We are like rats in a lab of the Great Austerity Experiment (aka sequester)

We John Q Public citizens ought to feel like a rat in an economists’ laboratory experiment waiting  to see if  the Great Austerity Experiment  will hurt us enough  to be replaced by a Grand Bargain. Movement toward  eventual compromise is  showing  some shoots of green, but freeze warnings have been issued, too.

 Right leaning  economists tell  us that the sequester (austerity) is not so large since  cuts  are only 2.5%  of the budget yet it   will grow  our economy because it begins to reduce the deficit now.  That 2.5% is deceptive  because so much of the budget is exempted.   Cuts  are closer to   13   % of  the military budget and    8  % of programs affecting the poor, education, and  science, and  national parks .   Economists and the independent Congressional Budget Office  predict that  the sequester’s austerity approach  in the midst of recovery from the Great Recession  will increase  unemployment  to  9% and our growth will fall to 1%.  Even the much cited Simpson Bowles debt reduction commission warned against making budget cuts while the economy was recovering from the recession.

 Last week  hope sprouted . The GOP  stopped  threatening what  Peggy Noonan,  Wall Street Journal columnist, has called “government by freakout”.    We have been leaping off cliffs into some scary abyss  every month since November  and we were still facing government shut down and the reincarnation of the 2011 debt ceiling debate later this spring  .   There were even whispers   of  reviving  a Grand  Bargain later in the summer after the Great Austerity Experiment  plays out.

The President   kindled  the thaw.  Responding to criticism that he had not reached out enough and that is why the GOP claimed they would not compromise,  Pres. Obama  called their bluff and invited to dinner  some  rank and file senators.    He even invited Rep. Paul Ryan, the GOP’s  Tea Party policy wonk, to lunch. Ryan recently resurrected his proposal to voucherize Medicare.  Obama’s  outreach continues into this week and next , attending both party caucuses in the House and Senate.  The last time he visited a GOP conclave was in his first term, when  the same  Rep.  Ryan belligerently challenged the president’s math  and the GOP dug  in deeper as the  party of  no.  It is a wonder the President wants to try that approach again.

Some say the GOP won because  they forced the President to talk with them.  On the other hand,  they may have lost this particular  excuse not  to compromise.    The monkey  of being uncooperative  has settled once again on   the GOP’s  back,  leaving them   vulnerable to being  blamed for  continued gridlock.

The Senate is where  a Grand Bargain can take root, but the Republican  House is where all good attempts go to die. John Boehner,  GOP House Speaker  issued a freeze warning for any signs of a compromise  spring. .    He  commented on revenue raising by closing tax loopholes  (called tax hikes by the GOP) when he retorted, “If the President continues to insist on tax hikes, then I don’t think we are going to get very far”

 There are a few Republican Senators who have indicated a willingness to raise more revenue in return for more cuts and  if the Administration bends on some on entitlements.  Those are essential  elements of a Grand Bargain.   Even Simpson-Bowles deficit  reduction commission  concluded you just cannot reduce the deficit  without more revenue and changing eligibility ages for Medicare and Social Security. There are   less  traumatic ways to revamp such entitlements  than what Ryan  or Simpson-Bowles  propose.  The extent  of trauma  can also  be reduced by increasing revenue, too.  

Meanwhile, we rats in the lab of the Great  Austerity Experiment will be the first to know   if austerity  timed in a recovery will  cause  us enough pain and anger to thaw House members .

For more, visit  www.mufticforumespanol.blogspot.com

This is a version of my column that ran in the www.skyhidailynews.com today
 

Lessons from Europe are not just about Greece.  The GOP is so fond of scaring the American public about the size of the debt and warning us we will go Greece's way.  In the long term there is no doubt we must clean up the debt. About 40% of the debt is due to the reduction in income to the Treasury that can be cured by economic growth.
There are three  routes on the table: 1) The Paul Ryan plan as embraced by Mitt Romney except for his Debate #1  revisions of additional 20% tax cuts offset by closing loopholes and deductions which every non ideological think tank said would be inadequate to plug the revenue loss.2) the Simpson-Bowles Commission Recommendations to make two dollars of cuts to one dollar of increased revenue, 3) and the Grand Bargain proposed by Pres. Obama, with even more cuts in ratio to  tax increases. Obama's plan is  based on a  more detailed, revised version of Simpson Bowles. However, it  was immediately rejected by the Tea Party controlled House of Representatives because it violated their member's pledge to Grover Norquist never to raise one penny  of taxes.

