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Bipartisanship and the 2018 Midterm Elections

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Ode to John McCain

I did not always agree with the late Senator John McCain on public policy, the most recent defense spending bill bearing his name being a case in point.

His integrity, however, should never be questioned. His willingness during his 2008 Presidential campaign to stand up to constituents who disrespected his opponent Barack Obama, despite the political ramifications, are prime examples of this integrity. How he bucked his party on certain important issues, such as the disastrous Obamacare “skinny repeal” vote, is further proof of his strength of character.

As a soldier and later as a legislator, John McCain was an American hero in every sense of the word. With the country as politically divided as it has been in decades, and our Congress seemingly populated with spineless representatives, we need him now more than ever. He is sorely missed.

From Partisan Differences to Demonization

Ideally, bipartisanship would be a quality which helped a candidate get elected. Unfortunately America is far from, and has perhaps never been further from, this ideal.

America was founded on compromise between the Federalists and Anti-Federalist. Historically, some of our strongest pieces of legislation have resulted from bipartisan compromise. Today it seems like politicians will tow the party line regardless of a policy’s real-world implications, leaving any negative impacts to their party’s spin-doctors (or, due to the time delay it takes for the full impact of many policies to be felt, to future legislators).

Politicians have always cared about getting re-elected, but the type of behavior that voters reward seems to have changed. What was once a quest to push the frontier of American progress has been replaced with a cynical, no-holds barred attempt to secure governing super-majorities that can ram legislation through without any support from the other side. The other side then uses said legislation as campaign fodder, hoping to increase voter turnout and overturn it.

This results in a never ending loop of legislative gridlock in which the average American–regardless of political affiliation–loses. No wonder Americans don’t trust their government and are so politically divided!

This us-versus-them style of governance is reminiscent of sectarianism in newer, fragile democracies (like Iraq or Kenya)–it should not be a feature of American democracy. Policy differences have always existed, but the fight has seemingly gotten dirtier since Trump took office. Even more disturbing is that this increasing partisan divide is being driven by the President himself.

Trump recently called his Secretary of Defense “sort of a Democrat”. While this is far from true, it is also ridiculous that this is even a dig at all–as if being a Democrat is some sort of inherently bad thing. It is this sort of rhetoric that leads Democratic and Republican voters to talk past one another, instead of to one another, precluding the hard work of finding common ground.

Trump also recently said Democrats are “an angry, left-wing mob…they would turn our country so fast into Venezuela, and Venezuela’s not doing too well, folks.”

Look, it was not right when Hillary called Trump supporters “deplorables” during the 2016 Presidential campaign, and it is not right for Trump to call Democrats “an angry mob” now. When we look at the country’s partisan divide, we have to acknowledge the role that the leaders of our political parties play–when they act like children, there is a trickle down effect to the behavior of the average voter.

Lord of the Lies

It is not just morally “wrong” for Trump to say Democrats would “turn our country into Venezuela”, it is inaccurate and hypocritical. The major economic issues facing Venezuela are massive government debt and resulting hyperinflation. Trump’s tax plan will increase the U.S. debt load by $1.5 trillion dollars over the next decade, and he has been critical of the Feds efforts to combat inflation by raising interest rates. I would not go so far as to say that Trump’s policies will turn us into Venezuela, because it would take decades of economic mismanagement to “turn America into Venezuela”. But if either party’s policies are putting us on the path to “becoming Venezuela”, it is the G.O.P’s, not the Democrats.

Trump is taking advantage of the fact that many people want simple answers to complex problems. Responsible leaders admit there are no simple answers, whereas Trump makes up simple answers that will not solve the problems and in many cases exacerbates them. Anyone who tries to point out the shortcomings of his plans are dismissed as liars or out-of-touch experts, trying to bamboozle the common man.

These falsehoods are part of a larger concerted effort by President Trump to blur the line between fact and fiction; when everything is in question, people can make up their own reality. How often have you heard Trump say something to the effect of “maybe it is, maybe it isn’t, who knows?”–on a regular basis if you’ve been paying attention (twice in his most recent “60 Minutes” interview alone).

