Right in San Francisco

Deficits: Lessons (re-) Learned

From even the worst disasters we can learn lessons. Here are a few:

1. Successful negotiations require an understanding/acceptance of your opponent's bottom line, clarity about your own minimum objectives, a search for common ground between those boundaries, and an ability to deliver on your commitments.

- To the end the President did not accept the Republicans' "no tax" requirement. Boehner eventually understood that the Democrats were split, having three requirements - the Left insisted on no change to entitlement programs; some like Bernie Sanders insisted on the virtue of taxing the rich; and Obama primarily wanted to get past the next election with no problems.

- When President Obama was close to an agreement with Speaker Boehner on the big deal he could not deliver his Party - in part because he had excluded them; in part because he persuades by public speeches, not by private negotiation. Conversely, it is not clear that Boehner could have delivered on his tentative acceptance of $800 billion in "revenue increases" even if Obama had not "moved the goal post".

- An important rule of negotiation is the "Principle of Least Interest" - the party most willing to walk away has the most leverage. For principle rather than tactics, the Tea Party Republicans provided great leverage. They won on the "no new taxes" and "cuts exceeding limit increases" principles, even if the math is fuzzy. The direction of the national discussion has been shifted.

- In business it is rare for negotiators to highlight their opponent's shortcomings - your own stature is enhanced if the opponent is enhanced. Both President Obama and Majority Leader Cantor became personal while denigrating the other's supporters and motivations.

2. Politics is the art of the possible. Republicans will not accept tax increases; Democrats will not accept meaningful entitlement reforms. Without either (and with honest accounting) it is not possible to cut spending enough to get through 2012. We will muddle through the next election - quite likely with a rating downgrade and higher interest rates even before inflation takes off.

3. The real issue is a disagreement about the size of government. In the last decade we have increased from an historic 19-20% of GDP to 24-25%. Part of that was President Bush's agreements with Teddy Kennedy to increase federal education spending (No Child Left Behind) and a Medicare prescription drug benefit as well as the wars in Iraq and Afghanistan. The Democrats have brought a quantum increase from there with a disdain for any budgets. There is no middle ground.

4. Big changes take a couple of election cycles. The Pelosi-Reid-Obama tide had huge electoral successes in 2006 and 2008 and with that they could just barely muscle through their top priority - Obamacare. With 23 Democrats and 10 Republicans up for election in the Senate in 2012, it is likely that the Republicans' 2010 wave will be followed by a takeover of the Senate next year. With 9% unemployment it is likely that they will also take the presidency, allowing a rollback toward the 20% spending level.

5. It is easy to get distracted. As important as the deficit is long term, today's economic and political problem is jobs. With increased deficit spending off the table (tax cuts; another stimulus) there are few actionable employment ideas in Washington and no Democratic relenting on regulation - EPA; NLRB; financial sector; Obamacare. Recovery, if there is to be one before 2013, will be up to the private sector.

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This week's video is a concise but impactful explanation of the growing cost of interest on our national debt.

Please visit my new web site at www.BillBowenAuthor.com

Kindergarten Lessons

    It is increasingly apparent that Barack Obama's early schooling in Indonesia missed some of life's lessons contained in Robert Fulghum's classic "All I Really Need to Know I Learned in Kindergarten".  A few related thoughts from this week's international news:

    1. Don't needlessly antagonize your rivals. China's official news agency condemned Obama's July 16 meetingwith the Dalai Lama claiming that Obama supports anti-China separatists and "has grossly interfered in China's internal affairs, hurt the feelings of Chinese people and damaged the Sino-American relations." Obama demurred on such a meeting in 2009, but held a similar provocative meeting a few months later. For what purpose?

   2. Respect the kids who are trying. In a July 10 visit to Turkey Hillary Clinton found it necessary to reverse her praise of 2009 that  “Turkey has made tremendous progress in freedom of speech and freedom of religion and human rights,”  and instead to publicly chastise our NATO ally for mistreating the press.  At a point when we are seeking the cooperation of highly popular, publicly electedPresident Recep Erdogan to use Turkey's rising regional power to help solve problems with Palestine/Israel, Iran, Syria, and Libya the administration chooses a poke in the eye.  