 The GOP's belief is that one solves the deficit problem in two ways: cut everything  in the budget   and lower taxes on the upper income brackets so that the wealthy invest and the largess trickles down to the middle class and the poor. To achieve a balanced budget would require a 30% cut in government expenditures, either across the board or taking a meat cleaver to specific programs. That approach is called austerity.

Neither Obama nor the GOP have been purists either way because even the 2009 stimulus contained tax cuts and large cuts to government expenditures are also part of the President's Grand Bargain.  Mitt Romney has proposed increasing the Pentagon budget by $2 trillion over 10 years, reducing taxes 20% across the board, keeping the Bush tax rates for the wealthy.  Just increasing Pentagon expenditures alone would  result as  financier Steve Rattner calculated in the need to cut everything else 40%.  

The lesson to learn from Europe is not that debt is bad; it is the wrong way to solve the debt problem.
Nicholaus Kristoff, writing in the New York Times today made the point that Europe tried the austerity approach while Pres. Obama tried low taxes and  government stimulus programs.  While neither  were robust, the stimulus approach has had better results. "The International Monetary Fund this month downgraded its estimates for global economic growth, with only one major bright spot in the West. That would be the United States, expected to grow a bit more than 2 percent this year and next.
In contrast, Europe’s economy is expected to shrink this year and have negligible growth next year. The I.M.F. projects that Germany will grow less than 1 percent this year and next, while Britain’s economy is contracting this year."

A  couple of  months ago , my husband and I  spent our vacation  in Europe. . I had   only spotty access to the internet and the international version of CNN and England’s Sky News as my English language contact with the world. I expected it would be just a relaxing, leisurely  getaway  . It was,  but it was also  a learning experience  .

Coverage of English  domestic news  was dominated by the the shake up of the Conservative Government of Prime Minister David Cameron, as he sought to change course.  When he assumed office two years ago, his answer to the world financial crisis was  to slash  many  government funded services   with an unabashed program of austerity.  .  The result in the UK was a double dip recession and  continued high  unemployment numbers , a  contrast  with continued, but slow  US growth and decrease in unemployment  from a high of over 12% to  just over 8%. .  Compared to Europe’s stagnant growth, the US has done much better..  We may think of Obama’s recovery  as either tepid or a failure, but  we have come through the economic crash of 2008 in better shape than Europe.

 Cameron’s change of course  could be taken as  a tacit admission that austerity had failed.. Cameron’s   direction  now differs from the US brand  of  conservatism of  small government, reduced taxes paid for by cuts in social programs . In fact, what Cameron  proposes is  to increase government  investment in infrastructure and education  in order to help business create jobs.  Cameron was attempting to stimulate the economy with more active government participation.  Sound familiar? It should. It resembles the Obama approach in his jobs plan rejected by the GOP dominated House.

 To say that the 2012 presidential  election is not about choice   assumes that any other approach would be better than Obama’s.. While we may be unhappy with the Obama recovery . just firing him  does not mean replacing him with GOP trickle down austerity is  better.  It is possible it could be worse.. .  We need to be aware  the GOP approach has a  track record of failures to recover from a financial  sector meltdown, such as we experienced in  the 2008 Crash, similar to the UK’s recent  experience.

Mitt Romney's moral fools gold on plans for the poor

My column in the Sky Hi News today
have heard arguments this campaign season that I have not heard since the 1960 debates over President Lyndon Johnson's War on Poverty.

One repeated often by conservatives is “it is immoral for government to help the poor because we are making them dependent.” That is a fools gold kind of morality, lots of glittering rationale for those who care about the poor but still want to feel good about themselves while they support policies that hurt them.

