Right in San Francisco

The Military Budget: Thinking the Unthinkable

     Back in the Cold War days military planners were forced to "think the unthinkable" - produce dispassionate studies of various nuclear war scenarios. Here's hoping that they've turned their talents to looking at the defense budget.    

    The baseline: The military budget is now about $700 billion per year; 20% of federal spending; almost 5% of GDP. Taking out the Afghan and Iraq wars it is about $550 billion - slightly less in inflation adjusted terms than it was in the 80s when we were facing down the Soviet Union, China, and their global allies.  We are the world's policeman, protecting Europe, the flow of oil from the Middle East, our allies in the Far East, and our borders. Well, maybe not so much our borders.

    The problem: We're broke. Republican instincts would protect military budgets and hold taxes steady;  Democratic instincts would protect entitlements and raise taxes. So, this year's battles have been fought over the 35% of spending that is "discretionary"; or actually the 15% of the "discretionary" that is non-military. Yet we've got trillion dollar deficits. The Republican Ryan budget proposes a minimal defense reduction (beyond the wars); the Obama twelve year proposal is $400 billion; if the Deficit Reduction Committee can't resolve its differences there will be an additional automatic $600 billion. Mind boggling.

    The options: When facing big cuts it is often better to eliminate broad swaths instead of chiselling away to the point that nothing is workable. Beyond the wars, what is available?  For example, the Air Force budget includes $11 billion for 35 more Stealth fighters; the Navy budget includes $4 billion for two more nuclear submarines and a $1 billion down-payment on an additional aircraft carrier; the nuclear program projects $100 billion over the next decade to improve our 1550 long range nuclear weapons.  The New York Times and Obama will probably get their way with significant reductions in the health-care and pensions of military families and retirees. (Labor costs are about 25% of the military budget.)   

    A vignette: By chance I attended a class reunion at the Air Force Academy this past weekend and had a chance to reflect. The school has a top rated academic program, particularly in engineering; they field 27 intercollegiate athletic teams and offer a robust intramural program; they have done a good job integrating women into the cadet corps. Since my graduation in the pre-Cambrian age the corps has increased from 2500 to 4400; a light aircraft flight program has been added, as has a drone program; world class track, field house, and indoor athletic training facilities have been added. (Some with private contributions.)  Planning is underway for a stunning Leadership Center. In good times each Superintendant has been able to build upon the edifice of their predecessor. In the Ryan "nip and tuck" scenario there may be no more buildings and maybe the football team will not stay at an off site hotel for home football games. In the Obama scenario the student body might revert to 2500. In the Armageddon scenario somebody will ask why we spend $300,000 on each cadet's education rather than consolidating the military academies or relying on ROTC.

    It is not possible to achieve national fiscal sanity without significant cuts in military budgets - IMHO.  Robert Gates did a decent job restraining expensive weapons systems and Leon Paneta's understanding of Congress indicates that he might as well, but these are the preliminaries. One would hope that the next administration will have a clear foreign policy, evaluate the strengths and weaknesses of our adversaries, and preserve just the forces necessary to achieve our national security objectives. The selection of a Secretary of Defense will be as important as the Treasury Secretary.

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   This video of Mitt Romney on MSNBC's Morning Joe provides a glimpse of what a general election campaign would look like.  

bill bowen - 9/30/11

States' Rights Revisited

    In this era of Red States and Blue States it is a bit surprising that there hasn't been more specific discussion of what authority belongs to the federal government and what belongs to the states. I'll try.

    First, lets set the goalposts:

        -  On the right, the phrase "states rights" became entangled with segregation 60 years ago in an era when Strom Thurmond ran for president on the States Rights Democratic Party (Dixicrat) ticket. A bad taste remains.

        -  On the left, politicians in San Francisco take a different approach. They just ignore federal laws which they don't like, such as immigration laws (sanctuary cities) and drug laws (medical marijuana.)

