Of Downgrades and Ratings Agencies

The suggestion that the US needs to cut $4 trillion in projected debt over the next ten years in order to avoid a downgrade in its debt rating, posed here in an S&P report, has gained significant traction among many on the right. Erick Erickson, when he's not denying "absolution" to the falsely faithful in the GOP, has emphasized this cut of $4 trillion as crucial to avoid a downgrade.

However, digging into the S&P report reveals some details that might be more problematic for many seeming "deficit hawks." Though this report does suggest that $4 trillion in cuts/increased revenue over the next ten years would be enough to keep an AAA rating, it also says that its baseline for savings assumes the expiration of the Bush tax cuts in 2012. Will many of these "deficit hawks" abandon those tax cuts in order to appease S&P and keep an AAA rating?

This report also makes an interesting---and perhaps unwarranted---logical jump (emphasis added):

Congress and the Administration might also settle for a smaller increase in the debt ceiling, or they might agree on a plan that, while avoiding a near-term default, might not, in our view, materially improve our base case expectation for the future path of the net general government debt-to-GDP ratio. U.S. political debate is currently more focused on the need for medium-term fiscal consolidation than it has been for a decade. Based on this, we believe that an inability to reach an agreement now could indicate that an agreement will not be reached for several more years. We view an inability to timely agree and credibly implement medium-term fiscal consolidation policy as inconsistent with a ‘AAA’ sovereign rating, given the expected government debt trajectory noted above.

Really? Right now, we have had a House filled with new members who have a radical antipathy to the sitting president, his party (which controls the Senate), and (Democratic) deficit spending. I would think now might be one of the times when a long-term agreement was least likely. Things could be radically different 2 years from now. If Obama wins reelection, the Republican majority in the House would likely be quite diminished, if not destroyed. Meanwhile, the Senate, a more consent-run institution, would likely have a narrow Democratic or Republican majority. Wouldn't that situation be more likely to have a bipartisan agreement? Likewise, a Republican victory in November 2012 could very likely lead to Republicans controlling both houses of Congress and the presidency. Surely that scenario would also be likely to pass a long-term debt-decreasing strategy---or at least more likely than the present. S&P might be guilty here of setting a false deadline. This is not the first time S&P has made mistakes in its analysis.

Moreover, it's worth noting that S&P does seem not overly concerned about the current amount of US debt as a percentage of GDP. After all, many countries (such as Germany and France) have debts that are greater fractions of their economies than the USA does by many estimates (S&P currently estimates that the US debt-to-GDP ratio is close to 75%). Moreover, US bonds constitute nearly 60% of AAA-traded government bonds. And interest rates on long-term government bonds are very low, indicating that investors feel quite safe buying US treasuries. Much of the market seems to believe that US debt is a safe investment.

What S&P is concerned about---and we should be concerned with---is the trajectory of debt as a percentage of GDP, which has shot upwards in recent years. One of the biggest drivers of our debt problems in the short term is the poor economy (Medicare is one of the biggest in the long term). And S&P warns that refusing to raise the debt ceiling could lead to a worsening of the economy and further degrade the US debt outlook. This S&P analysis suggests that raising the debt ceiling without $4 trillion in savings and the repeal of the Bush tax cuts might lead to a downgrade (nowhere does it say that it will downgrade US debt if cuts are less than $4 trillion), but refusing to raise the debt ceiling would very likely lead to a downgrade.

The miserable employment picture and resulting diminished tax revenues probably accounts for at least half (and perhaps much more) of the current deficit---over $700 billion dollars a year. Getting back to a fully functioning economy would shave trillions off the debt over the next decade. Anything that gets in the way of a real economic recovery would likely worsen, not resolve, our debt crisis.

(Crossposted at FrumForum)

Moving the Goalposts

Jill Lawrence at The Daily Beast takes a hatchet to Mitt Romney's jobs record as governor. Along with quoting an ex-Dukakis staffer, Lawrence makes the following point:

Like Obama, the former Massachusetts governor took office during a severe recession, struggled to boost job growth, and spent perhaps too much time trying to solve the riddle of health care. Now his economic record is under scrutiny in an unforgiving campaign environment, and it’s as flawed as Obama’s.

Flawed as Obama's? Early in Romney's term, in June 2003, the state unemployment rate had climbed to 6%. By the end of his term in early 2007, it had sunk to 4.6%. For most of Romney's term, the Massachusetts unemployment rate was below the national average.

Compare that with Obama's record: in February 2009, the national unemployment rate was 8.2%. Unemployment jumped to over 10% later that year and has lingered above 9% for most of Obama's term.

It's true that both Romney and Obama had economic inheritances and dealt with economic contexts that they could not and cannot completely control; it would take more than a dose of partisanship to blame Obama entirely for the 10%+ unemployment rate in the fall of 2009. But Obama cannot avoid the burden of responsibility, either, especially since his party controlled Congress with overwhelming majorities for his first term (Romney, on the other hand, had to deal with veto-proof Democratic majorities in the Bay State). The stimulus measure in which the president invested so much political capital performed well below expectations, and the current national ship is only being kept afloat by massive deficit spending.

Cutting the unemployment rate by about 25% (from 6% to 4.6%) or never getting the unemployment rate near the number it was when you started? You can bet that, if Obama's record were as "flawed" as Romney's, numerous heads in the White House would be resting a lot easier.

Time Machine: The Debt Ceiling

A little while ago, Joshua Green outlined how Congress dealt with the debt ceiling during the Reagan, Bush, and early Clinton years:

Gephardt realized that the easiest way to fix the problem and impose some rationality on the process, was to do away with the second vote. He consulted the parliamentarian. "I asked if there was a way that when we pass the budget [the debt ceiling] can be deemed 'raised' to accommodate the budget people are voting for," Gephardt said. "He said, 'Yeah, we think we can work that out.'"

Thus was born the "Gephardt rule." For a period thereafter, the adoption of the conference report on the budget resolution would trigger the Gephardt rule and "deem to have passed" legislation raising the debt limit to accommodate the spending and revenue levels approved in the budget. Presto! Problem solved.

A Congress dominated by resurgent Republicans scrapped this rule in 1995.

(H/T: David Frum)

What happens in 2015?

Consider this scenario: President Palin (or Romney or Perry or Pawlenty or whoever) is sworn in with great jubilation among movement conservatives in January 2013. Voter distaste with Democrats also led to the crushing defeat for Democratic Congressional incumbents, leaving Republicans with hefty majorities in the House and Senate. In a paroxysm of celebration, Republicans pass the Ryan budget, slashing taxes and putting major reforms in Medicare years down the road. However, the growth promised by advocates of this budget does not materialize, and (as the budget estimates) the federal government runs huge deficits for the first two years of the new president's term. Frustrated with a series of broken economic promises, voters turn Republicans out in massive numbers in the 2014 midterms. Though Republicans cling to a narrow majority in the Senate, they are wiped out in the House, and an exultant Nancy Pelosi reclaims the title of Speaker.

In passing the Ryan budget, Congress also upped the debt ceiling by a trillion or so, but perpetual deficits mean that the ceiling is coming awfully close, and federal spending is due to break it in early August 2015. So now, in May, the president must go on bended knee to Speaker Pelosi, who demands tax increases as the price for her caucus supporting an increase in the debt ceiling. As the Speaker tells the press after the tenth of her many meeting with the president:

Since 2000, we have cut taxes for the wealthiest ten percent of Americans to record lows and have nothing to show for it but exploding deficits and a stagnating economy for the lower ninety percent. Polls show that Americans support an increase in taxes on the wealthiest, who have the most to give and who have gained the most from our economy. It would be irresponsible to increase the debt ceiling without increasing our ability to pay for our spending. I hope the president will compromise for the sake of our nation's future.

And what could Republicans say to this? Again, there is the wailing and gnashing of teeth in markets across the globe about America's ability to pay its debts. Again, the Washington summer dissolves into rancor and cut-throat battle. Welcome to the Battle of the Budget Part II (of many, many parts).

The above scenario may very well not happen, but a Republican president will, at some point in the future, face a Congress wholly controlled by Democrats. Every Republican president since Eisenhower has faced at least one Congress totally dominated by Democrats. On the other hand, Bill Clinton is the only Democrat after Truman who has dealt with a Congress totally controlled by Republicans. Jimmy Carter is the last president who never faced any house of Congress controlled by the opposing political party. And every president in the living memory has increased the debt in raw dollars, requiring increases in the debt ceiling.

