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Now What?

If there is to be a reinvented Republican Party or a new party which gives a home to those who have been abandoned by the extremists in both parties, what should it be? How should it describe itself?

The word "conservative" has to go even though I like it. It is too much like, and too often used, to protect the status quo and those who benefit from it. "Liberal" would be good in its traditional sense but has been co-opted to mean maternalism. Independence? Freedom? Too tea party. So I don't know the right word. Call it xxx

The principles are easier:

Xxers are positive and optimistic. This is an American dawn because of America's resources and spirit AND (as always) immigrants. Those in search of the dream make the dream come true for all of us. The best of America shows up in Vermont's recovery from Irene, in the miraculous restoration of the NYC subway in a week, the invention of the Internet; the thousands of volunteers who've poured into the Sandy-savaged area; the veterans whom we all ought to be thanking today; and in the Stowe Electric crew restoring power last week to Groton, CT and the sub base. Can do is our muscle. Innovation is our brain.

An xxx economic policy is one in which government ensures a level playing field (antitrust, weight and measures, enforcement of contracts, prosecution of extortion) and forbids the exploitation of externalities (you can't save money by dumping that in the river) (this can, of course, be a slippery slope, but that's life). Government does not pick winners and losers. Government does NOT save the losers – that means you, banks, and you, auto companies and unions. Bankruptcy does work its magic on unrealistic contracts. We are on the verge of huge American prosperity based at least on the maker movement and cheap energy and a lot of other stuff being invented in garages. Let 'er rip.

An xxx government is lean but effective. Its agencies don't create work by suing each other or opposing each other in regulatory cases. Its critical regulatory functions (you can't dump that in the river) are carried out on a predictable and speedy schedule which cannot be coopted or delayed by opponents, who get just one chance to make their case – and sometimes will make it. Its employees get compensation and benefits equivalent to those in the private sector. They probably get paid more than now but cost less because of lower benefits and less people.

An xxx government provides demanding and effective public education. Social mobility matters critically. An informed electorate is a necessity. It is more important that employees of the public education system be held to high standards and rewarded for accomplishment than it is with any other sector of government.

An xxx government build infrastructure. How much and where is a fit subject for debate.

An xxx social policy gets government out of the bedroom and IMHO out of the pharmacy. Marriage is a function for churches to define. "Civil union for mutual support" (also needs a better name) is a contractual relationship and may have certain tax benefits. Not sure those would be needed in a simpler tax code. Huge savings in enforcement and corruption is available by legalizing drugs; also huge tax revenue; and cuts off seed money (literally) for all sorts of bad activities. We lost the war on drugs. Bring the troops home.

Individual freedom means that individuals can sleep with whomever wants to sleep with them; can smoke any herb they choose; make good or bad investments with their money and their time (Republicans have gotten this very wrong). But individual freedom requires individual responsibility for consequences. Individuals are responsible for keeping themselves and their partners safe from sexually transmitted diseases; for supporting their children; for keeping themselves sober and drug-free enough to work, drive, and parent; for living with and/or recovering from the consequences of bad decisions (Democrats have gotten this very wrong). You can't have freedom without responsibility.

Xxxers are populists as, I suspect, most Americans are. Banks should be free to make risky loans because progress depends on risk. But this means that banks which make too many bad loans, whether by bad planning or bad luck, have to be allowed to fail (Republicans and Democrats have both gotten this wrong; bank bailouts have been almost the only bipartisan actions Congress has been able to take). Crony capitalism should be an oxymoron; it isn't. Plutocrats of the left and right have used government to further their own interests and feather their own nests. The tax code shouldn't be used for redistribution; it also shouldn't be riddled with loopholes to benefit those who share part of their loophole-enhanced wealth with the politicians who create the loopholes.

An xxx government doesn't ban abortion; it is regulated like any other medical procedure. An xxx government shouldn't force those opposed to abortions to perform them or those opposed to contraceptives to supply them. But what if the institution which wants to exercise this choice is, itself, government-supported? Hmm… tough question. Decisions have consequences.

An xxx foreign policy focuses on America's vital interests. Fortunately, this soon won't include Middle Eastern oil. Punishment for harming Americans must be swift and sure. We have demonstrated how effectively we can take countries apart; we get in trouble when we try to put them back together; maybe just not our problem. A strong economy makes for a strong country.

Are we going to repair the current political parties, replace them, or move to a post-party social-media-connected world? The only certainty is change. And change has always been good for America. We will have the government and the economy and the society we deserve.

A special thank you to veterans, without whom we wouldn't have the privilege of making tough choices.

 

Reader Comments on SOPA and PIPA Internet Blocking Bills

If either House bill SOPA (Stop Online Piracy Act) or Senate bill PIPA (Protect IP Act) or something in between passes both houses of Congress and is signed by the President, Internet censorship, unreachable websites, and forbidden searches will be the law of this land – just as in China. I blogged last week about the dangers these bills pose in return for helping Hollywood assure that none of its content is pirated. Readers have weighed in with some more data, questions, and amplifications. In addition, there is more useful information from twitter which I'll pass on below.

Vermont Tiger reader Will Workman commented:

"Okay, so I'll protest this law as soon as someone shows me a better way to protect intellectual property on the internet. By some estimates, 15% of all internet commerce involves stolen IP, either media available online, or offers to sell knockoff goods…

"So I repeat, are you just going to condemn a "Hollywood lobby" or are you going to propose a better way to stop the rampant IP theft on the internet?"

