Having predicted Obama’s reelection (December 2011 posting), I have not been following politics. However, last night I attended a friend’s debate-watching party in Cambridge and ended up watching the entire televised event.
If Romney is going to lose, he could go out with integrity, e.g., telling the woman who asked about tax breaks to be eliminated “Yes I will get rid of mortgage interest deduction because it is a huge subsidy to an industry that we should not be subsidizing.” Yet he does not appear to be heading down this path, preferring instead to pander to voters and tell them what they want to hear. Everyone is going to better off under Romney. The military will get more funding, citizens will pay lower taxes, the health care industry will continue to be showered with Medicare funds, nobody will have to work harder (except for the 20+ million unemployed or discouraged), etc. It sounds too good to be true.
When repeatedly attacked for his personal finances, Romney could have pointed out that his apparently low personal tax rate from investment income is due to the fact that it comes from corporations that already pay the world’s highest tax rates. Instead, he remained silent.
Incumbency has been a huge advantage in a country that is fearful of change. But as I watched Romney score point after point against Obama for having been associated with Americans for four years, it occurred to me that incumbency in a sclerotic country freighted down with entitlements, pension obligations, and special interest lobbyists is a liability in a debate. It really isn’t Obama’s fault that Congress won’t do anything without permission from lobbyists or that a huge number of American workers cannot be employed economically, if for no other reason than a lot of the stuff that makes the U.S. such a bad place to do business is happening at the state level. But Obama promised hope and change four years ago and now he looks bad for not delivering.
Romney kept referring back to Ronald Reagan, which struck me as naive. Reagan was able to foster growth, but the country was not smothered with debt and other problems. Public employee unions were relatively new. There weren’t huge numbers of retired state workers on $100,000+/year pensions that needed to be carried by current workers, for example. Reagan’s U.S. economy did not have to compete with China and India.
Speaking of China, the China bashing made me ashamed. Obama talked about his heroic success in preventing Americans from buying inexpensive tires from China. Obama is proud of the fact that America’s millions of unemployed people must pay higher tire prices because 1000 union jobs were preserved (we don’t know how many jobs were lost due to China blocking our imports in retaliation). Romney, meanwhile, talked several times about doing something aggressive to China because they are competing unfairly somehow. Apparently no politician is willing to stand up and say “China is full of people who worked hard in school and now work hard at their jobs, which is why their economy is growing so fast.”
My strongest impression was that our political system is not equipped to deal with reality.
Philip,
What is your longer-term forecast? Is our political system so hopeless that it will never catch up with deficits and entitlements? Are we headed down Greece’s path? Are we going to default and take the rest of the world down with us?
Tim: I don’t think that the federal government can or will default. It can simply print money to pay debts (the states and cities on the other hand might eventually have to default on pension, health care, and bond obligations). Nor do I think we will take the rest of the world with us into stagnation. Every year the U.S. is a smaller percentage of the world economy. As I’ve noted before, nothing stops us from quietly stagnating as the English have (mostly) done since World War II.
“Reagan was able to foster growth, but the country was not smothered with debt and other problems.”
Huh?
Reagan pioneered modern mega deficit spending. The hockey stick in the US deficit can be traced back squarely to the beginning of his first term in office. Not to be outdone, every republican since has bested the mega deficit created by Reagan. In all of that mess, it’s ironic that Clinton, a democrat, is the only president in recent history to run a surplus. Bush II inherited that surplus from Clinton and somehow turned that into the largest deficit ever seen–higher than Reagan and Bush I before him. At least when Reagan and Bush I were running mega deficits, the country was doing reasonably well. Bush II ran up the credit cards, and killed the economy at the same time!
The biggest joke to me, is that despite all the history and evidence to the contrary, the GOP manages to maintain belief from it’s followers that fiscal responsibility and conservatism is a cornerstone of their platform. The reality is the exact opposite. In the last 30 years, only a democratic president has gotten the budget in order. Ideological republicans are content to overlook these facts, while the talking-head “leaders” they elect continue to deliver the failed promise of the GOP’s utopian fiscal fantasies so convincingly.
“In all of that mess, it’s ironic that Clinton, a democrat, is the only president in recent history to run a surplus. ”
Which he inherited from a Republican President, thanks largely to the Cold War Peace dividend.
GHW Bush pointed out in that the budget was rapidly heading for surplus by the end of his term. Clinton didn’t believe him.
In any case, Clinton was a right wing wacko compared to the current generation of Democrat elected leaders.
What are the odds of the second Obama term even slowing down the rate of growth of our current deficit?
Obama say everything is fine, and he sees no reason to change anything, except maybe to tax the heck out of the Phil Greenspuns of the world.
The commenters are unwittingly supporting your closing assertion.
