POLITICAL gridlock may be bad for America's economic prospects, says Edward McBride, but the underlying picture is much brighter than it seems
Agregador de canales de noticias
WHAT does Paul Ryan think will happen if America fails to set its fiscal house in order? This:
Unless we change course, we will have a debt crisis. Pressed for cash, the government will take the easy way out: It will crank up the printing presses. The final stage of this intergenerational theft will be the debasement of our currency. Government will cheat us of our just rewards. Our finances will collapse. The economy will stall. The safety net will unravel. And the most vulnerable will suffer.
Is hyperinflation really what's in store if America keeps living beyond its means? Neil Irwin of the Washington Post doubts it. First of all, he argues, the costs of Medicare and Social Security, the insatiable monsters of the budget, are either subject to inflation or indexed to it, and thus inflation wouldn't really help. For this reason, Mr Irwin writes, "inflation wouldn’t offer Congress much of a way out of its deficit problems; indeed, it could make them significantly worse." So there would be little temptation to inflate.
I confess to not fully grasping the logic of this, though it is certainly interesting to glimpse Mr Irwin's assumptions about what would and would not remain fixed should the Fed set the presses to warp. The value of the currency evaporates, but statutory inflation adjustments remain!
I suspect part of the problem here is that Mr Irwin imagines that Mr Ryan is imagining relatively high but manageable 1970s-style inflation—8%, say—while I, having spent most of my professional life around Ayn Rand-loving deficit hawks like Mr Ryan, imagine that Mr Ryan really is imagining a full-on Zimbabwean monetary calamity, as fantastic as that may seem. He really thinks the stakes are really high, not just that moderate inflation may nibble unjustly at the nuts we've stashed for our golden years.
The full story in the event of a hyperinflationary catastrophe is far too complex to predict, but it's fun to think about how it might go. Here's my very rudimentary sense of things. Why would America, if "pressed for cash", as Mr Ryan puts it, start financing its spending through rapid inflation? Probably because the cost of issuing new debt (currently a relatively cheap option) had become too dear. But then the Treasury's credit rating would tank even further, and the cost of borrowing would become really prohibitive, forcing the government to finance new spending mainly through new revenue. But runaway inflation would quickly kill the real value of any taxes collected, no matter how high rates are jacked up. So, assuming Americans won't contemplate anything like selling the Grand Canyon to a consortium of sheiks (in euros, or gold-pressed latinum), it would become simply impossible to finance Social Security and Medicare at current real levels. There is, sorry to say, no legal entitlement to social-insurance transfers, so the government would violate no law by backing out of its promises. Should the hallowed institutions of the American state somehow manage to survive a hyperinflationary cataclysm, presumably Congress would simply scrap the inflation-indexing of Social Security, and/or continue to mail cheques that America's seniors and health-care providers will find good mainly for kindling, or a laugh. That's how the safety net unravels. There's no way to continue to pay for it, so it stops being paid for, and so it goes away.
Mr Irwin, imagining a rather less grisly scenario, suggests that "any politician who tried to freeze Social Security (particularly at a time of high inflation) would surely find gray-haired armies of angry seniors in their office making their dissatisfaction known". I'd be more worried about armies of armed Army personnel making their dissatisfaction known.
Mr Irwin goes on to argue that, in any case, we can trust the Federal Reserve to not get carried away. Not to say that it hasn't. Mr Irwin acknowledges that it has happened "as recently as the 1970s, when Fed chair Arthur Burns allowed inflation to get out of control in no small part due to political pressure from the Nixon administration." Furthermore, "An acquiescent central bank is crucial to understanding the inflation episodes ... in Germany, Zimbabwe, and Italy".
But that won't happen here, now! Why not? Because "a lot has changed since Arthur Burns’s time, and the idea that a central bank has not just the power, but the responsibility to prevent inflation from getting out of control is deep-seated within the Fed and other central banks." That's it?
Either Arthur Burns was a pushover or he didn't know better or both. Suppose we really do know better now. Why assume we won't get another pushover? Actually, let's take it easy on poor Arthur Burns. The central variable isn't really the resolve of the central banker, but the nature of the "political pressure" applied. Suppose the children of members of the FOMC begin to disappear and the president says he has no idea what's going on but can imagine circumstances under which he might feel inclined to look into it?
My point isn't that Paul Ryan is on to something, and that failure to travel "The Path to Prosperity" will really have us pushing wheelbarrows of cash to the Piggly Wiggly. My point is that the system really is fragile, and really does depend on a handful of people in critical positions of power doing the right thing, even when it hurts. I don't happen to think we're in imminent danger of the sort of systemic failure of continence I imagine Mr Ryan imagines. I'm naive enough to suppose that portents of such a dire future would be already visible in interest rates and measures of inflation expectations, and they aren't. But I do think that there's something to be said for the idea that value of a government guarantee—of access to health care, or retirement security, or whatever—is only as good as the culture within which the government operates. If America's political culture turns out to be such that we are at last unwilling or unable to rein in deficit spending and shrink the debt, then we ought not be too confident that in a pinch our politicians and technocrats will be willing or able to nobly man their posts.Enabled
REMEMBER Occupy Wall Street? Today, 18 months after the protest movement sprang to life in New York City and became a national phenomenon, it seems almost a will-o’-the-wisp. But as Zuccotti Park has returned to its pre-drum circle serenity, one of the main objectives of the Occupy movement has been chugging along: the mission to draw attention to the inequalities at play in American democracy.
Income inequality in America is at levels not seen since the 1920s, and the story is getting a lot of air time. One nifty video, which has gone as viral as a wonkish research report could ever go, suggests that 40% of the nation’s wealth is controlled by the Occupy-derided "one percent”, while the bottom 40% of Americans hold only 1% of the wealth. The video, produced by the unassuming, graphics-gifted Politizane, has attracted over 4m viewers and helps to correct Americans’ misperceptions about the extent of inequality in their polity. Meanwhile, Joseph Stiglitz has thrown the weight of his Nobel prize in economics behind a book on the subject—"The Price of Inequality: How Today's Divided Society Endangers Our Future"—and penned a New York Times op-ed calling equality of opportunity a “national myth”.
Adding injury to insult, new research reported in the Washington Post finds a link between America's wealth inequality and the life-expectancy gap. Focusing on men and women in two counties in Florida, the data show that being on the wrong side of the wealth gap can, quite literally, kill you.
[St. John’s] county’s plentiful and well-tended golf courses teem with youthful-looking retirees. The same is true on the county’s 41 miles of Atlantic Ocean beaches, abundant tennis courts and extensive network of biking and hiking trails.The healthy lifestyles pay off. Women here can expect to live to be nearly 83, four years longer than they did just two decades earlier, according to research at the University of Washington. Male life expectancy is more than 78 years, six years longer than two decades ago.
But in neighboring Putnam County, life is neither as idyllic nor as long. Incomes and housing values are about half what they are in St. Johns. And life expectancy in Putnam has barely budged since 1989, rising less than a year for women to just over 78. Meanwhile, it has crept up by a year and a half for men, who can expect to live to be just over 71, seven years less than the men living a few miles away in St. Johns.
