The Great Debate

There are 25 reasons for Republican optimism in the wake of a disappointing November. Twenty-five is the number of states next year where Republicans will have unified control of the governor’s mansion and both chambers of the legislature. Up from the current 24.

The significance of this is already clear in Michigan — where state lawmakers are seeking to make it the nation’s 24th right-to-work state.

Governor Rick Snyder announced Tuesday that right-to-work will be on the docket during the Michigan legislature’s lame duck session this month.

This underscores that the states are where the most significant policy reforms will likely take place over the next two years. Exhibit A is Michigan, which President Barack Obama won by 9 points — despite its being the home state of GOP nominee Mitt Romney. This state is now on the cusp of enacting a labor law reform that the White House and its allies vehemently oppose.

Right-to-work laws give workers freedom from being forced to join a union and pay dues. Prior to the 1947 Taft-Hartley Act, which permitted states to pass right-to-work laws, all American workers could be coerced into joining a union as a condition of obtaining and maintaining employment.

The election left us with a status quo political lineup, one that failed to make any meaningful fiscal progress over the past two years. So is it realistic to expect that we can avoid the fiscal cliff and achieve some sort of “grand bargain”? Yes, it is possible, and here is how to do it:

First, President Barack Obama should form a “unity Cabinet” to demonstrate to the public and Congress that he wants to bring the nation together and accelerate progress on key challenges. It should include Democrats, Republicans and independents. All should be respected in both parties, have meaningful private-sector experience and credibility within and outside the Washington Beltway.

These criteria are especially critical when it comes to the president’s top economic team. Obama will almost certainly change the leadership at the Treasury Department, since Treasury Secretary Timothy Geithner has talked about leaving after the first term, and the Office of Management and Budget. Smart appointments could help reboot Obama’s relationships with Congress and increase the chance of success.

I buy none of the post-election, prime-time hokum that what decided the presidential race was the Latino vote, women’s issues, the next Supreme Court justices, the view from the fiscal cliff or how drones are winning the War on Terror. This presidential election was, as always, a contest between gold standardists and inflationists.

The victors were the forces of cheap money. William Jennings Bryan would be proud ‑ as would bimetalists and Weimar Republicans.

Inflation won because it is the panacea for all that ails the body politic: a short-term cure-all that promises economic growth, the possibility of paying off runaway national and international debts, new-found prosperity for the middle classes and liquidity for the impoverished, who otherwise would be voting in the streets with rocks and burning tires.

We can only hope the final presidential debate Monday provides less heat and more light than the previous two. Especially with regard to fiscal matters, the debates have so far not provided the substance and solutions that voters need and deserve to hear.

Our nation’s escalating deficits and debt represent the biggest threat to our national security, as I said in early 2007. Admiral Mike Mullen, former chairman of the Joint Chiefs of Staff, said much the same in 2010. So the topic of the third debate, foreign policy and national security, needs to include a frank discussion of fiscal issues.

For, as our economy weakens, so does our position in the world. It will eventually compromise both our national security and domestic tranquility if not effectively addressed. Both our allies and adversaries recognize this, and we need to take action.

No matter how artificial and canned the candidates can seem at a presidential debate, no matter how competent or ineffectual the moderator — the nominee’s true self will peak out at some point.

Thus did GOP presidential nominee Mitt Romney tip his hand when it comes to the all-important female vote — which both he and President Barack Obama have been scrambling after. He didn’t make a huge gaffe or get ensnared in a tough debate about choice. Moving around the stage, he seemed a 1950s throwback who had wandered in from a different decade — one where men were men, women wore shirtwaist dresses (Ann Romney’s uniform) and marriage was between a man and a woman.

Of course what drove this home was Romney’s anecdote about trying to find talented women for his staff when he was governor of Massachusetts from 2003-2007. He said he actually went to a number of women’s groups “and they brought us whole binders full of women.” Though he apparently flipped this story: The groups came to him unsolicited.

Mark Twain labeled the late 19th century the Gilded Age – its glittering surface masking the rot within. This term applies today for the same reasons: The rich get richer; most everyone else gets poorer. And the public thinks corruption rules.

New technologies similarly transformed the economy in that era and boosted productivity even as life for many Americans grew worse. Bloated tycoons? Desperate workers? A threatened middle class? Poverty amid the sweeping progress? Check, check, check and check.

But the silver lining of our current Gilded Age redux is that we left this stunning income inequality behind once. We can do it again. Americans eventually escaped the Gilded Age because they also made it a period of reform that ushered in the Progressive Era.

