an inadequate infrastructure will make everything the US might try to do uncompetitive.  This situation would quickly translate into much higher interest rates for financing the national debt.  The interest would quickly take precedent over other government spending (like on education or infrastructure) accelerating the downward slide.

Our politicians, it seems, are fighting over taxes and entitlements and other equally amorphous ideas.  What needs to be pushed into the center are programs like technical apprenticeships, centers for technical innovation, and good old fashion infrastructure construction and maintenance.  A pothole or a crumbling bridge is neither blue or red, progressive or conservative, or left or right issue.  These are things which can be measured and their value measured.

Most of what we argue about these days are in predictions about what would be best for the future.  Neither side can prove today what they advocate is best or will achieve desired results.

Will eliminating women’s access to safe abortion facilities reduce abortions?  Will family planning reduce abortions?  Will sharp reductions in entitlements encourage the population to work harder and therefore no longer need as many entitlements?  Or, will continuing entitlements help people to weather the bad times and return to the work force so that they no longer need entitlements?

These are social propositions which require the fullness of time to prove.  The development of technology and its effective application coupled with a sound efficient infrastructure are measurable activities.

While we might hope our politicians would stop their divisive left-right rants, it is unlikely to happen.  Our best hope is to keep this dialog to a minimum and to hold our politicans accountable for fixing “things” not ideas.

Bluff Called?

February 25, 2014

Secretary of Defense Chuck Hagel announced yesterday deep cuts to the Army.  The cuts were characterized as reducing the size of the Army to 440,000 or pre-WWII size.  Hagel said that the Country could not afford to maintain its technological edge, and still keep so many Americans under arms.  I guess he was saying its guns and butter again.

There are several logical arguments to support Hagel’s recommendations.  New technology can do a lot more but it also costs a lot.  While no one can be sure of the next war, the last two (Afghanistan and Iraq) were wasteful uses of traditionally supported ground troops.  Special Operations, on the other hand, have demonstrated much usefulness as an adjunct to diplomacy.

Exactly how our future military should be structured, such as numbers of ships and types, planes, or tanks, is a matter for our Joint Chiefs.  Entering wasteful wars like Iraq and Afghanistan is the providence of Congress, and ultimately the American voters.  So, here comes the bluff.

The GOP has been on a one handed deficit death march by cutting only government spending.  Economists can debate whether the deficit needs to be zero or just some small number, but running at current levels north of $500 billion is unacceptable and dangerous.

The danger arises because the deficit is not the result of a deliberative process, that is a conscious decision to spend in excess of tax revenues.  The deficit represents a dysfunctional governance process.

In the best of light, Congress is divided over whether to balance the budget by reforming entitlements (like Medicare and Medicaid), or to cut all spending while increasing tax revenues.  In the poorest of light, Congress is divided by which tactics will benefit which party at the next election and has nothing to due with true deficit reduction.

Defense spending is a cornucopia for all Congress members.  A little or a lot (of government dollars) goes to each district.  The mere idea of reigning in Defense spending sends chills down the backs of our blustery Congress members.  How can they remain tough on spending and still find ways to puff up the military?

The next few weeks should be a treat if your fancy is political double speak.  We will hear more about unnamed enemies and geopolitical threats.  And, once again, Republican Chuck Hagel will be castigated by his former colleagues.  How could Hagel be so irresponsible?

Using only Medicare and Medicaid cuts to reduce government spending has been a bluff in hopes of maybe getting cuts or at the least, a “grand bargain” which includes large reforms and a few new taxes.  This bluff comes off the tracks if Hagel’s recommendations are shot down.  In the process of advocating no military cuts, those “bluffers” will be exposed for what they are.


Head To Tail Strategies

February 23, 2014

Leaders almost always have question when it comes to selecting their policies.  It will be a leader’s policies that lead to specific strategies.   Should the leader select a strategy that he/she expect to work for the next short period of time (and maximize his/her chances to gaining popular support), or should the leader pick one that aims at long term objectives (and run the risk of leaving the public less satisfied)?

The short term approach has distinct advantages in terms of prediction and results.  So much more is known about today than what the future may bring.  Some leaders, however, seem to lack the capacity to imagine the future and are adrift when it comes to forming policies which are by their nature long term.

