Sunday, December 02, 2012

Republicans, Let’s Go Off the Fiscal Cliff!

Although there's less than a month before the looming deadline  for both parties in Washington to make a deal that avoids the automatic tax hikes and spending cuts imposed by last year's debt ceiling crisis deal, known as the 'fiscal cliff,' there seems to be little hope. The Democrats' latest position calls for a $1.3 trillion spending increase that includes an additional $50 billion stimulus attempt to offset the impact of their proposed tax increase on earners making over $250K a year.  They also want the President to have unilateral authority to raise the debt ceiling without needing Congressional approval. In return, they promise to come to the table later to discuss spending cuts. That the Party of Stupid, AKA the Republicans, or at least some of them, are willing to bargain based upon this offering from the President and his legislative comrades-in-arms is clear evidence that those who fail to learn the lessons of history are doomed to repeat it. George H.W. Bush compromised with the Democrats in the Congress and agreed to raise taxes as part of a deal to bring the deficit under control back in 1991, and not only did the Democrats fail to cut spending as they agreed, they beat Bush over the head with the 'he lied about not raising taxes' meme... to the point of beating him out of the White House. Of course, Bush 41 had only to look back a few years to the Reagan 'deal' with Congressional Democrats, where once again future spending cuts for current tax increases was made by Republicans... and broken by Democrats. If Charles Schultz was a political cartoonist, Lucy would be the Democrats and Charlie Brown would be the Republicans... always falling for the same old trick.

So, where do we go now? Many prominent Democrat-aligned pundits, folks like economist/columnist Paul Krugman, are urging President Obama and the Democrats to hold hands and go off the Fiscal Cliff. The argument is, that by doing so, the Democrats get everything they want; tax hikes that they don't have to own, and spending cuts that hit defense spending more than other discretionary and mandatory spending. Better yet, the Democrats are confident that the media and public opinion will paint the automatic tax hikes and spending cuts as the sole responsibility of the 'unreasonable and extremist' Congressional Republicans... and they are probably correct. Because the GOP doesn't want to be seen as the Party that took us 'over the cliff', they think, Democrats hold all of the cards. Force the Republicans to break, to give in on Democrat positions on taxes and spending, they think, and not only will Democrats get everything of substance they want, but they also get the benefit of shattering the Republican party as an effective counterveiling political force. Even if the Republicans hold out, they will eventually cave and vote to lower taxes on everyone except the so-called '1%'... and then the Democrats will get credit for lowering taxes on most Americans. Or so the thinking goes.

I see it differently. What Democrat politicians and pundits, and many Republican pundits and politicians also, are ignoring is the impending debt ceiling, and how hitting it will force the Democrats' hands. The charade of federal spending without having the revenue stream to support it comes to an end once the government's ability to print money and swap it out for IOUs in the form of T-bills is the enabler of our reckless deficits, and when it can no longer occur the charade is over. This is why the Democrats want to usurp the authority to approve raises in the debt ceiling from Congress and hand it over to President Obama; holding fast on the debt ceiling is the nuclear weapon in terms of budget negotiations for the Republicans and the Democrats want them to unilaterally disarm.

Instead, the Republicans should offer the Democrats a deal they shouldn't refuse: leave the tax rates alone while modifying tax policies as outlined below, and enact a financially-responsible budget as outlined below... or we can all go over the Fiscal Cliff and then no Debt Ceiling raises. That means no more deficit spending after February at the latest... and draconian cuts to spending to match tax revenues. Either way will get us back to fiscal solvency, but the Republican alternative will do it in a more gradual, less painful fashion. The Democrat alternative, as proposed, will only lead us further into debt.

What sort of tax and spending proposals am I suggesting? The tax side is simple: let the super-wealthy (those making more than $5 million/year) pay the same rates on their capital gains as they would if it were ordinary income, exempt the super-wealthy from being able to avoid taxes by donating all or part of their wealth above $5 million to charitable trusts like the Gates Foundation, and eliminate federal tax deductions for secondary residences and state income taxes for everyone. Those changes would mostly affect the very wealthy, and they would raise over $3 trillion in the next decade... more than twice the amount that Obama's income tax rate hike would generate, without impacting the upper middle class family with two wage earners making low six-figure salaries. Reining in spending is equally simple: go back to the FY2007 budget, and increase it by the official government rate of inflation to 2012 levels. And then freeze it for two years before allowing a maximum increase to match the inflation rate, continuing to allow increases indexed to inflation every two years (just before the Congressional elections). As to how the money would be allotted among the different departments of the federal government, that is something that could initially be applied as per the current percentages and then renegotiated later in the year.