If dynamic of the current debt ceiling debate continues into the future, we could easily find the country grinding into a kind of financial-political paralysis every few years that one party controls one branch (or two branches) of Congress while another controls the White House. The Founders believed in certain kinds of brakes on governmental power, but I'm not sure that this specific kind is the most helpful (or even if it would not increase government power in the long run through increasing dysfunction). Under this current dynamic, Congress votes for, and the president signs, budgets demanding certain kinds of spending only to later fight about how to pay for this spending (via borrowing, tax increases, future spending cuts, and so forth). Normal prudential politics would seem to suggest that you agree (implicitly or explicitly) to agree paying for some spending before you agree to that spending.

Republicans and Democrats, conservatives and progressives, will have to weigh the implications of the current debt-ceiling discussion tactics for future administrations and Congresses. These implications might be problematic for the functioning of government and conservative goals.

(Crossposted at FrumForum As usual, there is no endorsement of or responsibility for the headline and accompanying picture.)

The Pitfalls of a Balanced Budget Amendment

Many on the right seem to believe that the balanced budget amendment, while a good idea, may face an uphill climb in terms of being enacted. I think, however, there are considerable reasons to doubt whether this amendment has merit as a policy aim. The principle of having a balanced budget is a worthy one. Fiscal prudence and discipline are important for any authentic conservatism, but the methods to achieve the end of a fiscally sustainable government also deserve some scrutiny.

As many admit, the term “balanced budget amendment” is itself a misnomer. The “balanced budget amendment” (BBA) currently endorsed by many Congressional Republicans not only requires that the budget be balanced but also stipulates, among other things, that federal spending cannot go above 18% of GDP without a 2/3 majority vote in favor, that taxes cannot be increased without a 2/3 majority vote in favor, and that a vote of 3/5 of both branches of Congress will be required to raise the debt ceiling. A 2/3 vote can also allow the budget not to be balanced. War can allow many of these majority requirements to be waived---with the notable exception of taxes, which would still require a 2/3 majority to be increased.*

An initial practical point: for conservatives interested in changing the tax system, the BBA would very likely make tax reform harder, not easier. Most forms of tax reform would require that taxes somewhere be raised (through the closing of various loopholes, say) in order to compensate for taxes being lowered elsewhere. A requirement for a 2/3 majority on tax increases would give a grand bargain on tax reform a much higher hurdle. Moreover, the BBA seems to put in place an utterly unconservative dynamic: it makes it easier to increase spending than it is to increase taxes, the instrument for paying for this spending. Even if current federal spending were to magically drop to 18% of GDP, current tax revenue is only 15% of GDP, so we would be left with over $400 billion in deficit spending. As we are under a time of military conflict (in Afghanistan, etc.), the government can ignore the “demand” that the budget be balanced.

Because GDP is a notoriously unmoored number, the requirement that spending cannot exceed 18% of GDP is built on sand. GDP for a year is often revised numerous times, so what counts as GDP for the purposes of the BBA? In a year in which spending is 18% of GDP and the GDP number is later revised downward, part of the budget based on that year's GDP might be deemed unconstitutional. Which part? This requirement could plant a bacterial trace of chaos in the budgetary system of the United States, one that could infect the whole of the federal budget.

Moreover, 18% is an entirely arbitrary number. According to the Office of Management and Budget, 1966, before Medicare really came into effect, was the last year where federal spending was below 18% of GDP. Moreover, every presidential administration since the end of World War II had years where federal spending was greater than 18% of GDP. It is unclear why this number should be set in stone.

History has another rebuke for the BBA: almost every presidential administration since 1900 would have had budgets that would have required a Constitutional override of a 2/3 vote. The only exceptions to this would be the presidencies of Harding and Coolidge, which ran surpluses for each of their years in office---though Coolidge’s presidency was also followed by the worst economic collapse in the twentieth century. The only Republican president in the postwar era whose policies led to at least one year with a balanced budget was Eisenhower. With the exception of 2001 (which was a partial carry over from Clinton-era budgets), every year of Nixon, Ford, Reagan, Bush I, and Bush II would run afoul of the BBA.

I cite history not because the past should always be the example for the future. But the past does have a significant role to play for traditional conservatism as it considers its policy aims. Federal debt has pretty much inexorably increased from 1900 to 2000, but the United States did not become poorer or radically less fiscally sound over this period. Provided they are sufficiently small, deficits do not seem likely to break the fiscal health of this nation. Moreover, the embrace of the principles of the BBA would seem to entail the rejection of the policies of every Republican and Democratic administration in the modern era, with the possible exception of Eisenhower, the only president in the modern era who ever ran a surplus and also presided over a federal government that was less than 18% of the GDP. And even Eisenhower’s administration ultimately increased the debt in raw dollars and had years when federal spending was over 18% of GDP. (There’s some irony to the fact that Eisenhower’s administration, more than any other, conforms to the principles of the BBA; many factions within the Tea Party movement, which has advocated strongly for this measure, can trace their ideological ancestors to the Birchers and Goldwaterites who rejected Eisenhower-style conciliation.) A total rejection of historical practical standards sounds less like moderating conservatism and more like an insistent radicalism.

An obvious rejoinder to these points is that the BBA gives a ready means of escape---that 2/3 majority that can override any of its requirements. Therefore, all past presidents could comply with the principles of the BBA, as long as Congress votes for overrides. However, this rejoinder implicitly weakens the case for the BBA by suggesting the ordinariness of seemingly extraordinary measures. The normalization of overrides could easily make public finances less sound and increase governmental inefficiency, as 2/3 of all members would have to be “persuaded” by subsidies, tax breaks, and pet programs. Rather than authentically restraining spending, the BBA may present another layer of political kabuki, and history has shown that the increase in those layers is closely correlated to an increase in enrichment for the connected and a decrease in real political accountability. It is unclear what would be gained---more clear is what could be lost---by having our government’s budget policies be run by 2/3 of the House and Senate.

The current incarnation of the balanced budget amendment falls into an error about which many on the right have traditionally pilloried the left: it substitutes legalism for virtue and prudence. We can balance the budget tomorrow if we want---by spending no more than we gain in taxes. Conservatives can cut spending if they want, though they seem to find this a challenging prospect when they actually take power. The Constitution already has a mechanism for a balanced budget, if our Congress and president want it. The fact that they have so rarely wanted it, and that the lack of a balanced budget has not always led to an economic or fiscal disaster, might give those sympathetic to prudential conservatism pause. This doubt might be reinforced by noting that the existence of balanced budget amendments in various states has not saved them in any way from fiscal turmoil. Indeed, California, perhaps the paragon of dysfunctional state finances, has operated under a balanced budget amendment for years. Passing constitutional requirements, in the case of California and other states, was a poor substitute for judgement in legislative and executive branches.

The fact is that some debts are worth incurring, while others are not. Sometimes deficit spending makes perfect sense; at others, it’s equivalent to a drug addict borrowing for a good time. Sometimes, some taxes will have to be raised; sometimes, some taxes will have to be lowered. Personal judgement and principled deliberation can help us realize those times---a set of paragraphs plugged into the Constitution will not.

*Other variants of this proposal are circulating, but their features, and their limitations, have much in common with the version discussed here.

(Crossposted at FrumForum)

BULB Act Scheduled For Vote

The Better Use of Light Bulbs Act (HR 2417) is apparently scheduled for a vote today. The BULB Act would repeal part of a 2007 bill that bans the traditional incandescent bulb. This eventual ban (due to start taking effect next year) has been a flashpoint for many on the right and center.

However, this vote could face some troubles. As The Hill notes,

The BULB Act will be considered under a suspension of House rules, which means it will require support from two-thirds of voting members. This bill has the possibility of failing today: Republicans have already brought up a few suspension bills that have failed due to lack of support from Democrats.

If all members vote and all Republicans vote in favor of the BULB Act (a big if), BULB Act allies would probably need at least 50 Democrats in order to pass this legislation. With many Blue Dogs and somewhat moderate Democrats purged in the 2010 midterms, finding 50 might be a challenging enterprise.

UPDATE: House has adjourned: HR 2417 will be taken up later.

