James Pethokoukis

Politics and policy from inside Washington

The New Underclass and Barack Obama

Mar 4, 2011 15:47 UTC

Drilling a bit deeper and moving beyond the 8.9 percent unemployment rate and 192,000 jobs created, here is what I found:

  1. The U.S. labor force remains as small as it has been in a generation
  2. More than 5 million Americans have disappeared from the job rolls
  3. If the labor force was currently at 2007 levels, the unemployment rate would be a whopping 12 percent – the worst since the Great Depression.

As it is, the broader unemployment rate, which includes those who are underemployed and discouraged workers, is still an agonizing 15.9 percent. What’s more, the Federal Reserve believes that the high number of people out of work for 27 weeks or longer is creating structural unemployment. (The longer you are out of work, the harder it is to get that next job.) No wonder the Fed now believes the economy’s natural rate of unemployment has increased from a bit under 5 percent to a bit more than 7 percent.

In short, you may have a much larger pool of the long-term unemployed than is historically typical in America, something more akin of what is seen in Old Europe.

This is why it is critical to deal comprehensively with the Axis of Economic Evil: Big deficits, high taxes and onerous regulation. America must get more competitive and productive. I find the below chart from McKinsey particularly scary since it shows how much job growth is happening in unproductive areas of the US economy.



What a load of crap…. The problem isnt the corp tax rate ninny. They dont pay as much as they do elsewhere. When the president agreed to lower the corp tax rate and eliminate the loopholes boy did you right wing nuts go silent. I guess you havent heard how well lowering the corp tax rate worked in Ireland. The fact is we have been not only allowing our manufacturing to be shipped overseas to slave labor countries without any regard for their own environment (go run a mile in bejing and breathe in heavy) we have provided tax breaks for them to do so. China doesn’t make products, our companies are making products in china. And now the latest blame on the right is with education as well.. Their answer? Cutbacks to education. How do these people sleep at night.

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5+ questions for … Sen. John Thune

Mar 3, 2011 20:52 UTC

Sen. John Thune isn’t running for president (at least this time around), choosing instead to fight big, wasteful government from his outpost on Capitol Hill.

He’s just reintroduced a sweeping budget reform bill that would make it easier to cut discretionary spending and bring some honest accounting for so-called entitlements. I chatted with the South Dakota Republican earlier today about his bill and the current budget debate. Some excerpts:

First, will the Senate come close to matching the 2011 budget cuts passed by the House?

I hope we can, but it’s really hard to handicap that one because the Democrats haven’t put anything out yet and the president has gone radio silent. I think what Democrats may do is come up with something along the lines of the president’s [discretionary spending] freeze proposal and maybe start there. But I think the Republican House level was reasonable and something we should try to get to in the Senate.

How about raising the debt ceiling?

To attract any Republican votes to a debt ceiling increase, you’re going to have to come up with some serious spending reductions and some budget process reforms. There is going to have to be a significant incentive.

How would the budget process be different under your proposal? Would it have affected the passage of healthcare reform?

It would make it more difficult to abuse the emergency designation which is how a lot of spending has been put through the last couple years. They just waive pay-go and declare an emergency. There’s a lot of abuse of the rules we have today. Clearly what we’ve been doing doesn’t work. We’ve only had four years in the past 34 when all the appropriations bills have been passed on time.

[Regarding healthcare], what we do is prevent the double counting of trust fund revenues, which is how they were able to fund [the plan]. [Democrats] were able to say they were extending the lifespan of Medicare at the same time they were using Medicare payroll tax increases and spending reductions to finance their new entitlement program. So it would have dramatically changed that debate and forced them to come up with real revenue sources instead of the phony revenue sources they used.

Reuters has lots of readers outside the country who must look at this process and think it insane.

The budget process really is a national embarrassment. I was a staffer out here back in the mid-1980s and even at that time I looked at [the budget process] and thought it made no sense whatsoever. You can get through an entire year with a $3.7 trillion enterprise called the federal government and not pass a budget. And there is a pileup with trying to get through 12 appropriations bills every single year. You don’t have any oversight to make sure the money is spent wisely and well. So going to a two-year, biennial budget would help address that.

And right now the budget process actually makes it easier to spend more than to spend less, right?

