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Fixing Our Broken Politics: Mine’s bigger than yours, or how raising money trumps raising good arguments

Posted on by The Progressive Policy Institute

In recent weeks Mitt Romney has been seeking to bolster his claim to be the mainstream establishment candidate capable of beating Barack Obama in the general election. It’s a logical enough claim for any candidate to seek to make, except that his most compelling argument has had more to do with dollars than ideas.

Last week, the Romney campaign arranged for more than 400 activists to travel to Las Vegas to participate in a telethon that the campaign claims raised $10.25 million in a single day. Two events in Boston later in the week were reported to have raised $2 million.

By June 30, the date on which donations from the last quarter will be published, the Romney campaign is hoping to be able to comprehensively demonstrate financial dominance over the rest of the field. Romney’s staff is keen to emphasize its fundraising prowess, not as a means to articulate Romney’s arguments about issues, but as an argument in and of itself.

Following the latest fundraising effort, the Romney campaign posted an article on their website claiming, “When it comes to money, President Obama and Mitt Romney occupy a plateau far above everyone else”. The message is clear: it doesn’t matter if you really like Tim Pawlenty or Ron Paul or any of the several other respected Republicans in the race: Mitt Romney is the only candidate with the cash to win.

Arguments about fundraising power and the supposed credibility that it gives a candidate are ubiquitous in primary campaigns. Newt Gingrich has already felt this bite: One of the key ideological moments in the GOP contest so far was perhaps Newt Gingrich’s apparent flip-flop over Paul Ryan’s budget plans for Medicare. The moment may well have made support for the budget a shibboleth for conservative voters, while the attention given to Gingrich’s misstep will make it harder for candidates to evade the issue.

Amidst the furor, however, one of the key arguments made by Gingrich’s detractors was that it had damaged his campaign’s ability to raise funds. Much was made of the fact that within 24 hours of his comments on ”Meet the Press”, 13 out of 18 co-chairs for Gingrich’s Florida fundraising effort dropped out. A ‘veteran Republican strategist’ was widely quoted as questioning whether Gingrich can “even make it to July 4th, because his fundraising is going to dry up.”

Primary elections are a vibrant part of American democracy. They contrast favorably with systems in most other democracies where the selection of candidates that the electorate chooses between is still largely controlled by party bosses.

Therefore, it’s tragic that the opportunity to have open discussions about ideas within America’s two great ideological traditions can be drowned out by questions about fundraising. This focus not only distracts from important issues, but also maintains the role for party elites that primary elections were intended to abolish.

Thirteen Florida co-chairs are supposedly able to hail the demise of Newt Gingrich’s campaign, while a small group of Romney fundraisers send a dramatic message to party activists and primary voters that, arguments over issues aside, his is the only campaign capable of defeating Obama’s formidable electoral machine.

There is currently legislation before Congress that would mitigate the oppressive effect that money in politics can have on the vibrancy of American democracy. The Presidential Funding Act would provide $4 for every $1 raised by candidates from small donations of $200 or less. Participating candidates must accept limits on the size of donations they are able to receive.

Such reforms would make candidates who inspire widespread support, but lack access to the tiny proportion of wealthy donors who contribute the majority of campaign finance funds, to be competitive. That would allow primary campaigns to be more about issues and less about money and organization. By negating “I can raise the most” as an argument it would enrich and broaden public discourse and keep our democracy lively and strong.

To find out more about the damaging role of money in politics please visit https://www.youstreet.org/ or go to Americans for Campaign Reform (ACR) on Facebook.

photo credit: las – initally

 

Do We Need a Third Party to Fix Deficits?

Posted on by The Progressive Policy Institute

Republicans are crying foul over Democrats’ resort to “Mediscare” tactics to win an open House seat in New York. Democrats are chortling because they think the GOP’s heretofore unstoppable austerity offensive may have met its Stalingrad.

All this is diverting to aficionados of partisan thrust-and-parry in Washington. But the rest of the country may be less amused. By adhering to unbending, absolutist positions on Medicare and taxes, could Democrats and Republicans be cracking open the door to a serious third party challenge in 2012?

On Tuesday, Democrat Kathy Hochul won a traditionally Republican House seat in upstate New York in a special election. She relentlessly linked her GOP opponent to Rep. Paul Ryan’s plan for making deep cuts in Medicare while preserving the Bush tax cuts for the rich. Many Democrats now see this as the winning formula for next year’s elections.

Ryan complained yesterday that Democrats are “shamelessly demagoguing and distorting” his plan. It was hard to feel any sympathy for the earnest House Budget Commission chairman, however, since Republicans in 2010 spent millions on ads shamelessly blasting Democratic candidates for backing the proposed Medicare cuts in Obamacare. There’s actual double hypocrisy at work here, since Ryan’s Medicare proposal works through the same health exchanges Republicans find so objectionable in Obama’s plan.

Being called a demagogue by the party of death panels and death taxes is like being called ugly by a crab.

Nonetheless, Democrats need to resist the temptation to pay back their opponents in kind. They need to retain the flexibility to slow down Medicare’s cost growth, which as Bill Clinton said yesterday at the Peterson Foundation Fiscal Summit, is the sine qua non of any serious proposal to reduce federal deficits and debt.

Medicare spending is by far the biggest driver of federal spending growth. Together with Social Security, it represents nearly one-third of federal spending. According to the Social Security and Medicare Trustees, the government is slated to transfer over $3.4 trillion in general revenues to Medicare by 2020. This problem needs to be tackled now, even if it complicates Democrats’ ability to run on “Medagoguery” in 2012.

Meanwhile, “progressives” aren’t helping by running a ridiculously over-the-top ad showing a Ryan look-alike pitching a wheelchair-bound granny off a cliff. True progressives believe in solving the nation’s core dilemmas, not fetishizing the status quo. Cutting the nation’s debts down to manageable size will require both higher revenues and lower rates of entitlement spending growth.