On one hand, none of this is surprising: more money translates into better health care, more leisure, more exercise and less unhealthy fast food. It is not a shock that individuals in the wealthier county would live longer lives, on average. But the research is notable for three reasons. First, the numbers aren’t trivial. We’re talking about a 5-10% boost in life expectancy for wealthy seniors. Second, it is not just a Florida phenomenon: “Even as the nation’s life expectancy has marched steadily upward, reaching 78.5 years in 2009, a growing body of research shows that those gains are going mostly to those at the upper end of the income ladder”. Third, the longer lives for the rich, like a snarled subway train, cause further inequalities up and down the line. Specifically, longer life expectancies for the rich complicate the drive to raise the retirement age and threaten to turn Social Security taxes into a regressive source of revenue. Here is why:
“People who are shorter-lived tend to make less, which means that if you raise the retirement age, low-income populations would be subsidising the lives of higher-income people,” said Maya Rockeymoore, president and chief executive of Global Policy Solutions, a public policy consultancy. “Whenever I hear a policymaker say people are living longer as a justification for raising the retirement age, I immediately think they don’t understand the research or, worse, they are willfully ignoring what the data say.”
Take a minute to process this. As a bipartisan proposal to bring entitlement spending under control, raising the retirement age to 67 or 70 will enlist the working poor to pay into the system for a few more years, curtailing their retirement years to the single digits, while the taxes they pay will flow into Social Security checks for the wealthier and healthier. A senior with a fatter bank account wins twice—with greater longevity and more years drawing Social Security checks—while the poor work longer, live fewer years and collect less in benefits.
One need not be a radical egalitarian to find this picture morally troubling. To draw upon Princeton political theorist Michael Walzer’s view of “complex equality” developed in his 1983 book "Spheres of Justice", the proposal seems wrong because it allows an inequality in one social good (wealth) to “invade the sphere” of another social good (the health and length of one’s life), and to feed back into and exacerbate wealth inequality. Mr Walzer's formula holds that “no social good x should be distributed to men and women who possess some other good y merely because they possess y and without regard to the meaning of x”. Wealth can justly enable people to buy “yachts and hi-fi sets and rugs”, he writes, and the “unequal distribution” of these goods “doesn’t matter”, but money should not be permitted to buy political power or the power to dominate others. Nor should great wealth translate into the power to lord longer life expectancies over the poor and to shift more of the burden of work and taxation onto their shoulders.
THREE days after the Arkansas House of Representatives passed the Human Heartbeat Protection Act, Jason Rapert, the freshman state senator who sponsored the bill, took to Twitter to boast that the new law “stands to save thousands of lives”. Its chances of doing so, however, depend first on surviving a court challenge. The law, which passed on March 6th, bans abortions after 12 weeks of pregnancy—the age by which an ultrasound can usually detect a fetal heartbeat—except to save the life of the mother and in pregnancies resulting from rape or incest.
This directly contravenes the Supreme Court’s 1973 ruling in Roe v Wade, which held that the right to privacy—which it had earlier found in the 14th Amendment and “in the penumbras of the Bill of Rights”—protects a woman’s right to decide whether to terminate her pregnancy. Mike Beebe, the governor of Arkansas, vetoed the bill for just this reason, though the legislature overrode his veto. The American Civil Liberties Union (ACLU), its Arkansas chapter and the Centre for Reproductive Rights, an abortion-rights advocacy group, have vowed to file suit shortly.
Even if that suit kills the law, women in Arkansas will still find obtaining an abortion difficult: the state already bans abortions after 20 weeks, and it has just one abortion clinic. Nor will neighbouring states offer them much hope. Louisiana and Oklahoma also ban abortions after 20 weeks. Mississippi has a single clinic, which is at risk of being shut down by a law requiring abortionists to have admitting privileges at local hospitals. Bills have been introduced in Oklahoma and Mississippi which would extend legal protection to zygotes. Texas is mulling both a 20-week ban and an admitting-privileges bill like Mississippi’s. All Arkansas’s neighbours allow health-care providers to refuse to take part in an abortion. All of them also limit public funding of abortions to cases of rape, incest and danger to the mother’s health.
Further afield in the South, the story is much the same. Late last year Bob McDonnell, Virginia’s governor, approved regulations requiring abortion clinics to meet the same building requirements as hospitals (abortion-rights proponents argue that such measures have less to do with safety than with regulating abortion clinics out of business). Alabama looks set to enact a law that combines Mississippi’s admitting-privileges statute with regulatory requirements similar to Virginia’s. The Guttmacher Institute, an abortion-rights advocacy group, classifies states as hostile, "middle-ground" or supportive of abortion rights. In 2000 just a handful of southern states qualified as hostile; 11 years later their map shows a solid wall of hostility, from Virginia down to Florida and over to Texas and Oklahoma.
Not all these laws may survive. Mississippi's voters rejected a personhood amendment in 2011. The 20-week bans may prove unconstitutional (Roe v Wade held that states can ban abortions only after the fetus is capable of surviving outside the mother, a point that varies but that the Supreme Court defined as being at “23 to 24 weeks” in 1992). Last week a court in Idaho struck down that state's 20-week ban as unconstitutional and Georgia's is tied up in court. But as more laws go before more courts, the chance of one of them getting a favourable decision rises. “The new paradigm of the pro-life movement”, explained Dan Becker, president of Georgia Right-to-Life, “is all about introducing tension into the law... We have different courts ruling in different ways, which is a surefire way to challenge Roe.”
(Photo credit: AFP)Disabled
PAUL RYAN has released a budget proposal. That's what Paul Ryan does. The nagging question is why. His latest is much like his last, except that the new plan, which Mr Ryan has dubbed "The Path to Prosperity", proposes to balance the budget even faster than he previously proposed to do. (Ezra Klein offers a concise overview of the plan's main outlines with an illustrative companion chart.) If you've noticed that Paul Ryan is not actually vice-president, and that the Republicans do not actually command a majority in the Senate, releasing such a budget may seem a vexing and quixotic exercise. "To take Ryan seriously", writes Eugene Robinson of the Washington Post, "is to believe that legislation repealing the landmark Affordable Care Act would be approved by the Senate, with its Democratic majority, and signed by Obama. What are the odds?" Long.
Even conservative commentators sympathetic to Mr Ryan's earlier fiscal blueprints are put off. Ross Douthat, a right-leaning New York Times columnist, observes that Mr Ryan easily could have improved on his earlier efforts, but instead has delivered "a document that’s arguably more unrealistic than the previous versions of the Ryan budget, and that does little or nothing to bridge the gap between the Congressional GOP and the electorate that just re-elected Barack Obama."
So what's the point? According to Mr Douthat:
...many conservative House Republicans plainly feel like they’ve already been forced to compromise repeatedly of late — on questions like the fiscal cliff, the debt ceiling, and so on — and so they want their official budget to take a more absolutist stand. Hence the quest for ten-year balance, and the promise of pain on every front except (of course) marginal tax rates.
