Category Archives: U.S. Election 2012

Republicans a Party of Deep Divisions

Published in the Telegraph-Journal 13th November 2012

Republicans have begun the painful self-reflection that follows electoral defeat. Two camps have emerged. One believes that the Republican Party needs a thorough re-evaluation, beginning with principles and strategies. The advocates of this group think that Romney and the Republican Party lost the election because the Party’s philosophic propositions lacked ideological coherence and failed to address America’s emerging and changing demographic realities.

The other camp thinks that Romney and the Republican Party would have won if the Party’s election strategies and tactics had been more consistently developed based on principles of the new conservatism. This group believes that Republicans should redouble their efforts based on established ideological principles rather than seeking a new foundation.

Which group wins will determine the future of Republican prospects for a generation.

Influential conservative Charles Krauthammer thinks it would be a mistake for Republicans to undergo a radical change. He stresses that, “Republicans should not abandon the party’s philosophical anchor. In a world where European social democracy is imploding before our eyes, the party of smaller, more modernized government owns the ideological future,” ignoring the fact that a key source of European instability was the financial crisis initiated by Wall Street. His version of reality is that the Democrats are not the demographic future because Republicans could “counter that in one stroke by fixing the Latino problem.” According to Krauthammer, “Republicans lost the election not because they advanced a bad argument but because they advanced a good argument not well enough.”

One of the key questions that emerged during the months of the election is: what precisely is the new conservatism? Its underlying principles appear to be government reform, low taxes and a minimal regulatory structure for business that would minimize obstacles to economic growth. But Republicans also expressed views that reflected resentment, xenophobia and remarkable political and economic naivete. The Republican Party has become a home the orthodoxy of the evangelical far right. These angry groups will not compromise readily on certain polarizing issues.

The process of introspection is likely not only to reveal party divisions over domestic issues such as immigration and taxes, but in foreign policy as well. During the 2012 campaign, it was often difficult to discern where Republicans stood on foreign policy. Romney himself often had contradictory viewpoints, reflecting the national-security advice he received both from neoconservatives and more liberal-minded realists. Romney sounded tough when discussing Russia and China but as the campaign wore on, he increasingly sounded indistinguishable from Obama. It was difficult to know how Republicans differed from Democrats.

But the coming internal Republican disagreements are not likely to pit realists against neocons so much as it will pit both groups against the Tea Party. While neocons and realists may hold differing views on how and where the U.S. should deploy its power, they generally agree that America should maintain its superpower status, requiring the investment to ensure that status while the Tea Party believes that defense should be subject to the same cuts as the welfare state. This is another major schism that will not easily be negotiated.

In 2008, Barack Obama became the first president who lost the white vote by double digits. In 2012, Hispanics were for the first time a double-digit percentage of the turnout for the Democrats. According to conservative columnist George F. Will, “Republicans have four years to figure out how to leaven their contracting base with millions more members of America’s largest and fastest-growing minority.”

But Krauthammer believes that the solution to Romney’s failure “is not retreat, not aping the Democrats’ patchwork pandering. It is to make the case for restrained, rationalized and reformed government in stark contradistinction to Obama’s increasingly unsustainable big-spending, big-government paternalism.” Republicans have yet to mount a convincing argument making this case.

What is most clear is that, on demographics as on many other issues, Republicans have an enormous amount of internal arguing in their futures. As they seek to bring coherence to a party with a wide disparity of viewpoints many Republicans will be asking whether this is even possible before Obama’s term expires.

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The Republican Party After Romney

Published in the Telegraph-Journal 9th November 2012

After the disastrous first debate on October 3 in which he allowed Mitt Romney to establish a foothold in a campaign that otherwise was drifting inexorably in favour of the incumbent, President Obama had to confront the real possibility that he could lose the fast-closing election and be held to one term. There was a moment when it appeared that the Republicans could realize their ambitions and capture the White House despite supporting a candidate that had few defined policy positions on anything and many vague positions on everything else.

That first debate brought into sharp relief that Obama’s weaknesses were very real. The forcefulness of Romney’s performance made it clear that the president and his advisers would need to work overtime to reclaim the lead in the campaign with little time in which to achieve it.

Some Republicans felt that a winning trajectory had been established and became more voluble about the remaining time of the campaign. They boasted that this was the time when the Americans that had voiced their distaste with the status quo would give them control not only of the executive branch but both halves of the legislative branch as well. Immediately after that first debate, Republican confidence was at its highest level in the grueling campaign.

Of course, it was not to be, at least not for Republican hopefuls. At the end, it was not really very close. Not only was it a convincing victory for Obama, it was a crushing defeat for Romney and Republicans.

