Required Reading for Voters - Looming Fiscal Crisis

While I might occasionally recommend a book or article, it's rare that I'd label something as "required" (i.e., containing information that you really need before going to the polls). Reviewing the Peter G. Peterson Foundation website, however, I came across one such document, the Foundation's State of the Union's Finances (SUF).

The SUF is a 24 page pamphlet with color charts and to educate voters on the US government's looming fiscal crisis and what they can do to better inform themselves. The Foundation is led by David Walker (pictured), the former Comptroller General of the United States, so it's a pretty credible statement of our national finances.

Here's the heart of the pamphlet:

the federal government's financial condition is worse than advertised and we are on an imprudent, irresponsible and unfair path...

More specifically:

without reform, federal deficits and debt will rise so high relative to gross domestic product (GDP) that they will threaten our economic strength, our international status, our standard of living, and eventually, our national security...Since the middle of 2007, problems in the U.S. housing sector have illustrated what happens when lendors lost confidence in borrowers. If our ability to manage our nation's fiscal affairs is called in to question, we are likely to face even more severe economic challenges, including sharply higher interest rates, further downward pressure on the dollar, higher prices for oil, food and other necessities and greater unemployment.
(emphasis in original)

Among the reforms the Foundation advocates are: entitlement reform (e.g., Social Security and Medicare), tax reform, health care reform (to reduce US spending on it)

Some of the recommendations for citizens are pretty common sense: registering to vote, informing themselves about the candidates' positions, holding them accountable, etc. In short, if you spend a little time with this document, you'll be light years ahead in making yourself a more educated voter.

I do have a few thoughts / reservations about this document:

-Like other budget focused groups such as the Concord Coalition, the Peterson Foundation seems to be more concerned about the deficit than the overall amount of spending. They seem agnostic about whether we have a lot of spending or a little spend, so long as its paid for in current taxes. However, the reason we're concerned about large deficits is the high taxes we'd need to pay in the future to pay them off. For the same reason, we should be concerned about excessive taxation now, which reduces the private sector's ability to invest in the future. Therefore, I'd like to see more emphasis on curbing spending.

-Next, simply asking candidates their views on the budget deficit won't be very helpful given that they will of course (a) be very concerned, (b) won't want to specify how they'll address these sorts of problems. Most important for a voter - look at the candidates' website for their "issues" and see whether they identify reforming entitlements and addressing the national debt as a priority. Those that haven't bothered to list it are not paying attention, regardless of how they answer your questions about it.

George Washington Doesn't Work Here Anymore

"I Cannot Tell A Lie"

The Internet is a wonderful source of information, but it can also facilitate the dissemination of false information as well, as all of us who have received dozens of virus hoaxes from our computer wary parents can attest.

Most people know that for computer related and many other hoaxes, Snopes is the place to check to see whether a fishy Internet story is real.

There's also a good site that examines the veracity of political news and candidates' claims as well from the Annenberg Public Policy Center at the University of Pennsylvania.

Check it out here.

Promises, Promises (part II)

A little while ago, I linked to a column in CQ Politics criticizing Senator Obama's economic plans. I said I'd also link to the second part of the article criticizing Senator McCain's, so here it is.

John Cranford goes after McCain as he did Obama, saying:

[McCain's] candid remarks that he doesn’t really understand economics, that he doesn’t know exactly how many houses his wife owns, that he thinks $5 million in income is a measure of “rich,” are all signs that McCain isn’t fully engaged on the No. 1 issue of this campaign...

And even though truth-telling may not always be the path to winning elections, there are ways to acknowledge reality without complaining that the public needs to get over its malaise and to stop its whining.

Yet McCain hasn’t seemed to find them.

Specifically,

McCain does have an economic platform, of course. But it barely acknowledges the financial squeeze felt by the middle class (not to mention the poor, whose numbers continue to increase), and offers minimal doses of salve — chiefly a gasoline tax “holiday” that’s been roundly dismissed. McCain largely ignores the persistent financial calamity in the housing market, other than to embrace foreclosure relief measures that are similar to those already enacted and to promise no bailouts for corrupt lenders and speculators. And he papers over the federal government’s budgetary troubles with platitudes about trimming waste and eliminating earmarks, while improbably promising a balanced budget by 2013.