But what's gained by taking such an "absolutist" stand? Do House Republicans really want to make a show of adopting the same Medicare cuts that Mitt Romney and Mr Ryan so vigourously opposed just a few months ago? Do they really want to get behind what Mr Douthat has called "a weird, all-pain version of Obamanomics — in which, for instance, we keep the president’s tax increases and Medicare cuts while eliminating his health care law’s assistance to the uninsured"?
Ezra Klein thinks the details of Mr Ryan's budget are really beside the point, and I suspect he's right.
It turns Medicare into a voucher program, turns Medicaid, food stamps, and a host of other programs for the poor into block grants managed by the states, shrinks the federal role on priorities like infrastructure and education to a tiny fraction of its current level, and envisions an entirely new tax code that will do much less to encourage home buying and health insurance.
Ryan’s budget is intended to do nothing less than fundamentally transform the relationship between Americans and their government. That, and not deficit reduction, is its real point, as it has been Ryan’s real point throughout his career.
According to Mr Klein, Mr Ryan's method is to overstate the dangers of fiscal imbalance and then present his ideological vision of government as the only way out, even when plenty of piecemeal stopgap reforms are available to head off budgetary doom. Mr Klein writes:
It is Ryan’s unusual ideology, and not the specific state of our finances, that justifies this budget. Ryan’s view is that the federal government is strangling our community. When the federal government provides health care for the poor and the middle class, it muscles out states, communities and families that might otherwise fill some of the gap. When bureaucrats set up Obamacare’s exchanges, they stifle the essential ingenuity of the private sector. When government does too much to provide for individuals, they are robbed of the bracing necessity of providing for themselves.
I don't find this ideology so "unusual". Though I wouldn't say the federal government "strangles" community, I agree that federal programmes do tend to crowd out state efforts. I daresay even Mr Klein agrees. For American progressives, the point of centralised federal control is so often to ensure that states considered backward in one way or another are not allowed to offer programmes deemed insufficient by enlightened technocrats. And there's definitely much to be said on behalf of this point of view. Just think of the horrors that would no doubt obtain in Mississippi to this very day had Mississippi been left free to govern itself wholly free of federal meddling. That's why conservative proposals for devolving power to the states still carry with them a whiff of Jim Crow. And that's why liberal proposals for strengthening federal power still smack of Harvardian colonial crusades to civilise the humid boondocks.
Don't expensive federal guarantees make community and family charity both less necessary and less affordable? Hasn't the increasingly intense and comprehensive regulation of the health-care sector made free markets in insurance and medical services basically illegal? I'm not so sure it's unusual to think so. At any rate, it's correct to think so. Mr Klein simply believes that, all things considered, we're better off with the relatively centralised status quo than we would be if we made a significant move toward free-market federalism. Maybe he's right about that. But it's not weird to think he's not.
I don't think Mr Klein is entirely wrong when he goes on to say that Mr Ryan's "ideas are not, on their own, popular. In fact, they’re deeply unpopular, and considered quite radical". But if these ideas are so deeply unpopular, what does Mr Ryan and his House colleagues gain by repeatedly airing them? What are Mr Ryan and friends up to? It seems to me that either Mr Ryan is an idiot, or he's negotiating more or less rationally on two separate but intimately related fronts.
On the front of immediate fiscal politics, Mr Ryan's budget "plan" is best seen as an elliptical statement about the future allocation of the GOP's bargaining power. It says that House Republicans are happy to concede Mr Obama's Medicare cuts, will seek to stymie at every turn the implementation of Obamacare, are going to fight like hell against further tax increases, and intend to demand a budget plan that balances the books sooner rather than later. The more fanciful the proposal, the stronger the commitment not to give ground to the White House.
On the front of big-picture public opinion, I hazard that Mr Ryan seeks to make his vision of government seem decreasingly radical and increasingly reasonable simply by repeating it. You can think of Mr Ryan's fantasy budget as a gambit in a diffuse cultural negotiation over the bounds of reasonable opinion in the ongoing negotiation over fiscal policy—a sort of ideological meta-negotiation. You may think that proclaiming the same "radical", "deeply unpopular" ideas again and again and yet again can't possibly make them more palatable and mainstream, but there's a queer phenomenon psychologists call the "mere exposure effect" that suggests otherwise.
Mr Klein argues that Mr Ryan has discovered that the way to get a hearing for his unpopular ideas is to present them as if they are "necessary, prudent measures to forestall an even more dramatic debt crisis". But why would a politician, ever at the mercy of popular support, dare to rehearse the same widely detested ideas at maximum volume every chance he gets? Because repetition makes the heart grow fonder?
I'm not saying Paul Ryan's playing 11-dimensional chess here. I'm saying that either Paul Ryan and his House colleagues, blinded by ideology, are wreaking havoc on their party's prospects, or they aren't, and they're not. I can't tell which it is.
(Photo credit: AFP)
"IT WOULD be irresponsible not to do everything we can to save lives." That is just one line from Michael Bloomberg's defence of his policy limiting the size of sugary drinks in New York City. But it is the nanny state in a nutshell. Mr Bloomberg's policy was struck down by a judge on March 11th.
There are good arguments for and against aggressive public policy to stop obesity. But I get nervous when I hear, "It would be irresponsible not to do everything we can to save lives." This is the same logic that inspired fears of a broccoli-eating mandate in the opponents of Obamacare. By this logic, locking people in a padded room with healthy food is okay, the better to keep them away from accidents and crime. In that padded room, you could force people onto exercise bikes. Remember, it would be irresponsible not to do everything we can to save lives.
I know Mr Bloomberg didn't mean that literally, but it's a strong statement that is at odds with the basic principle of liberalism (in the European, John Stuart Mill sense that The Economist espouses): the notion that people should be left alone unless there's an excellent reason for not leaving them alone. I'd have preferred to see Mr Bloomberg say that this was a carefully and narrowly tailored choice that was worth the intrusion into private commerce, given the huge consequences of obesity. Instead, he rhetorically flogged the "special interests" behind sugary drinks and promised to appeal the judge's ruling.
However this goes forward, I hope Mr Bloomberg remembers that even in lefty New York, there are a lot of people who are uncomfortable with government action in principle, especially when it interrupts private decision-making. From a man who owns a financial-information business, I'd rather hear the careful language of cost-benefit thinking, rather than the absolutist language of "It would be irresponsible not to do everything we can." There are some things we can do, but shouldn't.
(Photo credit: AFP)
YESTERDAY morning Jeb Bush likened David Gregory to a crack addict when the "Meet the Press" anchor asked the former Florida governor whether he or Marco Rubio was more likely to find themselves elected president in 2016. "You really are obsessed with all this politics," he chuckled, half-generously, half-scornfully. But Mr Bush himself had rather a lot to say about politics when I saw him speak at the Ronald Reagan library in Simi Valley, southern California, on Friday.
