State of the Union
Is the Fiscal Crisis the 9/11 of the Tea Party Class?
In this New Yorker chronicle of House Majority Leader Eric Cantor’s role in the various budget crises in Washington over the last two years, Rep. Tom Cole, a Republican from Oklahoma, makes an interesting observation:
This is a very different Republican Party than the one I got elected into. It’s much more domestically focused, much more fiscally responsible, much less concerned about America’s position in the world or about defending the country. It almost takes for granted the security that we have now. It’s not a group shaped by 9/11. Their 9/11 is the fiscal crisis, the long-term deficit [emphasis mine].
There are two senses in which Cole’s observation is apt (neither of them in the way he intended, exactly).
The first is that of hysterical overreaction.
After the September 11 attacks, carried out by 19 men with box-cutters, and supported by an occult international financial network, Americans were warned of an existential threat to our way of life and our very physical persons. To meet this threat, America commenced two land invasions, followed by a war of record-breaking length in Afghanistan and a calamitous occupation of Iraq; established a ghastly new domestic cabinet agency; and defenestrated longstanding prohibitions on torture. These wars cost the lives of 7,000 American servicemen and -women, plus many tens of thousands more Iraqi, Afghan, and Pakistani civilians.
The overreaction to the “fiscal crisis,” as Rep. Cole calls it, stems from this notion of singularity—one big Fiscal Crisis, rather than a cluster of fiscal problems. The $1 trillion-plus annual deficits that the federal government ran during Obama’s first term were the direct consequence of the financial crisis of 2008 and of the recession that began in December 2007. If Sen. John McCain had been elected in ’08, he would have dealt with the same $1.3 trillion budget deficit that Obama did. These slowly shrinking deficits are linked, in the crisismonger’s mind, to the entitlement-driven debt projected in “extended fiscal alternative scenarios” gamed out by budget wonks. Taken together, short-term deficits and long-term debt, and the multifarious causes of each, add up to one simple fable of moral incontinence.
Cole’s analogy works for the cynic as well as the moralist.
The September 11 attacks furnished neoconservatives with what they saw as justification for a final reckoning with Saddam Hussein, which they’d been itching for throughout the Clinton years. The Fiscal Crisis, in the same way, does the heavy lifting for policies that dramatically alter the nature of federally financed social insurance—in the case of Medicare premium support, by partially privatizing it; in the case of Medicaid, by elevating the role of state governments. These are reform ideas that, like those long-gestating plans for dealing with Iraq, antedate the Fiscal Crisis.
Don’t get me wrong. I think these are arguments worth having. I’m more committed to the preservation of the welfare state more than the average conservative might be, but I’m not wed to any particular composition of that welfare state.
What I’d like to see is any proponent of the Ryan budget—let’s not pick on the Tea Party alone—pretend that it’s, say, the late 1990s, when the idea of a Medicare voucher, or “premium support, was first proposed—when there were annual surpluses “as far as the eye could see.” If the idea had merit then, conservatives needn’t resort to an all-encompassing Fiscal Crisis to sell it today.
What we’re getting, instead, is the folly of the Balanced Budget Amendment and predictions of Greek-like fiscal collapse.
We’re getting the fiscal policy equivalent of the “existential threat” of terrorism and the invasion of Iraq.
Is the Tide Turning for the GOP?
Conventional wisdom in Washington is a creature of the daily news cycle. It can evaporate overnight. For now, though, the budget cuts known as sequestration are being spun as a victory for House Republicans. Officially, neither the White House nor the House leadership was in favor of the sequester per se. But Republicans staked out a position that, at least temporarily, was a win-win: if the cuts were averted, great; but if no agreement could be reached on how to responsibly replace the cuts, then they should stick.
I’m still doubtful that the sequester will remain fully in place, but, in the meantime, it’s worth registering a couple of arguments that the sequester isn’t just a short-term win for Republicans. From this vantage point, the fiscal cliff deal was a high-water mark for Obama’s second term.
The first is from GOP strategist and former House leadership aide John Feehery. He writes in The Hill:
[T]he White House has gotten nowhere on its two biggest non-fiscal legislative agenda items, immigration and gun control. On the fiscal issues, the Republicans have succeeded in getting 98 percent of the Bush tax cuts made permanent. On spending, they have been successful in rolling back spending to 2009 levels. And what has the president achieved in these first two months of the new year? Outside of putting new Cabinet secretaries in place — and not without some controversy — he hasn’t accomplished much.