As he says, piracy is a real problem. Turns out that the "Internet Industry" has presented an alternative to address these real problems of piracy. According to ReadWriteWeb:

"The OPEN act sponsored by Rep. Darrell Issa, R-Calif., and Sen. Ron Wyden, D-Ore., would allow the International Trade Commission to order online ad networks and payment processors to sever ties withe foreign websites that are targeted by patent infringement claims…

""[The OPEN Act's] approach targets foreign rogue sites without inflicting collateral damage on legitimate, law-abiding U.S. Internet companies by bringing well-established international trade remedies to bear on this problem," AOL, eBay, Facebook, Google, LinkedIn, Mozilla, Twitter, Yahoo and Zynga wrote in a letter to Issa and Wyden in December."

In other words, OPEN seeks to sever the money links to pirate sites and stop otherwise legit sites from profiting by supporting them but does NOT include blocking our access to parts of the web.

Tiger reader Aaron S. Hawley wrote:

"Yes, it is bad policy. Fortunately it died last year with COICA but has been resurrected. What are the dots connecting Leahy to the lobbyists that cause him to peddle this kind of legislation in the first place? Last I checked, Hollywood is in Los Angeles, not Vermont. Does he owe favors for being in the Batman movie?"

Tiger reader Robin of Stowe responded to Aaron:

"According to the F.E.C., our Senator Leahy has been paid over $1,000,000 since 2000 by the entertainment industry. Here is the legislation they paid for.

"BTW, our Senior Senator was not in any way mis-led. He went in with eyes wide open, knowing the job he had to do. His record of Hollywood protecting legislation goes back over several sessions of Congress."

I emailed Robin and asked for a source for this allegation. Robin gave me a link to a page on Leahy on opensecrets.org. It says that his top two contributors since 1989 have been Time Warner and Walt Disney Company and that his top three contributor categories are Lawyers/Law Firms, TV/Movies/Music, and Lobbyists. There is a disclaimer which is important: "The organizations themselves did not donate, rather the money came from the organizations' PACs, their individual members or employees or owners, and those individuals' immediate families. Organization totals include subsidiaries and affiliates." The top metro areas in contributions to the Senator are Washington, DC and Los Angeles-Long Beach (which includes Hollywood).

To be fair, it does make sense for organizations to contribute to congresspeople who agree with and support their positions. These are the people they want to see re-elected.

A tweet pointed me to sopaopra.org. This is a cool site which lets you sort SOPA and PIPA opponents and proponents by how much they have received from the Movie/Music/TV industry, the Computers/Net industry, or the difference between the two amounts. Not surprisingly there is a high correlation between positions and contributions. Senator Bernie Sanders (I-VT) and Rep. Peter Welch (D-VT) are not listed as either opponents or proponents so contacting them may be a very good idea for Vermonters. Non-Vermonters can reach their congresspeople through http://www.usa.gov/Contact/Elected.shtml.

You can also sign a petition at whitehouse.org asking the President to veto these bills or anything like them if they ever reach his desk. You have to sign up with whitehouse.org to do this, but you can ask that President Obama not send you any messages.

Related post:

SOPA and PIPA are Bipartisan Bad Policy, Really Bad Policy

Jon Hunstman: Wall Street’s Big Banks Are the Real Threat to Our Economy

Coddling big banks has been a bipartisan effort. TARP passed in the Bush administration, and President Obama appointed TARP architect Tim Geithner as his Treasury Secretary and reappointed Fed Chairman Ben "bailout" Bernanke. Mitt Romney's background is in the financial industry and he thinks the bailout was necessary; look for more bank bailing should he become President.

Jon Huntsman has taken a strong and intelligent stance against bank bailouts and proposed a concrete plan for eliminating too-big-to-fail banks and allowing community banks to flourish – they can be allowed to fold if they fail. If he can manage a third place or better showing in New Hampshire Tuesday, Americans may have a strong and experienced alternative on the ballot in November.

This is Huntsman's statement on too-big-to-fail banks:

Rebuilding our economy and restoring trust in our government will require a leader with the independence to implement bold reforms that take on the establishment, from Washington to Wall Street.

Thus far, however, we are the only campaign willing to confront honestly and directly one of the greatest threats to our long-term economic prosperity: Too-Big-To-Fail Wall Street banks.

In 2008, with the nation's economy in crisis, Washington and Wall Street offered American taxpayers a Sophie's Choice: spend hundreds of billions of dollars to save big banks from failure, or witness the collapse of our financial system and irreparable economic harm.

This was not only a betrayal of the public's trust; it was also a betrayal of our free market system, which only works when every business plays by the same rules.

Taxpayers were promised those bailouts would be a one-time, emergency measure. Yet today, we can already see the outlines of the next financial crisis and bailouts.

The six largest financial institutions are significantly bigger than they were in 2008, having been encouraged to snap up Bear Stearns and other competitors at bargain prices.

These banks now have assets worth over 66% of gross domestic product – at least $9.4 trillion – up from 20% of GDP in the 1990s.

Dodd-Frank, which purportedly designed to fix Too-Big-To-Fail, has only made things worse. Not only has it left us with larger banks, but it imposes massive new regulations and unreasonable compliance costs on smaller banks, which hurts small business lending.

President Obama has offered no real solutions other than to demonize capitalism, which may score political points but does nothing to solve the problem.