Even before all the ballots have been counted, Republicans have begun to offer explanations for the defeat, the implications for the country and conjecture about where the Republican Party would go from here. A common thread runs through this commentary: the election was a crushing defeat not only for the Republican Party but for conservatism in America.

It is not difficult to identify with the idea that rebuffing Mitt Romney and Paul Ryan at the polls amounted to a stinging rebuke of the Republican position on the limited competence of government and on the need to reduce its scope and scale. According to conservative commentator Charles Krauthammer, “the American experiment — the more individualistic, energetic, innovative, risk-taking model of democratic governance — continues to recede, yielding to the supervised life of the entitlement state.”

The proposition that the individual shrinks into dependency as government grows in size and power is still a fundamental belief among many Democrats as well as Republicans. Arguments about the role of government form the backbone of political discussion especially in health care, education, the environment and social welfare. Each issue has government regulation at its core. In a world where economic globalization is the horse that has bolted the barn, there is a growing realization that the America of tomorrow will not resemble the America of even one generation ago.

But the direction in which the world is heading is less likely to support the libertarian dreams of smaller government. As a consequence of the realities of economic liberalization, capital market developments, technological advances and demographic shifts, the United States is witnessing a breathtaking realignment of economic activity that has sparked deep fears for growth, jobs and wages. It has become clear that in an era of transformational change, government will be a necessary element of success.

The U.S. will continue to develop as a nation of opportunity for those who aspire to it. But its success will depend greatly on finding new ways to ensure that government has its place in maintaining a balance between its involvement in growth and prosperity, and its growing role in providing a regulatory framework to ensure social justice. It remains to be seen whether the Republican Party can reinvent itself to account for this emerging reality.

Other reading:

Charles Krauthammer, The Choice, The Washington Post

George Will, A nation disgusted with the status quo, voted for it

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History Lesson Needed On Tough Economy

Published in the Telegraph-Journal 6th November 2012

Barack Obama won the 2008 election at a time when the United States was trapped in a downward financial spiral brought on by predatory lending, legally sanctioned pyramid schemes, and an economic policy synchronized to the priorities and the ambitions of an elite minority.

The consequences of this financial crisis were staggering. More than two-and-a-half million jobs vanished in 2008 alone. In the same year, the U.S. GDP was shrinking at a rate of nine per cent, and housing prices, credit markets and the stock market all simultaneously collapsed. The retirement prospects of millions of Americans were swept away in a matter of months. Foreclosures and evictions became routine news items as entire neighborhoods overnight became deserted ghost towns. The automobile industry was careening towards bankruptcy. Lehman Brothers was among the largest banks to declare bankruptcy and even more banks teetered on the edge of solvency. In 2008 the financial crisis was of unprecedented proportions with many global consequences still to be felt. No matter the skills and expertise of Beltway management, the slump was to last longer than any since the Great Depression. The Great Recession had arrived.

A now-routine reading of history has George W. Bush and the Republicans responsible for the financial crisis. But while the financial crisis was precipitated on his watch, the U.S. was engaged in a profound process of financial deregulation that had begun before the Bush Presidency when the Democrats held the balance of power in Washington.

Before George W. Bush had come to exemplify the Republican drive to reducing the size of government, President Bill Clinton had supported the deregulation of the banks, including the 1999 repealing of the Glass-Steagall Act, publicly declaring it “no longer appropriate.” Clinton’s policies effectively prevented financial derivatives from being regulated at all.

A term named after its Congressional sponsors, Senator Carter Glass of Virginia and Representative Henry Steagall of Alabama, the Glass-Steagall Act refers to four provisions of the Banking Act of 1933 that limited commercial bank securities activities and affiliations between commercial banks and securities firms. The U.S. Congress passed the Glass-Steagall Act to correct the perceived abuses of the American national banking system. These abuses were thought to have stemmed from the involvement of commercial banks in securities underwriting, which purportedly contributed to the Great Depression by fueling rampant speculation.

The purpose of the Glass-Steagall Act was to prevent the exposure of commercial banks to the risks of investment banking and to ensure stability of the financial system. The repealing of the Act created a policy vacuum that was not wholly filled by subsequent policy measures. This repealing occurred at a time when institutions were developing financial instruments that existed outside of the ability – or the willingness – of government regulatory bodies such as the Securities and Exchange Commission to manage them.

Clinton also signed the Commodity Futures Modernization Act, which exempted credit-default swaps from regulation. In 1995, he relaxed housing rules by rewriting the Community Reinvestment Act, which had the effect of placing additional pressure on banks to make loans to people residing in low-income neighbourhoods.