Partisan Optics for the "Constitutional Option"

As Matt Yglesias suggests, one of the big reasons for the left bringing up the "Constitutional option," in which the president would override the debt ceiling by invoking the Fourteenth Amendment, is as a bargaining position: it gives the White House the opportunity to say to Republican negotiators that it doesn't need them and has other options if they refuse to vote to raise the debt ceiling.

It's pretty clear why the "Constitutional option" could be good partisan politics for Democrats. If the debt ceiling stands and government budgets run into it, we could enter a period of intense economic turmoil. That turmoil could sink the president's chances of reelection (that is, if he doesn't successfully deflect blame to the Republicans for the debt-ceiling fiasco). By giving the president leverage, this "option" can also allow him to parry cuts that he or his allies find unfavorable.

However, the "Constitutional option" may also be a partisan opportunity for Congressional Republicans. One of the many dirty little secrets of the current debt-ceiling talks is the fact that many Capitol Hill Republicans are quite glad to have trillions more in national debt. The GOP has voted for budgetary measures that would bust the debt ceiling. Moreover, the Ryan budget, backed by the overwhelming majority of Congressional Republicans, adds trillions to the debt and places most of the savings (some of which are premised on fantastic economic numbers) many years down the road.

But while Republican members of Congress have de facto embraced more debt, they also face a grassroots element and certain self-anointed tribunes of the conservative "movement" who increasingly believe that any vote to increase the debt ceiling is a sign of fiscal capitulation. Many Republicans thus find themselves between the rock of fiscal reality and the hard place of political positioning.

The "Constitutional option" offers the GOP an escape hatch. If Obama used this option, the GOP could keep on voting for massive deficit spending while also not making the politically hard vote about the debt ceiling. Obama's exercise of the "Constitutional option" would also give Republicans an opportunity to rail against an "out of control" executive branch while not forcing them to do anything to rein in this executive.

The leaders of both parties certainly want the debt ceiling to be raised, but they are trying to find the least politically damaging way to do it. Republicans and Democrats may find that the "Constitutional option" is the easiest way of doing so.

Of course, the use of this "option" would very likely be a ticket to a Constitutional nightmareland and could set up a further corroding of our federal institutions and national consensus. The use of this option may be good partisanship for both parties, but it seems bad politics for the nation as a whole. It would be far better for Congressional leaders to hammer out some compromise that would allow the United States to meet its fiscal obligations over the short and long terms.

Toward a Further Sunrise

(An oration on the Fourth a la Edward Everett)

It has been frequently remarked that it seems to have been reserved to the people of this country, by their conduct and example, to decide the important question, whether societies of men are really capable or not of establishing good government from reflection and choice, or whether they are forever destined to depend for their political constitutions on accident and force. If there be any truth in the remark, the crisis at which we are arrived may with propriety be regarded as the era in which that decision is to be made; and a wrong election of the part we shall act may, in this view, deserve to be considered as the general misfortune of mankind.

---Alexander Hamilton, Federalist No. 1

When Alexander Hamilton wrote those words, the citizens of a fledgling republic faced great challenges: significant debts, the aftermath of a great war, internal divisions, and a seemingly crippled government. Yet the Founders chose engagement rather than alienation and laid the foundations for a great civilization.

It would have been easier for them, perhaps, to have turned on each other. Rather than doing the hard work of drafting the Constitution, they might have rested content with blaming internal political adversaries for all political problems. Instead of negotiation and compromise, they might have drunk deep of vitriol. And, even as the ship of state sunk, a few lucky partisans could have rejoiced at having the last swallow of air.

But they didn’t do so. The Founders chose toil and struggle and deliberation over the cheap narcotic of blame. Wrath over taxation may have started the Revolution, but reason, temperance, and conciliation won the republic. The Founders did not regard government as the enemy; they instead sought to recast government to fulfill a broader vision for civilization.

The legacy of their achievements has come down to us, distilled into the annual festival of the Fourth of July. Why do we celebrate this Fourth? Is it merely a time to rest upon our laurels? To clap ourselves on the back once a year with the comforting pablum that ours is the greatest nation in the history of the world? If so, it is a day of mere self-indulgence. The Founders of this nation did not spend all their time proclaiming the greatness of their land. They did great things to make this a great republic.

In part, we celebrate the Fourth to commemorate the work of our predecessors. There were many sacrifices, failures, and triumphs. We, of course, honor those who have given through military service, and we also remember the labors of great statesmen---such as the Founders, Clay, Webster, Lincoln, Roosevelt, Eisenhower, and others. We think of those who worked to change the course of this nation’s politics, such as Douglass and Anthony and King, as well as those whose enterprises have added to the vigor of our nation---from Emerson to Faulkner, Edison to Salk. Yet we celebrate more than gilt-edged names; we rejoice, too, in the millions of dreams, labors, victories, and struggles of countless private citizens. Those who came to these shores, from the Pilgrims to the present day, who reached from the Atlantic to the Pacific to settle this land, who raised families and factories and houses, who sacrificed and strove and searched---they too have woven the fabric of this nation.

But the Fourth of July is not merely a retrospective holiday. We should also use this moment to reflect on the challenges facing the current republic. Our present trials are legion, as perhaps they always seem. Yet the intensity of these days seems to suggest a nation caught with anxiety about the prospect of its decline.

The power of “reflection and choice” for which Hamilton spoke is counterposed to that of irritation and resentment. Make no mistake: Americans have much to be angry---or at least concerned---about. The new millennium has not been an easy one for this American republic. The pillars of American self-identity have been attacked, including electoral legitimacy, national security, economic success, and sense of freedom.

November of 2000 inaugurated this new era of anxiety, with the most contentious presidential election in well over a century. Whoever had triumphed after election day would have been tainted in some way. George W. Bush, the man who did win, inherited a recession that has since blossomed into a long-term economic stagnation.

The terrorist attacks of September 11, 2001 crystallized the sense of a national identity under attack. The World Trade Center---symbol of American cosmopolitanism, modernity, and economic ambition---and the Pentagon---emblem of the American military order that plays such a role in world affairs---were both attacked by that quintessentially American invention: the airplane. The enemies of Western liberalism and wealth used the very instruments of that civilization to bring it down. For a moment, it seemed as though the nation would rally in response to this challenge---that politics would find a new direction, that the civic compact would be reinforced, that a shock of this trial would rejuvenate our democratic energies. Yet soon enough, this vital force was confronted with a deluge of glib pessimism, alienation, cynicism, and despair. Missteps in the lead up and aftermath of the ousting of Saddam Hussein, continuing challenges in Afghanistan, geopolitical turmoil, and fraught debates about coping with postmodern terrorism have deepened our public disagreements and, in many cases, called into question the capacities of the governing elite. The new homeland security state has had many excesses and numerous missteps. Even as our nation has faced new challenges of terrorism, it has also faced an international order morphing into something (what remains to be determined) at an accelerating pace.

Meanwhile, the economy stumbled along throughout much of the 2000s, fed by the thin gruel of skyrocketing debt, until it nearly fell off the precipice into oblivion during the meltdown of late 2008. Our nation’s finances have not yet collapsed, but growth over the past decade has been slower than at any other period in recent memory and unemployment remains at unusually high levels. The wages of the vast majority of Americans have stagnated even as the wealth of the richest has increased. The present administration came in with great promises, many of which have been broken, discounted, or forgotten. Its economic plans in particular have fallen far short of its own expectations (though the economic plans of the Bush administration ultimately disappointed many as well). Under the prevailing economic conditions of the past few years, our government finances are headed to ruin.

Precisely where our government was supposed to be the strongest, its flaws proved most glaring. The failures of the broader governing class were evident by 2008, though this class has remained mostly untouched by the effects of this failure.

The political pendulum has swung back and forth over the past decade, with increasing ferocity: drifting to the Republicans in 2002 and 2004, hard to Democrats in 2006 and 2008, and back with a vengeance to the Republicans in 2010. As the sense of national frustration has deepened over the past decade, the sense of urgency for each newly-empowered party has heightened. Barack Obama in 2008 was supposed to right the excesses of the Bush administration and restore the sound footing of the economic order and point the way to a brighter America. The Republicans in 2010 were supposed to right the excesses of the Obama administration and restore the sound footing of the economic order and point the way to a brighter America. The similarity here is in more than syntax.

