Spin on! Spin on! It’s only a new year

Theatre in Washington closed on a delicious high: every oration and most asides were quotable and on message. The second season of “The Fiscal Cliff” transfixed the world, teased the markets, and climaxed without a blood bath or exhausting its writers.

Too bad about the writers.

Enough changed in this week’s $600 billion income tax deal to require some adjustments in future messaging. However, Democrats must continue to go on about “balanced sacrifice” and Republicans must continue to tear-up about the wretched world facing their grandchildren. The changes were big enough to settle discussion on income tax rates, for a while. But, they were not enough to satisfy worried liberals or calm worried conservatives.

“The Greek Abyss” remains the inspiration and meal ticket for the long-view wordsmiths in national politics.

For Mayans in Washington, 2020 will soon be the new 2012.

George Will is already on his feet raging against the effete dimensions of the “The Fiscal Cliff” denouement. In his column “Our decadent democracy” he complains that America’s leaders have been cowed by the “entitlement state”. Then, ta da, he invents a fresh pack of heroic Republicans preparing to come to the rescue.  

“Furthermore, a critical mass of Republicans reject the careerists’ understanding of “politically rational” behavior. These Republicans have a different rationale for being in politics.

“The media, which often are the last to know things because their wishes father their thoughts, say the tea party impulse is exhausted. Scores of House Republicans and seven first-term Republican senators (Rand Paul, Mike Lee, Pat Toomey, Ted Cruz, Ron Johnson, Marco Rubio and Tim Scott) will soon — hello, debt ceiling — prove otherwise.”

Will plays with history with the same abandon that he plays with tomorrow.

The career politicians he named, along with Paul Ryan and other members of Ayn Rand’s Congressional book club, only got excited about Mitt Romney when he started to look like a winner according to the old rationale—beating a Democrat by promising to leave voters with their entitlements and only throwing legitimate bums off the dole.

Ari Fleischer was George Bush’s press secretary and now is enough of heavyweight to get his thoughts on the economy into the New York Times. He offered this gigantic pivot to set the stage for the next man-made crisis Will is already cheering on:

“As a Bush loyalist, it’s fantastic that the Bush tax cuts, which now have to be seen inarguably as overwhelmingly for the middle class, are being made permanent. On the other hand, it’s inarguable that this adds $4 trillion to the federal debt.”

When Obama promised to raise income tax rates on the top two percent, Fleischer followed the Republican Party line: that would be an intolerable tax increase. Now that Obama has agreed to raise income taxes on only the top one percent, Fleischer introduces a brand new party line: it will cause a gigantic increase in the national debt.

In the fall, the same Democrat vision would turn Americans into godless Swedes; today it’s penniless Greeks.

According to the logic of Fleischer’s new found fascination with debt and its origins, Mitt Romney’s tax plan of piling a further 20% tax rate cut on top of Bush’s tax regime didn’t constitute a $4trillion revenue problem at all. Rather, it constituted an $8 trillion revenue problem that would have would have landed America on the west coast of the Mediterranean Sea.

Will regrets that Americans missed a wonderful educational opportunity by not being lead over “The Cliff”.

Actually, in choosing not to jump, we learned a great deal about contemporary America and its politicians. Conservatives don’t want Washington to have the means to keep growing and liberals still believe government can help. But they will compromise with each other because Americans are united—they still prize economic growth and non-discriminatory, reliable, access to the services of a competently run, well-financed government.

The nice thing about man-made crises is that they are played out by humans according to what humans want. 

Friday wrap-up: Global capitalism saved again

While the Vatican and street protestors attack the foundations of our materialist civilization and call, presumably, for a new order in which a government accountable to the people, not the plutocrats, will run things, the best approximation we have of “popular government” once again invested massively in the status quo.

This week, Europe’s governments committed well over a trillion dollars of their people’s wealth and credit to keep the Euro-zone, its banking system, and the entire European federation afloat.

