Opinion

Nicholas Wapshott

Here’s the path around the fiscal cliff

Nicholas Wapshott
Dec 3, 2012 18:40 UTC

The “fiscal cliff” talks offer a chance to rebalance the American economy so that the long years of living beyond our means — spending too much and raising too little, paid for by borrowing from the Chinese – will be brought to an end in an orderly fashion. As we have seen from the pitched battle between the White House and the Republican House leadership, finding the right balance between tax increases and spending cuts is not easy.

The guiding principle for both sides, however, should be primum nil nocere: First, do no harm. Having survived the worst financial crash in 80 years, the United States should do nothing to put the fragile recovery at risk. Since the turmoil of 2008, economic growth remains positive but feeble, which is more than you can say for comparable economies, such as the eurozone and Britain, that have battened down the hatches and nosedived into slump. The 17 eurozone countries are deep in recession with joblessness at more than 11 per cent; last quarter the U.K. briefly emerged from a double-dip recession of its own making but is expected to enter a triple-dip recession by the end of the year.

If we get the fiscal cliff bargain wrong–too-large tax increases combined with too-deep, too-early cuts in public spending–we risk tipping the economy back into the painful recession we have just escaped. In Washington, the trade-ff between tax and spending is portrayed as a quid pro quo, with Democrats demanding tax cuts for everyone except high earners and Republicans pressing for deep cuts in Medicare but not defense. The politicians have badly framed the argument. Think of tax and spending — if you will excuse the battered simile — as the knobs on an Etch-A-Sketch. To draw a perfect circle entails turning both knobs together at exactly the right rate.

What if we fall over the fiscal cliff? Under the terms of the sequestration patch concocted last year, come Jan 1, if no deal is reached, $607 billion in tax increases and spending cuts will take effect, draining 4 percent of GDP with no tangible benefit. That would be a disaster. If tax cuts are not extended, demand in the economy will slump, businesses will falter or go bust, workers will be laid off, public spending on the unemployed and their families will increase, public borrowing will rise, and there will be a swift return to recession. Similarly, if public-sector spending is reduced too rapidly, demand will be sharply reduced, thousands of public service workers will be fired and paid unemployment benefits, public borrowing will rise and the economy will tip into recession. As Britain’s self-defeating austerity experiment is demonstrating, government-imposed misery in the name of paying off public debt can lead to increased public debt.

So, what is the way out? The trick is to boost the economy through tax breaks while making a start on addressing our long-term debt problems without cutting so soon and so deeply that the economy stalls. Think of a car with a manual gearbox starting on a hill. By gently pressing on the gas while easing in the clutch, the car smoothly climbs. A little too much on the gas or an abrupt use of the clutch and the car makes a series of unpredictable jolts and lurches that ends in the engine straining, spluttering, then stopping dead.

Barack Obama and the lessons of Lincoln

Nicholas Wapshott
Nov 20, 2012 18:56 UTC

You have got to admire Steven Spielberg. He has taken the well-worn story of Abraham Lincoln’s final days and turned it into a pointed piece of contemporary political commentary. When he first met Doris Kearns Goodwin back in 1999, well before she had completed her masterly account of the Lincoln White House, Team of Rivals, it seems Spielberg decided to film an episode in Lincoln’s life that would ring true at the time of release many years later. He chose to concentrate his “Lincoln” movie on a pivotal time in the presidency: the final five months when Lincoln had just been re-elected, when the Civil War was all-but won, and when the fractious House was undecided about whether to fall in with Lincoln’s stated aim of abolishing slavery.

There is an obvious comparison to today’s politics, with President Barack Obama newly re-elected and facing a similarly hazardous short period to dragoon a recalcitrant and largely hostile House to do his bidding over taxes, entitlements and spending. Where Lincoln was working against the clock to ensure the Civil War would continue long enough to prevent Southern pro-slavers from returning to the Union Congress to wreck his plan to outlaw slavery, so Obama is teetering at the edge of a similarly perilous precipice. And just as Lincoln was surrounded in government by his old rivals, so Obama has as loyal lieutenants his former challengers for the Democratic candidacy, Joe Biden and Hillary Clinton.