Many partisan orthodoxies have failed, and new paths need to be found. This failure of conventional wisdom has opened up a vacuum in the public space. Scapegoating has rushed to fill it. We live in a time of many scapegoats: the rich, the unions, heartland bigots, the ruling class, faux free marketeers, crypto-socialists, Christianists, atheists, Republicans, Democrats, conservatives, progressives, anarcho-capitalists, statists, and on and on and on. The brain tires at the mere thought of that endless list of endless calumnies, and the body politic is no less exhausted by them.

In a two-party country, it is easy to see why politics has a tendency to focus on assailing one’s opponents: the ballot box is a zero-sum game, and a decline in the other party means a victory for one’s own. But societies as a whole are not themselves zero-sum. The enrichment of one’s neighbors does not imply one’s own impoverishment, nor does one’s own gain in wealth consign others to poverty. The promise of capitalism is, in part, the promise of cooperative enrichment. But there is a dire flip side to this sunny proposition---just as a community can cooperatively become richer, so too can it become poorer.

America cannot afford to cannibalize itself, as citizen turns against citizen. The crucial failure of scapegoating is in its obsession with the fate of a part in order to distract from the fate of the whole. What debilitates our country is not the fact that a union worker (in the private or the public sector) gets fair pay and good benefits; far more problematic is the fact that so many jobs have decreasing pay and winnowing benefits. Honest wealth honestly acquired should be thought of as a value to this republic and not as an injustice. Those with whom we disagree need not be enemies or existential threats to the foundation of the republic.

Instead of indulging in self-destructive antagonisms, we must enter a period of renewing reform. These reforms may have their share of pain, but we ought to use our reason to ensure that this pain is as fairly and as efficiently distributed as possible.

The strength of America comes in part from its faith in its people and in its ability to renew itself. Those who chose to come to America, from whom many of us descend, were willing to embrace change. Those who founded this nation believed in the capacities of a fresh republic, one that would be in accord with the principles of liberty. The American free market is premised on the belief in the broader wisdom of American society (at least compared to that of central planners).

The power of this nation also comes from its striving after the ideal. However troubled their actual enterprise may have been, the Puritans did not rest content with the flawed nature of man but reached for some higher city. The great ideals of the Declaration and Constitution show the ambition of the Founders to use the instruments of government in order to effect a revolution in human life. The abolitionists of the nineteenth century and civil rights warriors of the twentieth often staked their lives on the principle that our nation could go forward and wash away the stains of false bigotry and institutionalized oppression. Great accomplishments have been made not by defeatism but by perseverance and flexibility.

We have inherited both a great nation and a great government. The gleam of the potential of this government, the fruit of centuries of toil, has not, to my eyes at least, dimmed with time. Let us move from thinking of government as the enemy or as a weapon against our private enemies to thinking of it instead as a tool for advancing the greater causes of this republic: life, liberty, and the pursuit of happiness. Government is not the only tool for advancing these causes, but human society is necessarily political, so any approach that would realize these causes must consider the case of government. That very faith in the American people also applies to those citizens who are servants of this American republic; we can have faith that, somehow, politics can go forward, however recalcitrantly, in the direction of virtue.

Realizing government as a tool for advancing those purposes outlined in the Declaration need not be an endorsement in an endlessly expansive government; at times, government can be the best tool by restraining its power, by not involving itself, by not intervening in the ebullience of the private life of this republic. The rights we have may not ultimately derive from government, but government often has a role in guaranteeing these rights. There is, as ever, a careful balancing act here, but many carefully laid bricks help constitute the foundation of this republic.

There comes a time in great societies when their vital force fails. Rome’s citizens chose empire over self-discipline. The German commonwealths, a European flower of learning, diversity, and literature, succumbed to the martial and recriminative temptations of the Kaiser and the Third Reich. Our own nation nearly dissolved in the cataclysm known as the Civil War.

Yet, with great perseverance, our republic survived and broke the yoke of slavery that had weighed so heavily for so many years. Great trials can recast us and renew us---if we have the will to face them. We can either accept a bitter decline or take up the challenges of the day.

Let us not be distracted and let us not despair. The faith of the Revolution was fed by the belief that our problems are tractable. Even if we cannot solve all the challenges this nation or liberal government in general faces, we can at least cope with them.

Let the United States still be, as Benjamin Franklin hoped, the republic of the rising sun. Rather than chewing over the resentments of the past, we should instead seek the triumphs of the future. Now is not the time to surrender to resentment or despair or petty hate. Now is not the time to accept deflecting blame as victory. Now is not the moment to forswear the potential of these United States.

We can still engage in enterprises of reason and merit. However old or frail our hands, we can still reach. Rather than being dirges or complacent ditties, the songs of the Fourth of July can still call us to our higher purposes of fellowship, happiness, liberty, and virtue.

Limits of Tax Cuts

Harry Graver looks at some state-by-state unemployment numbers and finds that low taxes are not the only factor for economic growth:

For example, Nevada, leading the nation in unemployment, has the fourth best tax environment, according to the Tax Foundation. Of the states without an income tax (nine in total), six have lower unemployment than the national average (Alaska, New Hampshire, South Dakota, Texas, Wyoming), two are roughly keeping the national average (Tennessee and Washington) and two are above (Florida and Nevada). Of the seven states with a flat income tax, three are at the national average, three are below, and one (Michigan) is above.

As Graver rightly notes, economic growth depends upon a vast range of factors---including human capital, natural resources, infrastructure, and regulatory policies. Pro-growth tax policies can be helpful but they are not sufficient for economic growth.

Diminished Expectations

Many political analysts are focusing on the consequences of the poor economy for Barack Obama's re-election chances. High unemployment rates and an economy limping along (with a few spurts from massive deficit spending) are hardly propitious circumstances.

Yet these troubles have much deeper roots. According to government calculations, we have been mired in an anomalously extended period of poor economic growth since 2001. Many writers have focused on stagnating middle-class incomes, but looking at GDP numbers tells a similarly disappointing story. Since 2000, GDP growth has lagged well below historical averages. Based on Bret Swanson's calculations, GDP growth from 2001 to 2010 averaged only 1.6%; GDP growth averaged 3.5% from 1947 to 2000. No decade since the 1930s has shown worse average economic growth.

The fact that the economy suffered a huge setback in 2008 and 2009 might skew the averages for the 2000s down, but not by that much. Even before the most recent recession, economic growth still lagged far behind historical precedent. The boom times of the 2000s would be seen as hum-drum in earlier decades.

Here's an overall view of the growth of the American economy since 1930, with numbers drawn from the federal Bureau of Economic Analysis:

Now, to close up on the past three decades:


During the Bush years, 2004 was the only year when GDP growth exceeded the average growth rate of 1947 to 2000, and that was only by a fraction of a percent (3.6% vs. the average 3.5%). With 3.1% growth, 2005 was the only other year where economic growth exceeded 3%.

By way of contrast, there were only 2 years during the Clinton presidency when growth was less than 3% (2.9% in 1993 and 2.5% in 1995). After 1982, Reagan's presidency never witnessed any economic growth rate less than 3%. One-termer George HW Bush had as many years when the economy grew over 3% as his two-term son.

Perhaps an even starker piece of economic spin: until 2000, almost every president since Franklin D. Roosevelt saw multiple years when the economy grew faster than 4% (Bush 41 being the only exception). We have not witnessed that kind of growth in almost twelve years.

Under an extended era of the lowest top marginal tax rates since 1932 (with the exception of the brief period between 1988 and 1992),* we have also seen the most protracted period of economic stagnation since the Great Depression. Whatever the other implications of this fact, it does suggest that tax cuts alone will not be enough to restore the health of the American economy. Tax cuts could be part of a plan for economic renewal, but not the plan itself.

Nor is cutting spending an easy panacea. Federal spending as a percentage of GDP was higher during the Reagan administration than it was during the quiet stagnation of 2001-2007. Again, spending cuts may be part of the solution for our economic travails (government spending as a percentage of GDP was lower in the 1950s and 1960s), but they are not the solution itself.

The implications of this diminished growth are significant for the national body politic. The modern American state, as understood by presidents from Roosevelt to Reagan, is based on the marriage of strong economic growth and generous social insurance. Social Security, Medicare, unemployment insurance, and so forth are the privileges of a wealthy society, and, properly calibrated, they can contribute to this wealth. The ability of the United States to project martial force across the globe and to take a prominent role in the community of nations is also predicated upon national wealth.