Mitt Romney expresses concern for the poor from one side of his mouth: “I am not worried about the poor because they have a safety net” and “I have an absolute moral commitment to help every American help themselves”( by providing them jobs). Out of the other side of his mouth he proposes to poke holes in the safety net and make cuts in other programs that make it much more difficult for the poor to help themselves.

These comments appear to be Romney's response to the Catholic bishops calling it immoral to cut the social safety net in order to pay for the tax benefits to the rich and higher defense spending as the Ryan/House GOP budget proposes, and Romney called “marvelous.” Romney's own particular spin is it is more moral to provide jobs so the poor can “help themselves” than to make them dependent on government assistance.

No one can argue that work is better than welfare for those who are able to work and have the qualifying skills. Clinton-era welfare reforms did much to address this. However, the fix that Romney proposes is a flub. He bases his case on economic theories that have never worked well to create jobs in an economy recovering from a recession, he failed to apply his self-extolled job creating expertise to public policy, and he has a disconnect from realities of the poor's ability to find work.

Romney supports economic theories of trickle down and European-like austerity that have failed to create jobs in the past. Gov. Romney had a dismal job creation record in Massachusetts and when he left office, unemployment was still higher than the national average. Pumping up “job creators” with deregulation and low taxes does not necessarily spring loose investment in manufacturing capacity unless business anticipates more demand.

But Romney's plans are demand killers. Fighting Obama's jobs bill and/or any aid to rehire state and federal employees, such as teachers, firefighters and police, the core of GOP austerity plans, leaves less money in consumer pockets to buy products and services.

When Europe undertook austerity cold turkey, demand dropped and unemployment soared, a pertinent example. The conservative line on the “dependence” issue is, “If we reduce their safety net, more poor will go to work.” Even if jobs are created, will the poor benefit? Reducing access to a good education (Per Romney: “we do not need more (teachers)” and good nutritional brain food needed to learn, we are guaranteed pools of manual laborers who do not have the skills to be hired in today's or tomorrow's tech economy.

The GOP disconnect: Most of these safety net programs are for children that give them tools to escape dependence. Three-quarters of food stamp recipients are families with children. Of the nutrition programs for the poor (8.7 million recipients), 4.3 million are women with children, 2.2 million with infants. National school lunch programs: 30.5 million kids benefit. Children's health programs (CHIP) keep them healthy enough to go to school and Head Start gets them ready to enter first grade. By reducing money to these programs, we guarantee more poor do not have good nutrition needed to learn, or to gain the ability to qualify for jobs Republicans hope to create.

Romney and the GOP are trying to fool well meaning conservatives, but presenting their plans for the poor as a jobs program or a moral plus is a shameful deception.

For more, go to www.mufticforum.com and www.mufticforumespanol.blogspot.com

Right problem, wrong solution, right solution

My column in the Sky Hi Daily News today

According to recent polls, President Obama has plateaued at 48 percent, with Mitt Romney trailing slightly.

After a boost earlier this year, the job creation rate is disappointing though the economy is still growing slightly and jobs are being added. Economists predict recovery will limp along until November in the U.S.

To win decisively in November, Obama must convince more  voters GOP/Romney plans to heal the economy going forward are the wrong solutions and his plans are the right ones.

Last week former President Bill Clinton raised a ruckus when he criticized Obama for taking an anti-business tone by dwelling on Romney's mixed job creating record at Bain Capital. Lost in the resulting noise was a very important point Clinton made that could be the key to the president's winning the argument about the economy.

Clinton opined that Obama's plan for improving the economy was better than Romney's. That approach has real potential.

Such a comparison should include  more than rehashing the “trickle down economics vs. relief to the middle class” debate. The GOP's plan to stimulate growth is lowering taxes on the rich because they are the “job generators” and their wealth will trickle down to the rest but paid for by cutting programs that are perks for the middle class. Never mind the trickle trick never worked well, but history is not much of a political teacher.