We’ve all heard of “fake news”, but don’t forget about “alternate facts“, “alternative data“, the “witch hunt” (Mueller investigation), and unsubstantiated conspiracy theories promoted by the President to cast doubt on the outcomes of the 2018 midterm elections.

If some people do not like “politically correct” politicians or “experts” that’s one thing-I don’t agree, but I get it. This does not mean we needed to elect someone who purposefully tells lies and sows confusion and discord as their primary means of governing–there is a huge middle ground here America.

Trump The False Populist

You can blame social media, poor leadership, or whatever other factor of varying importance you want, but where we are as a country ultimately points to a failure of the American people to elect the right type of representatives. If this is a tough pill to swallow then good, it should be; it is meant to prompt introspection and personal accountability. People of all political stripes are complicit in this collective failure, and it will take a change in thinking across the board to correct it.

I do not have the answers to these problems, except to try to educate and lead by example; I think that is all anyone without a celebrity-sized platform can do, so I carry on. Maybe I should just run for office…

Speaking of running for office, remember that Trump campaigned and was elected as a “populist“. While it was pretty clear to anyone who knew anything about his pre-Presidential endeavors that this was not the case, I wanted to give Trump the benefit of the doubt–after all, if he did well it would be good for the country!

Instead, Trump decided to pursue an agenda based on division, class and racial warfare, shortsighted “America First” foreign policy, blindly slashing regulations regardless of whether they were useful or not, and generally undoing all of President Obama’s achievements. To date, Democrats in Congress have had little success defending what I identified as the party’s red-line issues.

Even more tellingly, none of the many potential areas of compromise I identified after the Presidential election have been pursued. These would have been low-hanging fruits for Trump to pick, restoring the public’s faith in the government’s ability to address the issues facing the average American and healing the partisan divide, but he elected to go a different route.

Let this list of unpursued policies (headlined by the lack of an infrastructure plan or apprenticeship bill) stand as a testimony of Trump’s choice not to govern for all Americans.

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Update (10/24/18): Things have gone from dirty to downright dangerous in the days leading up to the 2018 midterms. Apparently people have sent pipe bombs to Barack Obama, Hillary Clinton, George Soros, and CNN offices.

Maybe having a GOP leader that promotes and applauds violence has somehow actually incited violence! Who would’ve thunk it?!

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Economic Outlook: Magic Asterisks v. Cross-Country Analysis

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The Great Debate Continues–The Austerity v. Stimulus Referendum of 2014:

It has been over 6 years since the beginning of “The Great Recession”. As the stimulus vs. austerity debate rages on, it is worthwhile to evaluate the efficacy of these competing economic ideologies, as they are essentially up for referendum in the 2014 U.S. midterm elections.

It is almost impossible to find truly neutral economic analysis; there are experts and spin-doctors across the political spectrum, people whose jobs are to cherry-pick facts and provide anecdotes to vindicate their positions. I try my best to be objective, but I am sure that my progressive biases are evident to my readers.

One thing that cannot be faked, at least in modern democracies, is macroeconomic history (thanks to advances in data collection, government budgetary transparency / accountability and communications technologies). So what have the past 6 years taught us?

On one hand, the doctrine of “expansionary austerity” relies on “magic asterisks“–the math doesn’t add up. This is not just a liberal claim, it is backed up by the [absence of] economic growth in countries and states that have tried / been force-fed the bitter pill of “expansionary austerity”.

On the other hand, robust, cross-country analyses of post-Great Recession economic policies, carried out by the IMF, have [slowly] acknowledged the damage caused by austerity / benefits of stimulus spending (and this is the IMF here, not exactly a pro-poor institution).

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The Case For Austerity–Magic asterisks:

At the state level, Republican governors — and Gov. Sam Brownback of Kansas, in particular — have been going all in on tax cuts despite troubled budgets, with confident assertions that growth will solve all problems. It’s not happening, and in Kansas a rebellion by moderates may deliver the state to Democrats. But the true believers show no sign of wavering.