Fiscal disaster looms, yet 40% budget shortfalls are repeatedly approved by Congressional houses controlled by both parties. In response, all we do is bicker like two guys sitting in a bar in 1973, arguing about pickup trucks — Ford is better! No, Chevy is better! — even as the whole industry goes into the tank, because both brands are junk.
News flash, folks: neither party represents your interests. The biggest issues, like educational return on investment, are not even on the table. Special interests run the whole thing, and simply compete with each other to increase their share of the pie. There is no PAC representing the middle class.
No one is without sin, but by most metrics I’ve read, the largest chunks of the deficit are due to Bush era tax cuts, to the wars in Afghanistan & Iraq, and to economic downturn (and decreased tax base). Basic structural debt comes in fourth, and tarp & stimulus spending, fifth.
http://www.washingtonpost.com/blogs/ezra-klein/wp/2012/09/05/the-three-best-charts-on-how-clintons-surpluses-became-bush-and-obamas-deficits/
Deficit spending will be a fact of life for the foreseeable future, but there are stark differences between the candidates; Is lower taxes on the wealthy worth more to the economy than what they contribute to the deficit? Will more wars of choice add value commensurate with their cost? (http://www.theamericanconservative.com/romneys-foreign-policy-speech-more-war-bigger-budgets/)
Have fun voting.
“China is full of people who worked hard in school and now work hard at their jobs, which is why their economy is growing so fast.”
Well … sort of. It has a lot more to do with the fact that their cost of living is lower, they have no workplace safety or environmental rules to speak of and their standard of living is so much lower that getting one twentieth the wages a middle-class American might expect still seems like a good deal to them.
Their grades in school are only relevant in deciding *which* Chinese workers get the jobs.
Seth: The CIA Factbook shows China at $8500/year in per person GDP (adjusted for purchasing power). That’s roughly in the middle of the world’s countries, not near the bottom. There are about 50 countries on the CIA’s list with $2500/year in per-capita GDP or less. Many of them are not growing steadily. Shouldn’t they do much better than China if they are yet poorer? Or is it the workplace safety rules in Zambia, Niger, Chad, and Malawi that are holding them back?
Americans are so screwed.
Democrats are only interested in spending hikes but not the corresponding tax hikes.
Republicans are only interested in tax cuts but not the corresponding spending cuts.
Job Creation and employment was the most crucial topic in this debate. Obama did admit that some types of jobs (he called them low quality mfg. jobs) are never going to come back to USA. I would like to add that even some decent quality jobs that need scale (for example: 1000 customer support agents) will not come back to USA because those 1000 US citizens who would like to take those jobs are spread across many US cities and cannot be EASILY brought together, whereas in India/China it is possible to get 1000 (and more) in one single city/place. Analogy is: you are good soccer player or guitar player but there are not enough people in your neighborhood to form a proper band (that could perform and earn money) then you will be unemployed.
Unsolicited advice to middle class Americans without specialized/advanced skills: Invest into US companies that are likely to benefit from new markets in India and China (Cisco, Google, Oracle, Boeing etc.), jobs will always go to places with low cost and high scale (being able to hire thousands of people at single place). Basically move/invest to an industry that somehow benefits/grows with NEW markets in India and China.
P.S: Bit dis-appointed that Obama did not mention rise is public transport usage when asked about growing price of gasoline. Price per gallons WILL ALWAYS continue to rise (thanks to cars in China), but public transport could REDUCE your total expenditure (per month) on transportation/commuting.
— Vijay
Senorpablo – very well said. Except for one little problem: Congress sets the budget, not the president.
If I recall correctly, that makes Democrats responsible for the 80’s mega deficits, and Republicans responsible for the 90’s surplus. Republicans take most of the blame for the deficits while Bush Jr. was in office. But Democrats take most of the blame for the worst ever deficits, and credit rating loss, under Obama.
For what it’s worth, I think at this point in time both parties will deficit spend if they have complete control. There’s nothing else they can do and keep their jobs in the short run. Balancing the budget would be great for the economy in the long run, but in the short run would force a 10-15% GDP contraction overnight, costing every politician involved their jobs at the next election.
philg and Seth – both of you are correct. The Chinese do work hard in school and at their jobs. But Chinese industry does have an advantage thanks to relaxed environmental, business, and worker safety laws.
I think the U.S. actually goes overboard on some of these laws, and that we need to rethink and trim back some of them.
But I also think we should have different levels of trade based on whether or not the trading partner in question has comparable laws. Nations that do should enjoy something close to free trade based on their reciprocation. Nations that do not should face tariffs until they do. It’s not right for Americans to work hard to meet environmental standards only to lose their jobs to Chinese who must then suffer the horrible effects of unrestrained pollution. All this does is force a race to the bottom for everyone.
I don’t want to pay more for tires so a union member can retire at 55 with a six figure pension. But I will pay more for tires knowing that the person who made them enjoys environmental and worker regulations that I would expect to enjoy.