Most interesting, Cranford hits McCain for not acknowledging that tax cuts have not been shown to lead to economic growth in his estimate even though McCain calls for preserving the Bush tax cuts:

Under McCain’s tax proposals alone, about $5 trillion in additional government debt would be piled onto future generations over the next decade, according to the nonpartisan Tax Policy Center run by the Urban Institute and the Brookings Institution. That’s a 50 percent increase over what we and our children owe today.

Despite claims that those tax cuts spurred economic growth, Cranford says that:

The rate of job growth since the end of the last recession has been less than half what it was in the 1990s. Business investment this decade — the presumed wellspring of new employment opportunities — has been a fourth as rapid as it was in the previous 10 years.

I think Cranford actually misses a lot in his analysis, though. People forget that Republicans ran Congress for 6 of the 8 years Clinton was President, and that they cut taxes pretty steeply in 1997. At the same time, the government actually balanced the budget, proving that if you're willing to restrain spending, tax cuts and balanced budgets can go hand in hand.

But of course, here in Washington, DC that's a very big "if."

In addition to what Cranford has written, I'd reiterate that McCain is behind Obama when it comes to confronting our gravest domestic problem - the out of control growth that Social Security and Medicare will face over the coming decades. Read more about that problem and the candidates' views here.

Both parts of Cranford's article are worth reading, but I think he went at Obama a little harder than he did at Bush.

The Press and Political Coverage

My favorite Washington political daily, the Politico, carries a highly interesting look at how the media covers politics and why.

Specifically, they asked some of the smartest press secretarties and former press secretaries in town the following question: "Why does the press cover seemingly trivial matters...?"

One of the best answers comes from former Clinton press flack Joe Lockhart:

The media has become a business just like any other business. The press prints and broadcasts what they think their viewers and readers want to read and see. Successful media executives are no longer measured on the quality of the coverage, but on the number of eyeballs they can deliver, not on breaking news, but packaging news. And in a country in love with reality tv, it should be no surprise that the inane will always trump the important.

Another good answer comes from former GOP Congressman Mickey Edwards

Sometimes it's simply the result of a modern-age self-perpetuating cycle: more news outlets and more of them operating around the clock means more time and space to fill which requires in turn yet more copy which fuels a need for still more copy (to fill still more time and space) at a competitive blog or epaper or (bottom of the barrel) CNN, to which a response is required, etc., etc., ad infinitum.

Another former GOP Congressman, Jim Leach, who's now supporting Senator Obama thinks it's the failure of America's "political class" who have failed to produce anything worthy of serious news coverage, leading to a vaccum being filled by trivia.

In contrast, Kennedy School professor Joseph Nye thinks it's fundamentally our fault, although he doesn't fully explain how or why. Perhaps it's because if we demanded more substantial news coverage, even the most profit maximizing corporate news model would provide it?

In short, perhaps we're getting the news coverage we're asking for?

I'd definitely recommend you check out the rest of the responses from former Clinton Press Secretary Mike McCurry, former Bush Press Secretary Ari Fleisher and many others.

Obama and the World

One of the comments on this blog enquired as to how the rest of the world would react to an Obama Presidency.

Today's Guardian indicates the excitement Obama is inciting among people outside the US:

Obama has stirred an excitement around the globe unmatched by any American politician in living memory. Polling in Germany, France, Britain and Russia shows that Obama would win by whopping majorities, with the pattern repeated in Africa, Asia, the Middle East and Latin America.

That all sounds nice.

But, wait. They don't just like Obama. Supposedly they would be dismayed with our election of Senator McCain:

If Americans choose McCain, they will be turning their back on the rest of the world, choosing to show us four more years of the Bush-Cheney finger. And I predict a deeply unpleasant shift.

Until now, anti-Americanism has been exaggerated and much misunderstood: outside a leftist hardcore, it has mostly been anti-Bushism, opposition to this specific administration. But if McCain wins in November, that might well change. Suddenly Europeans and others will conclude that their dispute is with not only one ruling clique, but Americans themselves. For it will have been the American people, not the politicians, who will have passed up a once-in-a-generation chance for a fresh start - a fresh start the world is yearning for.