Although he was there to promote his new immigration tome, Mr Bush did not restrict himself to discussion of America's broken immigration system. He had loftier themes in mind. He framed America's predicament as one of sluggish economic growth and declining social mobility, compounded by a politics of fruitless rancour. For America's economic performance to match Germany's (a comparison he made more than once), Mr Bush argued for three things: a "patriotic" energy policy, meaning a slightly qualified yes to fracking, a hearty yes to the Keystone pipeline, and more drilling on federal land; a reformed immigration system, ensuring that America's declining birth rate does not spell demographic doom; and improvements to schools, an issue on which Mr Bush provided little detail other than touting a scheme he instigated in Florida to provide letter grades to all public schools.
Lamenting the poisonous atmosphere in Washington, DC, Mr Bush praised previous occupants of the White House, from the arm-twisting LBJ to the resolutely pragmatic Reagan, for their abilities to get things done. (He spoke with particular passion about the enlightened self-restraint exercised by his father when the Berlin Wall came down.) Such leadership is sadly absent today, he said; although he did have kind words for Barack Obama's decision to take a group of Republican senators out for dinner.
It was a spirited and impressive performance. Mr Bush commands a stage better than either his brother or his father, during their respective heydays, and it is not difficult to imagine him orating in front of the presidential seal. Admittedly, he was on home turf; he flattered his audience with regular references to Reagan (and himself by suggesting that his prescriptions were those the Gipper would have followed were he alive today). The mainly white, graying crowd lapped the whole thing up—in the Q&A one elderly woman rose to ask Mr Bush simply, "Are you going to save us?"—but they reserved perhaps their warmest response for his call for a greater focus on civics in schools to ensure social cohesion.
This audience, in other words, was hardly representative of the sort of centrist voter Mr Bush will have to win over if he is to secure the White House for the Republicans in 2016. But to do that he will also have to fight his way through a round of primaries, and it was refreshing to see a solidly conservative audience shower applause on a man who had issued plaintive pleas for bipartisan policymaking and who had rather harsher words for his own party than for their opponents.
Mr Bush will not, of course, show his hand this far out from 2016. But in its wide-ranging nature his speech, and his decision to appear on a full house of Sunday talk shows, suggests that this is a man who does not consider his political ambitions over. Speaking of his son, George P. Bush, who is embarking on his own political career in Texas, he ominously noted that "something compels a Bush to run for office generation after generation" before issuing a shout-out to his 18-month-old grandaughter (named, of course, Georgia).
The political stars have aligned for Mr Bush, up to a point. After tanking among Latino voters in November, the Republicans are executing a drastic handbrake turn on immigration policy that leaves Mr Bush well placed to take advantage. His absence from the political stage since 2007 means no Republican excesses, of rhetoric or policy, since then need stick to him. As endless political gridlock turns Washington into a theatre of the absurd, Mr Bush's calls for bipartisanship will resonate. Only his calls for growth over austerity seem to place him outside the mood of his party, if not the country.
On immigration, although the rapid shift in Republican thinking has recently forced Mr Bush into an ungainly flip-flop, his personal and political credibility on the issue should keep him at the heart of the debate. At the Reagan library, although he framed his argument for reform in economic terms, he showed where his heart lies when he declared himself delighted that his "Iraqi-Canadian-Texan-Mexican-American granddaughter" would struggle to fill out a census form. She may be a "leading indicator" of where the country is headed, he said.
Some in Mr Bush's party may still need a bit of convincing, but they are moving in the right direction. And he is slowly accruing fans. The Republican hipster (Williamsburg beard, called me "bro", sported a double-breasted suit) who served me in the library's gift shop told me that whenever business was slow he tried to squeeze in a few more pages of Mr Bush's book; he found it utterly compelling.
(Photo credit: AFP)
TYLER COWEN has a very interesting post explaining that he agrees in principle with more liberal economic commentators on increasing infrastructure spending and running loose monetary policy, but finds it hard to agree in conversation because he thinks their framing of the issues is wrong. Substantively, he thinks the important issue on infrastructure isn't more, but better; he doesn't see why it takes so long to get things done in America, he thinks dollars are allocated inefficiently, and he wouldn't link infrastructure spending to unemployment. On monetary policy, he agrees that the European Central Bank (ECB) should be running a looser one, but thinks the key lies not in ideological errors on the part of European policymakers but rather political pressure from rent-seeking European interest groups. Briefly, I'm interested in his point on the first issue, but am pretty sure he's wrong on the second one.
Mr Cowen is right that infrastructure in America takes far too long to build and costs much too much.
We just spent a huge chunk through ARRA and couldn’t even clear up the backlogs at LaGuardia and Kennedy airports, the major gateways to America’s #1 city. We don’t seem able to build up nuclear power as significant protection against climate change. High-speed rail doesn’t seem like a good investment in the places where it is going through.
One can favor more infrastructure without thinking that “the point” is simply to demand and then get more spending. “The point,” in my view, is to improve the quality of our decision-making and our processes of implementation.
He'll find a lot of agreement across the political spectrum on these points. Everyone is frustrated that subway-building in New York City is so much more expensive than in London or Paris, and that overruns, lawsuits and bureaucracy are starting to threaten the viability of the high-speed rail plan for California. The environmentalists-for-nuclear-power community is rather smaller, but it exists. There could be a right-left deal on curtailing some of the regulation and property-rights litigation that stymies American infrastructure projects.
On the question of quality v quantity, however, the counter-argument is that the poor quality of decision-making is often driven precisely by ideological conflict over whether the government is spending too much money. For example, it is simply bizarre that America is allowing existing road and port infrastructure in heavily populated areas to fall into disrepair at a time of negative real bond yields. It is absurd to argue that America lacks the capacity to maintain the road network in western Massachusetts to the standards of 1993; the only possible reason why those roads are deteriorating is ideological conflict over the appropriate total level of government spending. As for large-scale new projects, possibly the single greatest recent infrastructure-planning disaster in America was the 2010 decision by Chris Christie, the Republican governor of New Jersey, to cancel a long-planned rail tunnel project under New York's harbour in order to use the funds to avoid raising New Jersey's gas tax. Planning these kinds of projects between multiple authorities takes decades; blowing them up for short-term political gain is inexcusable.
In the case of high-speed rail, meanwhile, the decision-making process has run roughly as follows: 1. America needs more high-speed rail. 2. Identify a bunch of proposals that could make sense and offer federal funds. 3. Whoops, some of the projects aren't politically viable because Republican governors are ideologically opposed to high-speed rail. 4. The regions that do have political support will be those whose projects survive, even if the economic case isn't as strong. Under these circumstances, it's not surprising that those who agree with the original proposition "America needs more high-speed rail" end up supporting the California project even though they'd rather support high-speed rail in Florida. (Or true high-speed rail between Boston and Washington, which is non-viable due to property-law hurdles, but that's another story.) In short, I think Mr Cowen has a strong case on the infrastructure issue but exaggerates the extent to which political issues could ever be disentangled from technocratic ones.
The second broad issue in Mr Cowen's post is about whether the ECB should loosen monetary policy. This is now a proxy battle in America's commentariat's war between conservative austerians and liberal Keynesians, but Mr Cowen wishes it weren't.
