Posts Tagged ‘spending’

Can We Stop America’s Decline?

August 15, 2013

UnknownI’ve written about “Pakistan: The F**ked-Up Country.” America’s no Pakistan. But it sure is frustrating for optimists. Like Thomas Friedman and Michael Mandelbaum, whose 2011 book, That Used To Be Us, analyzes a group of key factors central to the miracle of America. And in every category, we’ve gone off the rails.

Our infrastructure grows seedy, with a huge backlog of postponed maintenance — never mind modernization. Investment in research and development shrinks. Education is inadequate for the competitive, high-tech, globalized marketplace. Cockeyed immigration policies shut out legions of motivated, brainy people we desperately need. We’re virtually ignoring climate change. We increasingly spend resources instead on burgeoning pensions, healthcare, and other “entitlements.”

In fact, we’re not paying for those either, going deeply into debt. How much can we actually borrow? Nobody can be sure, but we’re testing it, with borrowings already off the charts. There’s an old line about how one goes bankrupt: “at first gradually, then suddenly.” The “suddenly” comes when the world’s bond buyers decide we’re past the point of no return in managing (let alone repaying) our debt. imagesLike Wile E. Coyote in the old cartoons, running off a cliff and continuing till he realizes nothing holds him up. Then he drops like a stone.

We’re able to – for now – only because interest rates are at historic lows, since the market still considers U.S. bonds the safest anywhere. But if (when) that changes, interest costs on our vast national debt will go through the roof. We’ll be even deeper in the red – and deep in a vicious circle.

Economist Paul Krugman

Economist Paul Krugman

We’ll be Greeced. (Paul Krugman laughs this off. He’s wrong.)

As the authors explain, this is a stealth crisis. Americans are complacent, imagining we can just continue running as before. Like the proverbial frog in the pot coming to boil (love all these metaphors?), we don’t notice we’re being cooked. images-3That’s a big difference from past challenges – the Depression, WWII, the Cold War – wherein we knew we had to act. That past America that could come together, bite bullets, and do big things, seems gone.

Which leads to what is really our supervening problem, blocking action on all the others: our broken politics. We can no longer take any serious action because it’s always a battlefield in take-no-prisoners partisan war which, in a closely divided nation, neither side can win.

And, unlike the other mentioned problems, this one has no obvious answer. Its roots are deep and complex. It’s not only that each side brooks no compromise. Worse, each has locked itself into denial of reality. Republicans deny the reality that taxes must rise; Democrats, that entitlements must be cut. (The book calls them “reactionary liberals,” sacralizing all existing social programs and fantasizing their funding through merely taxing the richest a bit more.)

The looming failure of immigration reform is especially disheartening. This should be a no-brainer. That America can’t this done shows government is brain-dead.

images-5JFK said, “Ask not what your country can do for you, but what you can do for your country,” and we’d “pay any price, and bear any burden” to defend freedom. Such rhetoric invites derision today. Yet sacrifice is not impossible. Germany in 2003 was able to implement sweeping tax, regulatory, and labor reforms. It took real political courage and probably cost Chancellor Schroeder re-election. But it moved Germany, in a few years, from the bottom to the top for employment rates among rich nations. Why can’t America emulate that?

In fairness, the story isn’t all bleak. A key reason why we came out of the last recession while Europe remains quagmired is that we actually sorted out our banking sector problems much more expeditiously. (Technocrats did that, under the political radar.) And, to the systemic shock of 9/11, we reacted quite vigorously (indeed, overreacted).

America still has tremendous assets: relative economic openness, low corruption, strong rule of law, high social trust (contrast China in all these respects), and, most important, a lot of great human beings still filled with that great old American can-do spirit. Emblematic of this is the fracking revolution (typically hated by the left). Nothing government could do or not do would turn us into Pakistan. But staying Number One is another matter.

Americans are not a “chosen people” with God-given primacy. In many ways, we blazed a path much of Mankind has followed, but we can still be left behind, and that would be bad for the world. The Noam Chomskys who decry America’s global role are blind to how much good it does. The book’s authors see the U.S. effectively filling a world governance role, undergirding everyone’s prosperity. China won’t do this.

