The better way to measure our debt problem

This is the submission to the Sky Hi Daily News and is unedited. The copyrighted edited version is reproduced at http://www.mufticforum.com/

$16 trillion here and $7 trillion there and before long we are talking real money. Raising the debt ceiling and cutting spending reflected in the 2012 budget are the hot topics   and no one seems to have faith in either party, according to the recent NY Times/CBS poll.  Around 57% disapprove of how the President is handling the federal budget deficit and more disapprove of the way Republicans in Congress are.   In 2012, the choices   will be an “as compared to whom” year.

What are perplexing about the choices voters have to make are the complexity and the sophistication that is needed to get our heads around big dollar numbers.  It makes it easy for politicians to demagogue using fear tactics that hype dire pocket book impacts or to exaggerate the problem’s size. There are other ways to frame the problem.

Economists prefer to use a ratio of   the percentage of the dollar amount of the debt to gross domestic product (the size of the economy, a.k.a. GDP) because we get a more realistic perspective. It is similar to a banker looking at the family income and assets to determine creditworthiness.

Historically, US debt has run at about 40% and rarely above 50%. It is about 62% now but if we had continued with the 2009 trend, we could see 82% by 2019. Projections depend upon how much revenue we can expect and how much cost cutting can take place.  Anything above 82% would cause interest rates to rise and decrease productivity and harm economic growth, according to conservative sources.  In short, we have more of a long term problem than immediately impending doom.

 The Simpson-Bowles debt commission recommended around 60% as a target in the next decade and said a combination of tax increases and spending cuts were necessary. The GOP/Ryan plan hopes for 70% without raising taxes, while drastically cutting Medicare.  The Obama plan proposes  a ratio of 3 spending cuts to tax increases of 1 while keeping Medicare in its current form, though he seeks  another $400 billion in cuts to Medicare over ten years on top of his health reform law already passed.  His debt/GDP ratio is unclear, but his plan contains a failsafe clause that would trigger cuts and tax increases by 2014 if the ratio does not stabilize or decline.

The Ryan/GOP plan sounds tempting, but is it reasonable?  It depends heavily upon the revenue the federal government would expect and the Congressional Budget Office calls the Ryan plan optimistic. A possible scenario per the CBO is that revenue could be less and the debt could rise to 92% of the GDP by 2022.

 In addition, the cuts Ryan is proposing to make may be politically impossible .Martin Wolf,  writing in  London 's Financial Times April 12, commented that  the Ryan plan would require the elderly to bear 68% of the costs of insurance by 2030. He asks, “The US has the highest maternal and infant mortality rates among the high-income countries, and among the lowest life expectancies. The result of these cutbacks …would be further deterioration. Is this really politically acceptable?”

 If the New York Times polls are accurate, the answer is probably no.  Three quarters of Americans think the federal government has a responsibility to provide health care for the elderly and 56 believe it has a similar duty to the poor.

Another possibility is to grow the size of the economy.   Both conservatives and liberals will try to turn their economic theories into proposals which they claim will work the best.  In the past decade, neither lowering taxes nor trickle down theories of Republicans have worked well nor have government stimulus programs primed the pump enough to grow the economy as we hoped. Obama prefers investing in infrastructure.

 Knees will jerk one way or the other, but the only constant would be the Obama failsafe proposal to trigger drastic steps in 2014 no matter whose theories are put into practice.

Obama deftly plays debt card

This is the unedited version of my column appearing in the print edition of the Sky Hi News today. I am posting this temprarily until the newspaper gets the column on line.

Honey…we shrunk the  government , at least it is on our wish lists,  crowed   Pres. Barack Obama and Rep. Paul Ryan  last week.  They both embraced similar goals of reducing the debt and  the deficits.. GOP/Ryan plan would cut government spending by $5.8  trillion dollars  over 10 years while Obama’s plan would reduce government spending by 4.6 trillion over 12 years

Neither would eliminate the  $7 trillion deficit projected over the next decade  caused by spending more than  revenue is taking in and would still necessitate borrowing and increasing debt to make up the difference.

 Progressives were wondering if  Obama had  swallowed tea served by the GOP               when he signed on to  shrinking  government.   They should not have been surprised. In May 2009 the President made it clear he believed  the US debt was unsustainable.

While the Democratic left wing  grumbled , the President threw them meaty  bones they could believe in:  substantive cuts in defense spending,, continued support of education and environment,  and proposing to raise one dollar of taxes on the rich  for every three of cuts. The GOP dug themselves deeper into the fox hole of no new taxes  and more tax breaks for the rich.

Why then did  Obama only begin to prioritize  debt/deficit reduction now?  He said he  waited until he felt  the economy recovered sufficiently from the Great Recession to tolerate a cut in government spending.  There was fear until now that drastic cuts made too quickly would hurt the US’s economic growth.