Our national finances especially show the strain of this slow growth. At least half of our current deficit is due in some way to the poor economy, and economic stagnation imperils many of our leading social insurance programs. Moreover, many deficit reduction plans on both the left and the right assume economic growth that well outpaces that of the past decade: if growth doesn't improve, we'll need an army of chainsaws to begin to approach fiscal sustainability.

If the next twenty years see the same kind of anemic economic growth as the past ten, any reforms to "save" Social Security and Medicare will have a huge portion of pain. Those programs will become shadows of themselves, as the American economy is crippled with stagnation. A strengthened economy, on the other hand, would likely make the reforms of these programs much less painful. For example, while the trustees of Social Security estimate that the retirement program will exhaust its trust fund some time around 2030 under (comparatively) slow growth expectations; if average GDP growth reaches close to 2.9% per year, Social Security trustees estimate that the program's trust fund will be in the black for the foreseeable future. Reforms might need to be made eventually (especially for Medicare), but increased growth would provide a cushion for them.

This current turmoil provides an opportunity. Societies can gain new vitality by recognizing the limitations of the current status quo and by adapting to changes in the broader political-economic environment. Some might suggest that the United States must or should accept diminished growth. But it seems to me that, after all the storms this nation has weathered, there is no reason to give up on the American project's hope for popular enrichment. After all, Americans in the late 1970s faced an economic paradigm that had outlived its usefulness and an increasingly fractured geopolitical order. But, as Jim Manzi has explored, Ronald Reagan, working with Democrats and fellow Republicans, was able to forge a new consensus that helped lead to a renewed nation. We can cope with our troubles, if we have the imagination to challenge old assumptions and the daring to take new paths.

The Democratic stimulus has failed to meet expectations, and even a return to the conditions and policies of 2001-2007 would be a surrendering of the tradition of American economic growth. There is both an opportunity and need for Republican and conservative leaders to rethink contemporary orthodoxies. Reaganomics, extended past its time, becomes a zombie: rather being a set of policies of vital engagement, it degenerates into dogma and rigid ideology. The world and nation are not the same as they were in 1981. Conservative economic policy needs to recognize that fact.



*Moreover, federal revenue as a percentage of GDP was higher during much of the Reagan, Bush I, and Clinton administrations than during the period since 2000. This lowered revenue may be partly correlated with post-2000 economic stagnation.

Globalism, Neo-Mercantilism, and the US

Polemical assertions in a contrarian key

The American economy has entered a period of turmoil unlike any it has seen in decades. The solutions, to me at least, do not seem radically easy or clear, but the first step in finding a solution is to clarify our language in talking/thinking about the problem. If we are serious about finding ways of addressing some of the serious structural problems of the economy, we must be willing to offer a thoroughgoing analysis of the whole economic order.

The trends of "globalization" have had a huge impact on the American economy in the past twenty years. Yet I think there have been some confusions in our contemporary discussions of globalization, so here are a few* (mildly polemical) challenges to contemporary assumptions, focusing on trade and manufacturing policies.

The decline of manufacturing is not like the decline of agriculture. The shrinking manufacturing sector is often mistakenly analogized to the drastic drop in the number of Americans working in agriculture from 1870 to 1950. The current trade deficit, driven by manufactured goods, disproves that analogy. The story of the Industrial Revolution in America is not the replacement of agriculture by manufacturing but the incorporation of agriculture into a new, broader economy. Throughout industrialization, Americans still produced enough food to feed themselves and those in other nations. For the most part, we still do produce enough food to do so. The number of Americans working in agriculture has declined drastically, but, due to increases in productivity, the output has only increased. While it is true that productivity has increased in manufacturing and that automation has cut down on the number of needed factory jobs (the US still does produce a lot), such an increase in efficiency does not tell the whole story of the decline of American industry: if it did, we would still be producing huge quantities of shoes, computers, tools, and countless other items. The fact that factories are closing down while our trade deficit has skyrocketed over the past twenty years is a sign of how different the fates of manufacturing and agriculture have been.

We do not live in an era of free trade. (Or: Cheap imports do not equal free trade.) Some of those who criticize the reigning trade hegemony counterpose "fair trade" to the dominant "free trade." This criticism is mis-aimed. We may not have "fair trade," but we certainly don't have "free trade," either. The current global trade order is not free trade but actually a species of neo-mercantilism. Many developed nations have opened up their economies to an influx of goods from poorer, often autocratic, mercantilist countries. Most importantly for the case of "free trade," there is often a great disparity in openness between trading partners. These disparities are especially stark for the United States. US policymakers have in a variety of ways unilaterally opened up the American market while allowing other countries to stack the deck against US businesses and workers. We are told that this flood of imports is "free trade" when, in fact, numerous barriers are put up against American products.

Consider our relationship with the People's Republic of China, our second-largest trading partner. It would be a stretch to declare that this relationship is "free trade." The PRC manipulates its currency as a de facto tariff against US goods and piles further outright tariffs on US goods. The price of entry into the Chinese market is often, in part, a joint-venture agreement, in which a foreign company provides intellectual property and other advanced technologies while local Chinese contacts supply workers and land for factories. Mandating that businesses open up factories in a nation in order to have access to it is not exactly classical free trade.

These agreements are very often deleterious to US workers and US companies. The office-supply manufacturer Fellowes, for example, opened up a joint-venture manufacturing facility in the PRC. For a few years, this factory led to some considerable profits for Fellowes. In August 2010, this stream of profit came to a sudden end, when Fellowes's Chinese partner moved to take possession of the facility:

The dramatic moment was in early August 2010, when Zhou, under the aegis of Shinri, blocked the gates of the joint venture facility with security guards and trucks, preventing people from going in and goods going out, effectively shutting down production. Shinri expelled and confined the managers, moved funds from the joint venture to a Shinri-controlled bank account, sent packing the 1,600 joint venture employees, and at night, drove a truck into the facility and stole Fellowes-owned injection molding tools, some of them weighing several tons.

Fellowes's former partner now has taken possession of millions of dollars of equipment and technological know-how---all without paying a cent (or a yuan) for it. The Chinese government appears to be giving cover to what many would consider theft. Fellowes is but one of many companies that have had their investments and technologies confiscated by the politically connected of the PRC. Without a basic respect for property rights, there can be no capitalistic free trade.

Trade policy does not happen in a vacuum. In part to cope with the throes of industrialization, the United States passed various worker and consumer protections in the twentieth century: regulations for environmental protections, worker safety, wages, and other areas. When the US economy was bounded by tariffs, these regulations helped ensure that an increase in industrial production went along with an increase in the standards of society. However, in our new era of neo-mercantilist globalism, the role of these standards has become considerably more troubled for US workers.

Consider the case of environmental standards. As the decades have gone on, our environmental standards have become increasingly invasive and onerous. Government more and more regulates chemical usage, energy sources, waste disposal, land use, and other aspects of environmental production that affect industrial policy. The presumed beneficiary of these regulations is the public at large through the protection of the environment. Our laws tell companies that, if you manufacture in the USA, you must face numerous obligations and pay increased costs due to all these regulations. Our trade policies, however, tell those very same companies that, if they manufacture their products abroad, they need not worry about any US environmental or worker regulations. One might wonder how the environment is helped when US policies incentivize heavy industry leaving a country with some environmental regulations (such as the USA or many European countries) and going to a country with far fewer (such as the PRC or India).

I recognize that economic prosperity is often correlated with an increase in environmental protections, so a wealthier India may eventually introduce further environmental protections. But there seems to be an often radical disproportion between how politicians talk about environmental policies and what our trade policies actually encourage. The debate over "global warming" reveals this disproportion at the height of its absurdity. In the name of "global warming," the federal government has banned the classical incandescent lightbulb in order to cut down on carbon emissions; meanwhile, through trade policies, it has encouraged a gross increase in carbon emissions through encouraging manufacturing to move to nations with radically less efficient and more polluting forms of industrial production. "Global warming" advocates often stress that the world is at a tipping point for carbon emissions and forecast the deaths of potentially hundreds of millions of people if carbon patterns do not change right now. Many of these same advocates, however, seem to see no problem with the continued destruction of American manufacturing. A "cap-and-trade" scheme or carbon tax, without any attention to broader global industrial questions, would do little for American employment or lower carbon emissions. If environmentalism is more than NIMBYism and self-righteousness, we need to consider the effects of our current trade policies upon domestic policies.