        - Somewhere between the two are the vast majority of Americans.  Most people would agree that the 1964 Civil Rights Act, the 1965 Voting Rights Act, and the 1968 Civil Rights Act  are cornerstones of our legal system and that they apply in all states.  Similarly, most would agree that we are a country of laws and that they should be obeyed.

    Then, a layman's view of a couple constitutional points:

        -  The US Constitution gives the federal government "enumerated powers" (only those specifically stated) with the 10th Amendment explicitly leaving to the states and the people those powers not specifically granted to the federal government.  Conservatives would say that the Founding Fathers wrote the Constitution to protect against governmental overreach.

        -  Over time interpretation of the Commerce Clause which gives Congress the right to regulate commerce between the states and with foreign countries has grown to include any economic activity which could affect a national market - e.g. almost everything.  

    So, what are a couple of relevant issues today?

        1. Romneycare/Obamacare.The Supreme Court will need to decide if Obamacare's individual mandate exceeds Congress' Constitutional authority at a federal level, but a "states' rights" approach does make some sense if a majority of the people of Massachusetts want it.  (Romney's support for concept of an individual mandate remains a big problem in any case.)

        2. Educating Illegals. There is a difference of opinion about handling illegal immigrants between those living near the border with heavy Mexican populations (many of which move back and forth across the border) and those living further away. Governor Perry's support of in-state tuition for foreign-born children of illegal immigrants is a case in point.  If Texas (and California) want it that way and they pay for it, why should the folks in Ohio care?

        3. The Death Penalty. Folks in New York are horrified that Texas executes over 300 hard core criminals each year.  Folks in Texas don't understand why New Yorkers would kill millions of innocent fetuses and worry about 300 murderers and recidivist rapists. At least on the criminal side we let each state have its way.

        4. The European Financial Crisis. The Eurozone model is the extreme version of "states' rights" with everybody jointly responsible for the common currency while each country can be be as irresponsible as it chooses with its own budgets. (Failure is inevitable.) In our case it works because most states are required to have balanced budgets and there is no promise to bail out those who might deviate.    

    When Rick Perry says that he will "work every day to make Washington D.C. as inconsequential in your life" as he can, the conservatives think that he is in tune with the Founding Fathers, Ron Paul Libertarians cheer, and he gets the Tea Party vote.  The liberals think that he is fighting against the inevitable arc of history reflected in the thousands of pages of new regulations contained in Obamacare, financial regulations, the EPA, and the National Labor Relations Board.  It could be argued that the conservative perspective is "live and let live" while the liberal perspective is "my way or the highway."

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    Before Obama's $1 billion campaign starts, it might be worth looking at a Canadian Conservative Party campaign ad.  Michael Ignatieff stepped down as the Liberal Party leader after the party finished a disasterous third place in May's election.

bill bowen - 9/23/2011

Liberal Anxiety Neurosis

        In recent weeks Democratic leaders seem to be transitioning to a severe case of anxiety neurosis. A few data points:

    -  August 1, VP Joe Biden uses "terrorists" to describe Republicans in Congress.

    - August 20, Rep Maxine Waters: "The Tea Party can go straight to Hell."   

    -  August 29, Rep Andre Carson of the Congressional Black Caucus, some Tea Party members in Congress "would love to see you and me...hanging on a tree."

    -  September 5, Teamster President Jimmy Hoffa, "lets take these son of bitches out".

    -  September 5, VP Joe Biden refers to Republicans as "barbarians at the gate".

    -  September 11, Columnist Paul Krugman, "fake heroes like ... Rudy Giuliani and... George Bush rushed to cash in on the horror."

    These may not be total flacks like Keith Olberman, Ed Schultz, Bill Maher, or Randi Rhodes who need incendiary blather to hold minimalist media ratings, but they are at least the "B Team".  Republicans' first reaction is to wonder about the hypocrisy of Obama calling for civility or the relative silence of the mainstream media. A bit of reflection:

    - The general "of course no reasonable person would think..." has worked for three years in vilifying: anybody who likes Sarah Palin; anybody who wants to know about Obama's early life; anybody who wants a balanced discussion of global warming; for awhile, anybody who liked the Tea Party.