My opponents have also failed to take on Wall Street with substantive reforms. This includes – unsurprisingly – the establishment's preferred front-runner, Mitt Romney.

Governor Romney, who has accepted more Wall Street money than any other candidate, has offered no concrete solutions to protect taxpayers in the event of a future financial crisis.

The Obama and Romney plan simply appears to be to cross our fingers and hope no Too-Big-To-Fail banks fail on their watch – a stunning lack of leadership on such a critical economic issue.

As president, I will break up the big banks, end future taxpayer bailouts, and restore capitalist principles – competition and creative destruction – to our financial sector.

We will accomplish this by imposing a fee on banks whose size exceeds a certain percentage of GDP, proving them an incentive to slim down and localize.

Many of us can recall an earlier time when we had community banks that were actually a part of the community, instead of a faceless Wall Street entity. They sponsored our kids' baseball teams. You knew the president on a first name basis. Your small business or farm's credit was based as much on your reputation and character as your FICO score.

We need banks that are closer to our communities that, if mismanaged, are small and simple enough to fail – not financial public utilities.

The federal government cannot afford to wait until the next financial crisis is upon us to act, which will be too late and cost taxpayers too much.

Whether it is ending Too-Big-To-Fail, reforming the corrupted culture of Congress, or eliminating special interest preferences in our tax code, we need a president who is not indebted to the power brokers in Washington or on Wall Street.

We need a president who will take on the establishment from the outside, and deliver the bold reforms our country desperately needs. That is what I will continue to offer the American people.

Related posts:

Another Day, Another Bank Bailout

"Too Big to Fail" Assures Bigness – and Failure

Preparing for the Next Banking Crisis

When Regulation Is Justified

The Occupiers and Tea Partiers Are Both Right

 

Why Does Iran Think It Can Get Away with a Blockade?

"If they impose sanctions on Iran's oil exports, then even one drop of oil cannot flow from the Strait of Hormuz," says Iran's first vice president, Mohammad-Reza Rahimi, as quoted in The New York Times. According to the same article, about a fifth of the world's oil flows through the Straits. Kuwait, Iraq, Saudi Arabia and UAE all border on the Persian Gulf which would be bottled up by the threatened Iranian blockade.

So why does Iran think it can get away with that massive threat to both its neighbors and the Western economies dependent on this flow of oil. Let me count the reasons:

  1. The US and Saudi Arabia have done nothing but grumble after uncovering an Iranian plot to blow up the Saudi ambassador in Washington.
  2. The world has, of yet, taken no effective action against Iran's growing nuclear program.
  3. The US once allowed Iran to hold its embassy personnel hostage for longer than a year.
  4. Bands of ragtag Somali pirates continue hijacking ships – including oil tankers – despite patrols by NATO and other navies.
  5. We continue to allow the payment of ransom for hijacked ships instead of recapturing them by force.
  6. Some NATO countries (but not the US) play catch and release with pirates.
  7. Despite some US progress towards independence from Middle East oil, the President can't bring himself to approve the XL Pipeline, accelerate drilling offshore in the lower 48 or in Alaska, or accelerate safe recovery of our vast natural gas resources (subsidies aren't needed, just intelligent regulation).
  8. "Mr. Obama, his aides acknowledge, has no interest in seeing energy prices rise significantly at a moment of national economic weakness or as he intensifies his bid for re-election — a vulnerability the Iranians fully understand." –from the NYT article.

The article also says "In recent interviews, Obama administration officials have said that the United States has developed a plan to keep the strait open in the event of a crisis." I hope that's true. Presumably US and NATO warships will accompany tankers through the Straits. Hopefully Iran would back off in that case. But what if they miscalculate? We can't afford to be bluffing. The Straits is narrow and would be effectively blocked for a while by any wreckage. It can be reached by missiles fired from deep in Iran. The West would win eventually but better to avoid the dangers of Iranian miscalculation.

Here are a few suggestions for avoiding miscalculation:

  1. Have NATO's navies finish their efforts against Somali pirates in order to concentrate on patrol in and near the Straits. Finishing means ending piracy by forbidding payment of further ransom and freeing the ships now being held hostage by force immediately. Until the pirates realize they have no options and that it is too dangerous for them to harm hostages, freeing these ships will probably involve some small loss of life; I don't say that lightly. But there will be more lives lost if hostage-taking continues to be rewarded. And many more lives lost if we have to go to war with Iran to keep the Straits open because Iranians confuse our forbearance towards pirates with weakness.
  2. Put NATO ships on conspicuous station in or near the Straits; don't allow Iranian ships to come near them; and put Iran on notice that missile tests during this crisis they've provoked are too dangerous to allow and so all known launch sites will be destroyed in the event of any launch.
  3. Take the steps approved by the Senate in a 100-0 vote to cut off companies which do business with Iran's Central Bank (this makes it very hard for Iran to sell its oil).
  4. Approve the XL Pipeline and other projects which make North American oil and natural gas readily available.
  5. Republican presidential contenders, who have generally taken a hard line on Iran, should announce that they will NOT politically attack the President when oil prices rise as a result of these tensions so long as we are taking speedy steps towards energy independence.

If we convince Iran that it can't threaten us with blockade, they may even realize they have to back off on nuclear weapons. On the other hand, if they think their threats deterred action against their oil exports, imagine what their threats'll be once they have a couple of nuclear bombs.