There is a forward momentum to spend more. When we passed this two-week [continuing resolution] to cut spending by $4 billion, it may be the first time we actually cut spending. [My proposal] requires every budget cycle that Congress actually ratchet spending down. For the first time, [the budget process] would put a straightjacket on Congress and force it to make some of these decisions.

The final nail in the coffin for tax increases

Mar 2, 2011 17:32 UTC


OK, so the U.S. government’s auditor has found duplication and overlap that may be wasting $100 billion or more a year, according to the Republican senator who commissioned the study. How can anyone argue for higher taxes as long as Washington is so inefficient? A few points:

1) I mean, no one should expect the feds to be as Six Sigma efficient as FedEx or Wal-Mart. Government doesn’t have the financial discipline from the profit motive. Its priorities are to “insure domestic tranquility” and “secure the blessings of liberty,” as the introduction to America’s 1787 prospectus puts it.

2) But the audit from the GAO gives a feel for the yawning chasm between Washington and those models of corporate efficiency. For instance, the auditor found 82 separate federal programs to improve teacher quality ($4 billion a year), and 20 distinct programs to deal with homelessness ($2.9 billion a year). The GAO also found plenty of waste in the $700 billion military budget, which should open the eyes of Republicans shielding it from the ax. Realistically, the Army and Marine Corp don’t really need to develop separate versions of “mine rollers” to counter roadside explosives.

3) Streamlining redundant programs would be a solid start toward fiscal soundness. A next step might be to downsize the federal civilian workforce, which has so far been spared the cuts seen in the private sector. Trimming the federal headcount by 15 percent — some of which might potentially be done by not replacing retirees — would save nearly $300 billion over the next decade, according to the Congressional Budget Office.

Bottom line: Promised federal pension and healthcare benefits will eventually need to be scaled back. And, in exchange, some taxes might need to rise to spare some Democrat-supported spending. But these big-ticket items are tough to sell with polls showing public trust in the government at its weakest in a half century. Reports like the GAO’s latest won’t help.

Thriftier and more competent government might only save relatively few bucks today, but it would help create the public confidence needed for more radical action tomorrow.

Photo: U.S. Marine Corps prepares a mine roller system for a mission in southern Afghanistan. REUTERS/Shamil Zhumatov



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Why a Mitt Romney-Paul Ryan ticket seems unlikely

Mar 2, 2011 17:22 UTC

USA-BUDGET/At a reporters breakfast meeting with Rep. Paul Ryan today, Ryan spoke mostly about the budget. (He says the GOP version will deal with entitlements.)

He veered into some 2012 territory, too. Ryan repeated that he will not run for president next year, but added that he didn’t think it served the party well to merely nominate the “next person in line.” Most analysts would say that person was Mitt Romney. That does not mean Ryan opposes Romney. Ryan might think Romney would be a fine candidate — but should not get the gig just because he arguably was the 2008 runner up.

But then again Ryan made a few cracks about Romney’s signature public policy achievement, healthcare reform in Massachusetts. He said it was  not “dissimilar” from Obamacare and was heading into a financial “death spiral.” Ouch.

If Romney were to win the nomination and pick Ryan, you could end up with a weird situation where Obama and Romney would support the Massachusetts plan, with Ryan opposing. Politics is a strange business, but I don’t see how that one would work. Then again, finding conservatives who like Romneycare isn’t easy. So where would Team Mitt find its veep?

Photo: U.S. House Budget Committee Chairman Paul Ryan (R-WI). REUTERS/Jason Reed

Why a top CEO rejects “pro-business” Obama

Mar 1, 2011 16:02 UTC

George Buckley, the boss at manufacturing conglomerate 3M, apparently didn’t get the memo about Obama 3.0 (vs. Campaign Obama and New New Deal Obama) being a “pro-business” president.

This new incarnation, the White House tell us, is evidenced by a) the  hiring of lobbyist/rainmaker Bill Daley as Obama’s chief of staff,  b) bringing in GE boss Jeff Immelt to run his new competitiveness council, and c) temporarily abandoning plans to raise income taxes on small business and entrepreneurs.

But Buckley is having none of it, telling the Financial Times that “we know what [Obama’s} instincts are — they are Robin Hood-esque.  He is anti-business. …  Politicians forget that business has choice. We’re not indentured servants and we will do business where it’s good and friendly. If it’s hostile, incrementally, things will slip away. We’ve got a real choice between manufacturing in Canada and Mexico — which tend to be pro-business — or America.”