Three simple choices: do nothing and let the Democrats deal with the insolvency in a few months, take the proposed Republican plan and ease our way back to solvency in the next few years with minimal economic impact, or keep on down the road the Democrats have led us to until the US implodes within a decade... making the worst-case Fiscal Cliff/Debt Ceiling consequences and the Great Depression pale in comparison. The Republicans, and the country, have a way out of this mess. Do we have the will?

Friday, March 30, 2012

Incompetence, Not Malice

“Never ascribe to malice that which is adequately explained by incompetence.”
- Napoleon Bonaparte

Peggy Noonan had an interesting op-ed in today’s Wall Street Journal, where she notes Obama’s increasingly apparent disdain for his political opponents, and attributes this to some sort of deviousness on his part. She goes on to attribute the Obama Administration’s dogged determination to ram through their agenda including the signature healthcare legislation facing oblivion at the hands of the Supreme Court to this deviousness, this dogged insistence on “…following an imaginary bunny that disappeared down a rabbit hole” as it were:

From the day Mr. Obama was sworn in, what was on the mind of the American people was financial calamity—unemployment, declining home values, foreclosures. These issues came within a context of some overarching questions: Can America survive its spending, its taxing, its regulating, is America over, can we turn it around?

That's what the American people were thinking about.

But the new president wasn't thinking about that. All the books written about the creation of economic policy within his administration make clear the president and his aides didn't know it was so bad, didn't understand the depth of the crisis, didn't have a sense of how long it would last. They didn't have their mind on what the American people had their mind on.

The president had his mind on health care. And, to be fair-minded, health care was part of the economic story. But only a part! And not the most urgent part. Not the most frightening, distressing, immediate part. Not the 'Is America over?' part.

And so the relationship the president wanted never really knitted together. Health care was like the birth-control mandate: It came from his hermetically sealed inner circle, which operates with what seems an almost entirely abstract sense of America. They know Chicago, the machine, the ethnic realities. They know Democratic Party politics. They know the books they've read, largely written by people like them—bright, credentialed, intellectually cloistered. But there always seems a lack of lived experience among them, which is why they were so surprised by the town hall uprisings of August 2009 and the 2010 midterm elections.

The truth of the matter is, the entire Democrat Party is devoid of common sense due to their enslavement to the Progressive ideology… and their corruption.

If you want to know when our economic crisis started, look no further back than January 2007, when the new Democrat majority took over in the House after the 2006 mid-term elections. One simple rule change, FASB 157, that instituted the mark-to-market rule for assets including real estate, caused the whole house of cards that was the mortgage securities market backed by Fannie Mae and Freddie Mac and that led to the housing boom that peaked in early 2007 caused by easy money due to relaxing credit standards caused by the 1996 Community Reinvestment Act. Senate and House Democrats blocked seventeen separate attempts by the Bush Administration to reform Fannie Mae and Freddie Mac… because it was a huge income generator for Democrats temporarily out of office (like Rahm Emmanuel) and for those running for office (like Chris Dodd, Barack Obama, and John Kerry).

As Obama’s new Chief of Staff, Rahm Emmanuel was just being honest when he said, “Never let a crisis go to waste.” Most Democrat politicians have no understanding of economics or finance, and the ones who do are blinded by their ideology. Nancy Pelosi couldn’t acknowledge that the Reagan tax cuts and relaxed regulations led to the largest economic boom in American history, because that would be tantamount to admitting supply-side economics was a sound theory… which it is. And back in 2008 candidate Barack Obama announced his opposition to lower taxes even if the result was increased government revenues, in the interest of ‘fairness.’ For those Democrats who complain about the national debt increasing during Reagan’s two terms, it’s important to acknowledge two facts: Democrats controlled the House for his entire term (and that’s where budget bills originate), and the increased debt was due to the fact that while yearly tax revenues doubled over Reagan’s two terms despite the tax rate cuts, yearly spending increased by 300% during the same time period. If the Democrats had just kept spending to the rate of inflation the US would have been running a huge surplus in 1988.

Similarly, in 2008 the Democrats were convinced that the economic crisis would be short-lived, that America would snap out of it, that the recovery would happen and it would be robust because it had always been so… and so they believed any actions on their part would have no impact and they might as well take advantage of the crisis to ram a dozen years’ worth of pent-up liberal spending through before the mid-terms. And so they did, and so they spent a trillion dollars on an ineffective ‘stimulus’ program that mostly lined the pockets of Democrat-aligned interest groups. They raised the yearly deficits from the last GOP budget’s $200 billion up to over $1.5 trillion, increasing the US national debt more in the first three years of the Obama Administration than in the entire eight years of the George W Bush Administration. Because our yearly deficit is so large, and has been so large, for several years, the Federal Reserve has resorted to printing up dollars and using them to finance our yearly deficits since 2009, hiding the fact that the United States is bankrupt by definition.