If Democrats and Republicans can’t produce a fix along these lines, they practically invite the 2012 version of Ross Perot into the race.

Real Trade Deficits in Capital and Consumer Goods Near New (Negative) Record

Posted on by The Progressive Policy Institute

Many economists are racing to declare a ‘manufacturing revival.’ The latest to join the bandwagon is Paul Krugman. In his latest column, Krugman writes (my emphasis added)

Manufacturing is one of the bright spots of a generally disappointing recovery…..Crucially, the manufacturing trade deficit seems to be coming down. At this point, it’s only about half as large as a share of G.D.P. as it was at the peak of the housing bubble, and further improvements are in the pipeline…one piece of good news is that Americans are, once again, starting to actually make things.

Oh, how I wish Paul was right. Unfortunately, I still don’t see it in the trade numbers. In fact, the real trade deficits in capital and consumer goods are both nearing all-time (negative) records. Meanwhile, the real trade deficit for industrial supplies and materials has improved in large part because of an enormous surge in real exports of energy products, including coal, fuel oil, and other petroleum products (yes you read that right) and a sharp decline in imports of building materials. I don’t find either of these convincing proof of a resurgence of manufacturing.

As you might expect, time for some charts. Here’s a chart (below) of the real trade balance in capital goods in billions of 2005 dollars, calculated on a 12-month basis.

Capital goods include computers, telecom gear, machinery, aircraft, medical equipment–the heart of U.S. advanced manufacturing. Within a couple of months, if current trends continue, the capital goods trade deficit will be at a record level. What’s more, there’s no sign of any great domestic capital spending boom that could suck in imports.

And not to digress, these figures probably substantially underestimate the deterioration of the capital goods trade balance because of the import price bias effect , where the government statisticians do not correctly adjust for rapid changes in sourcing from high-cost countries such as the U.S. and Japan to low-cost countries such as China and Mexico (for a good reference see the new paper “Offshoring Bias in U.S. Manufacturing” by Susan Houseman, Christopher Kurz, Paul Lengermann, and Benjamin Mandel in the latest issue of the Journal of Economic Perspectives) .

Now let’s turn to consumer goods. Here’s the chart (right) of the real trade balance in consumer goods, in 2005 dollars.

No sign of any real improvement here either, I’m afraid. The trade balance retreated a bit during the recession, but since then has surged back. Once again, there’s no sign of a sustainable improvement in the trade balance.

The situation with motor vehicles is a bit more ambiguous. As the chart to the left shows, clearly there has been some gains in the motor vehicles and parts trade balance. However, it has started deteriorating again.

Finally, we come to the one area, industrial supplies and materials, where there has been a clear improvement in the real trade balance. Industrial supplies and materials includes fuel imports and exports; steel and other metals; building materials; chemicals; and a grab bag of other things including newsprint, audio tapes, and hair.

Since 2006, there has been roughly a $150 billion improvement in the industrial supplies and materials trade deficit, measured in 2005 dollars (I say roughly because this is one case where the chain-weighted procedures used to construct the figures gives quirky answers that aren’t additive. So when I give the following numbers, please please don’t divide them into $150 billion to get a share of the improvement). Part of that is a decline in real imports of crude oil, which fell by roughly $30 billion (measured from 2006 to the 12 months ending in March 2011). But another $30 billion, more or less, came from an increase in real exports of petroleum products such as fuel oil and lubricants. I’m not sure whether a gain in exports of fuel oil really tells us much about the fortunes of manufacturing overall.

Another contributor to the improved trade balance is a decline in the imports of building materials. Once again, not a sign of strength.

So I see no sign in the trade data of a great manufacturing revival. The topline improvement in the real trade deficit has mostly come from industrial materials and supplies, and within that from a swing in the energy sector imports and exports.

Let me finish with a quote from a piece that Paul Krugman wrote back in 1994. In that piece, he scoffed at worries that foreign competition was hurting U.S. manufacturing. He argued that

A growing body of evidence contradicts the popular view that international competition is central to U.S. economic problems. In fact, international factors have played a surprisingly small role in the country’s economic difficulties…. recent analyses indicate that growing international trade does not bear significant responsibility even for the declining real wages of less educated U.S. workers.

I wonder if he still believes that today.

Crossposted from Innovation and Growth.

Arab Spring in the Balance

Posted on by The Progressive Policy Institute

Americans, conditioned by harsh experience to expect nothing but trouble from the Middle East, have been thrilled and inspired by the Arab Spring. But now a practical question looms: Just how far are we prepared to go to help these rebellions succeed?

Early successes in Tunisia and Egypt may have created a false impression of the brittleness of the region’s ancien regime. Elsewhere, dictators and autocrats are proving harder to dislodge. And despite the toppling of longtime strongman Hosni Mubarak, democratic consolidation in Egypt is anything but assured.

Around the Middle East, popular demands for individual freedom, economic justice and self-determination have hit a stone wall of reaction and sheer inertia. Hopes that liberal democracy will take hold in the region hang in the balance.

For the United States, the strategic stakes are enormous. Consider, for example, what the end of the al-Assad family’s monopoly on power in Syria might mean. In addition to opening up one of the region’s most sinister police states, it could deprive Iran of its most dependable ally, further isolating Tehran’s rebarbative clerics. Peace with Israel might be too much to hope for, but regime change could loosen Syria’s ties to the rejectionist front of Hezbollah and Hamas, and curb its murderous meddling in Lebanon.

Yet what’s happening across Syria now is a kind of rolling Tiananmen Square, as Assad unleashes tanks and snipers on protestors, killing nearly 1,000 civilians and counting. This brazen reign of terror makes a mockery of President Obama’s admonitions to Assad to “lead the transition” or get out of the way. Assad is no part of the solution, he is the problem, and Washington needs to hold him accountable for his crimes.

