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Wingnut Watch: Flat Tax Fanatacism

Posted on by The Progressive Policy Institute

Plans to reduce the taxes of wealthy “job creators” remained on the minds of conservatives this last week, with Rick Perry harnessing the reboot of his floundering presidential campaign to a “flat tax” proposal that’s really an alternative maximum tax for people currently in the higher brackets. In an effort to get conservative voters to think about everything and anything other than immigration policy in considering him, Perry nestled his tax plan in a larger package that includes total suspension of federal regulations for a period of time, uninhibited exploitation of fossil fuel resources, and a balanced budget constitutional amendment that includes a permanent limitation on spending as a percentage of GDP (this last item is an item beloved of SC Sen.–and Wingnut Generalissimo–Jim DeMint, whose endorsement Perry would surely love to secure prior to next January’s Palmetto State primary).

Perry’s tax plan and the optional nature of its rates raise a lot of questions, but its shape-shifting features are politically convenient, particularly as compared to Herman Cain’s 9-9-9 proposal, with its unambiguously regressive thrust and its reliance on an unpopular national sales tax. With Newt Gingrich also hawking a flat tax scheme, the conquest of the Republican Party by cranky tax schemers is now very far advanced.

More generally, the GOP presidential contest is revolving around the broadly shared expectation that the campaign of Herman Cain, who now actually leads Mitt Romney in a plurality of national polls, and is attracting three and four times as much support as Rick Perry, will soon collapse. Cain added to that expectation last week with an unforced error of considerable magnitude: a rambling series of remarks in an interview by CNN’s Piers Morgan suggesting the candidate thinks of abortion as a private matter in which government should not interfere. By the time Cain realized his mistake and reiterated his position favoring a ban on all abortions without exception, a lot of damage had been done to his reputation for competence and ideological reliability, particularly among the social issues activists who exert disproportionate power in the Iowa Caucuses. Iowa social conservative kingmaker Bob Vander Plaats summed up the general impression by saying Cain was beginning to sound like the John Kerry of 2004 (not a compliment). It probably wasn’t a coincidence that Cain’s long streak of wowing conservative audiences at joint candidate events came to a decided end in Iowa over the weekend, when he was distinctly underwhelming in a speech to the annual banquet of Ralph Reed’s Faith and Freedom Coalition.

With Cain’s support levels in Iowa (and other states) already being called into question because of his lack of organization in the state and his low number of visits, it remains to be seen who would benefit from a theoretical Cain collapse. While many observers think the situation in Iowa is ripe for Mitt Romney to swoop in and score a knockout blow over a divided conservative opposition, he’s not exactly showing signs of doing so (he skipped the FFC event, for example, even though he had just made his first brief visit to Iowa since April). Perry is definitely plotting an Iowa comeback, beginning TV ads this week and spending time on such potentially productive activities as a pheasant-hunting jaunt with congressman Steve King, perhaps the only political figure with the power to absolve Perry from his heresies on immigration policy.

You’d think the potential vacuum on the Right would provide an opening for a comeback by Rep. Michele Bachmann, the winner of the August Iowa GOP Straw Poll. But Bachmann’s campaign is visibly struggling, and attracting media attention only for such negative developments as the mass resignation of her NH staff.

Rick Santorum continues to seek to outflank the field on social issues (Cain’s abortion gaffe was a major gift to him), and is totally devoted to an Iowa-centric campaign that will eventually take him to all 99 counties in that state. But the only also-run candidate showing forward momentum in polls in Iowa, or indeed in other early states, is none other than Newt Gingrich, whose strategy of using candidate debates to show off his policy chops and attack the moderators has lifted him ahead of Perry in most surveys. Gingrich and Cain recently accepted a Texas Tea Party invitation to hold a “Lincoln-Douglas”-style one-on-one debate in the Lone Star State next month. Texas is hardly a competitive state so long as Perry is running, and isn’t an early state, either, so this debate decision has reinforced suspicions that both Gingrich and Cain are “business plan candidates” who are in the race to promote their books and television careers rather than to secure the nomination.

But it is clear there will remain for the immediate future strong demand for a “true conservative” candidate who can keep Mitt Romney from running away with the nomination. Just yesterday Romney provoked fresh outrage from conservatives by refusing to take sides in the red-hot Ohio referendum on Gov. John Kasich’s legislation to cripple public-sector unions, SB 5. Romney was almost immediately forced to recant, but that step, of course, simply reinforced his reputation as a flip-flopper.

When you add it all up—Perry’s terrible mispositioning on immigration, Cain’s sloppy campaigning and unnecessary abortion gaffe, and Romney’s incurable tin ear for conservative sensibilities—this is a presidential candidate field with an abundant ability to take a bold step forward onto a garden rake. Like a football game decided by the “turnover margin,” the GOP nomination could ultimately go to the candidate who manages to go for a few crucial weeks at a time without coughing up the ball.

Photo Credit: Mays Business School

Another One Bites the Dust

Posted on by The Progressive Policy Institute

Unlike the dictators of Tunisia and Egypt, Muammar el-Qaddafi refused to go peaceably when the Arab spring uprisings migrated next door to Libya. Last week he paid for that defiance with his life; an outcome that should rattle other regional tyrants, especially Syria’s Basher al-Assad.

Qaddafi’s ouster was a triumph not only for Libya’s rebels, but also for NATO, which turned the tide of battle in their favor. It also vindicated President Obama’s decision to let Europe take the lead and limit U.S. forces to a supporting role in enforcing the U.N.-sanctioned “no fly zone” over Libya.

I was skeptical that NATO airpower alone would be sufficient to defang Qaddafi, and wanted the allies to arm the rebels. It turns out, however, that NATO—in a very liberal interpretation of its mandate to protect Libyan civilians—worked closely with the opposition in a combined air and ground offensive that methodically wore down regime forces.

With a little help from their friends, Libyans liberated themselves, and some are now waving French and U.S. flags in gratitude. What we’ve witnessed in Libya, in fact, could be a new model for collective security in which the United States no longer bears a disproportionate share of the risks and costs of intervention. “We’ve demonstrated what collective action can achieve in the 21st century,” Obama declared last week. “Without putting a single U.S. service member on the ground, we achieved our objectives, and our NATO mission will soon come to an end.”

