Category: Uncategorized

Dodd-Frank Hits and Misses

Posted on by The Progressive Policy Institute

First the giant stimulus package, then the ambitious revamping of America’s health care delivery system. Now Congress, under the patient prodding of President Obama, is lurching toward passage of another stupendously complex bill, this time centered on financial regulatory reform. Whether you like them or not, you have to admit that big things are getting done in Washington on Obama’s watch.

If Congress passes the Dodd-Frank bill, it will be another major notch in the belt of a president who could use a political victory about now. But what’s a non-master of the universe like me to make of this 2,000-page behemoth?

It may do considerable good, but we ought to be clear about one thing: It won’t prevent the next financial crisis. As long as there are fortunes to be made in financial markets, there will be excessive risk-taking and speculation, new bubbles and panics, and powerful incentives for chicanery and fraud. No regulatory scheme can fully protect the public against ingenious new forms of human greed and folly.

That, however, is not an argument for doing nothing. The government had to react to Wall Street’s near meltdown in the winter of 2008-2009. Its interventions, beginning under President Bush and continuing into Obama’s administration, doubtless averted a full-bore financial collapse. But they also triggered a fierce and abiding public backlash against bailouts.

The Dodd-Frank bill doesn’t get everything right, but on balance it’s a reasonable response to the crisis. It imposes new disciplines on bank behavior, increases transparency for complex financial transactions and institutions, and offers consumers new protections against the clever breed of predators who have degrees from elite universities and sport $3,000 suits.

Some liberals are chagrined that the bill doesn’t break up the big banks. Conservatives echo the Wall Street Journal’s charges that the bill is a regulatory nightmare that will make it more expensive for banks to supply capital to businesses. It’s tempting to say that Sen. Chris Dodd (D-CT) and Rep. Frank (D-MA) must therefore have found some kind of centrist sweet spot, but there is something to the left-right critiques.

Most important, for example, the bill doesn’t slay the “too-big-to-fail” dragon. It leaves financial power more concentrated than ever in the hands of five mega-banks: Goldman Sachs, J.P. Morgan, Citigroup, Morgan Stanley and Bank of America. True, Dodd-Frank does impose the “Volcker Rule,” forbidding banks covered by federal deposit insurance from making bets (called “proprietary trading”) with their own money.  It increases capital reserve requirements to keep banks from taking excessive risks. It also sets up a council of financial guardians to anticipate systemic risks, and gives federal authorities power to seize and oversee the “orderly liquidation” of financial firms whose collapse could bring other institutions down as well.

But it’s hard to avoid the impression that the big banks will henceforth operate with a tacit government guarantee against systemic failure. This not only intensifies moral hazard – making it hard for administration officials to claim the bill would bar bailouts in the future – it also risks creating a privileged class of quasi-public banking utilities that will be able to borrow money more cheaply. That will raise the bar for new entrants and dampen competition in the banking sector.

Elsewhere, the picture looks more positive. Dodd-Frank would move much of the trade in financial derivatives onto exchanges and clearinghouses, though banks could still trade in over-the-counter derivatives to hedge their own risks. This seems like a sensible compromise that brings derivatives trading out of the shadows while retaining the ability of firms to hedge against interest rate and currency risks. In another boost for transparency, the bill would require private equity firms and hedge funds to register with regulators.

Dodd-Frank also puts in place what Obama last week called “the strongest consumer financial protections in history.” It creates a new Consumer Financial Protection Bureau housed with the Fed to police mortgage lending, credit and debit cards and other consumer loans – though not by auto dealers, who somehow won an exemption from oversight. This agency presumably will prevent abuses like the “no doc” and “liar” loans that helped to trigger the subprime lending frenzy, which was the spark that started the financial crisis.

The bill doesn’t deal at all with Fannie Mae and Freddie Mac. This is a huge omission, considering that these giant mortgage finance firms still hold a pile of dubious assets and are essentially in federal receivership.

For all its imperfections, Dodd-Frank seeks to protect consumers without creating undue regulatory obstacles to innovation in the financial sector, which traditionally has been a source of comparative economic advantage for the U.S. Pragmatic progressives ought to support it, while retaining a sense of humility about the ability of new regulatory bodies to prevent future abuses.

Photo credit: Center for American Progress Action Fund

Learning from Eurostar, Where London Meets Paris

Posted on by The Progressive Policy Institute

It’s a curious truth, though not yet widely understood, that we pay for high-speed rail whether we have it or not. We pay not only in congested highways, delayed air flights and disastrous oil spills, but also in a cumulative national slowdown that might be called arrested development.

This point is conveyed by a sharply reported article in the Financial Times that describes the business, cultural and even culinary changes in London 15 years after the start of high-speed Eurostar service to Paris.

Paris is 213 miles from London as the crow flies (about the same as Washington from New York), but “Paris seemed almost as exotic as Jakarta to Britons” before Eurostar service began in late 1994, FT’s Simon Kuper writes.

Nowadays, “what strikes you when going from Paris to London are the similarities.” Boasting a quarter of a million French inhabitants, London has become the sixth-largest French city, Kuper notes, while central Paris is “packed” with British nationals, some of them commuting multiple times a week to London on the train.

Transforming Travel

Eurostar is more than just a sleek conveyance for spoiled travelers, but a fundamental driver of progress. Back in the 19th century, people spoke of steam trains as “annihilating time and space.” Until railways became widely available, humans depended on animals for overland transportation and were limited by such factors as the feed required for a team of horses.