Buckley has good reason to wonder aloud about Obama’s pre-election year conversion from nemesis to friend of Corporate America. He surely sees Team Obama failing to make obvious moves to boost U.S. global economic competitiveness. The president still supports the new healthcare and financial reform laws. The president still wants to raise taxes. And the president gave the stiff-arm to his own debt panel. So there you have it, the axis of economic evil – taxes, regulation and government spending.

Now America’s best days may lie ahead, as Warren Buffett suggests in his latest letter to Berkshire Hathaway shareholders. But the United States is becoming a less attractive place for multinationals, like 3M, to do business.

In her recent business analysis of “USA Inc.,” technology analyst Mary Meeker of Kleiner Perkins compared America to 20 competitors on a variety of metrics for economic fundamentals, business climate, human capital and infrastructure. Of the 29 attributes, the United States, relative to other countries, improved on none since 2000, stayed the same on nine and deteriorated on 20 including worker quality, taxes, and transportation.

Of course, America isn’t exactly Chad, which is last on the World Bank’s rankings for ease of doing business. Or even China, which can be found way down at number 79. Uncle Sam is an encouraging fifth, though the institution does identify trouble spots such as a creaky and inefficient tax system. Reducing tax complexity and lowering rates, especially for multinationals, would help address that.

The U.S. must also do a better job at attracting and keeping high-skill immigrants. The current visa cap is far too low for tech industry needs. Indeed, a 2010 Federal Reserve study shows such immigrants boosts native worker productivity and income. (Of course, there might be less need if the union-run education system was doing a better job.) America must also continue to reform healthcare to both reduce some $60 trillion in future unfunded liabilities and provide regulatory certainty for business big and small.

All that, not better messaging, is what’s needed to make America the world’s premier location to start and run a business.


SukieTawdry — It has been a common talking point on the right that Canada’s federal tax rate is 15%. But those who want you to believe this are neglecting to add the Provinicial tax rates, which raise Canada’s total corporate tax rate to 34%, which is roughly equal to that of the United States.
The taxes include the cost of Canada’s national health plan, which costs American business billions more.
As to the other “burdens” of paid vacation, maternity leave, social security, pensions, day care, etc, Canadian business all pay more and offer more than American businesses do.
And while wer’re at it, HOW DARE those little worker bees take a paid vacation, ask for a little time off to have a baby, or expect to retire in any sort of comfort! Back to work, you freeloaders!

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A government shutdown is perhaps postponed … temporarily

Feb 28, 2011 15:30 UTC

Reuters outlines the basics:

Playing for time to overcome a deep partisan impasse over the budget, senior lawmakers backed away on Sunday from a possible government shutdown. Washington will run out of money on Friday and non-essential services will halt unless action is taken. A short-term fix to buy time seemed increasingly likely.

Amid concern about damaging the fragile economic recovery, Republican House Speaker John Boehner said lawmakers have “a moral responsibility” to address the huge U.S. budget deficit.

“That means working together to cut spending and rein in government — not shutting it down,” he said in remarks to be delivered to a religious broadcasters’ convention. ”This is very simple: Americans want the government to stay open, and they want it to spend less money. We don’t need to shut down the government to accomplish that.”

He said the House will pass a short-term bill that will keep the government running with some cuts, Boehner said.

President Barack Obama on Saturday urged Congress to find “common ground” on spending cuts to prevent a shutdown.

“We’re very focused on trying to avoid a shutdown,” said Representative Chris Van Hollen, the top Democrat on the House Budget Committee, in a C-SPAN TV interview on Sunday.

House Republicans on Friday detailed $4 billion in spending cuts for a two-week stopgap bill, which the leader of the Democratic-controlled Senate indicated could be acceptable.

A few thoughts:

1) The temporary budget fix merely pospones the pain for a couple of weeks. House Republicans still have to deal with Tea Party members who want deep cuts and see the CR as a way of leveraging their authority.

2) There is also less fear that a shutdown would hurt Rs since many believe the public better understands the severity of budget issues than in 1996 — but this opinion is hardly unanimous.