I prefer to start by understanding the roots of poor ECB policy. I don’t ascribe it to bad macroeconomic theory, for the most part... I ascribe it to the desires of European voters, most of all in the wealthier northern countries. Very often they have protected professional and service sector jobs and a privileged insider status, for both private sector and public sector reasons. Four to six percent inflation, to them, means something close to a four to six percent real wage cut. They won’t be able to renegotiate their way back to the previous real wage because deep down they sense—correctly—that today we live in a different world. So they hate inflation and prefer to hold on to their insider rents.
So much of eurozone economic policy, and indeed the entire underlying structure of EU interest groups, is based on the desire to protect inside workers from possible real wage cuts.
In the Netherlands, at least, this description gets a lot wrong. Only one Dutch political party has explicitly advocated looser ECB monetary policy: the far-left Socialists, who are also the party with the strongest grass-roots connections to the labour unions. The Socialists briefly looked poised to win elections last summer, and their subsequent decline in the polls was in part linked to attacks from every other party, right and left, for promising a "money tree". While all other parties voice support for "stable" anti-inflationary monetary policy, some of the most vehement rhetoric comes from the parties most identified with classically-liberal free-market economic policies, ie the governing Liberals and the left-liberal opposition D66 party. These parties' defence of tight money is not prompted by a desire to protect rents for existing "inside workers", since both want to weaken employment protection. Indeed, the parliamentary leader of the Liberals is explicitly telling Dutch voters to get used to the idea of lower living standards. Meanwhile within the left-centre Labour party, which forms the other half of the coalition government, the strongest voices for anti-inflationary monetary policy are those who belong to the centrist liberal branch of the party, such as Jeroen Dijsselbloem, the finance minister. It is the more "old-fashioned" segments of the party, who retain strong links to the labour unions, that are more open to arguments from the left for loose monetary policy.
Dutch citizens do not recognise themselves as supporting tight monetary policy because they want to protect the insider rents of current workers and pensioners against inflation. Mr Cowen is making a sort of Marxist argument that their convictions are actually determined by their class interests, even though they don't realise it. But the political alignments don't bear that thesis out very well. The preference for keeping low inflation as the sole goal of monetary policy is shared across all classes of the Dutch electorate, with the exception of a few free-thinkers such as Socialist politicians and economists at major banks. Indeed, Mr Cowen's argument here is a bit strange. It is, after all, the board of the ECB that sets euro-zone monetary policy. Mr Cowen's argument is that they are more strongly influenced by the political preferences of pensioners and workers with protected contracts than they are by their economic convictions. That claim seems a bit far-fetched. In this case it is simpler and more accurate to say that the ECB's monetary policies reflect the dominant, explicit intellectual consensus of the northern European policymaking elite. And, by extension, that Americans like Mr Cowen and Paul Krugman who think monetary policy should be looser oppose that consensus.
THE perennial debate about religion and politics in America has a new point of reference: a bill passed a few weeks ago by a bipartisan majority in the House of Representatives to permit the allocation of federal disaster relief money for the reconstruction of houses of worship damaged last fall during Hurricane Sandy. The bill is vigorously opposed by the Federal Emergency Management Agency (FEMA), the organisation that distributes relief funds. The editorial board of the New York Times is against the proposed change, as is the American Civil Liberties Union. (The Anti-Defamation League initially objected to the bill, but has backtracked.) Opponents are worried that the move will breach the constitutional “wall of separation” between church and state—a metaphorical partition introduced to American jurisprudence by Thomas Jefferson in his 1802 letter to the Danbury Baptists.
The dual religion clauses of the first amendment trace a tricky path for public policy. The Establishment Clause prevents the government from being too friendly toward religion: no endorsement of religious doctrines, no favouring specific faiths or religion over non-religion, no excessive entanglement between state institutions and religious organisations. The Free Exercise Clause, meanwhile, prohibits the state from obstructing religious practice, discriminating against religious organisations or showing hostility toward them. As the dispute over FEMA funds illustrates, the conduit of neutrality through these hazards can be quite narrow.
The ACLU critique of the House bill is predictable but oddly tepid:
FEMA's policy not only ensures that FEMA grants are used to rebuild facilities that provide the most critical services to the entire community, but also reflects an important constitutional principle. Religious liberty is one of our nation's most fundamental values and it starts from the precept that religion and religious institutions thrive when both religion and government are safeguarded from the undue influences of the other....longstanding precedent holds that taxpayer funds cannot go to construct or rebuild buildings used primarily for religious activities.
Platitudes aside, what actual harm to the constitutional order would ensue if FEMA helped to rebuild devastated houses of worship? Doesn’t it seem discriminatory to repair zoos and museums with federal funds while devastated synagogues rot? The ACLU anticipates this charge:
This principle is not discriminatory or hostile to religion. Rather, as James Madison forcefully argued centuries ago, and is equally valid today, it is one of the most fundamental ways we have to protect and defend religious liberty for all. It protects the conscience of each of us, ensuring that no taxpayer is required to fund a religious institution with tenets he or she may not believe in.
Admittedly, there is something to the complaint. It does seem odd to imagine woodcarvers crafting an ark for a synagogue and then cashing a cheque from the federal government. If the Senate passes the bill and the president signs it, taxpayer funds will flow right into the bricks and mortar of houses of worship. But is that a “dangerous precedent”, as the ACLU argues? If you buy the argument in James Madison’s famous “Memorial and Remonstrance” (1785) that forcing a citizen to “contribute three pence” in taxes to a religious organisation will grease a slippery slope toward full ecclesiastical establishment and the decimation of religious freedom, you’ll side with the ACLU. But on inspection, the claim lacks plausbility. There is no logic linking emergency aid to rebuild destroyed churches, mosques and synagogues with a plan to strategically fund other houses of worship in the future, just as supplying FEMA funds to repair a damaged zoo entails no commitment on the part of the federal government to build new zoos years down the line.
In an advisory letter to Congress defending the expansion of FEMA aid to religious institutions, the Becket Fund for Religious Liberty points out a 2009 Sixth Circuit case in which government funds used to renovate religious buildings were found to be within first-amendment bounds:
The court noted that long-standing Supreme Court precedent allowed “churches, synagogues, and mosques” to receive “generally available benefits” like “police and fire-protection services” and access to “sewers and sidewalks.” The court reasoned that “[i]f a city may save the exterior of a church from a fire,” it could certainly provide equal access to government funds that “help that same church with peeling paint.” That conclusion is all the more true here, where the problem the government seeks to remedy is not peeling paint but complete devastation.
Consider the context. The damaged synagogue in Rockaway, Queens and the devastated church in Bay Head, New Jersey will not be built from scratch. These are not new institutions that will court fresh flocks of congregants. The construction contracts will not be motivated by a desire to inculcate religious values or to promote any particular religion, or religion at all. The idea is to help bring non-profits, including houses of worship, back to the status quo ex ante: the rough shape they were in before the winds and the water of Superstorm Sandy wreaked their havoc. It is hard to see how this assistance foretells the demise of religious liberty in America.