Unfortunately, the new model probably isn’t applicable to Syria, where another ruthless dictator confronts a popular revolt.

Basher al-Assad is busy doing in Syria what NATO prevented Qaddafi’s forces from doing in Libya—slaughtering civilians. Even though his henchmen reportedly have killed between 3,000–5,000 civilians, courageous Syrians still take to the streets daily to challenge the regime.

The regime’s brutality has prompted thousands to defect from the Syrian army and join the opposition. Syria thus appears headed toward the same kind of armed insurrection that convulsed Libya. This time, however, there’s little chance that NATO will play deus ex machine to Syria’s rebels.

Western military intervention in Syria is unlikely for three main reasons. First, Syria is bigger and better armed than Libya, and lies in the Arab heartland rather than on its periphery. Second, while Libya’s erratic “Brother Leader” had few friends in the world, Assad has an important regional patron in Iran, whose Revolutionary Guard reportedly is helping him put down the protests. Third, Russia and China vehemently object to the principle of humanitarian intervention, presumably because they fear it could be invoked someday against them. Earlier this month they vetoed a U.N. Security Council resolution condemning Assad for the violent suppression of peaceful protests.

The political and humanitarian stakes in Syria are growing. Qaddafi’s fall and probable execution by vengeful rebels will likely reinforce Assad’s determination to bludgeon Syrian demonstrators into submission. If he succeeds in resurrecting what was among the grimmest police states in the region, Assad will have delivered the most serious check to date to the Arab spring’s revolutionary momentum. It will also bind Damascus more tightly to Iran, and boost morale among the radical rejectionists in Hezbollah and Hamas. Assad’s survival could also push Iraq, which is apprehensive about a Sunni takeover in Syria, closer to its Shia brethren in Tehran.

Having abetted Libya’s liberation, the United States and its European partners obviously have an interest in encouraging its Transitional National Council to set up an effective and representative central government. This won’t be easy in a relatively backward (despite its oil and gas riches) Arab state rent by tribal and regional divisions and, thanks to 42 years of despotic rule by Qaddafi, lacking in strong civic and national institutions.

The council’s weekend announcement that it is imposing Sharia law throughout Libya has provoked “I told you so” reactions from U.S. “realists” and other critics of NATO’s intervention. But as Obama said, Libya’s road to self-government will be long and winding, and thanks to NATO’s intervention, the West will have some influence over the course of events there.

What’s crucial now is for the U.S. and Europe to turn their attention to Syria’s incipient civil war. Even as Assad’s jets hammer unarmed civilians, there’s no chance of a U.N. sanctioned no fly, no drive zone there. But the West has other means at its disposal to buttress the rebellion, and thereby help sustain the momentum of Arab demands for freedom and justice.

Policy Brief: All of the Above: What to do about Housing-Now

Posted on by The Progressive Policy Institute

In the immediate aftermath of the financial crisis in 2008, housing was at the top of policymakers’ priorities. Congress saw a flurry of proposals to deal with the mounting wave of defaults and foreclosures, and the collapse of Fannie and Freddie led first to intensive federal intervention and then to one round of full-fledged debate on what the future of these agencies should be.

Today, with housing in at least as bad a shape as it was in 2008, housing is now the forgotten debate. The conversation over Fannie and Freddie has stalled, if not died altogether; the government’s efforts to stem foreclosures have been largely unsuccessful; and with a handful of bold exceptions, few policymakers are putting forward ideas to restore homeowner equity, cope with burgeoning inventory and spark new demand in the market.

But with the economy continuing to sputter, housing is a problem that policymakers can’t afford to ignore any longer.

While some may debate the chicken-and-egg issue of whether housing can lead the recovery or whether a recovery can stabilize housing, there’s no dispute that the health of the housing market and the broader economy are inextricably intertwined. Housing and its related industries account for roughly 19 percent of the American economy.1 Since the housing crash, housing—especially construction—has shed 2.9 million jobs2 since the start of the recession. Not coincidentally, the states with the highest unemployment rates—California, Nevada, Rhode Island, Michigan3—are among the states that have been hit hardest by the housing crisis. Moreover, Americans
have lost $7 trillion in equity,4 which is dampening consumer confidence as well as forcing many families to rethink their future plans and expectations of financial security.

Read the entire brief.

Senate Guts School Accountability

Posted on by The Progressive Policy Institute

The U.S. Senate is finally getting around to reauthorizing the controversial No Child Left Behind Act (NCLB), something that was supposed to happen in 2007. Unfortunately, instead of fixing NCLB’s evident flaws, there’s a bipartisan push to fatally weaken the law as a credible tool for educational accountability.

A bill to renew the bill (known again by its historic title, the Elementary and Secondary Education Act) crafted by Sens. Harkin (D-Iowa) and Enzi (R-Wyo.) is being widely panned by education reformers. As Michelle Rhee points out, “by removing meaningful evaluations, the country would be taking huge step backward in the effort to reform our schools.”

In a rare moment of bipartisanship, Congress passed NCLB in 2002. It was designed to tie federal support to education (mostly through the Title I program of aid to schools in low-income areas) to improvements in student performance. Its signal achievement was to require local school authorities to measure the academic achievements of all students, including racial and ethnic subgroups. This provision meant that schools could no longer hide their failure to educate all students behind averages.

But NCLB’s critics pointed to several glaring flaws. One was the requirement that 100 percent of public school students reach proficiency in reading and math by the 2013-2014 school year. Not only is this standard deemed unattainable, but it puts too much weight on standardized assessments of widely varying quality.

Another problem with NCLB is its requirement that schools have “highly qualified teachers”. That sounds innocuous, but in practice it has led schools to hire teachers based on their academic credentials rather than their actual ability to teach. An abundance of data has shown that one of the quickest ways to achieve student growth is through an effective teacher. A “highly qualified teacher” by NCLB definition is one that is simply “certified and proficient” in the subject matter taught—regardless of how well those credentials translate into student learning, achievement, or growth.