Each subsequent transportation revolution – the development of steamships in place of sailing vessels, the advent of flight with the Wright brothers, the mass production of motorcars, the arrival of jet planes replacing propeller craft – packed a wallop that reverberated across boundaries and social classes, tying people together in new and different ways.

 

The automobile made suburbia possible, while jets turned tourism into a global enterprise, to cite two examples. Equally fascinating is that the technology undergirding all of these revolutions was widely known and available to all nations, but only in western Europe and the U.S was the technology exploited in full.

That is until recently when the rebirth of rail travel – trains operating at several times the speed of highway traffic on dedicated rights of way – was pioneered in Japan, improved in Europe and now exploited to the max in China.

User-Friendly Networks

American policymakers, preoccupied by budget deficits and poll numbers, appear to be missing the larger picture, namely, that our standard of living is dependent on deploying the latest tools in transportation. In many corridors, high-speed rail is the best solution among traffic needs and sound environmental policy, and concentrating public funds upon it would represent a vast step forward in the use of transportation money.

One basic element ignored in Washington is the recognition that current rail traffic is far below what it would be had intercity rail service been remotely adequate under Amtrak. Some train journeys take longer today than they did when Herbert Hoover was president. It is impossible to predict how much dormant traffic is waiting to be tapped by a revitalized rail system.

The Eurostar trains that link downtown London with central Paris in just over two hours have not only enlivened both cities, according to Kuper, but created “user-friendly networks” that allow scientists and businessmen to exchange ideas quickly.

With other high-speed routes connecting France with Belgium, Germany with Austria, Switzerland with Italy, and, soon, France with Spain, the balance of scientific networks, which shifted to the U.S. after World War II, has swung back to Europe, according to his analysis.

In other words, efficient transportation is as important to a city’s or nation’s bloodstream as unfettered capital markets or sustained R&D. Here’s hoping the Obama administration, which supports high-speed rail, starts to make the case for expanded funding with the same clarity and celerity as the business-minded Financial Times.

Photo credit: Slices of Light

Why Do We Keep Passing All These Sanctions Anyway?

Posted on by The Progressive Policy Institute

A few weeks ago, the United Nations Security Council approved what have widely been hailed as the most wide-ranging and effective sanctions package against Iran ever. Today, word comes that the House and Senate have passed — by massive margins — a reconciled bill of unilateral American sanctions against Iran. The president will likely sign it.

As I’ve written before, it’s an open question how ultimately effective the UN sanctions will be, with massive loopholes for Chinese businesses (a necessary pre-condition for Chinese support in the UN Security Council, and ultimately the lesser of two evils) and a diplomatic split with Brazil and Turkey.

The current package on Obama’s desk looks to penalize companies that do business with Iran’s oil and gas sectors, as well as banks that deal with the Revolutionary Guard Corps, the group of thugs that’s the real power-broker in Tehran. Despite assurances from members of both parties that this bill forces companies into a with-us-or-against-us binary choice, it comes with significant risks: Will a rise in gas prices permit the Iranian regime to rally a divided population against a Western bully? How will the Green Movement, divided itself, react?

(If you want to see an alternate sanctions proposal, click here.)

These questions are particularly pressing amidst reports that Iran has been stockpiling fuel and reducing domestic consumption for six months.

But here’s where we need a lesson in why the international community goes to such lengths to negotiate and then impose sanctions in the first place. Political rhetoric that accompanies sanctions sets unrealistic expectations among Western audiences. Elected officials make it sound like each new round of sanctions will drive Iran to its knees or make them shudder in fear or some other impossible prediction.

The administration has to do a better job explaining why we impose sanctions. When news reports swirl about Iran skirting the sanctions by changing ships’ names, stockpiling fuel, and moving money around, it’s often portrayed in the press as a loss. But that’s actually proof that sanctions are working! The act of forcing Iran’s leadership to spend time and effort trying to evade sanctions is actually a success — it means that Iran’s actions have a cost associated with them.

There’s no guarantee, but the hope is that one day Iran’s rulers will wake up and say, “Gosh, I’m sick of trying to smuggle gas and move money around. It’s really starting to wear me down. It would be a lot easier if we could just do this above-board and have a real place in the international community.” Well, the only way to make that happen is to negotiate in good faith. If we drive Iran back to the negotiating table and force real concessions on their part, sanctions will have been a success.

Photo credit: United Nations Photo

A Lull in Primary Action

Posted on by The Progressive Policy Institute

We’re entering a slow period in state primaries, with the only contests on tap for the next four weeks being a runoff in Alabama on July 13 and Georgia’s primary on July 20. The former event features a Republican gubernatorial runoff between long-time front-runner Bradley Byrne and surprise second-place finisher Robert Bentley, who had to get past an unsuccessful recount petition by Tim James. In Georgia, there are competitive gubernatorial primaries in both parties, though former Gov. Roy Barnes seems to have the Democratic race well in hand at this point; Republicans have a fractious multi-candidate field led for many months by state insurance commissioner John Oxendine (whose ethics record is so controversial that RedState blogger Erick Erickson’s said he’d vote for Barnes if Oxendine wins the nomination), with a runoff almost certain.  I’ll have more about both states when we get closer to the balloting.

As expected, the landslide victories on Tuesday of Asian-American Nikki Haley and African-American Tim Scott in South Carolina has spurred a lot of commentary about the GOP’s new diversity. (It hasn’t got much attention, BTW, but Haley’s Democratic opponent, Vincent Sheheen, is of Arab descent, reflecting the long-time presence of Lebanese in the Deep South). But outside South Carolina, an equally remarkable aspect of those victories has gone largely unremarked: both candidates were protégés of disgraced Republican governor Mark Sanford, who has now achieved the political equivalent of eternal life in the success of his young associates. It will also be interesting to see how well Scott (assuming he wins his heavily Republican district in November), a hard-core conservative ideologue, fits in with the Congressional Black Caucus.