Romney's newest argument is that if the president's policies had worked, we “would be much better along in the recovery.” That line is full of holes. The president was unable to do all he wanted to do because of obstructionist Republican Party control of the House, defeating the bill that would have added 2 million jobs. Obama could also argue that if Romney had been president we would have lost 3 million auto industry jobs because Romney's solution was to let the industry go bankrupt.

The other is that the GOP approach of nearly complete reliance on cutting government services was similar to the European austerity plans that resulted in loss of jobs, double dip recession or zero growth, and higher debt, and lowered demand. One wonders how much worse unemployment and the economy would be now if Romney had controlled the White House.

The GOP gives Obama no credit for coming so far along in the recovery, either. To Republicans, “partial success is total failure.” At least Obama's stimulus plan succeeded in reaching the goals he set in early 2009 when the depth of the recession was unknown and his stimulus/tax cut combination did create jobs. In spite of the GOP obstructionism, 4 million private sector jobs have been  added compared to the 700,000 per month we were losing. The economy is growing , the banking system and corporate profits are robust.

Romney has tried to head off any comparison of his plans with the failed European approach by saying he would only make changes “gradually.” “Gradual” is not what the Tea Party, the Republican base, or the under- and un-employed seek. Romney could find himself butting heads with his party's right wing on that one. Granted, Romney's plans are similar to the GOP plans that would require cutting spending drastically, depending too heavily on fundmental changes in Social Security and Medicare systems, back door privatization by using vouchers, and higher copays, while increasing defense spending.

Obama could also embrace the recommendations of the Simpson-Bowles commission that would keep the entitlement system in place we have now, but would simply gradually raise the retirement age and cut defense spending. If he adopted the Simpson-Bowles debt reduction recommendations now, he would be in even better shape to argue he has the right solution and Romney has the wrong one. 

For more, visit www.mufticforum.com and www.mufticforumespanol.blogspot.com

Does Mitt Romney's expertise translate to his ability to lead the US economy?

My column in the Sky Hi Daily News today:
We live in a short-hand, sloganeered and sound bite world but it is worth our time to get into the weeds, especially when complex issues of the economy are involved.

I took a deeper look at some recent sound bites regarding the auto bailouts, Wall Street regulation, and debt/budgets  and came out of the wonky weeds shaking my head. Mitt Romney's expertise has not translated into good judgment, or good public policy, or even good banking practices.

Let's look at Romney's claim that a private sector auto industry bankruptcy would have been better than the Obama bailout. It is fundamental to his claim he was a fixer of the economy's problems and a job creator and it illustrates why a banking perspective does not always make for good public policy. The number of jobs that could have been lost in 2009 if GM and Chrysler went under (including the ripple effects to parts suppliers and others), would have been 3 million, auto executives predicted. If Obama had not fixed it with the government bailout, we would still be looking at an unemployment rate in 2012 much higher than 8.1 percent.

The fix Romney advocated publicly in 2009 and still defends was to let the private sector provide the capital for a structured bankruptcy. There must be capital provided by investors in a managed bankruptcy, or the enterprise has no way to pay its workers, parts suppliers, or any other costs of doing business. It padlocks the gates and employees become the unemployed.

The reality in 2009 was there was no private capital to do it. Either Romney was being deceptive to make a political point or he was blind to the investment climate. Even when challenged later to name any private investors willing and able, he couldn't. The Obama administration understood that and provided the capital by the way of government money (the bailout) so the factory gates remained open while needed changes were made. The U.S. auto industry has roared back and many of those laid off are now back to work.

This month JP Morgan-Chase lost over $2 billion in proprietary trades gone bad. Luckily JPM is strong enough to survive, but the same could not be said for other banks. Had Wall Street Reform (Dodd-Frank) with its Volcker rule been implemented, it may have prevented certain kinds of proprietary trades that risk a bank's own funds. If trades were simply bad judgment calls that could take down a bank, the reform would provide a way to wind down a big bank without taking down other banks, avoiding what  caused the 2008 crash and bailouts. The financial service lobbyists have successfully delayed implementation of Wall Street reform that includes the Volcker rule. Romney's position? Repeal Wall Street reform. Bad business, Mitt Romney.