3) As the 2011 budget battle is prolonged, more of a chance it dovetails into the debt ceiling issue making a resolution even more problematic.


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Mary Meeker’s look at USA Inc.

Feb 25, 2011 18:17 UTC

Mary Meeker, the famed technology stock analyst now at venture firm Kleiner Perkins, has produced a ginormous report/PowerPoint presentation that looks at the United States as if it were a corporation. Now there’s little factually in the report that couldn’t be found by perusing the Congressional Budget Office website or the recent report put out by President Barack Obama’s debt commission. And I think her menu of policy recommendations isn’t particularly novel either. I wish, for instance, she had looked at Rep. Paul Ryan’s plan to reform healthcare:


But Meeker and her team sure put together some 400 pages of pretty — and pretty informative — charts.

A look at unfunded obligations:


And a look at where the money is coming from and where it is going to:



I feel that Ms. Meeker’s presentation is a unique way to understand America’s financial situation. I began an independent project to read the 400-plus pages and write an 8 page summary and analysis on the presentation. Please read the full summary here: http://easollars.wordpress.com/2011/06/2 7/summary-of-mary-meekers-usa-inc-financ ial-statement/

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Scott Walker chops away at Democrat foundation

Feb 25, 2011 17:27 UTC

National Journal’s Reid Wilson paints a great picture of Scott Walker’s threat to government unions and the Democratic Party:

Consider how crucial unions are to the Democratic coalition. As Republican-allied groups like American Crossroads and the American Action Network poured millions into television advertising, the single-largest outside actor in the 2010 elections was the American Federation of State, County, and Municipal Employees.

AFSCME spent $87.5 million on the 2010 elections, an amount the Wall Street Journal calculated as about 30 percent of all spending for Democrats by outside groups. The Service Employees International Union and the National Education Association combined to spend another $84 million for Democrats, more than even the U.S. Chamber of Commerce spent during the midterms.

All three unions represent millions of the public-sector employees who are at risk of losing collective-bargaining rights in states like Wisconsin, Indiana, and Ohio. And all three, along with the rest of Big Labor, are spending big money on lobbying and public relations campaigns to defeat those legislative proposals.

If unions fail to stop the GOP assault, Republican victories would represent a major chink in the Democratic armor. A loss of some collective-bargaining rights means a speedier decline in membership. In turn, that means fewer dues-paying members to fund political activities in 2012 and beyond.

But Republicans don’t even need to win every legislative battle to sap union resources. The battles themselves can suck up money that might otherwise go to turnout operations for Democratic candidates.


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Why a U.S. government shutdown is worth it

Feb 25, 2011 15:20 UTC

The cost-cutting battle lines are drawn in the U.S. Congress. But the fight will affect only maybe a sixth of spending, with big-ticket items like defense and Social Security getting a bipartisan pass for now. Still, tackling even that small slice would save money and reassure markets. A temporary government shutdown would be a small price to pay.

Republicans, who control the House, want to cut $61 billion a year from discretionary programs, excluding defense and other security items, which depending on each politician’s chosen definition total $500 billion or somewhat more of the $3.5 trillion federal budget for 2010. Cost cuts on that scale, though, could lead to an impasse with the Democrat-controlled Senate next month. Meanwhile, President Barack Obama has called for a five-year freeze at current spending levels, saving an average of $40 billion a year over 10 years.

Neither approach would put the nation’s finances on a sound footing. Even hacking at defense spending would only help for a while. What’s needed is a real effort to tackle future spending on Social Security and government healthcare programs. And anyway, even if an aggressive plan like that put forward by House Budget Committee Chairman Paul Ryan came to pass, spending on these so-called entitlements would still most likely rise before it started falling.

But this key: Controlling discretionary spending therefore still has a role to play, and the reductions being proposed by the House GOP could be the start of a sustained effort. Cuts in this area could be faster off the mark, as evidenced by both Republicans and Obama showing willingness to consider them. Moreover, an initial taste of austerity, even if it looks modest, would compound into big future gains.

Suppose non-defense discretionary spending was cut, frozen for 10 years, then increases at the 2.7 percent annual rate normally assumed by the Congressional Budget Office. Compare that to the case where there’s no cut and no freeze and the cost just goes up every year. The present value of those savings over 80 years isn’t too far off the estimated $8 trillion present-value shortfall in Social Security funding, according to calculations from the e21 think tank.

