Leadership Not

The Republicans are quick to accuse President Obama of exercising a lack of leadership when it comes to passing legislation, most recently a bill to extend the reduction of payroll taxes. I personally have issues with President Obama’s leadership, but not in the narrow sense portrayed by his Republican detractors.
There are perhaps as many definitions of leadership as there are leaders. For the sake of this discussion I’ll go with Wikipedia’s definition: the “process of social influence in which one person can enlist the aid and support of others in the accomplishment of a common task".
One of the hallmarks of Presidential leadership is his ability to mobilize a political consensus to move his agenda forward. By his, I mean an agenda he feels is in the best interest of the country. To my way of thinking President Obama has failed to do so, in large measure by being unwilling to go directly to the people in a sustained fashion – using his bully pulpit to engage the citizenry and thereby put pressure on his political opponents. President Obama points out Republican alliances to big business, oil, and the uber-rich, but has lacked the conviction or courage to drive these points home.
Re-electing President Obama will do nothing for his agenda unless he has a Democratic Congress to work with. Even this situation, as evidenced by the first two years of his administration, is an insufficient condition for success. As an example, the Bush Administration avoided a Democratic filibuster of their tax cut package by ruling that the cut could be passed under reconciliation rules. When it came time to reinstate some of these taxes, Democratic leaders lacked the will to take the same tact. Think what would have happened had President Obama had the political instincts of Lyndon Johnson. I’m not sure we would necessarily have been better off, but the much of the agenda that President Obama ran on would have been enacted into law. Lyndon Johnson and Nancy Pelosi would have made a formidable team, much to the consternation of the right.
This leadership failing is not to be confused with the leadership failing called into question by the Republicans. The Republican leadership takes pride in being the party of no: no to any and all judicial and administrative appointments, no to any bills. Just look at the record. Even when the Democrats virtually cave into Republican demands in crafting legislation, the far right remains inclined to defeat the final bill just to deprive Obama of any sense of accomplishment.
President Obama has no influence with the Republicans on the hill and will never have any. His attempts at compromise were never reciprocated in any meaningful way. In fact, his personal involvement only complicates the problems of Congressional democrats in moving legislation forward. The Republican charge of a lack of leadership is without merit: you can’t lead when you have no chance in influencing Republican behavior. You won’t hear Republicans carp about his larger lack of leadership lest the sleeping dog awake and call for a House and Senate that is willing to work with him to address what he believes are the needs of the country.

Progressive Era Redux

The signers of the Declaration of Independence affirmed three unalienable rights –life, liberty, and the pursuit of happiness – that were to be secured by the state based on the consent of the governed. Heady words, indeed.
Many question whether their personal ability to purse happiness is being held hostage to the inordinate influences of the top one percent of Americans upon the federal government. Most do not question the right of some Americans to earn and retain substantial wealth. Increasingly, however, they point to the unfair advantages bestowed upon the uber-rich by federal and state governments.
This was not always the case. From the end of the Second World War until the beginning of the Regan administration, a rising economic tide led to substantial increases in the standard of living of all income levels. The growth in family income ranged between 112% - for the lowest 20% of American family income earners – to 99% for the top 20%. The trends diverged beginning with the Reagan tax cuts and continued thereafter. From 1980-2007 the growth in family incomes ranged from 15% to 33% for bottom 80% of population as opposed to 95% for the top 20%. Family income levels for the top 1% of American families rose by a whopping 251%.
This marked shift in income distribution did not raise a hue and cry. Americans do not begrudge the rich, in part because they hope, however unrealistically, one day to be able to similarly enjoy the fruits of their hoped-for success. The banking crisis and subsequent recession has brought these disparities into sharper focus. What has become particularly galling to some, most notably the Occupy Wall Street movement has been the way these gains in wealth have been achieved. Specifically, they look at the influence of the uber-rich on state actions:
• The Bush tax cuts were focused on improving the lot of the wealthiest Americans by virtue of the sharp cuts on taxes for capital gains and taxes;
• Legislation was passed to reorganize the financial services industry and those appointed to oversee financial services were plucked from the very industry they were watching. Not surprisingly, regulators were loath to constrain poor banking practices or otherwise alert the public at large to the potential dangers of excessive bank lending to sub-prime borrowers.
• Legislation was passed that effectively bailed out many banks despite their poor practices: financial community managers were soon once-again collecting substantial financial bonuses.
• Legislation to improve oversight was slow in coming and has yet to be fully implemented because of Republican-led filibusters against Presidential nominees to head the new Agency.
Home ownership is the major form of wealth creation for many middle class families and, in marked contrast to their treatment of the financial sector the government has done little to help those whose property values plunged through no fault of their own. Those whose houses were under water, moreover, found it impossible to take advantage of the fall in interest rates to refinance. Moreover, economic revival is being constrained by the government’s newfound zeal in reigning in deficit financing. While hundreds of billions of dollars were authorized to rebuild Iraq, they find the government reluctant to extend unemployment benefits or lower income tax breaks.
In the late 19th century American citizens rallied behind the progressive movement. Upset over the greed of the Robber Barons and government sanctioned restraint of trade and union movements, they empowered their elected representatives to make fundamental changes to include anti-trust legislation, a highly progressive income tax, and the direct election of Senators (to remove the power of the upper class in the selection of Senators by state legislatures.) Currently President Obama is stirring the pot with progressive-sounding language. Whether he has the mettle or inclination to go forward with this platform is problematical. I would venture that a properly articulated progressive platform would find a willing audience.