   3. When playing with strangers, ask for references. The administration's July 15 recognition of the ragtag opposition as the legitimate government of Libya in order to give them access to impounded financial accounts violates several current principles of international law.  For one, we recognize countries, not governments; for another, they do not control all (or a majority?) of the population or territory of the country. With no clear mission or plan, no Congressional approval,  a military standstill, and no ability to kill Qaddafi with a bomb, we'll latch on to this group, whoever they are.  

    So, the question is: if you were the leader of a country looking for a reliable partner in this dangerous world, who would you trust to keep your back?  If you were Israel worried about a dangerous neighborhood? If you were Saudi Arabia worried about Iran? If you were Columbia worried about Venezuela? If you were Japan or South Korea worried about a resurgent China? If you were Pakistan worried about a rapidly growing India? Leading from behind would be bad enough, but the Obama administration is choosing to irritate important countries for no purpose while giving billions to people that we don't know.

    Fortunately most world leaders understand that American politics ebb and flow, that long term relationships are built upon mutual self interest, and that this administration is an aberration.

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This week's "video" is stunning evidence that Barack Obama has hired Jimmy Carter's speech writer.

bill bowen - 7/22/11

Joining the Internet Marketing Age, my web site is now up at www.BillBowenAuthor.com.

The NASA Metaphor

    Many know that wounded Congresswoman Gabby Gifford's husband is an astronaut, but few seem to care that the last American space shuttle mission launched on July 8.  

    I've got an economist-type problem: On the one hand I enrolled at the USAF Academy in 1962 intending to learn to design spacecraft, in part in response to the Sputnik launch in 1957 and Yuri Gagarin's 1961 initial space flight. (Calculus 221 intervened.) On the other hand I believe that extreme measures are needed to close our $1.5 trillion budget deficit. We face tough choices.

    A few factoids:

        -  The FY 2011 budget for NASA is $18.45 billion, compared to $14.3 billion a decade earlier.  In inflation-adjusted dollars the budget has stayed at around that level since 1962, with the exception of the mid 60s when it doubled at the peak of the moon effort.  President Obama's budget framework foresees expenditures remaining at about this level for the next five years. The agency has plenty of powerful political, public, and business advocates.  

        -   While there is no plan for any further moon landings (the first of the six was in 1969; the last in 1972) or American shuttle flights to the International Space Station, NASA's strategies call for continued active scientific use of the US built and Russian-serviced station, early developmental work on capabilities to explore further out into the solar system, and private enterprise options for low earth orbit missions.  President Bush had planned to use the savings from ending the Space Shuttle program to extend the life of the station and to return to the moon in a larger way in 2020; President Obama cancelled the moon program in what former astronauts Neil Armstrong, Jim Lovell, and Eugene Cernan call "a long downhill slide to mediocrity."

        -  In one way or another NASA has given us things that don't matter to most people (a close analysis of the composition of our neighboring planets; a look into origins of the universe), a lot of things that do (global positioning satellites; weather forecasting, telecommunications, medical, and transportation breakthroughs), and a sense of national pride.

    And the melancholy:

        -  In the long sweep of history the first steps of Neil Armstrong on the moon on July 20,1969, will be the most important event in a century or perhaps a millennium. My wife and I happened to be in downtown Montreal where euphoria reigned.  It will be generations, if ever, before a similar uplifting experience is available to the grand-kids of our grand-kids.

        -  The space program, instigated by the shocking Russian successes and responding to President Kennedy's commitment and inspiration vividly demonstrated the best aspects of America in an era where we were preeminent in virtually every field.

        -  On a personal note I went to school with Fred Gregory, the first African American astronaut and a deputy administrator of NASA.  Fred's journey mirrored the nation's.