It seems to me it’s a little early to break out the champagne, but Feehery has a point: President Obama himself conceded that this year is crucial for his second-term legislative agenda. In that light, two months really is a long time. If his fiscal leverage is gone, and the rest of his agenda a prisoner of Senate otiosity—well, that doesn’t bode well for 2014 and beyond, does it?
Even more intriguing is Matthew Miller’s analysis in the Washington Post, in which Miller sees Obama’s agenda in the jaws of the “meaningless elite consensus” on fiscal responsibility. Since Obama rhetorically shares this consensus, and since voters see debt as a “values issue,” Miller writes, next week’s unveiling of a Republican proposal to balance the budget in 10 years could be a game-changer:
Democrats can’t come close to [Rep. Paul] Ryan’s goal in a responsible way without raising taxes on people who earn less than $250,000 a year. That’s the one thing Obama will never do (sorry, but the president didn’t mean it when he said he’d tell us what we needed to hear, not what we wanted to hear). He, like Republicans, will leave that painful truth to a successor. …
So what will they do? They can say balance isn’t important. They can say it is and fudge the numbers in a Democratic answer to the big Ryan fudge. Either way, these questions will expose rifts in the Democratic caucus that could keep the White House scrambling for months, as progressives rightly say we need to focus on jobs and growth, and centrists rightly say the party can’t be cast as fiscally irresponsible.
I don’t profess to know what will happen six days from now, let alone six months.
But I agree with Feehery and Miller in this sense: Democrats are in for a much tougher battle than most thought two months ago, and liberal skeptics of the fiscal-cliff compromise are starting to look prescient.
The key, as I’ve been arguing all along, will be how wisely Republicans use their leverage: Will they get something in return for it, or will they bludgeon themselves with the lever?
The Legend of LBJ’s Power of Persuasion
Flickr.com
The New Yorker’s Ryan Lizza argues for a realistic appreciation of the limits of presidential power:
Lyndon Johnson’s celebrated legislative achievements were in reality only a function of the congressional election results—not his powers of persuasion. In 1965 and 1966, after the enormous Democratic gains of the 1964 election, Johnson was a towering figure who passed sweeping legislation. In 1967 and 1968, after he lost forty-eight Democrats in the House, he was a midget.
There are a couple wrinkles to that: 1) Many of those Democrats were southern conservatives who really did need to be wrangled and arm-twisted. In the case of the era’s landmark civil rights legislation, Johnson needed the help of liberal Republicans. 2.) LBJ’s “midget” status was a consequence of the unfolding disaster in Vietnam. The lesson, perhaps, is that presidents are not utterly powerless over congressional or partisan arithmetic; their actions, as well as luck, can affect that arithmetic. Read More…
Keynesian Straw Men and the Sequester
Cato’s Jeffrey Miron has a piece arguing that the recently enacted budget cuts known as sequestration will ultimately be good for the economy. He says the Keynesian worrywarts who’ve been preaching that the cuts will slow growth and cost jobs have it wrong:
The Keynesian model does not evaluate government expenditure using the standard microeconomic concept of economic efficiency (cost-benefit analysis). Instead, the model assumes policy should target increased GDP. This sounds reasonable, and consistent with efficiency considerations, until one examines government expenditure in detail.
This expenditure has two components: purchases of goods and services (e.g., roads, education, research, and the military) and transfer payments (e.g., unemployment insurance, welfare, food stamps, Medicaid, Medicare, and Social Security).
The efficiency concern with government purchases is that the National Income and Product Accounts value them as equal to the expenditure on these items. This means that bridges-to-nowhere or a military buildup aimed at an imaginary alien invasion are both desirable from the Keynesian perspective because such expenditures increase measured GDP. Yet this expenditure is pure waste.
With all due deference—Miron is a Harvard University economics professor, and I am … not—I don’t think that’s what Keynes taught. Keynes did not believe that government spending always multiplied itself in the broader economy. He did not believe inflation was always good or that debt would never need to be paid off.
Bruce Bartlett explained in his 2009 book The New American Economy that it was only under extraordinary circumstances—like those that prevailed after the financial crisis of 2008 and its ensuing “liquidity trap”—that we should ignore the cost efficiency of government spending:
Getting the money moving, so to speak, requires the government to engage in deficit financing precisely for the purpose of increasing market interest rates, which would get the economy out of the liquidity trap and make an expansive monetary policy effective once again. It didn’t really matter what the money raised by borrowing was spent on as long as it involved the purchase of goods and services. Income transfers and taxes cuts were less effective because much of the money would be saved, thus frustrating the need to raise interest rates. It would be best for governments to finance the construction of socially beneficial public works, such as roads and buildings. But for macroeconomic purposes it was not necessary that the construction be inherently productive, because the primary purpose of the effort was to create a mechanism for making monetary policy effective. …
[Keynes] understood that societies could not enrich themselves in the long run through such wasteful projects. They were applicable only during times when deflation had brought on an economic slowdown that reduced interests rates to the point where a liquidity trap existed. These were extremely special circumstances that occurred only very, very rarely; in normal times, Keynes knew perfectly well, such schemes would be economically counterproductive.