It’s customary in books like Friedman’s and Mandelbaum’s to offer solutions. I expected the usual laundry list of reforms that won’t happen. But instead they stressed a single idea I too have talked up. They quote Ohio Republican George Voinovich who, on quitting the Senate in 2010, said “we have to blow up the place.” Political “shock therapy” is what the authors prescribe, the political equivalent of the 9/11 shock. Specifically: a serious third party candidacy, representing a “radical centrism” that exposes the irresponsible denialism of the two other parties.

images-7This is not quixotic. What’s happened is that the two parties have come to be effectively controlled by minorities of intransigent ideological activists (through disproportionate primary voting, and just plain louder shouting). But they’re really only a small part of the whole electorate, which is still predominantly centrist and moderate. In fact, the baneful role of those zealots has undermined broader public loyalty to both parties, and consequently polls show more Americans now identify as independents than as either Democrats or Republicans.

The book’s authors don’t expect their candidate to win. Instead, they say, if she got a sizable vote, that would provide the political shock to blow up the system’s ice blockage, with both main parties scrambling to regain those votes.

images-4However, if most independents (and some others) voted for the third candidate, she would win. I cite again the Ross Perot example. His 1992 presidential campaign was just what the authors have in mind, stressing (with pie charts and graphs) our budgetary/deficit problem – which has since hugely worsened. And, despite being a damaged, goofy candidate, Perot got nineteen percent of the vote. That was actually, in a three-way race, more than halfway toward winning.

Imagine a candidate who treated American voters as adults, called out both the Democrats and Republicans for their failure to do so, and sensibly explained why painful sacrifices on taxes and entitlements are unavoidable. That candidate could have a huge impact. Especially with no incumbent running. And especially if he were well-financed, and a credible, compelling personage who would command attention.images-6

I nominate Bill Gates.

State of the Union: US: Sweden

February 15, 2013

imagesSo the President gets up there and unveils a host of big new government programs. Then he says they won’t add a dime to the deficit. That would be true only if:

a) They don’t pass Congress, or
b) Taxes are raised, or
c) Other programs are cut

As to (c), of course the President has proposed no such cuts. In fact, after years of talking about a balance of tax hikes and spending cuts, and indeed campaigning on that issue, Obama in the recent fiscal cliff deal got taxes raised without any spending cuts at all.

Cartoon by Eric Allie,

Cartoon by Eric Allie,

This he actually thought was a glorious triumph; liberals are cock-a-hoop that they’ve really stuck it to Republicans.

The Pre-K education proposal epitomizes how they think. Pre-K is actually desperately needed to help disadvantaged kids who are otherwise being done down by crappy schools. But does Obama’s proposal target those kids? No. It’s “universal.” Which means that just like Medicare and farm subsidies and so many other government programs, it will mainly give yet more welfare to the affluent, with the disadvantaged getting only a lesser share of the benefits.

This is not the time to be adding a big new “universal” federal program.

Whatever benefit it may buy will be more than wiped out when the shit hits the fan and our economy sinks under the weight of unsustainable debt. That’s true of all Obama’s economic initiatives. They will all come to nothing and worse if we don’t tackle the one big monster looming on the horizon, our debt. Eyes closed to this, Obama is taking us down the road to ruin.

images-3It doesn’t have to be this way. The Economist recently ran an illuminating survey of the Nordic countries. Remember Sweden, the poster boy for a tax-and-spend “social welfare” state, of cradle-to-grave government cosseting, soaking up the lion’s share of GDP? Well, it’s not your father’s Sweden anymore. That model, the Swedes and other Nordics realized, was doomed, so they reformed; in The Economist’s words, they “put an end to the region’s magical thinking about welfare.”

So they enacted sweeping pension and benefit reforms and put their budgets in balance; Sweden reduced national debt from 84% of GDP in 1996 to 49% in 2011; government’s share of GDP fell by a whopping 18 percentage points. The Nordic countries have also become much more enthusiastic toward the free market and entrepreneurialism, moving their economies away from statism. They embrace free trade and resist the siren song of protectionism. The Swedes now even let private companies compete with government bodies to provide services; a majority of new kindergartens and health clinics are being built by businesses, and citizens can shop around.

images-5This includes school choice; Sweden is now the world’s leading adopter of vouchers. Almost half its schoolkids are in non-public classrooms. And the most comprehensive study of the results shows great performance improvement – especially in the public schools, which competition has forced to raise their game. (Milton Friedman, father of the voucher concept, said the point was not that privately-run schools would be better; rather, all types of schools would be better if they must compete.)