Political and academic debates continue over whether any of Clinton’s initiatives were the causes of the financial crisis. But there is little doubt that cumulatively these initiatives played an important role in creating a permissive lending environment. What is less obvious is if there is any clear ideological demarcation between Republicans and Democrats on policies that ultimately would have a significant impact on American financial regulations.

Clinton is a significant face of the Obama campaign and gave the most important speech at the Democratic Convention. In Democratic campaign ads, Clinton railed at Republican tax cuts for the wealthy and Wall Street deregulation. How ironic is it then that Clinton and the Democrats of the day were directly involved in precipitating this weakened regulatory environment that ultimately would lead to the financial crisis.

On the financial regulatory matters that have affected so many, the positions of Republicans and Democrats historically have been virtually interchangeable even if the writing of history has been blind to them.

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Congress and its Road to Nowhere

By Peter Lindfield, published in the Telegraph-Journal 24th August 2012

This year, on Nov. 6, Americans will once again head to the polls. The outcome of the 2012 general election will be critical for the future of the U.S economy. The race for the White House has occupied centre stage in the media, but the Congressional elections will play an equally prominent role in determining whether the U.S. will establish a new growth trajectory in coming years or if the economy continues to languish.

Ask American voters what issue is of greatest concern to them and most will respond that the economy is top of mind. Almost four years into the quasi-recovery, economic growth has again stalled. Unemployment continues to punish many Americans. Fewer than half of the nearly 8.8 million jobs lost during the recession have come back, and more than 12 million Americans are still looking for work. Millions more part-time workers have had their hours reduced. The average period of unemployment has risen from 17 weeks in mid-2008 to 39 weeks.

In recent months, growth further slipped as business and consumer confidence has weakened, industry hiring has stalled, household spending has cooled, manufacturing production has slowed and business investment in capital equipment has retreated. The eurozone crisis and a persistent lack of confidence in fiscal and regulatory direction have magnified the uncertainty that is holding the country back.

By year end, Congress will have to make some difficult decisions on a range of tax and spending cuts that are scheduled to expire. Congress needs to take into account the nation’s long-term fiscal challenges, but Congressional legislators repeatedly have failed to respond to these challenges.

There is a consensus inside the Beltway that the development of a credible medium-term plan for controlling deficits should be a high priority. Congress, however, has been more adept at inaction and counterproductive political machinations that they have at addressing problems that are affecting millions of Americans. Doing nothing has become Congress’ stock in trade.

The U.S. will incur even greater economic damage if it goes over the so-called fiscal cliff, a combination of tax hikes and spending cuts that in early 2013 threatens to produce a short and sharp recession followed by rising unemployment throughout the entire year.

By a Congressional Budget Office (CBO) scenario, America’s tax and spending framework will change suddenly by Jan. 1, 2013. Taxes will increase by about $400 billion with the expiration of a combination of range of tax cuts

Spending will decrease by about $100 billion as the Budget Control Act, which reduces discretionary spending, coincides with reduced unemployment insurance payments.

A substantial portion of these tax cuts were initiated by George W. Bush to reduce the tax burden on the wealthy, and these cuts and expenditure reductions will have a severe effect on an economy that is managing only marginal growth. Without Congressional action, the CBO estimates that unemployment could increase to nine per cent and real GDP could fall by approximately three per cent in the first half of 2013. The double-dip would no longer by hypothetical.

There exists a broad public consensus that Congress needs to take action on the economy. But there is nothing like a Congressional agreement on how to get there. The Republican strategy in Congress has been to discredit President Obama, even if there are no benefits to anyone.

That strategy has meant maintaining the status quo when clear action is necessary. Because many Republicans have admitted this outright, it represents nothing less than ambitious vindictiveness on a grand scale.

The costs of Congressional gridlock will not be borne only by Americans. As America’s largest trading partner, Canada will pay a heavy price for Republican political intransigence. The November 2012 election will be almost as important for Canadians as for Americans.

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Ryan’s Budget Plan Won’t Save Romney

By Peter Lindfield, published in the Telegraph-Journal 14th August 2012

When Mitt Romney named Wisconsin congressman Paul Ryan to the Republican White House ticket, he chose a House Republican who shares his commitment to the proposition that additional tax cuts will somehow conjure up a stronger economy.

On the face of it, Ryan is a good choice for Romney. During his tenure as House Budget Committee chairman, Ryan was characterized by supporters as a reformer who is working hard to change the country’s financial state of affairs. Ryan will help to restore “the dreams and greatness of this country” Romney said on Saturday. In turn, Ryan promised that the new “comeback team” on the Republican ticket will “turn around the country’s economy by embracing, not avoiding, the tough challenges.”