As Spielberg’s movie shows, Lincoln rejected his close colleagues’ assessment that the daunting arithmetic of the divided House meant he would fail to force through his emancipation measure. Lincoln’s towering achievement is so well known to make a spoiler alert unnecessary. Through guile, arm-twisting, argument, bribery, and bullying, the president pressed on and, while he kept members of a Southern peace delegation kicking their heels, the requisite votes were found to convert his Emancipation Proclamation of 1863 into law. Whether Obama can pull off a similar coup and save America from a ruinous combination of high taxes and deep public spending cuts remains to be seen.

Conservative media eat their own

Nicholas Wapshott
Nov 12, 2012 18:41 UTC

In the civil war that broke out between Republicans the minute the election was called for President Obama, media conservatives have turned on media conservatives. But none have shown more recklessness than Andrew Sullivan, chief American columnist for Murdoch’s Sunday Times in London, who on “Real Time With Bill Maher” cheerfully chewed off the hand that feeds him. “The Republican Party has to say, ‘We have no part of Fox News,’ ” Sullivan declared.

Attacking Murdoch’s grip on the post-defeat Republican debate through the strict party line dictated by Fox News, the Wall Street Journal and the New York Post, the clearly agitated Sullivan said, “The media-industrial complex on the right is so lucrative they don’t want to lose it. And it is now controlling a political party. That has to be severed. Fox News has to be demonized and cut off.”

Sullivan is no leftie. An avowed Reagan and Thatcher fan who moved to Washington  from Britain and became a U.S. citizen to more closely involve himself in conservative thinking, he is the moderate right’s equivalent to that other naturalized Brit, the late Christopher Hitchens. [r2] Sullivan is smart, eloquent and has championed individual rights and attacked social conservatives, not least because he is openly gay.

A lost chance to overturn Keynes with the fiscal cliff

Nicholas Wapshott
Nov 9, 2012 23:27 UTC

If free-market economists were serious about their ideas, they would surely be arguing vociferously right now for the economy to plunge over the fiscal cliff. But where are the laissez-faire economists lining up to urge John Boehner to lead his Tea Party tribe in the House to veto all compromise and put our money where their mouths are? They are strangely silent. Instead, the debate is about how Keynesian we should be.

A reminder for those who haven’t read John Maynard Keynes lately, or who have never read Keynes but oppose him anyway out of principle, he was a British math whiz who transformed economics forever with the publication of his “General Theory” in 1936. It suggested three ways to put wind in the sails of an economy in the doldrums. The problem, Keynes suggested, was that there was not enough demand for goods and services, and that governments should take a lead in stimulating spending to encourage business leaders to invest and create jobs.

Keynes’s first prescription was for central banks to make borrowing as cheap as possible with low interest rates. This deters saving and makes new investment in business activity more attractive. Businesses will employ workers who go out and spend their earnings. After studying the roots of the Great Depression, Milton Friedman and Anna Schwarz blamed the economic slump on money being too tight for too long. Such was the fear of returning to the deflationary devastation of the 1930s that successive Federal Reserve chairmen have taken this lesson to heart. Faced with a recession in 2001, even Alan Greenspan, a lover of the free market who flirted in his youth with the Lioness of Laissez-Faire, Ayn Rand, kept money rock-bottom cheap for the whole of the first decade of this century.

What should Mitt Romney do next?

Nicholas Wapshott
Nov 7, 2012 20:59 UTC

Amid the triumphant acclamation and the reluctant resignation of the two presidential candidates’ early morning speeches was the hint that politics is about to take a strange turn. Mitt Romney’s concession address was suitably gracious and, above dissenting heckles from his disappointed party workers, he included this veiled job application: “Our leaders have to reach across the aisle to do the people’s work, and we citizens also have to rise to the occasion.”

Within half an hour President Barack Obama responded in kind. “I just spoke with Governor Romney and I congratulated him and Paul Ryan on a hard-fought campaign,” he said. “In the weeks ahead, I also look forward to sitting down with Governor Romney to talk about where we can work together to move this country forward.”

What do the two men have in mind? The role of defeated presidential candidate is a hard one to endure. America does not like losers, and those who fail to win the world’s most important office are given short shrift. Often they become bywords for has-beens and no-hopers, tacitly blamed for letting their ambitions run ahead of reality. George McGovern was a courageous man, a bomber pilot in World War Two who knew war from the inside and could not bear to see America’s young men sacrificed in a dubious cause. His reward after losing the 1972 race was ignominy and derision. The same was true of another war hero and failed presidential candidate, Bob Dole, in 1996, who became a spokesman for Viagra.