Unfortunately for the Obama Administration, all of these financial shenanigans have hit the wall. There will be no more ‘quantitative easing’, or mass printing of currency, to further finance the debt, because the GOP-controlled House has put Ben Bernanke, the Fed Chair, on notice. There has been no federal budget since 2008, and no Democrat-controlled branch of Congress has passed a budget since then (on the contrary, the GOP-controlled House has passed a budget for the past two years, since regaining control in the 2010 mid-terms, but their budget bills have gone to die without an up-or-down vote in the Democrat-controlled Senate even though these budgets have received Democrat support in the House, unlike the abortive Obama-submitted budget proposals that failed to get any votes, Democrat or Republican, in the same timeframe). The debt ceiling increase negotiated by Obama and the House Republicans will be reached before the November elections… and there is no incentive any more for the Republicans to compromise.

If you want to blame anything for this, don’t blame the non-existent ‘obstructionist Republicans’ or the ‘do-nothing Congress.’ Blame the ‘do-nothing Democrat-controlled Senate’ under Harry Reid. Blame the ‘elections have consequences', ‘we won’ President Obama. You see, it really isn’t malice. Obama, Reid, Pelosi, and their fellow Democrats don’t really want to ruin the country… it’s just that they don’t know what to do, their philosophies and ideologies clearly have not and will not provide solutions, and their strongly-held yet incorrect beliefs prevent them from doing what would actually work… because that would mean their beliefs are wrong.

It’s incompetence. Sheer, unadulterated, hubristic, so-ignorant-they-can’t-even-see-it incompetence. The only way to fix it will be to remove the obstacles to the solution, Democrat control of the White House and Senate, via the next national election. And then the American people will again learn their once-a-generation lesson about not trusting Democrats with the keys to the government for another 25 years. Hopefully there’s enough left to salvage this train wreck, but be prepared to wait for several years for the recovery to happen.

Sunday, January 22, 2012

Why Newt Won… and What It Means

(c) Reuters 2012, Fair Use Exemption

Newt Gingrich handily won the GOP South Carolina primary earlier today, with 41% of the vote to Romney’s 27%, followed by Santorum at 17% and Ron Paul at 13%. Gingrich’s late surge to victory was unthinkable even a week ago. How did he do it? How did he come from being a distant third to dominate the election, winning almost every county in the state? And what does this foretell for the rest of the primary campaign?

The reason for Newt’s victory is simply this: he has convinced the TEA Party faction of the GOP, those voters who are deeply concerned about the steep trajectory of our national debt and deficit spending, who are frustrated with the ever-increasing intrusion of government in terms of laws and regulation and their effect on every facet of American life from what we eat and drink to the type of light bulb, automobile, or health insurance we can (or must) buy, that he is the candidate who understands and respects their concerns. More important, he will do something to alleviate those concerns.

Newt has always been a policy wonk; someone who understands the intricacies of the interactions between government, industry, and the economy, and while voters respect him for his acumen that is not what has swung them over. After all, Mitt Romney and Rick Santorum are also smart fellows with considerable depth and breadth of knowledge about government and business. However, Newt does stand apart from the other candidates in his ability to marshall all of the facts and data to support his positions. That command of the facts gives Gingrich a confidence in the correctness of his answers that really comes across. Newt believes because he demonstrably knows.

That confidence is the reason why Newt won; not only can he unabashedly state his positions, but he can do so in a logical and straightforward way that is as instructive to his audience as it is persuasive. Newt’s decades of teaching experience is a key part of his ability to effectively communicate his positions, ideas, and vision… and that is something no other GOP candidate has. In uncertain times leaders who are intelligent, persuasive, informed, and confident are compelling to voters.

What happens next? I believed (and still do believe) that the SC primary outcome was a decisive inflection point for the GOP nomination battle. Here are my predictions:

  • Rick Santorum’s crushing defeats in New Hampshire and South Carolina effectively ended any chance he has for the nomination; barring a blow-up by Newt Gingrich before the Florida primary that allows Santorum to step up and assume the mantle of the anti-Rommey, he will go down to another resounding defeat in the Sunshine State and end his campaign shortly thereafter… and he will endorse Newt (you read it here first!).
  • Ron Paul, the irascible grandfather figure in the race, has been, is, and will be a non-entity, fading away before the convention even if he doesn’t drop out. Paul is right about many things, and especially right on the goals, but he is way off on the ways to accomplish his goal. Ron will not endorse any other candidate, before, during, or after the convention, but he also won’t run as a third-party candidate because doing so would end his son’s political career.
  • Mitt Romney, the all-but-inevitable candidate as late as last weekend has suddenly morphed into the candidate who has lost two out of the last three primaries. All of the air has gone out of his sails at exactly the moment Newt’s sails have been filled; the shift of momentum couldn’t have come at a worse time. Romney will never get the momentum back because he is lacking confidence in his positions -- the fundamental quality that voters are looking for -- and he no longer has the lock on electability. I expect Romney’s campaign and his Super PACs to go relentlessly after Gingrich, and I expect those efforts to look increasingly desperate and irrelevant. Romney will fight on until Super Tuesday, but it will all be over by the end of February, because the only candidate who will benefit from any Gingrich stumbles will be Santorum… and Gingrich isn’t going to stumble.
  • Newt Gingrich has gotten up from the second standing eight-count of his campaign, and he will not get knocked down again. He has taken everything his opponents and the media have thrown at him and has bounced back. The collapse of the ABC News efforts to use his wife’s allegations to torpedo him just before the South Carolina primary have insulated him from further attacks against his character based upon events in his marriages, and the Romney campaign’s attempts to use the politically-motivated Ethics Committee report against him will hurt Romney more than Gingrich. Newt will win in Florida and will end up getting the majority of delegates well before the convention. He will be the 2012 GOP Republican presidential candidate… and he will win convincingly against Barack Obama much as Reagan thrashed Jimmy Carter.

So, in short Gingrich won because most GOP voters love what he says, how he says it, and believe he could beat Barack Obama in the presidential election… and there’s nothing that any other GOP candidate can do to change this.

Friday, January 20, 2012

The Decisive Point

Tonight’s GOP debate in South Carolina was a clear win for Newt Gingrich, from the cringe-worthy opening question to the final statement. Considered all but dead a few weeks ago, Newt has reached the decisive point in the race to be the Republican nominee: if he wins this weekend’s Palmetto State primary he will most likely win the the nomination, if he loses his campaign is over and the Romney freight train will roll on to the convention.

So, will he or won’t he? My bet is yes, Gingrich will win. Why? Because Romney showed again tonight the weakness that will keep him off the presidential ballot. He cannot withstand the Left’s attacks on his positions because he does not have an ideological foundation for his positions. His head knows he is right but he doesn’t feel it in his heart; he lacks the courage of his convictions. Romney knows there’s nothing wrong with being very successful, but he really doesn’t have the heart to not just defend his success but to throw it in his attackers’ faces and taunt them with it. I believe this also goes hand-in-hand with his unsuccessful and tepid defense of Romneycare. Mitt isn’t stupid; he realizes that Romneycare was a mistake, but he’s put himself in a position where making that admission means he has to admit he was wrong, and he doesn’t have the courage to do it.

Republican voters aren’t looking for a go-along-to-get-along candidate. They’re angry, fed up with the president and his incompetence, and genuinely frightened about the future of the country. They want a candidate who truly believes what he says, who can clearly defend positions to a hostile media, who will not apologize for holding conservative views. Rick Perry wasn’t articulate enough, Backmann and Santorum aren’t polished enough, Cain wasn’t knowledgeable enough, and Ron Paul comes across as impractical. So, that leaves Newt Gingrich and Mitt Romney, two men who represent the two conflicting spheres of Republicanism.

Romney represents the pragmatic, moderate sphere… Republicans who have lots of conservative Democrat friends, who generally agree with the Democrat perspective on social mores, who aren’t ideological. In short, the pragmatist sphere, who believe that the problem with government is that it lacks effective management and rational decision-making. Gingrich represents the ideological sphere… Republicans who generally aren’t willing to compromise on principle, who vehemently disagree with their Democrat associates, who reject Democrat social mores. In short, the people who believe the problem with government is that the fundamental direction is wrong, that a radical course of action is needed and now, that half-measures or tweaks aren’t going to fix it, that the proper tool is a chainsaw rather than a scalpel, and that going back to first principles instead of gentle course correction is what is needed.

I believe the massive support for the Tea Party movement among conservatives in general demonstrates the strong desire for a truly transformative president. Just as the disaster of Jimmy Carter led to Ronald Reagan, the debacle that is Obama drives the need for the antithesis… and Romney for all of his virtues and strengths is more like Reagan’s vice-president George H.W. Bush than Reagan. Republican voters have realized this; Mitt Romney has had them looking for another candidate from day 1 to coalesce around… to believe in.

We’ll know on Sunday whether or not they believe in Newt.