The Harkin-Enzi bill kills the “100 percent proficiency” target, but doesn’t replace it with a better yardstick. Instead, it vaguely charges states to strive for “continual growth.” The bill is thus a throwback to NCLB’s predecessor, 1994’s weak Improving America’s Schools Act (IASA). This toothless measure paved the way for such lax accountability standards as Tennessee’s goal to “improve mean performance level(s) across grades by [an] average of .05” for grade-levels three through eight—hardly a worthy goal for true reform.

Harkin’s original draft required the states to adopt teacher and principal evaluations which would focus on both in-class observations and student achievements. Unfortunately, it was watered down in a redraft on Monday.

After the rewrite all the meaningful elements—save perhaps the mandate that states enforce a college-readiness standard—went by the wayside. The weaker version of the bill closely tracks a letter sent to the senators by teacher and principal advocacy groups, including the National Education Association. The gist of their message to the Senate was, “We appreciate the great reform ideas you’re proposing here but just please don’t implement them.” Also, the new version is clearly intended to assuage the “federal overreach” fears of GOP local control advocates.

In short, the bill not only omits concrete accountability standards, it also disregards the policy prescription that effective teachers—effective in the sense that the teacher actually impacts the student—are the key to true education reform. This ESEA reauthorization does nothing to positively impact an education system that is consistently failing the future of this country. The redrafting effort headed by Sen. Enzi on Monday is a clear message to reform-minded advocacy groups that the letters they are sending urging the federal government to do more in the way of education standards—such as the ones published by EdWeek and EdTrust—are not as effective as those sent by the teachers’ unions. In other words, you can speak loudly but you better carry a larger voting contingency.

Wingnut Watch: A Fair Tax?

Posted on by The Progressive Policy Institute

One of the more exotic policy tendencies of Wingnut World is a history of strong and pervasive support for replacing income taxes with higher consumption taxes. Many conservatives support this step on grounds that it will promote savings and investment, which is another way of saying that they believe capital should not be taxed at all. Others like the idea of getting rid of the compliance costs and “bureaucracy” associated with income taxes, and still others are attracted to the “flat” nature of consumption taxes, which do not vary based on the taxpayer’s personal circumstances (whether it’s income, or the various characteristics that earn deductions and credits against income tax liability).

The so-called “Fair Tax”—the general term used for any number of schemes for shifting from federal income to consumption taxes—has been a hardy perennial for years among conservative activists and talk show hosts. Among the latter was Herman Cain, whose so-called 9-9-9 (replacing current federal income, capital gains and estate taxes with a 9 percent national sales tax, a 9 percent VAT on corporations, and a 9 percent income tax with no deductions or credits) plan is explicitly advertised as an intermediate step towards a “Fair Tax.” Like the “Fair Tax,” Cain’s plan seems to have great curb appeal for rank-and-file conservatives, but less so for opinion-leaders.

Cain’s recent surge in the polls as a presidential candidate has suddenly put 9-9-9 and the broader movement to get rid of progressive income taxes under a microscope. On the eve of Tuesday night’s candidates’ debate in Las Vegas, the Urban Institute/Brookings Tax Policy Center published an analysis of the distributional implications of Cain’s proposal that immediately became fodder for his rivals and for critics generally. Faced with claims that 9-9-9 would boost total taxes for most American households with annual income under $200,000, Cain was reduced to repetitive denials without much in the way of explanation. Even among conservatives who are not troubled morally or politically by the idea of making federal taxes massively more regressive, the argument that 9-9-9 would give Uncle Sam a new instrument for confiscating private dollars (the national sales tax) is getting some traction. One of 9-9-9’s designers, the ubiquitous Steven Moore, is already urging Cain to replace the sales tax proposal with a 9 percent payroll tax.

There is virtually no broad-based polling of 9-9-9 available (figuring out how to describe it in a survey question is a real challenge, particularly since Cain and his advisers are not always very precise). But a new HuffPo/Patch survey of activist leaders in early caucus and primary states (whom they call “Power Outsiders”) shows lukewarm support at best.

The timing of the intra-party assault on Cain’s signature domestic policy proposal is no coincidence. It is based on the belief that he is a flash-in-the-pan phenomenon whose lofty support levels represent a “parking place” for conservatives who don’t like Mitt Romney but haven’t been sold on any of his competitors, and find Cain interesting and refreshing, not to mention his usefulness as an all-purpose antidote to suspicions that conservative hatred of Obama is at least partially racial in origin.

Tuesday night’s debate represents a transition point from a six-week stretch of frequent debates, to the run-up to actual voting events. Earlier this week another important piece of the nominating contest puzzle fell into place when Iowa set a firm date of January 3 for its “First-in-the-Nation Caucus.” There remains a not-insignificant chance that New Hampshire will schedule its primary for early in December in order to avoid too-close proximity to Nevada Caucuses currently planned for January 14, though it’s more likely that Nevada will move a few days in order to let NH have its event on January 10. Any way you slice it, though, candidates have a relatively brief window of time to get their act together before voters in the early states begin to become distracted by the holidays, which will also make negative campaigning problematic on grounds that it conflicts with the “spirit of the season.”

With Mitt Romney presumed to have a commanding lead in two of the five January events (NH and Nevada), developments in Iowa, South Carolina and Florida are of particular interest at this juncture. New NBC/Marist polls in SC and FL show Cain and Romney basically tied with just under a third of the vote each, with Perry mired in the high single-digits. This state of affairs is close to where the most recent polling in Iowa has placed the race there as well. If, as the conventional wisdom suggests, Cain soon begins to lose support because of attacks on 9-9-9, his lack of policy sophistication generally, or simply the fading novelty of his candidacy, the big question is whether those votes go back to Rick Perry, are scattered among various candidates, or even go in significant numbers to Mitt Romney. In any event (barring a December NH primary), media coverage of the campaign will now focus ever-increasingly on Iowa, where the picture is complicated by the relative importance of the “ground game” and Romney’s decision so far not to seriously compete in the state. Cain’s organizational weakness in Iowa is perhaps best illustrated by the fact that his former state director (who quit because her candidate seemed to be ignoring the state) just signed up for a less elevated job with Rick Santorum. So in the place where the 2012 nominating contest formally begins in less than eleven weeks, the two front-runners in that state and nationally are not really running at all. Something’s got to give, and soon.