Thanks to The Young Man from Misurata

You are a young man from Misurata. Standing in front of you is the man who ordered the relentless shelling that destroyed your hometown and killed your family and friends. "You're sinning," he says.

You are a young man from Misurata. Everything you know about soldiering you learned on the battlefield over the last few brutal months. Your comrades have been killed and maimed as you pursued this man inch by bitter inch. "You're sinning," he says, perhaps directly to you.

You are a young man from Misurata. If you were a young man from Auschwitz, he would be your Hitler. If you are from the Gulag, he is your Stalin.

You are a young man from Misurata. Standing in front of you is the man whose underlings have terrified your family as long as you can remember. "You're sinning," he sneers.

You are a young man from Misurata. The sounds of battle are all around you; it's not quite over yet, maybe it won't be for a long time. Someone might still try to rescue the monster who is your prisoner. He has been all-powerful for almost all of your life. You have a loaded gun in your hand.

You are a young man from Misurata. You shoot Col. Muammar el-Qaddafi in the head. I think I would've done the same if I were brave enough to fight my way to the culvert where you found him hiding.

Somewhere in the safety of a UN Secretariat someone thinks it's vitally important to investigate what the young men from Misurata may or may not have done to Qaddafi. There is outrage that he wasn't captured so he could live out his natural life sparring civilly with bewigged judges in The Hague like some of his fellow mass murders. Even the US says "the facts must be determined." After we're done determining these facts, we should make sure that the Wicked Witch wasn't actually already captured by Toto before Dorothy doused her.

On the same day, according to press reports, a score or more of protesters were killed in Syria by another brutal despot. It's much more important that the world investigate what's happening to them than determine the exact circumstances of Qaddafi's last minutes. Aren't their lives as valuable as that of a dictator? We don't have to worry about Qaddafi being shot again tomorrow; on the other hand, we know that protestors will die in Syria tomorrow and tomorrow and tomorrow. We should direct our outrage at Qaddafi's fellow dictators, not at the young man from Misurata.

There is a danger of endless vengeance and repercussions in Libya. There will need to be fair and hopefully swift trials of those who followed Qaddafi's orders to shell civilians and those who profited from his regime. There will have to be trials, too, of those who used the cover of revolution to loot or to kill their traditional enemies. There will, we all hope, be a civil society in Libya. The country will need a disciplined and professional police force and an army. It needs a government.

Today, though, is a day from thanking the young men of Misurata and the rest of Libya who fought so hard and at such cost (and with help from NATO) to take Qaddafi off the world stage. Tomorrow is the day for reflecting on the increasing futility of the UN and its absurd priorities. And for many days after that the world needs be outraged by Assad in Syria and to help the young people of Libya build their young democracy (we hope).

You are a young man from Misurata. We wish you a bright future.

Open Negotiation is an Oxymoron

"…greater openness by the panel, officially known as the Joint Select Committee on Deficit Reduction, would actually be harmful to the public interest. Private meetings are essential to give the committee's six Republicans and six Democrats the freedom to step away from party orthodoxies, conduct serious negotiations and search for common ground, rather than engage in political posturing." Op Ed by Jordan Tama in the New York Times 10/19/11.

The Super Committee has an almost impossible job to do; and we are all dependent on it accomplishing that job in order to avoid mindless automatic budget cuts which'll happen if it fails. So shouldn't we all get a ringside seat for these critical deliberations? Absolutely not if we want them to succeed. Meaningful negotiations can only happen in private. "Transparency" is not always the right answer. Of course, we should know how each member of the committee votes on its final report and, of course, committee members should have to report campaign contributions (as they are already required to do). But they should be able to think, make stupid suggestions, think them through, compromise, and negotiate in private.

Why in private? Because they won't succeed if advocates can jump on and squelch any move towards compromise before it can be met by a counter-offer and before any progress can be made. The final agreement, should we be lucky enough to have one, will contain plenty for everyone to hate. Hopefully, for most of us, the overall result will be acceptable and constructive despite the individual elements we don't like. That's the way deals work. But these deals have to be put together a plank at a time. If we all have a veto over each plank out of the context of the whole structure, no deal will ever emerge. Advocates who would prefer no deal are very well aware of this dynamic. Further from the article:

"…For Democrats on the committee, political danger lurks if they back any cuts to entitlement programs, whereas for Republicans, support for any tax increases is even more perilous.

"The attacks on the committee for meeting in private are probably motivated as much (or more) by fear of the committee's succeeding as by a commitment to open government. Those calling for greater committee transparency are largely staunch conservatives, like Senator Marco Rubio, Republican of Florida, or staunch liberals, like Representative Jan Schakowsky, Democrat of Illinois, who have opposed a grand bargain that includes significant tax increases and entitlement cuts. They surely know that it will be harder to reach agreement if the panel cannot meet privately."

A year and a half ago I was point man for Governor Jim Douglas'(R-VT) Administration on a bipartisan initiative originally proposed by the very Democratic legislature called Challenges for Change. One of the challenges set by the legislature was to make education more effective at less cost. In other words, we were supposed to put together a plan which would get better educational outcomes while spending less money. The task was hard but not impossible. All money spent on "education" does not really improve educational results. Vermont has the highest staff to student ratio in the country. We have IMHO way too many school districts and consequently too much educational bureaucracy for our population. Many of our schools are too small to offer the range of courses students should have. Teachers are not compensated for excellence or dinged for inattention or incompetence. Point is that we really did have lots of levers to work with – as well as lots of interest groups opposed to any change which would affect their members.

