What’s
Wrong Today:

There is a
lot of confusion regarding the Fiscal
Cliff, primarily because most politicians conflate two distinct
problems:

1. A decline in the GDP growth rate that will be caused
by the impact of automatic tax increases and spending cuts that go into effect
on January 1

2. The growing federal debt that over time could
ultimately kill our economy

The media rarely
distinguishes between them, even though the “fix” for these issues lie in
opposite directions: Any deal that only
promotes GDP growth will increase our debt. Any deal that only reduces debt will kill GDP growth.

So,
if a lawmaker really only cares about
the debt, he/she should be happy about GDP contraction but they aren’t,
because they also want to preserve the
Bush tax cuts.  

Few
citizens understand this and thus make the mistake of equating the fiscal cliff
and the debt problem. The two are conflated
so often they blur into each other.

For
example, the Washington
Post published an article titled “Liberal groups mobilize for ‘fiscal cliff’ fight over Social Security,
Medicare.” The facts in the article are ok, but you get the impression that
the fiscal cliff threatens Social Security and Medicare.

Just the
opposite is true. If your top priority is to preserve Social Security,
Medicare, and Medicaid for the long term, then
the fiscal cliff is the best thing that could happen.

Why? The expiration
of the Bush-Obama tax cuts will eliminate
roughly half of the gap between federal government revenues and expenses.
Higher tax revenues will reduce the pressure to do something radical about
entitlement spending, but not the
pressure that is due to ideological opposition to these programs.

Second,
the automatic sequesters mandated by the Budget Control Act of 2011 barely impact
the major entitlement programs. Social
Security and Medicaid are specifically exempted; most Medicare spending cuts
are limited to 2 percent. That means that the rest of the government will
get proportionally smaller, reducing budgetary pressure on Social Security,
Medicare and Medicaid.

The gang pushing to cut Social Security and
Medicare, (“Campaign
to Fix the Debt”) is in high gear. They have raised
money, recruited corporate CEOs (mostly from the financial industry) and some
washed-up politicians for a full-fledged push in the final months of the year. They
are hoping that the hype around the budget standoff (“Fiscal Cliff”) can be
used to pass a “Grand Bargain”
that will likely eviscerate the country’s two most important social programs
Social Security and Medicare.

The
“Grand Bargain” requires compromise. Ever notice
when we hear the call for compromise there
are few specifics? That’s the problem
with DC, policies based on facts,
statistics and their effects not only are ignored, we hear lies on what these
agendas will actually do.

As Dean
Baker has reported:

“They [Fix the
Debt] made a point of keeping this plan out of election year politics because
they know it is a huge loser with the electorate. People across the political and ideological spectrums strongly
support these programs and are opposed to cuts. Politicians who advocated cuts
would have been likely losers on Election Day. But now that the voters are out
of the way, the Wall Street gang and the CEOs see their opportunity.

It is especially
important that they act now, because one of the pillars of their deficit horror
story could be collapsing. Due to a sharp slowing in the rise of health care
costs over the last four years, the assumption that exploding health care costs
would lead to unfathomable deficits may no longer be plausible even to people
in high level policy positions.”

The big stick for the deficit hawks is
their story of huge deficits in the longer term. They attribute these to the
rising cost of “entitlements” which are known to the rest of us
as Social Security, Medicare, and Medicaid.

While the
deficit hawks push the notion that the aging of the population threatens to
impose an unbearable burden on future generations, the reality is that most of the huge deficit horror story is driven
by CBO projections of exploding private sector health care costs. Since
Medicare and Medicaid mostly pay for private sector health care, an explosion
in private sector health care costs would eventually make these programs
unaffordable.

However, there are
serious grounds for questioning the plausibility of CBO projections that show the
health care sector will rise from 16% to
40% of GDP over the rest of the century. Recently, a paper from the
Federal Reserve Board questioned this argument in considerable detail. It is
a tough read, but the basic argument is: the CBO projection is straight upwards
to the right and we know that trees can’ t grow up to the sky.

The recent trend in actual health care
costs
is as important as the debate over health care cost projections. While the CBO
projections assume that age-adjusted health care costs will rise much more
rapidly than per capita income. But, in the last four years per capita income has
been keeping
pace with health care costs.

In fact,
in the last year costs of health care services, (equal to two-thirds of total health
care costs), rose by just 1.7%.
This is less than the rate of nominal
GDP growth over this period. While some of the slowing in the rate of health
care cost increases is undoubtedly due to the loss of jobs by insureds because
of the economic downturn, it is at least partially attributable to slower growth
in health care costs.

Revising
the CBO health cost projections to an alternative like that suggested by
Federal Reserve study will take tens of trillions of dollars off the most commonly cited
long-term deficit projections.

That will cost
deficit hawks $100 trillion of their long-term deficit story. This would be a real disaster for the Fix
the Debt and the deficit hawk industry.  

This is
why the Campaign to Fix the Debt
will be operating in full conflation mode until a budget deal is reached.

If the CBO
adjusts its long-term health care cost projections downward, then the Fix the Debt’s
rationale for gutting Social Security and Medicare will disappear.

Wouldn’t THAT be a crisis. 

What’s
Wrong Today:

It has
already started. The gas bags on the right are spinning that the election was stolen by people that do not
contribute to the economy. They are talking about the income
distribution of voters as reported by the exit polls in the New York Times. The inescapable conclusion is that
the big divide in the 2012 vote
was income-based voting.

On
election night, Bill O’Reilly said :

It’s a changing country, the
demographics are changing. It’s not a traditional America anymore, and there are 50
percent of the voting public who want stuff. They want things. And who is going
to give them things? President Obama.