The September jobs report ignited a firestorm when Jack Welch, former General Electric chief executive officer and Reuters contributor, asserted (or implied, or wondered if) the unemployment rate had been politically doctored to give President Barack Obama an electoral advantage. After all, how can the unemployment rate drop a full 0.3 percentage points to 7.8 percent when the economy is creating only 114,000 jobs?

More on that later. First, let’s dismiss the notion that the integrity of the data-collection process was undermined. Anyone at all familiar with the production of federal economic statistics – at the Bureau of Labor Statistics, the Bureau of Economic Analysis, the Federal Reserve, or elsewhere – can appreciate the firewalls that exist between the professional collection, analysis and publication of economic data and the remainder of the agencies’ missions – especially their political appointees. It is unfathomable that these would be breached.

It is even more unfathomable that they would be breached without the career civil servants getting on the telephone to, say, Reuters and reporting the political manipulation within a nanosecond of it occurring. And still more unfathomable that such a breach would be initiated and covered up successfully, while only lowering the rate to 7.8 percent. Why not 6.8?

Tonight’s debate could be the most negative presidential debate ever. That’s because the best thing each candidate has going for him is negative opinion of the other guy.

This election was supposed to be a referendum on President Barack Obama. That’s what usually happens when an incumbent is running for re-election. Sometimes the incumbent is popular enough to win re-election (Ronald Reagan in 1984, Bill Clinton in 1996). Sometimes he’s not (Jimmy Carter in 1980, George H.W. Bush in 1992).

The biggest single factor determining the incumbent’s popularity is the economy: good in 1984 and 1996, terrible in 1980 and 1992. By that standard, Obama should be in deep trouble. That’s the big surprise this year. He’s not.

A familiar refrain that was popular in the early 1990s is making a comeback during the great recession of 2008-2009, which has rocked the economy and labor market for more than five years: Is it possible that the children of this generation will not be as well-off as their parents? The labor market has been hobbled. The duration of unemployment has reached unprecedented levels, and it is now the case that unemployed workers in certain age groups face the prospect of never being employed again. If all of this sounds grim (and it is), consider the possibility that this may be as good as it gets.

It is true that the depth of the recession and the current sluggish recovery are much different than anything we have seen since the Great Depression. But rather than look at the current recession in comparison with previous U.S. recessions, consider its comparison with Europe. The events in Europe that sent crippling shockwaves through much of the world might be of such a magnitude that the current speed of the recovery is fast enough. The current downturn is unusual because it was triggered by a large common shock, rather than the idiosyncratic components that usually put individual countries into a recession. We don’t have a lot of experience with such shocks, so it may be useful to look across countries to see how others have fared.

The U.S. economy accounts for about 22 percent of world GDP; the European Union is about 25 percent. The figure below from Europeansnapshot.com compares the 2008 recession and recovery in the U.S. with those in the major economies of Europe. First note that the size of the contraction was much steeper in Germany, the UK and Italy, whose economies fell roughly 6 percent from their peak. In the U.S. it was more like 4 percent. But note as well that the recovery in the U.S. has been steady compared with these countries. All except Germany appear to be headed back into recession.

However the U.S. presidential election turns out, the trifecta of the Bush tax cut expiration, the debt limit ceiling on the horizon once again, and the Congressionally mandated sequesters – cuts in domestic spending – will force the president and Congress to wrestle with fiscal issues either in a lame duck session after the election or in early 2013. The decisions they make will have profound impacts on America’s fiscal future.

For many observers, the central question on the table is about entitlement programs: What will be done with them? Growth in entitlement spending associated with our aging population and its rising health care costs is the major factor in overall federal spending growth. But the capacity of near-term policy changes to have large impacts on that spending is less than many would suppose. The rising ratio of retirees to workers means that Social Security benefits at current levels will not be sustainable without some kind of tax increase. Sooner or later, revenue will have to rise or else outlays will have to be curtailed. While it is surely better to act sooner, the reality is that, out of necessity, action on entitlements is inevitable.

While almost everyone agrees on the desirability of containing federal health care spending, this is likely to be more difficult than we'd like to believe. Certainly beneficiaries can bear more of the cost of their government insurance than others, and there are steps like malpractice reform and the further encouragement of preventive medicine that should be taken. Yet without intrusions into the private health care system that are unlikely to be politically acceptable, there are severe limits on what can be done. Otherwise the result will be unacceptable cuts in the availability of care for the clients of federal programs. Given all the uncertainties associated with new technologies, changing lifestyles, and ongoing changes in the private system, health care reform will and should be a continuing project.