The Chapter Where Republicans Remind Me Why I Voted Libertarian for 30 Years

Despite personal inconvenience and minor hardship, I supported shutting down the government to achieve the goal of lifting the individual mandate of the ACA for one year, to grant a level playing field to the ordinary citizens of this country.  They should be granted the same compassion that the President has shown for his big business cronies.  Of course, the Republican party caved early on that fight and then decided to drag out the fight over the debt limit and federal funding over other issues in an incoherent strategy that resulted in their public humiliation.  Here are some goals worthy shutting down the government over:

• The aforementioned relief for ordinary citizens' mandate under the ACA.
• Changing the rules for calculation cost of living increases for Social Security and Medicare to slow their long term growth and make it more fair to young taxpayers.
• Further cuts to federal spending beyond the current "sequester."

A feckless, undisciplined strategery-challenged GOP would have had to pick one, and only one, goal and defended it to the brink and over the cliff if necessary.  Further, it would have had to thought out the strategy months in advance so that it could pass appropriations bills for stuff it wanted to fund early in the cycle and use HHS funding or some other appropriation vehicle to extract the necessary compromise.  

In fact, Republicans were only dragged into the fight reluctantly and only because they felt pressured by the tea party caucus.  The leadership's heart was never in the fight, they fought only to save face, and lost even that.  It was like playing prevent defense when you are already behind in the score, trying to stop the other team from running up the score when you had already lost the game.  It was pathetic and the outcome predictable despite some moments of optimism.  

The other reason that we lost is that the tea party wing does not represent a majority of the voters in the country (the linked Gallup poll quizzes conservative, liberal, moderate, but is a decent proxy).  The response of all liberty movement groups should be to continue to educate and persuade and point to the inevitable consequences of current policy.

The article that explains my GOP reluctance is here, also known as The Chapter Where I Was a Teenage Libertarian.  

Fiscal Toboggan Ride Assured

The news from tonight's WSJ web site is that a deal has been struck to avoid the "fiscal cliff."  As previously predicted, it changes little in the grand scheme of things, other than my debt clock at right will continue to move in the upwards direction for a decade or more.  Here is the analysis of the results.

The deal doesn't do much to control the U.S.'s long-term budget woes, which are driven largely by entitlement spending, especially on health care, which were left untouched in this agreement. And depending on the budget math and the ultimate fate of the spending cuts, it may not do much for the short-run deficit either. 

By waiting until the last minute, and reaching a deal on a much smaller scale than either side once envisioned, Washington also deferred many of its thorniest questions for perhaps as little as a few weeks. In late February of early March, the Treasury Department will run out of extraordinary measures to deal with the government's borrowing limit—which it reached on Monday—and Congress would need to approve an increase.

Welcome to government by crisis, lurching from one deadline to the next with no plan to solve the long term issues and not even a budget against which to measure progress.  By ensuring a series of legislative crises, the Congress and the President are guaranteeing that a real crisis will develop.  With public and private debt levels high and inflation heating up, there are no reserves to deal with fresh economic pressures.  I went grocery shopping for New Year's supplies, buying things I haven't bought in a while, and I was shocked at how much prices have risen on some items.  I don't care what the official numbers say, my experience is telling me that they are understating inflation right now.

Next crisis, the debt ceiling increase.

The Fiscal Cliff is Your Fault

. . . and mine as well.  Why? Because we have not made up our minds about the overall direction of government.  We have elected a divided government.  The President won re-election with a small majority, not a mandate, even though the radical change he desires would require a mandate.  In the meantime, the House continues under Republican control, with a healthy majority.  We the people have spoken, and said, we're not sure what we want.

Further, the political coalitions that form the basis of the two parties obscure the real desires of the electorate.  For example, the Republican party gets outsized support from agricultural communities that are very socially conservative.  However, they are also huge net recipients of government aid in the form of crop insurance or price supports.  So farm state Republicans have an incentive to trade pork for farmers rather than reducing spending.  On the Democratic side, Hispanics and Blacks voted decisively against gay marriage in California in 2008; even while they elected Democrats who have worked to undermine Proposition 8.  Silicon valley entrepreneurs gave heavily to Obama in 2008, despite the predictable result that stifling regulation would stunt new business development in this country.

It will take a crisis to cause the nation to coalesce around a path forward.  In the meantime, the problem gets worse.  The debt clock on the right side of my blog is not going to go backwards any time soon.  If it reverses at any time this decade, I will be shocked.

The result of the fiscal cliff talks are fairly predictable as a result.  There will be tax rate hikes, because Obama is ideologically wedded to the idea and he has an advantage in the negotiations.  But the hikes, whether on $250,000+ or $400,000+, will not produce the revenue predicted.  Even if the predicted revenue did materialize; it wouldn't make much difference in the long term deficit.  The official estimate is that the rise would produce $950 billion in revenue over ten years.  Sounds like a lot, but when put on an annual basis, it doesn't even cover one month's worth of deficit spending.