This is the fourth time in the last four years that major world governments have taken action to keep capitalism afloat: first, the G-20 agreed to introduce stimulus measures equivalent to 2% of their GNP (at that time the US Executive and Congress bailed out the center of the global financial crisis), last summer they agreed to keep on borrowing trillions to  protect the US dollar’s global responsibilities, and this week European governments decided to further integrate Europe financially, whether that’s still popular at home or not.

Four times these leaders have righted a ship, without a mutiny and without changing their common idea of where they’re going. In real-time, these conservative leaders look smaller than their counterparts in the 1930s.  Nevertheless, they’re more united and have been more effective in stabilizing a much bigger and more complex system of global capitalist growth.

In saving that system, they’ve made other problems more pressing. Martin Wolf outlines eloquently why further support from government—that will be attacked on both extremes—will be required:

“The era of bail-outs must end. Restructuring finance to make this credible is of huge importance for the future. Yet this is not all. Market capitalism creates inherent difficulties. The two most obvious are macroeconomic instability and extremes of inequality. The tendency of a market-oriented financial system to run away with itself has, again, been demonstrated on a large scale. On the free market right people argue that if only we went back to the gold standard or ended fractional reserve banking, all would be well. I question such claims. Instability is inherent in the game of betting on the future. Humans seem prone to self-fulfilling waves of optimism and pessimism. Ways of mitigating the extent and the consequences of such instability always need to be found.”

Click on: www.ft.com/cms/s/0/86d8634a-ff34-11e0-9769-00144feabdc0.html#ixzz1c4TMYCLZ

This is a fragile proposition: government mitigates and the private sector gets excited. It is the proposition fascists, bishops, and left authoritarians have ridiculed for two hundred years as un-adventuresome and amoral.

Furthermore, in a world economy with seven billion stakeholders, even this undramatic role for the state takes government further away from the day-to-day discipline of informed electorates.

Despite the thrilling bestsellers on the flaws of global capitalism, the biggest challenge in Europe and in other developed economies may be quite prosaic: how do we maintain effective representative democracy while expecting our governments to continue to lead even as well as they are leading now?

Obama should keep trying to work with Congress

Republican Jon Huntsman blurted out that Republican adults have to accept the theory of evolution. He softened the blow by acknowledging that he might be crazy. President Obama must be sorely tempted to take his own itchy warriors aside and tell them: an effective President has to work with Congress. He can’t spend the next fourteen months whining from the White House pulpit.

Jared Bernstein, Vice President Biden’s former chief economist well represents the confrontational mood of Democrat advisors. At the conclusion of an ambitious stimulus plan entitled “Obama’s Got Plenty of Options to right the Economy—He’s Just Got to Fight for Them” he exclaims:

“But … but … Congress will block him,” you say. On most of these ideas, probably so, though I’d put the renewal of the payroll tax cut at above 50 percent, and the unemployment insurance extension only slightly below half.

And, as for the rest of his plan, if Obama gets fired up around an agenda anything like the one I’ve outlined, and if he’s very clear about who, precisely, is standing between America and that jobs agenda, I think he’ll not only regain his footing and provide a stark contrast between himself and his opponents, but his fierce advocacy will give the country something to feel good about. And man, we really need that.”

Click on: www.tnr.com/article/economy/94112/bernstein-obama-stimulus-congress

Maybe this is crazy too. But, is fighting for something really what people want? Will standing in stark contrast for a year make anyone feel good—excepting wordsmiths for next year’s presidential election?

Here’s a counter-scenario. By all means “go big” but design a plan that reasonable Republicans as well as reasonable Democrats can be reasonably asked to support. Furthermore, the President should stand by the process he used with Congress to secure the debt-ceiling agreement. He should make it clear that he’s not campaigning in Iowa but governing in Washington.

The ugliness of the crisis overwhelmed the substance of the debt-ceiling deal. Yet, Washington, in the end, worked. There won’t be another showdown like it before the next election. A legislative process to eliminate over half the structural deficit was agreed to and the capital markets didn’t respond by raising interest rates. Finally, no additional spending cuts—as demanded by Republican hawks—will be imposed on the fragile recovery over the next fifteen months.