Utah Republicans are recovering from a nomination cycle that involved the rejection of a long-time incumbent Senator, Bob Bennett, and then a savage primary between two very conservative candidates, with the winner, Mike Lee, being very much the vehicle for national groups determined to move the GOP to the right. To understand that these Men of Principle haven’t gotten rid of the hypocrisy of traditional politics, check out the web site of the losing candidate, Tim Bridgewater. At the top is a pre-primary jeremiad that includes this line: “My opponent, D.C.-based attorney Mike Lee, is spending $200,000 on TV and radio, spreading lies and distortions about my business background.” A bit later he accuses Lee of “a desperate lie.” But over to the left on the page is a new bulletin that, predictably, endorses that desperate liar for the general election.

Moving along, you can expect some serious political fallout around the country from the U.S. Senate’s apparent defeat of what some have called a second stimulus bill. Most of the attention in national media has been paid to the impact on people whose unemployment insurance eligibility is running out. But the bill also included $16 billion in assistance to state and local government to help forestall layoffs of teachers and other public employees. Whatever you think of that as economic policy, it’s clear the withdrawn funds will wreak havoc in those states where governors and legislators had counted on the help, including those where Republicans are nervous about the public reaction to teacher layoffs and higher public university tuition. It’s another example of how tough-sounding rhetoric on fiscal austerity and small government is more popular than the practical steps needed to reduce spending, particularly in a recession, since there’s no state budget category called “waste, fraud and abuse” that can painlessly absorb cuts.

Poll Watch

In polling news, Rasmussen has a bunch of new take-it-with-a-grain-of-salt polls.  In the Nevada Senate race, a post-primary survey has Republican Sharron Angle up over Harry Reid 48-41, though her favorable/unfavorable ratio is no better than the incumbent’s. In the first general-election poll of the Vermont governor’s race in a long while, Rasmussen shows Republican Lt. Gov. Brian Dubie leading all the Democratic candidates, though Secretary of State Deb Markowitz holds him to a 47-40 lead. And in Washington, the new poll shows Sen. Patti Murray (D) and Republican Dino Rossi in a 47-47 dead heat.

A new Magellan poll in Arizona has John McCain with a comfortable 52-29 lead over conservative challenger, J.D. Hayworth, who’s having a tough week.

Ancient History

Posted on by The Progressive Policy Institute

Bruce Bartlett has a column up in today’s Fiscal Times that drills home just how far the Republican Party has veered from the center over the last few years. Bartlett recounts the story of the 1990 budget deal, which saw President George H.W. Bush reach across the aisle and strike a compromise with Democrats in an effort to shrink the deficit. The compromise on Bush’s end is, of course, now legendary: a violation of his “read my lips” pledge during the 1988 campaign that there would be no new taxes.

Working with Democratic majorities in both houses, the president knew that getting through measures on the spending side of the ledger would require some concessions on his part. Bartlett sums up the outcome of the budget negotiations:

Budget negotiations finally concluded in late September. The final deal cut spending by $324 billion over five years and raised revenues by $159 billion. The most politically toxic part of the deal, as far as congressional Republicans were concerned, involved an increase in the top statutory income tax rate to 31 percent from 28 percent, which had been established by the Tax Reform Act of 1986. The top rate had been 50 percent from 1981 to 1986 and 70 percent from 1965 to 1980.

More importantly, the deal contained powerful mechanisms for controlling future deficits. In particular, a strong pay-as-you-go (PAYGO) rule required that new spending or tax cuts had to be offset by spending cuts or tax increases. There were also caps on discretionary spending that were to be enforced by automatic spending cuts.

The conservative base, of course, went ballistic. Their opposition was reflected in the House of Representatives, where 163 Republicans voted against the budget, while only 10 voted for it. The Senate was a little better — half of Republicans approved the deal. These days, getting half of the Republican Senate caucus to go along with anything the Democratic majority pushes would be a minor miracle.

The consequences of Bush’s budget deal are well known. The violation of his tax pledge would prove to be a devastating weapon for political opponents in the 1992 campaign. But the economic consequences are less heralded. President Clinton deserves credit for bringing sanity and surpluses to the budget in the 1990s, but budget experts agree that his predecessor’s budget deal contributed to that achievement.

Bartlett quotes the GOP’s tax-cutting commissar, Grover Norquist, to underscore conservative suspicion of budget deals: “Budget deals where they actually restrain spending and raise taxes are unicorns.” Only spending cuts, Norquist argues, are permissible. The way the right is moving these days, we’re more likely to see a unicorn than a GOP leader going against party orthodoxy on taxes.

Photo credit: sdk

Six Things to Watch with Petraeus in Afghanistan

Posted on by The Progressive Policy Institute

Now that Gen. McChrystal is about to add “(ret.)” after his name, let’s examine the implications of the transition to Gen. Petraeus.

The Washington Post story quotes an unnamed White House official saying of the transition: “It’s as seamless as it could be, not only in terms of operations but also because you put someone in who’s widely respected. No one is going to doubt that he’s the right guy for the job.”
A relatively smooth transition, to be sure, but with an emphasis on the relatively. Here’s a look at five areas where the change in command might create a bit of unease.

Political expectations: Petraeus is God, at least if you ask most elected officials on the Hill. Yes, he was the architect of the “surge” in Iraq, and the “surge” was part of the reason that violence decreased in that country. The massive increase in troops helped, but the strategy change, the Sons of Iraq’s change of allegiance and a six-month cease-fire called by Shiite cleric Moqtada al-Sadr were all critical.

