James Pethokoukis

Politics and policy from inside Washington

How ObamaCare is killing free trade

Mar 10, 2010 17:37 UTC

Brazil’s threat of tariff retaliation over U.S. cotton subsidies is only the latest eruption of rising protectionism around the world. President Barack Obama isn’t doing much to quell protectionist sentiment in the U.S., either. His passivity could prove costly.

Not that Obama has a problem with trade. In his State of the Union speech to Congress last January, he stated an ambitious goal of doubling U.S exports by 2015. It is trade policy that he seems uncomfortable with. That bold declaration in the speech was a direct result of lobbying from Obama’s economic advisers. But the wonks aren’t driving U.S trade policy in the Obama administration. The political team is. Its priority is passing healthcare reform. To pass healthcare reform, Obama needs his core union support. And a push for new trade agreements would alienate Big Labor.

So Obama has not nudged Congress to pass long-stalled treaties with Colombia, Korea and Panama. Instead, the emphasis has been on get-tough actions such as slapping preliminary duties on tires from China and bricks from Mexico. Nor has he tried to energize the Doha trade talks, pushing Brazil to first litigate via the World Trade Organization and now retaliate. And in the U.S., high unemployment has encouraged protectionist forces in Congress. A bipartisan House group just introduced a new bill to abandon the North American Free Trade Agreement, while one in the Senate is pushing for action against China because of its weak currency policy.

And the situation could worsen. To appease Congress and continue its recent populist tilt, the Obama administration will likely toughen language about China in the Treasury Department’s April report on currency policy. The next step would be to declare China a currency manipulator in the October report, right before the November mid-term elections.

If Obama really wants to rebuild America’s international stature and boost the global economy, trade is a perfect place to start. At the moment, world trade is projected to expand by just 4.3 percent in 2010 and by 6.2 percent in 2011, according to the World Bank. Not good enough, given a big drop in 2009. Once healthcare is either passed or defeated, Obama needs to get that trio of trade agreements passed. And he needs to defuse tensions with China. In short, Obama needs to lead.

COMMENT

Jerry:

I believe the name of your plan is “Reign in Hell”, right?

HOOAH!!!

We’ve had our bit o’Hell!

Let’s let all those kleptocrats in the turd world and the U.N. General Assembly have theirs.

Let’s let most of the EUropansies defend themselves for a change.

Most of the rest of the world hates the U.S. even when we are risking U.S. lives and spending billions in U.S. money to help them after tidal waves, earth quakes, typhoons, invasions, local economic crisis, famines, etc.

Screw them all. No more blood or treasure to help anyone aside from allies we can really count on. Let’s put our own house in order first and just elliminate any likely threats in the quickest, cheapest, most effective manner possible

Viva Fortress America!

Posted by Armageddon Rex | Report as abusive

The Obama Boom?

Mar 10, 2010 14:21 UTC

This Bloomberg story gives it the old college try with “Obama Defies Pessimists as Rising Economy Converges With Stocks.” It points out that the economy is expanding, job losses are down and stocks are up.

But that is not really the point is it? Unemployment is still twice as high as the average of the past two decades, and the recovery shows every signs of being a sluggish one given the depth of the downturn. Plus, the massive amount of public debt makes what growth there has been seem artificial. Certainly the public doesn’t seem to buying it, a view reflected by the cautious tone of the White House. Lots of talk about pulling the economy back from the brink, less talk about a new Morning in America.

COMMENT

A lot of rah-rah out of the White House would be viewed with some suspicion nowadays, James. A more sober, measured attitude is in keeping with the times. That said, I read the article you mentioned and the writer had a point. Take it from a guy who’s no fan of Mr. Obama, a bit of optimism might be in order, a break from the relentless gloom on these pages. The American economy has an astonishing resilience that allows it to re-invent itself in ways unforeseen by all you pundits. Have some faith for a change.

Posted by gotthardbahn | Report as abusive

5 obstacles for ObamaCare

Mar 10, 2010 13:59 UTC

How is the healthcare reform endgame shaping up? The always insightful Dan Clifton of Strategas Research boils it down (as outlined by me):

1) The timeline continues to get pushed back which essentially means healthcare will not get done before recess and members will get an earful during the break (support for healthcare is upside down and opposition is twice as intense relative to support). Because the bill is unpopular, members are not pressing to vote on this bill.