Photo Credit: Gage Skidmore

Policy Brief: HomeK Accounts: A Down Payment on Homeownership and Retirement

Posted on by The Progressive Policy Institute

Two years after the meltdown in the nation’s housing market, housing re- mains weak. Home prices fell to a new low in the first quarter of this year— confirming a feared “double-dip” in the market. Prices are now down nearly 33 percent from their high five years ago.

With housing and its related industries—construction, home retail, etc.— constituting almost 19 percent of the nation’s economy over the last 40 years,2 restoring the housing market will be essential to a sustained eco- nomic recovery. And key to this will be ensuring a robust market for first- time home sales.

Yet, even with home prices as low as they currently are, many potential homebuyers may face more—not fewer—obstacles in their path to home- ownership. In the aftermath of the crisis, credit is tighter, as are down pay- ment requirements. At the same time, the stresses of the economy have meant that potential homebuyers are in worse shape financially than they once were.

The creation of a new, tax-preferred mechanism for down payment sav- ings—a “HomeK”—could help first-time homebuyers navigate these new hurdles while also promoting more savings. And if structured as a carve-out from existing retirement planning mechanisms, not as a new type of ac- count, the HomeK would have the added benefit of promoting retirement savings and will not contribute to further tax code complexity.

Read the entire brief.

Will Marshall Talks CLASS in Politico’s Arena

Posted on by The Progressive Policy Institute

PPI President Will Marshall today discussed the CLASS Act in a post for Politico’s Arena.

“The Obama administration’s decision to jettison CLASS is no setback. On the contrary, it removes a fiscal time bomb that Congress unwisely embedded in the Accountable Care Act, and, following previous changes aimed at easing reporting burdens on small businesses, attests to the president’s willingness to keep streamlining and strengthening his reform blueprint.”

Read the full post here.

Marshall: Occupiers Not Counterweight

Posted on by The Progressive Policy Institute

PPI President Will Marshall provided commentary on the “Occupy Wall Street” movement in an article published today by The New Republic.

“For liberals, who have watched the Tea Party’s rise with a mixture of dread, incomprehension, and envy, the Occupy Wall Street protests seem Heaven-sent. Here at last are our ideological shock troops, come to put the undeserving rich in the dock and reclaim populism from government-bashing conservatives.

An elated Paul Krugman cheers on the anti-Wall Street demonstrators for scaring the bejesus out of the plutocracy that supposedly runs America. Nevermind if the protesters are “inept, incoherent and hopelessly quixotic,” Eugene Robinson tells us, what matters is that the people finally are rearing up to demand economic justice.”

Read the entire article here.

Defense & Deficits: How to Trim the Pentagon’s Budget-Carefully

Posted on by The Progressive Policy Institute

Getting America’s exploding deficits and debt under control isn’t just an economic and political imperative, it’s also vital for U.S. national security. America’s military strength and leading role in international affairs rest on the foundation of a dynamic, growing economy. To the extent that runaway public debt undermines prospects for growth and compromises America’s economic sovereignty, it also endangers American security.

Let’s be clear at the outset: defense spending is not driving the fiscal crisis. True, the wars in Iraq and Afghanistan have contributed to the debt, but that’s because President Bush, in a break with wartime precedent, declined to raise taxes to pay for them. The good news is that as the overseas deployments wind down, future military spending is set to naturally shrink.

The structural causes of America’s escalating national debt are the unsustainable cost growth of federal entitlements—Social Security, Medicare and Medicaid—and historically low tax revenues (which reflect both subpar economic growth and the Bush tax cuts). But it has become apparent that as America’s political leaders shirk tackling tax and entitlement reform, the burden of debt reduction threatens to fall disproportionately on domestic discretionary spending, including defense.

The first shoe has already dropped. On August 2, President Obama and Congressional Republicans struck a deal that would cut spending by $2.1 trillion over ten years in exchange for raising the debt ceiling. Among other cuts, the compromise takes an initial bite of $350 billion from defense spending. The deal also created a Joint Select Committee on Deficit Reduction or “supercommittee” to come up with an additional $1.2 to $1.5 trillion in federal savings by the end of the year.

If the committee fails, it will trigger a “sequester” that automatically cuts domestic and defense spending across the board. That could mean an additional $500 billion—if not more—cut from the military.

All told, defense spending could be reduced from $850 billion to $1 trillion over the next decade. Cuts of this magnitude are simply too large. They would jeopardize America’s ability to successfully conclude the wars in Afghanistan and Iraq, conduct global counterterrorism operations, and hedge against the rise of new threats—both state and non-state actors—to U.S. security and international order. Absent corresponding reductions in America’s global commitments, such large cuts portend exactly what Walter Lippman warned against—foreign policy “insolvency,” in the sense that America’s commitments far exceed its means.

Nor would deep cuts in national defense solve the country’s fiscal problems. America’s national debt now exceeds $14 trillion and is growing rapidly. Since 2004, it has zoomed from 40 percent to about 70 percent of gross domestic product (GDP), and is on course to exceed 100 percent in the coming decade. There is wide agreement among fiscal experts that policymakers need to cut at least $4 trillion over ten years just to stabilize the debt at 60 percent of GDP. So even if the new “supercommittee” succeeds in cutting $2.1 trillion, there’s still a long way to go.

Yet the Pentagon should not escape scrutiny, either. The fiscal task before the country is monumental, and President Obama has rightly called for “shared sacrifice” in crafting a bipartisan solution. This means everything—entitlements, tax revenues, domestic spending and defense—must be on the table.