The administration should press for a U.N. investigation that would pave the way for indicting Assad and his cronies in international tribunals for crimes against humanity. In truth, Washington has limited leverage on Assad, but it ought to play a long game, doing everything possible to delegitimize his regime, empower human rights and democracy activists, and strengthen civil society in Syria.

Also high on our priority list is Yemen, where al Qaeda in the Arabian Peninsula is busy plotting terror attacks on the United States. Despite strong internal and external pressure, President Ali Abdullah Saleh has thrice reneged on promises to step down. This augurs more civil strife and chaos, and opportunities for Islamists to entrench themselves in the country’s ungoverned spaces. Given the terror threat, the United States needs to play a more forceful hand in getting Saleh to yield to popular demands that he resign, paving the way to elections and a more representative government.

Libya is of less consequence, but the United States already is embroiled in the revolt against Muammar Qaddafi, albeit in a supporting role. NATO air strikes have prevented the dictator’s forces from carrying out his threats to crush the rebels. The opposition, however, lacks the organization, weapons and military training to defeat his armed forces. The prospect here is for stalemate and protracted civil war, unless the United States and its allies undertake to equip the rebels with the tools they need to finish the job.

Egypt poses an especially thorny problem for U.S. diplomacy. As the biggest Arab country and political trendsetter, what happens there will have major repercussions throughout the region. Although popular protests brought down longtime strongman Hosni Mubarak, political power is firmly in the hands of the army’s senior officers. As Larry Diamond notes, the army has arrested thousands of peaceful demonstrators and is trying them in military tribunals. It also has ignored growing attacks by Islamist extremists on Coptic Christians, perhaps as a way of underscoring its indispensability as the sole bulwark of social stability in Egypt. Also worrisome is a compressed timetable for Egypt’s first post-Mubarak elections, which will be held in September. That gives the nation’s authentic democratic forces little time to organize a counterweight to the Muslim Brotherhood, which could be poised to score big gains.

In Egypt, fortunately, the United States does have leverage. The military has received billions in U.S. aid, and Obama last week promised additional economic assistance. Washington can best sustain the momentum of the Arab Spring by using its influence to prevent the Egyptian military from blocking a transition to democratic and genuinely civilian rule.

Until now, Washington has been mainly a spectator to an indigenous popular rebellion against tyranny, corruption and injustice in the Middle East. To ensure that these movements for freedom and self-determination aren’t rolled back, we ought to be prepared to give at least some of them a decisive push.

Photo Credit: M. Hamama /cc/

Wingnut Watch: Debt-Ceiling Deniers, Hostage-Takers and the 2012 Field

Posted on by The Progressive Policy Institute

It’s happened so quickly that its significance may have been obscured, but one of the biggest recent developments in Wingnut World has been the rapid devolution of conservative opinion on the pending debt limit crisis–from demands for hard-line negotiations to outright rejection of negotiations at all, often supplemented by claims that the government doesn’t need new debt authority anyway.

This last phenomenon, which Jonathan Chait and others have been calling “debt-ceiling denialism,” is spreading like kudzu since it was first notably articulated by Sen. Pat Toomey (R-PA) in a January column in the Wall Street Journal. There are different forms of the argument, but the common threads are the claim that the federal government can prioritize the use of revenues in a way that avoids debt default, and the complaint that the whole issue has been manufactured by Democrats to avoid big spending cuts. Toomey attracted 100 House members and 22 Senators to his “Full Faith and Credit Act” legislation that would supposedly avoid a default by forcing debt payments to the top of the spending priority list.

Short of explicit denial that a real breaching of the debt limit would be a bad thing, other conservatives (including presidential candidates Tim Pawlenty, Michele Bachmann and Herman Cain) take the parallel position of opposing any increase in the debt limit on grounds that spending (without, of course, any tax increases) should be cut enough to make the increase unnecessary.

The usual reaction in Washington to this sort of talk is to dismiss it as tactical positioning for the “deal” that will ultimately be cut—as “hostage-taking” aimed at maximizing the “ransom.” Perhaps that’s exactly what it was initially. But at some point, arguments that the hostage’s life is worth nothing, or worse yet, that the ransom limit increases are perpetually unpopular among the overwhelming percentage of Americans who have no real idea of the merits of either side of the can be earned precisely by killing the hostage, undermine the very idea of a deal, particularly when refusing to negotiate with Democrats is a posture that conservatives value as an end in itself anyway. Indeed, the trend in conservative rhetoric on this subject is to accuse Democrats of hostage-taking by their adamant refusal to accept vast spending reductions. It’s a dangerous gambit, made even more tempting to Republicans by the fact that debt dispute.

The key question is the extent to which the GOP’s business elites forcefully push back and demand a more reasonable attitude before things get out of hand. That’s particularly urgent since debt-limit deniers and hard-liners alike are getting into the habit of arguing that financial markets care more about spending reductions than any hypothetical default on the debt. Moreover, debt-limit ultras are also playing with fire by systematically eliminating any incentive for the Obama administration or congressional Democrats to make concessions to a credible negotiating partner. Why offer a ransom when the hostage-takers no longer seem to care what you offer? Better to just send in the SWAT team and take your chances.

Meanwhile, the last week offered more news in the shaping of the 2012 Republican presidential nomination field: Mitch Daniels disappointed his Beltway cheerleading squad by deciding against a run; Newt Gingrich imploded his long-shot campaign with a series of disastrous remarks and revelations; and Tim Pawlenty and Herman Cain formally announced candidacies.