…the nature of the budget debate means that Republican leaders need to believe in the ways of magic. For years people like Mr. Ryan have posed as champions of fiscal discipline even while advocating huge tax cuts for wealthy individuals and corporations. They have also called for savage cuts in aid to the poor, but these have never been big enough to offset the revenue loss. So how can they make things add up?

Well, for years they have relied on magic asterisks — claims that they will make up for lost revenue by closing loopholes and slashing spending, details to follow. But this dodge has been losing effectiveness as the years go by and the specifics keep not coming…

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The Case For Stimulus–IMF Cross Country Analysis:

The International Monetary Fund, showing heightened concern over a slowing world economy, said on Tuesday that cash-rich countries like Germany needed to step up large public investments to help keep the flagging global recovery on track.

Its estimate for United States growth in 2015, 3.1 percent, outpaces all major industrialized countries and exceeds as well a number of emerging markets, which in theory are supposed to grow at a substantially more rapid clip.

The fund unveiled this week a paper arguing that large-scale infrastructure investments, if properly undertaken, could bring relatively quick growth benefits — a message that seemed to be directed at deficit-obsessed eurozone governments, including Germany.

“Infrastructure investment, even if debt-financed, may well be justified,” Olivier Blanchard, the fund’s senior economist, said at the news conference on Tuesday.

Mr. Blanchard pointed out that with interest rates at modern-day lows — Germany can borrow money for 10 years at below 1 percent — taking on extra debt to stimulate the economy need not be seen as profligacy.

He offered up a brief economic primer to underscore his point. “It is an irony of macroeconomics,” he said with a small smile, “that for countries with too much debt, sometimes the solution is to create more debt.”

Mr. Blanchard, who oversees economic research at the I.M.F., was behind the fund’s public recognition two years ago that heavy-handed austerity policies in Europe had a larger-than-expected impact on economic growth.

Now, it seems, the global watchdog seems to be going one step further by urging eurozone officials to relax their rigid austerity measures.

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What Does “American Exceptionalism” Mean to You?:

In America, those who oppose stimulus spending–fiscal conservatives–also tend to believe in “American Exceptionalism”. What happens in other countries is not relevant to America; “we’re special”, they claim.

These same opponents of stimulus spending may also argue (with negative connotation) that “the U.S. is turning into Europe”. However,  as you can see from the graphs at the top of the post, the U.S. has far lower spending and unemployment rates than other wealthy economies.

The great irony, which I am sure is lost on those who worry about the “eurofication” of America, is that it was in large part our ability to pursue policies that they would consider “European” (the ARRA, QE), that enabled the U.S. to lead the global economic recovery.

I too believe in “American Exceptionalism”. To me, however, this exceptionalism is more about the extra-territorial obligations that come with being the world’s strongest economy, military, and reserve currency, than an heir of hubris which precludes considering the experiences of other countries when drafting policy. But that’s just my opinion.

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Debt Sustainability, MMT, and Context Sensitive Macroeconomics:

The issue of debt sustainability, however, is far less subjective. America’s relatively high growth rates, and historically low interest rates (thanks to central bank independence and a sterling history of honoring our debts), make stimulus spending both feasible and fiscally responsible.

I am not fully sold on the merits of Modern Monetary Theory (MMT), it seems too radical to me. I am, however, a proponent of context sensitive macroeconomics; expansionary fiscal policy (stimulus spending) is appropriate now, but may not always be. However, the temporal nature of democratic politics makes offering future deficit reductions in exchange for stimulus spending, impracticable (which is unfortunate, as this approach is just what the doctor ordered). 

Government spending need not take the form of “paying people to dig holes and then refill them”, a picture anti-government proponents love to paint. There are glaring infrastructure weaknesses that pose serious problems from both public safety and economic perspectives.