If you’re really interested in learning the entire story of how Iraq’s civil war was tamed, read The Gamble by Tom Ricks. In it, Ricks quotes a Petraeus colleague (and I’m paraphrasing from memory) as saying, “David is the best general in the United States military. But he’s not as good as he thinks he is.” It’s like Favre to the Vikings. He’s still really, really good. But he’ll never be as good as in Green Bay.

Keep this in mind because, as Ricks says on his blog this morning, “Afghanistan 2010 may be an even tougher nut than Iraq 2007. … Our biggest problem in Afghanistan is the government we are supporting there, and it isn’t clear to me what Petraeus can do about that.”

Mission: Counterinsurgency theory and practice is Petraeus’ bag, so don’t expect that to change. Bear in mind that COIN is a strategy, not an outcome. It ends with some sort of negotiated peace, and it’s unclear if Petraeus has the same threshold for potential discussions with the Taliban as McChrystal. There has been American resistance to the idea (as there should be) of reconciling with any of the Taliban’s upper eschelon, but would Petraeus draw the line slightly differently than McChrystal?

Relations with Eikenberry: It became clear that the U.S. Ambassador to Afghanistan, Karl Eikenberry, was playing second fiddle to McChrystal, who had established a clear working relationship with Karzai. During Petraeus’ time in Iraq, he may have held more sway than then-Ambassador Ryan Crocker, but they were an inseparable team that appeared together constantly. Petraeus, who is as much of a diplomat as a solider, will work to forge a better relationship with Eikenberry and turn this operation into a true civilian-military effort.

Relations with Karzai: Karzai very publicly lobbied for McChrystal to stay, and by many accounts, the two were on the same page (at least professionally). Is it possible that they were too close? Will Petraeus do a better job using America’s isolated points of leverage to extract more from the Afghan government?

Relations with Pakistan: This quote says it all:

McChrystal also played a key role in improving Kabul’s rocky relationship with Islamabad.

Yet Petraeus probably has as much, if not more, clout in Islamabad. He was an early proponent of a regional strategy that prioritized improving relations with Pakistan in hopes of persuading it to target the Afghan Taliban fighters who use Pakistani hideouts to plot attacks on coalition forces in Afghanistan.

Petraeus has visited Pakistan numerous times, delivering assurances that the U.S. troop buildup in Afghanistan would not spill over into Pakistan, visiting Pakistani paramilitary forces in the northwestern city of Peshawar and regularly praising Pakistan’s fight against its domestic Taliban.

“There’s a complete understanding of each other’s situation,” a senior Pakistani military official said, speaking on the condition of anonymity. “He’s not a stranger.”

Troops on the ground: There’s been no shortage of troops in Afghanistan who voiced their displeasure with McChrystal’s restrictions on the use of force. Think of it this way: you’re an 18-year-old Marine, –and you’ve become a trained killer and sent to a war zone. But your commanding general seems like he’s telling you not to do the job you’ve been trained for. Many of the troops’ quotes imply a certain amount of lost respect for McChrystal. Petraeus will have to work to explain the mission and win them over to a “mission first” mentality. Training stateside should also be adjusted accordingly.

Petraeus is the consummate pro, and he’ll no doubt do his best in an incredibly challenging environment with far-from-certain results. My take is that this transition will be as smooth as one could hope.

Photo credit: Jon-Phillip Sheridan’s Photostream

What No One Is Paying Attention to in the “Rolling Stone” Article

Posted on by The Progressive Policy Institute

The now-infamous Rolling Stone article that earned Gen. Stanley McChrystal a one-way trip out of Afghanistan has attracted attention for what it says about the White House.

And in a way, that’s a good thing.

Because once you get past the name-calling scandal, the article is really a takedown of counterinsurgency strategy and, by extension, a subtle get-out-of-Afghanistan-now message. In an attempt to categorize the debate about whether to adopt a counterinsurgency strategy in Afghanistan, here’s Hasting’s characterization:

COIN, as the theory is known, is the new gospel of the Pentagon brass, a doctrine that attempts to square the military’s preference for high-tech violence with the demands of fighting protracted wars in failed states. COIN calls for sending huge numbers of ground troops to not only destroy the enemy, but to live among the civilian population and slowly rebuild, or build from scratch, another nation’s government – a process that even its staunchest advocates admit requires years, if not decades, to achieve. The theory essentially rebrands the military, expanding its authority (and its funding) to encompass the diplomatic and political sides of warfare: Think the Green Berets as an armed Peace Corps.

[…]

The entire COIN strategy is a fraud perpetuated on the American people,” says Douglas Macgregor, a retired colonel and leading critic of counterinsurgency who attended West Point with McChrystal. “The idea that we are going to spend a trillion dollars to reshape the culture of the Islamic world is utter nonsense.

Or this:

After several hours of haggling, McChrystal finally enlisted the aid of Afghanistan’s defense minister, who persuaded Karzai’s people to wake the president from his nap. This is one of the central flaws with McChrystal’s counterinsurgency strategy: The need to build a credible government puts us at the mercy of whatever tin-pot leader we’ve backed – a danger that Eikenberry explicitly warned about in his cable.

To sum up, you have a questionable description of COIN, followed by a single opinion from someone whose stated qualifications are that he went to college with McChrystal (who knows if Macgregor has any COIN expertise) deriding the entire concept.