(Photo credit: AFP)
THE Senate has spent the past couple of days demanding clear explanations from Eric Holder, the attorney general, of when he thinks America's government is justified in using lethal force on American soil. That's all to the good. The American security state has expanded to an unconscionable degree over the course of the war on terror, and it's great that liberty-minded Republicans are starting to consider this cause for real concern. On Wednesday, Rand Paul, a Republican senator from Kentucky, commenced an old-fashioned barnstormin' country-style talking filibuster of Barack Obama's nominee for CIA director, John Brennan, in protest over the administration's policies on the use of drones. That's also all to the good. American drones are being used to kill suspected terrorists in entirely too cavalier a fashion, killing at a minimum hundreds of innocent civilians, and the administration's procedures for deciding when to authorise drone strikes are opaque and lack due process.
What's a little stranger, though, is the way these two issues are being conflated. As Adam Serwer writes, both Mr Paul and Ted Cruz, a Republican senator from Texas, have been pressing the administration on when or whether drones might be used to kill American citizens on American soil. Mr Paul's initial demand before allowing a vote on Mr Brennan was for an administration explanation of its views on such strikes. In his filibuster he vowed to "speak as long as it takes, until the alarm is sounded from coast to coast that our constitution is important, that your rights to trial by jury are precious, that no American should be killed by a drone on American soil without first being charged with a crime, without first being found to be guilty by a court." And in hearings Wednesday, Mr Cruz demanded that Mr Holder say whether he believed the military could kill a citizen who did not pose an imminent terrorist threat:
Senator Ted Cruz, Republican of Texas, suggested a hypothetical situation in which a terrorism suspect was not presenting an immediate threat—like “sitting in a cafe” rather than “pointing a bazooka at the Pentagon”—and asked whether it would be unconstitutional for the military to simply kill that citizen.
Mr. Holder repeatedly said that it would not be appropriate to use lethal force rather than arresting the suspect, but Mr. Cruz said he was asking a “simple question” about its constitutionality, not its propriety. Finally, Mr. Holder said: “Translate my ‘appropriate’ to ‘no.’ I thought I was saying ‘no.’ All right? ‘No.'”
This is a red herring. Americans don't need to worry that the government is going to kill them with drones, whether they're sitting at a cafe or anywhere else, for precisely the reason Mr Holder articulates: inside America, the American government is capable of arresting people, jailing them, and bringing them to trial. The entire reason why drones exist is precisely that America is now carrying out police operations in areas of the world where it can't arrest people, both for legal reasons and more importantly for strategic ones. American forces do not control the territory in Afghanistan, much less Yemen or Pakistan's northwest territories. Even when we had 110,000 troops in Afghanistan, we did not have effective tactical control of most of the country's territory, most of the time. Indeed, nobody did. Drones are, in a sense, a weapon of weakness; they're an acknowledgement that we have given up trying to pacify the countries where terrorist organisations are based, to "drain the swamp" as counter-insurgency parlance has it. We kill suspected terrorists with drones because we lack the capability to arrest them.
The "drone killings on American soil" meme seems to me like a mirror image of the "terrorist assassinations on American soil" meme that seized the American imagination in the aftermath of the September 11th attacks. In TV shows like "24", "NCIS" and "Sleeper Cell", and even now in "Homeland", the background assumption is that Islamic extremist terrorist groups are operating kill teams in America that may do things like shooting specific government agents or blowing up military installations as part of a complex and well-thought-out strategy of terror. This, of course, is not even close to true; it should have been clear by 2003 or so that there were no terrorist cells operating on American soil and no pinpoint attacks were ever going to happen. Terrorism, where it occurred (overwhelmingly outside the US), would continue to be sporadic, semi-coherent and targeted at strangers. But the American vision of the enemy demanded something different: a calculating terrorist mastermind, a secret organisation with startling capabilities, an evil with intent.
The fixation on domestic drone strikes is similar. For Americans to get exercised about government abuse of power, the victims have to be Americans in America, and it's not enough to picture the lumbering behemoth of cloddish national-security organisations damaging people's lives for reasons of venality or bureaucratic inertia. We need to imagine a ruthless, deliberate conspiracy, and the crime has to be murder. This distracts us from, as Sinead O'Connor would put it, fighting the real evil. The real domestic victims of our growing police state are namesakes condemned to eternal no-fly lists and whistleblowers subjected to techniques of psychic disintegration. The victims of drone strikes are mainly residents of Afghanistan, Pakistan, Yemen and Somalia. There are unlikely to be any victims of drone strikes in America, but we shouldn't let that distract us from fighting the steady encroachment of the anti-terrorist security state, here and abroad.
(Photo credit: AFP)
WHEN Jim DeMint resigned his senate seat to head the Heritage Foundation, a conservative think-tank, Nikki Haley, South Carolina’s governor, appointed Tim Scott to take his place. That left Mr Scott’s congressional seat vacant. Political hopefuls in the state’s first district reacted much like a pack of hyenas would to a porterhouse steak: 18 candidates—16 Republicans and two Democrats—applied.
The field is heavy on celebrity connections: among the candidates are Elizabeth Colbert-Busch, the older sister of Stephen Colbert, a satirist and TV-show host; Teddy Turner, the son of Ted Turner, a media mogul; and Mark Sanford, a former governor of South Carolina and three-term congressman from the first district best known for a personal scandal that made “hiking the Appalachian trail” an American euphemism for committing adultery (in 2009, when then-Governor Sanford’s whereabouts were unknown a spokesman told reporters that’s what he was doing when in fact he was visiting his mistress in Argentina). Mr Sanford’s ex-wife Jenny was also rumoured to be interested in the seat, but in a crushing disappointment to political journalists, she declined.
But it also serves as an early field test of Republican efforts at rebranding. After Mitt Romney’s loss to Barack Obama in last autumn’s presidential election, prominent Republicans have taken to telling their party that (and the suggestions have been heavy on “that” and light on precisely “how”) it must change. Bobby Jindal, Louisiana’s governor and a presumptive candidate for president in 2016, said Republicans needed to “stop being the stupid party” and start “talk[ing] like adults.” Paul Ryan, the Republican nominee for vice-president and also a presumptive candidate in the next presidential election, urged Republicans to stop dividing Americans “into ‘our voters’ and ‘their voters’”. This week Jeb Bush, a former governor of Florida and another possible presidential candidate (and a notable exception to “that” not “how”), released a book urging Republicans to moderate their stance on immigration.
At last Monday evening’s monthly meeting of South Carolina’s Greater Bluffton Republican Club, four of the candidates showed up. One seemed to have heeded the rebranding message. Jonathan Hoffman, a law professor and military prosecutor who worked in George W. Bush's White House, said that Republicans need to “stop vilifying the opponents” and “stop telling people how to live,” and instead focus on providing opportunities for everyone to live as they choose. He, however, was the exception.
Mr Turner complained about having “liberal, outspoken enemies of the Constitution” on the Supreme Court, and in answer to a question about compromising with Democrats, said he wanted to “reach across the aisle, head-butt them and say ‘Let’s go’.” Andy Patrick, a state representative, won perhaps the loudest applause of the night when he advocated eliminating the Department of Education. And Ray Nash, a former sheriff, told the crowd that “every time Congress passes a new law one of your freedoms is taken away”.