-----
To acknowledge (or to wonder about) the limits of neo-mercantilist globalism is not to embrace isolationism; on the contrary, this kind of critique opens up further ways of engaging with the broader community of nations. It would be foolish to turn our economic or political backs on the world, and a tariff war would very likely create more problems than it would solve. But it would equally foolish to allow our thinking to be frozen by hazy myths and knee-jerk assumptions.

The theory of free trade does have much of value to it. Under the right conditions, trade between nations does lead to a rising tide for all boats. There have also been many benefits to the current neo-mercantilist order, though some of the implicit tensions of this order have risen to the surface during the last few years of economic turmoil. Yet, living within this order, the United States must find ways to renew its competitive edge and successfully compete with mercantilist powers. It might also, with its allies, consider how best to revise this order so that it better advances the ideals of freedom and prosperity.

*UPDATE: A few points have been moved to a forthcoming discussion.

Precedents

Wilson, Roosevelt, Carter, Reagan, Clinton

In the twentieth century, those were the five men who defeated a sitting president on election day in November.

One immediate fact worth noting: they were almost all two-term presidents (or, in Roosevelt's case, over two terms). Jimmy Carter is the only exception, and he has the unique distinction of defeating a sitting president (Ford) who was never elected to either the office of the presidency of the vice presidency---and even that victory was very marginal. So in some ways he's the exception that proves the rule.

All five were governors, and Reagan and Carter were the only non-sitting governors at the time of their electoral victories.

At least three of these men had pivotal presidencies. Riding the high tide of Progressivism, Woodrow Wilson expanded federal powers and charted the nation's entry into World War I and the resulting peace. Franklin Delano Roosevelt in many ways created the modern regulatory state and the imperial presidency; after recasting the federal government during the Great Depression, his administration laid the groundwork for the new global order in the aftermath of World War II. Ronald Reagan drew on simmering resentments against this modern regulatory state in order to revise it, and his foreign policies helped break a Cold War that had dominated global politics for decades. It is perhaps too close in time to evaluate the ultimate significance of Bill Clinton's presidency.

These facts would suggest that, if a Republican is victorious against Barack Obama in November 2012, he or she could have a chance at playing a historic role.

Having the presidency adds a kind of grandeur to a candidate, so a candidate who defeats a sitting president often demonstrates a kind of broad appeal to the public. Most of those men who have beaten a sitting president have powerful visions for reforming government and the capacity to accomplish at least some part of these visions. For the most part, these men were also able to articulate a compelling narrative for a way forward.

The political pendulum has swung very wildly over the past few cycles, and the dynamics of the past have, obviously, only a limited application for the dynamics of the future. But sometimes precedent can have its wisdom.

Romneycare: A Shield from Mediscare?

Democrats seem to have latched onto an electoral strategy for the 2012 campaign. With an economic slump the worst in many a decade, ballooning deficits, the Obamacare debacle, a foreign policy that has not exactly met campaign promises, and a restless populace, Obama and his allies have hit on a three-syllable campaign slogan: Medicare.

The Congressional special election in NY-26, a rout for Republicans in a GOP-heavy district, has only fueled Democratic speculation that they can ride Mediscare tactics to victory in 2012. (Yes, a faux-Tea Partier in the race may have influenced the results, but Republican Jane Corwin was leading in polling before Democrat Kathy Hochul went full Mediscare.)

In a striking turn of events, Mitt Romney may find Romneycare more of an electoral advantage than a headache: this legislation could insulate him from Mediscare tactics. Many other Republican candidates (such as Michele Bachmann) voted in favor of Paul Ryan's budget or have endorsed it; Tim Pawlenty has quibbled with the budget but has said he would sign it under certain conditions. While Romney has said that he is "on the same page" as Ryan, he has not endorsed Ryan's budget and has said that he will propose his own plan for Medicare reform.

The fact that, under Romney's watch, Massachusetts implemented a set of health-care policies that gives coverage to over 98% of state residents can protect him from the charge that he wants to finance more tax cuts by leaving seniors out in the cold. By not having endorsed Ryan's plan, Romney can agree with it in the spirit of market reforms without having to defend its particulars.

This combination could blunt one of the Democrats' biggest knives. Imagine the following exchange from a presidential debate in the fall of 2012:

BO: The Ryan budget, overwhelmingly backed by Congressional Republicans, would end Medicare as we know it for all those under 55, who would be left with vouchers to purchase insurance from private companies. These vouchers would only rise in value at the rate of inflation, and health-care costs have risen faster than inflation for decades. Governor Romney and the Republicans want to end our nation's decades-long commitment to care for the elderly. They would hold our seniors hostage to the whims of private insurance companies.

MR: Mr. President, while I have my differences with the Ryan budget, let's face the facts. When I was governor of Massachusetts, I crafted legislation that ensured health-care coverage for over 98% of state residents. I worked across the aisle with Republicans and Democrats to forge a compromise to expand health-care to all citizens of the Commonwealth. While this compromise was not perfect and cannot be completely adapted to the federal level, it was a step in the right direction of accountability and fairness. Rather then putting health-care under central government control, it unleashed the power of the market to expand health-care access.

Under your health-care proposal, Mr. President, over $500 billion will be cut from Medicare over the next decade. Under your plan, Mr. President, a fifteen-member panel will set price controls for Medicare. Your plan forces a one-size-fits-all mandate model on all fifty states. You're already cutting Medicare. My record shows that I have not and I will not expand health-care coverage by taking away from our seniors. I believe that market-oriented reforms can eliminate waste and cut soaring costs while also improving care.

Romneycare can give Romney cover to push for market-oriented reforms. If he is a crypto-socialist, as some of his detractors allege, he can't also be an anarcho-capitalist ready to kill off grannie. Romney can attack Obamacare's cuts to Medicare while also deflecting the charge that he is a heartless Medicare-cutter himself. Moreover, Romney can distinguish between Obamacare and his own health-care reforms: on Medicare cuts, the federal mandate, centralized government control, and other features.

As only Nixon could go to China, perhaps Romney is uniquely positioned to advance market reforms of Medicare.

(Disclaimer: the debate over entitlement reforms is quickly evolving, so the dynamic noted here might not be found even a few months from now.)

(Crossposted at FrumForum)

Circular Firing Squad

(NB: This is not addressed to any specific individuals. I also believe that supporters of the Ryan budget have every right to make their case as strongly as they can. This more addresses a particular mood.)

Maybe it's me, but some of the intra-right debate about the Ryan budget is sounding increasingly like the debate over Christine O'Donnell in 2010: focusing more on sending a message than on advancing conservative goals.

A couple preliminary facts: the Ryan budget has NO chance of passing until 2013, and, at the moment, it is not very popular.

Knowing both of those facts, the House Republican caucus decided to vote overwhelmingly in favor of this measure. Fair enough. Leadership had its reasons. Many House members walked the plank on this vote, and that gamble may prove to be helpful for conservatives shaping the debate in the future. That die is already cast.

House Republicans and the Republican establishment may feel the need to circle the wagons to defend that vote. That is also fair or at least understandable.

But what is dangerous is a crusade against any Republican who dares to criticize the Ryan budget. That budget is not perfect, to say the least. The Republican and conservative causes are not strengthened by an attempt to enforce a petty ideological orthodoxy (the Bush years suffered from this tendency toward uniformity).

Republicans derided Democrats for forcing through Obamacare, an ambitious, radical measure with weak popular support. Democrats and progressives twisted countless arms to impose their vision on an unenthusiastic America. The backlash from this measure helped sink Democrats across the country. Republicans should not fall into the same trap, especially for a measure that will never become law until, potentially, after the next election.

The number one electoral goal for Republicans at the moment should be putting forward the most credible, competent, and electable conservative candidates possible---not (forgive me, Mr. Chairman) fighting and dying on the hill of the Ryan "roadmap." Passing the Ryan budget may be part of the victory for free-market conservatives, but we should not fetishize a single piece of legislation to the detriment of all else.

For those who believe that there is an entitlements crisis---no, a national emergency---that needs to be stopped RIGHT NOW!!!!---forget about the Ryan budget. It would add trillions of dollars to the debt* in the next few years. Its major reforms for Medicare would not be substantially felt for well over a decade; Medicare as we know it would continue for everyone who is over 55 by the time it passes, and, for a while after that, the majority of people on Medicare would have the old-school variant.