Four years removed from the crash of ’08, it may turn out that Miron is right about the sequester. But it won’t be because Keynes was wrong.
The Sequester: A Mystery of Political Masochism
As I imagined it earlier this month, the sequester offered Republicans a chance to reset budget negotiations with the White House. The debt ceiling battle, with its specter of global financial crisis, had been set aside. There were renewed qualms about the pace of economic recovery. Moreover, the president seemed eager to move beyond the impasse of fiscal politics and begin piecing together a second-term legacy.
“If they’re smart, [Republicans] will husband this leverage wisely and press for modest measures to rein in spending over the long haul,” I wrote.
Needless to say, it hasn’t worked out that way at all. It turns out the leverage that the sequester represents is worthless if, as Justin Green of the Daily Beast notes, spending cuts-and-spending-cuts-only is the default bargaining position. (The idea that the terms of the original debt-ceiling truce oblige both parties to an all-cuts replacement for the sequester, as Bob Woodward charges, doesn’t quite pass the smell test. Recall that House GOP leaders floated Erskine Bowles’s testimony before the debt-reduction supercommittee as a framework for a fiscal cliff compromise. That sequester replacement, such as it was, called for $800 billion in new revenue. The GOP has every right not to compromise with Obama on taxes this time—but the “goal posts” in this case dictate only the “how much,” not the “how” of deficit reduction.)
As things stand now, the sequester is almost certain to kick in (although its effects may not be fully felt until later in March, when funding authorized under last year’s continuing budget resolution runs out). Unless the administration beats a dramatic retreat, Republicans will not secure anything in the way of Medicare or Social Security reform without also agreeing to roughly $600 billion in new revenue captured from tax loopholes and deductions.
But, damn the torpedos, they will have their sequester cuts.
It’s worth asking what is the upside of these cuts.
Will they meaningfully reduce the deficit?
By proponents’ own reckoning, they will not.
You can’t simultaneously allay fears about the sequester—“Calm down; these are pissant reductions in the rate of growth”—and then congratulate yourself for reining in spending. Read More…
The Hagel Foes’ Self-Defeating Witch Hunt
The anti-Hagel brigade has a tactical difficulty, which is becoming a major strategic one. For instance they (Jennifer Rubin here and Jonathan Tobin here) are in a snit about the purported revelation that Hagel apparently said, at Rutgers in 2010, that Israel is on its way to becoming an apartheid state. Oh, the horror!
As Dave Weigel reported, here is the damning Hagel utterance:
As long as in this territory west of the Jordan river there is only one political entity called Israel it is going to be either non-Jewish, or non-democratic. If this bloc of millions of Palestinians cannot vote, that will be an apartheid state.
Except, aha!—these viciously anti-Israel words don’t come from Hagel, they come from former Israeli Prime Minister Ehud Barak, who voiced them in his capacity as Israel’s defense minister in 2010. Hagel’s alleged comment came a few months later. Of course, in the real world the Barak-Hagel analysis is altogether reasonable.
Nor is Barak the only Israeli prime minister to reach such a conclusion. In 2008, Israel’s prime minister Ehud Olmert told Haaretz that “If the day comes when the two-state solution collapses, and we face a South African style struggle for equal voting rights, then as soon as that happens, the state of Israel is finished.” The “South African style struggle” is, for anyone who needs it spelled out, a reference to Israel becoming an apartheid state. Israeli leaders Yitzhak Rabin and Shimon Peres had the same worries a generation ago, which is why Rabin permitted the Oslo process to develop momentum, despite his own discomfort with Palestinian statehood.