DT: You’re going to set up a U.S. government commission to figure out how worker safety and environmental regulations compare to the U.S.’s in 250+ countries around the world? And the staff of that commission flies around the world business class to check out the air quality and tour factories? I want that job!
What do you propose to do, however, when you realize that workers in many other countries are treated far better than in the U.S.? Must we have a tariff on domestically-produced goods? The Europeans are passionately investing in wind and solar power, so their environmental laws are plainly better. I was just reading a book where the author interviewed a Danish garbage truck driver who earns $80,000 per year for working 21 hours/week and enjoys a lot of time with his kids. Except maybe in a handful of cities we don’t pay our garbage truck drivers that well. Shouldn’t we have a tax on our own goods because we oppress our workers?
How do things end up if the debt load of $16.2T is somehow liquidated? A difference between the capitalization of government projects relative to a cost of selling those assets. e.g. selling the newly renovated New Jersey Turnpike.
If the pieces are to keep all the campaign promises then something has to give.
In that order. The public-private relation or, privatization aspect of the Romney/Ryan ticket leaves me troubled to understand the distinction of governance to disengage the responsibility now entrusted to the public sector of governance.
Phil, I believe your prediction holds true because of a newer generation of voters.
Phil,
Ultimately, the solution of simply printing more money will have a catastrophic conclusion.
Our foreign colleagues may well know the ancient proverb that some attribute to Sun Tzu: “If man sits on riverbank long enough, he will watch his enemies go floating past…”
What seems to be missing from most debate is what is, in my opinion, the core of the problem: income inequality.
It’s all well and good to have the theory that business will prosper with lower taxes and being allowed to pay lower wages and benefits, but that means the potential customers will also have lower disposable income and business suffers, not benefits, as a result.
Lower taxes don’t make companies hire more people, more customers than they can handle with the current staffing levels does that. And you don’t do that without putting more money in the hands of the consumers.
Unless the current trend is reversed, I give the United States 50 years tops before a violent revolution.
The average age of a US Senator is sixty-two. Does anyone truly believe these politicians when they feign the hand-wringing over how their “grandchildren and great grandchildren” are facing an enormous deficit that will doom them to a country filled with financial chaos? I don’t. I don’t they (deep down inside) give a flip.
They’ve played games with tax-payer’s money until it simply doesn’t seem real to them
Any longer, in my opinion. Maybe a few have not, but they are in the distinct minority.
And if these career politicians have played their cards correctly, they are well-positioned financially and one would assume have set aside money for their off-spring that will at least give them a head-start in life.
So when I hear pols claiming that they don’t want this country to be running gigantic deficits years from now, I think it’s all rhetoric and posturing. And yes, Phil, I agree with you in your claim that they’ll continue to print money and ring the cash register as long as the heavens allow it.
Regulations are not the issue, Unions are.
Bas: Your income inequality theory would make a lot of sense to me if there were no foreign trade and no immigration. In a globalized economy, however, it is not necessary to sell goods just to one’s fellow citizens. The Saudis, for example, do not need to have all of their oil consumed domestically. The Chinese do not need to find people in China to buy all of the items that they produce.
With immigration under the policies that the U.S. has in place it is not clear to me that income inequality is bad or surprising. A person who arrived in the country last month, unable to speak English, would not be expected to have the same income as someone born and educated (to the extent that our public schools bother!) in the U.S.
If we admit desperately poor people to the U.S. as immigrants we should not be surprised that they remain somewhat poor here. If there are wealthy consumers in Canada, Mexico, China, and other countries, an American-based business is not limited to domestic customers.
“DT: You’re going to set up a U.S. government commission to figure out how worker safety and environmental regulations compare to the U.S.’s in 250+ countries around the world? And the staff of that commission flies around the world business class to check out the air quality and tour factories? I want that job!”
Why not? The entire department would be smaller in budget and personnel than 98% of Federal agencies. Our government presumes to have the power to investigate far more complicated matters in far greater numbers every day. If the government can’t handle this little job, then we should immediately close down the EPA, FDA, CIA, FBI, DEA, TSA, Department of Education, Department of Energy…the list would go on.
I should note that there should be a few broad trade classifications. We shouldn’t nitpick and tariff every little point. Nor should we bleed jobs to nations with zero environmental and worker regulations. We’re doing that now and we are in a race straight to the bottom.
“What do you propose to do, however, when you realize that workers in many other countries are treated far better than in the U.S.? Must we have a tariff on domestically-produced goods?”
No. But I wouldn’t necessarily fault other countries for having similar policies.
“The Europeans are passionately investing in wind and solar power, so their environmental laws are plainly better.”
BAD example. Wind kills birds but produces very little power. Solar doesn’t kill anything, but doesn’t do anything very useful either.