The only sign of Mr Sanford was a pile of flyers: his fame (or infamy) means he need not work so hard to introduce himself to the district's voters. The primary takes place on March 19th; most expect Mr Sanford to get the most votes, though if he fails to take a majority he will find himself in a run-off. In that case, anti-Sanford votes could coalesce around a candidate farther to the right. The district remains solidly but not overwhelmingly conservative; whoever wins the Republican primary remains likely to win the general election. But the last thing Congress and the Republican brand need now is yet another congressman who hears compromise and thinks head-butt.
AS COLORADO grapples with the logistics of legalising marijuana, lessons are being drawn from the medical-marijuana industry
ACCORDING to political scientists, Americans tend to think that the grass is always greener on the other side of the aisle. Going back at least to Eisenhower, American attitudes about economic policy have become more conservative under Democratic presidents and more liberal under Republican presidents. Consider what has happened during Barack Obama's presidency. Just a few years ago there was a great deal of support for government programmes, but since Mr Obama took office, that support has dropped dramatically.
In this sense, American opinion acts like a thermostat. "When government spending and activism increases, the public says 'too hot' and demands less," explains John Sides, a professor at George Washington University. "When spending and activism decreases, the public says 'too cold' and demands more." Popular opinion constantly pressures political actors to move toward the centre of the electorate.
By most measures Mr Obama's positions have been rather moderate, but he is still more liberal than the American public as a whole. For the past two decades Americans have been almost twice as likely to describe themselves as conservative than as liberal. Take the current debate over fiscal policy. The argument is over whether to cut spending and increase taxes. The conservative idea that spending must be cut is taken for granted, even though government spending is already lower in America than in most advanced economies.
If what seems like the centre in Washington has moved to the right, that probably has more to do with the increasing conservatism of the Republican Party than with any fundamental change in the electorate. Polls show that the public generally favours the Democratic Party's platform, which shouldn't be surprising considering the Democrats' broad victory in the recent election.
Political analysts often conclude that decisive elections represent a permanent realignment of the electorate. And as America becomes less white, less religious and less rural, the political balance of power may indeed be shifting to a degree. But there’s little evidence that recent changes in attitude represent any kind of long-term trend. Americans may be in a liberal mood now, but the pendulum has already begun to swing back in the other direction.
This is why it's hard for one political party to hold on to the presidency for 12 years in a row. That has happened only once since 1952, when the elder George Bush succeeded Ronald Reagan in 1988. It could happen again in 2016, if the Democrats field a strong candidate. Like Reagan, Mr Obama entered office with strong ideological support. The next Democratic nominee will hope to hang onto enough of that support to win as the electorate moves back to the right.
For its part, the Republican Party will probably have to make its platform appeal to a more diverse electorate if it is going to win back the presidency. But its basic governing philosophy is going to return to favour sooner than most people realise. And in a few years the chances are good that we will be talking about the Republican Party’s surprising resurgence.
WITH Republican control of state government now firmly consolidated, Mississippi is poised for wholesale education reform. In his state-of-the-state address in January, Governor Phil Bryant proposed a robust, if rather familiar, basket of reforms: expansion of the state’s current (and highly restrictive) charter-school laws, merit pay for teachers, and higher standards for teacher training. More controversially, Mr Bryant proposed allowing students to enroll in schools outside of the district in which they live (so-called open enrollment), as well as privately-funded scholarships for students to attend private schools. With the exception of these last, the proposals have been enthusiastically embraced by the state legislature.
The question is whether they will work. Some charter schools have proven successful and the much-touted KIPP programme has produced marked improvement in test scores for low-income children. The worst fears of sceptics (that charter schools would siphon better teachers and better prepared students away from traditional public schools; that the result would intensify economic and ethnic segregation) have not been realised. But taken as a whole, school choice has failed to produce across-the-board improvements in student learning.
So why does school choice retain such widespread, and fairly bipartisan, support? One reason is that charter schools are more cost effective than public schools: that is, they produce about the same results for less. That helps state governments deal with harsh budget environments. But it also undermines the effectiveness of the schools themselves. Charter schools are often funded at lower levels than traditional public schools, they hire younger, less qualified, and less experienced teachers, and they suffer from much higher turnover rates.
Under these conditions, charter-school performance is impressive, but points to a failing in the original conception of school choice. Milton Friedman, the Nobel-winning economist, sought to limit the role of government and introduce market-based reforms to the public-school system. By increasing the choices of parents, Friedman no doubt expected to see improvements in outcomes. But his focus was on how education is administered and financed, not on how it is delivered. And the basic fact about all education is that it is teachers who teach.
The gap in Friedman’s thinking (he did not claim expertise in education) has been filled with a woeful misconception: that innovation and creativity are the product of fear and insecurity. Education reformers attend to the discipline of the market, imposed by school choice, and the necessity of firing failing teachers and closing failing schools. While this makes sense, market mechanisms tell us only what worked—we have to dig deeper to find out why or how.
In the business world, we look at how companies innovate to meet the preferences of consumers. The following quote, describing innovation at Apple, is suggestive:
The designers at Apple are paid 50% more than their counterparts at other organizations. These designers aren’t working at Apple simply because they’re paid more. They stay at Apple because of the amazing things they get to do there. Rewards are about salary and benefits, but they are also about recognition and being able to do satisfying work that challenges the mind and allows the creative muscles to stretch.
Designers at Apple are held to high standards. Certainly school teachers should be too. But education reformers would do well to consider how Apple treats its innovative designers (the treatment of factory workers is another matter): higher salaries and benefits, recognition, a degree of self-direction, and active engagement in creative, challenging work.
Turnover in charter schools represents, partly, a failure to attract and retain more experienced and qualified teachers (one study found a close association with low unionisation). Such teachers prefer the higher salary and greater job security traditional public schools and unions provide, even though their ability to innovate is severely hampered by administrative oversight and the demands of testing. School choice, therefore, provides the mechanisms for rewarding innovation, but without the conditions for fostering it.
We desperately need a broad conversation about the purpose of education in American society, about how to judge desired outcomes, and about how to administer and finance schools. But producing more creative and innovative teaching requires improving the profession of teaching itself.
MATTHEW YGLESIAS has a counterintuitive take that the sequester is good policy for liberals, because most of the cuts are to defence spending, which is so grossly overdeveloped at this point that its top layer is, to a first approximation, completely useless.
Long story short, if you're a defense dove like me and have a nonutopian view of the domestic discretionary budget, then this looks like we're mostly talking about harmless spending cuts. It is very true that the current moment is not an optimal time to cut wasteful government spending. Given the high unemployment rate, the low and stable inflation rate, the low cost of federal borrowing, and the weird dynamics of "Evans Rule" monetary policy, I would say that 2013 is an excellent time for the federal government to waste some money on make-work military contracting gigs. But in the grand scheme of things, wasting resources on low-value programs is not a great idea, and there's more to life than timing.