Assessments of the impact of Daniels’ non-candidacy vary according to perspective. Some think it will lead Establishment Republicans to make a last-ditch effort to find another savior such as Gov. Chris Christie (R-NJ) or even Jeb Bush. And if that fails, to resign themselves to the existing field and get behind Romney, Pawlenty, or Huntsman (though the last option remains implausible because his path to the nomination remains extremely difficult). Others combine the Daniels and Huckabee withdrawals and suggest the weak field will produce a big opening for a southern Tea Party conservative with deep pockets like Rick Perry. Both Establishment types and fans of a late entry are beginning to burrow away to undermine the credibility of the Iowa Caucuses as the essential starting-point for the real campaign (for the latter camp, it’s in part because competing in Iowa requires competing in the state party Straw Poll that is held this August).

Though the Gingrich implosion has interested the conservative commentariat less than Daniels’ decision–for the good reason that very few observers considered the Newster viable in the first place–its long-term significance should not be underestimated: it proved once again that ideological purity is the preeminent demand of conservatives for GOP presidential candidates. If nothing else, the incident will make it very difficult for other candidates to distance themselves from Paul Ryan’s politically perilous Medicare proposals. But it should also serve as a dashboard idiot light to Mitt Romney warning him that his hopes of being forgiven for his health care heresy may not be terribly realistic.

A Postcard from the Middle East: A Suggestion for Obama’s New Beginning

Posted on by The Progressive Policy Institute

America has no wasta. Lacking substantive relationships is especially damning in the Arab world, because it is the informal connections, or wasta, which spells the difference between influence and irrelevance. Problem is that while Arabs might eat Cincinnati-style chili at the Dead Sea, teeny-bop to Justin Beiber, and yearn for democracy, there is very little person-to-person connection between America’s consumers of these products and the Arab world’s.

In his 2009 Cairo speech, for example, the president rightly called for a “new beginning” in U.S.-Arab relations. He doubled down late last week, with a speech designed to cement America on the side of the little guy across the region. But without wasta, no matter how well-intended or thought out, President Obama’s vision for the region will flounder.

Capitalizing on the socially networked revolutions and protests, the Millenial generation is the best place to start building wasta. Famously community-oriented, cussedly apolitical, yet relentlessly idealistic, the Millenials understand the importance of inter-connectedness. Eschewing romantic crusades for the nitty-gritty of service, this generation builds a better world one project at a time. To help transform the region, the president should summon his inner Kennedy. Mobilizing the Millenials, Obama could create a new Peace Corps to meet the Arab world’s challenges: The Sharaka (together). The Sharaka would not only deliver developmental aid across the Middle East, it would help mend America’s tattered image, assist in the region’s democratization, and earn Obama some wasta.

I have come to appreciate the need for a Sharaka-like organization from direct experience. Over the past two summers, I have led Millenials on service-learning trips to Madaba, Jordan. Located 20 miles south of Amman, Madaba is famous for its archeological ruins and mosaics. Settled by Christian Bedouins, Madaba now boasts a Muslim majority, largely comprised of Palestinians. Situated in the heart of the city is our home base, the Latin Patriarchate School for Girls. Utilizing the connections our State Department lacks, my school, Gannon University, gained entrée to the region through that most time-worn wasta of the Levant: the Catholic Church.

A Catholic school in a religiously mixed city is hardly representative of the Arab world. Madaba and the Latin Patriarchate School for Girls, however, are the exceptions that prove the rule. Even here, in a relatively affluent and tolerant city, the Arab Spring’s echoes are felt. In a scene reminiscent of Tahir Square, last week scores of Madabans marched peacefully to call for the mayor’s resignation. Moreover, Christian and Muslim, alike, Madabans call for democracy, freedom, and meaningful reform.

After teaching English in the Catholic schools, my students and I spend the afternoon at the Sharaka Center for Democracy. Intended as a community hub to inculcate democratic practices, Sharaka connects us to Madaba’s Muslim community. Eager to learn English, children and professionals flock to Sharaka to learn a world language and engage with Americans.

In serving thousands of hours over the past two summers, my students not only have earned the wasta our State Department lacks, they have been changed. Unlike their peers, who harbor deep anti-Muslim and anti-Arab sentiments, these Millenials are friends with hundreds of Muslim and Christian Arabs. They understand Arabs needs a partner, not a hegemon. Presidential speeches matter and American leadership remain crucial, but the path to influence, in the Arab world, begins with befriending our Arab brothers and sisters.

Obama’s Perplexing Speech

Posted on by The Progressive Policy Institute

President ObamaPresident Obama made the cardinal mistake yesterday of stepping on his own message. His “winds of change” speech was supposed to formalize an historic shift in U.S. policy toward the Middle East. Instead, Obama managed to put the spotlight on the one thing in the region that seems impervious to change: the Israeli-Palestinian conflict.

Grabbing the headlines were a set of new principles Obama introduced late in his speech for reframing stalled peace negotiations. His call for Israel to withdraw to its pre-1967 borders drew a swift rebuke from Prime Minister Benjamin Netanyahu, with whom Obama meets today at the White House. Merits aside, the controversy over this oddly-timed change in U.S. policy has overshadowed the new doctrine the president meant to announce to the world: America henceforth will back reform and democracy in the region.

Conservatives predictably have hailed this as no change at all, merely a restatement of George W. Bush’s “freedom agenda” for the Middle East. But there’s a crucial difference: the impetus for economic and political change in the region is now coming from the ground up – from its long-suffering people, not from Washington. In fact, by defusing tensions between the United States and the Muslim world, Obama probably made it easier for indigenous movements seeking freedom and democracy to arise in the region.

The Arab revolt is widely seen as legitimate because it is not, in fact, an American project. Obama made clear in his speech that Washington is catching up to events in the Middle East, not leading them.

It’s odd that no one in the White House thought to apply the same lesson to the Israeli-Palestinian issue. If the parties to the conflict aren’t themselves motivated to make peace, no amount of outside pressure from the United States, nor any set of innovative “parameters” for negotiations imported from Washington will break the deadlock.