So, how do short term thinkers, or those who wish to maximize the public’s short term satisfaction deal with long term needs?  One idea is utilizing “head to tail” thinking.

A “head to tail” strategy begins with setting relatively short term goals, and when the “short term’ expires, setting a new, more timely and assumed appropriate strategy, and moving on.  The problem with “head to tail” is that there is no way to assure that a desired long term direction is being followed.  Everything turns out to be what seems right at the time.

Recent reports indicate that President Obama will present a “spending” budget to Congress.  After years of austerity, “sequestration”, and political arguments over a balanced budget, a spending budget seems like a disconnect.  And, in fact, it is a disconnect.  Why?

Political pundits suggest that since the GOP has offered no hope of a “grand bargain” (a political compromise path to reducing the deficit), why should the President continue to offer entitlement compromises?  Why?

Pundits say a spending budget will appeal to liberals, and that feels right at this time.  Hmmm.

There are three potentially serious weaknesses with the Presidents new direction.

  • First, this type of policy will reinforce the “tax and spend” label the GOP likes to place on Democrats.
  • Second, this austerity to spending leads no place, since there will not be revenue to offset the increased spending.    The GOP controlled House will never agree to increased spending and for sure will block any new taxes.
  • Third, a governance process which involves changing strategic goals on a whim is doomed to failure.  Continuity of purpose is key to long term success.

Great leaders and certainly great Presidents all had long term visions which guided their short term tactics.  President Obama’s closest political advisors live in the here and now.  Their advice and counsel is all about the short term.  Unfortunately, adopting the head to tail strategy approach is inconsistent with achieving long term visions.

Admittedly this post is holding President Obama to a higher standard.  Most Presidents enter their first term with only one objective, getting a second term.  Along the way they subjugate their noble campaign goals for short term gains.  And little or no progress towards those campaign goals become unintended consequences.

President Obama should know better.  Even if he thinks his specific proposals are worthy, he has failed us if at the same time, he has not said “I want to cut sufficient waste from existing programs to substantially fund this new policy”.

Surprisingly such an approach would catch the GOP off guard.  The GOP has as yet voiced no governance strategy that encompasses the middle class.  The GOP prefers to cite endless cuts to government spending without describing the end point or the impact their cuts would have on Americans.

I wonder whether the GOP is thinking that a strategy of “cut, cut, cut” today is wise, and following elections, especially if they can capture the White House, a new policy of increased investment (read more spending) would be even wiser?  Maybe “head to tail” thinking is the way of the future.


Parallel Universes

February 11, 2014

Yesterday, the GOP House members met and attempted to agree on a path forward which avoids US debt default.  Ahead of the meeting, pundits predicted members were close to an agreement and would decide maybe even that day.  The meeting has come and gone and no agreement has emerged.

The only thing clear today is that the GOP appears more like a child in a candy story (or a sailor in….), they simply cannot decide like other adults.

For some members, increasing the debt limit is a non-starter regardless of the consequences.  Some of these people do not believe there will be serious consequences because they think the US can pay their debts later when it suits us.  After all we are the biggest, most powerful, and wealthiest country in the world.  Hmmm.

Another faction do not want the country to default but see this vote as the only method they have to force a minority view on the majority.  For this group turning the deficit around is key and this vote might allow them to change entitlement formulas (in return for raising the debt ceiling) and accomplish what they feel is important.  Hmmm.

So, not unlike the negotiating box the GOP put themselves in last fall.  Those negotiation lead to the Government shutdown and accomplished nothing.  As then, John Boehner was seen as unable to control his members.  Some members have gone as far to say that if Boehner were to allow an open vote, they would vote to replace him as Speaker.

Entitlements do represent a huge problem.  Entitlements are easy to demagogue, and most politicians are delighted to take credit if it buys them votes.  Unfortunately, the underlying math doesn’t work.  Healthcare costs, and its impact upon Medicare and Medicaid are on course to bankrupt the Country.  If those GOP members opposed to increasing the debt ceiling were true to their positions, they would be active in developing a comprehensive solution… some path with new taxes and entitlement reforms.

How do we think Medicare and Medicaid recipients will react to a reduction in these benefits if Congress so mandated?  Like most complex problems, no one is ever happy to have a benefit reduced.  This is especially true if Americans think the deficit is a shared problem looking for a shared solution.