The Commissioner of Education put together an excellent group to propose changes to the legislature. The group, which had no power except to make a recommendation, included school administrators, teachers, school board members, even the head of the Vermont Red Cross which had recently gone through a wrenching consolidation. I insisted that we meet in private. There was immediate protest.

"Tom Evslin, the state's Chief Technology Officer, who is also overseeing the education design team and the 10 others like it across state departments, says the meetings are behind closed doors so they will spark more creative thinking.

""If from the very beginning you're saying, 'Boy am I going to sound like an idiot if I make that suggestion?' then you can't really think, and so it's an opportunity perhaps for people to have dumb ideas, for people to fight about ideas,"'says Evslin.

"…The design team has to submit its ideas to lawmakers in two weeks and that is when Evslin says the public will have its chance to weigh in on the proposals.

"'It's not that they're being shut out of the process,' he says."- Interview on WCAX 3/8/10

The first two meeting were held in private. We were, I think, making great progress because people were willing to put aside their affiliations and think creatively. There was an extremely healthy back-and-forth and real dedication to achieving high quality education at a sustainable price. But interest groups were furious at being shut out… and likely afraid of what might emerge. The press (as is their job) wanted in. The pressure was too much; over my objections but with my understanding, the Education Commissioner decided that the meeting would be open.

The real public doesn't come to open meetings, of course; but the advocates came and sat there steely-eyed. No longer could a teacher speculate about how to get better performance from his or her colleagues nor could a superintendent talk about consolidation of function. We made no more progress. We made no meaningful recommendation to the legislature other than to count savings that had already occurred. The legislature gave "education" a hall pass on change and left the problem to grow and be addressed another day (which is rapidly coming).

Greater transparency in government is usually a good idea, but not always. One can argue with some evidence that the age of openness is also an age when art of political compromise seems to have been lost. Open negotiation is an oxymoron. No one can afford to propose the first concession in public; no one can risk going out on a limb in search of agreement in the glare of television lights.

Legislatures appoint special committees when they are afraid of the political price for confronting the need for change. Sometimes these committees really can cobble together something workable, a better than zero sum solution. But these committees can only function if they can formulate a plan in private for later public review. If we want a reasonable budget plan, we have to make sure that those who don't really want any plan or are against all compromise can't kill thought and negotiation with calls for premature "openness".

The Occupiers and Tea Partiers Are Both Right

Is the federal government at fault for the current lousy economy? Absolutely.

Are we still suffering from the excesses of Wall Street? Yup.

In fact Wall Street (and its foreign compatriots) and Washington (and other capitols) were co-conspirators in tanking the economies of much of the developed world. Thanks to this not-so-grand alliance, bankers got to kill the goose and keep the golden egg – subject, of course, to continued campaign contributions.

The Occupiers of almost anything and the Tea Partiers should be listening to each other. As the brilliant Venn diagram below from a post by James Sinclair shows, the two groups are looking at different views of the same monster: a hybrid of giant corporations and giant government supporting each other's aggrandizement at our expense. (hat tip to Art Woolf writing on VermontTiger for posting this).

It may be that the people on the extremes of both of these movements will never recognize that they are looking at two aspects of the same problem. But the 99.999% of us who are not on either extreme can learn by seeing the problem is really right in the middle of the Venn diagram above. The problem isn't solved by giving more power to a government (and Federal Reserve) which will use that power to entrench those who are "too big to fail." The problem isn't solved by holding investment banks harmless from their own reckless behavior and allowing them to continue to shower riches on leaders who led them to disaster (so long as they continue their campaign contributions). Much of our problem CAN be solved by teasing apart the too cozy relationship between big government and big corporations – particularly big financial corporations – and putting both corporations and government back in their proper role.

Unfortunately, at the moment, all leading candidates for President of the United States from both parties are actually advocates for extending the status quo. They justify their positions – and placate their followers – by adopting the language of either the Tea Party or the Occupiers, which conveniently allows them to ignore the problem right in the middle of the diagram. Both Republicans and Democrats talk the talk of reform and change; neither Democrats nor Republicans walk the walk. No wonder people are mad.

Take the Republican candidates in the last debate: they talk the talk of free enterprise. To a man (and a woman) they all insisted that Washington alone was responsible for the housing boom and collapse and the lingering malaise that has followed. Strangely for supposed free market adherents, they don't think that investment banks bear any responsibility for reckless securitization of worthless mortgages or looting the investment pool with absurd executive compensation. Most of them supported TARP as necessary without making the obvious point that institutions which are bailed out with public money have lost their claim to immunity from public scrutiny and regulation. The poor banks were victims, according to the candidates, of bad examples from Fannie Mae and Freddie Mac (it's all the fault of the neighborhood) and the poorly thought out quotas of the Community Reinvestment Act (it's all the fault of their upbringing). Gimme a break.