Unfortunately, the flap over Obama’s apparent revision of long-standing U.S. policy toward the conflict reinforces the myth – fostered by Arab dictators and the many U.S. Middle East experts who have invested their careers in peace processing – that Israeli occupation of Arab lands is the region’s core “problem.” Yet the region’s long-suffering people are writing a new narrative that focuses not on Israel, but on the corrupt and despotic rulers who have smothered their aspirations for individual dignity, economic opportunity, and self-determination.

In aligning U.S. policy with these aspirations, Obama ended the bankrupt policy of propping up friendly autocrats. He also restored the missing “d” in his strategic trinity of defense, diplomacy and development – democracy.

The president reaffirmed his view that Muammar Qaddafi must go, and he had suitably harsh words for Iran’s clerical dictatorship, which is intensifying its repression to keep an increasingly restive society under wraps. For consistency’s sake, Obama insisted that pro-U.S. rulers in Yemen and Bahrain share power and respect minority rights, respectively. These, however, are easy cases – too easy. Obama said not a word about the difficult problem of managing U.S. relations with Saudi Arabia, which for good reason feels deeply threatened by the uprisings sweeping the region.

Obama also struck a jarringly false note in urging Syrian dictator Bashar al-Assad to “lead the transition, or get out of the way.” This formulation reflects the weirdly persistent illusion among U.S. policy makers that Assad, who inherited his dictatorship, can somehow be transformed into an agent of democratic reform. In many ways, Assad is worse than his father. He turned Syria into a prime transit point for suicide terrorists en route to kill Americans and civilians in Iraq; he has subverted democracy in Lebanon and funneled arms to Hezbollah and Hamas; and, he has made Syria a virtual satrap of Iran. The administration has announced sanctions on Assad and other Syrian leaders responsible for the bloody crack-down on demonstrators, but America’s interests clearly lie with regime change in Damascus.

Despite such qualms, Obama’s speech at last has aligned America’s values with its long-run interests in the political and economic modernization of the wider Middle East. It’s a shame, though, that this strategic pivot has been obscured by a perplexing and ill-timed attempt to resuscitate Israeli-Palestinian peace negotiations.

The Fiscal Debate Is Missing Half the Picture – An Economic Perspective

Posted on by The Progressive Policy Institute

The following is an anonymous piece by an economist at an international financial institution. The views expressed here are solely those of the author.

Despite what politicians across the political spectrum will scream at you, the United States’ screwed up finances haven’t yet reached the level of an existential debt crisis.

To be clear, America must get its fiscal house in order, and ongoing debates and collaboration across the legislative and executive branches are important to righting America’s budgetary ship over the next few years. But let us dispel the notion that unduly draconian debt-reduction measures–that only touch the discretionary budget no less–must be enacted yesterday. Big picture reform of entitlement spending, increasing federal revenue, and scrutinizing the Pentagon’s budget must, and will, happen. However, the shrill, mostly right-wing political calls to cast ideologically-motivated yet relatively tiny budget cuts as the solution to a spending emergency will not solve the debt crisis and could create a culture that chokes off needed investment in critical areas. As any CEO will tell you, a certain level of borrowing to fund strategic investment is a critical component to reaping higher future returns. The same is true of public borrowing to support America’s long-term economic growth.

Here are three unique reasons why the U.S. continues to be in a position to borrow:

(1) Liquid financial markets and the reserve characteristics of the U.S. dollar create a nearly inexhaustible supply of creditors for our public debt. In plain English, this means that U.S. dollar assets are the safest global investment and savings vehicle and are easily accessible, keeping the federal government’s cost of borrowing relatively low (i.e., the US can harness global, not just national savings).

(2) Confidence in our monetary system to keep a lid on inflation will preserve U.S. Treasuries as desirable assets. Fear of inflation stoked by printing money to finance deficits is a primary fear of investors and not concern for the U.S. due to an independent Federal Reserve. The Fed appears to be aware and prepared for potential inflationary risks, and its track record, through several business cycles, has been praiseworthy as inflation, measured by the consumer price index, averaged 3.1 percent between 1982 and 2011.

(3) We are saving more domestically and could replace external demand for US dollar assets. A surprisingly large percentage of U.S. Treasuries remained in the hands of U.S. residents as of December 2010, and with the household savings rate doubling since its trough in 2005, the capacity to fund our public liabilities domestically will improve.

Long-term economic growth constraints erode debt sustainability in the US

The resulting ongoing and outlandishly panicked fiscal debate ignores a critical measurement of the nation’s economic health: our long-term economic growth potential. Not only is it a source of wealth and power, it is a major component of assessing our level of sustainable debt. Nominal economic growth – a function of increases to our stock of labor and capital — reflects a nation’s capacity to repay debt. When it is faster than the growth of new net borrowing then there is no problem. In other words, if your family’s income is growing faster than the amount you are borrowing, then your indebtedness is declining – a good thing! This is the dual assessment employed by international investors and rating agencies.

Borrowing to fund investment is critical to fostering future economic growth. By ignoring crucial investments in the nation’s stock of capital and labor, our politicians are mortgaging our future. Investment in public infrastructure, education, and immigration reform foster more rapid growth as they increase our stock of capital and labor, expanding economic capacity and productivity. By failing to be cognizant of the basic investment needs to maintain and expand our growth potential, our political leaders are just making political hay.

Hence, the fiscal debate on the Hill, which ignores economic growth potential, could ironically contribute to long-term market insecurity by raising our interest costs, and possibly lead to a greater debt crisis. What’s needed is a balanced approach, one that puts our long-term fiscal policy on a sustainable path through a combination of controlled spending, entitlement reform, revenue increases and with a contribution from the Pentagon, while committing to invest in our future.