Here then is the problem for the Hagel haters. It is not simply that Hagel is being accused of saying thing like “the State Department sometimes acts like an adjunct of the Israeli foreign ministry”—which State Department officials actually do complain about, albeit off the record. He is being accused of saying things which Israeli prime ministers say on the record. And much as Commentary, Jennifer Rubin, the Weekly Standard, and the Washington Free Beacon try to bend these remarks into supposedly damning evidence of a viciously anti-Israel mindset, they can’t make their argument without quoting the alleged quotes. And almost any journalist must at least note that the “damning” quotes are extremely similar to what Israeli leaders say in public themselves. So by damning Hagel, they call attention to the Israeli occupation, which is in fact turning Israel into an apartheid state. I don’t really see any way around it. Read More…
In Search of a ‘Solidaristic Center-Right’
I agree with nearly every word of Pete Spiliakos’s post in reaction to Ross Douthat’s (equally thoughtful) take on the marginalization of Catholic social thought in American politics:
Spiliakos writes:
There is a hole in our politics where a center-right politics of limited government solidarity should be. That isn’t because of a lack of policy proposals or the lack of a (latent) public desire for such a center-right politics. This lack in our politics exists because of mistakes by key political elites who keep getting suckered by Obama’s statism into a radical-sounding rhetorical anti-statism that doesn’t even reflect Republican policy. Better options are available. We just need to stop charging furiously every time Obama waves his red flag and build our own positive message. We might find that a prudent and relevant Catholic-influenced Republican politics is more popular than the Republican politics of job creators + tax cuts for high earners + nothing.
I do have to quibble with one point, however. Spiliakos is right that Republicans spout anti-statist rhetoric that’s more extreme than the actual portfolio of policies they’re trying to enact. But it’s not because Obama is “suckering” them. Obama practices a center-left politics that is not substantially different from that of the Clintons. And to the extent that Republicans insist on defining the center-left as “radical,” they must rhetorically push themselves further right in order to offer a truly “conservative” alternative. (As Dan McCarthy observes, this seems to be Sen. Rand Paul’s long-term gameplan. I’m not sure it’s a recipe for success in ’16—and it seems to me that Paul is developing a “populist libertarian” message to soften the hard edges.)
Secondarily, Republicans would, I think, have employed apocalyptic rhetoric about country-destroying socialism and spiteful 47 Percentism even if Hillary Clinton had won the presidency in 2008. The party, and the movement broadly speaking, needed to evade responsibility for the financial crisis and the recession that followed. So it noisily separated itself from the big-spending ways and self-advertised “compassion” of the Bush administration—even as it now grapples with the task of presenting an agenda that affirmatively appeals to middle-class families.
The problem is simple: a pro-family agenda and the apocalyptic anti-statism are divergent paths.
Sooner rather than later, conservatives interested in winning elections again are going to have to choose.
Barack Obama’s American System
President Obama’s State of the Union last night was something of a dud. Cautious and boring, the speech was Obama’s message to a Congress that’s unable either to pursue his goals or to develop alternatives. Soaring rhetoric would have been wasted on that audience, as would detailed proposals. The main point was this: when Congress does nothing, the executive will press his independent authority to the legal limit, and perhaps beyond. In that respect, the speech could have been given by any recent president, including George W. Bush.
In addition to its assertions of executive power, the speech offered more clues about Obama’s economic vision for his second term. As laid out in the speech, Obama’s agenda is based on federal spending for infrastructure and research, along with tax and regulatory incentives for manufacturing.
Contrary to many critics on the right, this perspective is neither socialist nor corporatist. Rather, it’s a kind of updated mercantilism, with elements of Henry Clay’s American System. The guiding thought is that “free” markets tend lock in the status quo because they do nothing to balance the existing advantages of big economies. On this view, the best way to encourage innovation and growth isn’t to remove government from the economy. Rather, it’s to use public funds and regulation to level the playing field between international competitors.
Take Obama’s persistent interest in green energy. Despite the Solyndra debacle, this really isn’t a sop to campaign contributors or environmentalists. Rather, Obama believes that solar and other alternative energy sources are going to be a big business. Unless America gets in on the action, it will find the field dominated by foreign companies, whose cheaper and more sophisticated products it will then be compelled to buy. In order to prevent this dependence, the government must “invest” now, even if the returns are not obvious or immediately forthcoming.
Although it may seem contradictory, Obama’s proposal of a North Atlantic free-trade agreement is consistent with this argument. In Obama’s view, the United States and EU are in a position of rough economic parity, and can therefore accept the stabilizing effect of free trade. That’s not the case with China, with which the U.S. is in competition for jobs and markets.
Many economists are critical of this style of argument, which assumes (among other things) that the president knows what industries are likely to be important in the future. But it has considerable popular appeal and deep roots in the American political tradition. Unlike academic economists and “free market” pundits, most ordinary people see international trade as a zero-sum game and fear that the destruction involved in technological shifts is not always creative.