Take President Obama: he talks the talk of economic equality. But he eagerly pursued the Bush-administration's policy of using public money to protect the accumulated wealth of investment bankers from a well-deserved correction, which would have dissolved (and effectively redistributed) much of it. He appointed TARP-architect Timothy Geithner Treasury Secretary and embraced the bank-protecting policies of Bailout Ben Bernanke. Geithner is still traveling to Europe – on our behalf – and urging European governments to protect their banks from the consequences of lending money to profligate governments (at very attractive rates). The Head of Obama's Jobs Council is Jeffrey Immelt, Chairman and CEO of GE, a company which got bailed out because of its banking activities, manages to pay no federal taxes on huge net income, and whines that it can't compete in manufacturing because it doesn't get enough subsidies. The too-big-to-fail banks have gotten bigger on Obama's watch and the bank reform bill he signed effectively enshrines their special status (and strengthens the alliance between big government and big banks). Gimme a break.

No wonder people are mad. But, unlike the brave participants in the Arab Spring, we have a vote. We have a right to protest, of course, and protest we will when not listened to (and we don't have to risk our lives to do so). But we have a responsibility to vote – especially in primaries. The Tea Party, whether you agree with its goals or not, has set a good example – which Occupiers would do well to heed – of how to make change in a democracy. The Occupiers have done a good job of reemphasizing the absurdity and essential unfairness of bailing out the very rich in the name of free enterprise.

James Sinclair has a new post today, "Bringing America Together, One Venn Diagram at a Time" in which he justly boasts of the attention his Venn diagram has gotten from all over the political spectrum. That's a very good sign; now we need some candidates who both talk the talk and walk the walk and understand that a successful free enterprise system requires solving the problem at the middle of the Venn diagram rather than railing at the symptoms from the left or the right.

Related Posts:

We've Been T*RPed

Election Analysis: It Was TARP that Boiled the Tea »

 

 

 

 

Where Did All the Tax Revenue Go?

Don't read this post unless you like numbers.

In fiscal year 2000 the federal budget was actually in surplus. Revenues were higher than expenditures and the national debt was reduced a small amount. Economists hadn't predicted that strange occurrence; it was certainly a consequence of soaring tax revenues from profits on bubble IPOs and a robust economy. On the expenditure side, the trajectory of welfare payments had been reduced by reform supported by Bill Clinton and Republicans; and we weren't fighting any wars. By fy2001, revenues were declining and expenses were still climbing. Post 9/11 in fy2002, we were back to running an annual deficit and we haven't recovered yet – the fy2009 deficit was an astonishing $1.413 trillion dollars, 10% of our gross domestic product (GDP). My former colleague in state government Tom Pelham describes this well in a Vermont Tiger post.

What went wrong? On the expenditure side, the answer is simple: government spending went from $1.789 (18% of GDP) in 2000 to $2.983 trillion (21% of GDP) in fy2008 to $3.517 trillion (25% of GDP) in 2009. Spending ratcheted up during the Bush years; then soared with stimulus spending as well as increased demand for government services like unemployment insurance and welfare in the first full year of recession and the Obama presidency. Federal spending has not been this high as percentage of GDP since WWII. The closest was 23% of GDP in fy1982. We can't sustain this level of spending and still be the same kind of county we've been. Some people think we should be a different kind of country, more like the welfare states of Europe where the percentage of government expenditure is even higher; I'll leave that argument for another day.

But what happened to revenue? Did the Bush tax cuts do us in? Have the rich somehow managed to escape their fair share? In fy2000 the feds took in $2.025 trillion (20% of GDP); in fy2008, after the tax cuts, revenue was UP to $2.524 trillion (but only 18% of GDP); in 2009 revenue was DOWN to $2.105 trillion (15% of GDP). The last time federal revenue was this low as a percentage of GDP was in 1943! It would NOT change the nature of the country to have federal revenues work their way back up to the 17% or 18% of GDP which they have historically been in modern times. Put another way, we WILL be changing the nature of the country – perhaps for the better, perhaps not – if we keep federal revenues at such a low percentage of the GDP. We will certainly roll back the role of government to what it was before WWII in peacetime with no standing army and much smaller social commitments. I'll leave that argument for another day, as well.

Assuming we want to get government revenues backup to their modern norm, how do we do that? First we have to understand why revenue declined.

After the Bush tax cuts, federal revenues did decline for a couple of years; partly because of the tax cuts and partly because of the lingering effects of the dotcom crash and 9/11. By fy2005 federal revenues were back at record highs in nominal dollars and continued to climb strongly for a few more years. The revenue loss from fy2007 to fy2009 came from recession and wiped out all these gains and more. Because taxable income declined by almost a trillion dollars, personal income tax receipts declined from $1.163 trillion to $0.915 trillion while the corporate income tax was off an even greater percentage, shrinking from $0.370 trillion to $0.138 trillion. Together that's over $400 billion/year of lost revenue which had nothing to do with the Bush tax cuts; in fact, if tax rates had been higher, the declines in revenue would have been even greater. Almost all of the decline in personal tax revenue is from those with adjusted gross income above $200,000 both because they paid 52% of the income tax and had 40% of modified taxable income in 2007 and because their modified taxable income was down 34% over those two years.

So the well-to-do – who have more income to lose – lose a greater percentage of that income during a recession than everyone else. That's no consolation, of course, to someone who has lost his or her job and all of the income that went with it; but it does explain why an income tax system which gets the majority of its revenue from the wealthy has lots of downside during a recession. According to the IRS, in fy2008 the top 1% of taxpayers paid 23% of all income tax and the top 0.1% paid over 12%. When the big bucks don't roll in for the rich, they don't roll in for the federal government as a whole. It's not an exaggeration to say that our tax system was playing the stock market and the housing market. When those markets tanked, revenue went with them. That's easy to understand.