On the conservative right, the response to Ryan has ranged from cautiously enthusiastic to borderline hysterical. Fox News Radio host Bill Hemmer said that Ryan’s budget plan, “is going to go down as the single most important event in government history in our lifetimes.” Ryan has been called a genius, courageous and “the adult in the room.”

So why do so many economic analysts and policy-makers think that Ryan’s budget plan is irresponsible economic policy?

Robert McIntyre, director of Citizens For Tax Justice, wrote in the Washington Post that the Ryan budget plan is “all smoke and mirrors and no deficit reduction.” By McIntyre’s calculations, the Ryan budget cuts spending by $4.2 trillion over 10 years and reduces taxes by $4.3 trillion over the same period.

Tax Policy Center co-director William Gale said that Ryan’s fiscal year 2013 budget plan is “essentially an effort to have low- and middle-class households bear the entire burden of closing the fiscal gap and bear the costs of financing an additional tax cut for high-income households.”

Gale, who served as senior staff economist for the Council of Economic Advisers under President George H.W. Bush, simulated the effects of reducing ordinary income tax rates to 10 and 25 per cent. According to him, Ryan’s budget proposals would cost about $3.2 trillion over ten years. This would be in addition to the “$300 million lost from repealing taxes enacted to pay for the Affordable Care Act, the $1.1 trillion lost from Ryan’s desired reduction in the corporate tax rate, and the $5.4 trillion lost from extending the Bush-Obama tax cuts”.

Economic Policy Institute senior policy analyst Ethan Pollack wrote earlier this year that Ryan’s House Budget Committee plan rehashes the same failed priorities that were met with widespread criticism in 2011. In this budget, he would cut $3.3 trillion from low-income programs over the next decade.

Pollack wrote that, “Ryan’s proposed cuts to Medicare, Medicaid, and food assistance would all fall heavily on seniors, the disabled, and children. Ryan’s budget is doubly bad for children because his proposed cuts to public investments (mostly infrastructure and education) would cause children to inherit a country with crumbling roads and bridges and to enter the labour market with fewer skills.”

The non-partisan Center for Budget and Policy Priorities agrees that the biggest cuts would be in Medicaid, which provides health care for the nation’s poor. The cuts outlined in Ryan’s budget plan would force states to eliminate Medicaid coverage altogether for up to 28 million low-income people.

Conspicuously absent from Ryan’s budget plan is any sense that its profound budget cutting would promote economic growth. In fact, it has been more than twenty years since anyone in the U.S. has tried to defend deep tax cuts for the wealthy as a way to generate jobs and prosperity. The reason for that is simple: Trickle-down economics is a failure both in theory and in practice. Ryan’s contemporary version will only worsen America’s fiscal problems while creating hardship for millions.

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More Trouble in the U.S. Economy

By Peter Lindfield, published in the Telegraph-Journal 31st July 2012

Last week’s numbers confirmed what many economists and analysts had feared for the last three months—the U.S. economy is slowing down. Gross domestic product (GDP) for the second quarter grew only 1.5 per cent, down from 1.9 per cent during the first quarter of 2012. These postings were down from 4 per cent at the close of 2011. Even so, growth in the second quarter was actually greater than many had forecast.

According to the U.S. Department of Commerce (DoC), GDP, which accounts for the value of all goods and services produced, rose at a 1.5 per cent annual rate after a 2 per cent gain in the previous quarter. Household purchases, which account for about 70 per cent of GDP, grew at the slowest pace in a year. The DoC reported that in the first 12 months of the recovery which began in June 2009, the economy grew by just 2.5 per cent, not the 3.3 percent that was earlier forecast. That is inconsistent with the known history of economic cycles that states the deeper the downturn, the higher the bounce. According to this model, recoveries start aggressively with a bang, especially when so much fiscal and monetary stimulus has been injected into the system.

There’s no doubt that the coming November elections, Europe’s debt crisis, and the so-called fiscal cliff threaten to keep what has been a fragile expansion from taking hold. The fiscal cliff represents more than $600 billion in pending U.S. tax changes, reductions in defense and other government programs that will take effect automatically without any action by U.S. lawmakers. These complex dynamics have already adversely affecting retail, wholesale and commercial sales across the economy. The impact of uncertainty has been to constrain the willingness of business to make important decisions such as hiring new employees, making capital investments and restocking inventories.