Hard-line Keynesians and Tea Party supporters won’t be impressed by the next fiscal deal between Congress and the President. However, they’re probably both wrong anyway. The US economy can’t be turned immediately by a radical increase in spending or a radical reduction in the size of government. One option could drive interest rates up and one would further shrink consumer spending.

Moderate Republicans are increasingly anxious to find middle ground and, more important, American business is ready for short-term stimulus and a settled long-term strategy to encourage growth.  

Leave extravagant ideas and rhetoric to the primaries, Mr President, and stick to your own instincts in Washington.

Friday wrap-up: talk economics, seriously

The debt-ceiling deal may not have lasting economic significance. After all, it doesn’t bind the future where it’s supposed to do the heavy lifting. The debt-ceiling debate, however, may have changed American politics. The politicians looked terrible but may not be able to change the subject get Americans excited about something else.

The Pew Research Center for the People and the Press released an extraordinary set of findings on public participation and interest in news coverage of the debt-ceiling debate.

Click on: http://people-press.org/2011/08/02/attention-to-debt-debate-grew-steadily-in-july/

Forty-one percent of Americans were “very closely” following the drama in Washington last weekend. The debate beat out the economy generally, the Norway massacre, the NFL labor agreement, the stock market, and the 2012 elections. Amazingly, 10% of those surveyed said they bothered to contact an elected official on the federal deficit. Furthermore, those who were most interested and most likely to weigh in fell equally on both ends of the political spectrum. Twelve percent of conservative Republicans and 14% of liberal Democrats say they contacted their representatives.

The vast majority, likely, after many hours of watching television and reading press reports, didn’t go to bed meekly regretting their economic illiteracy; they felt sure enough about what was going on to volunteer that their politicians were “ridiculous” and “disgusting.”

Effectively, Americans have experienced another national trauma. It’s too early, of course, to say anything with confidence, but there surely will be consequences—in politics and in the economy. Here are three bald assertions:

One: Washington’s perceived economic incompetence is a critical economic factor, it affects consumer and investor behavior.

It matters when people stop trusting banks and the stock markets, and it matters as well when they think Washington is incapable of offering coherent economic leadership. (Is there any point increasing public borrowing to stimulate consumer demand if consumers respond by saving more because they fear that $trillion deficits will break the economy?)

Two: simple economic slogans won’t get you elected.

People may or may not be polarized. However, they are now intensely interested in economic issues and have been exposed to many points of view on what should be done. They didn’t tell the Pew Center that Washington politicians were ridiculous because they didn’t use the right sound bites, but because sound bites were all the politicians had to offer. Promises like “jobs, jobs, jobs” and “cut, cap, and balance” and retorts like “job-killing taxes” and “fair shares from millionaires and billionaires” won’t work with the un-indoctrinated.

Three: the public watched what was happening because they know that what leaders do still counts.

The Iraq War led to severe voter remorse in 2006 and 2008. People didn’t turn their backs on the world then and they are not going to try to fix the economy without a competent federal government.

Democratizing elite policy-making has been America’s unique political dynamic. It has worried the world for over a century. However, as often as not, in foreign as well as domestic affairs, the final verdict of the people has favored enlightened American self-interest. But, nothing’s a sure thing.

Business negligence in the debt-ceiling crisis

Imagine what would have happened if Ron Paul libertarians and Progressive Democrat factions  in Congress decided to treat the results of the 2006 mid-term elections as a mandate to block any further increase in the debt-ceiling until George Bush pulled out of Iraq or raised taxes to finance the war. Of course, the moderates would have shaken their heads in disdain. But, more important, American big business would have gone crazy.

CEO’s would have flown to Washington, probably with big labor along for emphasis, to talk sense to legislators in both parties. They would have summoned their Washington lobbyist, media spinners, and think-tanks and read them the riot act: “American capitalism, and its global playground, will not tolerate playing politics with the credit of the United States. Superior credit facilitated the rise and dominance of the United States. When we think the credit worthiness of the US is in jeopardy, we’ll call you. In the meantime, play with the hot buttons you play with now.”

What happened this summer when first-term Republicans—and their leaders in Congress—declared over and over that they wouldn’t raise the debt-ceiling without securing $trillions of dollars in spending cuts and a balanced budget amendment to the constitution?