It’s one thing to report on who McChrystal is, what he’s said, where he comes from, and the difficulty of mission he’s trying to accomplish. But it’s quite another to falsely characterize his mission as a Sisyphean task from the get-go. Clearly, the president, having consulted and deliberated for three months, believes that there’s significant reason to hope counterinsurgency can bring about hard-fought American security.

For a better discussion of COIN, I’d encourage you to read papers like this, by David Kilcullen, author of the Accidental Guerilla and an actual COIN expert. In the paper linked above, Kilcullen properly characterizes COIN as difficult and far from a guaranteed success, but forwards a thoughtful framework for how COIN practitioners might organize their efforts to bring about the best chances of sustainable security.

…you may now return to your regularly scheduled name-calling.

Photo credit: The US Army’s Photostream

Big Night For the Right in SC

Posted on by The Progressive Policy Institute

As I expected, the cluster of organizations and interests that represent the most conservative wing of the increasingly very conservative Republican Party had some real fun last night in South Carolina’s runoff elections.

Nikki Haley, the Mark Sanford protege who had staked out the “most conservative” territory in her gubernatorial race long before anything was said about her sex life or ethnicity, won the runoff over congressman Gresham Barrett by a two-to-one margin, essentially winning everywhere other than a few counties in Barrett’s upstate base. Similarly, another Sanford protege with a can’t-outconservative-me rep, state legislator Tim Scott, beat Charleston County Councilmember Paul Thurmond by better than two-to-one for an open congressional seat.

I’ve written enough about Haley over the past few weeks; suffice it to say that she won this race the moment her old staffer, blogger Will Folks, accused her of marital infidelity in a way that failed to convince much of anybody but made the entire campaign All About Nikki. And it was especially appropriate that Sarah Palin endorsed Haley just before the Folks furor began; the Haley saga was a pitch-perfect projection of Palin’s own persecution complex–you know, the Good Old Boys and the liberal lamestream media trying to smear a brave Mama Grizzly for telling the simple right-wing truth.

Scott’s victory was equally interesting, and perhaps an even bigger deal for the Republican Right, which will have an African-American spokesman in Congress for the first time since J.C. Watts retired. The symbolism of an African-American defeating the son of Strom Thurmond within shouting distance of Fort Sumter is obviously very striking. But it’s not as though Scott’s win repudiated any aspect of Thurmond’s legacy other than the blatant racism he abandoned by the 1970s; Scott was himself co-chairman of ol’ Strom’s last Senate campaign.

The third great event for South Carolina conservatives was the absolutely humiliating 71-29 defeat of U.S. Rep. Bob Inglis by Tea Party vehicle Trey Gowdy. This result will serve as an enduring reminder to GOP elected officials that The Movement will find someone to run against them if they stray from orthodoxy. Inglis’ fatal act of sacrilege was probably telling fist-shaking protestors at a town hall meeting to stop paying attention to Glenn Beck.

South Carolina has always been a special place for the more radical variety of conservatives. They certainly seemed to have the whole state wired last night.

This item is cross-posted at The Democratic Strategist.

Photo credit: maryaustinphoto

Follow the Leader

Posted on by The Progressive Policy Institute

Congress isn’t always the first place you look for intellectually honest discussion of America’s fiscal dilemmas. Neither party has clean hands, yet each points smudged fingers at the other. How refreshing then to hear Rep. Steny Hoyer (D-MD) uttering blunt truths rather than partisan cant about America’s exploding debts.

“Unfortunately, we can blame our long-term deficit on policies that are almost universally popular,” the House Majority Leader said yesterday at a forum hosted by Third Way. “We’re lying to ourselves and our children if we say we can maintain our current levels of entitlement spending, defense spending, and taxation without bankrupting the country,” he added.

Hoyer also wondered aloud about the wisdom of permanently extending any of the Bush tax cuts absent a serious plan for long-term deficit reduction. It’s a pertinent question for both Republican anti-tax zealots and President Obama.

Even as they excoriate Obama and the Democrats for ballooning the federal deficit, Republicans insist that all the tax cuts passed in 2001 and 2003 be extended. That would cost a cool $3 trillion over the next decade, but don’t expect the GOP to fill that gaping hole in the federal budget with spending cuts. As Hoyer pointed out, Republicans have run like scalded dogs from Rep. Paul Ryan’s “roadmap” to a balanced budget, which calls for deep cuts in Medicare and Social Security.

But President Obama is in a bind as well. He has set up a fiscal commission to come up with a plan after the midterm election to start unwinding America’s massive debts. Many economists believe such a plan is essential to boost investor and lender confidence in the soundness of the U.S. economy, and to reverse the enormous imbalances in world financial flows.

During the 2008 campaign, however, Obama promised to extend the Bush cuts for the “middle class,” which he defined as families earning less than $250,000 and individuals earning less than $200,000. That promise helped him deflect GOP efforts to brand him as an inveterate tax hiker. But it carries a high price tag: about $1.4 trillion over the next decade according to the Joint Committee on Taxation.

What’s more, the nation’s fiscal outlook has deteriorated dramatically since the campaign. Massive public spending to avert a financial and economic collapse last year could push this year’s deficit to a record $1.7 trillion. The national debt now stands at about $13 trillion, and is on course to reach 90 percent of GDP by 2020 – not far from Greek-style proportions.

America really can’t afford any of the Bush tax cuts right now. Letting them expire would give the fiscal commission more room to devise a balanced package of spending and tax reforms aimed at whittling down our debts.

But with unemployment stuck in the stratosphere, and with Democrats apparently facing sizable losses in the midterm election, it’s hard to ask them to expose middle-class families to higher taxes – especially when Republicans can be counted on to indulge in monolithic, over-the-top demagoguery.