Here are three critical areas of investment where the United States is failing to maximize growth potential by under-investing in capital stock and labor:

Public infrastructure: The United States’ capital stock is suffering from decades of neglect, increasing the cost of doing business and decreasing our competitiveness. The 2009 American Society of Civil Engineers infrastructure report card gave us a grade of “D”. Compared to some of our competitors — who are investing in high-speed rail, clean energy production, and smart grids – we may appear to be standing still. For example, Europe invests 5 percent of GDP in infrastructure while the United States spends less than 2.4 percent.

 

Educating our future workforce: Sadly, our secondary education system compares poorly internationally and, while our universities are the envy of the world, we manifest an artificial brain-drain as we expel U.S.-educated, non-citizens to the benefit of our international competitors. Our education system is one of the most expensive but yields only average results. According to the OECD, the United States spent 7.6 percent of GDP on all levels of education in 2007, almost 2 percentage points above the OECD average, but secondary and tertiary completion rates remained below the average of other advanced countries.

Immigration: Immigration reform can and should be viewed through this economic lens – we must create a reliable system of immigration to expand our future labor pool, increase economic growth, and produce the resources we need to help finance unfunded public liabilities.

Our political class will continue to yell at one another on CNN and Fox, but keep in mind that all spending is not the same, and that there are sound economic arguments to support crucial investment in these discreet areas for the long-term economic health of the country.

Will Marshall Featured in Democracy Digest on Obama’s Speech

Posted on by The Progressive Policy Institute

PPI President Will Marshall is featured today in Democracy Digest on President Obama’s Middle East speech. Please click this link to read the entire article:

The Arab revolt is history’s unanticipated gift to President Obama. It enables him to move beyond a desultory flirtation with “realism” and to realign U.S. policy toward the Middle East with liberal values that do turn out, after all, to be as attractive to Arabs as they are to Americans.

It’s true that Obama comes late to the region’s dance of democracy. It’s also true that Washington’s embrace of the popular uprisings hasn’t been utterly consistent. But such cavils pale beside the important fact that, however hesitantly and belatedly, Obama is abrogating America’s Faustian bargain with Arab tyrants.

In the short-term, this break with the sterile politics of “stability” could confront U.S. policy makers with complications and some nasty, unintended consequences. Over the long haul, however, reinforcing homegrown demands for economic opportunity, free expression and political pluralism is the best antidote to the region’s endemic misgovernance and convulsive political violence.

Continue reading here.

5 Things That Should Be in Obama’s Speech on the Middle East

Posted on by The Progressive Policy Institute

The president is set to deliver a major address today on the Middle East. Here are five things his speech must include:

1. The Obvious: America stands by people the world over who seek freedom of expression and exercise of their democratic rights.

2. Frankness: Decades of American administrations have struck Faustian bargains with despots throughout the Middle East. The quid pro quo has been American financial support — militarily and otherwise — in exchange for regional stability.

3. An Admission: This policy has run counter to America’s best ideals, and in the end, it has failed. Autocracies are inherently unstable governing systems, and oppressed peoples will sooner or later rise up to win their freedoms as is manifest in the extraordinary events of this year.

4. A Light Touch: America still has many allies across a region where democracy is not the norm. But make no mistake: While America values its relationships with our allies, we remain committed to creating democratic openings in their societies. Our allies need only to look at the events of Tunisia, Egypt and Libya to realize that continuing along the same path is a fool’s errand.

5. A Plan of Action: America knows that the region’s people will judge us by our actions, not our words. While some our diplomatic efforts with allies may occur behind closed doors, we will visibly support the advancement of democracy by putting aside a larger pot of money to build civil societies in countries where they lacking. The National Endowment of Democracy should funnel much of this money to NGOs, political parties, and free media platforms so it is not tainted by its source.

Donald Trump: Presidential Politics and Business As Usual

Posted on by The Progressive Policy Institute

This week Donald Trump officially announced that he would not run for President in 2012 saying, “business is my greatest passion” and that he was not ready to leave the private sector. A look at Trump’s contributions to political campaigns suggests that he is quite prepared to put his money where his mouth is when it comes to setting priorities: business before politics.

According to The Washington Post, Trump has made a total of $1.3 million of political contributions to date. These donations have been fairly evenly split between the two parties, with 54% going to Democrats. Indeed, Trump’s loudmouthed criticism of Democratic policies in recent days did not stop him from donating to prominent Democrats closely associated with President Obama over several years, including Senate Majority Leader Harry Reid and the President’s former Chief of Staff, Rahm Emmanuel.

In an interview with Fox News host Sean Hannity, Trump justified donating to Democrats on the grounds that it was good business to do so. Trump was keen to point out that many of his donations have been in Democrat-controlled New York, the place where he does business. “Why should I contribute to a Republican for my whole life when…the most they can get is one percent of the vote?” Trump asked. In New York and other states where Trump has business interests, Democrats are the incumbents and so are the logical beneficiaries of Trump’s largesse. As Trump told Hannity he’s “not stupid”; why would he donate to candidates who can’t win and will not hold power or affect his interests?

While Trump may be an eccentric politician, he is–at least in this respect–a very typical businessman. Corporate political giving is overwhelmingly directed at incumbents and tends to significantly favor the political party in power. In 2008 PACs and individuals in the energy industry gave 82% of their contributions to incumbents, Wall Street gave 74%, and the pharmaceutical industry gave 89% regardless of political party, according to Americans for Campaign Reform.

It is hardly surprising that Trump and others in business should direct campaign contributions towards politicians likely to wield power. But the idea that Trump’s calculating self-interest remains in the headlines is somewhat of a shock, suggesting that much of the small dollar donations given by individuals is still representative of deeply-held personal political convictions.

As Trump leaves the Republican presidential field, perhaps he can bring a bit of straight talking to the debate on campaign finance reform. The issue has many complexities, but one key is quite simple after all: the bulk of big-dollar campaign donations aren’t made in support of deeply held ideological beliefs. They’re made as a business investment to the candidate most likely to win, regardless of the party they’re in.