Ann Coulter
said Wednesday:

“If Mitt Romney cannot win in this
economy, then the tipping point has been reached. We have more takers than
makers and it’s over. There is no hope.”

Tom Ferguson, political economy
commentator for the Institute for
Public Accuracy
says in a post about the exit polls:

“… in sharp
contrast to 2008, the partisan split along income lines is huge…

Obama’s vote
percentage declines in straight line fashion as income rises. He got 63 percent
of the votes of Americans making less than $30,000 and 57 percent of those
making between $30,000 and $50,000. Above $50,000, the Other America kicks in. Romney won 53
percent of the votes of Americans making between $50 and a $100 thousand and 54
percent of the votes of Americans making above $100,000...”

Look at
the graph below, Mr. Obama gets more than 50% of income levels up to the low
$50k’s. He gets more than 46% of the vote in all income groups over $75k. If we had an America where everyone made at
least that much, he might face a landslide loss. Maybe Republicans
should be for income redistribution,
particularly if they want to control both houses of Congress and the
White House.

Source:
Institute for Public Accuracy

Well,
discovering that people earning $50k are a majority of Americans and that they
support Obama wouldn’t come as a shock to Coulter and O’Reilly if they looked
at the chart below, since median household income is $50k, unchanged since 1999.

Why we would call someone who makes the median
income a “taker?”

The Wall Street Journal reported in September on Census
Bureau data which showed a continued steep decline in Real Median Income, falling by 1.5% in the past year,
declining by a total of 8.1% since
2007. It stands at $50k, just below the income levels where Mr. Obama
starts to garner less than 50% of the popular vote.

Implications for the Fiscal Cliff

 

It is fascinating to consider the
implications that this voter income
skew may have on the Fiscal Cliff negotiations.

 

The Republican Party has long since staked
out the deficit hawk position and they are unlikely to give ground on it
easily.  And continued control of the
House of Representatives favors their continued adherence to their position.

 

How will Mr. Obama and Mr. Boehner read the
tea leaves about the income-based voting gap? Boehner will probably see that
supporting the >$75k universe with tax cuts may add to the Republican base
in the 2014 mid-term elections.

 

Was this an
historic election?

Let’s
compare the raw vote in 2008 vs. 2012:

Year	Democratic Vote	Republican Vote	Totals
2012	61,178,405	58,163,977	119,342,382
2008	69,456,897	59,934,814	129,391,711
Change in raw vote	-8,278,492	-1,770,837	-10,049,329
Percent Change	-11.9%	-1%	-7.7%

There WAS an enthusiasm gap in 2012. And it was shared
by both candidates. Mr. Obama got nearly 12% fewer votes than he did in 2008,
while Mr. Romney got a little less than 1% fewer votes than did Mr. McCain in 2008.

Overall,
10 million fewer people voted in 2012.

In 2012,
Republicans had Citizens United on
their side. They had the 8% unemployment issue. They had the antipathy
about Obamacare.

And Mr. Obama won anyway. So, we not only
elected a black president, he was re-elected
when the bloom was off the rose. Very damning for the Republican
strategy.

Previously,
Republicans have been able to align lower and middle class whites with them despite espousing a platform of income redistribution
to the top: Lower capital gains taxes, lower income tax tiers, small
government and deregulation.

They accomplished
this by focusing on the social issues
that resonate with those groups. But Mr. Obama’s victory, so reliant on
income-based voting, may require a
change in political positioning by the Republican Party.

Changing
demographics and cultural change in the US may be forming an enduring new
coalition.

And the new coalition’s positions are as
deeply held as those of the social conservatives. Moving them
towards the Republican camp may not be as simple as embracing middle class tax
cuts and immigration reform.

Karl Rove and the Koch brothers may no
longer have a sufficient bloc of fools to manipulate to help them achieve
their goals of income redistribution and dismantling of the social safety net.

A few
final thoughts about the 2012 Presidential election:

 The New York Times’ Adam Liptak reported that in
the razor-thin 1960 presidential election, John
F. Kennedy campaigned in 49 states, while Richard M. Nixon visited all 50.
But in 2012, another very close contest, the candidates campaigned in only 10 states after the political conventions.
Liptak says that there were towns in Ohio that received more attention than the
entire West Coast.

This
strategy, used by both Mr. Obama and Mr. Romney, is the result of micro-targeting of undecideds and
persuadable voters in the swing states. Micro-targeting is the result
of the convergence of three trends:

• The
  demographic shifts that are making us a more diverse nation

• The
  development of proven psychographic techniques that can be used to compel
  undecideds and independents to vote

• The
  expanded utility of technology and data mining tools  

Scholars
will write books on how psychographic techniques and data mining contributed to
Mr. Obama’s success.

The Obama
campaign used ‘microlistening”
to make every vote count. Microlistening is a term coined by Tim O’Reilly CEO
of O’Reilly Media when he met with Obama campaign officials and heard what they
were trying to do. They parsed constituent concerns in fine detail. If analyzed
correctly; this work is more valuable than any poll. This data was then consolidated
in the campaign’s Dreamcatcher
database.

Another
campaign program Narwhal,
linked once completely separate repositories of information so that every fact
gathered about a voter was available to every arm of the campaign. Such
information-sharing would allow the person who crafts an email about
contraception to send it only to women with whom canvassers have personally
discussed reproductive views or whom data-mining has pinpointed as likely to be
friendly to Obama’s views on the issue.

But let’s focus on the politics of demographics.  The demographic shifts mean the country is
now dominated by solidly Democratic states on the coasts and solidly Republican states in the interior and in most of the South. In a close election, all of these states are completely out of reach
for one candidate or the other.