That suggests that cuts in discretionary spending could ultimately be almost as important as Social Security reform. The coming fight, if not quickly resolved, could leave the government forced to close its offices for a while. But if those are the stakes, it could be worth a brief involuntary holiday for bureaucrats.


We had an approaching SS and Medicare problem years ago. Now it’s not a problem it’s a terminal illness. To make up the current deficit gap with something close to 50% spending cuts and 50% tax increases we would have to double the tax generated from income and corporate income taxes and give a 20% across the board cut to spending.

However, doubling the income tax rates would put the top rate at 70% with state and local rates bringing the marginal tax to 80% that won’t fly. Either people will hide the income or they will drop out. – Please go to med school and become a surgeon so the gov can take all of your money and you can earn as much as the liquor store owner who lives much better hours. :) You could increase salaries to get the same effect but note by a vote in congress.

Even if you get an extra $550bil out of taxes – which would be a 50% increase in the taxes paid (probably not doable) you still need at least a 20% across the board cut in spending including SS, Medicare, Defense and everything else except debt payments. Ain’t gonna happen – see $100bil in cuts last month.

Then for around every 2% increase in the Fed interest rates you’ll need another 10% across the board cut.

So, do all of these things and add some fairy dust and it will all turn out ok. Otherwise our kids our toast.

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Civil War 2.0 may turn governors into presidents

Feb 24, 2011 18:04 UTC

Six men with the rank of general during the Civil War went on to become  president of the United States. But a new kind of union battle — one being fought in places like Trenton and Madison and Columbus and Indianapolis — may be forging the next generation of leaders who will ascend to the White House. How state governors fare as commanders in this escalating conflict with Big Government Labor may determine who makes it all the way and who falls short.

For the most part, the political backlash against public unions is happening in the states. That’s where employee benefits are creating long-term budget problems. Total unfunded pension and healthcare liabilities could be as much as $3.5 trillion.

Savvy governors can thrust an issue like public sector compensation into the national consciousness and create a political niche for themselves.  And American voters like to promote state bosses  to national CEO. President Barack Obama was never a governor, but two-term predecessors George W. Bush, Bill Clinton and Ronald Reagan all were. The last sitting U.S. senator before Obama to go directly to the White House was John Kennedy in 1961.

In New Jersey, Chris Christie’s efforts at austerity have made him a leading 2016 GOP contender with many Republican activists still hoping he’ll change his mind and make a run against Obama next year. Wisconsin Republican Scott Walker has burst into national prominence by trying to strip public unions of some bargaining rights. And in liberal New York, Democrat Andrew Cuomo’s adversarial approach to labor might help his centrist appeal should he cast an eye on the Oval Office.

Among Republican activists, it’s almost impossible to be too tough on unions. That’s where the risk of overreach starts cropping up. Indiana’s Mitch Daniels, a possible 2012 candidate, already has killed collective bargaining for state workers. Yet conservatives balk because he won’t prohibit making union membership a condition for employment. Daniels sees that as a needless fight with organized labor, whose influence is already waning. As Josh Barro of the Manhattan Institute notes on his blog:

As of 2010, only 8.2 percent of private-sector workers in Indiana were members of unions. That’s a bit above the national average of 6.9 percent, owing to the state’s industrial base, but it’s also falling faster than in most states: down 37 percent in the last decade, compared to 22 percent nationally. Private firms don’t appear to fear excessive union power in Indiana; indeed, the state has had significant success in drawing non-union Japanese auto factories.

The political subtleties sometimes get lost in the heat of battle. Some in the Tea Party are bashing Christie for increasing the state’s spending in his newly announced budget. But the governor is trying to negotiate a deal with Democrats to go easier in exchange for sweeping pension reform. And if Walker should settle for something less than total surrender or go too far by firing workers, his sudden ascent could come to a halt.

The fight against public unions and for fiscal responsibility may look like to create a clear path to the presidency for now. But governors going down that road will need to beware of the many political mines strewn along the way. Still, a future American president may have his or her mettle tested in this new civil war.


Cal13, even if they can’t begin collecting signatures yet, whoever wants to recall Gov. Walker can certainly get started organizing. Has that happened?

At all?

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