The Donald doesn’t pretend otherwise and nor should we. You don’t need a gold toupee stand to see this.

Will Marshall in Politico on the Gang of Six

Posted on by The Progressive Policy Institute

Head on over to Politico’s site today to see Will Marshall’s take on the implosion of the Gang of Six, a group of Senators trying to forge a bipartisan compromise on the budget. Here’s an excerpt, but click here to read the whole piece:

Sen. Tom Coburn’s defection from the Gang of Six obviously sets back prospects for restoring fiscal sanity in Washington. Nonetheless, the now diminished Gang remains the only plausible vehicle for advancing the political breakthrough achieved by the president’s Fiscal Commission.

To the surprise of many jaded Washington observers, the commission struck a fiscal “grand bargain” that marries tax and entitlement reform. Defying the Norquist Doctrine, Coburn and two other GOP senators agreed to close tax expenditures and use the savings not only to lower individual and corporate tax rates, but also to cut the federal deficit. This prompted a reciprocal act of political courage by several Democrats led by Sen. Dick Durbin, who embraced Social Security reforms unpopular with liberals.

Continue reading the whole piece at Politico.

A Milestone in Trade

Posted on by The Progressive Policy Institute

In 1987 the G6 countries (Canada, France, Germany, Italy, Japan, and the UK) accounted for 55 percent of U.S. goods imports. That same year, China, Mexico and Brazil only accounted for 8 percent of imports.

In 2010 the U.S. reached a milestone–for the first time, imports from China/Mexico/Brazil exceeded imports from the G6 countries. In the year ending March 2011, imports from China/Mexico/Brazil equaled 32 percent of goods imports, compared to 31 percent for the G6 countries. Here’s another way of seeing the same thing. Please note that OPEC’s share, and the share of “all other countries,” don’t change very much. It’s really the G6 versus a handful of low-cost importers.

One final note. The shift in sourcing is most likely happening because the goods made in China/Mexico/Brazil are less expensive than the same goods made in France/Germany/UK. Unfortunately, the BLS import price statistics are not able to pick up the price drops from shifts in country sourcing.

Suppose for example that goods made in China are sold for one-third less than the same goods made in Japan. Then for the same physical quantity of imports, that shift in sourcing will cause the nominal value of imports to be one-third lower. This imparts a significant downward bias to the import penetration ratio.

Crossposted from Mandel on Innovation and Growth.

Wingnut Watch: Conservatives Savage Romney’s Health Care, Huckabee Sits It Out

Posted on by The Progressive Policy Institute

Presidential politics was again the focus of Wingnut World last week, as conservative opinion-leaders took the opportunity to savage Mitt Romney for his adamant defense of the Massachusetts health reform plan, while mulling over the decision of controversial fellow-traveler Mike Huckabee to stay on the sidelines in 2012.

Romney took the calculated risk of delivering a self-hyped “major speech” on health reform at the University of Michigan, apparently in hopes that a definitive statement on the subject would flush out and eventually diminish conservative anger at him on the subject before Republicans actually begin voting next year. It certainly flushed out negative opinions on the Right. Even before the speech was delivered, Romney took a pounding from the editorial board of the Wall Street Journal, which rightly predicted he would refuse to back down on the wisdom of backing a state reform plan that included an individual insurance purchasing mandate and other features associated with “ObamaCare.” The title of the op-ed says it all: “Obama’s Running Mate.”

The speech itself was a hodge-podge of arguments and rationalizations. Romney alternated between what progressive health wonk Jonathan Cohn called an “inspiring” defense of his reasoning in signing the Massachusetts law, and less-than-compelling claims that the law had no implications for national health policy. The conservative commentariat has long since rejected as inadequate his “federalism defense” that “RomneyCare” was a system designed for Massachusetts only, which is unsurprising since the individual mandate is the specific target of a host of state lawsuits aimed at overturning ObamaCare. Moreover, the proto-candidate’s effort to change the subject to what he would propose as president after a theoretical repeal of national health reform legislation drew virtually no attention, probably because he simply endorsed every conventional conservative gimmick of recent years—a tax credit for the purchase of individual insurance policies, preemption of state regulation of private health insurance via interstate sales, and medical malpractice reform.

Only time will tell if Team Romney is right that hostility to RomneyCare will burn itself out, much as John McCain’s many past heresies against conservative orthodoxy were ultimately forgiven in 2008, leaving Republican elites to focus on his superior “electability.” But Romney’s not off to a very good start. Among his tormenters after the speech were the editors of National Review, who gave him a crucial endorsement in 2008. After rejecting Romney’s federalism argument that an individual mandate was acceptable at the state level, his one-time fans at NR made this brutal assessment of the political thinking behind the speech:

We understand that Romney does not feel that he can flip-flop on what he had touted as his signature accomplishment in office. But if there is one thing we would expect a successful businessman to know, it is when to walk away from a failed investment.

This is in synch with the advice Romney has been receiving from Sen. Jim DeMint of SC, another key 2008 supporter who is vastly more influential today.

Later in the week, conservative chattering class attention was diverted to Romney’s 2008 nemesis, Mike Huckabee, who stage-managed an announcement of non-candidacy on his Fox show Saturday after touching off an orgy of confused speculation about his plans by issuing a variety of mixed signals.

His Saturday show was quite a spectacle. It included a derisive panel discussion of Romney’s health care speech, a bizarre interview with right-wing rocker Ted Nugent—who discussed his proposal to unleash the Navy Seals to “secure” U.S. borders with mega-violence—who then took the stage to perform “Cat Scratch Fever” with Huck on bass, followed by a videotaped benediction from Donald Trump. Near the end of the show, Huckabee faced the cameras and detailed all the reasons he should run for president, before divulging that God had persuaded him otherwise via prayer.