Since it
is the Electoral College votes that really matter and since 41 states
allocate their electoral votes on a winner-take-all basis, a candidate
confident of winning or sure of losing a bare majority of a state’s popular
vote has no reason to spend resources
or time there.

This was
taken to its logical conclusion in the current election: The swing state battleground
became comically small. Just three states; Florida, Ohio and Virginia accounted
for almost two-thirds of the recent
campaign appearances by the presidential candidates and their running mates.

These three
states represent just 12.5% of the nation’s population.

Four years
ago, the presidential candidates and their supporters bought television
advertising in about 100 of the 210 media markets, said Elizabeth Wilner of Kantar Media’s Campaign Media Analysis Group, but this year,
the battlefield shrank by about one-third.

All
of the money raised by the campaigns and their limited market focus led to using
carpet bombing advertising strategies by both campaigns. As The Economist reports, Borrell Associates, a research
firm, thinks that $7.4 billion was
spent on television and radio advertising tied to all races in this year’s
election.

According
to the Wesleyan Media Project, that expenditure produced almost 50% more ads than in 2008 in the presidential
race.

Nobody loves
‘Citizens United’ more than big media.

Moreover,
as the map below shows, Mitt Romney and his allies outspent Barack Obama and
friends in the key swing states by $65 million. Mr.
Romney also held more events in them: 148 events by Mr. Romney to 95
events by Mr. Obama.

Source:
The Economist

Mr. Obama then won 11
out of 12 swing states on this map. His strategy and execution were strong.

The
campaign by the guy who touted his business experience got a poor return (votes) on his
investment both per ad and per visit.

Not to mention losing.

But the GOP doesn’t do demographics, it does types. It sharply defines
them and then establishes purity tests for inclusion. It’s not enough to be
pro-life; you have say rape is God’s will…

But they didn’t lose simply because of demographics; they are committed to
an ideology that leads them to forget they are maintaining a few unreasonable
positions:

Has a GOP-led
congress ever passed a law banning abortion? Once elected, they haven’t even tried.

Their natural
demographic is middle aged whites and those people known as corporations.

Finally, here is an
obvious case of Havanese voter fraud uncovered by the Wrongologist:

 

 

 

 

What’s Wrong Today:

Now that
the results of the election are so 12
hours ago, the pundit class has moved on to arm waving about the Fiscal Cliff. 

“Fiscal Cliff”
is shorthand to describe the
conundrum
that the U.S. government will face at the end of 2012, when the terms of the Budget Control Act of 2011 are scheduled to
go into effect, which, unless changed, will result in tax increases, spending
cuts, and a corresponding reduction in the budget deficit.  These laws include tax increases due to the
expiration of the Tax Relief,
Unemployment Insurance Reauthorization, and Job Creation Act of 2010 and the spending
reductions (“sequestrations”) under the Budget Control Act.

The
year-over-year changes for fiscal years 2012-2013 include a 19.63% increase in
revenue and 0.25% reduction in spending.

Some major
domestic programs, like Social Security, federal pensions and veterans’ benefits, are exempted from
the spending cuts. Spending for federal agencies and cabinet departments, including
defense, would be reduced through budget
sequestration.

With the
sequester, the 2013 deficit is projected to be reduced by roughly half, with
the cumulative deficit over the next ten years to be lowered by as much as $7.1 trillion.

However, pundits
and politicians are frightened that the Sequester may cause a double-dip
recession
in the first half of 2013.

The Budget
Control Act of 2011 was passed in a political environment of stalemate, since Democrats
and Republicans could not agree on how to reduce the deficit. It was thought
that the blunt cuts of budget sequestration and sharp revenue increases would
be undesirable to both parties and provide
an impetus and deadline to bring the sides together to solve the deficit
problem.

Additionally,
the debate may be exacerbated by the expectation that the debt ceiling may be reached before the end of 2012.

In dealing with the Cliff, lawmakers will
probably choose from among three options:

• Let the current policy go into
  effect at the
  beginning of 2013. (or, “Drive of the Cliff”)The Negatives? The associated tax increases and
  spending cuts could drive the economy back into recession. The positives? The deficit as a % of GDP would be
  cut in half

• Cancel some or all of the scheduled
  tax increases and spending cuts,
  which would add to the deficit and increase the odds that the United States over
  the longer term, could face a crisis similar to that which is occurring in Europe as our federal debt continues to
  grow.

• Opt
  for a moderate approach.
  Address the budget issues to a limited extent. Let’s call this the “small bites” menu, reduce spending
  a little, increase taxes a little, which would have only a modest impact
  on growth.

So,
What’s Wrong?

Wait! They’re not considering the
“Grand Bargain?”
In an interview with
the Des Moines Register on Oct. 23, Mr. Obama predicted he and Republicans
would come to the equivalent of the “grand bargain” that he has been trying to
work out with the GOP. He has proposed
$4 trillion of deficit reduction over 10 years.

Why not? Even Mr.
Obama doesn’t think it can’t get done by year end. He said:

“We’re going to be in a position where
I believe in the first six months we are going to solve that big piece of
business”.

In other
words, not likely by year end.
So both congress and the president will drive off the cliff like Thelma and
Louise and then walk it back
after the public and business go nuts, or they cut some kind of temporary deal.

Is the
Fiscal Cliff Really a Fiscal Disaster?

It’s
important to keep in mind that while the term “cliff” implies a disaster at the
beginning of 2013, the actual impact
of the changes will be gradual at first.

What’s
more, Congress can change the law retroactively, after the deadline. As a
result, the Fiscal Cliff won’t necessarily be an impediment to growth even if Congress doesn’t address the
issue until after 2013 has already begun.