GOP Senate Minority Leader Mitch McConnell wasted no time in unloading on Hoyer yesterday. “It’s now official. Top Democrats on Capitol Hill are starting to signal their intention to raise taxes on the middle class,” he declared on the Senate floor.

To limit the long-term fiscal impact, centrist Democrats like Hoyer are considering a temporary extension of the middle-class tax cuts. Many liberals, however, are more concerned about the supposed dangers of “austerity” than the nation’s colossal debt burden. In fact, they want to make the cuts permanent now, while Democrats still enjoy big majorities in both Houses.

So chances are Congress will extend the middle-class tax cuts this fall, setting a less-than-inspiring example of restraint for the fiscal commission.

Nonetheless, Hoyer said House Democrats are pushing a budget resolution that would limit discretionary spending; cut deeper than the president’s budget; reinforce PAYGO rules; and commit to a vote on the fiscal commission’s recommendations. It’s a modest down payment on fiscal reform that’s unlikely to suppress demand and throw the economy into a tailspin.

In any case, the contrast between Hoyer’s fiscal realism and the GOP’s denial couldn’t be sharper. Let’s hope Democrats follow their leader.

Photo credit: Center for American Progress Action Fund

That McChrystal Article

Posted on by The Progressive Policy Institute

Washington is abuzz this morning with news of an as-yet-unpublished Rolling Stone profile of Gen. Stanley McChrystal. You can read the nastier bits here and here, but let’s just say that we learn that the general and his entourage have some not terribly complementary things to say about Obama, Biden, National Security Advisor Jim Jones, U.S. Ambassador to Afghanistan Karl Eikenberry and U.S. Special Envoy to Afghanistan Richard Holbrooke.

Though the full article isn’t out, leaks of the article make the attacks seem more personal rather than professional in nature, though I guess it’s likely that personal animosity is probably an extension of professional differences. And for those scoring at home, some of the attacks aren’t even that clever. No, I don’t think “Biden” sounds anywhere close to “Bite Me.”

The moral of this story is simple: Never, ever let your staff get trapped on a 12-hour bus ride between Paris and Berlin during a volcanic ash eruption with an all-access reporter. Duh. Michael Hastings, the freelance journalist who penned the piece, went on Morning Joe today and dropped that a lot of his material came from a European trip with McChrystal and co. that was extended and forced onto a bus thanks to Eyjafjallajokull (or as the military calls it, “E-15”). In such confined spaces and after such a stressful travel experience, people tend to get punchy and let things slip.

You’d expect that after such a flabbergasting news bomb, McChrystal’s staff would offer a “clarification” or denial or retraction or… something. But instead, there was an apology sent from McChrystal to reporters:

I extend my sincerest apology for this profile. It was a mistake reflecting poor judgment and should never have happened. Throughout my career, I have lived by the principles of personal honor and professional integrity. What is reflected in this article falls far short of that standard. I have enormous respect and admiration for President Obama and his national security team, and for the civilian leaders and troops fighting this war and I remain committed to ensuring its successful outcome.

In other words: it’s all true.

McCrystal and his staff’s comments are certainly beyond the pale, and the profile continues to confirm erstwhile speculation that there are significant fissures within the U.S. team in Afghanistan. First, there was McChrystal’s interview with “60 Minutes” last September, where he dished on the Pentagon’s slow-response and his lack of contact with Obama. Then there was Ambassador Eikenberry’s leak of a strategy memo that resisted McChrystal’s call to increase troop levels. That’s on top of an eyebrow-raising speech in London that got him hauled onto Air Force One for a chat with the president. And now this.

Some are howling that this amounts to insubordination and that McChrystal should be fired. That may be true, and McChrystal is being reeled into D.C. tomorrow to explain himself. At the very least, it’s amazingly dumb public relations. You don’t get to be a flag officer in the U.S. military without being accustomed to the chain of command. And McChrystal and any loose-lipped staff should know that you keep your disagreements private and then execute the orders of the commander in chief. But who knows, maybe that’s not the way McChrystal, an ex-commander of the insular and secretive Special Ops, was used to conducting himself.

So what now? There is, of course, a very good possibility that this will be the end of the road. But that decision isn’t as easy as you might think. For one, Obama is not a knee-jerk politician who reacts instantly to every negative media report. He’s careful, deliberate and won’t be pressured.

Furthermore, this is an issue of national security, not petty politics. The president has to make decisions in the long-term interest of American safety and in consideration of the country’s sons and daughters in harm’s way. So, absent a ridiculous inability to keep things out of the press, changing an otherwise strategically competent theater commander in the midst of a major counterinsurgency campaign may not be the best thing to do at the moment. Obama has to thread the needle between team chemistry in Afghanistan and a PR nightmare to give both Afghanistan and the U.S. the best chances for long-term security.

And it’s with that in mind that any decision to replace McChrystal will be made.

Photo Credit: isafmedia

SC, Utah Runoffs Highlight Tuesday Primaries

Posted on by The Progressive Policy Institute

It’s primary day in Utah, with statewide primary runoffs on tap in North and South Carolina.

Taking these states in reverse order: South Carolina is almost certain to produce the bulk of national political headlines tonight, with the made-for-TV saga of Republican gubernatorial candidate (and certain boffo winner tonight) Nikki Haley front-and-center. In case you have somehow missed it, Haley is the very, very conservative state legislator who began the campaign as the underfunded protégé of disgraced “conservative reformer” Mark Sanford, and then vaulted into contention just as one and then two South Carolina Republican political operatives went public with allegations that they’d had illicit sex with the candidate.