Federal Reserve chairman Ben Bernanke is scheduled to meet with policymakers next week to discuss whether further measures will be required to boost growth and drive down an unemployment rate that has remained above 8 per cent for more than three years. Speaking to Congress, Bernanke had declared that the Fed was prepared to take further action in response to “economic activity (which) appears to have decelerated somewhat during the first half of this year.”

Mario Draghi, president of the European Central Bank (ECB), has stated that the ECB “is ready to do whatever it takes to preserve the euro.” But the European Union is now on life support and no-one is taking bets on its survival. Without unconditional support from Germany, the EU may still be a political, economic and social experiment that failed to catch on.

Against this backdrop, it is surprising that such significant disagreements continue among policymakers and economists on the issue of economic activism, as represented by the 2009 $814 billion program of fiscal stimulus, housing and  automotive subsidies and numerous other regulatory interventions. That there is still disagreement about whether activist government support was even necessary in the immediate aftermath of the 2007-2009 crisis is unfathomable. The U.S. Treasury’s equity support of banks through the Troubled Asset Relief Program, and the Federal Reserve’s support of commercial paper market and money market mutual funds may have been the only factors to slow the free-fall. It is astounding that there should exist such patent unwillingness among some policymakers and economists to concede that government saved the world from sliding into an economic abyss worse than the Great Depression.

Now, as the recovery continues to fade in the U.S., many are asking whether it ever really had caught hold. It is a reasonable question for the more than 12 million people unemployed in the U.S. contemplating the difference between slow growth and no growth.

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Romney’s Business Background Doesn’t Matter

By Peter Lindfield, published in the Telegraph-Journal 20th July 2012

In September 2011, Mitt Romney, the presumptive nominee of the Republican Party, revealed the most detailed plan for economic growth and job creation of any presidential candidate. Two months later, Romney proposed, “extensive reforms designed to cut spending, move the nation toward a balanced budget and strengthen both Medicare and Social Security.” When considered as a whole, Republicans hope that Romney’s policy prescriptions will make a case for jump-starting job creation, solving the debt crisis and helping make the federal government smaller and simpler.

There’s no doubt that Mitt Romney is deeply determined to make this election all about the economy. Last month, a less-than-stellar U.S. jobs report gave Romney a strategic opportunity to put Democrats on the defensive and to support his assertions that Obama’s policies aren’t putting America back on track.

Instead of taking this opportunity, Romney appeared on Fox News just after the numbers were released and criticized the creation of 115,000 jobs as a figure that was well below expectations. According to Romney, “we should be seeing numbers in the 500,000 jobs created per month. This is way, way, way off from what should happen in a normal recovery.”

On the same day at a campaign rally, he set an another high bar for what constitutes an acceptable unemployment rate saying that, “Anything over eight per cent, anything near eight per cent, anything over four per cent, is not a cause for celebration.”

Even prominent Republicans winced at the prospect of supporting such aggressive targets. Not only was Romney’s response to the report wildly unrealistic, it potentially paints him as divorced from reality on the economy. One news organization, Talking Points Memo (TPM), even asked if it was possible that Romney was “trying to set a trap for the Democrats that leaves them having to fight pure optimism with a far less exciting reality.”

In fact, a “normal recovery” has never featured anything close to half-a-million jobs created per month. And unemployment has not been below four per cent since April 2000, when it was 3.8 per cent. That was during the Clinton administration.

The cornerstone of Mitt Romney’s 2012 presidential campaign is his successful business experience. But not only do presidents with significant business experience not outperform those without it, the record of presidential candidates with business experience defeating their rivals is not good either. Ross Perot ran as an independent candidate in the 1992 and 1996 elections with campaigns that highlighted his extensive business experience. He never received more than 19 per cent of the popular vote.

Throughout its history, businessmen have not dominated the Oval Office. Of the 44 presidents the United States has had since 1789, 21 have been lawyers. Only a few of the 20 presidents since 1900 have had significant business experience. It is useful to contemplate this when considering the presidents who many historians think are the least impressive of the modern era.

Warren Harding left the country on the verge of a depression and under the clouds of the Teapot Dome and Ohio Gang scandals. Herbert Hoover famously left the country in a depression. The name George W. Bush (Bush 43) is now synonymous with such incompetence that he receives the lowest rankings of any president. Yet, Harding, Hoover and Bush 43 each managed to accumulate millions of dollars in the private sector before entering politics, and all three were successful businessmen. Bush 43 attended Harvard business school, as Romney did, and like Romney was committed to bringing business principles to the presidency.

With this less-than-distinguished track record over the last 100 years, voters would do well to view Romney’s business experience with a jaundiced eye and ask if this is really the experience that matters.

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