Has Chris Christie swung the election for Obama?

Nicholas Wapshott
Oct 31, 2012 20:49 UTC

The 2012 election’s October Surprise arrived when Hurricane Sandy made landfall and brought the campaign to a halt. The real surprise, however, is how the narrative was so radically altered by the tropical storm’s progress through New Jersey and how Governor Chris Christie so quickly changed his mind about the president. Until the heavens opened, no Mitt Romney surrogate was more scathing and personally disrespectful toward the president than Christie, whose down-to-earth appeal to blue collar voters was considered so important by GOP strategists he was awarded the keynote address at the convention that crowned Romney the party’s candidate.

In a withering assault in Tampa, Christie called for clear, decisive leadership. “Leadership delivers. Leadership counts. Leadership matters,” he said. “It’s time to end this era of absentee leadership in the Oval Office and send real leaders to the White House.” Christie was back on the attack in Richmond, Virginia, last week, making fun of Obama’s failure to lead. Addressing the president’s complaint that Washington politics-as-usual had hampered his ability to govern, Christie taunted him, saying, “You’ve been living inside 1600 Pennsylvania Avenue for the last four years. If you don’t think you can change Washington from inside the White House, let’s give you the plane ticket back to Chicago you’ve earned.”

Few other Romney surrogates, and certainly not the mechanical Romney himself, could batter the president with such effect. Christie went on to describe Obama as “like a man wandering around a dark room, hands up against the wall, clutching for the light switch of leadership and he just can’t find it” and “blindly walking around the White House looking for a clue.” Then on Monday came Sandy’s 90 miles-an-hour gusts hosing millions of gallons of salt water on the sentimental Christie’s beloved Jersey Shore, the place where the governor grew up and went to high school.

The Benghazi booby trap

Nicholas Wapshott
Oct 30, 2012 13:50 UTC

The murder by Islamist terrorists of Ambassador J. Christopher Stevens and three other Americans in Libya on the anniversary of the Sept. 11 attacks has become one of the most contentious issues in the election. The administration has been flailing around, unsure of its facts, offering statements that turned out to be misleading. Republicans, led by Senator John McCain, have jumped on the errors by the State Department and the CIA that contributed to the confusion over our understanding of the slaughter in Benghazi, and backed an unrelenting press campaign attempting to show Barack Obama as either incompetent, a liar, or both.

Yet, despite six weeks of heavy pounding on Obama’s approach to terrorism and national security, an issue that in the past has occupied Americans as a top priority, the president’s reputation remains largely unscathed and, according to polls, voters still consider him more suited than Mitt Romney to run America’s foreign and security policies. Why has such a virulent campaign to discredit Obama’s record as commander-in-chief so conspicuously failed?

When John McCain first commented on the death of his friend Ambassador Stevens, he was careful with his words. After a wild accusation by Mitt Romney condemning the U.S. embassy in Cairo for blaming anti-western mob violence across the Arab world on a video that made fun of the prophet Mohammad, the senator from Arizona was reluctant to apportion blame for the American deaths. Asked on Sept. 13 about the administration’s response to the killings, he said: “I think it was fine. By the way, Secretary of State Clinton gave a marvelous statement today.” By last weekend, however, he was accusing the administration of “either cover-up or gross — the worst kind of incompetence, which doesn’t qualify the president as commander in chief.”

Economic recovery may come too late for Obama

Nicholas Wapshott
Oct 26, 2012 20:20 UTC

The green shoots of recovery are growing a little taller. Newly released gross domestic product estimates   measuring consumer and government spending, investments and net exports   show the economy growing at 2 percent in the third quarter, up from 1.3 percent in the second. In normal times, this would be nothing to get excited about; average GDP growth between 1947 and 2012 was 3.25 percent. But we are recovering from a systemic financial crisis, not a routine dip of the business cycle, and in such cases recovery is noticeably more sluggish. Don’t believe Cassandras who suggest the good news is a chimera. We are in  an “L”-shaped recovery rather than a “V”-shaped one, and the fact that GDP is steadily rising is in itself encouraging.