 Growing the economy  (measured as gross domestic product, aka GDP) is one of the keys  to making debt and deficits a smaller percentage of the total and less damaging.  Obama  proposes a lower/ slower implementation of cuts as a way to cushion a negative  impact.   To grow the economy, Ryan  relies on reducing taxes on the rich and corporations.   Obama looks to investing in infrastructure, education, and  alternative energy  as a necessity for  the US to compete  in the world while creating  domestic jobs.

The President’s timing  of announcing his position on fiscal matters was most  likely dictated by a  political strategy. The President could be criticized for  dithering  decision making, but he could not be criticized for not  being clever. 

Timing was everything. The President presented his plan just before some crucial votes in Congress on raising the debt ceiling and debate on the 2012 budget and just after Ryan presented his proposal.  Obama won  the chicken wars by waiting until the Tea Party put enough pressure on the GOP to go first to  propose deficit reductions , knowing  that any proposals were bound to harm the interests of some group of constituents .

 Republicans had tried to set a trap to force the president to go first by questioning his leadership abilities, but the looming deadlines forced the Republicans to walk into the trap themselves, force their hand, and throw away the key to the escape hatch, to boot.  With all but four House Republicans voting on the record  for the Ryan proposal  last week , the plan has become more than Ryan’s; it is now the GOP’s.  GOP candidates will now have to defend their recorded votes on issues that are potentially unpopular with swing voters, and even with some in the GOP’s own base of middle agers   worried about affording to retire.   

Clever, too, was Obama’s strategy to take some large issues off the table:  Less in play is the “whether” issues because there is some degree of agreement that the debt, deficits, and government spending and entitlements need to be cut.  This clears the deck for campaigns to focus on the “how” and “what” red hot buttons such as tax policy fairness and privatization of   Medicare. Republicans will now be forced to play on the Democrats turf defending some proposals that polls show are not popular.  

The President may also have lain to rest questions about his leadership style since “clever is as clever does”.

 

Trump: he may not be a hypocrite, but he is a raging elephant

The Donald  has been trumpeting the Trump this week.  He appears to have been catching on with the extreme right of the Republican party  and promises to turn the Presidential campaign upside down. The ultimate test of his appeal will be the Republican primaries, if he does decide to run.  If I were betting in one of the Casinos he used to own, I would put my money on him to do it. Failing that, I would also expect him to run as a third party candidate. What does he have to lose? He has the money, or at least he boasts he is rich, though somewhere along the line he will have to disclose his personal wealth. He has plenty to gain even if he loses the presidency, since he will soon be an unemployed  TV star.

He is tapping into the gut feeling of so many in this country whose sentiments are in sync with his, but who also like  to ignore any consequences of such actions.  The last straw in any respect I had for him was when he advocated going into Libya and Iraq and seizing the oil fields to pay for our past sins of pre-emptive strikes or the ownership of the companies drilling there or the long standing allies we had in the area.  If those countries were  vacuums, the practicality of doing that (aside from the moral, imperialistic, anti US sentiment generating issues) would not be in question. The problem is: none of these, including the Libyan revolutionaries, would roll over and play dead.  The cost of such military action must be a calculation that would underline the total absurdity of his foreign policy. Our economy cannot even afford the relative limited commitments we have now, much less could he count on   public approval he would need to undertake such effort.  Americans are already tired of those wars.

When it comes to foreign policy, not only is Trump a bull in a china closet, he is a rampaging elephant.

On the hypocrite meter, he deserves credit: at least he would make it clear US foreign policy is not about terrorism or bringing democracy to dictator dominated  nations or even about hatred  and fear of Muslims..  It is about oil without any  idealism attached. 

 His immoral lifestyle past, as one commentator mentioned on Morning Joe, is world class, no doubt...right up there with Berlusconi of Italy.  He would not be wimping "I did not sex with that woman"; he is already   opining "he loves beautiful women".   His newly found religion of pro life is not exactly a trade off  for those who expect our Presidents to be somewhat of a moral leader as well as a political one.  But  on this issue,as well,  he is no hypocrite.

The question is, can most Americans accept his attitudes and policies,  hypocritical or not.

The Ryan plan: a political fantasy

Martin Wolf of London 'sFinancial Times, on CNN's' Fareed Zakaria's GPS, yesterday said he had looked closely at the Ryan plan. Ryan's long term projections of  the size of government being around  2.3 of GDP would have returned the government and services to around the level of 1900; no defense department; much less no entitlements; because his plan has no tax increases whatsoever and the US would be shrunk as a world power in the face of China rising.  He called Ryans' plan: a political fantasy.