Business leaders crossed their fingers and did nothing.

Instead of worrying about creating a dangerous and very costly precedent, they pretended that this new form of blackmail could provide a timely national learning opportunity. The American Chamber of Commerce, right into July, advised everyone to relax: the crisis is just “political theatrics.”

The truth is they panicked last week.

After months of allowing the Tea Party and primary-driven sound-bites to undermine the executive, monetary authorities, the dollar, the stock market and potentially, the credit rating of the US government, all of a sudden they insisted that the moderates take command of the situation and end the lunacy.

Clive Crook nicely identified the damage this economic blackmail may inflict over long-term:

“Preventing default is good, but lifting a threat that should not have been made in the first place is little to boast about. It is worth stressing that the history of the past few months cannot be unlearned. Will this farce recur every time the debt ceiling needs raising? That question is a new risk factor in its own right.”

Click on:  www.ft.com/cms/s/0/4ef4d786-bb9d-11e0-a7c8-00144feabdc0.html#ixzz1TmswI1Qc

Now that everyone feels safe again, the airways are bristling with shots against Obama’s negotiating tactics and “diminished” presidency.

 Liberals argue that he was free to bluff Republicans and make demands as well. This is pie-in-the-sky delusional. The President is trustee of America’s economic recovery and can’t change the subject after a game of economic chicken turns into a tragedy.

The isolation of the President and the uneven distribution of lethal weapons around the debt-ceiling negotiating table had as much to do with the negligence of America’s private sector than the spines of moderates in Washington.

America’s capitalist consensus has survived populist revolts before. Previously, however, the principal beneficiaries of mainstream economic policy bothered to ally themselves with mainstream leaders and stand up to demagogues on both the left and the right.

Using Canadian Liberals to sell Republican austerity

It’s easy to be a true believer when most people aren’t listening and you have little chance to make a difference.

The easy times are over for austerity fanatics in Washington. Their numbers are now strong enough to defeat moderate fiscal measures to protect the United State’s credit rating and fragile economic recovery. Their mantra—spending is the only problem—could actually be implemented.

This must be a bit unnerving. Tea Party representatives were not recruited or elected to tamper with the material tenants of the American dream. Purging Washington of its wicked Keynesians is supposed to unleash prosperity not save souls. Without sold domestic evidence that a one-sided austerity program will work, and without a pristine no-tax domestic hero to assure them that federal governments can build things with a wrecking ball, Fred Barnes has nominated two Canadian Liberals—1993 Prime Minister Jean Chretien and his Finance Minister Paul Martin—as right-wing poster boys.

Click on: www.financialpost.com/todays-paper/Canada+then+America/5164074/story.html  

Twinning “Canada then, America now” is dangerous nonsense.

Washington radical conservatives have no right to feel comforted by Canada’s fiscal turn-around in the mid Nineties. Canada’s federal government—and majority Parliament—faced up to an untenable public debt problem with a balanced, multi-year, avowedly middle of the road approach that respected Keynesian fundamentals and preserved all the key elements of those Canadian social entitlements that American conservatives are so desperate to purge at home.

Barnes ridicules Obama’s Monday night statement “We don’t have to do anything radical to solve his problem. Contrary to what some folks say, we’re not Greece.” Obama could have fairly added that America’s debt situation is closer to what Canada’s was in the Nineties and that Canada solved its problem without repudiating its social values, its economic recovery, or its international obligations.

Canadians never stopped being moderates or voting for moderates in dangerous times.

Barnes crows about Chretien’s statement “Canadians have told us that they want the deficit brought down by reducing government spending, not by raising taxes, and we agree.” Barnes neglects to add that Chretien inherited a brand new comprehensive national sales tax (the 7% GST.) In fact, Chretien, not Obama, inherited a reformed and robust revenue base from a Conservative government.

There were good reasons substantial federal spending cuts could be introduced in Canada in the Nineties without harming economic growth. The US economy was surging; demand for Canadian products in the US was expanding to make up for restraint at home. The cost of federal borrowing had finally started to decline as inflation and global interest rates declined. Furthermore, multi-year cuts in social transfers to the provinces were largely ameliorated by manageable increases in provincial deficits. These countervailing factors are not available in the US today.