Finland too is a hotbed of educational success. Interestingly, Finland spends proportionately less on schools than America, and teacher pay is relatively low. Yet Finland attracts high quality teachers by giving them something more valuable than money: respect, and thus a high degree of autonomy and responsibility for what they do in class.

So, does all this reform throw granny over the cliff, as in liberal nightmares? No. As I keep saying, rich countries have plenty of money to take care of the needy; it’s welfare for the rich that’s bankrupting us. Nordic budgets have not been balanced on the backs of the disadvantaged. What they have done is to create the conditions for everyone to flourish. And, by all accounts, their populations are quite happy with the change, facing the future with a positive attitude.

images-4Why can’t America get its act together like that? Yes, I know all about our frozen politics and the influence of special interests (like the teachers’ unions). But Sweden and Finland were not utopian paradises free of such societal baggage. Those fat and happy with their old paternalistic policies were equally wedded to them. But their special pleading was overcome. It takes leadership and grit. I continue to believe Americans would support sensible reforms like the Nordics, if only some real leadership were shown.

I guess we’ll have to await another president. Let’s hope it won’t be too late.

We have met the enemy and it’s us

January 6, 2013

UnknownRecently I got one of those virally forwarded e-mail blasts, flaying Washington politicians and demanding an array of draconian punishments for them, stopping just short, perhaps, of tumbrils.

But who elected these miscreants?

It doesn’t take a political science genius to understand politicians’ behavior. There’s but a single explanatory factor: winning elections. That means following voter wishes.

So why doesn’t the fiscal cliff deal tackle spending? Don’t voters want that? Oh, yes, absolutely they do, just so long as you don’t cut Social Security or Medicare or education or farm programs or defense or, well, anything, except of course for foreign aid. (On which the average American thinks we should spend no more than 10%. In fact it’s less than 1%.)

thRepublicans, especially Tea Partiers, really really want spending cuts. But just ask exactly what to cut, besides Big Bird (0.014% of the budget). And just whisper a suggestion and you get the campaign ads with granny shoved over a cliff. Of course Republicans don’t want to hand Democrats this nuclear weapon. What they’d like is for Democrats to disarm by joining them in the spending cuts. But any Democrat doing that would get the granny-over-the-cliff ad himself in his own next primary.

We imagined that Republicans would make a deal with President Obama, agreeing to higher taxes for the rich in exchange for spending cuts. How foolishly naïve. We forgot the nuclear weapon. We forgot that whereas soaking the rich is popular, cutting spending risks granny-over-the-cliff ads and political annihilation. So what we got was soak-the-rich and nothing on spending.

Why did Republicans agree? In the end, instead of trading off soak-the-rich taxes for spending cuts, they were forced to swallow the tax hikes merely in exchange for avoiding even bigger tax hikes.

The New York Times editorially labeled this a big payoff for Republicans, rewarding their “intransigence”! The Times fulminated that the rich aren’t being soaked enough – while saying hardly a word about spending – nor noting that under this deal, deficits will continue to balloon – or that no conceivable level of taxes on the rich could close that gap.

Devotees of this blog may recall how accurately I foresaw this outcome. The Democrats did get their Great White Whale, with Bush’s tax cuts terminated for high incomes. And the argument over spending can seemingly continue. I say “seemingly” because for all the sturm-und-drang, nothing serious will be done about spending because Republicans have now squandered their biggest bargaining chip. Any further blackmail they might attempt would be seen as just that, blackmail, politically suicidal.

I hope President Obama enjoys his whale meat. He might have exercised responsible leadership. He might have forced Democrats to accept the need for spending action, as a trade-off for the tax increases they craved. This fiscal cliff moment was actually a grand opportunity for him to achieve something meaningful – just like Simpson-Bowles – the opportunity he missed earlier. But instead of seizing the moment, the President chose the easy, expedient thing, to pocket the cheap “victory.”

History will write that Obama’s eight years mark the time when America might have saved itself, but didn’t. We may have survived this th-1recent little cliff, but we’re running straight down the track toward a far bigger one, of economic ruin, with clearly now no hand on the throttle.

And if you want to find the real culprit to blame, dear voter, look in the mirror.