For all the hype and the alleged divine intervention, Huck’s decision was precisely what the conventional wisdom had long predicted, mainly because of his palpable reluctance to give up the Fox show and a new-found personal wealth to go trudging through the pot-luck dinner circuit of Iowa once again. At fifty-five, Huckabee is also young enough to consider running in 2016 or even later.

Assessments of the impact on the 2012 race of Huckabee’s non-candidacy have been mixed, but there’s a general consensus that it provides an opening for other outspoken social conservative in Iowa, while limiting the southerners in the field to the not-very-southern Newt Gingrich and African-American Herman Cain. In both respects, this could be very good news for smart-money favorite Tim Pawlenty, who is by all accounts out-organizing his rivals in Iowa and is clearly acceptable to the Christian Right and can now seriously contemplate a breakthrough in southern states beginning with South Carolina.

Speaking of Tim Pawlenty and South Carolina, a fascinating subplot in the presidential contest has been unfolding after Gov. Nikki Haley demanded that all the candidates side with her in attacks on the National Labor Relations Board, which has at least temporarily stopped the relocation of jobs by Boeing from Washington to SC in the wake of disputes with the machinists union. Haley, it should be noted, has trumped the usual conservative bashing of public-sector unions by arguing that private-sector unionism is incompatible with economic growth (she appointed a “management” labor attorney as her state labor department chief with the explicit mission of keeping unions out of the state to the maximum extent possible). Pawlenty won the race to first kiss Haley’s ring on the Boeing issue, though the other candidates are quickly following. This helps reinforce the impression that Pawlenty’s strategy—ironically, much like Mitt Romney’s in 2008—is to supplement his “moderate-governor-of-a-blue-state” background with an effort to do whatever he is told by conservative activists. He hasn’t turned them down yet.

New Manufacturing Data Show Weaker Factory Recovery, Deeper Recession

Posted on by The Progressive Policy Institute

There’s been a lot of happy talk recently about the revival of U.S. manufacturing . According to an article in the New York Times, “manufacturing has been one of the surprising pillars of the recovery. “ In a Forbes.com column entitled “Manufacturing Stages A Comeback,” well-known geographer Joel Kotkin talks about “the revival of the country’s long distressed industrial sector.” The Economist writes that “against all the odds, American factories are coming back to life.”*

Truly, I’d like to believe in the revival of manufacturing as much as the next person. Manufacturing, in the broadest sense, is an essential part of the U.S. economy, and any good news would be welcome.

Unfortunately, the latest figures do not back up the cheerful rhetoric.

Newly-released data suggest that the manufacturing recession was deeper than previously thought, and the factory recovery has been weaker. On May 13 the Census Bureau issued revised numbers for factory shipments, incorporating the results of the 2009 Annual Survey of Manufacturers. The chart belows shows the comparison between the original data and the revised data (three-month moving averages):

The decline in shipments from the second quarter of 2008 to the second quarter of 2009 is now 25%, rather than 22%. And the current level of shipments in the first quarter of 2011 is now 9% below the second quarter of 2008, rather than only 5%. In other words, the new data shows that factory shipments, in dollars, are still well below their peak level.

The manufacturing recovery looks even more tepid when we adjust shipments for changes in price. Here are real shipments in manufacturing, deflated by the appropriate producer price indexes.**

Now that hardly looks like a recovery at all, does it? Real shipments plummeted 22% from the peak in the fourth quarter of 2007 to the second quarter of 2009. As of the first quarter of 2011, real shipments are still 15% below their peak. To put it another way, manufacturers have made back only about one-third of the decline from the financial crisis.

And while U.S. manufacturers have struggled, imports have coming roaring back. Here’s a comparison of real imports (data taken directly from this Census table) and real U.S. factory shipments (my construction, using Census and BLS data).

This chart shows that imports have recovered far faster and more completely than domestic manufacturing. Goods imports, adjusted for inflation, are only about 1% below their peak. That’s according to the official data. If we factored in the import price bias, we would see that real imports are likely above their peak (I’ll do that in a different post).

In other words, this so-called ’revival of U.S. manufacturing’ seems to involve losing even more ground to imports. That doesn’t strike me as much of a revival.

 

P.S. Oh, oh, what about all those manufacturing jobs that Obama’s economists are so proud of? This chart plots aggregate hours of manufacturing workers against aggregate hours in the private sector overall (the last point is the average for the three months ending April 2011).

What we see is that the decline in hours in manufacturing was deeper than the rest of the private sector, and the recovery has really not made up that much ground. Over the past year, aggregate hours in the private sector have risen 2.3%, while aggregate hours in manufacturing have risen 2.9%. That’s not much of a difference. In fact, probably the best we can say is that manufacturing has not held back the overall recovery.

*An important exception to the happy talk has been the recent report from the Information Technology and Innovation Foundation, entitled The Case for a National Manufacturing Strategy.

**For those of you interested in technical details, I used the producer price indexes for 2-digit manufacturing industries, as reported by the BLS. Could these estimates be improved on? Probably–but they are good enough to get the overall picture.

Crossposted from Mandel on Innovation and Growth.

Union Voters and Democrats

Posted on by The Progressive Policy Institute

Top Democratic and union leaders play host this week to prospective 2012 Congressional candidates, highlighting labor’s status as a critical cog in progressive campaigns. Some observers believe that, in the aftermath of Wisconsin Gov. Scott Walker’s efforts to strip the state’s public unions of collective-bargaining rights, labor has found both renewed public sympathy and political momentum.

It’s not clear, however, that such attitudinal shifts will be enough to reverse the steady erosion of union membership and the voting power that goes with it. That’s the fundamental reality progressives must reckon with as they ponder how to forge electoral majorities.

To offset labor’s declining share of the electorate, Democrats logically must do one of two things: do better among union households or do better among non-union households. As it happens, the key to both is the same – winning more moderate voters.

Read the entire memo