    - With President Obama sinking into the low 40's on job approval, unemployment predicted to remain in its current 9.1% range through 2012, no credible plan to revive the economy in the short term or reduce the deficit in the long term, and the Democrats likely to lose the Senate in 2012, the Democrats are in a box, looking for a line of attack that has more to it than just hoping that the Republicans screw up the election. With cheerleaders like the Huffington Post   admitting the potential of a wipe-out and Maureen Dowd writing about "One and Done", some are having a breakdown.

    -  Just maybe, with the Republican congressional win in Brooklyn we are passing from Denial to Anger to Exploration in the "dealing with death" cycle.

    -  This is just a beginning. With a billion dollar campaign fund and a set of anti-business policies demanded by the environmental and union supporters, there is little choice but for Obama to go negative.  And to be fair, just because you think that everybody is out to get you doesn't mean that they are not.  this could be the most negative campaign ever.

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    This week's video is an incontrovertable reminder of an 8 year effort of Republicans to get effective regulation of Fannie Mae and Freddie Mac which was thwarted by Barny Frank, Chris Dodd, and Chuck Schumer.  The direct cost of bailing out the companies exceeded $150 billion and there has still been no effort for reform or accountability.

bill bowen - 9/16/11

The Youth Vote

    I recently met a Janis Joplin-like young woman at an oversold Republican dinner in San Francisco. She had lost track of the time and hadn't dried her hair; she held court about school, her friends, conformity, and the economy; she loved Ron Paul. So, I got to thinking:

    I'm in the group which believes that the Arab Spring is mostly about jobs. At least in Cairo, if you are not connected to the military-dominated establishment, there is no meaningful work. Education is widespread, but many with solid college degrees seek menial jobs. Youth unemployment is 25 %. The anger is not about Israel or religious impurity, it is about the inability of the law-abiding masses to find meaningful employment even if they do everything right.

    American unemployment is nominally 9.1%. For those who would like to work it is really about 16%. For kids it is 18 %. For African American kids it is 31 %. Salvation in Cairo is a government job. We are shedding government jobs at the local, state, and federal levels. So, which party's philosophy is most likely to grow the economy to create meaningful jobs over the next ten to twenty years?  The one dominated by the environmentalists and the unions or the one dominated by small business?

    Somebody eventually has to pay the bill. A baby born today inherits $46,000 of debt. At the end of a second Obama administration it would be at least another $20,000.Sure we have made promises to seniors and everybody should have some minimal health care, but what about young parents? What happens when the interest on the debt consumes everything? And which party really wants to get this under control?

    And what is the relationship between the individual and the government described by Thomas Paine's "Common Sense" and enshrined in our Constitution?  Which party would tell us that we must buy their insurance, build our factories in states run by their supporters, and endure thousands of pages of new regulations on health care, investments, the environment, and everything else. It is a complex world, but the philosophical difference between the parties about individual liberty is stark.

    For those who like data, even some liberal pollsters are showing a switch, with Obama's 2008 advantage of 30% being cut in half, and young white voters actually favoring a generic Republican.

    My young Janis Joplin is all about fairness and opportunity. We need to better spread the benefits of prosperity before we look like Cairo. Tax policy matters. Wall Street governance matters. Education policy matters a lot. But before we spread prosperity, we need to create it. And it can't all go to the government employees. That is the difference between the parties which is obvious even to today's refugee from Haight-Ashbury.  Vietnam brought a generational political shift; President Obama may be bringing another.

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   If you enjoy seeing an intellectual conservative destroy a pompous political liberal, you'll enjoy this video of Milton Friedman's discussion with Phil Donahue.

bill bowen - 9/9/11

    

Death and ...

We'll skip over the death thing and go directly to taxes, a subject that allows at least a bit more optimism.