The military must contribute its fair share to deficit reduction, but it must not be made to pay for America’s leaders’ inability to grapple with the country’s fundamental fiscal challenges. Beyond marginal adjustments, the basic level of defense spending should be set by America’s strategic needs, not by a game of fiscal chicken.

Moreover, how defense spending is cut matters almost as much as the cut’s size. Across-the-board caps or freezes—as proposed by some leading bipartisan groups—are convenient for political budget cutters, but they are a bad way to wring savings out of national defense. The fact is that not all Pentagon programs are created equally: To en- sure that reductions in the military’s budget don’t disrupt current missions or impair the U.S. mili- tary’s ability to sustain qualitative technological superiority over the long term, policy makers need to make strategic trade-offs among competing security priorities.

That’s because while keeping Americans safe is the federal government’s first responsibility, America’s military power also underpins its diplomacy and anchors strategic alliances in Europe, the Middle East and Asia. The military cements America’s position of world leadership, which rests on the United States’ will and capacity to defend liberal democratic values and strengthen global institutions for collective problem solving. I see no evidence that the American people are clamoring for a retreat from these responsibilities.

For all these reasons, heedless cuts in military spending have no place in a progressive strategy for restoring fiscal discipline. In this Policy Brief, I offer pragmatic answers to these questions:
The post-Cold War benchmark of three percent of GDP constitutes a floor beneath which defense spending should not be allowed to sink. This decade, a range of 3.0–3.5 of GDP is more realistic. This suggests that the military’s budget should be cut by no more than $600–650 billion—or about 10 percent—by 2021.

How much should the Pentagon contribute to defense spending reductions?
And how do policymakers realize these savings?

I answer those questions by examining defense spending in an historic and current budget context, break down Pentagon spending by category, distinguish between one-off war spending and on-going military missions, and contrast spending proposals from the political left, right and center. I conclude with a series of strategic guidelines for how much and where to trim the defense budget.

Based on this analysis, I believe military spending can safely be reduced over the next decade towards the “post-Cold War benchmark” achieved in the late 1990s: After a series of exhaustive strategic re- views, military spending slowly declined through- out the decade and eventually settled at around three percent of GDP by 1998. During peacetime and absent a major nation-state military competi- tor, this range was deemed sufficient to handle two regional conflicts while maintaining the U.S. military’s high-tech edge and global reach.

Of course, this formula cannot be applied mechanistically because the United States is not at peace and faces a different slate of threats than in the 1990s. Therefore, budgeteers must build in some leeway above three percent of GDP to accommo- date the following realities: America must con- clude the wars in Iraq and Afghanistan; maintain a vigorous, global counterterrorism campaign; assure its qualitative military superiority over po- tential rivals, such as China; continue to invest robustly in advanced technology; and be prepared for unanticipated contingencies.

That’s why the post-Cold War benchmark of three percent of GDP constitutes a floor beneath which defense spending should not be allowed to sink. This decade, a range of 3.0–3.5 of GDP is more realistic. This suggests that the military’s budget should be cut by no more than $600–650 billion— or about 10 percent—by 2021.

In achieving these savings, policymakers should be guided by five rules:
1. Don’t let fiscal politics trump U.S. strategy.
2. Cut over time.
3. Focus on personnel costs.
4. Avoid radical surgery to military procurement and research & development.
5. Set a floor beneath defense cuts.

Read the entire memo.

Nobel Prize Irrelevancy?

Posted on by The Progressive Policy Institute

For years when I was chief economics writer at BusinessWeek, I would write our post-Nobel piece. I was often one of the few people who would challenge the adulation of the prize winners, notably in this 2005 piece on the Nobel in game theory.

But today’s awards to Tom Sargent and Chris Sims simply leaves me stunned. Let me give you a brief excerpt:

“It is not an exaggeration to say that both Sargent’s and Sims’ methods are used daily … in all central banks that I know of in the developed world and at several finance departments too,” Nobel committee member Torsten Persson told the AP.

I’m not sure why this is supposed to be a good thing. None of the central banks foresaw the financial crisis, none of them foresaw the weakness of the recovery, and none of them had the right policy prescriptions. This lack of ability to predict big shocks and their aftermath is a central flaw of the Sargent-Sims approach. Sargent is well known for his work on rational expectations, which has a tough time with ‘irrational’ booms and busts. And Sims’s work on ‘vector autoregressions’ has a difficult time anticipating sudden shifts in regime, such as the shift from the Great Moderation to the today’s incredible volatility.

I would have much preferred to see the awards going to a growth economist, like Paul Romer; an expert in financial markets, like Reinhart and Rogoff; or an international economics expert. While I’m sure Sargent and Sims deserve their award, the timing makes the economics profession feel out of touch and irrelevant.

Crossposted from Innovation and Growth

Wingnut Watch: Lost in Wingnut World

Posted on by The Progressive Policy Institute

Bloomberg-Washington Post DebateAt a time when we are constantly being told that no one in America cares about anything other than the economy, one of Wingnut World’s most durable forums for people who intensely care about cultural issues was held this last weekend. The Value Voters Summit, sponsored by the Family Research Council, attracted every significant GOP presidential candidate other than Jon Hunstman. But as has often been the case, the controversial nature of the event’s sponsors and speakers overshadowed anything the candidates had to say.

Most notably, Robert Jeffress, a Southern Baptist minister from Dallas who was asked by conference sponsors to introduce Rick Perry (he’s a long-standing supporter of his governor and one was one of the pillars of Perry’s big prayer event back in August), made big waves by going out of his way to tell reports he regarded Mitt Romney’s LDS church as a “cult.” This is an old refrain for Jeffress, but casting the Republican presidential nominating contest as a war of religious identity in which Christians should follow Perry was sure to grab headlines. Moreover, one of the main speakers at the event was Bryan Fischer of the American Family Association (a major Value Voters Summit co-sponsor), who lived down to his reputation as a purveyor of all sorts of bigotry, mainly aimed at gays, Muslims and Mormons. Romney, who preceded Fischer at the podium, was driven to an indirect swipe at him for “crossing a line,” which of course just gave Fischer a new excuse to whine about being persecuted.