Furthermore, in the current context, government spending would not “crowd out” private investment. In fact, if properly enacted, stimulus spending should increase private spending. Governments around the world are increasingly embracing public private partnerships (PPP)–leveraging public money to raise private funds when it serves both sectors interests (such as infrastructure spending, job training, etc).

Corporate cash hording, despite very low interest rates, suggests that private companies are able and would be willing to spend more if either a) the government contributes funding (PPP), or b) aggregate demand increased (which in the short run can be catalyzed either by increasing government spending, or by putting more money in the hands of those with the highest marginal propensity to consume–poorer people).

Of course, there are limits to what stimulus spending can achieve. The “multiplier” effect of a stimulus program depends on the necessity, targetability, efficiency, and accountability of its components. Beyond government spending, major policy changes, such as tax reform and minimum wage increases, are also desperately needed.

Liberal economic policies in the U.S. cannot fix the world’s problems, but they can increase American growth, set our economy up for higher future growth rates, and rekindle “The American Dream”. The U.S can lead both by action and example, serving as a model for other countries to emulate as best they can.


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Economic Outlook: Obama’s Shift Sights From “Grand Compromise” to Grand Vision

Original Article:

President Obama’s forthcoming budget plan will not include a proposal to trim cost-of-living increases in Social Security checks, the gesture of bipartisanship he made to Republicans last year in a failed strategy to reach a “grand compromise” on reducing projected federal debt.

White House officials said on Thursday that since Republicans in Congress have shown no willingness to meet the president’s offer on social programs by closing loopholes for corporations and wealthy Americans, the proposed budget for the 2015 fiscal year will not assume a path to an agreement that no longer appears to exist.

The budget plan, which will be out in early March, a month late, will abide by the overall spending guidelines agreed to by Republicans and Democrats late last year. But included in those spending limits will be a $56 billion proposal to increase spending on some of Mr. Obama’s key initiatives, officials said.

Mr. Earnest said that would include spending on manufacturing “hubs” that the president has promoted over the last year; additional government programs aimed at helping people develop new skills; and funding for early childhood education programs like preschool.

“This initiative that the president will propose will be fully paid for,” Mr. Earnest said. White House officials declined to describe the revenue increases, but said they would include closing corporate loopholes, a move the president has supported in the past.

Mr. Buck criticized the $56 billion proposal as another effort by the president to spend more taxpayer money than the government can afford.

“The one and only idea the president has to offer is even more job-destroying tax hikes, and that nonstarter won’t do anything to save the entitlement programs that are critical to so many Americans,” Mr. Buck said. “With three years left in office, it seems the president is already throwing in the towel.”

Administration officials said Thursday that the budget would include proposals to make good on the president’s campaign promise to eliminate provisions of the tax code that allow corporations to shift profits overseas to evade their obligations.

Democrats say such provisions are loopholes, and Mr. Obama’s calls to end them are a perennially popular line with voters of both parties and among independents. Democrats and Republicans agree there is virtually no chance again this year of a bipartisan overhaul of the corporate tax code, despite claims by both parties to be in favor of such change.

The proposed changes to the overseas tax provisions would raise additional revenues of several billion dollars a year.

President Obama’s proposal also includes some $300 billion in infrastructure spending, to be paid for by closing certain tax loopholes.

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When those on the political right talk about “fiscal responsibility”, they focus solely on cutting social programs. They buy into the notion (or perhaps have been bought into the notion via lobbying / campaign finance) that closing any tax loopholes will cause unemployment to soar.  And people believe them, Why is that? Because regular people experience over-taxation and over-regulation in their daily lives. They do not realize that the very wealth people, and the corporations they control, do not play by the same rules.

Sensationalism is good for two things: 1) distracting people from the real issues and; 2) paralyzing your opponents into inaction. Remember when high levels of U.S. sovereign debt was supposed to cause soaring interest rates? When QE easing was supposed to cause runaway inflation? Every once in a while, you have to call someones bluff to keep them honest; the time is past due for politicians to collectively call the bluff of corporate interests.