It’s sometimes difficult to separate cause and effect in political developments, but it’s reasonably clear that the poorly documented sexual allegations against Haley, compounded more recently by crude attacks on her ethnicity (she’s second-generation Indian-American) and religion (she’s an adult convert to evangelical Protestantism from her family’s Sikh tradition), have immeasurably helped her campaign while reducing her once-powerful gubernatorial rivals to bystanders if not presumed accomplices in smears against her. Haley nearly won the nomination without a runoff, and was also endorsed by third-place finisher Attorney General Henry McMaster. Her opponent, Rep. Gresham Barrett, won the dubious prize of an endorsement from last-place primary finisher Lt. Gov. Andre Bauer, and also managed to outspend Haley in the brief runoff campaign. But that matters little in a race driven by scandal-fed free media, and the only question is how high her margin will rise, and how well she wears on voters in a long general election campaign against Democrat Vincent Sheheen.

Those who want to boost the GOP as a party that presents diverse candidates proclaiming a single rigid conservative message will be hoping against hope that another South Carolina runoff, in the Low Country 1st congressional district, produces a win for state representative Tim Scott. Scott, who like Haley claims the “true conservative” mantle (and has both a Sarah Palin endorsement and Club for Growth backing), is African-American, and in a coincidence that could have been made in Hollywood, his runoff opponent is none other than Strom Thurmond’s son, Paul (a Charleston County council member).

Meanwhile, in upstate South Carolina, Republican Rep. Bob Inglis is expected to lose his House seat to Tea Party favorite Trey Gowdy; Inglis only won 28 percent of the vote in the primary to Gowdy’s 39 percent. Inglis got into trouble for voting for TARP and daring to criticize Glenn Beck.

In North Carolina, it’s anybody’s guess as to whether Elaine Marshall or Cal Cunningham will win the Democratic nomination to face Sen. Richard Burr. Marshall led the primary 37-26, narrowly missing the 40 percent threshold for winning the nomination outright. She also got an endorsement from third-place primary finisher Ken Lewis, which added to her strength among African-American leaders. But Cunningham, who was recruited into the race by the DCCC, has been the aggressor in the runoff, touting his electability.  The only public poll of the runoff, taken by PPP last month, showed the two dead even with a large undecided vote. I’d guess Marshall is still the favorite to win a very low-turnout runoff.

Aficionados of wild campaigns and wilder candidates may be disappointed tonight by the expected defeat of North Carolina Republican congressional candidate Tim D’Annunzio, who according to PPP is trailing Harold Johnson for the right to take on Democratic incumbent Larry Kissell.

With so much national attention on the Carolinas, the ideological drama going on in both parties in Utah may not receive due notice. As you may recall, Utah Republicans dumped Sen. Bob Bennett at a state convention last month as he trailed two challengers for the right to go to today’s primary. The survivors, entrepreneur Tim Bridgewater and former SCOTUS clerk Mike Lee, are both hard-core conservatives by most national standards. But Lee’s national supporters (including Jim DeMint and RedState’s Erick Erickson) are going after Bridgewater hammer-and-tong as little other than the ideological heir to Bennett (who, along with another defeated candidate, Eagle Forum activist Cherilyn Eagar, has endorsed Bridgewater). The one independent poll shows Bridgewater up by nine points, but Lee has released his own poll showing him up nine points.

Meanwhile, Utah’s sole Democratic congressman, Tim Matheson, is facing a serious primary challenge from the left, from retired teacher Claudia Wright. Wright has made Matheson’s opposition to health reform a major theme, and there’s also been talk of Republicans crossing over into the open Democratic primary to “take out” the incumbent (though as always, tactical voting is actually a pretty rare phenomenon). In a late poll, Matheson led Wright 52-33, but whatever vote Wright receives will be closely watched for national implications, given progressive grumbling about Blue Dogs like Matheson.

Among Industry, Surprising Support for a Carbon Price

Posted on by The Progressive Policy Institute

In meetings I’ve had recently with folks representing industries from automobiles to energy to private equity, I’ve heard it over and over again. They want a price on carbon.

They want it because they want to make money through alternative energy. For that, they need predictability in supporting the companies that take risks and need capital to design and develop alternative fuel technologies.

They want it because they, their children, their grandchildren, their employees and their shareholders, like everyone on the planet, will suffer the externalities of a carbon-dependent economy.

And they want it because they’re good corporate citizens, and they want to do their part in easing the nation toward a lower-carbon future.

The question is whether carbon pricing will get any traction in the coming weeks from a White House that seems more intent on political calibration than on shaping the landscape itself.

Given the dynamism of the carbon-pricing movement, the twin mysteries today are, first, why the president didn’t press harder for what seems to be the consensus, industry-friendly position on carbon — a simple pricing mechanism — in his Oval Office speech last week, and second, whether he will do so in the coming weeks.

The politics of carbon have changed dramatically in recent weeks, as the nation continues to watch the spill billow in the Gulf. (If you haven’t yet done it yourself on your computer, click here for BP’s own mesmerizing and terrifying live feed). A recent, post-BP poll found that 63 percent of Americans support a bill with a carbon price, while only 29 percent oppose it. The environment has also improved for proposals like the “cap-and-dividend” bill recently offered by Sens. Susan Collins (R-ME) and Maria Cantwell (D-WA) (and explained here on P-Fix by Danny Morris), which would price carbon with a net-neutral return to the taxpayers in the form of checks.