If we are at fiscal/entitlements Armageddon, the Ryan budget is a failure. If we are not at that point, this budget may be more helpful. Under either circumstance, there is no need for such strident denunciations of those who would dare to criticize it.

Scott Brown voting in favor of the Ryan budget on the Senate floor in 2011 will do absolutely nothing to advance the cause of fiscal conservatism; indeed, voting for it may hurt that cause, since such a vote could very well hurt Brown's chances of reelection. Though Newt Gingrich may have used inopportune language in criticizing Ryan's "roadmap," he is well within his rights to suggest the limitations of this plan.

Any Republican presidential candidate (or any Republican candidate at all) who wishes to distance himself or herself from the Ryan budget and propose entitlement reforms of his or her own has every right to do so. And this critique should not be necessarily confused with a forfeiture of all conservative principles. If the Ryan budget is so important for a GOP presidential candidate, then Ryan himself should run for the White House.

Sending a message to show that you're "serious" about fiscal reform is the mere hysteria of Washington kabuki. Reducing unhelpful spending and cutting the deficit and reforming derelict programs---those are the things that really advance fiscal conservatism.

Oh, and back to Christine O'Donnell: she lost big, and Senator Chris Coons is highly unlikely ever to vote for anything closely resembling the Ryan budget. The emphasis should be less on attacking Republicans for daring to dissent and more on persuading those dissenters and the public at large why the Ryan budget is a good idea (as Ryan aims to do here). Turning one's back on RINO traitors may be a cathartic move, but it does little to advance real conservatism. When conservatism becomes the politics of rage and exclusion, it loses; when it becomes the politics of hope and engagement, it wins.

*CORRECTION: An earlier version of this post had "deficit" instead.

(Crossposted at FrumForum)

Trouble for Democrats in RI-01

WPRI in Providence, Rhode Island has released a poll about first-term Democratic congressman David Cicilline. The former mayor of Providence had a six-point win over Republican John Loughlin in 2010, but this new poll suggests that, if the election were held today, the results would be quite different:

The new survey of 300 registered voters in Rhode Island's 1st Congressional District shows Cicilline's 2010 opponent, former state Rep. John Loughlin, would defeat him 47 percent to 35 percent, with 17 percent undecided.

Another Republican, former State Police Col. Brendan Doherty, would beat Cicilline 46 percent to 33 percent, with 20 percent undecided, the poll reveals.

Loughlin wins big with Republicans and Independents in this poll. Cicilline's approval rating is stuck in the low 30s; over 57% of those polled have somewhat or very negative feelings for him. Cicilline's poll numbers have in part suffered due to the current fiscal state of Providence, for which a number of voters blame him.

Those over 60 have the most negative feelings toward Cicilline, and it looks like he may attempt to try to win some of them over by emphasizing his support of Medicare and Social Security.

In 2010, Cicilline barely broke the 50% mark, indicating limits to his support. In a district where only a little over 40% of voters think that Barack Obama is doing a good or excellent job, this could be one Democrat in trouble for 2012.

Daniels, Pawlenty Supported More H-1B Visas

In 2007, thirteen governors, eight Democrats and five Republicans, sent a letter to Congress asking for an increase in H-1B visas and green cards. The signers of this letter include two possible Republican candidates for president: Tim Pawlenty and Mitch Daniels. Texas Governor Rick Perry, another possible GOP candidate, also signed this letter. The other two Republican signers were Arnold Schwarzenegger of California and Jim Gibbons of Nevada.

This letter states that more high-skilled temporary workers were important for the nation's economic success, claiming a shortage of high-skilled domestic workers for math and science professions.

Democratic governors who signed off on this letter include two future members of the Obama administration: Janet Napolitano of Arizona and Kathleen Sebelius of Kansas. The other Democratic signers are Deval Patrick of Massachusetts, Chris Gregoire of Washington, Eliot Spitzer of New York, Jim Doyle of Wisconsin, Bill Ritter of Colorado, and Dave Freudenthal of Wyoming.

Pawlenty has had some tough talk on illegal immigration, while Daniels has been on the record supporting some of the mass legalizations of "undocumented immigrants" proposed under President Bush; he demanded major reforms for an Arizona-style immigration bill that passed the Indiana Senate but ended up signing a measure mandating more checks to ensure the legality of potential employees.

It remains to be seen how much immigration will be an issue for the 2012 Republican primary. Illegal immigration is an issue the grassroots and many independents have passionate feelings about, but the Republican nominee of 2008 was perhaps the Republican most strongly identified with attempts to pass mass legalizations. John McCain was able to step away from his history with a few vague declarations about how he supported enforcement first, even though he continued to emphasize the need for some kind of "comprehensive immigration reform."

What Was the Bush Economy?

Conflicts on the right are still simmering over what course to chart for the economy for the years ahead. Though many Republicans ran on economic issues in 2010, many of those economic issues have taken a back-seat to fiscal ones in 2011. Our fiscal health definitely affects our economic health (a collapse in the US bond rating would, for example, be very economically traumatic), but our economy also affects the nation's fiscal sustainability.

Arguments over how much government stimulus spending could be effective for rebooting the economy have been in the forefront of left and right discussions of the economy. Yet I think another (often unspoken) issue for many Republican debates about economic policy is the meaning of the Bush economy. Was it a time of great prosperity---an economic model to look back on with esteem---or was it much more mixed?

For one faction, the Bush years were fundamentally an economic success. There was a near-meltdown at the end, but the economic growth throughout that period can be isolated from the 2008 collapse. While there were problems with a housing bubble and excess spending, the economic policies of 2001-2009 on the whole led to real growth and prosperity. This faction has considerable power on the right. One sees, for example, commentators on the right often point to the Bush tax cuts (of 2001 and 2003) as kicking off huge economic growth, and use that claimed growth in order to argue for more tax cuts, especially for the wealthy, in the future.

Another faction on the right has a more pessimistic view of the Bush economic record. While this faction acknowledges the benefits of some of the tax cuts and other aspects of the Bush record, it also suggests that much of the growth of the Bush years was fueled by debt and the financialization of this debt. The housing bubble, inflated by federally-encouraged easy access to credit, allowed for a glut of money to flood the economy and pay for jobs in realty, construction, landscaping, retail, and so forth. This borrowed money was in turn leveraged by would-be financial wizards in various hedge funds and banks. While the fit of borrowing did create the illusion of growth, it was the equivalent of a middle-class family remortgaging its house to go on European vacations and buy a Bentley and gain a world of short-term luxury: it came from borrowing against the future, perhaps an amount that could never be paid back. The realization of the scope of this debt hit in 2008, and the story of 2009, 2010, and 2011 has been the transfer of this indebtedness from the private market to the government. TARP and other bailouts cycled through the debt of private banks, and now Americans, rather than flipping houses, collect multi-year unemployment benefits. Before, private borrowing fed the economy; now, public borrowing does.

For those of the first faction, the economic path ahead is fairly clear: get a Democrat out of office, keep cutting taxes for upper-income earners, cut government spending (or not), and we're back to Bush prosperity circa 2004.

The path is less clear for those of the second. For them, the real economic growth of the past decade has been anemic at best, and they are less sure that tax cuts for the wealthiest 1% should be the foundation for Republican economics. Such tax cuts may have a role to play, but they are not enough, especially in light of the spiraling inequality and economic stagnation in the American economy. But apostasy from tax cut monomania leads to a host of questions. Following this path may lead to the challenging of numerous elite orthodoxies---on regulatory, trade, and financial policies, among other areas.

The factions outlined above are not exclusive, nor are they totally comprehensive, but I think the difference between these two points is an important one for Republican economic discussions. A vision for the way forward is often shaped by a view of the road before. At a time when Obama's stimulus has failed by its own standards and the conventional wisdom of Democratic and Republican elites has fallen so sorely short, many conservatives are pondering a free-market way to renewed prosperity. How much of this way forward will involve Bush economics remains to be seen and debated.

Jacobins in the GOP?

One might note within many ostensibly conservative discussions about the debt ceiling a strain that comes far more from Leon Trotsky than from Edmund Burke. One of the principal tenets of Burkean conservatism is the importance of avoiding Armageddon: crises are best held at arms' length, and revolution should be the measure of last resort.

Not raising the debt ceiling now could very likely be Armageddon: it would immediately force the government to spend no more than it took in in taxes. In 2010, tax revenue covered not even 60% of federal spending, so over 40% of the federal budget would have to be cut NOW to make up for it. Unemployment benefits---ended. Air Force jets---grounded. You need heart surgery, grandma? Maybe next year.