Americans are in the end people.  Most people are reasonable and inclined to look for what is fair.  When Congress is so divided, and both political sides seem to lack interest in the common good, Americans have, at this time, no example around which to rally.

Should deadlock persist and default come to be, there is no telling what exactly will happen.  Most business leaders, bankers, and economists have warned against treating default lightly.

John Boehner has a rare chance to stand up for what is sensible and in the Country’s best interest.  The question is will he?

Fit To Govern?

February 8, 2014

The now all to familiar dance around raising the debt ceiling is playing again in Washington.  The drop dead date has come and gone.  Treasury Secretary Jack Lew has begun the machinations which move money hear and there, and technically avoid default.  Some say Lew can do this for weeks, so there is no urgency to resolve the ceiling limit.  Hmmm.

Just exactly what type of law is the debt ceiling law anyways?  Why would a country have such legislation?

In the wisdom of past Congresses, the notion that there needed to be some reigns put on the Federal Government.  Government was spending too much and borrowing to cover the gap between what it spent and what it received in tax revenues.  So Congress put a cap on what Government could borrow.  Unfortunately, Congress did little or nothing about what Government could spend even though it had put in place legislation which put a limit on borrowing.  What?

The term balanced budget appears to be a foreign language word for Congress.  Congress routinely passes unfunded legislation, each time emphasizing the urgency and need for a spending bill but remaining silent or vague on how the government will fund the measure.

The second category of abuse is labeled “entitlements”.  This class of legislation specifies government spending, in perpetuity, and unrelated to whether there are sufficient tax dollars to cover.  So for example, with Medicare and Medicaid, we have an aging population (more people collecting for longer periods than having paid in taxes) and increasing healthcare costs (rising faster than anticipated in original legislation)  are driving a year after year deficit regardless of whether Congress passes a balanced budget on discretionary spending.  Hmmm.

So for strong supporters of a truly balanced budget, one can understand their frustration.  What one cannot understand is the logic that says “we, Congress, have authorized the Government to spend all this money which even if we could stop today would continue as a matter of law, so we have decided not to pay our bills when they come due”.  Isn’t that what third world countries do?

One can agree to disagree on whether specific Government spending is wise, and one can also agree or disagree on whether the tax code is sufficient and fair to cover the money spent.  What seems to avoid comprehension is on what basis does Congress think it is not obligated to pay for what it has spent?

More simply said, if the Country is not to borrow, than why are not taxes being increased immediately to cover these deficits?   Why is Congress not acting to really eliminate deficits?

Explanations quickly drift to “politics”.  Blame it on politician A or B, or Party R or D, or ideology C or P.  There are plenty of excuses and explanations.  It must be a tough problem because not since Bill Clinton was President has there been a balanced budget.

Back to the Debt Ceiling Increase standoff.  The best explanation is the immense frustration felt by many “R’s” and “C’s” because they cannot get agreement on a balanced budget that meets their principles.  Apparently, they reason that if we can’t get our way, then we will scorch the earth.

Allowing the Country to default on its debt is truly playing with fire.  It is far worse than shutting down the government by refusing to authorize spending.  Those favoring default are simply not sufficiently competent to govern.

The Republican Party and especially its conservative wing must get a grip on itself.  Regardless of how unworkable their plan of no new taxes and deep entitlement cuts might be, Republicans will serve the Country far better trying to enact that plan than to block increasing the debt limit and pushing the Country into default.

Republicans ask,  “well why won’t the President negotiate with us to achieve reductions in entitlements in return for an increase in the debt ceiling”?

The simplest answer is double jeopardy.  Only a few weeks ago, Congress passed a budget for discretionary spending.  Why wasn’t taxes and entitlements tied into that budget?  For what ever the reasons it wasn’t.  Congress in essence said with its budget “we accept the consequences”.  Raising the debt ceiling is the first and most obvious consequence.

When Republicans shut down the Government last fall, the world didn’t end but a lot of Americans were inconvenienced.  The shut down was a poor negotiating strategy because the “inconveniences” were not related to the Republican negotiating goals.  Blocking the debt ceiling increase will have a similar blow back, only far worse.

What drives these conservatives screams that they are unfit to govern.  Hmmm, maybe that’s the silver lining.