One look at the historic tax revenue tables (p 34-35) tells the story; for decades households have paid a relatively steady portion of income tax revenues (between 40-50%) while corporate contributions have been wildly volatile (from upwards of 30% in the years following WWII, to single digit percentage contributions many years starting in the 80s). In 2009, households contributed 43.5% of U.S. income tax revenue; corporations contributed 6.6%.

The U.S. has one of the highest corporate tax rates in the world, at 35%. We also have one of the most complex and loophole ridden tax codes in the world. Corporations find themselves largely off the hook, while households continue to contribute their share towards making the government work. The results are obvious; even during times of economic growth, we see widening inequality accompanied by record corporate profits.

In fairly remarkable news, a proposal to be released tomorrow by Representative David Camp (R), Chairman of the Ways and Means Committee, appears to be the a genuine attempt at tax reform. Despite not yet being released, it has already run into criticism from both political parties:

Mr. McConnell, the Senate minority leader, said efforts to pass the proposal — which is expected to call for a cut in the top corporate income rate to 25 percent from 35 percent, and a reduction of the seven individual tax brackets to two — would prove insurmountable against Democratic demands that any tax overhaul include $1 trillion in new revenue.

“The majority leader and the president have said they want $1 trillion in new revenue for the federal government as a condition for doing comprehensive tax reform, which we know we ought to do,” Mr. McConnell said Tuesday. “So I have no hope for that happening this year.”

Senator Harry Reid of Nevada, the majority leader, agreed with Mr. McConnell’s assessment that a tax overhaul will be difficult to push through Congress this year, but he blamed Republicans for the impasse.

“The truth is, we should have tackled tax reform years ago,” Mr. Reid said Tuesday. “It will be extremely difficult — with the obstruction that we get here from the Republicans on virtually everything — to do something that should have been done years ago.”

But he praised Mr. Camp for “coming forward with a piece of legislation.”

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“Slam Dunk” Tax Code Revisions:

The Biblical phrase, “from each according to their ability, to each according to their need” (Marx took it from the Bible) is a pretty solid baseline for tax policy. When looking to fiscal reform, it is irresponsible (not to mention un-Christian, not that I am a religious man but many in this country purport christian values) to deprive societies most vulnerable of the bare minimum to lead dignified lives. This is not charity; young people need a minimum investment in order for them to become productive citizens. Those who are not lucky enough to be born into wealth are no less deserving of such opportunities. It is essentially what economists call “consumption smoothing” ; In law enforcement, it is know as “I’m the guy you pay later“.

(I am not all opposed to some sort of work-for-welfare program for older welfare recipients, so long as it is not subsidizing an unlivable minimum wage. If anything, the welfare-work should be on the multitude of public works projects needed on American infrastructure; public money for public works, not private profit.)

Two specific tax loopholes violate this general theory: offshore banking and corporate welfare:

There is a general consensus for closing a major loophole is offshore tax evasion / minimization. While tackling such an issues is a difficult task, we even have the requisite international support needed for tackling this  global issue. The only people who are opposed to closing such a loophole it seems are (surprise, surprise) Republican lawmakers. The U.S. government has already taken steps towards holding past violators, such as Credit Suisse, accountable. This is one half of the problem, the other half is taking all possible steps to prevent future tax fraud through laws like FATCA.

Another area worth exploring is the winding down of corporate welfare programs.

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Obama has spent too much time learning his lessons. He came into power with a Democratic super-majority and squandered the opportunity in the pursuit of a Golden Age of political compromise and pragmatism. This goal has, beyond any shadow of a doubt, failed miserably over the past 5 years.

It seems Obama has finally learned his lesson. With an eye on regaining a Democratic super-majority in the 2014 midterm elections, He has shifted from his plan for a “Grand Compromise”, to laying out a grand vision for the role of the American government. Until that point (and depending on the outcome of the elections, perhaps past that point) he will use executive actions to push whatever reforms he can.

By clearly laying out his vision, Obama intends to let Americans decide what role they think the Federal government should play.