Here's the question: to what extent does the desire for an Obama Presidency by citizens of other nations influence your own vote?

Recall that our own Declaration of Independence was written to explain to those watching the Revolution from abroad:

When in the Course of human events, it becomes necessary for one people to dissolve the political bands which have connected them with another, and to assume among the powers of the earth, the separate and equal station... a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.

Does "a decent respect to the opinions of mankind" require us to vote for Obama given the enormous impact the US President has on the rest of the world?

Or does the more traditional view, that we are entitled to elect our own leaders without outside influence, still hold? Do / should voters in other countries care about how Americans perceive their elected leaders?

What's Good for General Motors...

The US government is being pressured by the "Big 3" to provide $25 billion in low interest loans (read: lower than what they can get from the banks or capital markets).

DETROIT — The auto industry this week begins a hectic push to get Congress to fund $25 billion in promised loan guarantees. Some in the industry even hope for an additional $25 billion...High gas prices and declining home values have pushed auto sales down 11.2% this year, straining cash reserves to finance new technologies. The housing collapse disrupted credit markets. Low-interest loans thanks to government backing would save millions for struggling automakers. Bond ratings deep in junk territory are forcing them to pay upward of 20% for credit.

An analyst from the unfortunately named "Gimme Credit" is being quoted as saying that we risk losing them without such a loan: "I wouldn't say they automatically go to bankruptcy without the loans, but it's really going to be touch-and-go if they don't get them."

This is at a time when the US government is going to run an even larger budget deficit than expected:

CBO estimates that the deficit for 2008 will be $407 billion, substantially higher than last year’s $161 billion. As a share of the economy, the deficit is projected to rise to 2.9 percent of GDP this year, up from 1.2 percent of GDP in 2007. That 1.7 percentage point increase as a share of GDP is roughly evenly split between a 0.9 percentage point decline in revenue relative to GDP (reflecting the impact of lower corporate tax revenue and the rebates enacted as part of stimulus legislation this year) and a 0.8 percentage point increase in spending relative to GDP.

I can't imagine what would happen of these three firms really went bankrupt.

Still, there's a few things to consider:

What message does this send to other large industries that find themselves in dire straits (what economists call a "moral hazard")?

What message does this send to other countries, who we routinely criticize for subsidizing their industries?

What message does it send to the people who work at the Nissan plant in Tennessee or the Mercedes plant in Alabama when we take their tax dollars and give it to their competitors because their corporate headquarters happens to be located on US soil?

MSNBC Corrects Course

As you'll recall, MSNBC had lost its way in its political coverage, which was becoming more about the conflicting, abrasive personalities anchoring it than the substance of the stories.

Today, the New York Times reports that NBC (aka the adults in the room) took the helm and steered away from the rocks:

After months of accusations of political bias and simmering animosity between MSNBC and its parent network NBC, the channel decided over the weekend that the NBC News correspondent and MSNBC host David Gregory would anchor news coverage of the coming debates and election night. Mr. Olbermann and Mr. Matthews will remain as analysts during the coverage.

This is good news for fans of civilized political debate, regardless of party preference.

On the end of the extreme, no one has ever accused my morning news of choice to be overly sensational.

Social Security, Medicare and the Candidates

Synopsis:

The current structure of Social Security and Medicare will cause the federal government's debt to skyrocket over the next several decades. Both candidates understand this. Senator Obama has made some proposals that would help ease the problem, but has been very critical of others that will make a bi-partisan solution more difficult. Conversely, Senator McCain has offered little in the way of proposals, but has left "everything on the table" for negotiations if elected.

_______________________________________________________

One key issue facing the US long term is the horrible fiscal imbalance in the Medicare and Social Security systems. If this sounds boring or technical, please bear with me just a little bit, because it's really important.

I'll avoid the word "crisis" because it's not going to one day just implode. It will just quietly get worse and worse, causing our debt to go higher and higher each year regardless of what we do with defense and other big ticket government spending items. Perhaps the gradual, quiet nature makes it an even greater threat.