Should the economy continue to stagnate, we can expect to hear more economic nationalism in Obama’s remaining annual messages. If Obama fails to seize the opportunity, Republicans will have a more promising message at their disposal than Marco Rubio’s dusty Reaganisms.
The Balanced Budget Amendment Rears Its Farcical Head Again
After the unsatisfying conclusion of the fiscal cliff saga, House GOP leaders resolved to reestablish regular order in the consideration of fiscal policy. No more secret negotiations with the White House. No more eleventh-hour crisis-averting votes. This was the impetus behind the bill to force the Senate to pass a budget for the first time in years, possibly paving the way for the first joint budget resolution since 2009.
A return to normalcy: what a splendid idea!
Which is why I’m scratching my head at the news that Republicans plan to make a balanced budget amendment to the Constitution the centerpiece of their fiscal agenda. The proposal would cap federal spending at 18 percent of GDP as well as require supermajorities for tax hikes and debt ceiling increases.
AEI’s James Pethokoukis deconstructs the practicality of the spending cap:
[L]et’s quickly examine whether capping federal spending at 18% of GDP is realistic. I am not sure it is. If the bill excludes interest spending? Maybe. If so, then the BBA would be capping spending at roughly the historical average of around 20% to 21% of GDP. But even doing that for the long term will be tough (especially without slashing defense spending to Europe’s minimalist levels). Recall that the Bowles-Simpson plan has a long-term spending target of 21%.
Just as problematic is the institutional folly that the BBA represents. Instead of reasserting democratic control over fiscal policy, as had been the plan until five minutes ago, a BBA regime would take us in the opposite direction – toward newly empowered judges. The literature on how a BBA would invite judicial interference into fiscal policy is vast — for a taste, see Ed Meese, Walter Dellinger, and Peter H. Schuck – and, to my lights, dispositive. But that’s not all. The executive branch, too, would potentially gain new authority over spending — which the Goldwater Institute, strangely, sees as a feature rather than a bug.
Then there’s the question of “optics.” Come the State of the Union Address, President Obama plans to grasp the mantle of restoring middle-class prosperity. Republicans are set to counter with the dry language of fiscal rectitude, behind which lurk accounting gimmicks and berobed men armed with calculators.
Is there a more self-defeating political strategy than this?
House GOP vs. the Neocons on Sequestration
If there’s one encouraging development in the recent debates over sequestration and cabinet appointees, it’s that the hawks have conspicuously overextended themselves.
Senator Lindsey Graham, in addition to asking for unprecedented, privacy-violating disclosures and expressing an apparently greater concern for Iranian public opinion than American fiscal stability, threatened Sunday on “Face the Nation” to hold up Obama’s nominations for defense secretary and CIA director over lingering questions about Benghazi.
Meanwhile, just as the House GOP is warming up to sequestration, or at least the associated political leverage (former NH Senator Judd Gregg and Transom editor Ben Domenech both have op-eds in support of that strategy), the neoconservative Foreign Policy Initiative is asking that they give it up. As usual, the message is that sequestration will have dire consequences for national security. Bill Kristol’s other outlets are spreading the word. Daniel Halper has the FPI’s letter to congressional leadership pushing these talking points:
- The Navy has indefinitely delayed the deployment of a carrier strike group to the Persian Gulf—a decision that significantly weakens America’s ability to provide regional security and protection to allies at a time when the Iranian regime continues its work to acquire a nuclear weapons capability.
- The Air Force plans to cut the flying hours of its pilots by 18 percent, and more broadly will have to curtail the service’s ability to conduct air-to-air refueling, support Army logistical requirements and, by September of this year, train new pilots—reductions that cumulatively will erode America’s vitally important airpower capabilities.
- The Army will delay training for almost 80 percent of its Brigade Combat Teams, cancel critical maintenance, and stop training new aviators and military intelligence specialists—delays that, according to the service’s leaders, will result in the “rapid atrophy of unit combat skills with a failure to meet demands of the National Military strategy by the end of the year.”
These decisions probably have at least as much to do with uncertainty as to whether or not sequestration will actually happen, after being assured for so long that it would be avoided–two of the three complaints have to do with delays, not cuts. And we already have one carrier in the Persian Gulf. Sequestration will inevitably mean paring some things back, but many of its economic impacts, particularly on contractors, would not be felt for several years because of billions of dollars in backlog, as a new paper from the Center for International Policy points out (below).
Chris Preble, defense policy chief at the Cato Institute a former Naval officer, makes the case for why the only thing worse than sequestration is no cuts at all.
Minimum Returns: The Economic Impacts of Pentagon Spending by