Be Careful of What you Wish For

In a July poll conducted by CNN, nearly three-fourths of all Americans favored a balanced budget amendment. In fact, 49 state constitutions have long contained language requiring an annual balancing of the budget. Although specific Amendment language has not been crafted, Congressional Republicans insist that any amendment ensure (a) total expenditures do not exceed total receipts, and (b) tax increases must be approved by a two-thirds vote in both Houses of Congress. 

 
With the exception of financing WWII, prior to President Reagan past administrations were fairly effective in keeping annual deficits in check. Even FDR cut spending in the midst of the Great Depression – causing a double dip recession – in order to reduce annual federal deficits. 

 
While the proposed amendment may not have stopped the Reagan administration from cutting tax rates – in the belief that lower tax rates would boost the economy such that tax revenues would actually rise –it would have made it next to impossible for President Reagan, and later Presidents Bush and Clinton, from raising taxes to bring the resulting deficits under control. President Reagan’s substantial increase in defense spending- which arguably led to the end of the cold war- may not have been possible. 

 
If the amendment had been in place President Bush, would have to have (a) been forced to limit the size of his tax cuts, (b) found it extremely difficult to pursue wars in Afghanistan and Iraq, and (c) been precluded from increasing Medicare coverage to include prescription drugs.
President Obama’s stimulus program would have been impossible. If fact, as the recession deepened, the federal government, like all of the states, would have been forced to cut back substantially on spending to cover the decline in tax receipts and increase unemployment outlays. Today unemployment would be substantially above current levels. 

Are Republicans – who strongly back this Amendment – throwing the baby out with the bathwater? The requirement of a two-thirds Congressional majority for tax increases is a game-changer when it comes to the role played by the federal government. It is one thing to argue that Americans must pay for the services they wish to receive, it is another matter altogether to tie the hands of future voters. The first argues for fiscal responsibility, the second locks in the social policy preferences of the far right. If future generations decide on a greater role for the federal government and are willing to pay for it, than they should be allowed to do so. The two-thirds requirement for tax increases makes this highly problematic.
I’m also against the one size fits all aspect of the proposed amendment. Many if not most economists ascribe to the principle that budgets should be balanced when the country is at full employment, running a slight surplus during the best of times when tax receipts are particularly high and a deficit when substantial people are out of work. Substantial borrowing would only be permissible when future generations – who must repay the debt- are made better off as a result. A defensive war could be financed by borrowed funds, for example, in order to secure America’s future. Government spending of borrowed monies to limit the impact of an economic recession would also be permissible since the impacts of substantial economic downfalls carry well into the future. 

Instead of pushing for an Amendment, why can’t Congress force itself to act responsibility? They actually sought to do so beginning in 1990 when PAYGO statutes were put into effect. PAYGO compelled that any new Congressional spending or tax changes not add to the federal deficit. Under PAYGO, if you wanted to pass a new initiative you either had to increase taxes or cut the budget somewhere else. Similarly, tax cuts had to be balanced by spending cuts. Seems to me this would work today as well, as long as there were allowances for defensive wars and dealing with economic downturns. Continued self-policing, however, requires continued resolve. In 2002 the Republican controlled Congress allowed PAYGO statues to expire, paving the way for budget-busting tax cuts, wars, and the Medicare prescription drug plan. Only in 2007 – when the damage was done – were PAYGO statues reinstituted by the now Democratically-controlled House of Representatives. (Notably, Obama-care meets PAYGO requirements.) 

 
The far right, in the name of fiscal responsibility, offers up an amendment that will also severely limit the ability of present and future generations to deal with challenges they may face and to put into place programs they may prefer. Before Americans embrace this Amendment they should be aware of its full implications. In so doing, they may opt for using the ballot box to hold Washington responsible.