Meanwhile, whatever spending cuts are proposed will be back loaded; which means they will never be put into effect.  The only sensible outcome appears to be that the useless payroll tax cut will expire.  Useless, because the cut was always known to be temporary, and therefor blew a hole in the social security accounting without actually adding any jobs; it's purported purpose.  Businesses aren't going to hire because of a temporary reduction in labor costs, and they didn't.

Regardless of the exact outcome of a deal, or a temporary measure that gives more time to negotiate, we can expect no meaningful progress on debt reduction.  With debts mounting throughout the Western world, there are no reserves to handle the next crisis.

Programming note: I intend to post regularly again.  If you have been visiting, looking for new posts, I am sorry to have had none.  My personal circumstances left me with little time and energy for blogging, but I feel refreshed from some time off over Christmas and ready to hit it again.

Fiscal Cliff? Not Really - But Republicans are on the Defensive

I watched Brit Hume on O'Reilly tonight and had to agree with his simple analysis of the so called fiscal cliff situation.  Obama is showing his native arrogance because he correctly assesses that he has the advantage in these negotiations.  Two bad things will happen that Republicans don't like, tax rates will increase and defense spending will be cut.  Only one thing will happen that Democrats don't like, Medicare will be cut, and Republicans will take the blame for it.  Further, the public is set to blame Republicans right now, because they can't get their act together on messaging.  Hume blames the MSM, but I think its time to quit doing that.  The MSM is an arm of the left, just get used to it; point it out occasionally, but deal with it.

What's to be done?  Boehner truly has a weak hand, he has to keep his members in line, and they are always worried about the next election.  My strategy would be to stall.  Keep passing short little extensions of the status quo and kicking the can down the road a bit.  Use the time to get the messaging better and trumpet what you are willing to do.  For example, phasing out deductions for the rich will raise revenue in a static analysis.  It eventually needs to be done in order to keep marginal rates low anyway.  So the Republicans need to tout how they are reformers of the status quo and are also putting revenu on the table.  If only, if only, the President would do something about spending.  Just give us a little more time to persuade him.

The fiscal cliff's worst impact will be to the economy over marginal tax rates.  I have looked at the military cuts, and they are mostly back loaded.  Some will immediately take effect and there will be a great hullabaloo, but I don't take them seriously, especially in the long term.  The regulatory cliff will probably be far worse for the economy.  Obama will unleash the EPA and the Labor department on American businesses soon.  With Europe tipping into recession, this will be a bad time for the economy.

Republicans need to avoid blame for this by being very careful about how they handle the fallout over the negotiations.  Obama clearly wants the negotiations to fail, to force the GOP's hand.  Stalling would seem to be the order of the day.

Glad to be back blogging again after a hiatus for a tough class.  I wrote a paper on cloud computing security that proved more difficult than expected.  I am no expert, but I think the opportunity exists for the government to safely use cloud computing.  However, I am concerned about how the government would implement security measures, and more importantly, monitor for security.  This is the direction the current administration intends to go, so it will be an interesting ride.

Deficit Agenda for Obama's Second Term

Obama's re-election is not the end of the world, studies of ancient Mayan calendars notwithstanding.  The Republicans have an opportunity to get their act together in ways that will both improve the country and put themselves in a better position to win future elections.

The so-called fiscal cliff is the first opportunity to shape future policy to their favor.  The Democrats are going to want taxes now in exchange for spending cuts later, which will never come.  The Republicans can easily outflank on this issue.  Offer some revenue increases that also simplify the tax code, but demand spending cuts now.  The following graphic shows why.

Graphic from Senate Budget Committee, with modifications by author.

A majority, but not all of the problem, with the federal budget's current unsustainable path accrues to spending that is too high by historical standards.  The debate on the issue of the debt has trended towards the position that the deficit is high and unsustainable and away from Paul Krugman's fantasy that we shouldn't worry and should be spending more money.  Republicans should take the position that spending cuts are needed now, and that simplifying the tax code by eliminating so many credits and deductions will increase revenue by increasing growth as well as from the additional revenue from fewer loopholes. Benefits of this approach:
1. Appearing "reasonable" by putting revenue on the tabe.
2. Moving towards tax code simplification.
3. Setting the stage to demand spending cuts now as a result.
No spending cuts = no deal.

I think the fiscal cliff has the potential to harm the economy due to the massive income tax rate increases coupled with the payroll tax being restored to its historical trend, all at once.  The only silver lining would be the automatic cuts to the federal budget.

My next post will look at immigration reform.  Blogging will continue to be sporadic until work and school calm down.