Another
factor pundits are ignoring:

In terms of government spending, we have already
driven off a cliff.  And we lived.

Falling government spending has constrained
our GDP growth in 9 of the past 11 quarters (see the graph below from Fisher
Investments Research). However, private sector growth has been
more than robust enough to keep overall growth positive.

The next hundred words include a few
numbers:

The Sequester
may cut as much as $65 billion in fiscal year 2013 (which ends next September
30). By that point, US GDP is projected to be at $12.225 trillion ($16.34 for
the calendar year 2013). If government projections are right (they won’t be)
and politicians do nothing (they will do something), the Sequester might reduce GDP by -0.53%. Not great, but that’s better than in FY2011,
when declining government spending reduced GDP by -0.67%. And full-year real
GDP still grew by 1.8%.

This means we are likely to have GDP growth
in FY 2013, not recession.

If we
subtract another $25 billion that will automatically be cut from expiring
jobless benefits, spending cuts may reduce
FY 2013 GDP by up to -0.73%. Still not a recession or anywhere near a
disaster.

Maybe we should call it a fiscal inclined
plane, not a fiscal cliff.

There are political
signs of a deal that could make both sides somewhat happy. Mr. Obama tipped his
hand in the last debate with Mr. Romney when he said flatly that the defense cuts “will not happen.”
Moreover, Vice President Biden’s repeated use of a $1 million threshold for
higher tax rates in his own debate with Paul Ryan suggested Democratic wiggle room on the revenue side of the cliff.

Interestingly, the
Sequester that creates the Fiscal Cliff amounts to $2 of tax increases for each
$1 of spending cuts. The Republicans could have taken the Mr. Obama’s original 1-to-10
offer. But, they rejected it.

Finally,
an unremediated Fiscal Cliff could hit the Defense industry hard. Their lobbyists and captured
congressmen are warning that upwards of 2.5 million jobs could be lost (an exaggeration), and the
economy crushed in the process.

It is hilarious to
hear conservatives, who have spent the last four years saying that government
spending doesn’t create jobs, now saying that defense spending cuts will destroy jobs.

Really, conservatives continue to demonstrate
that they have nothing, zip, nada, to contribute to the conversation about the
economy.

Ignore them.

What’s
Wrong Today:

We are in the final hours of a
presidential campaign in which tax policy has been a central focus. Mr. Romney maintains that any
increase in the top tax rates on income and capital gains would slow economic
growth and crush the job market’s recovery.

President
Obama has promised to raise the top two income tax rates, lifting those rates
from 33% and 35%, their level during most of George W. Bush’s presidency, to 36%
and 39.6%, where they were during most of the Clinton administration.

Mr. Obama maintains the increases would
not hurt the economy
and are the fairest way to reduce the deficit. Mr. Romney says that will kill
jobs.

Should we lower taxes on the so-called “job
creators”?

On June 7, 2001, HR
1836 the Economic Growth and Tax Relief Reconciliation Act was signed into law.
This was the first and largest of
several tax cuts passed during the Bush Administration. It was
estimated that this tax cut cost $1.35 trillion.

So this must be the
text book case for new job creation.

So,
What’s Wrong?

Trickle Down works, doesn’t it? Lower the taxes of the “job creators” and they
will create jobs. Wait, no? The graph below is from the BLS’ Establishment
survey and covers the Bush and Obama years. It shows in fact, what happened.

The blue line represents all nonfarm public and
private jobs. That equals 133.76 million in October, 2012. The red line, shows all jobs in the private sector. That was
111.74 million in 2012.

The difference between the two lines is
public jobs (22.02 million in October 2012).

The public sector job numbers have remained fairly stable, growing by 1.1
million, from 20.9 million to 22 million during the period. Changes in private sector jobs drove
most of the overall change (both up and down) in jobs numbers during the 11 years.

The Bush tax cuts seemed to have had little effect on the 2001 recession job losses. The effects of the housing bubble (beginning in mid-2003) and
its subsequent collapse (December 2007), causing the recession and subsequent meltdown
(September 2008) are clearly evident, with jobs falling below their 2003 lows.

    It would be possible
to argue that the tax cuts created jobs, but
most of these were financial bubble jobs. Clearly, they were not stable or permanent. They were created at great cost in income inequality to the middle
and lower classes. 

    There is a recovery
in the number of private jobs starting in 2010. Were they created by tax cuts to the
job creators? Maybe. Let’s keep two points in mind:

• The quality of these post-bubble jobs
  is generally poor.
  One sign of this comes from the Household survey where the growth in involuntary part time employment
  has increased by 5 million jobs; from 3.332 million in January 2001 to 8.344 million in October
  2012.

• After
  10 years of turning our economy over to the “job creators”, we have just GOTTEN BACK to the level of
  private jobs we had in January 2001.

    In other words, the
job creators, in exchange for their trillion dollar tax cut, gave us a lost decade of employment growth:

• On January 1, 2001, total private
  employment was 111.63 million. On October 1, 2012, it was 111.74 million.

• The high point was 115.64 million on
  January 1, 2008, just before the financial bubble burst.

Based
on the facts, Mr. Obama is correct. We shouldn’t look to the
job creators to create more jobs by getting another (and bigger) tax
break.

So,
by ending the Bush tax cuts, not only will we pick up some marginal tax
revenue, we will not lose any more jobs.

Matt Bai quotes Chris Rock in today’s New
York Times:

“Only
Pres Obama could prevent a depression, end a war, get bin Laden, bring
unemployment below 8 percent, then be told he can’t run on his record.”