Harder to understand is why, even though GDP was higher in FY2009 than FY2007, both corporate and personal taxable income were still much lower in the latter year. Part of the answer, indubitably, is that people didn't have many assets to sell off at big gains as the country came slowly out of a recession. There were almost no IPOs with big payoffs nor as many lucrative buyouts – that 0.1% who pay 12% of our taxes aren't all the same people very year; they're just the ones that scored big. Corporate profits are up but the tax law permits tax loss carry forwards. So it takes a few good years in a row before corporate income taxes can recover to pre-recession levels.

Possible good news in all this is, if we don't dip back into recession, tax receipts should start a strong recovery on their own without any need to increase rates. The Congressional Budget Office estimates fy2012 GDP at just over $15 trillion. If federal revenues were to recover to the 18% of GDP that they were in fy2007 (still less than the 20% it was in 2000), we would take in $2.7 trillion – just about enough money to balance the budget if we could get spending in dollars down to where it was in fy2007 (not allowing for inflation).

This particular scenario is a pipedream; spending won't come down that fast; the recovery is slow. But the lesson is still correct. We can reverse our revenue shortfall if we can get our economy chugging again.

President Obama has proposed rolling back the Bush tax cuts for people earning more than $250,000 per year. However the Bush cuts lowered taxes for everyone who pays them – especially those in the lower brackets. Repealing the cuts just for these "millionaires" would raise something over $0.1 trillion/year even assuming they didn't just find new tax shelters and keep their income down; so all of our taxes have to go up if increased tax rates are the answer. In order to increase revenue from 14% to 20% of GDP just through increased taxes, we would have to raise taxes on the average by close to 50%. And we'd still have to bring government spending down a huge amount to live within these new revenues.

We need a booming economy! More government spending won't get us there and government has nothing left to spend anyway. So how do we get there?

  1. Tap America's abundant energy resources now, especially abundant natural gas. The payoff will be a rebirth of manufacturing - and lots of middleclass jobs – based on low energy costs compared to our competitors.
  2. Reform permitting drastically so that corporations like Google and Amazon can spend the huge amounts of earnings they have in their coffers to boost their worldwide presence from their American base and so that the 20 year backlog of public and private infrastructure projects awaiting approval and fighting off nuisance lawsuits can be done in the next five years.
  3. Reform the tax code to eliminate loopholes and reduce the nominal rates dramatically. Actually this will increase the share of taxes paid by the rich (because they use loopholes more). It will also make America a competitive place to invest corporate cash (see #1 and #2 above).
  4. Don't bail out anymore banks.
  5. Reduce federal spending to less than 20% of GDP.
  6. Through all of the above, increase the relative wealth of the middle class so that our government revenues are not so much at risk in years when top earners are not earning top dollar.

The sources for all these numbers are directly or indirectly the IRS, the Census Bureau, and the Congressional Budget Office. The Tax Foundation, usgovernmentspending.com, and usgovernmentrevenue.com do a particularly good job at aggregating.

Related posts:

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Jobs Rx: Make America Shovel Ready

The Perils of Partisanship

What will it mean to her or his election chances? What do the political experts think? What do the polls say? What political advantage was he or she seeking when she or he proposed this or that? And will he or she achieve it?

What's missing in the litany above are all the important questions: was the proposal a good idea or not? Does it have the right objectives? Is it the right means to achieve those objectives? What are the negative consequences of acting? Of not acting? Are there better alternatives? How will it work? How do we know? How do we decide?

It's easy to see that Republican Senate Minority Leader Mitch McConnell can't be effective if he believes what he said: "the single most important thing we want to achieve is for President Obama to be a one-term president." We need him to give priority to the economy, the deficit, jobs to the extent government can do anything to create them, national defense, etc. etc. In fact, though, much of the media (including we bloggers) and many Americans discuss politics and partisan advantage instead of policy almost all of the time. The obsession, itself, is bipartisan.

For example, Shay Totten is a bulldog of a reporter for Seven Days. He did a great job of being a one man twitter hub during the chaos immediately after Irene. But his article about why Democratic Governor Peter Shumlin appointed long-time Republican Neale Lunderville as Vermont's Irene Czar for the next four months forsakes substance for political speculation:

"Gov. Peter Shumlin's appointment of a top GOP operative to oversee the initial recovery actions in the wake of Tropical Storm Irene was cronyism and political genius….

"This appointment is about one thing and one thing only: Shumlin's reelection and the political power that GMP wields in Vermont

"With one shrewd, calculated appointment, Shumlin took away the opportunity for an opponent to say that a Democrat mucked up Vermont's disaster recovery efforts."

The important questions of whether this is a good appointment and whether Lunderville is the best person for the job are simply not addressed. (In my opinion, he is – substance here). Totten acknowledges that Lunderville has been both Vermont's transportation secretary and administration secretary. Did he do a good job in those positions? That's relevant but no discussion of it here. There are no interviews with people from the legislature or state government who worked with Lunderville. There is no suggestion of who might have been better-qualified. The article has only snarky speculation of what motives – beyond getting well-qualified help with Vermont's recovery – Shumlin may have had.

Some Republican "operatives" have been critical of Lunderville – maybe the only time they ever agreed with Shay Totten. They're afraid that Lunderville'll make Shumlin look good by making the rebuilding a success, by helping the state be better than it was before the storm hit. Like McConnell, they care more about the next election than the fate of the State.