Support the Real Job Creators

Republicans have drawn a line in the sand when it comes to increasing taxes on the rich. Such taxes, they argue, would only worsen the economy because jobs are created by the investments made the richest Americans. Singling out these job creators for increased tax burdens, they say, would only worsen the American economic situation.
I’m all for creating jobs. God knows we need to do so with unemployment running over nine percent. If the richest one percent were the job creating class than by all means leave them along. However, this is just not the case.
Jobs are created when businesses can no longer fill their orders with the workers they have on hand. By this logic, the government needs to go easy on those segments of the population most likely to place orders – i.e. buy stuff – while taxing those who are holding on their incomes – saving the monies - rather than spending it on investment, goods and services.
Republicans assert that rich Americans are more likely to invest and that investment by the rich creates more jobs in the long run than the same amount of consumption by the lower and middle classes. Many economists dispute this point, but let’s assume that it could be true. If so, than the Republican’s new shorthand for the richest Americans – “job creators” – may be more than a glittering generality.
Suppose, however, that the extra income provided to the rich by keeping a lid on their taxes and special benefits do not increase investment in plant and equipment. If that is the case than – in the interest of lowering unemployment – shouldn’t we be increasing the taxes on rich and lowering them on those lower income groups who will immediately use their extra income to buy stuff and thus create jobs?
Fortunately, data exists to shed light on this conundrum. If the rich were creating jobs by investing in plant and equipment - either personally or via the corporations whose stock they have purchased – we would see increased levels of investment. If, instead, they were holding on to their monies, it would show up in corporate profit taking. (Simply put a corporation either invests its earnings or takes a profit.)

Corporate profits hit record levels in 2010.
Nonresidential fixed investment – where the rich job creators would work their magic either directly or via the corporations they jointly own – has yet to recover to 2006 levels.
At the end of the day, investment decisions by the firms and rich entrepreneurs are based on consumer demand and not on the amount of savings provided to the rich by virtue of lower tax rates. Consumer demand is based, in turn, by the amount of monies in the pockets of the lower and middle income Americans. It is these Americans, not the very rich, who are the true job creators.

Going All In: Taking the Crisis-Afforded Opportunity

The nation faces a true crisis. Sometime next month, unless Congress authorizes an increase in the debt ceiling, the United States will no longer be able to meet its financial obligations. However, if you know where to look and if you are willing to take the necessary risks, every crisis provides the opportunity for real change. The rebirth of the US Automobile industry, following their need for a government bail-out, would seem to be such an example.
Democratic governments, in fact, seem to require a crisis before making hard choices. This does not imply, however, that hard choices will be always be made in crisis situations.
Trying to stay abreast of the ongoing deficit reduction negotiations between the Democrats, Republicans, and President Obama is no easy matter. Interestingly, there are three, not two, groups involved. President Obama’s solution, in many ways, looks more like a Republican than a Democratic proposal.
All three camps agree in the need to bring projected Federal expenditures into balance with projected revenues. The devil – and the debate- is in the details. By way of background, the major contributors to the ongoing debt problem – remember the US was running a budget surplus by the end of the Clinton administration – in order are (a) the decline in tax receipts by virtue of the Bush tax cuts, (b) the costs of the wars in Iraq and Afghanistan, (c) increasing costs of Medicare and Medicaid. The costs associated with offsetting the recession are substantial but transitory: the real dilemma lies in balancing the government’s books if and when the economy returns to full employment.
Early last year, when Congress was unable to gain Republican approval for a congressionally run bi-partisan debt reduction commission, President Obama issued an executive order to form his own bipartisan commission. Their report, released last December, called for major changes to both entitlements and the tax code – stemming the growth in Medicare, Medicaid, and Social Security outlays while reducing tax benefits to certain groups.
The politics, surprisingly, are similarly straightforward. The Republicans wish to balance the government’s books by substantially reducing federal disbursements to the unemployed, poor, sick, and retired. Republicans claim they were elected on the promise to not raise taxes, and argue that this pledge extends to maintaining existing tax advantages, for example to oil companies. To their credit, the party, under Ron Paul’s leadership, has put forth an integrated plan. based on reduced spending and lower taxes, to balance the books.
The Democrats, in contrast, are fighting tooth and nail to preserve entitlements while seeking to return tax rates on the richest to earlier levels. Feeling free to take shots at the Republican plan, the Democrats have not advanced their own integrated proposal to balance the books.
President Obama, reminiscent of the health care debate, chose to let the two parties fight it out before taking a position. He was specifically reluctant to enter the fray unless he felt the Republicans were prepared to enter into serious negotiations. With results of political negotiations mixed at best, and with time running out, Obama, in poker parlance, went “all in”. He took the opportunity afforded by a looming fiscal crisis to advance a proposal for a massive $4 trillion cut in the budget deficit over the next decade, with two thirds of the cut resulting from reduced expenditures – Medicaid, Medicare, and Social Security, and one-third from higher revenues, largely by ending tax breaks.
In offering the Republicans this proposal, the President went against his own party. Validating the recommendations of the bipartisan debt reduction commission, he was willing to substantially reign in government entitlements. At the same time he was standing firm on his personal pledge that he would allow any solution be borne solely by the middle and lower classes. Again, reflecting the recommendations of the debt reduction commission, he called for increased tax revenues, primarily from the wealthy.
While Speak Boehner worked with the President to strike a deal, at the end of the day the Republican leadership was unwilling to similarly challenge their rank and file to seize the opportunity offered by the current financial crisis. Rather than having a responsible and meaningful compromise that restores fiscal responsibility, Congress is likely to follow long standing political traditions and somehow muddle through, at least to the next fiscal crisis.
Each side will spin the President’s motivations and the like: Republicans, for example, will continue to characterize the Democrats as the party of tax and spend. The simple fact remains, however, that President Obama –taking the opportunity afforded by the financial crisis- was willing to make substantial concessions on government spending in return for less substantial Republican concessions on taxes I’m not saying he would have received the support of House and Senate Democrats in this regard, but at least he was willing to risk failure in order achieve meaningful progress. Sadly, the same cannot be said for the Republican leadership. The opportunities afforded by our financial crisis appeared to have gone wanting. The American people will suffer as a result.