The whole series of events led some commentators to wonder if a sustained attack on Romney’s religion, with or without the complicity of Rick Perry, had been launched to stiffen resistance to the 2012 front-runner among white conservative evangelicals.

The presidential candidate who was most successful in cutting through all the distractions at the Value Voters Summit was Herman Cain, whose stock speech is still blowing the doors off in conservative gatherings. He got a lot of standing ovations, but perhaps the biggest greeted his assurance that he and other African-Americans had nothing to be angry about thanks to the opportunities they’d received as Americans.

On a more formal level, Ron Paul registered at the event by winning its Straw Poll by a comfortable margin. The ability of his supporters to routinely dominate straw polls (except for those like August event in Iowa that attracted many thousands of attendees, or the P5 straw poll in Florida where voters were delegates elected months earlier) simply by flooding the room has seriously eroded the news values of his wins.

As the presidential candidates prepared for another debate on Tuesday, polls continued to document an ongoing collapse in support for Rick Perry and a corresponding surge for Herman Cain—not just in national surveys, but in the states that play an early role in the nominating contest. In Iowa, where no public polls were released during September, and late August polls showed Perry romping into an immediate lead, two surveys from NBC-Marist and Public Policy Polling came out this week documenting Perry’s slide into fourth or fifth place, and Cain’s rise to a position rivaling Mitt Romney. Since the Iowa Caucuses require both grassroots support and a strong organization to bring it out on a cold winter night, Cain’s weak organization in the state makes actual success in the caucuses more problematic (conversely, Perry is thought to have a very good Iowa organization). Aside from the Perry-Cain dynamic, the new numbers from Iowa show how tempting it is becoming for Mitt Romney to leap into Iowa (which he’s largely avoided, no doubt because of the high cost he paid for losing Iowa in an upset in 2008) and pursue an early knockout with a run through Iowa, New Hampshire and Nevada, the first three stops on the primary trail.

When the candidates assembled in New Hampshire on October 11 for a Bloomberg/WaPo debate focused on the economy, most attention was devoted to Cain, who predictably drew criticism of his signature 9-9-9 tax proposal; Romney, who had emerged from the ashes of Perry’s early ascendency to regain front-runner status (a trend punctuated by an early endorsement from Chris Christie); and Rick Perry, who needed a gaffe-free debate and some renewed sense of attachment to the hard-core conservatives who had been abandoning him for Herman Cain. The general take is that Romney cruised (getting in an extended crowd-pleasing attack on China’s commercial policies and taking a shot at Perry’s indifference to the plight of the uninsured in Texas). Cain did well but opened himself to further trouble on the details of 9-9-9 (Santorum drew some blood pointing out that the plan’s new national sales tax would not be popular in NH). Perry made no mistakes, but made no gains; RedState’s Erick Erickson concluded he was “rapidly becoming the Fred Thompson of the campaign season,” a deadly comparison given Thompson’s high potential and quick fade in 2008.

Aside from the debate’s horse-race nature, it reinforced once again how far the entire field has drifted from what used to be considered the mainstream of political discourse. All the candidates agreed the housing and financial crises of 2008-2009 were entirely created by the federal government, not the financial sector, and most implied excessive lending to the poor and minorities was a big part of the problem. All the candidates appear to favor deliberate deflationary monetary policies. All the candidates who spoke on the topic rejected any budget compromise that involved either tax increases or defense cuts. Two candidate, Michele Bachmann and Newt Gingrich, told egregious lies about the relationship between “ObamaCare” and Medicare, pursuing the old “death panel” meme with renewed vigor. And to cap it all off, when Rick Perry was asked a direct question about income inequality, he didn’t seem to grasp the problem at all.

It looks like the eventual winner will have to bring a translator along when it’s time to debate the president. Many Americans don’t speak wingnut.

Sperling on Deferred Maintenance

Posted on by The Progressive Policy Institute

Gene SperlingPresident Obama’s $447 billion jobs plan includes some constructive – literally – provisions for upgrading America’s economic infrastructure. These shouldn’t be controversial: Who could be against putting people to work rebuilding the rickety foundations of U.S. productivity and competitiveness?

Well, Republicans, that’s who. They have dismissed the president’s call for $50 billion in new infrastructure spending as nothing more than another jolt of fiscal “stimulus” masquerading as investment.

It’s hard to imagine a more myopic example of the right’s determination to impose premature austerity on our frail economy. From Lincoln to Teddy Roosevelt to Eisenhower, the Republicans were once a party dedicated to internal nation building. Today’s GOP is gripped by a raging anti-government fever which fails to draw elementary distinctions between consumption and investment, viewing all public spending as equally wasteful.

But as the White House’s Gene Sperling said yesterday, Republicans can’t claim credit for fiscal discipline by blocking long overdue repairs of in the nation’s transport, energy and water systems. There’s nothing fiscally responsible about “deferring maintenance” on the U.S. economy.

Sperling, chairman of the president’s National Economic Council, spoke at a PPI forum on Capitol Hill on “Infrastructure and Jobs: A Productive Foundation for Economic Growth.” Other featured speakers included Sen. Mark Warner, Rep. Rosa DeLauro, Dan DiMicco, CEO of Nucor Corporation, Daryl Dulaney, CEO of Siemens Industry and Ed Smith, CEO of Ullico Inc., a consortium of union pension funds.

Fiscal prudence means foregoing consumption of things you’d like but could do without if you can’t afford them – a cable TV package, in Sperling’s example. But if a water pipe breaks in your home, deferring maintenance can only lead to greater damage and higher repair costs down the road.

As speaker after speaker emphasized during yesterday’s forum, that’s precisely what’s happening to the U.S. economy. Thanks to a generation of underinvestment in roads, bridges, waterways, power grids, ports and railways, the United States faces a $2 trillion repair bill. Our inadequate, worn-out infrastructure costs us time and money, lowering the productivity of workers and firms, and discouraging capital investment in the U.S. economy.

Deficient infrastructure, Dulaney noted, has forced Siemens to build its own rail spurs to get goods to market. That’s something smaller companies can’t afford to do. They will go to countries – like China, India and Brazil – that are investing heavily in building world-class infrastructure.