Coming to a head this summer is the Ryan plan and GOP's extreme reliance on austerity as the solution to both the budget and debt. Romney has called this approach “marvelous.” The GOP's reliance on cuts in social programs while increasing Pentagon spending has been condemned as immoral by the Catholic Bishops because it cuts into the poor's safety net. This is the same single-minded reliance on cuts to recover from the 2008 crash that Europe has tried, with Great Britain and seven countries in the Euro Zone now facing a double dip recession, higher debt, and no growth.  

The GOP scares the pants off of voters, pointing to the Greek situation with “we too could go their way if we do not get our debt under control.”  Even Democrats agree we must solve the debt problem. The question is “how?” The GOP identifies the right problem and advocates the wrong solution. To tackle debt takes a balanced approach like Simpson-Bowles of some stimulus and some austerity as Obama has done. Relying on cuts alone cripples recovery. That is the lesson Romney and the GOP should take from Europe.

For more, visit www.mufticforum.com, www.mufticforumespanol.blogspot.com

How Obama could win the economy argument

My column in the Sky News today:

Is Mitt Romney a sheep in wolf's clothing or putting on an act that he is wolf in sheep's clothing?

Is he looking like a serious conservative or will he govern as an extreme conservative in spite of his supposed inner moderate self? Or is he like a Navajo shape-shifter, taking on the animal form that gets him the most visibility?

Now that the primaries are over, he will have to look more sheep-like to appeal to the swing voter moderates.

Obama's positions on women's rights and a kinder approach to immigration issues have helped his poll numbers. However, he is tied with Romney on the economy. He needs to do more.

A case Obama has not yet made: We do not need to trade away fair social policies for bad economic policies proposed by the GOP. He has a better, fairer plan for both. To make such a case, Obama does not need to be a shape shifter because he is consistent with his past policy priorities, but he also must attack Romney's plans more effectively than he has.

There are those who believe Romney had been appearing as a wolf on social and economic issues to get the support of his party's far right, but he is really a sheep inside that would govern as a moderate once he got elected. Obama can make the point they are fooling themselves. The pressure on Romney from the ultra conservatives dominating the GOP and Congress would make a second term improbable if he flip-flops on tax, health care, immigration and women's issues.

Romney‘s way out of this schizophrenic dilemma to appeal to moderates has been to make the conversation only about the economy, while hoping they forget the bargain he made to with the GOP right wing to support them on social issues. Simultaneously he claims his plan to decrease taxes on the rich and to increase military spending while slashing and burning discretionary programs that benefit the middle class, will be the better route to economic prosperity.

The route Romney has irrevocably tied himself to is the closest version of a European austerity program that exists in the US: the Ryan budget. Even the Catholic bishops opined that the Ryan budget "fails to meet the moral criteria" (to protect the poor) because it takes money away from the safety net. One phrase will come back to haunt him: He called that plan “marvelous” because it would reduce the deficit and create jobs.

This last weekend Obama began to make that case that his plans for the economy would better for America in the future although we may not have climbed out of the economic hole left by the GOP as quickly as we want. So far Obama has relied on reminding us that Romney's sole reliance on budget cuts /pump up the rich plan was a throwback to the policies that never dug us out of the holes in the past, so how could it be better?

That argument is not strong enough: Obama needs to take his attacks to the another level, arguing Romney's plan could even make the economy and debt worse, linking GOP plans to the extreme approach in Europe that led to the rejection of austerity by voters this past week in France and the experience of austerity in the United Kingdom. Obama could now argue that too much reliance on austerity there has led to stagnant growth or a double dip recession, job loss, and higher debt. Those are exactly the opposite results for which the GOP hopes and the Democrats have achieved in part.

The president's moderate, middle way, combining budget cuts, fiscal, tax, and income stimulants, has resulted in GDP growth, steady private sector job creation, and unemployment decreasing significantly. His balanced approach, similar to the Simpson Bowles recommendations, will also improve the debt situation.