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Disclaimer: It should not have to be this way. America should not need one party to have a super-majority to enact common sense policy reforms. Indeed, in the long run it is counter-productive to not have meaningful deliberation on major issues.

I would also like to commend David Camp’s effort of putting a tax reform proposal on the table (assuming that after 3 years, it carefully considers which loopholes to cut and which to keep). Although it is clearly not progressive enough, it offers a starting point for the tax code reform initiative. Furthermore, its mere existence cuts through the general malaise that has come to define our political system. The next step will be a bipartisan proposal (Mr. Camp’s proposal did not have any input from Democrats)

This, ladies and gentlemen, is what governance should look like; I for one do not care which side of the political isle it comes from.


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Much Ado About a “Do Nothing Congress”

A recent NYT article cast a gloomy picture for those hoping for a Democratic super-majority after the 2014 Midterm Elections.

History says President Obama should brace for another round of midterm election losses next year — and be grateful for the opportunity.

Unlike presidents who never got the same chance, Mr. Obama is in line to become only the fifth president since Harry S. Truman to serve long enough for a second midterm election, and the possibility that his party might hold or gain ground in Congress in his sixth year in office. But the unhappy record of his two-term predecessors — none of whom gained control of either legislative chamber — offers scant comfort about his prospects.

However, there is reason to believe the Democrats may retake the House. Two forces in particular are working in their favor.

1) The Democratic Party is more popular than the G.O.P (Gallup Poll):

The two parties’ favorability ratings are at the lower end of the range Gallup has measured for each, although the GOP has the lower absolute rating. The Democratic Party’s current favorability rating of 42% is similar to what it was during most of 2010 — a year in which the Democrats lost 63 House seats and majority control in that chamber.

Moderates More Likely to Prefer Democratic Party Over Republican Party

While the two parties rely on their ideological soul mates for support — Republicans depend on conservatives, while Democrats lean on liberals — both parties also need at least some support from the political center to win elections. Self-described moderates are more likely to have a favorable image of the Democratic Party (47%) than of the Republican Party (27%), which may prove problematic for the GOP next year in the congressional elections. It is worth noting, however, that moderates typically lean more Democratic than Republican.

Parties' Favorability, by Self-Reported Ideology, December 2013

The Republican Party can hardly claim to have locked up its support among conservatives, who are as likely to have a favorable (47%) as an unfavorable (46%) image of the GOP. Liberals, by contrast, are more unified in their support for the Democratic Party, with 71% viewing the party favorably.

2) People don’t like a “Do-Nothing” Congress:

Trend: Do you approve or disapprove of the way Congress is handling its job?

And the 113th Congress is a “Do-Nothing” Congress.

This Friday, the 113th Congress will end its 2013 session with a less-than-distinguished title: one of the least productive ever.

Halfway through its term, Congress has passed 56 laws. By comparison, 10 years ago, the 108thCongress passed 504 laws between 2003 and 2004. A decade before, the 103rd passed 473 laws, according to GovTrack, a site that monitors legislation.

The current Congress’s predecessor, the 112th — thought to be the least productive ever — managed to pass 284. The 113th Congress is on track to underperform even that cohort.

The original “Do-Nothing” Congress, the 80th U.S. Congress, enjoyed a Republican super-majority. By the time the 81st Congress was sworn in, Democrats had taken over the majority in both the House and the Senate.

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Now, the fact that Congress is currently split–Democrats have the majority in the Senate, while the G.O.P controls the house–paves the way for much more finger-pointing than in the 81st congressional election. The experts believe only 20 something seats are truly “up for grabs”, and the Democrats need to win almost all of them (17) to take a majority in the House. However, given the relative unpopularity of the G.O.P (both among conservatives and moderates), it would appear that Democrats primed to take many of the undecided seats.

Lots of time still remains before the 2014 midterm elections, and the political landscape can change drastically between now and then. If there is one things you can predict in democratic elections, it is unpredictability.

“I don’t think there are any formulas” for midterm election results, said Ken Khachigian, a former Reagan speechwriter. “We underplay the fact that elections are elections with individual candidates.”