As Nucor’s DiMicco noted, a large-scale U.S. infrastructure initiative would create lots of jobs while also abetting the revival of manufacturing in America. He urged the Obama administration to think bigger, noting that a $500 billion annual investment in infrastructure (much of the new money would come from private sources rather than government) could generate 15 million jobs.

The enormous opportunities to deploy more private capital were echoed from financial leaders in New York, including Jane Garvey, the North American chairman of Meridiam Infrastructure, a private equity fund specializing in infrastructure investment. Garvey warned that what investors need from government programs is more transparent and consistent decision making, based on clear, merit-based criteria, and noted that an independent national infrastructure bank would be the best way to achieve this. Bryan Grote, former head of the Department of Transportation’s TIFIA financing program, which many describe as a forerunner of the bank approach, added that having a dedicated staff of experts in an independent bank is the key to achieving the more rational, predictable project selection that investors need to see to view any government program as a credible partner.

Tom Osborne, the head of Americas Infrastructure at UBS Investment Bank, agreed that an independent infrastructure bank like the version proposed by Senators Kerry, Hutchison and Warner, would empower private investors to fund more projects. And contrary to arguments that a national bank would centralize more funding decisions in Washington, Osborne explained that states and local governments would also be more empowered by the bank to pursue new projects with flexible financing options, knowing that the bank will evaluate projects based on its economics, not on the politics of the next election cycle.

Adding urgency to the infrastructure push was Fed Chairman Ben Bernanke’s warning this week that the recovery is “close to faltering.” Unlike short-term stimulus spending, money invested in modernizing infrastructure would create lasting jobs by expanding our economy’s productive base.

Warning that America stands on the precipice of a “double dip” recession, Sperling said it would be “inexcusable” for Congress to fail to act on the president’s job plan. He cited estimates by independent economic experts that the plan would boost GDP growth in 2012 from 2.4 to 4.2 percent, and generate over three million more jobs.

The political battle over Obama’s jobs plan centers on how it’s paid for. Senate Democrats have proposed a surtax on millionaires. Unlike tax hikes in general, this idea is popular, and Democrats clearly hope to use it to crack the GOP’s monolithic opposition to raising taxes.

However that battle ends, Congress must salvage the plan’s infrastructure provisions, including its call for an independent infrastructure bank.

Wingnut Watch: GOP Field Decided and Calendar Set

Posted on by The Progressive Policy Institute

A lot happened in the presidential campaign sector of Wingnut World this last week. The GOP field for 2012 probably became fixed. The calendar for the nominating process shifted and jelled. Rick Perry’s dive in the polls, and Herman Cain’s rise, accelerated, even as the Texan’s status as co-front-runner with Mitt Romney remained central to the conventional wisdom.

It’s not clear how many sincere wingnuts were part of the noisy posse that tried, unsuccessfully, to drag Chris Christie into the presidential race (a lot of the Draft Christie momentum came from northeastern donors associated during the last cycle with Rudy Giuliani). His ferocious YouTube videos and confrontational attitudes towards public sector unions were very popular in Tea Party circles. But his positions and record on immigration, guns, global climate change, and same-sex civil unions were sure to get him into serious trouble with ideological conservatives had he actually pulled the trigger.

With Christie definitively out, the only major pol who hasn’t fished or cut bait is Sarah Palin, who continues to insist she hasn’t made up her mind about whether or not to run in 2012. But recent polls show two-thirds to three-fourths of Republicans—including many who profess admiration for her—saying she should not run. So that development is unlikely, unless Palin simply decides it’s the best way to recapture the public attention she seems to have gradually lost.

If the 2012 field is “closed,” the calendar is also nearly finalized, though not without a revolt against the RNC’s rules led by Florida and followed by the privileged “early states” whose prerogatives Florida challenged. The original scheme to reduce “front-loading” of the nominating process involved a February “window” for Iowa, Nevada, New Hampshire and South Carolina, with all other states pushed back to March or later, and states holding primaries or caucuses in April or later retaining the right to use winner-take-all procedures to increase their clout. Initially, the plan seemed to be working, with most states moving their contests as intended, and quite a few (e.g., California) choosing to coordinate later presidential primaries with regular primaries to save money. The mega-primary of “Super Tuesday” is going to be a shadow of its former self.

But Florida’s decision last week to hold its primary on January 31, in the face of sanctions that would forfeit half its 2012 delegates, messed up at least part of the scheme. The chain reaction of early states (SC has already moved to January 21) is almost certain to push the start-date in Iowa to the first week in January. But if the competition survives that early phase of states from Iowa through Florida, the pace of the schedule of events will be much slower, with a big gap in February and less of a logjam in March than in past years.

For the candidates, the implications of a early-beginning process with a more deliberate pace are two-fold: an early “knock-out” is possible, but unlikely given the high probability that the Iowa winner will lose New Hampshire to Mitt Romney. A longer slog to the nomination favors candidates with superior resources, like Romney and Perry, but not Herman Cain.

Speaking of the candidates, polling this last week emphatically showed Rick Perry in a virtual free-fall after his bad stretch of appearances in Florida, with Herman Cain—who trounced Perry in Florida’s “P5” Straw Poll on September 24—getting a significant share of Perry’s vote and Romney’s support barely moving at all. Perry dropped from 23 percent in mid-September to 12 percent in the latest CBS poll, and from 29 percent to 17 percent between early September to the present in a new ABC/Washington Post survey. Cain rose from 5 percent in the CBS poll and 3 percent in the ABC/WaPo poll to 17 percent in both today.

There are two quite different theories about Rick Perry’s fall from grace which have a significant impact of what might happen next. One is that his clumsy behavior in debates, and his overall good-ol-boy Aggie Yell Leader persona, just aren’t very presidential and make him less electable than, say, Mitt Romney. Polls do show Perry not running as well as Romney in trial heats against Obama, but presumably his problems could be fixed by a good debate performance or two or the expenditure of some of the $17 million he has raised since announcing his candidacy in August.