What effect will this figure have on the election? A single statistic, like a single opinion poll, is just a snapshot. As with polls, to understand what is going on, you have to look at the moving pictures rather than a single frame. And growth figures, like polls, are open to revision. There is a predictable margin of error. Within a month the 2 percent GDP estimate will be revised; historically it has moved within a range of 0.5 percent up or down. So we may be looking at GDP growth of 2.5 percent or 1.5 percent, but we won’t know which before Nov. 6. With the general election near, any evidence, however small, is going to be closely scrutinized. On its own, the 2 percent figure does not tell us much, so we should not be distracted by those who make big claims about it one way or the other. What is significant is that it is part of a growing trend suggesting that the economy is slowly emerging from its slumber.

Take housing. The latest figures, for September, show a surge in new homes, up 15 percent in a single month, the fastest growth in four years. As the current financial crisis was founded on a housing bubble, the fact that builders are speeding up their housing starts suggests the economy in general is steadily recovering. The housing figures are good news for employment, too. For every new house built, at least three jobs are created. Sales of new homes are also on the rise, and inventory has fallen “to the lowest level on record.

The strange disappearance of Paul Ryan

Nicholas Wapshott
Oct 24, 2012 14:52 UTC

Whatever happened to Paul Ryan? Before he was made Romney’s running mate in early August, he was billed by commentators as a free-thinking firebrand who would invigorate the campaign with his keen intellect and forensic argumentative skills. Evidence for Ryan’s game-changing capacity was based on his sweeping but failed budget reform measures, the “Roadmap for America’s Future” and “The Path to Prosperity,” on his reputation as the Republicans’ most gifted intellectual, and on his boast that his political inspirations were Ayn Rand’s “Atlas Shrugged” and Friedrich Hayek’s “Road to Serfdom.”

Dan Balz summed up Ryan’s appeal in the Washington Post. He would “energize a conservative base that has been slow to warm to Romney” and “make the case for economic prescriptions that include sharp cuts in spending along with tax cuts and entitlement reform more passionately than anyone else.” By picking Ryan, Balz argued, Romney would sharpen the race by drawing “bright lines with the president.” For months Romney had coasted along on the assumption Obama would lose simply because unemployment is high and the economy is in the tank, but by midsummer the president remained firmly ahead. “We can’t just win by default, by beating up on Obama,” Ryan confided to Balz. What was needed was for voters to be offered a clear choice: Romney’s highway or Obama’s byway.

Stephen F. Hayes and William Kristol, of the Weekly Standard, urged Romney on. “Go bold, Mitt!” they yelled. “Pick Paul Ryan, the Republican party’s intellectual leader, the man who’s laid out the core of the post-Obama policy agenda . . .” The National Review’s Rich Lowry agreed. “It’s been a cardinal rule of Republican politics that it’s OK to talk about balancing the budget, so long as no one talks about touching the entitlements that drive the long-term debt,” he wrote. “Romney needs to make the case for his program, and perhaps no one is better suited to contribute to this effort than Ryan.” When Romney picked Ryan on Aug. 11, the Wall Street Journal celebrated. “Nearly everyone had expected Mitt Romney, the cautious technocrat and political calculator, to make the ‘safe’ pick,” its editorial board wrote. “In choosing Mr. Ryan, the Governor showed both a political daring as a candidate and a seriousness about governing if he wins.”

Romney’s auto bailout dodge strains credulity

Nicholas Wapshott
Oct 17, 2012 21:05 UTC

There is the truth. Then there is the whole truth. Mitt Romney is still lagging behind the president in Ohio, the weather-vane state that has voted for every president since Abraham Lincoln and where Barack Obama is credited with saving millions of jobs in the auto industry. But the governor’s insistence in the second debate that Obama’s rescue of General Motors and Chrysler was the same as his plan was only half the story.

When Romney said “[W]hen you say that I wanted to take the auto industry bankrupt, you actually did. … That was precisely what I recommended and ultimately what happened,” he was leading voters to believe there was little difference between restructuring by the federal government car czar Steve Rattner and his own prescription: to let the firms go bust, let the markets clear, then reassemble the broken parts.

Romney’s surrogates blame a headline in The New York Times, “Let Detroit Go Bankrupt”, over an op-ed by Romney in October 2008 for fueling confusion over where their candidate really stands. The opening lines appear to contradict their version. “If General Motors, Ford, and Chrysler get the bailout that their chief executives asked for,” he wrote, “you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed.” He went on to argue for a managed bankruptcy, but was vague about the role federal officials should play.

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