Not raising the debt ceiling would not necessarily lead to defaulting on the debt: the US could still make its interest payments. However, some prominent Republicans are now suggesting that even defaulting on the debt wouldn't be that bad. Since the election of George Washington, the federal government has never defaulted. Is it really worth throwing that legacy away to make a political point? Defaulting on the debt would very likely lead to higher interest rates and make the debts of private individuals as well as those of many governments even more onerous. An outright default could wreak havoc on the domestic and global financial systems.

Such an outcome could be a sure way to reduce the Republican party to the party of the 30% and make it radioactive for years to come.

And that political price would be by far the least problematic result of that scenario for allies of traditional liberty and conservatism. Deficit spending may perhaps be an important reason why we have not seen turmoil in the streets a la Greece, Egypt, and the waning days of the Roman republic. In terms of employment, this is the worst economy since the Great Depression. The social safety net is being strained in extraordinary ways, and the sudden cuts required by not raising the debt ceiling could be the equivalent of cutting it away. With those cuts to institutions that people have built their lives around (such as Social Security), a huge cross-section of this nation could erupt in rage.

Mob outrage is almost the polar opposite of classical American conservatism, and, if we did come to such public turmoil, there is no guarantee that the result would be a more economically free society.

One realizes that much of the debate over the debt ceiling is an exercise in partisan cynicism. Every Democrat opposed raising the debt ceiling in 2006, while almost every Republican (including the leading opponents of raising the debt ceiling) supported the raise in 2006. Meanwhile, almost every single House Republican has de facto pledged to raise the debt ceiling by voting for the Ryan budget, which gives us trillions of dollars in more debt over the next few years. House and Senate Republicans overwhelmingly backed nearly a trillion dollars in tax cuts and stimulus spending at the end of 2010. The premise of those tax cuts and stimulus spending was that they would push the economy along, even though those measures will, in the short term at least, add to the debt. By their votes, Congressional Republicans have declared that this nation can handle more debt.

The whole debate over raising the debt ceiling is also, in part, a game of chicken: Republicans want to force more spending concessions and potential entitlement "reforms" from Democrats. But something of the complexity of entitlement reform is perhaps the last thing that should be rushed; Republicans should not want entitlement reform to replicate Obamacare (and other measures), when Congress is voting on unread and uncomprehended bills.

Ironically for authentic opponents of debt, not raising the debt ceiling and defaulting on the debt could make the federal debt that much worse. One of the driving forces for federal debt over the past few years has been the poor economy: the economic slow-down, with its resulting decrease in tax revenue and encouragement of government spending on unemployment benefits and so forth, is probably the single biggest contributing factor to our current deficit. The poor economy is an immediate dagger aimed at the fiscal heart of this nation.

In order to keep from hitting the debt ceiling, Republican leaders may find it wise to offer their support for a relatively small increase of the debt ceiling (say a few hundred billion or even a trillion dollars). Classical conservatism teaches that, sometimes, if you can succeed in delaying a crisis enough, your prudence can ensure that there will be no crisis at all. Sometimes that strategy fails (witness the Civil War), but it can often succeed. And even if delay fails, sometimes that delay allows you time to gather your forces to help you cope with the eventual crisis; at least the Civil War didn't happen until the union was strong enough to weather such a war. Many of the trappings of the current federal government are sustainable, especially with modest long-term reforms. The long-term fiscal situation of the nation may be somewhat scary, but it can be improved. Kicking the can down the road isn't always a bad thing, not if it gives you time to solve the problem. From a classical conservative perspective, inciting a crisis now in order to avoid a potential crisis in the future may be a bad trade.

(Crossposted at FrumForum)

Romney Agonistes

It's perhaps hard not to feel some sympathy for the situation Mitt Romney has found himself in. By the close of the 2008 Republican primary, he was seen as the standard-bearer of conservatism, picking up the support of the likes of Ann Coulter and Jim DeMint. Yet now, he finds himself attacked as a lefty RINO and utter traitor to the conservative cause---for Romneycare, a measure he backed in 2006. Romney's record as governor did not change from 2008 to 2011 (he stopped being governor in 2007), but the perception of the conservative commentariat has. Notoriously derided as a flip-flopper, Romney has now found that some in the right-leaning punditocracy have flip-flopped on him. And these attacks on Romney emphasize not merely how the partisan optics have changed since 2008, which they have, but often criticize his politics on a much deeper, ideological level.

The Massachusetts health-care law has become an albatross around the neck of the man who could maybe almost be the Republican front-runner. The passage of Obamacare made health-care reform a central litmus-test issue for grassroots conservatives. The fact that the Obama White House boasts of similarities between Romney's reforms and Obamacare is not going to endear Republicans to Romney.

From the perspective of free-market conservatism, the reforms Romney sponsored have not been a resounding success. The rate of health-care uninsurance in the Bay State has dropped significantly, which is good (over 98% of the Commonwealth has health insurance). Wait times have potentially increased a little, though trends for longer delays for receiving care were in place before Romneycare passed. But costs are exploding. Romney's Democratic successor, Deval Patrick, is now looking to create a regulatory infrastructure to control insurance rates (and thereby doctor pay) as a way of coping with these skyrocketing bills. With unchecked Democratic power in Massachusetts, further state control of health-care delivery may be only just around the corner. Unless further reforms are made, Romney's health-care reform may prove to be quite the shot in the arm for private health-care in Massachusetts: a lethal injection.

So Romney's big speech on Thursday may prove to be a necessary but also somewhat desperate gamble. Faced with the (perhaps unfair) public perception that he is an opportunist who will shift in whatever direction may benefit him the most, Romney seems to have decided that he cannot utterly repudiate the Massachusetts health-care law. The fact that he has spent so many years defending these reforms would give a repudiation now an especially high political price.

Either a total defense of Romneycare or a total repudiation of it could damage his image in the eyes of grassroots conservatives and potential swing voters. Successfully resolving the health-care issue could help scrape away some of the veneer of artificiality so many voters have doubts about while also burnishing his conservative bona fides. Here are some thoughts about what Romney might want to achieve politically in this address:

Make clear the distance from Obamacare: Romney may attack Obamacare as inefficient, destructive, problematic, and so forth, but he should particularly emphasize those features of it (such as the 50-state mandate) that differ from the Massachusetts reforms. Attacking Obamacare is bound to win applause from righties. But Romney's attacks will ring hollow if he has not posed enough plausible distance between his policies in Massachusetts and those of Obama.

Build on the strengths of Romneycare: There are some positive, free-market features of the Massachusetts health-care law, which the Heritage Foundation praised. Romney could tout those.

Show technical expertise: The ability to maneuver through complex bureaucracies will be key for any potential Republican administration. Romney has a wealth of experience in running large organizations and a considerable proficiency with the details of policy. His speech on Thursday can showcase those skills. This speech doesn't have to be---and probably shouldn't be---a total wonkfest, but a suggestion of Romney's wonky tendencies would play to his strengths as a credible, center-right technocrat.

Move the debate forward: This is perhaps the most important political objective for the speech. If Romneycare dominates his Republican primary narrative (including both his campaign and what is said about his campaign), Romney loses. Game over. In this speech, Romney needs to change the topic to present a forward-looking approach to federal health-care reform (which he looks likely to do). Romney knows that even the all-out repeal of Obamacare will not be enough for our nation's health-care system, which does need reform. Moreover, every serious Republican candidate is probably going to talk about repealing Obamacare. By focusing on a specific set of policies for a way forward, Romney can distinguish his candidacy from the rest of the pack. For his political survival, Romney must make this campaign about the future.

Moreover, the right does need creative ways of trying to reform the health-care system to make it more affordable and efficient. Such a tangled web of government/non-profit/for-profit institutions has been set up that any reform will have to be as careful as possible to avoid any drastic and unpleasant unintended consequences. By focusing on the future of health-care reform (both for the private market and for Medicare, Medicaid, and other government programs), Romney can keep the past from sucking all the air out of present debates.

This could be a pivotal speech for Romney. If Romney can prove his viability on the health-care issue, he could start to solidify a core of support. If he cannot resolve the public perception of his health-care policies, he may find himself limping along and find the path to the nomination that much harder. Moments of testing can make or break a candidacy, and this may be one such moment.