It is true that politicians – and all office holders in a democracy are politicians – are surrounded by people who are more concerned with spin and partisan advantage than substance, as I learned when I worked in Governor Richard Snelling's administration 30 years ago. To put things in perspective, he said: "First, we have to decide what the right thing to do is; then we'll think about the politics. Otherwise we'll just confuse ourselves."

Yesterday President Obama announced a deficit reduction plan. "With the 2012 election just around the corner…." is the way the coverage I saw on CBS began. Clips of the President talking about millionaires paying their fair share and Republicans sticking to their class warfare script. Nothing in that coverage about the amount the tax would raise; how much of an increase it is for whom; what percentage of their income they already pay in tax (or don't). There was no attempt to verify or disprove the Republican claim that the proposed tax increase will fall mainly on job-creating small businesses.

If we the people don't insist on getting the meaty facts, if we gorge on the sugary coverage of the partisan effect of each proposal, then we'll get more of what we ask for. We have big decisions to make; we need to know more than what someone may have been thinking about the effect on his or her re-election when she or he framed a proposal. Even if re-election was all the politician was thinking about, we need coverage of the substance of the proposal long before we need speculation about the motives behind it or even the likely effect on the next election.

Related posts:

CEO Lesson: Decide First; Spin Second

Shumlin Appointment of Lunderville as Irene Czar Great non-Partisan Decision

Four Good Moves by the Obama Administration

The President and his administration are on a roll. I doubt if he sees it that way, but he and his team have actually had a very good week of doing good things for America and its struggling economy despite outrage from both the left and the right. Press coverage has concentrated on the politics and political ramifications of these actions; so let's take a look at the substance.

  1. The Justice Department sued to prevent the planned acquisition of T-Mobile by at&t. The US economy already suffers from substandard wireless service and high prices due to the near duopoly held by Verizon Wireless and at&t. Even if antitrust weren't a legitimate government function (which I believe it is), in this particular case the power of the duopoly is reinforced by its control of a public asset – radio spectrum required to provide wireless service. Poor policy decisions by the FCC and Congress have let these two companies corral way too much of the available spectrum; the at&t bid for T-Mobile – by their own account – is about giving at&t control of even more spectrum. The alternative to antitrust action is constant micro-managing of the duopolists and the entire industry to prevent anticompetitive actions.

     

    T-Mobile has been a feisty and pesky competitor. No other competitor can arise to take their place if at&t ends up owning the spectrum which T-Mobile used to offer its service. Note that co-duopolist Verizon does not object to this merger. But #3 trying-harder Sprint, which would suffer if the duopoly grows stronger, does object and has filed their own suit.

     

    Some commentary has concentrated on the jobs that would be lost in a merger because of "efficiencies" between the two companies. Wrong jobs to look at. The real problem is the jobs that could exist and should exist in all the communications-dependent industries in America and won't exist unless we have the best communication infrastructure in the world.

     

    BTW, both The Wall Street Journal and the Communications Workers of America hate this actionby Justice. The WSJ thinks that the government is thwarting at&t's attempt to serve its customers better and the CWA cares more about folding non-union T-Mobile workers into its at&t contracts than either the overall loss of jobs within the two companies or in the broader economy.

     

  2. The President suspended a pending EPA rule on ozone, which would have stymied development of many kinds in many regions of the country and forced some shutdowns out of proportion to possible health benefits. According to the New York Times (which disapproves of this action):

    "Cass R. Sunstein, who leads the White House office that reviews all major regulations, said he was carefully scrutinizing proposed rules across the government to ensure that they are cost efficient and based on the best current science. He said in a letter to [EPA Administrator] Ms. Jackson that the studies on which the E.P.A.'s proposed rule is based were completed in 2006 and that new assessments were already under way."

    This is certainly a change of heart for the administration since major rules don't reach the White House for final and public review unless the administration is already bought in. Critics are particularly outraged because this rule, although nominally aimed at ozone, was largely a backdoor way to reduce CO2 emissions without actually saying so.

     

  3. The Federal Housing Finance Agency sued 17 leading banks which sold nearly $200 billion of securities backed by subprime mortgages to Fannie Mae and Freddie Mac. We, the people, have already spent over $150 billion just bailing out Fannie Mae and Freddie Mac, not to mention the bailouts to the banks themselves. Past time to try to get some of it back; we need it and there need to be consequences for bad-acting.

     

  4. The State Department issued a final Environmental Impact Statement saying that the proposed Keystone XL pipeline poses "no significant impacts" to resources along its route. Although this does not constitute final approval of the 830,000 barrel per day pipeline from Canada to Texas, it's a huge step forward towards a more secure and friendly source of a significant amount of oil. Opponents argue that tar-sands oil, which is what the pipeline will deliver, produces significantly more CO2 than other sources given its methods of production; not so, says the report – only 2% more CO2 than produced by the Venezuelan crude currently refined on the Gulf Coast. This argument is silly, anyway, since the Canadians are developing this huge resource whether we like it or not and will simply ship the oil from their West Coast ports to China if we don't want it. The energy could then power more job creation in China.

     

Yeah, you can debate the politics of all these actions until the cows come home. Sure, political advisors probably looked at them from every possible angle. But the important question is not "will these decisions help Obama get elected?"; it is "were these the right things to do for the country?". I think they were.

Related posts:

America's Industrial Revival

AT&T Bids to Shut Down Mobile Competition

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