The Canadian record provides no basis to argue that Americans can balance the US budget overnight or that balancing the budget through austerity alone is all the US federal government has to do.

Despite their options, Europe’s leaders are still united

Last week, the Euro zone’s seventeen national leaders agreed on a new broad package of measures to address the sovereign debt crisis in Greece and, in doing so, threw their weight behind greater European fiscal and economic integration, rather than less. They even raised expectations that federal governments can still solve big problems.

Officials actually circulated a draft communiqué that heralded a new “European Marshall Plan” for Greece. The term was dropped. It was too obvious a reference to Europe’s past reliance on the US. Furthermore, its resurrection by European’s would have probably only embarrassed the men and women in Washington who are having a such a difficult time acting as leaders themselves.

As with the European Recovery Program legislated in Washington sixty-four years ago, the Brussels agreement to rescue weaker parts of Europe and restore and strengthen their common market was undertaken by bi-partisan leadership—well ahead of popular opinion.

Tony Barber in the Financial Times described their accomplishment and the risks they are taking as professional politicians:

“All the same, the path to a closer economic union contains a potential pitfall – public opinion. Politicians in Germany and rich countries such as Austria, Finland and the Netherlands have never asked voters if they want a union that channels part of their wealth to other countries. According to a poll for ZDF public television, only 47 per cent of Germans want Greece to stay in the eurozone; just as many want Greece to get out.

“Similar tensions extend across the 27-nation EU. The rise of far-right and anti-euro parties is a reminder that the EU stirs disenchantment among millions, who see it as an elitist project incapable of tackling issues such as youth unemployment and illegal immigration. Pan-European institutions bore voters: turnout has fallen in every election for the European parliament since the first in 1979.

“Sooner rather than later, politicians must address the problem of legitimacy. The paradox is that the debt crisis is driving Europe’s leaders towards closer integration while simultaneously sapping the public’s faith in that same goal.”

Click on: www.ft.com/intl/cms/s/0/8b1caeee-b48d-11e0-a21d-00144feabdc0.html#axzz1SyAyKN3y

North America may have less to learn from modern Europe about tolerance and political moderation than once was thought. However, last week, Europe’s leaders provided a fine, much needed, example of responsible political leadership.

       

Debt-ceiling drama: in a phoney crisis Parliamentary democracy works better

In a real crisis—when the people all agree that they have to eat their peas—the US Presidential and the British Parliamentary systems are both furiously effective. Partisan calculations that exploit the tensions between the legislative branches and the executive branch are set aside. In the face of a clear internal or external danger, representative democracy’s legitimacy with the people puts paid to the notion that authoritarian systems can be more ruthless and demanding of sacrifice.

Both systems include ways to check executive power and ensure that big decisions hard to make. Over time, the checks on Presidential power have grown and the checks on Prime Ministerial power have declined. A Prime Minister, with a majority in Parliament, can get his budget and health care reforms passed in a season, largely as written. The ins think this is great; the outs worry about the abuses of such power over time.

Today, Western governments aren’t looking very effective in delivering employment growth and shared prosperity. Fear of an imperial presidency has been replaced by growing fears of a dysfunctional presidency. America’s political system is now a lively subject for risk analysis. And Canadians are beginning to think that Canada is actually more united and, despite its historic language and national divisions, a safer place to invest.

The budget showdown in Ottawa in April and the debt-ceiling drama in Washington today do demonstrate one distinct, if not frequent, advantage of the Parliamentary system. When Canada’s parliamentary system is overwhelmed by internal animus and partisan calculations—and won’t find the votes to stay in business—the people are directly consulted to clear the air.

The power of the Canadian executive to call and the power of a majority opposition to force an election, at any time, can make government more careful and debate more meaningful. As with divided government in Washington, however, it tends push important issues off the agenda and generates hyper-partisanship and paralysis.

Washington is not subject to the same stark political pressures. For another fifteen months, each side in Washington can keep exclaiming that they alone speak for the people.