First, a few general comments:

- Our federal trillion dollar deficits come from recent increases in spending from about 20% of GDP to 24%, coupled with a decrease in revenue from an historic 19% to about 15%. Some of the revenue decrease comes from an anemic economy, but some comes from the "Bush tax cuts" which were extended by Barack Obama as part of the 2011 budget agreement in February. The increases, well ... try just about everything.

- Within the Republican psyche there is a desire to "starve the beast" as well as a belief in the indefinite extension of the "Laffer Curve" which posits that reduced rates result in increased economic activity which actually produces more net revenue. At some point the latter is true - arguably demonstrated by President Reagan - but not indefinitely.

- Grover Norquist's "Americans for Tax Reform" pledge has been signed by 236 of 242 Republican House members and 41 of 47 Republican Senate members as well as 2 House Democrats and Democratic Senator Ben Nelson of Nebraska. The pledge is to oppose any increase in marginal tax rates and any reduction in deductions not offset by equal reductions in rates. It has been signed by Rick Perry, Michele Bachmann, Mitt Romney and the other major Republican presidential candidates. President George HW Bush paid the price in for violating his 1988 "read my lips" pledge not to increase taxes if elected - and politicians remember.

But, there are a few glimmers of hope for either a Clintonesque redefinition of what "is is" or a courageous grand bargain.

- In the Senate 30 Republicans - led by Tom Coburn of Oklahoma - were willing to eliminate the subsidy for ethanol - effectively a tax increase - but the bill failed.

- A few Representatives have rescinded their commitmentto Norquist's pledge.

- During the deficit increase negotiations John Boehner was apparently willing to offer up to $800 billion in tax increases over a 10 year period in exchange for major spending decreases and significant entitlement reform. The deal fell apart when Obama tried to up the ante to $1.2 trillion.

So, a couple of settings for the stage:

- Paul Ryan's 2012 budget proposal included a "revenue neutral" major restructure of the tax code, eliminating many deductions in the individual and corporate schedules in exchange for lower rates. Among the major puts and takes it would not be possible to attach specific increases to reductions with the overall impact being subject to assumptions about future economic activity. Ryan would change the game.

- The Republican appointees to the new Congressional Deficit Reduction Panel include Republican Dave Camp whose House Ways and Means Committee has jurisdiction over taxation, Social Security, and Medicare; Fred Upton whose Energy and Commerce Committee has jusisdiction over Medicaid and parts of Medicare; Rob Portman who was W's budget director; and John Kyle of Texas who is retiring. Boehner and McConnell appointed members with conservative credentials and thorough knowledge of budgetary and tax matters. (The Dems appointed Patty Murray, the chair of the Democratic Senatorial Campaign Committee and John Kerry among others.) Both sides agreed on a Republican aide and chief tax counsel to the Senate Finance Committee to be the staff lead.

And a few more things in the optimism column:

- There are several easy targets upon which most can agree - hedge fund managers income being taxed at capital gains rates; ethanol subsidies; corporate jet tax breaks (created as part of Obama's Stimulus Plan).

- Republicans would probably agree to big changes to energy tax credits - which go to solar, wind, and electric vehicles as well as oil and gas companies.

- The penalties for non-agreement by the new joint committee - gutting of the military; reduced Medicare payment rates without any real reform - provide a big incentive for a "grand bargain" if the parties demonstrate an interest in governing instead of building up campaign talking points.

It will take two to dance. If the Democrats bring serious entitlement reform to the dance floor, and the Republicans bring comprehensive tax reform, the Republicans may have enough conservative "cred" to do what Boehner was considering before President Obama moved the goal posts. One statesman on each side would get a proposal to the Congress for an up or down vote (no amendments.)

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This week's video goes back to the "death" theme - the demise of "green energy" darling, Solyndra along with 1100 jobs and a half billion stimulus dollars. This is right down the street in Freemont, California, from Nummi, the last significant auto manufactuiring plant in California which closed in 2010. "Just bad luck".

bill bowen - 9/2/11