2) According to one press report the House wants to skip passing the Senate bill entirely and use a “self executing rule” when the reconciliation bill passes then the Senate bill would also automatically pass. Just the fact that this is being contemplated shows how difficult it is for the House to round up the votes for passage, even before the abortion issue is taken into consideration.

3) And Sen. Conrad threw cold water on this self executing rule insisting that the Senate bill needs to be signed into law before the reconciliation fix could be enacted.

4) Another major hurdle developing is the question about whether the House bill can go right to the Senate floor – the legislation would have to go through committee. And while this delays the process (when time is of the essence) the more important point is that this could kill the bill if the legislation needs to go through the Senate Finance Committee with Blanche Lincoln being the deciding vote. Note she came out against reconciliation again yesterday despite her primary challenge.

5) And then there is the abortion issue. Since reconciliation rules will not permit a ban on abortion funding as needed to get the remaining votes for healthcare, the best strategy for passage was to pressure Senate Republicans not to oppose the provision in the Senate bill. The Catholic Bishops were successful in a similar move in the House last November but the Senate Republicans made it clear yesterday they will oppose the language, even if they agree with the policy. The only path forward in the House is to keep all the supporters of this bill in the yes column, get nearly all the Stupak supporters to defect despite their opposition to the Senate abortion language, and then convert a handful of no votes to yes, despite the fact that 37 of the 38 Dems that voted no are from Republican districts. And all this with a short timeline.

COMMENT

In other words, passage is rather unlikely. Perhaps Mr. Obama will then get the message about lost causes.

Posted by gotthardbahn | Report as abusive

ObamaCare’s budget chicanery

Mar 9, 2010 15:43 UTC

David Brooks in the NYT outlines many of the way Democrats are trying to game the CBO budget analysis of ObamaCare:

1) There is the doc fix dodge. The legislation pretends that Congress is about to cut Medicare reimbursements by 21 percent. Everyone knows that will never happen, so over the next decade actual spending will be $300 billion higher than paper projections.

2) There is the long-term care dodge. The bill creates a $72 billion trust fund to pay for a new long-term care program. The sponsors count that money as cost-saving, even though it will eventually be paid back out when the program comes on line.

3) There is the subsidy dodge. Workers making $60,000 and in the health exchanges would receive $4,500 more in subsidies in 2016 than workers making $60,000 and not in the exchanges. There is no way future Congresses will allow that disparity to persist. Soon, everybody will get the subsidy.

4) There is the excise tax dodge. The primary cost-control mechanism and long-term revenue source for the program is the tax on high-cost plans. But Democrats aren’t willing to levy this tax for eight years. The fiscal sustainability of the whole bill rests on the naïve hope that a future Congress will have the guts to accept a trillion-dollar tax when the current Congress wouldn’t accept an increase of a few billion.

5) There is the 10-6 dodge. One of the reasons the bill appears deficit-neutral in the first decade is that it begins collecting revenue right away but doesn’t have to pay for most benefits until 2014. That’s 10 years of revenues to pay for 6 years of benefits, something unlikely to happen again unless the country agrees to go without health care for four years every decade.

6) There is the Social Security dodge. The bill uses $52 billion in higher Social Security taxes to pay for health care expansion. But if Social Security taxes pay for health care, what pays for Social Security?

Me: I have blogged about many of these dodges over the past months. They make WH claims about “bending the curve” a joke. This bill will surely cost far more than the CBO anticipates.

COMMENT

just like every other Washington program.

Senator Supply-Side?

Mar 9, 2010 14:59 UTC

Former Bear Stearns economist David Malpass is considering a run for US Senate in New York. If you believe in the wonder-working power of lower taxes, economic freedom and entrepreneurship, then you would probably find his candidacy an interesting one. The Washington Consensus, of course, is that spending cannot be cut so taxes must rise dramatically. Thus, Malpass would be a contrarian voice inside the Beltway.

COMMENT

Hopefully New York voters will embrace Malpass for his intelligence, as his style is pretty dry. Obama is the poster child for style over substance so maybe his political implosion will spark people to look a little deeper. It’s hard to have hope for New York voters who embraced Hillary Clinton, a carpet bagging phony.