 Nevertheless, destructive politics still is very risky in both ambitious countries. Both populations still look for political leaders to solve problems, not just represent sectarian interests. Failure to resolve the impasse on the debt-ceiling without driving up interest rates this week or next would frame the next Presidential election on an unforgiving question: who can make the federal government work and who’s in the way?

One national party will pay dearly, as was the case in Canada in May.

Not all economic advice from Canada is boring

Executive director of a Toronto think tank and market economist Lawrence Solomon has come to the aid of Michele Bachmann’s singular vision of jerking the US government back to balance by selling assets and gutting big government. Other think tanks don’t take her too seriously so he fleshed out her plan. For awhile, he sounds quite Canadian: 

“What could be more sensible? Most agree that the debt not only threatens America's Triple A credit rating but the country's economy and its preeminence in the world. . . . Bachmann's straightforward approach would quash these threats and spare Americans from becoming ever-more vulnerable to the vicissitudes of the financial markets. And it would be achievable merely by restoring a smaller federal government.

Click on: www.financialpost.com/news/Lawrence+Solomon+Party+budget/5111626/story.html

Bachmann’s approach requires finding $1.4 trillion to pay the interest on the national debt and to avoid any new borrowing over the next fiscal year.

A half to two-thirds, Solomon assures us, can be found in scrapping a range of government departments that apparently were created to meet America’s growing pains in the 20th century but are unnecessary today; for instance, federal programming in education, energy innovation, urban and inter-urban transit.

The rest of the money would be found by selling large chunks of the $3.5 trillion of federal assets. He nominates the Tennessee Valley Authority, Amtrak, and the postal service and assures us there are plenty others to do the job. Apparently, selling mineral rights alone would provide enough to balance the budget.

His delicate northern pen avoids selling Yosemite National Park to either Disneyworld or the burgeoning Chinese entertainment industry. And he concludes by offering Bachmann a “friendly” amendment: agree to extend the debt ceiling for a year, the time it would take to execute the cuts and the asset sales.

All in all, Solomon makes a very bad idea appear quite feasible.

If the President, Congress, and those who use government as well as argue about its size just got out of the way, Solomon and a task force of investment bankers could find the $1.4 trillion in the government’s books. If one morning, Washington woke up inspired by one vision—with an accompanying action plan—for a “smaller” federal government, the task would be easy.

Economists may deserve to live as well as investment bankers but, before they team up to transform the biggest, busiest government in the world, they owe it to their profession to address the bizarre economics of Bachmann’s idea.

The capital markets want Washington to agree on a plan to get back to balance of over this decade but they are not alarmed about lending the federal government up to another $1.4 trillion. That borrowed money would be supporting tens of thousands of public and private American incomes and could be used to repair decrepit infrastructure and stimulate competitive investment.

What is the logic of taking that $1.4 trillion out of a weak economy when you’re credit is excellent? How is America’s productivity enhanced by inviting American investors to use up hundreds of billions in cash and credit buying non-tradable public assets?  

Medical science long ago gave up on bleeding as a medical cure. Economics’ standing as a social science also stands on keeping up with the evidence and not being seduced by panicky ideas that make it difficult to think.  

Obama’s passion gap

George Packer delivered a bitter assault on the competence of Barack Obama’s presidency in the influential “Talk of the Town” section of The New Yorker. He elevated the standard liberal frustration—the President’s “fire in the belly” problem—by saying worse things about others, invoking the pain of unemployed individuals that Obama can’t help, and quoting the famously scientific 19th Century European political thinker Max Weber. 

“On its own, the ethic of responsibility can become a devotion to technically correct procedure, while the ethic of ultimate ends can become fanaticism. Weber’s terms perfectly capture the toxic dynamic between the President, who takes responsibility as an end in itself, and the Republicans in Congress, who are destructively consumed with their own dogma. Neither side can be said to possess what Weber calls a “leader’s personality.” Responsibility without conviction is weak, but it is sane. Conviction without responsibility, in the current incarnation of the Republican Party, is raving mad.”