    Mr. Obama deserves
a second term. Here’s why:

     He has shown Quiet Courage: The signature of his presidency is his ability to make very difficult decisions, often in the face of his advisors telling not to do what he ultimately decided to do. Let’s look at four examples:   

• Health Care: Healthcare insurance for everyone via an expansion of private insurance was probably the exact sweet spot in this environment. Also give the President high marks for the use of the individual mandate, a long-time Republican idea to ensure personal responsibility. Including both the

private option and the mandate showed that the President was willing to respect Republican ideas and utilize traditionally preferred Republican methods in implementing health care reform. Rather than proceed with a safer legislative agenda, Obama went for healthcare with full knowledge that by doing so he may have cost himself a second term in the White House.

• Auto Bailout: Mr. Obama made this decision in the face of divided opinions from his team of advisors and it provided a positive effect on the economy. While Mr. Romney said “we should let Detroit go bankrupt,” even the conservative financial publication “The Economist,” has tipped their hat to the Administration on the bailout, saying:

    “Given the panic that gripped private purse-strings,” the magazine wrote in an editorial. “It is more likely that GM would have been liquidated, sending a cascade of destruction through the supply chain on which its rivals, too, depended.” 

    The industry is now profitable, hiring aggressively
and expanding, which indicates it was a good call.

• Foreign
  Policy: Mr. Obama deserves credit for his role
  in bringing Osama Bin Laden to justice. That was not an easy call, and most of his advisors were against
  taking the risk of sending Seals into Pakistan to get him. Al Qaeda has
  been greatly damaged by Mr. Obama’s policies, although it is still capable of
  inflicting damage. He also deserves high marks for his successful coalition building, resulting in buckling
  sanctions on Iran and the toppling of the Qaddafi dictatorship, despite a
  chorus of boos from his loyal opposition.

• Hurricane
  Sandy: Although the
  presidential race is too close to call, Mr. Obama left the campaign trail to his opponent to focus on getting
  the federal government geared up to assist the states in the northeast that
  were damaged so severely. This was his
  “Katrina” moment, and he did the right thing even though his
  politician’s instincts (and his handlers) probably screamed: “go to Ohio.”

President Obama has shown
himself to be a courageous decision-maker. He made the right calls on the big
questions. Sadly, his public defense
of his administration’s goals and signature legislative achievements was far too quiet.
He failed to bring the country along with his agenda.

Rather than use his
political capital to educate and re-assure the American people, Mr.Obama barely fought back at all
and as a result, lost the messaging war. The office of the Presidency
deserved a stouter defense. When you have a bully pulpit, you should use it
assertively, not apologetically.

There are some important
disappointments with Mr. Obama:

• The Economy: Has clearly improved over where it was when he took
  office. We have seen steady and consistent positive job growth for 31
  straight months. Likewise, the GDP growth rate has been positive for the
  last 13 months, after not growing in five of Obama’s first six months in
  office.

But,
we still have high unemployment, particularly long-term unemployment; middle
class income has stagnated for 10 years and US companies are not investing in
their US operations. Mr. Obama has articulated some government programs to
partially address unemployment, but they have not passed into law. Given the divided government we will
likely have post-election, this may remain the new normal for the middle class
in our country.

• National
  Defense Authorization Act:
  On any list of reservations about re-electing Barack Obama is his signing of
  the National Defense
  Authorization Act (NDAA)
  which potentially reduces our rights to due process and sets up indefinite detention of American citizens with no
  burden of official charges being filed. Although President Obama is on record
  stating that he will only use these expanded powers against those who would do
  us harm, no one should be comfortable with ANY President having these powers. Mr. Romney will not repeal the Act if he
  is in power.

• Foreign
  Policy:
  The “surge” of additional troops into Afghanistan was a failure. Our remaining
  mission is rife with problems and no real solutions. Mr. Romney has said he
  would not change our exit date from active warfighting in Afghanistan. Our
  drone program in Pakistan has not made us more secure and is a growing problem.
  The decision whether to continue drone attacks in Pakistan needs to be addressed
  early in the next administration. Both candidates indicate they wish them to continue.
  Dropping bombs on sovereign nations certainly hasn’t done much to improve
  foreign relations around the Middle East.
  

• Questionable
  Decisions on Financial Institutions: President Obama’s choices for key leadership in our
  Treasury department, especially Tim Geithner as Secretary of the Treasury and Larry Summers as Director of the White House
  National Economic Council were poor choices. The Dodd-Frank financial reform law will not protect us from future bailouts. In fact, Dodd-Frank actually widened the federal safety net by granting 8 Clearing House institutions the right to tap the Federal Reserve for funding when the next crisis hits.  The HARP program
  intended to provide relief to distressed home owners has been poorly
  communicated, under-utilized, and mostly ineffective.

In
the end run, President Obama hasn’t been nearly as great as we needed him to
be, or is he evil and anti-American as others suggest.

Let’s review the bidding. If Mr. Romney wins, he has promised
to:

• Pass another trickle down tax cut on top of making the Bush tax
  cuts permanent

• Repeal Obamacare, voucherize Medicare, block grant Medicaid and
  food stamps

• Push defense spending to 4% of GDP, when no one should be pushing more defense spending

• Deregulate financial markets and environmental protections

• Offer budgets that deeply cut discretionary spending including education and the environment
  

Mr. Romney has pandered to his party since he first started running for president in 2008.Earlier in 2012, he rejected a 10 part spending cut to 1 part tax increase ratio to deal with the deficit. Despite his slide to the middle during the debates, what should bother voters most is his ability to completely
deny that agenda and gain ground in the polls. 

He argued that he didn’t really
have a big tax cut (the first debate); that the tax cut he didn’t really have
could be paid for by magic math; that his foreign policy is the same as the
President’s (the last debate); that his plan will add 12 million jobs, a number that forecasters tell us we’re
likely to see regardless of who wins.