Social Security sends cash to seniors. The amounts are based on what the senior paid into the system (the deduction on your paycheck labeled "FICA") during her work life, but its not like having a retirement account. The money deducted isn't sitting in an account for you. Rather, it was used to pay the retirement benefits of someone who had previously retired, and any money left over went into the general treasury, where it was spent on something else.

Medicare is the federal health insurance program for seniors. Like Social Security, it is funded by deducting a small bit from your paycheck and /or by deducting a little bit from your Social Security check.

Unfortunately, because there will be fewer workers paying into the system for each retiree in the future, we're going to face one or a combination of the following:

* Dramatic cuts in these programs that seniors rely on and paid for as workers;

* Massive tax hikes on future workers making it hard for them to live as we do now; or

* Massive budget deficits that will make the current deficits seem trivial in comparison

Even if we're only concerned with the "here and now" and don't care about payments to seniors after 2041 (the year there's projected to be nothing left in the Social Security kitty and we'll need to enact massive cuts), it's important to understand that federal spending will be increasing substantially over the next decades because of these programs, worsening our national debt dramatically. Accordingly, we'll still need to increase taxes or suffer much larger deficits than we would if we addressed them.

One thing most experts agree is that solving the problem NOW will be much cheaper and less painful than doing it later.

Therefore, one important question both Senator McCain and Obama should be pressed for an answer on is "What will you do to fix Social Security and Medicare"?

(President Bush, as you'll recall, proposed changes to Social Security for which he has been pilloried. In fact, he is one of the politicians with the courage to point out the system's problems and need for reforms. Whether you support his particular proposal or not, he deserves a lot more credit on this issue than those who pretend the problems don't exist)

Senator Obama's plan attacks the problems faced by Social Security mostly by raising taxes and those by Medicare by reducing spending. He calls for increasing the Social Security contribution of those making in excess of $250,000. On Medicare, he says the federal government will take a more aggressive role in negotiating lower drug prices for seniors. It will also reduce spending to subsidize certain private health care plans seniors can choose in place of tradtional Medicare. These proposals will only address a portion of the shortfall, though. Still, he has put some specifics on the table, and that's a commendable start, but only a start.

Unfortuately, Senator McCain has little specific to say about how he would address these problems. Still, he acknowledges that we cannot address our budget problems long term without doing so. What little he has to say in the way of specifics can be found at pages 4 and 5 in this document. He should be given some credit, at least, for saying that all solutions are "on the table." In contrast, Senator Obama has criticized McCain for being willing to raise the retirement age, which is regrettable. Understanding the problem and be willing to negotiate with everything on the table is the right approach for a President who would likely need to negotatite with a Congress run by the opposition as McCain would sure have to do if elected.

Here's how I see the candidates on this issue, then:

Obama

Pros:

-Recognizes the challenge
-Has some good people on staff who are truly expert on them
-Has made proposals that, if enacted, would make a dent in them

Cons:

-Proposals don't go far enough
-Appears to have staked out a position against raising the retirement age, which mean that we'll need to raise taxes, higher, cut payments deeper and / or borrow more than if we were to keep this in the mix. He's also sharply criticized any private saving component to a solution.

McCain

Pros:

-Recognizes the challenge
-Has some good people on staff who are truly expert on them
-Rules nothing out, which makes it easier to combine a combination of fixes that will make the solution a little more bearable for all parties concerned (workers and retirees)

Cons:

-He has offered no concrete proposals (in 2000 he proposed allowing some private savings elements, but there's no mention of that this time around, other than saying that personal savings accounts should be an "important part" of a solution, but without any details it's really hard to know what this means for the system because there's too many variations)

NB: According to this story here, this is not unique to Senator McCain' Social Security position. McCain has generally been keeping details of his policies close to the vest. The story is a bit dated (April), but it's disturbing if that's still the case. Those seeking elected office owe it to us to tell us, to the extent feasible, how they plan to get things done if they're asking for our vote)

Bottom Line: You have a candidate who's made some proposals but ruled out others vs. a candidate who is open to all proposals, but hasn't been willing to offer any of his own yet.