But the other theory is that Perry isn’t quite turning out to be the simon-pure Tea Party conservative he was advertised to be when he first announced his candidacy at a RedState gathering in South Carolina, and is in danger of forfeiting the treasured “conservative alternative to Mitt Romney” mantle. A lot of this was entirely predictable to anyone familiar with his record in Texas, but still, many conservatives seem to be shocked by his adamant defense of a wildly unpopular position favoring in-state college tuition for the kids of illegal immigrants (opposed by 86 percent of Republicans in the latest CBS poll). And accordingly, a total collapse in his levels of support among Tea Party supporters—from 45 percent a month ago to 10 percent today in the ABC/WaPo poll—is at the heart of his overall slide in the polls.

If ideology rather than “electability” is Perry’s main problem, and he doesn’t find a way to fix that, then irony or ironies, after driving the Republican Party decisively in their direction over the last three years, wingnuts could wind up without a viable presidential candidate they feel really good about. Perhaps Herman Cain can somehow turn his present popularity into a real, functioning presidential campaign, but his track record on campaign management is not great and GOP elites don’t take him seriously as a potential president. Michele Bachmann’s campaign seems to have run into a deep ditch in her best state, Iowa, and if Newt Gingrich or Rick Santorum are going anywhere, it’s not apparent by any objective measurements. Ron Paul, of course, is permanently unacceptable to a majority of serious wingnuts because of his foreign policy views.

Unless Rick Perry can repair his ideological reputation, it’s beginning to look like “movement conservatives” will once again have to make a choice between less-than-ideal candidates. Perhaps they can console themselves with the recognition that today’s “moderates” in the GOP are several degrees to the right of yesterday’s howl-at-the-moon hard-liners.

Photo Credit: mjecker

WEBCAST: New Solutions for America’s Housing Crisis

Posted on by The Progressive Policy Institute

New Solutions for America’s Housing Crisis
Event Webcast — October 4, 2011

 

Watch live streaming video from progressivepolicyinstitute at livestream.com

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Agenda
Welcome and Keynote Address
8:30 a.m. – 9:00 a.m.

  • Will Marshall, President, PPI
  • Sen. Jeff Merkley (D-Ore.)

Panel I: Housing and the Recovery: Current Challenges
9:00 a.m. – 10:15 a.m.
This panel will provide an overview of the current state of the housing market and its impact and importance to the overall economy. Experts will also discuss specific problems within the housing market including: (1) “underwater” mortgages and loss of equity; (2) weak housing demand despite low prices; (3) foreclosures, mortgage modifications and servicer concerns; (4) the role of government in the housing market and GSE reform; (5) “shadow” inventory and REO properties; and (6) impacts on consumer confidence and middle-class wealth.

  • Rep. Dennis Cardoza (D-Cal.)
  • Stan Humphries, Chief Economist, Zillow
  • Ron Phipps, President, National Association of Realtors
  • Phillip L. Swagel, Professor of International Economic Policy, University of Maryland
  • Moderator: Don Lee, Los Angeles Times

Panel II: Jumpstarting the Housing Market: Innovative Solutions
10:30 a.m. – 11:45 a.m.
Leading academics, industry representatives and advocates will describe and debate their unique solutions to stabilize and restart the housing market in the near- and medium-term. Among the proposals to be presented: (1) help for underwater borrowers; (2) solutions to the foreclosure crisis and mortgage modifications; (2) ideas for managing the vast supply of REO properties; and (3) options for jumpstarting sidelined consumer demand for housing, particularly among first-time buyers.

  • Richard Smith, President and Chief Executive Officer, Realogy Corporation
  • David Stevens, President and Chief Executive Officer, Mortgage Bankers Association
  • Kevin Schneider, President and Chief Executive Officer, Mortgage Insurance-U.S., Genworth Financial
  • Ellen Schloemer, Executive Vice President, Center for Responsible Lending
  • Moderator: Jim Tankersley, National Journal

Keynote Address
11:45 a.m. – 12:15 p.m.

  • Sen. Johnny Isakson (R-Ga.)

Luncheon Keynote Discussion: The Government’s Role in Housing—Too Little, Too Much or Just Right?
12:30 p.m. – 1:30 p.m.

  • Douglas Holtz-Eakin, President, American Action Forum
  • Michael Mandel, Chief Economic Strategist, PPI
  • Moderator: David Wessel, The Wall Street Journal

Panel III: Housing, Tax Policy and Deficits
1:30 p.m. – 2:30 p.m.
Reducing the nation’s mounting debt and deficit has become an issue of paramount concern for both policymakers and the public. As the recently-formed deficit-reduction “supercommittee” wrestles with what are certain to be difficult choices, tax policies that encourage homeownership—chief among them the mortgage interest deduction— are increasingly the topic of debate. This panel will provide a balanced look at the costs and benefits of using tax policy as a means of promoting homeownership in the broader context of the push toward deficit reduction.

  • Lawrence Yun, Chief Economist, National Association of Realtors
  • Donald Marron, Director, Urban-Brookings Tax Policy Center
  • Stan Humphries, Chief Economist, Zillow
  • Moderator: Michael Mandel, Chief Economic Strategist, PPI

EVENT: Infrastructure and Jobs: A Productive Foundation For Economic Growth

Posted on by The Progressive Policy Institute

Progressive Policy Institute

Date
October 6, 2011
 10 a.m. – 1 p.m.

Location
902 Hart Senate Office Building
U.S. Capitol Complex
Washington, DC 20501

Join PPI and top leaders from the White House, Congress, private industry, labor, and the financial sector to discuss current issues in U.S. infrastructure policy. White House economist Gene Sperling will explain the administration’s proposals for new infrastructure investment and their potential impact on the economy. Senator John Kerry and Congresswoman Rosa DeLauro will describe their proposals to create a national infrastructure bank to improve infrastructure spending decisions and maintain U.S. competitiveness in the global economy, and private-sector leaders will explain how infrastructure projects will create jobs and mobilize private capital to boost economic growth and investment.

 

Register for the event.