Meanwhile, the nation’s leading corporations continue to support a price on carbon. In April, before the spill, three of the nation’s largest oil companies — Shell, ConocoPhillips, and BP (this is even pre-oil spill) — as well as the Edison Electric Institute, a consortium of utilities whose members provide the bulk of the nation’s electricity, all announced their support for the Kerry-Lieberman legislation with a “hard price collar” for the price of carbon (including both a floor and a ceiling).

The fact is that many private corporations want a price on carbon. They want it because they believe the future is headed in a direction where carbon-producing technologies will simply have to be reduced, and they’d rather build their businesses around that future quickly rather than slowly.

However, there was no such leadership last week from the Oval Office. Of the transition from carbon, the president said:

There are costs associated with this transition. And some believe we can’t afford those costs right now. I say we can’t afford not to change how we produce and use energy — because the long-term costs to our economy, our national security and our environment are far greater. So I am happy to look at other ideas and approaches from either party — as long they seriously tackle our addiction to fossil fuels.

This clinical framing scarcely captures the urgency of the task. There is a golden opportunity now finally to get business and clean energy on the same page. The question is whether it will billow by and disperse, like the oil we’re all watching in the Gulf.

Photo credit: Michael Caven’s Photostream

Orszag a Tough Act to Follow

Posted on by The Progressive Policy Institute

Today’s big personnel news is Peter Orszag’s decision to leave the White House budget office sometime in the next few weeks. The departure, which has already sparked speculation on possible replacements, will be the Obama administration’s first major exit. Whoever the White House picks to replace him will have big shoes to fill.

As the director of the Office of Management and Budget (OMB), Orszag played a key role in two of the biggest pieces of progressive legislation we’ll see in our lifetime: the economic stimulus package and the health care reform bill. On the latter, in particular, Orszag’s acumen and advocacy were key assets, his forceful case for the bill’s cost-cutting properties no doubt crucial in bolstering support for a gigantic piece of social legislation. It’s worth noting that his contributions to passing health reform began well before his stint at OMB. As the director of the Congressional Budget Office in 2007-2008, Orszag repeatedly sounded the alarm on rising health costs as the biggest threat to our fiscal future, warnings that undoubtedly helped set the stage for reform’s passage.

For an administration numbers-cruncher, he was unusually visible, which was a good thing. With a reputation for impartiality and brilliance, Orszag gave the administration’s agenda analytical ballast. There will no doubt be efforts on the right to brush Orszag with the red ink that the administration finds itself swimming in, but that’s politics as usual. Inheriting the worst economy since the 1930s, Orszag presided over the Herculean task of preventing a complete meltdown and setting the foundation for a recovery. In many ways, he’s a reflection of the administration at its best: a rigorous, pragmatic empiricist.

Photo credit: Center for American Progress’ Photostream

Lieberman’s Cyber Bill Causes Consternation Among Dems

Posted on by The Progressive Policy Institute

Late last week, Sen. Joe Lieberman (I-CT) unveiled a draft bill that seems to be causing some anxiety among progressives.

Certain provisions in the bill seem to be reasonable – like creating a National Center for Cybersecurity and Communications and an Office for Cyber Policy — and should strengthen American defenses in an increasingly vulnerable climate (particularly as the China cyber threat is on the upswing). But others have split Democrats.

There seem to be three camps — civil libertarians, Democrats on the Hill working on the cyber issue and the White House.

Civil libertarians are concerned about this provision of the bill, which would provide the president with the power to declare a national cyber emergency and essentially compel owners of critical cyber infrastructure to subjugate themselves to the president’s direction. In other words, civil libertarians are making the case that with an emergency declaration, the president could close the Internet.

Lieberman has tried to explain the provision, saying “the government should never take over the Internet.” But his explaination fails to bridge the gap between a complete “taking over” and an ill-defined and vague emergency provision that his bill provides for.

But cyber-congressmen (a term I’m laying claim to) have come out in support of Lieberman’s bill:

In an unusual show of bipartisanship, two prominent senior members of the House panel — California Democrat Jane Harman and New York Republican Peter King — announced plans to co-sponsor and introduce a companion bill in the House to S. 3480, introduced last week by Senators Joe Lieberman (ID-Conn.), Susan Collins (R.-Maine) and Tom Carper (D.-Del.).

“I agree with Mr. King that the Lieberman-Collins bill is excellent,” declared Harman, adding, “I do plan to co-sponsor the bill with him…I think it is an excellent effort. I’m sure it will change as it goes through the legislative process, but I do think it will be good to work with our counterparts in the Senate on this, as we worked with our counterparts in the Senate on the Safe Ports act.”

While supporting tough cyber legislation is certainly laudable, questions of motivation hang in the air. Is support for the bill born of a desire to seek genuine bipartisan compromise, an attempt to pass major legislation that members are responsible for in an election year, or because of the reported overtures to cyber-business? Or all three? Or something different?

Then there’s the White House. Deputy Under Secretary for the National Protection and Programs Directorate for the Department of Homeland Security (there’s a mouthful) Philip Reitinger testified that:

[T]he administration’s review of the bill, which was released last week, is incomplete and could not give a timeline on when this would be done. He mentioned that revisions of the bill should be aware that the president already has certain emergency powers and care should be taken to avoid overlapping the law.

As such, the bill was declined the Obama administration’s endorsement in the hearing. Instead, the deputy suggested that the current Section 706 of Communications Act should be used as a foundation for revisions in the law, as opposed to the creation of a new one.

That part in bold is the upshot — no matter what the support or concerns are, the bill won’t become law unless the administration fully supports it. At this point, that’s unlikely without significant revision.

Photo Credits: Tsakshaug’s Photostream