Read more www.newyorker.com/talk/comment/2011/07/25/110725taco_talk_packer#ixzz1SeU3bUUH

The serious target of this extravagant indictment is clearly the President. The Republican Party is not of one mind. Try to imagine Sarah Palin and Mitch McConnell finishing each other’s sentences. Republicans recklessly over play their hand. Obama apparently doesn’t even have his heart in the game.

Packer’s case against him is personal: Obama seems determined to do his best within the bounds of Washington’s divided-government and doesn’t try to escape that reality with sufficient rhetorical verve:

“More important, he no longer uses his office’s most powerful tool, rhetorical suasion, to keep the country focused on the continued need for government activism.”

This fundamentally understates what Packer actually wants him to do and overstates the use of rhetoric to do the job. Packer wants the center of opinion in the country to shift far enough to the left that Obama can get his way on policy with a hostile Congress.

The center of public opinion is deeply ambivalent about the virtue of debt- financed government intervention. It can shift in favour a little more government leadership and, for the sake of a faster recovery, it probably should.  However, trying to hasten that process now with florid presidential rhetoric would be self-defeating.

Any success would be entirely speculative. Republican activists will continue to drive the primary process—the process that disciplines the president’s recalcitrant Washington opponents. The undecided voters that Obama needs won’t have a ballot to confirm what they think for another fifteen months. That’s a long time to wait for crowd reaction and policy progress.  

Of course, it would be more exciting if Obama dropped his reputation for being “more reasonable” than his adversaries and deployed a winner-take-all inspirational style. However, that would only deepen paralysis in Washington and feed the suspicion that he’s more articulate than effective.

The crucial problem with Packer’s thesis, however, is the contention that inspirational White House rhetoric can change the way the people think and, in doing so, can change circumstances on the ground.

Teddy Roosevelt coined the phrase “bully-pulpit” but never enjoyed the right circumstances to make it work. His theatrical competitor Winston Churchill appeared to use words to vastly great effect while TR ended his public career as a rather windy crank.  Yet, it was only during an extraordinary period in history that Churchill truly inspired. In the late spring and summer of 1940, he and his listeners agreed, finally, on the nature of the problem and necessity to act.   

Reading the facts responsibly did not encumber Churchill’s rhetoric. Luftwaffe planes over the night skies of London established Churchill as Britain’s greatest realist and that allowed him to be heard by everyone. Theories about military deterrence didn’t work for Churchill and economic arguments will not create a national consensus for Obama.

For a generation, Churchill had been recognized as a great wordsmith, while his political influence faded. He inspired a nation in 1940 because no one questioned his definition of the task before them. It would have only been embarrassing if he’d given “his blood, sweat and tears speech” a year earlier.

Conviction, without good timing, makes people look away rather than leap to their feet.

The Californication of America’s finances

Last week, rating agencies and global financial analysts laid out the choice: fix your public finances or prepare to surrender America’s unique source of growth and competitiveness: its ready access to exceptionally cheap credit and its reputation as the safest haven in the world for nervous capital. What sounded too ambitious a few months ago now appears to be eating your peas.

“S&P says that there needs to be $4,000bn of consolidation over the medium term to stabilise the US fiscal position. That is the extent of the largest deal proposed by President Barack Obama, one that includes revenue increases and cuts to Social Security, but which no longer seems to have much chance of getting through Congress.”

Click on: www.ft.com/intl/cms/s/0/c7f14374-b092-11e0-a5a7-00144feab49a.html#axzz1SSYPI4Yp

This week, the House of Representatives’ Republican majority will parade their weaponry for next year’s election: the Cap, Cut, and Balance plan. It would reinforce Paul Ryan’s Medicaid and Healthcare cuts and bolster the Republican Party’s pledge to oppose any new taxes by literally making budget deficits unconstitutional. Their proposals will not only provide cover for their sell-out next week when they agree to raise the debt ceiling they will also give both presidential and congressional candidates powerful issues to mobilize their supporters in 2012. For the sake of a parade, however, Washington gridlock will persist and America’s recovery and reputation will falter.

Over one media cycle, the Republicans will both trivialize and radicalize American politics.