The bottom line is that Mr. Romney has an agenda that works only if you don’t believe most of what he says.

How did we devolve to a country where someone can assert
things with virtually no backup in reality and not only be taken seriously
but be making the election very close when
his opponent is the incumbent President with a solid, if not inspiring, record?

Let’s hope undecided voters wake up by November 6th.

As outlined in yesterday’s “3 Delusions” post, we desperately
need bold solutions to our problems.  And we need leaders who boldly speak
the truth. Sadly, that doesn’t exist on today’s political spectrum.

Christopher Hitchens said in Letters to a
Young Contrarian:

“If you care about agreement and civility, then you
had better be equipped with points of argument and combativity, because if you
are not, then the ‘center’ will be occupied and defined without your having
helped to decide it, or determine what and where it is.”

That
describes neatly the tactical failure
of Mr. Obama’s 1st term. He tried a bipartisan solution; he
tried to be about civility and agreement. But, for an orator, his points of argument and his
leadership once in office were weaker than what the moment required.

Bipartisanship is a grand and useful concept. It should be the focus of the senior leaders
of both parties. The lesson to take out of Mr.
Obama’s 1st term was that Republicans chose a course of obstruction when their inaction risked collapsing the
global economy.

That was their game plan. It
lacked vision, it was risky but, it may work to defeat Mr. Obama.

It’s what
should really scare people who are paying attention. We’ll know next Tuesday.

A brief story about President Lincoln: He was trying to move his agenda to hold the Union
together.

His great
foe in that regard was the abolitionist, US Representative Thaddeus Stevens, who
called Lincoln, “the capitulating
compromiser, the dawdler.”

Stevens was a man who only
followed principle. Lincoln was someone who worked the political middle to get things
done.

Doris Kerns Goodwin says in her book about Lincoln, Team
of Rivals, that Lincoln came out against slavery in a speech in 1854,
but in that same speech he declared that denouncing slaveholders wouldn’t
convert them:

Though the cause be “naked truth itself, transformed to
the heaviest lance, harder than steel” [Lincoln said], the sanctimonious
reformer could no more pierce the heart of the drinker or the slave owner than “penetrate
the hard shell of a tortoise with a rye straw. Such is man, and so must he be
understood by those who would lead him.” In order to “win a man to your cause,”
Lincoln explained, you must first reach his heart, “the great high road to his
reason.”

Lincoln demonstrates
Hitchens’ point perfectly. He was a leader, he cared about agreement, he knew his arguments
and he was civil. Oh, and he carried the day.

Today, as in 1865, issues and ideology divide us. So, can we find a leader to create the workable
majority for the big ideas we need? 

Let’s not
just rule out big ideas, they can happen in a divided America:

·   In 1932, we elected Franklin
Delano Roosevelt and he pulled us out of the Great Depression

·   1960 brought us John Kennedy and
ultimately, Lyndon Johnson and with that, the promise of equality for black
America

·   In 1980, Ronald Regan helped
usher in a wave of economic growth, prosperity and the collapse of the Soviet
Union

All of these presidents faced opposition from true
believers. All of them worked the middle
of both parties as well as the political edges of their own party.

In his remarks in New Hampshire in June,
President Obama said this:

There are too many people out there who are struggling,
too many folks out of work, too many homes that are still under water.

Of course, we need to do better. The debate is not
whether, it is how. How do we grow the economy faster? How do we create we
create more jobs? How do we pay down our debt? How do we reclaim that central
American promise that no matter who you are, you can make it here if you try?

When we
go to the polls next week, we face a stark choice: to go forward or roll
dangerously backward; whether we continue
to accept the 3 Delusions about the economy as true; whether we will
continue to expand the American dream or whether we will see it collapse in on itself.

You know what to do, and you know how to do it.

Please, vote.

 

What’s Wrong Today:

The Deficit, the Debt, the Budget.
Discussing these complex and interrelated problems is exceedingly difficult.
Making them understandable enough to hold the voter’s attention may be
impossible.

The economic
theory, the budget process and the implications of the debt are mind-numbingly
complex, while the numbers, measured in billions and trillions of dollars, are
barely comprehensible.

We’ve
heard so often: The “out of control budget
deficit is going to bankrupt the nation and destroy our economy”, that we’ve become jaded to solutions and to
the politicians who continually beat us over the head with the warning.

So, What’s Wrong?

    We have come to accept a process
whereby we plan our fiscal year with budget deficits. We need to explode the
DELUSIONS of both parties that are preventing them from doing anything of
substance to restore fiscal sanity. Here are some delusions to detonate:

Delusion
#1: The American people are over-taxed


Reality: Americans
are the lowest-taxed people of any major country. During the
Wrongologist’s lifetime of work, there have been many rounds of tax cutting:

• The Reagan tax cuts of the 1980’s knocked
  the maximum rate down from 70% to 28% and indexed the brackets to inflation
  
• The Gingrich-inspired tax cuts on
  dividends and capital gains
• The Clinton-inspired addition of tax credits
  for dependent children) in the 1990’s
• The Bush Administration tax cuts in
  the 2000’s that further dropped the taxes on dividends and capital gains to 15%
  and expanded the credit for dependent children

Statistically, effective tax rates
for the upper-middle class quintile have been reduced exactly 50% since 1980. So, if taxes have been cut in half on a
percentage basis, while Federal spending has roughly doubled, then something’s
out of whack.