A counter-counterintuitive take on this would start from that last interesting sentence. Is there actually more to life than timing? What if there isn't?
Put it this way: what's uniquely bad about the cuts in the sequester? What's bad about them, as Josh Barro writes, is that, because they fall abruptly and without logic, they destroy people's plans for the future. Scientists who've just completed PhDs in research-oriented disciplines on the basis of expectations about reasonably predictable levels of funding for those fields discover there'll be nothing for them to do with their degrees. People who've moved back to their homes after hurricanes, thinking they can restart their businesses, find they can't because there's no money to repair the bridges since FEMA funding was cut. The Pentagon suddenly has to figure out how to cut a fixed percentage out of every individual procurement contract, which is going to mean a lot of bizarre, fundamentally senseless last-minute craziness. And so forth. Most economic disappointments can be coped with, given time and a reasonable degree of predictability. But arbitrary cuts that fall suddenly give people no chance to adjust.
To stretch the point, there's a reason why hipster local labour exchanges use the unit of "hours" as currency, a move that actually goes back to Robert Owen's National Equitable Labour Exchange in the 1830s, and why sci-fi plots like that of "Time Out" envisage the possibility of substituting time for money entirely. Or why Taylorism was seen as the apotheosis of the industrial revolution, and why "just-in-time" delivery is such a big deal in modern manufacturing. At some level raising productivity is nothing more or less than improved timing. Time is the one resource of which we have an absolutely finite amount, and people who suddenly and unpredictably break promises, undo plans, and scramble schedules are screwing up our lives in the most fundamental way possible: they are wasting our time.
This doesn't entirely bear on what Mr Yglesias was saying; he was just saying that if you want big defence cuts, the sequester delivers that, even though this may not be the best time for those cuts to happen in view of the weak economy. But I think it's useful to be reminded of why cutting in an abrupt, arbitrary fashion is so much worse than cutting in a planned fashion. Life is about using your time well. Chaos is the enemy.
MOST of the fiscal skirmishes in Washington over the past two years have ended in a last-minute reprieve. Not this time: the sequester, cuts of $1.2 trillion to various parts of the federal budget over the next ten years, including $85 billion by October, has gone into effect. Indeed, Barack Obama and his Republican adversaries in Congress scarcely seemed to try to find a way out. Neither the Senate nor the House of Representatives has passed any measure to undo the sequester in this Congress (two bills to that end ran aground in the Senate this week). Mr Obama, meanwhile, did not even summon the leaders of Congress to the White House to discuss the issue until the day the sequester took effect. The meeting lasted less than an hour.
The sequester has been on the cards since August 2011. Back then, the near-universal assumption was that it would never be invoked. It was seen as a sort of metaphor, the legislative expression of Republicans’ and Democrats’ shared desire to rein in the deficit, but complete disagreement over how to do it. Like most metaphors, it was only supposed to be taken so far.
Indeed, Congress gave itself several chances to renege. First, there was the “supercommittee”, a crack squad of senior senators and representatives from both parties, charged with finding a substitute, and endowed with special procedure-busting powers to ensure it went to a vote. It, too, was a metaphor of a sort, a reflection of the view that it was petty parliamentary posturing, rather than deep-seated philosophical differences, that was preventing a breakthrough. Alas, procedure, it turned out, was not the root of the problem: the supercommittee could not even agree on a plan, let alone get Congress to approve it.
In private, most congressmen had always been sceptical. After all, the two sides had already been served up exactly the sort of bipartisan deficit-reduction plan the supercommittee was designed to reach, by an even-handed presidential commission, only to turn up their noses. Instead, politicians saw last year’s elections as the way out of the sequester. Let the public decide whether it was keener on higher taxes, as the Democrats proposed, or on the big spending cuts the Republicans advocated.
That, too, proved a vain hope. The voters, unhelpfully, plumped for the status quo, with Democrats still in charge of the presidency and the Senate, and Republicans running the House of Representatives. Even if one side had done a bit better, it was always naïve to imagine that either party would end up with unfettered control of both halves of Congress and the White House. Voters had tried that in 2008, after all, and swiftly regretted it.
Even after the inconclusive election, however, there was one more failsafe intended to avert the activation of the sequester: the barminess of its design. The two most obvious ways to restore the country’s fiscal health were deliberately excluded, because Democrats do not like one (cuts to government-funded health care and pensions) and Republicans do not like the other (higher taxes). So instead, the axe is falling on areas which are not really the problem in the first place, and are already being cut: defence spending and other “discretionary” programmes, meaning everything else the government does. Worse, because no one expected the cuts to take place, they were not spelt out in any detail; instead, the affected programmes are simply cut across-the-board, with a few exceptions.
All this did seem foolhardy enough that Congress delayed the start of the sequester by two months in January, to March 1st. But in the intervening time, no magic formula has been found to overcome Washington’s partisan divisions. Another fiscal deadline is looming, on March 27th, when the government’s authority to pay for anything “discretionary” runs out. Both sides seem to have decided to roll the haggling about the sequester into the broader negotiations over the budget.
The consequences of not reaching a deal then—the suspension of all but the most urgent functions of government—are dire enough that some kind of short-term substitute will probably be found. Some observers predict that the unfolding of the sequester over the next three weeks will prove decisive. Either it will cause widespread misery and outrage, forcing the Republicans to accept the president’s demand for tax increases, or it won’t, vindicating the Republican contention that there’s plenty of fiscal fat still to be cut. Don’t count on it. Over the past two years America’s politicians seem to be reconciling themselves to nibbling away at the deficit in fits and starts. There will not be a grand bargain, to use another metaphor popular in Washington, but plenty more petty bargaining.
(Photo credit: AFP)
"THERE is probably no city that is more financially challenged in the entire United States." So says Rick Snyder, the Republican governor of Michigan, in reference to Detroit. Today Mr Snyder announced plans to have an emergency manager take over the city.
Detroit can appeal, but on March 12th the governor is likely to appoint a new boss who will supersede the city’s elected officials (their authority will be suspended). He will have the power to cut spending, alter labour contracts and sell city assets. This is nothing new for Michigan—five cities are already under state oversight. Detroit, though, would be the largest.
In his announcement Mr Snyder called for unity, but even before he spoke the city council said it would fight the decision. Legal challenges are likely. John Pottow, a law professor at the University of Michigan, predicts a "shit storm of litigation" if a manager is appointed.
Delaying the city's restructuring will only cause more pain. The city’s financials are morbidly compelling reading. Its general fund has not been in the black at the end of a fiscal year since 2004. The city relies on debt to pay for day-to-day operations. Without those loans, Detroit's deficit would have been almost $1 billion in 2012. Long-term liabilities add up to around $14 billion. (See our report for more dreary details.)
If an emergency manager cannot restructure the city—bringing creditors to the table and renegotiating payments—a messy and unpredictable bankruptcy is inevitable. It would be the largest municipal bankruptcy in American history. The governor would like to see the city avoid that fate. But if the state steps in, the battles being waged in the city are more likely to be re-directed than halted.
(Photo credit: AFP)