Irresponsible Brinksmanship

Am I missing something about this debt crisis? Let’s run down some of the more salient issues at play.

While the costs of two wars and fighting the recession play a role, the major cause of the build-up in debt is the revenues lost by virtue of massive tax cuts under the Bush administration. Not surprisingly, the tax burden placed upon US taxpayers is at a 60 year low. Despite these two salient facts, the Republican leadership will not countenance even a semblance of discussion on cutting the deficit by raising taxes.

Unemployment remains stuck at over nine percent: the rate among minorities is almost three times this amount. Republicans and Democrats alike have essentially given up on developing programs to reduce unemployment for the simple reason that such programs take federal funds.

At the same time that nothing is being done to reduce unemployment, Republican measures to control the debt favor substantially reduced spending on those safety nets such as Medicaid, unemployment compensation, and TANIF that cushion some of the misery associated with being out of work.

The brinksmanship being played over the debt ceiling only serves to exacerbate America’s economic problems. The prospect of a federal debt default, no matter how remote, has caused businesses to stop in their tracks. The economic optimism of a few months past has turned to growing investor pessimism over the ability of the government to govern responsibly.

The key word is ‘responsibly’. To be fair, the Republicans ran on platform promising fiscal responsibility, and it is clear that their message resonated with the majority of Americans. Republican control over the House of Representatives means they control how much money is raised and spent. They have been successful in cutting government spending and can continue to do so.

The debate that has been opened up between the left and right on the proper long term course for America – further tax cuts and heavy spending reductions vice less severe cuts to entitlements along with some tax increases – is a good example of responsible government. It needs time to be fully vetted and explained to the American voters: let the 2012 elections be a referendum on which way Americans wish to go.

Holding the Democrats hostage by tying a vote on the debt ceiling to massive cuts in spending with no tax increases is irresponsible brinksmanship. This is different than the clash between then House Speaker Newt Gingrich and President Clinton that led to a short closure of the US government. In this case the long-term creditworthiness of the United States is threatened: the ramifications of even a short default are long-term in nature, at a minimum raising the cost of borrowing by the US government (paid in the end by US taxpayers).

There is no need for the Republicans to be so heavy-handed at this point in time. The risks to American economic recovery and financial solvency are too great. Although the Republicans control the House of Representatives, the Democrats still control the Senate and the White House. With this in mind, a compromise would seem reasonable. Republican leaders should agree to the increase in the debt ceiling that is required for American solvency while continuing the debate with President Obama on the proper future role for the federal government. If they have it right, Republicans will be rewarded with control of the Senate and the White House next year.

The Obama Way

The strike against Osama Bin Laden speaks volumes about president Obama's leadership style. In his presidential campaign, Obama was very direct on his approach to Osama Bin Laden: if elected he would track down and kill Bin Laden even if it meant unilateral actions in Pakistan. This was a marked departure from candidate Obama's overall stance on national security and foreign policy, where he pledged to end the Bush-era unilateralism in favor of a multilateral approach to international affairs.

President Obama has been true to his word on both counts - trampling Pakistani sovereignty on the one hand while refusing to take a leadership role in the coalition of forces seeking to end the reign of Omar Kadafi.

What then, have we learned about President Obama's presidential timber? Firstly, he is deliberate in his decision-making while having the mettle to make the hard calls. Secondly, the buck really stops on his desk on important matters: pundits have criticized his use of the first person when discussing the mission, but the shoe fits - Obama is intimately involved in key administration decisions. Thirdly, everything is situational. While he ha over riding domestic and foreign policy visions, President Obama decides each issue on its own merits. These characteristics - on vivid display in recent days - hold true on domestic issues as well.