Note
that the above graph shows deficits, year by year, as a percentage of GDP. The graph illustrates the following
points:

• The largest contributor to the deficit is the reduction in tax
  revenue. This is mostly attributable to lower tax rates.
• The second largest contributor is the increase in unemployment
  payments, food stamp outlays, and people starting to collect
  Social Security.
• The Troubled Asset Relief Program (TARP) signed by
  President Bush and the job stimulus program created by President Obama have
  added little to the deficit. Both programs were temporary.

The
Republicans like to tell us that our income tax rates are nominally among the
highest in the world but they forget to mention that individuals and
corporations have all kinds of deductions written into tax law.

    Fact: Americans are NOT over-taxed relative to other countries.

Delusion
#2: Federal spending can be easily cut because the budget is filled with waste
and fraud

It is true that there are bogus line-items in the
Federal budget. And there is fraud. However, we need to make cuts in the
primary components of federal spending:

• Social Security: 20%
• Medicaid and Medicare: 20%
• Military (including veteran’s
  affairs): 20%
  
• Other social welfare benefits: 15%
• Interest on the debt: 6%
• “Everything else”: 18%

The
reality is that neither party is interested in making meaningful cuts because
Social Security, Medicare and the military are revered by both parties.

There is too much political pressure
by an aging population to imagine that Social Security and Medicare will be cut
significantly. Republicans think
cutting defense spending is political suicide with their base.

Delusion
#3: When the economy returns to “normal” we will grow our way out of
the deficit

This
is the grandest delusion of all, since our economy has NEVER sustained real growth
above 3% a year. At best, there have been three or
four years of above-par growth followed by a recession that wipes out half of
it.

Republicans keep telling us that if
we cut taxes below where they are now, then the economy will see fantastic
growth spurts, perhaps as much as 5% a year. Mr. Romney is promising 4%.

    Few
can truly believe that cutting taxes will add to growth. The
wealthy and large business already own and control more capital than at any time in history. They are parking
it, not in new and expanding businesses, but in T-bills, that now pay NEGATIVE
interest (rates below the rate of inflation). As long as they prefer to
earn NEGATIVE interest instead of making new investments in productive business
enterprises, the economy is going nowhere, even if taxes are cut to zero.

The government will only be restored to fiscal sanity
by:

1. Increasing taxes on both the middle class
and the wealthy:

• Get rid of some deductions like letting people deduct the mortgage
  interest on their vacation homes
• Raise the effective tax rate on the super-wealthy (incomes above $1
  million) from 15% to 40%
• Impose a federal capitation tax (say,
  1%?) on accumulated wealth
  above some level (say, $100 million?)
• Lower
  the floor for Luxury tax on expensive items
  (costing greater than $5k)

Get
over your squawking and screaming. The
alternative is either to bankrupt the country and/or devolve towards a Third
Country standard of living.

The
idea of cutting corporate taxes further is absurd when
most corporations have gamed the tax laws to the extent that many pay their
CEO’s more than they pay Uncle Sam. We
should tax offshore capital accumulated by corporations at the source, not when
they are repatriated.

2. Implement a (very) few big ideas about
growing the economy:

    The Federal Budget cannot be balanced
when 20+ million formerly employed tax-paying Americans are twiddling their
thumbs, either on the unemployment line or working part time at minimum wage jobs
where income taxes are not assessed.

• Let’s reject the Republican idea
  that more tax cuts will jump start the economy

• Let’s accept the Democrat’s plan of
  putting people back to work by rebuilding infrastructure (roads, ports,
  bridges, smart electric grid, Internet)

• Let’s bring jobs back to the USA by limiting offshoring. This
  requires rethinking “free” trade and implementing tariffs, domestic content
  requirements and taxes on US corporations’ offshore subsidiaries

While
raising tax RATES might help balance the budget, we’ll never be able to close
the deficit completely unless the taxpaying BASE is restored to full
employment.

Once we get the average American and
the Congress Critters to think beyond these three delusions, they can work on the
big picture of the economy, government spending and move to make BIG changes.

The time is past when politicians in
Washington can continue to believe that we can balance the budget by shifting the small change from pocket
to pocket.

This is an area where the
Wrongologist endorses Mr. Romney’s “Big Change“ trope.

Small Changes to our economy will
NOT suffice.

“…people with overlapping
delusions get along wonderfully.”

Daniel
Mackler, Toward
truth: A psychological guide to enlightenment

What’s
Wrong Today:

For as far back as any of us can remember, political
candidates ran as loyal members of their party. That’s where a candidate found
funding as well as tactical and strategic support.

Party-centric
campaigns were the rule and they were usually successful. Candidates proclaimed their party affiliation by using companies like Super cheap signs to design bumper stickers, campaign signs and buttons; they embraced their party’s platform and worked to convince the undecideds of the essential rightness of the party’s position on the issues.

Today, that’s changed. Party branding is in many cases, elusive.

Consider
the current race in California’s 10th District. Incumbent Republican
Jeff Denham is running
against Democrat new comer, Jose Hernandez. The race is considered a toss-up in what
is a newly drawn conservative-leaning district.

This hotly contested race is supported by
outside funding from both parties and multiple visits from each party’s icons
in support of their guy. You may have heard of Congressman Jeff Denham, a successful
local business man. A 16-year member of the National Guard, Denham is a veteran
of Desert Storm (Iraq) and Restore Hope (Somalia). Jose Hernandez is the child of migrant workers who wasn’t fluent in English until he was 12. He went
on to become an Astronaut (Space Shuttle Discovery).
He worked as an engineer on digital mammography products at Lawrence Livermore
Laboratory and was a NASA employee until 2011. 
These are both accomplished guys.

Check
out the campaign signs for each contender:

First,
Jeff Denham:

Next, Jose Hernandez:

So, What’s Missing?