Posted by Pat Duggan | Report as abusive

US debt approaches danger zone

Mar 9, 2010 14:18 UTC

The CBO analysis of the Obama budget finds that America’s debt-to-GDP ratio will hit 90 percent in 2020. Uh-oh. Research by Ken Rogoff and Carmen Reinhart finds that level to be problematic:

We study economic growth and inflation at different levels of government and external debt. … Our main findings are: First, the relationship between government debt and real GDP growth is weak for debt/GDP ratios below a threshold of 90 percent of GDP. Above 90 percent, median growth rates fall by one percent, and average growth falls considerably more. We find that the threshold for public debt is similar in advanced and emerging economies. Second, emerging markets face lower thresholds for external debt (public and private)—which is usually denominated in a foreign currency. When external debt reaches 60 percent of GDP, annual growth declines by about two percent; for higher levels, growth rates are roughly cut in half. Third, there is no apparent contemporaneous link between inflation and public debt levels for the advanced countries as a group (some countries, such as the United States, have experienced higher inflation when debt/GDP is high.)

Me: It is the apparent WH belief that debt is a long-term problem only. But the R&R research warns that the rush to implement liberal spending priorities today risks sacrificing growth and a rising standard of living tomorrow.

COMMENT

Remember Ross Perots,’that huge sucking sound”, well this time it’s Entitlements,that is sucking the Life out of America.

Posted by steve | Report as abusive

A storm is coming

Mar 8, 2010 17:00 UTC

Looks like British civil servants are striking over budget plans to cap severance pay (via Clusterstock). A sign of things to come in the United States, where tight government budgets are going to force spending cuts and layoffs. The dissatisfaction over American education plays into this, too. The political impact of this will be fascinating since the public employee unions may be the most important Democratic interest group.

Obama picks a great battle

Mar 8, 2010 16:26 UTC

As welfare was for Bill Clinton, education could be for Barack Obama — an issue that shows independence from his liberal base and allows for compromise with Republicans. Obama’s decision to support the authorities at the poorly performing Rhode Island school that fired its entire faculty has enraged teachers unions, as this NYTimes story documents. But it is hard to argue with the president’s reasoning: “If a school continues to fail its students year after year after year, if it doesn’t show signs of improvement, then there’s got to be a sense of accountability.”

Also on the education front, please read this NYTimes mag story on how to improve America’s teachers. You will be amazed at how little effort goes into instructing teachers on how to manage their classrooms or how to specifically teach various subjects. If these skills were improved, one expert concluded, “we could close the gap between the United States and Japan on these international tests within two years.”

Losing patience with public sector workers and unions

Mar 5, 2010 21:08 UTC

This USA Today story has the kind of numbers that stick with people:

Overall, federal workers earned an average salary of $67,691 in 2008 for occupations that exist in both government and the private sector, according to Bureau of Labor Statistics data. The average pay for the same mix of jobs in the private sector was $60,046 in 2008, the most recent data available. These salary figures do not include the value of health, pension and other benefits, which averaged $40,785 per federal employee in 2008 vs. $9,882 per private worker, according to the Bureau of Economic Analysis.

Me: It’s the benefits that really stand out. There have been more and more stories out there about the fat union benefits of government workers, both federal and state. New Jersey Governor Chris Christie has been railing on this issue since he was elected last year. Here is a bit from a recent speech that got lots of play in the blogosphere:

Our citizens are already the most overtaxed in America. U.S. mayors hear it all the time. You know that the public appetite for ever-increasing taxes has reached an end. So when we freeze $475 million in school aid, I am hearing the reverberations from school boards saying now you are just going to force us to raise taxes. Well there is a 4 percent cap in place as you all know, yet school boards continue to give out raises which exceed that cap, just on salary. Not to mention the fact that most of them get no contribution towards the spiraling increase in health care benefits.

There is also this from USA Today:

The percentage of federal civil servants making more than $100,000 a year jumped from 14 percent to 19 percent during the first year and a half of the recession. At the beginning of the downturn, the Transportation Department had one person making $170,000 or more a year; now it has 1,690 making that.

And this from the LA Weekly:

In the past decade, Los Angeles Unified School District officials spent $3.5 million trying to fire just seven of the district’s 33,000 teachers for poor classroom performance

COMMENT

The Government has long known that monopolies distort market economics they just don’t include unions as monopolies.

And I don’t believe the earlier comment that higher taxes on the 1000 top earners would balance the budget. We are talking about $500 billion and up. They don’t average that much for their entire net worth.

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