By ruling out any significant immediate compromise to narrow the deficit for the medium-term or any measure to stimulate jobs now, the Republicans will set Obama up as an ineffectual president. (On the mischievous extreme, Newt Gingrich would only give the President debt-ceiling increments on a month-by-month basis up to the election.)

However, even if the Republicans nominate a “man of action” uncontaminated by the emasculating politics of Washington, they’ll find themselves running on a platform that can be caricatured as unworkable and dangerous. Something like having a VP candidate during the Cold War say “We should nuke Hanoi.”

Without California’s exceptional human and natural advantages, the Republican balanced budget constitutional amendment would bring the most important Western government down to the level of a near-bankrupt subnational jurisdiction. Standards & Poor’s hasn’t granted California a triple-A credit rating since 1986.

Click on: www.treasurer.ca.gov/ratings/history.asp

California’s dynamic economy, many argue, was a decisive factor in winning the Cold War and in out-innovating Western Europe and Asia over the last three decades. Nevertheless, it hasn’t been strong enough to carry California’s financially incredible state governance. By passing a series of small “popular” constitutional amendments to make politicians behave, California is left with a representative democracy that cannot make tough decisions without teetering on bankruptcy.

That is the agenda of Washington Republicans. They would effectively require super-majorities to raise taxes, to run counter-cyclical deficits, and to finance major new initiatives domestically and abroad. Their constitutional medicine would either add hundreds of $billions to the cost of financing the American government or handicap its ability to act decisively internationally and to provide any measure of leadership over the future health of America domestically.

It would even make it difficult to laugh about how hard it is to get the European Union to make decisions.

Does Mitch McConnell want to fix Washington?

His adversaries insist that wily Mitch McConnell’s every move is directed to defeat Obama.  (After all, he said so once.) That may be the view professional campaigners but is not the intent of the Minority Leader of the US Senate.

His ambitions are greater than that: he’s been in and out of Washington politics since 1967 and was Republican Leader of the Senate before Barack Obama was a Presidential contender.

It makes far more sense to conclude from the current fiscal impasse that McConnell won’t compromise with Obama on taxes because he fears that Obama can  win re-election, that the tax raising taboo that, supposedly, destroyed George Bush Senior’s re-election campaign could be broken.

Presumably, McConnell is telling his colleagues that as a fallback letting Obama borrow another $2.5 trillion and giving him the power to do it alone will leave Republicans free to keep attacking Obama as a spendthrift president leading America to bankruptcy.

Substantively, however, by foregoing a deal on entitlements to protect their no-tax-increase mantra, Republicans may pay dearly. Obama will get what he needs from the debt-ceiling confrontation and, at last, will look like a winner, and Republicans will probably have to go into the election defending Paul Ryan’s proposals to effectively dismantle universal public health insurance for seniors.

Let’s assume that McConnell is an intelligent classic American conservative. That breed doesn’t think in terms of undoing what democracy has put together over the last hundred years. It does fear, however, that popular democracy is biased toward ever more federal government spending. A well financed federal government is a government able to do more – something they simply don’t want.

Let’s grant also that McConnell is a patriot who would agree to raise taxes to secure a bi-partisan agreement to get the nation’s debt under control–if he believed it was truly necessary, right now.

The leading conservative economic voice, The Wall St. Journal wholeheartedly agrees with McConnell that there is no emergency just around the corner.  Click on: http://online.wsj.com/article/SB10001424052702303678704576442231815463502.html?mod=WSJ_Opinion_LEADTop

Clearly, no matter how many muskets show up at the Republican’s next convention or alarmist the winner’s rhetoric, Mitch McConnell doesn’t see why he should alter his overall fiscal strategy: let Washington trudge along for now with $trillion deficits and a European-size national debt.

Those two problems make it almost impossible for his opponents to spend more on new ideas or to stimulate the economy and, hopefully over time, they will make sure that social entitlements will at least be less generous and leanly administered.  

The atmospherics of today’s “dysfunctional” Washington don’t offend his principles. Carrying on for another ten years of grudging cuts and almost no new programs, whoever is President, would, in his mind, be an accomplishment.