    So, the American space program is now a large stable bureaucracy with no clear (or at least interesting) objectives. We rely on the Russians for transportation to the International Space Station.  The Chinese, with whom Congress has prohibited space cooperation, have plans to start assembling their own space station this year, launch a lunar probe in 2013, and put a man on the moon some time after 2020. Those who favor government 5 year plans over free market capitalism applaud.  Some wonder why we are spending our money on fast trains to nowhere.

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    On an optimistic note, this week's video is classic Ronald Reagan - explaining his principles and American exceptionalism.   His slogan "Yes We Can" related to much more than winning elections.

bill bowen - 7/15/11

        

Why Michelle Bachmann?

    A sincere, knowledgeable San Francisco Democrat (there are a few) recently asked me to explain Michelle Bachmann. My response was defensive and a bit snarky.  This is what I should have said.

    First, one needs to understand that there is a large swath from Idaho to Georgia where most people, particularly those outside of the large cities, without embarrassment or political calculation believe in God, the sanctity of life, traditional marriage, and American exceptionalism.  Bachmann entered politics in tune with these convictions - the mother of five natural children and 23 foster children, concerned primarily about the local education system. She did some home schooling, helped start a struggling religiously-oriented charter school, and was defeated for the local school board, but attracted enough attention and support to get elected to the state senate and then to the House of Representatives from the moderate exurban swing district north of of the Twin Cities with solid majorities.  

    Bachmann, an international tax attorney with degrees from Winona State, Oral Roberts, and William & Mary Law School, spent three terms in Congress as a fiery speaker with no real accomplishments except founding the Tea Party Caucus and leading House fundraising with $13.5 million in 2010.  But in 2011 she has hired a top-tier campaign manager, Ed Rollins (Reagan's campaign manager in 1984; Huckabee's in 2007), moderated her speech, and given a sterling performance in the June 13 New Hampshire debates, announcing her candidacy while everybody was looking at Mitt Romney and Tim Pawlenty. When Pawlenty wimped out in not attacking "Obamneycare", the door for an anti-Romney conservative swung wide open.

    This is an inflection point in the Republican campaign. Mitt Romney has become the generally acknowledged front runner. With the falling away or non-candidacy of potential rivals for the large evangelical and Tea Party constituencies - Palin; Huckabee; Santorum; Cain and Pawlenty - there is an outside chance that Rick Perry may enter, but it looks as if Bachmann has burst out of the pack. Her candidacy checks the boxes for gender diversity, Blue State diversity, and party loyalty. (When the party failed to include her in the new House leadership in 2010, she saluted.)

    Predictably, the media has made a faltering effort at  the "Palinization" of an attractive pro-Life conservative who does not fit the required profile of NOW. George Stephanopoulos has warned her that her 23 foster children would be investigated for scandals;  alert reporters have jumped on her error in claiming that John Wayne was from her home town of Waterloo, Iowa hen he really was born 150 miles away;  even Fox' Chris Wallace felt license to ask if she were a "flake". Liberals have objected to subsidies received for a farm owned by her family; others have complained about her husband's comments against gay marriage. Back from the Juneau Alaska e-mail chase, the media will ramp up their brilliant investigative reporting. Copy for hours of political attack is available with a couple of internet clicks. Most will be benign, if intemperate.

    There are some legitimate big negatives: she has served only three terms in Congress, has no public or private sector executive experience, has very limited business experience, and has no foreign policy experience. In 2008 the Democrats had a candidate with a similar resume.  Most Republicans and independents, not to mention the 24 million unemployed or underemployed, do not think that worked out too well.  

    An apparent ability to get the economy going and move toward balanced budgets will be the strong card for the Republicans in 2012. Those are Romney's strengths, and more than anything the Republicans want a winner. Would Bachmann add much as vice-president on a Romney ticket?  Would she do it? You betcha'.

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    This week's video is Michelle Bachmann's Tea Party sponsored response to President Obama's 2011 State of the Union speech. At the time she received some criticism for upstaging Paul Ryan's Republican response.

     7/8/11