They
do not advertise their party affiliations.  The new normal is that no candidate wants you
to know which party they affiliate with, it
might turn you off.

Where the Wrongologist lives, there are
political signs on most lawns.  They list
the name of the candidate in large print and the office they are seeking in
small print.

In
our state, we have 12 major party federal candidates running for office, 5 congressional districts and one senate race. Only one congressional
candidate identifies with his party on his web site home page, while another
lists her party only on her “about” page. The Republican senate
candidate’s signs are blue without
party identification. The Democratic
candidate’s signs are red. No party is listed on his signs, either.

Why
are candidates hiding their party affiliations? You know that voters will discover it in the voting booth, if not
before. Candidates don’t run away from their parties in the primaries, they need
to show the party faithful how closely they hew to the party line so that the
party faithful to come to the polls and choose them over the other party guy
contesting the primary.

But
when it comes to the general election, independents, unaffiliated, or undecided
voters are likely to be as large a group of potential voters as those in their
party, or in the opposition party.

It turns out that our parties have become
really unpopular, except in the reddest or bluest of districts.

Hiding party affiliation can make a
difference wherever there are intensely fought races, with partisans in both
parties. That’s where you see candidates trying not to alienate anyone who
might otherwise be open to their message. In many cases, it is the opposition
party and fellow Super PAC travelers that make the opposition candidate’s party
affiliation clear to voters.

Today’s
candidates try to create candidate-centered campaigns.   Their effort is to create
interest in their personal story and character without overly focusing on their
ideology, since party affiliation may be enough reason to summarily reject the
candidate. It is a balancing act: the candidate needs the base to turn out on Election
Day, but they also need the swing vote in order to win, so the party-centered campaigns of the past are likely to remain a
thing of the past in our red/blue polarized nation.

What are they hiding?

It
isn’t just party affiliation that is hidden by the candidates. Today candidates slide from one side of the issue in primary to a
middle position on all but the most basic litmus issues in the general
election.

In some cases (yes, you Mr. Romney),
positions change dynamically week-to-week, venue-to-venue.

This used to be impossible, because TV
networks and cable news travel with candidates 24×7, so candidates couldn’t
change their stories without being fact-checked by the media. Although the news
cycle is still 24×7, and the networks still travel with the candidates, consistency with prior positions no longer
seems to matter, any more than does obscuring which party supports a candidate.
What’s up with that?

So, what did we lose?

We
have lost our ability to judge how a candidate really will represent the constituents.

We have also lost a little more of
the remaining shreds of credibility in our political process.

What’s Wrong Today

In the last debate, Mr. Romney claimed that the US Navy is the smallest it’s been since 1916, implying that it is regressing in terms of overall strength.

Here is Mr. Romney’s claim from the third presidential debate:

“Our Navy is old — excuse me — our Navy is smaller now than at any time since 1917. The Navy said they needed 313 ships to carry out their mission. We’re now at under 285. We’re headed down to the low 200s if we go through a sequestration. That’s unacceptable to me. I want to make sure that we have the ships that are required by our Navy.”

 

Navy Battle Group, Arabian Sea

Here is what Romney said in his VMI speech:

“The size of our Navy is at levels not seen since 1916. I will restore our Navy to the size needed to fulfill our missions by building 15 ships per year, including three submarines.”

In the last decade, the Navy budget rose 40% in real terms, but the size of the force continues to fall: ships, aircraft and sailors are down about 20% (but curiously, the number of admirals is rising.) The 313 number Mr. Romney quoted is correct. The Navy has gone through two major strategy reviews and has not deviated from that number, but its own shipbuilding plans do not approach that number and are unrealistic given the projected resources (see the CBO analysis of shipbuilding plans).

So What’s Wrong?

Was Mr. Romney’s claim accurate? The blog The Monkey Cage had a guest post by political scientists Brian Crisher and Mark Souva who recently created a measure of state naval strength for all countries from 1865 to 2011. Their paper indicates that in 1916, the US controlled roughly 11% of the world’s naval power. The US ranked third in naval strength behind the UK (34%) and Germany (19%) and just ahead of France (10%).

In 2011, they report that the US controlled roughly 50% of the world’s naval power putting it in a comfortable lead in naval power ahead of Russia (next at 11%).

As Mr. Romney indicated, the US Navy has decreased in absolute size, US warships are much more powerful now than in the past, as President Obama implied. However, neither the number of warships nor the power of our ships is what is most important for understanding military and political influence. It is relative military power that matters most. In this respect, the U.S. Navy is far stronger now than in 1916.

And the 50% share of naval power may actually understate our position relative to our competition. The ships that really matter today are aircraft carriers and nuclear submarines. The US currently has about 18 aircraft carriers. Our largest competitor navies (Russia, France, India, Italy, Spain and China) have only one carrier each in operation. 

The nuclear submarine situation is a bit less lopsided. We have 50 nuclear subs in the fleet today and the rest of the world taken together have about the same number. China has nine nuclear subs, but they rarely put to sea. That is true for all other navies with the exception of UK and France.

Romney blows a Dog Whistle and Virginia listens

US Navy Shipyard, Portsmouth VA

It is possible that Mr. Romney’s concern about the number of ships has more to do with winning Virginia than it does with concern for US naval capabilities.

Virginia is home to major Navy shipyards. That may explain why Romney’s talking points emphasize number of ships (= more ship building) rather than their capabilities.

Mr. Obama engaged in a bit of rhetorical jujutsu at the debate, calculating that he could make Romney look ridiculous on national security by turning his own talking points against him with the horses & bayonets line.

It is doubtful that the Romney campaign seriously believes US naval capabilities are directly related to number of ships.

He was simply making a political calculation that may just win him Virginia.