The point wouldn’t be to nitpick power production. Rather, what is the average air quality in the nation? If it’s reasonably close to ours, no tariff. If you can cut the pollution with a knife, then maybe we shouldn’t be forcing our companies to compete with companies there. Or bleeding jobs there.
“I was just reading a book where the author interviewed a Danish garbage truck driver who earns $80,000 per year for working 21 hours/week and enjoys a lot of time with his kids. Except maybe in a handful of cities we don’t pay our garbage truck drivers that well. Shouldn’t we have a tax on our own goods because we oppress our workers?”
Irrelevant. Pay should not be a consideration.
Philip: for American companies to sell their wares and services abroad, that would mean being able to compete in that arena and it is clear they can not.
So you end up with the situation of not being able to sell abroad and because all the money is being hoarded by an ever smaller number of wealthy individuals, American producers can’t sell their goods locally either. Meaning they won’t be paying workers, meaning those (non-)workers won’t buy goods from any one else either… it’s a downward spiral.
Although I am sure you will disagree with me, the only way to save American civilisation long term are tariffs on imports, higher minimum wage, higher taxes for higher incomes and them being used to fund health care, education and family support. Plus regulation to make those services more efficient. (America spends twice as much on health care as anyone else in the western world and yet has lower life expectancy.)
Yeah, this isn’t “fair”, but fairness has nothing to do with it. Long term survival is at stake.
Our Australian opposition party is also preaching lower taxes for people like me and union busting, salary lowering policies. Apparently that’s good for small business. No way I would vote for that; I am sure close to half of my customers would not be flying light aircraft and buying my software if their tax, child care, health care and other bills went up by just a few grand a year or their income dropped by the same.
I’d rather pay a dozen grand extra in taxes each year then to lose even 10% of my customers!
Bas: http://data.worldbank.org/indicator/NE.EXP.GNFS.ZS shows that exports account for about 13 percent of U.S. GDP (distressingly similar to Haiti!). That makes us the world’s #3 exporter, I think, by total value. It is true that we have some high costs here, e.g., for health care as you point out, but there are still a lot of products that we can make at a competitive price (I infer this from the fact that people are buying those products) and there is potentially enormous growth available from exports since the world economy is so much larger than the U.S. economy.
As for your idea of “regulation to make [a range of services] more efficient”, why stop at regulation? Instead of import tariffs, the government could simply decide what to import. Instead of a higher minimum wage, as you propose, the government could simply hire anyone who wants to work at whatever wage was deemed fair. If union busting is bad, as you imply, why not have all workers belong to a government-run union? A fully planned economy would not suffer from any inefficiencies, unused production capacity, or unfairness.
philg: Whats wrong with 13 percent of GDP being exports? Each trade is balanced or it would not take place. On net we are giving up less of our stuff and more green pieces of paper to get more of their stuff. That seems like a good thing that makes us better off.
Chinese workers are not making us worse off. They have a competitive advantage making some things and we have a competitive advantage. When we trade we are both better off. We do not need to ‘win’. You mentioned England stagnating but that’s only when compared to the US. England is vastly better off since WW1 in pretty much every way. They would not trade their current living standards for lower living standard just to be ‘number one’.
The big rise in unemployment was not linked to China, but a big drop in real estate pricing. We had way too many people working in an industry that was artificially inflated by government subsidies and incentives align to short term gains because of a lack of downside risk.
If we just focus on the things we do well (we are still much more productive than china) we would not have trained a big group of people skills that were not really in demand.
phil:
“Shouldn’t they do much better than China if they are yet poorer? Or is it the workplace safety rules in Zambia, Niger, Chad, and Malawi that are holding them back?”
My point is that the ‘individual virtue’ of doing well in school isn’t the only factor. As market forces push jobs towards ‘low cost countries’ there are a few forks in the road:
First, the cost advantage prompts American/European companies to make capital investments closer to lower cost labor. Second, they select target markets according to considerations like the skills of the work force, stability of the local government, favorable diplomatic relations, enforceability of contracts, etc. Third — and only third — is there a choice of individual workers in which their academic performance plays a role.
You’re quite correct that several African countries (to say nothing of other S-E asian contries) can easily underbid China on the price of labor. But the relevant differences are institutional rather than simply a matter of individual diligence. I’m sure there are some ‘good students’ in those other countries. But what makes a country a hospitable place to invest is a function of aggregate behavior — of the ‘society’ which Lady Thatcher assured us does not exist (while working hard to make UK society more hospitable to foreign investment).
Anthony: What’s wrong with 13 percent of GDP being exports? Nothing! I cited that number because of Bas’s comment ” for American companies to sell their wares and services abroad, that would mean being able to compete in that arena and it is clear they can not.” My point was that we are in fact able to compete in that arena to the point that we sell more than $1 trillion of stuff abroad.